Q2 2026 Cognex Corp Earnings Call

August 6, 2026

Speaker #1: Greetings, and welcome to the COGNEX CORPORATION second 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.

Operator: Greetings, and welcome to the Cognex Corporation Q2 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. You may begin.

Speaker #1: 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.

Speaker #1: Thank you. You may begin.

Speaker #2: Thank you, operator. Good morning, everyone, and thank you for joining us. Our earnings release was published yesterday after market close, and our 10-Q was filed this morning.

Greer Aviv: Thank you, operator. Good morning, everyone, and thank you for joining us. Our earnings release was published yesterday after market close, 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 Fehr, our CFO. Today, we plan to share several key messages, including progress against our strategy, opportunities to drive diversified growth and market trends, our strong Q2 performance, and our expectations for the Q3 and full year. After prepared remarks, we'll open the line 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.

Speaker #2: The earnings materials are available on our investor relations website. I am joined here today by Matt Moschner, our CEO, and Dennis Fehr, our CFO.

Speaker #2: Today, we plan to share several key messages including progress against our strategy, opportunities to drive diversified growth, and market trends, our strong second quarter performance, and our expectations for the third quarter and full year.

Speaker #2: After prepared remarks, we'll open the line 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.

Speaker #2: 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 SCC filings, including our most recent form, 10K, with that, I'll turn the call over to Matt.

Greer Aviv: Our actual results may differ from our projections due to the risks and uncertainties that are described in our SEC filings, including our most recent Form 10-K. With that, I'll turn the call over to Matt.

Speaker #3: Thanks, Greer. Good morning, everyone, and thank you for joining us today. Q2 is another strong quarter for COGNEX, and further evidence that our strategy is driving results.

Matt Moschner: Thanks, Greer. Good morning, everyone, and thank you for joining us today. Q2 is another strong quarter for Cognex and further evidence that our strategy is driving results. We delivered record quarterly revenue, significant adjusted EBITDA margin expansion, and strong double-digit adjusted EPS growth. The demand environment remains favorable, with no material negative impact from macroeconomic or geopolitical events. We continue to benefit from an improving industrial cycle while also seeing accelerating adoption of automation and AI-enabled machine vision. Importantly, our performance reflects more than cyclical recovery. It reflects focused execution against the strategic objectives we have outlined for Cognex, along with the operating discipline required to convert growth into profitability. Our focus remains on profitable growth, operational excellence, and productivity across the organization. Turning to page three of our earnings presentation, I'll start with a strategy update.

Speaker #3: We delivered record quarterly revenue, significant adjusted EBITDA margin expansion, and strong double-digit adjusted EPS growth. The demand environment remains favorable, with no material negative impact from macroeconomic or geopolitical events.

Speaker #3: We continue to benefit from an improving industrial cycle, while also seeing accelerating adoption of automation and AI-enabled machine vision. Importantly, our performance reflects more than cyclical recovery.

Speaker #3: It reflects focused execution against the strategic objectives we have outlined for COGNEX, along with the operating discipline required to confer growth and to profitability.

Speaker #3: Our focus remains on profitable growth, operational excellence, and productivity across the organization. Turning to page three of our earnings presentation, I'll start with a strategy update.

Speaker #3: First, we are extending our technology leadership and AI-enabled machine vision, using the One Vision platform to enable new AI-driven applications and expand into high-growth end markets, including the data center supply chain.

Matt Moschner: First, we are extending our technology leadership in AI-enabled machine vision using the OneVision platform to enable new AI-driven applications and expand into high growth end markets, including the data center supply chain. Recently, we announced the general availability of OneVision, with hundreds of customers already using the platform to reduce deployment complexity, shorten time to value, and scale AI-driven vision applications. Second, we are focused on delivering the number one customer experience in the industry. As part of this journey, we are building the most comprehensive and easy-to-use machine vision ecosystem. Recent product launches have meaningfully expanded the breadth of our portfolio, giving customers access to new cutting-edge capabilities all within the same In-Sight Vision Suite software environment.

Speaker #3: Recently, we announced the general availability of One Vision, with hundreds of customers already using the platform to reduce deployment complexity, shorten time to value, and scale AI-driven vision applications.

Speaker #3: Second, we are focused on delivering the number one customer experience in the industry. As part of this journey, we are building the most comprehensive and easy-to-use machine vision ecosystem.

Speaker #3: Recent product launches have meaningfully expanded the breadth of our portfolio, giving customers access to new cutting-edge capabilities all within the same insight vision suite software environment.

Speaker #3: Customers can now address entry-level inspection applications with the Insight 2800, perform advanced 3D inspection with the Insight L38, perform complex inspections with the new Insight 3900, and gain maximum flexibility for the most demanding applications with the Insight 6900.

Matt Moschner: Customers can now address entry-level inspection applications with the In-Sight 2800, perform advanced 3D inspection with the In-Sight L38, perform complex inspections with the new In-Sight 3900, and gain maximum flexibility for the most demanding applications with the In-Sight 6900. Just as importantly, we are making our products easier to evaluate, deploy, and support by enhancing intuitive product setup, expanding self-service resources, and continuing to drive efficiency through a unified software ecosystem. Third, we are focused on driving growth through diversification. We are targeting growth across a broader set of customers, channels, adjacencies, and end markets. While these initiatives will take time, they are central to building a more resilient and scalable business. Let's take a closer look at each of these areas on page four. Starting with customers, we are very pleased with the progress we have made towards our objective of doubling the customer base.

Speaker #3: Just as importantly, we are making our products easier to evaluate, deploy, and support by enhancing intuitive product setup, expanding self-service resources, and continuing to drive efficiency through unified software ecosystem.

Speaker #3: Third, we are focused on driving growth through diversification. We are targeting growth across a broader set of customers, channels, adjacencies, and end markets. While these initiatives will take time, they are central to building a more resilient and scalable business.

Speaker #3: Let's take a closer look at each of these areas on page four. Starting with customers, we are very pleased with the progress we have made towards our objective of doubling the customer base.

Speaker #3: In 2025, we added approximately 9,000 new customers, and momentum continued in 2026 with approximately 4,500 new customers added year to date. This success meaningfully diversifies the customers we serve, and broadens our opportunity set.

Matt Moschner: In 2025, we added approximately 9,000 new customers, and momentum continued in 2026 with approximately 4,500 new customers added year to date. This success meaningfully diversifies the customers we serve and broadens our opportunity set. As we look ahead, our focus will increasingly shift towards a land and expand strategy, building on these new relationships, identifying the right high-potential accounts, and capturing a greater share of wallet over time. As we continue our sales force transformation, we are revitalizing our channel partner program to strengthen our overall go-to-market. By working more intentionally with our global network of systems integrators, machine builders, and services partners, we can better identify new opportunities, fulfill demand more effectively, and bring Cognex products to a broader set of customers, applications, and end markets efficiently.

Speaker #3: As we look ahead, our focus will increasingly shift towards a land-and-expand strategy. Building on these new relationships, identifying the right high-potential accounts, and capturing a greater share of wallet over time.

Speaker #3: As we continue our Salesforce transformation, we are revitalizing our channel partner program to strengthen our overall go-to-market. By working more intentionally with our global network of systems integrators, machine builders, and services partners, we can better identify new opportunities, fulfill demand more effectively, and bring COGNEX products to a broader set of customers, applications, and end markets efficiently.

Speaker #3: We will also continue to explore opportunities in adjacent markets, both organically and inorganically, where our deep domain expertise can extend to solve critical automation challenges and create meaningful long-term growth.

Matt Moschner: We will also continue to explore opportunities in adjacent markets, both organically and inorganically, where our deep domain expertise can extend to solve critical automation challenges and create meaningful long-term growth. Finally, we have a strong track record of identifying attractive new end markets and scaling them into meaningful growth platforms. Logistics is a great example. When we entered the logistics market about 10 years ago, it represented only a single-digit percentage of total revenue. Today, logistics is our largest vertical. We are applying that same playbook as we expand into the data center supply chain market. Today, data center represents only a low single-digit percentage of revenue, but is growing more than 30% year over year.

Speaker #3: Finally, we have a strong track record of identifying attractive new end markets and scaling them into meaningful growth platforms. Logistics is a great example.

Speaker #3: When we entered the logistics market about 10 years ago, it represented only a single-digit percentage of total revenue. Today, logistics is our largest vertical.

Speaker #3: We are applying that same playbook as we expand into the data center supply chain market. Today, data center represents only a low single-digit percentage of revenue, but is growing more than 30% year over year.

Speaker #3: While still early, we believe the data center supply chain has compelling strategic characteristics. It is aligned with powerful secular growth trends, requires high levels of quality and throughput, and creates opportunities for COGNEX to help customers improve productivity throughout automation.

Matt Moschner: While still early, we believe the data center supply chain has compelling strategic characteristics. It is aligned with powerful secular growth trends, requires high levels of quality and throughput, and creates opportunities for Cognex to help customers improve productivity through automation. It also reinforces how our AI leadership can open new growth platforms over time. Turning to page five, let's look at real-world example of how our technology is helping customers solve complex inspection challenges in this market. This is a server rack inspection deployment using our newest technologies, including the In-Sight 3900 and OneVision. For this application, Cognex vision systems will be mounted on robots to inspect fully assembled server racks and confirm that all major components are installed correctly and meet strict quality requirements. This demonstrates the broader applicability of our AI-enabled machine vision systems beyond our traditional end markets.

Speaker #3: It also reinforces how our AI leadership can open new growth platforms over time. Turning to page five, let's look at real-world example of how our technology is helping customers solve complex inspection challenges in this market.

Speaker #3: This is a server rack inspection, deployment using our newest technologies, including the Insight 3900 and One Vision. For this application, COGNEX Vision Systems will be mounted on robots to inspect fully assembled server racks, and confirm that all major components are installed correctly and meet strict quality requirements.

Speaker #3: This demonstrates the broader applicability of our AI-enabled machine vision systems beyond our traditional end markets. It also provides an entry point into AI infrastructure manufacturing, a rapidly growing market.

Matt Moschner: It also provides an entry point into AI infrastructure manufacturing, a rapidly growing market. Turning to end market performance on page six, the demand environment remained favorable in the second quarter. Growth was led by semiconductor, electronics, and packaging, along with continued momentum from large logistics customers. Manufacturing indicators continued to improve across key regions in the second quarter, and the US Purchasing Managers Index has now remained in expansion territory for 7 consecutive months. This improving macro backdrop, along with better visibility into H2, gives us confidence to raise our full-year outlook for nearly all end markets. Starting with logistics, momentum continued, driven by large e-commerce customers. Q2 marked our 10th consecutive quarter of double-digit growth.

Speaker #3: Turning to end market performance on page six, the demand environment remained favorable in the second quarter. Growth was led by semiconductor, electronics, and packaging, along with continued momentum from large logistics customers.

Speaker #3: Manufacturing indicators continued to improve across key regions in the second quarter, and the US purchasing managers index has now remained an expansion territory for seven consecutive months.

Speaker #3: This improving macro backdrop, along with better visibility into the second half, gives us confidence to raise our full-year outlook for nearly all end markets.

Speaker #3: Starting with logistics, momentum continued, driven by large e-commerce customers. Q2 marked our 10th consecutive quarter of double-digit growth. Given the strength of our first half performance, we are raising our full-year outlook for logistics to high single-digit growth, while continuing to expect growth rates to moderate in the second performance, excluding the divestiture of the Japan-focused trading business, packaging grew double digits.

