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What changed in IMPINJ INC's 10-K — 2022 vs 2023

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Paragraph-level year-over-year comparison of IMPINJ INC's 2022 and 2023 10-K annual filings, covering the Business, Risk Factors, Legal Proceedings, Cybersecurity, MD&A and Market Risk sections. Every new, removed and edited paragraph is highlighted side-by-side so you can see exactly what management changed in the 2023 report.

+372 added−399 removedSource: 10-K (2024-02-12) vs 10-K (2023-02-13)

Top changes in IMPINJ INC's 2023 10-K

372 paragraphs added · 399 removed · 287 edited across 8 sections

Item 1. Business

Business — how the company describes what it does

58 edited+30 added−21 removed5 unchanged
Biggest changeGrowth Strategies 7 Table of Contents To further our mission of connecting every thing, we plan to focus on the following strategic areas: • Develop Enterprise Solutions: Focus on developing repeatable enterprise solutions with top-tier partners, enhancing and expanding our product offerings and deepening our platform integration with those partners. • Deliver Our Platform: Continue investing in our platform’s products, software and algorithms, use cases, differentiated capabilities and cost reductions. • Lead the RAIN silicon opportunity: Invest in endpoint IC performance, features, cost reduction and platform integration to win endpoint IC opportunities across all verticals and geographies. • Ubiquitous Reading: Advance our reader ICs to improve functionality, reduce costs and make Impinj-based partner readers ubiquitous. • Cloud Services: Invest in cloud services that leverage differentiated features in our endpoint ICs, such as cryptographic authentication, to enhance our platform’s reach and breadth and enable new use cases and recurring-revenue opportunities.
Biggest changeAs we mature those solutions, we will focus on solutions repeatability with top-tier partners. • RAIN silicon: We will continue investing in endpoint IC and reader IC performance, differentiated features, cost reduction and platform integration to win opportunities across markets and geographies. • Platform preference: We will continue investing in differentiated product capabilities, cloud services, solutions software and algorithms, and test and measurement solutions to enhance our platform’s reach and breadth and enable new use cases and recurring-revenue opportunities.
We, our end users, partners and competitors developed the RAIN radio protocol, whose technical name is EPC™ Radio-Frequency Identity Protocols Generation-2 UHF RFID (standardized as ISO/IEC 18000-63 and often known colloquially as Gen2) in 2004, with us as editor. Our community delivered a backward-compatible update in 2013, again with us as editor.
We, our enterprise end users, partners and competitors developed the RAIN radio protocol, whose technical name is EPC™ Radio-Frequency Identity Protocols Generation-2 UHF RFID (standardized as ISO/IEC 18000-63 and known colloquially as Gen2) in 2004, with us as editor. Our community delivered a backward-compatible update in 2013, again with us as editor.
As our inlay partners focus on embedding RAIN tags directly into retail items, we focus on key innovations like our patented Protected Mode that allows a tag to require a PIN for post-point-of-sale readability, enabling loss-prevention systems to focus on unsold items while satisfying General Data Protection Regulation, or GDPR, and similar privacy requirements.
As our inlay partners focus on embedding RAIN tags directly into items, we focus on key innovations like our patented Protected Mode that allows a tag to require a PIN for post-point-of-sale readability, enabling loss-prevention solutions to focus on unsold items while satisfying General Data Protection Regulation, or GDPR, and similar consumer privacy requirements.
By participating in GS1 EPCglobal, which produced Gen2, and ISO, which ratified 18000-63, as well as in other standards bodies, we agreed to license certain necessary patents as described in the section captioned “Intellectual Property.” Government Regulations Government regulations require us to certify our readers and gateways in jurisdictions where they operate.
By participating in GS1 EPCglobal, which produced Gen2, and ISO, which ratified 18000-63, as well as in other standards bodies, we agreed to license certain necessary patents as described in the section captioned “Intellectual Property.” 10 Table of Contents Government Regulations Government regulations require us to certify our readers and gateways in jurisdictions where they operate.
Because our portfolio currently comprises mostly U.S. patents, we have limited ability to assert our intellectual property rights outside the United States. Although our patents and trade secrets constitute valuable assets, we do not view any one of them as material. Instead, we believe the totality of our patent and trade-secret portfolio creates an advantage for our business.
Because our portfolio currently comprises mostly U.S. patents, we have limited ability to assert our IP rights outside the United States. Although our patents and trade secrets are valuable assets, we do not view any one of them as material. Instead, we believe the totality of our patent and trade-secret portfolio creates an advantage for our business.
We have a team of skilled engineers that today conduct all our research and most of our product development internally. As of December 31, 2022, we had 205 employees in research and development. We regularly review our technology, products and market development opportunities and reallocate our spending and resources accordingly.
We have a team of skilled engineers that today conduct all our research and most of our product development internally. As of December 31, 2023, we had 243 employees in research and development. We regularly review our technology, products and market development opportunities and reallocate our spending and resources accordingly.
We have entered into licensing, broad-scope cross licensing and other agreements authorizing us to use or to operate within the scope of patents and intellectual property owned by third parties. For example, we have licenses to third-party intellectual property that we use in our products.
We have entered into licensing, broad-scope cross licensing and other agreements authorizing us to use or to operate within the scope of patents and IP owned by third parties. For example, we have licenses to third-party IP we use in our products.
The competitive factors that impact our platform and product sales include: • portfolio, performance, features, lead times, reliability and price; • support, ease of use and availability of reference designs; • development tools and APIs (except in the endpoint IC market); • integration and certification with end-user applications; and • company reputation.
The competitive factors that impact our platform and product sales include: • portfolio, performance, features, lead times, quality, reliability and price; • development tools, support, ease of use and reference designs; • integration and certification with enterprise applications; • APIs (except in the endpoint IC market); • company reputation.
We spearheaded development of the RAIN radio standard, lobbied governments to allocate frequency spectrum and cofounded the RAIN Alliance that today has more than 150 member companies. Our industry uses free spectrum in 81 countries encompassing roughly 95% of the world’s GDP.
We spearheaded developing the RAIN air-interface standard, lobbied governments to allocate radio spectrum and cofounded the RAIN industry alliance that today has more than 150 member companies. Our industry uses free spectrum in 81 countries encompassing roughly 95% of the world’s GDP.
Our first products in that process node, the Impinj M730 and M750, are not only on 300mm wafers, but today have roughly twice as many ICs per wafer as that competitor and entered the market with the inlay OEMs already able to process 300mm wafers.
Our first products in that process node, the Impinj M730 and M750, were not only on 300mm wafers, but had roughly twice as many ICs per wafer as that competitor and entered the market with the inlay OEMs already able to process 300mm wafers.
Luggage tags that incorporate our endpoint ICs allow airlines to give passengers real-time location information for their checked bags as well as reduce lost bags. • Automotive . Car manufacturers use our platform to track and verify automotive parts for vehicle assembly, reducing mistakes and labor costs and improving operations. • Healthcare.
Car manufacturers use our platform to track and verify automotive parts for vehicle assembly, reducing mistakes and labor costs and improving operations. • Aviation. Luggage tags that incorporate our endpoint ICs help airlines give passengers real-time information about their checked bags as well as reduce lost bags. • Banking .
Intellectual Property We protect our technologies by filing patent applications, retaining trade secrets and defending and enforcing our intellectual property rights where appropriate. To date, our intellectual property portfolio includes 296 issued and allowed U.S. patents, five issued and allowed international patents, 20 pending U.S. patent applications and 7 pending international patent applications.
Intellectual Property We protect our technologies by filing patent applications, retaining trade secrets and defending and enforcing our intellectual property rights where appropriate. To date, our intellectual property portfolio includes 302 issued and allowed U.S. patents, five issued international patents, 16 pending U.S. patent applications and seven pending international patent applications.
We believe RAIN’s capabilities – in particular, endpoint ICs with serialized identifiers for individual items, battery-free operation, 30-foot range, not line-of-sight readability, up to 1,000 reads per second, low cost, essentially unlimited life and available cryptographic authentication – position RAIN to be the leading item-to-cloud connectivity technology for the IoT.
We believe RAIN’s capabilities – endpoint ICs with serialized item identifiers, battery-free operation, 30-foot range, not line-of-sight readability, up to 1,000 reads per second, essentially unlimited life and available cryptographic authentication, all at a cost of pennies per item – position RAIN to be the leading item-to-cloud connectivity technology for the IoT.
Although we believe we compete favorably on the above factors, our future competitiveness will depend on our ability to design, develop and deliver compelling products and enable compelling end-user solutions. 10 Table of Contents Because our product pricing is denominated in U.S. dollars, we occasionally experience competitive pressures due to prevailing exchange rates.
Although we believe we compete favorably on the above factors, our future competitiveness will depend on our ability to design, develop and deliver compelling products and enable compelling enterprise solutions. Because our product pricing is denominated in U.S. dollars, we sometimes experience competitive pressures due to prevailing exchange rates.
Hospitals use our platform to track assets and manage patient and clinician workflows. Partner products built on our platform include RAIN-enabled medical cabinets and refrigerators. • Industrial and Manufacturing . Industrial companies track components to increase manufacturing productivity and reduce shipping errors. Manufacturers use our platform to track assets and tools, reducing errors and increasing calibration compliance. • Sports .
Hospitals use our platform to track assets and manage patient and clinician workflows. Partner products built on our platform include RAIN-enabled medical cabinets and refrigerators. • Industrial and Manufacturing . Industrial companies track components to increase manufacturing productivity and reduce shipping errors.
We test and package the reader ICs in Asia. We generally engage all our reader IC subcontractors on a purchase-order basis. Plexus Corp., or Plexus, manufactures our readers and gateways in Asia, since 2005. We order readers and gateways pursuant to non-exclusive purchase agreements that automatically renew each year, subject to each party’s right to terminate on 180 days’ notice.
We primarily engage our reader IC subcontractors on a purchase-order basis. Plexus Corp., or Plexus, manufactures our readers and gateways in Asia and has been our supplier since 2005. We order readers and gateways pursuant to non-exclusive purchase agreements that automatically renew each year, subject to each party’s right to terminate on 180 days’ notice.
Our platform can enable both – self-checkout via sales terminals that read endpoint ICs on items and loss-prevention systems that scan RAIN tags for unsold items leaving the store.
However, self-checkout requires effective loss prevention. Our platform can enable both – self-checkout via sales terminals that read endpoint ICs on item, and loss prevention that scans the RAIN tags for unsold items leaving the store.
Supply Chain and Logistics The supply chain and logistics, or SC&L, industry includes shipping companies, third-party logistics providers, postal organizations, captive distribution operations and other organizations transporting products nationally and internationally. These organizations are increasingly demanding real-time shipment data to virtualize, analyze and optimize their operations. SC&L companies can obtain these benefits using our platform: • Shipment Verification.
Supply Chain and Logistics SC&L includes shipping companies, third-party logistics providers, postal organizations, captive distribution and other organizations that transport products worldwide. SC&L organizations are increasingly demanding real-time shipping data to virtualize, analyze and optimize their operations. SC&L companies can obtain these benefits using our platform: • Shipment Verification and Parcel Tracking.
Each IC attaches to a host item and includes a number to identify the item. The IC may also include or enable features such as user data storage, security, authentication, loss prevention, privacy protection and value-added Impinj custom capabilities, all accessible by our platform.
The IC may also include or enable features such as user data storage, security, authentication, loss prevention, privacy protection and value-added Impinj custom capabilities, all accessible by our platform.
Ltd, or Iotelligent, and MagicRF. • Readers and Gateways: Zebra Technologies Corporation, or Zebra. The market for RAIN, our platform and our products is highly competitive. New entrants can and do come into our market at any time, and we expect competition to increase as the market and end-user adoption grow.
The market for RAIN, our platform and our products is highly competitive. New entrants can and do come into our market at any time, and we expect competition to increase as the market and end-user adoption grow.
The first of our 281 utility patents expire in 2023 and the first of our 15 design patents expire in 2023. To protect confidential information not otherwise subject to patent protection, we rely on trade secret law and enter into confidentiality agreements with our employees, customers, suppliers and partners.
Of our 293 utility patents, 16 will expire in 2024 and of our nine design patents, six, will expire in 2024. To protect confidential information not otherwise subject to patent protection, we rely on trade secret law and enter into confidentiality agreements with our employees, customers, suppliers and partners.
We believe we lead the RAIN market as the only company with an integrated platform spanning endpoint ICs, reader ICs, fixed readers and gateways. • Technology Leadership . Our RAIN focus has enabled us to regularly be first-to-market with innovative, high-performing and high-quality products.
We believe are the only company with an integrated platform spanning endpoint ICs, reader ICs, readers and gateways, test and measurement solutions and software and cloud services. • Technology Leadership . Our singular RAIN focus has enabled us to regularly be first-to-market with innovative, high-performing products.
Our platform delivers accurate and timely data about a retailer’s product inventory. Accurate inventory data can reduce overstocks, understocks and searching, thereby allowing retailers to reduce inventory and increase same-store sales by ensuring each store is properly stocked and by enabling staff to focus on customers rather than on inventorying or searching for items. • Omnichannel Fulfillment .
Our platform delivers accurate and timely data about a retailer’s product inventory, allowing retailers to reduce inventory and increase same-store sales by ensuring each store is properly stocked and allowing staff to focus on customers rather than on inventorying or finding items. • Omnichannel Fulfillment . The cornerstone of successful omnichannel fulfillment is inventory visibility in stores and warehouses.
It can also help retailers sell to any customer from any retail location, confidently sell to the last item and facilitate seamless returns. • Self-checkout and Loss Prevention . Consumer self-checkout is a clear opportunity for retailers looking to modernize their in-store experience. However, self-checkout requires effective loss prevention.
Our platform can deliver that visibility and thereby facilitate online sales, including online purchasing with pickup in store. It can also help retailers sell from any retail location, confidently sell to the last item and facilitate seamless returns. • Self-checkout and Loss Prevention . Consumer self-checkout is a clear opportunity for retailers looking to modernize their in-store experience.
By participating in developing International Organization for Standardization, or ISO, standards, we agreed to grant to all users worldwide a license to those of our patents necessarily infringed by the practice of several ISO standards, including RAIN and non-RAIN standards, on reasonable and nondiscriminatory terms, here again subject to reciprocity. 9 Table of Contents We own a number of trademarks and develop names for our new products and secure trademark protection for them, including domain name registration, in relevant jurisdictions.
By participating in developing International Organization for Standardization, or ISO, standards, we agreed to grant to all users worldwide a license to those of our patents necessarily infringed by the practice of several ISO standards, including RAIN and non-RAIN, on reasonable and nondiscriminatory terms, here again subject to reciprocity.
That migration caused the inlay OEMs to gradually retrofit their inlay manufacturing machines to handle 300mm wafers. In the meantime, we focused on an endpoint IC process-node migration, which we completed in 2020.
As one example, our nearest endpoint IC competitor migrated from 200mm wafers to 300mm wafers before we did. That migration caused the inlay OEMs to gradually retrofit their inlay assembly machines to handle 300mm wafers. In the meantime, we focused on an endpoint IC process-node migration, which we completed in 2020.
That ecosystem gives us market reach, penetration and scale we believe few, if any, of our competitors enjoy. • Trusted Brand . We believe our industry leadership, name recognition and reputation for innovative, high-performing and high-quality products have significantly contributed to our leading market position. • Intellectual Property . We believe we have the leading RAIN patent portfolio.
We believe our industry leadership, name recognition and reputation for innovative, high performing, quality products have significantly contributed to our leading market position. • Intellectual Property . We believe we have the leading RAIN patent portfolio.
We aim to engender preference for our platform in all our sales engagements, encouraging our partners and end users to use and gain the full benefit of our entire platform. Our business development, product marketing, technical and systems engineers actively engage those partners and end users.
We engender preference for our platform in all our sales engagements, encouraging enterprises and partners to use our entire platform. Our business development, product marketing, technical and systems engineers actively engage those enterprises and partners to create awareness, joint solutions, joint selling and sales enablement.
Our platform enables automated asset check-in/out procedures and location monitoring, reducing loss and improving efficiencies and maintenance-schedule compliance. Other Industries 6 Table of Contents These other industries can also obtain benefits using our platform: • Aviation.
By tagging RTI containers, our platform can reduce RTI loss and ensure SC&L companies have the RTI containers they need. • Asset Management. Our platform enables automated asset check-in/out procedures and location monitoring, reducing loss and improving efficiencies and maintenance-schedule compliance. 7 Table of Contents Other Industries These other industries can also obtain benefits using our platform: • Automotive .
Our community is currently developing another update, again with us as an editor. Our industry uses the RAIN radio protocol nearly exclusively.
As of December 31, 2023 our community was nearing completion of yet another update, again with us as an editor. Our industry uses the RAIN radio protocol nearly exclusively.
Tower fabricates reader IC wafers in the United States and has been our supplier since 2008. TSMC fabricates reader IC wafers in Asia and has been a reader IC supplier since 2021. We order reader IC wafers on a purchase-order basis and do not have a long-term agreement with Tower or TSMC.
We generally engage all our endpoint IC subcontractors on a purchase-order basis. TSMC manufactures our reader IC wafers in Asia and has been our supplier since 2021. We order our reader IC wafers on a purchase-order basis and do not have a long-term supply agreement with TSMC. We package and test our reader ICs in Asia.
RAIN market adoption has historically been slower than anticipated by us and industry sources. For additional information related to RAIN market adoption, please see the section of this report captioned “Risk Factors.” Endpoint ICs Our endpoint integrated circuit, or IC, product family comprises miniature radios-on-a-chip that sell for pennies and can wirelessly connect almost any item.
For more information related to market adoption, please see the section of this report captioned “Risk Factors.” 5 Table of Contents Endpoint ICs Our endpoint IC product family comprises miniature radios-on-a-chip that sell for pennies yet can wirelessly connect almost any item. Each IC attaches to a host item and includes a number to identify the item.
Our original equipment manufacturing, or OEM, partners typically attach an endpoint IC to a thin printed or etched antenna on a paper or Mylar backing, then cover the composite inlay with a paper face to form a tag.
Our OEM partners typically attach an endpoint IC to a printed or etched antenna on a paper or PET backing, then cover the composite inlay with a paper face to form a tag. More recently, some of our partners have begun embedding the endpoint IC into wire, thread or woven tags.
Our platform provides real-time data about items passing through dock doors to the systems that run shipping and receiving, enabling SC&L companies to reduce mistakes, automate processes and drive operational efficiencies. • Conveyor Sortation.
Our platform provides real-time data about items passing through dock doors to the systems that run shipping and receiving, helping SC&L companies reduce mistakes, automate processes and drive operational efficiencies. • Conveyor Sortation. Our platform enables high-speed, real-time, not-line-of-sight reading of packages moving along conveyors, improving sortation accuracy and reducing shipping errors. • Returnable Transit Item, or RTI, Tracking.
We use multiple subcontractors to post-process the wafers including Stars Microelectronics (Thailand) Public Company Limited, or Stars, Chipbond Technology Corporation, or Chipbond, and Unisem Group, or Unisem. We generally engage all our endpoint IC subcontractors on a purchase-order basis. 8 Table of Contents Tower Semiconductor, or Tower, and TSMC fabricate our reader IC wafers.
We order endpoint IC wafers on a purchase-order basis and do not have a long-term supply agreement with TSMC. We test the wafers primarily in Asia. We use multiple subcontractors to post-process the wafers including Stars Microelectronics (Thailand) Public Company Limited, or Stars, Chipbond Technology Corporation, or Chipbond, and Unisem Group, or Unisem.
In addition, our competitive position depends on our ability to continue attracting and retaining talent while protecting our intellectual property. For additional information on the risks associated with our business, see “Risk Factors.” Employees and Culture As of December 31, 2022, we had 389 employees.
In addition, our competitive position depends on our ability to continue attracting and retaining talent while protecting our IP. For additional information on the risks associated with our business, see “Risk Factors.” Employees and Culture Principals and Culture Our corporate culture embodies a set of principles centered around respect, collaboration, accountability, empowerment and thinking big.
Datacenters use our platform for asset tracking. Electronics manufacturers embed our endpoint ICs into electronic devices for processor-secured storage. • Travel . Driver licenses in some states in the United States include our endpoint ICs to speed border crossings. Fueling stations use vehicle windshield tags to enable automatic and cashless fueling. • Banking .
Golf venues score participants’ shots via our endpoint ICs inside golf balls. • Travel . Driver licenses in some states in the United States include our endpoint ICs to speed border crossings. Fueling stations use vehicle windshield tags to enable automatic and cashless fueling.
Our platform integrates our products and enables enhanced functionalities in ways we believe surpasses mix-and-match solutions built from competitor components, improving overall RAIN system performance, capabilities, reliability and ease-of-use. • Market Leadership .
Our platform incorporates enhanced functionalities, including extensions to the RAIN air-interface, that we believe improve solution performance, capabilities, reliability and ease-of-use and allow us to surpass mix-and-match solutions built from competitor components. • Market Leadership .
We sell our reader ICs to OEM and original design manufacturing, or ODM, partners that use them in mobile or handheld readers, fixed readers, gateways, RAIN-enabled appliances and other intelligent edge devices. We sell our reader ICs for tens of dollars. Our reader product family comprises multiple finished products, tiered by performance and functionality.
Our reader IC product family comprises multiple products, tiered by performance and functionality, that our OEM and ODM partners use in their mobile or handheld readers, fixed readers, gateways, appliances and other edge devices. We offer easy-to-use application programming interfaces, or APIs, development environments, sample code, drivers and libraries to facilitate partner reader development.
Our readers and gateways are easy to deploy and use, can be powered via power-over-Ethernet, or PoE, and are certified for operation in more than 40 countries. Our software and algorithms run either entirely on our readers and gateways or partly on them and partly on partner devices.
Our gateways integrate our readers with beamforming antennas to electrically steer a radio beam like a radar, locating and tracking items in one or two dimensions. Our readers and gateways are easy to deploy and use, can be powered via power-over-Ethernet, or PoE, and are certified for operation in more than 40 countries.
Our chief executive officer is a recognized industry thought leader, a director of the RAIN Alliance and previously was an editor for the RAIN radio standard. • Partner Ecosystem . Our worldwide partner ecosystem comprises hundreds of distributors, SIs, VARs, software solution partners and reader, inlay and tag ODMs and OEMs.
Our chief executive officer is a recognized industry thought leader, a prior director of the RAIN Alliance and prior editor of the RAIN radio standard. 6 Table of Contents • Partner Ecosystem .
Information contained in, or that can be accessed through, our website is not a part of, and is not incorporated into, this report.
Our principal executive office is located at 400 Fairview Avenue North, Suite 1200, Seattle, Washington 98109. Our telephone number is (206) 517-5300. Our website is www.impinj.com . Information contained in, or that can be accessed through, our website is not a part of, and is not incorporated into, this report.
As of December 31, 2022, our portfolio included 296 issued and allowed U.S. patents, five issued and allowed international patents, 20 pending U.S. patent applications and 7 pending international patent applications.
As of December 31, 2023, our portfolio included 302 issued and allowed U.S. patents, five issued international patents, 16 pending U.S. patent applications and seven pending international patent applications. Industry Use Cases The following use cases are representative of RAIN deployments we serve today.
Throughout our history we have committed, and we plan to continue committing, significant resources to technology, innovation and product development. We believe we have achieved our leading market position by continuously improving product performance, features, quality and reliability while reducing costs, and we plan to invest to continue doing so.
We believe we have achieved our leading market position by continuously improving our product performance, features, quality and reliability while reducing costs, and we plan to invest to continue doing so. In most situations, we strive to lead the market with new products and innovations, but we sometimes adopt a more deliberate approach depending on the situation.
The Alliance is a global organization promoting the universal adoption of RAIN technology and solutions, with more than 150 members as of December 31, 2022. Today, the RAIN industry has access to radio spectrum freely available in 81 countries encompassing roughly 95% of the world’s GDP.
A member of our management team is currently a RAIN Alliance Director. The Alliance is a global organization promoting the universal adoption of RAIN technology and solutions, with more than 150 members as of December 31, 2023.
Competition Each of our competitors competes with some, but not all, of our products. Our primary competition includes: • Endpoint ICs: NXP B.V., or NXP, EM Microelectronic, Kiloway, Fudan Microelectronics Group and Alien Technology Corporation, or Alien. • Reader ICs: STMicroelectronics N.V., or ST, Phychips Inc, Zhikun Semiconductor Co.
Our primary competition includes: • Endpoint ICs: NXP B.V., or NXP, EM Microelectronic, Kiloway, Quanray, Shanghai Fudan Microelectronics Group, Alibaba and Alien Technology Corporation, or Alien. • Reader ICs: Phychips Inc, Shanghai Fudan Microelectronics Group and MagicRF. • Readers and gateways: Zebra Technologies Corporation, or Zebra. • Test and measurement solutions: CISC Semiconductor GmbH, or CISC.
Our solutions-marketing and business-development teams also work with independent software vendor, or ISV, partners to enable end-user awareness, joint solutions, joint go-to-market selling and sales enablement. Avery Dennison Corporation, or Avery Dennison, and Arizon RFID Technology (Yangzhou) Co., LTD, or Arizon, purchase our endpoint ICs for their inlay and tag products.
Avery Dennison Corporation, or Avery Dennison, and Arizon RFID Technology (Yangzhou) Co., LTD., or Arizon, purchase our endpoint ICs for their inlay and tag products.
Alliances and Standardization Our platform connects everyday items using the RAIN technology we pioneered. We spearheaded developing the RAIN radio standard, lobbied governments to allocate frequency spectrum and, along with Google, Intel and Smartrac, cofounded the RAIN Alliance. Our chief executive officer is presently an Alliance Director and was previously the Alliance Chairman.
We own several trademarks and develop names for our new products and secure trademark protection for them, including domain name registration, in relevant jurisdictions.. Alliances and Standardization Our platform uses the RAIN technology we pioneered. We spearheaded developing the RAIN radio standard, lobbied governments to allocate frequency spectrum and, along with Google, Intel and Smartrac, cofounded the RAIN Alliance.
Today, most retail products with RAIN tags are apparel and footwear, but retailers are extending RAIN usage to general merchandise including toys, home goods, electronics, auto parts, magazines, stationary, sporting items, cosmetics and even food. Retailers can obtain the following benefits by using our platform: • In-store Inventory Visibility .
Retail Retailers, both traditional brick-and-mortar and online, apply billions of RAIN tags each year, historically to retail apparel and footwear but today, increasingly, to retail general merchandise such as home goods, health and beauty items, tires, toys, sporting goods, automotive parts, consumer electronics and other items. Retailers can obtain these benefits using our platform: • In-store Inventory Visibility .
The following table presents total revenue concentration to Avery Dennison and Arizon for the periods presented: Year Ended December 31, 2022 2021 2020 Revenue: Avery Dennison (1) 28 % 32 % 32 % Arizon 10 11 10 38 % 43 % 42 % (1) Includes revenue concentration related to Smartrac. Avery Dennison acquired Smartrac in March 2020.
The following table presents total revenue concentration to Avery Dennison and Arizon for the periods presented: Year Ended December 31, 2023 2022 2021 Revenue: Avery Dennison 33 % 28 % 32 % Arizon 11 10 11 44 % 38 % 43 % Manufacturing We outsource most of our product manufacturing to third parties that build our products to our specifications, manufacturing only a small portion of our products, principally some of our test and measurement solutions, ourselves.
Regardless of the method by which our partners embed an endpoint IC into a host item, we refer to an IC and its host item as an endpoint. When a consumer purchases a retail item, a store or supplier will typically procure another item to sell, including another endpoint IC.
Enterprises attach or embed the tags onto or into items in retail, SC&L, healthcare, automotive, sports, industrial and manufacturing, consumer experience, datacenter, travel, food, banking and other use cases. Regardless of the method by which our partners attach or embed an endpoint IC onto or into an item, we refer to an IC and its host item as an endpoint.
We believe endpoint ICs are the first market for consumable silicon and selling endpoint ICs is a recurring revenue source for us. Systems Our systems product family comprises reader ICs, readers and gateways that wirelessly provide power to, and communicate bidirectionally with, endpoint ICs on host items. They also read, write, authenticate and engage the endpoint ICs on those items.
They wirelessly provide power to, and communicate bidirectionally with, endpoint ICs on host items. They also read, write, authenticate and engage the endpoint ICs on those items. Our readers and gateways include software and algorithms that allow us and our partners to solve enterprise business problems such as retail self-checkout and loss prevention.
We use subcontractors on a purchase-order basis to assemble and test printed circuit boards, to build our reader and gateway enclosures and to test our readers and gateways. Research and Development We built our company around technology leadership, innovation and best-in-class products.
We use subcontractors on a purchase-order basis to assemble and test printed circuit boards, to build our reader and gateway enclosures and to test our readers and gateways. We manufacture our test and measurement solutions in Finland, at Voyantic Oy, which we acquired in April 2023. This acquisition added label design, manufacturing and test systems to our platform offering.
Most of our employees are not represented by a labor union and we believe our employee relations are excellent. Our corporate culture embodies a set of principles centered around respect, collaboration, accountability, empowerment and thinking big. We believe our principles and the culture that derives from them are essential to the health and success of our business.
We believe our principles and the culture that derives from them are essential to the health and success of our business. More information on principles can be found at www.impinj.com/about-us/our-principles. As of December 31, 2023, we had 475 employees in the Americas, Europe and Asia Pacific. Most of our employees are not represented by a labor union.
Manufacturing We outsource all our product manufacturing to third-party manufacturers that build our products to our specifications. This capital-efficient operating model scales efficiently with volume, allowing us to focus our resources on accelerating development of new products and solutions.
This capital-efficient operating model scales efficiently with volume, allowing us to focus our resources on developing new products and solutions. Taiwan Semiconductor Manufacturing Company Limited, or TSMC, manufactures our endpoint IC wafers primarily in Taiwan and has been our supplier since 2003.
Sales and Marketing We have a worldwide sales team with expertise in endpoint ICs, reader ICs, readers, gateways and solutions. We also have a global ecosystem of hundreds of partners. Our sales team enables end-user solutions through, with and alongside those partners, fulfilling through the partners primarily as follows: • Endpoint ICs: Directly to inlay and tag OEMs.
Sales and Marketing We have a worldwide sales team with expertise in enterprise solutions, endpoint ICs, reader ICs, readers and gateways, and test and measurement solutions.
Marathons and other foot races track runners via our endpoint ICs in race bibs. Golf venues score participants’ shots via our endpoint ICs inside golf balls. • Food . Our reader ICs track syrup cartridges for replenishment in soda fountains. Our endpoint ICs track meat, fish and fresh produce for freshness. • Datacenters .
Banks use our endpoint ICs for money bundles and to track information-technology assets. • Datacenters . Datacenters use our platform for asset tracking. • Food . Our reader ICs track syrup cartridges for replenishment in soda fountains. Our endpoint ICs track meat, fish and fresh produce for freshness as well as inventory visibility. • Healthcare.
Banks use our endpoint ICs for money bundles and to track information-technology assets. • Linen and Uniform Tracking . Laundry providers embed washable tags into their linens and uniforms for automated tracking. Competitive Advantages We believe we can extend our leadership of the RAIN market by leveraging our competitive strengths, including: • Platform .
Manufacturers use our platform to track assets and tools, reducing errors and increasing calibration compliance. • Linen and Uniform Tracking . Laundry providers embed washable tags into their linens and uniforms for automated sortation. • Sports . Marathons and other foot races track runners via our endpoint ICs in race bibs.
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Item 1. B usiness Overview Our vision is a boundless Internet of Things, or IoT. We are driving a future in which everyday physical items are wirelessly connected to digital counterparts, or digital twins, in the cloud, and in which businesses and people access information about an item from its digital twin. Our mission is to connect every thing.
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Item 1. B usiness Overview We envision a world in which every item that enterprises manufacture, transport and sell, and that people own, use and recycle, is wirelessly and ubiquitously connected to the cloud. And a world in which the ownership, history and linked information for every one of those items is seamlessly available to enterprises and people.
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We deliver a platform that powers item-to-cloud connectivity, and on which solution providers innovate IoT whole products. Today, we deliver the identity, location and authenticity of billions of physical items.
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We call our expansive vision a Boundless Internet of Things, or IoT, and we are well on our way to realizing it. Our mission is to connect every thing. We use a type of radio-frequency identification, or RFID technology known as RAIN for the ubiquitous, wireless item-to-cloud connectivity.
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We believe our future is extending that delivery to trillions of physical items and enabling ubiquitous access to cloud-based digital twins of those items, each storing an item’s ownership, history and links. We believe the item connectivity that our platform delivers enhances businesses efficiencies and commerce and, ultimately, improve peoples’ lives.
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We sell a suite of products that we and our partner ecosystem use to connect and deliver item data to enterprises.
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Impinj Platform Our platform, which comprises multiple product families, wirelessly connects individual items and delivers data about the connected items to business and consumer applications.
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We have enabled connectivity for more than 95 billion items to date, delivering item visibility and improving operational efficiencies for retailers, supply chain and logistics, or SC&L providers, restaurants and food-service providers, airlines, automobile manufacturers, healthcare companies and many more.
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We link the products within our platform to deliver capabilities and performance that surpasses mix-and-match solutions built from competitor products. 4 Table of Contents We and our partners connect the items via a miniature radio chip embedded in the item or in its packaging, reading and delivering each item’s identity, location and authenticity.
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We are today focused on extending item connectivity from tens of billions to trillions of items, and delivering item data not just to enterprises but to people, so they too can derive value from their connected items.
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To date, we have enabled connectivity to more than 75 billion items, enabling businesses and consumers to derive timely information from those connected items. Our platform uses RAIN, a type of radio-frequency identification, or RFID, technology we pioneered.
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We believe the Boundless IoT we are enabling will, in the not-too-distant future, give people ubiquitous access to cloud-based digital twins of every item, each storing the item’s history and linked information and helping people explore and learn about the item. We believe that that connectivity will transform the world.
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End users attach the tags to items used in markets including retail, supply chain and logistics, healthcare, automotive, sports, industrial and manufacturing, consumer experience, food, datacenter, travel and banking.
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Impinj Platform We and our partner ecosystem build item-visibility solutions using products that we design and either sell or license, including silicon RAIN radios; manufacturing, test, encoding and reading systems; and software and cloud services that encapsulate our solutions know-how. We sell two types of silicon integrated circuit, or IC, radios.
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In some more-recent applications, rather than attaching a tag to an item, end users may instead embed the inlay directly into the item, for example by sewing an inlay into a garment’s care label.
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The first are endpoint ICs that store a serialized number to wirelessly identify an item. Our partners embed endpoint ICs into an item or its packaging. The ICs may also contain a cryptographic key to authenticate the item. The second are reader ICs that our partners use in finished readers to wirelessly discover, inventory and engage the endpoint ICs.
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Our systems products include software and algorithms that enable our partners to deliver use cases such as retail self-checkout and loss prevention, and warehouse pallet and package tracking, to end users worldwide. Our reader IC product family comprises multiple products, tiered by performance and functionality, that our reader IC partners use in their readers.
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Those readers may also protect an item or consumer, for example by authenticating the item as genuine or privatizing the item by rendering the endpoint IC unresponsive without the consumer first providing a password. Our manufacturing, test and encoding systems enable partner products and facilitate enterprise deployments. Our reading systems comprise high-performance finished readers and gateways for autonomous reading solutions.
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We offer easy-to-use application programming interfaces, or APIs, sample code, development environments, drivers and libraries to facilitate partner reader development. We leverage our reader and gateway software to enhance the firmware in our reader ICs.
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Our software and cloud services focus on solutions enablement. We sell our products, individually or as a whole platform offering primarily with or through our partner ecosystem. That ecosystem comprises original equipment manufacturers, or OEMs, tag service bureaus, original device manufacturers, or ODMs, systems integrators, or SIs, value-added resellers, or VARs, independent software vendors, or ISVs, and other solution partners.
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Our gateway product family integrates our readers with beamforming antennas to electrically steer a radio beam like a radar, locating and tracking items in one or two dimensions. Our partners can use our readers and gateways to enable end-user solutions.
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Our silicon radios follow the RAIN industry’s air-interface standard for their core functionality. We create partner and enterprise preference for our radios and solutions by adding differentiated features into our products, and supporting those features across our platform, to deliver solutions capabilities and performance that surpasses mix-and-match solutions built from competitor products. We are a leader in the RAIN market.

