Cognex Q2 2025 Earnings Report

Cognex EPS Results

• Actual EPS: $0.25
• Consensus EPS: $0.23
• Beat/Miss: Beat by +$0.02
• One Year Ago EPS: $0.23

Cognex Revenue Results

• Actual Revenue: $249.09 million
• Expected Revenue: $246.70 million
• Beat/Miss: Beat by +$2.40 million
• YoY Revenue Growth: +4.20%

Cognex Announcement Details

• Quarter: Q2 2025
• Date: 7/30/2025
• Time: After Market Closes
• Conference Call Date: Thursday, July 31, 2025
• Conference Call Time: 8:30AM ET

Cognex (NASDAQ:CGNX) provides machine vision products that capture and analyze visual information to automate manufacturing and distribution tasks worldwide. Its machine vision products are used to automate the manufacturing and tracking of discrete items, including mobile phones, electric vehicle batteries, and e-commerce packages by locating, identifying, inspecting, and measuring them during the manufacturing or distribution process. The company offers VisionPro software, a suite of patented vision tools for advanced programming; QuickBuild that allows customers to build vision applications with a graphical, flowchart-based programming interface; and Cognex deep learning vision software. It also provides a range of inspection tasks, including part location, identification, measurement, assembly verification, and robotic guidance; vision sensors for vision applications, such as checking the presence and size of parts; and the In-Sight product line of vision systems and sensors. In addition, the company offers DataMan, an image-based barcode readers and barcode verifiers. It sells its products to automotive, logistics, consumer electronics, medical-related, semiconductor, consumer products, food and beverage, and others, as well as through a network of distributors and integrators. The company was incorporated in 1981 and is headquartered in Natick, Massachusetts.

Cognex Q2 2025 Earnings Call Transcript

Key Takeaways

• Positive Sentiment: Strategic Objectives: Cognex aims to be the leading AI provider for industrial vision, deliver the best customer experience, and double its customer base by scaling its go-to-market engine.
• Positive Sentiment: Q2 Financial Highlights: Revenue rose 4% YoY to $249 M, adjusted EBITDA grew 9% with margins expanding 80 bps to 20.7%, its highest in two years, alongside strong free cash flow.
• Positive Sentiment: OneVision Platform: Early adopters like Paldo achieved low false-reject rates and simplified deployment with the new cloud-based AI vision tool, reinforcing Cognex’s technology leadership.
• Neutral Sentiment: End-Market Trends: Consumer electronics, packaging, and logistics saw broad-based growth, while automotive remained weak and semiconductors faced modest declines amid macro uncertainties.
• Positive Sentiment: Q3 Outlook: Guidance targets $245–265 M revenue (+9% at midpoint), 19.5–22.5% adjusted EBITDA margin, and 35% EPS growth, excluding an $8–14 M one-time partnership benefit.

Presentation

[Operator]

Greetings, and welcome to the Cognex Second Quarter twenty twenty five Earnings Conference Call. At this time, all participants are in a listen only mode. A question and answer session will follow the formal presentation. As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Grier Aviv, Head of Investor Relations. Thank you. Please go ahead.

[Greer Aviv, Head - IR at Cognex]

Thank you, operator. Good morning, everyone, and thank you for joining us. Our earnings release was published yesterday after market closed, and our 10 Q was filed this morning. The earnings materials are available on our Investor Relations website. We are joined here today by Matt Moshner, our CEO and Dennis Fair, our CFO.

[Greer Aviv, Head - IR at Cognex]

Today, we plan to share several key messages with you, including how we're positioning Cognex for long term success, an update on our technology leadership and end market trends, our performance in the second quarter and our expectations for the third quarter. After prepared remarks, we'll open the lines for Q and 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.

[Greer Aviv, Head - IR at Cognex]

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.

[Matt Moschner, President, CEO & Director at Cognex]

Thanks, Greer. Good morning, everyone, and thank you for joining us today. I'm excited to speak with you as the new CEO of Cognex. While this is my first earnings call in this role, I've had the privilege of being a Cognoid for over eight years. Since I joined in 2017, I've worked alongside many of the talented individuals who continue to drive our success, and I've developed a deep understanding of our business, technology, culture, and the values that make Cognex so unique.

[Matt Moschner, President, CEO & Director at Cognex]

At Investor Day last month, I outlined three strategic objectives that will guide Cognex's future, which can be seen on slide three of the earnings presentation. For those who could not join us in Investor Day, I will briefly recap those strategic objectives and how I'm positioning Cognex for long term success. First, we will target to be the number one provider of AI technology for industrial machine vision applications. Our continuous innovation in this area will help customers solve increasingly complex vision problems, like cosmetic defect inspections, faster, more accurately, and with less setup time. Second, we're committed to providing the best customer experience in our industry.

[Matt Moschner, President, CEO & Director at Cognex]

Our goal is to deliver a seamless engagement from first interaction to full scale deployment through our direct sales model, a unified product ecosystem, and upgraded global customer support capabilities. And third, we're focused on doubling the number of customers that we serve by scaling our go to market engine to reach new markets and geographies while better serving small and midsized manufacturers. Our Salesforce transformation is already generating good results and is an important component of this strategy. To support the execution of our strategic objectives, I announced my newly formed leadership team on July 17 as outlined on slide four. This team has decades of experience in our industry and with Cognex.

[Matt Moschner, President, CEO & Director at Cognex]

And together, we will drive an ambitious profitable growth agenda, delivering even greater value to our customers and further strengthening our leadership in industrial machine vision. Q2 represents an early but meaningful step forward in this journey, marked by continued adjusted EBITDA margin expansion and strong free cash flow generation. Turning to Slide five. Let's begin with a few financial highlights from the second quarter. The momentum we saw in Q1 continued in Q2 with revenue of $249,000,000 increasing 4% year on year, representing our fourth consecutive quarter of organic growth.

[Matt Moschner, President, CEO & Director at Cognex]

Broader factory automation was stronger in Q2 driven by consumer electronics and packaging. Our commitment to bottom line profitability is reflected in our strong Q2 performance with adjusted EBITDA increasing 9% year over year and our adjusted EBITDA margin expanding by 80 basis points to 20.7%. This is the highest quarterly margin we've achieved in the past two years. In addition to the strong financial performance in Q2, we are executing against our strategic objectives. First, we continue to reach new customers through our Salesforce transformation and expansion, and we're seeing promising gains, including increased revenue growth in key verticals such as packaging.

[Matt Moschner, President, CEO & Director at Cognex]

Second, we continue to drive AI innovation, which I will talk more about in detail as we turn to slide six of the presentation. At Cognex, we have over four decades of technology leadership, and this remains the core to our identity. As we shared with you at Investor Day, we're proud to continue that legacy with one vision, a cloud based platform designed to transform the way manufacturers build, train, and scale AI powered vision tools with unmatched ease of use. One Vision reflects our commitment to making advanced machine vision easy, not just powerful, but practical and scalable. Although still in early stages, feedback from initial One Vision adopters has been positive.

