10-Q 1 pi-10q_20180630.htm 10-Q pi-10q_20180630.htm

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549

 

FORM 10-Q

 

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 30, 2018

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

Commission File Number: 001-37824

 

IMPINJ, INC.

(Exact Name of Registrant as Specified in its Charter)

 

 

Delaware

 

91-2041398

(State or other jurisdiction of
incorporation or organization)

 

(I.R.S. Employer
Identification No.)

 

400 Fairview Avenue North, Suite 1200, Seattle, Washington

 

98109

(Address of principal executive offices)

 

(Zip Code)

Registrant’s telephone number, including area code: (206) 517-5300

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes      No  

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    Yes      No  

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer

 

  

Accelerated filer

 

 

 

 

 

Non-accelerated filer

 

  

Small reporting company

 

 

 

 

 

 

 

 

 

 

 

 

Emerging growth company

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.     

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes      No  

As of, September 6, 2018 24,412,612 shares of common stock were outstanding.

 

 

 


 

IMPINJ, INC.

QUARTERLY REPORT ON FORM 10-Q

 

Table of Contents

 

 

 

 

 

Page

 

 

PART I. — FINANCIAL INFORMATION

 

 

Item 1.

 

Financial Statements (Unaudited)

 

3

 

 

Condensed Consolidated Balance Sheets

 

3

 

 

Condensed Consolidated Statements of Operations

 

4

 

 

Condensed Consolidated Statements of Comprehensive Loss

 

5

 

 

Condensed Consolidated Statements of Cash Flows

 

6

 

 

Notes to Condensed Consolidated Financial Statements

 

7

Item 2.

 

Management’s Discussion and Analysis of Financial Condition and Results of Operations

 

17

Item 3.

 

Quantitative and Qualitative Disclosures About Market Risk

 

30

Item 4.

 

Controls and Procedures

 

31

 

 

PART II. — OTHER INFORMATION

 

 

Item 1.

 

Legal Proceedings

 

32

Item 1A.

 

Risk Factors

 

32

Item 2.

 

Unregistered Sales of Equity Securities and Use of Proceeds

 

58

Item 6.

 

Exhibits

 

58

 

 

Signatures

 

59

 

 

 

 

 

 

 

 

2


Table of Contents

 

PART I — FINANCIAL INFORMATION

 

Item 1.

Financial Statements (unaudited)

IMPINJ, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(in thousands, except par value, unaudited)

 

 

 

June 30,

 

 

December 31,

 

 

 

2018

 

 

2017

 

Assets:

 

 

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

15,500

 

 

$

19,285

 

Short-term investments

 

 

37,307

 

 

 

38,831

 

Accounts receivable, net

 

 

20,016

 

 

 

22,244

 

Inventory

 

 

53,278

 

 

 

47,083

 

Prepaid expenses and other current assets

 

 

1,533

 

 

 

2,359

 

Total current assets

 

 

127,634

 

 

 

129,802

 

Property and equipment, net

 

 

16,918

 

 

 

18,110

 

Other non-current assets

 

 

214

 

 

 

241

 

Goodwill and other intangible assets, net

 

 

3,881

 

 

 

3,881

 

Total assets

 

$

148,647

 

 

$

152,034

 

Liabilities and stockholders' equity:

 

 

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

 

 

Accounts payable

 

$

5,299

 

 

$

4,666

 

Accrued compensation and employee related benefits

 

 

5,992

 

 

 

5,729

 

Accrued liabilities

 

 

3,140

 

 

 

3,162

 

Accrued restructuring costs

 

 

1,590

 

 

 

 

Current portion of long-term debt

 

 

1,593

 

 

 

4,088

 

Current portion of capital lease obligations

 

 

703

 

 

 

936

 

Current portion of deferred rent

 

 

374

 

 

 

628

 

Current portion of deferred revenue

 

 

509

 

 

 

714

 

Total current liabilities

 

 

19,200

 

 

 

19,923

 

Long-term debt, net of current portion

 

 

18,266

 

 

 

5,500

 

Capital lease obligations, net of current portion

 

 

495

 

 

 

745

 

Long-term liabilities — other

 

 

560

 

 

 

532

 

Long-term restructuring liabilities

 

 

685

 

 

 

 

Deferred rent, net of current portion

 

 

5,495

 

 

 

5,891

 

Deferred revenue, net of current portion

 

 

219

 

 

 

501

 

Total liabilities

 

 

44,920

 

 

 

33,092

 

Stockholders' equity:

 

 

 

 

 

 

 

 

Preferred stock, $0.001 par value — 5,000 shares authorized, no shares issued and outstanding at June 30, 2018 and December 31, 2017

 

 

 

 

 

 

Common stock, $0.001 par value — 495,000 shares authorized, 21,395 and 20,973 shares issued and outstanding at June 30, 2018 and December 31, 2017, respectively

 

 

21

 

 

 

21

 

Additional paid-in capital

 

 

330,441

 

 

 

323,482

 

Accumulated other comprehensive loss

 

 

(36

)

 

 

(36

)

Accumulated deficit

 

 

(226,699

)

 

 

(204,525

)

Total stockholders' equity

 

 

103,727

 

 

 

118,942

 

Total liabilities and stockholders' equity

 

$

148,647

 

 

$

152,034

 

 

See accompanying notes to condensed consolidated financial statements.

