Cognex Corporation (CGNX) Earnings Call Transcript & Summary

Greetings, and welcome to the Cognex Corporation Second Quarter 2026 Earnings Conference Call. [Operator Instructions] As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Greer Aviv, Head of Investor Relations. Thank you. You may begin.

Thank you, operator. Good morning, everyone, and thank you for joining us. Our earnings release was published yesterday after market close, and our 10-Q was filed this morning. The earnings materials are available on our Investor Relations website. I am joined here today by Matt Moschner, our CEO; and Dennis Fehr, our CFO. Today, we plan to share several key messages, including progress against our strategy, opportunities to drive diversified growth and market trends our strong second quarter performance and our expectations for the third quarter and full year. After prepared remarks, we'll open the line for Q&A. Both our published materials and the call today will reference non-GAAP measures. You can find a reconciliation of certain items from GAAP to non-GAAP in our press release and earnings presentation. Today's earnings materials will contain forward-looking statements, including statements regarding our expectations. However, actual results may differ from our projections due to the risks and uncertainties that are described in our SEC filings, including our most recent Form 10-K. With that, I'll turn the call over to Matt.

Thanks, Greer. Good morning, everyone, and thank you for joining us today. Q2 was another strong quarter for Cognex and further evidence that our strategy is driving results. We delivered record quarterly revenue significant adjusted EBITDA margin expansion and strong double-digit adjusted EPS growth. The demand environment remains favorable with no material negative impact from macroeconomic or geopolitical events. We continue to benefit from an improving industrial cycle while also seeing accelerating adoption of automation and AI-enabled machine vision. Importantly, our performance reflects more than cyclical recovery, reflects focused execution against the strategic objectives we have outlined for Cognex, along with the operating discipline required to convert growth into profitability. Our focus remains on profitable growth, operational excellence and productivity across the organization. Turning to Page 3 of our earnings presentation, I'll start with a strategy update. First, we are extending our technology leadership in AI-enabled machine vision using the OneVision platform to enable new AI-driven applications and expand into high-growth end markets, including the data center supply chain. Recently, we announced the general availability of OneVision, with hundreds of customers already using the platform to reduce deployment complexity, shorten time to value and scale AI-driven vision applications. Second, we are focused on delivering the #1 customer experience in the industry. As part of this journey, we are building the most comprehensive and easy-to-use machine vision ecosystem. Recent product launches have meaningfully expanded the breadth of our portfolio giving customers access to new cutting-edge capabilities, all within the same insight vision suite software environment. Customers can now address entry-level inspection applications with the In-Sight 2800 perform advanced 3D inspection with the In-Sight 3800 performed complex inspections with the new In-Sight 3900 and gain maximum flexibility for the most demanding applications with the In-Sight 6900. Just as importantly, we are making our products easier to evaluate, deploy and support by enhancing intuitive product setup, expanding self-service resources and continuing to drive efficiency through unified software ecosystem. Third, we are focused on driving growth through diversification. We are targeting growth across a broader set of customers, channels, adjacencies and end markets. While these initiatives will take time, they are central to building a more resilient and scalable business. Let's take a closer look at each of these areas on Page 4. Starting with customers. We are very pleased with the progress we have made towards our objective of doubling the customer base. In 2025, we added approximately 9,000 new customers and momentum continued in 2026 with approximately 4,500 new customers added year-to-date. This success meaningfully diversifies the customers we serve and broadens our opportunity set. As we look ahead, our focus will increasingly shift towards a land and expand strategy. Building on these new relationships identifying the right high potential accounts and capturing a greater share of wallet over time. As we continue our sales force transformation, we