BAIRD 2026 GLOBAL INDUSTRIAL CONFERENCE - COGNEX CORP

All right. Good afternoon. Thank you for joining us for Cognex's presentation. I'm Quinn Fredrickson, senior research analyst at Baird covering advanced industrial technology. Cogmex, as many of you are aware, is a leading provider of machine vision and barcode ID reading. And so with us today to discuss the company is Matt Moschner, who's the president and CEO. So Matt is going to open up with a few introductory remarks and some slides, and then we'll come back for Q&A. Yeah, great. Thanks, Quinn. Hi, everybody. Thanks for your interest in Cognex. My name is Matt Moschner, CEO of Cogenex, actually a Chicago native, so always nice to be back in town. Grew up just north in Lake Forest. But I thought I'd start, we can skip those, at a very high level. Who is Coganex? We are the world leader in industrial machine vision. We make these embedded smart vision systems. And machine vision, maybe not a technology area that everyone knows about. The easiest way to think about it is we give machines, the machines that make the products we all use and consume every day, we give those machines the ability to see and see what they're doing at line speed in tens of thousands of manufacturing facilities around the world with billions of inspections per day. The way to think about this is very much like your human eyesight, right? We have a set of image capturing technologies, lights, lenses, sensors. We then have embedded processors and we have vision algorithms and software that dissect those images to make sense of them and derive insights from them. What does that look like practically, right, here's a fun example, very relevant today with data centers in our electronics business where as chips are being soldered to PCBA boards, a very common application would be before that soldering or even after that solding, how well was that done? Was it done correctly? Was it down to that inspection? And so Cognex would engage with a customer, in this case Molex, who was consulted with Cogmex, and what would we bring to the table? We would bring imaging, lighting, lenses, and sensors. We would bring an embedded vision system that comes preloaded with our market-leading vision inspection tools, and we'd bring everything else you would need to design and deploy that vision inspection at scale. And so what you can see here on the bottom are really our vision algorithms and our software at work, where very detailed inspection of these soldering pads and pins, in this case, and doing things like checking the integrity, checking the surface area, checking the distance between them. And the way to think about this is doing this all-on device and doing it very, very quickly, very, Very accurately and repeatably across, in this case, many, many different stations, right, to just start to bring this to life. You know, if you look at 2025, these are the numbers last year, $994 million. This year, if you look at our midpoint of full year 26 revenue, $1.15 billion. So we're really facing a very good growth year in 2026. 10-year historical adjusted EBITDA of 28%, so very profitable business. Thisyear, we're forecasting 31.5% adjusted EBIDDA for the full years, so above our historical range. As a business, we view ourselves as the technology leader. And a great proof point for that is how prolific we are in setting new standards and patenting those things. So a global patent portfolio, that's peer leading. As a high-tech company, we're 45 years in business, which is quite a feat unto itself. And so over the years, we've reinvented the company. We've reinventing the technology stack. We are leading in AI and its application, and in many ways, drawing from the legacy of the company, but also viewing it very much as sort of day one. And we are a team of 2,500 today, Cognoids that operate around the world. Our revenues and our employee base is roughly a third in Asia, a third in the Americas, and a third Europe. And so a truly global diversified player in industrial machine vision. And so what is our value proposition to investors and to many of you? Well, in one hand, it is that technology leadership, right? You don't get to the levels of profitability that we have if you don't deliver tremendous value and deliver it in a very differentiated, durable way. And we invest quite a bit, over $100 million in some years, sort of mid-teens percent of revenue in R&D to make sure that we maintain our technology leadership in hardware and software. We're in a large growing market, $7 billion estimated served market growing at 10% to 11% through the cycle. A key to our differentiation is going to market through a direct end-user oriented sales force. So roughly one in four Cognoids is a quota carrying salesperson. Very important to drive, to be a consultant, frankly, to our customers and drive differentiation in the market and growth. We work with all of the major manufacturers in the world, many of the brands that you're aware of across automotive, semiconductor, packaging, logistics, and semi. We're a high margin business. A lot of that has to do with our differentiation in software, but frankly, the fact that we design our technologies as full stack, both imaging, embedded processing, software applications, and software tools. And it's really that combination, I would say, that sets us apart. And then in general, highly cash generative, very capital light. We operate a fabulous manufacturing where we have a network of CMs around the world that manufacture on our behalf. And so that keeps our capex extremely low and our cash generation very strong. And then generally spoken, for those that know, Cognex really have come to appreciate what is a very unique corporate culture, one that favors entrepreneurship, taking risk, moving fast. And that, frankly, is very, very focused on growth, as you would find at any early stage startup, but within the