Q4 2021 Cognex Corp Earnings Call
Greetings and welcome to the Cognex fourth quarter 2021 earnings conference call. At this time all participants are in a listen only mode. A question and answer session will follow the formal presentation. If anyone should require operator assistance during todays conference. Please press star zero on your telephone keypad.
As a reminder, this conference is being recorded I would now like to turn this conference over to your host Ms. Susan Conway Senior director of Investor Relations. Thank you Ma'am you may begin.
Great. Thank you good evening, everyone welcome to our year end earnings conference call with US are Rob Willett, Cognex, as president and CEO and Paul Todd <unk>, Our Chief Financial Officer, We will start with prepared remarks, and then we'll open the call for questions I'd like to remind you that our earnings release and annual report.
On Form 10-K are available in the Investor Relations section of our website at Www Dot Cognex dotcom forward Slash investor.
Both contain detailed information about our financial results.
During the call we may use a non-GAAP financial measure if we believe it's useful to investors.
Eric do we think it'll help them understand our results or business trends.
You can see a reconciliation of certain items from GAAP to non-GAAP in exhibit two of the earnings release.
Any forward looking statements we made in the earnings release or any that we may make during this call are based upon information that we believe to be true as of today.
However, things can change and actual results may differ materially from those projected or anticipated.
For a detailed list of risk factors, you should refer to our SEC filings, including our most recent Form 10-K that we filed Tonight.
Now I'll turn the call over to Rob.
Thanks, Sue and Hello, everyone and thank you for joining us.
I'm proud of the results Cognex reported Tonight for 2021 we surpassed $1 billion of annual revenue for the first time in our history. We also set new annual records for net income and earnings per share from continuing operations.
Demand for Cognex products was strong worldwide in 2021 manufacturers implemented machine vision to ensure the quality and accurate delivery of so many of the products we all purchase.
Growth came from all geographic regions, most major product categories and a wide range of industries.
Logistics with our largest end market for the first time in 2021 now representing approximately 30% of total revenue logistics grew by approximately 65% year on year.
E Commerce, and Omnichannel retailers invested in automation and cognex is industry, leading products to enable higher throughput and cost reductions.
Also after struggling in 'twenty 'twenty traditional brick and mortar retailers increased investments to compete more effectively for online sales.
Automotive represented approximately 20% of our company revenue in 2021 after.
After two consecutive years of declining sales revenue from automotive grew faster than the company average.
Customers increased investment in cognex products, both for long standing applications and forget for production capacity to bring new electric vehicles and related technologies to market.
Automotive grew across all regions with notable strength in Asia, given the concentration is he the battery manufacturing in that region.
One large market that did not grow in 2021 with consumer electronics revenue decreased modestly year on year. It represented roughly 20% of the company total making it our third largest market after being number one in 2020.
Unlike 2020 in 2021 customers focus more on upgrading existing lines, rather than making big incremental investments for new smartphone technologies or to meet suddenly increasing demand for remote work products.
Otherwise growth was strong in almost all the other industries, we serve including semi medical related industries and consumer products.
Together these smaller markets represented about 30% of total revenue in 2021 and collectively grew in line with the company average year on year.
This is encouraging because we've been investing to increase our sales presence as we seek to reach new customers for machine vision and win share at competitors' accounts.
Turning to a key financial metric gross margin was 73% in 2021 compared to 75% in 2020.
There were two primary factors that resulted in downward pressure.
One in keeping with our customer first company value, we've been prioritizing delivery. During this time of global chip shortages.
That added incremental costs in 2021 due to the significant premiums we pay to procure components through brokers and for expedited freight.
The good news is that our customers appreciate what we're doing for them. After many months of intention intense engagement through very challenging conditions I am pleased to report that delivery times on most major products had improved substantially by year end.
The second factor that impacted gross margin was the greater percentage of revenue from logistics in 2021.
Comparatively lower margin strategic logistics projects, we chose to undertake last year.
Cosmo have built a remarkable 300 million dollar business in logistics a market that is still in the early stages of adopting cognex machine vision technology.
We see the engineering support we provide customers to get up and running as a worthwhile cost of winning share, but it is slightly dilutive to our overall gross margin we're.
