IMPINJ INC 10-K

Item 8. Financial Statements and Supplementary Data Page Report of Independent Registered Public Accounting Firm (PCAOB ID: 42 ) and (PCAOB ID: 238 ) 60 Consolidated Balance Sheets 63 Consolidated Statements of Operations 64 Consolidated Statements of Comprehensive Loss 65 Consolidated Statements of Changes in Stockholders’ Equity 66 Consolidated Statements of Cash Flows 67 Notes to Consolidated Financial Statements 68 The supplementary financial information required by this Item 8 is included in Item 7 under the caption “Quarterly Results of Operations.” 59 Table of Contents Report of Independent Registered Public Accounting Firm The Board of Directors and Stockholders Impinj, Inc. Opinion on the Financial Statements 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 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 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. 60 Table of Contents 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 We have served as the Company’s auditor since 2020. Seattle, Washington February 14, 2022 61 Table of Contents Report of Independent Registered Public Accounting Firm To the Board of Directors and Stockholders of Impinj, Inc. Opinion on the Financial Statements 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 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. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audit of these consolidated financial statements 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. 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. /s/ PricewaterhouseCoopers LLP Seattle, Washington March 2, 2020 We served as the Company's auditor from 2002 to 2020. 62 Table of Contents Impinj, Inc. Consolidated Balance Sheets (in thousands, except par value) December 31, 2021 December 31, 2020 Assets: Current assets: Cash and cash equivalents $ 123,903 $ 23,636 Short-term investments 69,443 82,453 Accounts receivable, net of allowances of $ 1,132 and $ 533 at December 31, 2021 and 2020, respectively 35,449 25,003 Inventory 21,958 36,329 Prepaid expenses and other current assets 5,049 3,943 Total current assets 255,802 171,364 Long-term investments 14,225 - Property and equipment, net 27,500 16,531 Operating lease right-of-use assets 11,667 13,761 Other non-current assets 2,462 2,079 Goodwill 3,881 3,881 Total assets $ 315,537 $ 207,616 Liabilities and stockholders' equity: Current liabilities: Accounts payable $ 11,732 $ 10,144 Accrued compensation and employee related benefits 6,365 5,529 Accrued and other current liabilities 2,481 1,468 Current portion of operating lease liabilities 4,143 3,641 Restructuring liabilities 591 — Current portion of long-term debt 9,633 — Current portion of deferred revenue 558 6,811 Total current liabilities 35,503 27,593 Long-term debt, net of current portion 278,661 54,556 Operating lease liabilities, net of current portion 11,934 15,266 Other long-term liabilities 279 805 Deferred revenue, net of current portion 236 277 Total liabilities 326,613 98,497 Commitments and contingencies (Note 11) Stockholders' equity: Preferred stock, $ 0.001 par value — 5,000 shares authorized, no shares issued and outstanding at December 31, 2021 and 2020 — — Common stock, $ 0.001 par value — 495,000 shares authorized, 24,737 and 23,350 shares issued and outstanding at December 31, 2021 and 2020, respectively 25 23 Additional paid-in capital 351,422 423,759 Accumulated other comprehensive (loss) income ( 39 ) 3 Accumulated deficit ( 362,484 ) ( 314,666 ) Total stockholders' equity ( 11,076 ) 109,119 Total liabilities and stockholders' equity $ 315,537 $ 207,616 The accompanying notes are an integral part of these consolidated financial statements . 63 Table of Contents Impinj, Inc. Consolidated Statements of Operations (in thousands, except per share data) Year Ended December 31, 2021 2020 2019 Revenue $ 190,283 $ 138,923 $ 152,836 Cost of revenue 91,329 73,783 78,834 Gross profit 98,954 65,140 74,002 Operating expenses: Research and development 64,058 48,590 38,880 Sales and marketing 34,287 28,663 32,642 General and administrative 36,137 34,958 24,141 Restructuring costs 1,721 — — Total operating expenses 136,203 112,211 95,663 Loss from operations ( 37,249 ) ( 47,071 ) ( 21,661 ) Other income, net 25 650 1,242 Induced conversion expense ( 11,333 ) — — Interest expense ( 2,550 ) ( 5,413 ) ( 1,794 ) Loss on debt extinguishment — — ( 576 ) Loss before income taxes ( 51,107 ) ( 51,834 ) ( 22,789 ) Income tax expense ( 153 ) ( 89 ) ( 198 ) Net loss $ ( 51,260 ) $ ( 51,923 ) $ ( 22,987 ) Net loss per share — basic and diluted $ ( 2.12 ) $ ( 2.28 ) $ ( 1.05 ) Weighted-average shares outstanding — basic and diluted 24,176 22,819 21,847 The accompanying notes are an integral part of these consolidated financial statements. 64 Table of Contents Impinj, Inc. Consolidated Statements of Comprehensive Loss (in thousands) Year Ended December 31, 2021 2020 2019 Net loss $ ( 51,260 ) $ ( 51,923 ) $ ( 22,987 ) Other comprehensive loss, net of tax: Unrealized loss on investments ( 42 ) ( 31 ) 43 Total other comprehensive loss ( 42 ) ( 31 ) 43 Comprehensive loss $ ( 51,302 ) $ ( 51,954 ) $ ( 22,944 ) The accompanying notes are an integral part of these consolidated financial statements. 65 Table of Contents Impinj, Inc. Consolidated Statements of Changes in Stockholders’ Equity (in thousands) Accumulated Additional Other Total Common Stock Paid-in Accumulated Comprehensive Stockholders' Shares Amount Capital Deficit Income (loss) Equity Balance at December 31, 2018 21,492 21 337,627 ( 239,756 ) ( 9 ) 97,883 Issuance of common stock 725 1 9,196 — — 9,197 Stock-based compensation — — 18,486 — — 18,486 Net loss — — — ( 22,987 ) — ( 22,987 ) Other comprehensive income — — — — 43 43 Equity component of issuance of 2019 Notes, net of issuance costs of $ 1,089 (Note 7) — — 32,743 — 32,743 Premiums paid for Capped Call Transactions (Note 7) — — ( 10,126 ) — — ( 10,126 ) Balance at December 31, 2019 22,217 22 387,926 ( 262,743 ) 34 125,239 Issuance of common stock 1,133 1 10,158 — — 10,159 Stock-based compensation — — 25,675 — — 25,675 Net loss — — — ( 51,923 ) — ( 51,923 ) Other comprehensive loss — — — — ( 31 ) ( 31 ) Balance at December 31, 2020 23,350 $ 23 $ 423,759 $ ( 314,666 ) $ 3 $ 109,119 Cumulative-effect adjustment from adoption of ASU 2020-06 — — ( 32,743 ) 3,442 — ( 29,301 ) Issuance of common stock 1,387 2 17,646 — — 17,648 Stock-based compensation — — 40,498 — — 40,498 Induced conversion on 2019 Notes (Note 7) — — ( 97,738 ) — — ( 97,738 ) Net loss — — — ( 51,260 ) — ( 51,260 ) Other comprehensive loss — — — — ( 42 ) ( 42 ) Balance at December 31, 2021 24,737 $ 25 $ 351,422 $ ( 362,484 ) $ ( 39 ) $ ( 11,076 ) The accompanying notes are an integral part of these consolidated financial statements. 