Impinj, Inc. — Q2 2017 Form 10-Q
Reporting period: Quarter and six months ended June 30, 2017. Impinj sells RAIN RFID endpoint and reader ICs, systems-in-package, readers, gateways and software. Its manufacturing and sales model relies on third-party suppliers and channel partners.
Financial results
| Metric | Q2 2017 | Q2 2016 | Six months 2017 | Six months 2016 |
|---|---|---|---|---|
| Revenue | $34.1 million | $26.0 million | $65.8 million | $47.6 million |
| Gross profit | $18.2 million | $13.6 million | $34.9 million | $24.7 million |
| Gross margin | 53.3% | 52.3% | 53.1% | 51.8% |
| Operating income (loss) | ($0.8 million) | $0.2 million | ($2.8 million) | ($1.6 million) |
| Net income (loss) | ($1.0 million) | ($0.3 million) | ($3.1 million) | ($2.6 million) |
| Adjusted EBITDA (non-GAAP) | $1.4 million | $1.3 million | $1.7 million | $0.5 million |
Q2 revenue grew 31.3% year over year; six-month revenue grew 38.3%. Management attributed growth chiefly to higher Monza R6 endpoint IC shipments, partly offset by lower Monza 5 volumes and lower endpoint IC average selling prices. Reader and gateway shipment volumes also increased. Gross margin improved, reflecting product mix and supplier volume discounts, partly offset by selling-price declines.
Operating expenses rose 42% in Q2 to $19.0 million. General and administrative expense more than doubled to $4.8 million, including a $1.3 million increase in professional services. Higher personnel-related costs contributed to increases in research and development and sales and marketing. Q2 stock-based compensation was $1.3 million, versus $0.3 million a year earlier.
Q2 net loss widened year over year despite revenue growth, and the company recorded a six-month net loss of $3.1 million. Prior-year loss per share is not directly comparable: preferred-stock accretion increased the 2016 loss attributable to common stockholders, and weighted-average shares were much lower before the IPO conversion. Basic and diluted loss per share was ($0.05) in Q2 2017 and ($0.71) in Q2 2016.
Cash, liquidity and debt
- Cash and cash equivalents were $14.8 million and short-term investments were $59.7 million at June 30, 2017, totaling $74.5 million; working capital was $121.2 million.
- Operating cash flow was negative $22.8 million for the first six months, compared with negative $6.3 million a year earlier. Principal drivers included increases of $8.0 million in accounts receivable and $15.7 million in inventory. Inventory was $43.4 million, up from $27.7 million at year-end; the company had $14.1 million of inventory purchase commitments.
- Debt under the senior credit facility totaled approximately $11.8 million, including $10.2 million of term loans and $1.6 million of equipment loans; there were no revolver borrowings. The facility provides a $25 million revolving line, and the reported weighted-average interest rate was 4.2%. The company was in covenant compliance at quarter-end.
- Management stated that existing cash, investments and available borrowings should cover anticipated cash needs for at least 12 months. Debt is secured by substantially all company assets other than intellectual property. Financial covenants apply if specified cash, investment and revolver availability falls below $50 million.
Outlook, commentary and risks
- Management expects continued investment in product development, sales and marketing, and platform growth. It expects operating expenses to rise in absolute dollars.
- RAIN adoption and deployment timing are uncertain. Several large end users had delayed or slowed planned 2017 deployments; the company said this reduced its expectations for endpoint IC growth for the year. The filing gives no numerical revenue or earnings guidance.
- Management expects hardware selling prices to fluctuate and generally decline over time. Product mix, competitive pricing and customer discounting may affect margins; endpoint ICs generally have lower margins than other products.
- Demand forecasting is difficult because sales run through a multi-tiered partner channel and deployments can be delayed. Suppliers are concentrated and manufacturing is outsourced; inaccurate forecasts could cause shortages, excess inventory or obsolescence.
- A previously disclosed material weakness in internal control over financial reporting remained unremediated at June 30, 2017; remediation testing was not complete. Management nevertheless concluded disclosure controls and procedures were effective at that date.
- The filing reports no material legal proceedings as of its date. It identifies risks including customer and channel concentration, competition, intellectual-property claims, international operations and debt covenant compliance.
Important facts for investors to verify
- Whether delayed customer deployments resume and whether Monza R6 shipments sustain revenue growth.
- Whether inventory, receivables and operating cash use normalize as demand and shipments develop.
- Whether price declines, product mix and supplier costs preserve gross margins.
- Progress in testing and remediating the material weakness in financial reporting controls.
- Current debt availability, covenant headroom and compliance with the facility’s conditional financial tests.