Impinj(PI) - 2023 Q3 - Quarterly Report

Risk Factor Summary Impinj faces intense competition, uncertain RAIN RFID adoption, supply chain reliance, IP disputes, and a history of losses - Operates in a very competitive market, with RAIN RFID adoption concentrated in key industries and uncertain beyond[8] - Reliance on limited third-party suppliers and potential for silicon/component shortages[8] - History of losses and intermittent profitability, with significant fluctuations in quarterly and annual operating results[8] - Executive officers, directors, and principal stockholders beneficially owned approximately 54.6% of outstanding common stock as of September 30, 2023, enabling significant influence[8] - Potential inability to satisfy obligations under the $287.5 million aggregate principal amount 1.125% convertible senior notes due 2027[8] PART I. — FINANCIAL INFORMATION Item 1. Financial Statements (Unaudited) Presents unaudited condensed consolidated financial statements, including balance sheets, operations, cash flows, and equity changes Condensed Consolidated Balance Sheets Condensed Consolidated Balance Sheets (in thousands) | Item | Sep 30, 2023 | Dec 31, 2022 | | :--------------------------------- | :----------- | :----------- | | Assets: | | | | Cash and cash equivalents | $78,100 | $19,597 | | Short-term investments | $35,129 | $154,148 | | Inventory | $106,806 | $46,397 | | Total current assets | $272,963 | $275,170 | | Goodwill | $19,049 | $3,881 | | Total assets | $363,601 | $349,737 | | Liabilities: | | | | Total current liabilities | $33,758 | $42,369 | | Long-term debt | $281,449 | $280,244 | | Total liabilities | $328,801 | $334,146 | | Stockholders' Equity: | | | | Total stockholders' equity | $34,800 | $15,591 | - Total assets increased by $13.9 million from December 31, 2022, to September 30, 2023, primarily driven by increases in cash and cash equivalents and inventory, partially offset by a decrease in short-term investments[10] - Total stockholders' equity significantly increased by $19.2 million, from $15.6 million to $34.8 million, over the nine-month period[10] Condensed Consolidated Statements of Operations Condensed Consolidated Statements of Operations (in thousands, except per share data) | Item | Three Months Ended Sep 30, 2023 | Three Months Ended Sep 30, 2022 | Nine Months Ended Sep 30, 2023 | Nine Months Ended Sep 30, 2022 | | :--------------------------------- | :------------------------------ | :------------------------------ | :----------------------------- | :----------------------------- | | Revenue | $65,005 | $68,270 | $236,888 | $181,210 | | Cost of revenue | $34,237 | $30,835 | $118,776 | $83,494 | | Gross profit | $30,768 | $37,435 | $118,112 | $97,716 | | Loss from operations | $(15,834) | $(1,744) | $(28,645) | $(19,535) | | Net loss | $(15,762) | $(2,199) | $(28,186) | $(24,183) | | Net loss per share — basic and diluted | $(0.59) | $(0.09) | $(1.06) | $(0.95) | - For the three months ended September 30, 2023, revenue decreased by 4.8% year-over-year, and net loss significantly increased to $15.8 million from $2.2 million[12] - For the nine months ended September 30, 2023, revenue increased by 30.7% year-over-year, but net loss also increased to $28.2 million from $24.2 million, driven by higher operating expenses[12] Condensed Consolidated Statements of Comprehensive Loss Condensed Consolidated Statements of Comprehensive Loss (in thousands) | Item | Three Months Ended Sep 30, 2023 | Three Months Ended Sep 30, 2022 | Nine Months Ended Sep 30, 2023 | Nine Months Ended Sep 30, 2022 | | :--------------------------------- | :------------------------------ | :------------------------------ | :----------------------------- | :----------------------------- | | Net loss | $(15,762) | $(2,199) | $(28,186) | $(24,183) | | Unrealized gain (loss) on investments | $223 | $(504) | $1,060 | $(1,691) | | Foreign currency translation adjustments | $(900) | $— | $(813) | $— | | Total other comprehensive gain (loss) | $(677) | $(504) | $247 | $(1,691) | | Comprehensive loss | $(16,439) | $(2,703) | $(27,939) | $(25,874) | - Comprehensive loss for the three months ended September 30, 2023, was $16.4 million, significantly higher than the $2.7 million loss in the prior year, primarily due to increased net loss and foreign currency translation adjustments[14] - For the nine months ended September 30, 2023, comprehensive loss was $27.9 million, with a positive total other comprehensive gain of $0.2 million, contrasting with a loss in the prior year[14] Condensed Consolidated Statements of Cash Flows Condensed Consolidated Statements of Cash Flows (in thousands) | Item | Nine Months Ended Sep 30, 2023 | Nine Months Ended Sep 30, 2022 | | :--------------------------------- | :----------------------------- | :----------------------------- | | Net cash provided by (used in) operating activities | $(50,809) | $6,813 | | Net cash provided by (used in) investing activities | $101,480 | $(86,304) | | Net cash provided by (used in) financing activities | $7,890 | $(5,102) | | Net increase (decrease) in cash and cash equivalents | $58,503 | $(84,593) | | Cash and cash equivalents, End of period | $78,100 | $39,310 | - Operating activities used $50.8 million in cash for the nine months ended September 30, 2023, a significant shift from generating $6.8 million in the prior year, primarily due to increased working capital usage for inventory[17][152] - Investing activities generated $101.5 million, largely from investment maturities and sales, contrasting with a usage of $86.3 million in the prior year[17][154] - Financing activities generated $7.9 million, mainly from stock option exercises and the employee stock purchase plan[17][156] Condensed Consolidated Statements of Changes in Stockholders' Equity Condensed Consolidated Statements of Changes in Stockholders' Equity (in thousands) | Item | Dec 31, 2022 | Sep 30, 2023 | | :--------------------------------- | :----------- | :----------- | | Total Stockholders' Equity | $15,591 | $34,800 | | Key Changes (9M 2023): | | | | Issuance of common stock | | $7,890 | | Stock-based compensation | | $35,679 | | Net loss | | $(28,186) | | Common stock issued for Voyantic acquisition | | $3,579 | - Total stockholders' equity increased from $15.6 million at December 31, 2022, to $34.8 million at September 30, 2023, primarily driven by $47.1 million in additional paid-in capital from stock issuances and stock-based compensation[18] - This increase was partially offset by a net loss of $28.2 million and other comprehensive losses during the nine-month period[18] Notes to Condensed Consolidated Financial Statements Note 1. Summary of Significant Accounting Policies - The condensed consolidated financial statements are prepared in conformity with U.S. GAAP and SEC interim reporting rules, with certain information and note disclosures condensed or omitted[21] - Business combinations, such as the acquisition of Voyantic Oy in April 2023, are accounted for using the acquisition method, involving fair value estimates for assets, liabilities, and contingent consideration[23][24] - Goodwill is calculated as the excess of the purchase price over net assets acquired, and identifiable intangible assets with finite lives are amortized on a straight-line basis[25][26] - Foreign currency translation adjustments for non-U.S. dollar functional currency subsidiaries are recognized in accumulated other comprehensive income (loss)[27] - Management's financial statements rely on estimates and assumptions, particularly for revenue recognition, inventory, income taxes, and fair value of stock awards[28] Note 2. Fair Value Measurements - Assets and liabilities are measured at fair value using a three-level hierarchy: Level 1 for quoted prices in active markets (e.g., money market funds), Level 2 for observable market data (e.g., fixed income securities), and Level 3 for unobservable inputs (e.g., contingent consideration liability)[31][32][33][34] - The contingent consideration liability from the Voyantic Oy acquisition, valued at approximately $4.6 million as of September 30, 2023, is classified as Level 3 and estimated using a Monte Carlo simulation[34] Assets and Liabilities Measured at Fair Value (in thousands) | Item | Sep 30, 2023 (Total) | Dec 31, 2022 (Total) | | :--------------------------------- | :------------------- | :------------------- | | Assets at Fair Value: | | | | Money market funds (Level 1) | $60,628 | $14,620 | | Short-term investments (Level 2) | $35,129 | $154,148 | | Long-term investments (Level 2) | $— | $19,200 | | Total assets at fair value | $95,757 | $187,968 | | Liabilities at Fair Value: | | | | Acquisition-related contingent consideration liability (Level 3) | $4,602 | $— | | Total liabilities at fair value | $4,602 | $— | - As of September 30, 2023, total estimated fair value of investments was $95.8 million with gross unrealized losses of $189 thousand, primarily due to changes in interest rates[37][38] Note 3. Inventory Inventory (in thousands) | Item | Sep 30, 2023 | Dec 31, 2022 | | :----------------- | :----------- | :----------- | | Raw materials | $14,908 | $14,678 | | Work-in-process | $54,128 | $14,525 | | Finished goods | $37,770 | $17,194 | | Total inventory | $106,806 | $46,397 | - Total inventory significantly increased to $106.8 million as of September 30, 2023, from $46.4 million at December 31, 2022, primarily driven by a substantial rise in work-in-process and finished goods inventory[39] Note 4. Goodwill and Intangible Assets - On April 3, 2023, Impinj acquired Voyantic Oy for an aggregate purchase price of $32.7 million, including $3.6 million in common stock and $4.6 million in contingent consideration, adding label design, manufacturing, and test systems[40] - The preliminary purchase price allocation resulted in $15.6 million in goodwill and $18.4 million in identifiable intangible assets, with goodwill representing expected synergies and assembled workforce[41] Goodwill (in thousands) | Item | Nine Months Ended Sep 30, 2023 | | :--------------------------------- | :----------------------------- | | Balance at beginning of period | $3,881 | | Additions from acquisition | $15,590 | | Foreign currency translation