Matt Moschner: Given the strength of our H1 performance, we are raising our full-year outlook for logistics to high single-digit growth, while continuing to expect growth rates to moderate in H2. Packaging delivered strong performance. Excluding the divestiture of the Japan-focused trading business, packaging grew double digits. Based on this momentum, we are increasing our full-year packaging outlook to double-digit growth. Electronics growth was very strong, with double-digit growth driven by broad-based demand across customers and geographies. AI is driving a new wave of innovation in electronics as manufacturers incorporate increasingly sophisticated functionality into next-generation devices. For 2026, we are increasing our full-year outlook for electronics and now expect double-digit growth. Automotive revenue declined high single digits in the quarter but was nearly flat year to date. Growth in Asia and the Americas was offset by continued weakness in Europe.

Speaker #3: Based on this momentum, we are increasing our full-year packaging outlook to double-digit growth. Electronics growth was very strong, with double-digit growth driven by broad-based demand across customers and geographies.

Speaker #3: AI is driving a new wave of innovation in electronics as manufacturers incorporate increasingly sophisticated functionality into next-generation devices. For 2026, we are increasing our full-year outlook for electronics and now expect double-digit growth.

Speaker #3: Automotive revenue declined high single digits in the quarter, but was nearly flat year to date. Growth in Asia and the Americas was offset by continued weakness in Europe.

Speaker #3: We are maintaining our full-year outlook for automotive a flat to low single-digit growth. Finally, semiconductor delivered exceptional performance, with strong double-digit revenue across all geographies.

Matt Moschner: We are maintaining our full-year outlook for automotive of flat to low single-digit growth. Finally, semiconductor delivered exceptional performance with strong double-digit revenue across all geographies. Demand continues to be driven by AI infrastructure investment and based on this strength, we are increasing our full-year outlook for semiconductor to double-digit growth. In summary, we are encouraged by the demand environment and pleased with our execution. Cognex is benefiting from both cyclical recovery and structural automation trends, while continuing to diversify the business, expand margins, and position the company for sustainable growth through 2027 and beyond. With that, I'll turn it over to Dennis to walk through our Q2 financials and our outlook for Q3 and full year. Dennis?

Speaker #3: Demand continues to be driven by AI infrastructure investment and based on this strength, we are increasing our full-year outlook for semiconductor to double-digit growth.

Speaker #3: In summary, we are encouraged by the demand environment and pleased with our execution. COGNEX is benefiting from both cyclical recovery and structural automation trends, while continuing to diversify the business, expand margins, and position the company for sustainable growth through 2027 and beyond.

Speaker #3: With that, I'll turn it over to Dennis to walk through our Q2 financials and our outlook for the third quarter and full year. Dennis?

Speaker #2: Thanks, Matt, and good morning, everyone. Q2 was a strong financial quarter, with record revenue and excellent flow-through to the bottom line. Page seven highlights our performance across three key financial metrics.

Dennis Fehr: Thanks, Matt, good morning, everyone. Q2 was a strong financial quarter with record revenue and excellent flow-through to the bottom line. Page seven highlights our performance across three key financial metrics. First, adjusted EBITDA margin was 32.2%, expanding 1,150 basis points year-over-year and marking the eighth consecutive quarter of margin expansion. Second, adjusted EPS increased 80% year-over-year, representing the eighth consecutive quarter of double-digit EPS growth. Third, trailing 12 months free cash flow conversion rate was 114%, meeting our greater than 100% target for the seventh consecutive quarter. Our strong bottom-line performance reflects continued execution of our profitable growth strategy and faster progress on cost reduction initiatives, resulting in about 100% revenue flow-through in the quarter. Turning to the income statement on page eight, revenue increased 17% year-over-year or 16% in constant currency, reaching a record quarterly revenue level for Cognex.

Speaker #2: First, adjusted EBITDA margin was 32.2%, expanding 1,150 basis points year over year and marking the eighth consecutive quarter of margin expansion. Second, adjusted EPS increased 80% year over year, representing the eighth consecutive quarter of double-digit EPS growth.

Speaker #2: And third, trading 12 months free cash flow conversion rate was 114%, meeting our greater-than-100% target for the seventh consecutive quarter. Our strong bottom line performance reflects continued execution of our profitable growth strategy and faster progress on cost reduction initiatives, resulting in about 100% revenue flow-through in the quarter.

Speaker #2: Turning to the income statement on page eight, revenue increased 17% year over year. Our 16% in constant currency, reaching a record quarterly revenue level for COGNEX.

Speaker #2: This was also our eighth consecutive quarter of year-over-year revenue growth. Looking at geographic revenue trends on a year-over-year constant currency basis, China was again our fastest growing region, with revenue increasing 42%, led by semiconductor and electronics.

Dennis Fehr: This was also our eighth consecutive quarter of year-over-year revenue growth. Looking at geographic revenue trends on a year-over-year constant currency basis, China was again our fastest-growing region, with revenue increasing 42%, led by semiconductor and electronics. Year-to-date, revenue in China is up 40%, driven in part by investments made over the past 12 to 18 months. In the Americas, revenue grew 27% with strength across nearly all end markets. Americas revenue also benefited from certain electronics customers ordering through entities based in the Americas rather than Europe. This change does not reflect an underlying shift in business mix or customer demand. Excluding this procurement change, Americas revenue still grew double digits. Europe declined 15%. Excluding the procurement change in ordering entities, Europe declined flat to low single-digit growth. Weakness in automotive was partially offset by strength in semiconductor.

Speaker #2: Year to date, revenue in China is up 40%, driven in part by investments made over the past 12 to 18 months. In the Americas, revenue grew 27%, with strengths across nearly all end markets.

Speaker #2: America's revenue also benefited from certain electronics customers ordering through entities based in the Americas, rather than Europe. This change does not reflect an underlying shift in business mix or customer demand.

Speaker #2: Excluding this procurement change, America's revenue still grew double digits. Europe declined 15%, excluding the procurement change in ordering entities, Europe declined low single digits.

Speaker #2: Weakness in automotive was partially offset by strength in semiconductor. Other Asia grew 14%, driven primarily by semiconductor. Staying on page eight, adjusted gross margin expanded 350 basis points to 71.5%, driven by favorable mix and volume.

Dennis Fehr: Other Asia grew 14%, driven primarily by semiconductor. Staying on page eight, adjusted gross margin expanded 350 basis points to 71.5%, driven by favorable mix and volume. Tariff refunds were not a material contributor to the strong gross margin performance. Adjusted operating expenses declined 3% year-over-year or 5% in constant currency, supported by accelerated cost reduction actions in the quarter. We now expect approximately $35 million of annualized net cost reductions by the end of 2026. This is closer to the lower end of our originally $35 to $40 million range, reflecting a balanced approach of disciplined cost management in times of strong growth. Looking ahead, our emphasis is increasingly shifting from cost reduction to our productivity optimization. We see meaningful opportunities to further drive efficiency through automation and continuous process improvement initiatives by continuing to grow with largely existing resources.

Speaker #2: Tariff refunds were not a material contributor to the strong gross margin performance. Adjusted operating expenses declined 3% year over year, or 5% in constant currency.

Speaker #2: Supported by accelerated cost reduction actions in the quarter. We now expect approximately 35 million dollars of annualized net cost reductions by the end of 2026.

Speaker #2: This is closer to the lower end of our originally 35 to 40 million dollar range reflecting a balanced approach of disciplined cost management in times of strong growth.

Speaker #2: Looking ahead, our emphasis is increasingly shifting from cost reduction toward productivity optimization. We see meaningful opportunities to further drive efficiency through automation and continuous process improvement initiatives by continuing to grow with largely existing resources.

Speaker #2: Adjusted EBITDA was 94 million dollars, up 81% year over year and our highest levels since Q2 2021. Adjusted EBITDA margin reached 32.2%, expanding 1,150 basis points year over year and exceeding the midpoint of guidance by more than 250 basis points.

Dennis Fehr: Adjusted EBITDA was $94 million, up 81% year-over-year and our highest level since Q2 2021. Adjusted EBITDA margin reached 32.2%, expanding 1,150 basis points year-over-year and exceeding the midpoint of guidance by more than 250 basis points, driven by favorable mix and accelerated cost reduction. Adjusted diluted EPS increased 80% year-over-year to $0.45, driven primarily by operating leverage. Cash generation remains strong. We generated $68 million of free cash flow in the quarter, compared to $40 million in the prior year period, representing approximately 70% growth. Over the trailing 12 months, free cash flow totaled $268 million, and free cash flow conversion was 114%. We returned nearly 80% of free cash flow to shareholders through both share buybacks and dividends over the trailing 12 months. Moving to page nine, I'll review our Q3 guidance.

Speaker #2: Driven by favorable mix and accelerated cost reduction. Adjusted diluted EPS increased 80% year over year to 45 cents, driven primarily by operating leverage. Cash generation remains strong.

Speaker #2: We generated 68 million dollars of free cash flow in the quarter, compared to 40 million dollars in the prior year period, representing approximately 70% growth.

Speaker #2: Over the trading 12 months, free cash flow totaled 268 million dollars and free cash flow conversion was 114%. We returned nearly 80% of free cash flow to shareholders through both share buybacks and dividends over the trading 12 months.

Speaker #2: Moving to page nine, I'll review our third quarter guidance. For Q3, we expect revenue of 300 to 320 million dollars, representing approximately 12% growth at the midpoint.

Dennis Fehr: For Q3, we expect revenue of $300 to $320 million, representing approximately 12% growth at the midpoint. Excluding the $13 million one-time benefit from the commercial partnership in Q3 2025, our guidance implies 17% revenue growth at the midpoint. Adjusted EBITDA margin is expected to be between 32% and 35%, with the midpoint representing an increase of 860 basis points year over year. Excluding the commercial partnership benefit, the midpoint implies adjusted EBITDA margin expansion of 1,140 basis points. Adjusted earnings per share is expected to be $0.50 to $0.54, with the midpoint representing approximately 58% year over year growth. Excluding the commercial partnership benefit, the midpoint implies adjusted EPS growth of 86%. On page 10, we are issuing full year 2026 guidance.

Speaker #2: Excluding the $13 million one-time benefit from the commercial partnership in Q3 2025, our guidance implies 17% revenue growth at the midpoint. Adjusted EBITDA margin is expected to be between 32% and 35%, with the midpoint representing an increase of 860 basis points year over year.

Speaker #2: Excluding the commercial partnership benefit, the midpoint implies adjusted EBITDA margin expansion of 1,140 basis points. Adjusted earnings per share is expected to be 50 to 54 cents, with the midpoint representing approximately 58% year over year growth.

Speaker #2: Excluding the commercial partnership benefit, the midpoint implies adjusted EPS growth of 86%. On page 10, we are issuing full year 2026 guidance. While we continue to monitor our macroeconomic and geopolitical risks, including memory market conditions and the broader inflationary environment, our guidance reflects improved visibility into the second half and confidence in our ability to execute our profitable growth strategy.

Dennis Fehr: While we continue to monitor macroeconomic and geopolitical risks, including memory market conditions and the broader inflationary environment, our guidance reflects improved visibility into H2 and confidence in our ability to execute our profitable growth strategy. For 2026, we expect revenue of $1.13 to $1.15 billion, representing approximately 15% growth at the midpoint, or 16% excluding the commercial partnership benefit. Adjusted EBITDA margin is expected to be between 29% and 31%, with the midpoint representing an increase of 850 basis points year over year, or 930 basis points excluding the commercial partnership benefit. This is well ahead of our prior target of exiting the year at 25% run rate and reflects disciplined execution of our cost reduction initiatives, along with an improved demand environment.

Speaker #2: For 2026, we expect revenue of 1.13 to 1.15 billion dollars, representing approximately 15% growth at the midpoint, or 16% excluding the commercial partnership benefit.

