IMPINJ INC

(unaudited)

Note 1. Summary of Significant Accounting Policies

Basis of Presentation

The accompanying condensed consolidated financial statements include Impinj, Inc. and its wholly owned subsidiaries. We have eliminated intercompany balances and transactions in consolidation. We have prepared these condensed consolidated financial statements in conformity with U.S. generally accepted accounting principles ("GAAP"), and applicable rules and regulations of the Securities and Exchange Commission ("SEC"), regarding interim financial reporting. Certain information and note disclosures normally included in the financial statements prepared in accordance with GAAP have been condensed or omitted pursuant to such rules and regulations. Accordingly, these interim condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements and accompanying notes as of and for the year ended December 31, 2023 included in Impinj, Inc.’s Annual Report on Form 10-K, which was filed with the SEC on February 12, 2024.

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

Use of Estimates

Preparing financial statements in conformity with GAAP requires management to make certain estimates, judgments and assumptions that affect the reported amounts of assets and liabilities and related disclosures as of the date of the financial statements, as well as the reported revenue and expenses during the periods presented. On an ongoing basis, we evaluate our estimates, including those related to revenue recognition, sales incentives, percentage completion of development contracts, inventory excess and obsolescence, income taxes and fair value of stock awards. To the extent there are material differences between our estimates, judgments, or assumptions and actual results, our financial statements will be affected.

Licensing of Intellectual Property

On March 13, 2024, we and NXP Semiconductors N.V. ("NXP") entered into a Settlement and Patent Cross-License Agreement (the “Settlement Agreement”). Under the Settlement Agreement, NXP made a one-time payment of $45 million and agreed to make annual license fee payments on April 1 of each year, starting on April 1, 2024, until the termination of the Settlement Agreement. The annual license fee payment for 2024 was $15 million and will increase each subsequent year by a fixed percentage. We allocated the consideration from the Settlement Agreement to the related components of the agreement. During first-quarter 2024, we recorded the $45 million payment in income from settlement of litigation in the condensed consolidated statements of operations upon receipt. We will recognize the license fee, which relates to annual usage of the license from April 1 to March 31 of each applicable year, as revenue in the second quarter of each until the Settlement Agreement terminates. We recognized the license fee for the first annual usage period in second-quarter 2024.

We recognize revenue from licensing the right to use functional intellectual property, such as the Settlement Agreement discussed above, at the point in time the control of the license transfers to the customer, which is generally upon delivery, or as usage occurs. See Note 6 Commitments and Contingencies for additional details of the Settlement Agreement with NXP.

Recently Issued Accounting Standards Not Yet Adopted

In November 2023, the FASB released ASU 2023-07, Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures, which amends reportable segment requirements, primarily through enhanced disclosures about significant segment expenses, including for public entities that have a single reportable segment. The standard is effective for fiscal years beginning after December 31, 2023 and interim periods within fiscal years beginning after December 31, 2024. We are currently evaluating the impact of this standard on our financial statement disclosures.

In December 2023, the FASB released ASU 2023-09, Income Taxes (Topic 740): Improvements to Income Tax Disclosures, which amends income tax disclosure requirements to enhance the transparency and decision usefulness for users of the financial statements. The standard is effective for fiscal years beginning after December 31, 2024. We are currently evaluating impact of this standard, if any, on our financial statement disclosures.

Note 2. Fair Value Measurements

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

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

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

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

We do not have any financial assets or liabilities in Level 3 as of September 30, 2024, and only had the liability for the earnout consideration related to the Voyantic Oy acquisition in Level 3 as of December 31, 2023. We classified this liability as Level 3 because we determined the fair value using significant unobservable inputs.

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

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

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

Long-term Debt — See Note 7 for the carrying amount and estimated fair value of the Notes.

Contingent Consideration — The contingent consideration liability is related to our acquisition of Voyantic Oy (see Note 4: Goodwill and Intangible Assets). We paid the contingent consideration amount of $7.2 million in second-quarter 2024.

The following table presents the balances of assets and liabilities measured at fair value on a recurring basis, by level within the fair value hierarchy, as of the dates presented (in thousands):

The following table presents additional information about liabilities measured at fair value for which the Company used Level 3 inputs to determine fair value (in thousands):

At the acquisition date, we recorded the contingent consideration related to the Voyantic Oy acquisition at its fair value using unobservable inputs and used the Monte Carlo simulation option pricing framework, incorporating contractual terms and assumptions regarding financial forecasts, discount rates and volatility of forecasted revenue and gross margins. Developing and determining the unobservable inputs for Level 3 fair-value measurements and fair-value calculations is management's responsibility with assistance from a third-party valuation specialist. During second-quarter 2024, we paid the contingent consideration and as of September 30, 2024, the contingent consideration liability is $0.

