Cognex Corporation (CGNX) Q4 2025 Earnings Call Transcript
Access earnings results, analyst expectations, report, slides, earnings call, and transcript.
Overview
The earnings call summary and Q&A reveal a generally positive sentiment. Revenue and EPS growth are expected, with strong demand in logistics and consumer electronics. The company is optimizing its portfolio and achieving cost efficiencies. Although management refrains from giving full-year guidance, the focus on strategic initiatives and margin expansion suggests a positive outlook. The lack of significant negative factors and the positive updates on market segments drive a positive rating.
Key Financial Performance
Revenue 2025 revenue of $994 million increased 9% year-over-year and 8% on a constant currency basis. Reasons for the increase include strong end-of-year demand in packaging, continued growth in logistics, and growth in consumer electronics and semiconductor markets.
Adjusted EBITDA Margin Adjusted EBITDA margin of 20.7% expanded 360 basis points year-over-year. This was driven by revenue growth, disciplined cost management, and favorable organic mix.
Adjusted EPS Adjusted EPS increased 38% year-over-year to $1.02. This growth was attributed to robust revenue growth, disciplined cost management, and a lower diluted share count compared to last year.
Free Cash Flow Free cash flow of $237 million in 2025 increased 77% year-over-year. This was driven by working capital efficiencies, with the cash conversion cycle improving by 57 days year-over-year.
Geographic Revenue Trends Americas revenue expanded 11%, Europe grew 13%, Greater China increased 7%, and Other Asia was flat. Growth in these regions was driven by strong demand in packaging, logistics, consumer electronics, and semiconductor markets.
Cost Reductions Achieved $33 million of gross cost reduction, partially offset by $11 million of incentive comp, $4 million of FX headwinds, and $10 million of wage adjustments, resulting in a net reduction of $8 million. This contributed to margin expansion.
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Operating Highlights
DataMan 290: Introduced in January 2025, this product features AI-enabled auto setup and advanced code filtering, targeting the competitive ID factory automation market.
In-Sight 8900: Launched in March 2025, it brings embedded AI capabilities to OEM customers.
OneVision: Announced in June 2025, this platform integrates deep learning and edge learning on a single cloud platform, enabling deployment to embedded systems at the edge.
SLX: Introduced in October 2025, this solutions experience product line offers advanced AI vision tools for logistics customers.
Logistics: Achieved double-digit revenue growth in 2025, driven by large e-commerce customers. Expected moderate growth in 2026, with long-term mid-teens growth through the cycle.
Packaging: Delivered high single-digit revenue growth in 2025. Positioned for mid to high single-digit growth in 2026, leveraging AI-enabled product ecosystem.
Consumer Electronics: Experienced double-digit growth in 2025 due to supply chain shifts and new device form factors. Anticipated high single to double-digit growth in 2026.
Automotive: Faced high single-digit revenue decline in 2025 but expected to stabilize with flat to low single-digit growth in 2026.
Semiconductor: Grew mid-single digits in 2025, with expected mid-single to double-digit growth in 2026, supported by AI-driven investment cycles.
Portfolio Optimization: Exited product lines generating $22 million in low-margin revenue, including divestment of a Japan-focused trading business and discontinuation of non-core product lines.
Cost Reductions: Identified $35-$40 million in annualized cost reductions by 2026, focusing on sales, marketing, software development, and back-office automation.
Sales Force Transformation: Integrated sales activities into one organization, launched new CRM tools, and improved lead generation, resulting in accelerated customer growth and sales productivity.
AI Leadership: Focused on leading in AI for industrial machine vision, introducing transformative capabilities and products to strengthen market position.
Customer Experience: Enhanced customer engagement through AI-powered chat assistants, centralized support materials, and 24/7 technical support.
Customer Base Expansion: Acquired 9,000 new customer accounts in 2025, tripling the rate of 2024, with a goal to double the customer base within five years.
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Risk or Challenges
Portfolio Optimization: The company is exiting product lines generating approximately $22 million of no growth or low margin revenue, including divestment of a Japan-focused trading business and discontinuation of non-core product lines like Mobile SDK and Edge Intelligence. This could lead to short-term revenue loss and potential disruption in operations.
Cost Reduction Initiatives: The company plans to achieve $35 million to $40 million in annualized cost reductions by year-end 2026. While this aims to improve margins, it may result in workforce reductions or operational challenges during implementation.