 

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IMPINJ, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(in thousands, except per share data, unaudited)

 

 

 

Three Months Ended

 

 

Six Months Ended

 

 

 

June 30,

 

 

June 30,

 

 

 

2018

 

 

2017

 

 

2018

 

 

2017

 

Revenue

 

$

28,542

 

 

$

34,111

 

 

$

53,610

 

 

$

65,838

 

Cost of revenue

 

 

14,882

 

 

 

15,940

 

 

 

28,188

 

 

 

30,899

 

Gross profit

 

 

13,660

 

 

 

18,171

 

 

 

25,422

 

 

 

34,939

 

Operating expenses:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Research and development

 

 

8,363

 

 

 

7,119

 

 

 

16,366

 

 

 

14,462

 

Sales and marketing

 

 

8,023

 

 

 

7,044

 

 

 

16,882

 

 

 

14,380

 

General and administrative

 

 

5,061

 

 

 

4,822

 

 

 

10,286

 

 

 

8,909

 

Restructuring costs

 

 

(178

)

 

 

 

 

 

3,749

 

 

 

 

Total operating expenses

 

 

21,269

 

 

 

18,985

 

 

 

47,283

 

 

 

37,751

 

Loss from operations

 

 

(7,609

)

 

 

(814

)

 

 

(21,861

)

 

 

(2,812

)

Other income (expense), net

 

 

267

 

 

 

189

 

 

 

357

 

 

 

458

 

Interest expense

 

 

(351

)

 

 

(307

)

 

 

(580

)

 

 

(681

)

Loss before income taxes

 

 

(7,693

)

 

 

(932

)

 

 

(22,084

)

 

 

(3,035

)

Income tax expense

 

 

(39

)

 

 

(45

)

 

 

(90

)

 

 

(102

)

Net loss

 

$

(7,732

)

 

$

(977

)

 

$

(22,174

)

 

$

(3,137

)

Net loss per share — basic and diluted

 

$

(0.36

)

 

$

(0.05

)

 

$

(1.04

)

 

$

(0.15

)

Weighted-average shares outstanding — basic and diluted

 

 

21,333

 

 

 

20,636

 

 

 

21,229

 

 

 

20,491

 

 

See accompanying notes to condensed consolidated financial statements.

 

 

 

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IMPINJ, INC.

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS

(in thousands, unaudited)

 

 

 

Three Months Ended

 

 

Six Months Ended

 

 

 

June 30,

 

 

June 30,

 

 

 

2018

 

 

2017

 

 

2018

 

 

2017

 

Net loss

 

$

(7,732

)

 

$

(977

)

 

$

(22,174

)

 

$

(3,137

)

Other comprehensive loss, net of tax:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Unrealized gain / (loss) on investments

 

 

20

 

 

 

(4

)

 

 

 

 

 

(40

)

Total other comprehensive income / (loss)

 

 

20

 

 

 

(4

)

 

 

 

 

 

(40

)

Comprehensive loss

 

$

(7,712

)

 

$

(981

)

 

$

(22,174

)

 

$

(3,177

)

 

See accompanying notes to condensed consolidated financial statements.

 

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IMPINJ, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands, unaudited)

 

 

 

Six Months Ended

 

 

 

June 30,

 

 

 

2018

 

 

2017

 

Operating activities:

 

 

 

 

 

 

 

 

Net loss

 

$

(22,174

)

 

$

(3,137

)

Adjustments to reconcile net loss to net cash used in operating activities:

 

 

 

 

 

 

 

 

Depreciation

 

 

2,258

 

 

 

1,847

 

Stock-based compensation

 

 

4,678

 

 

 

2,623

 

Restructuring costs

 

 

(454

)

 

 

 

Accretion of discount or amortization of premium on short-term investments

 

 

(143

)

 

 

105

 

Amortization of debt issuance costs

 

 

39

 

 

 

48

 

Changes in operating assets and liabilities:

 

 

 

 

 

 

 

 

Accounts receivable

 

 

2,228

 

 

 

(8,042

)

Inventory

 

 

(6,195

)

 

 

(15,685

)

Prepaid expenses and other assets

 

 

864

 

 

 

724

 

Deferred revenue

 

 

(487

)

 

 

196

 