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Item 1A. Risk Factors

Risk Factors — what could go wrong, per management

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Biggest changeAmong other things, our certificate of incorporation and bylaws: 29 Table of Contents • permit our board of directors to issue up to 5,000,000 shares of preferred stock, with any rights, preferences and privileges as they may designate; • provide that the authorized number of directors may be changed only by resolution of the board of directors; • provide that all vacancies, including newly created directorships, may, except as otherwise required by law, be filled by the affirmative vote of a majority of directors then in office, even if less than a quorum; • divide our board of directors into three classes, each of which stands for election once every three years (subject to gradual declassification beginning at the 2021 annual meeting of stockholders, such that our board of directors will be fully declassified beginning at the 2023 annual meeting of stockholders); • restrict the forum for certain litigation against us to Delaware; • require that any action taken by our stockholders be effected at a duly called annual or special meeting of stockholders and not by written consent; • provide that stockholders seeking to present proposals before a meeting of stockholders or to nominate candidates for election as directors at a meeting of stockholders must provide notice in writing in a timely manner, and also specify requirements as to the form and content of a stockholder’s notice; • do not provide for cumulative voting rights (therefore allowing the holders of a majority of the shares of common stock entitled to vote in any uncontested election of directors to elect all of the directors standing for election, if they should so choose); and • provide that special meetings of our stockholders may be called only by the chair of the board, our chief executive officer or the board of directors.
Biggest changeAmong other things, our certificate of incorporation and bylaws: • permit our board of directors to issue up to 5,000,000 shares of preferred stock, with any rights, preferences and privileges as they may designate; • provide that the authorized number of directors may be changed only by resolution of the board of directors; 31 Table of Contents • provide that all vacancies, including newly created directorships, may, except as otherwise required by law, be filled by the affirmative vote of a majority of directors then in office, even if less than a quorum; • restrict the forum for certain litigation against us to Delaware; • require that any action taken by our stockholders be effected at a duly called annual or special meeting of stockholders and not by written consent; • provide that stockholders seeking to present proposals before a meeting of stockholders or to nominate candidates for election as directors at a meeting of stockholders must provide notice in writing in a timely manner, and also specify requirements as to the form and content of a stockholder’s notice; • do not provide for cumulative voting rights (therefore allowing the holders of a majority of the shares of common stock entitled to vote in any uncontested election of directors to elect all of the directors standing for election, if they should so choose); and • provide that special meetings of our stockholders may be called only by the chair of the board, our chief executive officer or the board of directors.
The lost opportunities as well as time and expense to develop new products or change our existing products to comply with new or changed standards could be substantial, and we may not ultimately succeed in developing products that comply with new or changed standards. Certain organizations develop requirements for RAIN tags and test tags against those requirements.
The lost opportunities as well as time and expense to develop new products or change our existing products to comply with new or changed standards could be substantial, and we may not ultimately succeed in developing products that comply with the new or changed standards. Certain organizations develop requirements for RAIN tags and test tags against those requirements.
CHIPS and Science Act, enacted August 9, 2022, provides tax credits for semiconductor manufacturing activities within the United States, but because we outsource our semiconductor manufacturing we do not expect to be entitled to these tax credits.
The CHIPS and Science Act, enacted August 9, 2022, provides tax credits for semiconductor manufacturing activities within the United States, but because we outsource our semiconductor manufacturing we do not expect to be entitled to these tax credits.
Provisions of our certificate of incorporation and our bylaws may delay or discourage transactions involving an actual or potential change in our control or change in our management, including transactions in which stockholders might otherwise receive a premium for their shares, or transactions that our stockholders might otherwise deem to be in their best interests.
Provisions of our certificate of incorporation and our bylaws may delay or discourage transactions involving an actual or potential change in our control or in our management, including transactions in which stockholders might otherwise receive a premium for their shares, or transactions that our stockholders might otherwise deem to be in their best interests.
We cannot guarantee that: • any of the patents, trademarks, copyrights, trade secrets or other intellectual property rights we presently employ in our business will not lapse or be invalidated, circumvented, challenged or abandoned; • our intellectual property rights will provide competitive advantages to us; • our ability to assert our intellectual property rights against potential competitors or to settle current or future disputes will not be limited by our agreements with third parties; • any of our pending or future patent applications will be issued or have the coverage we originally sought; • our intellectual property rights can or will be enforced, particularly in jurisdictions where competition may be intense or where legal protections may be weak; • we will not lose the ability to assert our intellectual property rights against, or to license our technology to, others and collect royalties or other payments; or • we will retain the right to ask for a royalty-bearing license to an industry standard if we fail to file an intellectual property declaration pursuant to the standards process.
We cannot guarantee that: • any of the patents, trademarks, copyrights, trade secrets or other intellectual property rights we presently employ in our business will not lapse or be invalidated, circumvented, challenged or abandoned; • our intellectual property rights will provide competitive advantages to us; • our ability to assert our intellectual property rights against potential competitors or to settle current or future disputes will not be limited by our agreements with third parties; • any of our pending or future patent applications will issue or have the coverage we originally sought; • our intellectual property rights can or will be enforced, particularly in jurisdictions where competition may be intense or where legal protections may be weak; • we will not lose the ability to assert our intellectual property rights against, or to license our technology to, others and collect royalties or other payments; or • we will retain the right to ask for a royalty-bearing license to an industry standard if we fail to file an intellectual property declaration pursuant to the standards process.
The consequences of loss, misuse, corruption or other unauthorized processing of confidential, personal or proprietary information could include, among other things, unfavorable publicity, reputational damage, difficulty marketing or selling our products, customer allegations of breach of contract, loss or theft of intellectual property, claims and litigation, governmental and regulatory investigations and other proceedings and fines, penalties and other damages and liabilities.
The consequences of loss, unavailability, misuse, corruption or other unauthorized processing of confidential, personal or proprietary information could include, among other things, unfavorable publicity, reputational damage, difficulty marketing or selling our products, customer allegations of breach of contract, loss or theft of intellectual property, claims and litigation, governmental and regulatory investigations and other proceedings and fines, penalties and other damages and liabilities.
Our ESG practices may not meet their standards, and they as well as advocacy groups may campaign for us to change our business or practices to address their ESG-related concerns. A failure, or perceived failure, of us to respond to any such campaigns could harm our business and reputation and negatively impact the market price of our securities.
Our ESG practices may not meet their standards, and they as well as advocacy groups may campaign for us to change our business or practices to address their ESG-related concerns. Our failure, or perceived failure, to respond to any such campaigns could harm our business and reputation and negatively impact the market price of our securities.
We derive, and expect to continue to derive, most of our product revenue from our endpoint ICs. If demand declines, or if we are unable to procure enough wafers to meet the demand we have, or if we are unable to raise prices to offset cost increases, then our business and operating results will suffer.
We derive, and expect to continue to derive, most of our revenue from our endpoint ICs. If demand declines, or if we are unable to procure enough wafers to meet the demand we have, or if we are unable to raise prices to offset cost increases, then our business and operating results will suffer.
Our success depends on a range of factors, including: • continuing to deliver high-quality, innovative and defect-free products; • maintaining high partner and end user satisfaction; • successfully differentiating our products from those of our competitors; and • appropriately managing both positive and negative publicity.
Our success depends on a range of factors, including: • continuing to deliver high-quality, innovative and defect-free products; • maintaining high partner and end-user satisfaction; • successfully differentiating our products from those of our competitors; and • managing both positive and negative publicity.
Any actions or concerns about security and privacy may be expensive to defend, cause us to expend substantial time and resources and damage our reputation and operating results or could negatively impact overall RAIN industry development, even if unfounded.
Any actions or concerns about security and privacy may be expensive to defend, cause us to expend substantial time and resources and damage our reputation and operating results or negatively impact overall RAIN industry development, even if unfounded.
Our insurance may not adequately cover claims relating to an actual or perceived security breach or incident and any breach or incident may increase our insurance costs as well as reduce or eliminate the future availability of such insurance, harming our business and reputation. 24 Table of Contents Risks Relating to Our Financial Position and Capital Needs We have a history of losses and have only achieved profitability intermittently.
Our insurance may not adequately cover claims relating to an actual or perceived security breach or incident and any breach or incident may increase our insurance costs as well as reduce or eliminate the future availability of such insurance, harming our business and reputation. 26 Table of Contents Risks Relating to Our Financial Position and Capital Needs We have a history of losses and have only achieved profitability intermittently.
If any pending or future proceedings result in an adverse outcome, then we could be required to: • cease manufacturing, using or selling the infringing products, processes or technology; • pay substantial damages for infringement; • expend significant resources to develop noninfringing products, processes or technology; 21 Table of Contents • license technology from the party claiming infringement, which license may not be available on commercially reasonable terms, or at all; • cross-license our technology to a competitor to resolve an infringement claim, which could weaken our ability to compete with that competitor; or • pay substantial damages to our partners or end users for them to discontinue using, or replace, infringing products with noninfringing products.
If any pending or future proceedings result in an adverse outcome then we could be required to: 23 Table of Contents • cease manufacturing, using or selling the infringing products, processes or technology; • pay substantial damages for infringement; • expend significant resources to develop noninfringing products, processes or technology; • license technology from the party claiming infringement, which license may not be available on commercially reasonable terms or at all; • cross-license our technology to a competitor to resolve an infringement claim, which could weaken our ability to compete with that competitor; or • pay substantial damages to our partners or end users for them to discontinue using, or replace, infringing products with non-infringing products.
Many countries, as well as organizations such as the Organization for Economic Cooperation and Development, have proposed changes to existing tax laws, including a proposed 15% global minimum tax. Any of these developments or changes in federal, state or international tax laws or tax rulings could adversely affect our effective tax rate and our operating results.
Many countries, as well as organizations such as the Organization for Economic Cooperation and Development, have proposed changes to existing tax laws, including a proposed 15% global minimum tax. Any of these developments or changes in U.S. federal, state or international tax laws or tax rulings could adversely affect our effective tax rate and our operating results.
Product supply shortages have challenged our ability to meet market needs and we have recently increased prices in response to our suppliers increasing their prices to us.
Product supply shortages have challenged our ability to meet market needs and we have increased prices in response to our suppliers increasing their prices to us.
RAIN adoption, as well as adoption of our platform and products, depend on many factors, including the extent to which end users understand and embrace the benefits that RAIN offers; whether the benefits of RAIN adoption outweigh the cost and time to replace or modify end users’ existing systems and processes; and whether RAIN products and applications meet end users’ current or anticipated needs.
RAIN adoption, as well as adoption of our platform and products, depends on many factors, including the extent to which end users understand and embrace the benefits that RAIN offers; whether the benefits of RAIN adoption outweigh the cost and time to replace or modify end users’ existing systems and processes; and whether RAIN products and applications meet end users’ current or anticipated needs.
Moreover, with the continued 20 Table of Contents evolution of ESG practices and reporting and disclosure requirements, our costs related to those ESG practices and reporting and disclosure requirements could increase, which could negatively affect our operating results. Risks Relating to Our Intellectual Property If we are unable to protect our intellectual property, then our business could be adversely affected.
Moreover, with the continued evolution of ESG practices and reporting and disclosure requirements, our costs related to those ESG practices and reporting and disclosure requirements could increase, which could negatively affect our operating results. 22 Table of Contents Risks Relating to Our Intellectual Property If we are unable to protect our intellectual property then our business could be adversely affected.
As one example, the ARC Program at Auburn University, or ARC, develops tag performance and quality requirements for end users that engage them. Some participants in the RAIN market are ARC sponsors, but we are not among them. Some other organizations perform this function as well.
For example, the ARC Program at Auburn University develops tag performance and quality requirements for end users that engage them. Some participants in the RAIN market are ARC sponsors, but we are not among them. Some other organizations perform this function as well.
Our partners and end users are subject to laws and regulations related to collecting, storing, transmitting and using personal information and personal data, as well as to additional laws and regulations that address privacy and security related to RFID in general. Because RAIN is a type of RFID, we believe these laws and regulations apply to RAIN.
Our partners and end users are subject to laws and regulations related to collecting, storing, transmitting and using personal information and personal data, as well as to additional laws and regulations that address privacy and cybersecurity related to RFID in general. Because RAIN is a type of RFID, we believe these laws and regulations apply to RAIN.
Significant changes in RAIN standards bodies, standards or qualification processes could impede our ability to sell our products and services. We participate in developing RAIN industry standards, including with GS1 and ISO, and have designed our products to comply with those standards. We have historically taken a leadership position in standards development.
Significant changes in RAIN standards bodies, standards or qualification processes could impede our ability to sell our products and services. We have historically taken a leadership position in developing RAIN industry standards, including with GS1 and ISO, and have designed our products to comply with those standards.
These projects, often involving large purchases of our readers and gateways, are often discrete deployments that can result in significant sales for periods of time. They also increase the volatility of our revenue and operating results.
Their projects, often involving large purchases of our readers and gateways, are often discrete deployments that can result in significant sales for periods of time. They also increase the volatility of our revenue and operating results.
Government regulations and guidelines and other standards relating to consumer privacy may adversely impact adoption of our products, require us to make design changes or constrain our ability to implement new and desired product features, and actual or alleged violations of laws relating to privacy or information security may result in claims, proceedings and liability.
Government regulations and guidelines and other standards relating to consumer privacy and cybersecurity may adversely impact adoption of our products, require us to make design changes or constrain our ability to implement new and desired product features, and actual or alleged violations of laws relating to privacy or cyber security may result in claims, proceedings and liability.
Further, some GS1 EPCglobal members declined to license their intellectual property on royalty-free terms, instead retaining the right to license their technology on RAND terms. These members may choose to assert their intellectual property, in which case we will need to defend ourselves within the confines of the GS1 and ISO intellectual property policies.
Further, some GS1 EPCglobal members declined to 24 Table of Contents license their intellectual property on royalty-free terms, instead retaining the right to license their technology on RAND terms. These members may choose to assert their intellectual property, in which case we will need to defend ourselves within the confines of the GS1 and ISO intellectual property policies.
As a result of these limitations, we may not be able to utilize a material portion of, or possibly any of, the NOLs and credit carryforwards to offset future taxable income or income taxes. We could be subject to additional income tax liabilities. We are subject to income taxes in the United States and certain foreign jurisdictions.
As a result of these limitations, we may not be able to utilize a material portion of, or possibly any of, our NOLs and/or credit carryforwards to reduce future taxable income or income taxes. We could be subject to additional income tax liabilities. We are subject to income taxes in the United States and certain foreign jurisdictions.
Such tariffs could have a material impact on our product costs and decrease our ability to sell our products to existing or potential customers as well as harm our ability to compete internationally.
Tariffs could also have a material impact on our product costs and decrease our ability to sell our products to existing or potential customers as well as harm our ability to compete internationally.
We incur significant costs to detect and prevent security breaches and other security-related incidents. In the event of an actual or perceived security breach or incident we may need to expend significant resources to mitigate, notify third parties of, and otherwise address the breach or incident, its root cause and take steps to prevent further breaches or incidents.
We devote resources to detect and prevent security breaches and other security-related incidents. In the event of an actual or perceived security breach or incident we may need to expend significant resources to mitigate, notify third parties of, and otherwise address the breach or incident, its root cause and take steps to prevent further breaches or incidents.
The results of an audit or litigation could have a material effect on our operating results or cash flows in the period or periods for which that determination is made. Changes in tax laws could have a material adverse effect on our business, cash flow, results of operations or financial conditions.
The results of an audit or litigation could have a material effect on our operating results or cash flows in the period or periods for which that determination is made. 28 Table of Contents Changes in tax laws could have a material adverse effect on our business, cash flow, results of operations or financial conditions.
From time to time, the financial counterparties 28 Table of Contents to the capped calls may modify their hedge positions by entering into or unwinding various derivative transactions involving our stock or by purchasing or selling our stock or other securities of ours in secondary market transactions prior to the maturity of the capped calls.
From time to time, the financial counterparties to the capped calls may modify their hedge positions by entering into or unwinding various derivative transactions involving our stock or by purchasing or selling our stock or other securities of ours in secondary market transactions prior to the maturity of the capped calls.
The following factors, in addition to general risks and other risks described in this report, may have a material effect on the trading price of our common stock: 27 Table of Contents • price and volume fluctuations in the overall stock market; • changes in operating performance, stock market valuations and volatility in the market prices of other technology companies generally, and of those in our industry in particular; • actual or anticipated quarterly variations in our results of operations or those of our competitors; • actual or anticipated changes in our growth rate relative to our competitors; • delays in end-user deployments of RAIN solutions; • announcements by us or our competitors of acquisitions, new products, significant contracts, commercial relationships or capital commitments; • supply interruptions, including semiconductor wafer or other product or component shortfalls; • developments relating to intellectual property rights or in disputes relating to those rights; • our ability to develop and market new and enhanced products on a timely basis; • commencement of, or our involvement in, litigation; • changes in our board of directors or management; • changes in governmental regulations or in the status of our regulatory approvals; • unstable political and economic conditions, including instability resulting from wars and other armed conflicts, such as Russia invading Ukraine; • the trading volume of our stock; • actual or perceived security breaches; • limited public float; • any future sales of our common stock or other securities; • financial analysts dropping or reducing their coverage of us; changes in financial estimates by analysts who do cover us; or our failure to meet analyst estimates or investor expectations; • fluctuations in the values of companies that investors perceive to be comparable to us; • the financial projections we may provide to the public, as well as any changes in those projections or our failure to meet those projections; and • general economic conditions and slow or negative growth in the markets in which we operate.
The following factors, in addition to general risks and other risks described in this report, may have a material effect on the trading price of our common stock: • price and volume fluctuations in the overall stock market; • changes in operating performance, stock market valuations and volatility in the market prices of other technology companies generally, and of those in our industry in particular; 29 Table of Contents • actual or anticipated quarterly variations in our results of operations or those of our competitors; • actual or anticipated changes in our growth rate relative to our competitors; • delays in end-user deployments of RAIN solutions; • announcements by us or our competitors of acquisitions, new products, significant contracts, commercial relationships or capital commitments; • supply interruptions, including semiconductor wafer or other product or component shortfalls; • developments relating to intellectual property rights or in disputes relating to those rights; • our ability to develop and market new and enhanced products on a timely basis; • commencement of, or our involvement in, litigation; • changes in our board of directors or management; • changes in governmental regulations or in the status of our regulatory approvals; • unstable political and economic conditions, including instability resulting from wars and other armed conflicts, such as those in Ukraine and the Gaza Strip, or geopolitical tensions, such as those between the U.S., China and Taiwan; • the trading volume of our stock; • actual or perceived security breaches or incidents; • limited public float; • any future sales of our common stock or other securities; • financial analysts dropping or reducing their coverage of us; changes in financial estimates by analysts who do cover us; or our failure to meet analyst estimates or investor expectations; • fluctuations in the values of companies that investors perceive to be comparable to us; • the financial projections we may provide to the public, as well as any changes in those projections or our failure to meet those projections; and • general economic conditions and slow or negative growth in the markets in which we operate.
If we are unable to correct errors, defects, incompatibilities or other problems in our products, we could experience: • loss of customer orders or customers; • lost or delayed market acceptance or sales; • loss of market share; • damage to our brand and reputation; • impaired ability to attract new customers; • diversion of development resources; • increased service and warranty costs; • replacement costs; • legal actions by our partners or end users; and • increased insurance costs.
If we are unable to identify or correct errors, defects, incompatibilities or other problems in our products, we could experience: • loss of customer orders or customers; • lost or delayed market acceptance (either of our products and solutions or RAIN generally); • lost or delayed sales; • loss of market share; • damage to our brand and reputation; • impaired ability to attract new customers; • diversion of development resources; • increased service and warranty costs; • replacement costs; • legal actions by our partners or end users; and • increased insurance costs.
Delivering solutions that address enterprise needs requires a network of partner products and services that complement our own product offerings and that together address complex enterprise needs.
Delivering enterprise solutions requires a network of partner products and services that complement our own product offerings and that together address the enterprise needs.
If we are unsuccessful in prosecuting our patent-infringement claims against NXP or in defending ourselves against NXP’s counterclaims, or to the extent we cannot maintain the validity and enforceability of our patents, then we could see a material adverse effect on our business, results of operations or financial condition.
If we are unsuccessful in prosecuting our patent infringement claims against NXP or in defending ourselves against NXP’s counterclaims, or to the extent we cannot maintain the validity and enforceability of our patents, then we could see a material adverse effect on our business, results of operations or financial condition. Patent litigation is complex and uncertain.
We anticipate growing our business, in part, by growing our international operations, which presents a variety of risks, including: • changes, some unexpected or unanticipated, in regulatory requirements, taxes, trade laws, tariffs, export quotas, custom duties or other trade restrictions; • lack of established, clear, or fairly implemented standards or regulations with which our products must comply; • greater difficulty in enforcing contracts, judgments and arbitration awards in international courts, and in collecting accounts receivable as well as longer payment and collection periods; • limited or unfavorable intellectual property protection; • misappropriation of our intellectual property; • inflation and fluctuations in foreign currency exchange rates and interest rates; • restrictions, or changes thereof, on foreign trade or investment, including currency-exchange controls, including as a result of sanctions against Russia as a result of Russia invading Ukraine; • changes in a country’s or region’s political, regulatory, legal or economic conditions, including, for example, global and regional economic disruptions caused by Covid-19; • political, social and economic instability abroad; wars and other armed conflicts; and terrorist attacks and security concerns in general, including Russia invading Ukraine and China threatening Taiwan; • differing regulations with regard to maintaining operations, products and public information; • inequities or difficulties obtaining or maintaining export and import licenses; • differing labor regulations, including where labor laws may be more advantageous to employees than in the United States; • restrictions on earnings repatriation; • corrupt or unethical practices in foreign jurisdictions that may subject us to exposure under applicable anti-corruption and anti-bribery laws such as the U.S.
We anticipate growing our business, in part, by growing our international operations, which presents a variety of risks, including: • changes, some unexpected or unanticipated, in regulatory requirements, taxes, trade laws, tariffs, export quotas, custom duties or other trade restrictions; • lack of established, clear or fairly implemented standards or regulations with which our products must comply; • greater difficulty in enforcing contracts, judgments and arbitration awards in international courts, and in collecting accounts receivable as well as longer payment and collection periods; • limited or unfavorable intellectual property protection; • misappropriation of our intellectual property; • inflation and fluctuations in foreign currency exchange and interest rates; 19 Table of Contents • restrictions, or changes thereof, on foreign trade or investment, including currency-exchange controls, including as a result of sanctions against Russia; • changes in a country’s or region’s political, regulatory, legal or economic conditions, including, for example, global and regional economic disruptions caused by any future public health outbreaks or pandemics, including a resurgence of Covid-19; • political, social and economic instability abroad; wars and other armed conflicts, such as those in Ukraine and the Gaza Strip; geopolitical tensions, such as those between the United States, China and Taiwan; and terrorist attacks and security concerns in general; • differing regulations with regard to maintaining operations, products and public information; • inequities or difficulties obtaining or maintaining export and import licenses; • differing labor regulations, including where labor laws may be more advantageous to employees than in the United States; • restrictions on earnings repatriation; • corrupt or unethical practices in foreign jurisdictions that may subject us to exposure under applicable anti-corruption and anti-bribery laws such as the U.S.
If any of our stockholders were to bring a lawsuit against us, the defense and disposition of the lawsuit could be costly and divert the time and attention of our management, harm our operating results and negatively impact the trading price of our common stock. Transactions relating to the 2021 Notes may affect our stock’s value.
