Impinj(PI) - 2022 Q4 - Annual Report

Key Financial Highlights (FY 2022 vs FY 2021) | Financial Metric | FY 2022 | FY 2021 | Change | % Change | | :--- | :--- | :--- | :--- | :--- | | Revenue | $257.8 M | $190.3 M | +$67.5 M | +35.5% | | Gross Profit | $137.9 M | $99.0 M | +$38.9 M | +39.3% | | Gross Margin | 53.5% | 52.0% | +1.5 pts | N/A | | Loss from Operations | ($19.5 M) | ($37.2 M) | +$17.7 M | -47.7% | | Net Loss | ($24.3 M) | ($51.3 M) | +$27.0 M | -52.6% | | Adjusted EBITDA | $28.9 M | $9.1 M | +$19.8 M | +217.4% | - The company's vision is to create a boundless Internet of Things (IoT) by wirelessly connecting everyday physical items to the cloud using its RAIN RFID platform[19][212] - Key risks highlighted include operating in a very competitive market, reliance on a limited number of third-party suppliers, vulnerability to silicon wafer shortages, and a history of financial losses[14] PART I Business Impinj provides a RAIN RFID platform connecting items to IoT, serving retail and logistics via partners - The Impinj platform is comprised of two main product families: Endpoint ICs, which are miniature radios-on-a-chip that connect items, and Systems, which include reader ICs, readers, and gateways that communicate with the endpoint ICs[21][26][29] - The company's growth strategy focuses on developing enterprise solutions with partners, enhancing its platform, leading the RAIN silicon market, making reading ubiquitous, and investing in cloud services[39] Revenue Concentration from Major Customers | Customer | 2022 | 2021 | 2020 | | :--- | :--- | :--- | :--- | | Avery Dennison | 28% | 32% | 32% | | Arizon | 10% | 11% | 10% | | Total | 38% | 43% | 42% | - Impinj outsources all product manufacturing to third parties, including TSMC and Tower for IC wafers and Plexus Corp. for readers and gateways, allowing the company to focus resources on product development[41][43][44] - As of December 31, 2022, the company's intellectual property portfolio included 296 issued and allowed U.S. patents and five international patents[38][48] Risk Factors The company faces risks from competition, supply chain, customer concentration, and litigation - The company operates in a highly competitive market against competitors like NXP, STMicroelectronics, and Zebra, which have greater financial and operational resources[65][66] - Impinj is vulnerable to silicon wafer shortages and relies on a limited number of third-party manufacturers without long-term supply contracts, which can adversely affect its ability to meet product demand[96][97] - A large share of revenue is derived from a small number of customers. In 2022, sales to Avery Dennison and Arizon accounted for 28% and 10% of total revenue, respectively[118][119] - The company is engaged in several patent infringement lawsuits with NXP, which are costly, time-consuming, and could result in the loss of significant rights[131] - Impinj has a history of losses, with a net loss of $24.3 million for the year ended December 31, 2022, and an accumulated deficit of $386.8 million. The company has only achieved profitability intermittently and cannot guarantee sustained profitability[158] Unresolved Staff Comments This section is not applicable as the company reports no unresolved SEC staff comments - The company reports that this item is not applicable[193] Properties Impinj leases office and laboratory facilities, including its Seattle headquarters, which are deemed adequate Principal Leased Properties as of December 31, 2022 | Location | Purpose | Approx. Square Feet | Lease Expiration | | :--- | :--- | :--- | :--- | | Seattle, WA | Corporate headquarters | 109,000 | 2026 | | Seattle, WA | Design laboratory | 11,000 | 2024 | | Seattle, WA | Design laboratory | 29,000 | 2029 | | Shanghai, China | General office space | 4,000 | 2023 | Legal Proceedings The company is involved in ongoing patent infringement litigation with competitor NXP, with uncertain outcomes - Impinj is engaged in patent infringement lawsuits with competitor NXP. The litigation began in June 2019 when Impinj filed a suit, followed by a countersuit from NXP in October 2019. The legal proceedings are ongoing[198] Mine Safety Disclosures This section is not applicable to the company's operations - The company reports that this item is not applicable[199] PART II Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities Impinj's common stock trades on Nasdaq under "PI"; the company has no plans for cash dividends - The company's common stock has traded on The Nasdaq Global Select Market under the symbol "PI" since July 21, 2016[202] - Impinj has never declared or paid a cash dividend and currently intends to apply available funds and future earnings to grow the business[204] Reserved This section is intentionally left blank - This item is reserved and contains no information[209] Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses 2022 performance, revenue growth, supply constraints, liquidity, and accounting policies Results of Operations Revenue increased by 35.5% to $257.8 million in 2022, driven by IC and systems sales, narrowing operating loss Consolidated Results of Operations (in thousands) | | 2022 | 2021 | 2020 | | :--- | :--- | :--- | :--- | | Revenue | $257,800 | $190,283 | $138,923 | | Gross Profit | $137,884 | $98,954 | $65,140 | | Gross Margin | 53.5% | 52.0% | 46.9% | | Loss from Operations | ($19,479) | ($37,249) | ($47,071) | Revenue by Product Category (in thousands) | Category | 2022 | 2021 | 2020 | | :--- | :--- | :--- | :--- | | Endpoint ICs | $191,532 | $139,250 | $102,326 | | Systems | $66,268 | $51,033 | $36,597 | | Total Revenue | $257,800 | $190,283 | $138,923 | - The increase in Endpoint IC revenue in 2022 was driven by a $35.5 million increase from higher Average Selling Prices (ASPs) and a $16.8 million increase from higher shipment volumes[246] Reconciliation of Net Loss to Adjusted EBITDA (in thousands) | | 2022 | 2021 | 2020 | | :--- | :--- | :--- | :--- | | Net loss | ($24,301) | ($51,260) | ($51,923) | | Adjustments | $53,207 | $60,372 | $39,857 | | Adjusted EBITDA | $28,906 | $9,112 | ($11,533) | Liquidity and Capital Resources Impinj held $173.7 million in cash as of December 2022, funding operations via cash flow, equity, and debt offerings - As of December 31, 2022, the company had cash, cash equivalents, and short-term investments of $173.7 million and working capital of $232.8 million[282] - In November 2021, the company issued $287.5 million in 1.125% convertible senior notes due 2027. Net proceeds were approximately $278.4 million[290][291] - The company repurchased all of its outstanding 2019 Notes, completing the final repurchase of $9.85 million in principal in June 2022 for approximately $17.6 million in cash[289][300] Summary of Cash Flows (in thousands) | Activity | 2022 | 2021 | 2020 | | :--- | :--- | :--- | :--- | | Net cash from operating activities | $641 | $6,465 | ($16,877) | | Net cash used in investing activities | ($102,799) | ($18,642) | ($36,287) | | Net cash from (used in) financing activities | ($2,148) | $112,444 | $9,902 | Critical Accounting Policies and Significant Estimates Critical accounting policies involve significant judgment in revenue recognition, inventory, income taxes, and stock compensation - Critical accounting policies and estimates are those most important to the portrayal of the company's financial condition and results, requiring difficult, subjective, or complex judgments[308] - Key areas of estimation include revenue recognition (especially for contracts with multiple performance obligations), inventory valuation (assessing excess and obsolete inventory), income taxes (including the valuation allowance for deferred tax assets), and stock-based compensation (determining fair value of awards)[313] Quantitative and Qualitative Disclosures About Market Risk Impinj faces market risks from interest rates, inflation, and foreign currency, with current impact deemed low - The company's primary market risks are related to fluctuations in interest rates, inflation, and foreign currency exchange[326][330][331] - Interest rate risk is considered low, as the investment portfolio is short-term in nature and the convertible notes have fixed interest rates[328][329] - Foreign currency risk from subsidiaries is not currently material, as the functional currency is the U.S. dollar[331][333] Financial Statements and Supplementary Data This section presents the company's audited consolidated financial statements and accompanying notes for 2020-2022 Consolidated Balance Sheet Summary (in thousands) | | Dec 31, 2022 | Dec 31, 2021 | | :--- | :--- | :--- | | Total Current Assets | $275,170 | $255,802 | | Total Assets | $349,737 | $315,537 | | Total Current Liabilities | $42,369 | $35,503 | | Total Liabilities | $334,146 | $326,613 | | Total Stockholders' Equity (Deficit) | $15,591 | ($11,076) | Consolidated Statement of Operations Summary (in thousands) | | 2022 | 2021 | 2020 | | :--- | :--- | :--- | :--- | | Revenue | $257,800 | $190,283 | $138,923 | | Gross Profit | $137,884 | $98,954 | $65,140 | | Loss from Operations | ($19,479) | ($37,249) | ($47,071) | | Net Loss | ($24,301) | ($51,260) | ($51,923) | | Net Loss per Share | ($0.95) | ($2.12) | ($2.28) | Changes in and Disagreements With Accountants on Accounting and Financial Disclosure The company reported no changes or disagreements with accountants on financial disclosure - None reported[503] Controls and Procedures Management concluded disclosure controls and internal financial reporting controls were effective as of December 31, 2022 - Management, including the CEO and principal financial officer, concluded that the company's disclosure controls and procedures were effective as of December 31, 2022[504] - Management concluded that the company's internal control over financial reporting was effective as of December 31, 2022, based on the COSO 2013 framework. This assessment was audited by Ernst & Young LLP, which issued an unqualified opinion[505][506][511] Other Information No other information was reported in this section - None reported[520] Disclosure Regarding Foreign Jurisdictions that Prevent Inspections No information was reported regarding foreign jurisdictions preventing inspections - None reported[521] PART III Part III incorporates governance, compensation, and related party information by reference from the proxy statement - Information required for Items 10, 11, 12, 13, and 14 is incorporated by reference from the company's definitive proxy statement for the 2023 annual meeting of stockholders, to be filed within 120 days of the fiscal year-end[523][525][526] PART IV Part IV lists financial statements, schedules, and exhibits filed with the Form 10-K Exhibits, Financial Statement Schedules This section lists financial statements and exhibits, with financial statements located in Item 8 - This item lists the financial statements filed as part of the report (under Item 8) and provides an index of all exhibits filed[530][532] Form 10-K Summary The company did not provide a summary for its Form 10-K - None provided[538]