Speaker #2: Adjusted EBITDA margin is expected to be between 29 and 31%, with the midpoint representing an increase of 850 basis points year over year or 930 basis points excluding the commercial partnership benefit.

Speaker #2: This is well ahead of our prior target of exiting the year at 25% run rate and reflects discipline execution of our cost reduction initiatives, along with an improved demand environment.

Speaker #2: At the midpoint, our outlook also implies approximately 87% flow through an incremental revenue. Up from 70% in 2025. Highlighting the substantial operating leverage achieved through our transformation efforts.

Dennis Fehr: At the midpoint, our outlook also implies approximately 87% flow through on incremental revenue, up from 70% in 2025, highlighting the substantial operating leverage achieved through our transformation efforts. Adjusted earnings per share is expected to be $1.64 to $1.68, with the midpoint representing approximately 63% year over year growth, or 71% excluding the commercial partnership benefit. I would note that 2026 adjusted EPS includes approximately $0.11 per share of investment income. As interest rates and cash balances evolve, the benefit from investment income may fluctuate, making year over year EPS growth comparisons more challenging on a multi-year basis. Investors should consider this contribution when evaluating EPS growth trends. I'll now briefly update you on baseline revenue assumptions for Q3 and Q4 to support comparability.

Speaker #2: Adjusted earnings per share is expected to be 1 dollar and 64 cents to 1 dollar and 68 cents, with the midpoint representing approximately 63% year over year growth or 71% excluding the commercial partnership benefit.

Speaker #2: I would note that 2026 adjusted EPS includes approximately $0.11 per share of investment income. As interest rates and cash balances evolve, the benefit from investment income may fluctuate.

Speaker #2: Making year over year EPS growth comparisons more challenging on a multi-year basis. Investors should consider this contribution

Speaker #1: From when evaluating EPS growth trends , I now briefly update you on baseline revenue assumptions for Q3 and Q4 to support comparability As shown on page 11 , there are several known items that impact year over year comparisons , but do not reflect the change in underlying demand First , portfolio optimization .

Dennis Fehr: As shown on page 11, there are several known items that impact year over year comparisons but do not reflect a change in underlying demand. First, portfolio optimization. As discussed last quarter, the divestiture of our Japan-focused trading business, along with other non-core product exits, reduces revenue by approximately $5 million beginning in Q2 and each of the following three quarters. These actions are intentional and support improved mix, margin, and long-term profitability. Second, as expected, we saw approximately $7 million of electronics order timing shift into Q2 from Q3. Third, Q3 and full year 2026 include the previously mentioned $13 million headwind from the one-time commercial partnership benefit. In summary, Q3 headwinds include order timing and portfolio actions, not a change in underlying demand. While Q4 reflects planned portfolio exits. We encourage you to reflect these factors in your models along with the strong Q4 2025 comparison.

Speaker #1: As discussed last quarter , the divestiture of our Japan Focused trading business , along with other non-core product exits , reduces revenue by approximately $5 million beginning in Q2 , and each of the following three quarters .

Speaker #1: These actions are intentional and support improved mix margin and long term profitability Second , as expected , we saw approximately $7 million of electronics order timing shift into Q2 from Q3 Third , Q3 and full year 2026 include the previously mentioned $13 million headwind from the one time commercial Partnership benefit .

Speaker #1: In summary , Q3 headwinds include order timing and portfolio actions , not a change in underlying demand . While Q4 reflects planned portfolio exits , we encourage you to reflect these factors in your models along with the strong Q4 2025 comparison Overall , Q2 was another strong proof point for our profitable growth strategy .

Dennis Fehr: Overall, Q2 was another strong proof point for our profitable growth strategy. We delivered record revenue, significant margin expansion, strong EPS growth, and robust free cash flow. Demand remains healthy. Our operating model transformation is delivering results, and our financial model is demonstrating strong leverage. We believe Cognex is exceptionally well positioned to deliver on our commitments and create long-term shareholder value. Now Matt and I are ready for your questions. Operator, please go ahead.

Speaker #1: We delivered record revenue , significant margin expansion , strong EPS growth , and robust free cash flow Demand remains healthy . Our operating model transformation is delivering results and our financial model is demonstrating strong leverage .

Speaker #1: We believe Cognex is exceptionally well positioned to deliver on our commitments and create long term shareholder value . Now , Matt and I are ready for your questions Operator , please go ahead

Speaker #2: Thank you . The floor is now open for questions . If you would like to ask a question , please press star one on your telephone keypad .

Operator: Thank you. The floor is now open for questions. If you would like to ask a question, please press star one on your telephone keypad at this time. A confirmation tone will indicate that your line is in the question queue. You may press star two 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 limit yourself to one question and one follow-up. Again, that's star one to register a question at this time. Our first question is coming from Joe Ritchie of Goldman Sachs. Please go ahead.

Speaker #2: At this time . A confirmation tone will indicate that your line is in the question queue . You may press star two . 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 .

Speaker #2: We do ask that you limit yourself to one question and one follow up . Again , that's star one . To register a question at this time .

Speaker #2: Our first question is coming from Joe Ritchie of Goldman Sachs . Please go ahead .

Speaker #3: , hey guys . Good morning . And , , yeah , congrats on the continued progress . Thanks , Joe .

Joe Ritchie: Hey, guys. Good morning. Congrats on the continued progress.

Dennis Fehr: Thanks, Joe.

Matt Moschner: Thanks, Joe.

Speaker #1: Thanks , Joe

Matt Moschner: Thanks, Joe.

Dennis Fehr: Thanks, Joe.

Speaker #3: , so my first question , I wanted to I wanted to expand on the data center opportunity that you referenced earlier . Matt , I'm really curious because obviously data center growth has been , , robust the last couple of years .

Joe Ritchie: My first question: I wanted to expand on the data center opportunity that you referenced earlier, Matt. I'm really curious because obviously data center growth has been robust the last couple of years, and what I'm wondering is the opportunity ahead of you now because there are changes in the products that you're offering? Is there just greater adoption of machine vision for data centers today? Maybe just expand on what's creating the opportunity for you.

Speaker #3: And I'm just , what I'm wondering is , is , is it is the opportunity ahead of you now ? Because there are changes in the products that you're offering , is there just greater adoption of machine vision for , for data centers today ?

Speaker #3: Just maybe just expand on what's creating the opportunity for you ?

Speaker #4: Yeah , no thanks , Joe . , you know , we've been serving the data center market for , for several years . , but it was always a smaller portion of our business and the application that we serve .

Matt Moschner: Yeah. No. Thanks, Joe. We've been serving the data center market for several years, but it was always a smaller portion of our business, and the application that we served there was automated and secure drive removal and destruction, right? Think of this as kind of the ongoing maintenance of a data center. What's changed, obviously, is the very aggressive build-out of new facilities, and in particular, very high-tech AI-oriented facilities that are placing demands on the supply chain that are driving demand for Cognex vision. You can think of it really in three major application areas. On one hand, we're working with the manufacturers of the componentry. These are electronic parts, metal parts, sort of the physical infrastructure of a server and of a rack. There's then the assembly of those things into that rack, and then there is the deployment and maintenance and operations of that.

Speaker #4: There was , you know , automated and secure drive removal and destruction , right ? Think of this as kind of the ongoing maintenance of a data center .

Speaker #4: What's changed ? Obviously , is , , you know , the varying aggressive build out of new facilities and in particularly , , you know , very high tech , AI oriented facilities , , that are , , you know , placing demands on the supply chain , , that are driving demand for cognex vision .

Speaker #4: And you can think of it really in three major application areas . On one hand , we're working with the manufacturers of the componentry .

Speaker #4: electronic parts , metal parts , sort of the physical infrastructure of a , of a , of a , of a server and of a rack .

Speaker #4: There's then the assembly of those things into that rack . And then there is the deployment and maintenance and operations of that . I would say the majority of where the revenue is coming today .

Matt Moschner: I would say the majority of where the revenue is coming today, and we in our prepared remarks, sized that as a low single digits of revenue growing at about 30%, is mostly in that first bucket, right? We're still mostly doing quality assurance and visual inspection for the componentry, right? These are connectors, these are electrical parts, these are PCB boards, these are metal enclosures. We're starting to see activities flow through to CMs that are assembling those into servers, but still quite early in terms of doing more complete automation once those are deployed into facilities. I think we're still more on the early side of the growth wave that could come from the investment and build-out of data centers. I would still characterize it as quite nascent. On the technology side, for sure, as you saw in the slide, these are very complicated inspections, right?

Speaker #4: And we , in our prepared remarks , size that as a low single digits of revenue growing at about 30% , is mostly in that first bucket , right ?

Speaker #4: We're still mostly doing quality assurance and visual inspection for the componentry , right ? These are connectors . These are electrical parts . These are PCB boards .

Speaker #4: These are metal enclosures . We're starting to see activities flow through to CMMs that are assembling those into servers , but still quite early in terms of , , you know , doing more , more complete automation once those are deployed into facilities .

Speaker #4: So I think we're still more on the early side of the growth wave that that could come from , , you know , the investment and build out of data centers , I would still characterize it as quite nascent .

Speaker #4: You know , on the technology side , I mean , for sure , as you saw in the slide , these are very complicated inspections , right ?

Speaker #4: On one hand , hundreds of points to be inspected , very fine features , , very well suited for AI . And we're seeing that I'm not sure we could have solved these problems .

Matt Moschner: On one hand, hundreds of points to be inspected, very fine features, and very well suited for AI. We're seeing that. I'm not sure we could have solved these problems a couple of years ago without technologies like OneVision. You put those two things together, it's a market we know. It's one that is experiencing a huge wave of growth, and I think our technology is very well positioned to capture that probably for the next several years.

Speaker #4: You know , a couple of years ago without technologies like one vision . So , you know , you put those two things together .

Speaker #4: It's a market We know . It's one that is experiencing a huge wave of growth . , and , , and I think our technology is , is very well positioned to capture that probably for the next several years

Speaker #3: That's , that's super helpful . Matt . And then maybe just my follow up question for Dennis . Look , , obviously organic growth , , has been , has been very strong , expected to continue to remain strong throughout the year .

Joe Ritchie: That's super helpful, Matt. Maybe just my follow-up question for Dennis. Look, obviously organic growth has been very strong, expected to continue to remain strong throughout the year. Interesting that your OpEx was actually down on a year-over-year basis. Is the expectation for OpEx through the H2 of the year to remain down on a year-over-year basis? I just want to make sure that I have that right in the forecast.

Speaker #3: Interesting . Like your OpEx was actually down on year over year basis is the expectation for , for OpEx through the second half of the year to , to remain down on a year over year basis .

Speaker #3: I just want to make sure that I have that right in the forecast .

Speaker #1: Yeah . Joel . Yes , absolutely . I can confirm that . And that's really in line with our 35 million net cost reduction target , which we which we re-emphasized in reconfirmed , I'd say I think we made great progress already last year where we had 33 million gross cost reduction , right .

Dennis Fehr: Joe, yes, absolutely, I can confirm that, and that's really in line with our 35 million net cost reduction target, which we re-emphasized and reconfirmed. I think we made great progress already last year where we had 33 million gross cost reduction. Some of them did not show up in the P&L as we had some of the incentive comp headwinds. In this year, we are really seeing a net cost reduction. In that regard, bringing down the OpEx in this quarter and in the Q2, 5% in constant currency really kind of shows the strength of the execution there. We then from there expect probably a bit smaller step downs into the Q3, into the Q4, right? As the step down from the Q1 into the Q2 was already accelerated compared what we saw previously.

Speaker #1: Some of them did not show up in the PNL as as we had some of the incentive comp headwinds . But in this year , we're really seeing , a net cost reduction .