66 Table of Contents Impinj, Inc. Consolidated Statements of Cash Flows (in thousands) Year Ended December 31, 2021 2020 2019 Operating activities: Net loss $ ( 51,260 ) $ ( 51,923 ) $ ( 22,987 ) Adjustments to reconcile net loss to net cash provided by operating activities: Depreciation 4,602 4,504 4,809 Stock-based compensation 40,498 25,675 18,486 Accretion of discount or amortization of premium on investments 896 224 ( 506 ) Amortization of debt issuance costs and debt discount 568 3,680 206 Loss on debt extinguishment — — 576 Induced conversion expense related to convertible notes 11,333 — — Settlement and related costs ( 460 ) — — Changes in operating assets and liabilities: Accounts receivable ( 10,446 ) ( 1,268 ) ( 5,273 ) Inventory 14,371 ( 2,176 ) 10,572 Prepaid expenses and other assets ( 770 ) ( 3,081 ) ( 524 ) Deferred revenue ( 6,294 ) 6,324 ( 70 ) Accounts payable 2,340 3,491 1,046 Accrued compensation and employee related benefits 836 ( 330 ) ( 1,486 ) Operating lease right-of-use assets 2,792 2,740 2,153 Operating lease liabilities ( 3,528 ) ( 3,380 ) ( 3,038 ) Accrued and other liabilities 987 ( 1,357 ) 744 Net cash provided by (used in) operating activities 6,465 ( 16,877 ) 4,708 Investing activities: Purchases of investments ( 84,412 ) ( 82,735 ) ( 72,413 ) Proceeds from maturities of investments 82,000 49,522 61,743 Purchases of property and equipment ( 16,230 ) ( 3,074 ) ( 2,429 ) Net cash used in investing activities ( 18,642 ) ( 36,287 ) ( 13,099 ) Financing activities: Proceeds from issuance of 2019 Notes, net of issuance costs — — 83,475 Premiums paid for capped call transactions — — ( 10,126 ) Principal payments on finance lease obligations ( 2 ) ( 257 ) ( 522 ) Payments on term and equipment loans — — ( 28,192 ) Proceeds from term loans, net of debt issuance costs — — 3,991 Proceeds from exercise of stock options and employee stock purchase plan 17,648 10,159 9,133 Proceeds from issuance of 2021 Notes, net of issuance costs 278,422 — — Payment of 2019 Notes ( 183,624 ) — — Net cash provided by financing activities 112,444 9,902 57,759 Net increase (decrease) in cash and cash equivalents 100,267 ( 43,262 ) 49,368 Cash and cash equivalents Beginning of period 23,636 66,898 17,530 End of period $ 123,903 $ 23,636 $ 66,898 Supplemental disclosure of cashflow information: Cash paid for interest 1,559 1,720 1,612 Purchases of property and equipment not yet paid 417 1,076 557 Disposal of fully depreciated property and equipment 4,467 308 1,432 The accompanying notes are an integral part of these consolidated financial statements. 67 Table of Contents IMPINJ, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Note 1. Description of Business Impinj, Inc., a Delaware corporation, is headquartered in Seattle, Washington. Impinj platform comprising multiple product families, wirelessly connects individual items and delivers data about the connected items to business and consumer applications enabled by our partner network. Impinj derives revenue from selling endpoint ICs, reader ICs, readers, gateways and software as well as from development, service and license agreements. Note 2. Summary of Significant Accounting Policies Basis of Presentation and Principles of Consolidation The accompanying consolidated financial statements include Impinj, Inc. and its wholly owned subsidiaries. We have eliminated intercompany balances and transactions in consolidation. Certain amounts on our consolidated balance sheets in prior period have been reclassified to conform to current period presentation. We have prepared these consolidated financial statements in conformity with U.S. generally accepted accounting principles, or GAAP. 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 as of 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, sales incentives, estimate to complete development contracts, deferred revenue, inventory excess and obsolescence, income taxes, determination of the fair value of stock awards and compensation and employee-related benefits. To the extent there are material differences between these estimates, judgments, or assumptions and actual results, our financial statements will be affected. Covid-19 has introduced significant additional uncertainty with respect to estimates, judgments and assumptions about current and forecasted demand, which may materially impact the estimates previously listed, among others. Concentrations of Credit Risk Financial instruments , which potentially subject us to concentrations of credit risk, consist primarily of cash equivalents, investments and accounts receivable. We place cash and cash equivalents and investments with major financial institutions, which management assesses to be of high credit quality, to limit our investments exposure. 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 indicated periods as of the dates presented: Year Ended December 31, 2021 2020 2019 Revenue: Avery Dennison ( 1) 32 % 32 % 31 % North American logistics provider * * 14 Arizon 11 10 * 43 % 42 % 45 % * Less than 10% (1) Includes revenue concentration related to Smartrac NV, or Smartrac. Avery Dennison acquired Smartrac in March 2020. 68 Table of Contents As of December 31, 2021 2020 Accounts Receivable: Avery Dennison ( 1) 21 % 21 % Arizon 13 17 Xindeco * 12 Intel 13 * Blue Star 13 * 60 % 50 % * Less than 10% (1) Includes concentration of accounts receivable related to Smartrac. Concentration of Supplier Risk We outsource the manufacturing and production of our hardware products to a small number of suppliers. Although there are a limited number of manufacturers for hardware products, we believe that other suppliers could provide similar products on comparable terms. A change in suppliers, however, could cause a delay in manufacturing and a possible loss of sales, which would adversely affect our operating results. Cash and Cash Equivalents Cash includes demand deposits with banks or financial institutions. Cash equivalents include short-term, highly liquid investments that are both readily convertible to known amounts of cash and so near their maturity that they present minimal risk of changes in value because of changes in interest rates. Our cash equivalents include only investments with an original or remaining maturity of three months or less at the date of purchase. We regularly maintain cash in excess of federally insured limits at financial institutions. Investments Our investments consist of fixed income securities, which include U.S. 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). For AFS debt securities where fair value is less than cost, we intend to hold or more-likely-than-not will not be required to sell such securities; 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 and long-term investments as of December 31, 2021 and 2020 were not material. Fair Value Measurement 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: 69 Table of Contents Cash E quivalents — Cash equivalents consist of highly liquid investments, including money market funds with original or remaining maturities of less than three months at the acquisition date. We record the fair value measurement of these assets based on quoted market prices in active markets. Investments — Our investments comprise fixed income securities, which include U.S. 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. 