Cognex Corporation (CGNX) Earnings Call Transcript & Summary

[indiscernible] chat with Cognex. I am Piyush Avasthy, analyst at Citi. With me today is Dennis Fehr, the CFO of Cognex. Welcome, Dennis.

Thank you. Thank you for having me. Thanks, everyone, for your interest in Cognex.

Dennis, Cognex is a strong player in machine vision end market. You sit right in the middle of factory automation. From your vantage point, give us your thoughts on the global automation cycle. Automation spending tends to be cyclical. What seems that automation end markets are more stabilized and inflecting, we do see instances of shifting supply chains and shoring activities. We are hearing about physical AI. But as you speak with your customers, what are they telling you about their CapEx plans and their intent to invest in automation? Like how do we gauge the durability of this automation investment cycle?

Yes. Thanks, Piyush, for the question. So if you look at the cycle -- maybe first, looking back, where we're coming from. I would say we come out of a -- on the one side, 2021, an extreme peak kind of the COVID craziness, you could almost say it; and then a pronounced down cycle, right, '22, '23, '24, you could call the down cycle, which hasn't really happened in this regard in machine vision before. Until you would have seen down cycles 1 to 2 years and was the first time a 3-year down cycle. And then we started to see kind of early signs, at least in the warehouse automation in '24, extending into '25 was actually good growth in warehouse automation. But the factory automation, which is still kind of 75% of our business basically hadn't really shown growth until late last year especially in Q4 2025, where we saw really strong year-end demand across our factory automation end markets. And along with that, we saw, on the one side, good customer sentiment globally, I would say, that we felt like much more positivity. There, we saw the PMI in the U.S. picking up, and in general, we saw a good start in semiconductor into 2026, which we so far actually only expected for the second half of 2026. So there were clearly a good news and good positive signs. But now I think it comes back to your question about like the durability, right? And that's, Piyush, where we are still a bit cautious. So I would describe maybe cautious, optimistic, would use these words. Because we just haven't seen no positive data points over time, right? We have seen positive data points end of 2025. We saw positive data points starting into the new year. But then at the same time, January and February are usually also a bit like odd months in that regard. If you think like a lot of Asia right now is in the Lunar New Year's holiday, so it's a bit unclear like how will that be after they are coming back you see Europe starting slowly into Q1 and then accelerating throughout the quarter, so that happening and at what speed it's happening throughout March, especially. So in that regard, I really think like from our vantage point, we want to see more data points over time before we really would say like, hey, "Here's an acceleration beyond," right? In Q3 last year, we talked about mid-single digits growth. Now in the last earnings call from our initial view on the end markets that kind of implied like mid-single digits to high-single digits. But kind of the durability and the acceleration here, it's very hard to gauge it more than so time will tell more.

Got you. And you reported last week where you provided your initial 2026 view of the different end markets you operate in, which kind of suggests roughly mid-single digit to high single-digit growth for the company. Can you unpack that a bit? At your Investor Day, you laid out 2 growth vectors, end market growing and then Cognex increasing its penetration. As we think about your 2026 growth framework, is it possible to separate growth from improving end markets versus your own self-help?