are revitalizing our channel partner program to strengthen our overall go-to market. By working more intentionally with our global network of systems integrators, machine builders and services partners, we can better identify new opportunities, fulfill demand more effectively and bring Cognex products to a broader set of customers applications and end markets efficiently. We will also continue to explore opportunities in adjacent markets, both organically and inorganically, where our deep domain expertise can extend to solve critical automation challenges and create meaningful long-term growth. Finally, we have a strong track record of identifying attractive new end markets and scaling them into meaningful growth platforms. Logistics is a great example. When we entered the logistics market about 10 years ago, it represented only a single-digit percentage of total revenue. Today, logistics is our largest vertical. We are applying that same playbook as we expand into the data center supply chain market. Today, data center represents only a low single-digit percentage of revenue, but is growing more than 30% year-over-year. While still early, we believe the data center supply chain has compelling strategic characteristics. It is aligned with powerful secular growth trends, requires high levels of quality and throughput and creates opportunities for Cognex to help customers improve productivity through automation. It also reinforces how our AI leadership can open new growth platforms over time. Turning to Page 5. Let's look at real-world example of how our technology is helping customers solve complex inspection challenges in this market. This is a server rack inspection deployment using our newest technologies, including the In-Sight 3900 and OneVision. For this application, Cognex vision systems will be mounted on robots to inspect fully assembled server racks and confirm that all major components are installed correctly and meet strict quality requirements. This demonstrates the broader applicability of our AI-enabled machine vision systems beyond our traditional end markets. It also provides an entry point into AI infrastructure manufacturing, a rapidly growing market. Turning to end market performance on Page 6. The demand environment remained favorable in the second quarter. Growth was led by semiconductor, electronics and packaging, along with continued momentum from large logistics customers. Manufacturing indicators continue to improve across key regions in the second quarter, and the U.S. Purchasing Managers Index has now remained in expansion territory for 7 consecutive months. This improving macro backdrop, along with better visibility into the second half, gives us confidence to raise our full year outlook for nearly all end markets. Starting with logistics. Momentum continued driven by large e-commerce customers. Q2 marked our tenth consecutive quarter of double-digit growth. Given the strength of our first half performance, we are raising our full year outlook for logistics to high single-digit growth while continuing to expect growth rates to moderate in the second half. Packaging delivered strong performance. Excluding the divestiture of the Japan focused trading business, packaging grew double digits. Based on this momentum, we are increasing our full year packaging outlook to double-digit growth. Electronics growth was very strong with double-digit growth driven by broad-based demand across customers and geographies. And AI is driving a new wave of innovation in electronics as manufacturers incorporate increasingly sophisticated functionality into next-generation devices. For 2026, we are increasing our full year outlook for electronics and now expect double-digit growth. Automotive revenue declined high single digits in the quarter but was nearly flat year-to-date. Growth in Asia and the Americas was offset by continued weakness in Europe. We are maintaining our full year outlook for automotive of flat to low single-digit growth. Finally, semiconductor delivered exceptional performance with strong double-digit revenue across all geographies. Demand continues to be driven by AI infrastructure investment. And based on this strength, we are increasing our full year outlook for semiconductor to double-digit growth. In summary, we are encouraged by the demand environment and pleased with our execution. Cognex is benefiting from both cyclical recovery and structural automation trends while continuing to diversify the business, expand margins and position the company for sustainable growth through 2027 and beyond. With that, I'll turn it over to Dennis to walk through our Q2 financials and our outlook for the third quarter and full year. Dennis?

