Q3 2025 Cognex Corp Earnings Call

Greetings and welcome to the cognex third quarter 2025 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 industrial relations. Thank you, please. Go ahead.

Thank you, operator. Good morning, everyone, and thank you for joining us.

Q3 was another strong quarter for cognex, we delivered outstanding Financial results which reflect our commitment to profitable growth and disciplined execution.

At the same time we remained focused on advancing our strategic objective to be the leading provider of AI technology for industrial machine vision.

Starting to page 3 of our earnings presentation. Let's look at some highlights from the third quarter.

I'm pleased to share that our third quarter key financial metrics all came in at the high end of our expectations. We delivered double-digit Revenue, growth and achieved our highest adjusted ebit margin since Q2 of 2023.

In addition to the strong financial performance, we are making meaningful progress against our strategic objectives.

First, we continue to execute our sales, force transformation, acquiring new customers and underpenetrated verticals, such as packaging, using easy to use AI enabled products.

I'm also very pleased with the progress we've made this year driving productivity in our sales organization by using new CRM tools and updated processes.

Second, we are advancing our technology leadership in AI. This quarter. We're excited to announce the launch of our new Solutions, experience product, line and Logistics which we are calling SLX.

This release. Introduces our latest AI Vision tools to solve novel applications in this fast growing vertical.

Turning to page 4. You can see that the SLX epitomizes our mission to make advanced Machine Vision easy.

By combining industry-leading AI with intuitive deployment workflows, we can solve critical logistics applications with minimal user training. Our initial rollout of SLX devices targets specific applications, including object classification and side-by-side detection, both of which complement Barker reading in mixed application workflows.

Correlator a leading Freight package and Logistics provider recently deployed SLX as the next step in their automation strategy. Enabling Advanced package detection within its sortation process.

Since implementation, per a later report, has significantly reduced costs tied to processors and seamlessly scaled the solution across its terminals and network.

These new products, extend our reach Beyond traditional barcode reading into higher Value Vision applications in logistics, they help accelerate automation adoption by offering customers, scalable easy to use solutions, that improve efficiency.

With SLX, we're also laying the foundation for other applications specific Solutions.

Next, let's review our current trends across Ken markets as shown on page 5 of the earnings presentation.

Please note that my discussion on end market performance excludes the one-time benefit from the commercial partnership in our Q3 2025 results and an additional month of more tax revenue in Q3 2024 results.

Although the macroeconomic backdrop remains uneven and geopolitical uncertainty, persists, we continue to see momentum in consumer electronics Logistics and packaging while Automotive remains soft.

Starting with Logistics, this Market remains a strong growth driver. Q3 marks our 7th consecutive quarter of double digits, year-over-year, Revenue growth, which was led by large e-commerce customers this quarter.

The current cycle is being driven, primarily by automation of existing facilities, rather than new capacity expansion, We Believe automation, penetration is still low in this vertical and the ROI on our products is very strong.

Next is Automotive as expected. Automotive Revenue continued to contract although year-over-year declines moderated through the year, the market remains challenging, but we continue to anticipate less steep decline in 2025 relative to last year's 14% contraction and we believe we are nearing the bottom.

In driving down operating costs.

Next, let's talk about packaging, the business delivered, solid Revenue growth across most geographies in Q3 packaging remains a large underpenetrated Market with less cyclicality than other verticals. We're making progress with new products and expanding sales coverage. Positioning us to capture incremental opportunities and drive further penetration. We maintain a positive full year outlook for Packaging.

Turning now to Consumer Electronics in Q3 Revenue, grew significantly year-over-year driven by broad-based strength. This Market is showing clear signs of recovery following a prolonged down cycle and we are well positioned to benefit from ongoing supply chain diversification and evolving device form factors. We maintain a positive outlook for the full year as we expect consumer electronics.

Consumer electronics to deliver its first year of Revenue growth since 2022.

Finally, turning to semiconductor Q3 revenue, it increased modestly year-over-year against a very strong comparison. Although we maintain a cautious full-year outlook,

Longer term, we expect semiconductor growth to benefit from AI-driven investment, reinforcing our confidence in the cycle. In this market, Cognex's deep relationships with leading semiconductor equipment manufacturers position us well for future growth.

In summary, Q3 underscores the strength of our strategy and execution. We remain focused on being the number 1, provider of AI technology for Machine Vision, delivering, the best customer experience in our industry and doubling our customer base, over the next 5 years. These strategic objectives supported by operational discipline and continued Innovation position us to drive long-term profitable growth and create sustainable value for our shareholders.

Let me now hand it over to Dennis to walk through the financial results. And the outlook for the fourth quarter, Dennis

Thank you, Matt.

Before reviewing Q3 results. I like to address 2, items impact and comparability this quarter.

As we discussed last quarter, we entered into a commercial partnership with a strategic Channel partner to better serve. OEM customers in the specialized field of medical lab automation which contributed 30 million dollars of Revenue, this quarter,

In addition, our Q3 2024 results included an additional month of more tax financials. As we aligned accounting schedules which added approximately 5 million dollars of Revenue to the prior year quarter.

