Cuộc họp công bố kết quả kinh doanh Q3 2026 của Cognex (CGNX): Doanh thu kỷ lục và nâng triển vọng

Điểm nhấn chính

• Cognex ghi nhận doanh thu kỷ lục trong quý 3/2026 đạt 313 triệu USD, tăng 19% so với cùng kỳ năm trước, đánh dấu quý thứ chín liên tiếp tăng trưởng doanh thu.
• EBITDA điều chỉnh tăng 91% lên 111 triệu USD. Biên EBITDA điều chỉnh đạt 35.5%, mở rộng 1.240 điểm cơ bản so với cùng kỳ năm trước.
• EPS pha loãng điều chỉnh tăng 89% lên mức kỷ lục 0.53 USD, trong khi dòng tiền tự do tăng 21% lên 104 triệu USD.
• Bốn trong số năm thị trường tiêu thụ của Cognex đạt mức tăng trưởng hai con số theo tỷ giá không đổi. Mảng logistics ghi nhận quý thứ 11 liên tiếp tăng trưởng hai con số, trong khi mảng điện tử đạt quý thứ sáu.
• Ban lãnh đạo đã nâng dự báo cả năm 2026 lên mức doanh thu từ 1.14 tỷ đến 1.16 tỷ USD, biên EBITDA điều chỉnh từ 31% đến 32%, và EPS điều chỉnh từ 1.68 đến 1.72 USD.
• Thương vụ mua lại RealSense đang chờ xử lý dự kiến vẫn sẽ hoàn tất trong quý 4/2026. Dự báo quý 4 và cả năm của Cognex không bao gồm kết quả hoạt động kinh doanh của RealSense.

Kết quả tài chính chủ chốt

Biên lợi nhuận gộp được hưởng lợi từ cơ cấu kinh doanh thuận lợi, sản lượng cao hơn và việc thực thi chính sách giá nhanh hơn dự kiến. Các yếu tố này đã bù đắp nhiều hơn áp lực chi phí bộ nhớ. Đòn bẩy hoạt động cùng việc quản trị chi phí kỷ luật đã thúc đẩy mức tăng mạnh của EBITDA và EPS điều chỉnh.

Ban lãnh đạo cho biết tỷ lệ doanh thu gia tăng chuyển hóa vào EBITDA điều chỉnh đã vượt 100% trong quý 3. Cognex cũng tiếp tục duy trì lộ trình đạt khoảng 35 triệu USD mức cắt giảm chi phí ròng hàng năm, sau khi đã chuẩn hóa theo các khoản thù lao khuyến khích.

Kết quả kinh doanh và hoạt động

Các thị trường tiêu thụ cuối

Logistics: Doanh thu tăng trưởng ở mức hai chữ số trong quý thứ 11 liên tiếp. Tăng trưởng đã lan rộng ra ngoài một khách hàng lớn sang tệp khách hàng rộng hơn. Ban lãnh đạo đã nâng triển vọng cả năm của mảng logistics lên mức tăng trưởng hai chữ số, được hỗ trợ bởi các dự án cải thiện năng suất tại các cơ sở hiện hữu, hoạt động đầu tư mới (greenfield) và việc ứng dụng các sản phẩm thị giác tích hợp AI như SLX.

Đóng gói: Mảng kinh doanh này ghi nhận thêm một quý tăng trưởng hai chữ số ở nhiều khách hàng và khu vực địa lý. Cognex tiếp tục kỳ vọng mức tăng trưởng hai chữ số cho cả năm, nhờ những thay đổi trong đội ngũ bán hàng và việc mở rộng khách hàng mới.

Điện tử: Doanh thu ghi nhận quý thứ sáu liên tiếp đạt mức tăng trưởng hai chữ số. Các động lực thúc đẩy bao gồm các thiết bị tích hợp AI, các kiểu dáng sản phẩm mới, hoạt động đầu tư vào chuỗi cung ứng trung tâm dữ liệu và việc đa dạng hóa địa bàn sản xuất. Ban lãnh đạo duy trì triển vọng tăng trưởng cả năm ở mức hai chữ số.

Ô tô: Doanh thu tăng ở mức một chữ số tầm trung trong quý 3 nhưng nhìn chung đi ngang tính từ đầu năm đến nay. Tăng trưởng đã quay trở lại ở khu vực châu Mỹ và tiếp tục duy trì ở châu Á, trong khi châu Âu vẫn suy yếu. Ban lãnh đạo duy trì triển vọng cả năm ở mức đi ngang đến tăng trưởng một chữ số ở vùng thấp.

Bán dẫn: Doanh thu tăng trưởng mạnh ở mức hai chữ số tại các khu vực địa lý trọng yếu, được hỗ trợ bởi hoạt động sản xuất tiên tiến và làn sóng đầu tư vào cơ sở hạ tầng AI. Mảng bán dẫn chiếm khoảng 10% doanh thu năm 2025 của Cognex và tiếp tục là thị trường tiêu thụ cuối nhỏ nhất của công ty.

Xu hướng theo khu vực địa lý

Tính theo tỷ giá không đổi, doanh thu khu vực châu Mỹ đã tăng 42%. Nếu loại trừ thay đổi về đơn vị mua hàng của một số khách hàng ngành điện tử, khu vực này vẫn tăng trưởng mạnh ở mức hai chữ số.

Doanh thu tại Trung Quốc tăng 29% trong quý 3 và 35% tính từ đầu năm đến nay, dẫn đầu bởi mảng bán dẫn và điện tử. Khu vực châu Âu giảm 15%, hoặc giảm ở mức một chữ số tầm trung nếu loại trừ thay đổi trong khâu thu mua, do sự tăng trưởng của mảng bán dẫn và đóng gói bị bù trừ bởi sự suy yếu của mảng ô tô.

Khu vực châu Á còn lại tăng trưởng khoảng 12%. Nếu loại trừ thương vụ thoái vốn khỏi mảng kinh doanh thương mại tập trung vào Nhật Bản của Cognex, tốc độ tăng trưởng đã vượt 20%.

Các sản phẩm AI và RealSense

Cognex đã giới thiệu thiết bị đọc mã wafer và panel In-Sight 1750, được thiết kế cho quy trình sản xuất bán dẫn tiền kỳ (front-end) và hậu kỳ (back-end). Sản phẩm kết hợp công nghệ Edge AI với các công cụ dựa trên quy tắc, hệ thống chiếu sáng đa chế độ và tính năng AI Autotune kích hoạt bằng một nút bấm. Thiết bị có khả năng tương thích ngược với dòng In-Sight 1740, điều mà ban lãnh đạo kỳ vọng sẽ giúp đơn giản hóa quá trình nâng cấp và thẩm định của khách hàng.