[Matt Moschner, President, CEO & Director at Cognex]

A standout example is Paldo, one of Korea's largest noodle manufacturers. Paldo's noodle production includes a multistep inspection process, with the final step focused on verifying the width of the packaging seal, a critical factor in preventing package rupture. Paldo wanted to further enhance their quality control inspection performance by driving down false reject reject rates to very low levels, which can be difficult to achieve without moving to more complex PC based systems. But with OneVision, Aldo was able to collect images directly from their production line, train a powerful new model in the cloud, and seamlessly deploy it back to the edge. The streamlined approach eliminated the need for a new complex system.

[Matt Moschner, President, CEO & Director at Cognex]

It expanded our device footprint with Paldo and positioned us to support their growth across additional lines. With One Vision, we're setting a new benchmark for how game changing AI vision tools are deployed, one that simplifies complexity without compromising performance. As we expand this capability to additional Cognex products in the future, we expect it will further strengthen our position as the technology leader in our industry. Turning now to an update on our end markets, which you'll find on Page seven of the earnings presentation. Our discussion of 2025 trends is based on current observations while acknowledging ongoing macroeconomic uncertainties.

[Matt Moschner, President, CEO & Director at Cognex]

Strong second quarter growth in Consumer Electronics, Logistics and Packaging was somewhat offset by a modest slowdown in semi and ongoing weakness in automotive. Starting with logistics, revenue continued to grow double digits year over year, marking our sixth consecutive quarter of growth in this market. Importantly, growth was across a broad base of customers. For the full year, we continue to expect strong growth in logistics, driven by ongoing investments by large e commerce players and further penetration of the broader logistics market. Next is automotive.

[Matt Moschner, President, CEO & Director at Cognex]

As expected, automotive continued to decline year over year as it remains our most challenged vertical, reflecting broad headwinds to this industry. Looking to the full year, we remain cautious about the outlook for auto as we have previously discussed, and continue to anticipate a more modest decline in 2025 relative to last year's 14% contraction. Turning to Packaging. Our business showed positive momentum in Q2, with revenue up mid single digits year over year. Growth was driven by contributions from both Health Care and FMCG.

[Matt Moschner, President, CEO & Director at Cognex]

Our sales force transformation is delivering impactful results, helping us reach a broader cross section of Packaging customers. For the full year, the outlook for Packaging is incrementally more positive. Turning to Consumer Electronics. Q2 revenue increased year over year, reflecting broad based strength. We continue to expect Electronics revenue to be relatively similar in Q2 and Q3, implying another quarter of strong year over year growth in Q3.

[Matt Moschner, President, CEO & Director at Cognex]

As a result, our full year growth outlook for Electronics has improved. Moving to Semi. We saw a slowdown in Q2, with Semi revenue declining modestly year over year against a strong comparison. This result is in line with the cautious full year outlook we adopted last quarter due to the uncertainty from trade policy and tariffs. In summary, we're focused on executing against our strategic objectives and delivering on our long term financial framework to drive shareholder value.

[Matt Moschner, President, CEO & Director at Cognex]

I'm confident in our direction, proud of our team and excited about what's ahead. Let me now hand it over to Dennis to walk through the financial results and the outlook for the third quarter. Dennis?

[Dennis Fehr, Senior VP of Finance & CFO at Cognex]

Thank you, Matt. Today, want to share three key financial highlights for the quarter that can be found on Page eight of our earnings presentation.

[Dennis Fehr, Senior VP of Finance & CFO at Cognex]

First, adjusted EBITDA margin of 20.7% expanded 80 basis points year over year and was above 20% for the first time since 2023. Second, adjusted EPS increased 12% year over year, the fourth consecutive quarter of EPS growth. Third, our free cash flow conversion rate on a trailing twelve month basis strengthened to 130% of adjusted net income. These results highlight our focus on profitable growth and cash flow generation, the pillars of our long term through cycle financial framework we shared at our Investor Day in June. We are encouraged by the progress we see here, but we also acknowledge there is still work to do and remain committed to executing against our priorities with discipline and focus.

[Dennis Fehr, Senior VP of Finance & CFO at Cognex]

Taking a closer look at our second quarter results on page nine. Revenue of $249,000,000 expanded by 4% year over year or by 3% on a constant currency basis. Looking at geographic revenue trends on a year over year constant currency basis, Europe expanded 13% primarily due to certain consumer electronics customers ordering through entities based in Europe instead of China. This change of ordering entities does not reflect any underlying change in business mix or customer demand. Excluding this procurement change, Europe grew slightly led by strength in packaging.

[Dennis Fehr, Senior VP of Finance & CFO at Cognex]

The Americas grew 8% led by continued strength in logistics and growth in packaging. Other Asia increased by 5% driven by strength in consumer electronics where we saw evidence of supply chain shifting out of China. Lastly, Greater China declined by 18%. Excluding the procurement change and ordering entities, Greater China revenue declined modestly due to shifts in consumer electronics supply chain. Looking now at gross margins.

[Dennis Fehr, Senior VP of Finance & CFO at Cognex]

Adjusted gross margin of 68% was in line with our guidance. The two thirty basis point year over year decline was primarily due to a less favorable industry mix. As expected, tariffs had a modest negative impact on gross margin this quarter. Our continued focus on disciplined cost management resulted in a 2% year over year reduction in adjusted operating expenses or a 3% reduction on a constant currency basis. As we mentioned on prior quarter calls, we will remain laser focused on tight cost management as this is a key lever on our path to profitable growth.

[Dennis Fehr, Senior VP of Finance & CFO at Cognex]

We expect operating expenses to continue to grow slower than revenue. Revenue growth combined with this disciplined cost management drove 80 basis points of adjusted EBITDA margin expansion year over year to 20.7%, our highest quarterly margin since 2023. Diluted earnings per share on a GAAP basis were €0.24 up 15% from €0.21 a year ago. Adjusted diluted EPS was €0.25 representing 12% growth from €0.23 a year ago. This growth was driven by an expanded top line and cost discipline as well as a 2% year over year reduction in our average diluted share count.

[Dennis Fehr, Senior VP of Finance & CFO at Cognex]

Free cash flow generation was strong again this quarter totaling $40,000,000 which included a one time $60,000,000 payment for transition tax we noted last quarter. Trailing twelve months free cash flow generation of $180,000,000 is up 138 percent compared to the twelve month period ended Q2 twenty twenty four and represents free cash flow conversion rate of 130%. We remain firmly committed to a disciplined capital allocation strategy where returning capital to our shareholders is an important component. Over the past twelve months, we have made significant progress on this journey returning over $200,000,000 to shareholders or over 110% of our free cash flow through share repurchases and dividends. These actions have contributed to a reduction of more than 4,000,000 shares in our average share count year over year.

[Dennis Fehr, Senior VP of Finance & CFO at Cognex]

Turning to Page 10. I will now walk you through our financial guidance for the third quarter. As we shared with you at our Investor Day, we will be guiding to the following three metrics going forward. First, revenue second, adjusted EBITDA margin and third, adjusted earnings per share. We believe these metrics best reflect our increased focus on profitable growth.

[Dennis Fehr, Senior VP of Finance & CFO at Cognex]

Starting with revenue. In Q3, we expect revenue between $245,000,000 and $265,000,000 This range reflects 9% year over year growth at the midpoint. With both our logistics and broader factor automation businesses contributing to the expansion. As noted last quarter, we expect consumer electronics to be relatively evenly weighted across our seasonally strong second and third quarters this year. Next, adjusted EBITDA margin is expected to be between 19.522.5%.