A detailed Revenue, Bridge illustrating these factors is available on Page 6 of our presentation.

Revenue growth, excluding the impact of both the commercial partnership and the additional months of more tax. A year ago was 13,000 on a constant currency basis.

We believe this number provides the most transparent and accurate representation of our underlying topline performance for the quarter.

Turning to the quarterly details are begin with a discussion of reported Financial results followed by the financials, adjusted to execute these 2 items.

Starting with the S reported financials and page, 7, third quarter, revenue of 277 million expanded, by 18% year-over-year or by 16% on a constant currency basis.

Looking at Geographic Revenue Trends on a year-over-year constant currency basis.

America's Revenue expanded by 27% in the quarter led by continued strength and Logistics and the 1-time contribution of the commercial partnership.

Europe, grew, 24%, driven primarily by certain consumer electronics, customers shifting their ordering from China based entities to those in Europe.

Personal last quarter. This change in ordering entities, does not indicate any, underlying shift, in business mix or customer demand.

Excluding this procurement change Europe, grew modestly, and strength, and packaging. And the 1-time contribution of the commercial partnership where partially offset by continued weakness and Automotive.

Greater China Revenue increased 9% after adjusting for the shift in ordering entities and the additional months of more attacks included in the last year's Q3 growth in Greater China was very strong. This broad-based momentum across all land markets except Automotive

Other Asian Revenue declined 5% in the quarter.

After adjusting for the additional months of more tax revenue last year, other Asia grew 4% driven by consumer electronics, supply chain shifts.

Staying on page 7 adjusted every day, our margin expanded 730. Basis points driven by operating leverage discipline cost management and the 1-time benefit from the

Kept diluted earnings per. Share were 10 cents down 39% from a year ago, primarily due to a 1-time discrete tax, expense rule of 33 million related to the 1, big beautiful, bill act,

adjust the diluted EPS of 33 cents, increased by 13 cents or 69%.

I will now cover the underlying business performance adjusted to exclude the 2 items impacting comparability

Starting with the financial highlights of the third quarter page. 8 of our earnings presentation details are performance on 3 key financial metrics.

1 adjusted. Evida margin was 22.1% representing an increase of 450 basis, points year-over-year to our highest margins in Q2 of 2023.

2. Add just an EPS, increased 47% year-over-year, the fifth consecutive quarter of double digit, EPS growth, and 3 our trailing 12 months, free cash flow conversion rate. Reached 133% meeting our Target of greater than 100% for the fourth consecutive quarter.

Our focus on discipline cost management and profitable growth ensure that this quarter's strong Revenue performance, translated into strong, bottom line EPS growth and robust, free cash flow.

These Financial results, represent another key Milestone towards the through cycle, Financial framework, the outlined in our investor day.

Earning to the income statement, adjusted to exclude the 2 items, impacting comparability on page 9 of our earnings presentation.

Revenue. Increased 15% year-over-year and 13% on a constant currency basis.

Adjusted gross margin was 67.7%, down 170 basis points year-over-year, driven by an unfavorable mix and the impact of tariffs.

Adjusted operating expenses grew, 1% year-over-year and declined 1% on a constant currency, basis, driven by continuous cost management, partially offset by a meaningful headwind, from incentive compensation, in the quarter.

We have now delivered the combination of Revenue growth and adjusted Opex reduction for 3 consecutive quarters.

While we are pleased with these results, we continue to drive efficiency across the organization and incurred $3 million of reorganization charges in the quarter, which are excluded from adjusted operating expenses.

Looking ahead on an annual basis, we expect adjusted operating expenses to grow at a slower pace than revenue.

You mentioned combination of Revenue growth and continuous focus on cost management. Drove adjusted evident margin to 22.1% near the upper end of our guidance range.

Adjust the diluted EPS was 28 cents. Representing 47% year-over-year growth.

This strong EPS performance was driven by improvised Revenue growth discipline, cost management and the lower diluted share count compared to last year.

We generated 86 million dollars in free, cash flow in Q3.

Exceeding the total amount generated during the first 9 months of 2024 in a single quarter.

Trailing 12 months, free cash flow. Reached 2414 million surpassing the million dollar Mark for the first time since q1 of 2023 and increasing 132% compared to the 12-month period ending Q3 of 2024.

Trailing 12 months. Free cash flow conversion. Was 133%. Easily meeting our Target of greater than 100%.

We continued to drive working capital efficiencies in Q3, and our cash conversion, cycle declines, sequentially for the 6 Straight quarter.

Turning to Capital, allocation.

We returned 37 million to shareholders this quarter through a combination of share repurchase and dividends.

Over the past 12 months, we have returned 224 million to shareholders more than 100% of our free cash flow.

Over the long term. We remain committed to returning Capital as an important component of the discipline Capital, allocation strategy. We outlined in June

We ended Q3 with $600 million in net cash and Investments. Providing flexibility to pursue m&a, opportunities, or continuing to return Capital to shareholders.

Moving to page 10 of our earnings tax.

Cool.

In Q4, we expect Revenue to be between 230 and 245 million. We presenting roles of approximately 3% at the midpoint.