Macroeconomic and Geopolitical Uncertainty: The uneven macroeconomic backdrop and geopolitical uncertainties could impact demand across key markets, including logistics, consumer electronics, and automotive.
Automotive Market Weakness: Revenue from the automotive market declined by high single digits in 2025, and while stabilization is expected, growth in 2026 is projected to be flat to low single digits, indicating ongoing challenges in this sector.
Pricing and Cost of Goods Sold (COGS) Headwinds: The company faced pricing headwinds in 2024, particularly in China, and while pricing stabilized in 2025, there is no guarantee of sustained pricing tailwinds in 2026.
Sales Force Transformation: The shift to a new sales force model aims to improve productivity but may face challenges in execution, including potential disruptions in customer relationships or sales processes.
Semiconductor Market Volatility: While the semiconductor market grew mid-single digits in 2025, growth in 2026 is expected to be back-half weighted, indicating potential volatility and dependency on market cycles.
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Guidance & Outlook
Revenue Growth: Revenue is expected to grow between $235 million and $255 million in Q1 2026, representing approximately 13% growth at the midpoint.
Adjusted EBITDA Margin: The adjusted EBITDA margin is projected to be between 19% and 22% for Q1 2026, with the midpoint representing an increase of 370 basis points year-over-year.
Adjusted EPS: Adjusted earnings per share are expected to range between $0.22 and $0.26 in Q1 2026, with the midpoint representing approximately 50% year-over-year growth.
Logistics Market Growth: Logistics is expected to grow at a moderate mid to high single-digit rate in 2026, following two years of outsized growth. Longer-term growth is projected in the mid-teens through the cycle.
Packaging Market Growth: Packaging is expected to grow at a mid to high single-digit rate in 2026, supported by the sales force transformation and AI-enabled product ecosystem.
Consumer Electronics Market Growth: Consumer electronics is projected to grow at a high single to double-digit rate in 2026, driven by supply chain shifts, new device form factors, and a consumer refresh cycle.
Automotive Market Growth: The automotive market is expected to be flat to grow at a low single-digit rate in 2026, with longer-term opportunities for additional penetration.
Semiconductor Market Growth: Semiconductor revenue is expected to grow in the mid-single to double-digit range in 2026, with growth weighted towards the back half of the year, supported by the AI-driven investment cycle.
Adjusted EBITDA Margin Target: The company is targeting a 25% adjusted EBITDA margin run rate by the end of 2026.
Adjusted EPS Growth Target: The company aims for at least 20% adjusted EPS growth in 2026.
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Shareholder Return Plan
Share Repurchase: We returned $206 million to shareholders in 2025, including $151 million of share repurchases. As of December 31st, we had approximately $150 million remaining on our current share repurchase authorization. Yesterday, our board approved an increase of $500 million to the existing authorization. We intend to continue to be opportunistic with buybacks. Longer term, we remain committed to capital returns as a core pillar of the disciplined capital allocation framework we outlined last June.
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Key Q&A
Q:What is the timing and inclusion of the $22 million revenue divestments in the guide?
A:The majority of the revenue divestment is related to the Japan-focused trading business acquired with Moritex. The transaction is expected to close by the end of the year or within the second quarter, with effects visible in the second half of the year. Exiting this revenue will impact the packaging and logistics verticals, but growth expectations for these markets remain unchanged.
Q:How does the company determine what is considered core versus non-core?
A:The company defines core areas based on core IP, core skills, and a deeper understanding of specific application areas. Financial metrics such as market size, growth potential, profitability, and the ability to capture profits are also considered. The process involves evaluating these factors as part of a portfolio of activities to identify areas with a stronger right to win and better financial trajectories.
Q:What are the offsets to the cost reduction program for 2026, and how will it progress?
A:The largest lever for cost reduction is OpEx efficiency. Offsetting effects include mix-related headwinds and some favorability from pricing, though pricing is a smaller factor. The focus is on OpEx efficiency, partially offset by mix, with progress expected throughout the year.
Q:What changes have occurred in customer growth initiatives and lead generation?
A:The company has transformed its sales force with four pillars: a new organization structure, improved processes with better data and tools, a consistent product ecosystem, and stronger partnerships with integrators and OEMs. These changes have improved customer acquisition, lead generation, and flexibility in directing sales activities across end markets.
