Silicon Investor - Impinj, Inc.

[Cooters] At first glance almost too good to be true. Cary will have a chance to elaborate...

Cooters — 9/11/2026 7:49:28 AM

At first glance almost too good to be true. Cary will have a chance to elaborate on Tuesday.

[waitwatchwander] Along with return of face value of notes in cash, gain in notes value is being t...

waitwatchwander — 9/11/2026 4:42:46 AM

Along with return of face value of notes in cash, gain in notes value is being taken in stock.

share.google

Whoever converted still likes the investment. Current shareholders see less dilution.

[Cooters] Impinj Announces Exchange of 1.125% Convertible Senior Notes due 2027 Impin...

Cooters — 9/11/2026 2:51:57 AM

Impinj Announces Exchange of 1.125% Convertible Senior Notes due 2027

Impinj Announces Exchange of 1.125% Convertible Senior Notes due 2027

[Cooters] I show an update from BMO/Kumar dated today, but don't have any details and the ...

Cooters — 9/2/2026 7:50:43 AM

I show an update from BMO/Kumar dated today, but don't have any details and the price target remains $220(same as 8/21 initiation)

[Cooters] Impinj Set To Revolutionize Logistics With Tracking Chips. CEO Eyes 'Gigantic Op...

Cooters — 8/21/2026 1:41:01 PM

Impinj Set To Revolutionize Logistics With Tracking Chips. CEO Eyes 'Gigantic Opportunity.'

Impinj Stock: Tracking-Chip Maker Set To Revolutionize Logistics | Investor's Business Daily

Impinj, a maker of chips and systems for tracking inventory and assets, has been publicly traded for 10 years. But is only just getting started in its growth trajectory, its chief executive says. Impinj stock received a fresh buy rating late Thursday.

"We're still sub-1% penetrated in a gigantic opportunity, initially started by retail apparel," Chief Executive Chris Diorio told Investor's Business Daily. "Retail apparel has been probably two-thirds of the industry since the industry got going more than a decade ago."

He added, "But now we're seeing significant growth in retail general merchandise, supply chain and logistics, and food tagging. Although all of those are still modest volumes relative to retail apparel … they are all coming up at a much greater pace because they are so much earlier in the adoption cycle."

After the market close on Thursday, BMO Capital Markets analyst Harsh Kumar initiated coverage of Impinj stock with an outperform rating and price target of 220.

"Impinj is the leader in RFID (radio frequency identification) market with an estimated 65% share of the global market," Kumar said in a client note. "RFID serves as the digital replacement disrupting physical item tracking."

The company's primary competitor is NXP Semiconductors, which has about 30% market share, Kumar said.

Impinj Stock Broke Out After Q2 ReportAfter an inventory correction period in the first quarter, Impinj is "well positioned for a strong recovery in second-half 2026 and through 2027," Kumar said.

Impinj's key customers include Nike ( NKE), Under Armour ( UA), Zara, Walmart ( WMT), Delta Air Lines ( DAL) and United Parcel Service ( UPS). Also, Kroger ( KR), McDonald's ( MCD), Chipotle Mexican Grill ( CMG), Burger King, and Uniqlo, Kumar said.

On Aug. 4, Impinj stock broke out of a nine-week consolidation pattern at a buy point of 163.40 after the company's upbeat second-quarter earnings report. But it fell recently amid a broad pullback in semiconductor stocks.

In the June quarter, Impinj earned an adjusted 86 cents a share, up 8% year over year, on sales of $108.4 million, up 11%. It was the company's best growth in six quarters.

Forecasts 'Strong' Third Quarter"We're looking forward to a strong third quarter," Impinj CEO Diorio said. "We feel good about our market position, vis-a-vis our competition, and we feel good about the overall market."

He sees adoption of the technology becoming much more widespread than it is now.

"At some point in the future — and it's not too far out — every item that gets manufactured will have in it, as an integral part of it, a little tiny miniature radio IC (integrated circuit) that can wirelessly connect and identify the item," Diorio said. "We have the ability to give every item (Apple) AirTag like visibility from the beginning of the item's life."

The technology has the potential to transform business operations. But getting enterprises fully on board will take time, he said.

Impinj stock went public in July 2016 with its initial public offering priced at $14 a share.

[Soumaila] So this was not much new other than Harsh Kumar moved to MBO. So not a new analy...

Soumaila — 8/21/2026 12:15:10 PM

So this was not much new other than Harsh Kumar moved to MBO. So not a new analyst, just a change of institution.

[Soumaila] BMO Capital initiated with 220 target and outperform rating

Soumaila — 8/21/2026 8:15:47 AM

[Cooters] Went to the Decathlon store in Palma today. RFID self-checkout/loss prevention w...

Cooters — 8/14/2026 11:36:56 AM

Went to the Decathlon store in Palma today. RFID self-checkout/loss prevention with an interesting twist I never thought of. I couldn't find the checkout. It was at the very back of the store. Store layout can adapt to your needs when checkout can be anywhere.
Coot

[Cooters] Yep I'm good, thanks everyone. In Mallorca now, solar eclipse manana, gonna be o...

Cooters — 8/11/2026 5:33:36 AM

Yep I'm good, thanks everyone. In Mallorca now, solar eclipse manana, gonna be on a boat to view it from the sea.
Cheers, Cooters

[nicewatch] It's ok, he knows. Please don't interfere with his living it up over there! :-) ...

nicewatch — 8/10/2026 11:59:05 AM

It's ok, he knows. Please don't interfere with his living it up over there! :-)

sec.gov

[Soumaila] Sorry, I got nothing that can help with this.

Soumaila — 8/10/2026 11:51:57 AM

[Cooters] State Street filed a 13G yesterday. I need a little help seeing it.??

Cooters — 8/8/2026 6:14:42 AM

[Soumaila] Medvantx Opens Louisville Pharmacy Fulfilment Facility Built on Automated Convey...

Soumaila — 8/7/2026 11:45:52 AM

Medvantx Opens Louisville Pharmacy Fulfilment Facility Built on Automated Conveyance and RFID-Enabled Routing

rfidnews.co.uk

[Soumaila] Ibiza! Sounds rough...Ha! I too thought it would move more violently based on h...

Soumaila — 8/6/2026 1:31:30 PM

Ibiza! Sounds rough...Ha!

I too thought it would move more violently based on how I felt about the call. I also agree with your prove it hypothesis.

The chart looks like it could repeat 2024 or 2025 toward an all time with news. However, you cannot ignore the collapses after each of those highs.

[Cooters] Excellent thanks. I'm surprised the stock reaction hasn't been greater, I suspec...

Cooters — 8/6/2026 10:34:04 AM

Excellent thanks. I'm surprised the stock reaction hasn't been greater, I suspect the multiple times strong runs have failed has yielded to a....Prove it for awhile first...attitude. I can live with that.
Cooters in Ibiza

[Soumaila] Notes on earnings - PI, UPS, AVY, ZBRA You combine what Chris and Cary provided...

Soumaila — 8/6/2026 9:43:00 AM

Notes on earnings - PI, UPS, AVY, ZBRA

You combine what Chris and Cary provided with these earnings calls and I see convergence of language digitization, data, event data, AI and positivity all toward expansion and growth.

UPS (already reported)- repeated discussions of RFID being a driver of the business, connected it clearly to AI, RFID is the eyes and ears, AI is the brain. Largest advance in over a decade etc.

