What changed in this filing

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Item 8. Financial Statements and Supplementary Data

2022-02-14 compared with 2021-02-17 · 304 added, 226 removed, 659 unchanged (45% of the section changed)

Financial Statements and Supplementary Data

Report of Independent Registered Public Accounting Firm

Report of Independent Registered Public Accounting Firm (PCAOB ID:

42 ) and (PCAOB ID:

Consolidated Balance Sheets

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Opinion on the Financial Statements

We have audited the accompanying consolidated balance sheet of Impinj, Inc and subsidiaries (the Company) as of December 31, 2020, the related consolidated statements of operations, comprehensive loss, changes in stockholders' equity and cash flows for the year ended December 31, 2020 , and the related notes (collectively referred to as the “consolidated financial statements”).

In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company at December 31, 2020, and the results of its operations and its cash flows for the year ended December 31, 2020, in conformity with U.S.

We have audited the accompanying consolidated balance sheets of Impinj, Inc.

and subsidiaries (the Company) as of December 31, 2021 and 2020 , the related consolidated statements of operations , comprehensive loss, changes in stockholders' equity and cash flows for each of the two years in the period ended December 31, 2021 , and the related notes (collectively referred to as the “consolidated financial statements”).

In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company at December 31, 2021 and 2020 , and the results of its operations and its cash flows for each of the two years in the period ended December 31, 2021, in conformity with U.S.

generally accepted accounting principles.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company’s internal control over financial reporting as of December 31, 2021, based on criteria established in Internal Control — Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework) and our report dated February 14, 2022 expressed an unqualified opinion thereon.

Basis for Opinion

These consolidated financial statements are the responsibility of the Company's management.

Our responsibility is to express an opinion on the Company’s consolidated financial statements based on our audit.

We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S.

These financial statements are the responsibility of the Company’s management.

Our responsibility is to express an opinion on the Company’s financial statements based on our audits.

We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S.

federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audit in accordance with the standards of the PCAOB.

Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud.

The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting.

As part of our audit we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company's internal control over financial reporting.

Accordingly, we express no such opinion.

Our audit included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks.

Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements.

Our audit also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements.

We believe that our audit provides a reasonable basis for our opinion.

We conducted our audits in accordance with the standards of the PCAOB.

Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud.

Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks.

Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements.

Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements.

We believe that our audits provide a reasonable basis for our opinion.

Critical Audit Matter

The critical audit matter communicated below is a matter arising from the current period audit of the financial statements that was communicated or required to be communicated to the audit committee and that:

(1) relates to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective or complex judgments.

The communication of the critical audit matter does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the account or disclosures to which it relates.

Inventory valuation

Description of the Matter

The Company's inventories totaled $22.0 million as of December 31, 2021 .

As explained in Note 2 to the financial statements, the Company determines the appropriate value of all inventories, including raw materials, work-in-process, and finished goods in each reporting period.

Obsolete inventory or inventory in excess of management's estimated usage requirement is written down to its estimated net realizable value if those amounts are determined to be less than cost.

Auditing management's estimates for excess and obsolete inventory involved subjective auditor judgment because the estimates rely on a number of factors that are affected by market and economic conditions outside the Company's control, including management's assumptions about the product supply, demand, and life cycle.

How We Addressed the Matter in Our Audit

We obtained an understanding, evaluated the design, and tested the operating effectiveness of internal controls over the Company's excess and obsolete inventory reserve process.

This included management's determination of the assumptions and data underlying the excess and obsolete inventory valuation.

To test the Company's estimates for excess and obsolete inventory, we performed audit procedures that included, among others, testing the accuracy and completeness of the underlying data used in the estimation calculations and evaluating significant assumptions (e.g., forecasted customer demand, technological and/or market obsolescence, and possible alternative uses).

We compared the significant assumptions used by management to current industry and economic trends.

We assessed whether there were any potential sources of contrary information, including historical forecast accuracy or history of significant revisions to previously recorded inventory valuation adjustments.

We also performed sensitivity analyses over the significant assumptions to evaluate the changes in the excess and obsolete inventory estimates that would result from changes in the underlying assumptions.

/s/ Ernst & Young LLP

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Report of Independent Registered Public Accounting Firm

To the Board of Directors and Shareholders of Impinj, Inc.

To the Board of Directors and Stockholders of Impinj, Inc.

Opinion on the Financial Statements

We have audited the consolidated balance sheet of Impinj, Inc.

and its subsidiaries (the “Company”) as of December 31, 2019, and the related consolidated statements of operations, of comprehensive loss, of changes in stockholder’s equity and of cash flows for each of the two years in the period ended December 31, 2019, including the related notes (collectively referred to as the “consolidated financial statements”).

In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2019, and the results of its operations and its cash flows for each of the two years in the period ended December 31, 2019 in conformity with accounting principles generally accepted in the United States of America.

Change in Accounting Principle

As discussed in Note 2 to the consolidated financial statements, the Company changed the manner in which it accounts for leases in 2019.

We have audited the consolidated statement of operations, comprehensive loss, changes in stockholders’ equity and cash flows of Impinj, Inc.

and its subsidiaries (the “Company”) for the year ended December 31, 2019, including the related notes (collectively referred to as the “consolidated financial statements”).

In our opinion, the consolidated financial statements present fairly, in all material respects, the results of operations and cash flows of the Company for the year ended December 31, 2019 in conformity with accounting principles generally accepted in the United States of America.

Basis for Opinion

These consolidated financial statements are the responsibility of the Company's management.

Our responsibility is to express an opinion on the Company’s consolidated financial statements based on our audits.

Our responsibility is to express an opinion on the Company’s consolidated financial statements based on our audit.

federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits of these consolidated financial statements in accordance with the standards of the PCAOB.

We conducted our audit of these consolidated financial statements in accordance with the standards of the PCAOB.

Our audits included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks.

Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements.

Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements.

We believe that our audits provide a reasonable basis for our opinion.

We believe that our audit provides a reasonable basis for our opinion.

/s/ PricewaterhouseCoopers LLP

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Total current assets

Long-term investments

Property and equipment, net

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Current portion of operating lease liabilities

Restructuring liabilities

Current portion of long-term debt

Current portion of deferred revenue

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Additional paid-in capital

Accumulated other comprehensive income

Accumulated other comprehensive (loss) income

Accumulated deficit

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Other income, net

Induced conversion expense

Interest expense

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Loss before income taxes

Income tax benefit (expense)

Income tax expense

Net loss per share — basic and diluted

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Year Ended December 31,

Other comprehensive income (loss), net of tax:

Unrealized gain (loss) on investments

Total other comprehensive income (loss)

Other comprehensive loss, net of tax:

Unrealized loss on investments

Total other comprehensive loss

Comprehensive loss

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Other comprehensive income

Equity component of issuance of 2019 Notes, net of issuance costs of $ 1,089 (Note 7)

Premiums paid for Capped Call Transactions (Note 7)

Balance at December 31, 2019

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Stock-based compensation

Other comprehensive income

Equity component of issuance of 2019 Notes, net of issuance costs of $ 1,089 (Note 7)

Premiums paid for Capped Call Transactions (Note 7)

Other comprehensive loss

Balance at December 31, 2020

Cumulative-effect adjustment from adoption of ASU 2020-06

Issuance of common stock

Stock-based compensation

Induced conversion on 2019 Notes (Note 7)

Other comprehensive loss

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Operating activities:

Adjustments to reconcile net loss to net cash provided by (used in) operating activities:

Adjustments to reconcile net loss to net cash provided by operating activities:

Stock-based compensation

Non-cash restructuring benefit

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

Accretion of discount or amortization of premium on investments

Amortization of debt issuance costs and debt discount

Loss on debt extinguishment

Deferred income taxes

Induced conversion expense related to convertible notes

Settlement and related costs

Changes in operating assets and liabilities:

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Deferred revenue

Deferred rent

Accounts payable

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Operating lease liabilities

Accrued liabilities and other liabilities

Restructuring liabilities

Accrued and other liabilities

Net cash provided by (used in) operating activities

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Proceeds from exercise of stock options and employee stock purchase plan

Proceeds from issuance of 2021 Notes, net of issuance costs

Payment of 2019 Notes

Net cash provided by financing activities

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We extend credit to customers based upon our evaluation of the customer’s financial condition and generally collateral is not required.