As of December 31, 2023, the contingent consideration liability was $6.2 million.

We expect short-term investments to mature within 1 year and long-term investments within 1 to 3 years of the reporting date. See Note 7 for the carrying amount and estimated fair value of our convertible senior notes due 2027.

Investments

The following tables present the cost or amortized cost, gross unrealized gains, gross unrealized losses and total estimated fair value of our financial assets as of the dates presented (in thousands):

Marketable securities in a continuous loss position for less than 12 months had an estimated fair value of $80.1 million and $0.1 million in unrealized losses as of September 30, 2024, and an estimated fair value of $10.2 million and $25,000 in unrealized losses as of December 31, 2023. Marketable securities in a continuous loss position for greater than 12 months had a fair value of $0 and $0 in unrealized losses as of September 30, 2024, and an estimated fair value of $8.2 million and $26,000 in unrealized losses as of December 31, 2023.

Note 3. Inventory

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

Note 4. Goodwill and Intangible Assets

On April 3, 2023, we acquired all outstanding equity of Voyantic Oy for an aggregate purchase price of $32.7 million. Our acquisition of Voyantic Oy adds label design, manufacturing and testing to our systems offerings, to advance the quality, reliability and readability of partner inlays. The consideration comprised (i) $3.6 million in shares of our common stock valued using the market price on the date of the acquisition, (ii) $4.6 million in deferred payments contingent upon revenue and gross margin performance over a one-year period from the acquisition date and (iii) the remainder in cash paid at closing.

We recorded the assets acquired and liabilities assumed at their estimated fair values as of the acquisition date. We recorded the excess of the purchase price over the assets acquired and liabilities assumed as goodwill. The fair value of net assets acquired, goodwill, intangible assets and deferred tax liability were $2.4 million, $15.6 million, $18.4 million and $3.7 million, respectively. The goodwill amount represents synergies we expect to realize from the business combination and assembled workforce. We allocated the goodwill to our one reporting unit and reportable segment. The acquired goodwill and intangible assets were not deductible for tax purposes.

The transaction-related costs for the acquisition were $0 and $1.0 million for the three and nine months ended September 30, 2024. These costs are related to the revaluation of the contingent consideration subsequent to the acquisition date and are included in general and administrative expenses in the condensed consolidated statements of operations. See Note 2. Fair Value Measures for additional information on the contingent consideration.

This acquisition did not have a material impact on our reported revenue or net loss amounts for any period presented; therefore, we have not presented historical and pro forma disclosures.

Goodwill represents the excess of the purchase price over the fair value of the net assets acquired in business combinations accounted for under the purchase method of accounting. The following table presents goodwill as of September 30, 2024 (in thousands):

As of September 30, 2024, intangible assets comprised the following (in thousands):

We amortize identifiable intangible assets with finite lives over their useful lives on a straight-line basis. The weighted average life of our intangible assets is approximatelysix years. Amortization of intangible assets was $0.5 million and $2.4 million for the three and nine months ended September 30, 2024, respectively and $1.4 million and $3.6 million for the three and nine months ended September 30, 2023, respectively.

As of September 30, 2024, the estimated intangible asset amortization expense for the next five years and thereafter is as follows:

Note 5. Stock-Based Awards

Restricted Stock Units

We grant restricted stock units ("RSUs") with a service condition, and RSUs with market and service conditions ("MSUs").

The following table summarizes activity for RSUs and MSUs for thenine months ended September 30, 2024 (in thousands):

Stock-Based Compensation Expense

The following table presents the detail of stock-based compensation expense amounts included in our condensed consolidated statements of operations for the periods presented (in thousands):

Note 6. Commitments and Contingencies

For information on our commitments and contingencies, see Part II, Item 8 (Financial Statements and Supplementary Data, Note 12, Commitments and Contingencies) of our Annual Report on Form 10-K for the year ended December 31, 2023. There have been no material changes to our commitments and contingencies as previously disclosed in our Annual Report on Form 10-K for the year ended December 31, 2023, except for “Obligations with Third Parties” and “Litigation” as discussed below.

Obligations with Third Parties

We manufacture products with third-party manufacturers. We are committed to purchase$32.9 millionof inventory as of September 30, 2024.

Litigation

From time to time, we are subject to various legal proceedings or claims that arise in the ordinary course of business. We accrue a liability when management believes that it is both probable that we have incurred a liability and we can reasonably estimate the amount of loss. As of September 30, 2024 and December 31, 2023, we didnot have accrued contingency liabilities. The following is a description of our significant legal proceedings.

