Impinj, Inc. — Q2 2018 Form 10-Q
Reporting period: Three and six months ended June 30, 2018. Dollar amounts below are in millions unless stated otherwise. Impinj sells endpoint ICs, reader ICs and modules, readers, gateways, and software for RAIN RFID applications.
Financial results and liquidity
| Metric | Q2 2018 | Q2 2017 | Six months 2018 | Six months 2017 |
|---|---|---|---|---|
| Revenue | $28.5 | $34.1 | $53.6 | $65.8 |
| Gross profit / margin | $13.7 / 47.9% | $18.2 / 53.3% | $25.4 / 47.4% | $34.9 / 53.1% |
| Operating loss | $(7.6) | $(0.8) | $(21.9) | $(2.8) |
| Net loss | $(7.7) | $(1.0) | $(22.2) | $(3.1) |
| Basic and diluted loss per share | $(0.36) | $(0.05) | $(1.04) | $(0.15) |
Q2 revenue fell 16.3% year over year; six-month revenue fell 18.6%. Endpoint IC revenue declined 24.2% in Q2 and 21.4% for the first half. Systems revenue rose 10.9% in Q2 but fell 9.4% for the first half. Gross margin contracted by 5.4 percentage points in Q2 and 5.7 points for the first half, primarily reflecting lower endpoint IC selling prices and product mix.
At June 30, cash, cash equivalents, and short-term investments totaled $52.8; working capital was $108.4. Cash and investments were $5.3 lower than at year-end 2017. Inventory increased to $53.3 from $47.1. Total liabilities were $44.9 and stockholders’ equity was $103.7. Term-loan borrowings were $20.0, with no revolver borrowings; the loan rate was 5.5%. Capital-lease obligations totaled approximately $1.2.
For the first half, operating cash use was $16.3, investing activities provided $0.6, and financing activities provided $12.0. Cash declined $3.8 to $15.5. Management stated that existing cash, investments, and available borrowings were expected to cover anticipated needs for at least 12 months.
Changes, outlook, and notable items
- Management attributed lower endpoint IC revenue to weaker shipment volumes—particularly Monza 4 and Monza 5—and lower average selling prices amid competition and product-mix changes. Reader IC shipment growth partially offset weaker reader and gateway shipments.
- Operating expenses rose year over year. First-half results include $3.7 of net restructuring costs. The February restructuring affected approximately 9% of employees and included office-space reductions; management said the plan was substantially complete. Q2 included a $0.2 restructuring benefit after a sublease was executed.
- Management expects continued investment in research and development, sales, and marketing, and anticipates endpoint IC prices may decline over time. It expects software revenue to remain modest for the foreseeable future. No specific revenue or earnings guidance is provided in the filing.
- In March, the company amended its credit facility, extending the $25.0 revolving facility to March 2020 and providing a $20.0 term loan. The facility includes liquidity-related financial covenants and security over substantially all assets other than intellectual property; the company reported covenant compliance at June 30. In August, it added a $4.0 equipment advance.
- Two securities class actions were filed in August 2018, alleging misleading statements about business prospects and financial condition. Impinj says it believes the claims are without merit; outcomes and potential damages cannot be estimated, and an adverse resolution could materially affect the company.
- Disclosure controls were assessed as ineffective because a previously identified material weakness in controls over complex accounting matters remained unremediated at June 30. The filing also says an audit committee investigation prompted by a former employee complaint found no credible supporting evidence and required no financial-statement adjustments.
- Key business risks include uncertain and uneven RAIN adoption, customer deployment delays, competition and pricing pressure, inventory forecasting, dependence on third-party manufacturers and channel partners, and retail-market exposure. Management said tariffs imposed in August could affect certain endpoint IC wafer SKUs.
Important facts for investors to verify
- Whether endpoint IC shipments and selling prices stabilize, and whether system-product growth resumes.
- Whether gross margin and operating cash use improve as revenue mix and inventory levels change.
- Available liquidity under the credit facility, the precise covenant calculations and thresholds, and any effect of additional borrowing.
- Progress in remediating the material weakness and improving disclosure controls.
- Developments and potential costs from the securities class actions, and the impact of tariffs and supplier or customer concentration.