The implied sequential decline is primarily driven by the seasonal step down in our consumer, electronics business and is in line with our historical Q4 seasonality over the past decade.

Adjusted every day. Our margin is expected to be between 17 and 20% with the midpoint consistent with the level achieved in the prior year, adjusted earnings per share are expected to be between 19 and 24 cents. With the midpoint of this range representing approximately 7.5% year-over-year. Growth driven by Revenue growth and the reduction in share count.

We continue to expect no material impact on full-year adjusted earnings, our margin, and earnings per share from the tariffs announced as of today.

Our Q4 guidance implies mid single digit full year, 2025 Revenue, growth, excluding the benefit from the commercial partnership.

Looking ahead to 2026.

Average PMI readings in Q3 for major economies, including the U.S., Euro Zone, China, and Japan, were between 48 and 51, signaling that industrial activity has yet to show sustained expansion. These conditions suggest we remain in the initial stage of the cycle.

As we share that investor day. This stage is characterized by moderate growth with similar growth Dynamics in 2026 as we are experiencing in 2025.

Excluding the 1-time benefit from the commercial partnership.

To clarify.

This Outlook is not formal Revenue. Guidance, nor does it reflect changes in business conditions or visibility rather? It represents our view of the cycle based on macroeconomic indicators, and our through cycle Financial framework.

In this early cycle environment, we remain committed to disciplined cost management, while driving margin expansion and EPS growth combined with strong cash generation.

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, our 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 is star one to register a question at this time.

Today's first question is coming from Damian Charis of UBS. Please go ahead.

Hey, good morning, everyone.

Hey, Damian. Hey Damian.

I wanted to begin by asking you about, uh, consumer electronics, part of your business. Um, you know how much of the current demand strength you're seeing is a result of, you know, rising customer output and product rollouts, uh, versus, you know, your customers migrating their footprints to other regions? And I'm curious what you're hearing from some of your, uh, C customers in terms of their plans to make further shifts.

Uh, of their supply chain and what that could mean uh, you know, for your business in 2026.

Hey Damian, this is Matt, thanks for the question. Um yeah, we're very pleased with the performance of our consumer electronics, business this year. And as we said in the comments, it being um, you know, a growth year, uh, for us in in consumer after, you know, several years of, um, you know, a down cycle. And so, you know, where is that coming from? I I think you hinted at a few of them, I was actually, uh, in, uh, Azan in India, um, a few weeks ago, observing some of the, the shifts in manufacturing from mainland China.

Uh, technology in different ways. Um, you know, at the same time uh, Advanced AI Vision uh for some of the more complex, uh, cosmetic inspections is also maturing and we're seeing uh, our ability to solve new applications that may be historically. Um, weren't addressable. Um, so I think you put all those things together. And yeah, I think we feel very optimistic about where we are uh and and um, how we can participate across multiple growth factors and you know, as a global company. Um, you know, I think customers are looking to us to help them. Um, help help them, uh, produce whether it's in in 1 geography or around the world and so we're we're excited for how that could carry into 2026.

That's really helpful.

and then I wanted to ask you about China which I think you if I heard correctly um you saw 9% growth and

um,

You know, so I I guess if I just think about what we've heard from a lot of our other industrial companies that have reported uh, third quarter so far, we seem to be bucking bucking the trend there where I think a lot of others are are experiencing some, some softness in China. So, these just elaborate on what you're seeing what you know, what's driving, you know the the the broader strength there.

Yeah, absolutely. No. Thanks for noticing, you know, in Q3 we saw strong year-over-year growth in in, in Greater China which, uh, as a note includes Taiwan for us. Um, and I would say it is broad-based across verticals with perhaps the exception of of Automotive. Um, you know why, uh, We've made we've made great Investments, uh, in in, in China, in the greater China region. We have landed more localized distribution, we've invested in our sales Channel, we have local Engineering in country, you know, to try to be a more Nimble company, uh, in in that country and in that, in that region. And I think you're starting to see some of those things pay off. You know, as a reminder, um, you know, good portion of our business. I think we the past, we've said, 3 quarters roughly our, our multinationals operating in China and roughly a quarter being domestic Chinese manufacturers. And so, you know, they like working with cognex, uh, not just because of our excellent technology. But also, our Global footprint, you know, particularly as customers are are customers are thinking about potentially, you know, uh, producing in China

And other other Asian regions given given some of the trade and tariff uh uh news of recent recent months. So yeah, we're Inc encouraged by the momentum. I would also say, you know, the competitive dynamic in China. Uh, has has stabilized in many ways and we're seeing pricing, um, uh, stabilized as a result. And so you put those things together and yeah, we had a great quarter and I, I remain. Um, pretty optimistic about how the Investments we've made in this, in, in China. Uh, could pay off for us heading into next year.

That's great to hear. Thanks for all the caller.

Thank you. The next question is coming from Andrew vasalia of BNP pariba. Please go ahead.

Hey, good morning, everyone.

Hey, Andrew Andrew morning.

Um I was hoping to get this stuff. Um some of the trends you're seeing in logistics, I mean, obviously that's been very strong uh, for some time now but how much more of this existing capacity? Reinvestment, from customers can you benefit from and at what point do you need there to be another leg up in new Warehouse, build outs to grow?

