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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549

 

FORM 10-Q

 

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

For the quarterly period ended March 31, 2021

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

Commission File Number: 001-37824

 

IMPINJ, INC.

(Exact name of registrant as specified in its charter)

 

 

Delaware

 

91-2041398

(State or other jurisdiction of
incorporation or organization)

 

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

 

400 Fairview Avenue North, Suite 1200, Seattle, Washington

 

98109

(Address of principal executive offices)

 

(Zip Code)

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

 

Securities registered pursuant to Section 12(b) of the Act:

Title of each class

Trading symbol(s)

Name of each exchange on which registered

Common Stock, par value $0.001 per share

PI

The Nasdaq Global Select Market

 

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

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

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

 

Large accelerated filer

 

 

Accelerated filer

 

 

 

 

 

Non-accelerated filer

 

 

Smaller reporting company

 

 

 

 

 

 

 

 

 

 

 

 

Emerging growth company

 

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

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

As of April 16, 2021, 24,071,893 shares of common stock were outstanding.

 

 


 

 

IMPINJ, INC.

QUARTERLY REPORT ON FORM 10-Q

 

Table of Contents

 

 

 

 

 

Page

 

 

PART I. — FINANCIAL INFORMATION

 

 

Item 1.

 

Financial Statements (Unaudited)

 

3

 

 

Condensed Consolidated Balance Sheets

 

3

 

 

Condensed Consolidated Statements of Operations

 

4

 

 

Condensed Consolidated Statements of Comprehensive Loss

 

5

 

 

Condensed Consolidated Statements of Cash Flows

 

6

 

 

Condensed Consolidated Statements of Changes in Stockholders' Equity

 

7

 

 

Notes to Condensed Consolidated Financial Statements

 

8

Item 2.

 

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

 

18

Item 3.

 

Quantitative and Qualitative Disclosures About Market Risk

 

28

Item 4.

 

Controls and Procedures

 

28

 

 

PART II. — OTHER INFORMATION

 

 

Item 1.

 

Legal Proceedings

 

29

Item 1A.

 

Risk Factors

 

29

Item 2.

 

Unregistered Sales of Equity Securities and Use of Proceeds

 

51

Item 3.

 

Defaults Upon Senior Securities

 

51

Item 4.

 

Mine Safety Disclosures

 

51

Item 5.

 

Other Information

 

51

Item 6.

 

Exhibits

 

52

 

 

Signatures

 

53

 

 

 

2


Table of Contents

 

 

PART I — FINANCIAL INFORMATION

 

Item 1.

Financial Statements (unaudited)

IMPINJ, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(in thousands, except par value, unaudited)

 

 

March 31, 2021

 

 

December 31, 2020

 

Assets:

 

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

 

Cash and cash equivalents

$

49,796

 

 

$

23,636

 

Short-term investments

 

69,551

 

 

 

82,453

 

Accounts receivable, net

 

23,505

 

 

 

25,003

 

Inventory, net

 

28,067

 

 

 

36,329

 

Prepaid expenses and other current assets

 

2,810

 

 

 

3,943

 

Total current assets

 

173,729

 

 

 

171,364

 

Property and equipment, net

 

20,797

 

 

 

16,531

 

Operating lease right-of-use assets

 

13,736

 

 

 

13,761

 

Other non-current assets

 

2,349

 

 

 

2,079

 

Goodwill

 

3,881

 

 

 

3,881

 

Total assets

$

214,492

 

 

$

207,616

 

Liabilities and stockholders' equity:

 

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

 

Accounts payable

$

8,799

 

 

$

10,144

 

Accrued compensation and employee related benefits

 

5,874

 

 

 

5,529

 

Accrued and other current liabilities

 

2,304

 

 

 

1,468

 

Current portion of operating lease liabilities

 

3,813

 

 

 

3,641

 

Current portion of restructuring liabilities

 

1,235

 

 

 

 

Current portion of long-term debt

 

83,951

 

 

 

 

Current portion of deferred revenue

 

6,209

 

 

 

6,811

 

Total current liabilities

 

112,185

 

 

 

27,593

 

Long-term debt, net of current portion

 

 

 

 

54,556

 

Operating lease liabilities, net of current portion

 

14,881

 