Thanks, Matt, and good morning, everyone. Q2 was a strong financial quarter, with record revenue and excellent flow-through to the bottom line. Page 7 highlights our performance across 3 key financial metrics. First, adjusted EBITDA margin was 32.2%, expanding 1,150 basis points year-over-year and marking the eighth consecutive quarter of margin expansion. Second, adjusted EPS increased 80% year-over-year, representing the eighth consecutive quarter of double-digit EPS growth. And third, trailing 12 months free cash flow conversion rate was 114% and meeting our greater than 100% target for the seventh consecutive quarter. Our strong bottom line performance reflects continued execution of our profitable growth strategy and faster progress on cost reduction initiatives, resulting in about 100% revenue flow-through in the quarter. Turning to the income statement on Page 8. Revenue increased 17% year-over-year or 16% in constant currency, reaching a record quarterly revenue level for Cognex. This was also our eighth consecutive quarter of year-over-year revenue growth. Looking at geographic revenue trends on a year-over-year constant currency basis. China was again our fastest-growing region, with revenue increasing 42% led by semiconductor and electronics. Year-to-date, revenue in China is up 40%, driven in part by investments made over the past 12 to 18 months. In the Americas, revenue grew 27% with strength across nearly all end markets. Americas revenue also benefited from certain electronics customers ordering through entities based in the Americas rather than Europe. This change does not reflect an underlying shift in business mix or customer demand. Excluding this procurement change, Americas revenue still grew double digits. Europe declined 15%, excluding a procurement change in ordering entities, Europe declined low single digits. Weakness in automotive was partially offset by strength in semiconductor. Other Asia grew 14%, driven primarily by semiconductor. Staying on Page 8. Adjusted gross margin expanded 350 basis points to 71.5%, driven by favorable mix and volume. Tariff refunds were not a material contributor to the strong gross margin performance. Adjusted operating expenses declined 3% year-over-year or 5% in constant currency, supported by accelerated cost reduction actions in the quarter. We now expect approximately $35 million of annualized net cost reductions by the end of 2026. This is closer to the lower end of our originally $35 million to $40 million range reflecting a balanced approach of disciplined cost management and times of strong growth. Looking ahead, our emphasis is increasingly shifting from cost reduction to our productivity optimization. We see meaningful opportunities to further drive efficiencies through automation and continuous process improvement initiatives by continuing to grow with largely existing resources. Adjusted EBITDA was $94 million, up 81% year-over-year and our highest level since Q2 2021. Adjusted EBITDA margin reached 32.2%, expanding 1,150 basis points year-over-year and exceeding the midpoint of guidance by more than 250 basis points, driven by favorable mix and accelerated cost reductions. Adjusted diluted EPS increased 80% year-over-year to $0.45, driven primarily by operating leverage. Cash generation remains strong. We generated $68 million of free cash flow in the quarter compared to $40 million in the prior year period. representing approximately 70% growth. Over the trailing 12 months, free cash flow totaled $268 million and free cash flow conversion was 114%. We returned nearly 80% of free cash flow to shareholders through both share buybacks and dividends over the trailing 12 months. Moving to Page 9. I'll review our third quarter guidance. For Q3, we expect revenue of $300 million to $320 million, representing approximately 12% growth at the midpoint. Excluding the $13 million onetime benefit from the commercial partnership in Q3 2025, our guidance implies 17% revenue growth at the midpoint. Adjusted EBITDA margin is expected to be between 32% and 35% with the midpoint representing an increase of 860 basis points year-over-year. Excluding the commercial partnership benefit, the midpoint implies adjusted EBITDA margin expansion of 1,140 basis points. Adjusted earnings per share is expected to be $0.50 to $0.54, with the midpoint representing approximately 58% year-over-year growth. Excluding the commercial partnership benefit, the midpoint implies adjusted EPS growth of 86%. On Page 10, we are issuing full year 2026 guidance. While we continue to monitor macroeconomic and geopolitical risks, including memory market conditions and the broader inflationary environment. Our guidance reflects improved visibility into the second half and confidence in our ability to execute our profitable growth strategy. For 2026, we expect revenue of $1.13 billion to $1.15 billion. representing approximately 15% growth at the midpoint or 16% excluding the commercial partnership benefit. Adjusted EBITDA margin is expected to be between 29% and 31% and with the midpoint representing an increase of 850 basis points year-over-year or 930 basis points, excluding the commercial partnership benefit. This is well ahead of our prior target of exiting the year at 25% run rate and reflects disciplined execution of our cost reduction initiatives, along with an improved demand environment. At the midpoint, our outlook also implies approximately 87% flow through on incremental revenue, up from 70% in 2025, highlighting the substantial operating leverage achieved through our transformation efforts. Adjusted earnings per share is expected to be $1.64 to $1.68, with the midpoint representing approximately 63% year-over-year growth or 71%, excluding the commercial partnership benefit. I would note that 2026 adjusted EPS includes approximately $0.11 per share of investment income. As interest rates and cash balances evolve, the benefit from investment income may fluctuate, making year-over-year EPS growth comparisons more challenging on a multiyear basis. Investors should consider this contribution when evaluating EPS growth trends. I'll now briefly update you on baseline revenue assumptions for Q3 and Q4 to support comparability. As shown on Page 11, there are several known items that impact year-over-year comparisons but do not reflect the change in underlying demand. First, portfolio optimization. As discussed last quarter, the divestiture of our Japan focused trading business, along with other noncore product exits, with users revenue by approximately $5 million beginning in Q2 and each of the following 3 quarters. These actions are intentional and support improved mix, margin and long-term profitability. Second, as expected, we saw approximately $7 million of electronics order timing shift into Q2 from Q3. Third, Q3 and full year 2026 includes the previously mentioned $3 million headwind from the onetime commercial partnership benefit. In summary, Q3 headwinds include order timing and portfolio actions. Not a change in underlying demand, while Q4 reflects planned portfolio exits. I encourage you to reflect these factors in your models, along with the strong Q4 2025 comparison. Overall, Q2 was another strong proof point for our profitable growth strategy. We delivered record revenue, significant margin expansion, strong EPS growth and robust free cash flow. Demand remains healthy. Our operating model transformation is delivering results and our financial model is demonstrating strong leverage. We believe Cognex is exceptionally well positioned to deliver on our commitments and create long-term shareholder value. Now Matt and I are ready for your questions. Operator, please go ahead.