Speaker #1: And so in that regard , bringing down , , the OpEx in this quarter , in the second quarter , 5% in constant currency , really kind of shows the strength of the execution there .

Speaker #1: And we then from there expect , , , probably a bit smaller step downs into the third quarter , into the fourth quarter , right as the step down from the first into the second quarter was already accelerated compared to what we what we saw at previously .

Speaker #1: So in short , yes , we definitely expect , , OpEx to stay well below prior year levels . And also in the second half , also below the first half .

Dennis Fehr: In short, yes, we definitely expect OpEx to stay well below prior year's levels and also in the H2, also below the H1. That's really kind of part of the strength which we are seeing in the leverage, right? 100% revenue flows through in the Q2, 87% revenue flows through at the midpoint for the full year. Really great to see these numbers and the strength of the execution there.

Speaker #1: And that's really kind of part of the strength , which we are seeing in the , , the , in the leverage , right ?

Speaker #1: So 100% revenue flow through in the second quarter . , 87% revenue flows through at the midpoint for the year . , , really , , great to see this , , these numbers and , , the strength of the , of the execution there .

Speaker #3: Very helpful . Thank you guys .

Joe Ritchie: Very helpful. Thank you, guys.

Speaker #5: Thanks .

Speaker #2: Thank you . The next question is coming from Thomas of JP Morgan . Please go ahead .

Operator: Thank you. The next question is coming from Tomo Sano of J.P. Morgan. Please go ahead.

Speaker #6: Hi . Good morning everyone .

Tomo Sano: Hi. Good morning, everyone.

Speaker #1: Hey Tom . Good morning .

Matt Moschner: Hey, Tomo. Good morning.

Speaker #4: Good morning .

Dennis Fehr: Good morning.

Speaker #6: Thank you for taking my questions . Matt . At the the most recent auto show . , I remember you noted the sense of urgency about the automations .

Tomo Sano: Thank you for taking my questions. Matt, at the most recent Automate show, I remember you noted the sense of urgency about the automations. Could you talk about what demos, features generate the strongest customer reactions, and how is that translating into the pipeline and deal ASP, please? Thank you.

Speaker #6: Could you talk about what demo's future generate the strongest customer reactions and how is that translating into the pipeline ? And do ASP , please .

Speaker #6: Thank you .

Speaker #4: Yeah . Thanks , Tom . It was nice seeing you at the auto show . It was great to be there . , great energy .

Matt Moschner: Yeah. Thanks, Tomo. It was nice seeing you at the Automate show. It was great to be there. Great energy. As you said, if I was to summarize the show in one word, it's really urgency. What is driving that urgency? I think it's really the realization from manufacturers, in North America, but frankly, around the world, that their ability to automate and drive efficiency, productivity, at the same time, higher levels of quality is table stakes now. It's how they're going to survive and thrive, and it's no longer optional. So that was very much the mood in the air, if you will. Specifically, your question on which demos that we were showing resonated, I think for sure we were featuring our latest generation of AI tools running on our latest generation of embedded systems.

Speaker #4: And as you said , I , you know , if I was to summarize the show in one , one word , it's really urgency .

Speaker #4: And what is driving that urgency ? I think it's really the realization from manufacturers , in North America . But but frankly , around the world that , you know , their ability to automate and drive efficiency , productivity at the same time , higher levels of quality is , , is table stakes .

Speaker #4: Now it's how they're going to survive and thrive . And it's no longer optional . And so that was very much kind of the , what was the mood in the air , if you will ?

Speaker #4: You know, specifically your question on which demos that we were showing resonated, I think, for sure, we were featuring our latest generation of AI tools running on our latest generation of embedded systems.

Speaker #4: Those are the products that we launched in the spring of this year. One vision being our cloud training service. And then the 3,000, 906, and 900 really being the upgraded embedded system hardware to run those models.

Matt Moschner: Those are the products that we launched in the spring of this year. OneVision being our cloud training service, and then the 3900 and the 6900 really being the upgraded embedded system hardware to run those models all within the same software environment, which is our In-Sight Vision Suite application. That is what we featured. I would say that the head turners were really the inspections. Cognex has for years led in the area of 2D vision inspection. We've always said that there was still a big untapped market for inspections done by humans that were, in the past, not technically feasible to solve with machine vision, and we're increasingly solving some of those problems with our latest generation of AI tools. So we showed very complex PCBA inspections using our 3900. I think that was very well received.

Speaker #4: All within the same software environment , which is our insight Vision suite . , applications . So that is what we featured . I would say the head turners were really , you know , the inspections , right ?

Speaker #4: Cognex has for years led in the area of 2D vision inspection . We've always said that that was there was still a big untapped market for inspections done by humans that were , you know , in the past , not technically feasible to solve with machine vision and we're increasingly solving some of those problems with our latest generation of AI tools .

Speaker #4: And so we showed very complex pcba inspections using our 3900 . I think that was very well received . Again , back to the data center comment , you know , inspecting these very large server boards as they're being built into servers and , and put into racks , I think very relevant technology .

Matt Moschner: Back to the data center comment, inspecting these very large server boards as they're being built into servers and put into racks, I think very relevant technology. On the other hand, we had a demo on our 6900, where we allowed users to mark up pieces of art. Art is very difficult because it's highly variable in its feature set. There was a bit of glare, our systems really performed very well, where we were able to pick up very nuanced defects with no incremental training. I'd say those two, the 2D inspection demos featured very well. Again, that's an area we've really invested in over the last several years and where our AI advantage, I would say, is most pronounced at the moment.

Speaker #4: , and then on the other hand , we had a demo on our 6900 where we allowed users to kind of mark up pieces of pieces of art , right ?

Speaker #4: And art is very difficult because , , you know , it's highly variable in its feature set . There was a bit of glare .

Speaker #4: And so our systems really performed very well where we were able to pick up , , very nuanced defects . , with , , with no incremental training .

Speaker #4: , and so I'd say those two , the 2D inspection demos featured very well . And again , that's an area we've really invested in over the last several years .

Speaker #4: And where our AI advantage , I would say is most pronounced at the moment .

Speaker #6: Thank you . Matt . And follow up on , , Dennis , if you could talk about the current environment through the margin expansions , , like how , how should we think about the lead times and supply chains , inventories ?

Tomo Sano: Thank you, Matt. Follow up on, Dennis, if you could talk about the current environment through the margin expansions. How should we think about the lead times and supply chains, inventories? Is there any bottlenecks and margin impact expected in the H2 or not? Thank you.

Speaker #6: , is there any like bottlenecks and margin impacts expected in the second half or not ? Thank you .

Speaker #1: Yeah . No . Happy , happy to talk about that . , so first in the quarter we saw , we saw strong strength in the gross margin driven by by favorable mix .

Dennis Fehr: Yeah, no, happy to talk about that. First, in the quarter, we saw strength in the gross margin driven by favorable mix. Then I would also say that certainly on the bottom line, the OpEx efficiency, which we had there. To your question on the supply chain side, we have been talking about in the prior call that we expected an impact from memory price headwinds in the H2 of the year. While we are offsetting as much as we can with that through pricing, we clearly have seen that memory prices are further increasing. In that regard, we would now say about 75 basis points of gross margin headwind being included in our Q3 guide. Probably some of that may still also show up in the Q4.

Speaker #1: , and then I , I would , I would also also say that certainly on the bottom line , right , the , , the opex efficiency , which we had there , but to your question on the , on the supply chain side , right .

Speaker #1: We have been talking about in the prior call that we expect that an impact from , from memory price headwinds in the second half of the year .

Speaker #1: And , , while we , while we are offsetting , , as much as we can with that through pricing , we clearly have seen that memory prices are further increasing in that regard .

Speaker #1: We would now , , say about 75 basis points of gross margin headwind being included in our three , , Q3 guide and probably some of that may still also show up in the , in the fourth quarter .

Speaker #1: , while in , I would say , if you think about 27 , we would think like we would fully offset that through pricing .

Dennis Fehr: While in, I would say if you think about 2027, we would think like we would fully offset that through pricing. Think about it more like a timing impact, that memory prices are going up, we're increasing prices, memory prices going up further, we'll increase prices further. I wouldn't say it's a midterm headwind, it's a headwind for the H2 of the year. Then perhaps that we currently would expect that mix still favorable in the H2 of the year, probably not as strongly favorable in the H1 of the year. In that regard, our Q3 guide as well as our full year 2026 guide expects a gross margin not as strong as in the H1 of the year. Nevertheless, we can show strong bottom-line performance as we further drive OpEx efficiencies as just mentioned before.

Speaker #1: So think about it more like a timing impact that , , memory prices are going up . We're increasing prices and then memory prices going up further and will increase prices further .

Speaker #1: So I wouldn't say like it's a , it's a mid-term headwind , but it's a , it's a headwind for the , for the second half of the year .

Speaker #1: And then perhaps that we currently would expect that mix still favorable in the second half of the year , but probably not , as strongly favorable in the first half of the year .

Speaker #1: And in that regard , our , our Q3 guide as well as our full year 2026 guide , , expects , , a gross margin , not as strong as in the first half of the year , but nevertheless , we can show strong bottom line performance as we , as we further drive opex efficiencies as , as just mentioned before .

Speaker #6: Thank you Dennis , appreciate it

Tomo Sano: Thank you, Dennis. Appreciate it.

Speaker #2: Thank you . The next question is coming from Tommy Mole of Stephens . Please go ahead .

Operator: Thank you. The next question is coming from Tommy Moll of Stephens. Please go ahead.

Speaker #7: Good morning , and thank you for taking my questions .

Tommy Moll: Good morning, and thank you for taking my questions.

Speaker #1: Hey , Tommy .

Matt Moschner: Hey, Tommy. Good morning.

Speaker #4: Good morning

Speaker #7: I noted you're halfway toward the , , 9000 customers . You added in 2025 . And , , I'm curious what KPIs you could share around that progress .

Dennis Fehr: Hey, Tommy.

Tommy Moll: I noted you're halfway toward the 9,000 customers you added in 2025. I'm curious what KPIs you could share around that progress. Clearly, on the net customer adds, there's a lot of progress. Can you share anything in terms of the win rate for these leads that get put into the top of the funnel or the speed of converting those leads. Relatedly, where are we on the need or lack thereof to continue to hire new cohorts of additional sales folks? Thank you.

Speaker #7: Clearly on the net , customer adds , there's a lot of progress , but can you share anything in terms of , , the win rate for these leads that get put into the top of the funnel or the speed of , of converting those leads and then relatedly , , where are we on the need or lack thereof to continue to hire new cohorts of , , additional sales folks .

Speaker #7: Thank you .

Speaker #4: Yeah , sure . Tommy . Thanks . Yeah . And we're really happy with the progress we've made last year in the first half of this year , acquiring new customers .

Matt Moschner: Yeah, sure, Tommy. Thanks. Yeah, no, really happy with the progress we've made last year and the H1 of this year acquiring new customers. It's a key piece of our strategy to diversify, frankly, and build a stronger foundation of growth. At the same time, as we said in our structured remarks, we're thinking, as you rightly point out, as we acquire those customers, how do we expand our business with them? How do we better understand their potential so that we can direct our internal resources to really focus on the accounts where we see higher potential and maybe think of different paths to market or ways to serve on those with lower potential.

Speaker #4: , you know , it's a key piece of our strategy to , to diversify , frankly , and build a stronger foundation of growth .

Speaker #4: , at the same time , as we said in our , in our structured remarks , you know , we're thinking , as you rightly point out , as we acquire those customers , how do we expand our business with them ?

Speaker #4: How do we better understand their potential so that we can direct our internal resources to , you know , really focus on the accounts where we see higher potential .