Yeah, no, it's a great question. I mean, as we said in the prepared remarks, most of our growth is driving productivity uh in existing uh facilities and I still see room to grow their. I think we've also said, we think this Market is still in the early Innings of its automation story and I believe that to be true. You know, you you go into a modern warehouse today, you see a lot of, um, Vision systems. But today, they're mostly doing things like barcode reading, and helping with the sortation process. I think the product, uh, release we had yesterday, uh, is a really exciting 1 for us, and I think for the industry because it really is the first, uh, meaningful step in bringing vision and visual inspection, uh, to to warehouses. And, you know, it's good to remember why that hasn't happened yet, uh, because it's a really, really hard problem, right? Given the variation, uh, that you see

Retail distribution and e-commerce. I think we're relatively uh uh uh newer to areas like uh the parcel Market, parcel market and and you know helping uh other areas like um airports as they look to automate where we're seeing quite a bit of investment. So I think those are areas where we could grow as well. So I think we remain optimistic that, you know, the growth story of logistics is not not yet over, but I would just say, um, you know, maybe a bit nonlinear

Particularly as you know, some of the, the larger customers that we serve. Um, you know, uh, you know, how how many more years can they have outside, uh, Investments? Um and so, over the over the medium term, I think we feel very good about the growth story. You know how, how we get there might be lumpy or not linear is how our characterize it.

Yeah, interesting.

Okay, and then um, you know it's it's surprised to see semis grew a little bit. I think we were expecting much if any growth at all this year which you maintained for your outlook in that space. Um,

I guess what are the what's driving that little pick up there and then can you talk about maybe your how you would benefit from the memory Market? I would imagine you guys would have exposure there. That's seems to be certainly benefiting from AI.

Um, but if you talk about that a little bit, that'd be great.

Yeah, I mean, I think the underlying demand for, for chipsets, for memory for other, um, you know, Active Components is is, is is growing and and I think will given the demand for, uh, new devices. And, and, you know, the underpinnings of advanced AI is as we see, you know, a really exciting, uh, set of new Computing, capabilities being announced. And yes, we would participate in all of those things. It's useful. Just to remind ourselves how we participate in this market, which is really through selling Vision. To large equipment manufacturers, that produce the machines that, you know, handle the Wafers or the finished package products. So, so that's really how we address the market and, and the sorts of applications that we solve are really, you know, traceability, you know, these are very high value pieces of silicon Wafers, that, that you want to make sure, um, have good traceability that have good quality, so we do visual inspection. Um, and so that's those are, um, primarily how we serve the market. Um, you know, the growth in this market, I would also characterize this somehow nonlinear, right? The, the

Ordering of those machines. Um, you know, is very much dependent on the buildout of specific facilities, but, but right now, we're seeing good, uh, healthy activity, you know? And, um, I think there's, there's good underlying demand for for, for, uh, for chips. But also, you know, I think there is a bit of, um, uh, changes in where things get made and where the Fabs are located, right? We see, you know, build out. Um, going back to the chips act in the last Administration.

Ation here in the US you know, we're seeing um uh Ambitions in countries like India to have domestic semiconductor production capacity. So I think there's also a geographic angle um as as more regions and countries participate in the manufacturing Advanced uh uh chipset so and and and I think cognex will be there and we'll serve that market as we do today through through our large equipment, manufacturing partners.

Got it. Thank you.

Thank you. The next question is coming from Tommy mole of Stevenson. Please go ahead.

Good morning, and thank you for taking my questions.

I wanted to ask about Automotive Matt. I think I heard you say it, it feels like you're nearing a bottom there.

What details can you give us? What? Um, visibility do you have into next year and to the extent? You can distinguish what you're seeing in North America versus Europe. That'd be appreciated as well. Thank you.

For us also.

Yeah, I think we are nearing about, um, but I think, I think you're right to point out the geographic differences in growth. Uh, and, you know, here in the US we are seeing, um, you know, more activity. I would say relatively more activity than Europe, which seems to be, uh, taking a longer time to recover, uh, and, you know, it's not hard to imagine why there's, you know, different geopolitical considerations around, uh, trade and tariffs.

Still see over the medium and long term as being, um, as being healthy, right? This is an industry that is still struggling with, uh, quality, uh, escapes, right? And recalls. Um, Vision helps with that. It's an industry that struggles with, with, with labor and qualified, skilled labor. Uh, automation helps with that.

And generally speaking mitigating, the increase in costs associated with production and tariffs, and things like this, and automation helps with that. So, in the near term, I'd say it's, it's it's improving and stabilizing, um, and over the long term, I think we remain optimistic.

Dennis question for you on margins.

Uh, if we look at what you just reported in the third quarter and this will be X.

More text X, the commercial partnership.

You delivered teens Topline growth with only a point of adjusted Opex growth.

Clearly that's not repeatable over a long time Horizon. And so if we if we take that as 1 book end, the other bookend, you gave us is basically a reminder of your long-term framework just that topex grows at a slower rate than sales. So that's a pretty wide range for us to think about

If we're thinking about the next 12 months, is there anything you could do to situate us somewhere within that wide range in terms of what's reasonable?