Deferred rent

 

 

(87

)

 

 

857

 

Accounts payable

 

 

579

 

 

 

(1,121

)

Accrued compensation and benefits

 

 

341

 

 

 

(1,886

)

Accrued liabilities

 

 

(34

)

 

 

691

 

Accrued restructuring costs

 

 

2,275

 

 

 

 

Net cash used in operating activities

 

 

(16,312

)

 

 

(22,780

)

Investing activities:

 

 

 

 

 

 

 

 

Purchases of investments

 

 

(19,154

)

 

 

(17,293

)

Proceeds from maturities of investments

 

 

20,800

 

 

 

24,362

 

Purchases of property and equipment

 

 

(1,071

)

 

 

(4,131

)

Net cash provided by investing activities

 

 

575

 

 

 

2,938

 

Financing activities:

 

 

 

 

 

 

 

 

Payments on capital lease financing obligations

 

 

(483

)

 

 

(557

)

Payments on term loans

 

 

(2,147

)

 

 

(688

)

Proceeds from term loans, net of debt issuance costs

 

 

12,379

 

 

 

 

Proceeds from exercise of stock options and employee stock purchase plan

 

 

2,203

 

 

 

2,933

 

Payments of deferred offering costs

 

 

 

 

 

(650

)

Net cash provided by financing activities

 

 

11,952

 

 

 

1,038

 

Net decrease in cash and cash equivalents

 

 

(3,785

)

 

 

(18,804

)

Cash and cash equivalents

 

 

 

 

 

 

 

 

Beginning of period

 

 

19,285

 

 

 

33,636

 

End of period

 

$

15,500

 

 

$

14,832

 

 

See accompanying notes to condensed consolidated financial statements.

 

 

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IMPINJ, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

 

 

Note 1. Description of Business

Impinj, Inc. ("we", "us" or "our"), a Delaware corporation, is headquartered in Seattle, Washington. We enables wireless connectivity for everyday items, delivering each item’s unique identity, location and authenticity to business and consumer applications. Our platform spans endpoints, connectivity and software and provides wireless item connectivity and information delivery. We derive revenue from selling endpoint integrated circuits, or ICs, reader ICs and modules, readers, gateways and software. Our integrated platform connects billions of everyday items to applications, delivering real-time information to businesses about items they create, manage, transport and sell.

Note 2. Summary of Significant Accounting Policies

Basis of Presentation

The accompanying condensed consolidated financial statements include Impinj, Inc. and its wholly-owned subsidiaries. All intercompany balances and transactions have been eliminated in consolidation. These condensed consolidated financial statements have been prepared in conformity with U.S. generally accepted accounting principles, or GAAP, and applicable rules and regulations of the Securities and Exchange Commission, or SEC, regarding interim financial reporting. Certain information and note disclosures normally included in the financial statements prepared in accordance with GAAP have been condensed or omitted pursuant to such rules and regulations. Accordingly, these interim condensed consolidated financial statements should be read in conjunction with the audited financial statements and accompanying notes as of and for the year ended December 31, 2017 included in Impinj, Inc.’s Annual Report on Form 10-K, which was filed with the SEC on March 15, 2018. The condensed consolidated balance sheet as of December 31, 2017, included herein, was derived from the audited financial statements of Impinj, Inc.

The unaudited condensed consolidated interim financial statements, in the opinion of management, reflect all adjustments, consisting of normal recurring adjustments, necessary to state fairly our financial position, results of operations, and our cash flows for the periods presented. Interim results are not necessarily indicative of the results for a full year or for any other future period.

Use of Estimates

The preparation of financial statements in conformity with GAAP requires management to make certain estimates, judgments and assumptions that affect the reported amounts of assets and liabilities and the related disclosures at the date of the financial statements, as well as the reported amounts of revenue and expenses during the periods presented. On an ongoing basis, we evaluate our estimates, including those related to revenue recognition, reserve for sales returns, inventory excess and obsolescence, recoverability of long-lived assets and stock-based compensation, among others. To the extent there are material differences between these estimates, judgments, or assumptions and actual results, our financial statements will be affected.

Risks and Uncertainties

Inherent in our business are various risks and uncertainties, including that we are developing advanced technologies and new applications in a rapidly changing industry. These risks include the failure to develop and extend our products and the rejection of our products by consumers, as well as other risks and uncertainties. If we do not successfully implement our business plan, certain assets may not be recoverable, certain liabilities may not be paid and investments in our capital stock may not be recoverable. Our success depends upon the acceptance and necessity of our technology, development of sales and distribution channels and our ability to generate significant revenue from the use of our technology.

Revenue Recognition

We generate revenue primarily from sales of hardware products. We also generate revenue from software, extended warranty, enhanced maintenance, support services, and non-recurring engineering development services, all of which are not material.