Speaker #4: And , you know , maybe think of different paths to market or ways to serve on those with lower potential . And so there's , there's a bit of that internally where , where , you know , as we acquire new customers , we , I would say , have a much better way of understanding potential in terms of how we pursue additional opportunities with them .

Matt Moschner: There's a bit of that internally where as we acquire new customers, we, I would say, have a much better way of understanding potential in terms of how we pursue additional opportunities with them. I would say, in terms of market verticals, packaging continues to be an area where we are acquiring customers in a very strong way. On one hand, these are manufacturers that are more regional, perhaps more fragmented to serve their local markets in the production of consumer products and other healthcare products. A segment that we didn't serve as well in years past. I'd say there is a disproportion of customer adds in the packaging area. I think your question around, as we acquire customers, as we grow the customer base, how does that imply to our sales organization?

Speaker #4: I would say , you know , in terms of market verticals , packaging continues to be an area where we are acquiring customers in a , in a very strong way .

Speaker #4: On one hand , you know , these are manufacturers that have that are more regional . , perhaps more fragmented to serve their local markets in the production of consumer products and other health care products .

Speaker #4: , you know , a segment that we didn't serve as well , , in years past . And so I'd say there is a disproportionate of customer adds in the park in the packaging area .

Speaker #4: And then I think your question around , , you know , as we acquire customers , as we grow the customer base , how does that imply to our sales organization ?

Speaker #4: , you know , it's , it's an area where we've invested significantly over the last five years to grow our direct sales channel .

Matt Moschner: It's an area where we've invested significantly over the last five years to grow our direct sales channel. It's one of the biggest assets we have as a company. Hundreds of very talented technical vision experts that consult around the world. I would say at the same time, our expectation is not necessarily to continue to invest in that area as we expand our customer count. This is really where we are emphasizing our channel partners and how do we revitalize the relationships we have with systems integrators, machine builders, services partners to drive productivity in our sales organization while we acquire new customers and diversify that growth basis. Hopefully that's helpful.

Speaker #4: , it's one of the , the biggest assets we have as a company . , you know , hundreds of very talented technical vision experts that consult around the world .

Speaker #4: But I would say at the same time , our expectation is not necessarily to , to , to , to continue to invest in that area .

Speaker #4: As , as we , as we expand our customer account . And this is really where we are emphasizing , , our channel partners and how do we revitalize the relationships we have with , with systems integrators , machine builders , services partners to drive productivity in our sales organization .

Speaker #4: , while we acquire new customers and diversify that growth basis . So hopefully that's helpful .

Speaker #1: And maybe let me , let me add to that . And just reemphasize what I said . Also in the prepared remarks . Right .

Dennis Fehr: Maybe let me add to that and just reemphasize what I said also in the prepared remarks. I think 2026, especially the H1 of the time, we were really working or have been working to take out costs out of the organization. I think from here, it's really about growing with the existing resources, and that applies to sales, but also to the broader part of the organization. In that regard, we clearly are looking forward to deliver strong leverage as we continue to grow.

Speaker #1: I think 2026 and especially the first half is the time we were really working or have been working to , to take out costs out of the organization .

Speaker #1: And I think from here , it's really about growing the existing resources , and that applies to sales , but also to , to the broader part of the organization .

Speaker #1: So in that regard , we clearly are looking forward to , deliver strong leverage . , as we continue to grow .

Speaker #7: Yeah . Thank you both . That's very helpful . And , , Matt , you mentioned the point about strengthening the channel relationships .

Tommy Moll: Thank you both. That's very helpful. Matt, you mentioned the point about strengthening the channel relationships, which also falls under this diversification theme that you've talked about at length today. What details can you share there on channel? Should we think of this as enhancing the prior framework you had for channel relationships? Are there some new strategies here that you could comment on? Thank you.

Speaker #7: , which , , also falls under this diversification theme that you've talked about at length today . What details can you share there on channel ?

Speaker #7: Should we think of this as enhancing the , the prior framework ? You had for channel relationships ? Or are there some new strategies here that you could comment on ?

Speaker #7: Thank you .

Speaker #4: Yeah , I think it is more enhancing what we've had . , and you know , also taking a more coordinated , I'd say , global approach to how we manage those partnerships .

Matt Moschner: I think it is more enhancing what we've had. Also taking a more coordinated, I'd say, global approach to how we manage those partnerships. We have great partners all over the world, and when I say partners, it's kind of an umbrella term for resellers that are an extension of our sales force, systems integrators, and machine builders that incorporate Cognex vision into their much larger kind of solutions and machines, and then services partners that are very key to how we deploy at scale machine vision with customers around the world. Partners is kind of that umbrella term for really those four main categories.

Speaker #4: We have great partners all over the world . And when I say partners , it's kind of an umbrella term for , , you know , resellers that are an extension of our sales force systems integrators , and machine builders that add that , that incorporate Cognex vision into their , , you know , much larger kind of solutions and machines .

Speaker #4: And then systems , I'm sorry , services partners that are very key to how we deploy at scale machine vision , , with , with customers around the world .

Speaker #4: So partners is kind of that umbrella term for really those four main categories . And , , and yeah , you can think of us as , as , , being a little more coordinated in terms of how we think about the role that they play in each of our geographies .

Matt Moschner: Yeah, you can think of us as being a little more coordinated in terms of how we think about the role that they play in each of our geographies, having better scorecards around investments that we are making with them, and how do we measure success of those investments. Again, partner with them to be much more coordinated around our joint go-to-market efforts. I think it is much more about enhancing what we have than a fundamental shift. Yeah, doing it in a way that is frankly very complementary to our own direct selling efforts. I think it would be a mistake to think that an investment in our channel partners is somehow an investment away from our direct sales activities. They are really one and the same as we think about our overall go-to-market strategy.

Speaker #4: You know , having a better scorecards around investments that we're making with them . And how do we , how do we measure success of those investments ?

Speaker #4: , and , you know , again , partner with them to be much more coordinated around our joint go to market efforts . So I think it is much more about enhancing , , what we have than a fundamental shift .

Speaker #4: Yeah . And doing it in a way that is frankly , very complementary to our own direct selling efforts . Right . I think it would be a mistake to think that an investment in our channel partners is somehow a investment away from our direct sales activities .

Speaker #4: , they are really one and the same as we think about our overall go to market strategy .

Speaker #7: Thank you , Matt , I appreciate it . And I'll turn it back .

Tommy Moll: Thank you, Matt. I appreciate it, I will turn it back.

Speaker #2: Thank you . The next question is coming from Joseph Giordano of TD Cowen . Please go ahead .

Operator: Thank you. The next question is coming from Joseph Giordano of TD Cowen. Please go ahead.

Speaker #8: Hi . Good morning . , this is Chris on for Joe . Thank you for taking my questions . , so , , this is the first time that Cognex has issued full year guidance alongside two key results .

[Analyst] (TD Cowen): Hi. Good morning. This is Chris on for Joe. Thank you for taking my questions. This is the first time that Cognex has issued full year guidance alongside Q2 results. What has changed in the outlook that gives you confidence and visibility to provide the full year at this stage?

Chris Grenga: Hi. Good morning. This is Chris on for Joe. Thank you for taking my questions. This is the first time that Cognex has issued full year guidance alongside Q2 results. What has changed in the outlook that gives you confidence and visibility to provide the full year at this stage?

Speaker #8: , what has changed in the , in the outlook that gives you confidence and visibility to provide the full year at this stage ?

Speaker #1: See , I mean , on the one side , and Matt talked about it , we see really strong demand across most of our end markets .

Dennis Fehr: Yeah, on the one side, and Matt talked about it, we see really strong demand across most of our end markets, and it has led us to increase the outlook for these end markets. There's clearly strong conviction in the demand environment. At the same time, I really want to emphasize that we're still a short cycle, low visibility company in that sense. That means typically like a 3 to 4 months type of visibility. We would not be a company issuing full year guidance at the end of the prior year or the beginning of a year. We need to have really good visibility into the H2 of this year. This also means that we're not yet seeing everything into Q4.

Speaker #1: And it has led us to to increase the outlook for these for these end markets . So there's clearly like a strong conviction in the demand environment .

Speaker #1: At the same time , I really want to emphasize that we're still a short cycle , , low visibility company in that sense , that means typically like a 3 to 4 months type of visibility .

Speaker #1: So we would not be a company issuing full year guidance at the end of , , of the prior year or the beginning of a year .

Speaker #1: So we need to have really good visibility into the second half of this year . And this also means that we are not yet seeing everything into Q4 .

Speaker #1: , right . So we , we , we have a good view into , , a good portion of the remaining five months , but not into the full , , part of the full year .

Dennis Fehr: We have a good view into a good portion of the remaining 5 months, but not into the full part of the full year. That means like a year-end demand. We believe, considering the demand environment where we are, it will be a strong year-end demand. We haven't baked in an exceptional year-end demand. Certainly there are still lots of uncertainties still around memory prices, for example, how these will develop in that regard. There are still some uncertainties out there, nevertheless, we felt as part of our efforts over the last one and a half years to enhance investor communications and being as transparent and forthcoming as we are, we felt that we want to provide that view if we are able to.

Speaker #1: And that means like , I year end demand , right ? So we , we believe , , considering the demand environment where we are , it will be a strong , strong demand , but , , we haven't baked in like an exceptional year end And then certainly there's still also uncertainty , still around , , memory prices , for example , how this will develop .

Speaker #1: And that regard , , there are still some uncertainties out there , but nevertheless , we felt , , as part of our efforts over the last one and a half years to , to enhance investor communications and being as transparent and forthcoming as , as we are , we felt like we , , that we want to provide that view .

Speaker #1: If we are able to . And so in that regard , we felt a confident enough to put out this , this guide , , while , while we may not know everything at this moment

Dennis Fehr: In that regard, we felt confident enough to put out this guide, while we may not know everything at this moment.

Speaker #8: Thank you . , and , you know , we've , we've spoken about data center on the call . , could , could you help us , , you know , put a framework around sizing that opportunity , perhaps relative to some of your other end markets and , , , maybe provide some color on how meaningful you anticipate data center related revenue could become .

[Analyst] (TD Cowen): Thank you. We've spoken about data center on the call. Could you help us put a framework around sizing that opportunity, perhaps like relative to some of your other end markets and, maybe provide some color on how meaningful you anticipate data center related revenue could become?

Chris Grenga: Thank you. We've spoken about data center on the call. Could you help us put a framework around sizing that opportunity, perhaps like relative to some of your other end markets and, maybe provide some color on how meaningful you anticipate data center related revenue could become?

Speaker #4: Yeah . Chris . You know , I think we're not prepared necessarily to , to , to do a full sizing on full potential .

Matt Moschner: Yeah, Chris, I think we're not prepared necessarily to do a full sizing on full potential. We're in the process of that. As I said before, it's still a very nascent opportunity, and I think many years of future growth ahead of us. We're sizing it today as low single digits of revenue, with a growth path right now of 30%. You can kind of extrapolate that, whether that accelerates or decelerates, we're not prepared to say full potential. Again, I think it's an application area and it's a market that really plays to a lot of the advantages we have, and where we've created value for customers in the past, right? The cost of poor quality is extremely high, right? These racks are tens of millions of dollars, and the cost of downtime is enormous when they're not generating results and tokens, so that's great.

Speaker #4: , we're in the process of that , as I said before , it's still a very nascent opportunity . And I think , , many years of future growth ahead of us , you know , we're sizing it today as low single digits of revenue .

Speaker #4: , with , , with a growth path right now of , of 30% . And so you can kind of extrapolate that , whether that accelerates or de-celerates we're not prepared to say full potential , but again , I think it's an application area and it's a market that really plays to a lot of the advantages we have .

