Impinj, Inc. Stock

Great. Thanks, everyone, for joining. I'm David O'Connor from the semiconductor team at Piper. It's 25 minutes. So anyone who wants to jump in with a question, please just raise your hand.

With that, I'm delighted to welcome Cary Baker, CFO of Impinj to us this morning. Internet of Everything, RFID leader. Cary, what's the big picture here on RFID and on Impinj?

Yes. So our opportunity starts everywhere you see a barcode. And you might ask, why are you revolutionizing the barcode? Barcodes are free to add, but barcodes are expensive to read. You need to be -- have line of sight, you need to have proximity to the item and you're reading one at a time. With our ICs, you're reading up to 3 feet away without line of sight, thousands of items a second. The IC is literally smaller than a grain of sand. It's energy harvesting, which means it's battery-free and has effectively an unlimited lifetime.

Awesome. And with RFID, how would you size the market? How big is it? And how fast is it growing?

Yes. Rough and tough, we see the market opportunity at 10 trillion units to which we're less than 0.5% penetrated today. Now the 4 verticals that we focus on primarily are apparel, which is 80 billion units a year; general merchandise, 325 billion units a year; supply chain and logistics, 400 billion units a year; and food, which is multiples larger than all 3 of those other verticals combined. The industry has been growing since 2010 at a unit CAGR of around 20% to 25%. Impinj's CAGR over that time has been 26%.

Okay. Okay. Okay. And in terms of RFID adoption in those -- in apparel, apparel is a big part of the revenue base today. How would you describe that penetration of it?

Yes. Apparel is the most mature market for us today. By volume, we're probably 40% penetrated to that 80 billion units. In supply chain and logistics and general merchandise, we're low-single-digits penetrated, but we have the largest players in those respective categories moving forward first. In general merchandise, it's led by Walmart. In supply chain and logistics, it's led by UPS. And then food is no penetration to speak of today. We're delivering modest volumes into those opportunities with big players, but it's still early days in food.

Okay. Awesome. Awesome. And in terms of just the life cycle of RFID, that kind of adoption, maybe just talk us quickly through kind of the -- that life cycle of the customer, the kind of ROI decision they make. How long does the rollout take? If you can just talk around high level.

Yes. Every time line across customers is different, but they all share some commonalities. Typically, they start with a single use case. They get that deployed, they get a base ROI earned, and then they start asking where else can I deploy this RAIN RFID to extract even more ROI. So in apparel, it typically starts with handheld readers checking inventory at the store level. And then once those retailers reach 100% tagged, they unlock a whole bunch of new use cases. They can then go to loss prevention, to self-checkout, to front store, back store management, to smart fitting rooms. And as they move to those different use cases, they're extracting even more ROI.

Okay. Okay. And in terms of time frame, what have you seen kind of -- from when that customer makes that decision to kind of actually deploying, what is the type of time frame typically?

The sales cycles are typically long. They'll start out with a single store pilot just to prove out the use case. Then when they have the use case proved out, they go to what we call the controlled deployment. It's a small portion of their overall footprint where they're proving out the ROI at scale and they're working out any kinks that they see. And then once they prove out that ROI at scale, they work out the kinks, then they go to a broad rollout, which is typically measured in multiple years. Now while it is a long sales cycle, what we see is once an end customer makes a move forward, they never turn back.

Okay. Understood. Understood. And any anecdotes in terms of like the ROI customers got from the apparel, like inventory savings or growth? Just any anecdotes you can share?

Yes, for sure. So back in the early days, Macy's had an apparel deployment and a handful of other categories. Macy's was able to take out $1 billion from their inventory because they were able to see down to every item on the store floor. And they were also able to achieve nearly 10% same-store sales lift because they knew what was on the shelf and more importantly, what was not on the shelf. And that's a pattern we typically see. The base ROI always starts out with labor savings and then it quickly translates to sales uplift because of the visibility that the RAIN tags provide.

Okay. Okay. And across logistics, any anecdotes there of where the RFID ROI was driven on the logistics side?

In logistics, it's a reduction in manual scans -- it's a reduction in missed shipments. It will eventually move to a sales uplift as well. You can pull any of the last several earnings call transcripts from UPS who has deployed RFID throughout their infrastructure, and you can see the immense ROI that they're earning.

Okay. Okay. Turning to kind of on the growth side of things, growth markets, you talked about food, freshness. Which markets are you most excited? Which markets should investors be watching from the following Impinj growth story?

Yes. I'm excited about all 4 of the major categories that we're focused on, even apparel. Apparel is the most mature. It's 40% penetrated by volume. But by logo, it is north of 90% penetrated in North America. Most retailers have already made the decision to move forward with a RAIN deployment. Most retailers are not 100% deployed. So there's a lot of inertia in apparel, even though it's the smallest category. And then there is significant opportunity in general merchandise and supply chain and logistics and food, given it's such early days for those categories.

Okay. And in terms of freshness market, is that -- how big can that be freshness? We're early in that deployment. You guys recently just started talking about it.

Yes. In the freshness deployment, think of that as part of the supply chain and logistics. So think of freshness as the food chain or the cold chain within food. So we think of that inclusive of the 400 billion units. So that's a component of the overall food opportunity.

Okay. Okay. Okay. Understood. Maybe talking about -- we spoke a lot about the U.S. Where is the U.S. versus international rollout? Is international a big part of the growth story for Impinj? Or is it really driven by U.S. adoption of RFID?

Think of it as more of the Western world. Probably 80% of the ICs end up between U.S. and Western Europe with U.S. larger than Western Europe. The remaining 20%, less than 10% China, Japan, Brazil, other categories that are out there, but mostly in the Western world.

Okay. And outside U.S. and Europe, for instance, or other Western markets, any programs or pilots that investors should be keeping an eye on?

Those programs are across the board.

Any big ones?

Any big ones. Nothing that is in the public domain right now.

Okay. Okay. Okay. Understood. Understood. Maybe turning over to competition in the space. Can you talk a bit about the strong competitors? What are you seeing out there from competition at the moment?

So in the endpoint IC market, the 2 primary competitors are Impinj and NXP. Between the 2 of us, we have north of 90% market share. Impinj's market share last year was greater than 60%.

60% for the last few years is pretty stable.

No, it's been growing over the last few years. We gained significant share over the last couple of years.

Okay. Okay. And that's in apparel, do you think or logistics, or across the board?

It's across the board. Certainly in apparel, but also logistics, we have a strong share in the logistics opportunities out there right now.

Okay. Okay. Any Chinese competitors or you don't really play as you mentioned, the China market is a bit separate.

Yes. We do see activity coming out of China. Nothing that is quality at scale, nothing that is more than a China-for-China solution. I think it will be hard for Western companies to put a Chinese radio on everything that's important to them in the current political environment. But we don't stop there. That's not what we rely on to maintain our moat. Impinj's competitive advantage is we're the only player that operates on both ends of the radio link. We compete on the endpoint ICs, and we compete on the read points, the readers and the reader ICs and the gateways and whatnot. That creates an opportunity for us to put functionality in the IC that is engaged by functionality in the reader while still embracing the communication protocol that the entire industry prescribes to.

So one example of that is our Gen2X. The base existing protocol for the industry is the Gen2 protocol. And basically, it means that every reader can read every IC irrespective of manufacturer. What Gen2X does is it embraces that standard and then extends it based on learnings that we've had over the years to make the IC and the reader more performant. So as an example, in a normal Gen2 reading environment, the tags constantly respond to the reader, basically saying, I'm here, I'm here, I'm here. That clutters the reading environment. It reduces read range, it reduces read speed. With Gen2X, we give the reader the capability to tell the tag to stop responding once it's been read. That declutters the reading environment and increases read range and increases read speed.

That becomes -- that improvement in performance becomes more important when you move out of apparel and you start moving into logistics or into general merchandise. In logistics, the items going down a conveyor belt are moving very, very fast. You only have a split second to read them. And when you move into general merchandise, especially the very dense categories, shelf categories like cosmetics, like health and beauty, like OTC pharma, decluttering the read environment becomes very important to a successful deployment.

Okay. Interesting. So some secret sauce around the RF side of things. No doubt covered by patents, which maybe brings us to the NXP, the licensing deal. So maybe just talk about kind of where -- how investors should see the sustainability of that kind of licensing revenue.

At the outset, it was a 10-year license agreement or until NXP designs out our IP and stops selling IP or ICs that infringe on our IP. We've always said or we said all along that 2028, if they move fast enough, would be the year where the rubber meets the road on the longevity of that license payment.

Okay. Okay. Understood. And just in the different markets, it's the same products that you sell across different segments of the market. You talked there about different operational efficiencies of different segments. It's the same product that you can cross-sell across all segments?

For the most part, yes. The M800, our most performant IC, can work in any apparel, general merchandise, logistics, food opportunity. We've also built for our second large logistics customer, a custom IC that -- think of that as, again, operating on both ends of the radio link that is specifically designed for the features that, that end customer needs.

Okay. Okay. So that's good for business, custom ICs, more lock-in.

It's more lock-in. It increases complexity, managing a single SKU for a single end user that we don't have across the rest of our portfolio. But when the opportunity is right and think of that meaning when the volume is there, but also when we have the deep technical integration with that customer, where we would know what to put in a custom IC and we can design the IC around their operations, then it makes a lot of sense for us, and we'll continue to evaluate an opportunity as such.

Okay. Okay. Very good. Understood. Maybe if you could switch to kind of channel inventory and just talk about the kind of misstep in Q1 on the logistics side of things. Maybe just give an overview of what happened there? And was that a one-off? Or how would you kind of -- what you learned from that?

So we've had a misstep over the last 2 first quarters. And both relate to a single customer, our second large supply chain and logistics customer. And the reasons were different from year-to-year, the crux of the issue is we did not have visibility into how our partners were managing their inventory in support of that end customer. At that time, our second large logistics customer was using the M800. General purpose SKU, as I mentioned, can go into any apparel, general merchandise, logistics, food opportunity.

And we didn't appreciate the fact that our inlay partners were building inventory and managing inventory in a way that was dislocated from the seasonality of the package volume of that end customer. And that caught us off guard. With the custom IC, we now see that difference in dislocation in managing inventory versus the package volume seasonality that we would have otherwise expected. So I believe we have the inventory visibility to manage through that. Now obviously, after 2 missteps in a row, we got to prove-it year in Q1, but I'm increasingly confident that we'll be able to do so.

Okay. Okay. So more aligned to normal seasonality. Which is what for the business?

Normal seasonality for the business starting in Q2, the quarter we just completed. Endpoint IC is typically up 10% to 20% sequentially. In Q3, it's up high-single, low-double digits. And then in Q4, it's down typically 5% to 10%. And the reason for that seasonality is we ship in front of the holiday season for apparel retail, which is the bulk of our business. Then in the first quarter, it's typically down low-single-digit percent.

Okay. Okay. Understood. Maybe switching over to kind of pricing and costs. Last year, you shipped like 29 billion units, I think.

Yes, that's right.

And ASP $0.01. Costs are going up. We hear everyday costs going up. How are you managing kind of costs and pricing basically? And how is that kind of discussion going with the customer?

Yes. We have felt inflationary pressures like everybody else. We expect that to continue. It's not unique to endpoint ICs. It's across our entire portfolio of products. And what we do when we have inflationary pressures is we first try to engineer around the cost increases. When we can engineer around, we absorb what we can.

And when we can no longer absorb, we pass them on to our end customers in a way that protects the integrity of our margin model. As I mentioned, we're feeling those inflationary pressures now. So we have told our end customers that a modest impending price increase was coming. Think of that as layering in over the back half of the year and think of it as us maintaining our margin model. Those conversations are never easy, but I think everyone understands where they come from.

Okay. Okay. But ASP -- I mean, it's per unit, but like how -- in RFID, how sensitive are customers to pricing?

Historically, they have been, but ASPs have come down. Typically, we see low to mid-single-digit ASP declines on an annual basis that are supported by wafer cost down, so it maintains our margin model. Today, in the most competitive opportunities, the additive cost of an inlay is sub-$0.02. And we needed to reach that price point for opportunity in food to be unlocked, and that's what we're seeing right now.

Okay. Okay. Okay. Maybe switching over to the business model. Maybe can you just flag kind of the highlights for the business model? You talked about seasonality earlier, but just generally on the kind of from a margin perspective.

So starting with gross margin. The M800 is our most performant IC. It's also our smallest IC. We get 20% more die per wafer than our M700. That will translate in 2 ways. One is a lower ASP to our end customers. So they get a more performant IC at a lower price. But two, it also drives gross margin accretion. The wafer cost is the bulk of the BOM of our IC. So prior to the M800, our corporate average gross margin was roughly 53%. When the M800 is fully rolled out, reaches its terminal mix, we'll deliver 300 basis points of gross margin accretion. So that 53% goes to 56%. We'll achieve terminal mix in Q4, probably won't blend for the whole fourth quarter, but we're still ramping the M800 nicely. You're starting to see that gross margin in the business now.

Okay. And the difference on the reader side versus the chip side or even on the customer, different customer mix, is that any impact on kind of gross margin?

Yes. The systems mix is typically -- our systems gross margin is higher than the corporate average. So think of endpoint IC is just under the corporate average and systems above the corporate average. And within the systems business, the reader IC is our highest gross margin product.

Okay. Okay. Understood. And then from EBIT margin targets, cash flow targets, what should investors think about that?

Yes. So we've got a massive opportunity in front of us, and we're going to continue investing in that opportunity. R&D is the primary focus of investment. But even in the R&D line, we expect leverage. There's more leverage in the sales and marketing line because we leverage a partner network to take our products to market. And then obviously, there's significant leverage in the G&A line. Our internal goal is for incremental revenue to flow through to the bottom line at a rate greater than 30%.

Okay. Okay. Okay. 2027 converts, what should we think about, are they refinanced or...

Yes. So we actually addressed the 2027 converts. These are 1.125% notes maturing in May of 2027. We addressed that last week. We went in the open market and repurchased the remainder -- almost all of the remainder. We couldn't grab the last $1 million of it. But of that convert, we -- as we've typically done in the past, we addressed it in the most dilution-friendly way we could. So we retired the principal, which was a little over $55 million -- $56.3 million in cash, and we've settled the upside with shares.

Okay. Okay. M&A in the space, RFID, any kind of tuck-ins, any holes in the portfolio on the systems side or on the reader IC side?

Yes. We're always looking for M&A opportunities. The reality is it's a niche market. So some of those are hard to find, but we kick the tires all the time. And we have a pretty high bar to clear. This is a big opportunity. We are a small team, a little over 450 people. So we all need to be focused on working hard to capture this opportunity. So any M&A opportunity that we see has to meet a high threshold.

Okay. Okay. Understood. Any -- maybe in the last couple of minutes, any questions from folks listening? Okay. Cary, any closing thoughts that you want to leave with investors about the business?

Yes. I think one closing thought. One of the first questions I get meeting with investors about the food opportunity, which is massive, and I completely understand that. We're working with 3 of the 5 largest grocers in the U.S. that are either piloting or actually in a deployment as in the case with Kroger. We're working on 4 different use cases across food right now. So there is a lot of pull from food. But I would encourage investors don't sleep on general merchandise. There's a lot of work going on behind the scenes on general merchandise. And I think, especially in the near term, that's going to be a major driver of growth for Impinj and for the industry.

Okay. And proof points for investors to watch out for to double-click on the story or just to see if you guys are on track?

Focus on where we start talking about customers that have moved from proof of concept or pilots into deployments.

Okay. Okay. And there will be public announcement?

There should be. Typically, we start talking about end customer deployments once they're into the pilot stage. Now we don't always name our end customers. And typically, we don't name our end customers, but we'll start talking about the progress and the time line that those customers will have.

Okay. Awesome. One very last question on my side. What are you most worried about? What keeps you up at night?

Those are -- we always focus internally on execution. How do we get all of the employees in the same boat rowing in the same direction. That will always be a focus of mine. I also focus on the time line of these programs, how quickly they can roll out and how to make sure that we manage expectations appropriately.

Okay. Okay. Maybe just one last one again on my side. Just on the competition side of things, like it's yourselves and NXP, basically, essentially own the market. You guys, you mentioned 60% share kind of the remainder. What drives that design win for you guys versus NXP? Is it kind of your focus on different markets? Is it a software thing as you talked about maybe some magic patent on the RF side of things. What really kind of gets you that design win versus competitors?

Yes. I think it comes down to performance, especially in categories as we move past apparel and the base use case deployment for apparel, where performance matters, but there's not enough of a differentiation for it to matter in that category. But when you start moving away from handheld readers into fixed or autonomous readers where you have -- you no longer have a human in the loop, the accuracy threshold goes very high. And that's where our competitive advantage shines through. By being able to tune both ends of the radio link, we can increase the performance level to unlock those use cases.

Okay. And does that play to the market to your more you talked about food freshness?

Yes, absolutely. In food and freshness and logistics, especially, but also in apparel and then eventually general merchandise where they move beyond the base use case. Handheld readers, we're going to compete and earn our fair share in that. But when you move to self-checkout and loss prevention, when you no longer have a human in the loop, when you're dealing with customer cash, we think our accuracy and our performance is very compelling.

Okay. Awesome. Well, thank you...

Yes. Thank you.

And thank you very much for joining us today and Impinj CFO, and thanks, everyone, for joining.

Thank you.

Welcome to Impinj's Second Quarter 2026 Financial Results Conference Call. [Operator Instructions] Please note, this event is being recorded.

I would now like to turn the conference over to Mr. Andy Cobb, Vice President, Corporate Finance and Investor Relations. Please go ahead.

Thank you, Nick. Good afternoon, and thank you all for joining us to discuss Impinj's second quarter 2026 results.

On today's call, Chris Diorio, Impinj's Co-Founder and CEO, will provide a brief overview of our market opportunity and performance. Cary Baker, Impinj's CFO, will follow with a detailed review of our second quarter financial results and third quarter outlook. We will then open the call for questions. You can find management's prepared remarks plus trended financial data on the company's Investor Relations website.

We will make statements in this call about financial performance and future expectations that are based on our outlook as of today. Any such statements are forward-looking under the Private Securities Litigation Reform Act of 1995. Whereas we believe we have a reasonable basis for making these forward-looking statements, our actual results could differ materially because any such statements are subject to risks and uncertainties. We describe these risks and uncertainties in the annual and quarterly reports we file with the SEC. We do not undertake and expressly disclaim any obligation to update or alter our forward-looking statements, except as required by law.

On today's call, all financial metrics, except for revenue or where we explicitly state otherwise, are non-GAAP. All balance sheet and cash flow metrics, except for free cash flow, are GAAP. Please refer to our earnings release for a reconciliation of non-GAAP financial metrics to the most comparable GAAP metrics.

Before turning to our results and outlook, note that we will participate in the 2026 Jefferies Semiconductor IT Hardware and Communications Technology Conference on August 25 in Chicago; and the Piper Sandler Growth Frontiers Conference on September 15 in Nashville. We look forward to connecting with many of you this quarter.

I will now turn the call over to Chris.

Thank you, Andy, and thank you all for joining the call.

Our second quarter results were strong with revenue, adjusted EBITDA and earnings per share setting new quarterly records. For the second consecutive quarter, endpoint IC bookings also hit an all-time high, driven by strong demand across retail apparel, general merchandise and supply chain and logistics. Looking to the third quarter, we see accelerating demand and strong product revenue growth.

Starting with silicon. Second quarter endpoint IC product revenue exceeded our expectations with unit volumes setting a new quarterly record. In supply chain and logistics, the custom ASIC ramp at our second large North American supply chain and logistics end user is ahead of schedule with our inlay partners rapidly filling their supply chain and full conversion expected in the third quarter.

In retail apparel and general merchandise, stronger-than-expected demand drove outsized revenue even as channel inventory declined. We believe market expansion, retailer pull-ins before temporary tariffs expired last week, and consumer resilience drove the demand strength. Looking forward, strong bookings suggest continued market expansion and demand on top of our inlay partners rebuilding their IC inventory back to normal levels.

Reader IC revenue also beat our expectations, driven by strong enterprise demand. Looking to the third quarter, we expect reader ICs to be our fastest-growing product line. For both endpoint and reader ICs, we have sufficient wafers to support the demand with strong support from our foundry partner.

Turning to food. A few weeks ago, another large U.S. grocer publicly cited their ongoing bakery pilot using RAIN to track in-store inventory and product expiration dates. Three of the 5 largest U.S. grocers have now announced pilots or deployments across bakery, deli or meats. I'll take a moment to give some color on the food opportunity. We are currently supporting 4 distinct types of food programs. First, store replenishment, led by quick-serve restaurants and focused on availability and freshness. Second, in-store inventory, led by supermarkets and focused on stocking and product expiration. Third, loss identification, also led by supermarkets and focused on flagging unscanned items at point of sale. And fourth, automated self-checkout, led by the large vertically integrated European grocer we've discussed previously.

