Greetings, and welcome to Cognex Corporation First Quarter 2026 Earnings Conference Call. 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. Please go ahead.

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 with you, including progress on our strategy, end market trends, our strong performance in the first quarter and our expectations for the second quarter. After prepared remarks, we'll open the lines 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. Our 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. It's hard to believe that nearly a year has passed since my appointment as CEO was announced. Since then, my leadership team and I have moved with urgency to focus our strategy, strengthen execution and position Cognex for sustainable, profitable growth. I'm proud of the progress the team has made and excited about the huge potential still ahead of us. That progress is clearly reflected in our Q1 results as we delivered an exceptional start to the year. In Q1, revenue, adjusted EBITDA and adjusted EPS each achieved double-digit year-on-year growth, meaningfully exceeding our expectations and consensus. Turning to Page 3 of our earnings presentation. I'll start with a strategy update. First, innovation. We're advancing our technology leadership with the launch of two breakthrough AI vision systems, reinforcing our goal to be the #1 provider of AI-powered machine vision. I will cover these new product introductions in more detail shortly. Second, on portfolio optimization, we successfully completed the divestiture of our Japan-focused trading business on April 1, ahead of schedule and in line with our expected proceeds. Third, on cost and productivity, we remain on track to achieve the $35 million to $40 million in net cost reductions we announced last quarter. These actions help streamline our organization and will support durable margin expansion. Dennis will provide more details on this later in the call. Turning to Page 4. I am pleased to announce two new embedded vision systems, the In-Sight 6900 and In-Sight 3900. Both breakthrough technologies share the same foundation: more AI computing power at the edge, seamless integration with OneVision and all built on the same In-Sight Vision Suite Software platform. With OneVision now broadly commercially available, these launches enhance our edge-to-cloud AI vision ecosystem and reinforce our leadership in delivering high-performance, scalable and easy-to-deploy AI solutions. Both strengthen our position in approximately $3.5 billion of our $7 billion served market. Starting with the In-Sight 6900. This product is designed for customers who need our most powerful AI vision tools, but don't want the cost, footprint and integration burden of a PC-based architecture. Powered by NVIDIA, the 6900 combines our broadest set of image formation hardware with proven advanced AI vision tools, allowing customers to configure their system for demanding compute-intensive inspection applications. Its flexible architecture supports interchangeable cameras, lenses and lighting, which help customers dial in the exact configuration they need with less friction. Second, the In-Sight 3900 is the industry's fastest embedded AI vision system built for customers who want maximum inspection capability with the simplicity of a fully integrated smart camera. Powered by Qualcomm, the 3900 delivers industry-leading speed, accuracy and resolution at the edge. Both products are major steps forward in embedded AI vision, bringing more capability to the factory floor with less complexity. Turning to end market performance on Page 5. Momentum from late last year carried into Q1 with broad-based demand across our end markets, led by electronics, semiconductor and packaging and continued growth with large logistics customers. The Purchasing Managers' Index, or PMI, remains in expansion territory, while at the same time, macro uncertainty and other risks have increased. Geopolitical conflicts, rising energy costs, memory chip availability and pricing and changes to interest rate expectations are all relevant areas we continue to monitor as we look forward to the second half of the year. We are, therefore, only slightly adjusting our full year end market outlook at this time and expect to provide more clarity during the next earnings call. Starting with Logistics. 2026 is off to a strong start with Q1 marking our ninth consecutive quarter of double-digit growth, once again led by large e-commerce customers. We continue to see encouraging traction with our SLX device portfolio, validating our strategy of layering additional vision capabilities on top of barcode reading. As the year progresses, we expect growth to normalize to mid- to high single digits as comps strengthen. Turning to Packaging. This end market delivered double-digit revenue growth in Q1, driven by broad-based strength. Considering the strong start in 2026, we now expect high single-digit growth, supported by continued momentum from our sales force transformation and the strength of our AI-enabled ecosystem. As a reminder, this outlook reflects a reduced revenue base following the divestiture of the Japan-focused trading business. Next is Electronics, which delivered double-digit growth in Q1, driven by broad-based strength across customers and geographies. For 2026, we continue to expect high single- to double-digit growth, supported by ongoing supply chain shifts, a consumer refresh cycle and new device form factors. Turning to Automotive. Q1 revenue increased mid-single digits on a constant currency basis. Performance continues to be different by geography with meaningful growth in the Americas, offset by ongoing softness in Europe and some growth in Asia. For the full year, we continue to expect flat to low single-digit growth. Finally, in Semiconductor, Q1 revenue grew double digits, exceeding our expectations and driven by very strong growth across Asia. Based on the strong start, we are narrowing our full year growth outlook to a high single- to double-digit range. Our deep relationships with leading semiconductor equipment manufacturers continue to position us well for sustained growth in this market. In summary, we are very pleased with the strong start to the year as focused execution drove broad-based outperformance across revenue, margin and bottom line earnings. Q1 results reflect meaningful progress against our strategic objectives and position us well to navigate a dynamic macro environment. With that, I'll turn it over to Dennis to walk through the Q1 financials and our second quarter outlook. Dennis?