[Dennis Fehr, Senior VP of Finance & CFO at Cognex]

The midpoint of this range represents approximately three forty basis points of margin expansion compared to last year, reflecting solid revenue growth and continued cost discipline. Lastly, adjusted earnings per share are anticipated to be between €0.24 and €0.29 is the midpoint of this range representing 35% year over year EPS growth. This outlook represents another meaningful step forward on our journey of profitable growth. A few other noteworthy items to consider as part of our outlook. First, as we look ahead to the remainder of the year, we anticipate Q4 revenue to return to more typical seasonal patterns, which historically have shown a sequential step down in the high single digit range.

[Dennis Fehr, Senior VP of Finance & CFO at Cognex]

The fourth quarters of both 2023 and 2024 were exceptions to this trend. In 2023, this was mostly driven by our acquisition of Moritex, which closed in October, while in 2024 we saw accelerated demand late in the fourth quarter. Second, while the tariff landscape remains fluid, the recent trade agreements with China, Indonesia and Vietnam do not change our previous commentary on the expected full year impact of tariffs. Specifically, we continue to expect no material impact on adjusted EBITDA margin and earnings per share and continue to estimate a 50 basis point dilution to gross margin. Third, during the third quarter, we entered into a commercial partnership with a strategic channel partner to better serve OEM customers in the specialized field of medical lab automation.

[Dennis Fehr, Senior VP of Finance & CFO at Cognex]

This arrangement is expected to result in a one time benefit to revenue and profit in Q3, which is excluded from our guidance. Currently expect the benefit to revenue to be between 8,000,000 and $14,000,000 in Q3. Lastly, let me touch on the one big beautiful bill act recently passed by Congress. We are in the early stages of evaluating the impact of U. S.

[Dennis Fehr, Senior VP of Finance & CFO at Cognex]

Tax law changes and currently anticipate the following tax implications for our business. First, the bill is expected to be neutral to adjusted EPS in 2025. We expect an insignificant impact to adjusted EPS in 2026 and beyond. Second, we currently expect a one time higher reported tax rate in 2025 and will update you when we have more clarity into the final impact on the rate. However, we do not anticipate any change to our adjusted effective tax rate.

[Dennis Fehr, Senior VP of Finance & CFO at Cognex]

And third, the provision to fully expense U. S. Research and development cost is expected to result in a cash tax benefit of 12,000,000 to $15,000,000 this year, which is expected to step down annually and phase out over the next five years. Now Matt and I are ready for your questions. Operator, please go ahead.

[Operator]

Thank you. The floor is now open for questions. Our first question is coming from Jacob Levenson of Melius Research. Please go ahead.

[Jacob Levinson, Director at Melius Research LLC]

Hi, good morning everyone.

[Dennis Fehr, Senior VP of Finance & CFO at Cognex]

Hi, Jake. Good morning.

[Jacob Levinson, Director at Melius Research LLC]

This is the first quarter I can recall that you've had revenues going up and costs going down, which is certainly a good thing. And I know you've obviously laid out some targets, margin targets at the Analyst Day. But maybe either Matt or Dennis, can you help us understand behind the scenes within the organization what's really changing from a process perspective or maybe change incentives that is helping drive a better outcome in margins?

[Matt Moschner, President, CEO & Director at Cognex]

Jake. This is Matt. I'll start, and I'll hand it off to Dennis. Thanks for noticing. Yes.

[Matt Moschner, President, CEO & Director at Cognex]

I mean, we our primary objective is to grow the business. We know that when we can do that, you know, we we get tremendous fall through to the bottom line. And so, you know, we've really driven an intense focus on the ways in which we're gonna grow and really making sure we're we're funding those growth initiatives. And and that's not just in product development. It's in how we think about our channel, and and we're doing all those things.

[Matt Moschner, President, CEO & Director at Cognex]

And you're seeing seeing some of that in the numbers. But at the same time, you know, Dennis and I and and the broader leadership team are very focused on our cost position. And, you know, that's not a new thing. We've started that many, many months, ago, when I really stepped into the operating, chief operating role earlier this year. And we've organized ourselves, to really go after that and be thoughtful about it.

[Matt Moschner, President, CEO & Director at Cognex]

We've made great investments in the business over the last five years, and we're using many of those investments to make sure that we're driving the efficiency and productivity that that we'd like to. And I would say it's really known it's not in one area. It's it's across the board, from engineering to sales to to back office functions to facilities. So we're trying to take a very thoughtful view of it and make sure that we are driving efficiency and cost reductions in the right areas to make sure we're not not defunding the growth story of the company. I don't think we are.

[Matt Moschner, President, CEO & Director at Cognex]

But at the same time, making sure that we get to the to the to the margin, range that we committed to at Investor Day. Dennis?

[Dennis Fehr, Senior VP of Finance & CFO at Cognex]

Yeah. In that regard, really pleased to see kind of this meaningful step in that regard. And to your question, what changed? I think one thing Matt highlighted to us, I think, really a problematic approach to it that we're really focused across the entire p and l and across the entire organization and put that program in place to to really think about, like, very thoughtful where we can optimize cost. And then I think at the same time, Matt also alluded a little bit to it, kind of the it's really a focused effort of the entire leadership team.

[Dennis Fehr, Senior VP of Finance & CFO at Cognex]

And I think there's a clear clear sense in the organization of the direction where we want to go, and we feel really positive about, like, how the organization is responding and how everyone is pulling into the this direction. So we're we're pleased with that.

[Jacob Levinson, Director at Melius Research LLC]

Oh, that's all really helpful color. Just on a a separate topic. I know one of your your larger electronics customers has some new products coming out next year, I think, that are foldable and have a different form factors. Can you help us understand, like, what does that mean when you've got a change? And I assume it means there's a change in manufacturing technique and maybe you've got retooling of lines and whatnot.

[Jacob Levinson, Director at Melius Research LLC]

But what is when you have some new technology, if you will, what does that really mean for you folks in terms of machine vision?

[Matt Moschner, President, CEO & Director at Cognex]

Yeah. Sure. Maybe I'll take that. Thanks. You know, I would just remind us all that, you know, these are really complex products to manufacture, and, you know, it takes months, in many cases, years to bring those technologies to market.

[Matt Moschner, President, CEO & Director at Cognex]

And so, you know, what what might be, you know, a new product that that may or may not be coming out next year, we would likely would have been engaged on the manufacturing design strategy years ahead of that. So just to remind us that it is more of a long cycle project based business with some of those large providers. We noted growth in consumer electronics. And what's driving that? It's really we've been focusing on adding more value and delivering more complete solutions in this market.

[Matt Moschner, President, CEO & Director at Cognex]

A lot of that had to do with the acquisition of Moritex in the '23. We've been working with a lot of the players in in this area, as they consider, you know, some of the geographic shifts in manufacturing, cross border, and and that's been that's been helping. And, you know, as a global company, we're well placed for that. But I would you know, to to the extent there's there's new new product releases or or or or phone designs, I I I wouldn't I wouldn't comment on that. I would just remind us all that those things take time, and we, typically engage far ahead of those product releases.