A few enterprises in the first and second categories have progressed to chain-wide rollouts, consuming a modest number of endpoint ICs relative to current RAIN industry volumes, but still small relative to the total opportunity. The third and fourth categories are still in proof of concept with encouraging results to date. Notably, the opportunity breadth and sheer number of large engaged enterprises, so early in the market cycle is far larger and faster than anything I've seen in our industry's history.

With all the excitement around food, I need to encourage you not to lose sight of the opportunities in the supply chain and logistics and general merchandise markets. The former is poised to expand from shipments to e-commerce and third-party logistics. The latter continues its inexorable growth and expansion with many large categories such as OTC pharmaceuticals, cosmetics and health and beauty not yet deployed. Given their head start, both markets today are consuming significantly more endpoint ICs than food. Also, both offer significant solutions opportunities for us.

Touching on those solutions, despite only modest second quarter reader and gateway shipments to our lighthouse enterprises, our solutions engagements with those enterprises continue advancing. We're focused on 2 enterprise pain points, replenishment and point of sale using our endpoint and reader ICs, readers, gateways and software to provide real-time event data around supply chain transitions and at front of store. And we are engaging partners to sell and deploy those solutions.

We believe the event data our solutions deliver, for example, a 100% certain event that a store received an item, will dramatically improve AI models that analyze and automate enterprise operations.

We're incredibly well positioned to lead and win in solutions using machine learning to find moving items and confined read zones, Gen2X to improve item readability, label production systems to ensure label quality and reliability, custom ASICs as needed and solutions engineering and sales to truly deliver the use case. Although we are still in the early days of solutions delivery, my focus is expanding our company from being primarily a component seller to also being a solution provider. I'm confident we can do so. And given our solutions demand, I have never been more excited about our future than I am today.

In closing, this month marks our 10-year anniversary as a public company, and our timing couldn't be better. Our market opportunity is expanding rapidly with the growth rate in supply chain and logistics, general merchandise and food outpacing retail apparel, which is in mainstream adoption.

We delivered a quarter with record revenue, adjusted EBITDA, earnings per share and endpoint IC volumes and look to another strong quarter ahead. And we have a stellar team, energized by the opportunities in front of us and driving forward with pace and conviction.

As always, before I turn the call over to Cary for our financial review and third quarter outlook, I'd like to thank every member of the Impinj team for your tireless effort. I feel honored by my incredible good fortune to work with you. Cary?

Thank you, Chris, and good afternoon, everyone.

Second quarter revenue was a record $108.4 million, up 46% sequentially from $74.3 million in first quarter 2026 and up 11% year-over-year from $97.9 million in second quarter 2025.

Second quarter endpoint IC revenue was a record $96.4 million, up 53% sequentially from $63.2 million in first quarter 2026 and up 14% year-over-year from $84.6 million in second quarter 2025. Excluding licensing revenue, endpoint IC product revenue grew 26% sequentially and 16% year-over-year, significantly exceeding our expectations. Looking forward, we expect third quarter endpoint IC product revenue to increase sequentially, above the high end of typical seasonal growth.

Second quarter systems revenue was $12 million, up 8% sequentially from $11 million in first quarter 2026 and down 10% year-over-year from $13.3 million in second quarter 2025. Systems revenue met expectations with reader IC strength offsetting label production systems weakness. Looking forward, we expect a strong sequential third quarter systems revenue increase.

Second quarter gross margin was a record 60.9% compared with 52.4% in first quarter 2026 and 60.4% in second quarter 2025. The sequential increase was driven primarily by licensing revenue. The year-over-year increase was driven primarily by endpoint IC product mix, specifically a richer mix of M800, partially offset by lower systems revenue mix. Excluding licensing revenue, second quarter product gross margin was 53.6% compared with 52.6% in second quarter 2025. Looking forward, we expect third quarter product gross margin to increase sequentially.

Total second quarter operating expense was $35.3 million compared with $35.5 million in first quarter 2026 and $31.5 million in second quarter 2025. Operating expense met expectations. Research and development expense was $20.2 million. Sales and marketing expense was $7.1 million. General and administrative expense was $8.1 million. Looking to the third quarter, we expect third quarter operating expense to increase sequentially.

Second quarter adjusted EBITDA was a record $30.7 million compared with $3.4 million in first quarter 2026 and $27.6 million in second quarter 2025. Second quarter adjusted EBITDA margin was a record 28.3%. Excluding licensing revenue, adjusted EBITDA margin was 15%.

Second quarter GAAP net income was $12.2 million. Second quarter non-GAAP net income was a record $27 million or $0.86 per share on a fully diluted basis.

Turning to the balance sheet. We ended the second quarter with cash, cash equivalents and investments of $263.7 million compared with $235.2 million in first quarter 2026 and $260.5 million in second quarter 2025. Inventory totaled $91.5 million, up $5.2 million from the prior quarter. Second quarter capital expenditures totaled $2.4 million. Free cash flow was $29.2 million.

Turning to our outlook. We expect third quarter revenue between $105.5 million and $108.5 million compared with $91.4 million product revenue in second quarter 2026, a quarter-over-quarter increase of 17% at the midpoint. We expect adjusted EBITDA between $20.7 million and $22.2 million. On the bottom line, we expect non-GAAP net income between $18.5 million and $20 million, reflecting non-GAAP fully diluted earnings per share between $0.59 and $0.63.

In closing, I want to thank the Impinj team, our customers, our suppliers and you, our investors, especially those of you still holding IPO shares today at our 10-year listing anniversary for your ongoing support.

I will now turn the call to the operator to open the question-and-answer session.

[Operator Instructions] The first question will come from Harsh Kumar with BMO Capital Markets.

Chris and the entire Impinj team, I guess, congratulations on 2 distinct things, your 10-year anniversary and the biggest quarter you guys put up and also the biggest guide from what I believe, not including royalties. So to that end, Chris, I wanted to ask you, the third quarter guide is quite a bit of a surprise to me. And I was curious if you could provide us with some color on where you are seeing outsized strength relative to your previous expectations.

Okay. Harsh, thank you for your kind words. And so to answer your question, where we're seeing strength. As I said in our prepared remarks, we're seeing pull in general merchandise, supply chain and logistics and food. Obviously, there's also continued expansion in retail apparel. There continue to be new programs that are coming online as well as growth in existing programs. So although retail apparel is in mainstream adoption and therefore, its pace of growth has slowed in terms of an overall volume number, it's still contributing significant volume growth to us.

On top of that, we saw share gains last year in the overall market, and those share gains are giving us momentum in 2026. You put all those pieces together, strong market demand, market pull for solutions, multiple verticals going on our strength in the market, and they all contribute to a strong Q2 and a strong Q3.

And then I think you spent quite a bit of time on food and laying out how you will play it. I know that the largest retailer in the United States is implementing food tracking or food -- yes, food tracking for deli and bakery. I was curious about how that is going because it wasn't announced by you, it was announced by one of your inlay partners. And then also, are you concerned about tariffs at all? Or are you seeing anything? It doesn't seem like you're seeing anything, but I'd be curious if that's something in the back of your mind.

Okay. Two questions. First on food and then the second one on tariffs. In the food space, Harsh, we as a company, tend to let our partners and customers speak for themselves. I devoted a significant portion of my script to the food opportunity overall because, like I said, I'm truly excited about this opportunity. The number of large enterprises that are engaged is far greater than anything I've seen in our history. I mean just think about it.

If you look at supply chain and logistics, it was led primarily by one enterprise. You look at some of the growth in retail apparel in the old days was led by a very small number of enterprises. Here, we've got 3 of the 5 largest U.S. grocers jumping in at the beginning. So just that the demand and the pace is something I haven't experienced. So I'm very excited about food. We're working with those grocers, including the one you mentioned, I'm supporting them as we can. Very much as we can. But I'll let them speak for themselves in terms of where their program is.

And then regarding tariffs, as I said in my prepared remarks, we did see some pull ahead in the second quarter before the prior tariffs expired a week ago. And we did see some channel inventory burn down as our inlay and label partners filled into the demand to -- for product inventory before those tariffs expired. That said, we still see strength in the market built on consumer resilience and ongoing category expansion and market expansion. And as Cary said in his prepared remarks, we see very strong demand for our endpoint ICs.

So yes, pull ahead for tariffs, yes, continued strength in the market. And on top of that, we expect our inlay and label partners to rebuild their inventories in the back half of the year.

The next question will come from Christopher Rolland with Susquehanna.

Mine is around -- and Chris, you mentioned logistics on your main partner there. They had some very positive comments about RFID and an increased deployment there, basically going from a scanner world to RFID world. And then also and perhaps most significantly, an expansion internationally as well. So on this, if you could talk about what that means for you guys and any other movement on other logistics potential engagements and customer opportunities.

Yes. Thank you, Chris. I'll do my best here. Obviously, I could talk a long time on that topic. We do our very best to support that customer. I call them a customer, but they're really a partner of ours. We do our very best to support them with all their initiatives. We work closely together. We support each other and that we are -- we at Impinj on the Impinj side are very thrilled about what they've got going on.

They spoke a little bit about AI and the opportunities with AI. And the one thing I'd like to say there is that we deliver what I like to call hard event data. I made a point in my prepared remarks about 100% certainty that that item arrived at a certain location. When we read it, we have certainty that that's the item. It arrives at that time and that location.

And that kind of hard data is a boon to AI models because you don't have to create synthetic data. There's no inference or anything on what's going on with the underlying data for the model. The data are real. The AI model has the job of optimizing the enterprise's operations. So that partner's ability to ingest the real hard event data, optimize their operations and then take their learnings to their customers who then become our customers is where I want to take the company and deliver solutions to that partner's customers. And that's why I talk about third-party logistics opportunities.

So huge opportunity with them, we will support them. We never let them down. And I am incredibly excited about the future in supply chain and logistics. Now of course, there are other companies in the supply chain and logistics space. We are supporting them as well, supporting them through partners. And we're doing what we can to drive the whole overall industry forward. But of course, the partner we work with is well ahead of everybody else.

Excellent. Additionally, you're great at kind of looking ahead at some of these trends. So I guess, first of all, if you could talk about any new opportunities, end markets or opportunities you see on the horizon? And then circling back on one that has some potential is the digital passport product passport opportunity. Can you talk about any progress we might have seen there?

Yes, I'll do my best. New opportunities on the horizon outside of supply chain and logistics and food. I think you should just take note of the categories I mentioned around retail general merchandise. The 3 categories I mentioned, OTC, pharma, health and beauty and cosmetics are all gigantic. They would all benefit significantly from tagging, whether it's for expiration, guarantees of product, availability on a shelf, stock accuracy. And so those categories, we believe, hold a significant potential volume -- future volume opportunity for us. If I just look across that set, retail apparel, retail general merchandise, especially those 3 categories on top of everything that's been tagged already, supply chain and logistics and food, that's enough to propel us on our industry forward.

Now turning to DPP. I've been pushing forward this vision for a long time of getting readers in the hands of consumers and the DPP benefit as part of that, but it's really more than a DPP benefit. It's giving consumers the ability to get information about items they own and recycling at end of life.

The Qualcomm announcement a while back that they're embedding RAIN RFID reading in their mobile phone chipsets, at least initially for industrial devices, but they said also that it can be ported to a consumer devices. The progress at the regulatory side around DPP, I see all of that coming to a confluence by the end of this decade and DPP helping to drive the consumer use case and consumers helping to drive the DPP use case. So a little bit early to post results there because both of those things are in the early days. But in the out years here, they hold huge promise for our future.

The next question will come from Jim Ricchiuti with Needham & Company.

Chris, just with respect to OTC, cosmetics and health and beauty, I'm not aware of the large general merchandise retailer moving forward with that phase of deployment. Do you anticipate this potentially being a driver in 2027? And if you can't comment directly on that, can you give us a sense that if we do see a retailer like this customer moving forward, how would you think about this scaling versus some of the other general merchandise categories in the past?

So Jim, so let me be clear. I mentioned those categories because I see the opportunity there. And obviously, there's been broad interest in the past, if you really want to look at it, it was the cosmetics use case that got this whole industry going in the first place back 25 years ago. So it's because those categories haven't gone yet. I see the opportunity there. I know from history about the opportunity there. And we are doing work internally to enable those categories. That said, there's been no announcement that I know of by any retailer that they're moving forward with those categories. So I'm not trying to put words in anybody's mouth. It's just where I see the opportunity.

As I think about the size of those categories, obviously, they're smaller than food, but they're gigantic, and they drive sales uplift for enterprises. So health and beauty, huge, cosmetics and the need there. Like I said, it drove our industry in the first case. And OTC pharma would be the first step towards prescription pharma. And I can't cite the numbers. I don't have them off the top of my head, but the OTC market is also gigantic. All of those categories are taggable. They take work, but it can be done. So I'm excited about those categories to the point where we, as a company, are putting some effort into helping them go. Did that answer your question?

Yes. And I knew it would be a tough to answer directly, but you did, I think, provide some good color on the market opportunity. I wanted to switch gears a little bit on the competitive environment. Your major competitor has introduced a new endpoint IC. I'm wondering whether this might impact some of the share gains that you've made in recent years. Curious how you see the competitive landscape at the moment?

And then if I could just ask a quick one to Cary, just with respect to gross margin improvement in Q3 on the product side, how much of that is this full conversion of the ASIC ramp logistics side of the business? Two questions, I apologize.

Okay. I can go first.

Okay. You want to go first? Go ahead, Cary.

So on the gross margin side, Jim, it's really our continued ramp with the M800. So think of the custom ASIC as part of the M800 platform and contributing to the 300 basis points of gross margin accretion that the M800 will eventually deliver. So in Q2, on a product gross margin basis, we saw gross margin increase by about 120 basis points sequentially. I expect a roughly similar increase sequentially in Q3, again, on a product margin -- gross margin basis. Chris, I'll hand it over to you.

Yes. And Jim, to your question, obviously, our key competitor highlighted strong demand for their products. We see strong demand as well, evidenced by our second quarter results and third quarter guide and propelled by our last year's share gains. So they saw strong demand. We see strong demand, and that strong demand is driven by market growth. We feel good about our share position today. They have introduced a new product. We have not seen it significantly in market yet. And I think you know from our M800 ramp prior product ramps that introducing new product in our industry, given that the end customers need to qualify them and a lot of those products go through the -- through our testing takes a while.

So we feel good about our share position now. We feel good about where we are driving forward. And we have very high-performing products in market that are meeting end customers' needs. We're driving forward with Gen2X to improve readability, machine learning to do the things we said around solutions, confined read zones and identify transitions. And we'll be driving forward in the solution space, winning our fair share of the market.

The next question will come from Scott Searle with ROTH Capital.

Congrats on the anniversary and congrats on the quarter. Chris, maybe quickly to follow up on your comments with Gen2X, significant in terms of throughput and readability. I'm wondering if you could extrapolate a little bit on that in terms of market share potential, kind of what you're seeing in terms of engagement with customers. Gen2X, as I understand it, huge performance advantages when you're using endpoint ICs from Impinj. So how is that impacting the share outlook when you're talking to existing and new customers?

I'm wondering if you could factor in or kind of fold in the custom ASIC development as well. You gave an update in terms of where that was with the pre-existing customer, but you had referenced earlier that we might see additional customers moving into that direction. So kind of wondering how that's playing out.

Yes. I'll do my best here. So on the Gen2X front, the vast majority of labels today are still read with handheld readers. It's for inventory visibility. We see and have been able to demonstrate a material benefit from Gen2X in that handheld reading scenario, which is especially in some of the more difficult to read categories like food, which is giving us a leg up in the market. And we have partners like Zebra and Qualcomm and others who are pushing forward with Gen2X because of its readability benefits. So in the base market, handheld-driven inventory counting, we see a benefit from Gen2X with our endpoint ICs. And you don't have to have 100% Impinj endpoint ICs out there. You get the benefit from the Impinj side with Gen2X.

If I then turn to the rapidly growing part of the market, at least on a percentage basis, which is fixed reading for transitions, point-of-sale, store exits -- there, Gen2X has an outsized benefit because we've tailored the capabilities of Gen2X to enable the ML enhancements we're driving to the solution that literally make the solution go. So for us, those Gen2X enhancements are critical to our solutions efforts, evidenced by the fact that our 2 very high share enterprise end users in supply chain and logistics and retail apparel are both using Gen2X to enhance the readability or essentially to enable their use cases. And what you'll see us doing going forward is using Gen2X more and more to enable solutions we literally otherwise could not do. So Gen2X, in my mind, is key to fixed reading solutions, which is where the market is heading and where we're taking the company.

I mean, the second part of the question because I forgot it already. Custom ASIC. So we've obviously already delivered one custom ASIC. We will -- we don't have anything else to report right now on the custom ASIC side. We will do custom ASICs as needed. And I use that word carefully because when you do a custom ASIC, you also have the operations issues around just having a custom product. So where we need a custom ASIC and the customers can use it, we'll build it. And where we don't need a custom ASIC, if they can just get by with base Gen2X, we will do that. So we don't expect us to push everything to a custom ASIC because it creates a kind of overall operations headache. And it provides -- we have to manage through it. But as needed, we need to do something special for an enterprise, we will do so.

And Chris, if I could, just to follow-up on the food front. A lot of progress on that front, both within North America and it sounds like as well within the European marketplace, but we're in the pilot phase. So could you provide a little bit of color as we're starting to look into '27? Is the expectation now that these will convert from pilots into full-fledged deployments? And with that backdrop, given where the market is, given the growth that you're seeing now and the unit opportunity that just exists within those existing pilot customers, right, of the 3 of the top 5 in North America and Europe, are we due for an inflection point now in terms of RAIN RFID ICs as we go into '27 and '28?

That's a hard question for me to answer because we don't guide out into 2027. And when you're talking about programs this size, the -- obviously, there's a huge commitment on the part of the end user to go forward. We do have at least one enterprise that has already deployed many hundreds of stores and is continuing with that -- the store rollout as well as talking about moving to additional categories. We've got the other grocers in there. So I think I'm just going to have to revert back to what I said, the pace of the adoption and the number of end users here is unlike anything I've seen. And because we're generating positive results for the enterprises, I do expect rapid growth on a percentage basis.

Now the other retail apparel, supply chain and logistics, retail general merchandise are far ahead in terms of volumes. So it's going to take a good bit of time until food volumes cross over because those other categories are still growing. But in terms of excitement, I'm incredibly excited about food.

The next question will come from Troy Jensen with Cantor Fitzgerald.

Congrats also. Maybe a question for both of you guys. Chris, for you first, I'd love you just to expand a little bit on your comments about being a solution provider or focusing more on that. And what do you have to do? Does this compete at all with some of your partners? Just to expand would be great.

Troy, I'm going to start with the partner side. This opportunity is so big and our opportunity to grow the pie is so large that outside of our endpoint IC competitor, I view everybody else as a partner. I mean there's no reason for us to compete with anybody out in this space, including in solutions delivery because the opportunities are so compelling.

I mentioned the opportunities just on the food side. It's just one of them. The loss identification at point of sale -- we had one grocer come to us and say they lose $100 million a year from theft at point of sale, primarily proteins and liquor products, wines and beers and alcohol. I mean that's a huge number for a grocer. So the opportunities are there. The opportunities are for fixed-reading, and yet you can't just go in with a handheld and solve the thing.

So we are developing solutions that include every layer of our platform, plus a huge push on the software side to do the ML part, the device management part, the solutions management part. So rather than serving up raw data to the enterprise, we serve up events and working closely with our partners to deliver those solutions to an enterprise. Impinj by itself cannot go out and deploy 5,000 stores. We don't have -- I mean, we have to partner. And there's huge opportunities for us and the partner, including ERP partners, WMS partners as well as other RAIN RFID partners.

So the opportunity is there, fixed-reading solutions to drive a new chapter in this industry beyond just inventory accounting. And I am incredibly excited about it, and it's where I'm pushing the company. Did I answer your question?

Yes, very much so. I love the passion here. But maybe just a follow-up for Cary. Just on the inlay partners that are handling the IC transition with your logistics customer. I mean thoughts on -- do you have good visibility on that? Is there any kind of risk of getting surprised on channel inventory during that transition?

Yes. It's a good question, Troy. After missteps in the last couple of Q1s, yes, we're very alert to this because those missteps have been centered around that second large supply chain and logistics customer. Now, both years were for different reasons, but the crux of the issue was our inability to see the channel inventory that our partners held in support of that customer. So until this year, our second large supply chain and logistics customer used our general purpose M800. That SKU can go into any apparel, general merchandise or food application, which made it difficult for us to understand and have visibility into just how much inventory they were holding for supply chain versus what they were holding for the rest of their market.

And because this end customer typically does a share reallocation at the end of the year, we found ourselves in the early part of the next year navigating some channel inventory noise. But with the transition to a custom IC, we have much better visibility. We know what we ship into the channel. We know what gets pulled from the channel, and therefore, we know what is left in the channel when the day is done.