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 Accounts receivable comprises amounts billed currently due from customers, net of an allowance for doubtful accounts, an allowance for sales returns and price exceptions. The allowance for doubtful accounts is our best estimate of the amount of probable lifetime-expected credit losses in existing accounts receivable and is determined based on our historical collections experience, age of the receivable, knowledge of the customer and the condition of the general economy and industry as a whole. We record changes in our estimate to the allowance for doubtful accounts through bad debt expense and write off the receivable and corresponding allowance when accounts are ultimately determined to be uncollectible. Bad debt expense is included in general and administrative expenses. For the periods presented in this report, bad debt expense and the allowance for doubtful account were not material. We derive a majority of our accounts receivable from sales to original equipment manufacturers, or OEMs, original design manufacturers, or ODMs, as well as to distributors who are large, well-established companies. We do not have customers that represent a significant credit risk based on current economic conditions and past collection experience. 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 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. We record changes in our estimate to the allowance for sales returns and price exceptions through revenue and relieve the allowance when product returns are received for sales returns and when claims are processed for price exceptions. The following table summarizes our allowance for sales returns (in thousands): Balance at Beginning of Year Additional Reserve Applied Sales Return Balance at End of Year Allowance for sales returns and price exceptions: During year ended December 31, 2021 $ 406 $ 2,780 $ ( 2,239 ) $ 947 During year ended December 31, 2020 1,072 1,109 ( 1,775 ) 406 During year ended December 31, 2019 373 2,939 ( 2,240 ) 1,072 Inventory Inventories are stated at the lower of cost or estimated net realizable value using the average costing method, which approximates the first-in, first-out method. Inventories comprise raw materials, work-in-process and finished goods. We continuously assess the value of our inventory and write down its value for estimated excess and obsolete inventory. This evaluation includes an analysis of inventory on hand, current and forecasted demand, product development plans, and market conditions. 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. 70 Table of Contents 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 We record p roperty and equipment at cost and depreciate it using the straight-line method over the estimated useful lives of the related assets. The useful lives are as follows: Category Useful Life Laboratory equipment 3 to 10 years Computer equipment and software 3 to 5 years Furniture and fixtures 5 to 7 years Equipment acquired under finance leases 6 to 7 years Leasehold improvements Shorter of remaining lease term or expected useful life Maintenance and repair costs are charged to expense as incurred. Major improvements, which extend the useful life of the related asset, are capitalized. Upon disposal of a fixed asset, we record a gain or loss based on the differences between the proceeds received and the net book value of the disposed asset. Other Assets Other assets primarily comprise capitalized implementation costs from cloud computing arrangements and security deposits. 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 $ 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. Goodwill Goodwill is measured as the excess of the cost of acquisition over the sum of the amounts assigned to identifiable tangible and intangible assets acquired less liabilities assumed. We perform an annual impairment assessment of goodwill at the reporting unit level as of September 30, or more frequently if indicators of potential impairment exist. Our annual impairment assessment requires a comparison of the fair value of our reporting unit to the carrying value. If the fair value of a reporting unit exceeds its carrying amount, goodwill of the reporting unit is considered not impaired. If the carrying value of a reporting unit is greater than its fair value, an impairment loss will be recognized in an amount equal to that excess, limited to the total amount of goodwill allocated to that reporting unit. Additionally, we will consider the income tax effect from any tax deductible goodwill on the carrying amount of the reporting unit when measuring the goodwill impairment loss. Revenue Recognition We generate revenue primarily from sales of hardware products. We also generate revenue from software, extended warranties, enhanced maintenance, support services, and nonrecurring engineering development services, all of which are not material. 71 Table of Contents 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. We recognize any variable consideration, which primarily comprises sales incentives, as a reduction of revenue at the time of revenue recognition. We estimate sales incentives based on our historical experience and current expectations at the time of revenue recognition and update them at the end of each reporting period as additional information becomes available. Our reader and gateway products are highly dependent on 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 control is transferred. Our contracts with customers with multiple performance obligations generally include a combination of hardware products, standalone software, extended warranty and 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 the 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 nonrecurring engineering development agreements that involve significant production, modification or customization of our products, we generally recognize revenue over the performance period using the cost-input method because it best depicts the transfer of services to the customer. 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. For the periods presented in this report, our contract assets, deferred revenue and the value of unsatisfied performance obligations for nonrecurring engineering development agreements are not material. If our customer pays consideration before we transfer a good or service to the customer under the contract, those amounts are classified as contract liabilities, or deferred revenue. Contract liabilities are recognized as revenue as we transfer control of the promised goods or services to our customers. Payment terms typically range from 30 to 120 days . 