 

 

15,266

 

Other long-term liabilities

 

805

 

 

 

805

 

Deferred revenue, net of current portion

 

246

 

 

 

277

 

Total liabilities

 

128,117

 

 

 

98,497

 

Commitments and contingencies (Note 5)

 

 

 

 

 

 

 

Stockholders' equity:

 

 

 

 

 

 

 

Preferred stock, $0.001 par value — 5,000 shares authorized, no shares issued and outstanding at March 31, 2021 and December 31, 2020

 

 

 

 

 

Common stock, $0.001 par value — 495,000 shares authorized, 24,052 and 23,350 shares issued and outstanding at March 31, 2021 and December 31, 2020, respectively

 

24

 

 

 

23

 

Additional paid-in capital

 

406,988

 

 

 

423,759

 

Accumulated other comprehensive income

 

3

 

 

 

3

 

Accumulated deficit

 

(320,640

)

 

 

(314,666

)

Total stockholders' equity

 

86,375

 

 

 

109,119

 

Total liabilities and stockholders' equity

$

214,492

 

 

$

207,616

 

 

 

See accompanying notes to condensed consolidated financial statements.

 

3


Table of Contents

 

 

IMPINJ, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(in thousands, except per share data, unaudited)

 

 

Three Months Ended March 31,

 

 

2021

 

 

2020

 

Revenue

$

45,248

 

 

$

47,822

 

Cost of revenue

 

23,267

 

 

 

26,428

 

Gross profit

 

21,981

 

 

 

21,394

 

Operating expenses:

 

 

 

 

 

 

 

Research and development

 

13,791

 

 

 

11,057

 

Sales and marketing

 

7,645

 

 

 

7,490

 

General and administrative

 

8,154

 

 

 

6,242

 

Restructuring costs

 

1,263

 

 

 

 

Total operating expenses

 

30,853

 

 

 

24,789

 

Loss from operations

 

(8,872

)

 

 

(3,395

)

Other income, net

 

23

 

 

 

409

 

Interest expense

 

(525

)

 

 

(1,312

)

Loss before income taxes

 

(9,374

)

 

 

(4,298

)

Income tax expense

 

(42

)

 

 

(28

)

Net loss

$

(9,416

)

 

$

(4,326

)

 

 

 

 

 

 

 

 

Net loss per share — basic and diluted

$

(0.40

)

 

$

(0.19

)

Weighted-average shares outstanding — basic and diluted

 

23,671

 

 

 

22,412

 

 

 

See accompanying notes to condensed consolidated financial statements.

 

 

 

4


Table of Contents

 

 

IMPINJ, INC.

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS

(in thousands, unaudited)

 

 

Three Months Ended March 31,

 

 

2021

 

 

2020

 

Net loss

$

(9,416

)

 

$

(4,326

)

Other comprehensive income, net of tax:

 

 

 

 

 

 

 

Unrealized gain on investments

 

 

 

 

71

 

Total other comprehensive income

 

 

 

 

71

 

Comprehensive loss

$

(9,416

)

 

$

(4,255

)

 

 

See accompanying notes to condensed consolidated financial statements.

 

5


Table of Contents

 

 

IMPINJ, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands, unaudited)

 

Three Months Ended March 31,

 

 

2021

 

 

2020

 

Operating activities:

 

 

 

 

 

 

 

Net loss

$

(9,416

)

 

$

(4,326

)

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

 

 

 

 

 

 

 

Depreciation

 

1,040

 

 

 

1,168

 

Stock-based compensation

 

7,449

 

 

 

5,221

 

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

 

218

 

 

 

(4

)

Amortization of debt issuance costs and debt discount

 

94

 

 

 

879

 

Changes in operating assets and liabilities:

 

 

 

 

 

 

 

Accounts receivable

 

1,498

 

 

 

(4,371

)

Inventory

 

8,262

 

 

 

2,390

 

Prepaid expenses and other assets

 

880

 

 

 

368

 

Deferred revenue

 

(633

)

 

 

155

 

Accounts payable

 

(2,137

)

 

 

1,096

 

Accrued compensation and employee related benefits

 

345

 

 

 

(1,933

)

Operating lease right-of-use assets

 

723

 

 

 