One of the things that we've learned from having this better visibility is that the purchasing seasonality of our inlay partners in support of this customer is dislocated from the seasonality of the package volume of this customer. So our peak season supporting this customer is 2Q into Q3 with a steeper decline in the fourth quarter consumption as the ecosystem prepares for that annual RFP process. So we feel good that our visibility into this channel is much improved versus the prior 2 years, but we understand that we have to prove it to you in Q1 of '27.

The next question will come from Guy Hardwick with Barclays.

This is Nick Igneri on for Guy. So you guys mentioned endpoint IC bookings reached another all-time high. Maybe if you can just discuss the composition of those bookings by vertical and how much visibility they provide into 4Q and early 2027 demand?

Yes. So Nick, thanks for the question. As you know, we delivered record bookings in Q2, and that was after posting record bookings, what were previously record bookings in Q1. We see several drivers of that booking strength. Kind of first and foremost, after a prolonged period of softness, we are starting to see encouraging signs from retail apparel and general merchandise. There continues to be market expansion in both of those verticals and the consumer remains very resilient. We also saw some pull-ins from the retailers ahead of the tariff -- the July tariff reset. Now fortunately, that reset wasn't a large reset and the rates aren't that different than the expiring rates.

Then second, in supply chain and logistics, the custom ASIC ramp at our second large North American retail supply chain and logistics customer is ahead of schedule. Our inlay partners are filling their channel and filling their supply chain, and we expect full conversion at some point in the third quarter.

And then finally, as you noted, some of those bookings or some of our customers are booking into the fourth quarter, which is a little further out than our standard 6- to 8-week lead time. But if I were to break it down, it's those 3 categories -- or those 3 factors in that order that are driving the booking strength.

Okay. Great. And just maybe to put a finer point on the retailer pull-ins. Can you help quantify the impact? Was this a modest boost or a meaningful portion of the endpoint IC upside in the quarter? And then maybe what assumptions are embedded in 3Q guidance around that?

It was a small benefit to the quarter. That's why I listed it as third on that list. We -- it's hard to quantify specifically, but we know that retailers have signaled that. We know that some of our partners in our ecosystem have said they think it's happening, but we don't think it was a meaningful driver of the growth.

This concludes our question-and-answer session. I would like to turn the conference back over to Chris Diorio, Co-Founder and CEO, for closing remarks.

Thank you, Nick. I'd like to thank everybody for joining the call today, and a special thanks for your ongoing support. Thank you very much. Bye-bye.

The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.

Welome to Impinj's First Quarter 2026 Financial Results Conference Call. [Operator Instructions] Please note this event is being recorded. I would now like to turn the conference over to Mr. Andy Cobb, Vice President, Corporate Finance and Investor Relations. Please go ahead.

Thank you, Nick. Good afternoon, and thank you all for joining us to discuss Impinj's First Quarter 2026 results. On today's call, Chris Diorio, Impinj's Co-Founder and CEO, and will provide a brief overview of our market opportunity and performance. Cary Baker, Impinj's CFO, will follow with a detailed review of our first quarter financial results and second quarter outlook. We will then open the call for questions. You can find management's prepared remarks plus trended financial data on the company's Investor Relations website. .

We will make statements in this call about financial performance and future expectations that are based on our outlook as of today.

Any such statements are forward-looking under the Private Securities Litigation Reform Act of 1995, whereas we believe we have a reasonable basis for making these forward-looking statements, our actual results could differ materially because any such statements are subject to risks and uncertainties.

We describe these risks and uncertainties in the annual and quarterly reports we file with the SEC. We do not undertake and expressly disclaim any obligation to update or alter our forward-looking statements, except as required by law. On today's call, all financial metrics, except for revenue or where we explicitly state otherwise are non-GAAP.

All balance sheet and cash flow metrics, except for free cash flow or GAAP, please refer to our earnings release for a reconciliation of non-GAAP financial metrics to the most comparable GAAP metrics. Before turning to our results and outlook, Note that we will participate in the 2026 Evercore TMT Global Conference on June 2 in San Francisco. We look forward to connecting with many of you this quarter.

I will now turn the call over to Chris.

Thank you, Andy, and thank you all for joining the call. Our first quarter results were solid, with revenue and adjusted EBITDA exceeding the top end of our guide range. NPIC bookings hit an all-time record, driven by the custom ASIC ramp at our second large North American supply chain and logistics end user, our market-leading share position, retailer rebuys and customers booking beyond our standard lead times and mid lengthening competitor lead times.

Looking further out, we're approaching second half 2026 prudently, hedging against multiple possible macro scenarios. Starting with ICs, the RAIN Alliance has now released the 2025 industry volumes and our market share grew 1,700 basis points over 2024.

That share gain is a springboard for strong second quarter demand. We believe we can meet that demand in the multiple scenarios we are modeling.

Looking forward, we are focused on using Gen 2 X and enterprise solutions to spur preference for our endpoint ICs and grow our share further. First quarter inlay partners inventory declined sequentially as expected. So we entered the second quarter with healthy channel inventory and clear air to execute our strategy.

Turning to our opportunities in supply chain and logistics, we shifted meaningful volumes of the custom ASIC in the first quarter and expect those volumes to more than double in the second with the end user on track to fully convert to that ASIC before year-end.

That ASIC opens the door for us to migrate upstream to our customers' customers, delivering IC's readers and solutions software that improve item visibility and traceability at a double-digit number of accounts.

In retail apparel, we expect NPAC demand to increase in the second quarter. Multiple new end users are speaking openly about rain adoption, including a large European brand with whom we are closely engaged, and we are proving the benefits of Gen 2X in retail, for example, by using it to dramatically improve item readability at a large Asia-based lifestyle brand and unlock a significant share shift opportunity.

In general merchandise, we're focused on cosmetics, personal care and health with the goal of unlocking significant incremental M&A opportunities and again demonstrating the benefits of Gen 2X. Food volumes are growing modestly as expected with the bakery rollout on track to double the number of deployed stores this year.

Also in food, we and our partners beat the self-checkout readability targets set by the European grocer to progress to a store pilot. Although solely, cool store grocery self-checkout enabled by our endpoint ICs and software is a massive opportunity.

Overall, we are making strong progress advancing supply chain and logistics, general merchandise and food to fill in behind retail apparel, which is now in mainstream adoption. On the development front, we're growing our software and solutions teams to help solve end-to-end enterprise systems problems.

We upgraded the processor and memory and our flagship reader to better support machine learning at the edge, helping us address those enterprise systems problems. And because the solutions almost invariably need Gen 2X, we drive preference for our endpoint ICs at the same time. We also continue advancing Gen 2x.

For example, with the forthcoming update to our reader ICs and readers that improve M800 TAG read range by up to 25%. The -- in closing, we have an enviable market position and less opportunities in front of us, good product supply and a strong wind at our backs.

As we continue driving our bold vision, I remain confident in our market position and energized by the opportunities ahead. But faced with today's unpredictable macro, we're approaching the second half prudently even as we pursue market share, solutions, successes and growth. As always, before I turn the call over to Cary for our financial review and second quarter outlook. I'd like to again thank every member of the Impinj team for your tireless effort. I feel honored by my incredible good fortune to work with you. Cary?

Thank you, Chris, and good afternoon, everyone. First quarter revenue was $74.3 million, down 20% sequentially from $92.8 million in fourth quarter 2025 and and flat year-over-year from $74.3 million in first quarter 2025. First quarter endpoint IC revenue was $63.2 million, down 16% sequentially from $75.2 million in fourth quarter 2020 and and up 3% year-over-year from $61.2 million in first quarter 2025.

Endpoint IC revenue exceeded our expectations, driven by turns orders. Looking forward, we expect second quarter endpoint IC product revenue to increase sequentially on the favorable side of normal seasonality. First quarter systems revenue was $11 million, down 37% sequentially from $17.7 million in fourth quarter 2025 and down 15% year-over-year from $13.1 million in first quarter 2025.

Systems revenue fell short of our expectations due primarily to the timing of Lighthouse enterprise CapEx spend. Looking forward, we expect second quarter systems revenue to increase sequentially. First quarter gross margin was 52.4% compared with 54.5% in fourth quarter 2025 and 52.7% in first quarter 2025. The sequential decline was driven primarily by higher indirect costs, annual endpoint IC price declines and revenue mix.

The year-over-year decline was driven primarily by higher indirect costs and revenue mix partially offset by the continued M800 ramp. Looking forward, we expect second quarter product gross margin to increase sequentially. Total first quarter operating expense was $35.5 million compared with $34.2 million in fourth quarter 2025 and $32.6 million in first quarter 2025.

Operating expense was below our expectations, driven primarily by good fiscal discipline and timing of spend. Research and development expense was $20.4 million. Sales and marketing expense was $7.3 million. General and administrative expense was $7.8 million. Looking to second quarter, we expect similar operating expense to first quarter.

First quarter adjusted EBITDA was $3.4 million compared with $16.4 million in fourth quarter 2025 and $6.5 million in first quarter 2025. First quarter adjusted EBITDA margin was 4.5%. The First quarter GAAP net loss was $25.3 million. First quarter non-GAAP net income was $4.4 million or $0.14 per share on a fully diluted basis.

Turning to the balance sheet. We ended the first quarter with cash, cash equivalents and investments of $235.2 million compared with $279.1 million in fourth quarter 2025 and $232.5 million in first quarter 2025. The Inventory totaled $86.3 million, up $1.3 million from the prior quarter.

First quarter capital expenditures totaled $1.7 million. Free cash flow was $2.2 million. Before turning to our guidance, I want to highlight a few items specific to our results and outlook. First, in March, we opportunistically repurchased 40.2 million aggregate principal of our 1.125% convertible notes due May 2027, using cash on hand.

This repurchase highlights our commitment to minimize dilution in this case, by roughly 400,000 shares as we manage our convertible debt. Second, our indirect cost of goods sold increased in the first quarter driven by a short-term endpoint IC production issue that reduced our back-end capacity utilization. That issue is fixed and behind us.

Third, as Chris highlighted, our inlay partners exited first quarter with healthy endpoint IC channel inventory. In second quarter, we anticipate strong sequential endpoint IC product revenue growth. driven primarily by underlying demand and to a lesser extent, by no channel inventory burn down.

Turning to our outlook. We expect second quarter revenue between $103 million and $106 million compared with revenue of $97.9 million in second quarter 2025, a year-over-year increase of 7% at the midpoint. We expect adjusted EBITDA between $27.8 million and $29.3 million. On the bottom line, we expect non-GAAP net income between $24.6 million and $26.1 million, reflecting non-GAAP fully diluted earnings per share between $0.77 and $0.82.

In closing, I want to thank the Impinj team, our customers, our suppliers and you, our investors, for your ongoing support. I will now turn the call to the operator to open the question-and-answer session. Nick?

[Operator Instructions] And the first question will come from Timothy Arcuri with UBS.

UBS Investment Bank, Research Division

This is Naval Weber for Kieser. -- first 1 was on the record bookings. Congratulations on that. Just wanted to understand if that kind of offers you guys incrementally more visibility into September quarter?

And I think, specifically, you're calling out, having a little bit more of a conservative stance in the second half. So how should we kind of think about the visibility that you guys have?

Yes, this is Cary. Thanks for the question. I'll take it first. There are a variety of factors that drove our strong Q1 bookings. First, our ecosystem is aggressively ramping the custom ASIC to support our North American supply chain and logistics customer.

And second, we're beginning to see retail rebus after a prolonged period of destocking -- within those 2 trends, we did see ENA partner request times move from the lower end of our standard to the higher end of our standard lead times.

And then finally, to a lesser extent, we saw some customers book beyond our standard lead times likely in response to lengthening lead times from our competitor.

At this point, we believe that the orders match the demand. And in fact, our 2Q bookings are off to a good start, and they're right within our standard lead times.

And I guess a follow-up, Karen, probably to you as well on the gross margin. It sounds like in March quarter, there were a few factors affecting the onetime back-end capacity should a mix. And then I think usually goes through the annual kind of pricing negotiations in this quarter as well. Can you kind of help us maybe decide for how these factors are they have expired in the first quarter? And how should we should think about them in the second quarter?

Yes. I'll start first with annual price negotiations. Those were largely complete entering the first quarter. There were a little bit of a couple of laggards, but mostly complete entering the quarter. We didn't exactly size it other than to say it was within our normal expectations. .

Maybe a little bit on the aggressive side as we were driving pricing to support the food ramp that we expect to begin this year. On the capacity utilization issue, we had an issue with 1 of our production tools that drove that capacity under utilization -- as I mentioned, that issue is now behind us, and we expect to have full production in Q2.

If I were to size it, I would say that the underutilization charge was roughly 100 basis points impact to Q1. And we expect in the second quarter on a product basis, our gross margin to increase sequentially. Of course, in second quarter, recall, we had the $17 million license revenue, so that will drive an outsized gross margin increase.

But if I strip that out and I look at just the product, we expect a sequential increase in product gross margin.

Next question will come from Jim Ricchiuti with Needham & Company.

Needham & Company, LLC, Research Division

And Carey, just a follow-up to that is the improvement that you're anticipating in Q2 product gross margin. Is that mainly that 100 basis points? Or are there some other factors that will drive additional improvement to product gross margins in Q2?

Yes. The 100 basis points is obviously sizable. So yes, that's driving a lot of it, but in addition, the M800 continues to ramp, that drives gross margin accretion. We're getting our lost revenue scale back in Q2, which will drive leverage against our fixed operating costs. And we also expect higher systems revenue in the second quarter. All of those factors will contribute to the sequential increase in product gross margin.

And the 3 factors that you cited beyond the production issue, would you say that they're total and combined would be a bigger tailwind than just recapturing that 100 basis points?

Probably not, Jim. I think the 100 basis points will be the largest even when comparing the rest as a collective.

Okay. And just a quick follow-up just on OpEx. I wondering if -- how we might be thinking about OpEx in the second half just given some of the puts and takes around demand and also some of the conservatism that you talked about just in light of the macro.

Yes. We expect our OpEx to follow normal seasonal patterns. So we'll see similar OpEx in the second quarter and then the back half steps up. That is a combination of us continuing to invest in our business, primarily in the engineering line and offset by the seasonal pressure -- upward pressure on OpEx that we see in the first half of the year. .

Congrats on just another great quarter and great results here. So Chris, I guess for you, I thought coming into the quarter, retail might have been at risk a little bit given the high gas prices, but you seem bullish and ever on retail. So can you just talk a little bit? Is this Obviously, it seems like it's expanding SKUs and new customers, but any more detail would be great.

Yes. So we do see some retail strength. We see retail rebuys especially helped by the tariff clarity and essentially the tariff whipsaws are done, and there's more certainty in the markets associated with tariffs. We see new program growth at any accounts, avacopan Fitch, Aritzia, Fabletics, Old Navy, just many others.

And so when you combine those factors together, we feel good about the retail situation in the market. And on top of that retail growth, we feel good about what's falling and behind, which is supply chain and logistics, retail, general merchandise and food, so I think those factors are contributing to our -- some of the strength we saw in the first quarter and the very strong bookings we saw in the first quarter leading into the second quarter.

Obviously, macro uncertainties is staring us in the face behind that. And so we're being prudent and cautious as we look forward. But we feel good about 2026, absent that macro uncertainty and it's a big if associated with it. But if consumer demand holds up through that macro, we feel good about 2026 overall.

Maybe 1 quick follow-up to. Can we just dive into a little bit on the NXP royalty, just the longevity of that? Do you guys feel like the new chip has longer violates your guys' IP and -- if so, how long would it take them to try to like design out and if designing out, is that an opportunity for you guys to get more share here, but in the insight would be great.

So yes, it's -- there's a limited amount of information that we have right now because NXP's new IC is, of course, new. I'll just say that we don't know yet if they have designed out or not to sign out our intellectual property. .

We do know, of course, that the older ICs, which are still in market, use our intellectual property because there were court rulings and juries decided that they did use our intellectual property. So NXP needs to either sunset those existing ICs or redesign them as well.

We don't know if the time frame for them doing so. We obviously got the payment this year. Can't speak to next year, but we're guardedly optimistic that we'll get another payment next year, and then we'll see what happens after that. Obviously, time will tell. And as we learn more and are able to report things out, we will.

And Troy, just to be clear, the payment that we received this year was $17 million, up from $16 million last year.

Next question will come from Blayne Curtis with Jefferies. .

Andrew Wiener on for Ben. Just wanted to follow up on the European grocery opportunity. I know the current food opportunity bakery moving into protein this seems like it would be a little bit more encompassing. Can you talk about kind of the sizing that opportunity and the time line? And then I have a follow-up after.

So yes. So it is a very large opportunity. It is really for us the first meaningful opportunity that is a full store, every item tagging and consumer self-checkout opportunity. To date, the testing has been all lab testing. European Grocer set certain readability targets for them to make an internal decision to transition to a live store pilot.

And not only did we and our partners meet those readability targets, but we exceeded them, and we're waiting for the decision for them to go forward with a store pilot. So we're excited about that opportunity. We continue to be. We have a very close relationship with that grocer.

And looking forward to being able to continue to report positive results there. But to answer your question, very large, all items, they do control a lot of their own supply. So they're one of the grocers that would be an idea that are an ideal candidate for tagging all items because they can get the tags on because they have significant control over their own supply chain.

Got it. And then a follow-up question. You talked about with the ASIC opportunity moving upstream at a double-digit number of accounts. Can you talk a little bit about that process and what that looks like?

Yes. So our second large North American supply chain and logistics end user has done just an amazing job driving operational efficiencies across their organization using an RFID. The custom IC is a further step down that path for them and also for us, both they and we see opportunities for them to use their prowess and their learnings, basically what they've done, what they've learned to help their customers in the same way.

It's not just about package shipping. It's about driving operational efficiencies at their customers and leveraging their learnings to improve their customers' operations. So it's a big opportunity for them. It's also a big opportunity for us. And I guess the way I think you should -- you really should think about it is that end user that we've been- where are you planning to invest or reinvest? Do you just see many more organic opportunities? Or do you think there could be some organic opportunities here to whether they're bolt-ons or adjacencies something else to do in this market?

Yes. So I'll take that one also. So invest we continue investing in our existing product lines and expect us to continue doing so. We've got a lot of improvements and changes in overall positive things we can make.

Equally importantly, perhaps more important is separate, we're putting into enterprise solutions, making our products and the enterprise benefit from those products be seamless for the enterprise and driving partner replication of those solutions.

So we can expand the pace or both expanded adoption and increased the pace of adoption. So in response to the last question, I talked about our second large North American supply chain and logistics end user as a partner and we truly see them as a partner because with their prowess and know-how and our technology underpinning, I believe we can drive solutions out into the market broadly.

In terms of other opportunities for us, inorganic opportunities, obviously, we keep our eyes open. And if an opportunity arises, we'll be looking. The next question will come from Guy Hardwick of Barclays. Just a quick easy 1 for you, Chris. I mean you said you feel good about 2026. The first are you to order rank in all of the factors which make you feel good about 26%. What would you start with? And what are the other ones. Well, I'm going to have to think about that 1 for a second, guys. So I'm excited about a lot of things. Number one, I'd start with our opportunities around enterprise solutions. -- us bringing ML to bear at the edge on the reader to confine read zones, to identify items that are transitioning, whether it's through a doctor, store exit, front store, back store, any of these transitions and is providing us some very significant benefits, and I believe will transform the industry and our ability to drive those solutions in the market and provide enterprise benefits.

So that'd be number one.

Number two, after that would be Gen 2X and what we're doing in Gen 2x to enable those ML solutions, again, to spur enterprise adoption. We're going to see that adoption happening in the areas that I mentioned already, supply chain and logistics, I'll put that 1 first because that's where we believe we can first and best apply our ML techniques in Gen 2X.

And obviously, there's a lot of transitions, and readability needs to be incredibly high for those use cases. They don't want to make any package. So supply chain and logistics and us falling in behind our key end user there and helping them and us and their customers in the market. So I'd probably put that 1 number one.

And then, of course, we have general merchandise and food, which are the other 2 that I mentioned. We are waiting on some of the key end users to choose what categories they'll be going forward with in the latter part of 2026 across general merchandise.

We mentioned some categories, of course, health, cosmetics, beauty, and then there's obviously food there, food ramp and proteins and bakery. So all of those are out there. We're being a little bit prudent in terms of us taking and choosing simply because we're going to wait to see what the customer analysis but we do expect a growth in general merchandise and food this year, and we'll be pushing on both of them. So that's how I ordered them.

I ordered them and basically the order in which I spoke to them rather than calling 1, 2 and 3, but that's how I see things. secular growth in retail, of course. Supply chain logistics, Enterprise Solutions, huge opportunity and then food and general merchandise coming up behind.

And just as a follow-up, just after 5 consecutive months of double-digit declines in U.S. apparel imports. Just wondering how you feel about the the status of apparel inventories amongst your largest customers here in the U.S.

We see apparel inventories picking up, both because they're incredibly lean right now. And you can listen to some of the retailers are actively talking about growing some inventories. So we see inventories picking up. And it's also the tariff side. tariff certainty has contributed to increased orders.

