Impinj, Inc. — Q2 2022 Form 10-Q
Reporting period: Three and six months ended June 30, 2022. Figures are unaudited and in U.S. dollars; amounts below are in millions unless stated otherwise. Impinj develops and sells RAIN RFID products, including endpoint ICs and systems (reader ICs, readers, gateways and software).
Financial performance
| Metric | Q2 2022 | Q2 2021 | First half 2022 | First half 2021 |
|---|---|---|---|---|
| Revenue | $59.8 | $47.3 | $112.9 | $92.5 |
| Gross profit | $31.5 | $24.8 | $60.3 | $46.8 |
| Gross margin | 52.7% | 52.4% | 53.4% | 50.5% |
| Operating loss | $(8.5) | $(8.3) | $(17.8) | $(17.2) |
| Net loss | $(11.5) | $(8.9) | $(22.0) | $(18.3) |
| Net loss per diluted share | $(0.45) | $(0.37) | $(0.87) | $(0.77) |
| Adjusted EBITDA (non-GAAP) | $3.8 | $3.3 | $7.4 | $4.2 |
- Q2 revenue rose 26.5% year over year, primarily from endpoint IC growth. First-half revenue increased 22.1%.
- Endpoint IC revenue was $42.9 million in Q2, up $12.1 million year over year; systems revenue was $16.9 million, up $0.5 million. For the first half, endpoint IC revenue was $81.6 million and systems revenue $31.3 million.
- Gross margin improved year over year, while operating expenses increased. Operating expenses were $40.0 million in Q2 versus $33.1 million; higher personnel, stock compensation, product-development and legal costs contributed. Q2 operating loss was broadly comparable with the prior year.
- First-half operating cash flow was negative $7.6 million, versus positive $5.0 million a year earlier. Management attributed the cash use primarily to working capital, including higher inventory purchases, receivables and payables.
Liquidity, debt and cash flows
- At June 30, cash and cash equivalents were $32.6 million and short-term investments were $130.7 million, totaling $163.3 million; working capital was $213.7 million. Cash and cash equivalents were $123.9 million at December 31, 2021, while short-term investments were $69.4 million.
- Long-term debt had a net carrying value of $279.4 million, representing $287.5 million principal of 1.125% senior unsecured convertible notes due May 2027. The remaining $9.85 million principal of the 2019 notes was repurchased in June for approximately $17.6 million, producing a $2.2 million induced-conversion expense.
- First-half investing cash outflow was $72.6 million, principally reflecting $115.7 million of investment purchases, partly offset by $46.8 million of investment maturities; capital expenditures were $3.7 million. Financing cash outflow was $11.1 million.
- Management said existing cash, cash equivalents and short-term investments were expected to fund anticipated needs for at least the next 12 months, based on its current operating plan.
Outlook, risks and unusual items
- Supply constraints: Endpoint IC demand exceeded supply in the first half and was expected to continue exceeding supply through the rest of 2022. The foundry partner indicated tight wafer availability into 2023. Management expected allocated second-half upside wafers to support endpoint IC volumes above first-half levels, but said supply would still not meet demand; wafer mix also required some customers to transition from M700 to older product families.
- Systems supply: Component shortages and price increases were expected to persist at least through year-end 2022. Reader IC packaging lead times had stabilized, while E-family testing delays were expected to stabilize in the second half, allowing a catch-up to demand by year-end.
- Costs and margins: The company passed some supplier cost increases to customers. It expected near-term margins to remain volatile due to product mix and the timing of price changes; failure to pass through higher costs could pressure margins.
- Demand and operating risks: RAIN adoption, customer deployments and channel demand are difficult to forecast. The company cited Covid-19-related supplier and travel disruption, customer concentration, competition, and reliance on third-party manufacturing without long-term supply contracts.
- Commitments: Non-cancelable purchase commitments totaled $57.5 million, including $46.7 million of inventory commitments. Total contractual obligations were $376.5 million, including convertible-note payments and lease obligations.
- Legal matters: Impinj and NXP are involved in multiple U.S. and China patent disputes. The company reported no accrued contingency liabilities and stated it did not expect the claims, individually or in aggregate, to materially adversely affect its financial statements, while noting the inherent uncertainty.
- Other notable items: The company recorded $1.2 million of unrealized investment losses in the first half. It reported an accumulated deficit of $384.5 million and negative stockholders’ equity of $11.3 million. Management reported disclosure controls were effective at a reasonable assurance level, with no material change in internal control over financial reporting during the quarter.
Important facts for investors to verify
- Whether wafer and component allocations enable the expected second-half shipment increase, and how ongoing shortages affect customer retention, market share and revenue.
- Whether price increases offset higher supplier costs without weakening demand or gross margins.
- Whether operating cash use and inventory growth ease as supply and shipments improve.
- How the $287.5 million convertible notes, their potential conversion or repayment obligations, and the company’s cash resources affect liquidity and dilution risk.
- Developments and potential costs or business effects from the NXP patent litigation and other material contingencies.