[Dennis Fehr, Senior VP of Finance & CFO at Cognex]

Right. Maybe just to add on that, like, on the on the revenue side, while we're engaged over longer cycle revenue, you would really see probably in the year where new products are being released in less than kind of many years ahead.

[Jacob Levinson, Director at Melius Research LLC]

Perfect. Thank you. I appreciate it. Good luck, guys. Pass it on. Thanks, Heikkinen. Thanks.

[Dennis Fehr, Senior VP of Finance & CFO at Cognex]

Thank

[Operator]

you. The next question is coming from Damian Karas of UBS. Please go ahead.

[Damian Karas, Executive Director at UBS Group]

Hey. Good morning, everyone, and congratulations on the progress. I don't think we've heard of broadening factory automation improvement in a while. So maybe you could just provide a little bit more color around the trends that you are seeing in packaging and consumer electronics. Are you maybe able to give us a sense or, you know, how much of that is new customer driven versus how much is just the underlying market improving and, you know, existing customers kind of, you know, replacing or augmenting, you know, systems in their installed base?

[Damian Karas, Executive Director at UBS Group]

And just, you know, I guess, your confidence that some of this improvement isn't just one off activity, but rather a more sustainable trend.

[Matt Moschner, President, CEO & Director at Cognex]

Yeah. Maybe I'll start, Damian. Good to hear from you. So, you know, I I I mentioned a few few things in consumer electronics in the in the previous in the previous question. Right?

[Matt Moschner, President, CEO & Director at Cognex]

This is a market, you know, we have great presence in. We work with great partners in that area, and and we've really focused on how can we increase our share of wallet, if you will, by delivering more complete solutions. So that's that's a part of it and going deeper into into into taking share of what what they do from a an advanced automation standpoint. So I think you're seeing that in consumer electronics. We're broadening the customer base.

[Matt Moschner, President, CEO & Director at Cognex]

I think we said it's a broad based growth story in consumer sorry, in customer consumer electronics. And then there's a geographic story there as those those technology providers, you know, evaluate shifting production in new geographies. So that's how I would describe consumer electronics packaging. Right? Just to remind the group, packaging is now our third largest vertical.

[Matt Moschner, President, CEO & Director at Cognex]

It really is made up of two areas. One, health care, so that's med devices, pharmaceuticals, life sciences, and fast moving consumer goods. This is a lot of, you know, as Rob used to say, razor blades to shampoo bottles. And both have different dynamics. What we've said in packaging is we do see evidence of the growth story driven by the investments we've made in our sales channel.

[Matt Moschner, President, CEO & Director at Cognex]

This tends to be a more regionalized set of manufacturers and brands, both in health care and in fast moving consumer goods. So certainly, the strengthening of our channel has helped. But I would say the needs of each of those areas has also driven demand for vision. Right? If you look at health care, particularly med devices and pharmaceuticals, we're seeing a lot of CapEx flow into both of those areas on the heels of some very popular pharmaceutical drug releases, particularly around obesity and cancer, and really playing on some of the demographic shifts in various regions.

[Matt Moschner, President, CEO & Director at Cognex]

So we like the trends we're seeing in healthcare. And then on packaging, think Cognex vision has always played a large role when it comes to traceability and regulation that drives the need to to to drive traceability, particularly around food. And then, you know, brands really wanting to up their game from a from a quality standpoint. And, you know, we maintain great relationships with a lot of the machine builders, particularly in the packaging, area. And we we noted, you know, some products we launched in the q one, the Insight 8,900, which really play well in that area.

[Matt Moschner, President, CEO & Director at Cognex]

So, yeah, I think we're encouraged by the progress we're making in both packaging, as well as as as well as consumer electronics.

[Damian Karas, Executive Director at UBS Group]

That's really helpful. And and as a follow-up, you know, you talked about new products. I mean, you showcased the AI, devices and OneVision at your Investor Day. Be curious to hear what kind of early feedback you've been getting on, the AI technology and solution set, and, any sense for when you might open up OneVision to to the broader customer base?

[Matt Moschner, President, CEO & Director at Cognex]

Yeah. We're really excited about OneVision. I hopefully, the example we gave today is is, you know, helpful to the group to understand. It's very indicative, I think, of how OneVision is helping our customers and letting us, drive simplicity in delivering more advanced vision capabilities. So we're trying to be very thoughtful about how we engage the market on it.

[Matt Moschner, President, CEO & Director at Cognex]

It's a very new style of designing vision, and we wanna make sure that our customers understand it, are comfortable with it, as well as our sales channel being able to adequately sell and promote it. So, yeah, you're gonna see us take a take a methodical phased approach throughout the year and into next year. It's an area we're gonna continue to invest. And what you'll see is that, you know, it will have a greater compatibility with broader set of Cognex vision systems, and I'm quite excited about it. Thanks, Damian.

[Dennis Fehr, Senior VP of Finance & CFO at Cognex]

Thanks.

[Operator]

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

[Joseph Giordano, Managing Director at TD Cowen]

Hey, guys. Thanks for taking my questions. Yeah. I I I'm curious on logistics. Are are you seeing that more on, like, the greenfield side coming back, the brownfield, like, kind of investment in existing facilities?

[Joseph Giordano, Managing Director at TD Cowen]

Like, what's driving that, now, and where are you seeing kind of the most inflection?

[Matt Moschner, President, CEO & Director at Cognex]

Yeah. I think what we said at Investor Day is is, you know, our growth strategy in list logistics is multipronged. It's not just about new capacity additions. We are seeing that. And maybe that's what we, what would show us, you know, significantly, you know, four or five years ago during COVID.

[Matt Moschner, President, CEO & Director at Cognex]

But what we're seeing today is much more balanced growth. Right? Certainly, participating as new facilities come online, it pulls through a good share of Cognex machine vision. But, you know, we're seeing a lot of traction now in in vision. You know, you'll recall, as we said at Investor Day, most of our business today is still in traceability and barcode reading.

[Matt Moschner, President, CEO & Director at Cognex]

And, you know, with our latest generation of AI vision tools, we're really seeing the ability to scale vision, both two d and three d and logistics, and we're seeing customers respond really well to that. And then, you know, as our technology advances and our relationships with those those operators matures, you know, we're also going back to existing facilities to drive process improvements and greater efficiencies within their existing fulfillment network. So, yeah, it's exciting. I mean, it's broad based from a customer standpoint, but also if you think about, you know, how we're driving sales to each of those customers, I think it's not just new capacity, it's also existing facilities and new technology areas, entirely.

[Joseph Giordano, Managing Director at TD Cowen]

And when you think about something like OneVision, I'm just curious, like, what does that mean for you from like, is it sold differently? Is it a different pricing mechanism? It seems like a nice improvement on how the products are used, though I'm just curious, like, what it means for you in terms of, like, in terms of driving a different type of sale.

[Matt Moschner, President, CEO & Director at Cognex]

Yeah. It's a very different type of technology. I think what we said at Investor Day was we weren't prepared yet to really talk in detail about the pricing model of OneVision, and I don't think we're ready yet. But the way you can think about how we go to market is very much as part of the bundle of technology that we would today. And so when we engage a customer on a new application, you know, we really start at the edge, and we and we have designed our technology to work very well on device so that there's no need for any sort of separate PCs or clouds.