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We recognize revenue when control of the promised goods or services is transferred to our customers, which for hardware sales is generally at the time of product shipment as determined by the agreed-upon shipping terms. We measure revenue based on the amount of consideration we expect to be entitled to in exchange for those goods or services. The period between when we transfer control of promised goods or services and when we receive payment is expected to be one year or less, and that expectation is consistent with our historical experience. As such, we do not adjust our revenues for the effects of a significant financing component. Any variable consideration, which consists primarily of sales incentives, is recognized as a reduction of revenue at the time of revenue recognition. Sales incentives are estimated at the time of revenue recognition and updated at the end of each reporting period as additional information becomes available. We present revenue net of sales tax in our consolidated statements of operations. Shipping charges billed to customers are included in revenue and the related shipping costs are included in cost of revenue.

Our reader and gateway products are highly dependent on, and interrelated with, embedded software and cannot function without this embedded software. In these cases, we account for the hardware and software license as a single performance obligation and recognize revenue at the point in time when ownership is transferred. Additionally, we sell standalone operating system and other software that configures, manages and controls readers and gateways and performs other functions. This standalone software is not integrated directly in the functionality of the reader or gateway. Our software licenses, both for embedded and standalone software, provide the customer with a right to use the software as it exists when we make it available to the customer. Based on the software product, customers purchase either perpetual licenses or subscribe to licenses, which differ mainly in the duration over which the customer benefits from the software. We recognize revenue at the point in time when the software is made available to the customer.

Our contracts with customers with multiple performance obligations generally include a combination of hardware products, standalone software, extended warranty, enhanced maintenance and support services. For these contracts, we account for individual performance obligations separately if they are distinct. The transaction price is allocated to the separate performance obligations on a relative standalone selling-price basis. In instances where standalone selling price is not directly observable, such as when we do not sell the product or service separately, we determine the standalone selling price using one, or a combination of, the adjusted market assessment or expected cost-plus margin. Amounts allocated to extended warranty and enhanced maintenance sold with our reader and gateway products are deferred and recognized on a straight-line basis over the term of the arrangement, which is typically from one to three years. Amounts allocated to support services sold with our reader and gateway products are deferred and recognized when control of the promised services is transferred to our customers.

For non-recurring engineering development agreements that involve significant production, modification or customization of our products, we generally recognize revenue over the performance period using the percentage-of-completion method. We receive payments under these agreements based on a billing schedule. Contract assets relate to our conditional right to consideration for our completed performance under these agreements. Accounts receivable are recorded when the right to consideration becomes unconditional. Contract liability relates to payments received in advance of performance under the contract. Contract liabilities are recognized as revenue as we perform under the contract. For the periods presented in this report, our contract assets, contract liabilities and the value of unsatisfied performance obligations for non-recurring engineering development agreements are not material.

For details on our revenue and changes in deferred revenue, respectively, please refer to Note 11 and Note 12 of these condensed consolidated financial statements.

Practical Expedients and Exemptions: We generally expense sales commissions when incurred because the amortization period would have been one year or less. These costs are recorded within sales and marketing expenses. We do not disclose the value of unsatisfied performance obligations for (i) contracts with an original expected length of one year or less and (ii) contracts for which we recognize revenue at the amount to which we have the right to invoice for services performed.

Allowance for Sales Returns

Sales agreements do not generally provide for a right of return for refund but for certain distributors provide for a right of return in exchange for other similar products, subject to time and quantity limitations. The allowance for sales returns is our best estimate based on historical returns and currently available evidence. We record changes in our estimate to the allowance for sales returns through revenue and reduce the allowance when product returns are received.

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Recently Adopted Accounting Standards

In May 2014, the Financial Accounting Standards Board, or FASB, issued guidance on revenue recognition. This guidance provides that an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. This guidance also requires more detailed disclosures to enable users of financial statements to understand the nature, amount, timing, and uncertainty of revenue and cash flows arising from contracts with customers. The guidance is effective for interim and annual reporting periods beginning after December 15, 2017, early adoption is permitted, and the guidance must be applied retrospectively to each prior period presented or retrospectively with the cumulative effect of initially applying the guidance recognized at the date of initial application. We adopted the new revenue standard on January 1, 2018 utilizing the full retrospective transition method. Revenue recognition related to our hardware products, standalone software, extended warranty, enhanced maintenance services and non-recurring engineering development agreements, and recognition of cost of sales commissions will remain substantially unchanged. The primary impact of adopting the new standard relates to software license revenue that will generally be recognized at the time of delivery, rather than ratably over the subscription period. Unrecognized software license revenue at December 31, 2017 and 2016 was not material. As adoption of the standard had no material impact on our consolidated financial position, results of operations or cash flows, we did not restate each prior reporting period presented in the period of initial application.

