Impinj, Inc. — Q2 2023 Form 10-Q
Reporting period: Three and six months ended June 30, 2023. Amounts below are in U.S. dollars; financial statement amounts are unaudited. Impinj develops and sells RAIN RFID endpoint ICs and systems, primarily through partners.
Financial performance
| Metric | Q2 2023 | Q2 2022 | Six months 2023 | Six months 2022 |
|---|---|---|---|---|
| Revenue | $86.0 million | $59.8 million | $171.9 million | $112.9 million |
| Gross profit | $43.8 million | $31.5 million | $87.3 million | $60.3 million |
| Gross margin | 51.0% | 52.7% | 50.8% | 53.4% |
| Operating loss | $8.4 million | $8.5 million | $12.8 million | $17.8 million |
| Net loss | $8.1 million | $11.5 million | $12.4 million | $22.0 million |
| Net loss per share, diluted | $0.30 | $0.45 | $0.47 | $0.87 |
- Q2 revenue increased 43.8% year over year. Endpoint IC revenue was $64.9 million, up $22.1 million; systems revenue was $21.1 million, up $4.1 million. Higher endpoint IC shipment volumes drove growth, partly offset by lower average selling prices. Systems growth included test and measurement solutions and gateway sales.
- Gross margin declined year over year, primarily from product mix and lower endpoint IC margins; systems margins also faced higher costs in Q2.
- Operating expenses rose to $52.2 million in Q2 from $40.0 million, including higher R&D and G&A spending and $2.1 million of acquired-intangible amortization. G&A also included acquisition-related costs and elevated legal expenses.
- Management-reported non-GAAP adjusted EBITDA was $10.0 million in Q2 and $18.6 million for the first half, versus $3.8 million and $7.4 million, respectively, in 2022. These non-GAAP measures exclude specified items and are not substitutes for GAAP results.
Cash, liquidity and debt
- At June 30, cash and cash equivalents were $45.2 million; short-term investments were $63.7 million; long-term investments were $6.0 million. Management cited $108.9 million of cash, cash equivalents and short-term investments and working capital of $232.7 million.
- Operating activities used $49.1 million of cash in the first half, compared with $7.6 million used in the prior-year period. The 2023 outflow primarily reflected working-capital use, including a $64.7 million increase in inventory and higher receivables, partly offset by higher payables.
- Investing activities provided $69.0 million, principally from investment maturities and sales, partly offset by $23.4 million paid for Voyantic and $13.2 million of property and equipment purchases. Financing activities provided $5.8 million, primarily from employee stock plans. Cash and cash equivalents increased $25.6 million to $45.2 million.
- Inventory was $112.3 million, up from $46.4 million at year-end 2022. Impinj reported $43.7 million of inventory purchase commitments and $56.1 million of total purchase commitments.
- Long-term debt carrying value was $281.0 million; the 2021 convertible notes have $287.5 million principal, mature May 15, 2027, and bear 1.125% stated interest. The notes are senior unsecured and have no financial covenants. Management said current cash, equivalents and short-term investments should cover anticipated needs for at least 12 months.
Changes, outlook and material matters
- Revenue increased substantially versus 2022, supported by higher shipment volumes. Management attributed lower gross margin to product mix and product-margin pressures. Operating losses narrowed only modestly in Q2 despite higher gross profit; first-half operating losses improved year over year.
- Impinj acquired Voyantic Oy on April 3, 2023, for an aggregate purchase price of $32.7 million, adding RFID inlay design, manufacturing and test systems. The preliminary allocation included $15.6 million of goodwill and $18.4 million of intangible assets. The acquisition did not materially affect reported revenue or net loss for the periods presented; contingent consideration could be up to €10 million (about $10.9 million), tied to performance, with $4.6 million recorded as a liability.
- The filing gives no specific numerical revenue, margin or earnings guidance. Management expects R&D expense to increase in absolute dollars as it invests in product development. It described near-term product margins as potentially volatile and demand as difficult to forecast.
- Management said wafer supply had improved and endpoint IC inventory was at a sustainable level as of June 30, 2023. However, softer second-half demand could create excess inventory, and isolated reader-component shortages could continue. Higher input costs, price increases, product mix, channel inventory, and uncertain retail and supply-chain adoption remain important operating risks.
- On July 14, 2023, after the quarter ended, a jury returned verdicts favorable to Impinj in its California patent case against NXP and awarded damages on two patents. The filing says the majority of the awards overlap; if both awards are upheld, total damages would be about $18.9 million. The court had yet to decide post-trial motions, and Impinj recognizes contingent gains only after all related contingencies are resolved. In a separate Washington case, a jury found no infringement by Impinj and final judgment was entered in its favor; Impinj’s motion for attorneys’ fees was pending.
- Other disclosed risks include customer and supplier concentration, dependence on third-party manufacturing without long-term supply contracts, competitive pressure, patent litigation, RAIN adoption uncertainty, and the ability to service or refinance the convertible notes. The company reported no accrued litigation contingency liabilities at June 30.
Important facts for investors to verify
- Whether elevated inventory converts to sales without excess, obsolescence or further working-capital pressure.
- Whether shipment growth can persist while ASPs and gross margins face mix, pricing and cost pressures.
- Subsequent court rulings and appeals in the NXP litigation, including whether any damages become final or collectible.
- Voyantic’s integration and performance against the revenue and gross-margin targets that determine contingent consideration.
- Liquidity and future cash generation relative to investment needs, purchase commitments and the $287.5 million notes due 2027.
- Customer concentration and supply-chain exposure, including wafer availability, component supply and reliance on a limited number of manufacturing partners.