Yeah, no, fair fair question, Tommy. I would say maybe first clarifying, on Nick water, right? If you take, um, in constant currency it would be down by by a point. Um, and I'd considering that we had some incentive comp uh headwinds, right? So last year was underperforming year. And um, the year looks a bit better and that regards and I, in Prior quarters we have been talking about it. We've been 2 or even 3, uh, points down compared on the year-over-year comparison. And that's kind of few, if you think about like constant currency executing incentive comp, that's kind of the Run rate, which we are for this year and we, we keep on driving that, right? So we, we talked about, uh, taking on, um, additional reorganization charges in in this quarter and clearly that's for us to to set ourselves up for, for the future and, and, and to drive success, right? And that kind of put that a little bit also in context and, uh, my prepared remarks of how we, how we think, where we are in the

Cycle, right? So we we talked about like but in general we are we are short cycle business so we don't have a lot of visibility uh, into 2026. So we use this Marco economic indicators like PMI and they tell us, we're in the earliest stage of the cycle. That means moderate growth, and then moderate growth environment, for us means to be keep on working on Opex and and um, and drive efficiency throughout the organization and that basically then sets us up still for, um, hopefully a attractive um, EPS adjust the EPS growth, right? So if you look at at this year, um, with single digit growth, uh, on the top line, excluding the commercial partnership but adjusted EPS, if you take the implied guidance, excluding the, uh, commercial partnership that's, um, uh, bit more than 20% of eps growth. And that's kind of how we think the The Playbook could look like for 2026. That means the moment. Marco indicates more.

Growth. So let's keep on working on the OPC side and and do what we have to do. So that we that we show that adjust the DPS shows shows attractive growth rates,

I hope that helps a bit, um, with, um, narrowing it down, um, to your question, Tommy.

Yep, sure does thank you both and I'll turn it back.

Thank you. Our next question, is coming from Jake levenson of Melius research. Please go ahead.

Hi, good morning, everyone.

Hey Jake. Hey, Jake.

Uh just wanted to go back to logistics for for 1 second. I I I know you folks have seen some pretty nice growth there. The last couple quarters and but it's been it's put some pressure on your gross margins. Um if our College was given the engineering resources that that you need to use with implementing Machine Vision for some of those customers. So the question I guess is as you roll out some of these AI enabled products does that actually lower your cost to serve those customers going forward?

And you know, you might even expect similar margins, as we see in Vision in our, in our Factor automation business, uh, for Logistics and then, you know, really, I think 1 of the, the special parts of that product is it was completely rebuilt with Simplicity in mind, right? Really. A, a low touch. No touch deployment, uh, uh, that, you know, maybe takes cognex out of the loop entirely in terms of doing feasibility, but also scale deployment. So yeah, I, I, I fully expect, we'll see, um, a benefits on the gross margin line, as well as in the OPC line, as we, you know, can grow without having to grow. Um, you know, our field service resources to deploy those systems in a similar way. Yeah.

Okay, that's helpful. And just wanted to touch quickly on the, the commercial partnership that you announced. Uh, I I, I think if, if memory serves you've had more of a presence and sort of the medical device space as opposed, to live automation, but are there more opportunities like this, uh, to to partner with some of these these oems whether whether it's the medical space or others? And, and kind of, how does this fit into the the larger strategy around? Uh, yeah I wouldn't say that. I think this is a more specialized case where we found an opportunity with a partner um in a more Niche area for us. So I know I wouldn't say uh I want to I want you to extrapolate that as any sort of new new playbook for growth uh for cognex. You know, I wouldn't say that.

Okay, fair enough. Thank you very much. I'll pass it on.

Thank you. Our next question is coming from Puss, Abasi.

City, please go ahead.

Good morning, guys.

Um M maybe like on your investor that you laid out a 6 to 7% growth contribution from increased machine within penetration. It's just been like a couple quarters but maybe some early feedback on how that is progressing. Uh I see you have been you know you it has been Associated more with packaging, maybe comment on how you can see this supporting your other end markets and then there's this reorganization. Maybe just comment on like how you balance these cost actions while still being aggressive towards penetrating new markets?

Yeah, thanks. Thanks. Let me um let me take the penetration question first and you're right, we we said um, there were 6 to 7% of penetration growth on top of uh, core growth of each of our industries that led us to an attend to 11%, uh, through cycle organic, uh, growth rate. So, I think you had that, I think you had that, right? Um, where where are we seeing it? Um, you know, in a big part of that penetration, as we said, I think was a lot. That's very technology driven, right? As we innovate, we are solving often for the first time applications. That haven't been solved before. I think I mentioned, uh, Logistics as very much 1 of those and I