AVY (this was a good call)

Tiny snips: AI helps you make more sense of data...which in itself, then creates a flywheel for more IL (intelligent labels) adoption; AI extracts more insight from data; Better ROI drives more IL adoption.
Retailers are digitizing stores - labor productivity, gross margin expansion, sales uplift
Food is becoming a growth driver - pilots continue to accelerate, pipline continues to expand (US and European pilots) - additional retailers expected to move from pilot into deployment in 2027
Kroger - bakery deployment is on track, piloting proteins, expect deployment starting in 2027
Walmart - confirmed commercial rollout begins in 2nd half 2026, they are committed to expanding the technology
CEO multiple times described the ROI as strong or exceeding expectations
Logistics - AVY had a share mix decline so poor year of year comparisons (UPS may have given them less of the label business), continued expansion of pilots with existing and new logistics customers
Retail apparel is mature but growing again, general merch is growing (both about 10% in Q2)
Messaging - digitization, AI, item-level data, ROI, enterprise solutions, productivity, flywheel (comment)

ZBRA

RFID demand remains healthy
pipeline is strong
RFID expanding beyond apparel - highlighted grocery, transportation, logistics, manufacturing, healthcare, and general retail
RFID part of broader digitization platform including AI, RFID, machine vision, automation, enterprize digitization platform. Always said RFID first in the data layer.
Logistics 3/4 of warehouses are not automated, emphasized track and trace
Anyhting you need to track and trace across the supply chain is seeing momentum in RFID
RFID sales were flat or slow in Q2 - project timing (same message as PI and AVY)
RFID to pick up in 2H
RFID in mobile devices
Digitization

[Cooters] All I could ever ask for mate. Stay on the current flight and wait for October. ...

Cooters — 7/31/2026 6:33:59 PM

All I could ever ask for mate. Stay on the current flight and wait for October. Lol thanks!

[Soumaila] Ha! don't forget the paddle! I think the call was exceedingly positive. Then th...

Soumaila — 7/31/2026 11:57:04 AM

Ha! don't forget the paddle!

I think the call was exceedingly positive. Then the analysts started releasing their numbers, the 11% yoy guide for Q3 is clearly not changing their models in the short term. I think that triggered Needham to drop theirs a tick. Jim did not like Chris being evasive on the general merch question.

I will post my notes this weekend. I think it was an impressive call for long term shareholders. If you are looking to trade a post earnings massive gap up like PI can do, the guide was not big enough for that. Some jumped in the boat overnight and first thing in the session and Jim Risccutti blew a hole in it when his little model failed to provide a big enough short term bump.

That is my take

[Cooters] What was that early price movement yesterday. I went from I should buy a boat to...

Cooters — 7/31/2026 5:31:57 AM

What was that early price movement yesterday. I went from I should buy a boat to I'll be coming home in a boat in seconds lol

[Soumaila] Jeffries is the first out to raise 175 —> 190 I will post my notes later, long ...

Soumaila — 7/30/2026 7:46:51 AM

Jeffries is the first out to raise 175 —> 190

I will post my notes later, long day at the office. Record bookings 2nd quarter in a row, record revenue forecast for Q3.

The solutions addition/pivot Chris has building toward became pretty clear.

We have a nice shift in how they spoke about the business advance, increase, accelerate, strong, and growth, no mentions of prudent or it takes time or under promise over deliver.

[nicewatch] Impinj, Inc., Q2 2026 Earnings Call, Jul 29, 2026 Operator Welcome to Impinj's...

nicewatch — 7/29/2026 8:48:48 PM

Impinj, Inc., Q2 2026 Earnings Call, Jul 29, 2026

Operator

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.

Unknown Executive

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.

Chris Diorio

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?

Cary Baker

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

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

Harsh Kumar

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.

Chris Diorio

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.

Harsh Kumar

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.

Chris Diorio

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.

Operator

The next question will come from Christopher Rolland with Susquehanna.

Christopher Rolland

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.

Chris Diorio

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.

Christopher Rolland

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?

Chris Diorio

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.

Operator

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

James Ricchiuti

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?

Chris Diorio

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?

James Ricchiuti

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.

Cary Baker

Okay. I can go first.

Chris Diorio

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

Cary Baker

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.

Chris Diorio

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.

Operator

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

Scott Searle

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.

Chris Diorio

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.

Scott Searle

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?

Chris Diorio

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.

Operator

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

Troy Jensen

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.

Chris Diorio

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?

Troy Jensen

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?

Cary Baker

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.

Operator

The next question will come from Guy Hardwick with Barclays.

Nicholas Igneri

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?

Cary Baker

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.

Nicholas Igneri

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?

Cary Baker

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.

Operator

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.

Chris Diorio

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.

Operator

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

[nicewatch] Sorry, I didn't see your post earlier... United Parcel Service, Inc., Q2 2026 E...

nicewatch — 7/28/2026 8:54:31 PM

Sorry, I didn't see your post earlier...

United Parcel Service, Inc., Q2 2026 Earnings Call, Jul 28, 2026

Operator

Good morning. My name is Matthew, and I'll be your facilitator today. I'd like to welcome everyone to the UPS Second Quarter 2026 Earnings Conference Call. [Operator Instructions]

It is now my pleasure to turn the floor over to your host, Mr. PJ Guido, Investor Relations Officer. Sir, the floor is yours.

PJ Guido

Good morning, and welcome to the UPS Second Quarter 2026 Earnings Call. Joining me today are Carol Tomé, our CEO; Brian Dykes, our CFO; and a few additional members of our executive leadership team.

Before we begin, I want to remind you that some of the comments we'll make today are forward-looking statements and address our expectations for the future performance or operating results of our company. These statements are subject to risks and uncertainties, which are described in our 2025 Form 10-K and other reports we file with or furnish to the Securities and Exchange Commission. These reports, when filed, are available on the UPS Investor Relations website and from the SEC.

Unless stated otherwise, our discussion refers to adjusted results. For the second quarter of 2026, GAAP results included after-tax transformation charges of $891 million, or $1.05 per diluted share, consisting primarily of employee separation costs associated with workforce reduction initiatives from our recently completed Driver Choice program. A reconciliation of non-GAAP adjusted amounts to GAAP financial results is available in today's webcast materials. These materials are also available on the UPS Investor Relations website.

Following our prepared remarks, we will take questions from those joining us via the teleconference. [Operator Instructions]

And now I'll turn the call over to Carol.

Carol Tomé

Thank you, PJ, and good morning. 18 months ago, we announced our Amazon glide down and network reconfiguration plan. Today, I'm pleased to say we executed that plan exactly as designed while continuing to deliver the industry-leading service that sets UPS apart. I want to thank our UPSers for their extraordinary work throughout this period. And I also want to thank our partners at Amazon for collaborating with us on what was truly a complex undertaking.

Over that period, we executed a deliberate structural reset of our U.S. business. Specifically, we eliminated approximately 2 million pieces per day of lower quality Amazon volume. We reconfigured and further automated our U.S. network for higher return opportunities. And we removed approximately $4.5 billion of related expense with more to come as we finish out 2026. I'm incredibly proud of what we have accomplished. But this reconfiguration was never the destination. It was the foundation. We now have a leaner, more automated, more agile network that will deliver operating leverage as volume grows. And importantly, incremental volume today carries materially better economics than before because of the structural changes we've made.

Our second quarter financial results demonstrate the successful execution of key initiatives and the strength of our underlying business. Consolidated revenue was $22.8 billion, an increase of 7.6% versus last year. Consolidated operating profit was $2.1 billion, an increase of 12% versus last year. And consolidated operating margin was 9.2%, a year-over-year increase of 40 basis points and up 300 basis points from the first quarter of this year. While fuel price volatility in the second quarter drove higher fuel revenue and corresponding fuel costs, our fuel surcharge mechanisms functioned as designed, covering the increase in fuel expense.

All 3 segments contributed to our strong second quarter revenue performance, and underscoring the strength of the quarter, U.S. Domestic delivered meaningful operating profit growth of over 20% versus last year. As part of our transformation, we continue to invest in RFID and artificial intelligence or AI. We view these technologies as the intersection of the physical and digital worlds, helping us gain efficiencies, while also winning and retaining customers.

Think of RFID as the eyes and ears within our network, and AI as the brain. RFID generates data from billions of package movements. Our AI transforms that data into decisions, predictions and actions. In fact, we believe RFID is the most significant package visibility advancement in a decade. We're using it to move from a scanning-based network to a sensing network, eliminating hundreds of millions of manual scans every year. We've completed deployment of RFID sensing technology across all of our U.S. delivery facilities and package cars. And now we're moving internationally. We're also enabling our customers with RFID label printers, and every package shipped at our 5,500 UPS stores is RFID-enabled.