Thương vụ mua lại RealSense đang chờ hoàn tất sẽ bổ sung công nghệ cảm biến độ sâu và nhận thức robot vào danh mục thị giác máy tính của Cognex. Ban lãnh đạo xác định robot cánh tay cố định, robot di động tự hành và xe tự hành dẫn đường là các ứng dụng hiện hữu mang lại cơ hội thâm nhập tiềm năng. Công ty dự kiến vẫn sẽ duy trì vị thế tiền mặt ròng vững mạnh sau khi giao dịch hoàn tất.

Dự báo của ban lãnh đạo

Mọi dự báo đều không bao gồm đóng góp từ hoạt động kinh doanh của RealSense.

Tại điểm giữa khoảng dự báo quý 4, ban lãnh đạo kỳ vọng biên EBITDA điều chỉnh sẽ mở rộng khoảng 780 điểm cơ bản so với cùng kỳ năm trước và EPS điều chỉnh tăng khoảng 44%.

Đối với cả năm 2026, điểm giữa của biên EBITDA điều chỉnh hàm ý mức mở rộng khoảng 1.000 điểm cơ bản, hoặc mở rộng 1.080 điểm cơ bản nếu không tính lợi ích từ thỏa thuận hợp tác thương mại năm trước. Điểm giữa của EPS điều chỉnh thể hiện mức tăng trưởng khoảng 67%, hoặc tăng 75% nếu không tính lợi ích đó.

Ban lãnh đạo dự kiến biên lợi nhuận gộp quý 4 sẽ giảm nhẹ so với quý 3 do cơ cấu sản phẩm kém thuận lợi hơn liên quan đến yếu tố mùa vụ của ngành điện tử. Chi phí hoạt động dự kiến sẽ tăng nhẹ, chủ yếu do hoa hồng bán hàng cao hơn.

Triển vọng EPS cả năm bao gồm khoảng 0,08 USD mỗi cổ phiếu từ thu nhập đầu tư, giảm so với giả định trước đó là khoảng 0,11 USD, phản ánh việc thanh lý các khoản đầu tư để tài trợ một phần cho RealSense.

Rủi ro và các yếu tố cần theo dõi

• Yếu tố mùa vụ của ngành điện tử dự kiến sẽ góp phần khiến doanh thu giảm so với quý trước từ quý 3 sang quý 4 và làm biên lợi nhuận gộp giảm nhẹ.
• Nhu cầu ngành ô tô vẫn yếu tại châu Âu dù đã ổn định và tăng trưởng trở lại tại khu vực châu Mỹ và châu Á.
• Mảng logistics đối mặt với mức nền so sánh ngày càng cao sau 11 quý liên tiếp tăng trưởng ở mức hai con số. Ban lãnh đạo cho biết tăng trưởng trong ngắn hạn có thể chậm lại hoặc trở nên thiếu đồng đều hơn.
• Chi phí bộ nhớ vẫn là áp lực đối với biên lợi nhuận gộp trong quý 3, dù giá bán, sản lượng và cơ cấu sản phẩm đã bù đắp vượt mức tác động này.
• Việc thoái lui khỏi các danh mục làm giảm doanh thu khoảng 5 triệu USD mỗi quý bắt đầu từ quý 2/2026. Khoản 30 triệu USD lợi ích một lần từ quan hệ đối tác thương mại được ghi nhận trong quý 3/2025 cũng ảnh hưởng đến mức nền so sánh.
• Cognex chưa đưa ra dự báo cụ thể về tăng trưởng hữu cơ cho năm 2027. Ban lãnh đạo dự kiến sẽ có khoảng 6 triệu USD chi phí thù lao bằng cổ phiếu tăng thêm so với cùng kỳ năm trước trong quý 1/2027.

Điểm nhấn phiên hỏi đáp với chuyên gia phân tích

Tăng trưởng và biên lợi nhuận năm 2027: Ban lãnh đạo mô tả chu kỳ đầu tư sản xuất diễn ra trên diện rộng và có khả năng bền vững hơn các chu kỳ trước, nhưng từ chối đưa ra dự báo doanh thu cụ thể cho năm 2027. Giám đốc tài chính (CFO) Dennis Fehr cho biết biên lợi nhuận vẫn có khả năng tiếp tục mở rộng và chỉ ra rằng tỷ lệ chuyển hóa doanh thu tăng thêm có thể vào khoảng 60%, thay vì mức xấp xỉ 100% đạt được trong năm 2026.

Dư địa tăng trưởng mảng logistics: Ban lãnh đạo cho biết tăng trưởng hiện tại chủ yếu được thúc đẩy nhờ cải thiện năng suất và triển khai công nghệ mới tại các cơ sở hiện hữu, trong khi các dự án xây mới có đóng góp nhưng không chiếm đa số. Tỷ lệ thâm nhập cao hơn của hệ thống thị giác và việc triển khai dễ dàng hơn cũng có thể thu hẹp khoảng cách biên lợi nhuận gộp giữa mảng logistics và tự động hóa nhà máy.

Thu hút khách hàng mới: Cognex cho biết số lượng khách hàng mới tăng thêm vẫn phù hợp với các xu hướng trước đây. Chiến lược thương mại của công ty đang chuyển dịch từ việc chỉ đơn thuần tìm kiếm khách hàng mới sang mô hình “tiếp cận và mở rộng”, tập trung nâng cao tỷ lệ thâm nhập ở các khách hàng có tiềm năng lớn về thị giác máy tính.

Trung Quốc: Ban lãnh đạo cho rằng mức tăng trưởng mạnh hơn đến từ các khoản đầu tư vào bộ máy thương mại địa phương, mạng lưới phân phối trong nước, hoạt động sản xuất nội địa và mở rộng quan hệ đối tác công nghệ. Bán dẫn và điện tử vẫn là những nguồn tạo lực cầu chính.

Phân bổ vốn: Ưu tiên trước mắt của Cognex là hoàn tất và tích hợp RealSense. Ban lãnh đạo cho biết các hoạt động M&A tiếp theo vẫn là một phần trong chiến lược phân bổ vốn dài hạn, tùy thuộc vào chất lượng mục tiêu, định giá và các tiêu chí tài chính.

Toàn văn biên bản cuộc gọi công bố kết quả kinh doanh

Toàn văn cuộc gọi công bố kết quả kinh doanh

Phần trình bày của ban lãnh đạo

Operator

Greetings, and welcome to Cognex Corporation Third 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.

Greer Aviv

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'm joined here today by Matt Moschner, our CEO; and Dennis Fehr, our CFO. Today, we will discuss progress against our strategic objectives, including our acquisition of RealSense, our continued innovation in AI-powered machine vision, key end market trends, our strong third quarter performance and our fourth quarter and increased full year outlook.

