Cognex Corporation Q4 FY2025 earnings call

Management Statement and Operational Highlights: - Strategic Objectives: Remain committed to leading in AI for industrial machine vision, deliver best customer experience, aim to double customer base in 5 years. - Portfolio Review: Exited product lines generating ~$22M no-growth/low-margin revenue, including divestment of Japan-focused trading business and discontinuing noncore product lines. - Operating Model Transformation: Identified $35M-$40M annualized cost reductions by year-end 2026, focusing on sales/marketing digital tools, AI-assisted software development, back-office automation. - Salesforce Transformation: Integrated sales activities, launched new marketing tools, improved lead generation, collaborated with systems integrators. - Customer Experience: Implemented AI-powered chat assistance, centralized support materials, standardized UI, enhanced 24/7 support.

Segment Performance: Logistics delivered steady growth with double-digit revenue growth in 2025 led by large e-commerce customers, expecting moderate mid- to high-single-digit growth in 2026. Packaging had solid high single-digit revenue growth in 2025, expecting mid- to high-single-digit growth in 2026. Consumer Electronics saw double-digit revenue growth in 2025, expecting high single- to double-digit growth in 2026 driven by supply chain shifts, new device form factors, and consumer refresh cycle. Automotive remained challenging in 2025, expecting flat to low single-digit growth in 2026. Semiconductor had mid-single-digit revenue growth in 2025, expecting back-half weighted mid-single to double-digit growth in 2026.

Guidance: - Q1 2026: Revenue expected $235M-$255M (+~13% midpoint), adjusted EBITDA margin 19%-22%, adjusted EPS $0.22-$0.26. - Through-cycle: Raised adjusted EBITDA margin range to 25%-31% from 20%-30%, revenue CAGR 13%-14%, >100% free cash flow conversion. - 2026 Target: Aim for 25% adjusted EBITDA margin run rate, at least 20% adjusted EPS growth.

Risks: Macroeconomic uncertainty, geopolitical risks, supply chain disruptions, impact of divestments on market mix.

Q: Wanted to dive a bit deeper on the $22 million revenue divestments. Could you just frame out the timing of when this should be expected? And you know, how is that, you know, if that is included in the guide, as well. And then just have a quick follow-up to that.

A: Yep. No. Happy to do that. So maybe first, focusing, like, key takeaway on here. Right? It is really all about focusing on noncore or getting out noncore product lines, which do not have growth or low growth, and which have low margins. So in that regard, it is really focusing on improving the revenue mix and helping in that regard to offset some of the onetime favorability we have seen in 2025. The majority of that revenue which we are exiting is related to that Japan-focused trading business which we acquired along with Moritex. We are currently expecting to close that transaction by the end of, or within, the second quarter. So that means you would start to see that in the second half of this year. Keep in mind that exiting that revenue will change a bit the mix of the end market. Right? So the majority of that revenue would come out of the packaging vertical, and a smaller portion would come out of the logistics vertical. So in that regard, keep in mind when you model to reduce these two verticals, whereas the growth expectations Matt stated, or the initial view on these growth expectations in these vertical markets, basically would remain unchanged on that lower base.

Q: Can you just give us a better understanding how the company determines what is considered core versus noncore. For instance, like, things like Edge Intelligence were a highlight of the Investor Day a couple years ago. So just would love to better understand the framing behind these priorities.

A: Yeah. Thanks, Michael. Yeah. This is Matt. This is a process that we started almost a year ago as we really thought about where do we have advantage. Right? We start with where do we have core IP, core skill, you know, a deeper understanding of a certain application area is really the foundation of what we would define as core. And then, you know, we look at other financial metrics that Dennis mentioned, really, what is the size of that market, what is the growth potential, what is the relative profit pool, profitability, and our ability to capture those profits. You put those things together, and you put them really in the context of each other, as part of a portfolio of activities, and, you know, I think what you quickly see are those that, you know, a, we have maybe a stronger right to win, and then, b, perhaps a weaker financial trajectory. So that is how we did it. Right? We have a pretty clear framework as to how we do that. And I think you are seeing the results of that work from last year in these results.