If any of our stockholders were to sue us, the defense and disposition of the lawsuit could be costly and divert the time and attention of our management, harm our operating results and negatively impact the trading price of our common stock. Transactions relating to the 2021 Notes may affect our stock’s value.
The NOL and federal research and development credit carryforwards began expiring in 2020. Under Sections 382 and 383 of the U.S.
The U.S. federal NOLs and U.S. federal research and development credit carryforwards began expiring in 2020. Under Sections 382 and 383 of the U.S.
Material factors that contribute to fluctuations in our operating results include: • macroeconomic conditions, including inflation and recession, and their impact on our business and that of our suppliers, partners and end users; • fluctuations or delays in RAIN adoption and deployment by end users; • fluctuations in demand for our products or platform, including by tag OEMs and other significant partners and end users on whom we rely for a substantial portion of our revenue; • fluctuations in the pricing and availability or supply of our products or key elements or components of those products, especially semiconductor wafers; • degradations in product quality, whether due to us or our suppliers, including quality claims or product returns; • delays in new-product introductions and in the maturity of our new-product technologies; • decreases in selling prices for our products; • delays in our product-shipment timing, customer or end-user sales or deployment cycles, or work performed under development contracts; • intellectual property disputes involving us, our partners, end users or other participants in our industry; • adverse outcomes of litigation or governmental proceedings; • timing variability in product introductions, enhancements, services and technologies by us and our competitors as well as market acceptance of new or enhanced products, services and technologies; • unanticipated excess or obsolete inventory as a result of supply-chain mismanagement, new-product introduction, quality issues or otherwise; • changes in the amount and timing of our operating costs, including those related to expanding our business, operations and infrastructure; • changes in business cycles or seasonal fluctuations that affect the markets in which we sell; • changes in industry standards or specifications, or changes in government regulations, relating to our products or our platform; 25 Table of Contents • late, delayed or cancelled payments from our partners or end users; and • unanticipated impairment of long-lived assets and goodwill.
Material factors that contribute to fluctuations in our operating results include: • macroeconomic conditions, including inflation, recession or economic slowdown, and their impact on our business and that of our suppliers, partners and end users; • fluctuations or delays in RAIN adoption and deployment by end users; • changes in the pace or direction of major deployments, whether due to macroeconomic conditions or enterprise-specific events or circumstances, and our, or our partners', ability to win business from these deployments; • fluctuations in demand for our products or platform, including by tag OEMs and other significant partners and end users on whom we rely for a substantial portion of our revenue; • fluctuations in the pricing and availability or supply of our products or key elements or components of those products, especially semiconductor wafers; • degradations in product quality, whether due to us or our suppliers, including quality claims or product returns; • delays in new-product introductions and in the maturity of our new-product technologies; • decreases in selling prices for our products; • delays in our product-shipment timing, customer or end-user sales or deployment cycles, or work performed under development contracts; • intellectual property disputes involving us, our partners, end users or other participants in our industry; • adverse outcomes of litigation or governmental proceedings; • timing variability in product introductions, enhancements, services and technologies by us and our competitors as well as market acceptance of new or enhanced products, services and technologies; • unanticipated excess or obsolete inventory as a result of significant demand fluctuations, supply-chain mismanagement, new-product introduction, quality issues or otherwise; • changes in the amount and timing of our operating costs, including those related to expanding our business, operations and infrastructure; 27 Table of Contents • changes in business cycles or seasonal fluctuations that affect the markets in which we sell; • changes in industry standards or specifications, or changes in government regulations, relating to our products or our platform; • late, delayed or cancelled payments from our partners or end users; and • unanticipated impairment of long-lived assets and goodwill.
We have historically focused on filing U.S. patent applications, for many reasons, including the fact that most RAIN products are used in or imported into the United States. We have only a small number of foreign patent applications or foreign patents.
We have historically focused on filing U.S. patent applications, for many reasons, including the fact that a significant portion of RAIN products are used in or imported into the United States. We have only a small number of foreign patents and applications.
We may not always be successful in obtaining necessary export or import licenses, and our failure to obtain required export or import approval for our 18 Table of Contents products or limitations on our ability to export or sell our products may harm our domestic and international sales and negatively affect our revenue.
We may not always be successful in obtaining necessary export or import licenses, and our failure to obtain required export or import approval for our products or limitations on our ability to export or sell our products may harm our domestic and international sales and negatively affect our revenue.
The European Commission, or the EC, has issued guidance to address privacy concerns about RFID. In May, 2009 the EC issued a recommendation that retailers in the EU inform their customers when RFID tags are either on or embedded within products.
The European Commission, or the EC, has issued guidance to address privacy concerns about RFID. In May 2009, the EC issued a recommendation that retailers in the EU inform their customers when RFID tags are either 25 Table of Contents on or embedded within products.
If our products do not comply or enable compliance with the guidelines, then our business may suffer. 23 Table of Contents More generally, the data security and privacy legislative and regulatory landscape in the United States, EU and other jurisdictions continues evolving.
If our products do not comply or enable compliance with the guidelines, then our business may suffer. More generally, the data security and privacy legislative and regulatory landscape in the United States, EU and other jurisdictions continues evolving.
We cannot be sure that any limitation-of-liability provisions in our customer and user agreements, contracts with third-party vendors and service providers or other contracts are enforceable or adequate or would protect us from any liabilities or damages against claims relating to a security breach or other privacy- or security-related issue.
We cannot be sure that any limitation-of-liability provisions in our agreements with customers, contracts with third-party vendors and service providers or other contracts are enforceable or adequate or will protect us from any liabilities or damages against claims relating to a security breach or other privacy- or security-related issue.
We are subject to tax laws, regulations and policies of several taxing jurisdictions. Changes in tax laws, as well as other factors, could cause us to experience fluctuations in our tax obligations and effective tax rates and otherwise adversely affect our tax positions and/or our tax liabilities.
We are subject to tax laws, regulations and policies of several taxing jurisdictions. Changes in tax laws, as well as other factors, could cause us to experience fluctuations in our tax obligations and effective tax rates and otherwise adversely affect our tax positions and results of our operations.
We are subject to risks inherent in operating abroad and may not be able to successfully maintain or expand our international operations. In 2022, we derived 83% of our total revenue from sales outside the United States.
We are subject to risks inherent in operating abroad and may not be able to successfully maintain or expand our international operations. In 2023, we derived 72% of our total revenue from sales outside the United States.
A loss at any of these or other of our or our suppliers’ facilities could disrupt operations, delay production and shipments, reduce revenue and engender potentially large expenses to repair or replace the facility. We do not carry insurance covering potential losses caused by pandemics, earthquakes, floods or other disasters.
A loss at any of these or other of our or our suppliers’ facilities could disrupt operations, delay production and shipments, reduce revenue and engender potentially large expenses. We do not carry insurance covering potential losses caused by pandemics, earthquakes, floods or other disasters.
We have facilities in areas with known seismic activity, such as our headquarters in Seattle, Washington. We have facilities in areas with known flooding, such as our office in Shanghai, China. We have a wafer testing and dicing subcontractor in Thailand, a region with a known, and recent, history of flooding.
We have facilities in areas with known seismic activity, such as our headquarters in Seattle, Washington. We have facilities in areas with known flooding, such as our office in Shanghai, China. We have a wafer post-processing subcontractor in Thailand, a region with a known, and recent, history of flooding.
In 2022, sales to tag OEMs Avery Dennison and Arizon accounted for 28% and 10% of our total revenue, respectively. Sales concentration to a small number of OEMs decreases our bargaining power and increases the risk that our pricing or sales could decline based on actions taken by our competitors or our own failure to compete effectively.
In 2023, sales to tag OEMs Avery Dennison and Arizon accounted for 33% and 11% of our total revenue, respectively. Sales concentration to a small number of OEMs decreases our bargaining power and increases the risk that our pricing or sales could decline based on actions taken by our competitors or our own failure to compete effectively.
Convincing enterprises to engage us to solve their business problems – including evaluation, design, deployment, operations and partner services, including leveraging RAIN data into the enterprise's information systems, requires tight coordination among our and our partners' sales, marketing, operations and engineering teams.
Convincing enterprises to engage us to solve their business problems – including evaluation, design, deployment, operations and services, as well as integrating RAIN data into the enterprise's information systems, requires tight coordination among our and our partners' sales, marketing, operations and engineering teams.
This activity could cause a decrease in our stock price. For more information on the 2019 Notes, the 2021 Notes and the capped-call transactions, see Note 6 of our consolidated financial statements included elsewhere in this report.
This activity could cause a decrease in our stock price. 30 Table of Contents For more information on the 2019 Notes, the 2021 Notes and the capped-call transactions, see Note 8 of our consolidated financial statements included elsewhere in this report.
For example, in August 2022 the United States enacted a 1% excise tax on stock buybacks and a 15% alternative minimum tax on adjusted financial statement income as part of the Inflation Reduction Act of 2022. 26 Table of Contents The U.S.
For example, in August 2022, as part of the Inflation Reduction Act of 2022, the United States enacted a 1% excise tax on stock buybacks and a 15% alternative minimum tax on adjusted financial statement income.
Our principal stockholders and management own a significant percentage of our stock and are able to exercise significant influence over matters subject to stockholder approval. As of December 31, 2022, our executive officers, directors and principal stockholders, together with their respective affiliates, beneficially owned approximately 22.0% of our stock.
Our principal stockholders and management own a significant percentage of our stock and are able to exercise significant influence over matters subject to stockholder approval. As of December 31, 2023, our executive officers, directors and principal stockholders, together with their respective affiliates, beneficially owned approximately 55.7% of our stock.
Aspects of key privacy laws and regulations—including the California Consumer Privacy Act of 2018, the California Privacy Rights Act and the General Data Protection Regulation—remain unclear as of the date of this report and continue evolving, potentially with far-reaching implications.
Aspects of key privacy laws and regulations—including the California Consumer Privacy Act of 2018, the California Privacy Rights Act, similar privacy laws enacted in other states and the EU General Data Protection Regulation—remain unclear as of the date of this report and continue evolving, potentially with far-reaching implications.
We may need to raise additional capital which may not be available on favorable terms or at all. In the future we may raise capital, including pursuant to a shelf registration statement filed with the SEC, potentially diluting our stockholders, restricting our operations or otherwise adversely affecting our business.
We may need to raise additional capital, which may not be available on favorable terms or at all. In the future, we may need to raise additional capital, including pursuant to shelf registration statements we may file from time to time with the SEC, potentially diluting our stockholders, restricting our operations or otherwise adversely affecting our business.
Alternatively, if a court were to find the choice of forum provision contained in our bylaws to be inapplicable or unenforceable in an action, we may incur additional costs associated with resolving such action in other jurisdictions, which could adversely affect our business and financial condition.
Alternatively, if a court were to find the choice of forum provision contained in our bylaws to be inapplicable or unenforceable in an action, we may incur additional costs associated with resolving such action in other jurisdictions, which could adversely affect our business and financial condition. Item 1B. Unresolve d Staff Comments Not applicable.
Anticipated future conversions of the 2021 Notes into stock could also decrease our stock price, as could short selling by holders of the 2021 Notes to hedge their positions. In December 2019, we issued convertible senior notes due December 15, 2026, or the 2019 Notes.
Anticipated future conversions of the 2021 Notes into stock could also decrease our stock price, as could short selling by holders of the 2021 Notes to hedge their positions. In December 2019, we issued the 2019 Notes.
We cannot be certain that we will attain or sustain profitability in the future. We have incurred losses since our inception in 2000. Whereas we were profitable between 2013 and 2015, we had a net loss of $24.3 million for the year ended December 31, 2022, and an accumulated deficit of $386.8 million as of December 31, 2022.
We cannot be certain that we will attain or sustain profitability in the future. We have incurred losses since our inception in 2000. Whereas we were profitable between 2013 and 2015, we had a net loss of $43.4 million for the year ended December 31, 2023, and an accumulated deficit of $430.2 million as of December 31, 2023.
We may become party to intellectual property disputes which could be time consuming, costly to prosecute, defend or settle, result in the loss of significant rights, and adversely affect RAIN adoption or adoption of our products or platform. We are engaged in several patent infringement lawsuits against NXP USA, Inc., a Delaware corporation, and certain of its affiliates.
We are and may continue to be party to intellectual property disputes which could be time consuming and costly to prosecute, defend or settle, result in the loss of significant rights, and adversely affect RAIN adoption or adoption of our products or platform. We are engaged in several patent infringement lawsuits against certain affiliates of NXP Semiconductors N.V.
In addition, our guidance to business-analytics providers for integrating our products with their tools could prove ineffective. 14 Table of Contents Solution providers and SIs are essential to the RAIN market. They provide deployment know-how to enable end users to successfully deploy RAIN solutions.
Our efforts to foster third-party development and deployment of these tools could fail. In addition, our guidance to business-analytics providers for integrating our products with their tools could prove ineffective. Solution providers and SIs are essential to the RAIN market. They provide deployment know-how to enable end users to successfully deploy RAIN solutions.
We rely on third-party license agreements which, if impaired or terminated, could cause production or shipment delays that could harm our business. We have license agreements with third parties for patents, software and technology we use in our operations and in our products.
We rely on third-party license agreements which, if impaired or terminated, could cause production or shipment delays that could harm our business. We have license agreements with third parties for patents, software and technology we use in our operations and in our products. For example, we license tools from design-automation software vendors to design our silicon ICs.
As of December 31, 2022, we had federal net operating loss carryforwards, or NOLs, of $249.3 million and federal research and development credit carryforwards of $22.3 million, which we may use to reduce future taxable income or offset income taxes . We have established a valuation allowance against the carrying value of these deferred tax assets.
As of December 31, 2023, we had federal U.S. net operating loss carryforwards, or NOLs, of $230.5 million and U.S. federal research and development credit carryforwards of $30.5 million, which we may use to reduce future taxable income or income taxes. We have established a valuation allowance against the carrying value of these deferred tax assets.
The cybersecurity threat environment continues to evolve considering the increase in remote work and heightened activity by state-sponsored actors. If we, our platform, or any of the third parties on which we rely suffers a security breach or incident, vulnerability, error, ransomware or malicious event, then we could face increased costs, claims, liability, reduced revenue and harm to our reputation.
The cybersecurity threat environment continues evolving, especially with heightened activity by state-sponsored actors. If we, our platform, or any of the third parties on which we rely suffers or is believed to have suffered a security breach or incident, vulnerability, error, ransomware or malicious event, then we could face increased costs, claims, liability, reduced revenue and harm to our reputation.
Our success in developing the technologies, processes or capabilities necessary or desired for new or enhanced products and services, or licensing or otherwise acquiring them from third parties, and our ability to introduce new products and services before our competition, depends on many factors, including: • our ability to identify new product capabilities or services that will be widely adopted; • our timely and efficient completion of the design process; • our timely and efficient implementation of manufacturing, assembly and testing procedures; • our attainment of appropriate product or service performance levels and product certification; • partnering successfully with others to deliver complementary products or services; • the quality, reliability and selling price of our product or service; and • the effectiveness of our marketing, sales and service.
Our success developing the technologies, processes or capabilities necessary or desired for new or enhanced products and services, or licensing or otherwise acquiring them from third parties, and our ability to introduce new products and services before our competition, depends on many factors, including: • our ability to identify new product capabilities or services that end users will widely adopt; • our timely and efficient completion of the design process; • our timely and efficient implementation of manufacturing, assembly and testing procedures; • our attainment of appropriate product or service performance levels and product certifications; • partnering successfully with others to deliver complementary products or services; • the quality, reliability and selling price of our product or service; and • the effectiveness of our marketing, sales and service. 13 Table of Contents When we introduce new products, our success in ramping adoption depends, in part, on us making those products easy for our partners and end users to deploy and use.
Accidental or willful security breaches or incidents, or unauthorized access to our facilities or information systems, or to others used in our business, could compromise the security of those facilities or information systems and the confidentiality, integrity and availability of confidential, personal or proprietary information.
Accidental or willful security breaches or incidents, or unauthorized access to our facilities or information systems, or to others used in our business, could compromise the security of those facilities or information systems and the confidentiality, integrity and availability of confidential, personal or proprietary information. These risks may be heightened in connection with geopolitical tensions and events.
A shift in sales mix away from our higher margin products to lower margin products, either within our endpoint IC product portfolio or from our systems business to our endpoint ICs, could negatively affect our gross margins.
A shift in sales mix away from our higher margin products to lower margin products, either within our endpoint IC product portfolio or from our systems business to our endpoint ICs, could negatively affect our gross margins. Poor product quality could result in significant costs to us and impair our ability to sell our products.
Our competitors’ relationships with, or acquisitions of, these partners or distributors could interfere with our relationships with them. Any such interference could impair or delay our product sales or increase our cost of sales. 19 Table of Contents We engage directly with end users to adopt our products in large projects.
Our competitors’ relationships with, or acquisitions of, these partners or distributors could interfere with our relationships with them. Any such interference could impair or delay our product sales or increase our cost of sales. We engage directly some with end users.
If we raise additional capital but do not deploy it effectively then our business, financial condition, results of operations and prospects could be harmed and the market price of our common stock could suffer. Risks Relating to U.S. Federal Income Tax Our ability to use net operating losses to offset future taxable income may be limited.
If we raise additional capital but do not deploy it effectively then our business, financial condition, results of operations and prospects could be harmed and the market price of our common stock could suffer. Risks Relating to U.S.
We also only have registered trademarks and domain names in select countries where we believe filing for such protection is appropriate. By focusing our intellectual property protection on the United States and a small number of foreign countries, we have limited ability to assert that intellectual property outside the United States, including in some significant foreign markets such as China.
By focusing our intellectual property protection on the United States and a small number of foreign countries, we have a limited ability to assert that intellectual property outside the United States, including in some significant foreign markets such as China.
We are developing solutions for retail self-checkout and loss prevention and SC&L package routing that have been, or that we expect to be, deployed by the industry-leading enterprise end users for whom we are developing the solutions.
We believe we are still at a very early stage in our ability to deliver enterprise solutions. We are developing solutions for retail self-checkout and loss prevention and SC&L package routing that have been, or that we expect to be, deployed by the industry-leading enterprise end users.
Additionally, if we are unable to raise our prices to cover our higher costs, our gross margins and other financial results could suffer. As we recover from wafer shortages, we may invest in inventory to support anticipated business growth, like we did with endpoint IC inventory in 2017 and 2020.
Additionally, if our suppliers charge us more but we are unable to raise our prices to cover those higher costs, our gross margins and other financial results could suffer. To guard against wafer shortages, we may invest in inventory to support anticipated business growth, like we did with endpoint IC inventory in 2017, 2020 and late 2022/early 2023.
Although we today have partners who successfully introduce our platform, or aspects of it, to their customers, their knowledge of our platform and RAIN in general is still nascent.
We, or our partners, may be unable to successfully acquire customers for our enterprise solutions, or successfully address our market opportunity. Although we today have partners who can successfully introduce our platform, or aspects of it, to their customers, their knowledge of our platform and RAIN in general is still nascent.
In addition, open-source licensors generally do not provide warranties or other contractual protections regarding infringement claims or the quality of their code, opening us to business risks that could materially harm our operating results.
In addition, certain open-source software licenses require the user of such software to make derivative works of the open-source software available to others at low or no cost. Open-source licensors generally do not provide warranties or other contractual protections regarding infringement claims or the quality of their code, opening us to business risks that could materially harm our operating results.
To convert the wafers we receive from our foundry partner into saleable products, we and several third parties perform additional procedures, such as testing, thinning, dicing and bumping the ICs.
To convert the wafers we receive from our foundry partner into saleable ICs, we perform additional steps including testing, thinning, bumping and dicing.
In the future, we could lose that leadership position or our influence in standards development, or we could choose not to participate in certain standards activities. New or changed industry standards could cause us to incur substantial development costs to meet the new or changed standards.
We could lose that leadership position; our influence in standards development could diminish; or we could choose not to participate in certain standards activities. New or changed industry standards could affect us negatively.
If supplier capacity diminishes, whether from equipment failures, closures, bankruptcy, capacity allocation, in response to Covid-19, catastrophic loss of facilities or otherwise, then we could have difficulty fulfilling orders, our revenue could decline and our growth prospects could be impaired. Transitioning our product manufacturing to new providers would take many months and, in the case of ICs, could take years.
If supplier capacity diminishes, whether from equipment failures, closures, bankruptcy, capacity allocation, in response to public health events (such as Covid-19), catastrophic loss of facilities or otherwise, then we could have difficulty fulfilling orders, our revenue could decline and our growth prospects could be impaired.
Our partners, including our OEMs, ODMs, distributors, SIs, VARs and solution partners, may choose to compete with us rather than purchase our products, which would not only reduce our customer base but also 11 Table of Contents increase competition in the market.
Our partners, including our OEMs, ODMs, distributors, SIs, VARs and solution partners, may choose to compete with us rather than purchase our products, which would not only reduce our customer base but also increase competition in the market. Companies in adjacent markets or newly formed companies may decide to enter our market, particularly as RAIN adoption grows.
Our business operations could be disrupted by natural disasters. In addition to the pandemic risk discussed earlier under “—Covid-19 has adversely affected our business, and the magnitude and duration of future Covid-19 effects on our business are uncertain,” other disasters, whether natural or manmade, could decrease demand for our products, disable our facilities, disrupt operations or cause catastrophic losses.
In addition to the pandemic risk discussed earlier under “—Our business has been and may continue to be adversely affected by future public health outbreaks and pandemics, including a potential resurgence in COVID-19 cases,” other disasters, whether natural or manmade, could decrease demand for our products, disable our facilities, disrupt operations or cause catastrophic losses.
Poor product quality could result in significant costs to us and impair our ability to sell our products. 13 Table of Contents Our products must meet demanding specifications for quality, reliability and performance. Our products are both highly technical and deployed in large, complex systems in which errors, defects or incompatibilities can be problematic for our partners and end users.
Our products must meet increasingly demanding specifications for quality, reliability and performance. Our products are both highly technical and deployed in large, complex systems in which errors, defects or incompatibilities can be problematic for our partners and end users.
We typically order products from our suppliers based on partner forecasts before we receive purchase orders. However, many of our partners have difficulty accurately forecasting their demand and the timing of that demand. They also sometimes cancel orders or reschedule product shipments, in some cases with little or no advance notice to us.
However, many of our partners have difficulty accurately forecasting their demand and the timing of that demand. They also sometimes cancel orders or reschedule product shipments, in some cases with little or no advance notice to us. We also sometimes receive soft commitments for large orders which do not materialize.
Risks Relating to Owning or Trading Our Securities The market price of our common stock has been and will likely continue to be volatile, and the value of your investment could decline significantly. The trading price of our common stock has fluctuated and is likely to continue to fluctuate substantially.
We could also be subject to sanctions or investigations by The Nasdaq Stock Market, the SEC and other regulatory authorities. Risks Relating to Owning or Trading Our Securities The market price of our common stock has been and will likely continue to be volatile, and the value of your investment could decline significantly.
They could also bundle other technologies, including those we do not have in our product portfolio, with their RAIN products.
They could devote more resources than we can to product development, promotion, sale and support. They could also bundle other technologies, including those we do not have in our product portfolio, with their RAIN products.
If we fail to manage such conflicts successfully, then our business and operating results could be negatively affected. 15 Table of Contents Risks Relating to Our Personnel and Business Operations We obtain the products we sell through a limited number of third parties with whom we do not have long-term supply contracts.
Risks Relating to Our Personnel and Business Operations We obtain the products we sell through a limited number of third parties with whom we do not have long-term supply contracts.
While we do not today have business with Russian partners or end users, the effect of 17 Table of Contents these sanctions on global trade and macroeconomic conditions generally—such as increases in the cost of energy and inflation—could nevertheless negatively affect our business.
Other causes of uncertainty include the effects of sanctions and other actions against Russia after Russia invaded Ukraine. While we do not today have business with Russian partners or end users, the effect of these sanctions on global trade and macroeconomic conditions generally—such as increasing energy costs and inflation—could nevertheless negatively affect our business.

