CGNX - Earnings call 4 2023 | Cognex Corporation

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Operator

Greetings, and welcome to the Cognex Fourth Quarter 2023 Earnings Conference Call. [Operator Instructions] As a reminder, this conference is being recorded.

It is now my pleasure to introduce your host, Nathan McCurren, Head of Investor Relations. Thank you. Please go ahead.

Nathan McCurren

Donna. you, Thank everyone. Good morning, for joining you us. Thank With and CEO; on today's CFO. call President Cognex' Willett, Rob and are me Paul our Todgham,

Our a today. on earlier the Investor presentation results release, of on were report our section annual website. are The available Form introduced newly press and Relations quarterly earnings XX-K released

forward-looking and to true statements information we upon filed and and materials during as earnings XXXX. are our based today. will make described subject Form morning this this SEC our to are be statements call uncertainties that Today's filings, for we XX-K contain risks most of All forward-looking are statements in believe recent including

hand will results to explaining I to changes over I notice. Paul reporting a and discuss and that metrics minute Before our the you to want it Rob outlook, to spend

intangible last of As the in more quarter, of previewed you we costs with acquisition after and material the acquisition have Moritex quarter, of we assets. a level now fourth on amortization

financial of results charges, we've As figures. in accounting operating to more to non-GAAP adjusted to our of the these changes and exclude per expense, calculation our methodology purchase have measures by income change reporting be our our share. earnings charges and made non-GAAP from nonrecurring begun operating This to those income applies impacted net

presentation changes back website adjusted earnings in introduced today a historical new we the call frequently EBITDA period defined also to posted margin, with gross this on on to flow. morning. and prior impacts more expect referenced and to adjusted These have free and clearly We to be look our non-GAAP the speaking reporting are our and measures cash

nonrecurring adjusted earnings non-GAAP We an XX% XX% revenue be certain a are to GAAP operating over press that on communicated and these to margin growth, long-term purchase can of emphasize of reconciliation accounting in see and items charges. gross basis, evaluated mid-XX% and targets excluding previously our You margin unchanged release. financial from want also should our

Rob on the Paul execution and fourth discuss and that, us conclude XXXX growth. additional provide in of detail financials future will turn our the call Rob on I'll over outlook initiatives the our for Rob. to strategic will results, sets Next, XXXX how discussion our up quarter With and a with then with

Robert Willett

Thanks, many year for Nathan. high thank perseverance Hello, everyone, you manufacturing us. while joining global was and initiatives navigating strategic We Cognex. XXXX a advanced potential recession. a at of

towards achieving We goals. steps priorities our and continue to take long-term important strategic

in investments, XX% Customers as XX% end cautious fueled near-term pandemic-related slightly was readings X/XX in down and increased longest in growing in revenue and China and After since XXXX, remains XXXX in is by declined CapEx confidence observed scrutiny lower especially electronics stretch with now muted. reached territory, almost XX in leading XXXX. orders. we XX investments acceleration have ago. logistics demand, remained such and to contraction the in over period which delayed months bubble tech the years consecutive PMI Investment have

serve by to large peers, exposure in XXXX was of the reduced their years. About the customers half was a Cognex to after in its addition long-standing challenges we who spending heavy high for X a macro by XXXX. leaders faced investment industries decline these In driven in headwind us both revenue and our prior

opportunity anticipate ordered, not but of our have manufacturing represent we products broke stage of with manufacturing, XXXX and However, in our of significant XXXX is for a each of reached where investment will customers. battery plans we Many ground projects underway. revenue customers' our that semiconductor maintained end gained we confident that EV volume and share these Cognex. markets, are large projects or future notably still are these some In

hiring. in we Throughout spending discretionary disciplined our and about to thoughtful stayed approach XXXX,

shown the evolve. have before periods challenging faced have We ability our and to we in history, XX-year

we example, the the in and that XXXX, to our saw we To accounted half our a adjust, and for Chinese over fast market. in business. automation significant towards revenue downturn penetrate factory semi For moved year customers of diversify business

we engines different in an our shift learning away today, out becoming as see accessible vision and trends such disruptive EVs from internal applications. towards markets, customers of the technology machine playing While number increasing deep to combustion and

focused growth. trends are We on term these deliver future evolve to and on long capitalize mobilizing to remain and on to continuing the

me to go the quarter. for I on and Paul financial this turn into Before let over the evolution results our more for detail outlook, it

Paul Todgham

and Thank hello, you, Rob, everyone.