Patent Infringement Claims and Counterclaims

Impinj Patent Infringement Claims Against NXP

From 2019 to 2023, we engaged in active patent litigation against our primary endpoint IC competitor, NXP Semiconductors N.V., or NXP. During this time, we filed three patent infringement lawsuits against subsidiaries of NXP in federal courts in California and Texas. Our complaints alleged that certain NXP endpoint ICs infringed a number of our U.S. patents. In response, NXP filed a suit against us in federal court in Delaware, later transferred to Washington, countersued us in Texas, and filed three lawsuits against our subsidiary in China. NXP’s complaints alleged that certain of our endpoint ICs infringed a number of their own U.S. or Chinese patents or U.S. patents that they exclusively licensed from a third-party to assert against us.

Through 2023, we prevailed in these lawsuits. In three U.S. trials held in 2023, juries in California and Texas returned verdicts that NXP endpoint ICs infringed five of our patents that made it to trial, and juries in Washington and Texas ruled that we did not infringe any of the three patents NXP accused us in court of infringing. Also in 2023, NXP withdrew all three cases it filed against us in China.

On March 13, 2024, while additional trials were pending in China and Texas, and post-trial motions and appeals were pending in China and the U.S., we and NXP entered into the Settlement Agreement. Under the agreement we and NXP agreed to terminate and withdraw all pending proceedings and release one another for all patent infringement claims preceding March 31, 2024 and grant to each other non-exclusive, worldwide patent licenses to make, have made, import, use, offer for sale, and sell their respective products and services, subject to the terms of the agreement. The Settlement Agreement will remain in force until all the valid claims of a specified set of Impinj patents (the “Indicator Patents”) expire in about ten years. Either party can terminate the Settlement Agreement if the other party materially breaches the terms of the Agreement and NXP can terminate the Settlement Agreement if it successfully designs out all valid claims of the Indicator Patents.

Under the Settlement Agreement, NXP paid us a one-time amount of $45 million and agreed to make annual license fee payments, if the specified set of Indicator Patents are still in use, on April 1 of each year, effective April 1, 2024. The annual license fee will increase by a fixed percentage each year after 2024 for the remaining term of the Settlement Agreement. We have no obligation to pay NXP under the Settlement Agreement.

We allocated the consideration from the Settlement Agreement to the components of the Settlement Agreement. We recorded the $45 million payment in income from settlement of litigation in the condensed consolidated statements of operations in first-quarter 2024, upon receipt. Licensing of our intellectual property is part of our ongoing operations and therefore, we will recognize the license fee, which relates to annual usage of the license from April 1 to March 31 of each applicable year, as revenue in the second quarter of each year until the Settlement Agreement terminates. We recognized the first annual license fee of $15 million in revenue in second-quarter 2024.

Note 7. Long-term debt

Convertible Senior Notes

In November 2021, we issued $287.5 million aggregate principal amount of convertible promissory notes due May 15, 2027 (the “2021 Notes”).

The following table presents the outstanding principal amount and carrying value of the 2021 Notes as of the dates indicated (in thousands):

Further details of the 2021 Notes are as follows:

The 2021 Notes are senior unsecured obligations, do not contain any financial covenants and are governed by indentures (the Indentures). The total net proceeds from the 2021 Notes, after deducting initial debt issuance costs, fees and expenses, was $278.4 million. We used approximately $183.6 million of the 2021 Notes net proceeds, excluding accrued interest, to repurchase approximately $76.4 million aggregate principal amount of convertible notes due 2026 (the “2019 Notes” and, together with the 2021 Notes, the “Notes”)through individual privately negotiated transactions concurrent with us offering the 2021 Notes. We used approximately $17.6 million, excluding accrued interest, to repurchase the remaining $9.9 million aggregate principal amount of the 2019 Notes in June 2022. We will use the remainder of the net proceeds from the 2021 Notes for general corporate purposes.

Terms of the 2021 Notes

The holders of the 2021 Notes may convert their respective 2021 Notes at their option at any time prior to the close of business on the business day immediately preceding the respective conversion dates under the following circumstances:

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

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during thefive business day period after anyfive consecutive trading day period in which the trading price per $1,000 principal amount of the 2021 Notes for each trading day was less than 98% of the product of the last reported sale price of our common stock and the conversion rate on each such trading day;

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prior to the close of business on the second scheduled trading day immediately preceding the redemption date if we call the 2021 Notes for redemption; or

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

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

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

Holders who convert their 2021 Notes in connection with certain corporate events that constitute a make-whole fundamental change (as defined in the indenture) are, under certain circumstances, entitled to an increase in the conversion rate. Additionally in the event of a corporate event constituting a fundamental change (as defined in the indenture), holders of the 2021 Notes may require us to repurchase all or a portion of their 2021 Notes at a repurchase price equal to 100% of the principal amount of the 2021 Notes being repurchased, plus any accrued and unpaid interest to, but excluding, the repurchase date.