Speaker #4: , and where we've created value for customers in the past , right . The cost of poor quality is extremely high , right ?

Speaker #4: These , these racks are tens of millions of dollars . And the cost of downtime is enormous when they're not generating results in tokens .

Speaker #4: So that's great . , you know , the demand to roll them out quickly and scale quickly is high . , and so that , that places a strain on the production capacity , up in the supply chain .

Matt Moschner: The demand to roll them out quickly and scale quickly is high. That places a strain on the production capacity up in the supply chain, and that's certainly an area where we help with automated inspections during the manufacturing process. A lot of the component suppliers are Cognex customers already and very familiar with vision and how to apply vision to their own quality inspection processes. We're very optimistic that the technology we have and the value we typically provide is very well positioned for this market. As we get a better sense for the full potential, we will be updating you on future calls.

Speaker #4: And that's certainly an area where we help with automated inspections during the manufacturing process . And then , you know , a lot of the component suppliers , , are cognex customers already and very familiar with vision and how to apply vision to their own quality inspection processes .

Speaker #4: So we're very optimistic that , , you know , the technology we have and the value we typically provide is very well positioned for this market .

Speaker #4: , but as we get a better sense for the full potential , we will be updating you on future calls .

Speaker #8: Thank you very much

[Analyst] (TD Cowen): Thank you very much.

Chris Grenga: Thank you very much.

Speaker #2: Thank you . The next question is coming from Jacob Levinson of Melius Research . Please go ahead

Operator: Thank you. The next question is coming from Jake Levinson of Melius Research. Please go ahead.

Speaker #9: Hi . Good morning everyone .

Jake Levinson: Hi. Good morning, everyone.

Speaker #1: Hey , Jake . Good morning .

Dennis Fehr: Hey, Jake. Good morning.

Speaker #9: , just expanding on , , on electronics here . I think the the expectation is that given all this memory price increases , that , that the , the actual volumes and consumer electronics are going to slow here .

Jake Levinson: Just expanding on electronics here. I think the expectation is that given all those memory price increases, that the actual volumes in consumer electronics are going to slog from here. How do you balance that with some of this new data center business you've talked about and your own efforts of new products and the sales force changes and your customers' CapEx plans? I'll leave it at that. It seems like there's some nuance there.

Speaker #9: So how do you balance that with , with some of this new data center business ? You've talked about and , and , , and your own , you know , efforts of new products and the sales force changes and , and , and your customers CapEx plans , , I'll leave it at that .

Speaker #9: But it seems like it's , there's some nuance there .

Speaker #4: Yeah . Thanks , Jake . Yeah . No , it's certainly a risk . We're , we're thinking about , but I would say it's not one , , we're really seeing evidence of playing out in the business today , meaning higher memory prices , putting downward pressure on demand for automation with our electronics customers .

Matt Moschner: Yeah. Thanks, Jake. No, it's certainly a risk we're thinking about, but I would say it's not one we're really seeing evidence of playing out in the business today, meaning higher memory prices, putting downward pressure on demand for automation with our electronics customers. It's a risk, I would say it's not one that we're seeing manifest yet in the business. Demand remains strong. That certainly could change. I would say our growth plan and strategy in electronics is multifaceted, right? It's not just about consumer demand and line counts. That's certainly a component, but as we've talked about before, there continue to be shifts in the geographic locations of supply chains out of China to the broader ASEAN region and India, and we expect that to continue, and that's a tailwind for growth.

Speaker #4: So it's a risk , I would say it's not one that we're seeing manifest yet in the business . Demand remains strong . , but but that certainly could change .

Speaker #4: And then I would say our growth plan and strategy in electronics is , is multifaceted , right ? It's not just about consumer demand and line counts .

Speaker #4: That's certainly a component , but you know , there , as we've talked about before , there continue to be shifts in , , the geographic locations of supply chains , , out of China to , to the broader Asean region in India .

Speaker #4: And we expect that to continue . And that's , that's a tailwind for growth . You know , our own technology developments are letting us penetrate further into applications , primarily in 2D inspection .

Matt Moschner: Our own technology developments are letting us penetrate further into applications, primarily in 2D inspection. We expect that to continue. We are broadening our customer base in this area. As on one hand, there are new entrants to consumer devices that are looking to embed the latest generation of AI technology through consumer hardware. You can imagine Cognex would be supporting those efforts. Our growth in electronics and then on top of the data centers, as you mentioned. Our growth in this area is multifaceted. I think to the extent that memory prices put downward pressure on consumer demand, certainly could happen. I wouldn't say we're seeing it yet. If it does, there's other tools that we would exercise to try to overcome that headwind should it arrive.

Speaker #4: , we expect that to continue . And then we are broadening our customer base in this area . , you know , as on one hand , there are new entrants to , , consumer devices that are looking to embed the latest generation of AI technology through consumer hardware .

Speaker #4: And you can imagine Cognex would be supporting those efforts . So our growth in electronics and then on top of it , data centers , as you mentioned .

Speaker #4: So our growth in this area is multifaceted . I think to the extent that memory prices put downward pressure on consumer demand , , certainly could happen .

Speaker #4: I wouldn't say we're seeing it yet . , and , , and if it does , there's , there's other tools that we would exercise to try to overcome that headwind , should it arrive .

Speaker #1: And maybe to , to , to add to that , right . I think . Historically , certainly end user demand and volume throughput for our customers is a factor , but it's not the largest factor in terms of our electronics demand .

Dennis Fehr: Maybe to add to that, I think historically, certainly end user demand and volume throughput for our customers is a factor, but it's not the largest factor in terms of our electronics demand, right? Think about that changes in production are a big factor as well in terms of new form factors, new device types, shift in supply chain locations, adoption of latest technologies. That's probably the much bigger factor which drives our demand in consumer electronics. In that regard, just want to also make sure that you're not over-indexing just on the end user demand.

Speaker #1: Right . Think about that . Changes in production are a big factor as well in terms of , , new form factors , new device types , shift in supply chain chain locations , adoption of latest technologies .

Speaker #1: That's probably at a much bigger factor , which drives our demand . And in consumer electronics . So network , I just want to also make sure that you're not overindexing just on the end .

Speaker #1: And , and , and , , user demand

Speaker #9: Okay . That's , that's helpful . , and just on the , , on some of these new AI featured products , if you will , you've had , , certainly a big uptick in , in these new product introductions .

Jake Levinson: Okay. That's helpful. Just on some of these new AI featured products, if you will, you've had certainly a big uptick in these new product introductions. I think there's always been this promise that the capability and the cost of those products was going to bring that to a level that broadened your TAM pretty considerably, especially with some of those customers that maybe don't have the expertise in-house to adopt the older technology. Just trying to get a sense of what kind of uptake you've seen, and I know you talk about packaging, as an example market, but just trying to get a sense of what kind of uptake you've seen with these products in some of these markets you haven't traditionally been as large in.

Speaker #9: I think there's always been this promise that the , the capability and the cost of those products was , was going to , , bring , bring that to a level that broaden your Tam pretty considerably , especially with some of those customers that , that maybe don't have the expertise in house , , to adopt the older technology .

Speaker #9: , just trying to get a sense of , of what kind of uptake you've seen and you talk about packaging , , as an example , market , but just trying to get a sense of what kind of uptake you've seen with these products and some of these markets , you haven't traditionally been as large in .

Speaker #4: Yeah , yeah . No , absolutely . I think , Jake , just to be clear , your question is about as we've been able to roll out AI more powerful tools into our products , how is that driven penetration ?

Matt Moschner: Yeah. Absolutely. I think, Jake, just to be clear, your question is about as we've been able to roll out AI, more powerful tools into our products, how has that driven penetration? Is that right? In various end markets?

Speaker #4: Is that right ? In various end markets ? Yeah , yeah . Great . Great . Yeah . No for sure . I mean , , I would say in all of our five verticals , , it's been helpful .

Jake Levinson: That's right. Yeah.

Matt Moschner: Yeah. Great. Yeah. No, for sure. I would say in all of our five verticals, it's been helpful. Most notably, I think you rightly point out in packaging, right? These are historically very difficult areas to perform vision, given the high variability of packaging designs. Our latest generation of tools, whether it's classifying, defect detecting, segmenting, doing optical character recognition, we have great AI-based tools in all those areas and very well-positioned for packaging applications. For sure, that's an area where we're driving penetration of vision. We've talked about logistics, in the past where today our logistics business is still primarily traceability, which is reading barcodes to track items through fulfillment centers. SLX, which was the product that enabled vision for logistics last year, is seeing great traction, and again, all those tools are fully AI-based. Couldn't solve the problem without that technology.

Speaker #4: But , but most notably , I think you rightly point out in packaging , right ? These are historically very difficult areas to perform vision given the high variability of packaging designs .

Speaker #4: And so our latest generation of , of tools , whether it's classifying defect detecting , segmenting , , you know , doing optical character recognition , you know , we have great AI based tools in all those areas and very well positioned for packaging applications .

Speaker #4: So for sure , that's an area where , where we're driving penetration of vision . You know , we've talked about logistics , , in the past where , you know , today our logistics business is still primarily traceability , which is reading barcodes to track items through fulfillment centers .

Speaker #4: SL , which was the product , , that enabled vision for logistics last year , seeing great traction . And again , all those tools are fully AI based .

Speaker #4: Couldn't solve the problem without that technology . Consumer electronics , very difficult inspections on , you know , you can think of PC fully populated pcba where you're looking for small parts .

Matt Moschner: Consumer electronics, very difficult inspections on, you could think of fully populated PCBAs, where you're looking for small parts, very densely populated on a board, looking for missing parts, broken solder joints. Again, perfect application for AI, that we're deploying. Semiconductor, very difficult surfaces. Shiny, metallic even, silicon wafers. Again, AI is very good at finding defects, scratches, dents, other things as those wafers are being handled and processed. Quite frankly, I think our AI progress on the inspection side is quite broad. The one area I didn't mention was automotive. There I think automotive, as we've said in the past, is probably our most heavily penetrated market today with automation, but still opportunities there too, maybe on a smaller scale. Yeah, I wish I could say it was one area in particular.

Speaker #4: , very densely populated on a board looking for missing parts , you know , broken solder joints . Again , perfect application for , for AI .

Speaker #4: That we're deploying . , you know , semiconductor , right ? Very , very difficult surfaces , right ? Shiny , , you know , metallic , even silicon wafers .

Speaker #4: And again , AI is very good at finding defects , scratches , dents , other other things as those wafers are being handled and processed .

Speaker #4: So quite frankly , I think , , you know , our AI progress on the inspection side is , is , is quite broad .

Speaker #4: Now , the one area I didn't mention was , was automotive , but , , you know , there , I think we're , you know , automotive , as we've said in the past is probably our most heavily penetrated market to date with automation , but still opportunities there to maybe on a , on a smaller scale .

Speaker #4: So yeah , I wish I was one area in particular . It is , it is quite broad based . And the uptake on the new products has been strong .

Matt Moschner: It is quite broad-based. The uptake on the new products has been strong. These are leading technologies solving novel applications, in many cases first of their kind. We're seeing strong demand, strong pricing, that is commensurate to the ROIs that those problems have. Hopefully that's helpful, Jake.

Speaker #4: , you know , these are leading technologies solving novel applications in many cases , first of their kind . And so , you know , we're seeing strong demand , strong pricing , , that that is commensurate to the ROI that those problems have .

Speaker #4: So hopefully that's helpful . Jake .

Speaker #9: Super helpful . Thank pass it on

Jake Levinson: Super helpful. Thank you. I'll pass it on.

Speaker #2: Thank you . The next question is coming from Guy Hardwick of Barclays . Please go ahead

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

Speaker #3: Hi . Good morning . Congratulations . An excellent results . , , Denis on on the guidance . , thanks for giving us the full year guidance , but obviously means we can back out what's implied for Q4 .

