Cognex Corporation

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, you know, we're about nine to 12 months into that. And I think we're definitely seeing the dividends from, you know, a go-to-market motion that is, you know you know really hitting its stride so i think you put those things together great great execution on npi you know our salesforce transformation kicking in a strong demand environment um are all contributing to you know what what we saw in q4 q1 um and our forecast for q2 yeah that's all great to hear matt and i guess maybe my second question uh is for dennis

Clearly, the EBITDA margin also better than expected this quarter. Gross margin stayed above 671%. The operating leverage or the SG&A leverage you got this quarter was material. Just how are we thinking about those two 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?

similar here very pleased with what we have seen on the first quarter and also the guide which you put out for the for the second quarter a strong year-over-year performance also good sequential performance here now certainly you know volume and mix plays a plays a big role on the mix side clearly a stronger factory automation and 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. 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 you 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 be able to offset some of that or most of that through pricing but we still expect like a 50 basis points headwind for 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 second and third degree type of impacts with the supply chain. 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 OPEC 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 comparisons to that, find some headwinds, especially from FX, 6 million strong headwind there, and then some of the normalization on incentive comp and commission. In that regard, expect more some 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 in the cost actions, and we're 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.

Very helpful. Thank you, guys.

Thank you. Our next question is coming from Joe Giordano of Cowan. Please go ahead.

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

Yeah, 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, you know, 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. But I think you're right. You know, there's definitely a mindset shift that we're taking as a leadership team and across the company. you know, last year and, you know, for 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. You know, 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 yeah, net-net, I'm sure our focus, you know, becomes much more obsessive around growth, but I would say, you know, our culture is always to be obsessive about growth. So, you know, 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.

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 to 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 to 40 million net cost reduction, annualized by end of this year. We put the focus a little bit more narrow, more focused around Salesforce 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 as 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.

And if I shift over to the balance sheet, you know, 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, you know, I guess in the context of the simplification and cost stuff that you're doing, how – reticent are you about adding more complexity through M&A to kind of, you know, I guess it has the potential to derail some of the momentum you have internally as that kind of plays out?

Yeah. 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 at value, right? So we were in the market, especially at the beginning of the quarter, I've 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 month 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 M&A is one of the other capital allocation priorities which we laid out. But I would say 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, 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 away at the moment, it's very clear that we have still a lot of opportunity ahead of us in terms of organic growth, in terms of further development. optimizing some of the ratios of OPEX to revenue and so on. With that regard, I think we definitely want to keep on going. Thanks, guys. Thanks, Joe.

Thank you. The next question is coming from Tommy Moll of Stevens Inc. Please go ahead.

Good morning, and thank you for taking my questions. Hey, Tommy. Hey, Tommy. 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 yeah i know i think tommy you got really straight to it i think that's what we're currently seeing right with that uh timing shift from q3 into q2 right so that means seasonality this year is geared a bit stronger towards q2 um i i want to really remind everyone on on the call that uh 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 shifts is really like a few weeks. So think about something like two to three weeks of timing shifts. It's not like months of timing shifts. In that regard, really don't read too much into that. But Tommy, you're spot on in the terms that Q2 is really at the peak this year in terms of what we expect from consumer electronics.

Yeah, I would only add, Tommy, what we're seeing in consumer electronics right now is broad-based strength. 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 and 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 consumers. these devices, you know, new form factors, you put all of that together, you know, Cognex has launched great technology for these manufacturers as well. And, you know, we're also starting to see some contribution from, you know, 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, you know, we remain very optimistic about consumer electronics as an end market throughout the year.

Thank you both. That's helpful. And as a follow-up, I wanted 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 do What additional opportunities are you finding here? What additional risks are you uncovering here? Thanks.

Yeah, 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 to the extent it enables new competitors or somehow weakens the competitive mode. 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 problems new problems, you know, 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, you know, what we presented in June was, you know, and then on top of that, you that is happening at the frontier you know 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 um the the narrative we presented in our strategy in june is still the one we're pursuing and still strongly believe in you know 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, you know, training and deploying at the line on device, complemented by one vision 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 Cognix is a huge accelerator, you know, even while we keep a close eye on what the potential hazards and risks could be.

Maybe to add on that, but adjacent here, the usage of AI to drive the productivity I've been talking about before. And 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. 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.

Thank you both. I'll turn it back.