These capabilities are generating rich, real-time data about the packages in our network. Now pair that data with the AI-powered digital twin of our network, including all modes, facilities, vehicles, aircraft and package flow data. This strengthens our ability to dynamically adapt to changing conditions like weather delays or volume forecast. Our AI is constantly tracking network performance, so it can optimize planning, routing and execution in near real time. The result is an integrated network that is even more efficient and reliable with enhanced end-to-end visibility and an unmatched premium experience for our customers.

As we move ahead, the next phase of our strategy is straightforward. We're fully focused on capturing premium volume, like from SMB, health care and B2B customers with a clear emphasis on revenue quality and margin expansion. Looking at SMBs, demand in the U.S. in the second quarter was broad-based across nearly all industry sectors, delivering SMB average daily volume growth of 4.3%. SMBs continue to value the reliability of our integrated network and the capabilities we provide, including end-to-end visibility solutions, our Digital Access Program, or DAP, our UPS Stores, and box-free, label-free returns.

Speaking of DAP, it is not just for B2C e-commerce shippers. B2B e-commerce shippers also value the convenience and customer experience our DAP platform delivers. In fact, in the second quarter, we saw B2B DAP average daily volume increased 34% year-over-year. And in the second quarter, we generated $1.4 billion in global DAP revenue, marking the third quarter in a row of delivering DAP revenue of over $1 billion.

Moving to health care. In the second quarter, we generated over $3 billion in health care revenue, achieving that milestone for the second consecutive quarter. We're already the #1 provider of complex health care logistics solutions in the world. And we're not stopping there. Demand for cold chain logistics is accelerating, and to further strengthen our global cold chain capabilities, we have added 27 temperature-controlled cross-dock facilities to our network. These facilities are designed specifically for fast, precise transfers of complex health care products between air and ground services while maintaining strict temperature control. We are the only carrier that provides end-to-end solutions for complex health care with our own assets, ensuring complete control, visibility and best-in-class service.

Looking at our industrial and automotive customers, they continue to operate in a complex environment shaped by shifting trade patterns, evolving regulations and ongoing supply chain disruption. We're helping them navigate these complexities by combining the strength of our integrated network and RFID-enabled visibility with additional new capabilities. Here, we're expanding North American air freight services between the U.S. and Mexico, and we've launched a dedicated team of over 300 specialists with deep expertise in the supply chain needs of automotive and industrial manufacturing customers. These enhancements allow us to bring customers the right solutions, whether it's for a time-critical part, a cross-border shipment or to assist when they are making a broader supply chain shift.

The second quarter marks the fourth straight quarter of delivering results that exceeded our expectations. Going forward, our #1 priority remains moving the right packages and the right mix of volume through our network. This is as true for the U.S. as it is for the rest of our businesses. I'm pleased with the growth we've seen in our Forwarding business as they have been focused on driving premium volume. And outside the U.S., our team has done a magnificent job of managing through trade lane shifts. As trade policy changes and volume and trade moves, UPS has been there to support. Encouragingly, we are seeing momentum on the China to U.S. lane, which returned to year-over-year growth beginning in May.

As we enter the second half of the year, we've got momentum, even in the face of external factors that could influence our results like war and fuel price volatility. Based on our year-to-date results, today, we are raising our full year 2026 consolidated revenue outlook to approximately $91.2 billion. We are raising our consolidated operating profit expectation to approximately $8.65 billion, and lifting our diluted earnings per share guidance to approximately $7.22. Brian will provide more details in a moment. With the foundational groundwork now in place, we are excited about the opportunities that lie ahead.

So with that, thank you for listening. And now I'll turn the call over to Brian.

Brian Dykes

Thank you, Carol, and good morning, everyone. This morning, I'll cover our second quarter results, then I'll give an update on our Amazon glide down and network reconfiguration efforts. Finally, I'll wrap up with our financial outlook for the remainder of 2026.

Turning to our results. Our performance in the second quarter reflected excellent execution across our businesses, especially in U.S. Domestic, where we completed our Amazon glide down and related network reconfiguration efforts as planned. Further, and as Carol mentioned, our results reflected fuel price volatility during the second quarter, stemming from the conflict in the Middle East, which drove an outsized increase in both revenue and expense relative to our expectations. While higher fuel prices were a positive to revenue, the corresponding increase in expense meant that the net impact to consolidated operating profit dollars was modest. In the second quarter, consolidated revenue was $22.8 billion, and operating profit was $2.1 billion. Consolidated operating margin was 9.2% and diluted earnings per share were $1.76.

Moving to our segment performance. In the U.S., we continued our focus on revenue quality and growth in the premium parts of the market as we concluded our Amazon glide down in the second quarter. For the quarter, total U.S. average daily volume was down 3.3% versus the second quarter of last year. Total air average daily volume was down 2.3% year-over-year. Excluding Amazon, total air ADV increased 1.2% year-over-year, driven by SMB and health care customers. Ground average daily volume was down 3.5% compared to the second quarter of 2025 with most of the decline attributable to our planned Amazon glide down.

Notably, when adjusting for Amazon and actions taken on other lower-yielding volume, average daily volume grew year-over-year in the second quarter, underscoring the improvements we're making through the execution of our strategy. That improvement was also reflected in our customer mix.

SMB average daily volume increased 4.3% year-over-year, with growth from nearly all industries, led by high tech and health care. In the second quarter, SMBs made up 34.5% of total U.S. volume, an increase of 250 basis points compared to the second quarter of last year. And looking at B2B, while average daily volume was down 3.2% year-over-year, the rate of decline was 190 basis points better compared to the first quarter, with bright spots in the high tech and automotive sectors. In the second quarter, B2B represented 43.8% of our total U.S. volume.

Moving to revenue. In the second quarter, U.S. Domestic generated $14.9 billion, an increase of 6% year-over-year, with both SMB and enterprise customers contributing to the increase. Growth in revenue per piece was strong and increased 9.3% compared to the second quarter of last year. More than half of the growth in revenue per piece was driven by healthy base rates and customer mix improvements, with fuel contributing the remainder of the increase.

Turning to costs. In the second quarter, total expense in the U.S. Domestic increased 4.9%, with more than half of the increase coming from fuel and purchased transportation. Strong base rate growth and increased productivity in our reconfigured network contributed to revenue per piece growing 130 basis points faster than the cost per piece growth rate, demonstrating the operating leverage we expected from our network reconfiguration. The U.S. Domestic segment delivered $1.2 billion in operating profit, a 21% increase year-over-year and more than double the operating profit delivered in the first quarter of this year. Operating margin was 8%, which was an increase of 100 basis points compared to the second quarter of last year and a 400 basis point increase from the first quarter of this year.

Moving to our International segment. In the second quarter, we delivered strong top line growth with all regions generating year-over-year expansion, driven by strong revenue quality. In the second quarter, total International average daily volume declined 5.8%, led by domestic declines in Europe. On the export side, average daily volume in the second quarter decreased 4.2% year-over-year. However, and importantly, we returned to volume growth on the China-U.S. trade lane as we lapped the elimination of de minimis exemption for Chinese imports in May. Additionally, Asia to Asia export volume increased 13.6% compared to last year, enabled by our recent investments in the region.

Turning to revenue. We saw an improvement in geographic mix during the second quarter as trade lanes began to rebalance, particularly in Asia. As a result, International generated $5 billion in revenue, an increase of 12.5% year-over-year. Revenue growth was driven by an 18.9% year-over-year increase in revenue per piece, with a little more than half coming from fuel. Operating profit in the International segment was $623 million, down $59 million year-over-year. International operating margin in the second quarter was 12.4%, which includes a 120 basis point year-over-year negative impact from fuel.

Looking at Supply Chain Solutions. For the second quarter in a row, Supply Chain Solutions delivered strong operating profit growth year-over-year driven by improvements across multiple business units. In the second quarter, revenue was $2.9 billion, an increase of $207 million versus last year. Forwarding increased revenue 8.1% year-over-year, driven by higher rates in International Air Freight. Logistics revenue increased 4.3% year-over-year, driven by strong growth in health care logistics, partially offset by our Mail Innovations business. And UPS Digital, which includes Roadie and Happy Returns, delivered revenue growth of over 30% compared to the second quarter of 2025.

In the second quarter, Supply Chain Solutions generated operating profit of $291 million, an increase of $79 million year-over-year. Operating margin was 10.2%, up 220 basis points compared to last year and the third quarter in a row of year-over-year operating margin expansion.