Yes. No, absolutely. Maybe before I get to that, I think when you think about growth, it's usually also good to think about what's the right baseline. So maybe let me first talk about the baseline and then let me talk about some of that growth cyclical recovery versus penetration. I think on the baseline, we had in 2025, we had a onetime revenue event in the third quarter coming out of a commercial partnership. So we reported $994 million of revenue, but then you need to take out that type of one-time revenues. So it's probably more like $982 million and then in the last earnings call, we also talked about that we are doing a portfolio optimization and then we are exiting $22 million of revenue on an annualized basis. So since that is not starting January 1, but more towards the end of the first half of the year, I would take maybe about $17 million just as an example. So that brings really your baseline starting point at $965 million. So now if you take that 5% to 7% growth, just as an illustrative number, not as a guide, that would basically bring you to $1.15 billion to $1.35 billion in 2026. So maybe first, I want to clarify that baseline. And then second, in regards to now the question of the growth, where is it coming from? It depends a little bit on the end market. So in general, at our Investor Day last year, we said 10% to 11% through cycle growth and 4% of that underlying cyclical and industrial market growth and then 6% to 7% growth from penetration. Now if you look at 2026, one market where we see strong benefit from penetration is packaging. So we grew already high single digits in 2025 in packaging, and we [ said ] mid-single to high-single digits in 2026. And the underlying market growth is really pretty low, right? It's not a market where you see strong cyclical activities anyway, and it's not a fast-growing market by itself. So that's really a market where we see strong benefit from penetration. And what does penetration mean? Basically means 2 things. It means on the one side, launching new AI-enabled machine vision applications and tools, which allow us to bring more inspection tasks into this market. And then second, it means reaching more customers, which we haven't reached in the past. And then there's another vertical end markets where it's much less about penetration, that's semiconductor. So I mentioned before that we see a good start in semiconductor into 2026, and it's really capacity driven. That's not penetration driven. Today, semiconductor is already an end market with high penetration. So here, we really see activity on the capacity side. And in general, we feel very strong about the semi cycle. So here, when we entered the year or when we talked a lot, the last earnings call, we are strong believers in acceleration in semi. For us, it's just not quite clear when it will really happen. Is it beginning of the year? Is it the mid of the year? Is it towards the end of the year? So here, again, we're coming back a bit to like we would like to see more data points as we have a good start, but let's see that it's really kind of that the durability is there.

Helpful. And you mentioned the 10% to 11% organic growth CAGR. Are you still confident in that growth outlook? Your different end markets tend to be on different investment cycles. Like logistics had 2 good years with double-digit growth. And this year, you expect growth to moderate. But now you have consumer electronics that is driving strong growth. It seems like most of your end markets have to align for you to hit that 10% to 11%, maybe not. But yes, I'll appreciate your thoughts on that.

Sure, absolutely. Also at our Investor Day, we talked a bit about like how we think about the length of the cycle. So we think about like 5 to 7 years is the average length of a cycle. So in that regard, definitely, it's not required that all the end markets kind of go through the exact kind of beginning and end of the cycle. If we then think about like that we define our overall cycle 5 to 7 years, right? Some could peak earlier and some others peak later, but they would all kind of fall still within this 5 to 7 years' time frame. So in that regard, it's really a matter of the definition of the time line, and that makes us positive on the one side that this kind of underlying industrial growth, which we baked into this 10% to 11%, right, which is 4% that this will happen. But at the same time, I think much more important is actually the penetration opportunity. And I think what makes us here extremely optimistic is really this continuously innovation on the AI front. We last year launched OneVision. So OneVision really brings kind of an additional level of power of AI to our customers, right? So the one side, customers really like to have software on device kind of embedded systems. They don't like the cloud for many reasons. Speed, latency is a big issue with the cloud. Cybersecurity is an issue. So they really want to do things on the device. But on the device, you can do a lot what we call edge learning, but it's kind of -- for most of the inspection task it works. But the moment where you go into very complicated inspection tasks, that's not enough. So you would need the cloud. And that means in the past, they would need to go into like system integration type of work. Now with OneVision, we are bridging that gap. That means you can basically use the model on your device, you send it into like a virtual training center in the cloud. You retrain that model with deep learning and then you bring it back to the device. At this moment, you don't need the cloud anymore and you just run it on your device. And that unlocks so many more inspection applications that it opens up this penetration opportunity I talked before. So in that regard, I would say, much more confidence outside of the industrial recovery, which we are seeing, I think, is on the penetration side and the opportunity which we have there.

Got it. You answered -- kind of answered my next question, but I would put it in a different way, like you talked about the AI opportunities. But on the flip side, we do hear potential concerns that AI can lead to new entrants in the machine vision market with, let's say, dumb cameras with infused AI. Are you seeing that? And how do you defend your market positioning against that, especially when you go like to not like sophisticated customers like Amazon and Apple, but maybe like the smaller businesses?

