Cognex (CGNX) Q1 2026 Earnings Transcript

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DATE

Thursday, May 7, 2026 at 8:30 a.m. ET

CALL PARTICIPANTS

• Chief Executive Officer — Matt Moschner
• Chief Financial Officer — Dennis Fehr

TAKEAWAYS

• Revenue -- $269 million, up 24% year over year, and 21% on a constant currency basis, with growth in all reported regions except for automotive in Greater China.
• Adjusted EBITDA Margin -- 26.9%, expanding 1,010 basis points year over year and delivering seventh consecutive quarter of margin expansion.
• Adjusted EPS -- $0.34, up 113% year over year, supported by operating leverage and a lower diluted share count.
• Adjusted Gross Margin -- 71.8%, a 420 basis point increase year over year, mainly due to favorable mix and volume, partially offset by tariffs.
• Trailing 12-Month Free Cash Flow -- $241 million, up nearly 50% year over year, with a trailing 12-month free cash flow conversion rate of 119%, exceeding the company's 100% target for the sixth consecutive quarter.
• Adjusted Operating Expenses -- Increased 9% year over year, or 4% on a constant currency basis, reflecting $5 million in higher incentive compensation and commissions linked to outperformance, and higher stock-based compensation.
• Reorganization Charges -- $4.8 million recorded, related to ongoing cost reduction actions but excluded from adjusted operating expenses.
• Cost Reduction Target -- Management reaffirmed $35 million to $40 million of annualized net cost reductions by end of 2026, after divestitures and excluding FX.
• Share Repurchases -- $99 million repurchased in the quarter, contributing to a reduction in average share count by approximately 2 million shares.
• Portfolio Optimization -- Completion of divestiture of Japan-focused trading business on April 1, reducing quarterly revenue by about $5 million per quarter going forward.
• Q2 2026 Guidance -- Revenue expected between $280 million and $300 million, with mid-point growth of about 16.5% year over year; adjusted EBITDA margin of 28%-31%; adjusted EPS of $0.40-$0.44, midpoint implying about 68% year-over-year growth.
• Order Timing Effects -- Q2 revenue includes $7 million in electronics order timing shifted from Q3; Q3 includes a $13 million revenue headwind from a one-time commercial partnership benefit in prior year, with planned divestitures further reducing revenue base by $5 million per quarter.
• Product Innovation -- Launch of new embedded vision systems, In-Sight 6900 and In-Sight 3900, designed for AI-driven, edge-to-cloud vision applications, leveraging NVIDIA and Qualcomm technology partnerships.
• End-Market Performance -- Logistics, packaging, electronics, and semiconductor end markets all delivered double-digit revenue growth, with logistics achieving its ninth consecutive quarter of double-digit growth.
• Geographic Revenue Growth (Constant Currency) -- Americas up 22%; Europe up 23%; Greater China up 36% (excluding automotive); other Asia up 6%, led by electronics and semiconductor.

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RISKS

• Management cited increased macro uncertainty, referencing "Geopolitical conflicts, rising energy costs, memory chip availability and pricing and changes to interest rate expectations" as ongoing risks being monitored.
• Tariffs continued to have a negative impact on adjusted gross margin, with offsetting measures in place but not fully eliminating the effect.
• Sequential memory cost increases are expected to result in a "50 basis points headwind from memory costs in the third quarter," with potential further inflationary cost pressures in the second half of the year.
• Limited demand visibility, especially for the second half, was explicitly cited. Management maintains a cautious outlook due to a "short-cycle business with limited visibility."

SUMMARY

Management reported double-digit year-over-year growth across revenue, adjusted EBITDA, and adjusted EPS, with continuous margin expansion and strong free cash flow conversion. The product portfolio expanded with the release of two new AI-centric embedded vision systems, emphasizing deeper integration across the company’s ecosystem and leveraging advanced edge computing partnerships. Portfolio actions, including a completed divestiture, are expected to enhance long-term profitability and mix, though they reduce the near-term revenue base by an estimated $5 million per quarter.

• Q2 guidance reflects order timing shifts and planned portfolio actions, resulting in seasonally stronger revenue in Q2 and a notable headwind in Q3 from the absence of the prior year's one-time benefit.
• Geographic revenue strength was broad, with Greater China notable for 36% growth (excluding automotive), while Europe and the Americas each exceeded 20% growth due to packaging, logistics, and electronics.
• Cost control remains central, with management executing against a $35 million to $40 million net annualized cost reduction target while maintaining productivity and discipline on operating expenses.
• Capital allocation was marked by opportunistic share repurchases totaling $99 million, aligning with the stated strategy to return capital to shareholders as a priority.
• End-market commentary pointed to ongoing double-digit growth in logistics, packaging, electronics, and semiconductors, with semiconductor growth described as well above 20% in the quarter.

INDUSTRY GLOSSARY

• Edge AI: Deployment of artificial intelligence algorithms directly on devices at the point of data generation (e.g., vision systems operating on manufacturing lines), enabling real-time inference without reliance on cloud connectivity.
• OneVision: Cognex's proprietary edge-to-cloud software platform designed for integrating, managing, and deploying machine vision and AI solutions across manufacturing processes.
• SLX Device Portfolio: A line of Cognex vision devices that integrate layered vision capabilities atop the company's barcode reading technology, aimed at automating logistics processes further.

Full Conference Call Transcript

Matt Moschner: Thanks, Greer. Good morning, everyone, and thank you for joining us today. It's hard to believe that nearly a year has passed since my appointment as CEO was announced. Since then, my leadership team and I have moved with urgency to focus our strategy, strengthen execution and position Cognex for sustainable, profitable growth. I'm proud of the progress the team has made and excited about the huge potential still ahead of us. That progress is clearly reflected in our Q1 results as we delivered an exceptional start to the year. In Q1, revenue, adjusted EBITDA and adjusted EPS each achieved double-digit year-on-year growth, meaningfully exceeding our expectations and consensus. Turning to Page 3 of our earnings presentation.