We're making good progress transitioning our logistics business from customized to standardized solutions that are easier for customers to deploy.
We're also developing an experienced group of logistics integrator partners able to deploy these standard solutions quickly and effectively we believe these developments will enable us to scale more easily and to report higher gross margins in logistics over the long term.
Overall, it's a great time to be at Cognex, we believed that macro trends such as widespread labor shortages the growth of E Commerce and a focus on supply chain integrity further underscore the value proposition for machine vision in manufacturing and logistics operations.
Delivering on our commitment for a new product development, we launched a long list of high performance next generation products in 2021 that we believe keep us at the forefront of vision technology.
The cognex insight three D. L 4000 makes our industry, leading true three D vision tools as easy to use is two D D.
This product positions us effectively against some of our competitors, who have significant sales and profits in three D.
The data man 8700, reassess our technology leadership for handheld barcode reading and automotive medical devices and electronics and other industries.
Our new patented high speed durable mirror significantly expands the field of view of Cognex day demand for 70 barcode readers.
This is invaluable for reading a high volume of barcode shorter working distances section pharmaceutical packaging aggregation and across large fields of view such as reading many bar codes on a large pallets in a warehouse.
The Cognex edge intelligence software platform helps our customers understand the performance of large numbers of devices deployed across facilities quickly identifying issues and taking corrective actions.
[noise] vision Protend enables customers to use a rules based vision software and deep learning technology, together more easily and a powerful development environment.
We also introduced Cognex deep learning technologies that further enable the automation of time consuming manual inspections.
Vision Pro deep learning to point out as software expanse cognex capabilities high precision measurement of scratches blemishes cranks and other defects.
Cognex is smart lines smart tool combines the high accuracy of acuity vision with the flexibility of deep learning to quickly solve complex line detection applications to challenging food space to patient, but a lot of them.
Moving on our head count grew by approximately 200, Cognos companywide in 2021 .
Many of these employees are sales noise hired to sell cognex industry, leading products to manufacturers and logistics customers around the world.
Finally, we successfully implemented salesforce dot com to further improve sales productivity and deepen our understanding of customers. We believe on new customer relationship management platform will help us scale and understand our business with greater clarity on a path to the next billion dollars in annual revenue.
Now I'll hand, the call over to pool for details of the quarter.
Thanks, Rob and Hello, everyone.
Revenue for Q4 was $244 million, which represents an increase of 9% over a strong quarter, a year ago, and a new fourth quarter record.
It's worth noting that revenue for Q4 was 44% above the pre COVID-19 period, two years ago, and consistent with growth of 43% for the full year of 2021 when compared to 2019.
Automotive logistics consumer products semi and food and beverage for growth drivers in Q4.
Consumer electronics was a headwind and declined as expected primarily due to the timing of annual spend.
We were pleased to deliver revenue above the top of our expected range and a difficult supply environment.
Gross margin for Q4 was 72%.
While this is lower than Q4 of 2020, it's an improvement over the prior quarter, but.
The decline in gross margin year on year was due to higher supply chain costs.
On a sequential basis, a more favorable revenue mix more than offset these higher costs.
Operating expenses increased by 6% sequentially and were in line with our guidance range.
Comparing year on year operating expenses increased by 8% over Q4 of 2020.
These increases were due to incremental investments, we made in sales and engineering head count along with higher variable incentive compensation marketing activities and travel expenses.
Operating margin was 23% in Q4 of 2021 and compares unfavourably with 26% in Q4 of 2020 and 31% in the prior quarter.
The decline is due to both the supply situation, which is delaying revenue and adding costs near term and higher operating expenses, we are incurring to drive future growth.
Regarding the tax provision, we recorded discrete tax items in all periods that make comparisons difficult.
In Q4 of 2021 discrete items combined for a net expense of $25000 compared to net benefits of $13 $8 million in Q4 of 2020 and $6 $3 million in Q3 of 2021.
Excluding discrete tax items, the effective tax rate was 8% in Q4 of 2021 compared to 14% in Q4 of 2020 and 18% in Q3 of 2021.
The decrease was due to a revision we made in the fourth quarter to reflect a full year 2021 tax rate of 16% versus our prior estimate of 18%.