Right. I think here it's important to understand, again, what are customers looking for. So first of all, they're looking for high accuracy and they're looking for high speed, right, in-line manufacturing, very small defects at high speeds, 1,000, 1,500 parts per minute. And that kind of frames the first kind of big need of the customers. And then the second one is what I already mentioned before is like they don't really appreciate the cloud for the speed issue that it just prevents some of kind of the basic needs, but then the cybersecurity issue. In that regard, what they're really looking for, it's a bit of buzzwords these days, but they're looking for physical AI. They're not looking for AI sitting in the cloud. And that means while they are the large hyperscalers, they're training massive large models with millions of data, right? But these models are on the one side, they're super large. So that means you will have -- basically, it's impossible to run them on a device. And then second, they're still very generic in that sense that they're being trained on a zebra all the way to maybe a pin in a manufacturing environment. But what you really need is highly specific training regarding manufacturing environment. And that's kind of the proprietary machine vision models, which we have is all the pretrained models, and they are optimized to run on the device. They're not having millions of kind of criteria and training points. They're really highly specific, and that really enables to solve the needs which the customers have. And kind of this combination of physical AI makes it so much harder for somebody to disrupt. And therefore, we actually think we are kind of a big beneficiary of AI, and we don't feel threatened.

Helpful. Let's go to margins. So you delivered greater than 20% margins ahead of schedule, and you're now guiding run rate of 25% EBITDA exiting 2026. So obviously, that $35 million to $40 million OpEx reduction helps get to your 25% margin target, but operating leverage is also helping. So my question is on the sustainability of that 25% margin as you're raising your through-the-cycle adjusted EBITDA margin range to 25% to 31%, which I'm assuming means that if growth is flat or even down, you can still sustain that 25%. So maybe talk to us about like what gives you the visibility or confidence in that?

Yes. No, great question. So maybe let me clarify the base assumption here. So we basically said we exited the year 2025 at 20.7%, excluding the commercial partnership there. Then we said like let's get to 25% run rate by end of the year. We basically baked as a key assumption into there a mid-single-digit growth. And then we said like through the portfolio optimization and the $35 million to $40 million cost out run rate basis by end of the year, that basically brings us there. Now in terms of that mid-single-digit growth assumption at the moment, we feel pretty confident in that number. I think as we mentioned before, we have the penetration opportunity. We are seeing at the same time that we are rather at the beginning of a new industrial cycle, right? So that means we actually have rather a few years ahead of us where we see markets working in our favor versus against us. We certainly have a good start into the year, right, with some of the strong year-end demand, which we saw in 2025, helping us in Q1, good start into semi. So in that regard, I think this mid-single-digit growth assumption feels pretty solid for us. And then the rest is really about confidence in execution. And here, I think we feel very positive of what we have achieved in 2025. We took out $33 million gross cost reduction, right? There were some incentive comp headwinds as that normalized after a pretty bad year in '24. We had some FX headwinds, some inflation headwinds. But in general, the $35 million to $40 million is a net number, except for FX. So that means some of these potential inflation is already baked in. So that means I think we feel like we have already shown we can do it. And at the same time, we have a clear execution plan, right? So that means we work very programmatic as an organization. That means we have very clearly identified work streams, and each work streams we have very clearly defined objectives. We have very clearly defined KPIs, which we track on a periodic basis. And we have clear ownership in the organization. And I think with that, I think we feel pretty confident that we will achieve the cost out target.

Perfect. Let's dig a bit deeper, and this is like a 2-parter, so it's a little long, so stay with me. At your 2025 Investor Day, you had a slide on your margin bridge, which showed margin going from 17% in 2024 to your targeted 25%. And then the 2 main buckets you highlighted were COGS, productivity and pricing and then the OpEx efficiency and synergies. You had the same slide this quarter showing margin expansion from 17% in '24 to 20.7% that you delivered in '25. So let's start with the first bucket, like COGS, productivity and pricing was down 10 bps this year versus your 200 to 300 bps potential. I think a lot of that could be tariffs, could be mix. But if you could comment on what led to that drag and how much you can make up for that next year as it seems there is good potential on the COGS line?

Yes. So that was really mainly related to pricing actually, much less so tariffs, right? So if you recall that last year, we said tariffs, we expect basically a neutral effect on adjusted EBITDA margin and on EPS. There is some effect on gross margin, but not on the bottom line basically. So less tariffs, it's really pricing and pricing actually much more related to what happened with pricing in '24 than what happened with pricing in '25. So we talked about it late 2024 that we saw pricing pressures in China specifically. And we saw at that time that we made a conscious decision as a company to defend market share in China with lowering prices on older generation products to compete with local companies. And then we saw in 2025, a, that the strategy worked, that market share remains stable and that at the same time, we saw that pricing levels reset and kind of found its way into the P&L, but we didn't see further pricing pressure. So we actually left 2025 with what we would call pricing stability. And now looking forward, basically, we believe that there is an opportunity in pricing. And so in that regard, I think we still feel that we will be able over time to get closer towards our target. But it's also clear that the bridge, which we laid out was a multiyear bridge, right? It's not a single year bridge.