million X contract XXXX Turning $X that also manufacturer. reported basis. the quarter we're for Revenue point of you a fourth included a that of remind to fire from results the fourth or in at the contribution that million I'll from $XX declined to third shifted comparing due percentage XX% our revenue This on primary quarter revenue against includes quarter. Moritex. the

what remain sequentially, the seeing our market year-on-year, an mostly revenue declined our conditions XXXX end From softness medical-related, and food roughly the businesses consistent in but due automotive, these consumer beverage. underlying of past we markets as X timing flat in each across remained of were The quarters. consumer reported standpoint, end electronics to other Broader the with markets These driven end automation fire. business by factory are declines and biggest continued in and such semi. we products year-on-year

declined regions a environment. battery increased down the combustion decline in across the automotive, in we steepest across sequentially China. Year-on-year, On see in as to demand the see Within growth quarter in Americas internal Revenue logistics. revenue and stable, further challenging year-on-year. sequentially in we continue with driven China the by all revenue flat stepped from a economic EV business to Logistics remained increasing geographic growth manufacturers. basis, and roughly softness continue contributing

with in expectations at cost basis, of of asset in sales. gross margin from Moritex. reported intangible XX.X% deleverage, was adjusted favorability basis, year, Moritex amortization Adjusted line down $X buys to broker gross was and by and slightly a last in Compared On due offset QX mix. XX.X% a decline costs sequential margin to unfavorable acquisition the or on was million including and volume

to is timing year-on-year. increase and due turn X% $X million operating incentive operating the compensation Adjusted Let's now expenses sequential $X or or other The to and million expenses. increased sequentially X% of The and investment diligent employee benefits in the and initiative Moritex, addition by continued lower Customer management and cost of Moritex. incentive compensation. the Emerging is year-on-year increase offset driven the partially by

the Emerging by or OpEx Excluding year-on-year. declined Customer in Moritex, would adjusted X% have initiative $X million

intangibles decline our $X QX, EBITDA investment share by quarter. in see and tables, Adjusted below million margins, you'll was customers. our the by of $X emerging primarily XXXX and Adjusted XX% in of earnings was a per revenue and offset driven QX costs in lower lower tax count. As deleverage year-on-year non-GAAP of operating we had reconciliation rate million diluted acquisition-related share a due, partially amortization QX, in $X.XX acquisition to in and of

in acquiring of stock the no Turning cash sheet. have growth $XXX quarter. balance and still and and with support After closing we investments a we million sufficient million dividends. was QX through The to Cognex quarter-on-quarter strong continue reported capital our net buybacks to the transaction of believe the to the plans decline driven in position $XXX capital Moritex, end to to cash shareholders Moritex the debt. at by return and

drivers it turn growth back and I'll outlook. Rob future the discuss that, over to the With to

Robert Willett

a X years. you, thank our And past of being member the Paul, Paul. executive for over Thanks, valued team

of developments including He's quality significant made I announced, Cognex's on will budgeting March search in contributions pleased Cognex success, with is candidates investments planning Paul seeing, available. and XX. overseeing platform. process as am be well. will previously the with enhancing our next Cognex' Cognex' The As you to become CFO leaving CRM we external and and for progressing they update we're

let hard products the despite year in spend to continue release more year, discussing Now than any invest near-term previous to worked time future challenges. Cognex how macro Last Cognoids me in some history. we in

and the learning of by portfolio vision rule-based inspection new advances deep human-like capabilities possible Our artificial technology. more products in learning leverages while incorporating intelligence best edge made

learning As with leading These in Sualab We in Systems technology, early acquisitions identify makes previously many convolutional of and neural use major to products human and human-like, Cognex where enabling implications in to now use industrial our acquisition products. and AI makes viable only jump-started the of more industries, technology been applications deep XXXX edge advancements vision. the inspectors around have AI the and learning innovation to to XXXX. vision have and were machine sell our its for AI profound developments easier machine the expand networks, ViDi our powering option.

and across the for the Increases XX our manually scratches, labor cost completing are specialty as tasks, problem vision globe in dents products such customers. people a inspection and to estimate be defects. We for examining million of that continues

improve can more quality of inspectors. spend per complete billion AI-enabled cost work while customers productivity. helping effectively to year vision this they estimates $X One that over on visual and human our machine

edge Our markets deep and learning remain the technology deep world's goals manufacturers helping best us the and knowledge dedicated most allows also We their the of and needs. while technologies customers. to achieve machine address leverage to more bringing spectrum vision sophisticated full rule-based domain new to providers to logistics of customer Cognex learning

million now served expansion by drove our To reach sales Emerging of the be technology, easier-to-use learning edge force base a $XX customer our in we broader that that initiative, can Customer new OpEx XXXX. launched

now initial is and to Customer has sell. Our class trained sales Emerging started

initiative in orders expect to class gross be can million reinforce belief of $XX margin Early contribute to that of positively over incremental our Customer salesnoids generate this We Emerging and this initial income revenue accretive. operating XXXX.

