Cognex Corp Technology Leadership Forum 2026

Ken, thanks for having me.

Great. So maybe first, quick intro on myself, Dennis Fehr, Chief Financial Officer. About 2 and a half years with the company. So Cognex, as already said, we're about 45 years into machine vision, probably the category creator, and we see ourself as the tech leader, especially also leading with the latest AI machine vision tools. We use machine vision in factories and in warehouses to inspect, think about defect inspection. We do identification, like barcode reading and what we call optical character recognition. We do also robotic arm guidance and measurements, and we do that in about a $7 billion market, which is growing about a 10% to 11% CAGR, as somebody like Interact Analysis would say. We are serving that market largely through a direct sales force, serving some of the most iconic names in manufacturing and in warehouse and logistics.

We recently also started to revitalize our channel program to serve system integrators and machine builders better. We are a high-margin business, so our long-term average is about 28% adjusted EBITDA margin, and for this year, we are guiding to 29%-31%, so we are also in a nice period of margin expansion.

Great. Maybe I will start with a bit of a macro picture, and then maybe go from there some more of the quarterly sequential view there. Big picture macro, right? We upgraded four of our five end market in terms of our growth outlook, and we see really a strong demand environment. If we look at PMIs, we are now about six months into PMI being in expansion territory, and they are around 55. That means if you think six months just in, if you look at past cycles, you would have seen PMIs peaking somewhere in the low 60s, maybe in the mid-60s. In that regard, we feel like in general on the cycle, there is still quite some way to go, right?

We still feel like we are in the early stages of the up cycles, and in general, we feel quite robust about the macro environment. We think that we see some of that reflected in the numbers which we put out there. We reported a second quarter with record quarterly revenues. For the first time in this $290 million range, and then we put out a third quarter guide with a midpoint of $310. That means another quarterly record, if we make that number. In that regard, we see two strong quarters, and these are two quarters, however, we need to point out, are quarters which are driven by electronics seasonality. Typically, electronics is showing up with strong numbers in the second and the third quarter, and electronics does not have a meaningful impact in Q1 and Q4.

Electronics is the largest growing end market if we take absolute dollars. In that regard, clearly, it is a growth driver in second and third quarter, but it is not reflective of driving growth in the fourth quarter just by seasonality. If you look at the fourth quarter, it is also a number we put out there which was slightly ahead of consensus before we went into the earnings season, and certainly now it does not have the electronics contribution from growth, but it is still a growing quarter. In that regard, we would say we would not take this as an indication that the growth rate year-over-year and that there is a sequential step down from Q3 into Q4 as any signs of a weaker demand environment. We think it is more a seasonality effect.

Yeah, no. First of all, very pleased about the results, right? If you look back, 2024 was a year where we just were in the high teens of adjusted EBITDA margin, 17% to be precise. Now in this year, we are guiding to the 29%-31% for this year. In that regard, over a comparatively short period of time, we achieved quite some margin expansion. What were the ingredients for that? On the one side, very clearly returning back to the growth, the top-line growth. For this year or for the first half of the year, somewhere in the mid-teens of growth. At the same time, the ability to take out OpEx. You mentioned we have this $35 million OpEx reduction target, and we really see this, that 2026 total absolute adjusted OpEx numbers will be below the 2025 absolute numbers.

That means we get very, very strong leverage. In the second quarter, we had 100% flow-through from revenue to the bottom line. For the full year, we said that probably in the high 80s, 87%, probably flow-through of revenue into the bottom line. Now as we start to look forward, where would we go from here? We mentioned that we are probably good with resetting the cost base, so we are not looking to take out further cost in 2027. At the same time, we also do not see the need that we need to add significantly more cost as the top line further grows. In that regard, we can further drive automation initiatives, we can drive additional process improvement initiatives.

That basically sets us up that we could keep an OpEx growth somewhere at an inflationary level, and that would mean we would still see a strong margin top-line flow-through to the bottom line, probably not at an 87% basis, but you would think like in a long-term steady state, maybe 60%, and then 2027 could be somewhere between the 60% and this 87%. In that regard, still strong flow-through, and then certainly depends on what the top line will do in 2027. Maybe too early to talk about that yet. But in general, are we at the end of our margin expansion story? No, clearly we are not. I think we clearly have that ambition to go further.