four walls of a 45-year-old, well-established company. So hopefully that's a helpful overview. Quinn, take me where you want to go. Yeah, absolutely. And just for the audience, the session four is where you can send any questions. But just to start us off, Matt, I think it'd be helpful to kind of set the stage on what you're seeing this year. We can dive into some of the specific verticals later, but first, just at an overall level, mid-teens kind of organic growth this year, maybe even a little bit better than that. What are you seeing customers do with their purchasing budgets? What value are they looking to drive and problems they're keen to solve? And why are they turning to Cognex and not someone else? Yeah, no, great question. Yeah, so by the numbers, I think sort of high teens potentially, growth for the full year based on where we got in Q4, well above our through-cycle range of 10% to 11%. And I would say, most importantly, we're seeing growth very broad-based. What does that mean? Really across geographies, across customer segments, across end markets, which in a way we frankly haven't seen since I've been with Cognix, which is roughly 10 years. I'd say there's a few kind of secular demand drivers that are worth noting. One, why do our customers adopt machine vision? Why do they invest in automation? Well, in many cases, it's rising labor costs, rising input costs, both of which I think we're seeing quite clearly. Scarcity of labor, for sure, we're see that where you're replacing human eyes with machine vision inspection. I think, we are also seeing kind of a diversification of our customer supply chains from what historically has been very concentrated in Asia, and specifically China, to other parts of the world, producing within the geographies that you're selling more and more. And so we're benefiting from that because, you know, as you suspect, as our customers are diversifying their supply chains and setting up new plants, they're doing it with an eye towards automation and vision inspection. Yeah, and then, you know, we've done a lot of work internally to the business to improve the growth engine. Obviously, as a technology-driven organization, our product innovation is very important. I think we're very much on the front foot in terms of how we're launching market-leading products, increasingly adopting AI in the product. We've put a lot of work into our commercial organization where we are, I would say, our sales motion is very effective in how we target the right customers, target the right opportunities, and kind of flow that through to growth. And so I'd say it's really a mixture of things. I think, broadly speaking, a very strong demand environment while at the same time executing quite well as a business. Touching on some of your verticals, maybe we can start in logistics since that is your largest vertical. You've added 11 consecutive quarters now of double-digit growth there. Could you frame up where that growth is coming from, whether it's mainly the larger customers or if you've seen any signs of broadening out? Yeah. So absolutely right. 11 quarters of double-digit growth in logistics. It's our largest end market and where we see just tremendous penetration, right? So penetration potential for vision. So we work with one large customer that you all know. I won't name them, but for sure the growth is more broadly based than that. So today what we mostly sell into the logistics warehouse automation market is barcode reading. We are the leader in high-speed, high-accuracy industrial barcode reading using machine vision technology. And we see good growth activity there. But increasingly, we're seeing our customers in logistics adopt vision, vision for defect inspection, damage, hazardous labels, other intelligence on their process. And really, a lot of these things weren't possible before AI, right? If you think of a logistics warehouse, just a lotof complexity, right, one of several millions of SKUs that could be passing underneath, you know, across the conveyor underneath our camera and the ability to tolerate that level of variation in our detection algorithms, very challenging using traditional tools with the advent of AI that's let us kind of bring vision to this market. And so we're seeing growth, I would say, more broadly based, certainly with our one large customer, but other customers, good growth and sort of traditional applications of vision-based barcode reading, but increasingly driving vision penetration as well. And you discussed a potential for growth to moderate, given those 11 consecutive quarters of double-digit growth. What informs that view? And if upside materializes to that outlook, what do you think would have to drive that? Yeah, I mean, so a year ago, we called potential moderation in logistics, and we were wrong. You know, hard to call. But, yeah, I meantime you're on a three-year growth run, the comps start getting a little more challenging, and our customers you know often digest a lot of the uh automation that we've delivered to them over the years uh so that that's really what's behind the comment right is is potentially just kind of a digestion of what has been very strong multi-year growth but there's reason for optimism right so a lot what we're doing is process improvement within existing facilities right so so much of our growth next year is not necessarily based on new capex and new new greenfield build outs a lot the work we're we're doing is within existing facilities and driving process improvement increasingly with vision. So I think of all of our end markets, logistics is probably the one as we look to next year that has the highest potential variability and where we have the most uncertainty. Where does that mix of barcode scanning versus machine vision stand today and any thoughts on where that could migrate over time? Yeah, I would say the vast majority, let's say greater than 