The next question will come from Scott Sara with Roth Capital. .

Great job on the quarter and the outlook. Chris, you've referenced a couple of times concerned from a macro standpoint. I wonder if you could flush that out a little bit. Are you seeing any of that in terms of order patterns from your customer base?

And then as we look into the second half of this year, and you kind of answered this indirectly in a couple of earlier questions. But should we be expecting normal seasonality, all things equal? And what are you baking in, in terms of your expectations for a large general merchandise customer moving into the next phase of development and food.

Given yesterday's comments from Avery Dennison, it sounds like they're expecting those to move pretty aggressively in the second half. I'm wondering if you could kind of gauge the range of outcomes on what you guys are building into your baseline expectations?

Okay. I'm going to try and take those questions. There's a lot of questions in there, and I'm going to try and take them, but I'm going to tag team with Kerry and you'll catch me on the parts that I mix. So to to start with.

No, we are not seeing anything currently from the macro perspective. However, we look at the clouds on the horizon and we want to be prudent. Our hope and expectation is that consumer demand will hold. And if it does, as I said, we expect 2026 to be a good year.

But I can't predict the future and the things that are going on right now are way out of our control. And so that's where our prudence comes in.

So we're just being careful and we're modeling a bunch of different scenarios. But as of right now, do we see anything any pullbacks or anything impact right now? Nothing of consequence. Second, in the categories, let me speak to food a little bit because, yes, Avery Dennison did make those comments the other day and -- or yesterday. And we obviously are of those -- or now of that account and specifically the accounts that they're talking about and are in there and trying to drive the use case in those accounts.

Our preference here is to wait for the enterprise end user to make a statement in terms of what they're going to do. And that's just a preference just as the way they are.

And I'm not saying anything negative there just we're going to wait and see until they make an announcement, and then we'll speak a bit more about it. So don't view our reticence to speak a lot as anything negative on the opportunity there. It is a real opportunity, and we're excited about it. We only guide 1 quarter at a time.

Customer hasn't made an announcement yet. So when they make an announcement, we'll speak more about it. And that also covers the general merchandise categories. I alluded to some of the general merchandise categories, as I spoke just a minute ago about, we see significant opportunities in those categories. health, beauty, cosmetics, personal care, and we're putting effort into those categories to make them go. When the customer makes an announcement, we'll be as excited as you are. or maybe the other -- we'll be more excited than you are. I'll put it that way. So what did I miss? Carry, what did I miss? Then great.

That was perfect, first. And I'll hopefully make this -- the follow-up quick. But in terms of the European food opportunity, given the magnitude of the items there, you have to push down across the entire supply chain and vendor vendor supply chain. Is that something that requires DPP? And maybe just some quick updated thoughts on that and timing?

Is it is not -- it doesn't really require DPP. DPP is rolling out a category that impacts us in terms of the DPP rollout is textiles. And this is a grocery opportunity. The other studies, batteries and tires and stuff, which is kind of not really relevant. .

The difference between this grocer and many others is that they control the significant majority of their own supply chain. So if they want to get tagging, they can do it themselves. Of course, they sell some categories as well. But they're in a very good position in order to drive the tagging when they say go.

So that's why we see a significant opportunity there. In terms of the DPP overall, the delegated act or textiles will come into force in 2027. There will be a grace period currently estimated to be about 18 months. We'll have to wait and see how that goes. On my best estimate, I'd say will be meaningful near the end of this decade. We are participating in many of those DPP efforts.

Rand is now approved as a data carrier for DPP. We are doing some work on the MPC side, on the data side on our ICs to support the DPP. And so expect us to be a key part of it. But at a measured pace because the actual implementation is still several years away.

This concludes our question-and-answer session. I would like to turn the conference back over to Christie Orio, Co-Founder and CEO, for any closing remarks. .

Thank you, Nick, and I'd like to thank you all for joining the call today. Thank you very much for your ongoing support. Bye-bye.

The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.

Welcome to Impinj's Fourth Quarter and Full Year 2025 Financial Results Conference Call and Webcast.

[Operator Instructions]

Please note, this event is being recorded. I would now like to turn the conference over to Mr. Andy Cobb, Vice President, Corporate Finance and IR. Please go ahead, sir.

Thank you, Nick. Good afternoon, and thank you all for joining us to discuss Impinj's Fourth Quarter and Full Year 2025 results. On today's call, Chris Diorio, Impinj's Co-Founder and CEO, will provide a brief overview of our market opportunity and performance.

Cary Baker, Impinj's CFO, will follow with a detailed review of our fourth quarter and full year 2025 financial results and first quarter 2026 outlook.

We will then open the call for questions. You can find management's prepared remarks plus trended financial data on the Investor Relations section of the company's website. We will make statements in this call about financial performance and future expectations that are based on our outlook as of today.

Any such statements are forward-looking under the Private Securities Litigation Reform Act of 1995, whereas we believe we have a reasonable basis for making these forward-looking statements, our actual results could differ materially because any such statements are subject to risks and uncertainties.

We describe these risks and uncertainties in the annual and quarterly reports we file with the SEC. We do not undertake and expressly disclaim any obligation to update or alter our forward-looking statements, except as required by law.

On today's call, all financial metrics, except for revenue or where we explicitly state otherwise, are non-GAAP. All balance sheet and cash flow metrics, except for free cash flow are GAAP. Please refer to our earnings release for a reconciliation of non-GAAP financial metrics to the most comparable GAAP metrics.

Before turning to our results and outlook, note that we will participate in the Barclays 43rd Annual Industrial Select Conference on February 17 in Miami. Susquehanna's 15th Annual Technology Conference on February 26 in New York and the 2026 Cantor Global Technology and Industrial Growth Conference on March 11 in New York. We look forward to connecting with many of you at those events. I will now turn the call over to Chris.

Thank you, Andy, and thank you all for joining the call. 2025 was a tough year for our industry. Tariffs and tariff-related supply chain whipsaws, inventory reductions at every layer of our retail markets, a downward trend in apparel imports and protracted general merchandise adoption, all weighed heavily on the RAIN market.

It was also a transition year for us. We grew year-over-year endpoint IC volumes by 9%, believe we gained endpoint IC market share, made M800 our volume runner, launched Gen2X and proved it to be a must-have for solution success, drove Gen2X-enabled solutions at multiple lighthouse accounts, helped plant the seeds for accelerating food adoption and exited the year with record adjusted EBITDA and cash.

I am very pleased with how our team rose to meet the challenge. Looking into 2026, we see in the first quarter, a confluence of order timing, ongoing retailer inventory burn down, product transitions and a super seasonal systems decline due to project timing, driving revenue lower.

Looking just a bit further out, we see conditions improving as endpoint IC volumes rebound and growth returning as our investments in seeding new opportunities and our solutions focus pay off.

Starting with first quarter endpoint ICs, like last year, our second large North American supply chain and logistics end user significantly shifted their label supplier allocations. Partners that anticipated share gains ordered ahead in the fourth quarter, whereas those with share losses are reducing inventory in the first.

Additionally, we are quickly pivoting to a custom-built endpoint IC for that end user, which I'll describe shortly, causing a further temporary dip in endpoint IC orders as partners reduce prior product inventory while we ramp volumes of the new IC.

Second, we see apparel retailers reducing stock and under buying demand, impacting our first quarter outlook. And finally, food volumes remain modest in the first quarter. Turning to our expectations as we exit the first quarter, I'll start with that custom endpoint IC.

Think of it as an ASIC developed with the end user, tightly linked to their and our platforms with added features like label authentication that solve key business needs while also eliminating unneeded features. They plan to fully switch to it this year. The IC also opens new opportunities for them to unlock and for us to participate in new outward-facing customer accounts.

Second, we see endpoint IC demand for apparel normalizing as soon as second quarter. Third, we see general merchandise growing as existing categories add SKUs and new categories get added.

Fourth, we see food rollouts expanding to more stores. And finally, we see our solutions efforts opening major new account opportunities. To speed our pivot to solutions, we recently added Chris Hundley as an Executive Vice President for Enterprise Solutions.

Chris adds significant software and solutions talent to our team. We are also doubling down on Gen2X as a solutions enabler, added EM Microelectronic as a Gen2X licensee and are forging close Gen2X partnerships with leading ecosystem players. We not only see Gen2X increasing the performance and feature gap between M800 and its competition, but also see it as an essential toolkit for enterprise solutions, and we have a growing pipeline of solutions opportunities.

We expect our solutions efforts to drive endpoint IC volumes and share, reader and reader IC revenue growth and with time, meaningful software revenue. And perhaps most importantly, a selling model that focuses on solution value rather than individual components. Of course, even as we pursue solutions, we remain keenly focused on our current products. In retail apparel, multiple new end users are talking openly about RAIN adoption.

We are pursuing wins with them as well as further share shifts with existing retailers. In general merchandise, we see 2026 as the year that unlocks key new logos and current use cases, add significant new ones and drives IC volume growth.

On the competitive front, we see Gen2X driving additional opportunities to us. In food, we see a ramp through 2026, led by bakery with proteins to follow. And although food volumes remain modest, the opportunity is staggeringly large, and we intend to lead and win it.

Overall, we see industry endpoint IC volumes rebounding from an uninspiring 2025 as these growth vectors layer on with our leading market share driving an outsized portion of those volumes to us.

We see our solutions revenue expanding notably as our lighthouse end users outperform their peers and pull us into opportunities. And in all, we expect our focus on hitting solution price points where the ROI pencils out for the end user to pay off handsomely.

Before I turn the call over to Cary for our financial review and first quarter outlook, I'd like to again thank every member of the Impinj team for your constant effort driving our bold vision. As always, I feel honored by my incredible good fortune to work with you. Cary?

Thank you, Chris, and good afternoon, everyone. Fourth quarter revenue was $92.8 million, down 3% sequentially compared with $96.1 million in third quarter 2025 and up 1% year-over-year from $91.6 million in fourth quarter 2024.

2025 revenue was $361.1 million, down 1% year-over-year compared with $366.1 million in 2024. Fourth quarter endpoint IC revenue was $75.2 million, down 5% sequentially compared with $78.8 million in third quarter 2025 and up 2% year-over-year from $74.1 million in fourth quarter 2024.

Endpoint IC revenue slightly exceeded our expectations, driven by turns orders. M800 was the volume runner with unit volumes increasing sequentially. 2025 endpoint IC revenue declined 2% year-over-year, driven by the factors Chris already noted.

Looking to first quarter, we expect endpoint IC revenue to decline sequentially at a high teens percentage rate, driven primarily by supply chain and logistics channel inventory reductions, retail weakness and to a lesser extent, by annual endpoint IC price reductions.

Fourth quarter systems revenue was $17.7 million, up 2% sequentially compared with $17.3 million in third quarter 2025 and up 1% year-over-year from $17.5 million in fourth quarter 2024. Systems revenue exceeded our expectations, driven by NRU revenue, while reader and gateway revenue and reader IC revenue declined as anticipated.

2025 systems revenue grew 2% year-over-year with reader and gateway growth more than offsetting declines in both reader ICs and Test and Measurement solutions. Looking to first quarter, we expect systems revenue to decline more than seasonally, primarily due to project timing at our enterprise customers.

Fourth quarter gross margin was 54.5%, compared with 53% in third quarter 2025 and 53.1% in fourth quarter 2024. The year-over-year increase was driven by higher endpoint IC direct margins, specifically from a richer mix of M800. The quarter-over-quarter increase was driven primarily by higher systems direct margins, specifically higher NRU revenue and to a lesser extent, by higher endpoint IC direct margins.

2025 gross margin was 55.3% compared with 54% in 2024, with the increase due primarily to a richer mix of M800 endpoint ICs.

Looking to first quarter, we expect gross margin to decline sequentially, driven primarily by lower revenue on fixed costs and annual endpoint IC price reductions. Total fourth quarter operating expense was $34.2 million compared with $31.8 million in third quarter 2025 and $33.6 million in fourth quarter of 2024.

Research and development expense was $18.6 million. Sales and marketing expense was $8.2 million. General and administrative expense was $7.4 million.

2025 operating expense totaled $130.1 million compared with $131.9 million in 2024. We expect total first quarter 2025 operating expense to increase sequentially, driven primarily by normal seasonal factors. Fourth quarter adjusted EBITDA was $16.4 million, compared with $19.1 million in third quarter 2025 and $15 million in fourth quarter 2024.

Fourth quarter adjusted EBITDA margin was 17.7%. 2025 adjusted EBITDA was a record $69.6 million compared with $65.9 million in 2024. 2025 adjusted EBITDA margin was a record 19.3%, in line with the long-term model we shared at our 2023 Investor Day. Fourth quarter GAAP net loss was $1.1 million. Fourth quarter non-GAAP net income was $15.6 million or $0.50 per share on a fully diluted basis.

2025 GAAP net loss was $10.8 million. 2025 non-GAAP net income was $64.2 million or $2.11 per share on a fully diluted basis. Turning to the balance sheet. We ended the fourth quarter with record cash, cash equivalents and investments of $279.1 million, compared with $265.1 million in third quarter 2025 and $239.6 million in fourth quarter 2024. Inventory totaled $85 million, down $7.7 million from the prior quarter.

Fourth quarter capital expenditures totaled $1.5 million. Free cash flow was $13.6 million. 2025 capital expenditures totaled $12.9 million. Free cash flow was $45.9 million.

Turning to our outlook. We expect first quarter revenue between $71 million and $74 million compared with $74.3 million in first quarter 2025, a year-over-year decrease of 2% at the midpoint. We expect adjusted EBITDA between $1.2 million and $2.7 million.

On the bottom line, we expect non-GAAP net income between $2.5 million and $4 million, reflecting non-GAAP fully diluted earnings per share between $0.08 and $0.13. In closing, I want to thank the Impinj team, our customers, our suppliers and you, our investors, for your ongoing support.

I will now turn the call to the operator to open the question-and-answer session. Nick?

[Operator Instructions]

And the first question will come from Harsh Kumar with Piper Sandler.

I wanted to hit upon the first quarter guidance a little bit. I think you're off something like $17 million, $18 million relative to the expectation on the speed. I know you've got a shift at EP -- I'm sorry, a shift at your second customer in logistics.

And you've also got some sort of a custom chip that you're developing and also seems like some excess inventory. So I was hoping that you could break down for us this miss between the impact from orders from the custom chip and the timing associated with it versus how much excess you have?

And I'll ask my second question at the same time. It seems like there's a lot of stuff moving around. You talked about food sort of moving around, apparel moving around.

But then you seem pretty confident that all of this will fix itself fairly fast like in second quarter. These are large end markets. And I'm curious what gives you the confidence that this will swing around towards a better situation as quickly as the second quarter.

Okay. Thank you, Harsh. This is Chris. There's a lot to unpack in this question. I think Cary and I will tag team here. So I'm going to start by saying that despite the starting points looking the same, we see 2026 very differently from 2025.

2025, we took a competitive lead and held our own in what was otherwise a pretty tough year. In 2026, we're going to press that lead in what we believe is shaping up to be a growth year for the reasons that we cited in our prepared remarks.

And relative to those prepared remarks, Cary and I will both go through some of the details on why we see things turning around and actually why I talked about exiting the quarter on an upward swing. But just before I hand over to Cary to add a few points, I will say that, that custom chip for our second large American supply chain and logistics end user is not just in design. We are currently shipping it. And so it is in production now. Cary, why don't I turn it over to you for a bit and then we go back and forth.

Thanks, Chris. Harsh, let me break down the Q1 revenue guide and how we built it. So as I noted, we're expecting endpoint IC revenue to decline sequentially at a high teens percentage. That's primarily on lower volume as our inlay partners supporting our logistics customers burn down a few weeks of inventory.

Think of each week of burn down approximating about $5 million of impact. To a much lesser degree, yearly price reductions and product mix are also impacting our first quarter.

We're modeling pricing at a couple of million bucks and the mix impact is smaller than that. There's also some retail weakness that we're factoring through our guide. Now as we built our guide, we wanted to be prudent in doing so. So there's a couple of things to consider in our guidance.

First, the January turn orders have been strong. They're already double what fourth quarter was at the same point in the quarter, and they're up more than 50% than they were last January.

The second piece I would highlight is that the elevated rescheduling behavior that we saw all of last year has significantly moderated and is approaching a normal -- a return to normal levels right now. And then finally, I would add, our endpoint IC business is nearly 100% booked to the midpoint of the guide despite there being a few weeks left to turn business in the quarter.

Harsh, we'll pause there. Why don't you follow on? And did we answer your question adequately? Or do we leave parts of it open?

No, no, super helpful. I just wanted to follow up on the second question that I asked, which was you've got a lot of end markets moving around food, apparel, all of it is getting hit, seems like in 1Q, you mentioned.

But then you're pretty confident that all of this will turn around. I was curious, are you just looking at your -- are you looking at your orders and saying this will turn around for you? Or is there something happening within the end markets that is causing the orders to have come in into the 1Q and you're expecting something to happen in the end market to drive that business up?

Yes. So there's no easy answer to your question, because the answer depends on the particular aspects of the end markets. In food, we -- as I said in my prepared remarks, we see modest volumes, but inexorable growth. And we remain incredibly excited about that food opportunity. We see stores -- we see the number of stores expanding, especially in bakery, and we see opportunities in food space.

In retail apparel, as we said, we see ongoing retailer inventory burn down. We saw some of it in the latter part of the fourth quarter now that we finally have the data, and we see it continuing in the first quarter. We expect that inventory burn down to normalize based on input from the retailers themselves as well as from our partners. And we see new accounts coming online. For example, Abercrombie & Fitch, Aritzia, Old Navy, Academy Sports and others. So we see new accounts coming online.

And then in supply chain and logistics space, of course, as Cary noted, we see the inventory burn down correcting as well as the new IC adding volumes to us. So overall, we think we've got good visibility into the opportunities that we've been -- that you just raised here. And the reasons we feel positive about the situation exiting the quarter is that we see positive news there.

The next question will come from Blayne Curtis with Jefferies.

Ezra Weener on for Blayne. Just first, I want to make sure I understand this correctly. You said apparel is going to normalize in Q2. Do you also expect logistics to normalize in Q2? Or do you think that's going to take a little bit longer?

We said that we see apparel overall normalizing as early as second quarter. We're not going to actually project the actual date. In the supply chain and logistics space, as Cary said just a minute ago, and Cary, I'll have you add again, we see the inventory correction happening in the first quarter. Cary, anything you'd add there?

Yes. Ezra, I would say we're entering the quarter with a few extra weeks of channel inventory related to supply chain and logistics. We're going to work very hard to burn that down in Q1. But we know from history that it's difficult to contain a correction to a single quarter, and it may spill over into the second quarter. So you'll have to wait for us to give an update as we exit Q1 on how successful we are burning that inventory down.

And then the -- my follow-up would be in terms of ASIC, you talked a little bit about pricing and solutions. Can you talk a little bit about how you view that and that solution for the customer and how you think about kind of pricing and value going forward with that?

Yes. This is Chris. I'm happy to. We've been focused for a while on understanding end-user problems, designing customizations through our platform that address the customer needs. We did Protected Mode for a visionary European retailer and brought that chip broadly to market, and it's being used by them and many others.

You can think overall of Gen2X is the same idea of custom features that we released broadly to the market, and both of them have seen market success. In this case, you can think of the custom IC as being tailored to the specific needs of that end user.

And it is an IC customized for them. And we see it as not only meeting their critical needs and helping our business go forward, but also giving them the opportunity to drive operational efficiencies across their organization and for them to expand their prowess in RAIN RFID to win new customer business, including with that IC.

So we, as a company, are focused on working directly with those end users and truly enabling them to drive forward with their business and to expand it and then for us to basically partner with them along the way. So expect us to do more of those kinds of opportunities.

And as we build more and more whole solutions to tie that customized endpoint IC and the radio link that supports it and features in our reader ICs into an overall solutions offering more and more and less just an IC offering. So we're early in that stage where we focus on a solution sale rather than an individual IC sale, but expect us to drive in that direction.

Ezra, this is Cary. The only other thing I would add is we'll price that IC to market. At least currently, current way of selling. In future, we'll be looking for new opportunities to do solution sales.

The next question will come from Jim Ricchiuti with Needham & Company.

I just want to follow up on this new chip. Is this for a subset of applications with this customer?

No, Jim, it's for all applications with the customer. It's that they are going to switch to that chip. They plan to fully switch to that chip in 2026, customized for them for their needs.

Chris, will this -- I don't recall you guys ever going down this path with a customer. What kind of concerns could this customer have about second sourcing being able to source the chip from someone other than you just to protect themselves. Wondering, does this have anything to do with the relationship perhaps with EM Microelectronics?

Good question and good connecting the dots, Jim. We're not far enough along to speak to any possibilities along the -- about the relationship with EM, but you're thinking in the right direction.

Right now, we're focused on delivering to the customers' needs, ensuring they have adequate supply and giving them commitments of supply so they have confidence in this chip and their ability to rely on it.