657

 

Operating lease liabilities

 

(911

)

 

 

(823

)

Accrued and other liabilities

 

722

 

 

 

1,368

 

Restructuring liabilities

 

1,235

 

 

 

 

Net cash provided by operating activities

 

9,369

 

 

 

1,845

 

Investing activities:

 

 

 

 

 

 

 

Purchases of investments

 

(12,333

)

 

 

 

Proceeds from maturities of investments

 

25,000

 

 

 

14,175

 

Purchases of property and equipment

 

(4,398

)

 

 

(1,112

)

Net cash provided by investing activities

 

8,269

 

 

 

13,063

 

Financing activities:

 

 

 

 

 

 

 

Principal payments on finance lease obligations

 

(2

)

 

 

(98

)

Proceeds from exercise of stock options and employee stock purchase plan

 

8,524

 

 

 

2,014

 

Net cash provided by financing activities

 

8,522

 

 

 

1,916

 

Net increase in cash and cash equivalents

 

26,160

 

 

 

16,824

 

Cash and cash equivalents

 

 

 

 

 

 

 

Beginning of period

 

23,636

 

 

 

66,898

 

End of period

$

49,796

 

 

$

83,722

 

 

 

 

 

 

 

 

 

Supplemental disclosure of cashflow information:

 

 

 

 

 

 

 

Purchases of property and equipment not yet paid

 

1,984

 

 

 

94

 

 

See accompanying notes to condensed consolidated financial statements.

 

 


6


Table of Contents

 

 

IMPINJ, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY

(in thousands, unaudited)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Accumulated

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Additional

 

 

 

 

 

 

Other

 

 

Total

 

 

 

Common Stock

 

 

Paid-in

 

 

Accumulated

 

 

Comprehensive

 

 

Stockholders'

 

 

 

Shares

 

 

Amount

 

 

Capital

 

 

Deficit

 

 

Income

 

 

Equity

 

Balance at December 31, 2020

 

 

23,350

 

 

$

23

 

 

$

423,759

 

 

$

(314,666

)

 

$

3

 

 

$

109,119

 

Cumulative-effect adjustment from adoption of ASU 2020-06

 

 

 

 

 

 

 

 

(32,743

)

 

 

3,442

 

 

 

 

 

 

(29,301

)

Issuance of common stock

 

 

702

 

 

 

1

 

 

 

8,523

 

 

 

 

 

 

 

 

 

8,524

 

Stock-based compensation

 

 

 

 

 

 

 

 

7,449

 

 

 

 

 

 

 

 

 

7,449

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

(9,416

)

 

 

 

 

 

(9,416

)

Balance at March 31, 2021

 

 

24,052

 

 

$

24

 

 

$

406,988

 

 

$

(320,640

)

 

$

3

 

 

$

86,375

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Accumulated

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Additional

 

 

 

 

 

 

Other

 

 

Total

 

 

 

Common Stock

 

 

Paid-in

 

 

Accumulated

 

 

Comprehensive

 

 

Stockholders'

 

 

 

Shares

 

 

Amount

 

 

Capital

 

 

Deficit

 

 

Income

 

 

Equity

 

Balance at December 31, 2019

 

 

22,217

 

 

$

22

 

 

$

387,926

 

 

$

(262,743

)

 

$

34

 

 

$

125,239

 

Issuance of common stock

 

 

460

 

 

 

1

 

 

 

2,013

 

 

 

 

 

 

 

 

 

2,014

 

Stock-based compensation

 

 

 

 

 

 

 

 

5,221

 

 

 

 

 

 

 

 

 

5,221

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

(4,326

)

 

 

 

 

 

(4,326

)

Other comprehensive income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

71

 

 

 

71

 

Balance at March 31, 2020

 

 

22,677

 

 

$

23

 

 

$

395,160

 

 

$

(267,069

)

 

$

105

 

 

$

128,219

 

 

 

See accompanying notes to condensed consolidated financial statements.

