Impinj, Inc. — FY 2019 Form 10-K
Reporting period: Fiscal year ended December 31, 2019. The filing is an annual report, not a standalone fourth-quarter filing; quarterly figures below are unaudited. Impinj sells RAIN RFID endpoint chips, reader and gateway systems, and related software. Endpoint ICs remain its largest revenue source.
Financial and operating results
| Metric | FY 2019 | FY 2018 |
|---|---|---|
| Revenue | $152.8 million | $122.6 million |
| Gross profit / margin | $74.0 million / 48.4% | $58.3 million / 47.5% |
| Operating loss | $21.7 million | $34.9 million |
| Net loss | $23.0 million | $35.2 million |
| Operating cash flow | $4.7 million provided | $11.8 million used |
| Cash, cash equivalents and short-term investments | $116.5 million | $56.1 million |
| Working capital | $157.3 million | $98.2 million |
| Long-term debt, carrying value | $50.9 million | $23.6 million |
- Revenue increased 24.6%. Endpoint IC revenue rose to $97.7 million from $85.0 million, principally on higher shipment volume; systems revenue rose to $55.2 million from $37.7 million, driven mainly by readers and gateways.
- Gross margin improved 0.9 percentage point, reflecting a larger share of higher-margin systems revenue and operating leverage, partly offset by inventory excess and obsolescence charges, which reduced 2019 gross margin by 1.7 percentage points.
- Operating expenses were $95.7 million, up from $93.2 million. Higher research and development and stock-based compensation contributed to expense growth. Net loss narrowed, but the company remained loss-making.
- Fourth-quarter revenue was $40.8 million, versus $34.6 million in Q4 2018; gross margin was 48.8%, versus 47.1%. Q4 net loss was $7.7 million, compared with $6.0 million.
- Non-GAAP adjusted EBITDA was $1.6 million for FY 2019, versus a loss of $13.8 million in 2018; non-GAAP net income was $0.9 million, versus a loss of $14.2 million. These company-defined measures exclude specified items and are not substitutes for GAAP results.
- Investing cash outflow was $13.1 million and financing cash inflow was $57.8 million. Operating cash flow improved partly because inventory purchases used less cash.
Liquidity, debt and capital
- At year-end, cash and short-term investments totaled $116.5 million. Management stated that available funds should meet anticipated cash needs for at least the next 12 months under its current operating plan.
- In December 2019, Impinj issued $86.3 million principal amount of 2.00% convertible senior notes due 2026. Net proceeds were approximately $83.5 million; $24.0 million was used to repay and terminate the senior credit facility, and $10.1 million was paid for capped-call transactions. The notes’ initial conversion price was approximately $34.55 per share; conversion may be settled in cash, stock or a combination at the company’s election.
- The balance sheet carries the notes at $50.9 million after accounting for the debt discount and issuance costs; contractual obligations include the $86.3 million principal and interest. Net operating lease commitments were $23.0 million after expected sublease income.
Changes, outlook and material risks
- Management expects endpoint ICs to remain a majority of revenue. It plans continued investment in product development, platform integration, sales reach and end-user adoption; the filing provides no quantified financial guidance.
- RAIN adoption remains uneven and difficult to forecast. Retail is the largest end market, while discrete systems deployments can cause substantial period-to-period swings. The company expected a large North American gateway project contributing 14% of 2019 revenue to finish in Q1 2020.
- Average selling prices generally decline, with endpoint IC pricing typically renegotiated annually. Higher endpoint IC mix can pressure gross margins; pricing reductions may not be offset by volume growth or cost reductions.
- Customer and supplier concentration are significant: Avery Dennison and Smartrac represented 19% and 12% of 2019 revenue, respectively; a North American systems customer represented 14%. Avery Dennison announced a planned acquisition of Smartrac’s RAIN inlay business, which could increase customer concentration if completed.
- Manufacturing is outsourced, with single-source wafer suppliers for endpoint ICs (TSMC) and reader ICs (TowerJazz), and no long-term supply agreements with several key suppliers. Capacity, lead times, inventory forecasting and product qualification may affect supply and sales.
- The filing identified COVID-19-related travel and work restrictions and disruption to testing, production, distribution and sales; as of the filing date, the ultimate operational and financial effects were uncertain. It also cited potential 2020 wafer-capacity constraints, tariffs and international trade uncertainty.
- Legal matters include Impinj’s patent litigation with NXP, including reciprocal infringement claims and NXP challenges to Impinj patents, plus pending securities class actions and derivative litigation. The company said outcomes were uncertain; it had not recorded litigation liabilities at year-end.
- Other notable matters: the president and COO announced his resignation effective March 2020; the company reported a $262.7 million accumulated deficit and a history of losses. Management reported effective disclosure controls and internal control over financial reporting at year-end; the auditor did not attest to internal controls because Impinj remained an emerging growth company.
Most important facts for investors to verify
- Whether 2020 revenue growth can be sustained after the expected completion of the large gateway project, and whether new deployments replace that project revenue.
- Endpoint IC shipment volumes, annual pricing changes, product mix, and inventory charges—and their effect on gross margin and cash generation.
- Progress and customer qualification of the M700 endpoint IC, including any production or partner delays and the resulting market-share impact.
- Customer concentration following the proposed Avery Dennison–Smartrac transaction, and the durability of demand from the North American systems customer.
- Supplier capacity and continuity, especially at TSMC and TowerJazz, and the effects of COVID-19, tariffs or other supply-chain disruption.
- Convertible-note dilution, conversion and repayment terms, capped-call coverage and the company’s future cash needs.
- Developments and potential costs or outcomes in the NXP patent disputes and securities litigation.