Thanks, Matt, and good morning, everyone. Our strong Q1 performance reflects disciplined execution and continued progress against our profitable growth strategy. You can see this on Page 6, which highlights our strong results across three key financial metrics. First, adjusted EBITDA margin was 26.9%, expanding 1,010 basis points year-over-year, marking the seventh consecutive quarter of margin expansion. Second, adjusted EPS increased 113% year-over-year, representing the seventh straight quarter of strong EPS growth. And third, trailing 12-month free cash flow conversion rate was 119%, meeting our greater than 100% target for the sixth consecutive quarter. Turning to the income statement on Page 7. Revenue increased 24% year-over-year and 21% on a constant currency basis. This marked our seventh consecutive quarter of year-over-year growth. However, it is worth noting that Q1 2025 represents a softer comparison due to pull forward into Q4 2024. Looking at geographic revenue trends on a year-over-year constant currency basis. The Americas grew 22%, driven by strength in packaging, electronics and logistics. Europe increased 23%, led by packaging and logistics. Greater China grew 36% with broad-based strength across all end markets, except automotive. Other Asia grew 6%, driven primarily by electronics and semiconductor. Staying on Page 7. Adjusted gross margin expanded 420 basis points to 71.8%, driven primarily by favorable mix and volume, slightly offset by tariffs. Adjusted operating expenses increased 9% year-over-year or 4% on a constant currency basis, including approximately $5 million of higher incentive compensation and commissions tied to strong outperformance and higher stock-based compensation. As a reminder, Q1 2025 benefited from $6 million favorability related to these items. Excluding these effects Q1 2026 adjusted operating expenses declined year-over-year, demonstrating our continued focus on cost management alongside strong revenue growth. We continue to drive productivity and efficiency as we execute our operating model transformation and made further progress on our cost reduction actions, incurring $4.8 million of reorganization charges, which are excluded from adjusted operating expenses. We remain confident in achieving $35 million to $40 million of annualized net cost reductions by the end of 2026, excluding FX and in delivering continued margin expansion. Adjusted EBITDA was $72 million, up 100% year-over-year. Adjusted EBITDA margin reached 26.9%, expanding 1,010 basis points year-over-year and exceeding the midpoint of guidance by more than 600 basis points, driven by strong revenue growth and favorable mix. Adjusted diluted EPS more than doubled year-over-year, up 113% to $0.34, driven by operating leverage and the lower diluted share count compared to last year. We generated $241 million of free cash flow over the trailing 12 months, up nearly 50% year-over-year. Trailing 12-month free cash flow conversion was 119%, the sixth consecutive quarter meeting our greater than 100% target. Following very strong working capital performance in 2025, we continue to drive efficiencies in Q1 with the cash conversion cycle improving 57 days year-over-year and 128 days from the peak two years ago. We believe we have now reached an optimal cash conversion cycle. Turning to capital allocation. We returned $113 million to shareholders this quarter, including $99 million through opportunistic share repurchases that reflect attractive buying opportunities, mostly at the beginning of the quarter. These actions contributed to a reduction in our average share count of approximately 2 million shares. Over the long term, we remain committed to returning capital as a core element of the disciplined capital allocation strategy outlined at Investor Day. Moving on to Page 8. I'll now review our financial guidance for the second quarter. In Q2, we expect revenue to be between $280 million and $300 million, representing growth of approximately 16.5% at the midpoint. Adjusted EBITDA margin is expected to be between 28% and 31%, with the midpoint representing an increase of 880 basis points year-over-year. Adjusted earnings per share is expected to be between $0.40 and $0.44 with the midpoint of this range representing approximately 68% year-over-year growth. I now want to briefly baseline Q2 to Q4 revenue to help with comparability. As shown on Page 9, there are a few known items that impact year-over-year comparisons, but don't reflect a change in underlying demand. First, on portfolio optimization. The divestiture of our Japan-focused trading business, along with other noncore product exits reduces revenue by approximately $5 million in Q2 and each of the following three quarters. These actions are intentional and support improved mix, margin and long-term profitability. Second, Q2 is expected to benefit from about $7 million of electronics order timing that shifts in from Q3. That's purely customer order timing related and doesn't change our full year expectation for this end market. Third, Q3 includes a $13 million headwind from the one-time commercial partnership benefit that occurred in Q3 of last year and should be taken out of the revenue base for comparability. So in summary, Q2 reflects timing benefits largely offset by the planned portfolio exits, while Q3 headwinds include order timing, normalization and portfolio actions, not a change in demand. We encourage you to reflect these factors in your models, along with the strong Q4 2025 comparison. As we look ahead to the full year, we are encouraged by the strong start we delivered in the first quarter and the momentum we are seeing from our execution. That said, as a short-cycle business with limited visibility, particularly to the second half of the year, we recognize that the broader macro environment remains uncertain. As visibility improves, we will reassess and update our profitability targets for the full year as appropriate. In the meantime, we are focused on what we can control, including delivering $35 million to $40 million of annualized net cost reductions by the end of 2026, streamlining our portfolio and the ongoing transformation of our operating model. Taken together, we believe our disciplined execution, cost actions and innovation road map position us well to deliver on our commitments and create shareholder value. Now Matt and I are ready for your questions. Operator, please go ahead.

