Impinj Inc (PI) September 2026 Conference Transcript

Great. Thanks, everyone, for joining. I'm David O'Connor from the semiconductor team at Piper. 25 minutes, so anyone who wants to jump in with a question, please just raise your hand. With that, I'm delighted to welcome Kerry Baker, CFO of Impinj, with us this morning, Internet of Everything, RFID leader. Kerry, what's the big picture here on RFID and on Impinj?

Yeah, so our opportunity starts everywhere you see a barcode. And you might ask, why are you evolutionizing the barcode? Barcodes are free to add, but barcodes are expensive to read. You need to have line of sight, you need to have proximity to the item, and you're reading one at a time. With our ICs, you're reading up to 30 feet away, without line of sight, thousands of items a second. The IC is literally smaller than a grain of sand. It's energy harvesting, which means it's battery-free and has effectively an unlimited lifetime.

And with RFID, how do you size the market? How big is it and how fast is it growing?

Yeah, rough and tough. We see the market opportunity at 10 trillion units, to which we're less than half a percent penetrated today. Now, the four verticals that we focus on primarily are apparel, which is 80 billion units a year, general merchandise, 325 billion units a year, Supply chain and logistics, 400 billion units a year, and food, which is multiples larger than all three of those other verticals combined. The industry has been growing since 2010 at a unit CAGR of around 20 to 25 percent. Impingis CAGR over that time has been 26 percent.

Okay, okay, okay. And in terms of RFID adoption in those, in Apparel, Apparel is a big part of the revenue base today. How would you describe that penetration?

Yeah. Apparel is the most mature market for us today. By volume, we're probably 40% penetrated to that 80 billion units. In supply chain logistics and general merchandise, we're low single digits penetrated, but we have the largest players in those respective categories moving forward first. In general merchandise, it's led by Walmart. In supply chain and logistics, it's led by UPS. And then food is no penetration to speak of today. We're delivering modest volumes into those opportunities with big players, but it's still early days in food.

Okay, awesome, awesome. And in terms of just the life cycle of RFID, that kind of adoption, maybe just talk us quickly through that life cycle for the customer, the kind of ROI decision they make. How long does the rollout take? If you can just talk about a high level.

Every timeline across customers is different, but they all share some commonalities. Typically, they start with a single use case. They get that deployed. They get a base ROI earned, and then they start asking, where else can I deploy this RAIN RFID to extract even more ROI? So in apparel, it typically starts with handheld readers checking inventory at the store level. And then once those retailers reach 100% tag, they unlock a whole bunch of new use cases. They can then go to loss prevention, to self-checkout, to front-store, back-store management, to smart fitting rooms. And as they move to those different use cases, they're extracting even more ROI.

Okay, okay. And in terms of time frame, what have you seen? What kind of, from when that customer makes that decision to kind of actually deploying, what is the type of time frame?

The sales cycles are typically long. They'll start out with a single store pilot just to prove out the use case. Then when they have the use case proved out, they go to what we call the controlled deployment. It's a small portion of their overall footprint where they're proving out their ROI at scale and they're working out any kinks that they may see. And then once they prove out that ROI at scale, they work out the kinks, then they go to a broad rollout, which is typically measured in multiple years. Now, while it is a long sales cycle, what we see is once a customer and a customer makes a move forward, they never turn back.

Okay, understood, understood. And any anecdotes in terms of like the ROI customers got from the apparel, like savings, inventory savings, or growth? Just any anecdotes you can share?

So back in the early days, Macy's had an apparel deployment and a handful of other categories. Macy's was able to take out a billion dollars from the inventory because they were able to see down to every item on the store floor. And they were also able to achieve nearly 10% same-store sales lift because they knew what was on the shelf and, more importantly, what was not on the shelf. And that's a pattern we typically see. The base ROI always starts out with labor savings, and then it quickly translates to sales uplift because of the visibility that the rain tags provide. Okay, okay. Okay.

And across logistics, any anecdote there of where the ROI was driven?

Yeah. In logistics, it's a reduction in manual scans. It's a reduction in misshipments. It will eventually move to a sales uplift as well. You can pull any of the last several earnings call transcripts from UPS who has deployed RFID throughout their infrastructure, and you can see the immense ROI that they're earning. Okay, okay.

Turning to kind of on the growth side, I think growth markets, you talked about food, freshness. Which markets are you most excited? Which market should investors be watching from the following page, growth story?