Q:What are the organic top-line assumptions for 2026, and is more market outgrowth expected?
A:The company expects mid to high single-digit organic growth for 2026, driven by sales force transformation and customer acquisition successes. However, they are cautious and not providing full-year guidance, emphasizing the need for more data points to confirm trends.
Q:Where is the company in the portfolio optimization process?
A:The company is at the end of the portfolio optimization process, having worked on it for nearly a year. Announcements made reflect the results of this analysis. Additional work may involve cleaning up SKUs and reducing complexity, but the strategic portfolio optimization is largely complete.
Q:What is driving demand in consumer electronics and logistics end markets?
A:In consumer electronics, demand is driven by supply chain shifts, new AI tools, strong consumer demand, and new form factors like foldable phones and glasses. In logistics, growth is supported by strong customer relationships, technology advancements, and new products like the SLX, though growth may moderate after a long period of outsized growth.
Q:What are the capital allocation priorities for 2026?
A:Capital allocation priorities remain unchanged, focusing on strong cash flow generation, margin expansion, and maintaining a cash conversion cycle of 150-155 days. The company aims for greater than 100% free cash flow conversion in 2026, driven by margin expansion rather than working capital optimization.
Q:Is the company seeing any impact from higher memory costs?
A:The company does not expect any material impact from increased memory pricing. They have strong supply chain management and relationships with suppliers, and memory costs are not a significant portion of their cost of goods sold.
Q:How will the $35 million-$40 million cost benefits be realized in 2026?
A:The majority of cost benefits will be executed in the first half of 2026, with effects visible starting in Q3. The focus is on achieving an adjusted EBITDA run rate of 25% by the end of 2026, with durability and potential for further margin expansion into 2027.
Q:What is the outlook for the automotive market in 2026?
A:The automotive market is showing recovery, with strength in North America driven by OEMs' flexibility for new powertrain investments. Europe remains weak, while Asia shows mixed results depending on OEMs. The company is shifting sales activities to compensate for regional weaknesses.
Q:What is driving the raised through-cycle EBITDA margin expectation?
A:The raised expectation is driven by achieving the first milestone of margin expansion a year ahead of schedule, cost optimization, portfolio optimization, and changes in the operating model to improve efficiency and productivity.
Q:What opportunities does the company see in physical AI and robotics?
A:The company sees opportunities in industrial robotics, data center automation, and aerospace and defense. They aim to provide vision solutions for high-speed inline manufacturing and industrial robotics, but do not see humanoid robots as a strong focus area.
Q:Will the divestment of the Japan-focused trading business impact gross margins?
A:Yes, the divestment of the Japan-focused trading business, which has lower gross margins, is expected to slightly improve gross margins in the second half of the year.
Q:Review of Unclear Management Responses
A:Management avoided providing a full-year guidance for 2026, citing the need for more data points and trends. They also used vague language when discussing the potential for deceleration in growth and the impact of year-end spending on Q1 results, emphasizing uncertainty and prudence.
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Earnings Word Cloud
The most frequently occurring keywords in this quarter's earning call
Cognexcom website
PL
Page currency
authorization
basis margin
benefit Commercial
campus
code
cost reduction
digit term
edge
engagement
expansion digit
favorability
incentive compensation
lead
lever
margin expansion
margin progression
marketing tool
milestone
model transformation
opportunity penetration
portfolio optimization
pricing headwind
product ecosystem
product line
productivity pricing
refresh
return
review
semiconductor
service
setup
support
training
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The earnings call summary and Q&A reveal a generally positive sentiment. Revenue and EPS growth are expected, with strong demand in logistics and consumer electronics. The company is optimizing its portfolio and achieving cost efficiencies. Although management refrains from giving full-year guidance, the focus on strategic initiatives and margin expansion suggests a positive outlook. The lack of significant negative factors and the positive updates on market segments drive a positive rating.
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CGNX Report
Frequently Asked Questions
Where does this earnings call transcript come from?
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They are generated by a specialized financial-language model trained exclusively on 15+ years of earnings transcripts. The model extracts financial figures, guidance, and tone with 97%+ accuracy and is regularly validated against human analysts. The full raw transcript always remains available for verification.