Got it. And the other bucket, OpEx efficiency, you delivered 290 bps versus the 500 to 600 bps potential. So pretty good progress there. And I'm assuming the cost actions that you mentioned would kind of take you closer to that 500 to 600 bps. But my question is like how do you balance these cost actions while still being aggressive towards penetrating new markets and your R&D investments?

Yes. Great question. It's the classic question, right, is there a trade-off between growth and cost. And I think our answer to us, we are not trading off growth against cost here. I think, first of all, we felt like some of the $33 million gross cost reduction, which we did in 2025, that was really excess capacity, which we took out. But then now much more important, and that already was part in '25, but even so more in 2026, it's really optimizing the operating model of the company. I think -- as a new leadership team, I think we're really embracing kind of digitalization, process optimization using AI in our back offices, using AI in the R&D, software engineering. And then a big piece of that is what we call the sales force transformation. And here, the sales force transformation is really all about like let's optimize how we manage the sales force, much more streamlining around processes, around data tools, about driving KPIs into the sales force and optimizing lead to order process. So in that regard, we do not feel we're trading off growth against cost. We think both can be true actually.

I'll pause here to see if there are any questions in the audience.

So maybe going back to semicon. Your guide here for 2026 is relatively wide versus the other end markets, mid-single digits to double digits. You sound pretty confident on the acceleration happening there, but maybe you can break that down a little bit more. What gets you to the high end of that range, closer to that double-digit growth? And what keeps you at the low end? Is it just the timing of projects that you see coming on?

It's really timing, right? So the main question for us is much less like if there is an acceleration. I think from everything what we see across our customer groups, like if you look at some of the semi-cap manufacturing companies, I think they're all doing very well at this moment. It's more a question like how fast and how long will it take until some of these increased capacity and increased demand is basically finding its way down to us. In that regard, we provided this high range of the initial outlook for this year based on a question regarding timing, right? Is it happening mid of the year, the acceleration is happening more towards the end of the year? Or is it even happening earlier in the year. So that's kind of more the questions which we are asking ourselves, the timing around it then underlying question whether it will happen or not. And I think as we will progress, I guess, in the 1 or 2 next earnings call, we will probably be able to narrow this range a little bit as we'll get a little bit more sense about timing.

Any other questions? I'll continue. So let's get to your other end markets. Let's go to logistics. We -- you expect the growth to moderate in '26 after 2 years of double-digit growth, but you did say on your earnings call that you expect this market to grow mid-teens through the cycle. Maybe give us your thoughts on where you think you are in the cycle? Do you believe that growth could stay moderated given the outsized growth you had in the last 2 years? Like what are your smaller and larger customers telling you?

So I think in general, as we indicated on Investor Day, our logistics is really the market which we are in the long-term, most excited about. Why? Because it has very low penetration, very low level of automation across a broad set of potential customers. And that means the penetration opportunity there is the largest. I indicated earlier that we saw logistics returning to growth the earliest from all of our end markets, right? So we saw that actually happening beginning of 2024. So we basically ended 2025 with 8 consecutive quarters of double-digit year-over-year growth. So we had a pretty strong run already in logistics for 2 years. In general, I would think while coming back to the cycle duration before, right, with a 5 to 7 years time horizon, we think there's a good reason that logistics could really have a long cycle because of that low level of penetration, right? So we saw -- in 2021, we saw a lot of -- the peak of the cycle was driven by square footage capacity expansion. But this cycle is not about that. It's not about adding more facility. It's really building out and automizing all these existing facilities. And that means the CapEx requirements for our customers is actually much lower, right? They don't need to spend CapEx on concrete and on steel. It's really all about the automation piece. And that means it makes it just more durable in that sense. And again, there's really quite a pressure on our customers really to take out cost and to optimize the fulfillment operations. So in that regard, we are, in general, over the longer period, quite optimistic about logistics. But at the same time, you said we're a little bit more cautious about this year, right? So we brought down the growth expectations there from kind of our initial view on 2026 more into the mid- to high single digits. So why is that? In general, after 2 years of strong growth, we think there might be a year for digestion of that growth. And certainly, comps are getting stronger. So in that regard, there's clearly a base effect in there. But it does not mean that we think very differently about logistics in the long-term. We're actually quite optimistic about it.