Our common stock exceeded 130% of the conversion price of the 2021 Notes for more than 20 trading days during the 30 consecutive trading days ended September 30, 2024. Accordingly, the 2021 Notes are convertible at the option of the holders as of September 30, 2024 and therefore, have remained classified as current portion of long-term debt on the condensed consolidated balance sheet as of September 30, 2024. The “if-converted value” exceeded the principal amounts by $273.1 million based on the closing price of our common stock of $216.52 as of September 30, 2024.

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

Accrued interest related to the 2021 Notes as of September 30, 2024 and December 31, 2023 was $1.2 million and $0.4 million, respectively. We record accrued interest in accrued liabilities in our consolidated balance sheet.

We estimate the fair value of the 2021 Notes to be$576.5 million and $314.0 million as of September 30, 2024 and December 31, 2023, respectively, which we determined through consideration of quoted market prices. The fair value for the 2021 Notes is classified as Level 2, as defined in Note 2.

Capped Calls

In connection with the issuance of the 2019 Notes, we entered into privately negotiated capped-call transactions with certain financial counterparties. The capped call transactions are generally designed to reduce the potential dilution to our common stock upon any conversion or settlement of the 2019 Notes, or to offset any cash payments we are required to make in excess of the principal amount upon conversion of the 2019 Notes, as the case may be, with the reduction or offset subject to a cap based on the cap price. If, however, the market price per share of our common stock exceeds the cap price of the capped-call transactions, then our stock would experience some dilution and/or the capped call would not fully offset the potential cash payments, in each case, to the extent then-market price per share of our common stock exceeds the cap price. The capped call remains outstanding even though we have repurchased the 2019 Notes. The initial cap price of the capped call transactions is $54.20 per share, subject to certain adjustments under the terms of the capped call transactions. The capped call transactions expire over 40 consecutive scheduled trading days ending on December 11, 2026. The capped call transactions meet the criteria for classification in equity, are not accounted for as derivatives and are not remeasured each reporting period.

Note 8. Net Earnings (Loss) Per Share

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

Basic net earnings (loss) per share is calculated using our net income (loss) and our weighted average outstanding common shares.

Diluted net earnings (loss) per share is calculated using our net income (loss) attributable to common stockholders with interest charges applicable to our convertible debt added back under the if converted method, if dilutive, and our weighted average outstanding common shares including the dilutive effect of stock awards and employee stock purchase plan shares as determined under the treasury stock method and of our convertible notes using the if converted method, if dilutive. In periods when we recognize a net loss, we exclude the impact of outstanding stock awards and the potential share settlement impact related to our convertible notes from the diluted loss per share calculation as their inclusion would have an antidilutive effect.

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

Note 9. Segment Information

We haveone reportable and operating segment: developing and selling of our RAIN products and services. We identified our operating segment based on how our chief operating decision-maker manages our business, makes operating decisions and evaluates our operating performance. Our chief executive officer acts as the chief operating decision-maker and reviews financial and operational information on an entity-wide basis. Accordingly, we have determined we have a single reportable and operating segment.

Our chief executive officer reviews information about our revenue categories, endpoint ICs, including licensing revenue, and systems, defined as reader ICs, readers, gateways, test and measurement solutions and software and cloud services. The following table presents our revenue categories for the indicated periods (in thousands):

Note 10. Deferred Revenue

Deferred revenue, comprising individually immaterial amounts for extended warranty, enhanced product maintenance and advance payments on nonrecurring engineering ("NRE") services contracts, represents contracted revenue that has not yet been recognized. We recognized$1.3 million of revenue related to amounts included in deferred revenue as of December 31, 2023 for the nine months ended September 30, 2024. We recognized $2.1 million of revenue related to amounts included in deferred revenue as of December 31, 2022 for the nine months ended September 30, 2023.

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

Note 11. Related-Party Transactions

On June 23, 2023, we acquired a patent from a related party in which a member of our board of directors holds an executive leadership position. The patent pertains to our endpoint IC products and the acquisition price was $250,000. The patent is included in the Indicator Patents, expires on July 17, 2026 and does not have renewal rights. This patent is included in our intangible assets on our condensed consolidated balance sheet as of September 30, 2024.

Note 12. Restructuring

On February 7, 2024, we initiated a strategic restructuring to align financial, business and research and development objectives for long-term growth, including a reduction-in-force affecting approximately 10% of our employees. We incurred restructuring charges of $1.8 million for employee terminations benefits, including equity modification expense in first-quarter 2024. Restructuring payments were complete in second-quarter 2024.

A summary of accrued restructuring costs as of September 30, 2024 is shown in the table below (in thousands):