The following table presents total revenue and accounts receivable concentration for the periods presented or as of the dates presented:

The following table presents total revenue and accounts receivable concentration for the indicated periods as of the dates presented:

Year Ended December 31,

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* Less than 10%

(1) Includes concentration of revenue related to Smartrac NV, or Smartrac.

In March 2020, Avery Dennison completed an acquisition of Smartrac.

(1) Includes revenue concentration related to Smartrac NV, or Smartrac.

Avery Dennison acquired Smartrac in March 2020.

As of December 31,

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Our investments consist of fixed income securities, which include U.S.

government agency securities, corporate notes and bonds and commercial paper.

Because we use the investments to support current operations, the contractual maturities of our available-for-sale, or AFS, debt securities are due in one year or less and are classified as short-term investments.

government agency securities, corporate notes and bonds, commercial paper, and asset-backed securities.

The contractual maturities of a portion of our available-for-sale, or AFS, debt securities are over a year and are classified as long-term investments on the balance sheet.

AFS debt securities are carried at fair value with unrealized gains and losses reported as a component of other comprehensive income (loss).

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if any, we record credit-related impairment in the consolidated statements of operations through an allowance for credit losses and adjust each period for changes in credit risk.

The gross unrealized gains or losses on short-term investments as of December 31, 2020 and 2019 were not material.

The gross unrealized gains or losses on short-term and long-term investments as of December 31, 2021 and 2020 were not material.

Fair Value Measurement

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Investments — Our investments comprise fixed income securities, which include U.S.

government agency securities, corporate notes and bonds, commercial paper and treasury bills.

government agency securities, corporate notes and bonds, commercial paper, treasury bills and asset-backed securities .

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 —See Note 7 for the carrying amount and estimated fair value of our convertible senior notes due 2026.

Debt —See Note 7 for the carrying amount and estimated fair value of our convertible senior notes due 2026 and 2027 .

Accounts Receivable and Allowances

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Also, we have not had material past-due balances on our accounts receivable as of December 31, 2021 or 2020;

except for $ 1.2 million past-due rent receivables from our sublease as of December 31, 2020, which we deem collectible based on credit risk of the sub-lessee.

except for $ 1.2 million past-due rent receivables from our sublease as of December 31, 2020, which was subsequently collected in 2021.

The allowance for sales returns and price exceptions is our best estimate based on our historical experience and currently available evidence.

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If future demand or market conditions are less favorable than our projections, or our product development plans change from current expectations, a write-down of excess or obsolete inventory may be required, and would be reflected in cost of goods sold in the period the updated information is known.

We recorded inventory excess and obsolescence charges, which had an unfavorable net impact of 2.2 %, 1.7 % and 1.2 % on our gross margin for 2020, 2019 and 2018, respectively.

We had sales of fully reserved inventory, which had a favorable net impact of 1.5 % on our gross margin for 2021 and recorded inventory excess and obsolescence charges which had an unfavorable net impact of 2.2 % and 1.7 % on our gross margin for 2020 and 2019, respectively.

The favorable net impact in 2021 occurred primarily from sales of fully reserved inventory in the first and third quarters which were primarily endpoint ICs included in the excess and obsolescence charge noted below and, to a lesser extent, readers.

During 2020 and 2019, we recorded excess and obsolescence charges due primarily to reduced demand for older-generation endpoint ICs and EU gateways, which reduced the inventory value of the impacted products to zero.

At the time, we expected future demand to be met by our newer generation endpoint ICs and EU gateways.

Instead, as a result of industry-wide wafer shortages and reader supply constraints in 2021, we sold a significant portion of the reserved endpoint ICs and gateways in the year ended December 31, 2021.

Property and Equipment

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We capitalize eligible costs associated with cloud computing arrangements over the term of the arrangement, plus reasonably certain renewals, and recognize those costs on a straight-line basis in the same line item in the consolidated statement of operations as the expense for fees associated with the cloud computing arrangement.

Cloud computing arrangement costs, included in prepaid expenses and other current assets were $ 228,000 and other non-current assets were $ 1.8 million as of December 31, 2020.

Amortization expense associated with the cloud computing arrangements was not material for 2020.

Cloud computing arrangement costs, included in prepaid expenses and other current assets were $ 413,000 and $ 228,000 and other non-current assets were $ 2.3 million and $ 1.8 million as of December 31, 2021 and December 31, 2020, respectively.

Amortization expense associated with the cloud computing arrangements was $ 215,000 for 2021 and not material for 2020.

Cash flows related to capitalized implementation costs are presented in cash flows used in operating activities.

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We record compensation expense each period on a straight-line basis based on our estimate of the most probable number of PSUs that will vest and recognize that expense over the requisite service period.

In 2021, we began granting RSUs with market and service conditions, or MSUs, to certain executives.

The MSUs are eligible to vest based on our total stockholder return (“TSR”) relative to the TSR of the constituents comprising the S&P Semiconductor Select Industry Index over two measurement periods.

We use a Monte Carlo simulation in estimating the fair value at grant date and recognize compensation cost over the implied service period.

Net Loss per Share

Net loss per share is computed by dividing net loss by the weighted-average number of shares of common stock outstanding.

We have outstanding stock options, RSUs, PSUs, and ESPPs which we include in the calculation of diluted net loss per share if their effect would be dilutive.

We have outstanding stock options, RSUs, PSUs, MSUs, and ESPPs which we include in the calculation of diluted net loss per share if their effect would be dilutive.

The diluted net loss per share is computed by giving effect to all potential dilutive common stock equivalents outstanding for the period.

We use the treasury stock method for calculating any potential dilutive effect of the conversion spread on diluted net loss per share, if applicable since we expect to settle the principal amount of the outstanding 2019 Notes in cash.

For more information about the 2019 Notes, please refer to Note 7 to our consolidated financial statements .

We use d the treasury stock method for calculating any potential dilutive effect of the conversion of the 2019 Notes on diluted net loss per share for the year ended December 31 , 2020.

Upon us adopti ng ASU 2020-06 using the modified retrospective transition method on January 1, 2021, we applied the “if-converted” method for calculating any potential dilutive effect of the conversion of the 2019 Notes and the 2021 Notes on diluted net loss per share for the year ended December 31 , 2021 .

For more information about the 2019 Notes and the 2021 Notes , please refer to Note 7 to our consolidated financial statements .

Recently Adopted Accounting Standards

In August 2020, the FASB issued guidance on debt with conversion and other options, or ASU 2020-06.

This guidance eliminates the beneficial- and cash-conversion accounting models for convertible instruments and amends the derivative scope exception for contracts in an entity’s own equity.

Additionally, this guidance requires the application of the “if-converted” method to calculate the impact of convertible instruments on diluted earnings per share.

We adopted ASU 2020-06 on January 1, 2021 using the modified retrospective transition method and accounted for our convertible notes due 2026, or the 2019 Notes, on a whole-instrument basis.

Upon adoption, we recorded a $ 29.3 million increase to long-term debt, a $ 32.7 million decrease to additional paid-in capital and a $ 3.4 million decrease to accumulated deficit on January 1, 2021.

Interest expense decreased for the year ended December 31, 2021 compared with the years ended December 31, 2020 and December 31, 2019, respectively, as we no longer separate an equity component of the 2019 Notes and incur amortization of debt discount.

We had no changes to net deferred tax liabilities with a decrease in deferred tax liability offset by a corresponding increase in valuation allowance upon adoption.

The condensed consolidated financial statements as of and for the year ended December 31, 2021, are presented under ASU 2020-06, while comparative prior reporting periods presented are not adjusted and continue to be reported in accordance with our historical accounting policy.

In June 2016, the Financial Accounting Standards Board, or FASB, issued guidance on the measurement of credit losses on financial instruments.

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We adopted this standard on January 1, 2020 and the adoption of this guidance did not materially impact our financial positions, results of operations or cash flows.

Recently Issued Accounting Standards Not Yet Adopted

In August 2020, the FASB issued guidance on debt with conversion and other options.