Yeah, I'm excited about all four of the major categories that we're focused on, even apparel. Apparel is the most mature. It's 40% penetrated by volume, but by logo, it is north of 90% penetrated in North America. Most retailers have already made the decision to move forward with a RAIN deployment. Most retailers are not 100% deployed. So there's a lot of inertia in apparel, even though it's the smallest category. And then there is significant opportunity in general merchandise and supply chain and logistics and food, given it's such early days for those categories.

Okay. And in terms of freshness market, how big can that be, freshness? We're early in that deployment. You guys recently just started talking about it.

Yeah, in the freshness deployment, think of that as part of the supply chain and logistics. So think of freshness as the food chain or the cold chain within food. So we think of that inclusive of the 400 billion units, and that's a component of the overall food opportunity.

Okay, okay, okay. Understood. Maybe talking about, you know, we spoke a lot about the U.S. where is the U.S. versus international rollout? Is international a big part of the growth story for Binge or is it really driven by U.S. adoption of RFID?

Think of it as more of the Western world. Probably 80% of the ICs end up between U.S. and Western Europe with U.S. larger than Western Europe. The remaining 20%, less than 10% China, Japan, Brazil, other categories that are out there, but mostly in the Western world. Okay.

And outside U.S. and Europe, for instance, or other Western markets, any programs or pilots that investors should be keeping an eye on? Those programs are across the board. Any big ones?

Any big ones. Nothing that is in the public domain right now.

Okay. Okay. Okay. Okay. Understood. Understood. Maybe turning over to competition in the space, can you talk a small bit just around competitors? What do you think out there from competition at the moment?

So in the endpoint IC market, the two primary competitors are Impinj and NXP. Between the two of us, we have a north of 90% market share. Impinj's market share last year was greater than 60%.

60% for the last few years is pretty stable.

No, it's been growing over the last few years. We gained a significant share over the last couple of years. Okay, okay.

And that's in Apparel, you think, or logistics?

It's across the board. Certainly in apparel, but also logistics, we have a strong share in the logistics opportunities out there right now.

Okay, okay. Any Chinese competitors? You don't really play, as you mentioned, the China market is a bit separate.

Yeah, we do see activity coming out of China. Nothing that is quality at scale, nothing that is more than a China for China solution. I think it would be hard for Western companies to put a Chinese radio on everything that's important to them in the current political environment. But we don't stop there. That's not what we rely on to maintain our moat. Impinja's competitive advantage is we're the only player that operates on both ends of the radio link. We compete on the endpoint ICs, and we compete on the readpoints, the readers and the reader ICs and the gateways and whatnot. That creates an opportunity for us to put functionality in the IC that is engaged by functionality in the reader while still embracing the communication protocol that the entire industry prescribes to. So one example of that is our Gen2X. The base existing protocol for the industry is the Gen2 protocol. And basically it means that every reader can read every IC irrespective of manufacturer. What Gen2X does is it embraces that standard and then extends it based on learnings that we've had over the years to make the IC and the reader more performant. So as an example, in a normal Gen 2 reading environment, the tags constantly respond to the reader. They're basically saying, I'm here, I'm here, I'm here. That clutters the reading environment. It reduces read range. It reduces read speed. With Gen 2X, we give the reader the capability to tell the tag to stop responding once it's been read. That declutters the reading environment. It increases read range. It increases read speed. That improvement in performance becomes more important when you move out of apparel and you start moving into logistics or into general merchandise. In logistics, the items going down a conveyor belt are moving very, very fast. You only have a split second to read them. When you move into general merchandise, especially the very dense shelf categories like cosmetics, like health and beauty, like OTC Pharma, decluttering the read environment becomes very important to a successful deployment.

Okay, interesting. So some secret sauce around the RF side of things, no doubt covered by patents, which maybe brings us to the NXP, the licensing deal. Can you just talk about kind of how investors should see the sustainability of that kind of licensing revenue?

At the outset, it was a 10-year license agreement or until NXP designs out our IP and stop selling ICs that infringe on our IP. We've always said, or we've said all along, that 2028, if they move fast enough, would be the year where the rubber meets the road on the longevity of that license payment.

Okay, okay, understood. And just in the different markets, it's the same products that you sell across different segments of the market. You talk there about different operational efficiencies of different segments. It's the same product that you can cross-sell across all segments?