the equipped positioned Now and for salesnoids we our with a process Emerging are this class training, and Customer year. to well products welcome right with of defined hiring second

of million XXXX. approximately have We budgeted OpEx $XX initiative for this in additional

challenging first we our $XXX normal represents see of revenue million the In relatively growth, the range $XXX to outlook the contribute to stable quarter, year. the year-on-year between narrower continue results: should I following that the now few turn I'll X% X% full note environment. to quarter, first along a which a than on million, in quarter. for QX another for flat will year. as and and with our sequential expect this $XX Moritex and revenue is we thoughts operating reflecting million

long-term A be basis volume headwind high XXX expected given gross an to quarter full in be margin approximately of to negative gross incremental continues below Gross QX. point margin Moritex an drag targets compared margin, and Adjusted deleverage mix. percentage the on XX% is point range. to X our

project has intelligence X with a The enabled large logistics Our software. from gross by upfront a revenue customer. edge margin percentage high-margin includes project recurring drag approximately higher cost our also strategic but guidance point an includes

due adjusted increase operations. Emerging impact quarter a Customer basis our full a compensation incentive operating of Moritex digits investment in on higher the to mid-single and of expect We sequential expenses to initiatives,

incremental made we in to investment the ramp XXXX. year, the throughout Customer the For million similar OpEx expect to Emerging we of full $XX the year,

incentive $XX We million compensation also headwind. expect $XX a to million to year-on-year be

the in year. optimistic quarter, environment While operating back half we are the first of more we see the continue to a challenging about

have to signs started businesses be in cycle building. We see could longer momentum that

For this year, start market materializing, investment plans the infrastructure logistics growth we will likely the we to expect still year grow full be long-term expect. to logistics below we though see growth as

but be term, our from more EV around a expect growth by we battery demand We customers, long political are driver driven uncertainty seeing strong environment. end-user and business to these the tentativeness

semi is The improving, more as heard leading and in-year positive the but outlook. with equipment manufacturers, XXXX semi optimistic have uncertain. remains landscape you contribution electronics long-term has trends, from Consumer timing the

visibility expect call. you give year next clarity As our on next earnings by to more more have and the usual, we for to quarter

growth in expect growth, growth our deliver below long confident expansion positions over our remain to last pipeline the for on made target first in have reputation well the medium double-digit Based half, revenue market our and target our we future. While XX% us to annual year believe on manufacturers, the with term. of products progress the markets, several new we initiatives of promising Cognoids served we leading

Now for the please we go Operator, questions. will ahead. open call

Operator

of first BNP from Instructions] is coming Our [Operator Buscaglia Andrew question Paribas.

Andrew Buscaglia

your know commentary QX It you sequential stabilization, other you signs some the about decline. seeing So stabilization? momentum bit comment like where would in stabilization see have guidance, implies expected. sounds than a of and markets, just just for better Where or the guidance I you logistics modest that talked your is then that little you limited, but visibility around a some is And end building? of you can are

Robert Willett

Yes. Andrew. Thanks,

funnel. how of business sort visibility kind sales that patterns a the our across and so about in good looking So order we we see have that. that pretty have exist see business, some the volatility of we is We

So seems stabilizing the picture overall to overall. be

to more behind business markets in see momentum is it. nice overall. momentum, there also continues battery pretty be momentum We where growth think that seems I have say, you Generally, As And across of way, EV see of in yes, our a to positive stable sort European growing, building a of larger terms its and number a markets of logistics. our also. in we other

areas. would those So be positive

I whether a As point how more right? there's kind on nothing looking you uncertainty readout China, we to -- give around think better particularly this But know of year. mentioned, for would the we be we'll that. that's it's about consumer electronics, point at not

that's but if sort I color. whipsaw go seeing, So last think a you into saw, It's of back we overall strong the we it's more see that the not we sort few quarters that not relative stability. were decline year back of

Andrew Buscaglia

Yes.

margin And points then some sounds on fair margins. like logistics X-point a for guide can about this give us clarification or will to closer contributions margin? tax, you lead that, just from how confidence that positive to gross QX pilots accretive? then -- that, And from following of to it Is up the you're some figure you've okay. excluding the it Or project, is done more dilution XX%. this talk initiative you X Okay, to something on to say do

Paul Todgham

don't and color. Rob then Yes. your can is chime specific and Andrew, I Paul. this with any emerging on margin kind start customers gross additional of question in Why

with are The driven basis XXX about a expecting revenue. XX% recurring the is margin gross to that is high by adjusted step we out quarter strategic then which really which called QX. we down, in high-margin that in projects additional QX, the of So in range full and logistics Moritex XXX points, it brings sequential

are those -- QX. from from drivers -- So yes, the to really QX the

a by mix our expect is higher -- instance, high quarter overall kind is from comes typically negative QX there's very well gross we are And which And mix. electronics, margins. a for quarter muted point really we Moritex consumer primarily our and is is software think of two for Moritex, full lower lower mid-XX%, and same. as first which then of then is XXX an point point And and driven target be factors, just X the revenue points a and to a XXX QX. compared basis the XXX rough point referenced XXX project about of basis drag. a overall basis headwind, X If incremental again, also target, strategic relative headwind I full or to as that's that's percentage with we in few volume to think deleverage One there, drivers of continue quarter. to to levels XXX product basis the

we something often to is very was my don't notes. This I extent. tend through report looking

having I think QX XXXX strategic was the last time we called out impact. any a one project

