Impinj(PI) - 2025 Q2 - Quarterly Report

Risk Factor Summary The company faces significant risks from market competition, supply chain dependencies, product quality, and financial instability including historical losses - The company operates in a highly competitive market with uncertain RAIN market adoption beyond key areas[8] - Significant risks include reliance on a limited number of third-party suppliers, potential product quality issues, and the need for end-users and partners to integrate products into their processes[8] - Financial risks involve a history of losses, significant fluctuations in operating results, and potential inability to meet obligations under convertible senior notes[8] PART I. — FINANCIAL INFORMATION This section presents the company's unaudited condensed consolidated financial statements and management's discussion and analysis of financial condition and results of operations Item 1. Financial Statements (Unaudited) This section presents the unaudited condensed consolidated financial statements, including balance sheets, statements of operations, comprehensive income (loss), cash flows, changes in stockholders' equity, and accompanying notes, prepared in conformity with U.S. GAAP and SEC interim reporting regulations Condensed Consolidated Balance Sheets This section provides a summary of the company's financial position, detailing total assets, liabilities, and stockholders' equity at specific dates Condensed Consolidated Balance Sheets (in thousands) | Metric | June 30, 2025 | December 31, 2024 | | :-------------------------------- | :------------ | :------------------ | | Total assets | $508,817 | $489,080 | | Total liabilities | $321,128 | $339,216 | | Total stockholders' equity | $187,689 | $149,864 | Condensed Consolidated Statements of Operations This section details the company's revenues, costs, gross profit, and net income over specified periods, including per share data Condensed Consolidated Statements of Operations (in thousands, except per share data) | Metric | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | | :--------------------------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Revenue | $97,894 | $102,495 | $172,171 | $179,320 | | Cost of revenue | $41,281 | $44,979 | $78,877 | $84,256 | | Gross profit | $56,613 | $57,516 | $93,294 | $95,064 | | Income (loss) from operations | $10,874 | $9,046 | $1,305 | $(2,687) | | Net income | $11,553 | $9,963 | $3,102 | $43,307 | | Net income per share — basic | $0.40 | $0.36 | $0.11 | $1.57 | | Net income per share — diluted | $0.39 | $0.34 | $0.10 | $1.44 | - Net income for the six months ended June 30, 2025, significantly decreased to $3.1 million from $43.3 million in the prior-year period, primarily due to a $45.0 million income from settlement of litigation recognized in Q1 2024[12][23][47] Condensed Consolidated Statements of Comprehensive Income (Loss) This section presents the company's net income and other comprehensive income (loss) components, leading to total comprehensive income Condensed Consolidated Statements of Comprehensive Income (Loss) (in thousands) | Metric | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | | :--------------------------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Net income | $11,553 | $9,963 | $3,102 | $43,307 | | Total other comprehensive income (loss) | $2,646 | $(148) | $4,215 | $(773) | | Comprehensive income | $14,199 | $9,815 | $7,317 | $42,534 | - Total other comprehensive income significantly increased for the six months ended June 30, 2025, to $4.2 million from a loss of $(0.8) million in the prior-year period, driven by foreign currency translation adjustment[14] Condensed Consolidated Statements of Cash Flows This section outlines the company's cash inflows and outflows from operating, investing, and financing activities over specified periods Condensed Consolidated Statements of Cash Flows (in thousands) | Activity | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | | :-------------------------------- | :----------------------------- | :----------------------------- | | Net cash provided by operating activities | $22,717 | $105,619 | | Net cash provided by (used in) investing activities | $(31,688) | $5,465 | | Net cash provided by financing activities | $4,963 | $8,844 | | Net increase (decrease) in cash and cash equivalents | $(3,636) | $119,860 | | Cash and cash equivalents, end of period | $42,417 | $214,653 | - Net cash provided by operating activities decreased significantly to $22.7 million for the six months ended June 30, 2025, compared to $105.6 million in the prior-year period[16] - Investing activities shifted from providing $5.5 million in cash in 2024 to using $31.7 million in 2025, primarily due to increased purchases of investments[16] Condensed Consolidated Statements of Changes in Stockholders' Equity This section details the changes in the company's total stockholders' equity over various periods, reflecting impacts from net income and stock transactions Total Stockholders' Equity (in thousands) | Date | Total Stockholders' Equity | | :------------------- | :------------------------- | | June 30, 2025 | $187,689 | | December 31, 2024 | $149,864 | | June 30, 2024 | $116,972 | | December 31, 2023 | $34,131 | - Total stockholders' equity increased to $187.7 million as of June 30, 2025, from $149.9 million at December 31, 2024, driven by net income, issuance of common stock, stock-based compensation, and other comprehensive income[17] Notes to Condensed Consolidated Financial Statements This section provides detailed explanations and additional information supporting the condensed consolidated financial statements Note 1. Summary of Significant Accounting Policies This note outlines the key accounting principles and methods used in preparing the financial statements, including estimates and judgments - The financial statements are prepared in conformity with U.S. GAAP and SEC interim reporting rules, with certain information condensed or omitted[20] - Management makes estimates and judgments affecting reported amounts, including revenue recognition, inventory, and income taxes[22] - In Q1 2024, the company recorded a $45 million payment from NXP Semiconductors N.V. as income from settlement of litigation, and will recognize annual license fees as revenue in Q2 each year[23] Note 2. Fair Value Measurements This note describes the company's fair value measurements for financial assets and liabilities, categorized by input observability - Fair value is defined as an exit price in an orderly transaction, categorized into a three-level hierarchy based on input observability[27] - The company had no financial assets or liabilities in Level 3 as of June 30, 2025, or December 31, 2024[28] Balances of Assets and Liabilities Measured at Fair Value (in thousands) | Category | June 30, 2025 (Total) | December 31, 2024 (Total) | | :----------------------- | :-------------------- | :------------------------ | | Total cash equivalents | $11,181 | $1,097 | | Total short-term investments | $150,788 | $118,661 | | Total long-term investments | $67,332 | $74,871 | | Total | $229,301 | $194,629 | Note 3. Inventory This note provides a breakdown of the company's inventory components, including raw materials, work-in-process, and finished goods Inventory Breakdown (in thousands) | Category | June 30, 2025 | December 31, 2024 | | :--------------- | :------------ | :------------------ | | Raw materials | $9,634 | $14,040 | | Work-in-process | $37,579 | $52,028 | | Finished goods | $48,997 | $33,278 | | Total inventory | $96,210 | $99,346 | - Total inventory decreased to $96.2 million as of June 30, 2025, from $99.3 million at December 31, 2024, primarily due to decreases in raw materials and work-in-process, partially offset by an increase in finished goods[34] Note 4. Goodwill and Intangible Assets This note details the company's goodwill and intangible assets, including their carrying amounts, amortization, and useful lives Goodwill (in thousands) | Period | Balance at beginning of period | Foreign currency translation adjustment | Total | | :---------------------- | :----------------------------- | :-------------------------------------- | :------ | | Six Months Ended June 30, 2025 | $18,723 | $2,037 | $20,760 | | Six Months Ended June 30, 2024 | $19,696 | $(440) | $19,256 | Net Intangible Assets (in thousands) | Category | Estimated Useful Life (Years) | Gross Carrying Amount | Accumulated Amortization | Net | | :----------------------- | :---------------------------- | :-------------------- | :----------------------- | :------ | | Developed Technology | 7.25 | $13,900 | $(4,314) | $9,586 | | Patent | 3 | $250 | $(163) | $87 | | Tradename | 8 | $1,296 | $(364) | $932 | | Total definite-lived intangible assets | | $15,446 | $(4,841) | $10,605 | - Amortization of intangible assets was $1.0 million for the six months ended June 30, 2025, a decrease from $1.9 million in the prior-year period, due to certain acquired intangible assets having a useful life of less than 1 year[35][107] Note 5. Stock-Based Awards This note presents the company's stock-based compensation expense across various categories for specified periods Stock-Based Compensation Expense (in thousands) | Expense Category | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | | :------------------------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Cost of revenue | $539 | $534 | $1,065 | $987 | | Research and development expense | $6,065 | $6,543 | $13,084 | $11,805 | | Sales and marketing expense | $1,984 | $2,802 | $2,254 | $5,211 | | General and administrative expense | $4,435 | $4,826 | $9,142 | $8,492 | | Total stock-based compensation expense | $13,023 | $14,705 | $25,545 | $26,495 | - Total stock-based compensation expense decreased to $25.5 million for the six months ended June 30, 2025, from $26.5 million in the prior-year period[38] Note 6. Commitments and Contingencies This note discloses the company's significant purchase commitments and potential liabilities from legal proceedings and settlements - The company is committed to purchase $23.6 million of inventory as of June 30, 2025[40] - In March 2024, Impinj and NXP Semiconductors N.V. entered into a Settlement and Patent Cross-License Agreement, terminating all pending patent infringement proceedings[45] - Under the settlement, NXP paid Impinj a one-time $45.0 million