As the future evolves and we do more of these things, and I want to do more custom chips because we've got other enterprise customers with key needs that aren't addressed without customizations. We will be looking to ensure for them that they have adequate supply of chips, labels, reader ICs and everything else, so they can feel confident moving down this path.

One final question, and I'll jump back in the queue. You suggested that Impinj's gained market share in endpoint ICs. The major competitor has introduced a new chip. And I'm wondering how you're thinking about market share, particularly with this new chip that you're introducing?

And then a related question, it sounds like this competitor is still talking about a license payment in the June quarter. So Cary, maybe you could help me out with -- is that something we should be thinking about as well for Q2, the way...

You should expect the license payment in Q2, Jim, you should expect it.

We do. So yes, we'll get the license payment. To the other part of your question, Jim. We're focused on enabling solutions for enterprise end users. Those solutions are just not -- not just a chip. It's not just a chip and an antenna. It's a chip and an antenna and the AirLink supporting it and the reader IC supporting that and the firmware on the reader IC supporting it and the readers and gateway supporting it and the partnership supporting it and then solution software.

And we're focused on driving the entirety of those pieces to create an enterprise solution. And we -- and you see Gen2X as a key part of that initiative. And we firmly believe that by delivering whole solutions and optimizing the solutions for the end user, we can outperform mix and match efforts using competitor products, and that's our focus.

The next question will come from Scott Searle with ROTH Capital.

Chris, maybe I just wanted to get a couple of clarifications on some of your comments and some of the initial questions. For starters, on the logistics softness, I want to clarify, is the customer that you're designing a custom chip for, are they in part then working down inventory to 0 from legacy M700, M800 chips, and that's part of the pressure as well?

And then as it relates specifically to the custom ASIC, I think you got asked the market share question, but I'll ask it maybe a different way. I would imagine if they're moving in this direction, it should deliver higher share as opposed to splitting the business historically with NXP. Should we be assuming though that you're going to be gaining 100% share with these types of customers?

And it sounds like there's more custom opportunities in the pipeline. So how is this going to transition then over the course of '26 and '27? And then I had a follow-up.

Yes, Scott, I'll do my best for those questions. First, we're not just designing the chip, it's in production now. Second, it's dedicated to a single customer, which is our second large North American supply chain and logistics customer.

It is targeted at addressing their specific needs, and it is a chip specific to them. We already have high share at that account. It will maintain that share. And we are exploring customizations for other enterprises that aren't as far down the path as we are in this particular instance, where we actually have the IC or the chip in production.

But more importantly, I view this chip as us engaging closely enough with the enterprise where they can share their needs, we can share what we can do, and we can together build a chip. It's not just Impinj build a chip for them, as we work together on it.

They came forward with what they needed and we built it for them, and they're going to be using it, and we intend to keep doing so. I have a mantra in the company, and I push it at every meeting we have, which is we support our end customers. We never let an end customer down. And you should expect us to do that here. Cary, what did I miss?

Scott, let me unpack...

Sorry, before the inventory build, just Chris, to clarify then, do you retain the IP and the ability then to license it to additional customers within that same subvertical or no?

Yes, we do, in this particular instance, retain the IP. I can imagine other scenarios where there might be some shared IP. In this instance, we retain the IP.

But our focus, first and foremost, is supporting that customer. They're a lighthouse customer to us. I consider them a close partner. You should expect us to focus first on them with this particular chip and we built it for them specific to them.

And Scott, I'll just unpack the inventory build a little bit. Today, parcel packing deployment uses the M800 exclusively. The M800 is our general purpose SKU, meaning it can also support virtually any retail, apparel or general merchandise application.

And that application fungibility gave some of our partners the confidence to lean in, build supply ahead of actually winning the award, knowing that they could move those ICs through other applications if necessary. So when we were looking at our fourth quarter and we were building our fourth quarter, it came together as we expected.

But when we unpacked the quarter in mid-January and we match that with our channel inventory reports from our inlay partners, we realized that the logistics-related build had masked the weakness in retail. Now this will get better.

With our logistics customer now ramping to the new custom IC that Chris just described, we will have better visibility into logistics-related inventory. We'll be able to match our shipments of that custom IC directly to that end customer's monthly consumption reports. We have to prove it to you certainly, but we think this gets better going forward.

Okay. Very helpful. And if I could, just as a follow-up, another market share question. Chris, you've referenced it a couple of times in your opening remarks, but Gen2X provides significant benefits and advantages. It only works with your endpoint IC.

So I'm wondering, as you look out over the next couple of quarters in '26 and '27, is this the primary driver of incremental share out there? And will you start to run the table a little bit more in terms of meaningful market share within your existing accounts?

I'm going to -- yes, I'm going to answer the question, yes. I believe that Gen2X will be the significant driver of our market share gains. But you should think of Gen2X as a toolbox that we can bring to bear for enterprise customers who have an unmet need and allow us to solve their problem.

So to the extent that we have significant enterprise accounts, which we do, we need a way to solve them, consider Gen2X to be the way we're going to be driving the solution and going forward, even adding more features and capabilities to Gen2X as we learn and do more.

So essentially, you should think of Gen2X as a way to improve the readability, overall performance and protection capabilities provided by RAIN RFID to reduce labor costs to speed inventory, to provide readability where you wouldn't have it otherwise, to localize where items are, to identify exits and theft and many -- protect consumer privacy in many other areas where you put that whole toolbox together, it's the driver of our differentiation in the market.

It's kind of a manifestation of it, but it's also a manifestation of our overall solution strategy. So the 2 together, they're going to be the drivers of our success.

The next question will come from Natalia Winkler with UBS.

I just wanted to ask one more on the first quarter kind of outlook for you guys. So if I understood Cary correctly, Cary, you mentioned several weeks of inventory burden for retail, right?

And it sounds like each week is $5 million. So if I'm thinking even a sequential reduction of $20 million, it sounds like more than half of that is probably related to the retail inventory burn down. Is that kind of a fair way to think about it? Or is it more nuanced?

I think that's a fair way to think about it. It's a few weeks of inventory, not several. It's primarily related to supply chain and logistics for the reasons I just described. You're correct in that the impact is about $5 million per week of burn down. And then the other factors, which are far less impactful are pricing and mix. I sized pricing at a couple of million dollars and mix of less than that.

Awesome. And then I guess a follow-up. Can you guys help us understand, clearly, it's a highly complex supply chain for retail, right, with kind of multiple different steps and stages in it.

Can you walk us through your forecasting process and maybe part of the reason like why we're seeing such a strong kind of corrections and burnouts that may be a little bit less predictable than for some of the other end markets you guys cover?

Yes. So the inventory build was related to logistics. We had a similar logistics build last year at the same time, but for different reasons. It's nonetheless frustrating. This year's build is a result of our partners leaning in ahead of winning the supply awards or label awards following the label reallocation process.

They were comfortable leaning in because up until the custom IC ships, the M800 goes into the package -- the tracking deployment. The M800 is a fungible SKU across the industry in that it's general purpose. It can support retail apparel. It can support general merchandise, it can support logistics.

That fungibility gave our partners the confidence to lean in, build extra inventory in hopes of winning award because if they didn't win the award or didn't win as much of an award as they thought, they would be able to burn that inventory down through the rest of their market opportunities.

We didn't realize that in the fourth quarter as it was happening because our fourth quarter from a unit volume perspective was coming in right as we expected. When we began unpacking the fourth quarter volumes in mid-January, and we match that with the channel inventory reports we received around that same time, we realized that the logistics build had masked some weakness in retail apparel that we didn't anticipate and wasn't obvious to us until that point.

Now I think next year, this gets better, and I know we have to prove that first given the last 2 years of channel inventory builds. But I think it gets better because we will only ship one SKU to that customer. It's only usable by that customer, and we will be able to match our shipments with their monthly consumption reports. And the difference between the 2 is the inventory that will be in the channel. So again, we have to prove it to you, but I think we get better next year at that.

The next question will come from Troy Jensen with Cantor Fitzgerald.

Maybe for Chris or I guess either one of you guys. These customers that were leaning in, right, and the hopes for the awards, it sounds like they went to a competitor. So I'm just curious why do you think we had this share loss in the quarter was...

No, they didn't go to competitor. No, that wasn't part of it. There was none of that moving to a competitor. [indiscernible] There's a new IC coming? They anticipated some wins. They started building to the new IC. At the same time, they know their existing inventory is going to need to get burned down. So they started buying ahead. The ones who -- as we said in our prepared remarks, the ones who didn't win as much now need to burn down their inventory in the first quarter.

So Troy, the only thing I'd add to Chris, is that our logistics customer rebids their label suppliers each year. It's still the M800 for all labels, but the mix of inlay partners that support them each year can change based on that rebidding process.

And that rebidding process this year, coupled with the fungibility of the M800 that I just described, gave them the confidence to lean in and buy more supply so they could be more responsive if they won the award or to win a greater share of the award. And they knew that if they didn't win as much, they would be able to take that inventory out through virtually any other retail apparel or general merchandise application.

Yes. Okay. Understood. So several partners probably thought they're going to win the award and went to one.

Exactly.

It was oversubscribed. The award was oversubscribed.

Exactly. And then we compound it with a new chip entering the market, and there needs to be a further burn down of the existing M800 product.

Yes. Okay. Understood. And then maybe just a follow-up would be -- you talked about retail SKU growth you're seeing. I'm curious if that's broad-based? Or is that just limited to a couple of your bigger customers?

It was SKU growth in general merchandise. You mean retail apparel growth. I think...

Just the comment on SKU growth. Was that just based on a few large customers? Or is it more broad-based?

The comment on SKU growth in existing categories as well as the potential for new categories was related to a small number -- a pretty small number of customers in the general merchandise space.

The next question will come from Guy Hardwick with Barclays.

Just a couple of questions. So I think a year ago, when you had an inventory overhang in the T&L space, you said some similar comments that it could take more than a quarter to clear the inventory, but I think you actually cleared the inventory in just 1 quarter.

What's different this time? And then as a follow-up, it looks like you have pretty good visibility on the endpoint IC business that you're pretty much already booked for Q1 within the midpoint of your guidance, looking at your comments. So what does that tell you or tell us in terms of what's the underlying growth in the endpoint IC market of 2025 levels?

Yes. Guy, this is Cary. I'll try to take that -- both of those questions. So yes, it is the same in that it's the supply chain and logistics space. There are a variety of different reasons, which I've already covered. We -- last year, we were successful in burning all that channel inventory out in the first quarter. We are attempting to do the exact same thing this year.

However, we know that inventory corrections are seldom contained to 1 quarter, and we just want to be cautious with our guidance so that if it does spill into the second quarter, we have room to do that. As it relates to our guidance, we are seeing strong signals from our bookings and our turns order in quarter-to-date.

So think of January through the first week of February. That is -- turns at a higher rate than it was at the same time in fourth quarter, more than double and 50% up from last year January. That has put us in a position where we are 100% booked to the midpoint of our guide for our endpoint IC business or nearly 100% booked.

We're giving ourselves a little bit of room because we aren't done with the annual price negotiations. We still have a couple that are outstanding there. And also the Chinese New Year occurs later this year than it did last year. And we typically see a lull in bookings during those 3 weeks.

The next question will come from Christopher Rolland with Susquehanna.

This is Dylan Ollivier on for Chris. Maybe pivoting away a bit from this inventory situation and sort of a bigger picture question. I wanted to ask about sort of the competitive landscape, particularly against non-RFID components. We've heard some news flow of some end users kind of pivoting away to some more BLE and other protocols. Is that something that you consider a risk? Or do you remain confident in RFID as a long-term solution?

Dylan, this is Chris. The simple answer is we remain confident of RAIN RFID as a long-term solution. There are just 2 different technologies and active BLE with batteries has a particular use case for tracking things like temperature and other kind of stuff against continuous data logging, and that's complementary.

Passive BLE for beaconing operates in a narrow window of use cases. And again, with some different features and capabilities that I also view as mostly complementary.

The volume differences between the 2 are gigantic. I mean our industry delivered 52.8 billion ICs less in 2024. And volume differences are gigantic. The infrastructure is different. I view them as mostly complementary. Of course, with every complementary thing, there's a bit of overlap, but I don't really look at the competitiveness. I look at complementary things and trying to enable the end customer with a solution that meets their needs.

I appreciate the color here. And then maybe more of a housekeeping question for my second -- for my follow-up. But yes, you had that EM Microelectronics license announcement in the quarter. Just wondering if how we should think about that impacting the model, if there's going to be a recurring revenue and if that's going to be consistent through the year?

Yes. There's an immaterial impact to revenue in 2026. We're still working on what that first chip might be, likely a dual frequency IC, likely not available this year.

We just view it as a strategic partnership. And then just think that the answers that we gave to Jim's question, view the strategic partnership as a way for us to deliver confidence to our end users.

The next question is a follow-up from Harsh Kumar of Piper Sandler.

So I was curious how long do you think it would take for you to be fully penetrated at your second largest logistics customer with the custom chip? And am I correct in assuming that custom chips typically mean better pricing than a normal chip?

So I'll take the first answer. So the customer plans to fully switch over to that chip this year. That's what I said in my prepared remarks. And as Cary said, we are pricing the chip to market. Cary, anything you want to add? Did I answer your question, Harsh?

Well, I guess there is no market for a custom chip, right? You're the standard in RFID and you've got a custom product. I would suspect -- so are you saying that you're pricing it similar to M800 or more than that?

I'm going to say that we're pricing it to -- as I also said in some of the prepared remarks, a little bit further down to drive an ROI for the end customer and for us.

This concludes our question-and-answer session. I would like to turn the conference back over to Chris Diorio, Co-Founder and CEO, for any closing remarks.

Thank you, Nick. I'd like to thank you all for joining the call today, and thank you for your ongoing support. Bye-bye.

The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.

Good afternoon. We're going to get started. I'm Tim Arcuri. I'm the semiconductor analyst here and very pleased to have Impinj and with Impinj, we have Cary Baker, who is the CFO. So thanks, Cary.

Yes. Thanks for having me.

Great. So let's just start with probably the biggest question that we recently initiated. And the biggest question that we have heard is just sort of the pace -- I mean, obviously, I think everyone recognizes that the TAM is huge. And the challenge is just penetrating that TAM. And can you just talk about sort of what some of the impediments are to penetrating the TAM? Maybe in some of the key end markets, I think it's probably easier in some end markets than it is in others.

Yes. So if you look at any information industry and you go back in time, the industry must first build out the hardware foundation before it can realize its full potential in that. Think about mobile phones as an example. We spent the '80s and '90s, building out the hardware foundation so that by the early 2000s, we had a flip phone that you -- was just a phone. You could make calls and you could struggle with T9 text. Before the industry was sufficiently mature where you could monetize the apps and the data services and the solutions designs and even the AI in the phone foundation. That is not unlike where we are with RAIN. So the RAIN industry since 2010, has had a unit CAGR of 28%. In 2024, the total volume for the industry was $52.8 billion. It was up $8 billion from the year prior to that. And that's mostly going to the Western world, and that's mostly on the back of a single vertical, retail apparel.

Today, we are now more than 1 vertical. We have logistics, we have general merchandise, and we're just now announcing item-level food. So it's the situation where Rome is not built in a day and we're laying that foundation right now. And the unit CAGR that we have delivered is a strong indicator of the potential of this platform once the platform has reached that maturity level.

I mean I guess it's pretty hard to get these large global organizations to change and to adopt new things, and that's probably the single biggest thing that you kind of work against. So are there some verticals that are more -- that you would highlight that are sort of -- that are out there still that are going to still take a couple of years?

Yes. I think the verticals that we focus on today, apparel, logistics, general merchandise and food. Those are all beginning to move forward. As I look further into the future, opportunities where I see use cases that exist, but the industry is not moving forward yet would be automotive, for example. German-made auto manufacturers have anywhere -- or autos have anywhere from 30 to 50 tags in them. They use it for quality control down the assembly line to make sure a U.S.-bound auto receives a U.S. spec airbag. Or that the color scheme of the seats being put in the car match the color scheme of the dash. And the goal is to identify any challenges before they get too far down the assembly line where they have to scrap the car.

Pharmaceutical, all the regulations necessary to move forward in pharmaceutical has been approved. But the industry hasn't moved forward because we haven't seen one of the big pharmacies make the decision to move forward. The drug manufacturers would bear the cost of this, but the pharmacies would reap the benefit. Those are 2 verticals where there are active use cases in deployed today, but the industries just haven't moved forward yet. So I see those on the horizon after we tackle some of these bigger ones first.

Got it. How do you think about the share dynamics in the endpoint IC market? Is share tied more to your existing customers or to new programs with lighthouse customers?

Yes. So we -- our platform is our competitive advantage, and we put functionality in the ICs that have engaged by functionality in the readers to solve problems that you can't solve with a mix and match solution. And if we're successful at that, we will drive share to -- or drive preference to our endpoint ICs. Largely, the share gains that we've enjoyed so far have been on the back of that platform.

And just for the lighthouse programs, like what creates this long-lasting moat that would -- that allows you to retain that share into gain from there?

It's a solution that you can't solve with a mix and match reader and endpoint IC. So it is functionality in the IC that is leveraged by the reading environment that the software and the reader creates. Some examples of that would be in our Gen 2X features. So in a normal Gen 2 environment, which is the existing radio protocol, the readers are -- the ICs are constantly responding to the reader, which clutters the environment. With Gen 2X features, we've put a capability in the IC that the reader can engage that IC, tell that IC to stop responding because it's already been read. So that the reader can focus on reading the rest of the ICs in the market and just kind of go through that process, deselecting the response as it reads.

That has a dual benefit. First, it increases the read speed because the environment has been significantly decluttered and second it increases the read range in that environment. That solution, that tag-quieting solution, as we call it, is only available with the Impinj M800, which has Gen 2X features in 1 of R700 readers or our reader ICs, our E Family reader ICs are 1 of our partners that we've licensed the Gen 2X features to like Zebra as an example.

And how ubiquitous is that or is that just in its nascency?

It's in its early days right now. We announced Gen 2X at the end of last year. So we're just coming up on a year of Gen 2X in the market, but we're seeing real traction from that. One example is in overhead reading. So we have a customer that was a historical Impinj customer, but during the supply-constrained environment of '22 and '23, we were unable to supply them and what was kind of a dual source account where they used us and they used NXP went almost fully to NXP.

That customer, however, has always had a vision of an overhead reading solution. They want to move away from the handhelds, they want real-time reading available all the time, be an overhead solution. But the read range of standard Gen 2 was too small to make the economics pencil out. It required too many overhead readers to make it and made the program cost prohibitive.

But with Gen 2X and the tag-quieting feature that I just talked about, the read range has increased by almost 40%. And now all of a sudden, with that increased read range, the math starts to pencil on the overhead reading. So this is an opportunity to both deliver a solution that the customer has long wanted, but hasn't been able to get and also be able to drive endpoint IC volumes in that account back to Impinj.

And which -- how does the software factor in all of this.

Yes. So with every reading environment, you need software to control it. So we are introducing software components to our reading to take the RF out of RFID to make the provisioning easier by putting machine learning at the edge. And what that does is that drives a solution that can be zero-touch provisioning while also an environment that self-monitors and adjust constantly. So we can make the reading set up much easier for our end customers.

And so is the competing solutions, I mean in this fully integrated solution, you have the software, you have the reader and the endpoint, all three?

That's correct.

As we think about these more mature markets like apparel or footwear, for example, how do you think about your market share versus your primary peer going forward? And how do you estimate like self-checkout adoption thus far and how that could evolve over time?

The primary use case in retail apparel today is using a handheld reader to count inventory on the store floor. And that is primarily a mix-and-match solution where any reader and any IC can be paired together and deliver sufficient performance in that case. We perform better, but the environment in a mix and match works just fine. What we're seeing in the retail market is retailers are moving towards 100% penetrated, only a handful, probably less than 10 are 100% penetrated at this point, but they're all striving to get to that point. And the reason they do is once you get to 100% tagged, you can then unlock the additional use cases. You can go beyond handheld inventory accounting to self-checkout to loss prevention, to front-store, back store management or smart fitting rooms.

In those use cases, you no longer rely on a handheld reader. You're moving into fixed or autonomous reading where there's no human in the loop and the accuracy threshold increases significantly. The Impinj platform is uniquely positioned in those cases where fixed autonomous reading is necessary to provide the solution. So we think, over time, as those use cases become more prominent, that will help drive share in the retail apparel space to Impinj. Prior to 100% tagging, the example of overhead reading, and some of the performance improvements in M800 in hard to tag categories will also help drive preference for Impinj ICs.

And so I guess, just structurally, until you get to 100%, you can't start to adopt some of these other innovations until everything is tagged?

Yes. You can't do self-checkout until everything in the store is tagged. You can't permanently replace the hard tags that use that trigger the alarms at the doors until everything has been tagged.

