Cognex Corp 2026 Q2 Earnings Call

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 second quarter performance, and our expectations for the third quarter 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.

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.

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.

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.

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.

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.

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.

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 a 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 in 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, and 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 U.S. Purchasing Managers' Index has now remained in expansion territory for seven consecutive months. 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. 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 half. 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.

We are maintaining our full-year outlook for automotive of flat to low double-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 the third quarter and full year.

Dennis? 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.