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Item 2. Properties

Properties — owned and leased real estate

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Biggest changeLocation Purpose Approximate Square Feet Principal Lease Expiration Dates Seattle, Washington Corporate headquarters 109,000 2026 Seattle, Washington Design laboratory 11,000 2024 Seattle, Washington Design laboratory 29,000 2029 Shanghai, China General office space 4,000 2023 In addition, we hold a lease for approximately 39,000 square feet of commercial office space in Seattle, Washington that expires in 2023.
Biggest changeLocation Purpose Approximate Square Feet Principal Lease Expiration Dates Seattle, Washington Corporate headquarters 70,000 2026 Seattle, Washington Design laboratory 29,000 2029 Shanghai, China General office space 4,000 2025 Helsinki, Finland Voyantic office space 7,000 2027 33 Table of Contents In addition, we lease offices in Thailand, Malaysia, Brazil and San Diego, California.
Item 2. Pr operties We have several operating leases for office space, summarized as of December 31, 2022 in the table below. We believe that our facilities are adequate for our current needs.
Item 2. Pr operties We have several operating leases for office space, summarized as of December 31, 2023 in the table below. We believe that our facilities are adequate for our current needs.
We have sublet the entirety of this office space through the expiration date. We also lease offices in Thailand and Malaysia. For more information about our lease commitments, please refer to Note 10 to our consolidated financial statements included elsewhere in this report.
For more information about our lease commitments, please refer to Note 11 to our consolidated financial statements included elsewhere in this report.

Item 3. Legal Proceedings

Legal Proceedings — active lawsuits and investigations

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Biggest changePatent Litigation On June 6, 2019, we filed a patent infringement lawsuit against a competitor, NXP, USA Inc., and on October 4, 2019, NXP USA, Inc. and its parent NXP Semiconductors N.V., filed a patent infringement lawsuit against us. Both we and NXP subsequently filed additional lawsuits against each other.
Biggest changePatent Litigation We are engaged in multiple patent lawsuits with subsidiaries of NXP N.V., or NXP, our primary endpoint IC competitor. On June 6, 2019, we filed a patent infringement lawsuit against an NXP subsidiary, NXP USA Inc. On October 4, 2019, NXP USA, Inc. and NXP Semiconductors Netherlands, B.V., or NXP Netherlands, filed a patent infringement lawsuit against us.
The outcome of this patent litigation remains uncertain, and we may file additional lawsuits against NXP USA, Inc. and/or its parent or they may file additional lawsuits against us. For further information on these lawsuits, please refer to Note 11 of our consolidated financial statements included elsewhere in this report. Item 4.
We may still file additional lawsuits against NXP or they may file additional lawsuits against us. For further information on these lawsuits, please refer to Note 12 of our consolidated financial statements included elsewhere in this report. Item 4. Mine Safe ty Disclosures Not applicable. 34 Table of Contents PART II
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Mine Safe ty Disclosures Not applicable. 31 Table of Contents PART II
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On May 25, 2021 and August 11, 2023 we filed two additional lawsuits against NXP, USA Inc. and NXP Netherlands. Several of these lawsuits have gone to trial and had verdicts rendered, but pending post-trial motions and appeals make the final outcome of our patent dispute with NXP uncertain.