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IMPINJ, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(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, or GAAP, and applicable rules and regulations of the Securities and Exchange Commission, or SEC, regarding interim financial reporting. Certain information and note disclosures normally included in the financial statements prepared in accordance with GAAP have been condensed or omitted pursuant to such rules and regulations. Accordingly, these interim condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements and accompanying notes as of and for the year ended December 31, 2020 included in Impinj, Inc.’s Annual Report on Form 10-K, which was filed with the SEC on February 17, 2021. The condensed consolidated balance sheet as of December 31, 2020, included herein, was derived from the audited consolidated financial statements of Impinj, Inc.

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

Use of Estimates

Preparing financial statements in conformity with GAAP requires us to make certain estimates, judgments and assumptions that affect the reported amounts of assets and liabilities and the related disclosures as of the date of the financial statements, as well as the reported amounts of revenue and expenses during the periods presented. On an ongoing basis, we evaluate our estimates, including those related to revenue recognition, sales incentives, estimates to complete development contracts, deferred revenue, inventory excess and obsolescence, income taxes, determination of the fair value of stock awards and compensation and employee-related benefits. To the extent there are material differences between these estimates, judgments, or assumptions and actual results, our financial statements will be affected. Covid-19 has introduced significant additional uncertainty with respect to estimates, judgments and assumptions about current and forecasted demand, which may materially impact the estimates previously listed, among others.

Recently Adopted Accounting Standards

In August 2020, the FASB issued guidance on debt with conversion and other options, or ASU 2020-06. This guidance eliminates the beneficial- and cash-conversion accounting models for convertible instruments and amends the derivative scope exception for contracts in an entity’s own equity. Additionally, this guidance requires the application of the “if-converted” method to calculate the impact of convertible instruments on diluted earnings per share. We adopted ASU 2020-06 on January 1, 2021 using the modified retrospective transition method and accounted for our convertible notes due 2026, or the 2019 Notes, on a whole-instrument basis. Upon adoption, we recorded a $29.3 million increase to long-term debt, a $32.7 million decrease to additional paid-in capital and a $3.4 million decrease to accumulated deficit on January 1, 2021. Interest expense decreased for the three months ended March 31, 2021 as we no longer separate an equity component of the 2019 Notes and incurred amortization of debt discount. We had no changes to net deferred tax liabilities with a decrease in deferred tax liability offset by a corresponding increase in valuation allowance upon adoption. We use the “if-converted” method to calculate the impact of convertible instruments on diluted earnings per share for the three months ended March 31, 2021 upon adoption of this guidance.

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

Recently Issued Accounting Standards Not Yet Adopted

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

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Accounts Receivable

The allowance for doubtful accounts is our best estimate of the amount of probable lifetime-expected credit losses in existing accounts receivable and is determined based on our historical collections experience, age of the receivable, knowledge of the customer and the condition of the general economy and industry as a whole. We record changes in our estimate to the allowance for doubtful accounts through bad debt expense and write off the receivable and corresponding allowance when accounts are ultimately determined to be uncollectible. Bad debt expense is included in general and administrative expenses. For the periods presented in this report, bad debt expense and the allowance for doubtful account were not material.

We derive a majority of our accounts receivable from sales to original equipment manufacturers, or OEMs, original design manufacturers, or ODMs, as well as to distributors who are large, well-established companies. We do not have customers that represent a significant credit risk based on current economic conditions and past collection experience. Also, we have not had material past-due balances on our accounts receivable as of March 31, 2021 and December 31, 2020, except for $1.7 million and $1.2 million past-due rent receivables from our sub-lessee as of March 31, 2021 and December 31, 2020, respectively, which we deem collectible based on credit risk of the sub-lessee.

Inventory

For the three months ended March 31, 2021, sales of fully reserved inventory had a favorable net gross margin impact of 2.2%. These sales, primarily of endpoint IC inventory included in the excess and obsolescence charge for the three months ended March 31, 2020, as noted below, are the result of increased endpoint IC demand in today’s supply-constrained environment.

For the three months ended March 31, 2020, we recorded inventory excess and obsolescence charges with an unfavorable net gross margin impact of 5.6%. Those charges, which reduced the inventory value of the impacted products to zero, were due primarily to reduced demand for older-generation endpoint ICs and EU gateways. At the time, we expected future demand to be met by our newer generation endpoint ICs and EU gateways. Instead, as a result of today’s industry-wide wafer shortages, we sold a significant portion of the reserved endpoint ICs in the three months ended March 31, 2021.