I'll start with a strategy update. First, innovation. We're advancing our technology leadership with the launch of 2 breakthrough AI vision systems, reinforcing our goal to be the #1 provider of AI-powered machine vision . I will cover these new product introductions in more detail shortly. Second, on portfolio optimization, we successfully completed the divestiture of our Japan-focused trading business on April 1, ahead of schedule and in line with our expected proceeds. Third, on cost and productivity, we remain on track to achieve the $35 million to $40 million in net cost reductions we announced last quarter. These actions help streamline our organization and will support durable margin expansion.

Dennis will provide more details on this later in the call. Turning to Page 4. I am pleased to announce 2 new embedded vision systems, the In-Sight 6900 and In-Sight 3900. Both breakthrough technologies share the same foundation, more AI computing power at the edge, seamless integration with OneVision and all built on the same In-Sight Vision Suite Software platform. With OneVision now broadly commercially available, these launches enhance our edge-to-cloud AI vision ecosystem and reinforce our leadership in delivering high-performance, scalable and easy-to-deploy AI solutions. Both strengthen our position in approximately $3.5 billion of our $7 billion served market. Starting with the In-Sight 6900.

This product is designed for customers who need our most powerful AI vision tools, but don't want the cost, footprint and integration burden of a PC-based architecture. Powered by NVIDIA, the 6900 combines our broadest set of image formation hardware with proven advanced AI vision tools, allowing customers to configure their system for demanding compute-intensive inspection applications. Its flexible architecture supports interchangeable cameras, lenses and lighting, which help customers dial in the exact configuration they need with less friction. Second, the In-Sight 3900 is the industry's fastest embedded AI vision system built for customers who want maximum inspection capability with the simplicity of a fully integrated smart camera.

Powered by Qualcomm, the 3900 delivers industry-leading speed, accuracy and resolution at the edge. Both products are major steps forward in embedded AI vision, bringing more capability to the factory floor with less complexity. Turning to end market performance on Page 5. Momentum from late last year carried into Q1 with broad-based demand across our end markets, led by electronics, semiconductor and packaging and continued growth with large logistics customers. The Purchasing Managers' Index, or PMI, remains in expansion territory, while at the same time, macro uncertainty and other risks have increased.

Geopolitical conflicts, rising energy costs, memory chip availability and pricing and changes to interest rate expectations are all relevant areas we continue to monitor as we look forward to the second half of the year. We are, therefore, only slightly adjusting our full year end market outlook at this time and expect to provide more clarity during the next earnings call. Starting with Logistics. 2026 is off to a strong start with Q1 marking our ninth consecutive quarter of double-digit growth, once again led by large e-commerce customers. We continue to see encouraging traction with our SLX device portfolio, validating our strategy of layering additional vision capabilities on top of barcode reading.

As the year progresses, we expect growth to normalize to mid- to high single digits as comps strengthen. Turning to Packaging. This end market delivered double-digit revenue growth in Q1, driven by broad-based strength. Considering the strong start in 2026, we now expect high single-digit growth, supported by continued momentum from our sales force transformation and the strength of our AI-enabled ecosystem. As a reminder, this outlook reflects a reduced revenue base following the divestiture of the Japan-focused trading business. Next is Electronics, which delivered double-digit growth in Q1, driven by broad-based strength across customers and geographies.

For 2026, we continue to expect high single to double-digit growth, supported by ongoing supply chain shifts, a consumer refresh cycle and new device form factors. Turning to Automotive. Q1 revenue increased mid-single digits on a constant currency basis. Performance continues to be different by geography with meaningful growth in the Americas, offset by ongoing softness in Europe and some growth in Asia. For the full year, we continue to expect flat to low single-digit growth. Finally, in Semiconductor, Q1 revenue grew double digits, exceeding our expectations and driven by very strong growth across Asia. Based on the strong start, we are narrowing our full year growth outlook to a high single to double-digit range.

Our deep relationships with leading semiconductor equipment manufacturers continue to position us well for sustained growth in this market. In summary, we are very pleased with the strong start to the year as focused execution drove broad-based outperformance across revenue, margin and bottom line earnings. Q1 results reflect meaningful progress against our strategic objectives and position us well to navigate a dynamic macro environment. With that, I'll turn it over to Dennis to walk through the Q1 financials and our second quarter outlook. Dennis?

Dennis Fehr: Thanks, Matt, and good morning, everyone. Our strong Q1 performance reflects disciplined execution and continued progress against our profitable growth strategy. You can see this on Page 6, which highlights our [indiscernible] results across 3 key financial metrics. First, adjusted EBITDA margin was 26.9%, expanding 1,010 basis points year-over-year, marking the seventh consecutive quarter of margin expansion. Second, adjusted EPS increased 113% year-over-year, representing the seventh straight quarter of strong EPS growth. And third, trailing 12-month free cash flow conversion rate was 119%, meeting our greater than 100% target for the sixth consecutive quarter. Turning to the income statement on Page 7. Revenue increased 24% year-over-year and 21% on a constant currency basis.

This marked our seventh consecutive quarter of year-over-year growth. However, it is worth noting that Q1 2025 represents a softer comparison due to pull forward into Q4 2024. Looking at geographic revenue trends on a year-over-year constant currency basis. The Americas grew 22%, driven by strength in packaging, electronics and logistics. Europe increased 23%, led by packaging and logistics. Greater China grew 36% with broad-based strength across all end markets, except automotive. Other Asia grew 6%, driven primarily by electronics and semiconductor. Staying on Page 7. Adjusted gross margin expanded 420 basis points to 71.8%, driven primarily by favorable mix and volume, slightly offset by tariffs.