Today's first question is coming from Joe Ritchie of Goldman Sachs.

So can we just start with the stronger-than-expected start on organic growth for the year. So putting up 21%, pretty great start. I guess if you were to just kind of peel back the onion a little bit, Matt, and give us a little bit more detail on how much you think that came from end market inflection versus some of the internal initiatives and product launches. Just curious to get a little bit more detail on what surprised to the upside this past quarter.

Yes. Thanks, Joe. Very encouraged by our Q1 results and Q2 guide. It's hard for us to exactly parse out the contributing factors, but I think there's a number of things all rowing in the same direction at the moment. You mentioned a few of them. We're seeing broad-based demand from our customers, as indicated by several months now of the PMI in expansion territory. That is encouraging. How durable that is we'll have to see. There's a lot of uncertainty in the market and the world. We're trying to be realistic and cautious in extrapolating that full year. But right now, the demand environment looks strong. I think you mentioned NPI. We had a great year of new product introductions last year. We launched four foundational sets of technologies. As we announced today and a few days ago, we've continued that trend of releasing powerful AI-centric vision systems. So I certainly think NPI is contributing. Where we spent a lot of time in the last quarter and really in the last year has been transforming our go-to-market and our sales force itself. We're about nine to twelve months into that, and we're seeing the dividends from a go-to-market motion that is hitting its stride. So put those things together—great execution on NPI, our sales force transformation kicking in, and a strong demand environment—all contributing to what we saw in Q4, Q1 and our forecast for Q2.

Yes, that's all great to hear, Matt. And maybe my second question is for Dennis. Clearly, the EBITDA margin was better than expected this quarter. Gross margins stayed above 71%. The operating leverage or the SG&A leverage you got this quarter was material. How are you thinking about both gross margins and SG&A growth going forward?

Similar here, very pleased with Q1 and the Q2 guide. Volume and mix play a big role. On the mix side, stronger factory automation end market helps our gross margin, and we expect that to continue into Q2. It's probably too early to speak to the second half of the year given limited visibility. Other items contributing to gross margins include portfolio optimization, which we would start to see from the next quarter on. There are also headwinds to gross margins. We saw the impact from tariffs, which we had already last year. While memory cost is not a major component of our bill of materials, there are timing effects. We'll be able to offset some or most of that through pricing, but we still expect about a 50 basis point headwind from memory costs in Q3. We're also cautious about general inflationary pressures; energy prices have increased globally and we don't yet know the second- and third-order impacts through the supply chain. On the OpEx side, we are focused on executing our cost reduction actions. You saw some of that in the sequential step down from Q4 into Q1, but Q1 still had headwinds on the year-over-year comparison, especially FX, a roughly $6 million headwind, and normalization of incentive comp and commissions. Expect further sequential step downs in OpEx, probably a bit less into Q2 but especially into Q3. We remain confident in achieving $35 million to $40 million of annualized net cost reductions by the end of 2026, excluding FX, and delivering continued margin expansion. Overall, we feel we're making good progress on cost actions and seeing favorability on the gross margin side, which supports margin improvement and sets us up for strong results in the first half.