adjustment | $(422) | | Total | $19,049 | Definite-lived Intangible Assets (in thousands, as of Sep 30, 2023) | Item | Estimated Useful Life (Years) | Net | | :--------------------------------- | :---------------------------- | :----------- | | Developed Technology | 7.25 | $11,630 | | Customer Relationships | 1 | $1,773 | | Tradename | 8 | $1,091 | | Patent | 3 | $233 | | Total definite-lived intangible assets | (Weighted average: 6) | $14,727 | - Amortization of intangible assets was $1.4 million for the three months and $3.6 million for the nine months ended September 30, 2023[43] Note 5. Stock-Based Awards Stock-Based Awards Activity (in thousands, 9M 2023) | Item | RSUs | MSUs | PSUs | | :--------------------------------- | :----- | :----- | :----- | | Outstanding at Dec 31, 2022 | 1,310 | 110 | 74 | | Granted | 424 | 126 | — | | Vested | (521) | (58) | (57) | | Forfeited | (40) | (4) | (17) | | Outstanding at Sep 30, 2023 | 1,173 | 174 | — | Total Stock-Based Compensation Expense (in thousands) | Period | 2023 | 2022 | | :--------------------------------- | :----------- | :----------- | | Three Months Ended Sep 30, | $12,307 | $10,057 | | Nine Months Ended Sep 30, | $35,679 | $32,230 | - Total stock-based compensation expense for the nine months ended September 30, 2023, increased to $35.7 million from $32.2 million in the prior year[47] Note 6. Commitments and Contingencies - Committed to purchase $30.9 million of inventory as of September 30, 2023[49] - In patent infringement claims against NXP in California, a jury awarded Impinj $36.6 million in damages, later reduced to $13.1 million for one patent, with a new trial granted for the other. Impinj's motion for a permanent injunction was denied and appealed[53][54][55] - In NXP's patent infringement claims against Impinj in Washington, a jury found Impinj did not infringe, and NXP has appealed the judgment[59] - NXP withdrew all three patent infringement lawsuits against Impinj in China on September 27, 2023, concluding all civil actions initiated by NXP against Impinj in China[67] Note 7. Long-term debt - Impinj has $287.5 million aggregate principal amount of 1.125% convertible senior notes due May 15, 2027 (2021 Notes), with a net carrying value of $281.4 million as of September 30, 2023[68] 2021 Notes Carrying Value (in thousands) | Item | Sep 30, 2023 | Dec 31, 2022 | | :--------------------------------- | :----------- | :----------- | | Principal Amount | $287,500 | $287,500 | | Unamortized debt issuance costs | $(6,051) | $(7,256) | | Net Carrying Amount | $281,449 | $280,244 | - Interest expense for the nine months ended September 30, 2023, was $3.6 million, primarily from the 2021 Notes[73] - The fair value of the 2021 Notes was estimated at $251.9 million as of September 30, 2023, classified as Level 2[74] - Capped-call transactions related to the repurchased 2019 Notes remain outstanding, designed to reduce potential dilution from conversion, with an initial cap price of $54.20 per share[75] Note 8. Net Loss Per Share Net Loss Per Share (in thousands, except per share amounts) | Item | Three Months Ended Sep 30, 2023 | Three Months Ended Sep 30, 2022 | Nine Months Ended Sep 30, 2023 | Nine Months Ended Sep 30, 2022 | | :--------------------------------- | :------------------------------ | :------------------------------ | :----------------------------- | :----------------------------- | | Net loss | $(15,762) | $(2,199) | $(28,186) | $(24,183) | | Weighted-average shares outstanding — basic and diluted | 26,920 | 25,743 | 26,639 | 25,384 | | Net loss per share — basic and diluted | $(0.59) | $(0.09) | $(1.06) | $(0.95) | - Basic and diluted net loss per share for the three months ended September 30, 2023, was $(0.59), and for the nine months, it was $(1.06)[77] - Common stock equivalents, including stock options, RSUs, MSUs, PSUs, employee stock purchase plan shares, and 2021 Notes, were excluded from diluted EPS calculation as their effect would have been antidilutive[77] Note 9. Segment Information - Impinj operates as a single reportable and operating segment focused on the development and sale of RAIN products and services[78] Revenue by Category (in thousands) | Category | Three Months Ended Sep 30, 2023 | Three Months Ended Sep 30, 2022 | Nine Months Ended Sep 30, 2023 | Nine Months Ended Sep 30, 2022 | | :----------------- | :------------------------------ | :------------------------------ | :----------------------------- | :----------------------------- | | Endpoint ICs | $48,592 | $51,155 | $180,546 | $132,804 | | Systems | $16,413 | $17,115 | $56,342 | $48,406 | | Total revenue | $65,005 | $68,270 | $236,888 | $181,210 | - For the three months ended September 30, 2023, Endpoint ICs revenue decreased by 5.0% YoY, and Systems revenue decreased by 4.1% YoY[79] - For the nine months ended September 30, 2023, Endpoint ICs revenue increased by 36.0% YoY, and Systems revenue increased by 16.4% YoY[79] Note 10. Deferred Revenue - Deferred revenue, primarily from extended warranty, enhanced product maintenance, and advance payments on non-recurring engineering (NRE) services, totaled $2.8 million as of September 30, 2023[80][81] Changes in Deferred Revenue (in thousands) | Item | Nine Months Ended Sep 30, 2023 | Nine Months Ended Sep 30, 2022 | | :--------------------------------- | :----------------------------- | :----------------------------- | | Balance at beginning of period | $2,599 | $794 | | Opening balance from Voyantic acquisition | $1,233 | — | | Deferral of revenue | $2,477 | $3,058 | | Recognition of deferred revenue | $(3,557) | $(700) | | Balance at end of period | $2,752 | $3,152 | - The company recognized $2.1 million of revenue related to amounts included in deferred revenue as of December 31, 2022, for the nine months ended September 30, 2023[80] Note 11. Related-Party Transactions - Cathal Phelan, a board member, transitioned from a consulting role (paid $385,000 in 9M 2022) to Chief Innovation Officer on January 1, 2023[82] - In June 2023, Impinj acquired a patent for $250,000 from a related party where another board member holds an executive position; this patent is included in intangible assets[83] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Management's analysis of financial condition and operations, covering performance factors, liquidity, and critical accounting policies Our Business - Impinj's vision is a boundless Internet of Things, connecting every physical item to a digital twin in the cloud, with a mission to connect every 'thing'[87][88] - The platform comprises endpoint ICs (miniature radio ICs for item identification), systems (reader ICs, readers, gateways, software, cloud services, and test & measurement solutions from Voyantic Oy acquisition), and a partner ecosystem[89] - The platform utilizes RAIN RFID technology, which Impinj spearheaded, believing its capabilities (battery-free, 30-foot range, non-line-of-sight, high read rate, cryptographic authentication, low cost) position it as the leading item-to-cloud connectivity technology for IoT[91][92] Factors Affecting Our Performance - Inventory levels fluctuate due to demand misestimation, manufacturing capacity, and macroeconomic conditions; 2023 saw inventory overages due to demand softness, following 2021-2022 wafer shortfalls[93] - The company continues to invest in R&D to enhance its platform, focusing on retail self-checkout, loss prevention, and supply chain & logistics package tracking, with investment outcomes remaining uncertain[95][96] - Financial performance depends on the pace and scope of end-user RAIN adoption in key industries, which has been uneven and impacted by macroeconomic conditions and supply chain disruptions[98][99] - Average Selling Prices (ASPs) generally decline over time but increased in 2021-2023 to offset rising costs; inability to manage these dynamics could impact revenue and gross margins[106] - Seasonal trends, such as Q1 pricing renegotiations for endpoint ICs and stronger Q4 system sales, were not observed in 2022 and may not be in 2023 due to market variabilities[107][108][109] Results of Operations Results of Operations Summary (in thousands, except percentages) | Item | Three Months Ended Sep 30, 2023 | Three Months Ended Sep 30, 2022 | Nine Months Ended Sep 30, 2023 | Nine Months Ended Sep 30, 2022 | | :--------------------------------- | :------------------------------ | :------------------------------ | :----------------------------- | :----------------------------- | | Revenue | $65,005 | $68,270 | $236,888 | $181,210 | | Gross profit | $30,768 | $37,435 | $118,112 | $97,716 | | Gross margin | 47.3% | 54.8% | 49.9% | 53.9% | | Loss from operations | $(15,834) | $(1,744) | $(28,645) | $(19,535) | - For Q3 2023, revenue decreased by 4.8% YoY, and gross profit decreased by 17.8% YoY, leading to a significant increase in loss from operations to $15.8 million[110][111] - For 9M 2023, revenue increased by 30.7% YoY, and gross profit increased by 20.9% YoY, but loss from operations still increased to $28.6 million due to higher operating expenses, particularly from the Voyantic Oy acquisition[110][112] Revenue Revenue by Product Category (in thousands) | Category | Three Months Ended Sep 30, 2023 | Three Months Ended Sep 30, 2022 | Nine Months Ended Sep 30, 2023 | Nine Months Ended Sep 30, 2022 | | :----------------- | :------------------------------ | :------------------------------ | :----------------------------- | :----------------------------- | | Endpoint ICs | $48,592 | $51,155 | $180,546 | $132,804 | | Systems | $16,413 | $17,115 | $56,342 | $48,406 | | Total revenue | $65,005 | $68,270 | $236,888 | $181,210 | - Q3 2023 Endpoint IC revenue decreased by $2.6 million YoY, primarily due to a $11.3 million decrease from average ASP (mix-driven), partially offset by higher shipment volumes[114] - Q3 2023 Systems revenue decreased by $0.7 million YoY, mainly due to lower shipment volumes, partially offset by revenue from test and measurement solutions and gateways[115] - 9M 2023 Endpoint IC revenue increased by $47.7 million YoY, driven by higher shipment volumes ($71.4 million increase) partially offset by lower average ASP ($23.6 million decrease)[116] - 9M 2023 Systems revenue