Impinj, Inc. — Q1 2021 Form 10-Q
Reporting period: Three months ended March 31, 2021. Impinj develops and sells RAIN RFID products and services, reported as one operating segment. Unless stated otherwise, financial amounts are in U.S. dollars.
Financial performance
| Metric | Q1 2021 | Q1 2020 | Change |
|---|---|---|---|
| Revenue | $45.2 million | $47.8 million | Down $2.6 million (5.4%) |
| Gross profit / margin | $22.0 million / 48.6% | $21.4 million / 44.7% | Margin up 3.9 percentage points |
| Operating expenses | $30.9 million | $24.8 million | Up $6.1 million |
| Operating loss | $(8.9) million | $(3.4) million | Loss widened $5.5 million |
| Net loss / diluted loss per share | $(9.4) million / $(0.40) | $(4.3) million / $(0.19) | Loss widened |
| Adjusted EBITDA | $0.9 million | $3.0 million | Down $2.1 million |
| Non-GAAP net income | $0.3 million | $2.9 million | Down $2.6 million |
Endpoint IC revenue increased to $38.1 million from $33.7 million, primarily from higher shipment volumes, partly offset by lower average selling prices. Systems revenue fell to $7.2 million from $14.1 million, including lower gateway sales after a prior-period customer deployment moved into its operational phase, and reader IC sales affected by packaging delays.
Gross margin improved mainly because Q1 2021 included sales of previously fully reserved inventory, a favorable 2.2 percentage-point impact; Q1 2020 included inventory excess and obsolescence charges with an unfavorable 5.6 percentage-point impact. Higher operating costs reflected increased stock-based compensation, R&D personnel costs and professional fees, as well as $1.3 million of restructuring charges.
Cash, liquidity and debt
- Cash and cash equivalents were $49.8 million at March 31, 2021, versus $23.6 million at year-end. Short-term investments were $69.6 million, down from $82.5 million. Cash, cash equivalents and short-term investments totaled $119.3 million.
- Working capital was $61.5 million. Current assets were $173.7 million and current liabilities were $112.2 million.
- Operating cash flow was $9.4 million, compared with $1.8 million a year earlier; management attributed the 2021 inflow mainly to working-capital contribution, including lower cash use for inventory purchases. Investing activities provided $8.3 million and financing activities provided $8.5 million, chiefly from investment maturities and employee equity-plan proceeds, respectively.
- The company had $86.3 million principal amount of 2.00% convertible notes due 2026. Their $84.0 million carrying value was classified as current at quarter-end because holders could convert under the note terms. The notes were convertible at holders’ option; their if-converted value exceeded principal by $55.7 million at the March 31 share price. The company may settle conversions in cash, stock or a combination, at its election.
- Management said available cash, cash equivalents and short-term investments were expected to cover anticipated cash needs for at least 12 months. Contractual obligations totaled $139.7 million, including $23.6 million of purchase commitments and $19.5 million of net operating lease commitments.
Material changes, outlook and risks
- Demand and supply: Management reported recovering demand for endpoint ICs and systems, but said global semiconductor wafer shortages, limited foundry capacity and insufficient 300mm post-processing capacity constrained the ability to meet demand. M700 demand exceeded supply in Q1, with the company expecting that to continue in Q2. Reader IC packaging delays and component shortages also constrained systems supply; packaging delays were expected to continue through Q2.
- Costs and pricing: The company anticipated higher wafer, packaging and component costs and delayed supply in 2021. It warned that if it cannot offset higher costs through pricing, margins could be pressured. Endpoint IC selling prices declined due to product mix and annual price negotiations.
- COVID-19 and market uncertainty: COVID-19 continued to affect customer deployments, retail demand, travel and supply chains. Management said it could not reasonably estimate the extent or duration of future impacts. End-user demand and channel inventory visibility remain limited, and quarterly results may be volatile.
- Investment and guidance: Impinj said it planned to continue investing in R&D and long-term RAIN opportunities, while adjusting investment as business conditions warrant. The supplied filing text does not provide clear numerical revenue or earnings guidance.
- Restructuring: A February 2021 go-to-market reorganization was expected to eliminate about seven positions, approximately 2% of the workforce, and be substantially completed by June 30, 2021.
- Accounting change: Adoption of ASU 2020-06 on January 1, 2021 increased reported debt and reduced additional paid-in capital; it also eliminated amortization of the notes’ debt discount. Prior-year comparative figures were not restated, limiting direct comparison of interest expense and debt carrying values.
- Legal matters: Patent litigation between Impinj and NXP remained ongoing in the United States and China; outcomes were uncertain. A shareholder derivative settlement requiring corporate governance changes and up to $900,000 in plaintiffs’ counsel fees, funded by insurers, was awaiting final court approval. The company reported no accrued contingency liabilities at quarter-end.
- Other key risks include concentrated customer and channel relationships, uncertain RAIN adoption and deployment timing, competition, inventory misforecasting, potential product defects, intellectual-property disputes, cybersecurity and privacy issues, and possible dilution or cash needs related to convertible notes.
Most important facts for investors to verify
- Whether endpoint IC and systems demand can be fulfilled as wafer, post-processing, packaging and component constraints evolve.
- Whether revenue recovery, product mix, selling prices and rising supply costs support sustainable gross margins after the benefit from selling reserved inventory fades.
- How channel inventories and end-user deployments develop, particularly in retail and supply-chain and logistics markets.
- Potential cash or share settlement and dilution exposure from the convertible notes, including the capped-call terms and share-price thresholds.
- Developments and potential costs or business effects from the NXP patent cases and shareholder derivative settlement.
- Execution and cash costs of the restructuring, and the effect of continued R&D and capital spending on liquidity.