I I suspect and we're seeing that. The SLX is solving new, uh, Vision applications that that haven't been solved before. So we're driving, penetration and Logistics with vision. Um, similarly, in consumer electronics, we're innovating with with new tools, uh, today that are, uh, doing things, um, around, uh, cosmetic defect inspection that we're not possible in the past, we're driving penetration, in consumer electronics, and then packaging, your right? I think that is more about, um, you know, how do we educate the market and educate customers who are more Regional smaller manufacturers on the benefits of vision and we're doing that through investments in our sales channel. So, yeah, I those are just 3 areas. I would, I would point to where, um, we're driving penetration through technology, through channels, through sales coverage. Um, and uh, and I and I'm excited about about each of those

um, your second question is on uh,

Cost. Um, and you know how we're thinking about cost management and cost reductions in the context of of our growth story, right? We we take as we've said in the past a very long term view on growth and Investments. And that's, you know, it's technology company. We have to, uh, but at the same time, um, you know, we're, we're many months into making sure that given the stage of the growth cycle that we're in that we are managing our cost basis smartly. And so yeah, over the last 6 months we have moved quickly uh to right size our cost basis and a number of areas. Uh, I would say we really took a hard look at

You know, over the medium and long term and maybe have sent me out to that, that just kind of how we manage that. So we're taking a very programmatic approach so that means you're having clearly identified areas and, and work streams defined on which we which we work on. And then certainly, you can see that we're not coming out with like, here's the 1, big whatever reduction in force type of approach. But we're really kind of looking at area by area. Um, looking for efficiencies getting these efficiencies, and, um, moving on, and revisiting, after some time again, to see, like, how does that work and where can we improve further? So, it's really think about it that we, that we are driving a program, which is not looking like, that's just kind of cut cost in the short term, and maybe break a lot of things along the way. But it's, it's really a, a well balanced, uh, programmatic approach, which kind of brings the right balance between supporting the Topline growth. And at the same time, uh,

Supporting also uh, the bottom line.

Very helpful and I know you just give guidance 1 quarter ahead but you did spoil us last time with some incremental, call around 4. So as I as we think of like 1 Q 26, anything, you want to remind us in terms of seasonality, any material deviation from the End Market commentary that you just highlighted today, that would be helpful.

Yeah, feels great question. Um certainly if you if you mention it typically don't give uh longer term guidance keep in mind very short cycle business but there's certainly some, some modeling comments, I can provide. So first keep in mind on on the top line side, is that from the seasonality point of view that q1 often is like the, um, the lowest quarter in the year. But that means in that regard you you may want to look at. Um, I I really a year-over-year comparison, right? Don't look at it as a sequential comparison look on Topline and year-over-year. And then when we think about bottom line and here, maybe a particularly Opex, um, maybe I can remind you that in q1 this year, we had some favorability in Opex from um exchange rate as well as from stock cam. So these ones may not repeat um in q1 2026. So I think on the OPAC side it's probably better for you to model

Sequentially and not on a year-over-year basis. So maybe, yeah, 2 comments, Topline, look year-over-year on the seasonality and on the OPAC side and with that the bottom line rather looks sequentially and not um not year over year, I hope that's helpful.

I appreciate all the color, guys. Um, Good Luck.

Thanks.

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

Hi, good morning.

Good morning. Hi, I would like to ask about Automotive, which obviously your softest Market. Um there has been some, you know, maybe more, slightly, positive, commentary with some um major capex announcements by oems.

And I I guess typically, if you're looking at 2026 uh and the weather model launch cycle, looks perhaps a little better in the second half of the year.

You surely, you have to put the capex in, like, 12 months ahead. So, I was wondering whether there's any lead indicators from your customers in terms of models or, um, product refreshes or capex plans, which may give you some calls for optimism for 2026 in auto.

Um, yeah, thanks guy. Yeah, you know, I I would say we engage with with all the major uh oems um and uh on their automation uh plans and and on their uh platform plans if you want to call them that, and you're right, there have been some big announcements, um, from from large oems. I would say in all regions in terms of how they plan to re-platform, uh, for the future, whether that be a hybrid power trains, or fully electric, or really just I would say bringing a more software to find uh customer experience uh to to the car. Um and as as they do that, you would expect you know a healthy dose of automation.

And, you know significant re retooling, I would say, in terms of how those those vehicle platforms are made. But, you know, I wouldn't comment on specific, uh, uh, expectations for auto next year. I think that would be premature. Um, you know, I, I would just Echo the comments I made, which is, you know, we are see different seeing differences in business business, momentum across geographies relatively stronger and in the US relatively weaker still in Europe, uh, in somewhere in the middle, in Asia. So, you know, we we we work with them all. We're staying close close to it, but I think a bit too early to call it this point.

Okay, thank you.

Of Cowen. Please go ahead.

Hey guys. Good morning.

Hey, Joe. Hey Joe.

Hey, can you when you talk about like, AI making things easier to deploy? Like it's also, I guess helping non-traditional players start to try to deliver Solutions here and we're seeing that from like automation players, things like that. So can you can you maybe talk about the competitive environment? How it's like evolving with who's trying to participate on the fringes and what that means for you?