Our next question is coming from Joe Giordano of Cowen.

Just as you get to the end of the year and you wrap this $35 million to $40 million cost out, what becomes the priorities as you get into 2027? I know early in this year we're asking questions about next year, but how does the mindset shift? Is it still a focus on cost or is it push for profitable growth? How do you adjust as you wrap this program?

At Cognex, we aim to do both—focus on the top line and the bottom line. We have a robust set of growth initiatives we are executing while making tough choices to stop or reduce capacity in certain areas. There's a mindset shift across the company from broad cost reduction to a sustained focus on efficiency and productivity. As we conclude the cost reduction program, I expect us to maintain that focus even without a formal target. Net-net, the focus becomes more obsessive around growth, but our culture has always been growth-oriented. We will continue to execute growth initiatives through this year and into next even as we conclude the announced cost program.

To add, 2025 was when we embarked on the broad cost reduction initiative. We reported $33 million gross cost reduction for 2025. Not all of that benefited the bottom line due to FX and incentive normalization, but that was the start of a broad program touching sales, engineering and back office. At the start of this year, when we framed $35 million to $40 million net annualized by year-end, we focused more narrowly on sales force transformation, back office and portfolio optimization. We expect to wrap up the cost reductions this year. For 2027, the emphasis is on productivity—scaling the top line while OpEx grows at a much slower pace. We see more opportunity to drive leverage as revenue scales.

If I shift to the balance sheet, it's a tough time now given where valuations are. How do you want to think about optimizing the balance sheet? In the context of simplification and cost out, how reticent are you about adding complexity through M&A that could derail momentum?

We're pleased we bought back $99 million of shares this quarter at attractive prices, mostly in the low $40s early in the quarter. We will continue to opportunistically buy back shares if we find similar value. M&A remains a capital allocation priority, but our approach is disciplined: any deal needs strong strategic fit and the ability to generate the right synergies. We don't feel a strong need to do M&A; we will only do it if we have high conviction. There is still significant opportunity in front of us via organic growth and further optimization of OpEx-to-revenue ratios, so we'll remain focused on those opportunities as well.

The next question is coming from Tommy Moll of Stephens Inc.

We appreciate the baselining data on Slide 9. I wanted to follow up on the consumer electronics time shift you're calling out from Q3 to Q2. Are we to take away that Q2 is most likely the peak revenue quarter for that end market this year or is that not necessarily the case? I'm trying to understand what you're communicating on the time shift.

Yes. That's what we're currently seeing with the timing shift from Q3 into Q2. That means seasonality this year is geared a bit stronger toward Q2. However, the electronics revenue is typically focused toward the end of Q2 or beginning of Q3, so this timing shift is really a few weeks—think two to three weeks—not months. I wouldn't read too much into that, but yes, Q2 is expected to be the peak this year for consumer electronics.

I'll add that what we're seeing in consumer electronics is broad-based strength, not a concentration in any single customer. We've extended our excellence in the market to new customers and geographies. That's a market firing on a number of cylinders: supply chain shifts, consumer demand refresh cycles, new form factors, and Cognex's new technology for those manufacturers. We're also seeing contribution from demand driven through the electronic component supply chain from data center build-outs. We remain optimistic about consumer electronics as an end market throughout the year.

That's helpful. As a follow-up, I wanted to ask about AI. You covered this last year at Investor Day. Today you highlighted In-Sight portfolio expansion. What additional opportunities are you finding and what additional risks are you uncovering?

The perspective we shared in June remains: AI presents a huge opportunity for Cognex and our customers, with some risks we've discussed before around potential enabling of new competitors or erosion of moats. We haven't seen those hazards dominate; AI has accelerated our business and productivity. We've transformed our product strategy and product experience. AI lets us solve problems that were previously too complex without imposing large upfront engineering costs or downstream maintenance complexity on customers. We're investing in our own vision tools—much more specific to industrial applications—while leveraging advances at the frontier to accelerate our development. We continue to lead in Edge AI—training and deploying at the line on device—complemented by OneVision for edge-to-cloud workflows. That combination is a durable advantage and a major accelerator for Cognex.