Item 4. Mine Safety Disclosures

Mine Safety Disclosures — required of mining issuers

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Biggest changeItem 4. Mine Safety Disclosures 31 PART II Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities 32 Item 6. Reserved 33 Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations 34 Item 7A. Quantitative and Qualitative Disclosures About Market Risk 48 Item 8.
Biggest changeItem 4. Mine Safety Disclosures 34 PART II Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities 35 Item 6. Reserved 36 Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations 37 Item 7A. Quantitative and Qualitative Disclosures About Market Risk 49 Item 8.

Item 5. Market for Registrant's Common Equity

Market for Common Equity — stock, dividends, buybacks

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Biggest changePerformance Graph This performance graph shall not be deemed “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), or incorporated by reference into any filing of Impinj, Inc. under 32 Table of Contents the Securities Act of 1933, as amended, or the Exchange Act, except as shall be expressly set forth by specific reference in such filing.
Biggest changePerformance Graph This performance graph shall not be deemed “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, or the Exchange Act, or incorporated by reference into any filing of Impinj, Inc. under the Securities Act of 1933, as amended, or the Exchange Act, except as shall be expressly set forth by specific reference in such filing.
Item 5. Market for Registrant’s Common Equity, Related Stoc kholder Matters and Issuer Purchases of Equity Securities Market Information Our common stock has traded on The Nasdaq Global Select Market under the symbol “PI” since July 21, 2016. Holders of Record As of February 3, 2023, there were 33 holders of record of our common stock.
Item 5. Market for Registrant’s Common Equity, Related Stoc kholder Matters and Issuer Purchases of Equity Securities Market Information Our common stock has traded on The Nasdaq Global Select Market under the symbol “PI” since July 21, 2016. Holders of Record As of February 2, 2024, there were 33 holders of record of our common stock.
The following graph compares our cumulative total stockholder return on our common stock with the NASDAQ Composite Index and the Philadelphia Semiconductor Index. This graph assumes that the investment in our common stock and in each index was $100 on December 31, 2017, and assumes dividend reinvestment, if any.
The following performance graph compares the cumulative total stockholder return of our common stock versus the NASDAQ Composite Index and the Philadelphia Semiconductor Index. This graph assumes that the investment in our common stock and in each index was $100 on December 31, 2017, and assumes dividend reinvestment, if any.
The stock price performance shown on the graph below is not indicative of future stock price performance. Securities Authorized for Issuance Under Equity Compensation Plans For more information on securities authorized for issuance under our equity compensation plans, see Note 8 and Note 9 of our consolidated financial statements included elsewhere in this report.
The stock price performance in the graph is not indicative of future stock price performance. 35 Table of Contents Securities Authorized for Issuance Under Equity Compensation Plans For more information on securities authorized for issuance under our equity compensation plans, see Note 9 and Note 10 of our consolidated financial statements included elsewhere in this report.
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Unregistered Sales of Equity Securities None. Use of Proceeds None. Repurchases None.