So of have to when it's upfront is opportunistic. not we'll, it even that build we generally comes expect we I see year. this something opportunity it that revenue more be a very some long-term reporting great to costs, investment. and visibility those to But a course, with would make don't if And of

Robert Willett

think longer-term Yes. Thanks, color. -- some give Paul. I And maybe I so

of improving selling that over One factors I'll point we're recovery channel, excited what So force. those and integrate highly see in Moritex. But difficult get a or we have think year kind this we is right? our we be our sales how we're out. margin and three emerging -- that will know volumes how about I to embedded gross margins through include see we systems it customers, products I think I to target with mid-XX% see until gross out profitable time back and fully

products. New

a last the was a Cognex. third we deliver accretive return very have year of the we margin nicely, electronics expect business. to pipeline to markets and that products factor boost cyclicality to fully come margins a most are successful and strong products have large gross whether It and we all it last volatility, a they of of would with And And will some point, consumer It our our performing we've worst some nicely, So the our new to ever. for be certainly introduced where ramping back not, strongly right at or some expect growth gross that's year year. help can this them

our with but its and sell develop and the discussion, bring bring specialty a margin be. are And margin. us we to together on and and optics they gross vision out products directly, it that continue systems, expect a we business that integrate operating pointing is we to that on for to more attached the come we things I think them, be are business. has Cognex as drag broader margins -- a one to on Other accretive Moritex worth integrate operating strong nice very tailwind this is margin our as us

my back through is very, in at XXXX. shown Cognex. So here strong pivot revenue But years incremental times have we many growth, very in still when history XX that challenging there's on and fall-through our what to occurs we

gives overall great also confidence we that back us to to our that should get targets. be able So

Operator

from & The Jim next question Ricchiuti is Needham of coming Company.

James Ricchiuti

Two questions.

portion First on line a you trends all may bit business? about sense reading your that EV we've you of little light How For EV geographically be are in been of the battery EV seeing the instance, on of my on business. the mixed the the from side. that Because removed happening just demand what's business, is sight? what's

Robert Willett

last lot Jim. manufacturing quarters with X a companies. EV out battery spent in of Thanks, lot Yes. time of a meeting I've the

are in production two really there's going can just on would growth. say, in huge That do [ automation, investing Not and right? I in Cognex not are X a vectors, building EV ] and of obviously, building tell right? on I in over lines real but stack last in industry, America. momentum. is a thing, right? it customers just -- of so short-term $X I you they're all Europe that inspect that cut These It's visited EV that, that lines. kind line to batteries, billion is And the -- particularly companies So and week, investment coat One to Europe and that has

key them that. machine and So -- doing vision to is

where, on. lines, a would of the preferred machine of new one goes for what suppliers that a is kind vision newbuilds there's as quite challenging one is So expect, Cognex task

but at companies. so dangerous which I the other scenario for of think might that's it's side, with batteries there's type EV the, thing a competitive also -- going second you newbuild be pretty of thing But The greenfield on, if that industries manufacturing we these from familiar sort is on the second like, very legally concerning and innovation is Cognex.

visited diagnose become for the a of quality, learning they're we've a not. to that or our developing advantaged scratches, then of that et been in deep together them technology last inspect problems an where them, very them with for X in dents, concerned help speed and last task is So they're the later. expensive batteries see number XXXX. scrapping and and allow those which just good that's then image I who technology, learning X they're -- very And that problems, concerned through to and us to we cetera, huge have imaging just SAC said technology can incredible both bought companies challenging should with whether months deep problem what definition in numbers year, say actually, that I market in is technologies extraordinarily company cause fires, -- computational

Cognex So doing. things those sweet spot there which say, what really, going the of I is of are would Jim, sort on, is X

a so it business think anxiety. -- there's going is successful or I the products On they wealthy issue. kind about we there? perhaps There's niche and internal engine will of I've one out for hearing of this cannibalize that's combustion think? too, hearing customers, kind anxiety they broadly you're think lot that's of to EVs what we're the are And be is I as Are downside, and

the the of of some slowing relatively EVs the poor hand, big On will one we numbers sales companies. and the EV see out of reporting

becoming So consumers. a I the think there's end-user are a cautious, concern they more that little

talking one company, and selling developing vector, another about And BYD, is Chinese is a EV end then there's $XX,XXX user car. which

it broadly selling focused less and markets the really in we're very -- some on. perhaps in America, that So of

from final be which see demand, of for the some So receive see environment until one Inflation putting we they too, that interested some in business, vector. clarity to terms support confused more some investments and U.S. that helpful. long-term EV communicated about is long for And specific customers So in in and on changes be of has hold would of that EV most large they're there's then means I subsidies is their that and it's -- hope political Asia the our right? producer the certainly it's a to Act. what one in with plenty a there the they political of but answer, Reduction the expecting Jim, through on concern

