Impinj, Inc. — Q1 2022 Form 10-Q
Reporting period: Three months ended March 31, 2022. Impinj develops and sells RAIN RFID products and services, including endpoint ICs and systems (reader ICs, readers, gateways and software). The company reports one operating segment.
Key financial results
| Metric | Q1 2022 | Q1 2021 | Change |
|---|---|---|---|
| Revenue | $53.1 million | $45.2 million | Up $7.9 million (17%) |
| Gross profit / margin | $28.8 million / 54.2% | $22.0 million / 48.6% | Margin up 5.6 percentage points |
| Operating expenses | $38.1 million | $30.9 million | Up $7.2 million |
| Operating loss | $(9.3) million | $(8.9) million | Loss widened $0.4 million |
| Net loss / diluted loss per share | $(10.5) million / $(0.42) | $(9.4) million / $(0.40) | Net loss increased $1.0 million |
| Adjusted EBITDA (non-GAAP) | $3.5 million | $0.9 million | Up $2.6 million |
Endpoint IC revenue was $38.8 million, up $0.7 million; higher average selling prices were largely offset by lower shipment volumes. Systems revenue increased $7.2 million to $14.3 million, driven mainly by reader and reader IC shipments and higher average selling prices. Management attributed gross-margin improvement principally to endpoint IC product mix, including a larger M700 contribution and more industrial and specialty products.
Research and development, sales and marketing, and general and administrative expenses all increased. Management cited higher stock-based compensation, personnel, product-development and infrastructure costs, and increased non-settlement legal fees. Stock-based compensation totaled $11.3 million, versus $7.4 million a year earlier. Q1 2021 included $1.3 million of restructuring expense; Q1 2022 had none.
Cash flow, liquidity and debt
- Operating activities used $14.8 million of cash, compared with $9.4 million provided in Q1 2021. Management attributed the 2022 use primarily to working capital, especially inventory purchases, receivables and payables.
- Investing activities used $50.1 million, principally reflecting $67.1 million of investment purchases, partly offset by $20.0 million of maturities. Financing activities provided $4.6 million, primarily from employee stock-plan proceeds.
- Cash and cash equivalents were $63.5 million at March 31, 2022, down from $123.9 million at year-end 2021. Short-term investments were $101.7 million; cash, cash equivalents and short-term investments totaled $165.3 million. Working capital was $209.9 million.
- Convertible notes had $297.4 million aggregate principal outstanding: $9.85 million of 2.0% notes due 2026 and $287.5 million of 1.125% notes due 2027. Net carrying value was $288.7 million. The notes are senior unsecured and have no financial covenants.
- Inventory was $31.6 million, up from $22.0 million at December 31, 2021. The company reported $54.7 million of non-cancelable inventory purchase commitments and $393.2 million of total contractual obligations, including notes, leases and purchase commitments.
Outlook, risks and unusual items
- Supply constraints: Endpoint IC demand continued to exceed available supply. The foundry partner indicated tight wafer availability into 2023. Management expected Q2 and Q3 endpoint IC shipments to equal or exceed Q1 2021 levels, but said supply limitations would restrict the ability to meet demand and supply beyond Q3 was less certain. Component, packaging and testing constraints also affected systems products.
- Pricing and margins: Supplier cost increases prompted price increases beginning in late 2021. Management expected near-term margins to remain volatile due to product mix and the timing of price changes; passing through higher costs could risk customer losses or lower demand.
- Demand and pandemic uncertainty: Management cited unpredictable RAIN adoption, project timing, channel-partner forecasts and continuing COVID-19 disruptions to suppliers, production and customer activity. It said current cash, cash equivalents and short-term investments should cover anticipated needs for at least 12 months under its operating plan. No specific revenue or earnings guidance is provided in the filing text.
- Litigation: Impinj and NXP are involved in multiple patent-infringement claims and counterclaims in the United States and China. Outcomes are uncertain; the company reported no accrued contingency liabilities and stated it did not believe resolution would materially adversely affect its financial statements, while noting inherent uncertainty.
- Other considerations: Two customers, Avery Dennison and Arizon, accounted for 32% and 11% of 2021 revenue, respectively. The company also cited risks from third-party manufacturing, silicon wafer shortages, competition, and its intermittent history of profitability. Management reported disclosure controls were effective at a reasonable assurance level and no material changes in internal control over financial reporting during the quarter.
Investor verification points
- Check whether wafer, packaging and component supply improved as expected, particularly after Q3 2022, and whether constrained shipments affected market share.
- Track inventory growth, purchase commitments and operating cash use against sales and channel demand.
- Review liquidity and debt obligations, including the convertible notes’ principal, interest and potential conversion or repayment requirements.
- Monitor customer concentration and the durability of systems revenue growth, including the timing of large deployments.
- Follow the NXP patent cases, related legal costs and any changes to the company’s assessment of potential exposure.