To add, we're using AI to drive productivity internally as well. Last year we discussed AI-assisted coding in software engineering to drive efficiencies. We've recently launched AI agents in the service side to help customers find information faster and get immediate answers. It's exciting to see opportunities AI provides to streamline operations and transform our operating models.

Our next question is coming from Jacob Levinson of Melius Research.

Congratulations on the progress over the last year. It seems like there may be a sharper focus in new products. Can you help us understand what changed behind the scenes in R&D? What's different that may explain greater adoption of new products?

It's not just quantity—it's quality. We're seeing improvements in hit rates and our vitality index—what percentage of revenue comes from new products. We made organizational changes in engineering last year that are paying off. We've been re-architecting the tech stack for years to be ready for the AI era. There's a paradigm shift from programmatic, button-based configuration to AI-based inspection trained by example, focusing on image data and visualization. Our new products feel fit-for-purpose for advanced AI workflows. We've rallied around a common software ecosystem—In-Sight and OneVision—and customers are responding. Working with world-class edge chipset partners like NVIDIA and Qualcomm has let us push the edge computing capability into our products. It's a basket of actions over time that's starting to pay off.

On logistics, historically that business has been a lot of barcode reading. It seems you're gaining traction with other products. Can you speak to that?

Absolutely. We encourage attendance at trade shows to see the products in action. We've wanted to bring our vision technology to logistics for a long time, and now with AI it's the right time. Since last fall we've launched great vision tools and are seeing strong uptake. We're solving problems customers want to solve and the ROI is strong, allowing better pricing for vision systems than barcode reader-only systems. The barcode problem isn't fully solved, and we continue to invest in it. We're still leading in image-based barcode reading, which remains the majority of applications and business. Logistics is now our largest market and likely the market with the highest penetration potential. We'll continue to fund and drive share gain there.

Our next question is coming from Guy Hardwick of Barclays.

Congratulations on tremendous results. Regarding semiconductor: you said deep relationships with leading equipment manufacturers position you for sustained growth. Is visibility improving in that business such that you could forecast double-digit growth into next year or the year after? For Q1, when you said double-digit growth, was it closer to 20% or closer to 10%?

Semiconductor is a hot market for us. Our semi business is a natural hedge against some cost headwinds. We have long-standing relationships with leading OEMs; they specify and lock in technology, which provides stable multi-year demand. Visibility may be improving somewhat, but nothing to call out as a major change. OEM customers are seeing rapid uptake in demand for their machines, a bit earlier than we anticipated a quarter ago, and we're working to deepen penetration. We expect sustained growth and are leaning into that with product development and sales resourcing. Our technology is proving valuable and we see the demand as more durable than some historical cycles.

The three end markets that lifted revenue growth were electronics, semiconductor and packaging. Semiconductor growth this quarter was well above the 20s year-over-year. Additionally, semi acts as a hedge against memory cost pressures; while memory costs impact us somewhat, the revenue growth in semi more than compensates for that impact.

Follow-up on consumer electronics: what sustained growth could you see from form factor changes and contract manufacturer capacity shifts from China to outside China?

It's hard to parse exact contributions, but several tailwinds exist. New form factors matter, but adoption often requires heightened consumer demand and can take time, sometimes reducing initial machine counts. Our growth strategy in electronics is not tied to any single product or customer. Growth is broadening across new accounts, devices, lines and geographies. We're focused on broadening the growth story rather than depending on singular device types.

Our next question is coming from Piyush Avasthy of Citi.

Regarding the updated 2026 view, it seems like you're projecting end markets to roughly grow mid- to high-single-digit range, yet Q1 growth was strong and Q2 guidance is mid-teens. Are you being conservative given limited visibility, or are there concerns demand could slow?

It's primarily a question of visibility. We're early in the year and a short-cycle business, so we prefer to be cautious given macro uncertainty—geopolitics, energy prices, component supply chain price increases and interest rate uncertainty. We'll have better clarity on the next earnings call and will be prepared to provide a clearer view for the rest of the year then.

The same applies to profitability. Q1 actuals and the Q2 guide put us on a path to potentially report higher numbers, but we want better visibility into the second half before updating full year profitability targets. We'll be in a better position to discuss this on the next earnings call.

On margins: last quarter you suggested a run rate of 25% EBITDA margin by year-end. Q1 and Q2 guidance already suggest above 25%. With cost reductions in play, demand helping, and focus on productivity, is 25% EBITDA a floor and do you see upside above a 31% ceiling as productivity and new products continue to progress?