80% of our business and logistics would be market reading, 20% or less would be vision. Where could that grow? I think our vision business is growing 50% plus. And so a lot of it is technology driven. As we invent new detection algorithms, as we release more powerful systems to run them on, we're unlocking novel applications. And I expect that to continue for many, many years. Moving to consumer electronics, there seems to be a number of growth drivers in the market this year, including new form factors, supply chain relocation, and a more normalized smartphone refresh cycle. As we look forward, do you see any of those factors starting to moderate, or is there a good remaining growth runway across? I think there's good remaining grow. Yeah, we're quite optimistic about our electronics business. And we say electronics, not consumer electronics, frankly, because it's broadening. So, for sure, underneath our electronics umbrella is one large customer in consumer electronics has been a good account for us, and we expect that to continue to be strong. We're broadening our customer base into other, maybe even new entrants to the consumer electronics world, but also underneath that end market umbrella is also work we're doing as part of the data center build-out, right? So today, a lot of that is visual inspection for the electronic and other mechanical components as they're manufactured, but also the box builds that are happening at the EMS providers. That has been a good source of growth for us. So as I think about electronics for next year, obviously, you've got to think about that one account. I think we're relatively optimistic in terms of what that could look like. But then also, we're making good progress to broaden that customer base, and we're seeing great activity there along with data centers. And are there steps that you can take or are taking to scale that application more rapidly beyond just the smartphone area? Yeah, absolutely. So a lot of it has to do, again, with technology. So the holy grail of vision problems to solve in consumer electronics is cosmetic defect inspection. It's really kind of surface defects where you see a lot people looking with eyes to detect those things. Very, very difficult. But with some of the advances in AI tools, we're having good success. And so I think, again, it's another example of how technology innovation is driving penetration and growth for Cognitex. And I would expect that, particularly in consumer electronics. In packaging, I don't typically tend to think of this as one of your fastest-growing end markets, but it is seeing really nice growth this year. Could you just help unpack a little bit what's driving the success there, whether it's a result of some of the new AI-infused products or working closer with machine builders, just any color there? Yeah, absolutely. I think it's both technology and Salesforce transformation, I would say. So for those that don't know, packaging includes consumer products, fast-moving consumer goods, as well as healthcare, med devices, lab automation, pharmaceutical production. and these tend to be smaller, more regional producers. So on one hand, our penetration of that market was relatively low several years ago, and so we placed a really big emphasis on finding and winning new accounts in packaging, and that's been a good source of growth. If you look at our new customer ads, that's disproportionately in the packaging market. And then equally with technology, so a lot of the problems we solve in the packaging market, these are very high speed lines, right? The best example is diaper production. I don't know if anyone's seen the diaper production line. It's an incredible piece of science, but very, very fast. And what we are typically doing is inspecting the labeling and the assembly. And you have to do that very accurately and very, very quickly. And so with the advent of more powerful embedded systems and more powerful AI tools, that's really been an unlock for us to penetrate packaging with vision. And so those two things put together a focus on our end to, acquire new customers in that area with improved technology. You're absolutely right. Lead packaging would be one of our strongest growers. In the semiconductor market, do HBM advanced nodes increasing semiconductor complexity, do those translate into increased machine vision content? Yes. All of the above. Semiconductor actually harkens to the early days of Cognex. It was really where we had our first big wins in Japan Semi in the 80s. And so it's a market that we've always had a strong position in. Over time, it has become a smaller and smaller share of the business. So last year, Semiconductor was about 10% of revenue on a 2025 basis, but for sure our strongest grow on a percentage basis this year. This year, I would kind of place it at more mid-teens as a percent of revenue. So still relatively small, but a good grower. But if you think about the underpinnings of that market, extremely high cost of poor quality, very difficult things to see with the human eyes, and, you know, a very demanding kind of automation spec more generally that plays very much to our advantages. And so, yeah, we've been working on strengthening our position in the semi-market. We acquired a business two years ago, a Japan optics and lighting company called Moritex gave us a great position with leading Japanese semi-machine builders. We've had our own investments. We just launched a new product for this market last week. And so, yeah, quite optimistic about the growth potential we have there heading into next year, albeit being our smallest end market today. Great. And then last one we haven't touched on is automotive. Yeah. Just any commentary on what you're seeing in that vertical? It seems like North America and China have shown some recovery. But just, yeah. If you could frame up where we are in that market, as well as any of the