James Ricchiuti

are a No. those. and next Rob, I business. And -- the on just for and the you've and of Thank there you, early little a the highlighted puts question, easier customer lot think takes, simpler, maybe

that's on salespeople? You are over sound the course or the including is the by of this out -- year some class where this end? you encouraged. traction? from getting Where essentially back second first million, of class the elaborate spread way, And $XX can Or you are Is that underway? from you

Robert Willett

Yes.

at And we did points hiring. them this different are did whole April, kind be trained number the class, are and of you we're large the ball locations And who they in, expectations, in have when in in year as going second on hiring pilots ago, imagine. kind all to We that's or starting sort based a the growth the and hired become almost move regarding class our of So pretty lot And few then out available us years of so came understand. helping October we we've first in field. the as salesnoids starting in experiments, we're then so. of through the really now which And last right? this X.X we them year of came them went game a might of -- a we about of

of the them we any I revenue XXXX, class. kind And to in second meaningfully contribute to growth wouldn't expect so wouldn't --

really of the about good advantaged salesnoids that include this out and and a field trained calls measuring very of metrics sales they're towards and that which ID is products. performance. effects, And great better we've better them as into in And and we them numbers. number right, And learning and driving execute a -- we activity, given of metrics. And we nicely, edge kind in become contribute first we're other group then curve the more sales They'll they quarter expect and do able trained each year. sort there be that move them contribute better learning sequentially through expect our factored to to to the and of but quarter as we we're

Paul Todgham

And is, customers. all, I of not on drivers This And accretive but we've them many twofold. is pilots so tests lower-volume the believe, we would add. margin just are the of that far. run many customers, gross of One based these and really are all

which power around selling expectations with associated volume products, And to lower less higher. are software clearly quite we're list have when us discounts so and we easiest-to-use So the them, and our service on high command again, margins and our great realization we're is secondly, allowing sell. the -- technology, price that's

Operator

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

Jacob Levinson

appreciate your next whatever in the wish your hard work hope hard the to years that luck and endeavor, is. get and chapter of you over next in Paul, fast play move and and best you I help

Paul Todgham

Jacob. Thanks,

Jacob Levinson

And quarter what maybe not you're if just cover. ] have broadly companies a consumer companies sentiment. the we give in I of of a and China, this to know there, shaping another been challenge Rob, pretty that just and sometimes -- heard to to it's for how that start. we've actually is sense market from off it's you I indicate you're obviously, lot can certainly a your us what's that's happening good hear was on a electronics some think for And field is maybe folks a if hard a Just big cause [ terms up. we know really wait of January that's But hearing to

curious seeing just So there. you're what

Robert Willett

Yes.

and the since fall China I the pre-COVID. time for in So visited first

the has major of of it and any Certainly some Greater regions. revenue of very changed. us, growth of for different largest So enthusiasm expectations our decline kind the China, experienced are year-on-year much.

XX% down for we So year. were the in and XX% year-on-year QX

growth going such around driver it's The was a to think I most over world a dampen growth long companies that period. of for automotive China where was So experienced such in decline for expectations pronounced the market many we Cognex. in

is key confident as part space a and China. that also certainly, But we help well maintaining smartphone then we're of large China. to EV very we're And large business in grow grow mentioned, positioned advantaged, do the customers our I and is And companies with certainly in for think we electronics need highly we're share. in as them So and what to they the for transition. seeing capacity to that moving both sure we and also, away India this presence and in of benefit long-term from Vietnam, we're us, we're making think China, a in manufacturing relationships strong we're help I production all seeing shift in that from we're And innings have particularly China could with to early beyond. us that and places nicely year and

stagnation of around the there, China in sort businesses some it in EV Europe U.S. the resulting and some then that in overcapacity And there's where and of particularly battery the is are growing. world, obviously, opportunities

the I will will a and China in we year business business have But view, at around We're years would low anniversary with I of end of overall result playing very China. near in And opportunities out my lot committed business, the say, team. and our in So and very, in leaving people products terms group the strongly, management a lower expect own XXth the culture that think celebrated Cognex lot turnover and be of the we We in seeing have our new last we technology. kind elsewhere. of a them kind -- our Cognoids of strong seasoned saw certainly, of a new to in of come enthusiasm very

Paul Todgham

Yes. I'll in better China our to And I've of a comment is just Jake, first financials off heard specific couple to maybe points your January. about a maybe add kind little start of and

than different other China in seasonality is We to see of typically a and parts So do up QX from QX. business. our Asia broadly slightly step more

and be in against comment a basically against We're we QX from quite flat your it may So flat QX would and ourselves perspective. year ago true different. a see our very the But answer is seasonality guide.

step-up looking you're Asia. little we're of sequentially, bit a a If in seeing

If weaker China was than to you're expecting a ago. year-over-year, we're be looking year it

lens, on depending aspect. one again, So that's your

on of That's currency China. weaker give the And contributor X the XX% percentage a for consumer point year mentioned, Rob electronics was other to XX% is color a -- with were constant our I piece -- business biggest down that again, results, in we're on The would as that, FX consumer full in XXXX. we our year CNY. the our or drag on electronics business and biggest

while macroeconomic the core business were consumer business. Chinese because numbers plays generally the that, that electronics weak, our of does impact in disproportionate follow which drivers factors was different worse overall the So than and