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. Practical Expedients and Exemptions: We expense sales commissions when incurred because the amortization period is expected to be one year or less. We record these costs within sales and marketing expenses. We do not disclose the value of unsatisfied performance obligations for (1) contracts with an original expected length of one year or less and (2) contracts for which we recognize revenue at the amount to which we have the right to invoice for services performed . Product Warranties We provide limited warranty coverage for most products, generally ranging from a period of 90 days to one year from the date of shipment. We record a liability for the estimated cost of product warranties based on historical claims, product failure rates and other factors when the related revenue is recognized. We review these estimates periodically and adjust the warranty reserves as actual experience differs from historical estimates or other information becomes available. The warranty liability primarily includes the anticipated cost of materials, labor and shipping necessary to repair or replace the product. Accrued warranty costs in 2021 and 2020 were not material. 72 Table of Contents Leases In February 2016, the FASB, issued guidance on leases. We adopted this standard on January 1, 2019 using the effective-date modified retrospective transition method. We determine whether an arrangement is or contains a lease at inception. Right-of-use, or ROU, assets represent our right to use an identified asset for the lease term and lease liabilities represent our obligation to make lease payments arising from the lease. Operating lease ROU assets and liabilities are recognized at commencement date based on the present value of future lease payments over the lease term. We use an incremental borrowing rate in determining the present value of future lease payments as our operating leases do not provide an implicit rate. Our incremental borrowing rate is based on a credit-adjusted risk-free rate, which best approximates a secured rate over a similar term of lease. Lease expense for lease payments is recognized on a straight-line basis over the lease term. Our lease agreements may contain variable costs such as common area maintenance, insurance, real estate taxes or other costs. Variable lease costs are expensed as incurred on the consolidated statements of operations. Our lease agreements generally do not contain any residual value guarantees or restrictive covenants. We have various non-cancellable operating lease agreements for office, warehouse and research and development space in the U.S., China, Thailand, and Malaysia, with expiration dates from 2022 to 2026 . Certain of these arrangements have free or escalating rent payment provisions and optional renewal and termination clauses that are factored into the classification and measurement of the lease when appropriate. These lease agreements typically include lease and non-lease components and are generally accounted for as a single lease component. Leases with an initial term of 12 months or less are not recorded on our consolidated balance sheet; we recognize lease expense for these leases on a straight-line basis over the lease term. Research and Development Costs Research and development expense comprises primarily personnel expenses (salaries, benefits and other employee related costs) and stock-based compensation expense for our product-development personnel; external consulting and service costs; prototype materials; other new-product development costs; and an allocated portion of infrastructure costs which include occupancy, depreciation and software costs. Foreign Currency Our foreign subsidiaries are considered to be extensions of the U.S. Company. The functional currency of the foreign subsidiaries is the U.S. dollar. Accordingly, gains and losses resulting from remeasuring transactions denominated in currencies other than U.S. dollars are included in other income, net on the consolidated statements of operations. Income Taxes We use the asset and liability approach for accounting, which requires recognizing deferred tax assets and liabilities for the expected future tax consequences of temporary differences between the financial statement and tax bases. We measure deferred tax assets and liabilities using enacted tax rates expected to be in effect when such assets and liabilities are recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in the year that includes the enactment date. We determine deferred tax assets, including historical net operating losses, and deferred tax liabilities, based on temporary differences between the book and tax bases of assets and liabilities. We believe that it is currently more likely than not that our deferred tax assets will not be realized and as such, we have recorded a full valuation allowance for these assets. We evaluate the likelihood of our ability to realize deferred tax assets in future periods on a quarterly basis, and when appropriate evidence indicates we would revise our valuation allowance accordingly. 73 Table of Contents We utilize a two-step approach for evaluating uncertain tax positions. First, we evaluate recognition, which requires us to determine if the weight of available evidence indicates that a tax position is more likely than not to be sustained upon audit, including resolution of related appeals or litigation processes. If a tax position is not considered more likely than not to be sustained, no benefits of the position are recognized. Second, we measure the uncertain tax position based on the largest amount of benefit which is more likely than not to be realized on effective settlement. This process involves estimating our actual current tax exposure, including assessing the risks associated with tax audits, together with assessing temporary differences resulting from the different treatment of items for tax and financial reporting purposes. If actual results differ from our estimates, our net operating loss and credit carryforwards could be materially impacted. Our realization of the benefits of the NOLs and credit carryforwards depends on sufficient taxable income in future years. We have established a valuation allowance against the carrying value of our deferred tax assets, as it is currently more likely than not that we will not be able to realize these deferred tax assets. In addition, using NOLs and credits to offset future income subject to taxes may be subject to substantial annual limitations due to the “change in ownership” provisions of the Code and similar state provisions. Events that cause limitations in the amount of NOLs that we may use in any one year include, but are not limited to, a cumulative ownership change of more than 50 %, as defined by Code Sections 382 and 383, over a three-year period. Utilizing our NOLs and tax credit carryforwards could be significantly reduced if a cumulative ownership change of more than 50% has occurred in our past or occurs in our future. We do not anticipate that the amount of our existing unrecognized tax benefits will significantly increase or decrease within the next 12 months. Due to the presence of NOLs in most jurisdictions, our tax years remain open for examination by taxing authorities back to 2000 . Stock-Based Compensation We have equity incentive plans that are more fully described in “ Note 9 Stock-Based Awards ”. We measure stock-based compensation costs for all share-based awards at fair value on the grant date and recognize compensation expense on a straight-line basis over the requisite service period, which typically vest over four years . We account for forfeitures as they occur. We determine the fair value of restricted stock units, or RSUs, based on the closing price of our common stock at the date of grant. We determine the fair value of stock options at the date of grant by using the Black-Scholes option-pricing model. We also use the Black-Scholes option-pricing model to determine the fair value of each common share issued under the ESPP. We determine the fair value of the ESPP grants on the first day of each offering period. In 2019, we began granting RSUs with performance conditions, or PSUs, replacing what has historically been our annual cash-bonus program for our senior executives and other bonus-eligible employees. The number of PSUs that ultimately vest will depend on the extent to which we achieve specified fiscal year financial performance metrics. 