and agreed to annual license fee payments, with Impinj recognizing $15.0 million and $16.0 million in revenue for the first and second annual license fees in Q2 2024 and 2025, respectively[46][47] Note 7. Long-term debt This note provides details on the company's long-term debt, specifically the 2021 Convertible Senior Notes, including terms and interest expense 2021 Convertible Senior Notes (in thousands) | Metric | June 30, 2025 | December 31, 2024 | | :-------------------------- | :------------ | :------------------ | | Principal Amount | $287,498 | $287,500 | | Unamortized debt issuance costs | $(3,177) | $(4,007) | | Net Carrying Amount | $284,321 | $283,493 | | Estimated Fair Value | $358,800 | $408,700 | - The 2021 Notes bear a fixed interest rate of 1.125% per year, payable semi-annually, and mature on May 15, 2027[48][122] Interest Expense Related to 2021 Notes (in thousands) | Expense Type | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | | :-------------------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Amortization of debt issuance costs | $416 | $409 | $830 | $816 | | Cash interest expense | $809 | $808 | $1,618 | $1,617 | | Total interest expense | $1,225 | $1,217 | $2,448 | $2,433 | Note 8. Net Earnings Per Share This note presents the calculation of basic and diluted net earnings per share, including factors affecting dilution Net Earnings Per Share (in thousands, except per share amounts) | Metric | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | | :--------------------------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Net income attributable to common stock holders | $11,553 | $9,963 | $3,102 | $45,740 | | Weighted average common shares outstanding, basic | 29,008 | 27,889 | 28,824 | 27,623 | | Weighted average common shares outstanding, diluted | 29,655 | 29,422 | 29,550 | 31,718 | | Net earnings per share — basic | $0.40 | $0.36 | $0.11 | $1.57 | | Net earnings per share — diluted | $0.39 | $0.34 | $0.10 | $1.44 | - Diluted EPS for the six months ended June 30, 2025, was $0.10, a significant decrease from $1.44 in the prior-year period, largely influenced by the litigation settlement income in 2024[57] Antidilutive Common Stock Equivalents Excluded from Diluted EPS (in thousands) | Category | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | | :------------------------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | RSUs, MSUs and PSUs | 470 | 114 | 904 | 737 | | Employee stock purchase plan shares | 16 | — | 16 | — | | 2021 Notes | 2,589 | 2,589 | 2,589 | — | Note 9. Segment Information This note describes the company's operating segments and provides a breakdown of revenue by product category - The company operates as a single reportable and operating segment focused on developing and selling RAIN products and services[60] Revenue Categories (in thousands) | Category | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | | :--------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Endpoint ICs | $84,619 | $89,392 | $145,837 | $150,898 | | Systems | $13,275 | $13,103 | $26,334 | $28,422 | | Total revenue | $97,894 | $102,495 | $172,171 | $179,320 | - Endpoint IC sales are expected to represent the majority of revenue for the foreseeable future[89] Note 10. Deferred Revenue This note explains the company's deferred revenue, detailing changes in balances from deferrals and recognition - Deferred revenue represents contracted revenue not yet recognized, including extended warranty, enhanced product maintenance, and advance payments on NRE services[63] Changes in Deferred Revenue (in thousands) | Metric | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | | :-------------------------- | :----------------------------- | :----------------------------- | | Balance at beginning of period | $1,968 | $1,985 | | Deferral of revenue | $1,804 | $1,630 | | Recognition of deferred revenue | $(1,261) | $(1,347) | | Balance at end of period | $2,511 | $2,268 | Note 11. Restructuring This note outlines the company's restructuring activities, including employee termination benefits and associated costs - In February 2024, the company initiated a strategic restructuring, including a reduction-in-force affecting approximately 10% of employees, incurring $1.8 million in charges for employee termination benefits[65] - Restructuring payments were completed in Q2 2024, and no restructuring costs were incurred for the six months ended June 30, 2025[65][109] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations This section provides management's perspective on the company's financial condition and results of operations, discussing its business vision, mission, product offerings, factors affecting performance, and detailed analysis of revenue, gross profit, operating expenses, and liquidity Our Business This section describes Impinj's vision for a "Boundless Internet of Things," its mission to connect every item, and its platform offerings including silicon RAIN radios, systems, software, and intellectual property - Impinj's vision is a 'Boundless Internet of Things' where every item is wirelessly connected to the cloud, with ownership, history, and linked information seamlessly