Yeah, sure. Um, you know, maybe I'll just talk about us for a minute, you know, we're we're on, um, you know, our our fourth generation of AI Vision. You know, we've been at this for almost 10 years, uh, starting with the acquisition of the E Systems and in early 2017. And we have we have great teams uh, focused on taking. Uh, some of the, some of the latest best open-source models and adding our customizations, if you want to call it that, um, to to to to make them more relevant, uh, and run effectively in industrial Vision applications. So, think of that as very much our secret sauce and reto, uh, our our who, who, who leads, um, our vision tools developments, I think, uh, talked at length, at, at investor day about how we do that and why we think we do it in a differentiated way. So I I I'd call that out and, and it's really about model performance, uh, on accuracy on speed on scalability. And I, I still see cognex as leading in those areas, but you're not wrong to say, you know, um, you know,

AI, uh, is is leading, uh, to somehow a democratization of of folks that are trying, uh, visual inspection, uh, more and more within industrial environments. So, you know, in that context I I see it as actually a great growth engine for getting more users of vision within factories. And you know, then it's on us to make sure that those Vision tools are are cognex Vision tools. So are we seeing significant changes in the competitive Dynamic? We're not. Um, but we keep a close eye on it and I'm very happy with the progress we're making in AI.

And then, you know, since you guys have kind of evolved the strategy a little bit, the only part that we haven't really seen a ton of evidence of yet is, is on the m&a side. Um, so can you maybe talk us through? What you're seeing out there? I know valuations are challenging but you know, a lot of Buzz out there on robotics now humanoids, all these different things like where, where does it make sense for cognex to participate going forward?

Hey Joe uh happy to take that question. Yeah I think it's as we as we outlined at investor today. Certainly m&a is part of all accounts for that location strategy and certainly with the strong cash flow generation, which we have seen this year. We definitely have the the potential to do m&a. But at the same time, it's also very clearly that we are setting ourselves. A very high bar in terms of a strategic set and then we have the financial profile of the, uh, a potential Target, uh, company. So that we got, I think, definitely the areas where

Yeah, uh, we we, um, could bring in especially like, uh, adding a product basket to our direct sales force. So we can really, uh, create a lot of synergies from our perspective. Um, but yeah, at the same time I I, I really want to be mindful about that. We we don't feel like a pressure to have to do an m&a and that we will be very mindful about the the financial metrics and and financial framework around it. And that could mean that an m&a wouldn't be on the cards in the next 2 or 3 years. And it will really depend on actionability and uh, if we can find the right target,

thanks guys.

Thank you. The next question is coming from Ken Neumann of keybanc capital markets, please go ahead.

Hey, good morning, guys.

810 810. All right.

Morning.

Dennis, I just wanted to kind of come back to those 2026, uh, comments that you made at the end of your prepared remarks. Uh, you know, I understand it's not formal guide, but when you say similar growth, Trends X, the commercial partnership, is that comment relative to how you see the full year of 2025 playing out, or is that more so relative to what you've seen in the last couple of quarters. All right, I just ask that because you do seem a bit more constructive on most of the end markets that you're operating in, you know, you're even kind of calling out a, you know, being close to a bottom in Auto. I'm just trying to understand the thought process there.

Electronics looks good. And then, um, I talked about an in logistics like how how

Is there a linear growth trend on a large scale? Customers or not? And Automotive maybe finding its bottom, so it definitely different aspects. Yeah. But, you know, sometimes you're trying just to not to get too much into the into the details and you of the markets and take a broader View and like what is micro telling us and just on that macro side. If you look at that, it just doesn't point to that at the moment from the PMI as of today. Um, the 2026 will look very different than 2025 and that's just another data point, which we're taking in consideration and I think

Mostly important. Why are we doing that, right? We want to think about like how do we manage the company? Also in terms of from the from the OPC side and and where do we invest and where not? And, um, so we we provided that more as a framework and the the sense of like, how do we, how do we think? And how do we do management decisions right now and wanting to give you a guidance, right? And I was trying to be very clear about this. Hey, this is not a guidance.

Yep. Know that. That makes sense. I appreciate that. Um and then maybe for the follow-up here, sorry if I missed it. But did you provide an update on the 1 V platform and just any color on when that becomes more commercially available?

Yeah, thanks again. Yeah, no, we didn't not in the prepared remarks but I'm happy to now it's 1 of the more exciting things we're working on. Um, and uh, yeah, just just to remind the group. So we we launched uh, 1 Vision or we announced 1 Vision. I would say uh in June just before the investor day and we said that it was in a limited release. What does that mean that the technology is still under active development? We're working with select customers and you know, it it it can be deployed against um, you know, specific, uh, cognex embedded systems, uh, today. And um, I would say, you know, 4 6 months on, uh, from that announcement. We continue to make very good progress progress with customers. I think they, they liked it quite a bit. We're seeing it Drive Great. Uh, uh, uh, penetration, uh, in in new applications that previously weren't solved or keeping customers within our Insight Vision Suite. Uh, uh, uh, um, ecosystem longer, I think both of those are, are are great things. I think that the, the usability of the technology is excellent. You know, it offers

Customers great ways to collaborate on model training and great ways to, to, to track the efficacy of those models after they're deployed. So we're getting great feedback on that. What comes next? Um, well, we will continue to engage with customers. Um, you can think of us engaging with, you know, hundreds of our tens of thousands of customers so so still quite targeted. Um, and and we are targeting a full-scale launch in the first half of next year and that would that would open up the product line to more customers and more territory.