After our prepared remarks, we will open the line for Q&A. Both our published materials and today's call reference non-GAAP measures. Reconciliations between GAAP and non-GAAP measures are available in our earnings release and presentation. Today's earnings materials will contain forward-looking statements, including statements regarding our expectations. Actual results may differ materially due to the risks and uncertainties that are described in our SEC filings, including our most recent Form 10-K and Form 10-Q. With that, I'll turn the call over to Matt.

Matt Moschner

Thanks, Greer. Good morning, everyone, and thank you for joining us today. Q3 was a strong quarter for Cognex with record revenue, a significant increase in profitability and continued execution against our strategic objectives. Our results reflect broad-based demand strength as well as the actions we've taken to improve the business by focusing on product innovation, portfolio optimization and disciplined cost management. Importantly, we are seeing those efforts translate into more diversified growth across customers, end markets and geographies. At the same time, we are working to expand our long-term growth opportunity through the announced acquisition of RealSense. This deal, in combination with our continuing investments in AI-enabled machine vision, set a strong foundation for long-term profitable growth.

Let's turn to Page 3 for an update on strategy, starting with RealSense. This pending acquisition represents an important step in expanding Cognex's long-term growth opportunity. RealSense is the market leader in depth sensing and robotic perception technology, extending our capabilities into a highly complementary, fast-growing adjacent market. Today, Cognex helps machines identify, inspect, measure and guide, while RealSense enables robots to perceive depth, understand their surroundings and navigate dynamic environments. By bringing these technologies together, we believe we can create a broader visual intelligence platform, expand our served market and position Cognex to benefit from powerful long-term trends in robotics, AI and intelligent automation.

The combination also advances our diversification strategy by adding a new growth pillar that is closely aligned with our core technology strengths. We still expect this transaction to close in the fourth quarter. Whether through inorganic investments like RealSense or innovation within our core portfolio, we continue to expand the range of applications we can address and the value we can provide customers. We believe that AI remains a key enabler of that strategy, allowing us to extend the capabilities of our vision platform to solve increasingly complex customer challenges, while at the same time simplifying deployments. Turning to Page 4. The new In-Sight 1750 wafer and panel ID reader is a strong example of that strategy in action. This product launch supports our growth strategy within semiconductor applications, which have been some of our fastest growing this year.

While semiconductor represents approximately 10% of our 2025 revenue and remains our smallest end market, we see it as a very attractive application space where our technology leadership can create superior value for customers. The In-Sight 1750 is purpose-built for semiconductor front-end and back-end manufacturing and strengthens our position with leading OEMs as they specify vision within their next-generation wafer handling machines. It combines Edge AI with our proven rules-based tools to deliver industry-leading performance on challenging wafer and panel identification applications. The system also includes multimode illumination and one button AI Autotune, simplifying setup and helping customers achieve reliable performance more quickly.

Finally, the In-Sight 1750 is backwards compatible with our industry-trusted In-Sight 1740 series, giving customers a faster, more seamless upgrade path on both existing and next-generation machines. This launch reinforces our leadership in a demanding automation market and demonstrates how we are converting advances in AI into differentiated commercial products that solve customer challenges today. Turning to Page 5. Third quarter growth was broad-based with 4 of our 5 end markets delivering double-digit constant currency growth. Manufacturing indicators also remain positive, including the U.S. Purchasing Managers Index, which has remained in expansion territory for 10 consecutive months, supporting our expectation for full year double-digit growth across nearly all of our end markets.

Starting with our largest end market, logistics, Revenue grew at a double-digit rate for the 11th consecutive quarter. Growth was broad-based across both large customers and the wider logistics customer base. Given the strong year-to-date performance, we are raising our full year logistics outlook to double-digit growth. We expect to have greater visibility into 2027 customer investment plans in the first quarter. Packaging delivered another quarter of double-digit growth with strength across multiple geographies and customers. Momentum continues to be supported by our sales force transformation and customer acquisition efforts, and we remain on track for double-digit growth for the full year.

Electronics delivered its sixth consecutive quarter of double-digit growth. Performance was increasingly diversified across customers and applications, supported by AI-enabled devices, new product form factors, data center supply chain investment and the ongoing geographic diversification of manufacturing. We are maintaining our outlook for double-digit electronics growth for the year. Automotive revenue increased mid-single digits in the quarter and was flat year-to-date. Strong growth in the Americas was partially offset by continued weakness in Europe, although the rate of decline moderated. Following 2 years of significant declines, the market is showing signs of stabilization, and we are maintaining our full year outlook of flat to low single-digit growth.

Finally, Semiconductor delivered strong double-digit growth across the major geographies. Performance was supported by continued investment in advanced manufacturing and AI infrastructure, while the In-Sight 1750 further strengthens our position in this market. We continue to expect strong double-digit semiconductor growth for the full year. In summary, we are pleased with our third quarter performance, highlighted by record revenue, strong profitability and continued progress against our strategic objectives. With that, I'll turn it over to Dennis to walk through the Q3 financials and our outlook for the fourth quarter and full year. Dennis?

Dennis Fehr

Thanks, Matt, and good morning, everyone. Before we begin, I'd like to note my discussion of Q3's results will focus on the underlying business performance and exclude the impact of the onetime commercial partnership benefit recognized in the third quarter of 2025. Q3 delivered strong revenue growth, margin expansion and cash generation, with incremental revenue flow-through to adjusted EBITDA exceeding 100%. Page 6 highlights 3 key measures of our financial performance. First, adjusted EBITDA margin was 35.5%, expanding 1,240 basis points year-over-year and marking the ninth consecutive quarter of margin expansion. Second, record adjusted EPS of $0.53 increased 89% year-over-year, representing the ninth consecutive quarter of double-digit EPS growth.

And third, trailing 12 months free cash flow conversion rate was 106%, meeting our greater than 100% target for the eighth consecutive quarter. Turning to the income statement on Page 7. Revenue reached a record $313 million, increasing 19% year-over-year. This marked our ninth consecutive quarter of year-over-year revenue growth. FX did not have a meaningful impact on consolidated revenue in the quarter as regional effects offset. Looking at geographic revenue trends on a year-over-year constant currency basis. The Americas grew 42% 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 strong double digits, continue to see strong growth in China, with revenue increasing 29% in Q3 and 35% year-to-date. Growth in the quarter was led by the semiconductor and electronics end markets. Europe declined 15%. Excluding the procurement change in ordering entities, Europe declined mid-single digits. Strength in semiconductor and packaging was offset by weakness in automotive. Other Asia increased approximately 12%, supported by strength in semiconductor, automotive and electronics. Excluding the divestiture of the Japan-focused trading business, other Asia increased more than 20%.