For the most part, yes. The M800, our most performant IC, can work in any apparel, general merchandise, logistics, food, opportunity. We've also built for our second large logistics customer a custom IC. Think of that as, again, operating on both ends of the radio link that is specifically designed for the features that that end customer needs.

Okay. Okay. So that's good for business? Custom ICs? More lock-in?

It's more lock-in. It increases complexity managing a single SKU for a single end user that we don't have across the rest of our portfolio. But when the opportunity is right, and think of that meaning when the volume is there, but also when we have the deep technical integration with that customer, where we would know what to put in a custom IC and we can design the IC around their operations, then it makes a lot of sense for us and we'll continue evaluating opportunities as such.

Okay, okay. Very good, understood. Maybe if you could switch the kind of channel inventory and just talk about the kind of misstep in Q1 on the logistics side of things. Maybe just give an overview of what happened there and was that a once-off or what you learned from that.

So we've had missteps over the last two first quarters And both relate to a single customer, our second large supply chain and logistics customer. And though the reasons were different from year to year, the crux of the issue is we did not have visibility into how our partners were managing their inventory and support of that end customer. At that time, our second large logistics customer was using the M800. General purpose SKU, as I mentioned, can go into any apparel, general merchandise, logistics, food, opportunity. And we didn't appreciate the fact that our inlay partners were building inventory and managing inventory in a way that was dislocated from the seasonality of the package volume of that end customer. And that caught us off guard. With the customized C, we now see that difference in dislocation in managing inventory versus the package volume seasonality that we would have otherwise expected. So I believe we had the inventory visibility to manage through that. Now, obviously, after two missteps in a row, we've got to prove it to you in Q1, but I'm increasingly confident that we'll be able to do so.

Okay, so more aligned to normal seasonality, which is what for the business?

Normal seasonality for the business, starting in Q2, the quarter we just completed. Endpoint IC is typically up 10% to 20% sequentially. In Q3, it's up high single, low double digits. And then in Q4, it's down typically 5% to 10%. And the reason for that seasonality is we ship in front of the holiday season for apparel retail, which is the bulk of our business. Then in the first quarter, it's typically down low single-digit percents.

Okay, okay. Understood. Maybe switching over to kind of pricing and costs. Last year, you shipped like 29 billion units, I think, ASP one penny. Costs are going up. We hear every day costs going up. How are you managing kind of costs and pricing, basically, and how is that kind of discussion going with the customer?

We have felt inflationary pressures like everybody else. We expect that to continue. It's not unique to endpoint ICs. It's across our entire portfolio of products. And what we do when we have inflationary pressures is we first try to engineer around the cost increases. When we can't engineer around, we absorb what we can, and when we can no longer absorb, we pass them on to our end customers in a way that protects the integrity of our margin model. As I mentioned, we're feeling those inflationary pressures now, so we have to signal to our end customers that a modest and pending price increase was coming. Think of that as layering in over the back half of the year and think of it as us maintaining our margin model. Those conversations are never easy, but I think everyone understands where they come from. Okay, okay.

But ASP, I mean, it's per unit, but in RFID, how sensitive are customers to pricing?

Historically, they have been, but ASPs have come down. Typically, we see low to mid-single-digit ASP declines on an annual basis that are supported by wafer cost down, so it maintains our margin model. Today, in the most competitive opportunities, the additive cost of an inlay is sub two cents. And we needed to reach that price point for opportunity and food to be unlocked, and that's what we're seeing right now. Okay, okay, okay.

Maybe switching over to the business model, maybe can you just flag kind of the highlights for the business model? You talked about seasonality earlier, but just generally on the kind of, from a margin perspective.

So starting with gross margin, the M800 is our most performant IC. It's also our smallest IC. We get 20% more diaper wafer than our M700. That we translate in two ways. One is a lower ASP to our end customers, so they get a more performant IC at a lower price. But two, it also drives gross margin accretion. The wafer cost is the bulk of the bomb of our IC. So prior to the M800, our corporate average gross margin was roughly 53%. When the M800 is fully rolled out, reaches its terminal mix, we'll deliver 300 basis points of gross margin accretion. So that 53 goes to 56%. We'll achieve terminal mix in Q4. Probably won't blend for the whole fourth quarter, but we're still ramping the M800 nicely. You're starting to see that gross margin in the business now.

And the difference on the reader side versus the chip side, or even on the customer, different customer mix, is that any impact on kind of gross margin?