Item 7. Management's Discussion & Analysis

Management's Discussion & Analysis (MD&A) — revenue / margin commentary

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Biggest changeThe following table presents a reconciliation of net loss to non-GAAP net income (loss): Year Ended December 31, 2022 vs 2021 2021 vs 2020 (in thousands) 2022 2021 2020 Change Change Net loss $ (24,301 ) $ (51,260 ) $ (51,923 ) $ 26,959 $ 663 Adjustments: Depreciation 6,044 4,602 4,504 1,442 98 Stock-based compensation 42,443 40,498 25,675 1,945 14,823 Restructuring costs (102 ) 1,721 — (1,823 ) 1,721 Amortization of debt discount — — 3,566 — (3,566 ) Settlement and related costs — (460 ) 5,359 460 (5,819 ) Induced conversion expense 2,232 11,333 — (9,101 ) 11,333 Non-GAAP net income $ 26,316 $ 6,434 $ (12,819 ) $ 19,882 $ 19,253 Liquidity and Capital Resources As of December 31, 2022, we had cash, cash equivalents and short-term investments of $173.7 million, comprising cash deposits held at major financial institutions and short-term investments in a variety of securities, including U.S. government securities, treasury bills, corporate notes and bonds, commercial paper, asset-backed securities and money market funds.
Biggest changeWe have revised the prior period amounts to conform to our current period presentation. 43 Table of Contents The following table presents a reconciliation of net loss to non-GAAP net income (loss): Year Ended December 31, 2023 vs 2022 2022 vs 2021 (in thousands) 2023 2022 2021 Change Change Net loss $ (43,366 ) $ (24,301 ) $ (51,260 ) $ (19,065 ) $ 26,959 Adjustments: Depreciation and amortization 13,623 6,044 4,602 7,579 1,442 Stock-based compensation 47,986 42,443 40,498 5,543 1,945 Restructuring costs — (102 ) 1,721 102 (1,823 ) Settlement and related costs — — (460 ) — 460 Induced conversion expense — 2,232 11,333 (2,232 ) (9,101 ) Acquisition related expense 3,272 — — 3,272 — Purchase accounting adjustments 388 — — 388 — Income tax effects of adjustments (1) (2,100 ) (2,474 ) (772 ) 374 (1,702 ) Non-GAAP net income $ 19,803 $ 23,842 $ 5,662 $ (4,039 ) $ 18,180 (1) The tax effects of the adjustments are calculated using the statutory rate, taking into consideration the nature of the item and relevant taxing jurisdiction.
If future demand or market conditions are less favorable than our projections, or our product development plans change from current expectations, then 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.
If future demand or market conditions are less favorable than our projections, or our product development plans change from current expectations, then a write-down of excess or obsolete inventory may be required and is reflected in cost of goods sold in the period the updated information is known.
Cost of revenue also includes charges for excess and obsolescence and warranty costs. Our gross margin varies from period to period based on mix of endpoint IC and systems, underlying product margins driven by changes in ASPs or costs, as well as from inventory excess and obsolescence charges.
Cost of revenue also includes charges for excess and obsolescence and warranty costs. Our gross margin varies from period to period based on the mix of endpoint IC and systems; underlying product margins driven by changes in mix, ASPs or costs; as well as from inventory excess and obsolescence charges.
This amount was offset by $183.6 million for the cash repurchase of approximately $76.4 million aggregate principal amount of the 2019 Notes through individual privately negotiated transactions concurrent with the offering of the 2021 Notes described in the section “ Repurchase of the Convertible Senior Notes – 2019 ” as described in Note 7 to our consolidated financial statements included elsewhere in this report.
This amount was offset by $183.6 million for the cash repurchase of approximately $76.4 million aggregate principal amount of the 2019 Notes through individual privately negotiated transactions concurrent with the offering of the 2021 Notes described in the section “ Repurchase of the Convertible Senior Notes – 2019 ” as described in Note 8 to our consolidated financial statements included elsewhere in this report.
We expect research and development expense to increase in absolute dollars in future periods as we focus on new product development and introductions.
We expect research and development expense to increase in absolute dollars in future periods as we continue to focus on new product development and introductions.
This net cash usage was due primarily to $17.6 million to repurchase the remaining $9.85 million aggregate principal amount of the 2019 Notes described in the section “ Repurchase of the Convertible Senior Notes – 2019 ” as described in Note 7 to our consolidated financial statements included elsewhere in this report.
This net cash usage was due primarily to $17.6 million to repurchase the remaining $9.85 million aggregate principal amount of the 2019 Notes described in the section “ Repurchase of the Convertible Senior Notes – 2019 ” as described in Note 8 to our consolidated financial statements included elsewhere in this report.
Restructuring costs Year Ended December 31, 2022 vs 2021 2021 vs 2020 (in thousands) 2022 2021 2020 Change Change Restructuring costs $ (102 ) $ 1,721 $ — $ (1,823 ) $ 1,721 On February 2, 2021, we restructured our go-to-market organization to strategically align our global sales, product, partner development and marketing teams.
Restructuring costs Year Ended December 31, 2023 vs 2022 2022 vs 2021 (in thousands) 2023 2022 2021 Change Change Restructuring costs $ — $ (102 ) $ 1,721 $ 102 $ (1,823 ) On February 2, 2021, we restructured our go-to-market organization to strategically align our global sales, product, partner development and marketing teams.
Please refer to the section “ Repurchase of the Convertible Senior Notes – 2019 ” as described in Note 7 to our consolidated financial statements included elsewhere in this report. We will use the rest of the net proceeds for general corporate purposes.
Please refer to the section “ Repurchase of the Convertible Senior Notes – 2019 ” as described in Note 8 to our consolidated financial statements included elsewhere in this report. We will use the rest of the net proceeds for general corporate purposes.
The 2021 Notes are convertible into cash, shares of our common stock or a combination thereof, at our election, and will mature on May 15, 2027 unless earlier repurchased, redeemed or converted in accordance with the indenture terms. The net proceeds from the 2021 Notes were approximately $278.4 million after initial debt issuance costs, fees and expenses.
The 2021 Notes are convertible into cash, shares of our common stock or a combination thereof, at our election, and will mature on May 15, 2027 unless earlier repurchased, redeemed or converted in accordance with the indenture terms. 44 Table of Contents The net proceeds from the 2021 Notes were approximately $278.4 million after initial debt issuance costs, fees and expenses.
We sell our endpoint ICs primarily to inlay manufacturers; our reader ICs primarily to OEMs and ODMs through distributors; and our readers and gateways to solutions providers, VARs and SIs, also primarily through distributors. We expect endpoint IC sales to represent the majority of our revenue for the foreseeable future.
We sell our endpoint ICs and test and measurement solutions primarily to inlay manufacturers; our reader ICs primarily to OEMs and ODMs through distributors; and our readers and gateways to solutions providers, VARs and SIs, also primarily through distributors. We expect endpoint IC sales to represent the majority of our revenue for the foreseeable future.
Year ended December 31, 2022 compared with year ended December 31, 2021 Research and development expense increased $10.0 million, due primarily to increases of $6.6 million in personnel expenses from higher headcount and a change in bonus payment structure from 100% PSUs to 50% cash and 50% PSUs, $1.9 million in infrastructure costs primarily from increased software costs, and $793,000 in stock-based compensation expense related primarily to increased outstanding equity grants.
Year ended December 31, 2022 compared with year ended December 31, 2021 Research and development expense increased $10.0 million, due primarily to increases of $6.6 million in personnel expenses from higher headcount and a change in bonus payment structure from 100% PSUs to 50% cash and 50% PSUs, $1.9 million in infrastructure costs primarily from increased software costs, and $0.8 million in stock-based compensation expense related primarily to increased outstanding equity grants.
Using 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. 47 Table of Contents We do not anticipate that the amount of our existing unrecognized tax benefits will significantly increase or decrease within the next 12 months.
Using 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.
Our critical accounting policies and estimates include those related to: • revenue recognition; • inventory; • income taxes; and • stock-based compensation. Revenue Recognition We generate revenue primarily from sales of hardware products. We also generate revenue from software, extended warranties, enhanced maintenance, support services and NRE development services, none of which are material.
Our critical accounting policies and estimates include those related to: • revenue recognition; • inventory; • income taxes; and • stock-based compensation. 46 Table of Contents Revenue Recognition We generate revenue primarily from sales of hardware products. We also generate revenue from software, extended warranties, enhanced maintenance, support services and NRE development services, none of which are material.
This net cash usage was due primarily to investments and equipment purchases of $205.8 million and $12.1 million, respectively, partially offset by investment maturities of $114.8 million. 44 Table of Contents For the year ended December 31, 2021, we used $18.6 million of net cash from investing activities.
This net cash usage was due primarily to investments and equipment purchases of $205.8 million and $12.1 million, respectively, partially offset by investment maturities of $114.8 million. For the year ended December 31, 2021, we used $18.6 million of net cash from investing activities.
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 Notes. For further information on the 2019 Notes, please refer to Note 7 to our consolidated financial statements included elsewhere in this report.
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 Notes. For further information, please refer to Note 8 to our consolidated financial statements included elsewhere in this report.
For further information on the terms of this debt, please refer to Note 7 to our consolidated financial statements included elsewhere in this report.
For further information on the terms of this debt, please refer to Note 8 to our consolidated financial statements included elsewhere in this report.
The Plans provide for granting several available forms of stock compensation such as stock option awards, restricted stock units, or RSUs, RSUs with performance conditions, or PSUs, and RSUs with market and service conditions, or MSUs. We measure stock-based compensation costs for all share-based awards at fair value on the measurement date, which is typically the grant date.
The Plans provide for granting several forms of stock compensation such as stock option awards, restricted stock units, or RSUs, RSUs with performance conditions, or PSUs, and RSUs with market and service conditions, or MSUs. 48 Table of Contents We measure stock-based compensation costs for all share-based awards at fair value on the measurement date, which is typically the grant date.
For further information on the 2021 Notes, please refer to Note 7 to our consolidated financial statements included elsewhere in this report.
For further information on the 2021 Notes, please refer to Note 8 to our consolidated financial statements included elsewhere in this report.
Systems revenue increased $15.2 million, due primarily to increases of $7.6 million in reader IC revenue, $4.9 million in gateway revenue and $3.3 million in reader revenue offset by a decrease of $913,000 in nonrecurring engineering, or NRE, revenue.
Systems revenue increased $15.2 million, due primarily to increases of $7.6 million in reader IC revenue, $4.9 million in gateway revenue and $3.3 million in reader revenue offset by a decrease of $0.9 million in nonrecurring engineering, or NRE, revenue.
Other major factors included $15.4 million from stock options exercises and our employee stock-purchase plan, or ESPP. For the year ended December 31, 2021, we generated $112.4 million of net cash from financing activities. The net cash proceeds were driven primarily by $278.4 million net proceeds from issuing the 2021 Notes.
Other major factors included $15.4 million from stock options exercises and our ESPP. For the year ended December 31, 2021, we generated $112.4 million of net cash from financing activities. The net cash proceeds were driven primarily by $278.4 million net proceeds from issuing the 2021 Notes.
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 various equity award plans (“Plans”) for granting share-based awards to employees, consultants and non-employee directors of the Company.
Due to our NOLs, in most jurisdictions our tax years remain open for examination by taxing authorities back to 2004. Stock-Based Compensation We have various equity award plans, or Plans for granting share-based awards to employees, consultants and non-employee directors of the Company.
Non-GAAP Financial Measures Our key non-GAAP performance measures include adjusted EBITDA and non-GAAP net income (loss), as defined below. We use adjusted EBITDA and non-GAAP net income (loss) as key measures to understand and evaluate our core operating performance and trends, to prepare and approve our annual budget and to develop short- and long-term operating plans.
We use adjusted EBITDA and non-GAAP net income (loss) as key measures to understand and evaluate our core operating performance and trends, to prepare and approve our annual budget and to develop short- and long-term operating plans.
In August 2020, the FASB issued guidance on debt with conversion and other options, or ASU 2020-06. On January 1, 2021, we adopted ASU 2020-06 using the modified retrospective transition method, accounting for the 2019 Notes on a whole-instrument basis.
In August 2020, the Financial Accounting Standards Board, or FASB, issued guidance on debt with conversion and other options, or ASU 2020-06. On January 1, 2021, we adopted Accounting Standard Update, or ASU, 2020-06 using the modified retrospective transition method, accounting for the 2019 Notes on a whole-instrument basis.
Operating Expenses Research and Development Year Ended December 31, 2022 vs 2021 2021 vs 2020 (in thousands) 2022 2021 2020 Change Change Research and development $ 74,106 $ 64,058 $ 48,590 $ 10,048 $ 15,468 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; product development costs which include external consulting and service costs, prototype materials and other new-product development costs; and an allocated portion of infrastructure costs which include occupancy, depreciation and software costs.
Operating Expenses Research and Development Year Ended December 31, 2023 vs 2022 2022 vs 2021 (in thousands) 2023 2022 2021 Change Change Research and development $ 88,562 $ 74,106 $ 64,058 $ 14,456 $ 10,048 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; product development costs which include external consulting and service costs, prototype materials and other new-product development costs; and an allocated portion of infrastructure costs which include occupancy, depreciation and software costs.
We eliminated approximately seven full-time positions in our go-to-market organization, representing roughly 2% of our workforce. Restructuring charges were immaterial for the year ended December 31, 2022. We incurred restructuring charges of $1.7 million for employee termination benefits as well as $50,000 in other associated legal costs for the year ended December 31, 2021.
We eliminated approximately seven full-time positions in our go-to-market organization, representing roughly 2% of our workforce. We incurred restructuring charges of $1.7 million for employee termination benefits and other associated legal costs for the year ended December 31, 2021.
Adjusted EBITDA We define adjusted EBITDA as net income (loss) determined in accordance with GAAP, excluding, if applicable for the periods presented, the effects of stock-based compensation; depreciation; restructuring costs; settlement and related costs; induced conversion expense; other income, net; interest expense; loss on debt extinguishment; and income tax benefit (expense).
Adjusted EBITDA We define adjusted EBITDA as net income (loss) determined in accordance with GAAP, excluding, if applicable for the periods presented, the effects of stock-based compensation; depreciation and amortization; restructuring costs; settlement and related costs; induced conversion expense; other income, net; interest expense; acquisition-related expense and related purchase accounting adjustments; and income tax benefit (expense).
Income Tax Expense Year Ended December 31, 2022 vs 2021 2021 vs 2020 (in thousands) 2022 2021 2020 Change Change Income tax expense $ 184 $ 153 $ 89 $ 31 $ 64 We are subject to federal and state income taxes in the United States and foreign jurisdictions.
Income Tax Expense Year Ended December 31, 2023 vs 2022 2022 vs 2021 (in thousands) 2023 2022 2021 Change Change Income tax expense $ (322 ) $ 184 $ 153 $ (506 ) $ 31 We are subject to federal and state income taxes in the United States and foreign jurisdictions.
Sales and Marketing Year Ended December 31, 2022 vs 2021 2021 vs 2020 (in thousands) 2022 2021 2020 Change Change Sales and marketing $ 37,894 $ 34,287 $ 28,663 $ 3,607 $ 5,624 39 Table of Contents Sales and marketing expense comprises primarily personnel expenses (salaries, incentive sales compensation, or commission, benefits and other employee-related costs) and stock-based compensation expense for our sales and marketing personnel; travel, advertising and promotional expenses; and an allocated portion of infrastructure costs which include occupancy, depreciation and software costs.
Sales and Marketing Year Ended December 31, 2023 vs 2022 2022 vs 2021 (in thousands) 2023 2022 2021 Change Change Sales and marketing $ 41,123 $ 37,894 $ 34,287 $ 3,229 $ 3,607 Sales and marketing expense comprises primarily personnel expenses (salaries, incentive sales compensation, or commission, benefits and other employee-related costs) and stock-based compensation expense for our sales and marketing personnel; travel, advertising and promotional expenses; and an allocated portion of infrastructure costs which include occupancy, depreciation and software costs.
Interest Expense Year Ended December 31, 2022 vs 2021 2021 vs 2020 (in thousands) 2022 2021 2020 Change Change Interest expense $ 4,923 $ 2,550 $ 5,413 $ 2,373 $ (2,863 ) Interest expense comprises primarily cash interest, amortization of debt issuance costs and debt discount.
Interest Expense Year Ended December 31, 2023 vs 2022 2022 vs 2021 (in thousands) 2023 2022 2021 Change Change Interest expense $ 4,848 $ 4,923 $ 2,550 $ (75 ) $ 2,373 Interest expense comprises primarily cash interest, amortization of debt issuance costs and debt discount.
Induced Conversion Expense Year Ended December 31, 2022 vs 2021 2021 vs 2020 (in thousands) 2022 2021 2020 Change Change Induced conversion expense $ 2,232 $ 11,333 $ — $ (9,101 ) $ 11,333 In November 2021 and June 2022, we completed a privately negotiated repurchase of $76.4 million and $9.85 million principal amounts, respectively, of the 2019 Notes (“2019 Note Repurchase”).
Induced Conversion Expense Year Ended December 31, 2023 vs 2022 2022 vs 2021 (in thousands) 2023 2022 2021 Change Change Induced conversion expense $ — $ 2,232 $ 11,333 $ (2,232 ) $ (9,101 ) In November 2021 and June 2022, we completed a privately negotiated repurchase of $76.4 million and $9.9 million principal amounts, respectively, of the 2019 Notes, also referred to as the 2019 Notes Repurchase.
As a result of many factors, such as those set forth under “Risk Factors” and elsewhere in this report, our actual results may differ materially from those anticipated in these forward-looking statements. Overview Our vision is a boundless Internet of Things, or IoT.
As a result of many factors, such as those set forth under “Risk Factors” and elsewhere in this report, our actual results may differ materially from those anticipated in these forward-looking statements.
(2) Purchase commitments comprise primarily noncancelable commitments to purchase $87.9 million of inventory as of December 31, 2022 and noncancelable software license agreements with vendors and equipment purchases.
(2) Purchase commitments comprise primarily noncancelable commitments to purchase $21.8 million of inventory as of December 31, 2023, noncancelable software license agreements with vendors and equipment purchases.
We can provide no assurance that any additional financing will be available to us on acceptable terms. 2019 Notes In December 2019, we issued the 2019 Notes in an aggregate principal amount of $86.3 million.
We can provide no assurance that any additional financing will be available to us on acceptable terms. 2021 Notes In November 2021, we issued the 2021 Notes in an aggregate principal amount of $287.5 million.
The increased product margins were driven primarily by an increase in endpoint IC margins due to product mix. Loss from operations decreased, due primarily to increased gross profit offset by increased operating expenses.
The endpoint IC revenue increase was driven primarily by higher ASP and shipment volumes. Gross margin increased, due primarily to increased product margins. The increased product margins were driven primarily by an increase in endpoint IC margins due to product mix. Loss from operations decreased, due primarily to increased gross profit offset by increased operating expenses.
The net cash usage was driven primarily by investments and equipment purchases of $84.4 million and $16.2 million, respectively, partially offset by investment maturities of $82 million. For the year ended December 31, 2020, we used $36.3 million of net cash from investing activities.
The net cash usage was driven primarily by investments and equipment purchases of $84.4 million and $16.2 million, respectively, partially offset by investment maturities of $82 million. Financing Cash Flows For the year ended December 31, 2023, we generated $8.7 million of net cash from financing activities.
As of December 31, 2022, we had working capital of $232.8 million. Historically, we have funded our operations primarily through cash generated from operations and by issuing equity securities, convertible-debt offerings and/or borrowing under our prior senior credit facility. In 2022, our principal uses of cash were funding operations to capture our market opportunity and capital expenditures.
As of December 31, 2023, we had working capital of $238.8 million. Historically, we have funded our operations primarily through cash generated from operations and by issuing equity securities, convertible-debt offerings and/or borrowing under our prior senior credit facility. In 2023, our principal uses of cash were increases in our inventory balance, our acquisition of Voyantic Oy and capital expenditures.
The ASP increase was due primarily to price increases we implemented to offset higher product costs as discussed above under "—Factors Affecting Our Performance—Average Selling Price" and product mix, the latter from a higher contribution from industrial and specialty ICs.
The ASP increase was due primarily to price increases we implemented to offset higher product costs as well as product mix, the latter from a higher contribution from industrial and specialty ICs.
Historical Cash Flow Trends The following table shows a summary of our cash flows for the periods indicated: Year Ended December 31, (in thousands) 2022 2021 2020 Net cash provided by (used in) operating activities $ 641 $ 6,465 $ (16,877 ) Net cash used in investing activities (102,799 ) (18,642 ) (36,287 ) Net cash provided by (used in) financing activities (2,148 ) 112,444 9,902 Operating Cash Flows For the year ended December 31, 2022, we generated $641,000 of net cash from operating activities.
Historical Cash Flow Trends The following table shows a summary of our cash flows for the periods indicated: Year Ended December 31, (in thousands) 2023 2022 2021 Net cash provided by (used in) operating activities $ (49,382 ) $ 641 $ 6,465 Net cash provided by (used in) investing activities 115,808 (102,799 ) (18,642 ) Net cash provided by (used in) financing activities 8,736 (2,148 ) 112,444 Operating Cash Flows For the year ended December 31, 2023, we used $49.4 million of net cash from operating activities.
Other Income, Net Year Ended December 31, 2022 vs 2021 2021 vs 2020 (in thousands) 2022 2021 2020 Change Change Other income, net $ 2,517 $ 25 $ 650 $ 2,492 $ (625 ) 40 Table of Contents Other income, net comprises primarily interest income on our short-term investments.
Other Income, Net Year Ended December 31, 2023 vs 2022 2022 vs 2021 (in thousands) 2023 2022 2021 Change Change Other income, net $ 4,644 $ 2,517 $ 25 $ 2,127 $ 2,492 Other income, net, comprises primarily interest income on our short-term investments.
Gross Profit and Gross Margin Year Ended December 31, 2022 vs 2021 2021 vs 2020 (in thousands, except percentages) 2022 2021 2020 Change Change Cost of revenue $ 119,916 $ 91,329 $ 73,783 $ 28,587 $ 17,546 Gross profit 137,884 98,954 65,140 38,930 33,814 Gross margin 53.5 % 52.0 % 46.9 % 1.5 % 5.1 % 38 Table of Contents Cost of revenue includes costs associated with manufacturing our endpoint ICs, reader ICs, readers and gateways, including direct materials and outsourced manufacturing costs as well as associated overhead costs such as logistics, quality control, planning and procurement.
Gross Profit and Gross Margin Year Ended December 31, 2023 vs 2022 2022 vs 2021 (in thousands, except percentages) 2023 2022 2021 Change Change Cost of revenue $ 155,557 $ 119,916 $ 91,329 $ 35,641 $ 28,587 Gross profit 151,982 137,884 98,954 14,098 38,930 Gross margin 49.4 % 53.5 % 52.0 % (4.1 )% 1.5 % Cost of revenue includes costs associated with manufacturing our endpoint ICs, reader ICs, readers, gateways and test and measurement solutions, including direct materials and outsourced manufacturing costs as well as associated overhead costs such as logistics, quality control, planning and procurement.
Year ended December 31, 2022 compared with year ended December 31, 2021 Other income, net increased $2.5 million, due primarily to higher interest rates on our short and long-term investments. Year ended December 31, 2021 compared with year ended December 31, 2020 Other income, net decreased $625,000, due primarily to lower interest rates on our short and long-term investments.
Year ended December 31, 2023 compared with year ended December 31, 2022 Other income, net, increased $2.1 million, due primarily to higher interest rates on our short-term investments and cash and cash equivalents. 41 Table of Contents Year ended December 31, 2022 compared with year ended December 31, 2021 Other income, net, increased $2.5 million, due primarily to higher interest rates on our short and long-term investments.