I through important where know to will meaningful. out going think the those they're year, differences the of those sort we're it's And call as two. certainly, separate I team

Operator

Joseph coming The question Donahue of is from Baird. next

Joseph Donahue

from? Is talk might kind logistics of we the your today. dig on brownfield small bit. coming Rob an for I timing outlook little a uptick? greenfield larger for or discussion the about on it where when into expectations to your wanted the I'm about optimism or Can see is you customers

Robert Willett

Sure, Joe. Thanks, yes. Yes.

for year XXXX. in last contracted in was after logistics XXXX logistics and down XX% growing in revenue XX% So us XX% in

particularly investment then overcapacity as the seen know, States we've pandemic-fueled worked and around certainly, of kind in being that's e-commerce of, through. in United XXXX So you kind

out so we expected. perhaps trend is that And to as might play continuing have

much good expect customers that as logistics right, continues we there that last potential growth among playing grow not nicely, to like, newer see. Our would business but to as year, underlying smaller we

see QX. in growth we quarter-on-quarter So logistics did nice in

quite We applications. pivoting there's developing notably from nice and to world, is in intelligence. from that So potential parcel some in are and lot seeing we customers. back bigger of a some It's indicative see of big business It's beginning from technology India. picture think wins geographies which from further. names, e-commerce the around penetrating a postal We're It's coming coming those that a edge coming -- vision to growth customers smaller nicely. embrace coming

are return of little The Among certainly to those trends this customers over point. confident a to of being tricky happening we there they still larger our at might So Cognex timing that are will that call larger time. nicely. be customers,

our in But momentum of would the growing say market kind is that business, I is the in its growing nicely. -- technology, the our reach, acceptance the business

warehouses looks I they the or think possibly that automate, one as years. Cognex, automate the would companies logistics, around, XXX-plus U.S. read coming the potential specifically, what one although a necessarily not Walmart example of partially relevant customers of great that plan is perhaps in is many in to its to

technology. think open strong we as vision and we nice intention UPS user throughput automation about advanced certainly, that very and improve warehouses. their been in production and So example. see a their has certainly And automate pretty of a to the potential

So be the of see things these of would examples some that going on. we

across days in the You will customer XX% note entire year, a And logistics think certainly to it year. obviously are board grow expect But ahead we much our this last that's so that pretty have business. filings better do our there for notable. I didn't we

Unknown Analyst

kind could related next that this would run the Okay. first be we the expanded associated of then other unique think be to you've developing recurring terms the is this described headwind of that more that if And it's something whether customers? to you're software revenue a to that's about talk And related you in have should it margin going situation quarter? of with beyond one-off? be from to a Or then you could project that, question this project logistics kind of that,

Robert Willett

customers, it's the allows right? it for a allows decision manufacturing also intelligence. large that through we customers us technology developing to of This a large call middleware is an quick key for calibrate do very important quite what very, but this our to time. manage support, a some our took one, event So manage of help customer been all data product appropriate answer provide them large we've we where to lot with vision us to deployments, edge is implement systems, in-quarter the long of which upgrade a And is,

And a view customers basis business. pay that that monthly taken long for a the for time we've subscription should on

and in And contract allow hopefully will that will add that to and really signed -- install a our customers functionality be success them so when over -- for this it, bill is so it this some to now go And product monthly Then largest to that trial more and we've us after we provide our out we use to we through we of right? applications, invite period. technology have we time a far. free

a pushes try to business it And profitable continues highly subscription-type main business more to that basis. on should as grow. So this get one is our be our to of

still in working days and been time. commercial its is this value. to This really that nice many example, rollout. of aware of really see and early a matures customers expect It's kind as we a its We've do on become for first of more terms long technology hard

Operator

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

Joseph Ritchie

a then Slide detail you the know maybe My year, hard it's have this exact ball you logistics I wish the kind to question, thank curious, for Paul, expect X. starting that slides, you in And I'm you of grow. morning. growth the crystal first XXXX. on already love rates Rob, additional early on of But perfect and so best mentioned luck. the for just really to

'XX and any have you point. I'd to this had or versus hear businesses rank the where markets see you would you expect potentially growth, different force to your love the growth end lease would If to most at in color