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, 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. 74 Table of Contents 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. This guidance requires 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 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. Note 3. Fair Value Measurements The following table presents the balances of assets measured at fair value on a recurring basis, by level within the fair value hierarchy, as of the dates presented (in thousands): December 31, 2021 December 31, 2020 Level 1 Level 2 Total Level 1 Level 2 Total Cash equivalents: Money market funds $ 113,058 $ — $ 113,058 $ 12,425 $ — $ 12,425 Total cash equivalents 113,058 — 113,058 12,425 — 12,425 Short-term investments: U.S. government agency securities — 4,066 4,066 — 20,293 20,293 Corporate notes and bonds — 36,966 36,966 — 13,185 13,185 Commercial paper — 16,489 16,489 — 23,983 23,983 Treasury bill — 4,490 4,490 — 24,992 24,992 Asset-backed securities — 7,432 7,432 — — — Total short-term investments — 69,443 69,443 — 82,453 82,453 Long-term investments: U.S. government agency securities — 14,225 14,225 — — — Total long-term investments — 14,225 14,225 — — — Total $ 113,058 $ 83,668 $ 196,726 $ 12,425 $ 82,453 $ 94,878 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. Short-term investments are expected to mature within 1 year from the 75 Table of Contents 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 . Note 4. Inventory The following table presents the detail of inventories as of the dates presented (in thousands): December 31, 2021 December 31, 2020 Raw materials $ 6,305 $ 5,275 Work-in-process 7,873 9,815 Finished goods 7,780 21,239 Total inventory $ 21,958 $ 36,329 Note 5. Property and Equipment The following table presents the detail of property and equipment as of the dates presented (in thousands): December 31, 2021 December 31, 2020 Laboratory equipment $ 32,159 $ 18,240 Computer equipment and software 2,991 5,292 Furniture and fixtures 1,138 1,138 Equipment acquired under finance leases 2,960 3,461 Leasehold improvements 10,513 10,559 Total property and equipment, gross 49,761 38,690 Less: Accumulated depreciation ( 22,261 ) ( 22,159 ) Total property and equipment, net $ 27,500 $ 16,531 Depreciation expense, which includes amortization of finance lease assets, was $ 4.6 million, $ 4.5 million and $ 4.8 million for the years ended December 31, 2021, 2020 and 2019, respectively. The net book value of property and equipment acquired under finance leases was $ 0.2 million and $ 0.4 million at December 31, 2021 and 2020, respectively. Note 6. Income Taxes We are subject to federal and state income taxes in the United States and foreign jurisdictions. The following table presents U.S. and foreign components of income (loss) before income taxes (in thousands): Year Ended December 31, 2021 2020 2019 U.S. $ ( 51,488 ) $ ( 52,343 ) $ ( 23,291 ) Foreign 381 509 502 Loss before income taxes $ ( 51,107 ) $ ( 51,834 ) $ ( 22,789 ) 76 Table of Contents The following table presents the detail of income tax benefit (expense) for the periods presented (in thousands): Year Ended December 31, 2021 2020 2019 Current: U.S. - Federal $ — $ — $ — U.S. - State ( 8 ) ( 56 ) ( 36 ) Foreign ( 137 ) ( 76 ) ( 150 ) ( 145 ) ( 132 ) ( 186 ) Deferred: U.S. - Federal ( 7 ) 32 ( 11 ) U.S. - State ( 1 ) 11 ( 1 ) Foreign — — — ( 8 ) 43 ( 12 ) Total income tax benefit (expense) $ ( 153 ) $ ( 89 ) $ ( 198 ) We have not recorded a liability for U.S. income taxes and foreign withholding taxes on the undistributed earnings of foreign subsidiaries as of December 31, 2021 as we intend to permanently reinvest future such earnings outside the United States. The amount of the unrecognized deferred tax liability, if incurred, is expected to be immaterial. The following table presents a reconciliation of the federal statutory rate and our effective tax rate for the periods presented: Year Ended December 31, 2021 2020 2019 U.S. Statutory Rate 21.0 % 21.0 % 21.0 % Change in valuation allowance ( 33.3 ) ( 23.6 ) ( 22.9 ) State taxes (net of federal benefit) 0.2 ( 0.4 ) ( 0.4 ) Federal research and development credit 8.5 3.9 5.9 Stock-based compensation 10.2 0.2 ( 1.9 ) Inducement Premium ( 4.7 ) — — Unrecognized tax benefits ( 2.1 ) ( 1.1 ) ( 1.2 ) Other, net ( 0.1 ) ( 0.2 ) ( 1.4 ) Effective income tax rate ( 0.3 %) ( 0.2 %) ( 0.9 %) 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. 77 Table of Contents The following table presents the significant components of our deferred tax assets and liabilities as of the dates presented (in thousands) : December 31, 2021 December 31, 2020 Net operating loss carryforwards $ 58,673 $ 45,714 Credit carryforwards 13,879 10,607 Capitalized research and development 857 1,481 Operating lease liabilities 3,425 4,030 Allowances 859 1,704 Deferral of employer taxes 111 283 Deferred revenue 50 59 Stock-based compensation 6,762 4,359 Disallowed interest expense 768 374 Inventory cost capitalization 506 496 Other 23 24 Deferred tax assets 85,913 69,131 Less: Valuation allowance ( 82,461 ) ( 58,820 ) Net deferred tax assets 3,452 10,311 Deferred tax liability: Goodwill ( 744 ) ( 689 ) Depreciation and amortization ( 336 ) ( 590 ) Operating lease ROU assets ( 2,485 ) ( 2,933 ) Convertible notes — ( 6,204 ) Deferred tax liabilities ( 3,565 ) ( 10,416 ) Net deferred tax liability $ ( 113 ) $ ( 105 ) 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. The Tax Cuts and Jobs Act, or TCJA, enacted on December 22, 2017 altered the carryforward period for federal net operating losses and as a result, all net operating losses generated in 2018 and forward have an indefinite life. Of the net operating losses reported, we have accumulated $ 146 million with an indefinite life as of December 31, 2021 . We have accumulated state tax losses of approximately $ 23.3 million and $ 21.0 million as of December 31, 2021 and 2020, respectively. Additionally, we have net research and development credit carryforwards of $ 18.3 million and $ 14.0 million as of December 31, 2021 and 2020, respectively, which are available to reduce future tax liabilities. The pre-2018 federal tax losses and research and development credit carryforwards began expiring in 2020 . 