Helpful. And then consumer electronics, double-digit growth last year, you expect high single-digit to double-digit growth this year. I think you have talked about supply chain shifts, change in form factors, consumer refresh cycle. Going back to the cycle, like do you have the visibility on the longevity of this investment cycle? Like would you say the momentum can continue? Or could you expect a moderation like when we get past 2026?

Right. So clearly, consumer electronics is the one market, which typically has the strongest cyclicality of all of our end markets, right? Typically, packaging is the market with the lowest cyclicality and consumer electronics can say like has one of the highest cyclicality. So in that regard, clearly something to continuously ask ourselves. I think when we look at 2025, we're coming basically in 2025, first time back to growth after 3 years of down or flat. So also here was a pronounced down cycle. first year into more an up cycle driven by shifts in supply chain, basically moving device assembly outside -- from China to outside countries. And then a very broad-based growth, right, not tied to a single customer or a few large customers. And especially that nature of a broad-based growth, that gives us a positive view on durability, right? If you just have high customer concentration, the risk of strong cyclicality and -- is much higher. Now we think that the supply chain shifts will continue. That will be a trend we think can last another 2 to 3 years. We'll see exactly how it plays out. But -- there's still more to be done on device assembly than components manufacturing is still a big piece to happen. And then at the same time, we are seeing also quite a recovery in end consumer demand that really end consumers buying more devices as they're kind of hitting a refresh cycle after buying a lot of equipment throughout the COVID period. So in that regard, there are good reasons why we could expect another 2 to 3 years in consumer electronics. But clearly, it's something to continuously ask ourselves.

Got you. And then packaging seems it's steady. You mentioned that. And you guys are doing a good job in penetrating the end market, and it seems you're getting some traction there. Would you say that this end market, which you kind of guided for mid-single-digit to high-single-digit range, is it something that's kind of sustainable? Or is it like something you're just kind of scratching the surface and there's a lot more potential to outgrow this?

I would really say it's probably where we scratched the surface so far. I mean it's a market which as a company, we traditionally have not focused very strongly, right? So if you look back, right, we come from the semi side and eventually went into automotive, consumer electronics and logistics, but packaging was always kind of the thing on the side. And I think as a management team, we have much more focus on this market. I think on the one side, it's a boring market because it has so much less cyclicality, right? And that was not really the playbook of Cognex in the past, right? It was focusing on large-scale customers who can grow very rapidly in the up cycle. So it was a market much less focused. But I think there's so much opportunity there with penetration and then it's such a stable market. And that's really something, I think, as a management team, we're actually quite excited about, right? Because clearly, for us, reducing volatility and cyclicality of the company is something which we think is a positive, and that's where packaging can play a big role for us.

Got you. And let's move to autos. The auto prospects, I feel are very well telegraphed. But other than the cycle recovering and -- are there like opportunities to increase maybe market penetration and/or win market share? How can you better position Cognex for outsized growth when the cycle inflects?

Yes. So auto has been a very challenging environment probably for many companies. For us the last 2 years with '24 declining in the double digits and then '25 still in the high single-digits decline. But we basically called it a bottom at the end of 2025 as we started to see sequentially stabilization in the numbers on the quarterly development. And it was really a positive news. So on the one side, I would say, as a company, we are very well established in automotive, both with the large OEMs, Tier 1, Tier 2 suppliers, machine builders in that space. So in that regard, I would feel pretty positive that we kind of are very entrenched in this market that if the market would start recovering, we would be well positioned there. But then certainly, there are a few opportunities there as well are coming back to penetration with AI. We launched a first AI-enabled 3D product, the first in the world actually, late 2024. And these are type of products and applications where in automotive, you can actually increase the share of wallet. So in that regard, clearly, there is an opportunity. But at the same time, I would be much more cautious about the automotive market at this stage because we haven't really seen a lot of life, right? We now call it the bottom. North America looking a little bit better than the rest of the globe. But nevertheless, I would say we would still want to see much more to happen in automotive because before we're getting excited there.