longer-term secular drivers to be aware of there? Yeah, definitely. It's been our most challenging end market over the last two or three years, I'd say. This year, definitely a recovery in the U.S. and Asia, and particularly in the U.K. where we're seeing the domestic brands really invest heavily in automation as they're retooling from the last wave of large EV bets. It is really Europe for us that has struggled to find its footing. On one hand, the European auto OEMs are struggling competitively and not being able to potentially move as fast in restructuring their cost basis. But they will, and there's evidence to suggest that our European automotive business has stabilized, if not bottomed. I think auto globally for Cognix, I think there's reason to be optimistic. When I ask about the strategy of the company and how it's evolving under your leadership, But first, there was an audience question here. Just can you speak to how the market strategy, excuse me, go-to-market strategy differs for Cognex from Keyence? And what does Cogenex definitively do better and why? And where do you have room to improve? Yeah, great question. So our go-To-Market is actually more similar, I'd say, than it's different, right? We both understand the value of having a very consultative approach with our customers and viewing as the machine vision experts and doing that with a directly employed end-user sales force. We call them sales engineers because they are engineers. They're, in many cases, degreed engineers that we train heavily on Cognex Vision so that they can be competent consultants to our customers. You know, Cogmex and our strategy, we're solely focused on machine vision. Keyence, one of our large competitors, is more broadly diversified across other automation and sensing segments. So we think that's an advantage that, you know, we can really go deep and be the technology leader, right? We're often looked to to solve some of the most difficult, challenging problems for our customers. And that's very much how the brand is built. And so while our go-to-market is very similar, I'd say how we think about the product strategy and how we thinking about investing to lead in technology is maybe a little more, maybe a little different. Great. Great. So taking a little bit of a step back and looking at just the overall strategy of the company, you've outlined several strategic pillars. First was being the number one in AI technology for industrial machine vision applications. As part of that strategic pillar, you released One Vision this year, which combines cloud-based AI training with deployment at the edge. What's been the receptivity among the early adopters of One Vision, and what are the barriers to selling that solution? Yeah, thanks for the question. Yeah, very encouraged by the momentum we're seeing with OneVision. So what is OneVusion maybe at a high level? So it is a service that we've designed to allow customers to design some of our most advanced AI tools and deploy them very quickly, really quite literally with a click of a button to embedded systems. And it's really powerful, actually, because our strategy is very much oriented around how do we design and deploy leading edge vision at the edge, right? And what we were finding was when customers were starting with our embedded systems at the end, they would need a little more performance. And to do that, they were having to change environments, kind of basically start over in a different kind of PC oriented environment. And so OneVision has allowed us to keep more customers in what we think is our strongest product line, but also the most customer-friendly form factor, which is embedded systems at the edge. And so, as Quinn mentioned, we announced OneVision about a year ago on full product release. The revenue and customer acquisition trends have been quite strong. And most importantly for me is we're keeping more customers within our Insight product family, which is our embedded vision systems. And competitively, where would you say your greatest edge, your differentiator lies in your AI features? Yeah, I think it is obviously in model performance. I think we do consistently have, and we benchmark ourselves against the market and against peers, leading vision algorithms. But also, you know, how you deploy them on embedded systems, I think is a very unique attribute of Cognex. And then generally the workflow, right? How easy is it to go from a project start to a project finish? We measure these things And we think we're leading on product and user experience. And the second pillar was providing a best-in-class customer experience. And so perhaps this ties into what we were just talking about. But how do you measure your progress on customer experience? Or where do you think the benefits of this focus is manifesting most concretely today? Yeah, customer experience, yeah. So we define five kind of primary steps in the customer journey. And as a product and technology company, you can imagine for years we were very obsessed with just the product experience. And as we've matured, as our market has matured – frankly, as the company has grown – I think it's a recognition that we have to be excellent across the board, right? From the second that someone hits the website or learns about Cognex or has a new application to how do they try, right, and so you can image how we measure that funnel. How do they trial? How do we enable trial? When they place an order, how well do we deliver? How do we communicate to them during that period? When they deploy, how does that go? Where are they getting stuck? How can we make that more seamless? And then what does it look like for us to service and support them over the lifecycle, which in many cases can be years, if not a decade or more. And so it's really a recognition that the product experience is only one step in an overall customer journey. And a lot of it is reaction