increased by $7.9 million YoY, primarily due to overall higher shipment volumes, including increases from gateway and test and measurement solutions[117] Gross Profit and Gross Margin Gross Profit and Gross Margin (in thousands, except percentages) | Item | Three Months Ended Sep 30, 2023 | Three Months Ended Sep 30, 2022 | Nine Months Ended Sep 30, 2023 | Nine Months Ended Sep 30, 2022 | | :----------------- | :------------------------------ | :------------------------------ | :----------------------------- | :----------------------------- | | Cost of revenue | $34,237 | $30,835 | $118,776 | $83,494 | | Gross profit | $30,768 | $37,435 | $118,112 | $97,716 | | Gross margin | 47.3% | 54.8% | 49.9% | 53.9% | - For Q3 2023, gross profit decreased by $6.7 million (17.8%) and gross margin declined by 7.5 percentage points YoY, primarily due to decreased product margins in endpoint ICs (mix-driven) and systems (increased costs), along with higher excess and obsolescence charges[119] - For 9M 2023, gross profit increased by $20.4 million (20.9%), but gross margin still decreased by 4.0 percentage points YoY, mainly due to decreased product margins in endpoint ICs from product mix[120] Operating Expenses Operating Expenses (in thousands) | Item | Three Months Ended Sep 30, 2023 | Three Months Ended Sep 30, 2022 | Nine Months Ended Sep 30, 2023 | Nine Months Ended Sep 30, 2022 | | :--------------------------------- | :------------------------------ | :------------------------------ | :----------------------------- | :----------------------------- | | Research and development | $21,588 | $18,766 | $67,426 | $55,124 | | Sales and marketing | $10,073 | $9,326 | $30,678 | $28,239 | | General and administrative | $13,532 | $11,087 | $45,098 | $33,888 | | Amortization of intangibles | $1,409 | $— | $3,555 | $— | | Total operating expenses | $46,602 | $39,179 | $146,757 | $117,251 | - Research and development expense increased by $12.3 million for 9M 2023, driven by higher personnel expenses, product development costs, stock-based compensation, and infrastructure costs[123] - General and administrative expense increased by $11.2 million for 9M 2023, primarily due to higher professional services (including legal and Voyantic Oy acquisition transaction expenses) and personnel expenses[129] - Amortization of intangibles increased significantly due to the intangibles acquired as part of the Voyantic Oy acquisition in April 2023[131] Other Income, net Other Income, net (in thousands) | Period | 2023 | 2022 | | :--------------------------------- | :----------- | :----------- | | Three Months Ended Sep 30, | $1,090 | $774 | | Nine Months Ended Sep 30, | $3,620 | $1,367 | - Other income, net, primarily interest income on short-term investments, increased for both the three and nine months ended September 30, 2023, compared to the prior year periods, driven by an increase in interest rates[132] Induced Conversion Expense - The company recorded $2.2 million in induced conversion expense for the nine months ended September 30, 2022, related to the repurchase of the remaining $9.85 million principal amount of the 2019 Notes in June 2022. No such expense was incurred in 2023[133] Interest Expense Interest Expense (in thousands) | Period | 2023 | 2022 | | :--------------------------------- | :----------- | :----------- | | Three Months Ended Sep 30, | $1,213 | $1,205 | | Nine Months Ended Sep 30, | $3,633 | $3,716 | - Interest expense remained comparable for both the three and nine months ended September 30, 2023, compared to the prior year periods, primarily comprising cash interest and amortization of debt issuance costs on the company's debt[134][135] Income Tax Expense Income Tax Benefit (Expense) (in thousands) | Period | 2023 | 2022 | | :--------------------------------- | :----------- | :----------- | | Three Months Ended Sep 30, | $195 | $(24) | | Nine Months Ended Sep 30, | $472 | $(67) | - The company reported an income tax benefit for both the three and nine months ended September 30, 2023, attributed to the estimated effective tax rate, which incorporated the acquisition of Voyantic Oy[136] Non-GAAP Financial Measures - Impinj uses Adjusted EBITDA and Non-GAAP Net Income (Loss) as key measures to evaluate core operating performance, with definitions revised in 2023 to exclude acquisition transaction expenses and related purchase accounting adjustments[138][140][141] Adjusted EBITDA Reconciliation (in thousands) | Item | Three Months Ended Sep 30, 2023 | Three Months Ended Sep 30, 2022 | Nine Months Ended Sep 30, 2023 | Nine Months Ended Sep 30, 2022 | | :--------------------------------- | :------------------------------ | :------------------------------ | :----------------------------- | :----------------------------- | | Net loss | $(15,762) | $(2,199) | $(28,186) | $(24,183) | | Adjustments: | | | | | | Other income, net | $(1,090) | $(774) | $(3,620) | $(1,367) | | Interest expense | $1,213 | $1,205 | $3,633 | $3,716 | | Income tax expense (benefit) | $(195) | $24 | $(472) | $67 | | Depreciation and amortization | $3,668 | $1,483 | $9,734 | $4,456 | | Stock-based