Impinj, Inc. — Q1 2017 Form 10-Q
Reporting period: Three months ended March 31, 2017; comparison is with Q1 2016 unless otherwise noted. Impinj sells RAIN RFID endpoint and reader ICs, readers, gateways and software. Its platform connects everyday items to business and consumer applications.
Key financial results
| Metric | Q1 2017 | Q1 2016 |
|---|---|---|
| Revenue | $31.7 million | $21.6 million |
| Gross profit / margin | $16.8 million / 52.9% | $11.1 million / 51.3% |
| Operating loss | $2.0 million | $1.9 million |
| Net loss | $2.2 million | $2.3 million |
| Adjusted EBITDA | $246,000 | $(821,000) |
| Operating cash flow | $(16.6) million | $(2.2) million |
Revenue rose 46.7%. Management attributed the increase primarily to higher Monza R6 endpoint IC shipments; over 110% of the net revenue increase came from that product family, offset in part by lower shipments of older Monza products and lower endpoint IC average selling prices. Reader and gateway shipments increased 24%, while selling prices declined due to sales mix. Gross margin improved 1.6 percentage points, reflecting product mix and supplier volume discounts, partly offset by lower selling prices.
Operating expenses increased 44.7% to $18.8 million, driven by higher personnel costs and growth-related spending in research and development, sales and marketing, and general and administrative functions. Net loss narrowed slightly; Q1 2016 common-stockholder loss per share was also affected by $2.8 million of preferred-stock accretion. Q1 2017 basic and diluted loss per share was $0.11.
Liquidity, debt and cash flow
At March 31, 2017, cash and cash equivalents were $7.3 million and short-term investments were $76.2 million, totaling $83.5 million; working capital was $122.2 million. Total assets were $167.1 million and stockholders’ equity was $125.2 million. Debt on the balance sheet was approximately $12.1 million, excluding $2.5 million of capital lease obligations. No revolver borrowings were outstanding at quarter-end.
Cash and cash equivalents fell $26.3 million during the quarter. Operating cash use rose to $16.6 million, principally reflecting an $11.5 million inventory build, a $3.6 million increase in accounts receivable and lower accrued compensation and related balances. Investing activities used $10.7 million, including net investment purchases and $1.2 million of capital expenditures. Financing provided $944,000.
Inventory increased to $39.2 million from $27.7 million at year-end, including higher work-in-process and raw materials. The company was committed to purchase $9.0 million of inventory at quarter-end.
Outlook, material developments and risks
- Management said existing cash, investments and available borrowing capacity were expected to meet anticipated cash needs for at least the next 12 months. No specific revenue or earnings guidance was provided.
- On April 24, 2017, the company amended its Silicon Valley Bank facility: a $25.0 million revolving facility, a $10.5 million term loan and approximately $1.7 million of equipment loans. The revolver capacity increased by $10.0 million and no longer had a borrowing-base requirement. Substantially all assets other than intellectual property secure the facility. Financial covenants apply if cash at the lender plus revolver availability falls below $50.0 million.
- Management expects continued investment in product development, sales and marketing, and headcount. It expects hardware average selling prices to fluctuate and generally decline over time; product mix and channel/customer deployment timing can affect margins and results.
- Key risks include uncertain and uneven RAIN adoption, dependence on endpoint IC demand and a limited number of channel partners, selling-price pressure, demand forecasting and inventory exposure, reliance on third-party manufacturers, competition, and the possibility that growth investments will not produce sustained profitability. The company reported an accumulated deficit of $189.4 million.
- A previously disclosed material weakness in internal control over financial reporting, involving accounting and disclosure of complex matters and associated with prior financial statement restatements, remained unremediated at March 31, 2017. Management reported disclosure controls and procedures were effective, but had not completed testing of remediation controls’ operating effectiveness.
- The company reported no material legal proceedings and no material changes to contractual obligations disclosed in its 2016 Form 10-K. It noted short-term investment exposure to interest rates and variable-rate borrowing; a 100-basis-point rate increase under the stated scenario was estimated to increase interest expense by approximately $259,000 over 12 months.
Most important facts for investors to verify
- Whether Monza R6 demand and broader RAIN deployments continue, and whether endpoint IC price reductions or product mix pressure gross margins.
- Whether the inventory build converts to sales without excess, obsolete inventory or further significant operating cash use.
- Current borrowing availability, debt balances, interest costs and compliance with the amended facility’s conditional financial covenants.
- Progress in remediating and testing the material weakness in financial reporting controls.
- Whether higher operating expenses and growth investments translate into sustained GAAP profitability and positive operating cash flow.