[Matt Moschner, President, CEO & Director at Cognex]

But One Vision is it very much complements, that, sales activity when the customer needs more advanced vision. And we like to say One Vision is helping us bridge edge to deep learning, and it does that, quite well. So, yeah, our go to market right now, I I I would say, is is is, more familiar, to how we've gone to market in the past. To the extent that evolves in the future, I think we are we are thinking about that, but nothing to, nothing to go into detail today.

[Joseph Giordano, Managing Director at TD Cowen]

Thanks, guys.

[Operator]

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

[Tommy Moll, Managing Director at Stephens Inc]

Good morning, and thank you for taking my questions.

[Dennis Fehr, Senior VP of Finance & CFO at Cognex]

Hi Tommy. Hi Tommy.

[Tommy Moll, Managing Director at Stephens Inc]

Dennis, I wasn't sure if I heard you correctly when you started giving some insight into fourth quarter. That's more than one quarter forward, but pretty sure I did hear you offer a comment there. And so just want to clarify, for the base quarter and third quarter, should we use the revenue that includes or excludes the onetime payment? So I think I heard you say typical seasonality would be a high single digit quarter over quarter decline. I just want to get the third quarter base right.

[Dennis Fehr, Senior VP of Finance & CFO at Cognex]

Yes. No, great question, Tommy. Yes, it's based on the guidance, which is excluding the onetime effect.

[Tommy Moll, Managing Director at Stephens Inc]

Okay. Thank you. As a follow-up on logistics, I wanted to ask about the planning cycle there. As I understand a lot of this business, you have decent visibility on and the planning cycles are pretty methodical. Are you having any conversations regarding projects into next year at this point?

[Tommy Moll, Managing Director at Stephens Inc]

Or how would you characterize the level of visibility that you have for what's ahead versus what the typical would be? Thank you.

[Matt Moschner, President, CEO & Director at Cognex]

Yes, sure, Tommy. Yes, no, you're right to say it is a longer cycle business, right? These are bigger investments and build outs of new CapEx. We have great relationships with customers in this area. And so you would imagine that we would have multiyear discussions on their plans and to the extent that they can align, you know, what we're delivering to them.

[Matt Moschner, President, CEO & Director at Cognex]

So, yes, I think it's fair to say we engage on customers' plans across many years. But, typically, you wouldn't see ordering activity until those facilities are committed, the CapEx is approved, and and that still is is is more within the three to six month period of of visibility for us. So so, yes, I but I but I wouldn't say necessarily that we're seeing that trend change one way or another. I I don't think we see it getting longer. I wouldn't say we see it getting shorter, But we are engaged on the multiyear plans of our customers, and we continue to stay very tightly linked with them in that way.

[Tommy Moll, Managing Director at Stephens Inc]

Thank you both. I'll turn it back.

[Dennis Fehr, Senior VP of Finance & CFO at Cognex]

Thanks, Tommy.

[Operator]

Thank you. The next question is coming from Andrew Buscaglia of BNP Paribas. Please go ahead.

[Andrew Buscaglia, Executive Director, Equity Research - U.S. Industrial Technology at BNP Paribas]

Hey, good morning, everyone.

[Matt Moschner, President, CEO & Director at Cognex]

Hi, Andrew.

[Andrew Buscaglia, Executive Director, Equity Research - U.S. Industrial Technology at BNP Paribas]

Maybe on logistics and some of the other markets, like consumer electronics and and packaging sort of picking up. You know, would would you not say some of that might might be due to some pull forward on tariffs and and maybe in logistics around tariffs. Do you see any clarity from tariffs helping customers move forward with some decision making or any any change there? If you can comment.

[Matt Moschner, President, CEO & Director at Cognex]

Yeah. Sure. We're keeping a close eye on it. Obviously, it's a dynamic situation. We have a team that's been in place, gosh, since last fall, really monitoring, the situation on and and and the the the news, but also our response.

[Matt Moschner, President, CEO & Director at Cognex]

Right? And so we're we're working hard, and I think we've done a great job, to mitigate both the cost, primarily the cost effects of tariffs on us. But I think your question is more on demand. Right? And what are we seeing from customers from a demand perspective?

[Matt Moschner, President, CEO & Director at Cognex]

I think Dennis will maybe offer some commentary in terms of where we may have seen some pull forward of demand in light of tariffs. I wouldn't say it's been really outsized. We're monitoring our forward funnel, which continues to be healthy, and I would even say normal, in light of some of the recent tariff announcements. And we continue to engage with our customers. Right?

[Matt Moschner, President, CEO & Director at Cognex]

In some sense, the impact is to increase their costs and potentially increase the cost of our products to them, and we're being very transparent with them on that. But I would also just remind the group, right, as as costs go up, you know, these organizations are really looking to how they can mitigate those costs. And automation and machine vision, has been and will continue to be a great way to do that. So on one hand, I think they are looking at us as a potentially higher cost bill of material for them we have to kind of mitigate costs on our end, but also seeing us as maybe one of the best ways to mitigate costs within their manufacturing and supply chain overall. And so from a demand perspective, it's hard to say, but over the medium and long term, I'm still quite optimistic that the situation now with tariffs and trade is going to be a nice tailwind for the business as we're engaged to not just help drive efficiency, but also diversity in supply chains overall.

[Dennis Fehr, Senior VP of Finance & CFO at Cognex]

Yes. And maybe to add on that. So I think in the second quarter, particularly in The U. S. And packaging and maybe in logistics, there have been a couple of projects where we thought they could have been accelerated due to tariffs.

[Dennis Fehr, Senior VP of Finance & CFO at Cognex]

You don't always exactly know it. So I would say really maybe a low single digit million dollar number. At the same time, we haven't really seen that the funnel for Q3 even changed in that regard. And now, right, being here already in at July, we also haven't seen like any demand trends and booking trends changing throughout July. So that kind of offsets that a little bit.

[Dennis Fehr, Senior VP of Finance & CFO at Cognex]

And then at the same time, right, we had some commentary about consumer electronics, that shift happening in Asia, right, from China to other Asia. We are seeing, I would say, probably some of these early signs of of some of this relocation of of manufacturing happening. And I think as as Matt also said, I mean, long term, that's that's really a a great trend and a great opportunity for Cognix. Yeah. Okay.

[Andrew Buscaglia, Executive Director, Equity Research - U.S. Industrial Technology at BNP Paribas]

Okay. And then other question is why why not include the want that one time potential benefit from the channel agreement. Is there is it just your you don't know the timing? It might it might slip, and you don't wanna count on it? Or or yeah. I guess, what why not include it?

[Dennis Fehr, Senior VP of Finance & CFO at Cognex]

Yeah. Maybe let's first unpack what it what it really is. Right? It's a it's a it's a partnership. It it includes a multiyear kind of software license agreement.

[Dennis Fehr, Senior VP of Finance & CFO at Cognex]

That means we will recognize the one side, some minimums minimum license over a couple of years in a single quarter, and we have also some some component inventory, which we are transferring. So that's really to some extent, you can say a lie, right? It's not a one quarter thing. Right? It's really kind of a number which belongs to future quarters.

[Dennis Fehr, Senior VP of Finance & CFO at Cognex]

But from accounting standards, you just recognize that at one time. So in that regard, we we really wanted to show that separately to to keep everyone's eye also on the underlying kind of run rate business performance. And at the same time, we also provided you with kind of what the what the number would be including. That's kind of what's the rationale to it just to create the clarity there.