Reported earnings were <unk> 30 per share in Q4, compared with 39 cents in Q4 of 2020 and 44 cents in Q3 of 2021.
On a non-GAAP basis earnings were <unk> 30 per share again in Q4, compared with 32 cents in Q4 of 2020 and 40 cents in Q3 of 2021.
That's excluding discrete tax items and restructuring and other charges that we removed for comparison sake.
Looking at the change in revenue for Q4 from a geographic perspective.
Revenue from the Americas increased by low double digits year on year and delivered the largest contribution to absolute dollars due to growth in logistics among other industries.
Revenue from Asia also increased by low double digits year on year.
Continued growth in automotive logistics semi in the broader market offset lower revenue from consumer electronics.
In Europe revenue increased by mid single digits, excluding a two percentage point reduction from currency exchange rates.
Growth in logistics automotive consumer products and other industries in Europe's broad factory automation market was offset by a decline in revenue from consumer electronics.
Turning to the balance sheet Cognex continues to have a strong cash position with $907 million in cash and investments and no debt.
While this balance is higher than the end of 2020. It is below Q3 of 2021, because we were more opportunistic with our stock buyback activity.
We spent $113 million in Q4 to repurchase Cognex stock, which is the highest amount we have deployed to buy back stock in a single quarter.
That brought the total for 2000 $21 million to $162 million.
We plan to continue to buy back stock in Q1 at a regular pace, while maintaining flexibility to be more opportunistic.
Our inventory balance has increased substantially over the past year were.
We're bringing in components to support customers at a higher level of business and we're doing so at elevated cost to win market share and underwrite our resilience in a time of global supply chain constraints.
Now I'll turn the call back over to Rob.
Thank you Paul.
Let's move next to guidance.
Cosmetics reported a record year in 2021, and we're excited about the opportunities that we see for our company in 2022.
We believe revenue for the first quarter will be between 265 million and $285 million, which represents low double digit growth on a sequential basis.
We expect higher revenue, particularly from the logistics market also thanks to the perseverance of Cognos and our excellent relationships with suppliers, we're seeing improvement in our delivery times that is helping us somewhat reduced a substantial backlog.
We expect gross margin in Q1 will be in the low 70% range, which is in line with the gross margin we reported for Q4.
However that range is below the gross margin we reported in last year's first quarter due to higher supply chain costs and revenue mix.
I want to remind you that our gross margin target remains in the mid 70% range.
We expect operating expenses will be approximately flat on a sequential basis, we believe the incremental investments we made in sales and engineering head count during 2021 will be roughly offset by a reset of our incentive compensation plans with relevant performance goals for 2022 .
Lastly, we expect the effective tax rate will be 17%, excluding discrete tax items.
Now we will open the call for questions. Operator. Please go ahead.
At this time.
A question and answer session.
If you would like to ask a question. Please press star one on your telephone keypad.
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A question from the queue for participants using speaker equipment and may be necessary to pick up your handset before pressing the star keep one moment, while we poll for questions.
First question comes from the line of Josh Vogel Winski with Morgan Stanley You May proceed with your question.
Hi, good evening folks.
Hi, Josh.
So maybe the first question on the logistics side so.
So you grew 65% last year.
A large integrator and probably a partner of yourselves as well grew about 50%. So clearly a good penetration story I know that there were sort of ebbs and flows in terms of our ability to deliver.
But that same integration partners talking about flat in 'twenty two.
Bottlenecks in things like you know labor since it's kind of an intensive job to do some of the integration.
Understanding that you guys can outgrow the market is that sort of what you would agree with an assessment of the market in any way to sort of handicap, one way or the other how you guys are thinking about.
Outgrowth gap that you had last year as being kind of a reliable number going forward.
Yes.
Right, So I think I.
Thank God logistics market is is broadening right. So we you know we have a large customer that you know is represented as you'll see from reading our disclosures so about half our logistics business overall, but the rest of our business is growing more quickly outpacing the growth of that customer and we are broadening our business to reach a lot of.
Different end user customers and applications and a lot of new geographies as well in fact, our outgrowth in America and Asia outpaced the growth we saw in the Americas market. So yeah. We we we feel it's still a very strong undercurrent of growth potential in this market place. However, I don't think we're at.