Staying on Page 7. Adjusted gross margin expanded 360 basis points to 71.3%, driven by favorable mix, higher volume and faster-than-expected pricing execution. These benefits more than offset the expected memory cost headwinds in the quarter. Adjusted operating expenses declined 7% year-over-year, primarily reflecting continued cost management activities, somewhat offset by higher sales commissions due to strong revenue performance. As we look ahead, our focus is increasingly shifting from cost reduction to productivity optimization. We continue to see opportunities to use automation and process improvements to operate more efficiently and support growth largely with our existing resources. Adjusted EBITDA was $111 million, our highest level since Q3 2017 and up 91% year-over-year.

Adjusted EBITDA margin reached 35.5%, expanding 1,240 basis points year-over-year and exceeding the midpoint of guidance by 200 basis points, supported by strong gross margin performance and disciplined cost management. Adjusted diluted EPS increased 89% year-over-year to $0.53, driven primarily by operating leverage. Strong profitability translated into strong cash generation with free cash flow increasing 21% year-over-year to $104 million. Over the trailing 12 months, free cash flow totaled $286 million and free cash flow conversion was 106%. We ended the third quarter with approximately $846 million in cash and investments. Even after the anticipated closing of RealSense, we expect to maintain a strong net cash position.

Moving to Page 8. I'll review our fourth quarter guidance, which is excluding RealSense. For Q4, we expect revenue of $270 million to $290 million, representing approximately 11% growth at the midpoint and in line with seasonality and a strong electronics growth year. I would also note that the year-over-year comparison becomes more challenging given the strength of the fourth quarter of 2025. We expect adjusted EBITDA margin of 29% to 32%, with the midpoint representing approximately 780 basis points of year-over-year expansion and another quarter of strong operating leverage, including approximately 100% revenue flow-through to adjusted EBITDA.

Relative to Q3, we expect gross margin to moderate modestly, reflecting a less favorable revenue mix due to electronics seasonality. We also expect operating expenses to increase modestly compared to Q3, driven primarily by higher sales commissions associated with our strong revenue performance. Adjusted earnings per share is expected to be $0.37 to $0.41, with the midpoint representing approximately 44% year-over-year growth. Turning to Page 9. I'll now review our increased full year 2026 guidance, which is also excluding RealSense. Our updated outlook reflects continued strength across the business, improved visibility into the fourth quarter and confidence in the operating leverage created through our transformation efforts.

Our performance year-to-date reflects the progress we have made accelerating margin expansion beyond our original expectations of exiting the year at a 25% margin run rate. For 2026, we now expect revenue of $1.14 billion to $1.16 billion. This increase to previous expectations is driven by stronger growth in logistics, representing approximately 16% growth at the midpoint or 17% growth, excluding the 2025 commercial partnership benefit. We expect adjusted EBITDA margin of 31% to 32%, with the midpoint representing approximately 1,000 basis points year-over-year expansion or approximately 1,080 basis points, excluding the commercial partnership benefit. Our increased full year adjusted EBITDA margin outlook reflects our ability to deliver stronger-than-expected revenue growth while delivering on our cost reduction commitments.

We remain on track to achieve approximately $35 million of annualized net cost reductions, normalized for incentive compensation while continuing to invest for growth. These actions, together with an optimized pricing playbook have significantly improved the earnings power of the business. At the midpoint of our guidance, we expect approximately 93% flow-through of incremental revenue to adjusted EBITDA compared with roughly 70% in 2025. Adjusted earnings per share is expected to be between $1.68 and $1.72 with the midpoint representing approximately 67% year-over-year growth or 75% growth, excluding the commercial partnership benefit.

I would also note that our full year adjusted EPS outlook now includes approximately $0.08 per share of investment income, down from the prior expectation of approximately $0.11 per share, reflecting the liquidation of financial investments to partially fund the RealSense transaction, which we continue to expect to close in the fourth quarter. Before concluding, I'd like to briefly highlight 2 baseline revenue items that affect year-over-year comparisons, but do not reflect changes in underlying demand. As shown on Page 10, the first relates to the divestiture of our Japan-focused trading business and other noncore product exits, reducing revenue by approximately $5 million per quarter beginning in the second quarter. The second is the $30 million onetime commercial partnership benefit recognized in the third quarter of 2025.

Taken together, these items create roughly $30 million of revenue headwinds in 2026. Even after those impacts, we expect to deliver strong double-digit revenue growth, more than 1,000 basis points of adjusted EBITDA margin expansion and greater than 70% adjusted EPS growth this year. In summary, Q3 demonstrated the strength of our execution with record revenue, profitability above our expectations, resulting in record adjusted EPS and strong cash generation. We remain focused on delivering on our fourth quarter commitments and finishing 2026 with continued momentum. We are also pleased to announce that we plan to host an Investor Day in June 2027. The event will provide an opportunity to review our progress, discuss our long-term strategy and growth opportunities, introduce RealSense and hear directly from members of our broader leadership team. Now Matt and I are ready for your questions. Operator, please go ahead.

Operator

[Operator Instructions] Today's first question is coming from Tomo Sano of JPMorgan.

Phần hỏi đáp

Tomohiko Sano

Congrats on the quarter. First question for Q4, how much of the expected revenue growth, which is 11%, excluding RealSense coming from factory automation, end markets and logistics? And anything that you see more strength from the demand from any verticals would be appreciated.

Matt Moschner

Yes, sure. Thanks, Tomo. I'll have Dennis comment specifically on Q4. Maybe I'll start a little more broadly, which is what are we seeing across the business now. I think we think of the business in a few different ways. One, where are we in the industrial cycle? And quite clearly, based on various indicators, we're well into a growth cycle that seems to be accelerating, which is really encouraging. At the same time, we're seeing demand arrive in quite a diverse way across geographies, end markets and customers. That demand is really supported by some secular tailwinds, I'd say, around investment in AI, how AI technology is driving perhaps more ambitious investment in automation, in various sectors. And then the continued trends around labor shortage, increasing direct material costs, labor costs and other things that are really pushing customers really in all industries to focus on automation and specifically machine vision as a way to drive their businesses forward.

And so -- and then on top of it, I think as a business, we're executing really quite well. Our commercial engine is performing well. A lot of the changes we made over the last 1.5 years are paying dividends. Our product innovation engine is executing well. A lot of the new products we've introduced over the last several years being very well received. The work we did to rationalize the portfolio and really focus ourselves, the work we did to really rightsize the cost basis and focus on productivity, all things are really coming together. So I think we're carrying great momentum into the fourth quarter, frankly, into next year and very pleased with what we're seeing. Dennis, maybe you want to comment on Q4.

