Impinj, Inc. — Q1 2020 Form 10-Q
Reporting period: Three months ended March 31, 2020. Impinj develops and sells RAIN RFID products, including endpoint integrated circuits (ICs) and systems products. Financial statements are unaudited; amounts below are in U.S. dollars.
Financial performance and liquidity
| Metric | Q1 2020 | Q1 2019 / comparison |
|---|---|---|
| Revenue | $47.8 million | $33.1 million; up 44.6% |
| Endpoint IC revenue | $33.7 million | $21.8 million; up 54.2% |
| Systems revenue | $14.1 million | $11.2 million; up 26.1% |
| Gross profit / margin | $21.4 million / 44.7% | $15.9 million / 48.0%; margin down 3.3 percentage points |
| Operating loss | $3.4 million | $6.9 million |
| Net loss / diluted loss per share | $4.3 million / $0.19 | $7.1 million / $0.33 |
| Adjusted EBITDA (non-GAAP) | $3.0 million | Loss of $2.3 million |
| Operating cash flow | $1.8 million provided | $0.7 million used |
Cash and cash equivalents were $83.7 million and short-term investments were $35.5 million at quarter-end, totaling $119.2 million. Working capital was $161.3 million. Management said available cash, cash equivalents and investments were expected to fund anticipated needs for at least 12 months.
Long-term debt had a $51.8 million carrying value; the related 2026 convertible notes had $86.3 million principal outstanding, bear 2.00% stated interest and mature in December 2026. The notes’ accounting discount and issuance costs contributed to Q1 interest expense of $1.3 million, versus $0.4 million a year earlier. Operating lease liabilities totaled $21.5 million. The company also had $12.0 million in purchase commitments, including $10.5 million of non-cancelable inventory purchases.
Changes versus the prior year
- Revenue rose by $14.8 million, primarily on higher endpoint IC shipment volumes and, to a lesser extent, systems sales. Management attributed $7.2 million of endpoint IC volume growth to underlying customer business and new opportunities, and believes $6.2 million reflected customer purchasing concerns about supply constraints amid COVID-19.
- Gross margin fell from 48.0% to 44.7%. A $2.7 million inventory excess and obsolescence charge reduced gross margin by 5.6 percentage points; affected inventory related mainly to European-market endpoint ICs and gateways.
- Operating expenses increased $2.0 million to $24.8 million, including higher research and development and general and administrative costs, partly offset by lower sales and marketing expense. Stock-based compensation rose to $5.2 million from $3.5 million.
- Net loss narrowed despite higher interest expense. Operating cash flow improved to positive $1.8 million, while cash and equivalents increased to $83.7 million from $66.9 million at year-end 2019, partly reflecting investment maturities.
Outlook, risks and unusual items
- COVID-19: Management anticipated adverse effects on 2020 retail demand, deployments, results, cash flows and financial position, but said the financial impact could not be reliably estimated. It did not expect Q1’s 54% endpoint IC revenue growth to continue in Q2. The filing provides no quantified quarterly or full-year guidance.
- Some global system deployments were delayed; supplier closures or reduced capacity and transport disruption affected production and shipping. Impinj said it had fulfilled Q1 shipments and believed it had sufficient inventory for expected Q2 needs, while warning that supply and demand remained uncertain. M700 endpoint IC inlay availability and production ramp were delayed by more than two months.
- The company cited exposure to uneven RAIN adoption, retail weakness, customer and project concentration, channel inventory swings, pricing pressure, supplier dependence and product obsolescence. A North American systems customer represented 14% of 2019 revenue, with no orders beyond Q1 2020 disclosed in the filing.
- PPP loan after quarter-end: Impinj received approximately $5.8 million on April 22, 2020 under the Paycheck Protection Program, then informed its bank on April 24 that it would repay the note in full as soon as possible following new SBA guidance.
- Legal matters: Securities class actions and shareholder derivative actions remained pending or stayed; a federal securities case had a trial date set for February 1, 2021. Impinj and NXP had filed patent infringement suits against each other. The company recorded no litigation liability and said it believed resolution would not materially adversely affect its financial statements, while noting outcomes were uncertain.
- Management reported disclosure controls were effective at a reasonable assurance level as of March 31, 2020. It identified no material changes to internal control over financial reporting during the quarter.
Important facts for investors to verify
- Whether Q1 endpoint IC demand included significant customer preordering and how much demand persisted after Q1.
- COVID-19 effects on retail customers, system deployments, M700 availability, suppliers, logistics and inventory reserves.
- Progress in replacing project-based systems revenue, including the disclosed North American customer exposure.
- Gross-margin trends after the $2.7 million inventory charge and the effect of pricing, product mix and inventory obsolescence.
- Cash generation and liquidity relative to convertible-note obligations, lease commitments and planned inventory purchases; confirm repayment of the post-quarter PPP loan.
- Developments in the securities and NXP patent litigation, including any material change in estimated exposure or recorded contingencies.