Lastly, looking at cash and liquidity. Year-to-date, we've generated $3.1 billion in cash from operations and free cash flow of $1.6 billion, which includes the one-time payments made in the second quarter for the Driver Choice Program. We ended the second quarter with $4.7 billion in cash on the balance sheet and no outstanding commercial paper. And so far this year, UPS has paid $2.7 billion in dividends.

Now before moving to our outlook, let me share the progress we made in the first half of the year from our Amazon glide down and related network reconfiguration efforts. Starting with variable costs. Total operational hours moved down with volume in the first half of the year. Looking at semi-variable costs, we finished down nearly 30,000 operational positions compared to the first half of last year. This includes reductions from our Driver Choice Program with approximately 80% of participants departing the company in the second quarter. In our fixed cost bucket, we closed 45 buildings in the first half of the year with several additional closures planned in the back half of the year.

Our engineering and operations teams executed the Amazon glide down exceptionally well, and we're pleased to have successfully completed this part of our strategy. We are seeing significant value from these efforts as well as from our broader network reconfiguration and efficiency reimagined initiatives. As a result, we still expect to deliver approximately $3 billion in related benefits in 2026.

Moving to our 2026 financial outlook. As we discussed, we entered the year expecting a clear distinction between the first and second halves. Given our strong first half results, which exceeded our expectations, we are increasing our full year 2026 outlook. We now expect consolidated revenue of approximately $91.2 billion, and consolidated operating profit of approximately $8.65 billion. This implies full year diluted earnings per share of approximately $7.22. As a reminder, third quarter 2025 diluted earnings per share included a $0.30 benefit from sale-leaseback transactions.

Now let me add some color on the segments. Starting with U.S. Domestic, we expect full year 2026 revenue of approximately $60 billion, up 1% year-over-year and an operating margin of approximately 7.5%. Looking at the third quarter, we expect average daily volume to decline mid-single digits, reflecting a seasonal decline as well as the impact of this year's Amazon glide down, which completed in June. We expect revenue to be approximately flat year-over-year and a third quarter operating margin of approximately 7%. Lastly, in the back half of the year, we expect the U.S. Domestic operating margin of approximately 8.8%, reflecting year-over-year margin expansion in both the third and fourth quarters.

Turning to the International segment. And starting with the full year, we anticipate revenue growth in the mid-single digits year-over-year, driven by strong revenue per piece growth. Operating margin in the International segment is expected to be in the mid-teens. We expect a similar performance in the third quarter with revenue up mid-single digits, driven by strong revenue per piece. And we expect the operating margin to be between 13% and 14%.

Lastly, in Supply Chain Solutions, we expect full year 2026 revenue growth in the high single digits, driven by growth in Forwarding and health care logistics. We expect full year operating margin to be between 10% and 11%. In the third quarter, we expect Supply Chain Solutions revenue growth in the low double digits year-over-year, and operating margin between 10% and 11%.

Turning to our expectations for cash in the balance sheet. For the full year 2026, capital expenditures are still expected to be about $3 billion, and we plan to complete our pension contribution of $1.3 billion. We expect free cash flow to be approximately $5.5 billion, which includes the payments for the Driver Choice Program I mentioned earlier. Lastly, we are still planning to pay out around $5.4 billion in dividends in 2026, subject to Board approval.

The successful completion of the Amazon glide down and related network reconfiguration marks an important inflection point for UPS. Setting us up to deliver consolidated revenue and operating profit growth and expand operating margin. As we move into the next chapter of growth, our focus is on growing premium, high-quality volume around the world, leveraging the full strength of our portfolio solutions. With the power of our integrated global network enabling us, we are well positioned to deliver sustainable, profitable growth and create long-term shareowner value.

With that, operator, please open the lines for questions.

Operator

[Operator Instructions] Your first question is coming from Jordan Alliger from Goldman Sachs.

Jordan Alliger

With the Amazon drawdown done, you've given some good color for the third quarter and for the full year 2026. Just sort of curious, can you maybe go into a little bit more on your confidence level around the structural change on domestic margin? And what that could mean from a longer-term domestic margin perspective? Is there a bogey you'd like to see over the next couple of years?

Carol Tomé

Well, let's start, Jordan -- thank you very much for the question. Let's just start with automation in our U.S. business. By the end of the second quarter, 68.5% of the volume in our U.S. business was flowing through an automated building compared to 64% 1 year ago. We know that the cost per piece in an automated building is about 28% lower than a non-automated building. So that gives us confidence in the productivity that we should continue to deliver going forward. Brian, maybe you want to talk about the algorithm.

Brian Dykes

I will. And I think, Carol, in addition to the automation you mentioned, I think it's important that we recognize that we've also brought down the capacity as we've been declining the Amazon volume. So if you go and you look at where we started at the beginning of 2024, Carol mentioned, we've removed 2 million pieces a day of lower-yielding volume from the network. We've also -- we will have eliminated 50 million hours through the course of last year and this year, nearly 78,000 operational positions that were associated with that volume, and we'll close nearly 150 buildings. That brings down the structural cost of the network that you're starting to see show up in the margin and gives us a lot of confidence that we can pull that through in the second half.

So as you think about -- as we go forward, look, we continue to see really strong pricing in our U.S. business. And we think about base pricing in this kind of 250 to 350 basis points range, which is about where we are this quarter. And we also see cost per piece coming down as we rightsize the network with the new structural target. So Jordan, I think the way to think about it is about 50 to 100 basis point spread between RPP and CPP will help us drive margin accretion in our U.S. business as we go forward. We do that by leaning into premium segments of the market to maintain that base pricing and RPP benefit and leveraging a now more efficient network in the U.S. to drive operating leverage.

Operator

Your next question is coming from Scott Group from Wolfe Research.

Scott Group

So it seems like domestic margin improvement moderates a little bit in Q3, then reaccelerates again in Q4. Maybe just give a little more color to sort of talk about that? And then, Carol, just bigger picture, in your opening comments, you talked about gaining -- going after SMB and B2B share. I think FedEx would probably say the same thing in terms of what they're trying to do. So like how do you see the share dynamic, the competitive dynamic evolving if that's what both of us are looking to do?

Brian Dykes

Sure. So first, Scott, if you think about the sequentials between Q2 to Q3, it's really normal seasonality, right? So we're still in that 50 to 100 basis point RPP to CPP spread. It's consistent with where we set out at the beginning of the year. And look, if you take a step back and think about our original guide, we had anticipated an earnings decline in the first half and an earnings increase in the second half when you normalize for the sale-leaseback transactions in the third quarter of last year, we're now in mid-teens EPS growth in both the third quarter and the fourth quarter. So it was a robust guide to begin with. The first half performance gives us a lot of confidence that we can hit that, and domestic is just going to perform under normal seasonality as we go into Q3 and Q4.

Carol Tomé

As it relates to how are we going to gain share, our focus on growing our company is to retain the customers we have and then bring new customers into our network by differentiating with new enabling capabilities. And those capabilities include things like, well, owning the end-to-end solution for health care customers. We are the only carrier that owns our assets along that health care, that complex health care supply chain. That gives us control and visibility and separates us from the competition. But it's not just in complex health care logistics, which, by the way, is pretty growthy for us. It's in other areas, too.

So if you think about RFID and the initiatives that we launched now a few years ago, Scott, it's really starting to take traction. We now have RFID-enabled capabilities at the customer location. In other words, at the point of origin, covering over 2.2 million pieces per day. And let me tell you what that means for the customer. I'm going to give you a story to make it real for you.

We recently converted a high-end jeweler from a competitor into our network because of RFID at the labeling -- at the origin. Why? Because at the previous carrier's location, they had to have security guards watch every scan occur as packages were really being loaded on to the package carrier vehicle. At our location, they don't need security guards any longer, and they have visibility from the point of origin to the point of destination. That allowed us to win that high-end jeweler.

These enabling capabilities are differentiating. They're sticky. Where we have RFID at the point of origin, we have seen no churn. That's a really powerful way to grow, but it doesn't stop with RFID. It also is our returns approach, leveraging our 5,500 UPS Stores, our box-less, label-less return capability with Happy Returns, which, as we said in our prepared remarks, has seen rate growth. Our focus on B2B and defined operating plans for that customer and more. So these enabling capabilities are differentiating and will allow us to grow.