Recently Issued Accounting Standards Not Yet Adopted

In June 2016, the FASB issued guidance on the measurement of credit losses on financial instruments. This guidance requires the measurement and recognition of expected credit losses for financial assets held at amortized cost. This guidance is effective for interim and annual reporting periods beginning after December 15, 2019, and early adoption is permitted. We expect to adopt this guidance on January 1, 2020. The adoption of this guidance requires a cumulative-effect adjustment to retained earnings as of the beginning of the first reporting period in which the guidance is effective. While we continue to assess all potential impacts of this new standard, we do not expect the adoption of this guidance to have a material impact on our financial position, results of operations or cash flows.

In February 2016, the FASB issued guidance on leases. This standard requires the recognition of a right-of-use asset and lease liability on the balance sheet for all leases. This standard also requires more detailed disclosures to enable users of financial statements to understand the amount, timing, and uncertainty of cash flows arising from leases. This guidance is effective for interim and annual reporting periods beginning after December 15, 2018 and should be applied through a modified retrospective transition approach for leases existing at, or entered into after, the beginning of the earliest comparative period presented in the financial statements, and early adoption is permitted. We expect to adopt this guidance on January 1, 2019. While we continue to assess all potential impacts of this new standard, we anticipate this standard will have a material impact on our financial position, primarily due to our office space operating leases, as we will be required to recognize right-of-use assets and lease liabilities on our consolidated balance sheets. However, we do not expect the adoption to have a significant impact on our results of operations or cash flows.

Note 3. Fair Value Measurements

Accounting standards define fair value as the price that would be received to sell an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market in an orderly transaction between market participants on the measurement date. The standards also establish a fair value hierarchy, which requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. There are three levels of inputs that may be used to measure fair value:

 

Level 1 — Quoted prices in active markets for identical assets or liabilities.

 

Level 2 — Assets and liabilities valued based on observable market data for similar instruments, such as quoted prices for similar assets or liabilities.

 

Level 3 — Unobservable inputs that are supported by little or no market activity; instruments valued based on the best available data, some of which is internally developed, and considers risk premiums that a market participant would require.

We applied the following methods and assumptions in estimating our fair value measurements:

Cash Equivalents — Cash equivalents comprise highly liquid investments, including money market funds and certificates of deposit, with original maturities of less than three months at the acquisition date. The fair value measurement of these assets is based on quoted market prices in active markets and these assets are recorded at fair value.

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Investments — Our investments consist of fixed income securities, which include U.S. government agency securities and corporate notes and bonds. The fair value measurement of these assets is based on observable market-based inputs or inputs that are derived principally from or corroborated by observable market data by correlation or other means.

Long-term Debt — The fair values of our long-term debt approximates carrying value based on the borrowing rates currently available to us for loans with similar terms using Level 2 inputs.

The following tables present the balances of assets measured at fair value on a recurring basis, by level within the fair value hierarchy, as of the date presented (in thousands):

 

 

 

June 30, 2018

 

 

 

LEVEL 1

 

 

LEVEL 2

 

Cash equivalents:

 

 

 

 

 

 

 

 

Money market funds

 

$

13,008

 

 

$

 

Commercial paper

 

 

 

 

 

 

Short-term investments:

 

 

 

 

 

 

 

 

U.S. government agency securities

 

 

 

 

 

9,957

 

Corporate notes and bonds

 

 

 

 

 

9,438

 

Commercial paper

 

 

 

 

 

6,978

 

Treasury bill

 

 

 

 

 

10,934

 

Total

 

$

13,008

 

 

$

37,307

 

 

 

 

 

 

 

 

 

 

 

 

 

December 31, 2017

 

 

 

LEVEL 1

 

 

LEVEL 2

 

Cash equivalents:

 

 

 

 

 

 

 

 

Money market funds

 

$

10,393

 

 

$

 

Commercial paper

 

 

 

 

 

1,000

 

Short-term investments:

 

 

 

 

 

 

 

 

U.S. government agency securities

 

 

 

 

 

13,970

 

Corporate notes and bonds

 

 

 

 

 

7,503

 

Commercial paper

 

 

 

 

 

8,972

 

Treasury bills

 

 

 

 

 

8,386

 

Total

 

$

10,393

 

 

$

39,831

 

 

We did not have any Level 3 assets as of June 30, 2018 or December 31, 2017. There were no liabilities measured at fair value as of June 30, 2018 or December 31, 2017.