[Operator Instructions]. Our first question is coming from Joe Ritchie of Goldman Sachs.

Yes, congrats on the continued progress.

Thanks, Joe.

So my first question, I wanted to expand on the data center opportunity that you referenced earlier, Matt. I'm really curious because like obviously, data center growth has been robust the last couple of years. And I'm just -- what I'm wondering, is it -- is the opportunity ahead of you now because there are changes in the products that you're offering -- is there just greater adoption? I mean OneVision for data centers today? Just maybe just expand on what's creating the opportunity for you?

Thanks, Joe. We've been serving the data center market for several years, but it was always a smaller portion of our business. And the application that we serve there was automated and secure drive removal and destruction right? I think of this as kind of the ongoing maintenance of the data center. What's changed, obviously, is a very aggressive build-out of new facilities and in particularly, very high-tech AI-oriented facilities that are placing demands on the supply chain that are driving demand for Cognex vision. And you can think of it really in 3 major application areas. On one hand, we're working with the manufacturers of the componentry. These are electronic parts, metal parts, sort of the physical infrastructure of a server and of a rack. There's then the assembly of those things into that rack and then there is the deployment and maintenance and operations of that. I would say the majority of where the revenue is coming today, and we -- in our prepared remarks, sized that as a low single digits of revenue growing at about 30% is mostly in that first bucket, right? We're still mostly doing quality assurance and visual inspection for a componentry, right? These are connectors. These are electrical parts. These are PCB boards, these are metal enclosures. We're starting to see activities flow through to CMs that are assembling those into servers, but still quite early in terms of doing more complete automation once those are deployed into facilities. So I think we're still more on the early side of the growth wave that could come from the investment and build out of data centers. I would still characterize it as quite nascent. On the technology side, I mean, for sure, as you saw in the slide, these are very complicated inspections, right, on one hand, hundreds of points to be inspected, very fine features, and very well suited for AI, and we're seeing that. I'm not sure we could have solved these problems a couple of years ago without technologies like OneVision. So you put those 2 things together, it's a market we know. It's one that is experiencing a huge wave of growth. And I think our technology is very well positioned to capture that probably for the next several years.

That's super helpful, Matt. And then maybe just my follow-up question for Dennis. Look, Obviously, organic growth has been very strong, expected to continue to remain strong throughout the year. interesting like your OpEx was actually down on a year-over-year basis. Is the expectation for OpEx through the second half of the year to remain down on a year-over-year basis? I just want to make sure that I have that right? In the forecast?