Operator

Your next question is coming from Tom Wadewitz from UBS.

Thomas Wadewitz

Yes. So I wanted to ask Brian, if you could offer some thoughts on cost per piece trend in second half and 2027. So you've had strong execution on resizing the network. Just want to get your sense on kind of how you think that plays out. And then how should we think about mix as a factor when we look at, let's say, 2027? You kind of talked about 250 to 300 basis points of price, is that -- do you put 1 point or 2 of mix on top of that, just given your focus on the kind of premium verticals and packages, SMB that are probably generating higher revenue per piece?

Brian Dykes

Yes. Thanks, Tom, for the question. So first, let me hit -- I think, what's really important is to think about the RPP, CPP spread. So let me talk a little bit about that as we transition from the first half to the second half because we will be -- as we go from first half to second half, we are wrapping some pretty material changes that we made in pricing last year. So we're actually going to see both numbers come down a little bit, right? So we were 9.3% in second quarter for RPP in the U.S., about half of that was fuel and about half of it was base pricing and mix. That will come down closer to 4% to 4.5% as we wrap some of those impacts from last year. On a 2-year stack, it still shows really strong pricing.

The same dynamic happens in CPP, right? So as we brought down the cost of the network, we expect CPP to come down as well. So we'll maintain that kind of 50 to 100 basis point spread. As we roll forward, like we said, look, that unit cost differential to drive operating leverage is our focus as we go into 2027. We will still continue to have an impact of Amazon as we wrap into the first half of 2027 and comp that volume out. But we do expect some product mix benefit, as you say. So yes, the base pricing plus 50 to 100 basis points of product mix is a reasonable expectation as we go forward. And we'll really be focusing on maintaining that unit cost spread to drive operating leverage.

Operator

Your next question is coming from Chris Wetherbee from Wells Fargo.

Christian Wetherbee

In the last quarter, you gave the Amazon percent of revenue. I know it wasn't a year-end number. But I was wondering if you could maybe offer that considering we're kind of at the end of the glide down. And then maybe zooming out a little bit sort of with what you have left of that part of your portfolio. How do we think about the growth profile of that versus maybe the rest of the opportunity for top line growth for you as you think out beyond '26, maybe '27, '28?

Carol Tomé

Well, Chris, Amazon is and will continue to be an important customer to UPS. As a percent of our total revenue, Amazon made up 9%, that's down about 100 basis points from a year ago and certainly down from the peak, which was over 13% during the COVID year. As we think about going forward, it's all about optimizing the volume that comes into our network, and we are working together as partners to make that happen.

Operator

Your next question is coming from Ken Hoexter from Bank of America.

Ken Hoexter

And Carol, just to maybe follow up on that a little bit. Just what do you think -- or Brian, I guess, what are the thoughts on ground growth underlying now, now that you're at end of the program? Do you reassess with Amazon on your future in terms of where you stand now in that 9%? And if International is normalizing now with Asia volume, should we see the margins return to upper teens, mid-teens? Where do you think International pans out as well?

Carol Tomé

Well, as I mentioned, Ken, we're going to optimize the volume with Amazon, and that will be across the various modes that we serve them today. From a margin perspective outside the United States, we're very encouraged by the trends that we're seeing, aren't we, Brian?

Brian Dykes

That's right. When you look at -- so we do start to see momentum in some really important trade lanes in International. And that momentum is going to carry through as we get into the back half. Look, we're seeing volume recover as trade lanes settle. Also, in the back half of this year, we have the wrap of the elimination of global de minimis in September that drives a pretty big year-over-year comp benefit.

I would also say, look, our International business is going to perform a little bit better than seasonality because of the volume momentum we have going into the fourth quarter, especially with surge fees and peak fees that we typically see in the market. So we're positive there.

And I would say, just to add to Carol's point on the U.S., Ken, we're going to see volume growth ex-Amazon in the back half of this year across all segments, right? So we've talked about SMB, but we will see volume growth in the back half of this year.

Operator

Your next question is coming from David Vernon from Bernstein.

David Vernon

So Carol, I wanted to ask you about some of the competition issues around Amazon. We continue to hear both from investors and some of the conversations in the industry about Amazon being a little bit more aggressive from an enterprise shipping perspective and wanting to kind of go after directly some of your customers. I'm just wondering if you guys are seeing that in the day-to-day. And then more broadly, as you think about dealing with that potential inevitability or occurrence if it's going to happen. How do you think about responding to that?

Carol Tomé

Well, David, we look at the competitive landscape broadly because, candidly, there are a lot of competitors out there. And we look at the offerings that all competitors are presenting to customers and then focusing on how we are differentiating the offer that we provide. And those points of differentiation, which I mentioned earlier include our cold chain logistics capabilities, our reverse logistics capabilities, our RFID labeling capabilities and that visibility end-to-end, of course, time-definite delivery and special operating plans. So we create relationships and partnerships with our customers to ensure that we are meeting them where they want us to be. That's an important point of differentiation.

It's also about relationship building. We have over 300 high-impact executives, who have relationships with our customers. Relationships at the CEO level and at the CFO level. It's not -- no longer just at the Chief Procurement Officer level or the Chief Supply Chain Officer level. And these relationships create an element of trust, and trust matters as competition comes knocking on the door, because it does. So when competition comes knocking on the door, we're there to meet that competition with our enabling capabilities. I am not aware of any volume that we've lost to that competitor that you mentioned. But we're going to stay focused on this leaning into what we're best at. By the way, did I mention service? I should have. We continue to lead the pack in terms of on-time delivery, best-in-class.

Operator

Your next question is coming from Jonathan Chappell from Evercore ISI.

Jonathan Chappell

Brian, you've obviously done a lot of heavy lifting, getting the costs aligned with the Amazon glide down. If you look to the demand environment today relative to where it was 18 months ago, obviously, a ton has changed with tariffs and de minimis and fuel and war, et cetera. How do you feel about the capacity on the go forward? Do you think that you're in a situation where you're rightsized on the 2H '26, '27 kind of demand outlook? Or is there more trimming or even growth that needs to be done on the capacity side, just given the ebbs and flows of demand over the last 18 months?

Brian Dykes

Thanks, Jon, for the question. And first, I'd be remiss if I didn't say there are thousands of UPSers that delivered those benefits. So it wasn't just myself or the executive team. We've got a lot of people that worked really hard to help get the network to where it is. And I do think that with your question, the capacity is in a really good place, right? I mentioned some of the stats of the Amazon drawdown. This is what we've been targeting. We've been targeting trying to get to an optimal capacity for the delivery volume that we anticipate having in the U.S. So that's kind of step one check we've gotten there.

Now the second piece, as Carol mentioned, the automation that we put in now gives us more flexibility to scale that capacity, right? The automated hubs give us the ability to add throughput much faster than what we used to have to do with conventional hubs and our network is getting much smarter about how we can scale down not just from month-to-month or peak to non-peak, but even day-to-day and week-to-week. So we feel really good about that. And we think that it aligns really well with the demand environment and what we think we'll see at peak seasons now that we've got a much more manageable peak with a more stable set of customers.

Carol Tomé

I feel very good about the capacity just to put the automation percentage into perspective because what does 68% mean? It's the equivalent year-on-year of 337 million more packages going through automation than we had 1 year ago. That creates a tremendous amount of capacity to pull more volume through. And we're ready for it. We're ready for it. And as you heard, if you ignore Amazon and the volume that we intentionally made available to the market, we actually grew our volume in the second quarter.

Operator

Your next question is coming from Ari Rosa from Citigroup.

Ariel Rosa

Carol and Brian, maybe the automation piece is actually a good thing to continue on. I wanted to ask about something a little bit further out. It seems to me next year, people are going to start talking about the Teamsters contract renegotiation. You've obviously done a lot of work to drive efficiency. Thinking about the last Teamsters contract, obviously, that was the start of a number of problems that obviously resulted in having to drive efficiency and other things. How do investors get comfortable that we're not going to have similar challenges? And how are you thinking about approaching that negotiation? I know it's still a ways out, but just talk to us about how you're thinking about that and kind of the relationship with the Teamsters at this point, such that investors can get comfortable with that risk?

Carol Tomé

Well, you're right, the contract renewal is 2 years out. We are today renewing contracts with our customers that go long past 2028. So it's the relationship that we formed with our customers, the trust that we've built with our customers, the confidence in our ability to manage through contract negotiations that are a long ways out, gives us the ability to continue to drive our business. And that's what we're focused on is continuing to drive our business.

Operator

Your next question is coming from Brian Ossenbeck from JPMorgan.

Brian Ossenbeck

Maybe 2 quick follow-ups for Brian here. Just thinking about the 2Q to 3Q bridge for U.S. Domestic. I was thinking maybe it might be a little bit better than seasonal, you got the Driver Choice. Most of that was done in 2Q. The USPS SmartPost transition, the network reconfiguration, MD-11 leases. So I just wanted to see why we wouldn't see more of a pickup into 3Q and all those things are fully baked in. And if you can provide a little bit of color in terms of -- it sounds like the International margins may be impacted a bit by fuel, which to me, it sounded like the only margin impact from fuel this quarter across the segment. So I just wanted to clarify that as well.

Brian Dykes

Yes, yes. So let me address your second point first. So if you think about fuel on a consolidated basis, we saw fuel surcharge revenue increase. We also saw expense increase. So it really had a minimal impact on profit. I would say in the U.S., we were able to overcome that and still get to the 8% margin. On the International side, it's more impacted by fuel because you've got more air volume, you've got longer fly distances, it's a bigger proportion of the total cost base. And so while we got there on total profit dollars, you have more revenue. So you see a margin impact.

I would also say, look, we also had to add some block hours associated with the Middle East war, right? There's some cost to redirect the network, some leased aircraft costs because of -- we can't fly into the region, things like that. So that kind of explains the International piece.

When we think about the second quarter to third quarter bridge, look, we laid out our initial guide at the beginning of the year. Adjusted for the sale leaseback, it's going to be a mid-teens EPS growth. I would say the first half of the year performance, gives us a lot of confidence in the momentum that we're seeing that's going to help us deliver the second half of the year, and we want to make sure that we hit the numbers that we laid out. So I think it's pretty close to normal seasonality, and we feel really confident in our ability to deliver.

Carol Tomé

I think the spread narrows a bit between RPP and CPP because there were some pricing actions that we took 1 year ago in the third quarter, that aren't repeating. So there's a little bit of a year-over-year comp, but we're very excited that we're going to be expanding margin in both Q3 and Q4 in our Domestic business.

Brian Dykes

That's right.

Operator

Your next question is coming from Brandon Oglenski from Barclays.

Brandon Oglenski

Maybe we can talk a little bit about International volume trends. Because it does look like your Domestic business has been down quite a bit. Was there any sort of like focused reorienting of the business there? Or is this just a follow-through on tariffs? And I guess you guys talked about volume trends moving positive in Asia. So how does the current tariff situation play into that outlook?

Carol Tomé

So if you look at our International volume, first on the export side, as Brian mentioned and I mentioned in my prepared remarks, we saw a return to volume growth in the China-U.S. trade lane, which is great as well as Asia to Asia trade lanes, which is wonderful because we've made investments there. We have seen, though, tariffs impact volume in certain areas. Tariffs have certainly impacted volume Canada to the United States, and that's actually our largest trading partner. So we were just working through the tariff noise, if you will.

And then because of the disruption in the Middle East, we've seen some volume declines in Europe exports as well. Some of that is tariff, but mostly because of the disruption in the Middle East. Domestically, we have been working on the same pivot as we have in the United States to lean into revenue quality. And we're really pleased with that because it's going to position us for good things to come.

Operator

Your next question is coming from Bascome Majors from Stephens.

Bascome Majors

Brian, I don't want to beat a dead horse on seasonality. But even if we add back the $350 million in one-time costs that you talked about in the first quarter, it still looks like the consolidated operating profit in the second half versus first half is a bit more than you've done in recent years. Could you just broad strokes high level kind of bridge us to what we're missing on the cost side or the revenue side that gets you comfortable with that maybe slightly more than typical momentum there?

Brian Dykes

Yes. So Bascome, if you look across the segments, Domestic and SCS are kind of following normal seasonality. Where you're seeing the improvement is in the International business. And it's really about the 2 things, this momentum that we talked about right, that we see volume performing well in Asia, right, and we see that carrying through. And then remember, we're wrapping the elimination of the global de minimis exemption in September that shows a big year-over-year improvement as we get into the fourth quarter as well as our normal kind of seasonal uplift. So Domestic and SCS will be kind of normal. International, you're going to see steady improvement as we go through the back half, that makes it look a little bit better in total.

Operator

Your next question is coming from Bruce Chan from Stifel.

J. Bruce Chan

Just going back to some of the competitive dynamics here. We understand that FedEx is spinning up a similar program to DAP. I just wanted to get your comments on what kind of threat that poses and how you think that influences your DAP growth outlook?

Carol Tomé

We keep adding new DAP partners to our program. It's been in place now over 6 years. We've had 2 quarters in a row of over $1 billion of growth on the platform. We've got strong relationships there. We feel very good about our offering. We've got a simple API that can help us to stand up a platform in less than a day. So we always look at the competition. I don't mean to poo-poo any competition, but I feel very good about where we are and the strong relationships that we have with the various e-commerce platforms that are using our program.

Operator

Your next question is coming from Ravi Shanker from Morgan Stanley.

Ravi Shanker

Just a couple here. Brian, can you confirm that whether you had any real estate gains in 2Q and maybe the run rate for the rest of the year? And Carol, maybe a follow-up to your response on Amazon. Just to confirm the messaging there, are you saying that they're going after volumes that you guys don't necessarily want? Or are you saying there's enough room for everybody to grow in this industry?

Brian Dykes

Ravi, thanks for the question. On the real estate gains, so we didn't have anything that was out of ordinary course in the quarter. Look, as part of the Amazon drawdown plan, right, that we included in our guide and we've been executing over the last couple of years, there's buy and sell of real estate. There's also the offset of asset write-offs, accelerated depreciation, dilapidations. And so we had kind of planned all those in our guide and they kind of wash. The only material transaction, and that we were very clear about calling out were the sale-leaseback transactions that we did in the third quarter last year.

Carol Tomé

On the competitive question, I suspect you should take your question to Amazon to ask them what volume they're going after. But if we do a side-by-side comparison, where they have strengths would be on lightweight, short-zone, urban. Where we have strength is every other place. We're going to lean into the parts of the market that we want to grow with enabling capabilities that we will do better than anybody else.

Operator

Your next question is coming from Jeff Kauffman from Citizens Bank.

Jeffrey Kauffman

Congratulations on getting past some of these big drains on the system. I want to take a longer-term view, Carol, with some of the capacity changes you've made. I know we're spending about $3 billion right now, and that's been the case for the last year or 2. But if I go back in time, spend in the $4.5 billion to $5 billion range has kind of been more normal for the business. If we look out 3 to 5 years, where do you think capital spend should settle? And with the new structure in your organization, is that going to be permanently $1 billion less than we're used to? Or are we going to have to get up to that $4.5 billion to $5 billion range at some point in time?

Carol Tomé

Remember, we were spending those dollars to build out a network, that now we have. So we are optimizing the network that we have. From a run rate, Brian?

Brian Dykes

About 3.5% of revenue, Jeff, I think it's about the right level to think about...

Carol Tomé

So as revenue grows, our capital dollars will increase, but that 3.5% is a good number for you to use.

Jeffrey Kauffman

And that is a little structurally lower than it has been in the past. So whether it stays [ at $3 billion ] or not? Yes.

Carol Tomé

It is. But remember, we built out a network. We built out a global network. But when we have opportunities, trust us, we'll be investing in those. For example, we just announced that we opened up 27 cold chain cross-dock facilities that cements our leadership position around the world for complex health care logistics. We just announced that we invested $50 million in North American Air Freight to support automotive and industrial customers and their growth and some of the challenges that they're facing with given today's supply chain. We can help them. So where we see opportunity to invest for growth, we will.

Operator

Your next question is coming from Stephanie Moore from Jefferies.

Stephanie Benjamin Moore

I wanted to touch on peak season, maybe how peak season is shaping up so far this year, we're also seeing pretty active import activity. So I would love to get your thoughts on how it's trending versus maybe prior years.

Carol Tomé

Stephanie, it's a little bit early. We're just starting to get peak season forecast from our customers. But as we build our financial plan that supports the guidance that we just gave, we expect the volume sequentially in the United States to lift about 24% from Q3 to Q4, much like it did last year.

Brian Dykes

And I would just add, Carol, and I think what we see from a pricing environment standpoint is that the pricing remains rational and we think that we'll be able to price accordingly for the demand as well.

Carol Tomé

As you know, the carriers tend to issue a holiday demand surcharge for peak. And so that certainly supports the guidance that we've given.

Operator

Our final question comes from the line of Jason Seidl from TD Cowen.

Elliot Alper

This is Elliot Alper on for Jason. Just within health care logistics, you discussed the investment in cross-dock facilities to further build out that business. Can you talk about the new capabilities, some of these temp-controlled cross-docks offer to customers that maybe you couldn't do before, and maybe how these investments are impacting your health care growth pipeline?

Carol Tomé

Well, I'd be happy to give you a story because I think this showcases the power of our network. We work with the manufacturer of vaccines who manufactures those vaccines themselves. The way the supply chain works is that when the vaccine is ready for pickup, we will pick up that vaccine in a refrigerated truck and carry it to our cold chain cross-dock facility, at which that vaccine will be prepared for shipment. We then put that vaccine on a refrigerated truck and truck it over to our main European air hub in Cologne, Germany. We put the vaccine on our brown tail, and we fly it to our main air hub in Louisville, Kentucky, which we call Worldport.

That vaccine is then put on a refrigerated truck and trucked over to our cold chain warehousing in Shepherdsville, Kentucky. We do that in less than 24 hours. We own every asset that, that vaccine travels against. We have complete visibility of that vaccine because of our RFID labeling. Oh, by the way, which also measures temperature control, so we make sure there's no excursion. This allows us then the capability that we can take to our health care logistics companies and meet them where they need us to be. Now with that, Kate, would you like to add anything?

Kathleen Gutmann

Yes, absolutely. I mean it is a differentiated solution. All of those pallets of vaccines that Carol talked about are riding on our assets, right? That is a big differentiation. We're not doing handoffs with other carriers that lead to excursions or failure or impact of life. Right now, the cold chain new investment, growing double digits, and revenue per kilo is as well. So really great strength. Our customers are recognizing it.

Operator

Thank you. I will now turn the floor back over to your host, Mr. PJ Guido.

PJ Guido

Thank you, Matthew. This concludes our call. Thank you for joining, and have a good day.

[Soumaila] I agree, enjoy London. I think Amazon provides a little extra incentive for Fed...

Soumaila — 7/28/2026 4:00:58 PM

I agree, enjoy London.

I think Amazon provides a little extra incentive for FedEx too.

Back to UPS: It was very clear on the call that she said RFID more times than AI. FedEx and Amazon have AI, but they also have much worse data. RFID was the differentiator of their AI and then she moved on and did not speak of AI again but did speak to RFID, sensing network, etc.

"Where we have RFID at the point of origin, we have seen zero churn."

"These enabling technologies are differentiating, they are sticky" - Chris could have said that!

"RFID-enabled capabilities at the customer location...covering over 2.2 million pieces per day"

If PI guides weak tomorrow we will get punished like a chip company. Such is today's market.

[Cooters] Looks like International Revenue is about 1/3 vs US, but on the systems side I w...

Cooters — 7/28/2026 11:44:06 AM

Looks like International Revenue is about 1/3 vs US, but on the systems side I would think there are a lot of locations across the globe. Then add their worldwide customers that become potential systems business.

Additionally, I don't see how Fedex can allow themselves to remain so....ancient. And as with all lighthouse deployments, the next one goes very quickly as all the problems have already been solved.

Cooters - Off to London

[Soumaila] UPS Earnings Call CEO Remarks 1. RFID is the eyes and ears of our network, AI i...

Soumaila — 7/28/2026 9:23:21 AM

UPS Earnings Call

CEO Remarks
1. RFID is the eyes and ears of our network, AI is the brain
2. RFID the biggest advance in logistics in over a decade
3. RFID to be implemented in international network (this is new deployment)
4. Customers are printing RFID labels (this is where PI can work with those double digit customers of UPS) - systems revenue

Q and A
1. Question on SMB competition (FedEX would want this business do) - she went straight to RFID and conversion of a jeweler. No security guards needed to watch the scanning, the RFID assures the security.

It is a good listen or read when the transcript comes out. They completed their Amazon glide down, have stiff competition and Amazon entering logistics more broadly. In this environment the stock price may not do well here…Keep in mind this is the largest package carrier in the world and we are moving into their international business. Big win.

Would love to see FedEx make a bigger move.

[Cooters] It is always volatile going into earnings and likely without clue. Here's hoping...

Cooters — 7/23/2026 11:45:55 PM

It is always volatile going into earnings and likely without clue. Here's hoping mate!

[Soumaila] I am not finding anything. Hoping it is simply pre-earnings positioning and some...

Soumaila — 7/23/2026 2:38:33 PM

I am not finding anything. Hoping it is simply pre-earnings positioning and some algo driven selling due to the overall chip sector volatility. Maybe the took out some stops pre-earnings. But I got nothing for such a large move.

It has been quiet, some might be getting twitchy.

[Cooters] Did something happen, maybe a customer reported? PS - I'll be in London on Ear...

Cooters — 7/23/2026 12:05:14 PM

Did something happen, maybe a customer reported?

PS - I'll be in London on Earnings, I'll catch the report 9p my time, but will probably look here on Thursday for additional color. TIA, Coot

[Savant] Director Sells 45,000 Impinj Shares Worth $6.4 Million RFID technology specialis...

Savant — 6/27/2026 7:20:14 PM

Director Sells 45,000 Impinj Shares Worth $6.4 Million RFID technology specialist Impinj, Inc. saw a notable insider sale as the firm continues its multi-period open-market disposition.

Director Sells 45,000 Impinj Shares Worth $6.4 Million | The Motley Fool

[Cooters] Sylebra selling again...... SEC FORM 4

Cooters — 6/3/2026 1:17:23 PM

[Cooters] Evercore issued a report today after the conference. Hold PT 144 but would love ...

Cooters — 6/3/2026 12:38:31 PM

Evercore issued a report today after the conference. Hold PT 144 but would love to see any comments

[Soumaila] Chris broadly addressed this during one of the last couple of earnings calls or ...

Soumaila — 6/2/2026 5:02:58 PM

Chris broadly addressed this during one of the last couple of earnings calls or investor conferences (seems relatively recent). While not dismissive of the value of the technology, he and Impinj are focused on the large volume endpoint ICs and systems. Maybe they could license technology to these device manufacturers?

He described (poorly paraphrasing here) the low energy blue tooth and RFID sensors as enabling technologies or beyond the scope of Impinj currently. He mentioned as you did the areas where Impinj had designed such sensors in the past (same areas you listed). He said, Impinj's effort is solely focused on the tagging every item approach (billions of items, hopefully trillions one day) over an RFID that can report your blood sugar or the temperature of a pallet of lettuce during its journey to the store.

It would be cool if Impinj had technology to license in these scenarios as others go after the high cost, high margin, low volume market that needs sensors.

[Cooters] They mention app development in the context of focus, hiring, and R&D budget. I ...

Cooters — 6/2/2026 1:24:41 PM

They mention app development in the context of focus, hiring, and R&D budget. I expect we'll hear more over time.

[waitwatchwander] Has Impinj explored any RFID sensing applications beyond logistics and perishabl...

waitwatchwander — 6/2/2026 1:22:11 PM

Has Impinj explored any RFID sensing applications beyond logistics and perishable management?

share.google

The domain here appears to be extremely broad and all such applications come with follow along monitoring opportunities. Just wandering.

ps I suspect many of these applications would implemented in a more vertical manner like here with Medtronics or Glucose monitoring via Dexcom or Abbot.

share.google

[Soumaila] Thanks Coot! I agree, the UPS discussion was interesting. I had not thought of ...

Soumaila — 6/2/2026 12:36:31 PM

Thanks Coot!

I agree, the UPS discussion was interesting. I had not thought of "counterfeit" tags flowing through the sytem.

European grocer, I am leaning toward Aldi or Lidl given the private label focus of the stores. If we think we have a labor shortage in the US for grocery jobs, Europe, Japan, etc. would be even worse. This is a longer term play but huge! As in trillions of items for the TAM not billions!

Lots to like beyond the macro headwinds. The question remains...When will the next inflection point hit. I hope before I am too old to enjoy it!

RAIN Alliance says this energy shock is good for logistics adoption: therainalliance.org

Walmart Phase 3, good to here him flat out say they are really excited about it. I think we see cosmetics in the next round, which is significant.

Some day, we will hear them use words like accelerating and expanding versus prudent. Which is not saying prudent is the wrong word given macro headwinds and geopolitics. I am just excited to see the general merch, logistics, and food verticals take hold.

I am starting to understand the "pilot" language, even when a roll out has been announced. It is that first 20% of stores where the learning and training is very steep. I think they keep the pilot language in this phase as the approach may shift and change. This would include training the Walmart staff who will work across stores to bring the staff up to speed.

Best

[Cooters] PI at Evercore - 6/2/26 CFO in a Q&A format. I'll touch on a few highlights and...

Cooters — 6/2/2026 10:58:48 AM

PI at Evercore - 6/2/26

CFO in a Q&A format. I'll touch on a few highlights and new info

- Very good discussion on the custom ASIC at UPS, discussing how they meet with them and giving a good example of a problem with authentication the ASIC was able to solve.

- WMT update - Phases 1 and 2 of the general merch. deployment still have some growth remaining. They expect Phase 3 to be announced this year, 2026. The perishable food deployment is at the multi-store pilot stage and they are waiting for a deployment announcement.

- The grocer that has a lot of private label items and is looking at full store tagging/self checkout has begun a single store pilot.

- Interesting tidbit on how a customer(I think a grocer) might do the actual self checkout, likely sending the items through a tunnel.

Cooters

[Soumaila] Royal Ray, Impinj Target Embedded RFID Growth With Ultra-Compact Ourea Series r...

Soumaila — 5/28/2026 9:18:05 AM

Royal Ray, Impinj Target Embedded RFID Growth With Ultra-Compact Ourea Series

rfidjournal.com

[Cooters] Cary at Evercore next Tuesday morning. Impinj to Participate in Evercore Global...

Cooters — 5/27/2026 2:17:49 PM

Cary at Evercore next Tuesday morning.

Impinj to Participate in Evercore Global TMT Conference

[Soumaila] This article makes me more convinced Uniqlo (Fast Retailing) is the endpoint IC ...

Soumaila — 5/21/2026 10:58:46 AM

This article makes me more convinced Uniqlo (Fast Retailing) is the endpoint IC share gain that Chris was talking about with a large Asian apparel retailer. That is a big win and validation of the Impinj full stack.

Other nice bits from the earnings season

Avery - logistics pilot expansions

UPS - 20% of e-commerce is returned (value of RFID tracking), 5,500 UPS stores to support this part of E-commerce.

[Cooters] How The RFID Industry Is Transforming Supply Chain Logistics How The RFID I...

Cooters — 5/21/2026 9:43:42 AM

How The RFID Industry Is Transforming Supply Chain Logistics

How The RFID Industry Is Transforming Supply Chain Logistics

From today with a nice plug for Impinj and Gen2X, as well the lead in is self checkout at Uniqlo.

And if this snip hits the mainstream......
<snip>
And in the future, AI models could even potentially leverage RFID data to further improve demand forecasting, trend analysis and pricing models.

[Cooters] RFID Mandate By Lowe’s: What Businesses Need to Know RFID Mandate By Lowe's...

Cooters — 5/20/2026 9:35:22 AM

RFID Mandate By Lowe’s: What Businesses Need to Know

RFID Mandate By Lowe's: What Businesses Need to Know - FineLine Tech

This is dated last Wednesday. Not sure if this is old or new but first I've heard of it. Coot

[Cooters] Target Names Jeff England EVP, Chief Global Supply Chain and Logistics Officer ...

Cooters — 5/19/2026 9:40:48 AM

Target Names Jeff England EVP, Chief Global Supply Chain and Logistics Officer

Target Names Jeff England EVP, Chief Global Supply Chain and Logistics Officer

Would love to see them follow WMT in General Merch.

[Cooters] Sylebra selling again.... SEC FORM 4

Cooters — 5/12/2026 12:49:17 PM

[Soumaila] Evercore ISI maintained in-line and raised from 112 to 144 Needham maintained bu...

Soumaila — 4/30/2026 1:01:16 PM

Evercore ISI maintained in-line and raised from 112 to 144
Needham maintained buy and price at 175

[nicewatch] Impinj, Inc., Q1 2026 Earnings Call, Apr 29, 2026 Operator Welome to Impinj's...

nicewatch — 4/29/2026 6:26:55 PM

Impinj, Inc., Q1 2026 Earnings Call, Apr 29, 2026

Operator

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.

Andy Cobb

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.

Chris Diorio

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?

Cary Baker

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

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

Timothy Arcuri

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?

Cary Baker

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.

Timothy Arcuri

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?

Cary Baker

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.

Operator

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

Jim Jungjohann

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?

Cary Baker

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.

Julian Rajan

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?

Cary Baker

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

Julian Rajan

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.

Cary Baker

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. .

Matthew Farrell

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.

Chris Diorio

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.

Matthew Farrell

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. .

Chris Diorio

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.

Operator

Next question will come from Blayne Curtis with Jefferies. .

Jim Jungjohann

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.

Cary Baker

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.

Jim Jungjohann

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?

Chris Diorio

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?

Cary Baker

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.

Jim Jungjohann

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.

Cary Baker

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.

Operator

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

Scott Searle

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?

Cary Baker

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?

Scott Searle

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.

Operator

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. .

Chris Diorio

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.

Operator

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

[Soumaila] Agreed! All you need to know from the release: "Our first-quarter results were ...

Soumaila — 4/29/2026 4:36:34 PM

Agreed!

All you need to know from the release: "Our first-quarter results were solid, with revenue and adjusted EBITDA exceeding the top end of our guide range," said Chris Diorio, Impinj co-founder and CEO. "Endpoint IC bookings hit an all-time record, engendering a strong second-quarter revenue outlook"

I am interested in what systems guide will be and discussion of 2H.

Enjoy, this is a huge relief.

[Cooters] I'm in Mexico, guidance and record ic bookings look really good. They get the ro...

Cooters — 4/29/2026 4:29:38 PM

I'm in Mexico, guidance and record ic bookings look really good. They get the royalty pmt in q2 so sequential revenue is really good but not out of the park. Really developing nice earnings leverage. I'll check in later need a drink. Cabo Cooters

[Soumaila] Here is a commercial from UPS. Nothing new here, Chris has been talking about 3P...

Soumaila — 4/26/2026 11:59:05 AM

Here is a commercial from UPS. Nothing new here, Chris has been talking about 3PL, e-commerce, new solutions opportunities etc. But this shows the marketing behind the strategy. Pretty cool!

LINK

[Soumaila] This has a little more info on the R700 and at least mentions its use in retail ...

Soumaila — 4/20/2026 9:44:49 PM

This has a little more info on the R700 and at least mentions its use in retail along with the logistics focus of the press release. rfidjournal.com

[Soumaila] While nothing new in that UPS is deployed/deploying, there is spending in this a...

Soumaila — 4/17/2026 5:25:30 AM

While nothing new in that UPS is deployed/deploying, there is spending in this announcement. Not clear how much but the placing of readers in the middle mile is an expansion of the capabilities of the UPS network and should include reader revenue. The timing here with the R700 announcement probably not a coincidence.

The company plans to add the sensors to its middle-mile sortation facilities beginning later this year, according to a report from The Wall Street Journal.

Here is the official press release from UPS

about.ups.com