to our customers' feedback to say, you're an excellent product company, but there's some areas you have to improve pre-sales and post-sails. And so it's really Cognex appreciating that and investing to be better. How do we measure it? Well, through the typical things that you'd measure, NPS and other CSATs. Yeah. Yeah. Okay. And then diversifying your growth has been a major focus area as well. I'm curious, across your customers, you've talked about a shift from just going to double your customer account to now more of a land and expand strategy. Can you just discuss how you've pivoted your sales force to better pursue an increased share of wallet and not just merely growing the customer account? Yeah, it's really how we segment the sales roles. So we have really three different sales roles at Cognex. One you might call as a hunter new account acquisition. We call those our TSCs. They're territory sales engineers with really the primary mission to find and develop new accounts. We have our ASCs, our account sales engineers, a more tenured seasoned group of sellers that go after strategic existing accounts, and their mission is really to grow wallet share, right, and to, first of all, understand account potential and align the company resources to take share. And then we have a third that's really focused on machine builders and other OEMs, which is a key piece of the automation ecosystem. So that's a sales structure we put in place roughly two years ago has proven to be very effective to better balance what was, like you said, Quinn, mostly about customer acquisition to customer acquisition, but then how do you land and then expand and frankly grow our wallet share in a way that we weren't doing as well, and then also serving a very different segment of machine builders and OEMs. And I think that's a sales structure that's working quite well. No plans to dramatically change that. Maybe we can spend a few minutes talking about RealSense, which you announced at the end of September you'll be acquiring for $500 million. Clearly, it's a business that's experiencing very rapid growth, but a little bit different go-to-market with more of an OEM sale, as opposed to the traditional Cognex model of broad-based channels. Absolutely. So are there different ways you plan to organize sales and support given that OEM-centric model? And does that have any implications for your relationship with the customer or margins you can generate in the business? Yeah, so our plan is, and you're right in saying it is a slightly different sales motion and different customer. And so, you know, we plan to operate that business somewhat separately to the core Cognix business. Partially for that, partially also because it is an new market for us, right? These are adjacent applications outside of our core. And we characterize that market as robotic perception, which we differentiate from our core, which is robotic guidance. RealSense, you know, it's really the market leader in that style of robotic perception from fixed arm to AMRs to the emerging kind of humanoid and quadruped types. Big, big swing for the company. A new market for us. We estimate the robotic perception market at roughly 500 million today. on its way to roughly 1 to 1.5 billion by the end of the decade. So good market to be in, large today and growing. They're the share leader at scale, right? So RealSense will do roughly 80 to 90 million in revenue this year at breakeven profitability. So we're catching them at the right time. And so our mandate with and for them is to help support that growth, right, support that growth by bringing our commercial resources to the table, our brand and our kind of global reach, but also not necessarily slowing them down, which is, frankly, a very impressive growth trend that they're on. Yeah. And that deal isn't closed. It should close in Q4 by the end of the year. And how should we think about getting margins from break-even to Cognex's through cycle 25% to 31% EBITDA margin? Yeah. Yeah, a lot of it is through growth and leverage and growth, We think that, and we've said, they largely have the resources they need to support many years of pretty significant growth. We think they have the sources in engineering. We think the have the resource in sales. And then obviously in other areas, sort of GNA and marketing, we have resources that we can support them. So the way to think about it is generally flat to modest growth in OPEX. It's a relatively lower gross margin business than Cognix in the low 50s. So we have plans to kind of incrementally improve gross margins to maybe low 50s to mid to high 50s. And then you couple that with what should be very strong growth, 25% plus, getting nice fall through to the bottom line that in the next three to five years can get to Cognex-like adjusted even margins. Okay. Then maybe just to conclude here, if we're looking at the core Cogenex business, you're guiding for margin 29% to 31% this year. Yes. So trending towards the upper end of that range. Yes. as we think about the next stage of where margins can go? Should we expect to be more of a volume leverage-driven story and less of a cost takeout? Just any thoughts on that? Yeah, I think definitely more of volume and leverage on OPEX. I think what we've said is for next year operating expense growing in line with inflation, take that for what you will. I think we've also said we think we have the resources we need to continue growing, resources being people. And on the gross margin line, maybe flat to slightly down, really only driven by the headwinds that we see in terms of component cost increases. And so, yeah, I don't think we're at the end of our margin improvement journey, but a lot of it will be driven by productivity and fall through on top line growth, which historically has kind of been more 60 cents on the dollar. Great. I think we are out of time. So, thank you. There we go. Okay.