 

 

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Note 4. Cash, Cash Equivalents and Investments

The following tables present the amortized cost, gross unrealized gains and losses, and estimated fair market value of our cash and cash equivalents and available-for-sale securities as of the dates presented (in thousands): 

 

 

 

June 30, 2018

 

 

 

Amortized

Cost

 

 

Gross

Unrealized

Gains

 

 

Gross

Unrealized

Losses

 

 

Fair Value

 

Cash

 

$

2,492

 

 

$

 

 

$

 

 

$

2,492

 

Cash equivalents:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Money market funds

 

 

13,008

 

 

 

 

 

 

 

 

 

13,008

 

Commercial paper

 

 

 

 

 

 

 

 

 

 

 

 

Short-term investments:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

U.S. government agency securities

 

 

9,971

 

 

 

 

 

 

(14

)

 

 

9,957

 

Corporate notes and bonds

 

 

9,448

 

 

 

 

 

 

(10

)

 

 

9,438

 

Commercial paper

 

 

6,978

 

 

 

 

 

 

 

 

 

6,978

 

Treasury bill

 

 

10,946

 

 

 

 

 

 

(12

)

 

 

10,934

 

Total

 

$

52,843

 

 

$

 

 

$

(36

)

 

$

52,807

 

 

 

 

December 31, 2017

 

 

 

Amortized

Cost

 

 

Gross

Unrealized

Gains

 

 

Gross

Unrealized

Losses

 

 

Fair Value

 

Cash

 

$

7,892

 

 

$

 

 

$

 

 

$

7,892

 

Cash equivalents:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Money market funds

 

 

10,393

 

 

 

 

 

 

 

 

 

10,393

 

Commercial paper

 

 

1,000

 

 

 

 

 

 

 

 

 

1,000

 

Short-term investments:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

U.S. government agency securities

 

 

13,979

 

 

 

 

 

 

(9

)

 

 

13,970

 

Corporate notes and bonds

 

 

7,514

 

 

 

 

 

 

(11

)

 

 

7,503

 

Commercial paper

 

 

8,972

 

 

 

 

 

 

 

 

 

8,972

 

Treasury bills

 

 

8,402

 

 

 

 

 

 

(16

)

 

 

8,386

 

Total

 

$

58,152

 

 

$

 

 

$

(36

)

 

$

58,116

 

 

The contractual maturities are due in one year or less on our available-for-sale securities as of June 30, 2018.

Note 5. Inventory

The following table presents the detail of inventories as of the dates presented (in thousands):

 

 

 

June 30,

 

 

December 31,

 

 

 

2018

 

 

2017

 

Raw materials

 

$

3,345

 

 

$

1,351

 

Work-in-process

 

 

20,556

 

 

 

15,647

 

Finished goods

 

 

29,377

 

 

 

30,085

 

Total

 

$

53,278

 

 

$

47,083

 

 

Note 6. Stock-Based Awards

Option Awards

On April 18, 2018, we commenced a voluntary stock option exchange program, designed to provide eligible employees an opportunity to exchange certain outstanding underwater stock options for a lesser amount of new options to be granted with lower exercise prices.  Stock options eligible for exchange were those with an exercise price per share equal to or greater than $21.72, whether vested or unvested.  All employees (including executive officers, but excluding the chief executive officer) who held options and remain employed through the date of grant for new options were eligible to participate in the offer. Members of the board of directors were not eligible to participate.  The option exchange program expired on May 16, 2018.  Options for an aggregate of

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approximately 1.0 million shares were tendered by employees, representing 73% of the total shares underlying stock options eligible for exchange.  On May 16, 2018, we granted options for an aggregate of 0.7 million shares in exchange for the eligible options surrendered.  The new options are granted under, and subject to, the terms and conditions of the 2016 Equity Incentive Plan. The exercise price of the new stock options is $17.33, which was the closing price of our common stock on May 16, 2018.  No incremental stock option expense was recognized for the exchange, because the fair value of the surrendered options, as determined based on the Black-Scholes option pricing model, was equal to or greater to the fair value of the new stock options issued in the exchange.   

The following table summarizes option award activity, including the option exchange program, for the six months ended June 30, 2018 (in thousands):

 

 

 

Number of

Shares

 

Outstanding at December 31, 2017

 

 

2,850

 

Granted or exchanged

 

 

2,173

 

Exercised

 

 

(271

)

Forfeited, cancelled, or exchanged

 

 

(1,385

)

Outstanding at June 30, 2018

 

 

3,367

 

 

Unvested Shares

The following table summarizes activity of unvested shares of our common stock for the six months ended June 30, 2018 (in thousands):

 

 

 

Number Of

Shares

 

Outstanding at December 31, 2017

 

 

48

 

Vested

 

 

(26

)

Outstanding at June 30, 2018

 

 

22

 

 

Restricted Stock Units

The following table summarizes activity for restricted stock units for the six months ended June 30, 2018 (in thousands):

 

 

 

Number Of

Shares

 

Outstanding at December 31, 2017

 

 

12

 

Granted

 

 

10

 

Vested

 

 

(18

)

Outstanding at June 30, 2018

 

 

4

 

 