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 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. We are currently not under audit in any tax jurisdiction. Tax years from 2000 through 2021 are currently open for audit by federal and state taxing authorities. We establish reserves for tax positions based on estimates of whether, and the extent to which, additional taxes will be due. The reserves are established when we believe that positions might be challenged by taxing authorities despite our belief that our tax return positions are fully supportable. 78 Table of Contents The following table presents the total balance of unrecognized tax benefits as of the dates presented (in thousands): Year Ended December 31, 2021 2020 2019 Balance at beginning of period $ 3,519 $ 3,428 $ 3,159 Gross increase to tax positions in prior periods — ( 417 ) — Gross increase to tax positions in current periods 1,090 508 269 Balance at end of period $ 4,609 $ 3,519 $ 3,428 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. We record accrued interest and penalties related to unrecognized tax benefits as income tax expense and their value is zero . Note 7. Long-term debt Convertible Senior Notes 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 Principal Amount Unamortized debt issuance costs (1) Net Carrying Amount Principal Amount Unamortized debt discount and debt issuance costs (1) Net Carrying Amount 2019 Notes (2) $ 9,850 $ ( 217 ) $ 9,633 $ 86,250 $ ( 31,694 ) $ 54,556 2021 Notes 287,500 ( 8,839 ) 278,661 - - - Total Debt 297,350 ( 9,056 ) 288,294 86,250 ( 31,694 ) 54,556 Short-term Debt 9,850 ( 217 ) 9,633 - - - Long-term Debt $ 287,500 $ ( 8,839 ) $ 278,661 $ 86,250 $ ( 31,694 ) $ 54,556 (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: Issuance Maturity Date Interest Rate First Interest Payment Date Effective Interest Rate Semi-Annual Interest Payment Dates Initial Conversion Rate per $1,000 Principal Initial Conversion Price Number of Shares (in millions) (1) 2019 Notes December 15, 2026 2 % June 15, 2020 2.47 % June 15; December 15 28.9415 $ 34.55 0.3 2021 Notes May 15, 2027 1.125 % May 15, 2022 1.72 % May 15; November 15 9.0061 $ 111.04 2.6 (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 79 Table of Contents 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; • prior to the close of business on the second scheduled trading day immediately preceding the redemption date if we call the Notes for redemption; or • upon the occurrence of specified corporate events, as described in the indenture. 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 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. 80 Table of Contents 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 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. 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 2019 Notes 2021 Notes Total 2019 Notes Total 2019 Notes Total Amortization of debt discount (1) $ — $ — $ — $ 3,566 $ 3,566 $ 140 $ 140 Amortization of debt issuance costs 329 239 568 115 115 4 4 Cash interest expense 1,488 494 1,982 1,732 1,732 72 72 Total interest expense $ 1,817 $ 733 $ 2,550 $ 5,413 $ 5,413 $ 216 $ 216 (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 for both Notes is classified as Level 2, as defined in Note 2. Capped Calls 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. If, however, the market price per share of our common stock exceeds the cap price of the capped-call transactions, then our stock would experience some dilution and/or the capped call would not fully offset the potential cash payments, in each case, to the extent then-market price per share of our common stock exceeds the cap price. The initial cap price of the capped call transactions is $ 54.20 per share, which represents a 100 % premium over the last reported sale price of our common stock of $ 27.10 per share on December 11, 2019 subject to certain adjustments under the terms of the capped call transactions. The capped call transactions expire over 40 consecutive scheduled trading days ending on December 11, 2026 . The capped-call transactions meet the criteria for classification in equity, are not accounted for as derivatives, and are not remeasured each reporting period. We paid $ 10.1 million for the capped-call transactions , which we recorded as a reduction to additional paid-in-capital within shareholders’ equity. 81 Table of Contents 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 On December 16, 2019, we used $ 24.0 million of the net proceeds from the 2019 Notes to repay in full our senior credit facility, which was terminated pursuant to its terms. In connection with this repayment, we recorded $ 576,000 of loss on debt extinguishment, comprised of $ 470,000 prepayment penalty and $ 106,000 write-off of unamortized debt issuance costs. We also paid accrued interest on our senior credit facility, which was not material . Note 8. Stockholders’ Equity Preferred Stock Our board of directors has the authority to fix the designations, powers, preferences and rights, and the qualifications, limitations or restrictions thereof, of any wholly unissued series of preferred stock, and to increase or decrease the number of shares in any series of preferred stock, subject to limitations prescribed by law or by our certificate of incorporation. There was no preferred stock issued and outstanding as of December 31, 2021 or 2020 . Common Stock As of December 31, 2021, we had authorized 495,000,000 shares of voting $ 0.001 par value common stock. Each holder of the common stock is entitled to one vote per common share . At its discretion, the board of directors may declare dividends on shares of common stock, subject to the prior rights of our preferred stockholders. Upon liquidation or dissolution, holders of common stock will receive distributions only after preferred stock preferences have been satisfied. The following shares of common stock have been reserved for future issuance as of the date presented (in thousands): December 31, 2021 Option awards outstanding 2,288 Restricted stock units outstanding 1,517 Common stock reserved under equity incentive plans 1,420 Common stock reserved under employee stock purchase plan 749 Total 5,974 Note 9. Stock-Based Awards 2016 Equity Incentive Plan In June 2016, our board of directors adopted and our stockholders approved the 2016 Equity Incentive Plan, or the 2016 Plan, which became effective in July 2016 at which time the 2010 Equity Incentive Plan, or the 2010 Plan, was terminated. Our 2000 Stock Plan was terminated in March 2010. 