For further information on the 2019 Notes, please refer to Note 7 to our consolidated financial statements included elsewhere in this report.
For further information on Voyantic Oy acquisition, please refer to Note 6 to our consolidated financial statements included elsewhere in this report.
Our reader and gateway products are highly dependent on embedded software and cannot function without this embedded software. We account for the hardware and embedded software as a single performance obligation and recognize revenue when control is transferred.
Our reader and gateway products are highly dependent on embedded software and cannot function without this embedded software. We account for the hardware and embedded software as a single performance obligation and recognize revenue when control is transferred. Our customer contracts with multiple performance obligations generally include a combination of hardware products, extended warranty, enhanced maintenance and support services.
Results of Operations Year Ended December 31, 2022 vs 2021 2021 vs 2020 (in thousands, except percentages) 2022 2021 2020 Change Change Revenue $ 257,800 $ 190,283 $ 138,923 $ 67,517 $ 51,360 Gross profit $ 137,884 $ 98,954 $ 65,140 $ 38,930 $ 33,814 Gross margin 53.5 % 52.0 % 46.9 % 1.5 % 5.1 % Loss from operations $ (19,479 ) $ (37,249 ) $ (47,071 ) $ 17,770 $ 9,822 Year ended December 31, 2022 compared with year ended December 31, 2021 Revenue and gross profit increased, due primarily to higher endpoint IC and systems revenue.
Results of Operations Year Ended December 31, 2023 vs 2022 2022 vs 2021 (in thousands, except percentages) 2023 2022 2021 Change Change Revenue $ 307,539 $ 257,800 $ 190,283 $ 49,739 $ 67,517 Gross profit $ 151,982 $ 137,884 $ 98,954 $ 14,098 $ 38,930 Gross margin 49.4 % 53.5 % 52.0 % (4.1 )% 1.5 % Loss from operations $ (43,484 ) $ (19,479 ) $ (37,249 ) $ (24,005 ) $ 17,770 Year ended December 31, 2023 compared with year ended December 31, 2022 Revenue and gross profit increased, due primarily to higher endpoint IC and systems revenue.
Our consolidated financial statements for the years ended December 31, 2021 and December 21, 2022 use the new standard and we no longer record amortization of debt discount. We have not adjusted the comparative prior reporting period.
Our consolidated financial statements for the years ended December 31, 2021, December 21, 2022, and December 31, 2023 use the new standard and we no longer record amortization of debt discount. Year ended December 31, 2023 compared with year ended December 31, 2022 Interest expense remained comparable to the prior period.
The net cash proceeds were driven primarily by $6.2 million of net loss adjusted for non-cash items and $288,000 of working capital contribution. For the year ended December 31, 2020, we used $16.9 million of net cash from operating activities.
The net cash proceeds were driven primarily by $6.2 million of net loss adjusted for non-cash items and $0.3 million of working capital contribution. Investing Cash Flows For the year ended December 31, 2023, we generated $115.8 million of net cash from investing activities.
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.
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. 47 Table of Contents Inventory We state inventories at the lower of cost or estimated net realizable value using the average costing method, which approximates a first-in, first-out method.
Off-Balance-Sheet Arrangements Since inception, we have not had any relationships with unconsolidated entities, such as entities often referred to as structured finance or special-purpose entities, or financial partnerships that would have been established for the purpose of facilitating off-balance-sheet arrangements or for another contractually narrow or limited purpose. 45 Table of Contents Critical Accounting Policies and Significant Estimates Our discussion and analysis of our financial condition and results of operations are based upon our consolidated financial statements which we have prepared in accordance with GAAP.
Off-Balance-Sheet Arrangements Since inception, we have not had any relationships with unconsolidated entities, such as entities often referred to as structured finance or special-purpose entities, or financial partnerships that would have been established for the purpose of facilitating off-balance-sheet arrangements or for another contractually narrow or limited purpose.
General and Administrative Year Ended December 31, 2022 vs 2021 2021 vs 2020 (in thousands) 2022 2021 2020 Change Change General and administrative $ 45,465 $ 36,137 $ 34,958 $ 9,328 $ 1,179 General and administrative expense comprises primarily personnel expenses (salaries, benefits and other employee related costs) and stock-based compensation expense for our executive, finance, human resources and information technology personnel; legal, accounting and other professional service fees; travel and insurance expense; and an allocated portion of infrastructure costs which include occupancy, depreciation and software costs.
Year ended December 31, 2022 compared with year ended December 31, 2021 Sales and marketing expense increased $3.6 million, due primarily to increases of $2.9 million in personnel expenses from higher headcount and the change in bonus payment structure from 100% PSUs to 50% cash and 50% PSUs, and $0.6 million in marketing and advertising expenses. 40 Table of Contents General and Administrative Year Ended December 31, 2023 vs 2022 2022 vs 2021 (in thousands) 2023 2022 2021 Change Change General and administrative $ 60,828 $ 45,465 $ 36,137 $ 15,363 $ 9,328 General and administrative expense comprises primarily personnel expenses (salaries, benefits and other employee related costs) and stock-based compensation expense for our executive, finance, human resources and information technology personnel; legal, accounting and other professional service fees; travel and insurance expense; and an allocated portion of infrastructure costs which include occupancy, depreciation and software costs.
Our customer contracts with multiple performance obligations generally include a combination of hardware products, standalone software, extended warranty, enhanced maintenance and support services. For these contracts, we account for individual performance obligations separately if they are distinct. We allocate the transaction price to the separate performance obligations on a relative standalone selling-price basis.
For these contracts, we account for individual performance obligations separately if they are distinct. We allocate the transaction price to the separate performance obligations on a relative standalone selling-price basis.
The product-margin increase was due primarily to higher endpoint IC margins from a higher revenue contribution from industrial and specialty ICs. Sales of fully reserved inventory had an immaterial gross margin impact for the year ended December 31, 2022, compared to a favorable gross margin impact of 1.5% for the year ended December 31, 2021.
Excess and obsolescence charges had an immaterial gross margin impact for the year ended December 31, 2022, compared to a favorable gross margin impact of 1.5% due to the sale of fully reserved inventory for the year ended December 31, 2021.
Contract assets relate to our conditional right to consideration for our completed performance under these agreements. We record accounts receivable when the right to consideration becomes unconditional.
Contract assets relate to our conditional right to consideration for our completed performance under these agreements. We record accounts receivable 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 NRE development agreements are not material.
The following table presents a reconciliation of net loss to adjusted EBITDA: Year Ended December 31, 2022 vs 2021 2021 vs 2020 (in thousands) 2022 2021 2020 Change Change Net loss $ (24,301 ) $ (51,260 ) $ (51,923 ) $ 26,959 $ 663 Adjustments: Other income, net (2,517 ) (25 ) (650 ) (2,492 ) 625 Interest expense 4,923 2,550 5,413 2,373 (2,863 ) Income tax expense 184 153 89 31 64 Depreciation 6,044 4,602 4,504 1,442 98 Stock-based compensation 42,443 40,498 25,675 1,945 14,823 Restructuring costs (102 ) 1,721 — (1,823 ) 1,721 Settlement and related costs — (460 ) 5,359 460 (5,819 ) Induced conversion expense 2,232 11,333 — (9,101 ) 11,333 Adjusted EBITDA $ 28,906 $ 9,112 $ (11,533 ) $ 19,794 $ 20,645 Non-GAAP Net Income (Loss) We define non-GAAP net income (loss) as net income (loss), excluding, if applicable for the periods presented, the effects of stock-based compensation; depreciation; restructuring costs; settlement and related costs; induced conversion expense; amortization of debt discount related to the equity component of our convertible notes; and prepayment penalty on debt extinguishment. 42 Table of Contents GAAP requires that certain convertible debt instruments that may be settled in cash on conversion be accounted for as separate liability and equity components in a manner that reflects our non-convertible debt borrowing rate.
The following table presents a reconciliation of net loss to adjusted EBITDA: Year Ended December 31, 2023 vs 2022 2022 vs 2021 (in thousands) 2023 2022 2021 Change Change Net loss $ (43,366 ) $ (24,301 ) $ (51,260 ) $ (19,065 ) $ 26,959 Adjustments: Other income, net (4,644 ) (2,517 ) (25 ) (2,127 ) (2,492 ) Interest expense 4,848 4,923 2,550 (75 ) 2,373 Income tax expense (322 ) 184 153 (506 ) 31 Depreciation and amortization 13,623 6,044 4,602 7,579 1,442 Stock-based compensation 47,986 42,443 40,498 5,543 1,945 Restructuring costs — (102 ) 1,721 102 (1,823 ) Settlement and related costs — — (460 ) — 460 Induced conversion expense — 2,232 11,333 (2,232 ) (9,101 ) Acquisition related expense 3,272 — — 3,272 — Purchase accounting adjustments 388 — — 388 — Adjusted EBITDA $ 21,785 $ 28,906 $ 9,112 $ (7,121 ) $ 19,794 Non-GAAP Net Income (Loss) We define non-GAAP net income (loss) as net income (loss) excluding, if applicable for the periods presented, the effects of stock-based compensation; depreciation and amortization; restructuring costs; settlement and related costs; induced conversion expense; acquisition-related expense and related purchase accounting adjustments; and the corresponding income tax impacts of adjustments to net income (loss).
For example, in 2021 and 2022 we experienced IC wafer shortages relative to our needs because of high worldwide demand for foundry capacity. These shortages prevented us from fully meeting customer demand and, in some cases, caused customers to cancel orders, qualify alternative suppliers or purchase from our competitors.
In 2021 and 2022, demand for our endpoint ICs increased while worldwide wafer demand also increased, leading to wafer shortfalls for many semiconductor companies, including us. These wafer shortfalls prevented us from fully meeting customer demand and, in some cases, caused customers to cancel orders, qualify alternative suppliers or purchase from our competitors.
The timing of those large deployments causes large variability in our systems revenue. For example, we generated 14% of total 2019 revenue from a large North American SC&L provider in connection with a project-based gateway deployment. We did not have comparable new project-based revenue in 2020.
For example, we generated 14% of total 2019 revenue from a gateway deployment at a large North American SC&L provider. We did not have comparable project-based revenue in 2020. Similarly, in 2021, we generated 13% of our quarterly revenue from a project-based gateway deployment for RAIN-based self-checkout and loss prevention at a large Europe-based global retailer.
We have excluded these costs and expenses because we do not believe they reflect our core operations and us excluding them enables more consistent evaluation of our operating performance.
We have excluded these costs and expenses because we do not believe they reflect our core operations and us excluding them enables more consistent evaluation of our operating performance. This revision to our definition of adjusted EBITDA did not impact adjusted EBITDA for any previously reported periods because there were no items of a similar nature in those prior periods.
Year ended December 31, 2021 compared with year ended December 31, 2020 Sales and marketing expense increased $5.6 million, due primarily to increases of $3.5 million in stock-based compensation expense primarily related to PSU grant timing, and an increased number of equity grants outstanding.
Year ended December 31, 2023 compared with year ended December 31, 2022 Sales and marketing expense increased $3.2 million, due primarily to increases of $1.7 million in personnel expenses from higher headcount offset by lower commission expense, $0.8 million in stock-based compensation expense related primarily to increased outstanding equity grants, and $0.5 million in travel expenses.
We expect short-term demand to remain unpredictable in scope and timing. Longer term, we believe our endpoint IC opportunity will continue to grow, but we cannot predict whether historical annual growth rates are indicative of the pace of future growth. Our systems business, at least for our readers and gateways, is impacted by large-scale deployments at discrete end users.
However, we cannot predict whether historical annual growth rates are indicative of the pace of future growth. Our systems business, at least for readers and gateways, depends significantly on large-scale deployments at discrete end users, and deployment timing causes large yearly variability in our systems revenue.
Year ended December 31, 2022 compared with year ended December 31, 2021 41 Table of Contents Income tax expense remained comparable to the prior period. Year ended December 31, 2021 compared with year ended December 31, 2020 Income tax expense remained comparable to the prior period.
Year ended December 31, 2022 compared with year ended December 31, 2021 Income tax expense remained comparable to the prior period. 42 Table of Contents Non-GAAP Financial Measures Our key non-GAAP performance measures include adjusted EBITDA and non-GAAP net income (loss), as defined below.
Revenue Year Ended December 31, 2022 vs 2021 2021 vs 2020 (in thousands) 2022 2021 2020 Change Change Endpoint ICs $ 191,532 $ 139,250 $ 102,326 $ 52,282 $ 36,924 Systems 66,268 51,033 36,597 15,235 14,436 Total revenue $ 257,800 $ 190,283 $ 138,923 $ 67,517 $ 51,360 We currently derive substantially all our revenue from sales of endpoint ICs, reader ICs, readers and gateways.
The operating expense increase was due primarily to higher research and development and general and administrative costs. 38 Table of Contents Revenue Year Ended December 31, 2023 vs 2022 2022 vs 2021 (in thousands) 2023 2022 2021 Change Change Endpoint ICs $ 234,426 $ 191,532 $ 139,250 $ 42,894 $ 52,282 Systems 73,113 66,268 51,033 6,845 15,235 Total revenue $ 307,539 $ 257,800 $ 190,283 $ 49,739 $ 67,517 We currently derive substantially all our revenue from sales of endpoint ICs, reader ICs, readers, gateways and test and measurement solutions.
Year ended December 31, 2021 compared with year ended December 31, 2020 37 Table of Contents Revenue and gross profit increased, due primarily to higher endpoint IC and systems revenue. Gross margin increased, due primarily to 2020 excess and obsolescence charges as well as 2021 sales of fully reserved inventory and increased product margins.
Year ended December 31, 2023 compared with year ended December 31, 2022 Gross profit increased $14.1 million, due primarily to increased endpoint IC and systems revenue. Gross margin decreased, due primarily to decreased product margins and to a lesser extent higher excess and obsolescence charges and indirect costs.
Year ended December 31, 2021 compared with year ended December 31, 2020 General and administrative expense increased $1.2 million due primarily to increases of $3.6 million in stock-based compensation expense primarily related to PSU grant timing, and an increased number of equity grants outstanding.
Year ended December 31, 2023 compared with year ended December 31, 2022 Research and development expense increased $14.5 million, due primarily to increases of $6.0 million in personnel expenses from higher headcount, $3.3 million in stock-based compensation expense related primarily to increased outstanding equity grants, $3.1 million in product development costs, and $2.0 million in infrastructure costs primarily from increased depreciation and software costs.
Practical Expedients and Exemptions: We expense sales commissions when incurred because we expect the amortization period to be one year or less. We record these costs within sales and marketing expenses.
We present revenue net of sales tax in our consolidated statements of operations. We include shipping charges billed to customers in revenue and the related shipping costs in cost of revenue. Practical Expedients and Exemptions: We expense sales commissions when incurred because we expect the amortization period to be one year or less.
The net cash usage was driven primarily by $17.8 million of net loss adjusted for non-cash items, partially offset by $963,000 of working capital contribution. Investing Cash Flows For the year ended December 31, 2022, we used $102.8 million of net cash from investing activities.
This net cash usage was due primarily to $68.2 million of working capital usage due primarily to higher inventory and lower accounts payable partially offset by $18.9 million of net loss adjusted for non-cash items. For the year ended December 31, 2022, we generated $0.6 million of net cash from operating activities.
Contractual Obligations The following table reflects a summary of our contractual obligations as of December 31, 2022: Payments Due By Period Total Less Than 1 Year 1-3 Years 3-5 Years More Than 5 Years (in thousands) Convertible senior notes (1) $ 302,055 $ 3,234 $ 6,469 $ 292,352 $ — Operating lease obligations Operating lease obligations 17,664 4,059 7,772 4,642 1,191 Sublease income (123 ) (123 ) — — — Net operating lease commitments 17,541 3,936 7,772 4,642 1,191 Purchase commitments (2) 98,182 98,182 — — — Total $ 417,778 $ 105,352 $ 14,241 $ 296,994 $ 1,191 (1) The 2021 Notes include $14.6 million in interest payments.
Contractual Obligations The following table reflects a summary of our contractual obligations as of December 31, 2023: Payments Due By Period Total Less Than 1 Year 1-3 Years 3-5 Years More Than 5 Years (in thousands) Convertible senior notes (1) $ 298,820 $ 3,234 $ 6,469 $ 289,117 $ — Operating lease obligations Operating lease obligations 14,416 4,120 8,330 1,417 549 Purchase commitments (2) 31,003 30,265 738 — — Total $ 344,239 $ 37,619 $ 15,537 $ 290,534 $ 549 (1) The 2021 Notes include $11.3 million in interest payments.
Regardless of the uneven pace of retail, SC&L and other industry adoption, we believe the underlying, long-term trend is continued RAIN adoption and we continue investing in new products. In our endpoint IC business, in 2020 we introduced the Impinj M700 family, with significant performance advantages over other endpoint ICs on the market.
Regardless of the uneven pace of retail, SC&L and other industry adoption and growth rates, we believe the long-term trend is continued RAIN adoption and growth and we intend to continue investing in developing new products and expanding our product offerings for the foreseeable future.
The endpoint IC revenue increase was driven primarily by higher ASP and shipment volumes when compared to the prior year period. Gross margin increased, due primarily to increased product margins. The increased product margins were driven primarily by an increase in endpoint IC margins due to product mix.
The endpoint IC revenue increase was driven primarily by higher shipment volumes partially offset by lower average ASP due to mix, and the systems revenue increase was due to higher shipment volumes. Gross margin decreased due primarily to decreased product margins and, to a lesser extent, higher excess and obsolescence charges and indirect costs.
These inventory dynamics can impact some or all of our products. High inventory levels can increase expenses, cause product obsolescence and/or increase reserves, negatively affecting our business. Low inventory levels can cause lengthened lead times, missed opportunities, market-share loss and/or damaged customer relationships, also negatively affecting our business.
As a result, we sometimes experience inventory overages or shortages. Inventory overages can increase expenses, expose us to product obsolescence and/or increased reserves and negatively affect our business. Inventory shortages can cause long lead times, missed opportunities, market-share losses and/or damaged customer relationships, also negatively affecting our business.
We recognize contract liabilities as revenue when 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. We include shipping charges billed to customers in revenue and the related shipping costs in cost of revenue.
If a customer pays consideration before we transfer a good or service under the contract, then we classify those amounts as contract liabilities, or deferred revenue. We recognize contract liabilities as revenue when we transfer control of the promised goods or services to our customers. Payment terms typically range from 30 to 120 days.
This evaluation includes an analysis of inventory on hand, current and forecasted demand, product development plans, and market conditions.
Inventories comprise raw materials, work-in-process and finished goods. We continuously assess our inventory value 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.
Year ended December 31, 2022 compared with year ended December 31, 2021 Cost of revenue increased $28.6 million, due primarily to increased endpoint IC and systems revenue. Gross margin increased, due primarily to increased product margins, with fluctuations that offset one another related to reduced sales of fully reserved inventory and higher indirect costs.
Gross margin increased, due primarily to increased product margins, with offsetting fluctuations from reduced sales of fully reserved inventory and higher indirect costs. The product-margin increase was due primarily to higher endpoint IC margins from a higher revenue contribution from industrial and specialty ICs.
We substantially completed our restructuring by June 30, 2021. For further information on this restructuring, please refer to Note 17 to our consolidated financial statements included elsewhere in this report.
Restructuring charges were immaterial for the year ended December 31, 2022 and there were no restructuring charges for the year ended December 31, 2023. For further information on this restructuring, please refer to Note 18 to our consolidated financial statements included elsewhere in this report.
Other major factors included $17.6 million from exercised stock options and our employee stock purchase plan. For the year ended December 31, 2020, we generated $9.9 million of net cash from financing activities. The net cash proceeds were driven primarily by $10.2 million from exercised stock options and our employee stock purchase plan.
These net cash proceeds were due to $8.7 million from stock-option exercises and our employee stock purchase plan, or ESPP. 45 Table of Contents For the year ended December 31, 2022, we used $2.2 million of net cash from financing activities.
Year ended December 31, 2021 compared with year ended December 31, 2020 Endpoint IC revenue increased $36.9 million, due primarily to a $44.5 million increase in shipment volumes, offset by a $7.6 million decrease due to lower ASPs.
Year ended December 31, 2023 compared with year ended December 31, 2022 Endpoint IC revenue increased $42.9 million, due primarily to a $68.9 million increase from higher shipment volumes offset by a $26.0 million decrease due to ASP, the latter due primarily to lower revenue contribution from industrial and specialty endpoint ICs as well mix within those industrial and specialty ICs.
The net cash usage was driven primarily by investments and equipment purchases of $82.7 million and $3.1 million, respectively, partially offset by investment maturities of $49.5 million. Financing Cash Flows For the year ended December 31, 2022, we used $2.2 million of net cash from financing activities.
These net cash proceeds were due primarily to investment maturities of $144.4 million and sale of investments of $13.4 million, partially offset by cash paid for the Voyantic Oy acquisition of $23.4 million and property and equipment purchases of $18.6 million. For the year ended December 31, 2022, we used $102.8 million of net cash from investing activities.
Year ended December 31, 2021 compared with year ended December 31, 2020 Cost of revenue increased $17.5 million, due primarily to increased endpoint IC and systems revenue.
Excess and obsolescence charges had an immaterial gross margin impact for the years ended December 31, 2023 and 2022. 39 Table of Contents Year ended December 31, 2022 compared with year ended December 31, 2021 Gross profit increased $38.9 million, due primarily to increased endpoint IC and systems revenue.
In the near term, we expect product margins to be volatile based on product mix and the timing of our price changes. 36 Table of Contents Seasonality We typically renegotiate pricing with most of our endpoint IC OEMs with an effective date of the first quarter of the calendar year, reducing revenue and gross margins in the first quarter compared to prior periods.
We did not have comparable project-based revenue in 2022 or 2023. Seasonality and Pricing We typically negotiate pricing with most of our endpoint IC OEMs with an effective date of the first quarter of the calendar year.
We believe this seasonality is due to the availability of residual funding for capital expenditures prior to the end of many end users’ fiscal years. Like for our endpoint ICs, we did not see these historical trends in 2022 and may not see them in 2023.
Endpoint IC volumes tend to be lower in the fourth quarter than in the third quarter. System sales tend to be higher in the fourth quarter and lower in the first quarter, we believe due to the availability of residual funding for capital expenditures prior to the end of many end users’ fiscal years.
Timing and Complexity of End User Deployments From 2010 to 2022, our endpoint IC sales volumes increased at a compounded annual growth rate of 26%. However, the pace has been uneven and unpredictable.
From 2010 to 2023, our overall endpoint IC 37 Table of Contents sales volumes increased at a compounded annual growth rate of 26%; however. we have experienced declines in endpoint IC sales volumes during various periods.
Year ended December 31, 2021 compared with year ended December 31, 2020 Research and development expense increased $15.5 million, due primarily to increases of $6.9 million in stock-based compensation expense primarily related to PSU grant timing, and to a lesser extent, an increased number of equity grants outstanding.
Year ended December 31, 2023 compared with year ended December 31, 2022 General and administrative expense increased $15.4 million, due primarily to increases of $11.0 million in professional services related primarily to non-settlement-related legal fees and transaction expenses for the Voyantic Oy acquisition, $2.5 million in personnel expenses from higher headcount, $1.1 million in stock-based compensation expense related primarily to increased outstanding equity grants, and $0.5 million in infrastructure expenses primarily related to rent and facilities.