Got you. I'll try to combine like all your end markets and like throw some buzzwords. You mentioned physical AI, there's like dark warehousing and there's like lights out manufacturing. Like are you seeing the trend kind of accelerate where labor probably never replaces and you have like fully automation. And obviously, you guys play a big part in it. So give your insight like how you feel those trends or those themes progressing.

I think absolutely. And that's kind of coming back to the thesis which we have is the big penetration opportunity which we have, right? I mean, in general, there is the pressure on the global manufacturing industry to take out cost to optimize quality. But then I think you have, on the one side, kind of the acceleration in the robotics space and you have the acceleration in general with AI penetration being on the machine vision and directly our core products, but also in the general theme. So in that regard, I think these are kind of -- or it's one of the big secular kind of tailwinds which we have in our industry. And therefore, I would say it plays directly into our thesis.

Got you. And like you mentioned North America. So maybe like give us a quick snapshot of like what you expect in '26 for Americas, Europe, they were pretty strong in '25. But then I think China and Asia were a bit soft, but then you're talking about consumer electronics, maybe that kind of helps China and rest of Asia. So maybe give us your thoughts on like the underlying demand trends that you are like on a high level, like what you're thinking of Americas, Europe and rest of Asia.

Right. So -- and I assume that question is not vertical market specific, but yes, sure. So Americas, I think, had a strong year in 2025, mostly driven by the warehouse automation side, right? We moderated that view on warehouse automation a bit. So that means that we will probably mean that we would see a bit less growth in the Americas. At the same time, markets where we are strong like packaging has a good opportunity there. And definitely, if automotive pressure will go away, that will help as well. But in general, I would say Americas, probably a little bit less growth, just considering the warehouse automation. And then I would say China, Europe, you first want to highlight that there were some shifts in terms of ordering activity by large consumer electronics customers. In the past, they placed purchase orders from Chinese entities. And in '25, some purchase orders came from European entities. That didn't really change like where the products went. So they went to China and Asia, but that skewed a little bit like the reporting number. So probably the Europe growth number, which you see there, it's much higher than it's underlying is. And the China number is much lower than actually it is. So in that regard, I think China, actually, we were quite positive, especially towards the end of last year. And I think also what we see going into 2026. I think China actually looks pretty good. And in that regard, now combined with what we see in semi, consumer electronics, also the other Asia looks pretty promising. So I would say, in general, I think big positive view on Asia and China. And I would say Europe is still a little bit tentative, I would say. I think we clearly see the opportunities in the packaging market there. But I wouldn't be surprised if we still see headwinds in the automotive side in Europe. So in that regard, a little bit more cautious overall.

Got you. And free cash flow conversion remains strong. Your balance sheet is in good shape. You have teased us with 3% inorganic growth potential. I will not ask when we get to see M&A because I know your answer. But maybe what assets do you think will be a strategic fit for Cognex? Is it regional penetration that you're looking for? Is it software? Is it more into physical AI? Like what assets do you believe further augment your current portfolio?

Yes. So I think if you look back the last 10 years or so what Cognex mainly did in M&A were small kind of tech bolt-on acquisitions. It's clearly still an opportunity for us, but probably much less likely as we have strong confidence in our overall platform architecture and our AI capabilities. But then there are clearly opportunities about certain geographies, certain, I would say, specialized end markets where we could find acquisition opportunities within the machine vision space. But then there's clearly also an opportunity to look for generating additional sales synergies by adding additional products into our portfolio, which we could sell with our existing sales force. In that regard, I would say, probably here's one of these areas where you see clearly a shift in terms of the mindset about how we think about M&A, right? So in the past, very tech focused, very gross margin oriented in terms of kind of the financial profile of a potential target acquisition versus we are shifting much more towards like saying like, yes, we could acquire also revenue and then much more focused on bottom line profitability and the potential, which you would see there in terms of potential acquisition targets. So in that regard, I think there's clearly a shift in terms of focus and direction. But I want to re-emphasize it in that regard that we think M&A is something optional and something almost like you could say the icing on the cake. I think we have a tremendous opportunity in our core business with organic growth, with margin expansion, which is largely under our own control. So what we can do on the cost side. So in that regard, we'll only pursue M&A if it really makes strategically sense, if there is a good financial case to be made. And if we would be sitting here in 2 or 3 years, and we wouldn't have done an M&A, but we have delivered on our core business performance, then I would be very happy and we would be fine with that as well.