Dennis Fehr

Sure. Let's talk maybe Q4 starting on the top line on the year-over-year comparison to your questions. I think the growth is really strongly coming from the factory automation end markets, especially if you think across packaging, semi. Also on the electronics, even though it's a seasonally low quarter, of course, in Q4, but we see also their year-over-year growth that's driven by these end markets. Sequentially, I would say, a step down from Q3 to Q4 in line with our normal seasonality. Now in a year with strong electronics growth, you would expect a bit of a higher step down from Q3 into Q4. There's also maybe a couple of other smaller effects, which drive the sequential step down. Logistics, a slight step down there, less days in the quarter, small effects there, a couple of days less versus Q3, probably more significantly more or less days in the year-over-year comparison there.

So there are a couple of these effects which drive the sequential step down. In that regard, I would really encourage to what Matt just said, to look at the broader macro backdrop when you think about like how is the business performance. And we think like overall, it's going in that regard, a pretty positive macro backdrop. Now a few other items on Q4, maybe going further down in the P&L, right? So I talked about in the prepared remarks, slightly higher commissions -- sales commissions driven by the higher revenue. So OpEx sequentially slightly up compared to Q3. Gross margin is probably a little bit lower, really slightly less lower than Q3, right, related to the seasonality effect of electronics here.

So probably pretty much within the expected range. And that still enables us to show very strong flow-through to the bottom line, so also somewhere in the range of 100% revenue flow-through year-over-year. And then yes, we started to factor in the RealSense acquisition from the cash outflow perspective, not really from a P&L perspective like on the revenue line and so on, but we factored in lower investment income. So in that regard, adjusted EPS is perhaps not moving as much as maybe the revenue and the margins compared to prior guide, but it's really due to the offset of the lower investment income, which we have now factored into Q4.

And yes, maybe while I just talk about kind of some of these modeling effects. Maybe I want to highlight one item in Q1, which we have been highlighting in prior years as well that Q1 typically has higher stock-based comp. In that regard, when you think about your OpEx modeling for next year, consider these higher stock-based comps in Q1, kind of seasonal effect and then certainly that in this year in '26, we had some favorability for the retirement of the prior CEO. So in that regard, we would expect about $6 million year-over-year increase of stock-based comp into the first quarter.

Operator

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

Andrew Buscaglia

So just as we kind of finish up 2026 here, I'm curious a lot of investors look at Cognex as sort of a very highly cyclical, obviously, especially on the top line and certain end markets that you're in like consumer electronics, tend to have challenges growing over a multiyear period. Similarly, in semi, like very cyclical new market you guys are talking about. Can you give us some comfort or some idea of how you see those 2 markets playing out into '27? And do you expect declines over the full year?

Matt Moschner

Yes. Thanks, Andrew. I think it is fair to say that over -- maybe over the last 10 years, when the business has cycled up, it's really been driven by a few things, specific changes in technology, specific outsized investment years in certain end markets. I think what's different today is really how broad-based our growth has become. As a business and as a leadership team, we've really put a big emphasis on how do we diversify the growth engine of the company. And I think we're well on our way there, and I think you're starting to see that in the numbers, right?

So as much as I will give you my view on electronics and semi, we're seeing really strong demand across really almost all of our end markets with maybe the exception of automotive, but it's really automotive Europe that is really the laggard at this point. And so our focus and our strategy right now is really one of diversification. I think we're well on our way there. And again, primarily to mitigate the cyclical effects of the past. And so -- and then meanwhile, I think there's a reason to view maybe this cycle as potentially more durable, right? And that has to do with some of the outsized investments that are happening in automation, again, not just semis, but really using automation more ambitiously to mitigate the effects of direct material cost increases, labor shortages, diversifying your supply chain in light of geopolitics.

So I think we view this cycle as potentially different than previous cycles in that way, coupled with, frankly, very strong execution in the business. Now let's jump into semis. Again, I'd just remind the group, it is our smallest end market, roughly 10% of revenue on a 2025 basis. still a very attractive market for us, really the legacy of Cognex comes from advanced semi manufacturing. We have great customer relationships with leading OEMs. We continue to innovate in this space with products like the 1750. And what are we hearing from customers? Really strong, robust demand, right? Demand across various chip types, not just memory, but active components, core processors and really extending multiyear potentially.

And so I think even if you think about the semi cycle, potentially more durable, potentially different than previous semi cycles in terms of length potentially. And a lot of investment we've made there organically and inorganically. I'd say even the acquisition of Moritex in 2023 very much strengthened our play into semis. So continue to be optimistic there. In electronics, right, 6 consecutive quarters of double-digit growth. What's behind that? Well, obviously, on one hand, we've worked really hard to diversify that portion of our business outside of one customer to many more customers. At the same time, we've seen new entrants to embodying AI tools into hardware, consumer hardware, and you can imagine that we participate in that manufacturing.

We've driven an aggressive technology strategy to solve new problems using AI, driving penetration of vision into electronics. And then last but certainly not least, the supplier -- the brand owners here are diversifying their supply chains from largely China today to other Asia and potentially even outside of Asia. And so looking to a partner like Cognex to help them do that. So -- and then on top of that, obviously, the investments in AI infrastructure. So needless to say, I think we also see the electronics growth cycle as strong and potentially more durable than in the past. So again, I'd encourage you not to hone in on any one market in terms of -- or any one trend that's driving the business today. It is quite broad-based. And really, that's our mandate as a leadership team, which is to continue to diversify the growth engine. And I think you're seeing that in the numbers.

Andrew Buscaglia

Yes. That's very helpful. And maybe like on the margin side, I think kind of a similar question, but you guys kind of talk about being more like aware of the cycle. And maybe what are -- given where you think you are in the cycle, how do you manage margins to continue to expand them from here? Or is there another phase you're entering in terms of kind of a margin step up here?

Dennis Fehr

Yes, Andrew, first of all, extremely pleased about the progress which we have been making this year, right? So if you recall, we went into this year with the expectation to finish the year at a 25% adjusted EBITDA margin run rate. And we have significantly accelerated our margin expansion throughout the year with this combination of strong top line growth while still staying extremely disciplined on the OpEx side and actually achieving OpEx reduction in line of strong top line growth and certainly support from improved mix into the business, but then certainly also the ability to drive pricing and offset some of the memory costs. So that was really kind of the key ingredients for the 2026 margin expansion. And I think, first and foremost, I think the most important statement in my mind is that we are not at the end of our margin expansion story.

There's still clearly more opportunity for us. And also here, there are several factors. So first of all, leverage through top line growth. I think we have been talking about it before that the macroeconomic backdrop remains favorable for us and the diversification of the growth is happening, and we see it unfolding in that regard, clearly looking forward into more top line growth, which can drive further leverage. And then at the same time, we have been saying also that while we do not see a kind of the focus for further cost reductions, but clearly, the shift to productivity. And what does this really mean maybe in a simple statement is like grow the top line with existing resources.

