Cognex Corporation

Greetings and welcome to Cognex Corporation first quarter 2026 earnings conference call. At this time, all participants are on a listen-only mode. A question and answer session will follow the formal presentation. If anyone requires operator assistance during the conference, please press star zero on your telephone keypad. As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Greer Aviv, Head of Investor Relations, Thank you. Please go ahead.

Thank you, Operator. Good morning, everyone, and thank you for joining us. Our earnings release was published yesterday after market closed, and our 10-Q was filed this morning. The earnings materials are available on our Investor Relations website. I am joined here today by Matt Moschner, our CEO, and Dennis Baer, our CFO. Today, we plan to share several key messages with you, including progress on our strategy and market trends, our strong performance in the first quarter, and our expectations for the second quarter. After prepared remarks, we'll open the lines for Q&A. Both our published materials and the call today will reference non-GAAP measures. You can find a reconciliation of certain items from GAAP to non-GAAP in our press release and earnings presentation. Today's earnings materials will contain forward-looking statements, including statements regarding our expectations. Our actual results may differ from our projections due to the risks and uncertainties that are described in our SBC filings, including our most recent form, 10-K. With that, I'll turn the call over to Matt.

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, strength and execution, and position Cognix 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 three of our earnings presentation, I'll start with a strategy update. First, innovations. We're advancing our technology leadership with the launch of two breakthrough AI vision systems, reinforcing our goal to be the number one 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 1st, ahead of schedule and in line with our expected proceeds. Third, on cost and productivity, we remain on track to achieve the 35 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 four, I am pleased to announce two new embedded vision systems, the Insight 6900 and Insight 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 Insight 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 Insight 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 Insight 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 five, 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 market 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 strengths. Considering the strong start in 2026, we now expect high single-digit growth, supported by continued momentum from our Salesforce 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 to 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 this 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 a 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? Thanks, Matt, and good morning, everyone. Our strong Q1 performance reflects good support execution and continued progress against our profitable growth strategy. You can see this on page 6, which highlights our results across three 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, trading 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 forwards 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 semiconductors. Staying on page 7, adjusted cross-margin expanded 420 basis points to a 71.8%, driven primarily by firewall 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 stone-hard performance 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. We continue to drive productivity and efficiency as we execute our operating model transformation and make further progress on our cost reduction actions, incurring $4.8 million of new organization charges, which are excluded from adjusted operating expenses. We remain confident in achieving $35 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 ETFs more than doubled year-over-year. at 113% to 34%, driven by operating leverage and the lower diluted share count compared to last year. It generated $241 million of free cash flow over the trading 12 months, up nearly 50% year-over-year. Trading 12 months free cash flow conversion was 119%, the sixth consecutive quarter reading 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 two 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 to 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 and 300 million dollars. 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 40 and 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 few known items that impact year-over-year comparisons but don't reflect the change in underlying demand. First, on portfolio optimization. The divestiture of our Japan-focused trading business, along with other non-core product exits, reduces revenue by approximately $5 million in Q2 and each of the following three 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. It's purely customer order timing related and doesn't change our fully expectations for this end market. Third, Q3 includes a $13 million headwind from the one-time 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 access, 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 have seen from our execution. That said, as the short cycle business has limited visibility, particularly through the second half of the year, we recognize that the broader market 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 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 action, and innovation roadmap 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.

Thank you. The floor is now open for questions. If you would like to ask a question, please press star 1 on your telephone keypad at this time. A confirmation tone will indicate that your line is in the question queue. You may press star 2 if you would like to remove your question from the queue. For participants using speaker equipment, It may be necessary to pick up the handset before pressing the star keys. We do ask that you please limit yourself to one question and one follow-up. Again, that's star 1 to register a question at this time. Today's first question is coming from Joe Ritchie of Goldman Sachs. Please go ahead.

