Impinj, Inc. — Q2 2016 Form 10-Q
Reporting period: Three and six months ended June 30, 2016. Amounts below are in millions of dollars unless stated otherwise. The filing describes Impinj’s business as an integrated RAIN RFID platform spanning endpoint and reader ICs, readers, gateways, and software; it sells primarily through channel partners.
Financial performance
| Metric | Q2 2016 | Q2 2015 | Six months 2016 | Six months 2015 |
|---|---|---|---|---|
| Total revenue | $25.988 | $19.123 | $47.619 | $35.188 |
| Gross profit / margin | $13.592 / 52.3% | $10.163 / 53.1% | $24.690 / 51.8% | $18.191 / 51.7% |
| Operating income (loss) | $0.222 | $1.210 | ($1.646) | $0.477 |
| Net income (loss) | ($0.254) | $0.974 | ($2.584) | $0.069 |
| Adjusted EBITDA | $1.320 | $1.929 | $0.499 | $1.916 |
Product revenue was $25.862 million in Q2 and $47.413 million for the first half; development, service, and licensing revenue was comparatively small. Six-month net loss attributable to common stockholders was $8.234 million, including $5.650 million of preferred-stock accretion; Q2 common-stockholder loss was $3.079 million, including $2.825 million of accretion. Basic and diluted loss per share attributable to common stockholders was $0.71 for Q2 and $1.92 for the first half.
For the first half, operating cash use was $6.316 million, investing cash use was $1.048 million, and financing provided $11.675 million. Cash increased $4.311 million to $14.432 million. Working capital was $19.8 million at June 30.
Balance sheet, debt, and liquidity
At June 30, cash was $14.432 million, inventory $19.228 million (up from $11.837 million at year-end 2015), and total assets $68.455 million. Total liabilities were $57.176 million. Senior-credit-facility term and revolver borrowings were $23.5 million gross, plus $5.0 million under an 18% mezzanine loan; the senior facility’s weighted-average rate was 5.5%. The company reported compliance with debt covenants. Substantially all assets other than intellectual property secured the credit facilities.
Subsequent to quarter-end, the July 26 IPO generated $69.2 million of net proceeds. Impinj repaid the $5.0 million mezzanine loan and, in July, $13.0 million of revolver borrowings. The filing states that existing cash and available credit were expected to cover anticipated needs for at least 12 months, based on the current operating plan.
Changes, outlook, and notable items
- Revenue grew 35.3% in the first half and 35.9% in Q2 year over year, largely due to higher endpoint IC shipments, especially Monza R6. Reader and gateway shipment volumes also rose, while lower average selling prices and volume discounts partly offset growth.
- First-half operating expenses rose 48.7% to $26.336 million, with increases across research and development, sales and marketing, and general and administrative costs. Impinj said it expects these expenses to increase in absolute dollars as it invests in product development, sales, and growth.
- Management said product average selling prices may fluctuate but are expected to decline over time. It cited uncertain RAIN adoption, channel-partner dependence, deployment timing, demand forecasting, product mix, and supplier capacity as factors affecting results. No specific revenue or earnings guidance is provided.
- Management attributed higher year-over-year interest expense partly to the 18% mezzanine debt, which was repaid after the IPO. The company also expects software revenue to grow over time but said it was not material to date and may remain modest in the near term.
- Disclosure controls were deemed ineffective at June 30 because a previously reported material weakness in accounting for complex matters had not been remediated. Prior errors included restatements related to the 2012 recapitalization and earnings per share, and a 2015 cash-flow presentation issue.
- Key risks include uncertain RAIN market adoption, customer and channel concentration, price erosion and margin pressure, inventory and supply-chain exposure, competition, intellectual-property disputes, and international operating risks. The filing reports no material legal proceedings as of the report date.
Important facts for investors to verify
- Whether the post-IPO proceeds, mezzanine repayment, and revolver repayment materially improved liquidity and reduced interest costs.
- Whether Monza R6 and other product shipment growth can continue without further average-selling-price or gross-margin deterioration.
- Whether elevated inventory converts to sales as expected and does not require material write-downs.
- Progress in remediating the material weakness and establishing effective disclosure and financial-reporting controls.
- Actual RAIN adoption, channel-partner and major-customer demand, and compliance with debt covenants as operating conditions change.