Guy Hardwick: Hi. Good morning. Congratulations on excellent results. Dennis, on the guidance, thanks for giving us the full-year guidance, but obviously means we can back out what's implied for Q4. It looks like the step down at the midpoint will be 13% organically, Q4 versus Q3. It's been quite a long time since Cognex has had a double-digit step down. Is it fair to suggest that except that Q3 guidance reflects exceptional demand that you referenced, but Q4 doesn't, and therefore it appears to have quite a bigger step down than perhaps it should have? Is there something, or are you just baking conservatism into your guidance there?

Speaker #3: It looks like the step down at the midpoint would be 13% organically Q4 versus Q3 . It's been quite a long time since Cognex has had a double digit step down .

Speaker #3: Is it is it fair to suggest that that except that Q3 guidance reflects exceptional demand that you reference for Q4 , doesn't and therefore it appears to have quite a bigger step down than perhaps it should should have , , or is there something or you're just baking in conservatism into your guidance there ?

Speaker #1: I would say this year is a year where you see strong growth in electronics . Of course , also in some of the other verticals , like semi and packaging .

Dennis Fehr: I would say this year is a year where you see strong growth in electronics. Of course, also in some of the other verticals like semi and packaging, but nevertheless, electronics is a strong growth driver, and that drives more seasonality, right? That means in years where you have stronger electronics growth, you would expect then also a stronger seasonality effect. In that regard, that's one of the factors here. I would say I look at it a bit also like H1, H2, right? If you look at implied revenue for the H2, that's $580 million versus the $560 million in the H1 of the year. You see actually an increase of the H2 revenue, and then you have effects, like that some electronics shift into the H1.

Speaker #1: But nevertheless , electronics is a strong growth driver . And that drives more seasonality , right ? So that means in years where you have stronger electronics growth , , you would expect and also a stronger seasonality effect in that regard .

Speaker #1: That's , that's one of the factors here . , I would say I look at it , but also like first half , second half , right ?

Speaker #1: So if you look at implied revenue for the second half , that's , $580 million versus the 560 in the , in the first half of the year , , so you see actually an increase of the second half revenue .

Speaker #1: And then you have have effects , right ? Like that . Some electronics shift into the first half . You have a stronger effect of the portfolio optimization in the second half of the year .

Dennis Fehr: You have a stronger effect of the portfolio optimization in H2. If you would adjust for that, probably that growth from H1 into H2 is even more than $20 million, probably more towards $40 million. In that regard, I think in general, we feel like we see that demand momentum continuing. The only thing I would maybe otherwise point out is that certainly Q4 2023 is comparatively the strongest comp which we have, as that was the first quarter where we saw a much more favorable demand environment. Yeah, I think in general, we feel good about the demand environment.

Speaker #1: So if you would adjust for that , probably that , , growth from the first half into the second half is even more than the 20 million , probably more towards the 40 million .

Speaker #1: So in that regard , I think in general , we feel like we see that demand momentum continuing . , the only thing I would would maybe , , otherwise , , point out is that certainly Q4 last year , comparatively the strongest comp , which we have , , as , as that was the first quarter where we saw a much more favorable demand environment , , but yeah , I think , I think in general , we feel , feel good about the demand environment

Speaker #3: And just as a follow up , , I understand that Cognex put in , , a price increase in , in April . Does that gather momentum through the year ?

Guy Hardwick: Just as a follow-up, I understand that Cognex put in a price increase in, I believe, April. Does that gather momentum through the year, and how does that potentially impact gross margins?

Speaker #3: And how does that potentially impact gross margins ?

Speaker #1: So in general , , we are pleased with the pricing progress , that you're making , right ? If you think back , 2024 was a year where we had a pricing headwinds impacting gross margins .

Dennis Fehr: In general, we are pleased with the pricing progress which we're making, right? If you think back, 2024 was a year where we had pricing headwinds impacting gross margins, 2025 was a neutral year. I would say in H1 of this year, pricing was a net positive on gross margin, not one of the largest factors, right? We haven't called it out. Now for H2, as I alluded before, memory pricing impacts are negative in H2. Again, it's just more a timing effect that we see memory price increases, we reacted to it with price increases by ourselves. We see good traction with that, but probably memory and prices increased further, probably a bit more than what we had baked in into our first round of price increases.

Speaker #1: Now 25 was , was a neutral year . I would say in the first half of this year , pricing was , was a net positive on gross margin .

Speaker #1: Not not one of the largest factors , right . So we haven't called it out . Now for the second half of the year , as I alluded before , , memory price impacts are negative in the second half of the year .

Speaker #1: But again , it's just more more a timing effect that , right . We see memory price increases , we reacted to it with price increases by ourselves .

Speaker #1: We see good traction with that . But probably memory and prices , prices increased further . Probably a little bit more than what we had baked in into our first round of price increases .

Speaker #1: So we'll we'll adjust for that . And , and we'll add to that accordingly . So in general , I think we will probably still end 2026 with a net positive on pricing .

Dennis Fehr: We'll adjust for that, and we'll add to that accordingly. In general, I think we will probably still end 2026 with a net positive on pricing, and that's clearly, if you think back about the bigger picture on 2024 being a headwind, neutral 2025, a net positive in 2026, despite the memory price headwind. I think we are quite pleased about the pricing progress which we're making.

Speaker #1: And that's clearly if you if you think back about the bigger picture on 24 being a headwind neutral 25 and net positive in 26 , despite the memory price headwind , I think we're quite pleased about the pricing progress , which we're making

Speaker #3: Thank you

Guy Hardwick: Thank you.

Speaker #2: Thank you . The next question is coming from Jerome Nathan of Daiwa Securities . Please go ahead .

Operator: Thank you. The next question is coming from Jairam Nathan of Daiwa Securities. Please go ahead.

Speaker #10: Hi . Thanks for taking my question . , so I just wanted to ask you a question on strategy . , you know , Cognex has , , has generally tried to focus more on online high speed kind of applications and based on , , at least , , the picture in the slide for Rax server racks , it seems like that this could be a bit of a shift and , , I'm not saying it is bad , but I'm just , , I'm just wondering if that is the case internally and if that could open even more applications .

Jairam Nathan: Hi, thanks for taking my question. Just wanted to ask you a question on strategy. Cognex has generally tried to focus more on online high-speed kind of applications. Based on at least the picture in the slide for racks, server racks, it seems like this could be a little of a shift. I'm not saying it is bad, but I'm just wondering if that is the case internally and if that could open even more applications.

Speaker #4: Yeah . No , thanks . , for sure . I mean , one of the advantages that we have with our technology is , you know , very accurate inspections , but at line speeds , right ?

Matt Moschner: No, thanks. For sure, one of the advantages that we have with our technology is very accurate inspections, but at line speeds, right? Performing those inspections at sub-second, in some cases, sub-hundred millisecond cycle times, which is and will continue to be a focus area for Cognex. Continuous flow manufacturing is one thing, right? Where you have parts that are flying by, whether it be a bottling plant or a logistics conveyor. I think that what we tried to convey in the image for the data centers is also somehow a continuous manufacturing line where what you typically see is discrete stations of assembly. Those stations still have pretty high demands on cycle times. Now, those cycle times tend to be seconds or minutes, but it is, I would still consider it somehow a continuous flow manufacturing operation.

Speaker #4: Doing , you know , performing those inspections at , , you know , subsecond , you know , in some cases , some hundred millisecond cycle times , which is , , which is , and will continue to be a focus area for cognex .

Speaker #4: , but , you know , continuous flow manufacturing is one thing , right ? Where you have parts that are flying by , whether it be a bottling plant or a logistics conveyor .

Speaker #4: , but , you know , I think what we tried to convey in the image for the data centers is also somehow a continuous manufacturing line where what you typically see is , is discrete stations of assembly .

Speaker #4: But those stations still have pretty high demands on , on cycle times . Now , those cycle times tend to be seconds or minutes .

Speaker #4: , but , but it is , still consider it , you know , somehow a continuous flow manufacturing operation . Now , now what we're seeing is automation in that manufacturing process , you know , , what was a lot of manual labor , , you know , potentially transitioning to more robotic oriented assembly .

Matt Moschner: Now, what we're seeing is automation in that manufacturing process. What was a lot of manual labor potentially transitioning to more robotic-oriented assembly. We're putting a lot of investment in terms of how do we have our vision systems work more natively with the leading providers of robotic manipulation. I think you're seeing that get deployed in the manufacturing process of data centers, but also many other things. Jairam, I wouldn't say it's really a departure from where we focused, which as you rightly point out, is inline manufacturing. The types of that inline manufacturing can be variable, from continuous flow to more station-based manufacturing, which we would've featured in the data center example. Does that help?

Speaker #4: And so , you know , we're putting a lot of investment in terms of how do we have our vision systems work more natively with , you know , the leading providers of , of , of robotic manipulation .

Speaker #4: , and I think you're seeing that , , get , get deployed in the manufacturing process of data centers , but also many other things .

Speaker #4: So , , I wouldn't say it's really a departure from where we've focused , which as you rightly point out , is , is in line manufacturing .

Speaker #4: , but the types of that in line manufacturing , , can be variable from continuous flow to more , , station based manufacturing , which , which we would have featured in the data center example .

Speaker #4: Does that help ?

Speaker #10: Thanks . Yeah . No thanks . So just if I could ask Dennis a question on pricing . So it , you know , given the , , given the constant changes with supply chains and commodity costs , , you know , some of the companies , , seem to be going , going for dynamic pricing , , where , where , , you know , they don't kind of , , pricing is kind of increased , , more regularly .

Jairam Nathan: Thanks. Yeah. No, thanks. Just, if I could ask Dennis a question on pricing. Given the constant changes with supply chains and commodity costs, some of the companies seem to be going for dynamic pricing, where the pricing is kind of increased more regularly. Is that something Cognex would consider, and just to offset some of these inflations?

Speaker #10: , is that , is that something Cognex would , would consider and yeah , just to , just to , , offset some of these inflations .

Speaker #1: I mean , yeah , I would say dynamic pricing sounds for me , like in ticket selling , , where you would really do like whatever , every minute a price adjustment .

Dennis Fehr: I would say dynamic pricing sounds to me like in ticket selling, where you would really do every minute a price adjustment. It's probably not as much as we are pushing it, but clearly in an inflationary environment, which we are in at least what we think from a supply chain perspective, thinking about more frequent price adjusting is clearly a strategy. Certainly at the same time, right there is a sales cycle, and you don't want to disrupt also a sales cycle. There's too many price increases throughout that time. In that regard, there might be an opportunity here to think about price increases which are aligning with the sales cycle of a few months. Like every few weeks price adjustments or every day a price adjustment is probably not helpful in the sales cycle either.

Speaker #1: So it's probably not as much as we are pushing it , but clearly in an inflationary environment , which , which we are in at least what we think from , from a supply chain perspective , thinking about more frequent price adjusting is clearly a , a strategy .

Speaker #1: But , , certainly on at the same time , right , there is a sales cycle . And you , you , you don't want to disrupt also sales cycle with too many price increases throughout that time .

Speaker #1: So that regard , , there might be an opportunity here to think about price increases , which are aligning with the , with the sales cycle of a few months , but , you know , like , like every few weeks , price adjustments or every day price adjustment is probably not helpful in the cell cycle either .

Dennis Fehr: In that regard, small opportunity perhaps, but not a major shift.

Speaker #1: In that regard . , small opportunity , perhaps , but , but not , a , not a major shift .

Dennis Fehr: In that regard, small opportunity perhaps, but not a major shift.