[Andrew Buscaglia, Executive Director, Equity Research - U.S. Industrial Technology at BNP Paribas]

All right. That's helpful. Thank you.

[Operator]

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

[Kevin Wilson, Equity Research Analyst at Truist Securities]

Hey, good morning. This is actually, Kevin Wilson on for Jamie. Thanks for the time.

[Matt Moschner, President, CEO & Director at Cognex]

Hey, Kevin.

[Kevin Wilson, Equity Research Analyst at Truist Securities]

On M and A, you spoke at the Investor Day, with your new capital allocation framework. You mentioned potentially looking at non vision adjacencies as acquisition opportunities, perhaps in sensing components or other automation technologies. In the context of your new framework, I'm wondering if you can expand on what adjacencies you're considering outside your core vision business. And then more broadly, just how the pipeline for M and A or conversations with potential targets changed since you have changed maybe since you came out with your new framework? Thanks.

[Matt Moschner, President, CEO & Director at Cognex]

Yeah, Kevin. This is Matt. We we certainly did at Investor Day, providing some guidance in terms of how we're thinking about M and A, what its contribution to our growth outlook is. But I think what we also said was we were going to be very thoughtful and continue to hold a very high bar in terms of how and where we would we would pursue m and a. You know, Cognex over the last ten years or more has always, you know, viewed m and a as a way to add capability to the business.

[Matt Moschner, President, CEO & Director at Cognex]

And Dennis and I and the the broader leadership team, you know, continue that belief. I think, you know, with the acquisition of Moritex, that was a bit of a different move for us. It was a larger deal that brought with it, you know, products, technology revenue, around the world. And and, you know, I think we all viewed that as going very well and adding the value that we wanted it to, and I think it should give us all some confidence that that those are plays we can run as well beyond just maybe the smaller bolt on technology acquisitions that we've done more so in the past. So what are we looking for?

[Matt Moschner, President, CEO & Director at Cognex]

Right? We're we're looking for really good strategic fit and alignment with the objectives that I shared. That's number one. We're obviously looking for, clear evidence, that we can drive value, you know, that we are the the preferred owner, and that that we can leverage the assets of Cognex and drive, advantage value for our shareholders, and and and affect the bottom line quickly. And and to that end, we're holding a very high bar.

[Matt Moschner, President, CEO & Director at Cognex]

So, yeah, we we have and will continue to have a very rigorous m and a process. You know, we're, as a leader in our industry, you know, we we know a lot of the the key key players, and and we plan to stay in touch with with those players. And, you know, as as we have updates, we'll share them.

[Dennis Fehr, Senior VP of Finance & CFO at Cognex]

And I think we we also said around Investor Day that why we said it's like 3% plus kind of on an annualized basis through the cycle additional growth. And also very clear, like, this could be a single deal, which maybe happens in three years or in four years. Right? So in that regard, I'm not feeling like kind of any deal mode where we think like we need to execute a deal right now just coming out of this Investor Day. As as Matt said, we'll take the time.

[Dennis Fehr, Senior VP of Finance & CFO at Cognex]

We'll find the right target. We'll be disciplined about it, to to find something which makes sense. And at the same time, we also have, no work to do in operating business. We like the meaningful step forward, which we took, but we also clearly said we still have work to do, and, we'll keep on working on that.

[Kevin Wilson, Equity Research Analyst at Truist Securities]

Thanks. That's helpful. And then just a follow-up on the medical lab automation item in the third quarter. Is that type of licensing arrangement, there other opportunities that are, have a similar profile that you're looking at, moving forward? Or or is that sort of just a one time opportunity, with that specific strategic part? Or and then I'll pass it on. Thanks.

[Matt Moschner, President, CEO & Director at Cognex]

Yeah. Maybe I'll give you a bit of context on on why we did it. Right? So, you know, as a management team, we're always looking at ways to better, allocate our resources. Right?

[Matt Moschner, President, CEO & Director at Cognex]

And in this case, you know, we're in a market, of lab automation that is a great application for our vision. We've had a lot of success there. But, you know, for us, in in many ways, it was a bit subscale, particularly, from a channel perspective. And so, you know, we found a a channel partner that had, better presence in that area, had better scale, had had good relationships that maybe could could manage that channel and those customers more effectively than we could. And so that's that's maybe the playbook behind the the deal.

[Matt Moschner, President, CEO & Director at Cognex]

And so, you know, we have a we have a partner that, you know, plans to to continue to use Cognex Vision and sell it through to the customers that we have, but has a broader portfolio of offerings for those customers. And so felt like a very, very good fit. So to the extent there are other opportunities, we're we're we're we're being very thoughtful. Right? As you'd imagine, one of the things I'm doing is taking a very broad look across the portfolio to say, are we as focused as I'd like?

[Matt Moschner, President, CEO & Director at Cognex]

Are we deploying our resources in the ways that that have the best impact for the business that we wanna run. And and and and in many cases, the answer is yes. There's there's some areas that the answer is weaker. And and when we see that, we really go after it. You know, this is one of those areas.

[Dennis Fehr, Senior VP of Finance & CFO at Cognex]

And more more considering it, like, perhaps even doubling down on the existing strategies that we want to have a strong direct sales channel in the markets, which we really think are very important for us. We are redeploying resources there. So it's not a shift in strategy. I would more think about, like, a doubling down on what we already said in the past.

[Kevin Wilson, Equity Research Analyst at Truist Securities]

Makes sense. Thank you.

[Operator]

Thank you. Our next question is coming from Ken Newman of KeyBanc Capital Markets. Please go ahead.

[Ken Newman, VP & Equity Research Analyst at KeyBanc Capital Markets]

Hey. Good morning, guys. Congrats on the, solid quarter.

[Dennis Fehr, Senior VP of Finance & CFO at Cognex]

Thanks, Ken. Good morning, Ken. Good morning.

[Ken Newman, VP & Equity Research Analyst at KeyBanc Capital Markets]

Maybe first, sorry if I missed it, Dennis, but, I'm curious if you just had any color on what price contributed to the organic revenue this quarter and kind of what's implied in the new 3Q guide. Really, I'm just trying to get a sense of what you think is potentially sustainable from price pass through into next year if all the current policies on tariffs stay in place as they are today.

[Dennis Fehr, Senior VP of Finance & CFO at Cognex]

Right. So I think there are probably two two pieces to it. Right? That's maybe The US and the the tariffs specifically, and then there's the broader global picture here. Right?

[Dennis Fehr, Senior VP of Finance & CFO at Cognex]

So I think maybe on the on the tariff specific or or your specific side, right, we've been talking about it. On the one side, we've been working on the supply chain, and we had the team in place since last year. And the team has been really moving fast, and I think that's part of why we have been able to basically keep the outlook with no material impact to adjusted EBITDA margin or adjusted EPS the same level even so that the tariffs are slightly went up, right, with the recent trade deals because the team really did a great job on working on the supply chain and while we are not having a meaningful exposure to China, still there is some, and and the team really did a nice job there. And then at the same time, we are certainly also working on the customer side and and finding agreements there. But I wouldn't say like overall that drives now this meaningful impact for us what we included here in the Q3 guidance.