And that means like drive OpEx growth next year on an inflationary level, I would say. and that would include that increase in the stock-based comp. And that basically, again, sets us up for higher leverage in that regard, clearly, there's more room to go on the margins. And I think in terms of kind of concrete what that would mean in the numbers, I would say I would point to the next earnings call, right? So we want to really get through this year to focus on our commitments for this year, but then we'll talk more about concrete numbers in the next earnings call. And then we'll have the Investor Day in June, where we'll talk more about in details what the mechanics and how it works and so on will look like. But clearly, margin expansion opportunity is still there.

Operator

The next question is coming from Pratap Singh of UBS.

Pratap Singh

I wanted to ask on autos because you did see an improvement to mid-single-digit growth in the quarter. So how much of that reflects easier comp versus an improvement in the underlying demand? And you also mentioned improvement in North America. Like where are you seeing the evidence of customer investment beginning to recover in that vertical?

Matt Moschner

Yes. Thanks for the question. I mean we're definitely in a better position following 2 years of quite significant declines. I think we said we see our automotive business globally stabilizing. But I think you're right to point out geographic differences. In the Americas, I'd say growth has actually returned quite strongly. Asia to a lesser extent, but still a grower. It's really in Europe where we're seeing a lot of those OEMs struggle to perhaps manage through what they're seeing as an increased competitive environment, but also digest some of the bigger investments they made in EV.

But we're optimistic that they are and will return to investment mode. And in some cases, they already have. So yes, I think the business -- our business in auto has stabilized, has returned to growth in the Americas and Asia. How do I think about it more structurally? I think it's just a great automation market, right? The cost of quality is very -- poor quality is very high, right? It's an industry that is facing shortages in skilled labor and increasing direct material costs and rising tariffs and having to diversify their own manufacturing bases, potentially produce more regionally, all of that drives demand for automation and specifically machine vision as a key component.

And so what are we hearing from our customers, really a heightened engagement in our technology and how we can help them solve the challenges that they face, whether it be quality or cost. And so yes, I think where are we? We've stabilized the business. We're really focused on how do we return to growth even more strongly heading into next year and return to growth in all of our geographies. And I'm fairly confident that we will.

Pratap Singh

Great. And just as a follow-up, like, on logistics, you raised full year outlook. So clearly, the business is tracking ahead of where you thought it would be. How broad-based is the current strength across large accounts versus smaller customers? And when you look at the pipeline, what are you seeing in terms of greenfield projects -- and, like, just as a summary, like, after so many quarters of strong growth, can you give your views on the runway for the growth over the next few years in this business?

Matt Moschner

Yes, sure. Yes, happy to. Yes, very pleased with the performance in logistics, our largest market as a percent of revenue, our 11th quarter of double-digit growth, impressive, frankly, by any measure. And customer concentration, right, we do have one large customer that is growing strongly, but I'd say our growth is broader than that customer. And there's really 3 components to our growth strategy in logistics. One is driving the adoption of vision inspection in a market that historically hasn't adopted for various reasons, and we see our leadership in AI as a key component to that.

Roughly a year ago, we launched a new product in logistics called the SLX, which is really bringing AI vision to warehouse automation, very good traction there. So vision is a bit of a white space that we think has a lot of potential. You mentioned greenfields. We are seeing good activity there. We do have good visibility. We engage with all of the leading operators of warehouses around the world, and we're seeing good activity there. But where are we seeing and also focused is really driving productivity within existing facilities. And over the last several years, I think that has really been an area of focus and continues to drive growth for us. What does that mean practically? It's really working with customers to see how do they get more throughput, how do they lower their unit cost? How do they improve quality, reduce manual touches as an item travels through the network?

And so whether that's improving traceability by bringing our leading barcode reading technology or improving processes by bringing visual inspection to the table. And so really those 3 components, vision, productivity improvement in existing facilities as well as riding the wave of new capacity through greenfields. Now how long can it last? Hard to say. I mean, any time you've been growing at this rate for that long, right, we start to face very challenging comps. Our customers have to digest some of the technology that we've delivered to them. And so in the near term, could growth moderate? Could it become a bit more lumpy? Certainly could over the medium term. And longer term, though, we're very optimistic about logistics as a market. It has all the ingredients to continue to invest in ambitious automation plans. We're seeing that with some of the leading retailers really making big investments in automation. So near term, tough comps potentially could moderate, potentially lumpy, medium, long term, very optimistic on this being a leading growth engine for the company.

Operator

The next question is coming from Tommy Moll of Stephens.

Thomas Moll

Dennis, you characterized your fourth quarter sales outlook as in line with seasonality if we take out the electronics impact. I think you're down about 11% at the midpoint. Is there anything you can do to bridge us on that to whatever you would consider normal and maybe quantify the electronics impact?

Dennis Fehr

Yes. I mean I would say, again, like, electronics, very strong growth this year, right? So I think Matt talked a lot about the various factors there. So extremely pleased. But you know that electronics has a strong seasonality into Q2 and into Q3. So there is the step down into Q4 happening. So in that regard, in a growth year like this, you will have that step down. And I think historically, you have seen typically, like, high single digits, right? So that means if you say like, hey, bridge me, then I would say, like, bridge from high single digits to 11%. So it means, like, we need to bridge 2% to 3%. So I think I said earlier on the call, a slight sequential step down in logistics as well, slight less number of days sequentially, right?

So it's maybe 3% less days, if you want to put that into a number. In that regard, there are the smaller other effects, which maybe kind of bridge between what you have seen if you go back for maybe over the last decade in terms of the seasonal step down. But again, I would like to bring it actually back to the broader macroeconomic picture and the backdrop of the business with strong PMIs with 4, 5 end markets performing at double-digit levels. And in that regard, I would say, like, I look at the bigger picture, and I think we feel positive about what we see there.

Thomas Moll

Dennis, I wanted to follow up with an update on new customer adds and the state of the channel. These are 2 things you highlighted specifically last quarter, but haven't been touched on today. So I'd appreciate anything you can offer.

Matt Moschner

Thanks, Tommy. Absolutely. So I would say the new customer acquisition engine of the company is roaring. We continue to acquire new customers at a similar rate as we have in the past. And that's great. A lot of it is a testament to the quality of the technology and products we're releasing. A lot of it has to do with the changes we made to our go-to-market earlier last year. And so I think that's going very well. Now we have shifted a little bit to what we, I think, mentioned in the last call, land-and-expand, right? Land really being acquire new customers, going very well, and expand is how do we drive a greater level of penetration, right?