Thank you. Our next question is coming from Jacob Levinson of Milius Research. Please go ahead. Jacob, please make sure your line is not on mute.

Sorry about that. I had myself on mute, but good morning, everyone. Hey, Jacob. 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 it certainly deserves all the credit that you can see in your stock price. Thank you. Matt, I mean, you touched a little bit on this with the MPIs 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'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.

Yeah, thanks, Jake. Yeah, 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 I think on that measure, both of those measures, both the quality and the vitality, 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, you know, one that was very centered around programmatic interfaces and, you know, pressing a whole bunch of buttons to configure a tool 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, you know, 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 yeah, I think all those things are coming together. And then we've made some other smart choices, I think. 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 insights. One vision. And making sure that all our new products are compatible with one vision, I think, was also a very smart move that's proving to be a very powerful tool for customers to adopt advanced Ai you know much more quickly than in the past. yeah and then and then we've been working with with great technology partners right we disclosed in video and qualcomm you know these are really world class edge computing. Chip set 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, you know, 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.

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's 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.

Yeah, 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 two large European and American trade shows. You can really see it in action. But yeah, 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 a 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 rating, which today is still, as you rightly point out, the vast majority of applications and the vast majority of our business. So, yeah, I think we're playing a really great game right now in logistics. You're seeing that in the numbers and 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 right And so we'll continue to fund that as appropriate to keep driving growth and share gain.

Great. Thank you. Appreciate the call. I'll pass it on.

Thank you. Our next question is coming from Guy Hartwick of Barclays. Please go ahead.

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

Yeah, guys, thanks. Yeah, no, it's definitely a hot market right now for us and for many others. I like to think that our STEMI business is a natural hedge against maybe some other cost increases or cost headwinds we're facing on the supply chain side. But yeah, we've had great relationships with leading STEMI OEMs for decades now, and they consume our technology really across the board, from vision tools to optics and lights to completed systems. And, you know, like, like any OEM, you work really hard to specify in your, your technology and they, they kind of lock in those designs and you sell them through for years. So it tends to be a very stable delivery stream. You know, is our visibility improving? Maybe a little, but, but nothing I'd really call out in particular, you know, 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. So that's how I'd put it, sustained growth. Yeah, 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 has proven to be very valuable. I'd maybe defer to Dennis in terms of the specifics on how he would frame the growth. Right.

So, hey, really the three markets which kind of lifted the revenue growth rate here were electronics, semi, and packaging. 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. 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 as a hedge overcompensating actually what we see on the cost side as well.

And just to 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 contract manufacturer capacity changes from China to China to ex-China.

Yeah, 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 adapt. And so that might result in lower machine counts initially. And so You know, 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, you know, 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. Thank you.

Thank you. Our next question is coming from Piyush Abbasi of Citi. Please go ahead.

Good morning, guys. Hey, Piyush. Maybe like starting with the updated 2026 view, like seems like you're projecting your end markets to roughly grow like mid-single digit to high single digit range, like one Q26 growth was really strong and two Q guidances around like mid-teens growth. I understand that comps get harder in second half, but seems you're digging 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?

No, Piyush, I'd say it's really a question of visibility, right? I 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. 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.

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 the clear reminder that Q4 is a very strong comp in that regard. But Yeah, 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.

Got it. Helpful. And it's like a similar question on margins. Like last quarter, you suggested a run rate of 45% EBITDA margin by the year end. I think 1Q26 and 2Q guidance already suggest margin about 25% threshold. So you have your cost reduction actions in play. Underlying command environment seems to be helping. And you mentioned focusing on productivity. So do you think like 25% even dies 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?

Jan Bogaert, You know, see I think when we when we put out. Jan Bogaert, The initial financial framework last year, the investor day we always took the philosophy let's put out numbers which we can reach will involve to 18 months and we're certainly pleased that in the last earnings call we could. already upped 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 like 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 three 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. I appreciate all the good luck, guys. Good luck.

Thank you.

Thank you. Our next question is coming from Andrew Biscaglia of BNB Paribas. Please go ahead.

Hey, good morning, everyone.

Hi, Andrew. I just wanted to check on regionally. I think America is certainly strong for you and others. I wonder if you could talk about some of the other reasons, Europe and specifically Asia and China. I thought it was surprising with Europe. You're really not seeing much hesitancy despite the Iran conflict. I wonder if you could comment on that and the latest on the China trends.

