Impinj, Inc. — Q1 2019 Form 10-Q
Business context and reporting period. The filing covers the three months ended March 31, 2019. Impinj provides RAIN RFID endpoint ICs, reader ICs, modules, readers, gateways and software; it reports one operating segment. Results are unaudited.
Financial results and liquidity
- Revenue: $33.1 million, up $8.0 million from $25.1 million in Q1 2018. Endpoint IC revenue was $21.8 million (prior period: $19.4 million); systems revenue was $11.2 million (prior period: $5.7 million).
- Profitability: Gross profit was $15.9 million and gross margin 48.0%, compared with $11.8 million and 46.9%. Operating loss was $6.9 million, versus $14.3 million; net loss was $7.1 million, or $0.33 per diluted share, versus $14.4 million, or $0.68 per share.
- Non-GAAP measures: Adjusted EBITDA loss was $2.3 million, versus $7.1 million; non-GAAP net loss was $2.4 million, versus $7.3 million. These are company-defined non-GAAP measures and are not substitutes for GAAP results.
- Cash flow: Operating activities used $0.7 million, compared with $11.5 million used in Q1 2018. Investing activities provided $0.4 million and financing activities provided $1.4 million. Cash and cash equivalents increased to $18.7 million from $17.5 million at year-end.
- Liquidity: Cash, cash equivalents and short-term investments totaled $56.6 million; working capital was $92.8 million. Current assets were $117.3 million and current liabilities $24.5 million.
- Debt and commitments: At quarter-end, principal borrowings were $23.4 million: $20.0 million of term loans and $3.4 million of equipment advances; no revolver borrowings were outstanding. Rates were 6.25% and 6.75%, respectively. The company reported compliance with credit-facility covenants. It had $15.1 million of committed inventory purchases.
Material changes versus Q1 2018
- Revenue and gross profit rose primarily on higher systems sales, especially reader ICs and gateways, and higher endpoint IC sales. Endpoint IC shipments increased 35%; lower average selling prices partly offset volume and mix gains.
- Systems revenue increased $5.6 million and endpoint IC revenue increased $2.4 million. Higher-margin systems made up a larger share of sales, lifting gross margin by 1.1 percentage points.
- Operating loss narrowed by $7.3 million, reflecting higher gross profit and the absence of the $3.9 million restructuring charge recorded in Q1 2018. Higher stock-based compensation partly offset the improvement.
- Stock-based compensation rose to $3.5 million from $2.1 million. Interest expense increased to $0.4 million from $0.2 million, primarily due to higher average borrowings.
Outlook, commentary and risks
- Management said existing cash, investments and available credit borrowings should cover anticipated cash needs for at least the next 12 months. The filing provides no specific revenue or earnings guidance.
- Management expects endpoint ICs to remain the majority of revenue, while systems revenue is expected to grow as a share of sales. It expects R&D expense to increase in absolute dollars and sales and marketing expense to remain broadly constant. Management cautioned that quarterly demand and deployment timing are difficult to predict.
- Demand depends on adoption of RAIN technology, particularly in retail, and on customer deployment schedules, channel-partner execution and end-user integration. Competition and price erosion may pressure average selling prices and margins; inventory forecasting and reliance on third-party manufacturers also create supply and obsolescence risks.
- On April 26, 2019, after quarter-end, the company amended its credit facility: the $25 million revolving facility maturity was extended to May 1, 2021, and existing term debt and equipment advances were refinanced into a $23.5 million term loan, maturing April 1, 2023. Amortization begins May 1, 2020 after a 12-month interest-only period; the filing says rates and financial covenants were unchanged.
- Legal matters: Securities class actions and shareholder derivative actions remain pending; one federal class action was dismissed, and the consolidated federal case was subject to a motion to dismiss. A New York securities action was stayed pending updates on the federal cases. No related litigation liability was recorded; management said it believed resolution would not materially adversely affect the financial statements, while noting inherent uncertainty.
- Operating leases were recognized on the balance sheet following adoption of the new lease standard on January 1, 2019; the company recorded $18.7 million of net right-of-use assets and $25.3 million of lease liabilities at adoption. Prior-period figures were not adjusted, and adoption did not affect results of operations.
Most important facts for investors to verify
- Whether systems growth and the improvement in gross margin persist, given endpoint IC price declines and the company’s product-mix sensitivity.
- Actual end-user demand, deployment timing and channel inventory levels, particularly in retail, and whether inventory commitments align with demand.
- Cash consumption, liquidity, debt amortization and compliance with credit-facility covenants, including the effects of the April 2019 refinancing.
- Developments and potential costs in the securities and derivative litigation, including any change to management’s assessment.
- Whether planned investment in products, software and market expansion translates into sustained revenue growth and a path to profitability; the company continued to report losses and had an accumulated deficit of $246.8 million.