Hey, guys. Good morning. Good morning. Good morning. So can we just start with the stronger than expected start on organic growth for the year? So putting up, you know, 21%, you know, 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 the upside this past quarter.

Yeah, thanks, Joe. Yeah, obviously very encouraged by our Q1 results and Q2 guide. You know, 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 four 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 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, really hitting its stride. So I think you put those things together, great execution on NPI, you know, our Salesforce transformation kicking in and a strong demand environment are all contributing to, you know, what we saw in Q4, Q1, and our forecast for Q2.

Yeah, 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 671%. The operating leverage or the SG&A leverage we got this quarter was material. Just how are we thinking about those two pieces as we move forward? You know, clearly the demand environment feels better in the first half, but how are you thinking about, you know, both gross margins and FG&A growth going forward?

Yeah, similar here. I'm 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, you know, volume and mix plays a big role. On the mixed side, clearly stronger factory automation and market health skills 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, but it'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 for memory cost 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, 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 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, but I find some headwinds, especially from FX, 6 million strong headwinds there, and then some of the normalization on incentive comp and commission. 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'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 Callen. Please go ahead.

Yeah, good morning, 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 we're 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, you know, focus on cost? Is it like, let's figure out profitable growth, push there? Like, how do you adjust as you wrap this program?

Yeah, no, thanks, Joe. I mean, at Cognix, 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. But I think you're right. There's definitely a mindset shift that we're taking as a leadership team and across the company that you know, last year and, you know, 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 had them 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 program, 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 with the top line. That'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 opportunities to drive leverage when we think about 2027. And I think as we have said at our investor day last year already, the expectation was 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 – How do 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 is what I would call at a really high value, right? So we're 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 the 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 emulate 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 goals, in terms of optimizing some of the ratios of all tax to revenue and so on. So in 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 Stephen Think. 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, no, I think, Tommy, you got really straight to it. I think that's what we're currently seeing, right, is that timing shift from Q3 into Q2. I said it means seasonality this year has geared a bit stronger towards Q2. 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. But 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. And I think I 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, you know, 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. You know, we've really taken the excellence we have in that market more broad to new customers and new geographies. And so, you know, 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, you know, shifts in the supply chain, you know, 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 buildouts 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, great question. I would say, you know, 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. You know, obviously there are some risks that we've discussed in the past around, you know, to the extent it enables customers 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, you know, 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, 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 know, how are we using the momentum, you know, 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, 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 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 Jason's here. the usage of AI to drive the productivity I've been talking about before. We already talked last year about using AI-assisted coding, like in software engineering, to drive efficiencies there. I think it's very exciting. We just recently launched some very great AI agents in the service side, so that means helping customers find information faster, getting answers immediately, and Yeah, 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'm 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. So 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 are 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. You know, 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 insights. You know, one vision is, 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 we've been working with great technology partners, right? We disclosed NVIDIA and Qualcomm. You know, these are really world-class edge computing devices. 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 product. 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 portfolios. Maybe you can just speak to that a little bit.

Yeah, definitely. And I invite you and others to, you know, any trade show that we're at. I think you can really experience the products, those that came to Modex and Longemat, 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. You know, we've been wanting to bring our vision technology to logistics for, you know, as long as I've been here. We think now is the time with AI and, you know, we're launching great vision tools and since last fall and we're seeing a great uptake on that. And even better, you know, 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 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 today. And so we'll continue to fund that as appropriate to keep driving growth and share gains.

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

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

Hi. Good morning. Congratulations on tremendous results. I wanted to talk about semiconductor. So I think you said earlier that semiconductor your deep relationships with leading semiconductor equipment manufacturers, positions us for sustained growth.

So I was wondering whether visibility is improving in that business.