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:

 

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

 

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

 

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

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

Cash Equivalents — Cash equivalents consist of 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 consist of fixed income securities, which typically include U.S. government agency securities, treasury bills, commercial paper, money market funds and corporate notes and bonds. The fair value measurement of these assets is based on observable market-based inputs or inputs that are derived principally from or corroborated by observable market data by correlation or other means.

Long-term Debt — See Note 6 for the carrying amount and estimated fair value of our convertible senior notes due 2026.

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

 

 

March 31, 2021

 

 

December 31, 2020

 

 

 

Level 1

 

 

Level 2

 

 

Total

 

 

Level 1

 

 

Level 2

 

 

Total

 

Cash equivalents:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Money market funds

 

$

38,352

 

 

$

 

 

$

38,352

 

 

$

12,425

 

 

$

 

 

$

12,425

 

Total cash equivalents

 

 

38,352

 

 

 

 

 

 

38,352

 

 

 

12,425

 

 

 

 

 

 

12,425

 

Short-term investments:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

U.S. government agency securities

 

 

 

 

 

20,185

 

 

 

20,185

 

 

 

 

 

 

20,293

 

 

 

20,293

 

Corporate notes and bonds

 

 

 

 

 

19,379

 

 

 

19,379

 

 

 

 

 

 

13,185

 

 

 

13,185

 

Commercial paper

 

 

 

 

 

14,988

 

 

 

14,988

 

 

 

 

 

 

23,983

 

 

 

23,983

 

Treasury bill

 

 

 

 

 

14,999

 

 

 

14,999

 

 

 

 

 

 

24,992

 

 

 

24,992

 

Total short-term investments

 

 

 

 

 

69,551

 

 

 

69,551

 

 

 

 

 

 

82,453

 

 

 

82,453

 

Total

 

$

38,352

 

 

$

69,551

 

 

$

107,903

 

 

$

12,425

 

 

$

82,453

 

 

$

94,878

 

 

We did not have any Level 3 assets or did not measure any liabilities at fair value as of March 31, 2021 or December 31, 2020. The gross unrealized gains or losses on cash equivalents and short-term investments as of March 31, 2021 or December 31, 2020 were not material.

Note 3. Inventory

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

 

 

 

 

 

 

 

 

 

 

 

March 31, 2021

 

 

December 31, 2020

 

Raw materials

 

$

5,029

 

 

$

5,275

 

Work-in-process

 

 

8,296

 

 

 

9,815

 

Finished goods

 

 

14,742

 

 

 

21,239

 

Total inventory

 

$

28,067

 

 

$

36,329

 

 

Note 4. Stock-Based Awards

Stock Options

The following table summarizes stock option activity for the three months ended March 31, 2021 (in thousands):

 

 

Number of

Underlying Shares

 

Outstanding at December 31, 2020

 

 

3,061

 

Granted

 

 

6

 

Exercised

 

 

(332

)

Forfeited or expired

 

 

(12

)

Outstanding at March 31, 2021

 

 

2,723

 

Vested and exercisable at March 31, 2021

 

 

1,357

 

 

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Restricted Stock Units

The following table summarizes activity for restricted stock units, or RSUs, and RSUs with performance conditions, or PSUs, for the three months ended March 31, 2021 (in thousands):

 

 

 

 

Number of Underlying Shares

 

 

 

 

RSUs

 

 

PSUs

 

Outstanding at December 31, 2020

 

 

 

836

 

 

 

251

 

Granted

 

 

 

4

 

 

 

 

Vested

 

 

 

(54

)

 

 

(241

)

Forfeited

 

 

 

(7

)

 

 

(10

)

Outstanding at March 31, 2021

 

 

 

779

 

 

 

 

 

We began granting PSUs in 2019 under our annual bonus program to our senior executives and other bonus-eligible employees. The number of annual PSUs that ultimately vest depends on us attaining financial metrics for the fiscal year as well as on the employee’s continued employment through the vesting date. The compensation committee and board of directors certified achievement of the financial metric for PSUs granted in 2020, vesting 241,000 shares in first-quarter 2021.

