Impinj (PI)

RFID manufacturer Impinj (NASDAQ:PI) announced better-than-expected revenue in Q1 CY2025, but sales fell by 3.3% year on year to $74.28 million. The company expects next quarter’s revenue to be around $93.5 million, close to analysts’ estimates. Its non-GAAP profit of $0.21 per share was significantly above analysts’ consensus estimates.

Company Overview

Founded by Caltech professor Carver Mead and one of his students Chris Diorio, Impinj (NASDAQ:PI) is a maker of radio-frequency identification (RFID) hardware and software.

Competitors offering endpoint chips include NXP B.V., EM Microelectronic, and Alien Technology.

A company’s long-term sales performance is one signal of its overall quality. Any business can have short-term success, but a top-tier one grows for years. Thankfully, Impinj’s 16.8% annualized revenue growth over the last five years was excellent. Its growth beat the average semiconductor company and shows its offerings resonate with customers, a helpful starting point for our analysis. Semiconductors are a cyclical industry, and long-term investors should be prepared for periods of high growth followed by periods of revenue contractions.

Long-term growth is the most important, but short-term results matter for semiconductors because the rapid pace of technological innovation (Moore's Law) could make yesterday's hit product obsolete today. Impinj’s annualized revenue growth of 11.9% over the last two years is below its five-year trend, but we still think the results suggest healthy demand.

This quarter, Impinj’s revenue fell by 3.3% year on year to $74.28 million but beat Wall Street’s estimates by 3.7%. Company management is currently guiding for a 8.8% year-on-year decline in sales next quarter.

Looking further ahead, sell-side analysts expect revenue to grow 1.9% over the next 12 months, a deceleration versus the last two years. This projection is underwhelming and suggests its products and services will see some demand headwinds. At least the company is tracking well in other measures of financial health.

Days Inventory Outstanding (DIO) is an important metric for chipmakers, as it reflects a business’ capital intensity and the cyclical nature of semiconductor supply and demand. In a tight supply environment, inventories tend to be stable, allowing chipmakers to exert pricing power. Steadily increasing DIO can be a warning sign that demand is weak, and if inventories continue to rise, the company may have to downsize production.

This quarter, Impinj’s DIO came in at 238, which is 69 days above its five-year average, suggesting that the company’s inventory has grown to higher levels than we’ve seen in the past.

In the semiconductor industry, a company’s gross profit margin is a critical metric to track because it sheds light on its pricing power, complexity of products, and ability to procure raw materials, equipment, and labor.

Impinj’s unit economics are reasonably high for a semiconductor business, pointing to a lack of meaningful pricing pressure and its products’ solid competitive positioning. As you can see below, it averaged an impressive 50.5% gross margin over the last two years. That means for every $100 in revenue, roughly $50.45 was left to spend on selling, marketing, R&D, and general administrative overhead.

In Q1, Impinj produced a 49.4% gross profit margin, in line with the same quarter last year. Zooming out, Impinj’s full-year margin has been trending up over the past 12 months, increasing by 2.8 percentage points. If this move continues, it could suggest better unit economics due to some combination of stable to improving pricing power and input costs (such as raw materials).

Impinj’s high expenses have contributed to an average operating margin of negative 8.4% over the last two years. Unprofitable semiconductor companies require extra attention because they could get caught swimming naked when the tide goes out.

On the plus side, Impinj’s operating margin rose by 37.2 percentage points over the last five years, as its sales growth gave it operating leverage. Still, it will take much more for the company to reach long-term profitability.

In Q1, Impinj generated a negative 12.9% operating margin.

We track the long-term change in earnings per share (EPS) for the same reason as long-term revenue growth. Compared to revenue, however, EPS highlights whether a company’s growth is profitable.

Impinj’s EPS grew at an astounding 48.3% compounded annual growth rate over the last five years, higher than its 16.8% annualized revenue growth. This tells us the company became more profitable on a per-share basis as it expanded.

We can take a deeper look into Impinj’s earnings quality to better understand the drivers of its performance. As we mentioned earlier, Impinj’s operating margin expanded by 37.2 percentage points over the last five years. This was the most relevant factor (aside from the revenue impact) behind its higher earnings; taxes and interest expenses can also affect EPS but don’t tell us as much about a company’s fundamentals.

In Q1, Impinj reported EPS at $0.21, in line with the same quarter last year. This print easily cleared analysts’ estimates, and shareholders should be content with the results. Over the next 12 months, Wall Street expects Impinj’s full-year EPS of $1.97 to shrink by 18.5%.

Free cash flow isn't a prominently featured metric in company financials and earnings releases, but we think it's telling because it accounts for all operating and capital expenses, making it tough to manipulate. Cash is king.

Impinj has shown weak cash profitability over the last two years, giving the company limited opportunities to return capital to shareholders. Its free cash flow margin averaged 9.7%, subpar for a semiconductor business.

Taking a step back, an encouraging sign is that Impinj’s margin expanded by 23.7 percentage points over the last five years. We have no doubt shareholders would like to continue seeing its cash conversion rise as it gives the company more optionality.

Impinj burned through $13.01 million of cash in Q1, equivalent to a negative 17.5% margin. The company’s cash flow turned negative after being positive in the same quarter last year, but we wouldn’t read too much into the short term because investment needs can be seasonal, leading to temporary swings. Long-term trends are more important.

EPS and free cash flow tell us whether a company was profitable while growing its revenue. But was it capital-efficient? A company’s ROIC explains this by showing how much operating profit it makes compared to the money it has raised (debt and equity).

Although Impinj has shown solid business quality lately, it struggled to grow profitably in the past. Its five-year average ROIC was negative 30.6%, meaning management lost money while trying to expand the business.

Impinj reported $147.9 million of cash and $292.3 million of debt on its balance sheet in the most recent quarter. As investors in high-quality companies, we primarily focus on two things: 1) that a company’s debt level isn’t too high and 2) that its interest payments are not excessively burdening the business.

With $65.65 million of EBITDA over the last 12 months, we view Impinj’s 2.2× net-debt-to-EBITDA ratio as safe. We also see its $3.83 million of annual interest expenses as appropriate. The company’s profits give it plenty of breathing room, allowing it to continue investing in growth initiatives.

We were impressed by how significantly Impinj blew past analysts’ EPS expectations this quarter. We were also happy its revenue outperformed Wall Street’s estimates. Looking ahead, EBITDA and EPS guidance for the next quarter came in ahead. Overall, this quarter was quite strong. The stock traded up 11.9% to $86.25 immediately following the results.

Updated: May 22, 2025 at 10:25 PM EDT

Before making an investment decision, investors should account for Impinj’s business fundamentals and valuation in addition to what happened in the latest quarter.

We think Impinj is a solid business. First off, its revenue growth was impressive over the last five years. And while its relatively low ROIC suggests management has struggled to find compelling investment opportunities, its rising cash profitability gives it more optionality. On top of that, its expanding operating margin shows the business has become more efficient.

Impinj’s P/E ratio based on the next 12 months is 71.8x. At this valuation, there’s a lot of good news priced in. Add this one to your watchlist and come back to it later.

Wall Street analysts have a consensus one-year price target of $123.50 on the company (compared to the current share price of $115.20).

Want to invest in a High Quality big tech company? We’d point you in the direction of Microsoft and Google, which have durable competitive moats and strong fundamentals, factors that are large determinants of long-term market outperformance.

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