And can we talk about channels. So in your engagements with end users, you typically supply them through inlay partners and service bureaus. And ultimately, you're exposed to sort of multilevel supply chain risk as customers or partners look to build -- burn or build inventory. So how do you manage the like multiple nodes of the supply chain and the inventory that can actually sit in those nodes?

Very careful, we try to at least. So we get monthly inventory reports from our channel partners. And from our lighthouse accounts, we get forecast directly from them to track inventory levels. And then we get anecdotal information from the service bureaus, which are 2 steps removed from us. We also track a subset of public retailers that we think of as a RAIN indicator set so that we can match macro trends that the retailers are seeing with what the ordering patterns are from our direct customers to try to triangulate that. All that being said, it's still a multistep distribution model. So we'll never be 100% immune to channel inventory builds. But what we have been able to prove is that we can identify it early on, and then we're able to correct it very quickly.

And how much visibility do you typically have?

Typical lead times are 6 to 7 weeks. We turned 50% in a quarter. And that doesn't change very much. Not usually, there's been -- typically, when there's periods of time where it changes, it's signaling something else is going on. If you go back to the fourth quarter of 2024, we saw our lead time shrink dramatically as tariffs began to be announced, specifically in China and Canada and Mexico. And what was happening at that point was our partners were adjusting their production footprint to optimize for the tariffs. So they're moving out of Mexico as an example, into Southeast Asia. And we saw the lead time shrink as they were doing that than we saw the lead times go back to normal levels thereafter.

I think you talked about this, you've broken up the ramp into 3 parts. It's like the first part is hard and then the middle 60% is easy and then the last 20% is hard. So where do you stand with respect to food in that life cycle?

Yes. So we're at the early days of food right now. Think of that 0 to 20, 20 to 80, 80 to 100 as a proxy for how new programs ramp. So in the case of food for the most recent food announcement by Walmart, think of the -- what they've got to do to get that up and running. They've got to put in an infrastructure which is basically printer encoders in their existing weight scales. They have experience with RAIN RFID in the apparel department, but the food team doesn't have experience. So there's tens of thousands of employees across their 4,600-store network that need to be trained up on doing that. All of that happens at the first part of the ramp, and that contributes to the first 0 to 20% of our ramp going at a relatively slow pace.

Once that foundation is built, they can accelerate the program. And that's why we see typically going from 20% to 80% at a much faster pace. The -- capturing the final 20% typically comes down to solving for the hard to tag items or the edge cases that you haven't figured out just yet.

And how -- and so with respect to food, you've called item-level food as the single largest RAIN market. And as we understand it, there's, I think, 8 global food retailers that are exploring RAIN. Have you sized sort of a more immediately addressable market out of these folks who are looking at being the first adopters?

We haven't sized it specifically yet, but what I would say is that the sell-side estimates that are out there are reasonable in the case. Where we're seeing the grocer start is in the portions of the grocery store where they control the supply chain. So think the 4 outside walls of a grocery store, where they're packaging, labeling, sometimes producing the items directly behind the counter or at their company-owned D.C. They're doing this because there's no negotiation required.

If they wanted to go to the middle of the store, they would have to negotiate with the CPG companies to put the tag on a box of cereal as an example. In this case, they skip that step and they're able to make the move much faster. They'll eventually get to the middle of the store, but they're starting where they think they can get more momentum earlier.

And sort of as you look into next year, I mean, you have -- obviously, you said you have very, very short lead times. However, you do have a little more visibility on sort of maybe some of these larger programs. And how they're ramping. So how much visibility do you have next year? And like what's going to be the main put and take in terms of revenue drivers next year?

Yes, so we see multiple opportunities for growth next year, kind of in no particular order. So in apparel, we see expansion growth. Most retailers have adopted, most retailers are not 100% deployed. So they're growing to 100%. We'll also see net new opportunities next year like we did this year, even though there's a high brand penetration rate. Within retail, macro is always the factor that people are focused on these days. And coming out of the impact of tariffs, we saw cautious rebuying behavior from retailers despite a pretty solid back-to-school.

Fast forward to today, we've seen very strong holiday -- early holiday prints from Walmart, from American Eagle from Inditex, from Macy's even. So that tells us that the consumer is much more resilient than maybe they thought earlier in the year. And if the consumer remains resilient, I think that bodes well for 2026 rebuying behavior. So that's apparel.

In general merchandise, Walmart has announced 2 phases of general merchandise. We're not complete in tagging those 2 phases. So there'll be additional penetration in those 2 phases. We think there's an opportunity for a third phase in general merchandise. Categories have been discussed, but nothing has been announced at this point.

In logistics, our second large logistics provider achieved 100% domestic penetration in the third quarter. So there's an annualized growth rate that factors into just the domestic, and then there's an opportunity for international beyond. There are other logistics pilots going on right now and depending on how quickly those can convert to full-fledged programs that could impact growth in 2026. And then finally, on food, there's additional penetration in the Kroger bakery pilot. There's potential for additional categories with that and the Walmart food program is just getting started right now.

So when you talk about food, so some of the like high moisture and produce categories, they seem to have maybe packaging and some constraints that would complicate tagging. What's the sort of binding technical and operational constraints to have full food coverage. And where do you expect the real innovation to come to really unlock these like last pockets that have been hard to access?

So anything that's liquid or metal interferes with the RF propagation. So you can imagine food between its properties and its packaging introduces a lot of challenges. Those challenges can be solved and likely will be solved by the ecosystem in terms of developing tags. So as an example, one of our partners developed a very clever foam spacer that can get applied to proteins. And basically, once it's applied, the stickers applied, the spacer expands and the tags on top of it. So it creates enough airspace for the RF to propagate. That works great on steak and the water content in steak. Doesn't yet work on poultry because poultry has a higher water content. So we still have to solve that.

In some of the most challenging use cases, the end customer or the ecosystem will come to us. So in the grocery space, early for the bakery pilot, tagging pies was a challenge. Not the pie itself but the aluminum pie tin that's on the -- that the pies are held by and we needed to develop a tag to solve that. Another example was tagging a gallon of milk because the milk interferes with the RF, so we can't put a sticker on the side of that. You had to design an inlay that sits on top of the milk cap. We have an in-house inlay design team. And when necessary, we can deploy them to solve those hard to tag items. And then once they've solved that, we hand out that inlay reference design to the ecosystem so they can support the end customer.

Yes. So I was going to talk about that, like where does the ecosystem the sort of push pull? How much of these hard to access things, like how much technology are you building around the tags? How much of it are you pushing into the ecosystem versus them coming to you and saying, "Hey, we would like to tag this. Can you please help us solve this."

Yes. So we push a lot in the first in form of IC by making the IC more sensitive, to make the IC smaller, so it can fit on a milk cap or it can leverage a smaller antenna to get the targeted range. And then they take the IC from there, and they're primarily the ones that develop the inlays for that. It's only when we get to the hard to tag, the very hard to tag items that they'll come back to us for help.

Got it. So apparel remains your largest market, but 2025 looks kind of close to flat due to some tagging partner inventory issues and some limited full adopter penetration. What's the forward path recovery forward in the apparel market and how many new retailers and like deeper deployments would be required to have a big up year in '26 and '27 in that space?

Yes. So I think, think of apparel as an $80 billion unit opportunity per year, that is roughly 40% penetrated by volume based on 2024 data, but it is over 90% penetrated by brand or by logo. As I said earlier, most retailers have made the decision to move forward. Most are not 100%. So as I look at the retail opportunity, there's a lot of expansion left in just the existing customers that have already started the program. But there are net new programs.

In 2025, we saw Old Navy, we saw Academy Sports + Outdoors and we saw Aritzia all announced programs for the first time. Those programs will continue to ramp into 2026. And I suspect there'll be new programs launched in 2026 as well. And then layer on top of that, any stabilization or recovery in the macro.

I want to talk about general merchandise for Walmart a little bit. And are Phase 1 and Phase 2 of their general merchandising efforts complete and do you expect more phases, I guess, I ask because the program has been quite lengthy given their vast supply chain.

Yes. It was lengthy because we were tagging items for the first time working with suppliers who never had any exposure to RAIN before. So that took a little while to get it up and running. And since then, the program has been moving quite nicely. There was certainly an impact from tariffs because a lot of the goods were made in China, and it wasn't as easy as it was in apparel to find a new production home for some of the general merchandise items.

That being said, we are not fully deployed with Phases 1 and 2 of general merchandise. So I would expect continued expansion with those existing phases in 2026. There has also been a significant amount of testing new work going on to what categories could be included in Phase 3. And I expect a Phase 3 to be announced at some point in 2026.

And is that unique to Walmart where they have their suppliers tag the items?

No. Typically, the retailers want the item tagged as close to manufacture as possible so they get the benefit throughout the chain. They do have the capabilities to tag in store, but we do not see that as a widely used option.

I wanted to ask about logistics. You're nearly done with the U.S. rollout of the second large North American supply chain logistics end user, obviously, UPS. In the logistics market, where do you see the next leg of growth? And are there any pilots beyond the 2 end users that you already work with?

Yes. So in the logistics space, our second large logistics provider is well in front of the rest of the competition. And they've been very vocal about the ROI that they're earning from, removing manual scans to improving misload rates to taking cost out of their structure. So I think there's a general understanding that many in the industry are well behind that, and there's a sense of urgency to catch up. We see that urgency in our pipeline. We see that urgency in the pilots that are going on right now. It just depends in terms of timing and when those pilots can turn into full-fledged programs and how early in 2026, that might happen understand the impact of 2026 calendar year.

And do you think that there -- because of what they've done, are they winning business because of what they've done? I mean can you -- is that an example you can go to the other large North American guys and you can say, listen, you're losing ground and here's the tangible evidence.

Yes. So yes, we have heard that they've won business because they have RFID solution. They are very good at being vocal about their ROI that they've achieved, about the wins that they're achieving. So I don't even need to go say that -- that's in the public domain already.

And is there any way for you to -- obviously, if it's that important to them, do you feel like you're getting all the economic value out of that engagement that you could?

I believe so. They're a very key partner. We call them a lighthouse account. Our engineering teams work closely together. We work together on the solutions to make -- to build their solutions and then bring them to life, and it's an opportunity that we're rewarded with high endpoint IC share, which is our price.

I want to ask about financials and margins. And maybe you can walk through some of the main levers and the puts and takes on gross margin. I think you framed some of the different M800 and M700, -- there's a big -- I think that's a 300 basis point gross margin uplift. So just can you frame some of the puts and takes on gross margin?

Yes. So we are in the midst of ramping M800 and that's what's driving the gross margin lift. If you go back in time, prior to the M700, which is our first chip in 65-nanometer node, our corporate average gross margin was roughly 50%. The M700, we delivered 2 things -- 3 things. First, it's a more performant IC than the prior generation R6, which was in 152-nanometer. Second thing we delivered was a lower price point to our inlay partners, so they could be more competitive in the market and unlock new opportunities. And third, by shrinking the size of the die, we were able to reduce our cost, and that translated to a 300 basis point gross margin increase.

The M800 is our second major chip in 65-nanometer. We get 25% more die per wafer. We get an improvement in sensitivity above M700. And what that means to our inlay partners is they can leverage a smaller antenna to get the same read range. So the M800 helps take cost out of their BOM. In addition to that, we price the M800 at slightly lower than the M700 to drive adoption, while still maintaining the cost advantage so that when the M800 is fully deployed, we expect another 300 basis points of gross margin accretion.

You're starting to see that in the fourth quarter. In the fourth quarter, the M800 will be our volume runner, meaning it crossed over 50%. It won't ever go to 100%, but it will grow above 50% of our IC mix and we signaled it would deliver over 100 basis points of gross margin accretion in the fourth quarter.

And can you just -- can you talk about balance sheet optimization and capital return, how you're kind of thinking about optimizing the balance sheet?

Yes. The first thing that we're focused on as it relates to the balance sheet is the convertible debt. So about 6 weeks ago, we refinanced a portion of our convertible debt. So we issued $190 million, 0% convert and simultaneously repurchased $190 million of our [ 1/8 ] convert. The goal there was multifaceted first. We reduced our coupon. Second, we reduced the underlying dilution by a couple of hundred thousand shares. And then third and more importantly, we split up the maturities of our $287 million total convertible debt to sizable chunks that where we can leverage the balance sheet when it comes time to retire. This is potentially our path off convertible debt and splitting up the maturities was a key focus for us so that we could retire them in a dilutive friendly way.

Can you just go back to your point about gross margin, how much more upside is there for gross margin? Where do you think it can go?

Yes, it's a good question. So I think there continues to be more innovation we can do. There's a more advanced process node that you should expect us to be working on, even though there's still more iteration within 65-nanometer to the extent we can take cost out and to still deliver a lower-priced IC to our end customers. I think that could drive gross margin.

We are also not yet leveraging or seeing the benefit of our -- of a cloud service or a SaaS software offering on top of that. That is our ambition is to leverage our platform and then put a software solution on top of it. We're building out the team to do it right now. We have technology. We don't have a product yet. That team will be chartered with taking that technology, developing new technology and productizing all of it in a way that drives a recurring software solution that would have SaaS-like margins.

Maybe to end, I just wanted to ask you about endpoint ICs versus systems. I think endpoint ICs are something like 80% of revenue today. But sounds like systems are going to start to grow a lot more software, it will begin to grow. So how do you see the mix of revenue evolving over the next few years?

Yes. Over the next few years, I still see endpoint IC being the lion's share. I probably always see endpoint IC being the lion's share. While it's not recurring, it is reoccurring. So once we tag a pair of jeans, when that pair of jeans sells, we tag the next pair of jeans. So I think that continues to drive endpoint ICs to be the larger mix. There will always be a lumpiness factor to the systems business as we have a large program coming online that could drive the systems mix up in any given quarter. And we're still a few years away from the software becoming a meaningful portion of our revenue.

Got it. Well, thank you, Cary. We're out of time. Thank you for having us.

Thanks.

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" Piper Sandler & Co., Research Division

" Susquehanna Financial Group, LLLP, Research Division

" ROTH Capital Partners, LLC, Research Division

" Needham & Company, LLC, Research Division

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Welcome to Impinj's Third Quarter 2025 Financial Results Conference Call and Webcast. [Operator Instructions] Please note, this event is being recorded.

I would now like to turn the conference over to Mr. Andy Cobb, Vice President, Corporate Finance and IR. Please go ahead.

Thank you, Gary. Good afternoon, and thank you all for joining us to discuss Impinj's third quarter 2025 results. On today's call, Chris Diorio, Impinj's Co-Founder and CEO, will provide a brief overview of our market opportunity and performance. Cary Baker, Impinj's CFO, will follow with a detailed review of our third quarter financial results and fourth quarter outlook. We will then open the call for questions.

You can find management's prepared remarks plus trended financial data on the company's Investor Relations website. We will make statements in this call about financial performance and future expectations that are based on our outlook as of today. Any such statements are forward-looking under the Private Securities Litigation Reform Act of 1995. Whereas we believe we have a reasonable basis for making these forward-looking statements, our actual results could differ materially because any such statements are subject to risks and uncertainties.

We describe these risks and uncertainties in the annual and quarterly reports we file with the SEC. We do not undertake and expressly disclaim any obligation to update or alter our forward-looking statements, except as required by law.

On today's call, all financial metrics, except for revenue, or where we explicitly state otherwise, are non-GAAP. All balance sheet and cash flow metrics, except for free cash flow, are GAAP. Please refer to our earnings release for a reconciliation of non-GAAP financial metrics to the most comparable GAAP metrics.

Before turning to our results and outlook, note that we will participate in the Baird 2025 Global Industrial Conference on November 11 in Chicago, the UBS Global Technology and AI Conference on December 3 in Scottsdale, and the Barclays 23rd Annual Global Technology Conference on December 10 in San Francisco. We look forward to connecting with many of you at those events.

I will now turn the call over to Chris.

Thank you, Andy, and thank you all for joining the call. Our third quarter results were strong with revenue and adjusted EBITDA exceeding the upper end of our guide range. Record endpoint IC volumes and better-than-anticipated reader volumes drove product revenue to a new quarterly record, with Gen2X's success solving challenging industry use cases behind a growing portion of that product revenue.

We delivered that revenue outperformance despite weak retailer buying patterns and tariff headwinds, highlighting our strong market position and technical and product leadership. Starting with silicon, third quarter endpoint IC revenue exceeded our expectations. Supply chain and logistics led the way with our second large North American end user now fully deployed in domestic parcel delivery. Retail volumes grew modestly, buoyed by the upcoming holiday season, but with a cautious note as our partners and end users buy into demand rather than ahead of it. We expect third quarter to mark the seasonal peak for both supply chain and logistics and retail endpoint IC volumes, with fourth quarter volumes stepping down modestly. Partner channel inventory remains healthy, declining slightly in third quarter.

Turning to reader ICs. Third quarter revenue met expectations with the richest E Family mix to date. Looking to fourth quarter, conservative ordering by our Chinese reader IC partners will push revenue lower. Longer term, we see strong E Family growth, including from multiple overhead reading deployments and pilots that leverage Gen2X, creating pull for our M800 endpoint ICs. In solutions, we saw strong third-quarter revenue led by our Lighthouse accounts. We delivered more readers to our second large North American supply chain and logistics end user in the quarter than we expected, as they continue driving new use cases. Those use cases should generate meaningful fourth-quarter reader revenue as well, as deliveries will step down as rollouts stretch into 2026.

We also saw meaningful third-quarter reader revenue from the visionary European retailer, but here again expect a step down in the fourth quarter due to project phasing. To be clear, the size and scope of these rollouts remain intact, but timing will nudge fourth quarter systems revenue down slightly sequentially, bucking the typical seasonal growth trend.

Despite the stretched time lines, our end users, both current and new, continue asking for our help with their business challenges. Solving those challenges requires not just radio know-how, but also software from ML at the edge to cloud services. So we are aggressively hiring technical and business talent to develop that software and win the recurring revenue opportunity. Last week, we hired an SVP of SaaS and Cloud Services to lead our development, heartwarming for me because he was a student of mine at the University of Washington 25 years ago. He, our CTO, and others across the company are digging into opportunities, including e-commerce, leveraging the strong foundation of our platform, endpoint ICs, and Gen2X uniquely offer for solving those challenges.

I'd like to again say a few words about Gen2X. Years ago, when we spearheaded developing the industry's radio protocol, we and others recognized that we couldn't create one single overarching protocol that addresses all market verticals and use cases. So we built into the final protocol the flexibility for customizations. We have now proved the foresight in that choice with Gen2X, which is native in our M800 endpoint ICs, E Family reader ICs, R700 readers, and adopted by many of our industry partners.

Our Gen2X customizations have helped us deliver retail loss prevention, supply chain and logistics conveyor sorting, and now partners are using them for overhead retail reading. We are today enhancing Gen2X for food and e-commerce and will, over time, introduce differentiated endpoint ICs that help solve key use cases and win those markets.

Turning to food, which is by far our largest opportunity, product freshness and supply chain efficiencies are driving pallet, case, and item level deployments with 2 opportunities now public. There are others, including pilots at point of sale and for assisted self-checkout. Although we still expect food endpoint IC volumes to be modest this year and in the first part of next, our engineering and go-to-market organizations are forging silicon, software, and business innovations to help unlock the food opportunity. We are well-positioned to do so. And as the leading grocers adopt, we expect other grocers to follow.

On the organizational front, I'm thrilled to welcome Arthur Valdez to our Board. Arthur has more than 30 years of experience leading global supply chain and logistics operations for major e-commerce, retail, and consumer enterprises. His expertise transforming and optimizing supply chain and logistics networks for large consumer-facing companies will be invaluable as we continue advancing our vision of connecting everything. Arthur, welcome to Impinj.

In closing, our solutions and Gen2X focus continue paying dividends in revenue, adjusted EBITDA, recurring endpoint IC volumes, and market leadership. Our market opportunity continues expanding with more opportunities for secular growth in retail, supply chain and logistics, food, and a long tail of other applications. As we continue driving our bold vision, I remain confident in our market position and energized by the opportunities ahead.

As always, before I turn the call over to Cary for our financial review and fourth quarter outlook, I'd like to again thank every member of the Impinj team for your tireless efforts. I feel honored by my incredible good fortune to work with you. Cary?

Thank you, Chris, and good afternoon, everyone. Third quarter revenue was $96.1 million, down 2% sequentially from $97.9 million in second quarter 2025 and up 1% year-over-year from $95.2 million in third quarter 2024. Third quarter endpoint IC revenue was $78.8 million, down 7% sequentially from $84.6 million in second quarter 2025 and down 3% year-over-year from $81 million in third quarter 2024. Excluding the $16 million second-quarter licensing revenue, endpoint IC revenue grew 15% sequentially. Looking forward, we expect fourth quarter endpoint IC revenue to decline sequentially, but on the favorable side of normal seasonality.