Speaker #4: Yeah . I would also say , you know , , Cognex captures , value through price based on the value created in each of those applications and the , and the variety of applications that we solve is , , is very , very high .

Matt Moschner: Yeah. I would also say, Cognex captures value through price based on the value created in each of those applications. The variety of applications that we solve is very, very high. On one hand, when we say we're working on our pricing initiatives, it's not just about list price increases, it's also about how are we equipping our sales force with better tools to quantify the value and how we plan to capture that value. It's more like pricing execution. Keep that in mind as well. It's not just about continuous list price increases. It's also about how do we better quantify, how do we better articulate and capture the value that our products are creating in an extremely highly variable set of applications.

Speaker #4: And so , you know , on one hand , when we say , , you know , we're working on our pricing initiatives , it's not just about list price increases .

Speaker #4: It's also about how we are equipping our sales force with better tools to quantify the value, and how we plan to capture that value.

Speaker #4: And so it's more like pricing execution . So , so keep that in mind as well . It's not just about , , you know , continuous list price increases .

Speaker #4: It's also about how do we , how do we better quantify , how do we better articulate and capture the value that our products are creating and extremely highly variable set of applications .

Speaker #10: Thank you . Thanks , guys

Jairam Nathan: Thank you. Thanks, Chris.

Speaker #2: Thank you . The next question is coming from Amit Mehrotra of UBS . Please go ahead

Operator: Thank you. The next question is coming from Amit Mehrotra of UBS. Please go ahead.

Speaker #11: Good morning . This is Pratap on for Amit Mehrotra . So , , I wanted to discuss on the , , sales growth like you have been delivering very strong growth .

[Analyst] (UBS): Good morning. This is Pratap on for Amit Mehrotra. I wanted to discuss on the sales growth, like you have been delivering very strong growth, and it has been consistent across most of the end markets. Can you help us break it down, like what is driving this in terms of share gains and expansion into newer markets versus the underlying end market demand? In addition to this, like ISM and other macro indicators have been supportive as well. Do you see the scope for underlying market demand to continue to improve from here?

Pratap Singh: Good morning. This is Pratap on for Amit Mehrotra. I wanted to discuss on the sales growth, like you have been delivering very strong growth, and it has been consistent across most of the end markets. Can you help us break it down, like what is driving this in terms of share gains and expansion into newer markets versus the underlying end market demand? In addition to this, like ISM and other macro indicators have been supportive as well. Do you see the scope for underlying market demand to continue to improve from here?

Speaker #11: And it has been consistent across most of the markets . So can you help us break it down ? , like what is driving this in terms of share gains and expansion into new markets versus the underlying market demand ?

Speaker #11: And in addition to this , like ism and other macro indicators have been supportive as well . So do you see the scope for underlying market demand to continue to improve from here

Speaker #4: Yeah . Thanks for the question . It's always hard to piece out how much of our growth is . Market forces versus the quality of our own execution .

Matt Moschner: Yeah. Thanks for the question. It's always hard to piece out how much of our growth is market forces versus the quality of our own execution. I think it's a healthy portion of both. On one hand, the demand environment is strong. It's marked by our seventh month of PMIs, Purchasing Manager Index in expansion territory. I think Cognex continues to be well-aligned with sort of the secular growth trends of automation, scarcity of labor, rising input costs, higher emphasis on product quality. Those things remain. You put those together and yeah, it drives strong demand for automation and particularly machine vision, and Cognex being the leader. On the same token, I think we are executing very well. We've talked about our sales force transformation over the last several months, and that's really a couple things.

Speaker #4: I think it's I think it's a healthy portion of both . I mean , on one hand , the demand environment is strong as marked by our seventh month of , of , PMIs purchasing manager index and expansion territory .

Speaker #4: And I think Cognex continues to be well aligned with sort of the secular growth trends of automation , you know , scarcity of labor , rising , input costs , higher , higher , , emphasis on , on product quality .

Speaker #4: I mean , those things , remain . And so you put those together and yeah , it drives strong demand for automation and particularly machine vision and Cognex being the leader .

Speaker #4: But on the same token , I think we are executing very well . , you know , we've talked about our sales force transformation over the last several months .

Speaker #4: And that's really a couple of things . One , we did a lot of work on the organization of our of our sales force to make sure that they were , , you know , organized for success , you know , process and tools , making sure that they had leads that they had , , you know , we were fully leveraging our CRM systems that we've invested in .

Matt Moschner: One, we did a lot of work on the organization of our sales force to make sure that they were organized for success, process and tools, making sure that they had leads, we were fully leveraging our CRM systems that we've invested in. Of course, there's always the investments we've made in product. We've had great new product introductions over the last 18 months, 4 in 2025, and maybe our biggest set of launches in April of this year, on the AI side. Yeah, I think you put those things together, I think our team is executing really well. Really the strongest evidence is in the new customer adds that we continue to drive. At the same time, as I mentioned previously, new customer adds is one thing.

Speaker #4: , and then of course , you know , there's always the investments we've made in we've had , you know , great new product introductions over the last 18 months for in 2025 .

Speaker #4: And , you know , maybe our biggest launches in April of this year on the AI side . And so , yeah , I think you put those things together .

Speaker #4: I think our team is executing really well . , and , , and really the strongest evidence is in the new customer adds that we continue to drive .

Speaker #4: , and at the same time , as I mentioned previously , you know , new customer adds is one thing . We're also spending a lot more time thinking about , , you know , I said in the structured remarks , land and expand .

Matt Moschner: We're also spending a lot more time thinking about, I said in the structured remarks, land and expand. What are the potential at the accounts that we already serve and how do we expand our share? There we've invested to get better data, and we'll be tracking that more rigorously internally. Yeah, I think it's a strong demand environment. I think we expect that that could persist into 2027. Still too early to call, we are continuing to drive internal growth initiatives, and those are paying off really strongly as well.

Speaker #4: What are the potential , , at the accounts that we already serve and how do we expand our share ? And so there , we've invested , , to get better data and we'll be tracking that more rigorously internally .

Speaker #4: So yeah , I think , I think it's a strong demand environment . I think we expect that that could persist into 2027 .

Speaker #4: Still too early to call . , but , but we are continuing to drive internal growth initiatives . And those are paying off really strongly as well

Speaker #11: That is very helpful . Thank you . , just on , , just as a follow up on that , , on the semiconductor market , the growth rate has been very strong .

[Analyst] (UBS): That is very helpful. Thank you. Just as a follow-up on that, on the semiconductor market, the growth rate has been very strong. The underlying demand seems very good. As we look ahead, maybe over the next 1 to 2 years, do you believe these levels of demands are sustainable? Are you getting a little bit higher visibility in this market than what you have in the prior cycles? Thank you.

Pratap Singh: That is very helpful. Thank you. Just as a follow-up on that, on the semiconductor market, the growth rate has been very strong. The underlying demand seems very good. As we look ahead, maybe over the next 1 to 2 years, do you believe these levels of demands are sustainable? Are you getting a little bit higher visibility in this market than what you have in the prior cycles? Thank you.

Speaker #11: The underlying demand seems , , very good . So as you look ahead , maybe over the next 1 to 2 years , , do you believe these levels of demand are sustainable ?

Speaker #11: Are you getting a little bit , , higher visibility in this market than what you have in the prior cycles ?

Speaker #4: Yeah . No thanks . Yeah , yeah . Thank you . Couldn't couldn't be happier with the performance of our semi business . You know this is a market that Cognex has been in for decades .

Matt Moschner: No, thanks. Thank you. Couldn't be happier with the performance of our semi business. This is a market that Cognex has been in for decades. What that really means is the strength of the relationships that we have with leading semi machine builders and OEMs that deliver the capabilities to upstream and downstream producers of chipsets. It's an area that, in the last several years, we've been investing in new technologies, whether it be traceability, barcode reading, inspections. The acquisition of Moritex in 2023. Moritex as a business was heavily indexed more to a semi OEM selling advanced optics and lighting. I think you put all that together, I feel like we're very well positioned to continue to capitalize on the growth momentum that we see in the semiconductor.

Speaker #4: And what that really means is the strength of the relationships that we have with leading , semi machine builders and OEMs that , deliver the capabilities to , to , to upstream and downstream producers of chipsets .

Speaker #4: So yeah , and it's an area that in the last several years , we've been investing in new technologies , whether it be traceability , barcode reading , inspections , , and so , and then , you know , the acquisition of more Tex in 2023 , , you know , more a Tex as a business was heavily indexed more to a semi OEM advanced optics and lighting .

Speaker #4: And so I think you put all that together . I feel , I feel like we're very well positioned to continue to capitalize on the on the growth momentum that we see in semiconductor , for sure .

Matt Moschner: For sure, I'd say this cycle feels different, perhaps more durable than previous semi cycles. I could imagine how that would extend well into next year and beyond. I think that's really predicated on the continued levels of investment in AI infrastructure. Should that continue, I would fully expect that that would flow through to strong demand for Cognex products as we work with our large semi OEM partners. Maybe as we got the memory and semi question across now different end markets and different themes, maybe to summarize it. There are clearly puts and takes, right? I think on the one side, clearly memory cost was first a headwind for us on the cost side. We feel confident that we can offset that through pricing, taking out some of the timing effects. We had the notion of potential demand impact on electronics, which could happen.

Speaker #4: I'd say this cycle feels different . Perhaps more durable than previous semi cycles . , you know , I could imagine how that would extend well into next year and beyond .

Speaker #4: I think that's really predicated on the continued , , levels of investment in AI infrastructure and should that continue , I would fully expect that that would flow through to strong demand for cognex products as we work with our large semi OEM partners .

Speaker #1: Maybe as we as we got the memory and semi question across , no different end markets and different themes , maybe , maybe to summarize it , so there clearly puts and takes right .

Dennis Fehr: Maybe as we got the memory and semi question across now different end markets and different themes, maybe to summarize it. There are clearly puts and takes, right? I think on the one side, clearly memory cost was first a headwind for us on the cost side. We feel confident that we can offset that through pricing, taking out some of the timing effects. We had the notion of potential demand impact on electronics, which could happen. We also said at the same time.

Speaker #1: I think on the one side , clearly memory costs is first a headwind for us on the cost side , we feel confident that we can offset that through pricing .

Speaker #1: , taking out some of the timing effects . And we had the notion of potential , , demand impact on electronics , which , which could happen .

Speaker #1: We also said at the same time , , end user demand is only one factor , which drives our electronics demand . And then at the same time , right , we have the positives .

Matt Moschner: We also said at the same time.

Dennis Fehr: End user demand is only one factor which drives our electronics demand. At the same time, we have the positives, which is very clearly visible in the semi business as Matt just outlined. We have a positive in the electronics business in the data center market. In general, I really want to emphasize that the environment for us is really net very favorable for us, and it's not a net headwind for us in general. Actually quite positive about what we see from these trends.

Speaker #1: , which is very clearly visible in the semi business as Matt just outlined . We have a positive in the electronics business data center market .

Speaker #1: So in general , I really want to emphasize that , , the environment for us is really not very favorable for us . And that's not a net net headwind for us in general , actually quite positive about what we see in this , from these trends

Speaker #2: Thank you . This brings us to the end of today's conference . I would like to turn the floor back over to Matthew Moschner for closing comments .

Operator: Thank you. This brings us to the end of today's conference. I would like to turn the floor back over to Matt Moschner for closing comments.

Speaker #4: Great. Thank you for joining us this morning and for your continued support. We look forward to updating you on our progress in the third quarter.

Matt Moschner: Great. Thank you for joining us this morning and for your continued support. We look forward to updating you on our progress in the Q3.

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

Q2 2026 Cognex Corp Earnings Call

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