available[70] - The company's mission is to connect every thing, having enabled connectivity for over 120 billion items to date, focusing on extending item connectivity from tens of billions to trillions[71] - Impinj designs and sells a platform including silicon RAIN radios (endpoint ICs and reader ICs), manufacturing/test/encoding/reading systems, software, cloud services, and intellectual property[72][74] Factors Affecting Our Performance This section discusses macroeconomic factors, demand forecasting challenges, unpredictable RAIN adoption rates, and seasonality that impact the company's performance - Macroeconomic factors, including trade measures and tariffs, can negatively affect the business, especially for endpoint ICs embedded in imported products[77] - Challenges in forecasting demand and timely identification of market shifts can lead to inventory overages or shortages, impacting expenses, obsolescence, lead times, and customer relationships[78] - RAIN adoption and unit growth rates are uneven and unpredictable, with endpoint IC sales volumes increasing at a 27% CAGR from 2010-2024 but experiencing declines in various periods[80] - Seasonality impacts revenue, with endpoint IC volumes typically lower in Q4 and system sales higher in Q4, but macroeconomic conditions may alter these trends in 2025[84][85] Results of Operations This section analyzes the company's revenue, gross profit, gross margin, and income from operations, highlighting key changes and contributing factors for the reported periods Key Financial Results (in thousands, except percentages) | Metric | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | Change (3M) | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | Change (6M) | | :-------------------------- | :------------------------------- | :------------------------------- | :---------- | :----------------------------- | :----------------------------- | :---------- | | Revenue | $97,894 | $102,495 | $(4,601) | $172,171 | $179,320 | $(7,149) | | Gross profit | $56,613 | $57,516 | $(903) | $93,294 | $95,064 | $(1,770) | | Gross margin | 57.8% | 56.1% | 1.7% | 54.2% | 53.0% | 1.2% | | Income (loss) from operations | $10,874 | $9,046 | $1,828 | $1,305 | $(2,687) | $3,992 | - Revenue decreased for both the three and six months ended June 30, 2025, primarily due to lower endpoint IC revenue driven by lower ASP, partially offset by higher systems revenue in the three-month period[87][88][90][91] - Gross margin increased for both periods, mainly due to product mix within endpoint ICs (higher M800 contribution) and an increase in high-margin licensing revenue[87][88][94][95] - Income from operations increased for both periods, primarily due to decreased operating expenses, despite decreased gross profit[87][88] Operating Expenses (in thousands) | Expense Category | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | Change (3M) | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | Change (6M) | | :-------------------------- | :------------------------------- | :------------------------------- | :---------- | :----------------------------- | :----------------------------- | :---------- | | Research and development | $24,652 | $24,924 | $(272) | $49,966 | $47,443 | $2,523 | | Sales and marketing | $8,738 | $9,827 | $(1,089) | $16,793 | $20,003 | $(3,210) | | General and administrative | $11,828 | $13,223 | $(1,395) | $24,224 | $26,588 | $(2,364) | | Amortization of intangibles | $521 | $496 | $25 | $1,006 | $1,905 | $(899) | | Restructuring costs | $0 | $0 | $0 | $0 | $1,812 | $(1,812) | - Other income, net, increased for the six-month period due to higher interest income from increased invested balances and higher interest rates[111] - Income from settlement of litigation decreased by $45.0 million for the six-month period as the prior year included the one-time settlement with NXP[113] Liquidity and Capital Resources This section discusses the company's cash position, working capital, and future capital needs, including cash flow activities and purchase commitments - As of June 30, 2025, the company had $193.2 million in cash, cash equivalents, and short-term investments, and $319.7 million in working capital[118] - The company believes existing cash and investments will be sufficient for anticipated needs for at least the next 12 months, with plans for continued investment in platform enhancement and expansion[120] Summary of Cash Flows (in thousands) | Activity | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | | :-------------------------------- | :----------------------------- | :----------------------------- | | Net cash provided by operating activities | $22,717 | $105,619 | | Net cash provided by (used in) investing activities | $(31,688) | $5,465 | | Net cash provided by financing activities | $4,963 | $8,844 | - Primary cash requirements are for operating expenses and capital expenditures, with purchase commitments totaling $29.9 million as of June 30, 2025[129][131] Off-Balance-Sheet Arrangements This section confirms the absence of off-balance-sheet arrangements, such as relationships with unconsolidated entities or structured finance - The company has not had any relationships with unconsolidated entities, structured finance, or special-purpose entities since inception[132] Critical Accounting Policies and Significant Estimates This section highlights the critical accounting policies and significant estimates that require management judgment and can materially affect reported financial amounts - Financial statements are prepared in accordance with GAAP, requiring management to make estimates and assumptions that affect reported amounts[133] - Estimates are evaluated on an ongoing basis, and material differences between estimates and actual results could affect financial statements[133][134] Item 3. Quantitative and Qualitative Disclosures About Market Risk This section discusses the company's exposure to market risks, including interest rate risk, inflation risk, and foreign currency exchange risk, and management's strategies to mitigate these risks Interest Rate Risk This section assesses the company's exposure to interest rate fluctuations on its investments and convertible notes - The company invests excess cash in money market funds, U.S. government securities, corporate bonds, notes, and commercial paper, prioritizing principal preservation and liquidity[136] - With $193.2 million in cash, cash equivalents, and short-term investments as of June 30, 2025, the company does not expect a material effect on its portfolio or results from an immediate 10% increase in interest rates due to the short-term nature of investments[137] - The convertible notes have fixed interest rates, so a hypothetical 100 basis point increase in interest rates would not impact interest expense[138] Inflation Risk This section evaluates the impact of inflation on the company's business and its ability to offset rising costs through pricing adjustments - Inflation has not had a material effect on the business to date, as higher product costs have been substantially offset by increasing product selling prices[139] - Inability to fully offset significant future inflationary pressures through price increases could adversely affect the business, financial condition, and results of operations[139] Foreign Currency Exchange Risk This section addresses the company's exposure to foreign currency exchange rate fluctuations from transactions and translation adjustments - The company is exposed to foreign currency exchange risk from transactions in non-functional currencies and translation adjustments, though no material impact was observed in the presented periods[140] - The functional currency for most foreign subsidiaries is the U.S. dollar, with gains and losses from remeasurement included in other income, net[140] - The Voyantic subsidiary uses Euros as its functional currency, resulting in translation adjustments included in accumulated other comprehensive income[140] Item 4. Controls and Procedures This section details the evaluation of disclosure controls and procedures and internal control over financial reporting, confirming their effectiveness and noting no material changes during the quarter, while also acknowledging inherent limitations of control systems Evaluation of Disclosure Controls and Procedures This section confirms management's conclusion on the effectiveness of the company's disclosure controls and procedures - Management, including the CEO and CFO, concluded that disclosure controls and procedures were effective at a reasonable assurance level as of June 30, 2025[141] Changes in Internal Control over Financial Reporting This section reports on any material changes to the company's internal control over financial reporting during the most recent fiscal quarter - There were no changes that materially affected, or are reasonably likely to materially affect, internal control over financial reporting during the three months ended June 30, 2025[142] Limitations on Controls This section acknowledges the inherent limitations of disclosure controls and internal control over financial reporting, emphasizing that they provide reasonable, not absolute, assurance - Disclosure controls and internal control over financial reporting are designed to provide reasonable, not absolute, assurance of achieving control objectives[144] - Management recognizes that any control system is based on judgments and assumptions and cannot provide absolute assurance against misstatements or fraud[144] PART II. — OTHER INFORMATION This section provides additional information not included in the financial statements, covering legal proceedings, risk factors, and other disclosures Item 1. Legal Proceedings This section states that the company is subject to various legal claims in the ordinary course of business, but cannot predict whether any resulting liability will have a material adverse effect on its financial position, results of operations, cash flows, market position, or stock price - The company is subject to various legal claims in the ordinary course of business, but cannot predict whether any resulting liability will have a material adverse effect on its financial position, results of operations, cash flows, market position, or stock price[147] Item 1A. Risk Factors This section details numerous risks and uncertainties that could materially impact the company's business, operating results, and financial condition, categorized into risks relating to platform/products, personnel/operations, intellectual property, privacy/cybersecurity, financial position/capital needs, U.S. federal income tax, and securities ownership/trading Risks Relating to Our Platform, Products and Technologies This section outlines risks associated with the company's competitive market, RAIN adoption, reliance on endpoint IC sales, declining ASPs, and nascent licensing program - The company operates in a very competitive market against larger competitors like NXP, EM Microelectronic, and Kiloway for endpoint ICs, and Phychips Inc for reader ICs[149][155] - RAIN adoption is concentrated in key markets (retail apparel, SC&L), and the pace of adoption beyond these markets is uncertain and has historically been difficult to forecast[151][153] - The company relies heavily on endpoint IC sales for most of its revenue, making it vulnerable to demand declines or inability to procure wafers[161] - Average selling prices (ASPs) of products have historically decreased, requiring continuous improvement in technology, cost reduction, and introduction of new, higher-margin products to maintain profitability[162][163] - The company's licensing program is nascent, with a substantial share of current licensing revenue derived from NXP, posing risks if NXP breaches obligations or designs around Impinj's IP[185][186] Risks Relating to Our Personnel and Business Operations This section details risks related to reliance on third-party manufacturers, supply chain shortages, global trade policies, international operations, and geopolitical developments - The company relies on a limited number of third-party manufacturers for products and does not have long-term supply contracts, exposing it to risks of capacity shortages, supply disruptions, and quality issues[187][188] - Shortages of silicon wafers, IC post-processing materials, or components for readers and gateways can adversely affect the ability to meet demand, leading to market-share losses and impact on gross margins[189][191][192] - Changes in global trade policies, including tariffs, could have a material adverse effect, particularly on products containing endpoint ICs imported from China[200][202] - Operating abroad presents risks such as changes in regulatory requirements, trade laws, political instability, and difficulties in enforcing contracts, especially given 77% of 2024 revenue was from outside the U.S.[203][204][209] - The company sources a significant portion of wafers from Taiwan, making it vulnerable to diplomatic and geopolitical developments between China and Taiwan[212] Risks Relating to Our Relationships with Partners and End Users This section addresses risks stemming from reliance on a small number of customers, indirect sales channels, strategic partnerships, and brand reputation - The company relies on a small number of customers for a large share of its revenue; in 2024, sales to three major customers accounted for 60% of total revenue[216] - Selling primarily through partners limits the company's ability to directly assess and affect end-user demand, and partners may prioritize competitors' products or provide inaccurate demand forecasts[219][220] - Growth strategy depends on successful strategic relationships with third-party solution providers, SIs, VARs, and software providers, and direct engagements with end users could create conflicts with partners[222][223] - Failure to maintain or enhance brand recognition and reputation, especially due to product supply shortages or price increases, could harm business and relationships with partners and end users[224] Risks Relating to Our Intellectual Property This section covers risks concerning the company's ability to protect and enforce its intellectual property, potential disputes, industry standards, third-party licenses, and open-source software use - The company's success depends on its ability to obtain, maintain, and enforce intellectual property rights, primarily focused on U.S. patents, limiting assertion capabilities in significant foreign markets[228] - Intellectual property disputes are complex, costly, and time-consuming, potentially leading to significant damages, licensing requirements, or adverse effects on RAIN adoption[230][232][235] - Participation in industry standards organizations (e.g., GS1, ISO) may require providing royalty-free or RAND licenses for necessary intellectual property, potentially devaluing patents[237][238][239] - Reliance on third-party license agreements for patents, software, and technology means impairment or termination could cause production or shipment delays[240] - The use of open-source software may expose the company to additional risks, including disclosure requirements and lack of warranties, potentially weakening intellectual property rights[241] Risks Relating to Privacy and Cybersecurity This section addresses risks related to privacy concerns, evolving regulations, and potential security breaches impacting the company's reputation and operations - Privacy and security concerns related to RAIN, such as unauthorized data collection or tracking, could damage the company's reputation and deter customers[243][244] - Evolving government regulations and guidelines on consumer privacy and cybersecurity (e.g., CCPA, GDPR, EC recommendations for RFID) may require product design changes or constrain new features[246][247][248] - Security breaches or incidents impacting company systems or third-party services could lead to operational disruptions, regulatory investigations, claims, and significant costs, harming business and reputation[250][251][252] Risks Relating to Our Financial Position and Capital Needs This section discusses risks concerning the company's history of losses, volatile operating results, and potential need for additional capital, which could lead to dilution or restrictive covenants - The company has a history of losses since its inception in 2000 and cannot be certain of attaining or sustaining profitability in the future, dependent on RAIN adoption and market share[254] - Significant fluctuations in quarterly and annual operating results are common due to sales volatility, limited forecasting ability, and various external factors, making financial planning difficult[255][256] - The company may need to raise additional capital in the future, which could result in dilution for stockholders, restrictive debt covenants, or an inability to meet business objectives if not available on favorable terms[259][260][262] Risks Relating to U.S. Federal Income Tax This section addresses risks related to limitations on using net operating losses and R&D credits, potential changes in tax laws, and additional income tax liabilities - The company's ability to use net operating losses (NOLs) and research and development (R&D) credits to offset future taxable income may be limited by ownership changes (Sections 382 and 383 of the Code)[264][265] - Changes in tax laws, such as the Inflation Reduction Act of 2022 (1% excise tax on stock buybacks, 15% alternative minimum tax) and the requirement to capitalize R&D expenditures, could materially affect the company's tax liabilities and operating results[267] - The company may be subject to additional income tax liabilities if taxing authorities successfully assert that sales and use, value-added, or similar taxes should have been collected in certain jurisdictions[270] Risks Relating to Owning or Trading Our Securities This section discusses risks associated with the volatility of the common stock price, potential dilution from convertible notes, significant influence of principal stockholders, and anti-takeover provisions - The market price of the common stock has been and is likely to remain volatile, influenced by factors such as operating performance, industry trends, new product announcements, and litigation[273][275] - Transactions related to the 2021 Notes, including conversions into stock or hedging activities by financial counterparties, may affect the stock's value and could lead to dilution[277][278] - Executive officers, directors, and principal stockholders beneficially owned approximately 54.3% of the outstanding common stock as of June 30, 2025, allowing them to exercise significant influence over stockholder approval matters[280] - Anti-takeover provisions in charter documents and state law could prevent, delay, or impede an acquisition, potentially constraining the stock price[282][284] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds This section states that there were no unregistered sales of equity securities or use of proceeds during the period - No unregistered sales of equity securities or use of proceeds occurred during the period[286] Item 3. Defaults Upon Senior Securities This section reports no defaults upon senior securities - There were no defaults upon senior securities[287] Item 4. Mine Safety Disclosures This section states that this item is not applicable to the registrant - This item is not applicable to the registrant[288] Item 5. Other Information This section discloses information regarding securities trading plans of directors and executive officers, specifically a Rule 10b5-1 trading arrangement adopted by the CEO Securities Trading Plans of Directors and Executive Officers | Name and Title | Character of Trading Arrangement | Date Adopted | Date Terminated | Duration | Aggregate Number of Shares of Common Stock to be Purchased or Sold Pursuant to Trading Arrangement | | :--- | :--- | :--- | :--- | :--- | :--- | | Chris Diorio, Ph.D., Director, Chief Executive Officer and Vice Chair | Rule 10b5-1 Trading Arrangement | May 28, 2025 | - | February 27, 2026 | Up to 39,096 | Item 6. Exhibits This section lists all exhibits filed with the Form 10-Q, including organizational documents, certifications, and XBRL documents - The report includes various exhibits such as Amended and Restated Certificate of Incorporation, Amended and Restated Bylaws, Separation and Release of Claims Agreement, certifications of principal executive and financial officers, and Inline XBRL documents[293] Signatures This section contains the required signatures for the Form 10-Q, certifying its submission pursuant to the Securities Exchange Act of 1934 - The report is signed by Cary Baker, Chief Financial Officer, on July 30, 2025[297]