Robert Willett

don't give Yes. guidance. Joe, we full well,

year we guidance through I've of of into also always I'll dark has lot bit kind we really a running XX I full -- would guidance a But don't then period little. give certainly and is give we companies a Chinese best part gear don't say confusing Year. comment I by So industry. we of the will for getting New as don't January a of been and and January have come years, businesses this industrial and

of too it's call to early these things. some So

pretty talk this at I plans I overall, in our of look year. how it's with growth as our industries long-term I if probably think line think But we about

we logistics, think that notable business. I I to expect back to growth be to in we're getting and think see confident say it strong It's cycle longer year can grow the we're perhaps there. logistics this

might see electronics to really we'll strongly, be about but has of like it's we're logistics. as turn in we having come good say. back may challenges until that to a sort into reporting moment. early as some bookings XX%, confident said, XX% revenue Automotive, long-term the we industry too but Consumer what the results I not potential possibly view grower So that at looks in and

growth, quickly. about very But in combustion potentially declines driving of things rank confident and lower our we're with change can contributing engine would business. But offsetting that that the think I big probably, internal some so EV, -- I as expectations. industries

there's So thoughts sort few just for of you, Joe. a

Joseph Ritchie

I is Yes, two the And potential that's real And guess, helpful appreciate color. ones. quick totally other helpful. it maybe but volatility,

gross flow. around of making by I like just from cash So that sure the back to I then thought rest progression correctly a margin expect the have through to question free first just quarter also, do the And percent It year. gross get you the sounds through XX-plus XQ. margins had

would seemed for great. a expectations anticipated Any comments free what year? of Just around little be cash kind this that XQ. are lighter we in flow bit than It

Paul Todgham

Sure.

strategic the quarter-to-quarter, a and driver target roughly quarter, of of beyond while will drag again, deleverage I achieve to get think, going help The one basis more we impact there back by logistics seeing. a a that's obviously until little us long of I and virtue for bit you're get back just the term mix. change drag certainly growth you what without project, is XXX integrate to but kind from That our guiding Moritex and point to the current persist margins. fully hopefully So think versus volume synergies will then

flow is of us Specifically our free free for cash profit. obviously driver flow, for cash the biggest

expect we higher that leverage we capital would And investment in have so QX. obviously, a do, which on in working more to did get growth, We little help. as

Some inventory. we're of of that strategic sort decisions is making around

cash. may feel see quite to elements deliver growth speaking, business of to that good forward. inventory that we we is So expectations. have this on generate a our generally continues going about do the But We

be seeing So on capital hopefully, drags major you the shouldn't side.

Operator

is from coming The Citi. Avasthy next of question Piyush

Piyush Avasthy

synergies you Can X% any you're have Just you the to electronics trends market in quickly to early, X% it's on semi those and I as started said but contribution. continue Are on you in end -- well? still markets Like and I you you as Moritex, and see elaborate some stabilization Japan think seeing seeing know there? integrate? particularly to

Robert Willett

for thanks Yes, your question.

more also of with Moritex excited Cognex, we're out synergies integrating with that broadly So the lot leadership fast businesses on to their the have gate of the yes, we're in about we're helping and Japan. A in to our and reputation across and Moritex brings synergies do and product but so of sell us plenty that. Japan

now So period of have we And piece have -- later XXXX. the in lot that optimism I to we're in and you asked about back It about that semi, experience 'XX. the slowed more first And see it's the year. semi, at beyond coming think we both overweight in XXXX half a did that in call there the tremendous hard semi may between our point. trajectory second half of then a we this in -- semi are growth signs business acquired. it and And it has of Moritex the and our Cognex business -- Japan we've

Piyush Avasthy

transitory come helpful. these Got about when are think for provide sales you costs these into Emerging invest it. up initiatives. longer-term to just in you our balancing you are actions, these heading following you've more I or Like it more the cost margin back? And And management can a might on And the Maybe that improve, then commentary, two elaborate that structural tailwind talked some very how management was 'XX. cost nature on Customer actions. continue across

Robert Willett

Yes. Thanks.

emerging other heavily, we we investing that expense. look those salespeople at as kind And we more right? of the delivering those our of saw have customers, So as opportunities force. make Emerging leads sales, our sales sales Customer productive, We're potential big Cognex's to sales of will in rest pieces where the sales cost, -- see force be and you as the to --

and sophisticated and the in more that technology. we're our being the customer of balance force the about building to sales of emerging terms sales So but both it also we're ease balance of sophistication careful force use how

So in side there, the area. going that's changes of on that allowing us to be sort are is -- some cost there careful on which

are write from those and who tools available to software. Our engineering that teams benefiting certainly new the engineers AI are

really again, things haven't some carefully headcount of the careful customer increase -- that to of like we the And that are can at we process we're capacity added we've adding cost headcount G&A-type business. rest put manage there's certainly, every that and company, we're pieces, So And functions, in then carefully. outside benefiting sure general, from or to acquisition have improvement. been make not aside looking very the count head reduce the in in emerging Moritex all if I Moritex of the and really

Paul Todgham

just will depending expecting and But in obviously low That's very going of drive on to practically or is are for our that million year $XX performance. will incentive true drive out bonus think our for leverage. -- reset costs, if biggest we're to commissions if of And budget from we a Yes. all to to we things The where towards some internal XXXX. variable those underperform some called tend $XX be really company in starting incremental outperform the right? outperformance I headwind we and million, we've companies. that's this company's a targets compensation grow. our driver change incentive the biggest XXXX, of So obviously compensation, a underperformance are And

Piyush Avasthy

all Appreciate good year. the color. Paul, and wishes, Best this luck

Operator

coming next question is of Jairam Nathan The Daiwa. from

Jairam Nathan

look to some XXXX X% almost emerging revenue of from So just perspective, the get Like at $XX if it's wanted growth. you in it details kind a million on more customers.