Share-Based Compensation Expense

The following table presents the effects of stock-based compensation in our condensed consolidated statements of operations during the periods presented (in thousands):

 

 

 

Three Months Ended

 

 

Six Months Ended

 

 

 

June 30,

 

 

June 30,

 

 

 

2018

 

 

2017

 

 

2018

 

 

2017

 

Cost of revenue

 

$

98

 

 

$

37

 

 

$

181

 

 

$

83

 

Research and development expense

 

 

822

 

 

 

415

 

 

 

1,581

 

 

 

898

 

Sales and marketing expense

 

 

931

 

 

 

572

 

 

 

1,688

 

 

 

1,179

 

General and administrative expense

 

 

762

 

 

 

229

 

 

 

1,228

 

 

 

463

 

Total

 

$

2,613

 

 

$

1,253

 

 

$

4,678

 

 

$

2,623

 

 

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Note 7. Commitments and Contingencies

For information on our commitments and contingencies, see Part II, Item 8 (Financial Statements and Supplementary Data, Note 11. Commitments and Contingencies) of our Annual Report on Form 10-K for the year ended December 31, 2017.  As discussed in “Note 10. Restructuring”, we have subleased certain office space, which is effective July 1, 2018 and expires January 2023.  The following table presents future minimum payments as of June 30, 2018 under our non-cancellable operating leases for our office locations, inclusive of any sublease income (in thousands):

 

 

 

Operating

 

2018

 

$

2,181

 

2019

 

 

3,490

 

2020

 

 

3,308

 

2021

 

 

3,306

 

2022

 

 

3,193

 

Thereafter

 

 

13,087

 

Total minimum lease payments

 

$

28,565

 

There have been no material changes to our capital leases commitments as previously disclosed in our Annual Report on Form 10-K for the year ended December 31, 2017.

Obligations with Third-Parties

We have certain non-cancelable obligations under other agreements, including obligations with third-party manufacturers who manufacturer our products.  We are committed to purchase $15.4 million, which includes $9.7 million of inventory, as of June 30, 2018.

 

Note 8. Debt Facilities

On March 5, 2018, we amended our senior credit facility, to, among other things, extend the maturity date of the $25.0 million revolving credit facility, with a $5.0 million letter of credit subfacility, to March 5, 2020, and provide for a new $20.0 million term loan. We incurred $9.0 million in term loan borrowings to refinance $7.9 million of term loan borrowings and $1.1 million of equipment loans and have $11.0 million of term loan borrowings available for general corporate purposes. The new term loan will amortize over 36 months, beginning on April 1, 2019, following an initial interest-only period, and mature on March 1, 2022. We may prepay the term loan at any time, subject to a prepayment fee equal to 2.0% of the outstanding principal amount if prepaid on or before March 5, 2019, or 1.0% of the outstanding principal amount if prepaid after March 5, 2019, but on or before March 5, 2020. At June 30, 2018, we had no revolver borrowings outstanding and $20.0 million of term loan borrowings outstanding.

The loans accrue interest, at our option, at (1) a LIBOR rate determined in accordance with the senior credit facility, plus a margin of 2.75% or 3.25%, in the case of revolving borrowings, or 3.0% or 3.5%, in the case of the term loan borrowings, or (2) a prime rate determined in accordance with the senior credit facility, plus a margin of 0.0% or 0.5%, in the case of revolving borrowings, or 0.25% or 0.75%, in the case of the term loan borrowings, in each case with such margin determined based on our adjusted EBITDA for the preceding 12 month period. Interest is due and payable in arrears monthly for prime rate loans and at the end of an interest period for LIBOR rate loans.

The amendment also amended the financial covenants under the senior credit facility such that if our cash and investments in accounts maintained with the lender, plus available revolver borrowings, falls below $60.0 million for the period of time beginning on March 5, 2018 and ending on December 31, 2018, or $55.0 million for the period of time beginning on January 1, 2019 and at all times thereafter, we must comply with an amended covenant to not exceed maximum adjusted EBITDA loss thresholds that vary by period and the existing minimum liquidity ratio, each determined in accordance with the terms of the senior credit facility.

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At June 30, 2018, $20.0 million of term loan borrowings were outstanding, excluding unamortized debt issuance costs of $141,000 and the interest rate was 5.5%. The following table presents the scheduled principal maturities as of June 30, 2018 (in thousands):

 

2018

 

$

 

2019

 

 

5,000

 

2020

 

 

6,667

 

2021

 

 

6,667

 

2022

 

 

1,666

 

    Total

 

$

20,000

 

 

The senior credit facility contains customary conditions to borrowing, events of default and covenants, including covenants that restrict our and our subsidiaries’ ability to dispose of assets, have a change of control, merge with or acquire other entities, incur indebtedness, incur encumbrances, make distributions to holders of their capital stock, make investments or engage in transactions with their affiliates, in each case subject to customary exceptions. We were in compliance with the covenants under our senior credit facility as of June 30, 2018. Our obligations under the senior credit facility are collateralized by substantially all of our assets other than intellectual property. All of our future subsidiaries are required to become co-borrowers under the senior credit facility. The guarantees by future subsidiaries are and will be collateralized by substantially all of the assets of such subsidiaries.