compensation | $12,307 | $10,057 | $35,679 | $32,230 | | Purchase accounting adjustments | $112 | $— | $388 | $— | | Induced conversion expense | $— | $— | $— | $2,232 | | Acquisition transaction expense | $4 | $— | $1,676 | $— | | Adjusted EBITDA | $257 | $9,796 | $18,832 | $17,151 | Non-GAAP Net Income (Loss) Reconciliation (in thousands) | Item | Three Months Ended Sep 30, 2023 | Three Months Ended Sep 30, 2022 | Nine Months Ended Sep 30, 2023 | Nine Months Ended Sep 30, 2022 | | :--------------------------------- | :------------------------------ | :------------------------------ | :----------------------------- | :----------------------------- | | Net loss | $(15,762) | $(2,199) | $(28,186) | $(24,183) | | Adjustments: | | | | | | Depreciation and amortization | $3,668 | $1,483 | $9,734 | $4,456 | | Stock-based compensation | $12,307 | $10,057 | $35,679 | $32,230 | | Purchase accounting adjustments | $112 | $— | $388 | $— | | Induced conversion expense | $— | $— | $— | $2,232 | | Acquisition transaction expense | $4 | $— | $1,676 | $— | | Income tax effects of adjustments | $(207) | $(878) | $(1,990) | $(1,385) | | Non-GAAP net income | $122 | $8,463 | $17,301 | $13,350 | Liquidity and Capital Resources - As of September 30, 2023, Impinj had $113.2 million in cash, cash equivalents, and short-term investments, with working capital of $239.2 million[144] - The company believes existing funds are sufficient to meet anticipated cash needs for at least the next 12 months and plans to continue investing in its platform[146] - The $287.5 million 2021 Notes are a key part of its long-term debt, with net proceeds used for repurchasing prior notes and general corporate purposes[148][149] - The company may explore additional financing sources, including equity, equity-linked, or debt financing, for future activities or acquisitions[147] Cash Flows Summary of Cash Flows (in thousands) | Activity | Nine Months Ended Sep 30, 2023 | Nine Months Ended Sep 30, 2022 | | :--------------------------------- | :----------------------------- | :----------------------------- | | Net cash provided by (used in) operating activities | $(50,809) | $6,813 | | Net cash provided by (used in) investing activities | $101,480 | $(86,304) | | Net cash provided by (used in) financing activities | $7,890 | $(5,102) | - For 9M 2023, operating activities used $50.8 million in cash, primarily due to increased working capital for inventory[152] - Investing activities generated $101.5 million, mainly from investment maturities and sales, partially offset by the Voyantic Oy acquisition and capital expenditures[154] - Financing activities generated $7.9 million, primarily from stock option exercises and the employee stock purchase plan[156] Cash Requirements and Contractual Obligations - Primary cash requirements are for operating expenses and capital expenditures[158] - As of September 30, 2023, the principal balance outstanding on the 2021 Notes is $287.5 million[159] - Total purchase commitments as of September 30, 2023, are $41.7 million, primarily consisting of $30.9 million for non-cancelable inventory purchases[160] - The company has no off-balance-sheet arrangements[161] Critical Accounting Policies and Significant Estimates - The preparation of financial statements requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenue, expenses, and related disclosures[162] - For detailed information on critical accounting policies and estimates, refer to Part II, Item 7 of the Annual Report on Form 10-K for the year ended December 31, 2022[162] Item 3. Quantitative and Qualitative Disclosures About Market Risk Discusses market risks from interest rates, inflation, and foreign currency, and the company's approach to managing them - Interest rate risk is managed by investing excess cash in short-term, highly liquid securities; a 10% increase in interest rates is not expected to materially affect the portfolio's fair value or results, and convertible notes have fixed interest rates[164][165][166] - Inflation risk has not materially affected the business to date, as higher product costs have been substantially offset by price increases; however, future inability to offset could adversely affect financial condition[167] - Foreign currency exchange risk is currently not material, but exposure is expected to become more significant as international operations grow[169] Item 4. Controls and Procedures Management concluded disclosure controls were effective, with no material changes to internal control over financial reporting - Management, including the CEO and CFO, evaluated and concluded that disclosure controls and procedures were effective at a reasonable assurance level as of September 30, 2023[170] - There were no changes that materially affected, or are reasonably likely to materially affect, internal control over financial reporting during the three months ended September 30, 2023[171] - The company recognizes that control systems provide reasonable assurance, not absolute, and are based upon certain judgments and assumptions[172] PART II. — OTHER INFORMATION Item 1. Legal Proceedings