Or in more geographies that would have broader support of more of our embedded systems. So so we're really focused on that uh and we're excited uh, with the momentum today. Um, I don't have any updates for you in terms of the commercial model for the product, uh, but just to say it is performing well against the metrics that we set for it.

Appreciate it. Thanks.

Thank you. The next question is coming from, Tom osano of JP Morgan. Please go ahead.

Hi thanks. This is Brendan Shea on for tommo. Um just with the launch of the SLX portfolio, can you talk to the pipeline for the new AI enabled? Use cases that you see in sort of how you see that impacting both your Tam and competitive positioning over the next year or 2?

Yeah, so we we see ourselves as um, a first mover in this style of AI vision for Logistics and I highlighted 2 applications really object classification, right? So uh, telling um, the the system, what it's observing as well as uh, side by side detection, which is a very common application, particularly in high-speed sortation and warehouses where you really want to make sure that, um, when you're identifying, uh, an object could be a box or a simulated item, that is 1 of them, not multiples of them. And so that really is helpful. So that as it as those things get, uh, sorted and diverted and and shipped, uh, you're not shipping multiples of something. And so those are the 2

Engage with customers. Well ahead of yesterday's release, the feedback has been very positive. I'm excited to get to a full release status and update you on the future of how that product line is going.

Great. Thank you. That's it for me.

Thank you. The next question is coming from Jamie Cook of truist Securities. Please go ahead.

Hey, good morning. Uh this is actually Kevin Wilson on for Jamie thanks for squeezing me in.

Um, I want to ask on you on, hey, I want to ask you in Europe. I think you said, uh, grew modestly excluding the procurement shifts, uh, in consumer electronics. Um, sorry if I missed it was, was that modest growth? Also, excluding the 1 time partnership in the quarter. Um, and then, you know, just more broadly, excluding the 1 time and excluding, uh, the procurement shifts. How are you thinking about demand Trends or organic growth um and your visibility in Europe um and maybe if it's possible to strip Out Auto um think about how that market is performing. Thanks.

Yeah, maybe, maybe let me start here and then perhaps might might well that. So I think if you look at Europe, right? So um, first of all, where did we saw, uh, strength? So we saw strength in the packaging, uh, Market. Um, thanks to all our sales, force transformation and and of, uh, increased Outreach there and penetration with our AI. Um, um, easy to use a product. But then, at the same time, you see a stronger weakness.

Still in the automotive side. So when I talked about that before, that's the 1 market in the automotive, which is really still down but that's kind of balanced itself, uh, out a little bit and, um,

Uh, in general, I would say, you know, Europe, clearly, if you look back to the, to the PMI numbers PMI have been improving over the last couple of months. Um, but really from, I would say almost depressed level more to like, um, maybe close to a neutral level, but that regard, I would say we, we remain still a bit, uh, cautious about Europe and and wouldn't call that. There is some, um, a large growth coming somewhere in the near term. At least, that's not what the suggested by the Micro Data which we are looking at.

Thanks, that's helpful. Um, and then for my follow-up, um, now that I think we're about 1 year into your your sales reorganization. Um, I'm wondering if we can update on your assessment of that change in strategy. You know, I, I know we've long stopped talking about emerging customer, uh, in those terms. Um, but with 1 vision and your broader, you know, expanding the customer base into less sophisticated customers. Uh, you know, I guess what inning are we in for, for cognex, uh, uh, Market penetration there, and any specific goals you have for calling 26 uh on your path to doubling uh, the number of customers served. Thank you.

Yeah, thanks, yeah, sure. No. I think you have it roughly, right? And just to remind the group, you know, we started on this journey of really substantially, um, a broadening our sales channel, uh, several years ago, really this, uh, in 2023. And, um, you know, as we as we, as we expanded our sales force, and brought on many new, uh, sales noises, we call them sales Engineers. Um, we made the decision to uh combined, uh, what was really 2 sales organizations into 1 earlier this year in January. And I would say, um, that was the right decision and it's going very well where we've really formed new territories and new teams, uh, focused on different missions. And those missions are, you know, between, you know, finding new customers, driving penetration and existing customers working, more sophisticated customers like machine, Builders and other oems. So, I would say, I, I'm very, very pleased with where we are in terms of our sales, strategy and sales organizational structure. I'd say as we look forward into the new year, it's it's less about significant substantial change and it's more about continuous Improvement and we've made big in.

Um, Investments over the years and, uh, modern Business Systems and tools primarily in the area of, uh, CRM. And I would say we're starting to use those tools, quite effectively, in terms of how we, um, identify new sales opportunities. We get those leads to our sales, noids to qualify and and consult. And so you know what anything we're in, I wouldn't say, but I I I'm very encouraged by the progress we've made since um, since the first of this year. And you know, really the Focus right now is on continuous improvements driving efficient.

And less about any substantial changes heading into next year.

Thank you.

Thank you. That is all the time we have for questions today. I will now turn the call back over to Mr. Motion for closing comments.

Thank you for joining us this morning and for your continued support. We look forward to updating you on our progress as we head into Q4.

Time.