This guidance eliminates the beneficial- and cash-conversion accounting models for convertible instruments, amends the derivative scope exception for contracts in an entity’s own equity.

Additionally, the guidance requires the application of the “if-converted” method to calculate the impact of convertible instruments on diluted earnings per share.

Although we are still evaluating the impact of the updated guidance and the effects on our financial statements, we anticipate using modified retrospective transition on January 1, 2021 to account for our convertible notes due 2026, or the 2019 Notes, on a whole-instrument basis.

As a result, we anticipate long-term debt to increase approximately $ 29.3 million, additional paid-in capital to decrease approximately $ 32.7 million, accumulated deficit to decrease approximately $ 3.4 million on January 1, 2021.

We anticipate no change to the net deferred tax liabilities with a decrease in deferred tax liability offset by a corresponding increase in valuation allowance upon adoption.

Other recent accounting pronouncements issued by the FASB (including its Emerging Issues Task Force), the American Institute of Certified Public Accountants, and the SEC did not have, or are not expected to have, a material impact on our present or future consolidated financial statements.

Fair Value Measurements

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Treasury bill

Asset-backed securities

Total short-term investments

Long-term investments:

government agency securities

Total long-term investments

We did no t have any Level 3 assets as of December 31, 2021 or 2020.

There were no liabilities measured at fair value as of December 31, 2021 or 2020.

See Note 7 for the carrying amount and estimated fair value of our convertible senior notes due 2026 .

Short-term investments are expected to mature within 1 year from the

reporting date.

Long-term investments are expected to mature between 1 and 2 years from the reporting date.

Amortized Cost of all investments by category does not materially differ from fair value.

See Note 7 for the carrying amount and estimated fair value of our convertible senior notes due 2026 and 2027 .

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

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The following table presents U.S.

and foreign components of income (loss) before incomes taxes:

and foreign components of income (loss) before income taxes (in thousands):

Year Ended December 31,

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Federal research and development credit

Incentive stock options

Stock-based compensation

Inducement Premium

Unrecognized tax benefits

Effective income tax rate

We continue to maintain a full valuation allowance against our net deferred tax assets in the U.S., but recognize deferred income tax expense (benefit) due to the change in the indefinite deferred tax liability related to goodwill, which is partially offset by indefinite tax attributes.

We continue to maintain a full valuation allowance against our net deferred tax assets in the U.S.

but recognize deferred income tax expense (benefit) due to the change in the indefinite deferred tax liability related to goodwill, which is partially offset by indefinite tax attributes.

Deferred federal, state and foreign income taxes reflect the net tax impact of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and such amounts for tax purposes.

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Operating lease liabilities

Deferred compensation

Deferral of employer taxes

Deferred revenue

Stock-based compensation

Disallowed interest expense

Inventory cost capitalization

Deferred tax assets

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Operating lease ROU assets

Convertible notes

Deferred tax liabilities

Net deferred tax liability

Realization of deferred tax assets is dependent upon the generation of future taxable income, if any, the timing and amount of which are uncertain.

We have provided a full valuation allowance against the net deferred tax assets as of December 31, 2020 and 2019 because, based on the weight of available evidence, it is more likely than not that the deferred tax assets will not be realized.

Realizing deferred tax assets depends on us generating future taxable income, the timing and amount of which are uncertain.

We have provided a full valuation allowance against the net deferred tax assets as of December 31, 2021 and 2020 because, based on the weight of available evidence, it is more likely than not that we will not realize the deferred tax assets.

We have accumulated federal tax losses of approximately $ 274.7 million and $ 213.5 million, respectively, as of December 31, 2021 and 2020, which are available to reduce future taxable income.

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Under Sections 382 and 383 of the Internal Revenue Code, if a corporation undergoes an ownership change, the corporation’s ability to use its pre-change net operating loss carryforwards and other pre-change tax attributes, such as research tax credits, to offset its post-change income or income tax liability may be limited.

We have completed a formal IRC Section 382 study and the attributes disclosed in this footnote reflect the conclusion of that study.

We have completed a formal IRC Section 382 study through June 30, 2020 and the attributes disclosed in this footnote reflect the conclusion of that study.

However, subsequent ownership changes may affect the limitation in future years.

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Balance at beginning of period

Gross decreases to tax positions in prior periods

Gross increases to tax positions in current periods

Gross increase to tax positions in prior periods

Gross increase to tax positions in current periods

Balance at end of period

At December 31, 2020, the total amount of unrecognized tax benefits of $ 3.5 million is recorded as a reduction to the deferred tax asset.

At December 31, 2021, we recorded the total amount of unrecognized tax benefit of $ 4.6 million as a reduction to the deferred tax asset.

If recognized, it would have no impact to our effective tax rate as we have a full valuation allowance.

We do not anticipate that the amount of existing unrecognized tax benefits will significantly increase or decrease within the next 12 months.

Accrued interest and penalties related to unrecognized tax benefits are recorded as income tax expense and are zero .

We record accrued interest and penalties related to unrecognized tax benefits as income tax expense and their value is zero .

Long-term debt

Convertible Senior Notes

In December 2019, we issued convertible senior notes due 2026, or the 2019 Notes, in an aggregate principal amount of $ 86.3 million.

The 2019 Notes are our senior unsecured obligations and are governed by the indenture for the 2019 Notes.

The 2019 Notes accrue interest at a fixed rate of 2.00 % per year, payable semi-annually in arrears on June 15 and December 15 of each year, beginning June 15, 2020.

Upon conversion, the 2019 Notes will be convertible into cash, shares of our common stock or a combination thereof, at our election.

The 2019 Notes will mature on December 15, 2026 , unless earlier repurchased, redeemed, or converted in accordance with the terms of the indenture.

Our net proceeds from issuing the 2019 Notes were approximately $ 83.5 million after deducting fees and expenses.

We used a portion of the proceeds to pay the cost of the capped call transactions described below and repay our senior credit facility.

The 2019 Notes are convertible at an initial conversion rate of 28.9415 shares of our common stock per $1,000 principal amount of the 2019 Notes, which is equal to an initial conversion price of approximately $ 34.55 per share of our common stock, subject to adjustment under certain circumstances in accordance with the indenture.

Prior to the close of business on the business day immediately preceding September 15, 2026, holders of the 2019 Notes may convert all or a portion of their 2019 Notes under the following circumstances:

during any fiscal quarter commencing after the fiscal quarter ending on March 31, 2020 (and only during such fiscal quarter), if the last reported sale price of our common stock, for at least 20 trading days (whether or not consecutive) during a period of 30 consecutive trading days ending on, and including, the last trading day of the immediately preceding fiscal quarter is greater than or equal to 130 % of the conversion price on each applicable trading day ;

The following table presents the outstanding principal amount and carrying value of the Notes as of the dates indicated (in thousands):

December 31, 2021

December 31, 2020

2019 Notes (2)

Short-term Debt

Long-term Debt

(1) We adopted ASU 2020-06 on January 1, 2021 using modified retrospective transition method and accounted for the 2019 Notes on a whole-instrument basis.

Accordingly, we no longer had unamortized debt discount related to the equity component of the 2019 Notes as of December 31, 2021.

For further information on adoption of ASU 2020-06, please refer to Note 2.

(2) In November 2021, we completed a privately negotiated repurchase of $ 76.4 million principal amount of the 2019 Convertible Notes (“2019 Note Repurchase”) which we accounted for as an induced conversion in accordance with Accounting Standards Codification 470-20, Debt with Conversion and Other Options (ASC 470-20).

As a result of this transaction, we recorded unamortized debt issuance costs of $ 1.8 million in additional paid-in capital.

Please refer to section "Partial Repurchase of the Convertible Senior Notes – 2019".

In December 2019, we issued $ 86.3 million aggregate principal amount of convertible senior notes due December 15, 2026 (the 2019 Notes) and in November 2021, we issued $ 287.5 million aggregate principal amount of convertible senior notes due May 15, 2027 (the 2021 Notes) (collectively, the Notes).

Further details of the Notes are as follows:

Maturity Date

Semi-Annual Interest

Payment Dates

millions) (1)

December 15, 2026

June 15, 2020

(1) Amount for 2019 Notes represents amount after repurchase of the Notes.