Impinj is involved in ongoing patent infringement lawsuits with NXP, with uncertain outcomes and potential for further litigation - Impinj is engaged in ongoing patent infringement lawsuits with NXP USA, Inc. and its parent NXP Semiconductors N.V., with both parties having filed claims against each other[176] - The ultimate outcome of the patent dispute remains uncertain, despite some verdicts, and additional lawsuits may be filed[176] - Further information on these lawsuits is detailed in Note 6 of the condensed consolidated financial statements[176] Item 1A. Risk Factors Details numerous risks impacting Impinj's business, covering platform, operations, relationships, IP, privacy, finance, tax, and securities - The report outlines a comprehensive set of risk factors that could materially impact Impinj's business, operating results, and financial condition[177] - Risks are categorized into several key areas, including those related to the company's platform, products, and technologies; personnel and business operations; relationships with partners and end users; intellectual property; privacy and cybersecurity; financial position and capital needs; U.S. federal income tax; and owning or trading securities[177] Risks Relating to Our Platform, Products and Technologies - Impinj operates in a highly competitive market against larger companies and potential new entrants, including those supported by the Chinese government, which could lead to pricing pressure or market share loss[178][179] - RAIN adoption is concentrated in key industries (e.g., retail apparel, SC&L), and the pace and extent of adoption beyond these industries are uncertain, making accurate forecasting difficult[180][182] - The company's ability to introduce new products and deliver platform solutions at scale is nascent and uncertain, requiring significant resources and successful partner integration[183][185][186] - Reliance on endpoint IC sales for most revenue, coupled with fluctuating Average Selling Prices (ASPs) and potential product quality issues, poses significant risks to revenue and gross margins[187][189][193] - Alternative technologies, changes in RAIN standards, or government spectrum regulations could negatively impact the business, and sales of some products could cannibalize revenue from others[200][201][204][207] Risks Relating to Our Personnel and Business Operations - Impinj relies on a limited number of third-party manufacturers without long-term supply contracts, exposing it to risks of capacity shortfalls, cost increases, and quality issues, particularly for silicon wafers and components[208][209][213] - Acquisitions, such as Voyantic Oy, pose integration challenges, potential dilution, and unforeseen expenditures, with foreign acquisitions involving additional risks[215][216] - The magnitude and duration of Covid-19's effects on product demand, supply, and costs remain uncertain[217][220] - Changes in global trade policies (tariffs, sanctions) and geopolitical instability (e.g., China-Taiwan tensions) could disrupt supply chains, international operations, and increase costs[221][224][227][231] - Business operations could be disrupted by natural disasters in areas where facilities or subcontractors are located, leading to production delays and financial losses[232] Risks Relating to Our Relationships with Partners and End Users - Reliance on a small number of customers (e.g., Avery Dennison, Arizon) for a large share of revenue reduces bargaining power and increases competition risk[234][235] - Selling primarily through partners limits direct visibility into end-user demand, increasing the risk of inaccurate forecasts or partners prioritizing competitors' products[238][239] - Growth strategy depends on successful strategic relationships with third-party solution providers; failure to develop or maintain these relationships could harm the business[240] - Inability to maintain or enhance brand recognition or reputation, particularly due to supply shortages or price increases, could negatively impact relationships with partners and end users[241][242] - Increasing attention to environmental, social, and governance (ESG) matters may cause additional costs or expose the company to risks if practices do not meet evolving standards[243] Risks Relating to Our Intellectual Property - Impinj's success depends on protecting its intellectual property (IP), but protection is limited outside the U.S., and enforcement is difficult, costly, and uncertain[244][245] - Ongoing patent infringement lawsuits with NXP are complex, costly, and uncertain, potentially leading to significant damages, injunctions, or licensing requirements, and could negatively impact relationships and RAIN adoption[246][247][249] - Participation in industry standards organizations (GS1, ISO) may require royalty-free or RAND licensing of its IP, potentially devaluing it or leading to disputes[251][252][253] - Reliance on third-party license agreements means impairment or termination could cause production or shipment delays[254] - The use of open-source software may expose the company to additional risks