[Dennis Fehr, Senior VP of Finance & CFO at Cognex]

I think then, however, when we look at the broader picture outside The U. S. And the tariff dynamic, I think if you think back over the last twelve months, we have often talked about kind of pricing headwinds in China and that this has impacted, gross margin bottom line to some extent. And I think here on the one side, we think that pricing pressure eased somewhat. At the same time, we're also doing a good job here working on the supply chain side to offset these pricing pressures.

[Dennis Fehr, Senior VP of Finance & CFO at Cognex]

In that regard, I think overall, I would say pricing perhaps is neutral from coming from a negative over the last twelve months more towards to moving towards a neutral now. And then certainly, we keep on exploring our opportunities there, and, we'll we'll keep you updated in the next couple of quarters on how that's go goes.

[Ken Newman, VP & Equity Research Analyst at KeyBanc Capital Markets]

Yep. No. That makes sense. For my follow-up here, maybe just to, to approach the the margin guide or maybe the longer term view on margin guide, a little differently. Just given all the work that you've done on leveraging costs, you know, think the midpoint of your 3Q guide is implying, you know, an incremental EBITDA margin of, you know, above 50%, closer to 60%.

[Ken Newman, VP & Equity Research Analyst at KeyBanc Capital Markets]

Do you feel like this is a decent baseline going forward given how the markets are recovering? Or are there any, you know, onetime things that we should kind of be aware of as we think about more normalized operating leverage into '26?

[Dennis Fehr, Senior VP of Finance & CFO at Cognex]

I mean, see, first of all, I think we've said that, we're pleased with the progress. It's a meaningful step forward. It comes really two things together. Revenue top line is growing and OpEx side is decreasing, on a year over year basis. And I think that's clearly there's some really underlying work which we're doing.

[Dennis Fehr, Senior VP of Finance & CFO at Cognex]

We talked a bit about the programmatic approach which we're doing there. So it's kind of in that sense, it's sustainable on the cost side. At the same time, I made this comment about the fourth quarter, right? So keep in mind there's seasonality in the business. So I really want you to think on the top line side that we have this strong Q2, Q3 driven by Consumer Electronics.

[Dennis Fehr, Senior VP of Finance & CFO at Cognex]

And certainly, that drives leverage and deleverage, right? So in that regard, if you think back about Q1, Q1 was a strong quarter if you think about it from a year over year comparison, but it was somewhere at a 16.8% adjusted EBITDA margin, right? So that means not yet in 20%. So think about when you think about Q4 that you will see some deleverage. And then of course, at the same time, when we think about what we said at Investor Day, our target of achieving greater than 20% adjusted EBITDA in 2026, we feel that we are on the path to that and this work which we're doing and the cost structure is really bringing us there.

[Dennis Fehr, Senior VP of Finance & CFO at Cognex]

So I would say, right, short term, keep in mind q four seasonality. But then if you think about 2026, and generally, we're making really meaningful progress.

[Ken Newman, VP & Equity Research Analyst at KeyBanc Capital Markets]

Very helpful. Thanks.

[Operator]

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

[Piyush Avasthy, Equity Research Senior Associate at Citi]

Good morning, guys.

[Dennis Fehr, Senior VP of Finance & CFO at Cognex]

Hey, Piyush. Good morning, Piyush. How are you?

[Piyush Avasthy, Equity Research Senior Associate at Citi]

Doing well. You guys like drill down on auto's EV end market? I understand you mentioned lower project activity. But from your vantage point, can you maybe update on what your customers are telling you with regards to their CapEx plans beyond 2025? I'm just trying to understand where we are in the CapEx CapEx cycle.

[Piyush Avasthy, Equity Research Senior Associate at Citi]

And also, if there is anything different that you're seeing in EV versus like the traditional ICE, that would be helpful.

[Matt Moschner, President, CEO & Director at Cognex]

Yes. Maybe I'll start. I was actually just got back from a trip to Detroit. I spent the week with many of our customers in in auto on this very topic. And I would say, you know, the macros, there's there's a lot of uncertainty, and the macros, continue to be weak, largely driven by some of the uncertainty and increased costs from trade and and other tariffs, and I think that's well published.

[Matt Moschner, President, CEO & Director at Cognex]

But by the same time, you know, I I am very encouraged by the by the potential that machine vision has, and they are as well, in a number of areas. One, as as a as a key means of offsetting some of those cost increases, their cost to operate and drive efficiency throughout the throughout their operations. They they they need us more now than than they ever have, I think, is one one message. The second is quality. Right?

[Matt Moschner, President, CEO & Director at Cognex]

I think all of them, even in light of substantial cost increases, because of of tariffs tariff activity, quality still remains their top priority. And we saw, from some of them, particularly this year, you know, you know, maybe not where they wanna be, an increased recall activity. And and the cost of poor quality is very much top of mind for a lot of our auto, customers. And, again, Cognex machine vision does you know, is is recognized for its ability to ensure quality throughout their supply chain. So that's second.

[Matt Moschner, President, CEO & Director at Cognex]

And then, you know, the third theme for them is is labor scarcity. You know, they I I heard from all of them that, as they think about their plans, they they continue to have high turnover, in their facilities and and struggle to find competent labor, to to to run their manufacturing facilities. So even in light of, I think, you know, some weak macros overall for auto, I think the fundamentals for what drive vision into automotive are very much, alive and well, and we're engaging our customers in that area. I I won't I won't comment on, you know, what what future CapEx is. I think, to some extent, that's still highly uncertain.

[Matt Moschner, President, CEO & Director at Cognex]

Now your question on EV, is a good one. We continue to, stay engaged in a number of interesting applications in EV battery. Obviously, last year was a challenging year for us in that market and for the industry overall as it had to really absorb what was quite a bit of overcapacity and particularly the battery production. To the extent that's normalized, there still are plans that these OEMs have to release EV or EV hybrid vehicles, and and we're engaged in a number of those applications with them.

[Piyush Avasthy, Equity Research Senior Associate at Citi]

Help helpful, Matt. Dennis, I'll ask Ken's question in slightly different way. Like, do you on margins, like, as you said, you guys are already doing, 20%, and your '26 target is greater than 20% EBITDA margin. Given most of your end markets are on a positive trajectory, like and I understand it's still early, but why can't margins be in that 25% to 30% range, is the next leg that you guys highlighted during your Investor Day?

[Dennis Fehr, Senior VP of Finance & CFO at Cognex]

Yeah. No. See, it's a it's a great question. And see, that's that's what we're working towards. Right?

[Dennis Fehr, Senior VP of Finance & CFO at Cognex]

We we laid out a clear path on on how we want to get there, and we're we're working to achieve all milestones one by one. So the first one is still greater than 20%. I think it's great that we see it first on the quarter, right? So we had now first time for two years in the second quarter. It's still there in the third.

[Dennis Fehr, Senior VP of Finance & CFO at Cognex]

And I talked a bit about seasonality for the fourth. But for the next step is to bring it there on a on a on a twelve month basis and then work from there towards the 25%. In that regard, I think, we are in the same spirit, and that's that's what we are what we're driving towards.

[Piyush Avasthy, Equity Research Senior Associate at Citi]

Very helpful. Good luck, guys.

