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, or are there some new strategies here that you could comment on? Thank you.

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. 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 Salesforce systems integrators and machine builders that add, that incorporate Cognix Vision into their, you know, much larger kind of solutions and machines 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. 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. having better scorecards around investments that we're making with them and how do we measure success of those investments. And 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. Yeah, and doing it in a way that is frankly very complimentary for 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 in the same as we think about our overall go-to-market strategy. Thank you, Matt.

I appreciate it. I'll turn it back.

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

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 2Q results. What has changed in the outlook that gives you confidence and visibility to provide the full year at this stage?

See, I mean, 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. So there's clearly like strong conviction in the demand environment. At the same time, I really want to emphasize that there's still a short cycle, low visibility company in that sense. That means typically like a three to four months type of visibility. So we would not be a company issuing We have full year guidance at the end of the prior year or the beginning of a year. 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. So we have a good view into a good portion of the remaining five months, but not into the full part of the full year. And that means like demand. We believe, considering the demand environment where we are, it will be a strong yen demand, but we haven't baked in like an exceptional yen demand. And then certainly there are still also uncertainties still around memory prices, for example, how these will develop. So in 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 enhance investor communications and being as transparent and forthcoming as we are, we felt like that we want to provide that view if we are able to. And in that regard, we felt confident enough to put out this guide while we may not know everything at this moment.

Thank you. And, you know, we've spoken about data center on the call. Could you help us 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?

Yeah, Chris, you know, 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, you know, we're sizing it today as low single digits of revenue. with a growth path right now of 30%. And so you can kind of extrapolate that, whether that accelerates or decelerates, 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 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 all of those are enormous when they're not generating results and tokens. So that's great. The demand to roll them out quickly and scale quickly is high. And so 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. And then 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. So we're very optimistic that the technology we have and the value we typically provide is very well positioned for this market. But as we get a better sense for the full potential, we will be updating you on future calls.

Thank you very much.

Thank you. The next question is coming from Jacob Levinson of Milius Research. Please go ahead.

Hi, good morning, everyone. Hey, Drake, good morning. 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 slow from here. So how do you balance that with with some of this new data center business you've talked about and your own efforts with new products and the Salesforce changes and your customers' CapEx plans. I'll leave it at that, but it seems like there's some nuance there.

Yeah, thanks, Jake. Yeah, I know 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, are putting downward pressure on demand for automation with our electronics customers. 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 that certainly could change. And then I would say our growth A plan and strategy in electronics is multifaceted, right? It's not just about consumer demand and line counts. 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 the broader ASEAN region in India. And we expect that continue. And that's a tailwind for growth. You know, our own technology developments are letting us penetrate further into applications, primarily in 2D inspection. 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 and you can imagine Cognex would be supporting those efforts. So our growth in electronics and then on top of the data centers as you mentioned. for growth in this area is multifaceted. I think to the extent that memory prices put down or pressure on consumer demand certainly could happen. I wouldn't say we're seeing it yet. And if it does, there's other tools that we would exercise to try to overcome that headwind should it arrive.

And 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. 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. It's probably the much bigger factor which drives our demand in consumer electronics. In that regard, I just want to also make sure that you're not over-indexing just on the end user demand.

Okay, that's helpful. And 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 Thank you for joining us. 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 in some of these markets you haven't traditionally been as large in.

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 is that driven penetration? Is that right? In various markets? Yeah, yeah, great, great. Yeah, no, for sure. I mean, I would say in all of our five verticals, it's been helpful, 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. And so our latest generation of tools, whether it's classifying, defect detecting, segmenting, you know, doing optical character recognition, We have great AI-based tools in all those areas and very well positioned for packaging applications. So 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. Again, all those tools are fully AI-based. Couldn't solve the problem without that technology. Consumer electronics, very difficult inspections on, you know, you can think of fully populated PCBAs where you're looking for small parts, very densely populated on a board, looking for missing parts, you know, broken solder joints. Again, perfect application for AI that we're deploying. You know, semiconductor, right? Very, very difficult surfaces, right? Shiny, you know, metallic, even silicon wafers. And again, AI is very good at finding defects, scratches, dents, other things as those wafers are being handled and processed. So quite frankly, I think, you know, our AI progress on the inspection side is quite broad. Now, the one area I didn't mention was automotive, but 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. So yeah, I wish I could say it was one area in particular. It is quite broad-based. And the uptake on the new products has been strong. These are leading technologies solving novel applications, in many cases, first of their kind. And so we're seeing strong demand, strong pricing, that is commensurate to the ROIs that those problems have.

So, hopefully that's helpful, Jacob. Super helpful. Thank you. I'll pass it on.

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

Hi. Good morning. Congratulations on excellent results. So Dennis, on the guidance, thanks for giving us the four-year guidance, but obviously means we can back out what's implied for Q4. It looks like the step down at the midpoint would be 13% organically, Q4 versus Q3. It's been quite a long time since Colnex has had a double-digit step down. Is it fair to suggest that Q3 guidance reflects the 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. Or is it something, or are you just baking in conservatism into your guidance there?