Third quarter systems revenue was $17.3 million, up 30% sequentially from $13.3 million in second quarter 2025 and up 21% year-over-year from $14.2 million in third quarter 2024. Systems revenue exceeded our expectations, driven by reader strength in supply chain and logistics. Looking forward, we expect fourth quarter systems revenue to decline slightly sequentially, driven by project timing, as Chris already noted.

Third quarter gross margin was 53% compared with 60.4% in second quarter 2025 and 52.4% in third quarter 2024. The sequential decline was driven primarily by licensing revenue. The year-over-year increase was driven primarily by lower indirect costs. Excluding licensing revenue, third-quarter product gross margin increased 40 basis points sequentially, driven primarily by endpoint IC product margin, including M800. Looking forward, we expect fourth quarter gross margin to increase sequentially.

Total third-quarter operating expense was $31.8 million compared with $31.5 million in second quarter 2025 and $32.5 million in third quarter 2024. Operating expense was below expectations as our team exercised good fiscal discipline. Research and development expense was $17.8 million, sales and marketing expense was $7 million. General and administrative expense was $6.9 million. Looking forward, we expect fourth quarter operating expense to increase sequentially.

Third quarter adjusted EBITDA was $19.1 million compared with $27.6 million in second quarter 2025 and $17.3 million in third quarter 2024. Third quarter adjusted EBITDA margin was 19.8%, a new quarterly record on a product revenue basis. Third quarter GAAP net loss was $12.8 million. Third quarter non-GAAP net income was $17.7 million or $0.58 per share on a fully diluted basis.

Turning to the balance sheet. We ended the third quarter with cash, cash equivalents, and investments of $265.1 million compared with $260.5 million in second quarter 2025 and $227.4 million in third quarter 2024. Inventory totaled $92.6 million, down $3.6 million from the prior quarter. Third quarter capital expenditures totaled $2.9 million. Free cash flow was $18 million compared with $4.7 million in third quarter 2024.

Before turning to our guidance, I want to highlight 2 items specific to our results and outlook. First, in September, we issued $190 million of 0% convertible notes while simultaneously repurchasing $190 million of our 1.125% convertible notes. This transaction reduces our interest expense, lowers our underlying share dilution, and breaks our maturity profile into smaller tranches, the latter increasing our ability to leverage our balance sheet in managing that convertible debt. Second, we have consistently projected gross margin leverage in our long-term model. We expect that leverage to be on display in the fourth quarter, where we have embedded more than 100 basis points of sequential gross margin accretion in our guidance.

Turning to our outlook. We expect fourth quarter revenue between $90 million and $93 million compared with revenue of $96.1 million in third quarter 2025, a quarter-over-quarter decrease of 5% at the midpoint. We expect adjusted EBITDA between $15.4 million and $16.9 million. On the bottom line, we expect non-GAAP net income between $14.7 million and $16.2 million, reflecting non-GAAP fully diluted earnings per share between $0.48 and $0.52.

In closing, I want to thank the Impinj team, our customers, our suppliers and you, our investors, for your ongoing support.

I will now turn the call to the operator to open the question-and-answer session. Gary?

[Operator Instructions] Our first question is from Ezra Weener with Jefferies.

The first one would be about readers. Q3 is much stronger. You're talking about a little bit weaker Q4 versus seasonal up. Can you just talk a little bit about what that timing means? Was it pull into Q3? Is there a push out to Q4? And then assuming it is pull in, what does that mean for endpoint IC ramp timing?

Ezra, this is Cary. Thanks for the question. I'll take the first part of that. So originally, we thought we would grow revenue -- systems revenue in the fourth quarter, but probably not achieve kind of normal seasonality because we guided our Q3 systems so strong. Q3 actually turned out stronger than we anticipated. So there's going to be a natural step down as we move from Q3 to Q4. We also saw, as Chris alluded to in the prepared remarks, some of the project timing just shift to the right, which is just exacerbating that a little bit. So instead of growing as we typically would, systems revenue in the fourth quarter, we're down slightly sequentially.

Yes. And Ezra, I'll just add that, as I said in the prepared remarks, the size and scope of the rollouts remain intact. What we're seeing is some of the end users adapting in real time to the market environment and adjusting how they phase their rollouts and kind of where they put their emphasis. And so we're seeing a little bit of push in the fourth quarter as a consequence of that internal adjustment. I wouldn't read -- there's nothing to read into it in terms of pullbacks -- these are not pullbacks. They're just real-time adjustments at the end-user level to what's going on in the macro environment.

And then the second would be, I think we all saw the Walmart announcement with Avery. Can you talk a little bit about what that means in terms of timing and sizing for you guys?

Yes. Why don't I start, Cary, and then you jump in? So, I presume you're alluding to the food news. Grocery -- Walmart. Yes, the grocery. So I'm going to start by saying we're very excited by that news. It's not a surprise to us, but we're very excited that it's out there. The theme in this announcement and the prior Kroger announcement are to improve product freshness, reduce waste, and lower costs. And that's an important theme for the industry.

As I mentioned in our prepared remarks, we highlighted another longer-term theme, which is improving the shopping experience. But there are no public announcements yet on that front. But you combine the 2 of those, the freshness opportunity and the customer shopping experience opportunity, and we're very excited about food. We expect modest food volumes through first half '26 and accelerating from there. The pacing really is set by the complexity of rolling out at scale. And you think about it, you've got thousands of stores, got a lot of categories of items. You literally have tens of thousands of employees who need to train. You got to change how you do your operations. You got to build the back end out. These kinds of deployments at this kind of scale at any major enterprise take time.

But as we've seen in some of the others, aviation, retail, and others, once retailers move forward and see the successes, they continue to go forward, and other parts of the industry adopt. So we feel good about where we are. We feel about the opportunities for rollout. M800 and Gen2X are very well positioned, and we will be driving hard into the food opportunity in 2026.

Cary, anything you'd add?

Yes, Ezra, I'd just add that the volume estimates that are out there are not unreasonable. We view this as a multibillion-unit annual opportunity when it's fully ramped. But to Chris' point, it's just always difficult to judge the pace of deployments, especially one of this size, until we get into it. So give us a little time to figure out what the pacing looks like. But I'll just reiterate what Chris said. We're very excited not only about what this opportunity means with Walmart, but what it means to the rest of the grocery community, who can leverage the work that Walmart is doing.

The next question is from Harsh Kumar with Piper Sandler.

Congratulations on very good results. Chris, I had a multipart for you for starters, and then I have one for Cary. So we hear about the announcement that was just talked about with Walmart, bakery, meats, et cetera, and tagging. Is there a fundamental problem in tagging vegetable grocery, leafy greens, and other things that compromise the other vast majority of the volume? Or is that just the next step of the evolution? And part 2 of my question is, Chris, I'm hearing you use the word e-commerce a lot all of a sudden in this call. I've never heard you say that in this much detail. Is there something that -- I guess I'm trying to understand the significance of it, or if you're trying to take the enterprise strategy to the next level and help with e-commerce in some way?

Yes. So thank you, Harsh. Thanks for your questions. I will address both of them in order. So on the grocery side, you're seeing announcements in bakery, deli, and meat products. There are very significant expansion opportunities beyond that. As you've alluded to with produce, you should look at first at perishable categories as being the areas where grocers will see the most immediate opportunity. But then, of course, as I alluded to in the prepared remarks, there are also opportunities for the consumer experience, which requires tagging all the items.

Specifically around produce, fruits, and vegetables, there is no fundamental limit that prevents us from tagging those items. It simply is a call mechanical limit or just kind of a functional limit, specifically, how do you do the tagging? What we're seeing some of already is grocers put some of the items in bags, and you can tag the bag fairly easily, or in spring containers, or other things. Individual items are just harder because getting the tag on and keeping it on. You will see innovation on the tagging front, but I think you're also going to see innovation on the packaging front to make that produce tagging possible.

Turning to e-commerce. I use that word intentionally. Yes. I don't want you to read too much into it right now, but we are seeing 2 significant trends. One is an interest across many of our customers, enterprise end customers for a direct from DC or warehouse to consumer, and that's in the retail space, in the supply chain and logistics, and other areas. And the second one is 3PL opportunities. And so enterprises acting as 3PLs for other enterprises. The net of those I'm using is a broader e-commerce term. You are correct. It's the first time I've meaningfully used that term, and it was intentional and expect us to push forward hard into that e-commerce and attempt to expand and grow there. And as I said in our prepared remarks, I see opportunities for differentiation at the endpoint IC level, the reader IC level, and the software level to address those opportunities, both grocery and e-commerce.

And my follow-up question to Cary is pretty impressive. I think you're implying 100 basis points of margin increase in the fourth quarter, Cary, if I heard you correctly, -- and is that all from M800? Or is there some other stuff at play over here?

It's a lot of M800. We're also now fully selling the 2025 costed wafers. So we're getting the benefit of wafer costs matched to 2025 pricing. But you're starting to see us flex the M800 muscle that we've been talking about for a while. Now I think the M800 ramps to volume runner in Q4. I don't think we reach the terminal mix though of the M800 until 2026 sometime.

The next question is from Christopher Rolland with Susquehanna.

There was a press release by what appears to be a competitor of yours talking about getting some traction using Bluetooth as RFID or like RAIN alternative. So I'd love to know, Chris, in particular, your take on this technology? Is it disruptive? Or conversely, does it have significant drawbacks, and what those are? And if it was a compelling technology, would you guys or could you offer this Bluetooth alternative as well?

Okay. Thanks, Chris. I'll do my best to answer the question. I'll give -- I'll say some things. And then if you have a further question on that, I'm happy to engage back and forth. So RAN RFID is ideal for item tagging with huge volumes and a huge opportunity. We've talked multiple times in the past about other technologies like vision, and now with Bluetooth beacons here that can help fill in the gaps. Yes, we can make RAIN RFID ICs, sense pallet temperature or humidity. In fact, our industry standardized those capabilities in the radio protocol back in 2012, 13 years ago. But the volumes to date have been tiny and are still small.

So we're focused where the volumes are right now. I would say that some complementary technologies filling in the gaps is helpful for enterprise adoption. If the volumes become large, we can look at either that technology or using RAIN RFID to accomplish the same objective. But given the size of the volumes right now, we are focused on the food opportunity, the e-commerce opportunity, supply chain and logistics, the big opportunities where the volumes are orders of magnitude larger, and we'll stay focused there until we see some meaningful change. So I view them as gap fillers. Did that answer your question?

That did, Chris. Perhaps just following up kind of on a couple of comments you made. The first was about the second large North American supply chain logistics vendor. You said that they were now fully deployed in parcel delivery. So does that mean -- sorry, say that again?

Yes. Domestic parcel deliveries, not international, but you keep going. I interrupt you, I apologize.

So does that mean that the full infrastructure is fully deployed? Like do they have readers everywhere they basically need them? And then in terms of tagging individual items, has this reached an attach rate that you think is normal? Or do you think they grow from here as, call it, a percentage of parcels?

So I'm going to start with the first question first. For all of our Lighthouse enterprise, including that one, they're never fully deployed. They always have new use cases. They're always coming to us with new opportunities. They're always thinking and inventing, and they're looking to us to help them think and event and event. So you should look to us to continue talking about fixed reading opportunities, mobile reading opportunities, new tagging opportunities, and just more. I view our engagement with them as a true partnership, a close partnership, a partnership among friends. They trust us to not let them down. We will not let them down, and we will be there to support them.

In terms of the actual tagging volumes, yes, they're fully deployed in domestic parcel delivery, but that's just domestic parcel delivery. There are opportunities in other areas of their business in international, and then in their expansion opportunities, including in e-commerce opportunities for them. So we see growth opportunities on the endpoint IC side, on the reader side, on software side, on helping them as a Lighthouse partner win in their respective market opportunity.

And Chris, this is Cary. I would just add that while they're fully deployed domestically right now, as Chris said, they haven't been that gateway for the entire year. So there's potentially opportunity on a year-over-year basis just as they're fully deployed next year.

The next question is from Scott Searle with ROTH Capital.

Great job on the quarter. Maybe to dive in on some of the gross margin commentary, but specific to Gen2X and some of the software investment. I'm wondering a couple of things on the Gen2X front. Is it delivering shares now that is demonstrable that you're seeing in terms of your customer buying patterns? And in terms of the customization opportunity then from an endpoint IC standpoint, does this permanently move you guys into a different gross margin realm on the endpoint IC? And then maybe as a follow-up to that, talking a little bit more about software and recurring revenue, Chris, I'm wondering if you could flesh that out a little bit more in terms of what that means and where it goes. In the past, we've talked about things like authenticity. But how does that evolve? How does that look in the future?

Scott, this is Cary. I'll take the first part of that. So from -- does Gen2X drive share to Impinj? We sure hope so. It's too early to say and comment specifically on share, but this is exactly why we launched Gen2X. This is exactly why we licensed Gen2X to the reading community for free is so that we can not only solve previously unsolvable opportunities for our end customers, but we can also drive endpoint IC share to Impinj. So give us until kind of February, March time frame next year, we'll comment on whether or not we were able to grow share again in 2025.

From a gross margin accretion perspective, think of Gen2X as native in the M800. So not driving any more gross margin than the M800 was already slated to, but helping to drive adoption of the M800.

And, I will try and answer your question. So the genesis of a lot of our Gen2X customizations was Lighthouse Enterprises coming to us and asking for -- basically presenting us with a problem that they've got a challenge and us addressing that challenge. And so our Lighthouse Enterprise accounts use Gen2X because we actually invented some of the capabilities in it to enable them to deploy. So we view it as very least helping us maintain those accounts for us going forward, expand from that basis into other accounts. Now in terms of diversification, we see further opportunities in Gen2X to innovate on the endpoint IC, as I said, the reader IC, and in the software.

As we migrate down Moore's Law and get to more advanced process nodes for the endpoint IC, we have access to more digital capabilities. Those capabilities allow us to add features to the endpoint IC that we just couldn't do in the past. And you mentioned some of them, the cryptographic authentication, but there's more. There's lots more. We've only scratched the surface. And so expect us to continue advancing those Gen2X capabilities in concert with our lighthouse enterprises. They present us problems. We solve them. We roll it into Gen2X, and we continue from there.

I'm not going to cite any specific additional opportunities right now. Just please note that they're there. Now in terms of what it means for software specifically, I guess that was the last part of your question. I'm going to take a minute to answer that question. In every information industry, if you go back decades, that industry first has to build the hardware foundation. Think about mobile phones for 20 years. We spent the '80s and the '90s building the hardware foundation. So by the 2000s, early 2000s, we flip phones. But there was no -- there was just phones, you made calls. Only when the foundation is sufficiently mature, can you really start monetizing the information in apps and data services, solution management, AI, and just a whole bunch of stuff.

So our industry is close enough to that maturity point that it's time to invest in that information. We get there by investing in every layer of the stack, the endpoint IC, the reader IC, and the software. Now there's a fun twist with the endpoint ICs and that they're recurring silicon. But even there, think of the endpoint IC as a data carrier on which to build those SaaS and cloud services. So we -- as we add Gen2X innovations in the endpoint IC, we will leverage those innovations in the reader IC. We will build software solutions on top of it that look more and more like apps today for enterprises in the future for consumers, and create a virtuous cycle by which our platform enables that information economy on the Internet of Things. That is our vision, and it stems from the significant enhancements we're making around Gen2X.

And Cary, if I could just throw out typical pricing negotiations and decreases as we go into the first quarter, kind of early thoughts in terms of how we should be thinking about endpoint IC pricing in the first quarter and traditional seasonality.

Yes. We are just getting into endpoint pricing conversations right now. So I don't have a lot of color to provide at this point. We'll definitely provide insight next quarter.

The next question is from Jim Ricchiuti with Needham & Company.

Chris, I'm not sure if you can elaborate on this, but you were just kind of touching on it. But when you talk about enhancing Gen2X for food and e-commerce applications, can you help us understand a little bit more about what that might entail and what challenges you might be solving or addressing?

Thanks, Jim. Thanks for the question. thinking how I want to answer it. Jim, I can't -- I'm going to tell you upfront, I'm not going to be able to give you a sufficient answer to -- because I don't want to disclose our product plans. What I'm going to say is this, the radio link, the over-the-air link, is for all practical purposes an endpoint IC talking over-the-air to a reader IC with software controlling the reader IC. Think of it that way. What we've learned from our Lighthouse accounts is that we need to customize all 3: the endpoint IC, the reader IC, and the software.

And there are major opportunities to customize all 3, not just to improve the radio performance, think beyond that, to really drive apps to drive additional information, to drive use cases. And I guess I'll do it by analogy. So again, going back to the mobile phone analogy, by the early 2000s, a lot of the infrastructure was built out. Then it took Apple really to come up with the touchscreen to enable apps that consumers could use to drive the industry forward. That was one of the key innovations that turned a hardware-based technology into something that was an information-based technology that people could use.

We have that level of opportunity in terms of driving information value around RAIN RFID in our future. I'm not going to say more about how we get there, the time frame in which we're going to get there, what the innovations are going to be, how many there are, but they're in there. And I believe, fundamentally, we're just scratching the surface on what we can do.

Well, we'll have to stay tuned on that. Cary, a question for you. As we think about these opportunities, it sounds like -- and correct me if maybe I'm just misinterpreting it, but how might we be thinking about operating expense? It sounds like do we -- should we be thinking about higher investments in R&D? You're getting a nice lift from gross margins, but I'm wondering how do we think about OpEx going forward in light of some of the opportunities you're going after?

Yes. So expect us to continue investing. Our OpEx is going to increase in the fourth quarter. We've held it fairly flat throughout most of the year. But it's going to increase in the fourth quarter. And then you know you've been following the story long enough that there's seasonal increase of OpEx in the first quarter and then that kind of increases again in the second quarter, then moderates thereafter. I don't see any change to the seasonal spend patterns that we've had in the past. But we will always stay true to the long-term model that we put together a few years back, and that is every single line item that we have in our spend will deliver leverage, less so in engineering, because that's our primary focus of investment. But still, we will have leverage in the R&D line. We'll have leverage in sales and marketing, and clearly leverage in the G&A line.

The next question is from Guy Hardwick with Barclays.

I think you said earlier, you're fairly comfortable with some of the numbers discussed out there in terms of volumes. But in terms of some of the numbers I've seen is the Walmart opportunity alone could be as much as 5 billion labels over the, say, once fully ramped over, say, 2 to 3 years. And since Kroger is maybe half the size of Walmart or maybe better bigger than that, we're talking about maybe a $7.5 billion combined between the 2. First question is, are you comfortable with those sort of numbers? And secondly, I understand that Impinj is the sole provider in the pilots of, say, 40 to 60 stores at Walmart. But how long would you expect to remain the sole provider as typically customers suppliers over time?

Why don't you take the volumes? I'll take the first.

So Guy, we -- as I said earlier, we think this is a multibillion unit opportunity on an annual basis once it's ramped. There's a lot of categories within freshness in food. There's a lot of SKUs. So we really need to see what the rollout timing is for each of those categories, each of those SKUs to give a sense of what the final number in terms of units are. But under any scenario that we envision, it's a multibillion-unit opportunity per year.

And then, Guy, you had asked about our current position in those rollouts and pilots and whether we are able -- and essentially, how are you going to sustain that position? So we feel today we are very well positioned in many, if not all, of the ongoing pilots and deployments. We believe that's a result of the performance of our products, the quality of our products, the effort that we have put in with others, and a healthy dose of Gen2X.

What we also see is a set of -- I'm not going to use the word challenges. I'm going to use the word opportunities, a set of opportunities in the food space for continued innovation. And we will be driving those innovations, pulling them into Gen2X, and put distance between us and our competition in terms of readability, in terms of findability of items, in terms of scanability, in terms of the data that we and they provide in terms of the reliability of the overall solution. So look to us to drive those innovations, measure us against our success, creating and building those innovations. And if we're successful in so doing, which I have every intention of being, look to us to hold good share in the food space.

The next question is a follow-up from Ezra Weener with Jefferies.

Yes. Just a very quick one. I know the last couple of quarters, you've talked about not guiding any turns. I didn't see that in the prepared remarks this time. Could you just comment on that?

Yes. Ezra, this is Cary. So I'll take a shot at that. So we continue operating in a very dynamic market. In the third quarter, we saw more turns than expected, but we also saw the same trend of partners requesting changes to delivery timing and location continue. In a typical quarter for endpoint IC, we have 2 to 3 weeks following earnings to turn business given -- turn business for the quarter, given our current lead times.

Since we've not seen a standard environment all year, we're not -- we're going to take a similar approach to our guidance that served us well in the second and third quarter. So looking into Q4 for endpoint ICs, we've assumed very minimal turns, less than a week's worth. And then on the systems side, we've assumed more normal turns to reflect the typical end-of-year enterprise hardware buying patterns of the channel portion of our systems business.

This concludes our question-and-answer session. I would like to turn the conference back over to Chris Diorio, Co-Founder and CEO, for any closing remarks.

Thank you, Gary. I'd like to thank you all for joining the call today. And I'd especially like to thank you for your ongoing support. Thank you, and bye-bye.

The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.