The 2019 Notes, and the 2021 Notes are senior unsecured obligations, do not contain any financial covenants and are governed by indentures for the 2019 Notes and 2021 Notes (the Indentures).

The total net proceeds from

the 2019 Notes and the 2021 Notes, after deducting initial debt issuance costs, fees and expenses, were $ 83.5 million and $ 278.4 million, respectively.

We used a portion of the proceeds from the 2019 Notes to pay the cost of the capped call transactions described in the section “ Capped Calls ” and to repay our senior credit facility described in the section “ Senior Credit Facility ”.

We used approximately $ 183.6 million of the net proceeds of the 2021 Notes , exclu ding accrued interest, to repurchase approximately $ 76.4 million aggregate principal amount of the 2019 Notes through individual privately negotiated transactions concurrent with us offering the 2021 Notes , as described in the section “ Partial Repurchase of the Convertible Senior Notes – 2019 ” .

We will use the remainder of the net proceeds from the 2021 Notes for general corporate purposes.

Terms of the Notes

The Notes holders may convert their respective Notes at their option at any time prior to the close of business on the business day immediately preceding the respective conversion dates under the following circumstances:

during any fiscal quarter commencing after the fiscal quarter ending on March 31, 2020 for the 2019 Notes and the fiscal quarter ending on March 31, 2022 for the 2021 Notes (and only during such fiscal quarter), if the last reported sale price of our common stock, for at least 20 trading days (whether or not consecutive) during a period of 30 consecutive trading days ending on, and including, the last trading day of the immediately preceding fiscal quarter is greater than or equal to 130 % of the conversion price on each applicable trading day;

during the five business day period after any five consecutive trading day period in which the trading price per $1,000 principal amount of the Notes for each trading day was less than 98 % of the product of the last reported sale price of our common stock and the conversion rate on each such trading day;

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upon the occurrence of specified corporate events, as described in the indenture.

On or after September 15, 2026, until the close of business on the second scheduled trading day immediately preceding the maturity date, holders may convert all or any portion of the 2019 Notes, in multiples of $1,000 principal amount, at the option of the holder regardless of the foregoing circumstances.

We may redeem the 2019 Notes for cash, at our option, on or after December 20, 2023, if the last reported sale price of our common stock has been at least 130 % of the conversion price at least 20 trading days (whether or not consecutive) during any 30 consecutive trading day period at a redemption price equal to 100% of the principal amount of the 2019 Notes being redeemed, plus any accrued and unpaid interest to, but excluding, the redemption date.

Holders of the 2019 Notes who convert their 2019 Notes in connection with certain corporate events that constitute a make-whole fundamental change (as defined in the indenture) are, under certain circumstances, entitled to an increase in the conversion rate.

Additionally in the event of a corporate event constituting a fundamental change (as defined in the indenture), holders of the 2019 Notes may require us to repurchase all or a portion of their 2019 Notes at a repurchase price equal to 100 % of the principal amount of the 2019 Notes being repurchased, plus any accrued and unpaid interest to, but excluding, the repurchase date.

Certain convertible debt instruments that may be settled in cash on conversion are required to be separated into a liability and an equity component.

The total proceeds are first allocated to the liability component based on the fair value of a similar debt instrument without the conversion option.

The remaining proceeds are allocated to the equity component and recognized in additional paid-in capital.

Accordingly, we separated the 2019 Notes into a liability and an equity component.

Regardless of the foregoing circumstances, holders may convert all or any portion of the Notes, in increments of $1,000 principal amount, on or after September 15, 2026 (2019 Notes) and on or after February 15, 2027 (2021 Notes), until the close of business on the second scheduled trading day immediately preceding the maturity date.

We may redeem all, or a portion of the Notes for cash, at our option, on or after December 20, 2023 (2019 Notes) or on or after November 20, 2024 (2021 Notes), if the last reported sale price of our common stock has been at least 130 % of the conversion price at least 20 trading days (whether or not consecutive) during any 30 consecutive trading day period at a redemption price equal to 100% of the principal amount of the Notes being redeemed, plus any accrued and unpaid interest to, but excluding, the redemption date.

Notes holders who convert their Notes in connection with certain corporate events that constitute a make-whole fundamental change (as defined in the indenture) are, under certain circumstances, entitled to an increase in the conversion rate.

Additionally in the event of a corporate event constituting a fundamental change (as defined in the indenture), Notes holders may require us to repurchase all or a portion of their Notes at a repurchase price equal to 100 % of the principal amount of the Notes being repurchased, plus any accrued and unpaid interest to, but excluding, the repurchase date.

Accounting for the Notes

Prior to January 1, 2021, we separated the 2019 Notes into liability and equity components.

We determined the fair value of the liability component to be $ 52.5 million calculated as the present value of future cash flows discounted at the borrowing rate for a similar nonconvertible debt instrument based on the expected term.

We determined the borrowing rate to be 9.90 % based on the market rates for nonconvertible debt instruments issued by other companies with publicly available credit ratings considered to be comparable to us.

We recognized the excess of the principal amount of the 2019 Notes over the initial carrying amount of the liability component as a debt discount of $ 33.8 million and are amortizing it to interest expense over the expected term of the 2019 Notes using the effective interest rate method.

We recognized the excess of the principal amount of the 2019 Notes over the initial carrying amount of the liability component as a debt discount of $ 33.8 million and amortized it to interest expense over the expected term of the 2019 Notes using the effective interest rate method.

We recorded the equity component of $ 33.8 million as additional paid-in capital, calculated as the difference between the total proceeds of $ 86.3 million and the initial carrying amount of the liability component.

We will not remeasure the equity component as long as it continues to meet the conditions for equity classification.

As of December 31, 2020 , the “if-converted value” exceeded the principal amounts by $ 18.3 million based on the closing price of our common stock of $ 41.87 while the 2019 Notes were not yet convertible.

We allocated the 2019 Notes total issuance costs of $ 2.8 million between liability and equity in the same proportion as the allocation of our total proceeds to liability and equity components.

We amortize the issuance costs attributable to the liability component of $ 1.7 million to interest expense over the respective term of the 2019 Notes using the effective interest rate method.

We amortized the issuance costs attributable to the liability component of $ 1.7 million to interest expense over the respective term of the 2019 Notes using the effective interest rate method.

We netted the issuance costs attributable to the equity component of $ 1.1 million against the respective equity component in additional paid-in capital.

The effective interest rate on the liability component of the 2019 Notes for the year ended December 31, 2020 is 10.21 %.

Accrued interest related to the 2019 Notes as of December 31, 2020 and 2019 were not material.

Accrued interest is recorded in accrued liabilities in our consolidated balance sheet.

The following table presents the interest expense related to the 2019 Notes for the periods presented (in thousands):

Effective January 1, 2021, we early adopted ASU 2020-06 using the modified retrospective approach.

As a result, we accounted for the 2019 Notes as a single liability measured at amortized cost, as no other embedded features require bifurcation and recognition as derivatives.

Upon adoption, we recorded a $ 29.3 million increase to long-term debt, a $ 32.7 million decrease to additional paid-in capital and a $ 3.4 million decrease to accumulated deficit.

We had no changes to net deferred tax liabilities with a decrease in deferred tax liability offset by a corresponding increase in valuation allowance upon adoption.

We accounted for the 2021 Notes issuance as a single liability measured at its amortized cost, as no other embedded features require bifurcation and recognition as derivatives.

We presented the 2021 Notes total issuance costs of $ 9.1 million as a direct deduction from the face amount of the 2021 Notes.

We amortized the issuance costs to interest expense over the respective term of the 2021 Notes using the effective interest rate method.

Interest expense related to the Notes was as follows (in thousands):

Year Ended December 31, 2021

Year Ended December 31, 2020

Year Ended December 31, 2019

Amortization of debt discount (1)

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Total interest expense

(1) We adopted ASU 2020-06 on January 1, 2021 using modified retrospective transition method and accounted for the 2021 Notes on a whole-instrument basis.

For further information on adoption of ASU 2020-06, please refer to Note 2.

Accrued interest related to the 2019 Notes as of December 31, 2021 and 2020 was not material.

Accrued interest related to the 2021 Notes as of December 31, 2021 was $ 494,000 .

We record accrued interest in accrued liabilities in our consolidated balance sheet.

Our estimated fair value of the 2021 Notes was $ 314.3 million as of December 31, 2021, which we determined through consideration of quoted market prices.

Our estimated fair value of the 2019 Notes was $ 26.2 million and $ 118.7 million as of December 31, 2021 and 2020, respectively, which we determined through consideration of quoted market prices.

The fair value is classified as Level 2, as defined in Note 2.

The following table presents the outstanding principal amount and carrying value of the 2019 Notes as of the date presented (in thousands):

December 31, 2020

December 31, 2019

Outstanding principal amount

Unamortized debt discount and debt issuance costs

Carrying value

In connection with the issuance of the 2019 Notes, we entered into privately negotiated capped-call transactions with certain financial counterparties.

The fair value for both Notes is classified as Level 2, as defined in Note 2.

In connection with issuing the 2019 Notes, we entered into privately negotiated capped-call transactions with certain financial counterparties.

The capped-call transactions are generally designed to reduce the potential dilution to our common stock upon any conversion or settlement of the 2019 Notes, or to offset any cash payments we are required to make in excess of the principal amount upon conversion of the 2019 Notes, as the case may be, with such reduction or offset subject to a cap based on the cap price.

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We paid $ 10.1 million for the capped-call transactions , which we recorded as a reduction to additional paid-in-capital within shareholders’ equity.

Partial Repurchase of the Convertible Senior Notes – 2019

In November 2021, we completed a privately negotiated induced conversion of $ 76.4 million principal amount of the 2019 Convertible Notes (“2019 Note Repurchase”).

We accounted for the 2019 Notes Repurchase transaction as an induced conversion in accordance with Accounting Standards Codification 470-20, Debt with Conversion and Other Options (ASC 470-20).

In connection with the induced conversion, we paid approximately $ 183.6 million in cash, and also paid accrued and unpaid interest thereon.

As a result of the induced conversion, we recorded $ 11.3 million in induced conversion expense which is included in the Condensed Consolidated Statements of Operations for the year ended December 31, 2021.

The induced conversion expense represents the fair value of the consideration issued upon conversion in excess of the fair value of the securities issuable under the original terms of the 2019 Convertible Notes.

We accounted for the remaining cash consideration under the original terms of the 2019 Notes under the general conversion accounting guidance where the difference between the carrying amount of the 2019 Notes retired, including unamortized debt issuance costs of $ 1.8 million, and the cash consideration paid, was recorded in additional paid-in capital.

Senior Credit Facility

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The number of shares of common stock reserved for issuance under the 2016 Plan may increase on January 1 of each year, beginning on January 1, 2017 and ending on and including January 1, 2026, by the lower of (1) 1,825,000 shares;

(2) 5 % of the total number of shares of common stock outstanding on December 31 of the preceding calendar year;

(2) 5 % of the total number of

shares of common stock outstanding on December 31 of the preceding calendar year;

and (3) a lesser number of shares determined by our board of directors.

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Restricted Stock Units

The following table summarizes activity for restricted stock units, RSUs, including RSUs with performance conditions, or PSUs, for the year ended December 31, 2020 (in thousands, except per share data):

The following table summarizes activity for restricted stock units, RSUs, including RSUs with performance conditions, or PSUs, and RSUs with market and service conditions, or MSUs, for the year ended December 31, 2021 (in thousands, except per share data):

Number of Underlying Shares

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We granted PSUs in 2019, 2020 and 2021 under our annual bonus program to our senior executives and other bonus-eligible employees.

The number of annual PSUs that ultimately vest depends on us attaining a financial metric for the fiscal year as well as on the employee’s continued employment through the vesting date.

The number of annual PSUs that ultimately vest depends on us attaining financial metrics for the fiscal year as well as on the employee’s continued employment through the vesting date.

The compensation committee and board of directors certified achievement of the financial metric for PSUs granted in 2019, vesting 243,000 shares in first-quarter 2020.

The compensation committee and board of directors certified achievement of the financial metric for PSUs granted in 2020, vesting 241,000 shares in first-quarter 2021.

Based upon attainment of the financial metric for 2021, we expect approximately 240,000 shares to vest in first-quarter 2022.

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The stock-based compensation expense we recognized for PSUs was $ 13 million and $ 5.7 million for the year ended December 31, 2021 and 2020 .

The total fair value of RSUs vested was $ 5.0 million during 2020 and $ 1.5 million during both 2019 and 2018.

The total fair value of PSUs vested was $ 7.5 million during 2020.

The fair value of the outstanding RSUs will be recorded as stock-based compensation expense over the vesting period.

As of December 31, 2020, there was $ 22.0 million of total unrecognized compensation cost related to unvested RSUs, which is expected to be recognized over a weighted average period of 3.0 years.

As of December 31, 2020, there was $ 1.9 million of total unrecognized compensation cost related to PSUs, which is expected to be recognized in less than one year .

The total fair market value of RSUs vested was $ 18.2 million during 2021 and $ 5.0 million and $ 1.5 million, respectively, during 2020 and 2019.

The total fair value of PSUs vested was $ 15.4 million during 2021 and $ 7.5 million during 2020.

We will record the grant-date fair value of the outstanding RSUs as stock-based compensation expense over the vesting period.

As of December 31, 2021, there was $ 45.6 million of total unrecognized compensation cost related to unvested RSUs, which we expect to recognize over a weighted average period of 2.8 years.

As of December 31, 2021, there was $ 2.1 million of total unrecognized compensation cost related to PSUs, which we expect to recognize in less than one year .

On April 12, 2021 and May 20, 2021, we granted a total of 83,750 shares of MSUs, to certain executives.

Half of the MSUs are eligible to vest based on our relative TSR during the period from January 1, 2021 through December 31, 2022, and half are eligible to vest based on our relative TSR during the period from January 1, 2021 through December 31, 2023.

We use a Monte Carlo simulation in estimating the fair value at grant date and recognize compensation cost over the implied service period.

We estimated the aggregate grant-date fair value of these shares to be $ 6.4 million using the Monte Carlo simulation valuation method.

We recorded $ 2.0 million of stock-based compensation expense related to the MSUs for the year ended December 31, 2021.

As of December 31, 2021, our total unrecognized stock-based compensation cost related to unvested MSUs was $ 4.5 million, which we will recognize over the weighted-average period of 2.2 years.

Employee Stock Purchase Plan

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Participants in an offering period will be granted the right to purchase common shares at a price per share that is 85 % of the least of the fair market value of the shares at (1) the first day of the offering period and (2) the end of each purchase period within the offering period.

The number of shares reserved for the ESPP may increase each year, beginning on January 1, 2017 and continuing through and including January 1, 2036, by the least of:

The number of shares reserved for the ESPP may increase each year, beginning on January 1, 2017 and continuing through and

including January 1, 2036, by the least of:

(1) 1 % of the total number of shares of common stock outstanding on the first day of such year;

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and (3) such amount as determined by our board of directors.

As of December 31, 2020, the total unrecognized stock-based compensation related to the ESPP was $ 0.2 million and will be recognized on a straight-line basis over the weighted-average remaining service period of less than one year .

As of December 31, 2021, the total unrecognized stock-based compensation related to the ESPP was $ 0.2 million, which we will recognize on a straight-line basis over the weighted-average remaining service period of less than one year .

We estimate t he fair value of the ESPP granted at the start of the offering period using the Black-Scholes option-pricing model with the following assumptions for the periods presented:

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46.9% - 91.0%

66.5% – 72.3%

Stock-Based Compensation Expense

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(a) Includes short-term lease costs, which are immaterial.

(b) Sublease income is related to unused office space that was sublet as part of the restructuring in fiscal 2018 where we continue to have the primary obligations.

(b) Sublease income is related to unused office space that we sublet as part of the restructuring in fiscal 2018 where we continue to have the primary obligations.

The following table presents supplemental cash flow information related to operating leases for the periods presented (in thousands):

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Operating cash flows used

Lease liabilities arising from remeasurement of right-of-use assets

Operating leases

The following table presents weighted-average remaining lease term and weighted-average discount rate related to operating leases as of:

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From time to time, we are subject to various legal proceedings or claims that arise in the ordinary course of business.