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 82 Table of Contents 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. The 2016 Plan provides for the grant of incentive or non-qualified stock options, restricted stock, restricted stock units, stock appreciation rights and performance shares or performance units to employees, non-employee directors, and consultants. All options granted under the 2000 Stock Plan, the 2010 Plan and the 2016 Plan have a maximum 10 -year term and generally vest and become exercisable over four years of continued employment or service as defined in each option agreement. We generally grant stock options with exercise prices that equal the fair value of the common stock on the date of grant. As allowed under the 2016 Plan, there are a few exceptions to this vesting schedule, which provide for vesting at different rates or based on achievement of performance targets. We utilize newly issued shares to satisfy option exercises. Stock Options The following table summarizes option award activity for the year ended December 31, 2021 (in thousands, except per share data and years): Number of Underlying Shares Weighted-Average Exercise Price Per Share Weighted-Average Remaining Contractual Life (Years) Total Intrinsic Value Outstanding at December 31, 2020 3,061 $ 23.56 7.55 $ 56,174 Granted 10 58.27 Exercised ( 721 ) 20.79 Forfeited or expired ( 62 ) 25.46 Outstanding at December 31, 2021 2,288 24.53 6.65 146,827 Vested and exercisable at December 31, 2021 1,568 $ 23.29 6.25 $ 102,578 We estimate t he fair value of options granted at the date of grant using the Black-Scholes option-pricing model with the following assumptions for the periods presented: Year Ended December 31, 2021 2020 2019 Risk-free interest rate 0.8% - 1.2% 0.3% - 1.7% 1.4% – 2.6% Expected dividends yield None None None Expected volatility 71.2% - 72.4% 64.3% - 70.3% 60.8% - 64.3% Weighted-average expected term 6.08 6.08 6.08 Weighted-average fair value of options granted $ 36.94 $ 16.56 $ 18.31 We determined that it was not practicable to calculate the volatility of our share price because we do not have an extensive public trading history for shares of our common stock . Therefore, we estimated our volatility based on a combination of our historical volatility since becoming a publicly traded company and reported market value data for a group of publicly traded entities that we believe are relatively comparable after consideration of their size, stage of lifecycle, profitability, growth and risk and return on investment. To determine the expected term, we generally apply and have historically applied the simplified approach in which the expected term of an award is presumed to be the mid-point between the vesting date and the expiration date of the options as we do not have sufficient historical exercise data to provide a reasonable basis for an estimate of expected term. The total intrinsic value of options exercised during 2021, 2020 and 2019 was $ 33.7 million, $ 10.2 million and $ 10.0 million, respectively. The total grant date fair value of options vested was $ 12.8 million, $ 11.7 million and $ 14.8 million during 2021 , 2020 and 2019, respectively. As of December 31, 2021, our total unrecognized stock-based compensation cost related to unvested stock options was $ 11.1 million, which we will recognize over the weighted-average remaining requisite service period of 1.7 years. 83 Table of Contents Restricted Stock Units 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 Weighted-Average Grant Date Fair Value RSUs MSUs PSUs RSUs MSUs PSUs Outstanding at December 31, 2020 836 — 251 $ 30.07 $ — $ 27.84 Granted 695 84 271 56.40 77.01 54.67 Vested ( 323 ) — ( 241 ) 30.29 — 27.84 Forfeited ( 43 ) — ( 13 ) 37.07 — 33.23 Outstanding at December 31, 2021 1,165 84 268 $ 45.45 $ 77.01 $ 54.67 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 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. We record compensation expense for each period based on our estimate of the most probable number of PSUs that will vest, and we recognize the expense over the related service period. 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 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. 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. 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 In 2016, we adopted the 2016 Employee Stock Purchase Plan, or the ESPP, which became effective in July 2016. Under the ESPP, eligible employees can authorize payroll deductions for amounts up to 15 % of their eligible compensation. A participant may purchase a maximum of 4,000 shares each six-month period or some lesser number of shares as determined by the IRS rules. The offering periods generally start on the first trading day on or after February 20 and August 20 of each year. 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 84 Table of Contents 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; (2) 365,411 shares of common stock; and (3) such amount as determined by our board of directors. 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: Year Ended December 31, 2021 2020 2019 Risk-free interest rate 0.0% - 0.1% 0.1% - 1.6% 1.9% – 2.5% Expected term 0.5 Years 0.5 Years 0.5 years Expected volatility 61.0% - 65.8% 46.9% - 91.0% 66.5% – 72.3% Stock-Based Compensation Expense The following table presents the detail of stock-based compensation expense amounts included in our consolidated statements of operations for the periods presented (in thousands): Year Ended December 31, 2021 2020 2019 Cost of revenue $ 1,869 $ 1,015 $ 772 Research and development expense 17,170 10,314 6,427 Sales and marketing expense 9,496 5,981 6,003 General and administrative expense 11,963 8,365 5,284 Total stock-based compensation expense $ 40,498 $ 25,675 $ 18,486 Note 10. Leases The following table presents the components of lease expense in our consolidated statements of operations for the periods presented (in thousands): Year Ended December 31, 2021 2020 Operating lease costs (a) Single lease costs $ 4,154 $ 4,121 Variable lease costs 1,910 1,738 Sublease income (b) ( 1,900 ) ( 1,902 ) Total operating lease costs $ 4,164 $ 3,957 (a) Includes short-term lease costs, which are immaterial. (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): Year Ended December 31, 2021 2020 Cash paid for amounts included in the measurement of lease liabilities Operating cash flows used $ 4,895 $ 4,755 Lease liabilities arising from remeasurement of right-of-use assets Operating leases $ 698 $ — 85 Table of Contents The following table presents weighted-average remaining lease term and weighted-average discount rate related to operating leases as of: 2021 2020 Weighted-average remaining lease term (years) 4.4 5.3 Weighted-average discount rate 6.7 % 6.9 % The following table presents future lease payments under operating leases as of December 31, 2021 (in thousands): Operating Leases Lease Payments Sublease Income Net 2022 $ 5,014 $ ( 1,457 ) $ 3,557 2023 3,528 ( 123 ) 3,405 2024 3,219 — 3,219 2025 3,315 — 3,315 2026 3,414 — 3,414 Thereafter — — — Total lease payments $ 18,490 $ ( 1,580 ) $ 16,910 Less: Imputed interest ( 2,413 ) Present value of lease liabilities 16,077 Less: Current portion of lease liabilities 4,143 Lease liabilities, net of current portion $ 11,934 Note 11. Commitments