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? So that means in years You have stronger electronics growth, you would expect and also a stronger seasonality effects. In that regard, that's one of the factors here. I would say I look at it, but also like first half, second half, right? So if you look at implied revenue for the second half, that's $580 million versus the 560 in the first half of the year. So you see actually an increase of the second half revenue and then you have effects, right? Like that some electronic shift into the first half, you have a stronger effect of the portfolio optimization in the second half of the year. So if you would adjust for that, probably that grows from the first half into the second half is even more than the 20 million, probably more towards the 40 million. So 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 last year is comparatively the strongest comp, which we have, as that was the first quarter where we saw a much more favorable demand environment. But yeah, I think in general we'll feel good about the demand environment.

And just as a follow-up, I understand that Cogmex put in and a price increase in, I believe, in April. Does that gather momentum through the year and how does that potentially impact gross margins?

So in general, we're 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 and 2025 was a neutral year. I would say in the first half of this year, pricing was a net positive on gross margin 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 uh memory price impacts are are negative in the second half of the year but again it's just more more timing effect that uh right we see memory price increases we reacted to it this price increases by ourselves we see good tractions with that but probably memory and prices prices increased further probably a bit more than but we had baked in into our first round of price increases. So we'll adjust for that and we'll add to that accordingly. So in general, I think we'll probably still end 2026 with a net positive on pricing. And that's clearly if you think back about the bigger picture on 24 being a headwind neutral 25 and that positive in 26 despite the memory price headwind I think we are quite pleased about the pricing progress which we're making. Thank you.

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

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

Yeah, no, thanks. For sure. I mean, one of the advantages that we have with our technology is very accurate inspections, but at line speeds, performing those inspections at sub-second, in some cases, sub-100 millisecond cycle times, which is and will continue to be a focus area for Cognex. But continuous flow manufacturing is one thing, where you have parts that are flying by, whether it be a bottling plant or a logistics conveyor. but 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, but 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. What we're seeing is automation in that manufacturing process. What was a lot of manual labor potentially transitioning to more robotic oriented assembly. And so 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. And I think you're seeing that get deployed in the manufacturing process of data centers, but also many other things. So I wouldn't say it's really a departure from where we focused, which as you rightly point out is inline manufacturing. but the types of that inline manufacturing can be variable from continuous flow to more station-based manufacturing, which we would have featured in the data center example.

Does that help? Yeah, no, thanks. So just if I could ask Dennis a question on pricing. So, you know, given the constant changes with supply chains and commodity costs, you know, some of the companies seem to be going for dynamic pricing. where the pricing has increased more regularly. Is that something Cognex would consider just to offset some of these inflations?

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, but certainly at the same time, there is a sales cycle and you don't want to disrupt also sales cycles with too many price increases throughout the time. So in 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 a price adjustment is probably not helpful in the sales cycle. I love in that regard. Small opportunity, perhaps, but, but not a not a major shift.

Yeah, I would also say, you know, Cognix 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. 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. It's also about how are we equipping our Salesforce with better tools to quantify the value and how we plan to capture that value. And so it's more like pricing execution. So keep that in mind as well. It's not just about, you know, 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 and and an extremely highly variable set of applications. Thank you. Thank you.

Thank you. The next question is coming from Amit Mehrota of UBS. Please go ahead.

Good morning. This is for Amit Mehrota. So I wanted to discuss on the phase growth. Like you have been delivering very strong growth and it has been consistent across most of the in-market. So 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 market demand? And in addition to this, like ISM and other macro indicators have been supportive as well. But do you see the scope for underlying market demand to continue to improve from here?

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. I mean, on one hand, the demand environment is strong, as marked by our seventh month of PMIs, Purchasing Manager Index and Expansion Territory. And I think Cognix 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. I mean, those things remain. And so you put those together and yet it drives strong demand for automation and particularly machine vision and Cognex being the leader. But on the same token, I think we are executing very well. We've talked about our Salesforce transformation over the last several months. And that's really a couple of things. One, we did a lot of work on the organization of our Salesforce to make sure that they were you know, organized for success, you know, processing tools, making sure that they had leads that they had, you know, we were fully leveraging our CRM systems that we've invested in. And then, of course, you know, there's always the investments we've made in product, we've had, you know, great new product introductions over the last 18 months, four in 2025. And, you know, maybe our biggest set of launches in April of this year, on the AI side. And so Yeah, I think you put those things together. I think our team is executing really well. And really, the strongest evidence is in the new customer ads that we continue to drive. And at the same time, as I mentioned previously, new customer ads is one thing. 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? And so there, we've invested to get better data, and we'll be tracking that more rigorously internally. So, yeah, I think it's a strong demand environment. I think we expect that that could persist into 2027. It's still too early to call, but we are continuing to drive internal growth initiatives, and those are paying off really strongly as well.

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. So as you look ahead, maybe over the next one to two 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? Yeah, no, thanks.

Yeah. Yeah, thank you. Couldn't be happier with the performance of our semi business. You know, this is a market that Cognex has been in for decades. And what that really means is the strength of the relationships that we have with leading semi machine builders and OEMs that, you know, deliver the capabilities to upstream and downstream producers of chipsets. 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 Moratex in 2023, you know, Moratex as a business was heavily indexed more to a semi-OEM selling advanced optics and lighting. And so 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. 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. And should that continue, I would fully expect that that would flow through to strong demand for Cognix 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. And so that 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. And we had the notion of, potential demand impact on electronics, which could happen. 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, 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. So in general, I really want to emphasize that 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.

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.

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.