Impinj, Inc. — Q1 2023 Form 10-Q
Reporting period: Three months ended March 31, 2023. Impinj develops and sells RAIN RFID products and services, including endpoint ICs and systems (reader ICs, readers, gateways, software and cloud services). It reports one operating segment and sells primarily through partners and distributors.
Financial performance and position
| Metric | Q1 2023 | Q1 2022 |
|---|---|---|
| Revenue | $85.9 million | $53.1 million |
| Gross profit / gross margin | $43.5 million / 50.7% | $28.8 million / 54.2% |
| Operating expenses | $48.0 million | $38.1 million |
| Operating loss | $4.4 million | $9.3 million |
| Net loss | $4.4 million; $0.17 per diluted share | $10.5 million; $0.42 per diluted share |
| Adjusted EBITDA (non-GAAP) | $8.6 million | $3.5 million |
| Non-GAAP net income | $8.7 million | $2.4 million |
| Cash used in operating activities | $26.6 million | $14.8 million |
Revenue increased 61.6% year over year. Endpoint IC revenue was $67.0 million, up $28.3 million; systems revenue was $18.8 million, up $4.5 million. Gross margin fell 3.5 percentage points, primarily because of lower endpoint IC product margins and product mix, partly offset by leverage on indirect costs. Operating loss narrowed as higher gross profit more than offset increased operating expenses. R&D expense rose $4.4 million and G&A expense rose $4.8 million; G&A reflected higher legal and acquisition-related professional fees and personnel costs.
At March 31, 2023, cash and cash equivalents were $37.5 million, short-term investments $117.1 million, and working capital $250.6 million. Long-term investments were $10.2 million. Total debt had a $280.6 million carrying amount and $287.5 million principal balance. Stockholders’ equity was $26.6 million. Inventory increased to $85.8 million from $46.4 million at year-end 2022; accounts receivable was $61.0 million.
Operating cash outflow reflected working-capital use, particularly higher inventory and receivables, partly offset by higher accounts payable. Investing activities provided $39.9 million, mainly from investment maturities and sales, offset by $7.6 million of property and equipment purchases. Financing activities provided $4.5 million, mainly from employee stock-plan proceeds.
Changes, outlook and management commentary
- Endpoint IC revenue growth was mainly volume-driven; lower ASPs reduced the increase by $3.2 million, primarily due to product mix. Systems growth reflected higher gateway and reader IC shipments, partly offset by lower reader shipments.
- Management said wafer supply was improving, but expected to build sustainable 200mm endpoint IC finished-goods inventory by Q2 2023 and said sustainable 300mm inventory could take until at least the second half of 2023. Reader-component tightness was expected to continue at least into mid-2023.
- Management expects R&D expense to increase in absolute dollars as it invests in product development. No specific revenue, profit or margin guidance is provided in the filing. Management said existing cash, cash equivalents and short-term investments should cover anticipated cash needs for at least the next 12 months under its current operating plan.
- On April 3, 2023, after quarter-end, Impinj acquired Voyantic Oy for €25.0 million (approximately $27.1 million), subject to net-debt and working-capital adjustments. Consideration included $3.6 million in Impinj shares, with the balance in cash; purchase accounting was in progress.
- Q1 purchase commitments totaled $67.4 million, including $56.0 million of inventory commitments. The company reported no accrued contingency liabilities. Patent litigation with NXP remained ongoing: Impinj’s California trial was scheduled for July 2023; NXP’s Washington case trial for June 2023; and the Texas trial for September 2023. Impinj stated it believed resolution of the claims would not materially adversely affect its financial statements, but outcomes remain uncertain.
Key risks and unusual items
- Supply constraints, price increases and inventory buildup may affect product availability, market share, margins and cash flow. Higher inventory and commitments increase exposure to demand changes and obsolescence.
- Revenue depends substantially on endpoint ICs, partner channels and a limited number of customers; adoption, deployments and quarterly results can be uneven. Retail apparel is the largest end market.
- The company had a history of losses and reported an accumulated deficit of $391.1 million. Its $287.5 million of 1.125% convertible notes mature in 2027; management flags risks around future cash generation and debt obligations.
- Q1 non-GAAP measures exclude $1.0 million of Voyantic acquisition transaction expense under definitions revised during the quarter. These measures are not substitutes for GAAP results.
- Management concluded disclosure controls were effective at a reasonable assurance level as of March 31, 2023; no material change in internal control over financial reporting was reported.
Important facts for investors to verify
- Whether wafer and reader-component availability improved as anticipated, and whether inventory can be converted into sales without margin pressure or obsolescence.
- Revenue and gross-margin trends by endpoint IC and systems, including the effects of product mix, ASPs and pricing actions.
- Cash-flow conversion, inventory and receivables levels, and the company’s capacity to fund operations, capital spending, the Voyantic acquisition and debt obligations.
- Voyantic’s final purchase accounting, cash consideration and integration results.
- Developments and potential financial or operational effects of the NXP patent cases.
- Customer concentration and end-user demand: Q1 customer concentration figures are not provided in the supplied filing text; the filing notes Avery Dennison and Arizon represented 28% and 10% of 2022 revenue, respectively.