When we put out the initial framework at Investor Day, we targeted numbers reachable within 12 to 18 months. We're pleased to have achieved our targets ahead of schedule. We'll wait for better visibility into the second half before publishing new numbers. Give us a few months and we'll be in a better position to discuss full year and beyond.

Our next question is coming from Andrew Buscaglia of BNP Paribas.

Regionally, Americas is strong, but could you talk about Europe and Asia, specifically China? I thought it was surprising that Europe isn't showing hesitancy despite the Iran conflict. Also, what's the latest on China trends?

In Europe, we're pleased with growth trends. Customers appear to be continuing investment plans despite regional uncertainty. We've built flexibility into our go-to-market model so we can quickly shift sales resources to other verticals when softness appears. For example, European automotive remains a weaker spot, so we've shifted resources to packaging, which has delivered growth, and to new markets like aerospace and defense and data centers. In China, we're seeing great strength. Our investments over the last 12 to 18 months—local distribution, manufacturing, engineering teams and country-specific product focus—are paying off. We have strong channels and sales force in China and are competing more effectively than a couple of years ago. Across the rest of Asia we've invested in the ASEAN region and are participating in supply chain shifts out of China. We're seeing benefits in Korea, Japan, India and other Asian countries where we continue to invest.

My second question on automotive: you've cited some growth returning. Is this just easy comps or is there more to the mid-single-digit growth?

There's more to it. Comps help, but underlying growth drivers exist. OEMs still need to automate to improve quality and drive efficiency in the face of rising raw material and labor costs and tariff concerns. Labor scarcity also drives automation demand. Even if OEMs haven't fully found their footing on product strategy or global trade, they're investing in automation and machine vision to meet mandates around quality and efficiency. That investment is translating into opportunities for us.

Our next question is coming from Quinn Fredrickson of Baird.

Within logistics, can you expand on trends across your large e-commerce customers versus base logistics customers, both for the quarter and for your mid- to high-single-digit outlook? It sounds like large customers are performing well; any details on the base side?

Both large and base accounts are focused on productivity. Over the last couple of years there was a real focus on process improvement within existing facilities, and that focus remains. Large players have more capacity and financial strength so they pursue both productivity improvements and greenfield build-outs. Base accounts are more focused on process improvements in existing networks. Both segments show high interest in vision to drive productivity. While recently much of our growth has been driven by large accounts, we're focused on broad-based growth across both segments and believe we're on the right track.

On supply chain: one peer cited lengthening lead times for memory and image sensors. Are you seeing that, and how are you positioned to navigate it?

We are seeing lengthening lead times in some areas, not broadly. We're well set up to manage it. We maintain strong supplier relationships and speak with them frequently, allowing us to shift parts, alter product strategies, work allocation and allocations, engage the broker market, and offset via pricing where needed. We're putting significant energy into managing supply chain issues and are mitigating them effectively at the moment.

To add, capacity constraints often lead suppliers to expand capacity or increase productivity, which can in turn drive more demand for machine vision. So it's not necessarily a negative for us.

Our next question is coming from Jamie Cook of Truist Securities.

Congratulations on a nice quarter. Dennis, understanding the uncertainty in the back half from memory costs and tariffs, can you speak broadly about pricing—both on your side and what competitors are doing? Given strong demand, why wouldn't you be able to fully pass through cost headwinds, and why wouldn't back half gross margins be better? Also, did you see anything in April or early May suggesting demand is waning or tempering?

On pricing, recall 2H 2024 we saw pricing pressures, especially in China. Pricing stabilized in 2025 and we implemented internal pricing initiatives and a pricing playbook. We've made progress and offset tariffs in the bottom line. Inflationary pressures, like memory costs, have timing differences versus when pricing offsets can be realized, so some timing puts and takes exist rather than structural margin reduction. We view pricing as a compounding, multiyear tailwind supporting margin optimization. On demand signals, the first weeks of the quarter are in line with our Q2 guide. We're monitoring uncertainties, particularly energy price impacts in parts of Asia and Europe, but currently we are not seeing negative demand signals. PMI remains in expansion territory and overall things look good.

Thank you. At this time, I'd like to turn the floor back over to Mr. Moschner for closing comments.

Great. Well, thanks, everyone, for joining us this morning and for your continued support. We look forward to updating you on our progress in the second quarter. Bye-bye.

Ladies and gentlemen, this concludes today's event. You may disconnect your lines or log off the webcast at this time, and enjoy the rest of your day.