Jun 03, 2016Yesterday, Seattle-based ultrahigh-frequency (UHF) RFID technology company Impinj registered with the Securities and Exchange Commission its plans to launch an initial public offering (IPO), with the goal of raising $60 million. The company says it has applied to list its common stock on the NASDAQ global market under the symbol "PI," but did not indicate how many shares it expects to issue, or the expected initial per-share offering price.
This is the second time Impinj has filed for an IPO. The firm sought to raise $100 million with an IPO in April 2011 (see Impinj Files for Initial Public Offering), but withdrew its bid 15 months later. Its revenue in 2011 was about half of what it is currently, making this year's offering a more measured approach, according to Bill McBeath, ChainLink Research's chief research officer. "It seems that they have a more tempered, realistic set of expectations this time," he says, adding that the offering is an indication of the upward trajectory of both Impinj and the industry. "I think it's a sign that the industry is healthy."
In the preliminary prospectus that Impinj filed with the SEC, the company indicated that it holds a 65 percent market share for passive UHF RFID tag chips compliant with the EPC Gen 2 RFID standard, which Impinj refers to as the RAIN standard. The firm estimated that approximately 70 percent of unit volume of fixed readers use its reader chips, as do "the majority of handheld readers," and further claimed to have sold 13 billion tag ICs to date.
According to the preliminary prospectus, the past three years have been profitable for the chip, reader and software company. In 2015, Impinj reported earning $78.5 million in total revenue, up from $63.8 the year prior. During the first quarter of this year, it earned $21.6 million in revenue—a 34.6 percent increase compared with the $16.0 million it earned in the first three months of 2015.
The positive financial data notwithstanding, Impinj expressed the following caveat: "We have incurred losses since our inception in 2000 and only first became profitable in 2013. Although we had net income of $297,000 and $900,000 for 2014 and 2015, respectively, we had an accumulated deficit of $187.6 million as of March 31, 2016. Our ability to increase or sustain profitability depends on numerous factors, many of which are out of our control.… We expect significant expenditures to support operations, product development, and business and headcount expansion in sales, engineering, and marketing as a public company. If we fail to increase our revenue or manage our expenses, we may not increase or sustain profitability in the future."
The company declined to comment about the offering for this story. "Given the securities law restrictions related to initial public offerings," says Erika Bitzer, Impinj's marketing and communications senior director, "we are unable to comment on our plans for the IPO beyond what we have disclosed in our registration statement." However, according to its S1 filing, the company will use the proceeds it receives from the IPO to develop new products and expand those it already offers, though it also expects to use $5.0 million of those proceeds to pay off debt.
Impinj was founded in 2000 by Chris Diorio, an associate computer science professor at the University of Washington and a professor at the California Institute of Technology, and scientist Carver Mead to provide microchips for RFID tags and readers. The company led the development of the EPC Gen 2 RFID standard. In 2006, the firm began selling fixed readers under the brand name Speedway, and in 2011 it started marketing RFID gateways that could be integrated with the company's Speedway readers. In 2015, Impinj launched software known as ItemSense that aggregates and manages data collected from readers. In addition, it cofounded the RAIN Industry Alliance, an industry trade group that promotes EPC UHF RFID technology.
Impinj's current principal shareholders include Arch Venture Partners, Polaris Venture Partners, Madrona Venture Group, Mobius Venture Capital and Intel. Altogether, the five (and their respective entities) own approximately 47 percent of the company. The firm employs 208 people.
"We believe our market opportunity is massive," Impinj explained in its filing, noting that growth in the RFID technology market has been limited since the company launched. "Not only are the numbers of tagged items large and growing but so is the infrastructure, in both scale and investment, that produces, encodes, applies, reads and extracts business value from these tagged items." According to industry research, the company indicated, EPC Gen 2 tag IC volumes grew at a 27 percent annual rate from 2010 to 2015, reaching 5.3 billion in 2015, "and are expected to grow to over 20 billion in 2020."
Throughout the 16 years in which Impinj has been in operation, the company reports, the RFID industry experienced periods of accelerated adoption that were not sustained. The technology adoption accelerated in late 2010 and early 2011, but then dropped. That decline, the firm reports, was partially due to a patent-infringement lawsuit filed in 2011 by Round Rock Research against several large retailers and other end users. Round Rock settled with RFID technology suppliers in late 2013; however, some end users did not finalize their settlements with Round Rock until early last year (see Update on the Round Rock Patent-Infringement Lawsuit, Round Rock Completes Licensing Deals With Majority of RFID Vendors and What the Round Rock Settlements Mean).
Impinj's competitors for ICs in tags are NXP Semiconductors and Alien Technology. The company also competes with Alien and Zebra Technologies for readers and gateways, as well as Phychips and AMS for reader chips.
Impinj sells its tag ICs primarily to original equipment manufacturers (OEMs) and original design manufacturers (ODMs) of inlays and tags. In 2015, sales to Avery Dennison, Shang Yang RFID Technology Yangzhou Co. Ltd. and Smartrac accounted for 23 percent, 22 percent and 20 percent of tag IC revenue, respectively, and 16 percent, 15 percent and 14 percent of total revenue. Impinj also sells its reader ICs primarily to reader OEMs and ODMs.
The majority of growth in RFID adoption, the company wrote in its filing, takes place outside of the United States, where the greatest demand for RFID tags and other hardware may be occurring, such as in Asia. In 2015, 73 percent of Impinj's revenue resulted from sales outside the United States. The company—which opened an office in Shanghai, China, in 2011—says it anticipates continuing to expand its international operations. The two largest markets, according to the company, are in retail and health care.
Impinj's recent average annual revenue growth rate of 20 to 25 percent (ranging from 15 percent to 30 percent, depending on the year) is slightly ahead of the growth rate of the overall RFID industry, McBeath says, and is a sign of good health. "It's not a breakout hyper-growth star on the level of a Facebook or Google or Amazon, but its growth has been solid."
For companies that go public, McBeath says, the results can be a mixed blessing. On the one hand, he explains, "the relentless public scrutiny of profitability can constrain the executive leader's flexibility when it comes to making longer-term investments," since stockholders may be resistant to investments that reduce profitability in the short term. But on the flip side, he adds, "The access to capital," if $60 million is gained, "can be used for investment to grow the company."
While one of Impinj's competitors, NXP, is also a public company, Alien Technology is not. However, McBeath speculates, Impinj's public offering is likely to have less influence over Alien or NXP than each firm's market and product strategy and execution would. "I'm not sure this is as important as the competition around overall product direction, functionality and other factors," he says.