Stock-Based Compensation Expense

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

 

 

Three Months Ended March 31,

 

 

2021

 

 

2020

 

Cost of revenue

$

289

 

 

$

207

 

Research and development expense

 

3,110

 

 

 

2,021

 

Sales and marketing expense

 

1,802

 

 

 

1,368

 

General and administrative expense

 

2,248

 

 

 

1,625

 

Total stock-based compensation expense

$

7,449

 

 

$

5,221

 

 

Note 5. Commitments and Contingencies

For information on our commitments and contingencies, see Part II, Item 8 (Financial Statements and Supplementary Data, Note 11. Commitments and Contingencies) of our Annual Report on Form 10-K for the year ended December 31, 2020. There have been no material changes to our commitments and contingencies, outside of the ordinary course of our business, as previously disclosed in our Annual Report on Form 10-K for the year ended December 31, 2020, except for “Obligations with Third-Parties” and “Litigation” as discussed below.

Obligations with Third Parties

We have certain non-cancelable obligations, which include obligations with third-party manufacturers who manufacture our products. We are committed to purchase $16.9 million of inventory as of March 31, 2021.

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 a liability has been incurred and the amount of loss can be reasonably estimated. As of March 31, 2021 and December 31, 2020, we did not have accrued contingency liabilities. The following is a description of our significant legal proceedings. Although we believe that resolving these claims, individually or in aggregate, will not have a material adverse impact on our financial statements, these matters are subject to inherent uncertainties.

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New York State Securities Class Action

As previously disclosed, a consolidated federal securities class action was filed in 2018 and was settled and dismissed in 2020. On January 31, 2019, a related class-action complaint for violation of the federal securities laws was filed in the Supreme Court of the State of New York for the County of New York against us, our chief executive officer, former chief operating officer, former chief financial officer, members of our board of directors and the underwriters of our July 2016 initial public stock offering, or IPO, and December 2016 secondary public offering, or SPO. Captioned Plymouth County Retirement System v. Impinj, Inc., et al., the complaint, purportedly brought on behalf of purchasers of our stock pursuant to or traceable to our IPO and SPO, alleged that we made false or misleading statements in the registration statements and prospectuses in those offerings concerning demand for our products and inventory in violation of Section 11 of the Securities Act of 1933. On April 9, 2019, the New York Supreme Court entered an order staying the action and requiring the parties to update the court every 90 days as to the status of the pending consolidated federal securities class actions.

On July 9, 2020, the parties in both this action and the federal securities class actions executed a stipulation of settlement that resolved the claims in both actions. On November 20, 2020, the U.S. District Court for the Western District of Washington entered an order finally approving the settlement, and the action pending in Washington federal court has been dismissed with prejudice. Pursuant to the terms of the settlement, the parties in this action filed stipulation discontinuing this action with prejudice. The New York State court, significantly hampered by Covid-19, has not yet entered an order discontinuing the action with prejudice.

Shareholder Derivative Actions

On October 26, 2018, two shareholder derivative actions were filed in the U.S. District Court for the District of Delaware against our chief executive officer, former chief operating officer, former chief financial officer and certain of our directors. We were a nominal defendant. On November 8, 2018, a third shareholder derivative action was filed in this same court against the same defendants. Captioned Weiss v. Diorio, et al., Fotouhi v. Diorio, et al., and De la Fuente v. Diorio, et al., the derivative complaints, purportedly brought on behalf of us, alleged that the defendants breached their fiduciary duties to us and allegedly made false or misleading statements and omissions of material fact in violation of Section 14(a) of the Securities Exchange Act regarding our business and operations. The derivative actions included claims for, among other things, unspecified damages in favor of us, corporate actions to purportedly improve our corporate governance, and an award of costs and expenses to the derivative plaintiffs, including attorneys’ fees. On January 28, 2019, the Delaware federal court entered a stipulated order that stayed these derivative actions until resolution of the pending federal securities class actions described above.

On July 10, 2020, following a private settlement mediation, the parties in this action executed a stipulation of settlement to settle and resolve the claims asserted in this consolidated derivative action. The settlement required us to implement certain corporate governance changes and the payment of up to $900,000 to plaintiffs’ counsel for attorneys’ fees and expenses. Our insurers have agreed to contribute up to $900,000 to plaintiffs’ counsel for attorneys’ fees and expenses. The proposed settlement is subject to preliminary and, following notice to shareholders, final approval by the U.S. District Court for the District of Delaware. On August 5, 2020, at the court’s request, the parties filed supplemental briefing in respect of their joint motion for preliminary approval of the settlement. On February 26, 2021, the court entered an order preliminarily approving the settlement. A settlement hearing has been set for May 11, 2021.