We accrue a liability when management believes that it is both probable that a liability has been incurred and the amount of loss can be reasonably estimated.

For the year ended December 31, 2020, we recorded and paid $ 5.4 million of our estimated settlement of the federal securities class action to general and administrative expenses described further below.

As of December 31, 2020.

and 2019 , we did no t have accrued contingency liabilities.

We accrue a liability when management believes it is both probable that a liability has been incurred and we can reasonably estimate the amount of loss.

For the year ended December 31, 2021, we recorded $ 0.5 million in recovery costs related to settling the shareholder derivative action described below.

For the year ended December 31, 2020, we recorded $ 5.4 million of our paid settlement of the federal securities class action to general and administrative expenses.

As of December 31, 2021, and 2020 , we did no t have accrued contingency liabilities.

The following is a description of our significant legal proceedings.

Although we believe that resolving these claims, individually or in aggregate, will not have a material adverse impact on our financial statements, these matters are subject to inherent uncertainties.

Federal Securities Class Actions

On August 7, 2018, a class-action complaint for violation of the federal securities laws was filed in the U.S.

District Court for the Central District of California against us, our chief executive officer and former chief operating officer.

Captioned Schultz v.

Impinj, Inc., et al , the complaint, purportedly brought on behalf of all purchasers of our common stock from May 7, 2018 through and including August 2, 2018, asserted claims that our quarterly statement filed on Form 10-Q for first-quarter 2018 and a concurrent press release made false or misleading statements about our business prospects and financial condition.

The complaint sought monetary damages, costs and expenses.

On October 3, 2018, the plaintiff voluntarily dismissed this complaint.

On August 27, 2018, a second class-action complaint for violation of the federal securities laws was filed in the U.S.

District Court for the Western District of Washington against us, our chief executive officer, former chief operating officer and former chief financial officer.

Captioned Montemarano v.

Impinj, Inc., et al ., the complaint, purportedly brought on behalf of all purchasers of our common stock from May 4, 2017 through and including August 2, 2018, asserted claims that we made false or misleading statements in our financial statements, press releases and conference calls during the purported class period in violation of Section 10(b) of the Securities Exchange Act of 1934, as amended, or the Securities Exchange Act.

The complaint sought monetary damages, costs and expenses.

On October 2, 2018, a third class-action complaint for violation of the federal securities laws was filed in the U.S.

District Court for the Western District of Washington against us, our chief executive officer, former chief operating officer and former chief financial officer.

Captioned Employees’ Retirement System of the City of Baton Rouge and Parish of East Baton Rouge v.

Impinj, Inc., et al ., the complaint, purportedly brought on behalf of all purchasers of our common stock from November 3, 2016 through and including February 15, 2018, asserted claims that we made false or misleading statements about customer demand for our products and inventory in SEC filings, press releases and conference calls in violation of Section 10(b) of the Securities Exchange Act.

The complaint sought monetary damages, costs and expenses.

On January 14, 2019, the U.S.

District Court for the Western District of Washington consolidated the Montemarano and Baton Rouge actions and appointed the Employees’ Retirement System of the City of Baton Rouge and Parish of East Baton Rouge as lead plaintiff.

On February 13, 2019, lead plaintiff filed a consolidated amended complaint.

The consolidated amended complaint alleged that from July 21, 2016 through February 15, 2018, we made false or misleading statements about customer demand and the capability of our products and platform in violation of Section 10(b) of the Securities Exchange Act.

On March 19, 2019, we filed a motion to dismiss the consolidated amended complaint, and on October 4, 2019, the court entered an order granting in part and denying in part the motion.

The court dismissed the Section 10(b) claim against our former chief operating officer, dismissed product-capability-related allegations against our former chief financial officer, and dismissed allegations that defendants made false or misleading statements concerning increasing demand prior to first-quarter 2017.

The court denied the motion as to all other claims and defendants.

On July 9, 2020, following a private settlement mediation with the lead plaintiff in the federal securities class actions and plaintiff in the New York State securities class action discussed below, the parties in both actions executed a stipulation of settlement that resolved the claims asserted in both actions.

The settlement provided for a payment to the plaintiff class of $ 20.0 million.

Our insurers contributed $ 14.6 million to the settlement, and we contributed the remaining settlement amount of $ 5.4 million.

Accordingly, we recorded a provision of $ 5.4 million related to our estimated settlement amount to general and administrative expenses for the three months ended June 30, 2020, which was paid during the three months ended September 30, 2020.

On July 29, 2020, the court entered an order preliminarily approving the settlement.

On November 20, 2020, following a final approval hearing the previous day, the court entered an order approving the settlement and such matter is now closed.

New York State Securities Class Action

On January 31, 2019, a fourth class-action complaint for violation of the federal securities laws was filed in the Supreme Court of the State of New York for the County of New York against us, our chief executive officer, former chief operating officer, former chief financial officer, members of our board of directors and the underwriters of our July 2016 initial public stock offering, or IPO, and December 2016 secondary public offering, or SPO.

Captioned Plymouth County Retirement System v.

Impinj, Inc., et al.

, the complaint, purportedly brought on behalf of purchasers of our stock pursuant to or traceable to our IPO and SPO, alleged that we made false or misleading statements in the registration statements and prospectuses in those offerings concerning demand for our products and inventory in violation of Section 11 of the Securities Act of 1933.

On April 9, 2019, the New York Supreme Court entered an order staying the action and requiring the parties to update the court every 90 days as to the status of the pending federal securities class actions discussed above.

As discussed above in connection with the federal securities class action, on July 9, 2020, the parties in both this action and the federal securities class actions executed a stipulation of settlement that resolved the claims in both actions.

On November 20, 2020, the U.S.

District Court for the Western District of Washington entered an order approving the settlement.

Pursuant to the terms of the settlement, the parties in this action filed stipulation discontinuing this action with prejudice.

The New York State court, significantly hampered by COVID-19, has not yet entered an order discontinuing the action with prejudice.

Shareholder Derivative Actions

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Diorio, et al.

, the derivative complaints, purportedly brought on behalf of us, alleged that the defendants breached their fiduciary duties to us and allegedly made false or misleading statements and omissions of material fact in violation of Section 14(a) of the Securities Exchange Act regarding our business and operations.

, the derivative complaints, purportedly brought on behalf of us, were premised on many of the allegations asserted in the since-settled federal and state securities class actions and alleged that the defendants breached their fiduciary duties to us and allegedly made false or misleading statements and omissions of material fact in violation of Section 14(a) of the Securities Exchange Act regarding our business and operations.

The derivative actions included claims for, among other things, unspecified damages in favor of us, corporate actions to purportedly improve our corporate governance, and an award of costs and expenses to the derivative plaintiffs, including attorneys’ fees.

On January 28, 2019, the Delaware federal court entered a stipulated order that stayed these derivative actions until resolution of the pending federal securities class actions described above.

On July 10, 2020, following a private settlement mediation, the parties in this action executed a stipulation of settlement to settle and resolve the claims asserted in this consolidated derivative action.

The settlement required us to implement certain corporate governance changes and the payment of up to $ 900,000 to plaintiffs’ counsel for attorneys’ fees and expenses.

Our insurers have agreed to contribute up to $ 900,000 to plaintiffs’ counsel for attorneys’ fees and expenses.

The proposed settlement is subject to preliminary and, following notice to shareholders, final approval by the U.S.

District Court for the District of Delaware.

On August 5, 2020, at the court’s request, the parties filed supplemental briefing in respect of their joint motion for preliminary approval of the settlement.

The court has not yet entered an order preliminarily approving the settlement.

On January 28, 2019, the Delaware federal court entered a stipulated order that stayed these derivative actions until resolution of the pending federal securities class actions.

On July 10, 2020, following a private settlement mediation, the parties executed a stipulation of settlement to settle and resolve the claims in th e consolidated derivative action.

The settlement required us to implement certain corporate governance changes and t o pay up to $ 900,000 to plaintiffs’ counsel for attorneys’ fees and expenses.

Our insurers agreed to contribute up to $ 900,000 to plaintiffs’ counsel for attorneys’ fees and expenses.