And so there, what we're doing is every time we acquire new customers really get a keen view on their account potential as it relates to machine vision. And orient our selling activity to make sure that as much as we want to acquire the next new customer, make sure that when we acquire a customer with high potential, we also make sure we take care and grow our share there as well. And so it's very much transitioning from a land-only to a land-and-expand growth strategy. And so very pleased with how that's been going. Won't give you exact customer acquisition numbers, but only to say we are in line with historical trends.

Operator

The next question is coming from Guy Hardwick of Barclays.

Guy Drummond Hardwick

I'm just wondering about the prospects for gross margins at logistics, given you mentioned the SLX products. And I guess mix is the biggest is a huge driver there. But is there a prospect of the gap between factory automation and logistics gross margins? Is there a prospect for that gap to narrow over time? And what would be the key drivers to that happening or not happening?

Matt Moschner

Yes. Thanks for the question, Guy. Absolutely. So as we've said in the past, logistics relative to factory automation is a lower gross margin business. A lot of it has to do with it's more project-based, meaning we deliver a complete kit of material, including Cognex vision systems and other material that we pass through the P&L as well as services, installation services, commissioning services, which is notably different than how do we go to market in factory automation. So that is true. But absolutely focused on how do we close that gap, right? Vision adoption and vision penetration is a key piece to that.

You would imagine, and I think we've talked in the past that when we sell a vision system to a warehouse operator, generally spoken at much higher ASPs than our barcoding portfolio. Why? Because that vision system, frankly, is delivering a higher ROI. It's doing a more sophisticated task. So as vision adoption grows, and it is, we would expect gross margins to improve.

And then we are continually finding ways to use technology to make the deployment and maintenance of our logistics-oriented systems easier, simpler, potentially even performed by the customer or by a partner to get that off the books, if you will, and making very good progress there, using -- improving the workflow, the setup using AI to automate configurations, very encouraged by the work we're doing there to make sure that perhaps what took several days of commissioning, maybe it takes 1 day, maybe even a few hours. And so that reduces the amount of margin dilutive activity when it comes to delivering a logistics product. So I'd point to really those 2 things, growing share of vision and driving a continued focus on ease of use as a way to improve gross margins in logistics.

Dennis Fehr

And maybe let me add to that. I think maybe for the last 12 months, I'm not providing specifics, I would say we have seen our gross margins to trend favorable within logistics and to point towards the portfolio optimization, which we announced at the beginning of the year. While the major effect of that was within packaging. There was also some activities done within the logistics end market and that drove a favorable mix within logistics in that regard, really actively working to drive gross margin optimization in that specific end market and quite pleased what we have seen as a result.

Guy Drummond Hardwick

Just a quick follow-up. Are you seeing any signs of refills picking up in logistics?

Matt Moschner

I wouldn't say that, Guy. Yes, I'd say it's -- yes, I wouldn't say picking up. And again, our business is really quite well balanced in terms of where growth is coming from. Greenfield is certainly a component of it, not the majority. I'd say the majority at the moment is probably still focused on productivity, landing new technology in existing facilities. and so -- as well as driving new applications with Vision. So no, I wouldn't say we're seeing it accelerate. It is a key component of growth, but not the majority at the moment.

Operator

The's next question is coming from Robert Jamieson of Needham & Company.

Robert Jamieson

So just on some of the ambitious automation spend that you're seeing, just curious how that translates to RealSense thesis. It sounds like the core growth for that business isn't really predicated on some of the emerging areas within robotics like humanoids. But to what extent do you think this could provide like a more material like upside growth driver for RealSense as that rolls into the portfolio?

Matt Moschner

Yes. Thanks for the question. I mean, certainly should. Again, I would just remind the group, we're not yet closed. And so our focus there is really getting to close. And managing to the first quarter or 2's worth of integration activities. Again, why RealSense, right? It really came down to an attractive adjacent market. And I think you're pointing to more advanced robotic types, humanoids, quadrpeds, other things. Frankly, where we're very focused is maybe some of the more established type of robotic applications that they serve extremely well today or traditional fixed arm types where historically vision attachment to a fixed-arm robot is still very, very low. And so we see a penetration opportunity there in a very well-adopted type of robotic automation.

And then AMRs and AGVs, again, a pretty well-established, well-adopted form of automation that -- both of which we see directly surrounding a lot of the vision inspection stations that we serve today. And so that's really where our focus will be. The robust automation investments that I mentioned earlier very much would apply to those style of robotics. And so yes, I think to answer your question simply, I think it would to the extent we see automation investment driving our core business to Cognex very much would apply to investments that would be going to the robotic systems that would pull through RealSense.

Robert Jamieson

And then just on the new In-Sight 1740, just given this like drop-in upgrade nature, like to what extent do you think that kind of shortens some of the typical semiconductor qualifications that you might need to go through? And is there any early feedback points that you can give us just regarding setup times and the use of like the AI Auto feature?

Matt Moschner

Yes, absolutely. Thanks for the question. Yes, we spent a lot of time making sure that the upgrade path from the 1740, which is incredibly successful product in terms of its adoption and penetration, could be as seamless as possible to 1750. Things like making sure software commands are identical, form factors are identical, optical performance, quite literally down to how the LEDs project light as close as they could be so that you could take one out, plug in the other, load fully job compatible. So you take the configuration job file from one, you drop it on the other, it just kind of boots up and works.

And so a lot of time was spent there because we know that our customers demand that, right? Particularly in a tightened demand environment like they might face today, they don't want to spend engineering qualifying new technology that already works for them. They want to spend their time designing the next machine to keep up with the next processing node, right? And so that's great, very well received. You can expect that ahead of the product launch, we would have consulted with our leading customers in this area to make sure that they were satisfied. And I think the early indications are, they are. At the same time, we took the opportunity to really significantly upgrade the technology in the product, right?

Our 1740 series has been in market for over 10 years, extremely a good product, but time for an upgrade pre-AI. So we brought AI -- Edge AI vision tools in terms of reading very complex alphanumeric marks that we saw as emerging. We took the time to invest in AI Autotune. What is that? It's -- you press a button, the system takes a minute to cycle through different lighting and other sort of filtering schemes. It proposes what it thinks is the best to the user. The user clicks on it and off you go. So really great ease of use. We upgraded the workflow. It's a fully web-based user experience. But again, in a way that is fully backwards compatible. So yes, pretty optimistic that we can move aggressively in terms of adoption, early indications are that we will.

Operator

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

Christopher Grenga

This is Chris Grenga, on for Joe. When you provided the early fourth quarter indication last quarter, did you expect the official midpoint would ultimately be only about $10 million higher?