[Dennis Fehr, Senior VP of Finance & CFO at Cognex]

Thank you. Thank you.

[Operator]

Thank you. The next question is coming from Keith Housum of Northcoast Research. Please go ahead.

[Keith Housum, MD & Research Analyst at Northcoast Research]

Thanks, guys. I appreciate it. Going back to the onetime revenue here in the third quarter from this new partner, just trying to unpack that a little bit more and understand, is this customer going to be selling your hardware going forward? Or are you going use your software on their own hardware? We shouldn't expect to see significant revenue coming from this partnership going forward.

[Matt Moschner, President, CEO & Director at Cognex]

Yeah. Let me clarify that. Yeah. So it's it's a mixture. Right?

[Matt Moschner, President, CEO & Director at Cognex]

So on one hand, we've, given them the exclusive right to and and license to manufacture, Cognex vision systems, but that would be Cognex designed hardware and software. And so so that's one piece of it. And then the ability to purchase, Cognex products for the sole use in this end market. So so that's those primarily those two legs. We we are not pursuing a strategy with them where they would be we would be hosting Cognex soft software on their hardware.

[Matt Moschner, President, CEO & Director at Cognex]

That's that's not included, but but the first two certainly would be. Alright. And then on

[Dennis Fehr, Senior VP of Finance & CFO at Cognex]

the magnitude, when you said $8.08 to 14,000,000, it's over includes minimum over five years, includes some inventory. So if you if you break that down, right, it's a meaningful number in the quarter. But if you think over five year numbers, it's not actually that that big. Right? So I really want to kind of highlight.

[Dennis Fehr, Senior VP of Finance & CFO at Cognex]

We we really took an approach to a very specialized area where we thought, like, in this specialized area, a channel strategy is more beneficial than, the broader strategy which we have in the other markets, and therefore, we went down this this path. So we certainly expect something positive from that, let's say, specialized area and from this partnership. But I wouldn't think like it would make any meaningful change to our numbers going down the road considering that also recognizing some of that revenue of the over this five years period in one single quarter. So in that regard, yes, I wouldn't call it a meaningful impact to 2026 and beyond.

[Keith Housum, MD & Research Analyst at Northcoast Research]

Got it. Appreciate that. Then just changing gears here for a follow-up. I see inventory down about 8% year over year. You're to sell some components to this partner here.

[Keith Housum, MD & Research Analyst at Northcoast Research]

How should we think about inventory as a contributor to free cash flow for the rest of the year?

[Dennis Fehr, Senior VP of Finance & CFO at Cognex]

Yeah. No. I think, see, we're quite pleased of what we have done on the working capital side, right? I think over the last twelve months or so, our cash conversion cycle kind of stepped down by about sixty days. And a good portion of that is coming from the inventory side, and that's kind of part of our drive towards being efficient and being a lean company, right?

[Dennis Fehr, Senior VP of Finance & CFO at Cognex]

It's both on the organizational side as well as on how we manage working capital. In that regard, we think we have done meaningful progress there. There's still a little bit to go. But, yeah, overall, I'm just happy where we are and still have a little bit of potential there as well.

[Keith Housum, MD & Research Analyst at Northcoast Research]

Great. Thank you.

[Operator]

Thank you. We're showing time for one last question. Our final question today is coming from James Ricchiuti of Needham. Please go ahead.

[James Ricchiuti, Senior Analyst at Needham & Company]

A question on the growth in the packaging market. I wonder if you could talk a little bit about that and whether that how much of that might be coming from the the sales initiatives that you have going on, particularly the sales noise, including the the second class that you you hired, I guess, mid last year?

[Matt Moschner, President, CEO & Director at Cognex]

Hey, Jim. Yeah. No. I think, as we said in our prepared remarks, we we see evidence that, our investments in our channel are helping in this area. Right?

[Matt Moschner, President, CEO & Director at Cognex]

As we said before, this tends to be a more regionalized business, you know, with local brands and local manufacturing service servicing the the unique taste of the regions that they're in. And, you know, having a a a sales channel that can reach those customers, which tend to be smaller or more mid sized brands and manufacturers, is really, really important. And then, obviously, having the right technology for those folks to be selling. And as we've said in the past and and really still believe in, you know, particular, our edge learning based vision systems, are very easy to demo, to to set up and and test and and to deploy at scale. So you put those two things together, we can reach more customers with products that are easier to use and deploy.

[Matt Moschner, President, CEO & Director at Cognex]

I think we're seeing that very much in the packaging numbers. And in this industry, there is a good presence of some sophisticated machine builders and other OEMs that we have always kind of served well with our technology. And so, yeah, we really we see three legs to that stool. And I think at this point, all three are working in our favor.

[James Ricchiuti, Senior Analyst at Needham & Company]

Thanks. And just a quick follow-up. Just on the semi market, has your view of that market changed versus earlier in the year, just given the mixed signals we're hearing from the WFE market? And does that cautiousness? I know you don't look too far out, but does that bleed into 2026? Or is

[Matt Moschner, President, CEO & Director at Cognex]

it just too early to comment on that? I think it's too early to call. You know, it's a very complex, sophisticated supply chain, as you know. And we typically engage with, the large equipment OEMs. And, you know, often what we see is our the demand for Cognex vision with them is, know, in some cases, asynchronous to the for the for the demand and consumption of the final product, which are, you know, chips and memory and things like this.

[Matt Moschner, President, CEO & Director at Cognex]

And so I think we see, you know, room to to continue to grow or maintain strength from from from the demand side. Right? The demand for advanced AI and high bandwidth bandwidth memory will continue. How that flows through to orders for Cognex through the through the machine builders and OEMs that we serve, you know, may or may not be asynchronous to that demand. But it's still a market we're we're very excited about and see a lot of potential a lot of potential for.

[Matt Moschner, President, CEO & Director at Cognex]

But but I think you said it well. We're trying to be cautious full year this year, and we updated that for you. But continue to engage, you know, with Cognex technology. You know, this is an area, as we've said before, the acquisition of Moritex has really helped us. It brought with us great relationships in this area with some of the large semi OEMs in in the Asia region.

[James Ricchiuti, Senior Analyst at Needham & Company]

Thank you.

[Operator]

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

[Matt Moschner, President, CEO & Director at Cognex]

Great. Well, thanks, everybody, for joining us this morning. We value your continued interest and engagement with Cognex, and we look forward to updating you on our progress during next quarter's call.

[Operator]

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

Participants

Executives

• Greer Aviv, Head - IR
• Matt Moschner, President, CEO & Director
• Dennis Fehr, Senior VP of Finance & CFO

Analysts

• Jacob Levinson, Director at Melius Research LLC
• Damian Karas, Executive Director at UBS Group
• Joseph Giordano, Managing Director at TD Cowen
• Tommy Moll, Managing Director at Stephens Inc
• Andrew Buscaglia, Executive Director, Equity Research - U.S. Industrial Technology at BNP Paribas
• Kevin Wilson, Equity Research Analyst at Truist Securities
• Ken Newman, VP & Equity Research Analyst at KeyBanc Capital Markets
• Piyush Avasthy, Equity Research Senior Associate at Citi
• Keith Housum, MD & Research Analyst at Northcoast Research
• James Ricchiuti, Senior Analyst at Needham & Company