Patent Infringement Claims and Counterclaims

Impinj Patent Infringement Claims Against NXP

On June 6, 2019, we filed a patent infringement lawsuit against NXP USA, Inc., a Delaware corporation and subsidiary of NXP Semiconductors N.V., or NXP, in the U.S. District Court for the Northern District of California, or the Court. The original complaint alleged that certain NXP integrated circuit products infringe 26 of our U.S. patents. At the order of the Court, we filed an amended complaint limited to eight of the original 26 patents. We subsequently elected to go forward with asserting infringement of six of those eight patents. We are seeking, among other things, past damages, including lost profits, but no less than a reasonable royalty; enhanced damages for willful infringement; and reasonable attorneys’ fees and costs for infringement of the asserted patents. We are also seeking an injunction against NXP making, selling, using, offering for sale or importing the RAIN RFID integrated circuit product NXP introduced in 2017. Defendants responded to our complaint on September 30, 2019 citing numerous defenses including denying infringement, claiming our asserted patents are invalid, and that the infringed patents were licensed on a royalty-free basis under Impinj’s commitments to GS1 EPCglobal.

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In February 2020, NXP filed inter partes review, or IPR, petitions with the Patent Trial and Appeal Board for the U.S. Patent and Trademark Office, or PTAB, against 12 of the originally asserted 26 patents, including the six patents asserted in the amended complaint. In August and September of 2020, the PTAB declined to institute a review of four of the six patents at issue.

On September 24, 2020, the Court lifted the stay on two of the patents in suit, and based on a schedule set by the Court on October 22, 2020, the case is proceeding with a claim construction hearing scheduled for July 23, 2021 (extended by the Court from March 24, 2021). Also, on October 22, 2020, the Court continued the stay on infringement claims for two additional patents pending determinations on IPRs and on two allegedly related patents. On October 27, 2020, we removed without prejudice the two patents against which the PTAB instituted IPRs by filing a second amended complaint, and, on January 5, 2021 we stipulated to dismiss the two of the eight patents that we had elected not to go forward with.

NXP Patent Infringement Claims Against Impinj

On October 4, 2019, NXP USA, Inc. and NXP, filed a patent infringement lawsuit against us in the U.S. District Court for the District of Delaware. The complaint alleges that certain of our products infringe eight U.S. patents owned by NXP or NXP USA, Inc. The plaintiffs are seeking, among other things, past damages adequate to compensate them for our alleged infringement of each of the patents-in-suit, and reasonable attorneys’ fees and costs. They are also seeking an injunction against us, enjoining continuing acts of infringement of the patents-in-suit. We have denied that we are infringing any of the patents, and we have asserted that we are licensed under four of them and that all eight are invalid. We have also filed IPR petitions with the PTAB against six of the eight patents. On September 23, 2020, the District of Delaware granted Impinj’s motion to transfer the case to the U.S. District Court for the Western District of Washington in Seattle. On December 3, 2020, we moved to amend our answer to include counterclaims that certain NXP integrated circuit products infringe eight of our U.S. patents, all of which were initially included in our California litigation and are therefore beyond the statutory period for any further IPR review at the PTAB.

On December 11, 2020, we also moved to stay the case with respect to six of the eight patents in suit pending final resolution of petitions that we filed for IPR review by the PTAB. On February 12, 2021, the Court denied our motion to amend our answer to include counterclaims but granted our motion to stay the case as to the six patents with respect to which we filed for IPR review. On February 25, 2021, the Court entered a case schedule setting initial contentions and claim construction deadlines, including a claim construction hearing for October 12, 2021. The schedule sets pretrial deadlines for June of 2021. The parties have served preliminary contentions for the two patents not subject to the stay.