On August 5, 2020, at the court’s request, the parties filed supplemental briefing s in respect of their joint motion for preliminary settlement approval.

On February 26, 2021, the court entered an order preliminarily approving the settlement.

On May 11, 2021, the court held a final approval hearing.

On November 22, 2021, the Court issued an opinion and final order approving the settlement resolving the consolidated derivative actions and awarding plaintiffs’ counsel less than half of the $ 900,000 attorneys’ fees and expenses noted above.

The approximately $ 0.5 million in savings from the contemplated final settlement of the derivative action was remitted by the insurer to us because we contributed $ 5.4 million towards the federal securities class action due to exhaustion of our applicable insurance covering both the federal securities class action and the consolidated shareholder derivative actions.

Patent Infringement Claims and Counterclaims

Impinj Patent Infringement Claims Against NXP

Impinj Patent Infringement Claims Against NXP in California

On June 6, 2019, we filed a patent infringement lawsuit against NXP USA, Inc., a Delaware corporation and subsidiary of NXP Semiconductors N.V., or NXP, in the U.S.

District Court for the Northern District of California, or the Court.

The original complaint alleged that certain NXP integrated circuit products infringe 26 of our U.S.

Our original complaint alleged that certain NXP endpoint ICs infringe 26 of our U.S.

At the order of the Court, we filed an amended complaint limited to eight of the original 26 patents.

We subsequently elected to go forward with asserting infringement of six of those eight patents.

We are seeking, among other things, past damages, including lost profits, but no less than a reasonable royalty;

We are seeking, among other things, past damages, including lost profits;

no less than a reasonable royalty;

enhanced damages for willful infringement;

and reasonable attorneys’ fees and costs for infringement of the asserted patents.

We are also seeking an injunction against NXP making, selling, using, offering for sale or importing the RAIN RFID integrated circuit product NXP introduced in 2017.

Defendants responded to our complaint on September 30, 2019 citing numerous defenses including denying infringement, claiming our asserted patents are invalid, and that the infringed patents were licensed on a royalty-free basis under Impinj’s commitments to GS1 EPCglobal.

In February 2020, NXP filed inter partes review, or IPR, petitions with the Patent Trial and Appeal Board for the U.S.

and reasonable attorneys’ fees and costs.

We are also seeking an injunction against NXP making, selling, using, offering for sale or importing the endpoint IC NXP introduced in 2017.

Defendants responded to our complaint on September 30, 2019 citing numerous defenses including denying infringement, claiming our asserted patents are invalid and that the infringed patents were licensed royalty free under Impinj’s commitments to GS1 EPCglobal.

In February 2020, NXP filed petitions for inter partes review, or IPRs, with the Patent Trial and Appeal Board for the U.S.

Patent and Trademark Office, or PTAB, against 12 of the originally asserted 26 patents, including the six patents asserted in the amended complaint.

In August and September of 2020, the PTAB declined to institute a review of four of the six patents at issue.

On September 24, 2020, the Court lifted the stay on two of the patents in suit, and based on a schedule set by the Court on October 22, 2020, the case is proceeding with a claim construction hearing scheduled for March 24, 2021.

Also on October 22, 2020, the Court continued the stay on infringement claims on two additional patents pending determinations on IPRs on two allegedly related patents, and we removed without prejudice the two patents against which the PTAB instituted IPRs.

NXP Patent Infringement Claims Against Impinj

In August and September of 2020, the PTAB declined to institute review of four of the six patents.

On October 27, 2020, we filed a second amended complaint removing without prejudice the two of the six patents against which the PTAB instituted IPRs, leaving four patents in suit.

On September 24, 2020, the Court lifted the stay on two of the four patents in suit, and on July 23, 2021, the Court held a claim construction hearing for eight disputed claim terms in those two patents.

On September 16, 2021, the Court issued an order rejecting all of NXP’s positions and adopting most of Impinj’s positions relating to those disputed claim terms.

On August 26, 2021, Impinj moved to add NXP’s latest endpoint IC, UCODE9, to the suit.

After initially objecting to the motion, NXP later dropped its opposition and the Court entered an order adding UCODE9 to Impinj’s patent infringement lawsuit on the two patents for which the claims had been construed.

On September 3, 2021, the Court lifted the stay on the other two of the four patents in suit and scheduled a claim construction hearing for those two patents on March 4, 2022.

As of now, no trial date has been set for this case.

NXP Patent Infringement Claims Against Impinj in Washington

On October 4, 2019, NXP USA, Inc.

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They are also seeking an injunction against us, enjoining continuing acts of infringement of the patents-in-suit.

We have denied that we are infringing any of the patents, and we have asserted that we are licensed under four of them and that all eight are invalid.

We have also filed IPR petitions with the PTAB against six of the eight patents.

We have denied that we are infringing any of the patents, and we have asserted that our supplier is licensed under four of them and that all eight are invalid.

On September 23, 2020, the District of Delaware granted Impinj’s motion to transfer the case to the U.S.

District Court for the Western District of Washington in Seattle.

On December 3, 2020, we moved to amend our answer to include counterclaims that certain NXP integrated circuit products infringe eight of our U.S.

patents, all of which were initially included in our California litigation and are therefore beyond the statutory period for any further IPR review at the PTAB.

On December 11, 2020, we also moved to stay the case with respect to six of the eight patents in suit pending final resolution of petitions that we filed for IPR review by the PTAB.

On February 12, 2021, the Court denied our motion to amend our answer to include counterclaims but granted our motion to stay the case as to the six patents with respect to which we filed for IPR review.

As of the date of this report, there is no schedule in this case.

On December 7, 2020, Impinj Radio Frequency Technology (Shanghai) Co., Ltd., or Impinj Shanghai, was served with patent infringement lawsuits filed in the Intellectual Property Court in Shanghai, China, or Shanghai Intellectual Property Court, in which NXP asserts that certain of our products infringe three Chinese patents owned by NXP, which closely correspond to three of the eight U.S.

patents NXP has already asserted in U.S.

On December 11, 2020, we moved to stay the case with respect to six of the eight patents in suit pending final resolution of IPR petitions we filed with the PTAB.

On February 12, 2021, the Court granted our motion to stay the case as to these six patents.

The PTAB instituted IPRs on two of the six challenged patents but denied them on the other four .

The Court subsequently removed the stay on the four against which IPRs were not instituted.

On March 9, 2021, we moved for summary judgment of noninfringement on the four patents to which we assert a license exists, including the two patents that were not subject to a stay.

That motion was fully briefed and is pending.

On July 28, 2021, the Court deferred ruling on our motion for summary judgment pending further discovery.

On September 17, 2021, the Court struck all scheduled dates for the case pending reassignment to a new judge.

The Court has not yet re-assigned the case or set a new schedule.

Impinj Patent Infringement Claims Against NXP in Texas

On May 25, 2021, we filed a new patent infringement lawsuit against NXP in the United States District Court for the Western District of Texas (Waco), asserting that NXP has infringed nine of our patents, including seven that we originally asserted in the Northern California case.

We are seeking among other things, past damages, including lost profits;

no less than a reasonable royalty;

enhanced damages for willful infringement;

and reasonable attorney’s fees and costs.

We are also seeking an injunction against NXP making, selling, using, offering for sale or importing its UCODE 7, 8, and 9 endpoint ICs.

On July 26, 2021, NXP filed an answer to our complaint and counterclaimed that we infringe nine patents, one of which NXP owns and eight of which NXP recently licensed from a third party.

A claim construction hearing has been scheduled for February 10, 2022, with general fact discovery to open on February 11, 2022.

A dispositive motion deadline has been tentatively scheduled for November 15, 2022, with a trial date of February 21, 2023.

NXP Patent Infringement Claims Against Impinj in China

patents NXP asserted in the U.S.

District Court described above.

Impinj Shanghai has objected to the jurisdiction of the Shanghai Intellectual Property Court and has filed a motion to stay the proceedings.

Impinj Shanghai also filed invalidity requests against the three Chinese patents before the China National Intellectual Property Administration.

As of the date of this report, there is no schedule in the cases in China.