Yeah, the systems mix is typically, our systems gross margin is higher than the corporate average. So think of endpoint I see as just under the corporate average and systems above the corporate average. And within the systems business, the reader I see is our highest gross margin product.

Okay, okay, understood. And then from EBIT margin targets, cash flow targets, what should investors think about that?

Yeah, so we've got a massive opportunity in front of us, and we're going to continue investing in that opportunity. R&D is the primary focus of investment, but even in the R&D line, we expect leverage. There's more leverage in the sales and marketing line because we leverage a partner network to take our products to market, and then obviously there's significant leverage in the G&A line. Our internal goal is for incremental revenue to flow through to the bottom line at a rate greater than 30%.

Okay, okay, okay. 2027 Converse? How should we think about the refinance?

Yeah, so we actually addressed the 2027 Converse. These are our one and eighth notes maturing in May of 2027. We addressed that last week. We went in the open market and repurchased the remainder, almost all of the remainder. We couldn't grab the last million dollars of it. But of that convert, as we've typically done in the past, we addressed it in the most dilution-friendly way we could. So we retired the principal, which was a little over $56.3 million in cash, and we've settled the upside with shares. Okay, okay.

M&A in the space, RFID, any kind of tokens, any holes in the portfolio on the system side or on the reader ID side?

Yeah, we're always looking for M&A opportunities. The reality is it's a niche market, so some of those are hard to find, but we kick the tires all the time. And, you know, we have a pretty high bar to clear. This is a big opportunity. We're a small team, a little over 450 people, so we all need to be focused and working hard to capture this opportunity. So any M&A opportunity that we see has to meet a high threshold.

Okay. Okay. Understood. Any, maybe in the last couple of minutes, any questions from folks listening? Okay. Kerry, any closing thoughts that you want to leave with investors about the business?

Yeah, I think one closing thought. One of the first questions I get meeting with investors about the food opportunity, which is massive, and I completely understand that. We're working with three out of the five largest grocers in the U.S. that are either piloting or actually in a deployment, as in the case with Kroger. We're working on four different use cases across food right now, so there is a lot of pull from food. But I would encourage investors, don't sleep on general merchandise. There's a lot of work going on behind the scenes on general merchandise, and I think, especially in the near term, that's going to be a major driver of growth from Pinge and for the industry. Okay. And proof points for investors to watch out for, to double-click on the story or just to see if you guys are on track? focus on where we start talking about customers that have moved from proof of concept or pilots into deployments.

Okay, okay. And there will be public announcements?

There should be. Typically, we start talking about end customer deployments once they're into the pilot stage. Now, we don't always name our end customers. Typically, we don't name our end customers, but we'll start talking about the progress and the timeline that those customers will have.

Okay, awesome. One very last question, Michael. What are you most worried about? What keeps you up at night?

Those are, you know, we always focus internally on execution. How do we get, you know, all of the employees in the same boat rowing in the same direction? That will always be a focus of mine. I also focus on the timeline of these programs, how quickly they can roll out, and how to make sure that we manage expectations appropriately.

Okay, okay. maybe just one last one again on my side just on the competition side of things like it's yourselves and NXP essentially own the market you guys as you mentioned 60% share kind of the remainder what drives that design win for you guys versus NXP is it kind of your focus on different markets, is it a software thing as you talked about maybe it's some magic patent on the RF side of things, what really kind of gets you that design win versus the competitor?

Yeah, I think it comes down to performance, especially in categories as we move past apparel and the base use case deployment for apparel, where performance matters, but there's not enough of a differentiation for it to matter in that category. But when you start moving away from handheld readers into fixed or autonomous readers where you no longer have a human in the loop, the accuracy threshold goes very high. And that's where our competitive advantage shines through. By being able to tune both ends of the radio link, we can increase the performance level to unlock those use cases.

And does that play to the market to you're more excited about as you talked about food and freshness?

Yes, absolutely. In food and freshness and logistics especially, but also in apparel and then eventually general merchandise where they move beyond the base use case. Handheld readers, we're going to compete and earn our fair share in that. But when you move to self-checkout and loss prevention, when you no longer have a human in the loop, when you're dealing with customer cash, we think our accuracy and our performance is very compelling. Okay, awesome.

Well, thank you. Yeah, thank you. Thank you very much for joining us today and Impinj CFO. And thanks, everyone, for joining. Thank you.