Adjusted operating expenses increased 9% year-over-year or 4% on a constant currency basis, including approximately $5 million of higher incentive compensation and commissions tied to strong outperformance and higher stock-based compensation. As a reminder, Q1 2025 benefited from $6 million favorability related to these items. Excluding these effects Q1 2026 adjusted operating expenses declined year-over-year, demonstrating our continued focus on cost management alongside strong revenue growth. We continue to drive productivity and efficiency as we execute our operating model transformation and made further progress on our cost reduction actions, incurring $4.8 million of reorganization charges, which are excluded from adjusted operating expenses.

We remain confident in achieving $35 million to $40 million of annualized net cost reductions by the end of 2026, excluding FX and in delivering continued margin expansion. Adjusted EBITDA was $72 million, up 100% year-over-year. Adjusted EBITDA margin reached 26.9%, expanding 1,010 basis points year-over-year and exceeding the midpoint of guidance by more than 600 basis points, driven by strong revenue growth and favorable mix. Adjusted diluted EPS more than doubled year-over-year, up 113% to $0.34, driven by operating leverage and the lower diluted share count compared to last year. We generated $241 million of free cash flow over the trailing 12 months, up nearly 50% year-over-year.

Trailing 12-month free cash flow conversion was 119%, the sixth consecutive quarter meeting our greater than 100% target. Following very strong working capital performance in 2025, we continue to drive efficiencies in Q1 with the cash conversion cycle improving 57 days year-over-year and 128 days from the peak 2 years ago. We believe we have now reached an optimal cash conversion cycle. Turning to capital allocation. We returned $113 million to shareholders this quarter, including $99 million through opportunistic share repurchases that reflect attractive buying opportunities, mostly at the beginning of the quarter. These actions contributed to a reduction in our average share count of approximately 2 million shares.

Over the long term, we remain committed to returning capital as a core element of the disciplined capital allocation strategy outlined at Investor Day. Moving on to Page 8. I'll now review our financial guidance for the second quarter. In Q2, we expect revenue to be between $280 million and $300 million, representing growth of approximately 16.5% at the midpoint. Adjusted EBITDA margin is expected to be between 28% and 31%, with the midpoint representing an increase of 880 basis points year-over-year. Adjusted earnings per share is expected to be between $0.40 and $0.44 with the midpoint of this range representing approximately 68% year-over-year growth. I now want to briefly baseline Q2 to Q4 revenue to help with comparability.

As shown on Page 9, there are a few known items that impact year-over-year comparisons, but don't reflect a change in underlying demand. First, on portfolio optimization. The divestiture of our Japan-focused trading business, along with other noncore product exits reduces revenue by approximately $5 million in Q2 and each of the following 3 quarters. These actions are intentional and support improved mix, margin and long-term profitability. Second, Q2 is expected to benefit from about $7 million of electronics order timing that shifts in from Q3. That's purely customer order timing related and doesn't change our full year expectation for this end market.

Third, Q3 includes a $13 million headwind from the onetime commercial partnership benefit that occurred in Q3 of last year and should be taken out of the revenue base for comparability. So in summary, Q2 reflects timing benefits largely offset by the planned portfolio exits, while Q3 headwinds include order timing, normalization and portfolio actions, not a change in demand. We encourage you to reflect these factors in your models, along with the strong Q4 2025 comparison. As we look ahead to the full year, we are encouraged by the strong start we delivered in the first quarter and the momentum we are seeing from our execution.

That said, as a short-cycle business with limited visibility, particularly to the second half of the year, we recognize that the broader macro environment remains uncertain. As visibility improves, we will reassess and update our profitability targets for the full year as appropriate. In the meantime, we are focused on what we can control, including delivering $35 million to $40 million of annualized net cost reductions by the end of 2026, streamlining our portfolio and the ongoing transformation of our operating model. Taken together, we believe our disciplined execution, cost actions and innovation road map position us well to deliver on our commitments and create shareholder value. Now Matt and I are ready for your questions. Operator, please go ahead.

Operator: [Operator Instructions] Today's first question is coming from Joe Ritchie of Goldman Sachs.

Joseph Ritchie: So can we just start with the stronger-than-expected start on organic growth for the year. So putting up 21%, pretty great start. I guess if you were to just kind of peel back the onion a little bit, Matt, and give us a little bit more detail on how much you think that came from end market inflection versus some of the internal initiatives and product launches. Just curious to get a little bit more detail on what surprised to the upside this past quarter.

Matt Moschner: Yes. Thanks, Joe. Yes, obviously, very encouraged by our Q1 results and Q2 guide. It's obviously very hard for us to exactly parse out the contributing factors, but I think there's a number of things all rowing in the same direction at the moment. You mentioned a few of them. I think we're seeing broad-based demand from our customers, right? And that's indicated by several months now of the PMI and expansion territory. That's always encouraging. I haven't seen that for a couple of years now. How durable is that? We'll have to see. There's a lot of uncertainty in the market and in the world.

And so we're trying to be realistic and cautious even to extrapolate that full year. But right now, the demand environment looks strong. I think you mentioned NPI. We had a great year of NPI last year. We launched really 4 really foundational sets of technologies. And as we announced today and a few days ago, we've continued that trend of releasing very powerful AI-centric vision systems. So I certainly think NPI is contributing. And then where we spent a lot of time in the last quarter and really in the last year has been transforming our go-to-market and really our sales force itself.

And I think we're about 9 to 12 months into that, and I think we're definitely seeing the dividends from a go-to-market motion that is really hitting its stride. So I think you put those things together, great execution on NPI, our sales force transformation kicking in and a strong demand environment are all contributing to what we saw in Q4, Q1 and our forecast for Q2.

Joseph Ritchie: Yes, that's all great to hear, Matt. And I guess maybe my second question is for Dennis. Clearly, the EBITDA margin also better than expected this quarter. Gross margins stayed above 71%. The operating leverage or the SG&A leverage you got this quarter was material. Just how are we thinking about those 2 pieces as we move forward? Clearly, the demand environment feels better in the first half. But how are you thinking about both gross margins and SG&A growth going forward?