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Item 7A. Quantitative and Qualitative Disclosures About Market Risk

Market Risk — interest-rate, FX, commodity exposure

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Biggest changeAccordingly, gains and losses from remeasuring transactions denominated in currencies other than U.S. dollars are included in other income, net on the consolidated statements of operations. 48 Table of Contents For any of the periods presented, we did not have material impact from exposure to foreign currency fluctuation.
Biggest changeAccordingly, gains and losses resulting from remeasuring transactions denominated in currencies other than U.S. dollars are included in other income, net, on our consolidated statements of operations. One of our European subsidiaries utilizes Euros as their functional currency, which results in a translation adjustment that we include as a component of accumulated other comprehensive income.
We do not enter into investments for trading or speculative purposes. We had cash, cash equivalents and short-term investments of $173.7 million and $193.3 million as of December 31, 2022 and 2021, respectively. Our investments are exposed to market risk due to fluctuations in prevailing interest rates, which may reduce the yield on our investments or their fair value.
We do not enter into investments for trading or speculative purposes. We had cash, cash equivalents and short-term investments of $113.2 million and $173.7 million as of December 31, 2023 and 2022, respectively. Our investments are exposed to market risk due to fluctuations in prevailing interest rates, which may reduce the yield on our investments or their fair value.
As we grow operations, our exposure to foreign currency risk will likely become more significant. 49 Table of Contents
For any of the periods presented, we did not have material impact from exposure to foreign currency fluctuation. As we grow our operations, our exposure to foreign currency risk will likely become more significant. 49 Table of Contents
Our inability or failure to do so could adversely affect our business, financial condition and results of operations. Foreign Currency Exchange Risk Our foreign subsidiaries are considered extensions of the U.S. Company. The functional currency of our foreign subsidiaries is the U.S. dollar.
Our inability or failure to do so could adversely affect our business, financial condition and results of operations.
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Foreign Currency Exchange Risk We are subject to risks associated with transactions that are denominated in currencies other than our functional currency and the effects of translating amounts denominated in a foreign currency to the U.S. dollar as a normal part of our reporting process. The functional currency of the majority of our foreign subsidiaries is the U.S. dollar.

Other PI 10-K year-over-year comparisons