Good afternoon, everybody. Welcome to the Goldman Sachs Communacopia and Technology Conference. My name is Jim Schneider. I'm the semis analyst here at Goldman Sachs. It's my pleasure to welcome Impinj today. We're really happy to have CEO, Chris Diorio and CFO, Cary Baker with us today. Welcome, guys.

Thank you.

I want to begin with a sort of a discussion about the high-level market opportunity for a second. The RFID market has grown at a pretty impressive rate over the last decade, something like 25-plus percent. I think industry volumes were over 50 billion units as of last year. Maybe provide some overall parameters as to how those volumes break down by end market or application.

Yes. So Jim, the #1 end market for us is retail apparel and footwear because that was the first vertical to adopt back -- a long time ago back in the 2010 time frame back early, and it's been continuing to adopt today. We're in mainstream adoption there. We're probably roughly in the 35% to 40% adoption in terms of the overall opportunity. We size that opportunity at roughly 80 billion units. Above and beyond retail apparel and footwear, there is retail general merchandise, supply chain and logistics, and those are similarly sized opportunities in the couple of hundred billion per year. Early days in those. There are some visionary leaders in each of those 2 verticals leading, but I'd call that at the early adoption phase.

There's a long tail of specialty applications above and beyond that, everything from airline baggage tracking to automotive opportunities. And then coming quickly is the food opportunity, which dwarfs everything else in terms of its volume. We're still very early, modest overall volumes this year, but that food opportunity uses a lot of the same reading techniques as retail apparel and footwear, handheld inventory visibility in stores. And we're seeing food adoption at a faster pace than I personally would have expected.

Interesting. I mean, if you think about the industry growth rate, I mean, obviously, the 25% has been a pretty strong growth rate. Do you expect it to sort of slow at all? Or do you expect some of these very large opportunities like food to potentially accelerate over the next 3 to 5?

So we've seen a little bit of a slowing in the pace of adoption over the past couple of years simply because -- or at least we attribute it to retail apparel being in the mainstream adoption phase. And so of course, you would expect it to slow a little bit. There are still new logos coming in. So there is still growth and still expansion opportunities. Very few retailers in the retail apparel and footwear space are 100% tagged. So there's still lots of opportunity there. But because it's mainstream adoption, we've seen the pace slow a little bit. And we're guardedly optimistic that as food layers on, we'll see the pace pick up again, not this year, and it's going to take time for that food opportunity to get in enough swing to drive real volumes.

But if the early indicators, what we're seeing right now in terms of the use case and the opportunity and what it means for retailers basically to have visibility into food freshness and be able to mark items down before they expire, that food could layer in behind and provide a nice boost to the industry.

Interesting. And you've been pretty vocal about that opportunity. Maybe unpack a little bit about how the opportunity evolves for Impinj specifically and sort of what you need to do to kind of get maximum penetration either from a product development standpoint or just go-to-market.

Yes. So our M800 endpoint IC significantly enables the food use case, both by its readability. It has higher sensitivity. And so it eases readability on hard-to-read items, meat products, for example, allows smaller antennas because of its sensitivity, which reduces cost. And then we've introduced some extensions to the industry radio protocol. They're compatible extensions. The industry -- they're protocol compatible, but they enhance readability and overall performance. And we believe those extensions, which we call Gen2X, those Gen2X extensions will further enable the food use case.

Maybe talk about some of the issues you're helping customers with in that market. And maybe does that market present sort of any unique challenges to ramping any way you see it.

Unique challenges to ramping, I think just the size of the opportunity. It's not that we can't deliver against it. It's just so big. And it's going to require the -- to really deliver, it's going to require the concerted effort of many companies in the industry, whether it's the players that are delivering handheld readers, the players that are delivering fixed readers, of which we're part of us providing some of the reader ICs and the endpoint ICs. It just, I would say, a concerted industry-wide cooperative effort to really get food going.

Cary, anything you'd add there?

I'd say the benefit that we have moving into food is it's the same use case as apparel. It's using a handheld reader to get visibility at the store level. So a lot of the products, the systems, the tie-in, the processes, the employee store motion, that's already well understood at this point, which I think will benefit the overall ramp to food.

Okay. Very good. As you continue to sort of penetrate this overall core TAM, more customers embrace item-level tracking, how are you expecting your position to evolve as a platform company just sort of beyond your core chip offerings?

Yes. So we spent the past 20 years building the hardware infrastructure and really focusing on delivering the endpoint ICs, the reader ICs to have communications over both ends of the radio link, fixed readers, high-performance fixed readers to enable use cases. Now we're really focused on solutions using our platform, which comprises those endpoint ICs, reader ICs, fixed readers and software on top, using our platform to unlock new opportunities at visionary end users to solve the problem, which involves a good bit of software development that runs on our readers or in hybrid cloud with our readers to unlock those use cases.

So for us, the future opportunity we see is to really leverage our platform to focus on whole solutions for enterprise end users, going in with partners, of course, because it takes a partnership to deliver to these very large end users, but delivering more of the whole solution.

And what's your sort of long-term vision for the platform? I mean how do you see it evolving beyond what you've already done?

I see us delivering more on the software side that enables these use cases. You've got a reader, it's got a processor. It can do reading. But really, what you want to do is develop software that runs both on the reader and off the reader that solves the use case for an enterprise end user. And so you should expect us to put more effort into that software to enable those use cases and deliver value, deliver solutions to the end users.

Yes. How much of that resource from a development perspective or R&D perspective is already in place to do that?

We've already got a fairly good-sized software team. We probably have -- Cary, half software engineers across the company? And so we will be building a little bit more on the software side to deliver some of those solutions.

So from -- it seems like things are going pretty well at the company overall. Kind of curious, the market is full of opportunities for you to expand. I think eventually, when people -- competitors get wind of potential ROI here on the market size and how it's scaling, that may attract more competition. So I sort of want to address that for a second. How do you sort of -- how do you encourage investors to visualize the competitive landscape as you see it today relative to when you first got started?

Well, if you focus on the endpoint IC, there's 2 key companies, us and NXP that deliver more than 90% of the volumes. And we, as a company, assume there will always be competition, whether it's NXP or somebody else coming. So we're focused on driving technological leadership, advancing and expanding our intellectual property portfolio, advancing communications and capabilities over the AirLink, which is our Gen2X and driving enterprise solutions, including with software that leverage our endpoint ICs. And thereby building competitive moats between us and our competition, significantly at the endpoint IC layer, but actually at all layers of our platform. So I always focused on what the competition could be and building solutions for enterprises that put distance between us and our competitors and turning that distance into a competitive moat.

How -- sorry, go ahead.

I was going to say, Jim, our competitive advantage quite simply is we're the only player that operates on both ends of the radio link. So as Chris was mentioning, we could put functionality in the reader that is engaged by -- functionality in the endpoint IC that is engaged by functionality of the reader to solve these more complex use cases. No one else has that suite of solutions, and we think that's where we differentiate.

Yes. Are you seeing your competitors try to kind of like employ specific tactics to try to grab market share? Or do you feel like your moat is sufficiently wide at this point?

No moat is ever wide enough.

And then maybe -- I mean, you talked about NXP as being the biggest competitor, but are there emerging players that you're seeing that have picked up a little bit of momentum in the market?

As of right now, not really. There is -- at the endpoint IC level, there is some China for China business from what I would call second or third tier providers. We always keep our eyes on them and are driving the competitive advantages that I cited before. And as Cary said, leveraging our platform to drive those solutions for end customers and driving our innovative features at both ends of the radio link.

I guess, a testament to your IP position. I think a little while ago, you won a favorable legal outcome relative to NXP. How do you sort of gauge the likelihood they could design away from your IP at all? And then if you were in their shoes, how long of a process could that be for them if they did that?

The IP that we asserted was not foundational IP in that it was fundamental to the standard. It was implementation IP. And there's always a way to design around implementation IP. We believe our IP portfolio is pretty strong. I think that was proven out by the court cases. And so it will take real work to design around it. If NXP chooses to design around it, I believe they can, they're a top flight semiconductor company. But if they do, they lose the benefits of that IP, all parts of the chip and the things that we do that we believe are innovative. And they would then presumably also lose access to the intellectual property around our Gen2X capabilities, which we continue to evolve and expand and which are proving to have real value to the enterprise end users. So I think we have to wait and see what NXP chooses to do. They have paid us 2 royalty payments so far. And let's keep -- stay tuned and see what decision they make.

Yes. Okay. I mean how do you think about structurally and philosophically the pricing for your products overall?

So we believe there's a lot of price elasticity in the market, especially as we move into new categories such as food. We're back to a normal cadence where we negotiate prices at the end of the year for the upcoming year. Typically, on a like-for-like basis, that results in low to mid-single-digit ASP declines. And then we support those with wafer cost. Wafer cost downs from our foundry partners so that we're able to maintain our margin model. And we've used this philosophy quite well as we've seen the expansion in the market. Now that's not to say that when inflationary pressures arise, we don't react the other way.

And if you go back to 2022 when wafer costs were going up, we actually increased the price of our ICs a couple of points throughout the year in order to maintain our margin model. So I think we're flexible. We know price elasticity exists. we are striving to put the most performant, highest margin IC in the market for us so that we can unlock more and more use cases and more and more categories, but we have to react to the environment, too.

Is there sort of a magic floor price or threshold price at which you think the elasticity and, for example, the food market really takes off, where would that be relative to where we are today?

I think we're getting close to it today, in fact. So think of our ICs as roughly $0.01, give or take. What we've seen in the inlay community is a lot of investment into and from the inlay community, and that's resulted in a significant amount of capacity build-out. Now that capacity has been unutilized in some cases. So it's created a pretty aggressive pricing environment. And in the most competitive opportunities today, we're seeing sub-$0.02 inlay pricing, which I think has gone to help unlock food.

And then I don't know if you think about it this way, but if you think about sort of maximizing revenue for Impinj over time, is there a -- I mean, do you have a plan for marking penetration up over time while kind of like not taking price down too much. Is that kind of the trajectory you're on that's matched with wafer pricing? Or is there some other kind of way we should be thinking about that?

Yes, I think all of that factors in plus share gains. The reason we have a platform is to drive share to Impinj. The reason we have Gen2X is to drive share to Impinj. So we look at not just market expansion, not just new verticals layering in, but also our ability to take share within that and more than offsetting any ASP declines that might happen in normal course.

And don't just focus on the endpoint IC. There remain very significant opportunities on the system side of the business. the reader ICs, the readers and gateways and more and more solutions, including software. So especially as we get into delivering against enterprise problems, for example, in supply chain and logistics, those solutions opportunities could drive significant revenue.

Great. Now just kind of turning to your current business for a moment. You recently reported a really strong quarter where you guided revenue up 13% sequentially, I believe. It sounds like you're seeing positive momentum both across the systems as you pointed out as well as the endpoint ICs. So I want to start to ask you about a couple of questions about this last quarter. Maybe kind of to level set us, first of all, what drove the upside in the quarter itself? What are some of the bigger demand -- bigger picture demand trends you're seeing? And what level of kind of optimism or caution or conservatism was factored in the guidance?

Yes. So to your point, we saw positive momentum in both the endpoint IC And on the systems business in Q2 that led to the outperformance. On the endpoint IC side, it was more of things just settling down. If you go back to earlier in the year, tariffs and Liberation Day really royaled our partner network. And our inlay partners were looking to adjust their geographic production footprint, just kind of shift the mix around to best optimize for tariffs. And we saw a lot of volatility in Q1 as a result. We saw pull-ins, pushouts. We saw cancellations. We saw rescheduling in addition to turns business. And that just created a lot of churn.

As we moved into Q2, we expected continued volatility. But what we saw was, while it was still volatile, things have moderated quite considerably. So we saw adjustments to delivery timing and location in addition to turns, and that's what helped outperform the quarter. Going into the quarter, because of the uncertainty, we purposely didn't assume any additional turns in our Q2 guidance.

And we typically turn 50% in a quarter. So think of that as we start the quarter with half the quarter booked and in the first 6 to 7 weeks, we're booking and shipping. We guide usually around the fourth week of the quarter. So we have 2 to 3 weeks left of turns business available to us. So that's really what drove the beat from the endpoint IC side in Q2.

As I look to the systems side, this is an area where we put a lot of energy into refocusing the business at the beginning of the year, and we're starting to see payback from that refocusing. So in Q2, we shipped reader ICs into an overhead reading win, so a larger project win for us. We also secured 2 new use cases at our large European visionary customer that shipped in Q2 and will again in Q3. And then we also won 2 new use cases at our second large North American supply chain and logistics customer that will ship in Q3 and in Q4.

So that effort that we put into refocusing really drove momentum on the project side of the systems business, which has helped drive some of the revenue growth.

Got it. I think you talked about your expectations for M800 to achieve sort of volume status at some point this year. Sounds like you're starting to see some of that mix reflected in Q3 and Q4. Maybe just give us a sense about how large of an impact M800 have when it is fully ramped? And how is Gen2X sort of helping that ramp?

Yes. So the M800 is the most performant chip on the market. It also benefits us because we get 25% more die per wafer, which is a huge cost advantage because most of the cost in our BOM is the wafer cost. We have been ramping that since last year. I would say we're on a normal trajectory for ramping. And at some point this year, I believe the M800 becomes our volume runner, meaning over 50% of our endpoint IC mix. It won't blend over 50% for the full year. And I don't think we reach the terminal mix of the M800 until sometime next year. When we achieve the terminal mix and when the M800 has replaced its predecessor, the M700, that's when we're going to see the full benefit of the cost advantage of the M800, and it will deliver 300 basis points of incremental gross margin accretion.

Now we'll see that benefit to gross margin line as we ramp, which is why we had the confidence to say we expect gross margin in Q3 to increase sequentially and then to do so again on a sequential basis in Q4. So we'll really start to see it in the back half of the year, and then it should continue into 2026.

And I guess I'd just like to add, don't think of the M800 as a single product. It is a family of products. It's multiple ICs targeted to different use cases and opportunities. So we call it the M800, but it represents a family of products.

So just to be clear, so I understand like long-term steady state, 300 basis points of accretion from that mix effect.

That's correct at the corporate level.

Got it. as you mentioned about a minute ago, you're back to a normal state of kind of low single-digit ASP declines. Sort of how do you expect that business to track -- that trend going forward? And I guess, do you expect to be able to achieve sort of a one-for-one offset in terms of cost versus ASP decline? Is that the plan of record?

That's our plan. We returned to kind of the normal cadence this year after a period of inflation, as I mentioned, in the 2022 time frame. And we would expect to support ASP declines with the wafer cost down so that we can maintain our margin model. We'll also look to expand gross margin, much like we did with the M800 through innovation. And to the extent we can make the die smaller and spread that wafer cost out further, we'll look at ways to drive gross margin. But when I think about it from a wafer cost down perspective, we're really looking to help the price elasticity in the market.

I know historically, at least, there's a lot of investor questions around sort of inlay partner inventory levels. And I think that's been a source of volatility in the business over time. I know on the call, you mentioned that channel inventory is pretty healthy relative to your inlay partner demand. But maybe characterize your level of visibility into those inlay partners, what you're seeing right now?

Yes. Channel inventory is something we focus on all the time. We receive monthly reporting. We match that up to our forward look at demand and the different projects that are layering in, and we measure it for appropriateness. We -- to be clear, we operate in a 2-step distribution model. So any time there's a shock to the system, we will fill it in our channel inventory. In the first quarter, we saw a shock to the system. Our large logistics customer gave up low-margin business. And as a result, they reduced their volume forecast for 2025 down by 8.5%. So that had an immediate shock to the partners that support that account. And when we learned of that change in volume forecast in mid-January, we knew immediately that we were over inventoried by 2 to 3 weeks from those partners that support that account.

We quickly mapped out a plan. We were able to burn down that channel inventory in Q1, which enabled us to enter Q2 healthy. And as we exited Q2, we continue to be healthy. So we will be subject. We will see those impacts. We're not immune to it, but our goal is to see it as quick as we can. First off, our goal is to make sure it doesn't happen. But when it does happen, is identify it very quickly and then very quickly develop a plan to get out of it.

Just kind of like winding up on a few financial questions, if I could. I think historically, gross margins were sort of tied mainly to sort of volume mix and then these sort of silicon input costs that we talked about a little bit already. But you've maintained pretty good gross margins over time. And I think I'm kind of curious, if you think about kind of your overall input costs sort of beyond wafer pricing, if any, do you expect any sort of benefits from an input cost perspective?

Yes. From a post-process perspective, as we increase volumes, I would expect normal volume discounts on it. The wafer cost is the primary input. So that's the one that gets the key focus.

Got it. And then I think your OpEx base has kind of grown in a pretty strong double-digit rate over the past few years. You talked about some of the reasons why that would be happening to enable the systems and the software, everything else. From here, what are the areas and functions you're investing on the margin? And how do you think about kind of OpEx growth or just leverage in the model going forward?

Yes. This is a massive opportunity in front of us, and we're going to continue investing. Our primary focus of investment is the R&D line, investing in the new solutions that Chris described earlier. Even with that said, and that being the focus of investment, we expect leverage in the R&D line. And then as we move down to SG&A and specifically the S portion of that, we utilize a strong partner network to take our products to market. So there will be leverage more so than R&D, but leverage in the SG&A lines as well.

And then just sort of from a cyclical perspective, I think we've all sort of seen lessons from COVID and kind of the shocks to the supply chain system, especially cyclical shocks from a logistics and retail perspective that you can see. So in terms of lessons learned going forward, if we do enter another downturn at some point in the future, what are the levers you think you can pull to sort of protect both margins and then the cash flow profile of the business?

We always toggle our spend to the opportunity that we see. First half 2025 OpEx on both a GAAP and a non-GAAP basis is lower than first half of 2024. We saw uncertainty in the market, and we adjusted. We'll continue investing though. As I said, this is a big opportunity in front of us, and you should expect us to try to capture it.

Fair enough. Any questions from the audience? Anybody?

Chris, I know you've been a thought leader in the space for a while. And one thing that I wanted to ask was kind of other than food, what gets you really excited in RFID and like what other opportunity gets -- doesn't get enough attention.

So the food opportunity does get me excited because of the volumes. The opportunity to use machine learning at the edge to solve some of the enterprise use cases also gets me very excited. As you think about food and you think about retail apparel and footwear, predominantly, it's a handheld inventory counting in-store use case. We've got a human being in the loop, it's carrying a handheld. They're getting feedback from the handheld, and they're able to adapt how they do inventory in the store. But as you think about supply chain and logistics, the readers are going to be fixed. They're on conveyors, they're in trucks and vehicles. They're in dock doors. They're part of the infrastructure.

So you don't have the human being in the loop to improve the performance or adapt. So we have to build that adaptation into the devices themselves. So on the last earnings call, I spoke a little bit about ML at the edge and the opportunity for ML at the edge is real and powerful. And so us using ML at the edge to drive enterprise solutions to give that supply chain visibility is an area of significant focus. And tying it all together with the software, the ML part of the software and how you do all that, the learning at the edge as a software offering on top of our hardware devices, for me is very exciting.

Then after that, there's the opportunity to get into more readers to get into at least initially enterprise mobile devices where the reading is passively going on as people are just doing their jobs. And that passive reading essentially gives physical history of not what the employees themselves are doing, but the items around them as they're moving around a facility. And so I think about that as the first instantiation of physical browsing history, but providing real value to the enterprise in terms of what their inventory is with nothing intentional happening from the person. The inventory happens just from the reader that's in their pocket in an enterprise mobile device or that they're using for some other function is doing inventory at the same time.

And then building the use cases and the models around that is also very exciting to me. So those are 2 key areas of focus for me. Cary, anything you'd add?

No, that's perfect.

Maybe I'll just close on one final one, which is just you've done a lot of investor meetings today presumably and over the last several weeks. What do you believe is the one thing that investors kind of overlook or is misunderstood about the Impinj story?

I'm going to go a little bit philosophical on this one. If you think back a long time ago before barcodes came to be, and I'm old enough to remember going into some small stores where you went in and there were just price, price labels on items that somebody had to stick on. And you go to the checkout and the checkout perk either knew this stuff or check the price on the item and then barcodes got introduced. The barcodes changed everything. You got barcode scanners, you could automate the scanning. You could -- I mean, think about what barcodes did for the retail environment. It was a fundamental transformation. And it led to not just how you engaged in a store, it led to the rise of big box stores. We didn't have a checkup person having to know the price of every single thing and checkout became automated and supply chain visibility became more automated.

The transformation we're driving where an item is readable wirelessly at up to 30-foot range without line of sight at up to 1,000 items per second today, actively in the future passively, is as big a transformation for the entire retail infrastructure as the first introduction of barcodes was, however, many years ago. And we are driving a foundational change in that retail environment starting all the way from the beginning, starting from manufacturing, supply chain, store, point-of-sale, consumer use, end of life. It is truly a foundational change.

I think that's a great summary and a great place to end. Thanks for both for being here with us today. We appreciate it.

Thank you.

Thank you.