The plaintiffs are seeking, among other things, past damages, and reasonable attorneys’ fees and costs.

They are also seeking an injunction against us, enjoining continuing acts of infringement of the patents-in-suit.

Impinj Shanghai objected to the jurisdiction of the Shanghai Intellectual Property Court and filed a motion to stay the proceedings.

The jurisdictional challenge was rejected by the Shanghai court in March 2021;

a subsequent appeal filed by Impinj Shanghai was denied before the IP Tribunal of the Supreme People’s Court in third-quarter 2021.

was formally served in July 2021, officially adding Impinj, Inc.

Impinj Shanghai also filed invalidity requests against all three Chinese patents before the China National Intellectual Property Administration, or CNIPA.

In July 2021, the CNIPA issued decisions upholding the validity of all three Chinese patents.

In October 2021, Impinj Shanghai filed for review of all the CNIPA decisions by the Beijing Intellectual Property Court, which has docketed its review for all three patents but has not yet set hearing dates.

The Court has set a trial date of May 22, 2022 for all three patents.

Obligations with Third-Party Manufacturers

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Deferred Revenue

Deferred revenue, comprising individually immaterial amounts for extended warranty, enhanced maintenance and advanced payments on nonrecurring engineering services contracts, represents contracted revenue that has not yet been recognized.

Deferred revenue as of December 31, 2020 includes a $ 6.0 million advance payment for a system order that we expect to deliver and recognize as revenue in 2021.

The following table presents the changes in deferred revenue for the periods presented (in thousands):

Deferred revenue, comprising individually immaterial amounts for extended warranties, enhanced product maintenance and advance payments on nonrecurring engineering services contracts, represents contracted revenue that we have not yet recognized.

The following table presents the changes in deferred revenue for the indicated periods (in thousands):

Year Ended December 31,

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Balance at end of period

During 2020 , we recognized $ 0.5 million of revenue, which was included in deferred revenue as of December 31, 2019 .

During 2019 , we recognized $ 0.6 million of revenue, which was included in deferred revenue as of December 31, 2018 .

During 2021 , we recognized $ 6.7 million revenue which we included in deferred revenue as of December 31, 2020 .

During 2020 , we recognized $ 0.5 million revenue which we included in deferred revenue as of December 31, 2019 .

Segment Reporting

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We define systems as reader ICs, readers, gateways and software.

The following table presents our revenue categories for the periods presented (in thousands):

The following table presents our revenue categories for the indicated periods (in thousands):

Year Ended December 31,

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Information by Geography

The following table summarizes our long-lived assets, which consist of property and equipment, less accumulated depreciation (in thousands):

The following table summarizes our long-lived assets, which comprise property and equipment, less accumulated depreciation (in thousands):

December 31, 2021

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For sales to our resellers and distributors, their location may be different from the locations of the ultimate end users.

The following table presents our sales by geography for the periods presented (in thousands):

The following table presents our sales by geography for the indicated periods (in thousands):

Year Ended December 31,

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Total revenue in the United States, included in Americas, was $ 32.6 million, $ 27.6 million and $ 50.2 million for the years ended December 31, 2021, 2020 and 2019, respectively.

Total revenue in China (including Hong Kong), included in Asia Pacific, was $ 79.3 million, $ 70.8 million and $ 64.3 million for the years ended December 31, 2020, 2019 and 2018, respectively.

No sales to countries other than the United States and China accounted for more than 10% of revenue for the years ended December 31, 2020, 2019 and 2018.

Total revenue in China (and Hong Kong), included in Asia Pacific, was $ 98.8 million, $ 79.3 million and $ 70.8 million for the years ended December 31, 2021, 2020 and 2019, respectively.

Total revenue in Malaysia, included in Asia Pacific, was $ 23.6 million for the year ended December 31, 2021.

The revenue from Malaysia was less than 10% of revenue for the years ended December 31, 2020 and 2019.

No sales to countries other than the United States, China, and Malaysia accounted for more than 10% of revenue for the years ended December 31, 2021, 2020 and 2019.

Net Loss per Share

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Net loss per share — basic and diluted

The following presents the outstanding shares of our common stock equivalents excluded from the computation of diluted net loss per share as of the dates presented because their effect would have been antidilutive (in thousands) :

The following table presents the outstanding shares of our common stock equivalents excluded from the computation of diluted net loss per share as of the dates presented because their effect would have been antidilutive (in thousands) :

Year Ended December 31,

Stock options

Restricted stock units and restricted stock units with performance conditions

RSUs, MSUs, and PSUs

Employee stock purchase plan shares

Since we expect to settle the principal amount of the outstanding 2019 Notes in cash, we use the treasury stock method for calculating any potential dilutive effect of the conversion spread on diluted net income per share, if applicable.

For the 2019 Notes, the conversion spread for the notes has a dilutive impact on diluted net income per share when the average market price of our common stock during each reporting period exceeds $ 34.55 per share .

There was no conversion spread for the 2019 Notes during 2020 or 2019.

We used the treasury stock method for calculating any potential dilutive effect of the conversion of the 2019 Notes on diluted net loss per share for the years ended December 31, 2020 and 2019.

Upon us adopting ASU 2020-06 using the modified retrospective transition method on January 1, 2021, we applied the “if-converted” method for calculating any potential dilutive effect of the conversion of the 2019 Notes and the 2021 Notes on diluted net loss per share for the year ended December 31, 2021.

Related-Party Transactions

We have a consulting agreement with a limited liability company owned by Cathal Phelan, a member of our board of directors, pursuant to which Mr.

Phelan provides advisory and consulting services.

The term of the consulting agreement began in May 2020 through December 2020, which was extended by an additional 12 months to December 2021 as mutually agreed upon by Mr.

Phelan and us.

We recognized and paid $ 430,000 of consulting fee expense to Mr.

Phelan, or the limited liability company owned by Mr.

Phelan, for the year ended December 31, 2020.

Phelan provides advisory and consulting services to us.

The original term of the consulting agreement was May 2020 through December 2020.

As mutually agreed by Mr.

Phelan and us, we subsequently extended the term by 12 months to December 2021.

In 2021, again as mutually agreed by Mr.

Phelan and us, we further extended the term by 12 months to December 2022.

We recognized and paid $ 499,000 and $ 430,000 consulting fees to the limited liability company owned by Mr.

Phelan, for the years ended December 31, 2021 and December 31, 2020, respectively.

Additionally, we granted 60,000 shares of stock options to Mr.

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The plan also allows us to make a matching contribution, subject to certain limitations.

To date, we have not made any contributions to the plan.

Subsequent Events

On February 2, 2021, we committed to executing a restructuring plan in our go-to-market organization to strategically align our global sales, product, partner development and marketing teams.

As part of the plan, we expect to eliminate approximately nine full-time positions within our go-to-market organization, representing about 3 % of our workforce.

We expect to incur restructuring charges of between approximately $ 1.0 million and $ 1.5 million for employee termination benefits and related costs as well as $ 0.1 million in other associated costs for legal expenses.

All of the restructuring charges are expected to result in cash expenditures.

The restructuring charges are expected to be recorded in the first and second quarters of 2021, when the activities comprising the plan are expected to be substantially completed .

We implemented a matching contribution during fiscal year 2021 and contributed $ 123,000 to the 401(k) plan for the year ended December 31, 2021, and have accrued $ 462,000 as a catch-up contribution as of December 31, 2021 for the mid-year implementation.

Restructuring

On February 2, 2021, we restructured our go-to-market organization to strategically align our global sales, product, partner development and marketing teams.

As part of the restructuring, we eliminated approximately seven full-time positions within our go-to-market organization, representing about 2 % of our workforce.

We incurred restructuring charges of $ 1.7 million for employee termination benefits as well as $ 50,000 in other associated costs for legal expenses for the year ended December 31 , 2021.

We substantially completed our restructuring by June 30, 2021 .

A summary of accrued restructuring costs as of December 31 , 2021, is shown in the table below (in thousands):

Employee Termination Benefits

Other Associated Costs

Restructuring costs

Cash payments

Accrued restructuring costs as of December 31, 2021

Changes in and Disagreements with Accountants on Accounting and Financial Disclosure

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 8. Financial Statements and Supplementary Data