Impinj, Inc. — Q2 2019 Form 10-Q
Reporting period: Three and six months ended June 30, 2019. Impinj sells RAIN RFID endpoint integrated circuits (ICs), reader ICs, modules, readers, gateways and software. Financial statement amounts below are in millions of dollars unless noted.
Financial results and liquidity
| Metric | Q2 2019 | Q2 2018 | Six months 2019 | Six months 2018 |
|---|---|---|---|---|
| Revenue | $38.2 | $28.5 | $71.3 | $53.6 |
| Gross profit / margin | $18.4 / 48.2% | $13.7 / 47.9% | $34.3 / 48.1% | $25.4 / 47.4% |
| Operating loss | $(4.0) | $(7.6) | $(10.9) | $(21.9) |
| Net loss | $(4.2) | $(7.7) | $(11.2) | $(22.2) |
| Adjusted EBITDA (non-GAAP) | $0.8 | $(4.0) | $(1.5) | $(11.2) |
| Non-GAAP net income (loss) | $0.7 | $(4.1) | $(1.8) | $(11.4) |
- Q2 revenue increased 34% year over year; six-month revenue increased 33%. Q2 diluted loss per share was $0.19, versus $0.36 in Q2 2018; six-month loss per share was $0.52, versus $1.04.
- Q2 endpoint IC revenue was $23.7 million and systems revenue was $14.5 million. Systems revenue rose from $8.5 million, primarily on a large gateway deployment and higher reader sales. Endpoint IC revenue rose from $20.0 million; shipment volume increased 27%, partly offset by lower average selling prices.
- Gross margin improved modestly, with higher-margin systems making up a greater share of revenue and better overhead absorption; higher excess and obsolete inventory charges partly offset these gains.
- Six-month operating cash flow was positive $1.8 million, versus negative $16.3 million in 2018, largely reflecting lower cash use for inventory. Investing cash flow was positive $0.4 million and financing cash flow positive $2.4 million.
- At June 30, cash and cash equivalents were $22.2 million and short-term investments $37.6 million, totaling $59.8 million. Working capital was $100.2 million. Inventory was $37.9 million, down from $44.7 million at year-end 2018.
- Debt outstanding was $23.5 million, with no revolving-credit borrowings; the term-loan rate was 6.25%. The company reported compliance with its credit-facility covenants. Current liabilities were $20.3 million and total liabilities $63.5 million.
Material changes versus the prior period
- Systems revenue grew 70% in Q2 and 81% for the first half, driven primarily by gateways, readers and reader ICs. Endpoint IC shipment volumes also increased, though pricing was lower due to mix and annual customer price renegotiations.
- Net losses narrowed and operating cash flow turned positive. Six-month operating expenses were lower year over year, in part because 2018 included $3.7 million of restructuring costs; higher stock-based compensation and interest expense partly offset improvement.
- Effective January 1, 2019, lease accounting adoption added operating lease right-of-use assets and liabilities. At June 30 these were $17.8 million and $23.8 million, respectively; adoption did not affect results of operations.
Outlook, risks, contingencies and unusual items
- Management gave no specific revenue or earnings guidance in the provided filing text. It expects current cash, investments and available credit to fund anticipated needs for at least 12 months. It expects R&D expense to rise in absolute dollars; sales and marketing and general and administrative expenses are expected to remain broadly stable, subject to variability described in the filing.
- Management emphasizes that RAIN adoption and customer deployments are uneven and difficult to forecast. Revenue can fluctuate with large, concentrated projects, channel demand, product mix, pricing, supply availability and inventory levels. Retail is the largest market, and endpoint ICs are expected to remain the majority of revenue.
- Key financial exposures include price erosion, excess or obsolete inventory, dependence on external manufacturers and a limited number of large customers and channel partners, variable-rate debt, and trade-policy/tariff uncertainty. The company had $17.3 million of non-cancelable inventory purchase commitments; total purchase commitments were $19.7 million.
- In April 2019, the company refinanced its term loan with a $23.5 million loan, initially interest-only for 12 months, with scheduled amortization beginning May 2020 and maturity in April 2023. Its $25 million revolving facility matures in May 2021. Substantially all assets other than intellectual property secure the facility.
- Federal securities class actions remained pending; defendants’ motion to dismiss had not been decided. A related New York state securities action and shareholder derivative actions were stayed. The company reported no litigation accruals, stating it did not consider a loss both probable and reasonably estimable. Separately, Impinj filed a patent-infringement lawsuit against NXP in June 2019, seeking damages and injunctive relief.
- Management concluded disclosure controls were effective as of June 30, 2019. A previously identified material weakness in internal control over financial reporting was reported as remediated at December 31, 2018.
Important facts for investors to verify
- Whether systems growth from the large gateway deployment is repeatable, and how customer concentration affects future sales.
- Trends in endpoint IC shipment volumes, average selling prices, product mix and inventory charges, which influence gross margin.
- Cash generation and liquidity relative to debt service, covenant thresholds, lease obligations and purchase commitments.
- Developments and potential costs or outcomes in the securities litigation and the NXP patent case; the filing provides no clear estimate of potential losses.
- Whether RAIN adoption, supply availability, tariffs and channel demand support management’s stated 12-month liquidity outlook.