Yeah, let's start with Europe. Yeah, 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. What we've done is we've built a lot of flexibility into our go-to-market model. As we see risk or maybe softness in certain market verticals, we're able to very quickly shift our focus and resourcing of our sales team into other areas. I think that has really helped us, 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, you know, 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 and 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 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, know we've made good investments in in in the asean region you know we're seeing a lot of that benefit from um the regional uh shifts and supply chain activity maybe perhaps out of china uh or or in addition to china um and and we're participating in that growth in in the various asian uh uh countries um you know korea japan uh 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.

Yeah, all very interesting. 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 don't have anything to call it a trend, but what are you seeing in that market? Is it, is it just easy comps you're seeing, or is there something more to this, um, you know, that single digit growth?

I think there is something more to it. Yeah. On one hand comps always help, um, because it's been a couple of years now of, uh, no to negative growth in our, in, in, in the automotive market as a lot of those OEMs have retooled their strategy, if you will. Um, but there are great underlying, um, 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 install vision to drive higher levels of quality. 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 you know they they view automation and machine vision as a way to mitigate those uh cost increases and drive efficiency in their production uh and then labor scarcity right they they struggle to hire skilled trades people in the quantities they need and so again automation is a is a great lever and machine vision in particular uh to mitigate the effects of potential labor shortages so on one hand i think um You know, 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, you know, 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. Thanks, Beth.

Thanks, Andrew. Thank you. Our next question is coming from Quinn Fredrickson of Baird. Please go ahead.

Yeah, thanks. Good morning. 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? Sounds like large customers are performing well, but any details on the base side?

Yeah, maybe I'll just quickly touch on both large and large accounts, base accounts. Yeah, I mean, I think it's interesting. You know, 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? You know, the larger players perhaps have more capacity, financial strength, you know, 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 you know i'd say maybe we're seeing relatively less of that in base accounts where they're still mostly focused on process improvements in in the existing network but but on both i would say their interest and willingness to take advantage of vision as a way to drive process improvement is 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 know, you put that together and, you know, while recently it feels like, you know, 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.

um and and i and i feel like we're on the right track there okay thanks matt 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 yeah we are um you know we we are very well set up to manage this and have been managing it i think well for the last several months since

you know, we started catching wind of, of, of some of this, uh, around memory, but potentially, you know, beyond that, you know, at Cognex, we historically, and still today maintain very strong relationship with our suppliers. We speak with them almost daily. Um, and, uh, and so we, we can move really, really quickly, uh, to either, um, you know, shift the parts that we're consuming, you know, drive a different product strategy, work with them on, um, you know, delivery allocations as necessary work, the broker market, You know, and then obviously think about ways to mitigate through pricing actions. So, you know, 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.

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 and basically if that's these suppliers up for capacity expansions, either through greenfield investments or through driving more productivity, which then basically stirs demand for machine versions. So there's always a bit like this natural hatch to it. So in that regard, I would say bottom line is that it's not necessarily a negative to us. Understood. Thank you.

Thank you. Our next question is coming from Jamie Cook of Truist Securities. Please go ahead.

Hi. Good morning, and congratulations on a nice quarter. I guess, you know, Jenna's 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 So, you know, given the strong demand out there, like, why wouldn't we be able to pass through any of these, you know, incremental cost headwinds? And, you know, 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 that to suggest, you know what I mean, that demand is waning or tempering. Thank you.

Yeah, no, thanks, Jamie. Good morning. So maybe on pricing, maybe let me take a step back for us, 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 both margin. We then saw pricing stabilizing in 2025. That's also when we really started to gear up here internally with our internal pricing initiative, 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've been able to offset that down to the, on the bottom line level. And so in that regard, I'm not suggesting in 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 where we have the opportunity. In that regard, we don't think like there is a long-term structural reduction to the gross margin. In general, we have been saying we want to use and turn pricing from a headwind into a tailwind. I think in general, I 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 multi-year period, supporting further margin optimization and the same time period. So that's 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 may 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 as to be clear, as of this moment, we're not seeing any negative demand signals there in general. We see, as we stated at the beginning of the call, we see a strong demand there. PMI is still in expansion territory. So in general, things look good, but certainly we'll keep on watching here.

Thank you.

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

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.

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