Dennis Fehr: Yes. No, similar here, very pleased with what we have seen in the first quarter and also the guide which you put out for the second quarter, a strong year-over-year performance, also good sequential performance here. Now certainly, volume and mix plays a big role. On the mix side, clearly, stronger factory automation end market helps us on the gross margin side. And we expect to see that to continue now in the second quarter, probably still too early to talk about the second half of the year, right? I want to remind everyone the limited visibility which we have. So we'll talk a bit more about that in the next earnings call.

Other items contributing on gross margins, clearly also the portfolio optimization, which we would start to see from the next quarter on. But then there's certainly also some headwinds to the gross margins, right? So we saw the impact from the tariffs, which we had already last year. So that's not fully reflected in all the numbers. But while memory cost is not a major headwind for us and a major component, so to say, in the bill of material, there are clearly some timing effects here.

So that means we'll be able to offset some of that or most of that through pricing, but we still expect like a 50 basis points headwind from memory costs in the third quarter. And we're certainly also cautious about general inflationary pressures, right? So we see the increase of the energy prices globally. We don't know yet exactly what this will mean in terms of like second and third degree type of impact through the supply chain. But there's clearly a view that we may see more inflation in the second half of the year, and that's something which we definitely keep on mind.

On the OpEx side, I would say we are focused on executing our cost reduction actions. And certainly, you saw some of that in terms of the sequential step down from Q4 into Q1. But then certainly, Q1, especially on the year-over-year comparison, still had quite some headwinds, especially from FX, $6 million strong headwind there and then some of the normalization on incentive comp and commissions. In that regard, expect more some further sequential step downs, probably a bit less into the second quarter, but especially into the third quarter.

In that regard, in general, we feel like we're making good progress on the cost actions, and we are seeing certainly the favorability in the gross margin side, and that helps with the margin improvement. And in general, that sets us up definitely for the strong results in the first half.

Operator: Our next question is coming from Joe Giordano of Cowen.

Joseph Giordano: Just as you get to the end of the year and you wrap this $35 million to $40 million cost out, what becomes like the priorities as you get into '27? I know early in this year, and we're asking questions about next year. But just how does the mindset shift? Is it still kind of a focus on cost? Is it like let's figure out profitable growth, push there? Like how do you adjust as you wrap this program?

Matt Moschner: Yes. No, thanks, Joe. I mean at Cognex, we like to think we can walk and chew gum, right? So you can imagine that we are very focused on both the top and the bottom line even today, and I would say, even over the last year. So we have a very robust set of growth initiatives that we're executing. Even at the same time, we're focusing on those initiatives and making tough choices on areas that we want to stop or reduce capacity around. So I would think of it that way. I wouldn't think of it as an either/or. It's a both and. And -- but I think you're right.

There's definitely a mindset shift that we're taking as a leadership team and across the company, last year and still, probably persisting this year, there's a focus on efficiency, productivity, really focus, right, make sure that we're focusing our resources in the right areas. As we conclude the cost reduction program, I hope to maintain that focus even if there isn't a formal kind of target out there. But yes, net-net, I'm sure our focus becomes much more obsessive around growth. But I would say our culture is always to be obsessive about growth. So very robust set of growth initiatives alive and well today.

We'll continue those through the year and into next year even as we conclude the cost program that we've announced.

Dennis Fehr: And maybe to add on that, right, if you think back 2025 was the year where we really embarked on that cost reduction initiative and progress, right? So you saw, we reported $33 million gross cost reduction for 2025. So not all of that found its way through as we had headwinds on FX, normalization of incentive comp and so on. But that was really the beginning into kind of a broader-based cost initiative program, which touched really from everything from sales to engineering to the back office.

And then when we came out at the beginning of the year and talked about the $35 million to $40 million net cost reduction annualized by end of this year, we put the focus a little bit more narrow, more focused around sales force transformation, the back office, harvesting some of the portfolio optimization, which we have now concluded. So in that regard, I think we are basically, I would say, wrapping up the cost reduction in this year. However, I think if you think about 2027, the word which comes to our mind and which we are talking a lot to our organization is productivity.

So that means -- as we scale the top line, this does not mean that OpEx has to scale in line with the top line. It's really the focus. We want to really see that across all parts of the organization. We are seeing that we're getting more out of what we have. So in that regard, I would say we clearly see more opportunity to drive leverage when we think about 2027. And I think as we have said at our Investor Day last year already, the expectation is clearly that OpEx line grows at a much slower pace than our top line.

Joseph Giordano: And if I shift over to the balance sheet, it's a tough time now just given where valuations are. So I'm curious as to how you want to think about optimizing your balance sheet there. And I guess, in the context of the simplification and cost out that you're doing, how reticent are you about adding more complexity through M&A to kind of -- I guess it has the potential to derail some of the momentum you have internally as that kind of plays out.

Dennis Fehr: Yes. So first, I think quite pleased that we were able to buy back shares in this quarter, $99 million at what I would call it a really add value, right? So we were in the market, especially at the beginning of the quarter, have been able to buy back in the low 40s. I think we really found value there. I was not sure, frankly speaking, after the last earnings call, if we would be able to find such a value position. But I think we made use of this opportunity. And we will certainly keep looking out if we can find value again in the months and quarters to come.

I think that's very much in line with what we have been saying at Investor Day last year that we will be opportunistically buying back shares. And then, yes, at the same time, certainly, we -- M&A is one of the other capital allocation priorities, which we laid out. But I would say we -- our focus remains unchanged here. We will remain kind of a disciplined financial framework when we evaluate potential M&As. There needs to be a strong strategic fit so that we can generate the right synergies. And yes, as you said, like there's good momentum here. So I think we don't feel like the strong need that we have to do M&A.

So we'll only do it if we really can find something where we really have strong conviction. And at the same time, I would say like while many things go our way at the moment, it's very clearly that we have still a lot of opportunity ahead of us in terms of organic growth, in terms of further optimizing some of the ratios of OpEx to revenue and so on. So in that regard, I think we definitely want to keep on going.