Note 9. Net Loss Per Share

The following table provides a reconciliation of the numerator and denominator used in computing basic and diluted net loss per share for the periods presented (in thousands, except per share amounts):

 

 

 

Three Months Ended

 

 

Six Months Ended

 

 

 

June 30,

 

 

June 30,

 

 

 

2018

 

 

2017

 

 

2018

 

 

2017

 

Numerator:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net loss

 

$

(7,732

)

 

$

(977

)

 

$

(22,174

)

 

$

(3,137

)

Denominator:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Weighted-average shares outstanding

 

 

21,359

 

 

 

20,728

 

 

 

21,262

 

 

 

20,591

 

Weighted-average unvested shares subject to repurchase

 

 

(26

)

 

 

(92

)

 

 

(33

)

 

 

(100

)

Weighted-average shares outstanding — basic and diluted

 

 

21,333

 

 

 

20,636

 

 

 

21,229

 

 

 

20,491

 

Net loss per share — basic and diluted

 

$

(0.36

)

 

$

(0.05

)

 

$

(1.04

)

 

$

(0.15

)

The following table presents the outstanding option awards and unvested shares excluded from the computation of diluted net loss per share as of the dates presented because their effect would have been antidilutive (in thousands):

 

 

 

Three Months Ended

 

 

Six Months Ended

 

 

 

June 30,

 

 

June 30,

 

 

 

2018

 

 

2017

 

 

2018

 

 

2017

 

Stock options

 

 

3,477

 

 

 

2,249

 

 

 

2,994

 

 

 

2,210

 

Unvested shares of common stock subject to repurchase

 

 

22

 

 

 

84

 

 

 

26

 

 

 

92

 

 

 

Note 10. Restructuring

On February 13, 2018, we began implementing a restructuring to match strategic and financial objectives and optimize resources for long-term growth, including a reduction-in-force program affecting approximately 9% of our employees, subleasing unused office space, and closing some remote offices.

As a result of the restructuring plan, we recorded a restructuring charge of approximately $3.9 million and a restructuring benefit of $(0.2) million during the three months ended March 31, 2018 and June 30, 2018, respectively, for a total of $3.7 million.  

 

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The following table summarizes the activity associated with the restructuring (in thousands):

 

 

 

Employee Termination Benefits

 

 

Cease-Use Costs

 

 

Other Associated Costs

 

 

Total

 

Restructuring costs

 

$

1,177

 

 

$

2,494

 

 

$

78

 

 

$

3,749

 

Cash payments

 

 

(1,040

)

 

 

(810

)

 

 

(78

)

 

 

(1,928

)

Non-cash benefit, net

 

 

 

 

 

454

 

 

 

 

 

 

454

 

Accrued restructuring costs of June 30, 2018

 

$

137

 

 

$

2,138

 

 

$

-

 

 

$

2,275

 

Employee termination benefits primarily include severance and other personnel related expenses. Cease-use costs primarily relate to non-cancellable lease rental obligations and a non-cash net restructuring benefit of $454,000 associated with the write-off of certain leasehold improvement and deferred rent. As the office space was vacant, the cease-use costs were primarily recorded during the three months ended March 31, 2018 and included estimates related to the timeframe it would take to sublease the space and the related sublease income.  During the three months ended June 30, 2018 we executed a sub-lease agreement and updated our estimate of cease-use costs, which was the primary driver of the $(0.2) million restructuring benefit recognized for the period. Other associated costs represent various professional fees incurred associated with the restructuring.  The restructuring plan is substantially complete as of June 30, 2018.  The portion of the restructuring liability related to cease-use costs will decrease over the remaining lease period which goes through January 2023.

 

Note 11. Segment Information and Geographic Data

We have one operating and reportable segment which has been identified based on how our chief operating decision maker manages our business, makes operating decisions and evaluates operating performance. The chief executive officer acts as the chief operating decision maker and reviews financial and operational information on an entity-wide basis. There are no segment managers who are held accountable for operations, operating results or plans for levels or components.

The chief executive officer reviews information about revenue categories, including endpoint ICs, connectivity, software and other revenue. The following table presents our revenue by major categories for the periods presented (in thousands):

 

 

 

Three Months Ended

 

 

Six Months Ended

 

 

 

June 30,

 

 

June 30,

 

 

 

2018

 

 

2017

 

 

2018

 

 

2017

 

Revenue: