PI 10-K & 10-Q changes, risk factors and insider trading

Endpoint ICs: NXP, EM Microelectronic, Kiloway, Quanray, Shanghai Fudan Microelectronics Group, Alibaba and Alien.

Reader ICs: Phychips Inc,Inc and Shanghai Fudan Microelectronics Group, MagicRF and NationRFID.Group.

TestTag and measurementproduction systems: CISC.

Our partners, including our OEMs, ODMs, distributors, SIs, VARs and solution partners, may choose to compete with us rather than purchase our products, which would not onlycould reduce our customer base but alsoand increase competition in the market.competition. Companies in adjacent markets or newly formed companies may decide to enter our market, particularly as RAIN adoption grows. Further, the Chinese government has made development ofdeveloping the Chinese semiconductor industry a priority, potentially increasing competition for us globally while possibly restricting our ability to participate in the Chinese market.

Our financial performance depends on the pace of end-user RAIN adoption in key markets, such as retail apparel (our largest market), retail general merchandisemerchandise, SC&L and SC&L.food. Although RAIN has been adopted to some degree by end users in those markets, those end users as well as the markets themselves are subject to business cycles and macroeconomic trends. Continued RAIN adoption by those end users and in those markets may be at risk if and when negative business or economic conditions arise.

The RAIN opportunity is still developing. RAIN adoption, as well as adoption of our platform and products, including our Gen2X features, depends on many factors, including the extent to which end users understand and embrace the benefits that RAIN offersand our platforms and products offer; whether thetheir benefits of RAIN adoption outweigh the cost and time to replace or modify end users’ existing systems and processes; and whether RAIN products and applicationsthey meet end users’ current or anticipated needs.

We must introduce new products, product enhancementsservices and servicessolutions to compete effectively.

We introduce new products and services to advance our business, satisfy increasingly demanding end-user requirements and grow RAIN market adoption. We commit significant resources developing and introducing these new products and services, and to improving the performance and reliability of, and reducing the costs of, our existing products and services. We are also increasingly focused on providing enterprise solutions to partners and end users.

Whether our new or enhanced productsproducts, services and servicessolutions will succeed is uncertain. For example, our software and cloud services offerings have not yet grown into a material source of revenue, and whether or when our investment in these areas will be successful is uncertain. Our success developing the technologies, processes or capabilities necessary or desired for new or enhanced productsproducts, services and services,solutions, or licensing or otherwise acquiring them from third parties, and our ability to introduce new or enhanced productsproducts, services and servicessolutions before our competition, depends on many factors, including:

our ability to identify new product capabilitiescapabilities, services or servicessolutions that end users will widely adopt;

our timely and efficientefficiently completion ofcompleting the design process;

our timely and efficientefficiently implementation ofimplementing manufacturing, assembly and testing procedures;

our attainment ofattaining appropriate product or service performance levels and product certifications;

the quality, reliability and selling price of our productproducts, services or servicesolutions; and the effectiveness of our marketing, sales and support.support effectiveness.

When we introduce new productsproducts, services and services,solutions, our success in ramping adoption depends, in part, on us making those productsproducts, services and servicessolutions easy for our partners and end users to deploy and use. For example, when we launched our M800-family endpoint ICs, we supported our inlay partners in producing high-performing, high-quality M800-based inlays. Without this support, M800 adoption would have been delayed,delayed and our operating results would have suffered. We cannot guarantee that we will be able to provide sufficient support for future products, in which case our operating results could suffer.

Our ability to deliver enterprise solutions at scale areis nascent.

We believe we are still at a very early stage indeveloping our ability to deliver enterprise solutions. If we do not succeed in identifying, developing, selling and deploying enterprise solutions with top-tier partners and end users across a range ofvarious markets and use cases, then our business prospects will suffer.

We have developed, and continue developing, solutions for retail self-checkout and loss prevention and SC&L package routing that have been, or that we expect to continue being, deployed by industry-leading enterprise end users. We have also launched features in Gen2X that we believe will improve RAIN’s ability to deliver cost-effective solutions to enterprises. However, to fully capitalize on our platform'splatform’s potential, we must make our current offerings repeatable across multiple enterprises and in a variety ofvarious market segments. We must also develop relationships with top-tier solution partners to gain access to and address challenging new use cases.cases, such as in food.

We and our partners may be unable to successfully acquire customers for our enterprise solutions, or to successfully address our market opportunity. Delivering enterprise solutions requires a network of partner products and services network that complementcomplements our own and that together addressaddresses enterprise needs. Convincing enterprises to partner with us to solve their business problems—including evaluation, design, deployment, operations and services, as well as integrating RAIN data into the enterprise'senterprise’s information systems—requires tight coordination among our and our partners'partners’ sales, marketing, operations and engineering teams. If we do not build our enterprise solutions platform and our partner network to deliver these solutions effectively, our business prospects will suffer.

We derive, and expect to continue to derive,derive for some time, most of our revenue from our endpoint ICs. If demand declines, or if we are unable to procure enough wafers to meet the demand we have, or if we are unable to raise prices to offset cost increases, then our business and operating results will suffer. In addition, the continued adoption of, and demand for, our endpoint ICs,ICs derives in part from us demonstrating thetheir benefits of using our systems. If we fail to establish those benefits then we may be unsuccessful in countering competitive endpoint IC price pressures and our business and operating results could be adversely affected.

The averageAverage selling prices of our products could fluctuate substantially.

The average selling price, or ASP, of our products has historically decreased with time or to meet end-user demands, encourage adoption, address macroeconomic conditions or respond to competitive pressure. AsASPs can decline quickly for a number of reasons such as demand for older products declines, or asdeclining, competition from competitors with lower product costs or lower profitability expectations increases,increasing, or during times of oversupply,oversupply ASPsor may decline quickly.overcapacity.

To compete profitably, we must continually improve our technology and processes, reduce unit costs in line with lower selling prices, and introduce new, higher margin products. If we are unable to offset ASP reductions with increased sales volumes or reduced product costs, or if we are unable to introduce new products that command higher prices and better gross margins, then our overallfinancial revenueresults and gross margins willcould suffer.

Endpoint IC sales, which constitute and likely will continue to constitute the majority of our product revenue, have, for the most part, lower gross margins than our systems product sales. Our overall product gross margins are affected by product mix, which can fluctuate based on supply and demand, competitive pressures and end-user needs and demand. Endpoint IC sales constitute and likely will continue to constitute the majority of our product revenue. For the most part, our endpoint ICs have historically had lower gross margins than our systems products. A shift in sales mix away from our higher margin products to lower margin products, either within our endpoint IC product portfolio or frombetween our systems business toand our endpoint ICs, or a change in which products have higher margins, could negatively affect our overall gross margins.

We have limited visibility into end userend-user sales and deployment cycles, and these cycles are often longer than we anticipate. Many factors contribute to our limited visibility, including the time our partners and end users spend evaluating our products, the time educating them on RAIN’s benefits and the time integrating our products with end users’ systems. The length and uncertain timing of the sales and deployment cycles can lead to delayed product orders. In anticipation of those orders, we may incur substantial costs before the sales cycle is complete and before we receive any customer orders or payments, if we receive them at all.

A successful end-user deployment requires not only tags and readers or gateways, but RAIN integration with information systems and applications that create business value from the RAIN data. Unless third parties continue developing and advancing business analytics tools, and end users enhancehave access to effective analytical tools that extract business value, and enable their information systems to use these tools, RAIN deployments could stall. Our efforts to foster third-party development and deployment of these tools could fail. In addition, our guidance to business-analytics providers for integrating our products with their tools could prove ineffective.

Technology developments may affect our business negatively. Breakthroughs in legacy RFID technologies or markets, including those using low frequency or high frequency RFID technology, or in other radio technologies, could adversely affect RAIN market growth and demand for our products. Likewise, new technologies may enable lower-cost ICs than our products. If we are unable to innovate using new or enhanced technologies or are slow to react to changes in existing technologies or in the market, or if we have difficulty competing with advances in new or legacy technologies, then our development of new or enhanced products could be impacted and result in product obsolescence, decreased revenue and reduced market share.

Significant changes in RAIN standards bodies, standards or qualification processesprocesses, or their failure to meet or to keep up with RAIN market needs, could impede our ability to sell our products and services.

We have historically taken a leadership position in developing RAIN industry standards, including with GS1 and ISO, and have designed our products to comply with those standards. For any number of reasons weWe could lose that leadership position or our influence in standards development, or we could choose not to participate in certain standards activities.

New or changed industry standards could affect us negatively. If industry standards were to diverge fromfrom, or fail to meet or keep up with, our or the RAIN market’s needs, then our products and services could fail in the marketmarket. or cause endEnd users tocould delay their deployments.deployments Moreover, the adoption or expected adoption of new or changed standards couldand slow sales of our existing products beforeor we can introduce new products that meet the newservices, or changed standards, and could also limit our ability to implement new features. The lost opportunities as well as time and expense to develop new products or change our existing products to comply with new or changed standards could be substantial, and we may not ultimately succeed in developing products that comply with the new or changed standards.succeed.

Certain organizations develop requirements for RAIN tags and test tags against those requirements. For example, the ARC Program at Auburn University develops tag performance and quality requirements for end users that engage them. Some participants in the RAIN market are ARC sponsors, but we are not among them. If ARC or a similar organization fails to certify or delays certifying tags incorporating our endpoint ICs, adoption and sales of our products could suffer.

In April 2024, NextNavNextNav, Inc. asked the Federal Communications Commission, or FCC, to initiate a proceeding to reconfigure the 902–928 MHz ISM band, or Lower 900 MHz Band, in which we and other unlicensed services operate, to create a terrestrial backup to the U.S. Global Positioning System.System to provide positing, navigation and timing, or PNT, data. To pay for their proposed system, NextNav also asked to be able to license certain spectral bands, including parts of the Lower 900 MHz Band, to others to deliver 5G broadband services. If approved as proposed, this ISM band reconfiguration could interfere with our RAIN radio transmissions and negatively impact us and our industry.

We and other RAIN providers and end users, as well as other Lower 900 MHz Band users, have already registered opposition to NextNav’s petition and asked the FCC to reject itit. quickly.In Ifearly 2025, the FCC declineslaunched a Notice of Inquiry to doexplore so,ways thenin wewhich expect a protracted decision-making process. Thethe FCC wouldcould besupport requiredalternative toPNT considertechnologies alland relevantsolutions. Comments and reply comments were due in April and materialMay of2025, recordrespectively, before it decides whether to proceed withand the proposal,FCC issuehas anot newyet or modified proposal, or take no actionacted on theNextNav’s proposal.petition. The fate of NextNav’s petition is uncertain at this time,uncertain, but if the FCC were to adopttake NextNav'smaterial proposalsteps andtoward ourconsidering, endor usersultimately wereadopting, notNextNav’s able to use our RAIN products without harmful interference, thenproposal, our business wouldcould be significantly and negatively affected.

Some of our partners developpromote certain of our products thatand competeservices while competing with our products.other products and services. For example, some of our OEM partners use our reader ICs to build and sell readers and gateways that compete with our readers and gateways. Similarly, some of our partners use our readers to build and sell gateways that compete with our gateways. If we fail to manage such conflicts successfully, then our business and operating results could be negatively affected.

Our licensing program is nascent.nascent and limited.

While we believe we have valuable RAIN intellectual property and aspire to monetize that intellectual property by licensing it to third parties, including third parties who compete with us to some extent, our experience in doing so is nascent, and our ability to grow licensing revenue remains subject to numerous risks and uncertainties. ToThese materiallyrisks growand uncertainties include our licensing program and revenue, we will needability to maintain and grow our intellectual property portfolio and continue to research and develop RAIN innovations that will generate and maintain demand for licenses to our technology and features. We must also developfeatures, and maintain anour ability to monitor infringement of our intellectual property rights by others and possibly seek enforcement action against those who attempt to infringe our intellectual property rights. These enforcement actions could require significant investments in management time and attention as well as cash as we incur legal and other expenses. They could also compete with our objectives in other areas of our business such as wanting to maintain close, strategic relationships with important partners or end users of our products. These are just some of the risks and uncertainties we face with respect to our nascent licensing program.

Third-partythird-party manufacturingsupply capacityor maymanufacturing-capacity notconstraints beor available when we need it,availability, particularly fromfor our foundry partners from whom we procure silicon wafers.wafers;

Supplyinaccurately disruptionsforecasting maycustomer affectdemand; ourand abilitydemand todistortions meetcaused partner or end-user demand, whether in a cost-effective manner or at all, potentially causing thoseby partners or end users to cancelcanceling orders, qualifyqualifying alternative suppliers or purchasepurchasing from our competitors. Supply disruptions can also distort demand, making it even harder to meet true demand.

If our suppliers fail to manufacture our products at a reasonable pricescost orand withwithin satisfactoryour quality levels,specifications, then our ability to bring those products to market and our reputation could both suffer. IfCapacity suppliercould capacitybe diminishes,diminished whetherfor fromany number of reasons including equipment failures, closures, bankruptcy, capacity allocation, in response to macroeconomic conditions or public health events (such as Covid-19),events, catastrophic loss of facilities or otherwise, then we could have difficulty fulfilling orders, our revenue could decline and our growth prospects could be impaired.otherwise. Transitioning our product manufacturing to new providers would take many months and, in the case of ICs, could take years. Any transition would require a requalification by our customers or end users, which could also adversely affect our ability to sell our products as well as our operating results.users.

ShortagesThe availability of silicon wafers,wafers ICand post-processingother capacitykey orinputs components used into our readersbusiness can fluctuate and gatewaysshortages may adversely affect our ability to meet demand for our products andcan adversely affect our revenue and/or gross margins.

Our mission is to connect every thing. We have enabled connectivity for more than 120150 billion items to date, delivering item visibilityvisibility, traceability and improvingimproved operational efficiencies for retailers, supply chain and logistics, or SC&L providers, restaurants and food-service providers, airlines, automobile manufacturers, healthcare companies and many more. We are today focused on extending item connectivity from tens of billions to trillions of items, and delivering item data not just to enterprises but to people, so they too can derive value from their connected items. We believe the Boundless IoT we are enabling will, in the not-too-distant future, give people ubiquitous access to cloud-based digital twins of every item, each storing the item’s history and linked information and helping people explore and learn about the item. We believe that that connectivity will transform the world.

We and our partner ecosystem build item-visibility solutions using products that we design and either sell or license, including silicon RAIN radios; manufacturing, test, encoding andradios, reading systems, tag production systems and intellectual property. We also offer software and cloud servicesservices, thatand encapsulatewhile nascent from a standalone revenue perspective, they enable our solutionsother know-howproduct offerings and intellectualwe property.intend to expand them as a part of our growth strategy. We sell two types of silicon IC radios. The first are endpoint ICs that store a serialized number to wirelessly identify an item. Our partners embed endpoint ICs into an item or its packaging. TheThese ICs may also contain a cryptographic key to authenticate the item. The second are reader ICs that our partners use in embedded or finished readers to wirelessly discover, inventory and engage the endpoint ICs. Those readers may also protect an item or consumer, for example by authenticating the item as genuine or privatizing the item by rendering the endpoint IC unresponsive without the consumer first providing a password. Our manufacturing,reading testsystems comprise high-performance finished readers and encodinggateways used primarily in autonomous reading solutions. Our tag production systems enable partner products and facilitate enterprise deployments. Our reading systems comprise high-performance finished readers and gateways for autonomous reading solutions. Our software and cloud servicesservice offerings focus on solutions enablement.enablement, particularly at enterprises with whom we have a close business relationship.

We sell our products, individually or as a whole platform offeringoffering, primarily with or through our partner ecosystem. That ecosystem comprises original equipment manufacturers, or OEMs, tag service bureaus, original device manufacturers, or ODMs, systems integrators, or SIs, value-added resellers, or VARs, independent software vendors, or ISVs, and other solution partners.

Our radios follow the RAIN industry’s air-interface standard for their core reading functionality. We create partner and enterprise preference for our radios and solutions by adding differentiated features into our products, including our Gen2X functionality,them, supporting those features across our platform and licensing them where appropriate, to deliver solutions capabilities and performance that surpasses mix-and-match solutions built from competitor products. We have also introduced a set of compatible extensions to the RAIN industry’s air-interface standard, which we call Gen2X, that enhance the performance and protection of our solutions. The RAIN industry, on both the reader and solutions side, has broadly embraced Gen2X.

Most of our revenue derives from endpoint ICs that our partners embed into or onto enterprise items and is therefore affected by macroeconomic trends. Further, weWe sell most of our products, both endpoint ICs and systems, through partners and distributors, limiting our visibility to actual enterprise demand. WeAlthough we work closely with those partners and distributors to gain as accurate a view as possible, however, correctly forecasting demand for our products and identifying market shifts in a timely manner remains a challenge. AsThis a result, we sometimes experience inventory overages or shortages. Inventory overageschallenge can increasebe expenses,exacerbated exposewhen usmajor toend productusers obsolescenceadjust and/orthe increasedmix reservesof andinlay negativelyproviders affectfrom which they procure inlays incorporating our business.endpoint Inventory shortages can cause long lead times, missed opportunities, market-share losses and/or damaged customer relationships, also negatively affecting our business.ICs.

Our systems business, at least for readers and gateways, depends significantly on large-scale deployments at discrete end users, and deployment timing causes large yearly variability in our systems revenue. For example, we generated 14% of total 2019 revenue from a gateway deployment at a large North American SC&L provider. We did not have comparable project-based revenue in 2020. Similarly, in second-quarter 2021, we generated 13% of our revenue from a project-based gateway deployment for RAIN-based self-checkout and loss prevention at a large Europe-based global retailer. AlthoughWhile we continue generating project-based revenue, we havedid not seensee it at a comparable scale in 2022,2022 2023to or in 2024.2025.

We did not see these seasonal trends in 2022 or 2023 but began to see them in thesecond-half second2024 halfand ofin 2024.2025. Quarter-to-quarterWe do expect continued quarter-to-quarter revenue and gross margin variability due to macroeconomic conditions andconditions, program-launch timing and our ability to migrate OEMs and end users to newer, lower cost products. These factors, among others, may impact these seasonal trends in the future.trends.

Revenue decreased, due primarily to lower endpoint IC revenue partially offset by higher systems revenue. The endpoint IC revenue decrease was driven primarily by lower ASP due to mix and grossnew pricing that went into effect at the beginning of the year, and the systems revenue increase was due primarily to higher shipment volumes. Gross profit increased, despite lower revenue, due to lower endpoint IC costs from product mix. Gross margin increased due primarily to higher endpoint IC gross margin, the result of product mix, and partially offset by lower systemsindirect revenue. The endpoint IC revenue increase was driven primarily by higher shipment volumes and licensing revenue partially offset by lower average ASP due to mix and short-term pricing incentives on legacy products, and the systems revenue decrease was due primarily to lower shipment volumes. Gross margin increased due primarily to high-margin licensing revenue recognizedcosts in the current year thatcompared did not occur into the prior year. Loss from operations decreased due primarily to increaseddecreased grossoperating profit.expenses.

We currently derive substantially all our revenue from sales of endpoint ICs, reader ICs, readers, gateways, testtag andproduction measurement solutionssystems and licensing. We sell our endpoint ICs and testtag andproduction measurement solutionssystems primarily to inlay manufacturers; our reader ICs primarily to OEMs and ODMs through distributors; and our readers and gateways to solutions providers, VARs and SIs, also primarily through distributors. We expect endpoint IC sales to represent the majority of our revenue for the foreseeable future.

Endpoint IC revenue increaseddecreased $71.5$6.1 million, due primarily to a $79.7$32.3 million increasedecrease from higherlower shipmentASP volumesdue to product mix and $15.0new million from licensing revenuepricing that didwent notinto occureffect inat the priorbeginning of the year, partially offset by a $23.2$25.1 million decreaseincrease due to lowerhigher averageshipment ASP, the latter due primarily to product mix shift,volumes and to a lesser$1.0 extent,million short-termincrease pricingin incentiveslicensing on legacy products.revenue.

Systems revenue decreasedincreased $12.9$1.1 million due primarily to aan decreaseincrease in shipment volumes. Reader and gateway revenue decreasedincreased $5.8by $8.3 million offset by decreases of $3.4 million and $8.6 million, respectively. These decreases were partially offset by an increase of $3.1$4.1 million from testgateway and measurementreader solutionsIC revenue.revenue, respectively.

Cost of revenue includes costs associated with manufacturing our endpoint ICs, reader ICs, readers, gateways and testtag andproduction measurement solutions,systems, including direct materials and outsourced manufacturing costs as well as associated overhead costs such as logistics, quality control, planning and procurement. Cost of revenue also includes charges for excess and obsolescence and warranty costs. Our gross margin varies from period to period based on the mix of endpoint IC and systems; underlying product margins driven by changes in mix, ASPs or costs; as well as from inventory excess and obsolescence charges.

Gross profit increased $36.9$0.8 million, despite a decrease in revenue, due primarily to increaseddecreased costs from endpoint IC revenuedue partiallyto offsetproduct by decreased systems revenue.mix. Gross margin increased, due primarily to high-marginhigher licensingendpoint revenueIC recognizedgross margin due to product mix and lower indirect costs in the current year thatcompared did not occur into the prior year.

Research and development expense increased $10.3$3.8 million, due primarily to increases of $8.5$4.0 million in personnelproduct expensesdevelopment costs due to timing; $2.4 million in infrastructure costs primarily from higherincreased bonus achievementdepreciation and tosoftware acosts; lesserand extent increased headcount, $4.4$1.3 million in stock-based compensation expense related primarily to increased outstanding equity grants,grants. andThese $1.5increases million in infrastructure costs primarily from increased depreciation and software costs,were partially offset by a decrease of $4.1$4.2 million in productpersonnel developmentexpenses costs.related to lower bonus achievement compared to the prior-year period.

General and administrative expense decreased $9.0$2.6 million, due primarily to a decrease $3.0 million in personnel expenses related to lower bonus achievement compared to the prior-year period and a decrease of $18.0$1.7 million in professional services related to legal fees and transaction expenses,fees, partially offset by increasesan increase of $5.2 million personnel expenses from higher bonus achievement, higher headcount and higher payroll taxes, and $3.5$1.5 million in stock-based compensation expense related primarily to increased outstanding equity grants.

The increasedecrease in restructuring costs relates to the restructuring we initiated on February 7, 2024. For further information on this restructuring, please refer to Note 18 to our consolidated financial statements included elsewhere in this report.

The increasedecrease in income from settlement of litigation relates to the Settlement Agreement with NXP on March 13, 2024. See Note 12, Commitments and ContingenciesContingencies, included elsewhere in this report, for further details.

Other income, net, increased $3.3$1.3 million, due to increased interest income given higher invested balances and higher interest rates.balances.

As of December 31, 2024,2025, we had cash, cash equivalents and short-term investments of $164.7$175.3 million, comprising cash deposits held at major financial institutions and short-term investments in a variety of securities, including U.S. government securities, treasury bills, corporate notes and bonds, commercial paper and money market funds. As of December 31, 2024,2025, we had working capital of $212.7 million, up from $(4.8) million, down from $238.8 million as of December 31, 2023.2024. The increase is due to a decrease in the balance of the 2021 Notes, which was driven by thea reclassificationprivately negotiated exchange of our$190.0 convertiblemillion debtprincipal fromamount long-termof tothe current,2021 dueConvertible toNotes, certainor conditionsthe being2021 metNote Exchange (refer to Note 88, Long-term debt, in our consolidated financial statements included elsewhere in this report for further information). This decrease was partially offset by an increase in cash and short-term investments.

In November 2021, we issued convertible notes due in 2027 in an aggregate principal amount of $287.5 million, which we refer to asor the 2021 Notes. The 2021 Notes are our senior unsecured obligation, bearing interest at a fixed rate of 1.125% per year, payable semi-annually in arrears on May 15 and November 15 of each year, beginning on May 15, 2022.year. The 2021 Notes are convertible into cash, shares of our common stock or a combination thereof, at our election, and will mature on May 15, 2027 unless earlier repurchased, redeemed or converted in accordance with the indentureterms terms.of the terms of the Indenture governing the 2021 Notes. The net proceeds from the 2021 Notes were approximately $278.4 million after initial debt issuance costs, fees and expenses.

The net proceeds from the 20212025 Notes were approximately $278.4$183.6 million after initial debt issuance costs, fees and expenses. We used approximately $183.6 million of the net proceeds and cash on hand to repurchaseexchange approximately $76.4$190.0 million aggregate principal amount of convertiblethe notes2021 dueNotes 2026,for orapproximately $190.0 million in cash, representing the 2019principal Notesamount throughexchanged, and approximately 811,000 shares of our common stock, representing the exchange value in excess thereof, and also paid accrued and unpaid interest thereon, in individual privately negotiated transactions concurrent with the 20212025 Notes offering. WeIn addition, we used $17.6approximately $11.2 million of cash on hand to repurchasepay the remaining $9.85 million aggregate principalcost of the 2019capped Notes through individual privately negotiatedcall transactions entered into in Juneconnection 2022.with Please refer toissuing the section2025 “Repurchase of the Convertible Senior Notes – 2019” as described in Note 8 to our consolidated financial statements included elsewhere in this report. We will use the rest of the net proceeds for general corporate purposes.Notes.

For the year ended December 31, 2024,2025, we generated $128.3$58.7 million of net cash from operating activities. These net cash proceeds werecomprised due to $112.3$73.5 million of net income adjusted for non-cash itemsitems, andpartially $16.0offset by a $14.8 million ofdecrease in working capital proceeds due primarily to higherlower accrued compensation and employee related benefits and accounts payable, partially offset by lower operating lease liabilities, acquisition related contingent consideration liability and higher inventory.payable.

For the year ended December 31, 2024,2025, we used $192.6$48.0 million of net cash from investing activities. This net cash usage was due primarily to purchases of investmentinvestments of $202.1$202.8 million and property and equipment purchases of $17.1$12.9 million, partially offset by proceeds from maturities of investments of $26.6$154.7 million and proceeds from sales of investments of $12.9 million.

(1) The 2021convertible Notessenior notes include $8.1$1.6 million in interest payments.

We have various equity award plans, or PlansPlans, for granting share-based awards to employees, consultants and non-employee directors of the Company. The Plans provide for granting several forms of stock compensation such as stock option awards, restricted stock units, or RSUs, RSUs with performance conditions, or PSUs, and RSUs with market and service conditions, or MSUs.

Endpoint ICs: NXP, Kiloway, Quanray, Shanghai Fudan Microelectronics Group, AlibabaGroup and Alien.

TagLabel production systems: CISC.

TheGoing RAIN opportunity is still developing.forward, RAIN adoption, as well asincluding adoption of our platformplatform, products and products,innovations includinglike ourGen2X, Gen2Xwill features, dependsdepend on many factors, includingsuch as the extent to which end users understand and embrace the benefits that RAIN and our platformsplatforms, products and productsfeatures offer; whether their benefits outweigh the cost and time to replace or modify end users’ existing systems and processes; and whether they meet end users’ current or anticipated needs.

We must continue to introduce new products, services and solutions to competefoster effectively.growth and RAIN adoption.

We strive to regularly introduce new products and services to advance our business, satisfy increasingly demanding end-user requirements and grow the RAIN market adoption.by We commitcommitting significant resources developing and introducing these new productsor enhanced products, services and services, and to improving the performance and reliability of, and reducing the costs of, our existing products and services. We are also increasingly focused on providing enterprise solutions to partners and end users.solutions.

Whether our new or enhanced products, services and solutions will succeed in continuing to grow RAIN adoption is uncertain. For example, our software and cloud services offerings have not yet grown into a material source of revenue, and whether or when our investment in these areas will be successful is uncertain. Our success in developing the technologies, processes or capabilities necessary or desired for new or enhanced products, services and solutions, or licensing or otherwise acquiring them from third parties, and our ability to introduce new or enhanced products, services and solutions before our competition, depends on many factors, including:

our ability to identify new productuse capabilities,cases for our products, services orand solutions that end users will widely and readily adopt;

timely and efficiently implementing manufacturing, assemblyproduction and testing procedures;

When we introduce new or enhanced products, services and solutions, our success in ramping adoption depends, in part, on us making those products, services and solutions easy for our partners and end users to deploy and use. For example, when we launched our M800-family endpoint ICs, we supported our inlay partners in producing high-performing, high-quality M800-based inlays. Without this support, M800 adoption would have been delayed and our operating results would have suffered. We cannot guarantee we will be able to provide sufficient support for future products, in which case our operating results could suffer.

We have developed, and continue developing, solutions for retail self-checkoutpoint of sale and loss prevention and SC&L package routing that have been, or that we expect to be, deployed by industry-leading enterprise end users. We have also launched features in Gen2X that we believe will improve our ability to deliver cost-effective enterprise solutions. If we do not make our offerings repeatable across multiple enterprises and in various market segments, we may fail to capitalize on our platform’s potential. We may not gainhave accessthe opportunity to and address challenging new use cases,cases across new market segments, such asas, health and beauty, cosmetics, pharmaceuticals and foodfood, if we do not succeed in developing relationships with top-tier solution partners who know about and believe in our solutions.

We and our partners may be unable to successfully acquire customers for our enterprise solutions, or to successfully address our market opportunity.opportunity for enterprise solutions. Delivering enterprise solutions requires a partner products and services network that complements our own and that together addresses enterprise needs. Convincing enterprises to partner with us to solve their business problems—including evaluation, design, deployment, operations and services, as well as integrating RAINdata datafrom our platform into the enterprise’s information systems—requires tight coordination among our and our partners’ sales, marketing, operations and engineering teams. If we do not build our enterprise solutions platform and our partner network to deliver thesethe solutionsexpected benefits effectively, our business prospects will suffer.

We derive, and expect to continue to derive for some time, most of our revenue from our endpoint ICs. If endpoint IC demand declines, or if we are unable to procure enough wafers to meet the demand we have, or if we are unable to raise prices to offset cost increases, then our business and operating results will suffer. In addition, the continued adoption of, and demand for, our endpoint ICs derives in part from us demonstrating their benefits using our platform. If we fail to establish those benefits then we may be unsuccessful in countering competitive endpoint IC price pressures and our business and operating results could be adversely affected.

To compete profitably, we must continually improve our technology and processes, reduce unit costs in line with lower selling prices,prices and introduce new, higher margin products. If we are unable to offset ASP reductions with increased sales volumes or reduced costs, or if we are unable to introduce new products that command higher prices and better margins, then our financial results could suffer.

Though less common, we have also increased prices from time to time, especially during times of increasing wafer and/or post-processing costs. ForRecently, example,and significantly due to increasing worldwide semiconductor demand, many of our vendors and subcontractors have either increased prices, signaled future price increases or both. In response, we raisedhave pricesnotified inour 2021,customers 2022of andmodest, 2023impending toproduct accommodateprice higher costs.increases. We may be required to raise prices again if macroeconomiceconomic conditions, including inflation, or other causes, such as geopolitical instability, create additional upward pressure on our product costs. Higher prices could reduce our market share and/or dampen adoption and market growth.

Our products must meet increasingly demanding specifications for quality, reliability and performance. Our products are both highly technical and deployed in large, complex systems in which errors, defects or incompatibilities can be problematic for our partners and end users.

Moreover, if we encounter product quality issues, then we may be required to incur significant time and costs to diagnose, test and fix the issues. There can be no assurance that such remediationThese efforts wouldmay benot successful.succeed Even if successful, these effortsand could further constrain our ability to supply our partners and end users with new products until we have resolvedresolve the issues.

Persuading end users or partners to design our products into their business processes or products requires educating them about RAIN’s and our products’ value. They may use other technologies or products and may not be receptive to introducing RAIN into their business processes or products. Even when convinced, they often undertake long pilot programs and qualifications prior to placing orders. TheseThose pilot programs and qualifications can be time-consuming and expensive,expensive and therethat ismay no assurance they willnot result in an orderorders for our products. If we fail to develop new products that adequately or competitively address end users’ or our partners’ needs, then we may not receive product orders,products, which could adversely affect our business,business prospects and operating results.

Our visibility into the length of the salesprocurement and deployment cycles for our productsproducts, while improving, is still limited.

We have limited visibility into end-user salesprocurement and deployment cycles, and these cycles areoften oftentake longer than we anticipate. Many factors contribute to our limited visibility, including but not limited to the fact that we sell most of our products through partners rather than directly to the end user. We also have limited visibility into the time our partners and end users spend evaluating our products, services and solutions; the time partners spend educating themend users on RAIN’sthe benefits of using our products, services and solutions; and the time integratingto integrate our productsproducts, services and solutions with end users’ systems. The length and uncertain timing of the salesprocurement and deployment cycles can lead to delayeddelay product orders. In anticipation of those orders, we may incur substantial costs before the sales cycle is complete and before we receive any customer orders or payments, if we receive them at all.

An inability or limited ability of end user systems to exploit RAIN informationdata may adversely affect the market for our products.products, services and solutions.

A successful end-user deployment requires not only tags, readers or gateways and operating software, but RAIN integration with information systems and applications that create business value from the RAIN data. Unless end users have access to effective analytical tools that extract business value, and enable their information systems to use these tools, RAIN deployments could stall.stall, Ourour efforts to foster development and deployment of these tools could fail.fail, In addition,and our guidance to business-analytics providers for integrating our products with their tools could prove ineffective.

Solution providers and SIs are essential to the RAIN market. They provide deployment know-how to enable end users to successfully deploy RAIN solutions. Integrating our products with end-user information systems could prove more difficult or time-consuming than we or they anticipate, which could delayjeopardize deployments.

Significant changes in RAIN standards bodies, standards or qualification processes, or their failure to meet or to keep up with RAIN market needs, could impede our ability to sell our productsproducts, services and services.solutions.

If industry standards were to diverge from, or fail to meet or keep up with, our or the RAIN market’s needs, then ourRAIN productsproducts, andincluding servicesours, could fail in the market. End users could delay their deployments and slow sales of our existing products or services,products, or limit our ability to implement new features. The lost opportunities as well as time and expense to develop new products or change our existing products could be substantial, and we may not ultimately succeed.

Our products operate in spectrum bands where they are certified to transmit. If the spectrum regulations were to change, or if our products were found to be noncompliant despite being certified to operate, or if the spectrum regulation themselves were to be found deficient, then we would need to redesign our products, potentially resulting in significant costs, including costs associated with obsolete inventory. Regulatory changes may also cause us to forego opportunities, adversely affecting our business.

In April 2024, NextNav, Inc. asked the Federal Communications Commission, or FCC, to initiate a proceeding to reconfigure the 902–928 MHz ISM band, or Lower 900 MHz Band, in which we and other unlicensed services operate,operate in North America, to create a terrestrial backup to the U.S. Global Positioning SystemSystem, or GPS, to provide positing, navigation and timing, or PNT, data. To pay for their proposed system, NextNav also asked to be able to license certain spectral bands, including parts of the Lower 900 MHz Band, to others to deliver 5G broadband services.

WeA andwide otherrange RAIN providers and end users, as well as otherof Lower 900 MHz Band users, industry groups and companies, including us and other RAIN providers registered opposition to NextNav’s petition and asked the FCC to reject it. In early 2025, the FCC launched a Notice of Inquiry to explore ways in which the FCC could support alternative PNT technologies and solutions. Comments and reply comments were due in April and May 2025, respectively.

TheNextNav has actively lobbied various federal government branches and units to support its proposal but the FCC has not yet acted on NextNav’s petition or on the PNT Notice of Inquiry and the fate of NextNav’s petition isremains uncertain. If NextNav’s petition is approved as proposed, the consequent ISM band reconfiguration could negatively impact us and our industry. If the FCC were to take material steps toward considering, or ultimately adopting, NextNav’s proposal, our business could be negatively affected.

Our licensingefforts programto islicense nascentour andintellectual property are limited.

While we believe we have valuable RAIN intellectual property and aspire to monetize that intellectual property by licensing it to third parties, including third parties who compete with us to some extent, our experience in doing so is nascent, and ourOur ability to grow licensing revenue remains subject to numerous risks and uncertainties. These risks and uncertainties include our ability to maintain and grow our intellectual property portfolio and to research and develop RAIN innovations that will generate and maintain demand for licenses to our technology and features, and our ability to monitor infringement of our intellectual property rights by others and possibly seek enforcement action against those who attempt to infringe our intellectual property rights.rights, and the fact that our experience in licensing our intellectual property is limited.

Our licensing programefforts isare also not singly focused on generating licensing revenue. Our desire to maintain close, strategic relationships with important partners or end users and to encourage them to use innovations such as Gen2X may cause us to license our intellectual property for reasons that go beyond simply deriving licensing revenue.

Wafer availability is cyclical and shortfalls can limit sales and cause market-share losses. Our wafer supply is not guaranteed, and we may not receive adequate supply from our foundry partners when industry demand for wafers is high, as it frequently is in the process nodes we use. Our IC supply can also be limited by post-processing constraints, such as in testing, sorting, thinning, bumping, dicingdicing, packaging and packaging.quality assurance. We may also experience shortfalls and price increases for components we use in our readers and gateways.

Wafer shortfalls can also artificially increase bookings as customers over-order our products and then cause subsequent sales declines as those customers consume their accumulated inventory. Additionally, if our suppliers charge us more but we are unable to raise our prices to cover those higher costs, our gross margins and other financial results could suffer. Any product shortfalls or cost increases will negatively impact our product availability and our financial results will suffer.

We typically order products from our suppliers based on sales forecasts and before we receive purchase orders. Many of our partners have difficulty accurately forecasting the amount and timing of their sales, and sometimes cancel orders or reschedule product shipments with little or no advance notice to us. Partners will also sometimes give us soft commitments for large orders that do not materialize. Competition and unanticipated external events, such as macroeconomic or regulatory changes, can also adversely affect demand and consequently our inventory levels, sales and operating results.

High inventory levels can increase expenses and expose us to a higherheightened risk of product obsolescenceobsolescence, especially when we introduce new products and technologies. If we are unable to sell our inventory as and when we expect to, we may have to discount or expense the excess inventoryinventory, andnegatively impacting our business and financial results will be negatively impacted as a result.results.

Hiring and retaining employees with RAIN technical and business knowledge and experience are critical to our success. We have been fortunate to have hired and retained many such employees in our history, but as employees depart or retire we must recruit and train their successors to remain competitive. We must also adapt to changes in our executive team from time to time. Our business could be significantly harmed if we wereare not ableunable to attract and retain key talent, or if we wereare not ableunable to effectively manage transitions in personnel and leadership as they arise.

We regularly evaluate potential strategic transactions, and we may pursue them if complementary or beneficial to our business. For example, in April 2023 we acquired Voyantic Oy, a global provider of RFID (primarily RAIN and NFC) inlay and label design, manufacturing and testproduction systems. StrategicFuture transactionsstrategic transactions, if any, could be material to our financial condition and operating results. We have limited experience executing acquisitions. Integrating an acquired company, business or technology may create unforeseen operating difficulties and expenditures. Acquisition-related risks include:

Foreign acquisitions involve additional risks beyond those above, including those related to integrating operations across different cultures and languages, currency risks and the economic, political and regulatory risks associated with other countries. Also, the anticipated benefit of any acquisition, domestic or foreign, may not materialize. Future acquisitions or dispositions could result in potentially dilutive issuances of our equity securities, debtincreased incurrence,debt, contingent liabilities or amortization expenses or goodwill write-offs, any of which could harm our financial condition. Future acquisitions may require us to obtain additional equity or debt financing, which may not be available on favorable terms or at all.

TheTrade state ofpolicies, tariffs and other trade measures worldwide remainsare, and are likely to remain, very uncertain. Trade is a focus of the current U.S. administration, as are tariffs, and theU.S. administrationpolicies hashave beenshifted veryrapidly activeas ina this area.result. A full understanding of the amount, scope, and nature of any tariffs and other trade restrictionsmeasures that the U.S. may implement as well as how other countries may respond is unclear.

In February 2026, the U.S. Supreme Court invalidateddetermined the use ofthat the International Emergency Economic Powers ActAct, toor imposeIEEPA, significantdid not authorize the tariffs the U.S. administration announced andhad implemented beginning in 2025. Following that decision, the administration replacedrescinded thosethe tariffs withimposed under IEEPA effective February 24, 2026, and in its place imposed a 10% import surcharge on nearly all U.S. imports under aSection different122 legalof authority,the Trade Act of 1974. The Section 122 surcharge expired effective July 24, 2026, after which isthe setU.S. toadministration expireimposed tariffs of 10% or 12.5% on the largest U.S. trading partners under authorities provided in JulySection 2026301 unlessof Congressthe extendsTrade it.Act of 1974, following determinations that those U.S. trading partners insufficiently enforce forced labor laws. Under separate authority, the U.S. also imposed tariffs on imports of steel, aluminum and copper; on certain semiconductor products including still-higherhigher tariffs on Chinese-origin semiconductors; and on certain additional items.items under Section 232 of the Trade Expansion Act of 1962. Based on trade actions undertaken and/or threatened by the U.S. since 2025, significant trade partners such as Mexico, Canada, China and the European Union have at times imposed, or announced plans to impose, retaliatory tariffs.

Given this dynamic environment, it is not possible to know with any degree of certainty what the negative direct and indirect consequences of tariffs and other trade restrictions could be on our business and financial results. We believe the direct impact of U.S. tariffs on our endpoint IC business is likely to be manageable because we import only a small portion of our wafers into the United States. However, the indirect effectsimpact of U.S. tariffs on products containing our endpoint ICs could be significant. China remains a key producer of the goods our endpoint ICs connect, and a key producer of readers using our reader ICs, so the imposition of high U.S. tariffs on imports from China could significantly and negatively affect our business and financial results.

We must export and import our products and conduct our business activities in compliance with U.S. export controls and trade and economic sanctions, including the Commerce Department’s Export Administration Regulations and economic and trade sanctions established by the Treasury Department’s Office of Foreign Assets Controls, as well as similar controls established in the countries in which we do business. For example, the U.S. government has continued to expand controls restricting the ability to sendexport, re-export and transfer (in country) certain products and technology related to semiconductors and semiconductor manufacturing to and within China and additional destinations. These expanded controls include imposing additional licensing requirements on exports, re-exports and transfers of certain ICs and products containing those ICs to and within China and additional destinations. In addition, the United States and other countries continue to expand the economic sanctions and export control restrictions imposedin againstresponse to global conflicts including in Russia and BelarusUkraine and certainin Russianthe nationalsMiddle and entities after Russia invaded Ukraine.East. We must undertake additional diligence efforts to comply with these and other rules, which may be time-consuming and result in delayed or lost opportunities. We may not always be successful in obtaining necessary export or import licenses, and our failure to obtain required export or import approval for our products or limitations on our ability to export or sell our products may harm our domestic and international sales and negatively affect our revenue.

Deterioration in the political, social, business or economic conditions in any jurisdictions in which we have significant suppliers, distributors or end users—including as a result of natural disasters, labor strikes, public health crises, geopolitical events, military conflicts, blockades or other developments—could slow or halt product shipments or disrupt our ability to procure, manufacture or post-process our products, as well as our ability to effectively and timely execute on end-user deployments. Consequent shortages of energy, jet fuel, purified water, raw materials as diverse as polymers or helium and other items that underpin the global economy can likewise disrupt our ability to procure, manufacture or post-process,post-process and ship our products.

Rapid advancements in AI and ML offer great potential for improving our solutions performance, operating efficiency and engineering development, but employingusing them can also increase our business, financial, legal and other risks. As we introduce more AI and ML tools into our products and operations, we must guard against risks in using them. These risks include improper product operation, potential security breaches or incidents, inadvertently disclosing confidential or sensitive data, inaccuracies or improper bias in our operations or in data derived from using our products or services, legal claims, noncompliance with industry standards, complications establishing or asserting intellectual property ownership and reputational harm. In addition, increased adoption of AI by us and third-party partners may also increase the risks of cybersecurity incidents.

Our ability to affect or determine end-user demand is limited in part because we sell and fulfill primarilymostly through partners and rarely directly to end users.

End users drive demand for our products but because we sell our products primarily through partners, we are often at least one step removed from those end users and are often unable to directly assess and affect their demand. Our partners may choose to prioritize selling our competitors’ products over ours, or they may offer products that compete with our products or limit sales of our products. If our partners do not sell enough of our products or if they choose to decrease their inventories of our products, then our sales to those partners and our revenue will decline.

Our partnersdistributors may not properly forecast end users’ demand for our products.

Our reserve estimates for products stocked by our distributors are based primarily on reports providedthose distributors provide to us by those distributors,us, typically monthly. If the inventory and resale information our partners and distributorsthey provide is inaccurate, or if we do not receive it in a timely manner, then we may not have a reliable view of productstheir westock expectand tomarket be sold to end usersdemand, which could ultimately have a negative impact on our operating results. If our partnersthey overestimate demand, they may overinvest in production capacity,stock, which could reduce market prices and negatively affect our selling prices. InThey themay shortalso term, our partners might purchase more of our products than they need, increasing their inventory and reducing our future sales to them, and distributors may,try, subject to time and quality limitations, seek to return products inor exchange for other products. If our partnersthey underestimate demand, we may not be able to satisfy their needs and that of their customers, and adoption might suffer. In either case, our business and operating results could be negatively affected.

IfOur we are unableability to protect and enforce our intellectual property, then our business could be adversely affected.property.

Our success depends in part upon our ability to obtain, maintain and enforce our patents, copyrights, trade secrets, trademarks and other intellectual property rights and prevent third parties from infringing, misappropriating or circumventing those rights. We have historically focused on filing U.S. patent applications, for many reasons, including the fact that a significant portion of RAIN products are sold for use in the United States. We have only a small number of foreign patents and applications. We also only have registered trademarks and domain names in select countries where we believe filing for such protection is appropriate. By focusing our intellectual property protection on the United States and a small number of foreign countries, we have a limited ability to assert intellectual property rights outside the United States, including in some significant foreign markets such as China or Europe. Moreover, the global manufacturing and distribution systems for tags or labels incorporating our endpoint IC products could complicate our efforts to enforce our U.S. patents. Also, as we increasingly work with third parties, possibly including parties that compete with us to an extent, to advance our technical innovations and solutions offerings, we complicate our efforts to protect our intellectual property.

WeSpecifically, we cannot guarantee that:

we will not lose the ability to assert our intellectual property rights against, or to license our technology to, others and collect royalties or other payments; or we will retain the right to ask for a royalty-bearing license to an industry standard if we fail to file an intellectual property declaration pursuant to the standards process.

The European Commission, or the EC, has issued specific guidance to address privacy concerns about RFID. In May 2009, the EC issued a recommendation that retailers in the EU inform their customers when RFID tags are either on or embedded within products. In April 2011, the EC signed a voluntary agreement with private and public entities to develop privacy guidelines for companies using RFID in the EU. Whereas compliance is voluntary, our partners and end users that do business in the EU prefer products that comply with the guidelines. If our products do not comply or enable compliance with the guidelines, then our business may suffer.

Our mission is to connect every thing. We have enabled connectivity for more than 150160 billion items to date, delivering item visibility, traceability and improved operational efficiencies for retailers, supply chain and logistics, or SC&L providers, grocers, restaurants and food-service providers, airlines, automobile manufacturers, healthcare companies and many more.

We and our partner ecosystem build item-visibility solutions using products that we design and either sell or license, including silicon radios, reading systems, taglabel production systems and intellectual property. We also offer software and cloud services, and while nascent from a standalone revenue perspective, they enable our other product offeringsofferings, and we intend to expand them as a part of our growth strategy. We sell two types of silicon radios. The first are endpoint ICs that store a serialized number to wirelessly identify an item. Our partners embed endpoint ICs into an item or its packaging. These ICs may also contain a cryptographic key to authenticate the item. The second are reader ICs that our partners use in embedded or finished readers to wirelessly discover, inventory and engage the endpoint ICs. Those readers may also protect an item or consumer, for example by authenticating the item as genuine or privatizing the item by rendering the endpoint IC unresponsive without the consumer first providing a password. Our reading systems comprise high-performance finished readers and gateways used primarily in autonomous reading solutions. Our taglabel production systems enable partner products and facilitate enterprise deployments. Our software and cloud service offerings focus on solutions enablement, particularly for key enterprise customers.

We are subject to impacts from the evolving macroeconomic environment, including uncertainty and volatility infrom trade measures and tariffs, as well as military conflicts or blockades, inflation and geopolitical tensions. Because most of our revenue derives from endpoint ICs that our partners embed into or onto items, to the extent that those items are impacted, positively or negatively, by tradethe measures,macroeconomic tariffs and inflation,environment, we are impacted as well. While the impact that recentthe trademacroeconomic measures,environment military conflicts or blockades, inflation and geopolitical tensions willmay have on our business and financial results is difficult to predict, theyany or all of these above factors could negatively affect our business and financial results. We continue to monitor the broader impacts of thesethe measuresmacroeconomic situation on our business, our supply chain and our results of operations. See risk factors “Changes in global trade policies could have a material adverse effect on us.” and “InstabilityGeopolitical disruptions could impact our product supply, ability to sell and/or customer or deteriorationmarket in the political, legal, social, business or economic conditions in the U.S. or in key jurisdictions could harm our business.demand.” in Part II, Item 1A. of this report for further information.

We sell most of our products, both endpoint ICs and systems, through partners and distributors, limiting our visibility to actual enterprise demand. Although we work closely with those partners and distributors to gain as accurate a view of that demand as possible, correctly forecasting demand for our products and identifying market shifts in a timely manner remains a challenge. This challenge can be exacerbated when major end users adjust the mix of inlaylabel providers from which they procure inlayslabels incorporating our endpoint ICs.

We also sometimes experience inventory overages or shortages. Inventory overages can increase expenses, expose us to product obsolescence and/or increased reserves and negatively affect our business. Inventory shortages can cause long lead times, missed opportunities, market-share losses and/or damaged customer relationships, also negatively affecting our business. For example, in 2023, macroeconomic conditions led to softness in demand and inventory overages. As another example, in 2021 and 2022, demand for our endpoint ICs increased while worldwide wafer demand also increased, leading to wafer shortfalls for many semiconductor companies, including us. These wafer shortfalls prevented us from fully meeting customer demand and, in some cases, caused customers to cancel orders, qualify alternative suppliers or purchase from our competitors.

Our systems business, at least for readers and gateways, depends significantly on large-scale deployments at discrete end users, and deployment timing causes large yearly variability in our systems revenue. For example, we generated 14% of total 2019 revenue from a gateway deployment at a large North American SC&L provider. We did not have comparable project-based revenue in 2020. Similarly, in second-quarter 2021, we generated 13% of our revenue from a project-based gateway deployment for RAIN-based self-checkout and loss prevention at a large Europe-based global retailer. While we continue generating project-based revenue, we didhave not seeseen it at a comparable percentagepercentages infor 2022any to 2025,annual or inquarterly periods since the firstperiods quarternoted of fiscal year 2026.above.

We typically negotiate pricing with most of our endpoint IC OEMs with an effective date of the first quarter of the calendar year. In the past, this negotiation typically resulted in reduced revenue and gross margins in the first quarter compared to prior periods, which then normalized in subsequent quarters as we reduced costs and adjust product mix by migrating those OEMs and end users to newer, lower-cost products. Recently, and significantly due to increasing worldwide semiconductor demand, many of our vendors and subcontractors have either increased prices, signaled future price increases or both. In response, we have notified our customers of modest, impending product price increases. If we are unable to successfully increase our prices or if our customers choose competitors' products due to our higher prices, then our product margins, operating results or both may suffer.

Endpoint IC volumes tend to be lower in the fourth quarter than in the third quarter. System sales tend to be higher in the fourth quarter and lower in the first quarter, we believe due to the availability of residual funding for capital expenditures prior to the end of many end users’ fiscal years. We saw these seasonal trends in second-half 2024 and in 2025.

We sawalso these seasonal trends in second-half 2024 and in 2025. We expect continuedsee quarter-to-quarter revenue and gross margin variability due to macroeconomic conditions, program-launch timing and our ability to migrate OEMs and end users to newer, lower cost products. These factors, among others, may impact the seasonal trends.

Revenue and gross profit decreased,increased, due primarily to decreasedincreased systemsendpoint IC revenue partially offset by higherdecreased endpoint ICsystems revenue. The systems revenue decrease was driven primarily by decreased shipment volumes while the endpoint IC revenue increase was driven primarily by increased shipment volumes.volumes while the systems revenue decrease was driven primarily by decreased gateway revenue. Gross margin decreasedincreased due to high indirect costs in the period partially offset byfrom higher endpoint IC gross margin due to product mix. LossIncome from operations increased,decreased slightly, due primarily to decreased revenue and increased operating expenses. The operating expense increase was due primarily to higher research and development anddevelopment, sales and marketing and general and administrative costs.

We currently derive substantially all our revenue from sales of endpoint ICs, reader ICs, readers, gateways, taglabel production systems and licensing. We sell our endpoint ICs and taglabel production systems primarily to inlay manufacturers; our reader ICs primarily to OEMs and ODMs through distributors; and our readers and gateways to solutions providers, VARs and SIs, also primarily through distributors. We expect endpoint IC sales to represent the majority of our revenue for the foreseeable future.

Endpoint IC revenue increased $2.0$11.8 million, due to a $7.9$16.0 million increase in shipment volumes and a $1.0 million increase in licensing revenue, partially offset by a $5.9$5.2 million decrease from lower ASP due tofrom product mix and new customer pricing that went into effect at the beginning of the year.

Systems revenue decreased $2.0$1.3 million primarily due primarily to a $1.2 million decrease in shipment volumes. Reader IC revenue decreased $2.6 million and gateway revenue decreasedand $1.1a million.$0.8 million decrease in label production systems revenue. These decreases were partially offset by ana $0.4 million increase of $0.8 million in reader revenue and $0.6 million in tag production systems revenue.

Cost of revenue includes costs associated with manufacturing our endpoint ICs, reader ICs, readers, gateways and taglabel production systems, including direct materials and outsourced manufacturing costs as well as associated overhead costs such as logistics, quality control, planning and procurement. Cost of revenue also includes charges for excess and obsolescence and warranty costs. Our gross margin varies from period to period based on the mix of endpoint IC and systems revenue mix; underlying product margins driven by changes in product mix, ASPs or costs; as well as from inventory excess and obsolescence charges.

Gross profit andincreased grossprimarily due to increased endpoint IC revenue. Gross margin decreased,increased, due primarily to endpoint IC product mix, specifically a higher indirectcontribution costsfrom in the current yearM800 compared to the prior-year period and revenue mix,period, partially offset by higher endpoint IC gross margin due to productrevenue mix.

Research and development expense increased $3.4$4.6 million, due primarily to increases of $2.6$2.8 million in personnel expenses due to higher headcount,headcount and higher bonus achievement compared to the prior-year period, an increase of $0.6 million in infrastructure costs and an increase of $0.2$1.9 million in stock-based compensation expense, primarily related to increased outstanding equity grants.grants, and an increase of $0.6 million in infrastructure costs, partially offset by a decrease of $0.7 million in product development costs, due to timing.

Sales and marketing expense increased $1.7$1.1 million, due primarily to an increase of $2.1$0.7 million in stock-based compensation expenseexpense, primarily related to lowerincreased expenseoutstanding inequity thegrants prior-yearand periodan from the retirementincrease of our Chief Revenue Officer. This increase is partially offset by a decrease of $0.4$0.5 million in personnel expenses.

Interest expense decreased by $0.5$0.6 million, due primarily to decreased interest on our convertible debt, primarily from the 2021 Note Exchange transaction, which was completed in September 2025.2025 and the 2021 Note Repurchase, which was completed in March 2026.

We are subject to federal and state income taxes in the United States and foreign jurisdictions. Income tax expensebenefit increased $0.3$0.2 million for the three months ended MarchJune 31,30, 2026,2026 and decreased $0.1 million for the six months ended June 30, 2026 compared to the prior-year period,periods, due to changes in effective tax rates for each period.

As of MarchJune 31,30, 2026, we had cash, cash equivalents and short-term investments of $131.8$133.0 million, comprising cash deposits held at major financial institutions and short-term investments in a variety of securities, including U.S. government securities, treasury bills, corporate notes and bonds, commercial paper and money market funds. As of MarchJune 31,30, 2026, we had working capital of $266.5$211.6 million.

For the threesix months ended MarchJune 31,30, 2026, we generated $4.0$35.6 million of net cash proceeds from operating activities. These net cash proceeds were due primarily to $5.4$38.1 million of net income adjusted for non-cash items, partially offset by a $1.5$2.5 million decrease in working capital due primarily to higher inventory and accounts receivable,inventory, partially offset by higher accounts payable.payable and accrued compensation and employee related benefits.

For the threesix months ended MarchJune 31,30, 2026, we generated $25.7$0.5 million of net cash proceeds from investing activities. These net cash proceeds were due to investment maturities of $48.7$90.6 million, partially offset by investment purchases of $21.2$85.9 million and equipment purchases of $1.7$4.2 million.

For the threesix months ended MarchJune 31,30, 2026, we used $45.6 million of net cash from financing activities to purchase a portion of our 2021 Notes for $47.0 million and pay $1.6$1.8 million in taxes to cover RSU vesting, partially offset by proceeds of $3.0$3.2 million from stock-option exercises and our employee stock purchase plan.

Convertible Notes – As of MarchJune 31,30, 2026, the principal balance outstanding on the 2021 Notes and 2025 Notes is $57.3 million and $190.0 million, respectively. Refer to Note 7 to our Condensed Consolidated Financial Statements included elsewhere in this report for maturity date, stated interest rate and additional information on the Notes.

Purchase Commitments – Purchase commitments as of MarchJune 31,30, 2026 total $41.7$35.8 million and consist primarily of noncancelable commitments to purchase inventory.