Operator: The next question is coming from Tommy Moll of Stephens Inc.

Thomas Moll: We appreciate the baselining data you provided there on Slide 9 today. And I wanted to ask a follow-up on the consumer electronics time shift that you're calling out from Q2 or rather Q3 to Q2. Are we to take away from that, that Q2 is most likely the peak revenue quarter for that end market this year or potentially is that not necessarily the case? I'm just trying to understand what you're communicating here on the time shift.

Dennis Fehr: Yes. No, I think, Tommy, you got really straight to it. I think that's what we are currently seeing, right, with that timing shift from Q3 into Q2, right? So that means seasonality this year is geared a bit stronger towards Q2. However, I want to really remind everyone on the call that the electronics kind of revenue typically is really very focused towards the end of the second quarter or the beginning of the third quarter. So such timing shift is really like a few weeks. So think about something like 2 to 3 weeks of timing shift. It's not like months of timing shift. In that regard, I really don't read too much into that.

But Tommy, you're spot on in the terms that Q2 is really the peak this year in terms of what we expect from consumer electronics.

Matt Moschner: Yes. I would only add, Tommy, what we're seeing in consumer electronics right now is broad-based strength, right? So I think it would be a mistake to point to any one customer contributing. We've really taken the excellence we have in that market more broad to new customers in new geographies. And so it's a market that we see firing on a number of different cylinders right now and many of which we've talked about in previous calls around shifts in the supply chain, continued strength in consumer demand for these devices, new form factors. You put all of that together. Cognex has launched great technology for these manufacturers as well.

And we're also starting to see some contribution from the demand driven through the electronic component supply chain from data center build-outs as well. So you put all that together, and I think we remain very optimistic about consumer electronics as an end market throughout the year.

Thomas Moll: That's helpful. And as a follow-up, I wanted to ask to ask about AI. This is a topic that you covered extensively at last year's Investor Day, both in terms of the opportunities and the risks there. Today, you highlighted some of the Insight portfolio expansion. And so I'm curious if you could just give us a refresh maybe from Investor Day, what opportunities -- what additional opportunities are you finding here? What additional risks are you uncovering here?

Matt Moschner: Yes. Thanks, Tommy. Great question. I would say the perspective we shared in June is still the perspective I'd say we have today, which is that AI presents a huge opportunity for Cognex and for our customers. Obviously, there are some risks that we've discussed in the past around to the extent it enables new competitors or somehow weakens the competitive moat. I think we haven't quite seen that as much, right? We've seen it accelerate our business. We've certainly used these tools, as Dennis was alluding to, to drive productivity and efficiency internal to how we operate, not just in engineering, but across a number of other functions.

But hopefully, by now, you see what we're trying to do in transforming our product strategy and product experience, right? AI on one hand, is transformative in that it lets us solve new problems, problems that have historically been too complex for a variety of reasons, but it's allowing us to do that without asking customers to tolerate a whole bunch of upfront engineering costs and downstream maintenance complexity.

And so what we presented in June was -- and then on top of that, how are we using the momentum that is happening at the frontier, some of these larger models, how are we taking advantage of that ourselves to accelerate the development of our own vision tools, which are inherently much more specific and relevant to industrial applications and why that's a durable advantage. So I really do think the story -- the narrative we presented in our strategy in June is still the one we're pursuing and still strongly believe in. You're seeing that accelerate through the products. We launched that last year and this year. Our strategy is very much to lead in Edge AI, right?

Edge AI, meaning training and deploying at the line on device, complemented by OneVision when you need it as an edge-to-cloud kind of seamless workflow. So I think you put all those things together, and I still think AI for Cognex is a huge accelerator even while we keep a close eye on what the potential hazards and risks could be.

Dennis Fehr: Maybe to add on that, bit adjacent here, the usage of AI to drive the productivity I've been talking about before, right? So we already talked last year about using AI-assisted coding like in software engineering to drive efficiencies there. And I think for us, very exciting. We just recently launched some very, very great AI agents in the service side. So that means helping customers find information faster, getting answers immediately. And yes, it's really just great to see what opportunities AI provides to us here also in streamlining our entire operations and helping us to transform our operating models in that regard, clearly, there's a lot of opportunity there.

Operator: Our next question is coming from Jacob Levinson of Melius Research.

Jacob Levinson: I have to say congratulations on the progress over the last year. It's been amazing to see how fast it's come together. So certainly deserves all the credit that you can see in your stock price. But Matt, I mean, you touched a little bit on this with the NPIs and some of the AI focus, but it sure seems like there's maybe a sharper focus in those new products that are coming out. So maybe you can help us understand if you think about practically what's happened behind the scenes in the R&D organization, what's really changed?

Because I just -- I've always thought of Cognex as being a company that's had a pretty regular flow of products, but the growth rates would certainly suggest that there's maybe a greater adoption of the stuff that you're putting out there these days.

Matt Moschner: Yes. Thanks, Jake. Yes. No, it's not necessarily about quantity. It's also quality, right, what we call our hit rates and often measured by things like a vitality index, right, what percentage of our revenues is from those new products. And I think on that measure, both of those measures, both the quality and the vitality is we're definitely seeing nice improvements, right? We made some organizational changes last year in our engineering teams, which I think we're starting to see the benefits of. And even over the last many years, I was very involved with our engineering teams.

And we are many years into what you might call a re-architecting of the tech stack itself to be much more ready for the AI era. And I think we're also seeing that pay off, right? There's a huge paradigm shift from non-AI to AI-based visual inspection from one that was very centered around programmatic interfaces and pressing a whole bunch of buttons to configure it full to what is now much more human-like trained by example. It's much more about image data, image visualization. And so I think we've -- and we saw that coming 10 years ago.

And so I think our products that we're launching now don't feel like we're taking an old product for a new application. They feel very fit for purpose and very much built around the workflow that is demanded from an user of advanced AI. So yes, I think all those things are coming together. And then we've made some other smart choices, I think, right? We've really rallied around a common software ecosystem, which we described in June at an Investor Day. I think customers are very much responding to that around insight. OneVision and making sure that all our new products are compatible with OneVision, I think it was also a very smart move.

That's proving to be a very powerful tool for customers to adopt advanced AI much more quickly than in the past. Yes. And then we've been working with great technology partners, right? We disclosed NVIDIA and Qualcomm. These are really world-class edge computing chipset providers. And so you can imagine that we would have a very close engineering relationship with them and really working at the bleeding edge of what they have to offer and bringing that into our products. So again, it's not just one thing, but I think it's a basket of things that we've been doing well for the last year or even more that are starting to really pay off.

Jacob Levinson: That's all super interesting. Just on a different topic on the logistics side. I think historically, that business has been a lot of barcode reading, but it's hard for us to know from the outside exactly how much that market is growing these days. But it sure seems like you're gaining some traction on some of the other products that you have in the portfolio. So maybe you can just speak to that a little bit.

Matt Moschner: Yes, definitely. I'd invite you and others to any trade show that we're at. I think you can really experience the products, those that came to MODEX and LogiMAT, which are the 2 large European and American trade shows, you can really see it in action. But yes, Jake, I think you're right. We've been wanting to bring our vision technology to logistics for as long as I've been here, we think now is the time with AI, and we're launching great vision tools since last fall, and we're seeing great uptake on that. And even better, not only are we solving problems that our customers have always wanted to solve, but the ROI on those solves are really strong.

And so we're able to flow that through to some nice pricing differentials between a vision system and what traditionally we sell as a barcode reader-only system. And so that's very encouraging. At the same time, I would say the barcode reading problem isn't fully solved, and we continue to invest there. And I think we're still leading in image-based barcode reading, which today is still, as you rightly point out, the vast majority of applications and the vast majority of our business. So yes, I think we're playing a really great game right now in logistics. You're seeing that in the numbers in the consecutive quarters of double-digit growth. It's our largest market now.

It's also probably the market where we see the highest penetration potential. And so we'll continue to fund that as appropriate to keep driving growth and share gain.

Operator: Our next question is coming from Guy Hardwick of Barclays.

Guy Drummond Hardwick: Congratulations on tremendous results. I wanted to ask about semiconductor. So I think you said earlier that your deep relationships with leading semiconductor equipment manufacturers positions us for sustained growth. So I was wondering whether visibility is improving in that business and that you can maybe with more confidence, forecast double-digit growth into next year or even the year after. And for Q1, I mean, you said double-digit growth, but just can you maybe give a little bit more information as to how -- was it close to 20%? Or was it close to 10% or maybe it was stronger than that?

Matt Moschner: Yes, Guy, thanks. Yes. No, it's definitely a hot market right now for us and for many others. I'd like to think that our semi business is a natural hedge against maybe some other cost increases or cost headwinds we're facing on the supply chain side. But yes, we've had great relationships with leading semi OEMs for decades now, and they consume our technology really across the board from vision tools to optics and lights to completed systems. And like any OEM, you work really hard to specify in your technology and they kind of lock in those designs and you sell them through for years. So it tends to be a very stable delivery stream. Is our visibility improving?

Maybe a little, but nothing I'd really call out in particular. We have very regular interactions with our OEM customers. What they're seeing is a pretty rapid uptake in demand for their machines, maybe a little earlier in the year than we had anticipated a quarter ago. And we're also obviously trying to drive a deeper penetration of our technology with them. But -- so that's how I'd put it. Sustained growth, yes, I would say that's fair to say. I don't think we expect this to be a boom and a bust anytime soon.

I think it does feel much more durable than maybe semi cycles in the past have, and we're leaning into that from a product development and a sales resourcing standpoint. And I think our technology is proving to be very valuable. I'd maybe defer to Dennis in terms of the specifics on how he would frame the growth.

Dennis Fehr: Right. So really the 3 end markets, which kind of lifted the revenue growth rate here were electronics, semi and packaging. So you can really expect that semi was well above the 20s in terms of the growth rate in the quarter year-over-year. And then maybe to add to it that we see semi clearly also as a natural hedge against what we see in the memory cost side, right? So the one side, again, it's not a massive impact to us, but still there is some impact, but a lot of our customers are on the memory side.

And clearly, as we see this accelerating, we see the revenue growth there as a hedge overcompensating actually what we see on the cost side as well.

Guy Drummond Hardwick: And just a follow-up on the consumer electronics side. I'm just wondering what potential kind of sustained growth you could see from form factor changes and also sort of contract manufacturer capacity changes from out of China to ex-China.

Matt Moschner: Yes. I mean I would say, again, it's hard to parse out exactly what the contributing factors are, but there are a number of things, a number of tailwinds that we're watching right now, new consumer form factors being one of them. But just as a reminder, change in form factor has to be followed by heightened consumer demand. And so particularly some of these newer types take longer to adopt. And so that might result in lower machine counts initially. And so when we think about our growth strategy in electronics, we try not to tie it to any one product announcement or any one customer.

And thankfully, as we've said before, our growth is really broadening in this area, new accounts, new devices, new lines, new geographies, new stations. And that's really where we're trying to go is broaden the growth story, which in the past maybe has felt more singular around specific device types.

Operator: Our next question is coming from Piyush Avasthy of Citi.

Piyush Avasthy: Maybe like starting with the updated 2026 view, like it seems like you're projecting your end markets to roughly grow like mid-single-digit to high single-digit range, like 1Q '26 growth was really strong and 2Q guidance is around like mid-teens growth. I understand that comps get harder in the second half, but seems you're baking in some decent deceleration. Like I just want to understand if this is just conservatism on your part given limited visibility? Or are there any concerns that demand could slow?

Matt Moschner: No, Piyush, I'd say it's really a question of visibility, right? I'd just remind the group, we're still relatively early in the year. This is our Q1 call. We're a short-cycle business, as we've said in the past, and we want to just be a little cautious with quite a bit of uncertainty still ahead of us. And so we want to just be cautious in terms of how and when we signal our view of the market. I wouldn't say it's much more than that. It's really about visibility and the typical visibility we have at this point in the year and a recognition that there's geopolitics, energy prices, component supply chain price increases, potentially interest rate uncertainty.

There's a lot that needs to play out. And I think we'll be better prepared on the next earnings call to provide a clearer view on how that will trend for the rest of the year.

Dennis Fehr: The same really applies also on the profitability side, right? So certainly also the Q1 actuals and the guide for the second quarter puts us on the path here to potentially come back with higher numbers. But again, we would like to have visibility into the second quarter then certainly also a clear reminder that Q4 is a very strong comp in that regard. But yes, we'll be in a better position to talk to you about it on the next earnings call, and we'll share with you at that time what we see for the full year.

Piyush Avasthy: Got it. Helpful. And it's like a similar question on margins. Like last quarter, you suggested a run rate of 25% EBITDA margin by the year-end. I think 1Q '26 and 2Q guidance already suggests margin above 25% threshold. So you have your cost reduction actions in play, underlying demand environment seems to be helping, and you mentioned focusing on productivity. So do you think like 25% EBITDA is the floor at this point and that 31% ceiling has more upside as you continue to progress on your productivity actions and your new products hit the shelf?

Dennis Fehr: Yes. See, Piyush, I think when we put out the initial financial framework last year at Investor Day, we always took the philosophy, let's put out numbers, which we can reach within 12 to 18 months. And we're certainly pleased that in the last earnings call, we could already up that number, had achieved the greater than 20% number a full year ahead. And certainly, we'll keep on looking to see what possibilities we have to first achieve the numbers and then to think where we go from there. But I would say, again, it's just that we would like to have that visibility into the second half of the year before we put out any new numbers.

So in that regard, just give us these 3 more months to establish that visibility and then we'll be in a better position to talk to you about how we think for the full year and beyond.

Operator: Our next question is coming from Andrew Buscaglia of BNP Paribas.

Andrew Buscaglia: I just wanted to check on regionally, I think it's -- again Americas is certainly strong for you and others. I wonder if you could talk about some of the other regions, Europe and specifically Asia and China. Just I thought it was surprising with Europe, you're really not seeing much hesitancy despite the Iran conflict, but I wonder if you could comment on that. And then just the latest on the China trends.

Matt Moschner: Yes. Let's start with Europe. Yes, very pleased with the growth trends we're seeing in Europe. And you're right, we're seeing customers perhaps surprisingly carry on with their investment plans with seemingly very little disruption, but even in light of a lot that's happening in the region. And what we've done is we've built a lot of flexibility into our go-to-market model, right? And so as we see risk or maybe softness in certain market verticals, we're able to very quickly kind of shift our focus and resourcing of our sales team into other areas.

And I think that has really helped us, right, in particular, in Europe, as we've said for many quarters now, the European automotive market, which historically has been a big component of our business in that area has really struggled to find growth and find its footing generally and still continues to be a weak spot for us. But as we saw that, we've been shifting resources to other market verticals, right, in particular, our packaging vertical, which has really delivered quite a bit of growth in Europe and even new markets, right, particularly the investments that are going into aerospace and defense. We mentioned data centers and trying to find some new sources of growth.

So I think you put all those things together, and we're able to mitigate maybe the softness in some areas with strength in others. But for sure, it's encouraging to see that our customers are continuing to spend and invest in automation even in light of a lot of uncertainty. So shifting maybe to Asia, maybe it's hard to talk about Asia as a whole. There's so many different nuances based on the country. We'll talk about maybe China, right? We're seeing great strength in China right now.

And a lot of that has, I'd like to think, been driven by the investments we've made in the country over the last 12 to 18 months. we have tried to localize ourselves and be a much more nimble player and provider of machine vision in China. We have local distribution and manufacturing now. We have engineering teams in country now. We've really focused on forming some technology partnerships to move faster in the region and make more region country-specific products available quickly. We've obviously had an excellent channel and sales force in China.

So I think you put all those things together, and it's resulting in some nice growth and allowing us to compete more effectively now than maybe we were a couple of years ago in China, and that's great to see. Across the rest of Asia, we've made good investments in the ASEAN region. We're seeing a lot of that benefit from the regional shifts in supply chain activity, perhaps out of China or in addition to China and we're participating in that growth in the various [indiscernible] countries. Korea, Japan, historically strong markets for us, maybe Japan, relatively less so. And then, of course, India, right?

So all areas that we're focused on and driving investments into that I think net-net have started to pay off.

Andrew Buscaglia: Yes. All very interesting. And my second question, I wanted to ask a rare one on automotive just because you and other automation peers have cited some growth returning. I am hesitant to call it a trend, but what are you seeing in that market? Is it just easy comps you're seeing? Or is there something more to this mid-single-digit growth?

Matt Moschner: I think there is something more to it. Yes. On one hand, comps always help because it's been a couple of years now of no to negative growth in the automotive market as a lot of those OEMs have retooled their strategy, if you will. But there are great underlying growth drivers. I was visiting with a few of our OEM customers in Europe. And they still have a high need to automate and particularly installed vision to drive higher levels of quality, right? They're not where they want to be and machine vision is a great way to drive higher levels of quality assurance. Their costs are going up for a variety of reasons.

Raw material prices are going up, Tariff concerns are on the horizon, labor costs are rising, and they view automation and machine vision as a way to mitigate those cost increases and drive efficiency in their production. And then labor scarcity, right? They struggle to hire skilled trades people in the quantities they need. And so again, automation is a great lever in machine vision , in particular, to mitigate the effects of potential labor shortages. So on one hand, I think the industry, particularly in Europe, feels like it still has not yet found its footing in terms of what the next iteration of product strategy and global trade will bring, but they're not waiting for clarity.

They're moving on investments that they know they have to make to drive quality and efficiency. And time and time again, when I speak to senior leaders in automotive accounts, that's really the mandate that they have is we have to carry on even in light of a lot of uncertainty, and they view automation and machine vision as a key lever to do those things.

Operator: Our next question is coming from Quinn Fredrickson of Baird.

Quinn Fredrickson: Just within logistics, can you maybe expand a bit on trends across your large e-commerce customers versus the base logistics customers, both what you saw in the quarter and then your mid- to high single-digit outlook for the year? It sounds like large customers are performing well, but any details on the base side?

Matt Moschner: Yes. Maybe I'll just quickly touch on both large and large accounts base accounts. Yes, I mean, I think it's interesting. What we saw over the last couple of years was a real focus on process improvement within existing facilities. And I would say that focus remains. How can we get more out of the existing capacity that we have. The larger players perhaps have more capacity, financial strength, ambition to continue to grow capacity. And so we are seeing that at our larger accounts. They're both -- they're doing both, driving productivity on existing as well as still pursuing greenfield build-outs.

I'd say maybe we're seeing relatively less of that in base accounts where they're still mostly focused on process improvements in the existing network. But on both, I would say their interest and willingness to take advantage of vision as a way to drive process improvement is very high. And we're having great discussions with both large and small operators in terms of how machine vision can help drive productivity in their operations. So I wouldn't discriminate on that front. And you put that together. And while recently, it feels like quite a bit of our growth has been driven by large accounts, I'd say our focus is not exclusively there.

We're really trying to drive broad-based growth using vision as the lever to do that, and I feel like we're on the right track there.

Quinn Fredrickson: Okay. And then just second one would be on supply chain. One of your vision peers was calling out lengthening lead times for memory and image sensors. Is that something you're seeing as well? And how are you positioned to navigate that, if so?

Matt Moschner: Yes, we are. We are very well set up to manage this and have been managing it, I think, well for the last several months since we started catching wind of some of this around memory, but potentially beyond that. At Cognex, we historically and still today maintain very strong relationship with our suppliers. We speak with them almost daily. And so we can move really, really quickly to either shift the parts that we're consuming, drive a different product strategy, work with them on delivery allocations as necessary, work the broker market and then obviously think about ways to mitigate through pricing actions. So it is an area that we're putting a lot of energy into.

And I would say we are seeing lengthening lead times in some areas, not broadly in some areas. But I feel like we're mitigating it very well at the moment.

Dennis Fehr: And then always keep in mind, similar to what I said before on the semi side and in general, if you see something like that happening, capacity constraints, it basically sets the suppliers up for capacity expansions either through greenfield investments or through driving more productivity, which then basically stirs demand for machine vision . So there's always a bit like this natural hedge to it. So in that regard, I would say bottom line is that it's not necessarily a negative to us.

Operator: Our next question is coming from Jamie Cook of Truist Securities.

Jamie Cook: Congratulations on a nice quarter. I guess, Dennis, question, understanding there's a lot of uncertainty in the back half with memory costs, with tariffs, et cetera. But can you just speak to broadly what you're seeing from a pricing perspective, both from your side and what your competitors are doing? So given the strong demand out there, like why wouldn't we be able to pass through any of these incremental cost headwinds? And why wouldn't the margins -- gross margins in the back half be better than the first half like you implied last quarter? And then my second question is just, obviously, demand is trending better than expectations.

Is there anything that you saw in April or in the beginning of May to suggest you know what I mean, that demand is waning or tempering?

Dennis Fehr: Yes. No, thanks, Jamie. So maybe on pricing, maybe let me take a step back first, right? So if you think back 2024 second half, we really talked about pricing pressures, especially in China, and we saw some negative impacts there to gross margin. We then saw pricing stabilizing in 2025. And that's also when we really started to gear up here internally with our internal pricing initiatives setting out and defining our pricing playbook. And I think in general, we feel like we have made good progress here. You see that in some of the tariffs, right?

So we clearly said on the one side, there is a tariff headwind, but we have been able to offset that down to the -- on the bottom line level. And so in that regard, I'm not suggesting and the comment I made before was it's really a timing topic, right? So that means that the one side, you see inflationary pressures like from memory and potentially other areas, and they find their way maybe a little bit earlier into the P&L than maybe some of the pricing offsets, which -- where we have the opportunity. In that regard, we don't think like there is a long-term structural reduction to the gross margin.

But in general, we have been saying we want to use and turn pricing from a headwind into a tailwind. I think in general, we feel positive of the trajectory which we have. But at the same time, it's also clearly that we think about pricing in the sense like this should be like a compounding effect over a multiyear period, supporting further margin optimization in the same time period. So that's a bit how we think about pricing. So think about back to the inflationary pressure, there are more like timing puts and takes and less like structural pressures on the gross margin. Now to the question for underlying demand changes.

So I would say what we see in the first weeks of the quarter in terms of demand is pretty much in line with the guide which we just put out for the second quarter. Now again, we, of course, will look for demand signals for the second half, right? We talked about some of the uncertainties out there, especially related to the energy price increases, which maybe have a stronger effect on some of the Asian countries, perhaps Europe, probably much less so in America. So we'll keep on monitoring. But to be clear, as of this moment, we are not seeing any negative demand signals there.

In general, we see -- as we stated at the beginning of the call, we see strong demand there. PMI is still in expansion territory. So in general, things look good, but certainly, we'll keep on watching here.

Operator: Thank you. At this time, I'd like to turn the floor back over to Mr. Moschner for closing comments.

Matt Moschner: Great. Well, thanks, everyone, for joining us this morning and for your continued support. We look forward to updating you on our progress in the second quarter. Bye-bye.

Operator: Ladies and gentlemen, this concludes today's event. You may disconnect your lines or log off the webcast at this time, and enjoy the rest of your day.

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