and could weaken its intellectual property rights[255] Risks Relating to Privacy and Cybersecurity - Concerns about RAIN technology compromising consumer privacy or facilitating theft could damage Impinj's reputation and deter customers[257] - Non-compliance with evolving data security and privacy laws (e.g., CCPA, GDPR) could result in regulatory actions, claims, litigation, and substantial costs[259][261] - Security breaches or incidents impacting Impinj's systems or third-party services could lead to reputational damage, loss of intellectual property, legal liabilities, and increased costs, with insurance potentially inadequate[265][266][267][268] Risks Relating to Our Financial Position and Capital Needs - Impinj has a history of losses and intermittent profitability, with an accumulated deficit of $386.8 million as of December 31, 2022; attaining sustained profitability is uncertain due to significant operating costs and market factors[269] - Quarterly and annual operating results have fluctuated significantly and are difficult to forecast, leading to potential impacts on profitability and stock price[270][271] - The company may need to raise additional capital, which could dilute stockholders, restrict operations, or impose financial covenants[274][275] - Management has broad discretion in spending capital, and ineffective deployment could harm the business, financial condition, and stock price[276][277] Risks Relating to U.S. Federal Income Tax - The ability to use federal net operating loss (NOL) carryforwards ($249.3 million) and research and development credit carryforwards ($22.3 million) may be limited by ownership changes under Sections 382 and 383 of the U.S. Internal Revenue Code[278][279] - The company is subject to income taxes in various jurisdictions, and the final determination of tax audits could materially differ from historical provisions[280] - Changes in tax laws (e.g., Inflation Reduction Act, global minimum tax proposals) could adversely affect tax rates and liabilities[281][283] - Taxing authorities may successfully assert that the company should have collected sales and use, value-added, or similar taxes, leading to assessments and penalties[284] Risks Relating to Owning or Trading Our Securities - The market price of Impinj's common stock has been and is expected to remain volatile due to various factors, including operating performance, market valuations, competitive announcements, supply interruptions, and geopolitical events, which can also lead to litigation[289][290][291] - Transactions related to the 2021 Notes, such as conversions or hedging activities by financial counterparties, could dilute existing stockholders or decrease the stock price[292][293] - Executive officers, directors, and principal stockholders beneficially own a significant percentage (54.6%) of the stock, allowing them to exercise substantial influence over stockholder approval matters, potentially delaying or preventing a change in control[295] - The company's ability to satisfy obligations under the 2021 Notes depends on future performance, and current/future indebtedness could restrict business operations[296][297] - Anti-takeover provisions in charter documents and state law could prevent or delay acquisitions, adversely affecting stock price, and bylaws may limit stockholders' choice of judicial forum for disputes[299][300][301] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds No unregistered sales of equity securities or use of proceeds to report during the period - No unregistered sales of equity securities or use of proceeds occurred during the reporting period[302] Item 3. Defaults Upon Senior Securities No defaults upon senior securities to report during the period - No defaults upon senior securities occurred during the reporting period[303] Item 4. Mine Safety Disclosures This item is not applicable to Impinj, Inc - This item is not applicable to the company[304] Item 5. Other Information No director or officer adopted or terminated a Rule 10b5-1 trading arrangement during the last fiscal quarter - No Rule 10b5-1 or non-Rule 10b5-1 trading arrangements were adopted or terminated by directors or officers during the last fiscal quarter[305] Item 6. Exhibits Lists exhibits filed with Form 10-Q, including corporate governance documents, certifications, and Inline XBRL documents - Key exhibits include the Amended and Restated Certificate of Incorporation, Amended and Restated Bylaws, and certifications of the Principal Executive Officer and Principal Financial Officer[306] - Inline XBRL documents for the condensed consolidated financial statements and the cover page are also filed[306] - The certifications attached as Exhibits 32.1 and 32.2 (Rule 13a-14(b)) are not deemed filed with the Securities and Exchange Commission[306] Signatures Signatures The report was duly signed on behalf of Impinj, Inc. by Cary Baker, Chief Financial Officer, on October 25, 2023 - The report was signed by Cary Baker, Chief Financial Officer (principal financial officer and duly authorized signatory)[310] - The signing date was October 25, 2023[310]