and Contingencies Indemnifications In the normal course of business, we may enter into agreements that require us to indemnify either customers or suppliers for specific risks. While we cannot estimate our maximum exposure under these indemnification provisions, to date they have not had a material impact on our consolidated results of operations or financial condition. Litigation 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 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. Shareholder Derivative Actions On October 26, 2018, two shareholder derivative actions were filed in the U.S. District Court for the District of Delaware against our chief executive officer, former chief operating officer, former chief financial officer and certain of our directors. We were a nominal defendant. On November 8, 2018, a third shareholder derivative action was filed in this same court against the same defendants. Captioned Weiss v. Diorio, et al ., Fotouhi v. Diorio, et al ., and De la Fuente v. Diorio, et al. , 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. 86 Table of Contents 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 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. Our original complaint alleged that certain NXP endpoint ICs infringe 26 of our U.S. patents. 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; no less than a reasonable royalty; enhanced damages for willful infringement; 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 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. and NXP filed a patent infringement lawsuit against us in the U.S. District Court for the District of Delaware. The complaint alleges that certain of our products infringe eight U.S. patents owned by NXP or NXP USA, Inc. The plaintiffs are seeking, among other things, past damages adequate to compensate them for our alleged infringement of each of the patents-in-suit, and reasonable attorneys’ fees and costs. 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 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. 87 Table of Contents 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 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, that closely correspond to three of the eight U.S. patents NXP asserted in the U.S. District Court described above. 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. Impinj, Inc. was formally served in July 2021, officially adding Impinj, Inc. to the suit. 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 We manufacture products with third-party manufacturers. We are committed to purchase $ 54.4 million of inventory as of December 31, 2021. Note 12. Deferred Revenue 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. 88 Table of Contents The following table presents the changes in deferred revenue for the indicated periods (in thousands): Year Ended December 31, 2021 2020 Balance at beginning of period $ 7,088 $ 764 Deferral of revenue 981 7,139 Recognition of deferred revenue ( 7,275 ) ( 815 ) Balance at end of period $ 794 $ 7,088 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 . Note 13. Segment Reporting We have one reportable and operating segment: the development and sale of our products and services. Our reportable segment has been identified based on how our chief operating decision-maker manages our business, makes operating decisions and evaluates our operating performance. Our chief executive officer acts as the chief operating decision-maker and reviews financial and operational information on an entity-wide basis. We have one business activity and there are no segment managers who are held accountable for operations, operating results or plans for levels or components. Accordingly, we have determined that we have a single reporting segment and operating unit structure. Information by Revenue Categories Our chief executive officer reviews information about revenue categories, including endpoint ICs and systems. We define systems as reader ICs, readers, gateways and software. The following table presents our revenue categories for the indicated periods (in thousands): Year Ended December 31, 2021 2020 2019 Endpoint ICs $ 139,250 $ 102,326 $ 97,657 Systems 51,033 36,597 55,179 Total revenue $ 190,283 $ 138,923 $ 152,836 Information by Geography The following table summarizes our long-lived assets, which comprise property and equipment, less accumulated depreciation (in thousands): December 31, 2021 December 31, 2020 United States $ 9,493 $ 10,114 Malaysia 10,227 5,751 Taiwan 7,330 35 Others 450 631 Total $ 27,500 $ 16,531 89 Table of Contents Revenue presented in the following table is based on the location of the value-added resellers, inlay manufacturers, reader OEMs, distributors or end users who purchased products and services directly from us. 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 indicated periods (in thousands): Year Ended December 31, 2021 2020 2019 Americas $ 38,021 $ 30,962 $ 53,260 Asia Pacific 133,152 98,483 89,012 Europe, Middle East and Africa 19,110 9,478 10,564 Total revenue $ 190,283 $ 138,923 $ 152,836 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 (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. Note 14. Net Loss per Share For the periods presented, the following table provides a reconciliation of the numerator and denominator used in computing basic and diluted net loss per share (in thousands, expect per share amounts): Year Ended December 31, 2021 2020 2019 Numerator: Net loss $ ( 51,260 ) $ ( 51,923 ) $ ( 22,987 ) Denominator: Weighted-average shares outstanding — basic and diluted 24,176 22,819 21,847 Net loss per share — basic and diluted $ ( 2.12 ) $ ( 2.28 ) $ ( 1.05 ) 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, 2021 2020 2019 Stock options 2,288 3,061 3,262 RSUs, MSUs, and PSUs 1,517 1,087 761 Employee stock purchase plan shares 42 73 69 2019 Notes 285 — — 2021 Notes 2,589 — — 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. 90 Table of Contents Note 15. 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 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. Phelan on September 21, 2020 in connection with these consulting services, with 1/24th of the shares subject to the option vesting on October 21, 2020 and 1/24th of the shares subject to the option vesting on each month thereafter, subject to Mr. Phelan remaining a service provider. Note 16. Retirement Plans In 2001, we adopted a salary deferral 401(k) plan for our employees. The plan allows employees to contribute a percentage of their pretax earnings annually, subject to limitations imposed by the Internal Revenue Service. The plan also allows us to make a matching contribution, subject to certain limitations. 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. Note 17. 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 Total Restructuring costs $ 1,671 $ 50 $ 1,721 Cash payments ( 1,080 ) ( 50 ) ( 1,130 ) Accrued restructuring costs as of December 31, 2021 $ 591 $ — $ 591 91 Table of Contents Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure None.