Yes. Joe, yes, absolutely, I can confirm that, and that's really in line with our 35 million net cost reduction target, which we reemphasized and reconfirmed. And I think we made great progress already last year where we had 3 million gross cost reduction, right? Some of them did not show up in the P&L as we had some of the incentive comp headwinds. But in this year, we're really seeing net cost reduction. So in that regard, bringing down the OpEx in this quarter and in the second quarter, 5% in constant currency really kind of shows the strength of the execution there. And we then from there, expect probably a bit smaller step downs into the third quarter into the fourth quarter, right, as the step down from the first into the second quarter was already accelerated compared to what we saw previously. So in short, yes, we definitely expect OpEx to stay well below prior year's levels. And also in the second half also below the first half. And that's really kind of part of the strength, which we are seeing in the leverage, right? So 100% revenue flow through in the second quarter. 87% revenue flows through at the midpoint for the full year. Really grain to see these numbers and the strength of the execution there.

The next question is coming from Tomo Sano of JPMorgan.

Matt, the most recent [ Automate Show], I remember you noted the sense of urgency about the automation. Could you talk about what Demos future generate the strongest customer reactions? And how is that translating into the pipeline and deal ASP, please?

Yes. Thanks, Tomo. It was nice seeing you at the automated show. It was great to be there. Great energy. And as you said, I was to summarize the show in one word, it's really urgency. And what is driving that urgency. I think it's really the realization from manufacturers in North America, but frankly, around the world that their ability to automate and drive efficiency, productivity, at the same time, higher levels of quality is table stakes now. It's how they're going to survive and thrive, and it's no longer optional. And so that was very much kind of what was the mood in the air, if you will. Specifically to your question on which demos that we were showing resonated. I think for sure, we were featuring our latest generation of AI tools running on our latest generation of embedded systems. Those are the products that we launched in the spring of this year. OneVision being our cloud training service and then the 3,900 and the 6,900 really being the upgraded embedded system hardware to run those models all within the same software environment, which is our In-Sight Vision suite applications. So that is what we featured. I would say that the head turners were really the inspections, right? Cognex has, for years, led in the area of 2D vision inspection. We've always said that, that was -- there was still a big untapped market for inspections done by humans that were in the past, not technically feasible to solve with machine vision, and we're increasingly solving some of those problems with our latest generation of AI tools. And so we showed very complex PCBA inspections using our 3900. I think that was very well received. Again, back to the data center comment, inspecting these very large server boards as they're being built into servers and put into racks, I think, very relevant technology. And then on the other hand, we had a demo on our 6900 where we allowed users to kind of mark up pieces of art, right? And Art is very difficult because it's highly variable in its feature set. There was a bit of glare. And so our systems really performed very well, where we were a pickup, very nuanced to defects with no incremental training. And so I'd say those 2, the 2D inspection demos featured very well. And again, that's an area we've really invested in over the last several years and where our AI advantage, I would say, is most pronounced at the moment.

And a follow-up on Dennis, if you could talk about the current environment through the margin expansions. Like how should we think about the lead times and supply chain inventories. Is there any like bottlenecks? And margin impact expected in the second half or not?

Yes. No, happy to talk about that. So first, in the quarter, we saw -- we saw strong strength in the gross margin driven by favorable mix. And then I would also say that certainly on the bottom line, right, the OpEx efficiency, which we had there. But to your question on the supply chain side, right, we have been talking about in the prior call, that we expected the impact from memory price headwinds in the second half of the year. And while we are offsetting as much as we can with that surprising, we clearly have seen that memory prices are further increasing. In that regard, we would now say about 75 basis points of gross margin headwind being included in our Q3 guide. And probably some of that may still also show up in the fourth quarter. While in, I would say, if you think about '27, we would think like we would fully offset that through pricing. So think about it more like a timing impact that memory prices are going up. We're increasing prices and then memory prices going up further, then we'll increase prices further. So I wouldn't say -- I could say it's a midterm headwind, but it's a headwind for the second half of the year. And then perhaps that we currently would expect that mix still favorable in the second half of the year, but probably not as strongly favorable in the first half of the year on that regard our Q3 guide as well as our full year 2026 guide expect gross margin, not as strong as in the first half of the year. But nevertheless, we can show strong bottom line performance as we further drive OpEx efficiencies, as just mentioned before.

