Impinj, Inc. — Q3 2022 Form 10-Q
Reporting period: Quarter and nine months ended September 30, 2022. Financial statements are unaudited. Impinj develops and sells RAIN RFID endpoint integrated circuits (ICs) and systems, including reader ICs, readers, gateways and software.
Financial performance
| Metric | Q3 2022 | Q3 2021 | Nine months 2022 | Nine months 2021 |
|---|---|---|---|---|
| Revenue | $68.3 million | $45.2 million | $181.2 million | $137.7 million |
| Gross profit | $37.4 million | $23.0 million | $97.7 million | $69.8 million |
| Gross margin | 54.8% | 50.9% | 53.9% | 50.7% |
| Operating loss | $1.7 million | $12.4 million | $19.5 million | $29.6 million |
| Net loss | $2.2 million | $12.9 million | $24.2 million | $31.2 million |
| Adjusted EBITDA (non-GAAP) | $9.8 million | $(0.4) million | $17.2 million | $3.8 million |
Q3 revenue grew about 51% year over year. Endpoint IC revenue was $51.2 million, up from $32.0 million; systems revenue was $17.1 million, up from $13.2 million. For the quarter, endpoint IC growth reflected higher selling prices and shipment volumes; systems growth primarily reflected gateways and reader ICs. Nine-month endpoint IC revenue growth was primarily price and product-mix driven, while shipment volumes were comparable to the prior-year period.
Gross margin improved mainly on higher product margins, including greater contributions from industrial and specialty ICs and M700 ICs. Prior-year sales of fully reserved inventory had provided a favorable margin benefit; their impact in 2022 was immaterial. Operating expenses increased, including from personnel, product development and legal costs. Nine-month results also include $2.2 million of induced-conversion expense related to the final repurchase of the 2019 notes.
Cash, liquidity and debt
- At September 30, cash and cash equivalents were $39.3 million, short-term investments $142.5 million and long-term investments $19.2 million. Management reported $181.9 million of cash, cash equivalents and short-term investments and working capital of $226.3 million.
- Nine-month operating cash flow was $6.8 million, compared with $10.4 million a year earlier. Inventory purchases and accounts receivable were significant working-capital uses.
- Investing activities used $86.3 million net, including $159.8 million of investment purchases, partly offset by $79.5 million of maturities; property and equipment purchases were $6.0 million. Financing activities used $5.1 million net, including the $17.6 million cash repurchase of the remaining 2019 notes.
- The company had $287.5 million principal amount of 1.125% senior unsecured convertible notes due May 2027, with a net carrying amount of $279.8 million. The notes have no financial covenants. Contractual obligations include $303.7 million for the notes, including stated interest payments.
- Management stated that existing cash, cash equivalents and short-term investments were expected to cover anticipated cash needs for at least the next 12 months, based on its current operating plan.
Material changes, outlook and risks
- Revenue, gross profit and margins increased year over year, while GAAP losses narrowed. The company remained loss-making under GAAP; non-GAAP measures exclude specified items, including stock-based compensation.
- Supply remained the central operating constraint. Endpoint IC demand exceeded supply through the first three quarters of 2022, and management expected constraints to continue in Q4 2022 and at least the first half of 2023. The foundry indicated improving 200mm wafer availability, but continued tight 300mm availability. Without a substantially higher 2023 300mm allocation, Impinj said it could fall materially short of endpoint IC demand and risk market-share loss.
- Reader component shortages also constrained shipments and were expected to persist into 2023. Management anticipated a modest endpoint IC shipment increase in Q4 2022 and again in Q1 2023, but did not provide numerical revenue or earnings guidance in the supplied filing text.
- Supplier cost increases and pricing actions may pressure competitiveness and margins; the foundry had signaled another wafer-price increase in Q1 2023, with magnitude unclear. Management described near-term margins as potentially volatile due to product mix and timing of price changes.
- Key risks include uncertain RAIN adoption and deployment timing, customer and channel concentration, reliance on third-party manufacturers and limited supply contracts, wafer and component shortages, competition, product quality, and the uncertain effects of COVID-19 and macroeconomic conditions. The company also cited risks from its history of losses and operating volatility and its convertible debt.
- Impinj and NXP were engaged in multiple patent disputes in the United States and China. The filing stated that no material contingency liabilities were accrued. On October 20, 2022, after quarter-end, a court granted Impinj summary judgment on three patents in an NXP case, leaving three patents in suit; other proceedings remained unresolved.
- Management concluded disclosure controls were effective at a reasonable assurance level as of September 30, 2022; no material change to internal control over financial reporting was reported for the quarter.
Important facts for investors to verify
- Whether 300mm wafer allocations and reader-component supply improve enough to support shipments and preserve market share.
- Whether higher prices and product mix can offset supplier cost increases without weakening demand or competitiveness.
- Progress in converting strong demand into shipments, revenue and operating cash flow, given inventory and receivables demands.
- The company’s ongoing ability to fund operations and meet obligations under the $287.5 million 2027 convertible notes.
- Developments and potential financial consequences of the NXP patent litigation and other contingencies.
- How recurring stock-based compensation and other exclusions affect interpretation of non-GAAP results versus GAAP losses.