Likely to achieve the kind of growth that we saw last year, we do expect our growth to moderate and I think it would be a stretch even for us to achieve our 50% stretch goal and logistics I don't think we see that on the cards. Although as you know we don't give guidance for the full year.
I think there's something going on in the marketplace, which is probably referenced by your question were you referencing a large integrate areas I think some of the implementation that's going on is getting delayed because of chip shortages and supply chain challenges and other things.
So I think that kind of affect some players revenue in the marketplace and it is certainly slowing down all of our growth rates as we seek to implement where there's a lack of labor are old parts going on but overall, we continue to be optimistic we expect logistics to go out and being accretive to our overall growth and being a excellent part of our business.
I would also say.
I think so much as you know about logistics business, there's been barcode reading, but there are other vectors for growth or so which are more and more applications of vision technology and logistics, where over the long run we see strong growth potential. So that's kind of my my overall answer to your question Josh Please fill their follow up.
I appreciate it that's helpful and then I guess.
Maybe on the consumer electronics side.
You know sort of in an unusual down year I mean.
I think we can all depreciate the circumstances. So on one hand, there's a content story here. This is a growth model for sure on the other hand inventories I think in the consumer electronics sector as a whole or maybe you won't get a little high so I don't know how that.
Flows into your customers' bias for investment can can we start to swing the pendulum back to growth. This year or are those folks still cautious given you know maybe sort of an inventory overhang kind of weighing on their on their behalf.
Well I think those are like you, who who've studied cognex all electronics business over many years now that you know it can can swing and that they can be a tick tock of investment around you know new models, and new lines and new technologies coming to market generally speaking, it's a little too early in the year for us.
To really give a good indication of kind of how we see the year shaping up right and we would expect in our next earnings call to give you a better view of that I continue we continue to see strong growth drivers over the long term and you know I sort of feel very confident there'll be upswings and I'm good years as well.
At a more challenge here is like we saw in 2021, and we'll let you know kind of how next how this year is looking when we next talk.
Understood really appreciate the color thanks, Rob.
Thank you.
Our next question comes from the line of Jacob Levenson with Melius Research you May proceed with your question.
Good evening everyone.
Good evening.
I just wanted to touch on life Sciences for a second I feel like it's a market that cause.
Comes up in your calls on and off in a.
It's certainly been a lot of capital flowing into that space over time, but it doesn't seem like maybe it's rich.
Rich the same potential for your business.
Staying in automotive or consumer electronics or dress books for that matter is that is that a market, but overtime, we would expect to see.
Potentially having the same level.
Machinery from content on some of these other verticals.
Yeah.
Yeah. Thanks for your thanks for your question Life Sciences is definitely in a market that we've had a strong interest for a number of years and we see very good potential in the longer in the longer term. We it's kind of a journey we've been on for some time as well so kind of a regulated industry. So sometimes when speed of penetration into that.
You know can be slower, but then the revenue is more consistent when its arrives and maybe part of that.
Regulatory approved product that has a 7% to 11 year life. So those are the kind of dynamics that we see in that marketplace. We started out the journey, they're really in barcode reading of things like test tubes, and medical samples and then over the years, we've migrated more into vision type applications and.
Well, we see a lot of value and so that can include things like looking at color change in tests test tube.
Types and and data as they move through our product to the reagents, maybe change it to diagnosis.
And then and then we've also moved more into vision, where we are we may be looking actually at medical samples and seeing what happens there.
And then more recently, we're also seeing a lot of interest in Cognex technology for.
Different applications, one is actually looking at radiology images and we have customers that are using our deep learning technology to do that to help out with what lab technicians would usually do and then we also have very interesting customers more in the position in the area of patient positioning where.
There may be things going on with patients in an operating theatre in a diagnostic setting where a three D vision technology is monitoring them and making sure the equipment around them is moving as the air breathing and doing other things. So we're correctly seeing what's going on.
With them so.
It's definitely an exciting area for us. It's it's you know less than 5% of our revenue still today, but it has really great strong consistent growth dynamics, we really look at design wins at Oems as kind of a key forward metric for us in that market and to give you a sense of that we had.