The next question is coming from Tommy Moll of Stephens.

I noted you're halfway toward the 9,000 customers you added in 2025. And I'm curious what KPIs you could share around that progress. Clearly, on the net customer adds, there's a lot of progress, but can you share anything in terms of the win rate for these leads that get put into the top of the funnel or the speed of converting those leads? And then relatedly, where are we on the need or lack thereof to continue to hire new cohorts of additional sales folks?

Yes. Sure, Tommy. Thanks. Yes. I'm really happy with the progress we've made last year and the first half of this year, acquiring new customers. It's a key piece of our strategy to diversify, frankly, and build a stronger foundation of growth. At the same time, as we said in our structured remarks, we're thinking, as you rightly point out, as we acquire those customers, how do we expand our business with them, how do we better understand their potential so that we can direct our internal resources to really focus on the accounts where we see higher potential and maybe think of different paths to market or ways to serve on those with lower potential. And so there's a bit of that internally where as we acquire new customers, I would say, have a much better way of understanding potential in terms of how we pursue additional opportunities with them. I would say in terms of market verticals, packaging continues to be an area where we are acquiring customers in a very strong way. On one hand, these are manufacturers that have -- that are more regional, perhaps more fragmented to serve their local markets and the production of consumer products and other health care products, a segment that we didn't serve as well in years past. And so I'd say there is a disproportion of customer adds in the packaging area. And then I think your question around as we acquire customers, as we grow the customer base, how does that apply to our sales organization. It's an area where we've invested significantly over the last 5 years to grow our direct sales channel. It's one of the biggest assets we have as a company, hundreds of very talented technical vision experts that consult around the world. But I would say, at the same time, our expectation is not necessarily to continue to invest in that area as we expand our customer count. And this is really where we are emphasizing our channel partners and how do we revitalize the relationships we have with systems integrators, machine builders, services partners to drive productivity in our sales organization. while we acquire new customers and diversify that growth basis. So hopefully, that's helpful.

And maybe let me add to that and just reemphasize what I said also in the prepared remarks, right? I think 2026 and especially the first half of the time we were really working or have been working to take out cost out of the organization. And I think from here, it's really about growing the existing resources, and that applies to sales but also to the broader part of the organization. In that regard, we clearly are looking forward to deliver strong leverage as we continue to grow.

Yes. That's very helpful. And 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?

Yes. I think it is more enhancing what we've had. -- and 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 resellers that are an extension of our sales force systems integrators and machine builders that add -- that incorporate Cognex vision into their 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 customers around the world. So partners is kind of that umbrella term for really those 4 main categories. And yes, you can think of us 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. Yes. And doing it in a way that is frankly very complementary to our own direct selling efforts, right? 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 and the same as we think about our overall go-to-market strategy.

The next question is coming from Joseph Giordano of TD Cowen.

This is Chris on for Joe. So this is the first time that Cognex has issued full year guidance alongside 2Q results. What has changed in the 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 this end market. 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 3 to 4 months type of visibility. So we would not be a company issuing full year guidance at the end of the prior year or the beginning of the 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, right? So we have a good view into a good portion of the remaining 5 months, but not into the full part of the full year. And that means like year-end demand, right? So we believe, considering the demand environment where we are, it will be a strong year and demand. But we haven't baked in an exceptional year demand. And then certainly, there is still also uncertainty still around memory prices, for example, how this will develop from that regard. There are still some uncertainties out there. But nevertheless, we felt as part of our efforts over the last 1.5 years to enhance investor communications and being as transparent as forthcoming as we are, we felt like that we want to provide that view if we are able to. And so that we got -- we felt confident enough to put out this guide while we may not know everything at this moment.

Thank you. And we've spoken about data center on the call. Could you help us put a framework on 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?

Yes, Chris, I think we're not prepared necessarily to do a full sizing and 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 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 enormous when they're not generating results in 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 a vision to their own quality inspection process. 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.