Just can a information you you the rate markets seeing in are what's some around more -- you first the are set of kind success of of kind wanted the of give initial understand different competitors? customers -- end in better bids, And those. and if seeing which success to

Robert Willett

for thank the Yes, you. Yes. Thanks question.

-- right So going that sales is packaging finding we're -- emerging more Visited and not give yes, one for of manufacturing not we been I with so industries made calling and one went food right? towards industries have are beverage, target And about more your to customer before, on of Would a I may that. many, like noise the on many think. opportunities that on was in and enthusiastic we pretzels. a a It are Cognex really the -- certainly you market. us, team idea then, these really, what's consumer -- have of question, that members, there along aspect -- and broadly an company and so weighted not customer products visited of another

competitors, you. Oh, thank yes, yes. Yes,

be seeing that competitors. see But So I sensor -- of some right? more we American where situations seeing that course, still traditional in newer more we're it's ourselves optical our to optical tend competitors in think and sensor of German, like suppliers. weighted market market. so towards the type our finding a Japanese competitors, we're companies, We're broader

can replace So sensor, we our haven't but instance. for where In-Sight with Snap about of Snap, many vision we competitors of their one potentially thought traditionally, products

further then value. customers opportunities are do seeing taking Probably that we we're profile staff. with. less just have say, customers, our those help generally may to on not are through and we us would to going the finally, I realize much work work more to than there for customers large they're sophisticated to really now are be we're seeing, engineers new that opportunities great pilots did us there year what places the last and to So these

demonstrate the selling that person channel to even to So easy we out. ones we our very are install salesnoid products we're very -- are out, easy send through send and for the that now the

world it's a excited of new and kind about we're yes, it. So

Jairam Nathan

following just cohort, between per you employee, kind I think like compared gap your versus Okay. where of cohort on to do the the of new -- the sales a -- if like salesperson, sales a And see regular or sales up here potential XXXX force? measure the

Robert Willett

already engineering Most of training have to that's right? deep sort a background. speed, they're of programming. less much, with most different the might coming a of -- do I And Well, new sort the in and digital a analog And are salesnoids something more it. as specialty of new out them how have backgrounds they like but happened, comfortable say, different and think, so that interfacing moves, this I of cycle, isn't from and sound there college, would occur. with these world but It's sales technology

management think love into path, many our love what to culture, offers energy great they them those bring and of But culture. new their bigger development. and more more hope them investing those a we to see roles bring. our that I And of training all sales -- opportunities, develop they right? to They the some Cognex salesnoids is We're career sophisticated that. to what We of in

thinking about So yes, that's how it. we're

Operator

Our KeyBanc coming Capital Newman today for of last Ken from is question Markets.

Katie Fleischer

one is question. This Fleisher for just on had today. Katie Ken I

Cognex do You remarks in starts yet. secular to you're when to to in mentioned you trends that? projects like starting is start haven't really and you sense impacts typically see they when like prepared battery EV your have I through results involved healthy get where but pretty these might maybe and markets, Cognex limited. semi any those the in visibility see flowing gotten is that of end But will point to involved project the know into

Robert Willett

see -- years. some for that. Yes. have Well, we're pretty battery a that business EV a nice healthy the say over we We I building X should growth significant last

have over ground. cycle seeing, was in something last And when it's that tend with a and And hugely, pretty my would the and in to that's grown lot terms opportunities which the installed. plants purchased funnel say, generally, machine are comment you're vision, XX XX really late breaking the about So to of months. be we the I

So my comment was really around that.

we expect semi get expertise year. on business is then get what in that's and delayed, that problem growth projects the and right? labor, we've a this get to very EV see healthy so planned become do because political Can't execution can technical if -- We've and get in right? these needed they is get to And slow, And could then potentially time delayed seen can't launched that, plants issues. expect

to going over of level the or supporting and two. investment see last the definitely go in touted I on that changes think about sort are year was Europe I America of whether concern

some are the the those So the of but there. clearly the trend and opportunity uncertainties, of vision value is and machine

Operator

would this turn time, the Mr. to back closing Willett At I comments. to floor over you. for Thank like

Robert Willett

we you Thank you much. look so quarter's forward you with morning, next us this joining for Thank right. All to call. again on and speaking

Operator

gentlemen, and participation and interest Ladies your concludes This thank event. in today's Cognex. for you

lines time, or off may day. of log your the You disconnect at webcast rest the enjoy this your and

Cognex (CGNX) 15 Feb 242023 Q4 Earnings call transcript