In fact, you can maybe, you know, with more confidence, forecast double-digit growth into next year or even a year after. And for Q1, and 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, I know it's definitely a hot market right now for us and, you know, for many others. You know, I 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, yeah, 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, you know, completed systems. And, you know, like any OEM, you work really hard to specify in your technology, and they kind of block 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 nothing I'd really call out in particular. You know, we have very regular interactions with our OEM customers. You know, what they're seeing is, you know, a pretty rapid uptake in demand for their machines, maybe a little earlier in the year than we had anticipated a quarter ago. And, you know, we're also obviously trying to drive a deeper penetration of our technology with them. So that's how I'd put it, you know, sustained growth. Yeah, I would say that's fair to say. You know, 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 – So really the three end markets which kind of lifted the revenue growth rate here were electronics, semi, and packaging. You can really expect that semi was one of 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 once 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 then, yes, 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, you know, sort of contract manufacturer capacity changes from, you know, out 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. You know, new consumer form factors being one of them. But, you know, just as a reminder, you know, change in form factor has to be followed by, you know, heightened consumer demand. And so, you know, particularly some of these newer types take longer to adopt. 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.

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-final digit to high-final digit range. Like, 1Q26 growth was really strong, and 2K guidance is around, like, mid-teens growth. I understand that comps get higher in second half, but it seems you're digging in some deceleration. Like, I just want to understand if this is just consumerism on your part, even limited visibility, or are there any concerns that demand could slow?

No, P.H., I'd say it's really a question of visibility, right? Just to 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 cognizant. you know, 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, you know, 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 to higher numbers. But again, we would like to have visibility into the second quarter and certainly also the clear reminder that Q4 is a very strong comp in that regard. But again, 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 in our portfolio. 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. And 1 through 26 and 2 through guidance already suggest 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? Yeah, see, Piyush, I think when we put out the initial financial framework last year, 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 year, I think, I already upped that number. I had achieved the greater than 20% number of the full year I had, 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 visibility into the second half of the year before we put out any new numbers. 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 wish it all the good luck, guys. Good luck. Thank you.

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

Hey, good morning, everyone. Hey, 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 regions, 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. And You know, what we've done is, you know, 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, you know, 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 like to think, been driven by the investments we've made in the country over the last 12 to 18 months. You know, 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 years ago in China, and that's great to see. You know, across the rest of Asia, you know, we've made good investments in the ASEAN region. You know, we're seeing a lot of that benefit from the regional shifts in supply chain activity, maybe perhaps out of China or in addition to China. And we're participating in that growth in the various ASEAN countries. You know, 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.

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 didn't mean to call it a trend, but what are you seeing in that market? Is it just easy comp you're seeing, or is there something more to this single-digit growth?

I think there is something more to it. Yeah, on one hand, comps always help because it's been a couple 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 – 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 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 tradespeople in the quantities they need. And so, again, automation is a great lever, and 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.

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, 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. Um, sounds like large customers are performing well, but any details on the baseline?

Um, yeah, maybe, maybe I'll just quickly touch on both large and large accounts, base, base accounts. Um, 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, an ambition to continue to grow capacity. And so we are seeing that at our larger accounts. They're doing both, driving productivity and 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 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. 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, and I feel like we're on the right track there.

Okay, thanks, Matt. And then just the 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 as well?

Yeah, we are. You know, 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 some of this around memory, but potentially, you know, beyond that. You know, at Cognex, we historically and still today maintain very strong relationships with our suppliers. We speak with them almost daily. And so we can move really, really quickly to either, you know, shift the parts that we're consuming, you know, drive a different product strategy, work with them on, 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 is that these suppliers are for capacity expansions either through or to driving more productivity, which then basically is scarce 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, etc., 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, 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 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 a second. 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. 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've been able to offset that down to the bottom line level. And so then we go ahead. 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 still a 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 in the same time period. So this is 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 week of the quarter in terms of demand is pretty much in line with the guide which we should 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 that's to be clear. As of this moment, we're not seeing any negative demand signals there. 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.

Thank you.

Thank you. At this time, I'd like to turn the floor back over to Mr. Mosher 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.

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.