Got it. Any questions from the audience? I'll continue. So I think you mentioned higher lead to opportunity conversion. Can you elaborate on what is driving? I think there has been a continued focus on sales transformation within the organization. If you could expand on changes you're making to your internal sales force. And I think you mentioned twice the customers served and like 9,000 new customers in 2025. How much growth is that generating? And if there is a milestone for 2026 with respect to new customers, if you want to share that?

Yes. So 2 pieces here, right? On the one side of sales force transformation, what we are doing there and then customer acquisition. And certainly, they are very closely linked. So that's why appreciate you asking it together. Let me first tackle bigger picture, sales force transformation here. I think if you go almost back like 20 years or so, you would find Cognex was basically like a company selling into semi-cap company. So that means very concentrated sales, more like a key account kind of sales force approach, very concentrated customer base. And that's kind of the core sales DNA of Cognex for many, many years. Even so as Cognex diversified over time into different markets like consumer electronics and logistics, was very much focused on large accounts and bringing that successful playbook, which Cognex had of serving almost in a white glove service, large accounts, right? And that certainly drove a lot of success. But I think someone like 2021, 2022 as a company, we realized that there's so much more opportunity out there to serving a much broader customer base. And I think the positive sense was that at that time was the realization is that you can't serve a broader base of the market with the same playbook you're serving kind of these large accounts with this white glove service. You need to change something. So the original approach was to say like let's hire a different type of seller and basically increase coverage that you can serve more customers with much more salespeople. So in that regard, I would say the very positive of that, it was a fundamental shift in mindset and recognition that you need to address different customers in a different way. The big disadvantage was it was a heavy drag on the P&L, right? So in that regard, it was an investment into the down cycle. So that means the cycle went down, top line delevered and at the same time, heavy investment and that led to margin erosion a lot, right? So in that regard, we realized it's not sustainable to do that. And that means like the approach of sales force transformation is still to say like, yes, we want to serve a broader base of the market, and we need to have different sales playbooks depending on whom we are serving and how we are serving them. But let's root that not in manpower, let's root that into data, let's root that into a different management style. Let's root that really into clear accountability of each sales engineers like here are your KPIs, you're being measured on, here's your leader board, how you're compared against your peers. Here's how we feed leads into the sales organization. We just launched a completely refreshed website. And on the one side, certainly, it looks nicer. And one aspect is, therefore, make it customer find things easier, point clearly taken. But at the same time, the whole purpose here is the back-end automation like if somebody interacts on the website, how do we convert that into a lead? How do we make the sales organization follow up and convert that into an opportunity. So that means much more automation-driven approach. And that basically comes back to your earlier question, is there a trade-off between cost and growth? No, it's not because with this automation, we drive much more sales efficiency. And basically, think about it like bookings per head, like how far can we drive bookings per head for our sales organization. So these are some of the key aspects. We simplified management structures as well. We think more holistically also about how we make use of system integrators and machine builders, how do we serve there. So that really helps to bridge that balance between growth and cost. But then it certainly also helps us to drive the customer acquisition. And I think we saw a tremendously successful year in 2025, 9,000 new accounts acquired at 3x the rate of 2024. I won't be able to share you a number for 2026. But I would say, as we feel like that this engine of acquisition is running well, I think we start to think about like, okay, where do we go from here, right? So is the next step to double further? Or is it more land and expand? And I think for us, we are much more thinking that the next step is probably land and expand. So that means much more thinking about, okay, now we got the foot into the door with these customers. Now how do we expand there? How do we increase share of the wallet? How do we increase penetration? So in that regard, I would say, clearly, we would probably want to see another 12 to 18 months of good customer acquisition, but probably eventually, we will pivot much more towards like, okay, how do we now expand the share of wallet.

Got you. We are on time, but I have like one final question. We are asking this to every company. You can be very brief. Like what are the top 2 or 3 innovations and structural changes affecting your company over the next 5 years? And are there any emerging industry trends that are perhaps being overlooked in the current discourse?

Yes. I guess everyone will be shocked when I say it's AI. And I think for us really in many ways, right? For us, I think we are such a big beneficiary of AI, bringing AI into our machine vision systems and driving this penetration opportunity and at the same time, using AI as part of our margin expansion.

Perfect. We appreciate you joining us, Dennis. I'll let you go back to the beach.

Thanks a lot.