The PTAB has entered initial decisions on whether to institute the IPRs filed against three of the six challenged patents. On April 1, 2021, the PTAB issued an initial decision instituting IPR in one of the six proceedings. On April 6, 2021, the PTAB issued initial decisions not to institute IPRs in two of the six proceedings. Impinj’s deadline to request rehearing is May 6, 2021.

On December 7, 2020, Impinj Radio Frequency Technology (Shanghai) Co., Ltd., or Impinj Shanghai, was served with patent infringement lawsuits filed in the Intellectual Property Court in Shanghai, China, or Shanghai Intellectual Property Court, in which NXP asserts that certain of our products infringe three Chinese patents owned by NXP, which closely correspond to three of the eight U.S. patents NXP has already asserted in U.S. District Court described above. Impinj Shanghai has objected to the jurisdiction of the Shanghai Intellectual Property Court and has filed a motion to stay the proceedings. Impinj Shanghai also filed invalidity requests against the three Chinese patents before the China National Intellectual Property Administration. Oral hearings for the invalidity requests have been scheduled for April and May 2021.

Note 6. Debt Facilities

Convertible Senior Notes

In December 2019, we issued convertible senior notes due 2026, or the 2019 Notes, in an aggregate principal amount of $86.3 million. The 2019 Notes are our senior unsecured obligations and are governed by the indenture for the 2019 Notes. The 2019 Notes accrue interest at a fixed rate of 2.00% per year, payable semiannually in arrears on June 15 and December 15 of each year, beginning June 15, 2020. Upon conversion, the 2019 Notes will be convertible into cash, shares of our common stock or a combination thereof, at our election. The 2019 Notes will mature on December 15, 2026, unless earlier repurchased, redeemed, or converted in accordance with the terms of the indenture.

Our net proceeds from issuing the 2019 Notes were approximately $83.5 million after deducting fees and expenses. We used a portion of the proceeds to pay the cost of the capped-call transactions described below and repay our prior senior credit facility.

The 2019 Notes are convertible at an initial conversion rate of 28.9415 shares of our common stock per $1,000 principal amount of the 2019 Notes, which is equal to an initial conversion price of approximately $34.55 per share of our common stock, subject to adjustment under certain circumstances in accordance with the indenture. Prior to the close of business on the business day immediately preceding September 15, 2026, holders of the 2019 Notes may convert all or a portion of their 2019 Notes under the following circumstances:

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

 

during the five-business day period after any five consecutive trading-day period in which the trading price per $1,000 principal amount of the 2019 Notes for each trading day was less than 98% of the product of the last reported sale price of our common stock and the conversion rate on each such trading day;

 

prior to the close of business on the second scheduled trading day immediately preceding the redemption date if we call the 2019 Notes for redemption; or

 

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

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

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

Holders of the 2019 Notes who convert their 2019 Notes in connection with certain corporate events that constitute a make-whole fundamental change (as defined in the indenture) are, under certain circumstances, entitled to an increase in the conversion rate. Additionally, in the event of a corporate event constituting a fundamental change (as defined in the indenture), holders of the 2019 Notes may require us to repurchase all or a portion of their 2019 Notes at a repurchase price equal to 100% of the principal amount of the 2019 Notes being repurchased, plus any accrued and unpaid interest to, but excluding, the repurchase date.

The last reported sale price of our common stock exceeded 130% of the conversion price of the 2019 Notes for more than 20 trading days during the 30 consecutive trading days ended March 31, 2021. Accordingly, the 2019 Notes are convertible at the option of the holders as of March 31, 2021. The “if-converted value” exceeded the principal amounts by $55.7 million based the closing price of our common stock of $56.87 as of March 31, 2021.

We incurred the 2019 Notes total issuance costs of $2.8 million and amortized the issuance costs to interest expense over the respective term of the 2019 Notes using the effective interest rate method.

The effective interest rate on the 2019 Notes is 2.50%. As of March 31, 2021, we have $508,000 of accrued interest related to the 2019 Notes included in accrued liabilities on our condensed consolidated balance sheet.

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

 

 

Three Months Ended March 31,

 

 

 

2021

 

 

2020

 

Amortization of debt discount (1)

 

$

 

 

$

854

 

Amortization of debt issuance costs

 

 

94

 

 

 

26

 

Cash interest expense

 

 

431

 

 

 

431

 

Total interest expense