Dennis Fehr

I mean when we provided that guidance, we took what we saw at that time and basically looked at general like triple indicators of funnel and much less so backlog. And when we are a quarter later, we have a little bit more visibility into that fourth quarter, and then we update based on what we see. So in that regard, I wouldn't feel like there's any direct connection between thinking about like what was the prior midpoint to the current midpoint. It's really about, like, what we see in the business. And as I outlined before, I think especially on the bigger macro backdrop and performance across the 4 strong end markets, I think we see a lot of strength.

And then I think maybe another item I would like to highlight is that you see really strong supply chain execution as well. So it means, like, in a maybe general market, which has tightened supply, we have been really able to maintain our service level agreements of next-day shipments. And in general, feel good about our supply chain. Of course, there are always risks in supply chain. But in general, we feel good about it. So in that regard, I would say, feeling good about being able to deliver on that revenue also from a supply chain perspective in the fourth quarter.

Christopher Grenga

Got it. And you described the cycle as broader and potentially more durable than historically. Could you provide any early framework for 2027 organic growth?

Matt Moschner

Yes, Joe, no, at this point, we won't. No concrete growth projections for next year. Our focus is executing the remainder of 2026 and hitting what should be a very nice growth outcome. But again, I would say what's the momentum, what's the sentiment? What are we seeing? Just to reiterate what we've already said, we're in the middle of a strong cyclical recovery of manufacturing investment, supported by several structural growth drivers that potentially make that cycle stronger and longer heading into next year.

And then on top of it, as a business, we feel like we are executing exceptionally well in terms of how we manage our costs, how do we make sure we focus our portfolio, obviously, drive game-changing technology around advances in AI and then make sure that we continue to tune up the commercial engine of the company. So I think if you put those 3 things together, right, momentum building in terms of the industrial cycle, potentially stronger underpinnings that make it a different cycle, longer and more durable and a business that's executing well, I think we all should be very optimistic. We certainly are about the momentum that we're carrying into next year, but not yet ready to give specific guidance.

Operator

The next question is coming from Piyush Avasthy.

Piyush Avasthy

Maybe Matt or Dennis, just following up on the last question, I understand you want to wait for another quarter to comment on the margin expansion potential next year. But Dennis, I think you did make a comment on incrementals in that 60% to 90% range in '27. Again, you are expecting to finish '26 very strong. So -- but as we start thinking of '27, do you think there's, like, that some form of that framework can still hold?

Dennis Fehr

Yes, Piyush, definitely. I mean, I think I mentioned it earlier on the call. I think a strong macro backdrop would still think for growth in '27 and combined with continuous discipline around OpEx should drive leverage effect, right? So that means you may not see the 100% revenue flow-through, as we have seen it this year, right? So maybe it's -- maybe around the 60% or so, I would say, I wouldn't put it as high as 90%, but, kind of, as an indicator, I would say. In that regard, clearly, I think there is margin expansion opportunity, and we're having our eyes focused on it, and we'll keep on driving it. And then yes, again, I want to point to on the Q4 earnings call, we'll provide a bit more update on the broader financial framework, and then we'll have Investor Day next year where we'll talk more about the mechanics behind it.

Piyush Avasthy

That's helpful. And one on, like, RealSense, I understand it hasn't closed yet, but are you hearing from your customers on like what RealSense can do for them? Any early engagement as a combined portfolio that you can or want to highlight?

Matt Moschner

Yes, Piyush, I'd say it's a little early for that. Again, I think we're focused on the close. We're focused on the early days of the integration. Of course, customers that are already using RealSense technology are giving us very positive feedback, right? And we're learning more about the applications that they're being deployed against and learning more about the customers and how they adopt the technology. But the indicators are as they were when we set our sights on this as an opportunity and continue to be very excited to work together with the RealSense team and continuing to get very positive feedback from the market, I would say.

Operator

The next question is coming from Joe Ritchie of Goldman Sachs.

Unknown Analyst

This is Ken, on for Joe. First on China. Given the strong growth in China this year, so where are you seeing the most traction from your localization initiatives outside of semiconductor and consumer electronics? And how sustainable is the growth there?

Matt Moschner

Yes. Thanks for the question. Again, very pleased with the performance we're seeing out of our China business at the moment, growth rates we haven't seen, frankly, for years. And as we've said over the last 18 months, we've really focused on our strategy in China. We've made good investments in our commercial organization. We've landed distribution in-country. We have a local manufacturing, and we've really broadened the number of technology partnerships we have to leverage, frankly, the speed, quality and innovation that we see domestically in China.

And so all those things are playing to our advantage. And it's really across product types, I would say, but certainly concentrated in the semiconductor and electronics end markets. I mean that's very much where we're seeing the majority of activity in China. And our customers are leading machine builders and OEMs to a lesser extent, end users who work with Cognex, first and foremost, because of our leading technology, excellent, I would say, service levels, service levels in terms of applications engineering, delivery and last but certainly not least, global support, right? A lot of our customers in China have ambitions to extend their businesses outside of China and see Cognex as a key enabler to that, obviously, with the strength of our technology, but also the strength of our global presence from a service and support standpoint. So I don't think it's any one thing. I think it's a variety of areas that we've really focused on over the last 18 to 24 months that are playing to our advantage and very pleased to see that arrive in very strong growth from our China business.

Unknown Analyst

That's helpful. My second question is on capital allocation. So following the RealSense announcement, how are you thinking about the M&A opportunity set, both in terms of areas of focus and market activity? And how are you prioritizing share repurchases, further acquisitions and investments in organic growth?

Dennis Fehr

Okay. Maybe let me start on the capital allocation side first, right? So in general, very strong net cash position, close to $850 million prior to acquisition, which means also after the acquisition, have strong net cash position there. I think our immediate focus is probably more around digesting the RealSense acquisition. It's not definitely a priority to say, like, we have to deploy more capital in the near term. But of course, as we typically do, I would say, when the dust settles after the earnings, we'll consider what we do in the more nearer term.

So we'll keep that under review for sure. But then longer term, clearly, I think M&A stays as part of our capital allocation strategy. And I think we clearly see more opportunities in terms of where we could strengthen our -- the diversification of our growth in that regard. Clearly, M&A remains a part. But of course, it always comes back to finding the right target at the right valuation and that it can meet our financial frameworks in that regard, as we said when we first came out with the M&A capital allocation framework is that, like, it could take 1, 2 or 3 years to find the next target. So that still applies today. So in that regard, we'll take it as the right targets will emerge.

Operator

Unfortunately, that brings us to the end of time we have today for questions and answers. I would like to turn the floor back over to Mr. Moschner for closing comments.

Matt Moschner

Great. Thanks for joining us this morning, everyone, and for your continued support of Cognex. We look forward to updating you on our progress in the fourth quarter.

Operator

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.