Impinj, Inc. — Q3 2019 Form 10-Q
Reporting period: Quarter and nine months ended September 30, 2019. Impinj sells RAIN RFID endpoint ICs and systems products, including reader ICs, modules, readers, gateways and software, primarily through channel partners.
Financial performance and liquidity
- Q3 revenue: $40.8 million, up 18.5% from $34.4 million a year earlier. Endpoint IC revenue was $26.4 million; systems revenue was $14.4 million.
- Q3 profitability: Gross profit was $19.8 million and gross margin was 48.5%, compared with 48.1% in Q3 2018. Operating loss narrowed to $3.9 million from $6.8 million; net loss was $4.1 million, or $0.19 per share, versus $7.1 million, or $0.33 per share.
- Nine-month results: Revenue was $112.0 million, up 27.3%; gross margin was 48.3% versus 47.7%. Operating loss was $14.8 million versus $28.7 million, and net loss was $15.3 million versus $29.2 million.
- Non-GAAP measures: Q3 adjusted EBITDA was $2.1 million versus a loss of $0.9 million; nine-month adjusted EBITDA was $0.6 million versus a loss of $12.1 million. Q3 non-GAAP net income was $1.9 million versus a loss of $1.1 million; nine-month non-GAAP net income was $0.2 million versus a loss of $12.5 million. These company-defined measures exclude specified items and are not substitutes for GAAP results.
- Cash flow: Operating activities provided $0.2 million for the first nine months, compared with $16.7 million used in the prior-year period. Investing used $8.2 million and financing provided $7.4 million. Cash and cash equivalents declined to $16.9 million from $17.5 million at year-end 2018.
- Liquidity and debt: Cash, cash equivalents and short-term investments totaled $63.1 million; working capital was $105.0 million. Term-loan borrowings were $23.5 million, with no revolver borrowings. The term loan’s stated rate was 5.75%; the company reported compliance with credit-facility covenants.
Changes versus comparable periods
- Q3 endpoint IC revenue rose $2.7 million, primarily on 18% higher shipment volume, partly offset by lower average selling prices. Systems revenue rose $3.7 million, principally from a large gateway deployment and higher reader sales; reader IC sales declined.
- For the first nine months, endpoint IC shipment volume increased 26%. Systems revenue rose $15.2 million, driven mainly by gateway sales. Higher-margin systems revenue contributed to the improvement in year-to-date gross margin.
- Operating-loss improvement reflected higher gross profit and, year to date, lower operating expenses, including the absence of 2018 restructuring costs and lower investigation-related professional fees. Stock-based compensation and product-development costs increased.
Outlook, commentary and risks
- The filing gives no specific numerical revenue or earnings guidance. Management said existing cash, investments and available credit were expected to cover anticipated cash needs for at least 12 months. It expects R&D expense to increase as it develops products; it expects sales and marketing expense to remain broadly stable and notes G&A may rise with public-company compliance and litigation costs.
- Management describes RAIN adoption and large customer deployments as uneven and difficult to forecast. Retail is the largest end market; delays or cancellations, channel inventory changes, price pressure, product mix and supply constraints could affect revenue and margins.
- Q3 growth included a large-scale gateway deployment, making the durability and concentration of systems revenue important to assess. Endpoint ICs remain the majority of revenue and are subject to annual price negotiations and expected long-term price erosion.
- Material legal matters include pending federal securities class-action claims and patent litigation with NXP: Impinj sued NXP in June 2019, and NXP filed a separate infringement action in October. The filing says outcomes are uncertain; no related litigation liability was recorded at September 30.
- At September 30, the company had $12.4 million of non-cancelable inventory purchase commitments. Total contractual obligations were $66.1 million, including debt, leases and purchase commitments. Operating lease liabilities of $23.1 million were recognized following adoption of the new lease standard in 2019; adoption did not affect results of operations.
Important facts for investors to verify
- Whether gateway deployments and broader systems demand can be sustained, and how much revenue depends on a small number of customers or projects.
- Whether endpoint IC volume growth can offset lower selling prices and any unfavorable product-mix changes.
- How operating cash generation develops relative to reported losses, capital needs and the $23.5 million term loan; also verify the credit facility’s liquidity tests and covenant headroom.
- Developments, costs and potential business effects of the securities and NXP patent litigation, including any changes to the company’s assessment of contingencies.
- Inventory quality and purchase commitments, and whether management’s stated 12-month liquidity expectation remains supportable under changing demand.