30, new design wins last year, where customers specified cognex vision inside their machines and they may deliver hundreds of thousands or even millions of dollars per design win once they fully come to market in a few years. So it's it's a market we really like.
Hmm.
As far as the Sun just fall.
All up on the switching gears a little bit on the balance sheet. I know you mentioned that you've got quite a bit of cash on hand, maybe an unusually large amount relative to.
Even.
In your past history I guess, how are you how are you thinking about what youre going to do with that cash obviously.
Spring quite a better bet on on your internal product development, but.
Supposedly sort relates to.
No buybacks or M&A or anything like that and then how should we think about that for sure.
Yeah sure Jacob this is Paul.
I would say our philosophy is relatively unchanged on this.
We've had this level of cash balance.
Before and as we noted it was down slightly from from Q3, given where we were more aggressive with the stock buyback in the fourth quarter given some softness in the market certainly our top priority for cash is to support our long term growth objectives, which would include M&A, obviously and that's after we funded our own.
Organic opportunities, which we do and still generate significant excess cash.
Second from that would be then sharing our many years of success with shareholders through stock buybacks and a relatively modest but consistent dividend that we know some shareholders. Appreciate it. So I think those remain our priorities being opportunistic for M&A you know at our size and at valuations. Today. I think is is benefiting to have maybe a little.
More dry powder than than you might otherwise.
Okay.
All right perfect. Thank you guys I'll pass it on.
Our next question comes from the line of Joe Giordano with Cowen and co. You May proceed with your question.
Good evening this is Michael on for Joe.
Hi, Michael.
I just wanted to ask you about logistics program do you have an update here and what is the potential for this return to something a little more material.
Okay.
Michael are you referring to the <unk>.
Investment, we made last year at a high potential customer or is there something else, you're specifically asking about with logistics.
Yes, that's right it's a pilot program.
Yeah. So you know we have a roughly 300 million dollar business in logistics now we have we have.
One very large customer you know cause which you've read about but we have.
Other other customers, who I think are you now looking very much to adopt advanced automation to to create e-commerce fulfillment backend for their businesses and this is kind of a common trend, we see across and and I think we've all seen that are in our own lives. We're around companies that used to be brick and more.
Water retailers, we would go visit them to buy off the shelves and now we order online and it's deliberate or we pick it up in the store. So there's a you know a major trend towards the automation of that.
So we see a number of customers, who are really leaning into that investment to be relevant and competitive in the E Commerce world and we see that in different regions of the world I should say one customer last year, who we think is very substantial potential a company customer of cognex them about already was loss.
At year end.
There will be again, this year really with making that transition one from being really a more of a conveyor company stopping stocking shelves with people to one with a fully automated back and that was our best in class and we've been helping them do that and we've been helping them on working closely with their you know new and very capable.
Engineering team to bring that technology up to scale and I think it's a trend we're going to see.
You know not only with this customer, but with other customers who are really leaning into that kind of investment. So that's kind of I'd say the story of what's going on there and you know I think there are many companies around the world, who I would expect to follow a similar path or who already on that journey.
Specifically from a margin point of view you know we did call out in both Q2 and Q3 that this was a drag on margins, particularly in Q3 as it was a strategic investment with a high service component to do it which we were learning with the customer and making that investment we don't anticipate.
That that type of.
The issue this year, so logistics still does remain slightly dilutive to our overall growth and as logistics Rosen revenue. That's obviously a factor for which we have other factors like the growth of deep learning and other areas.
To partially offset but we don't anticipate making a large strategic investment on our on the cost side in logistics in 2022.
Great. Thanks for the color in terms of you know we touched on the capital deployment priorities.
In terms of M&A, what areas do you see most capable.
Barbara.
Yeah. So I think we we run that kind of it at.
And ongoing and well structured process, where we.
We look at.
Companies in our own served market you know the last time, we reported out to you she's a number of years ago now we had approximately a 20% share in a market and so we look at other potential other players in that market as acquisition opportunities.
And then we also look at technology and engineering organizations, who we really like what they're doing and we think they would make good.
Integration.
Opportunities they would enjoy cognex, we would bring that technology to market and I think you only have to look at our two acquisitions in deep learning to a lab and video technologies that we bought over the last few years to see kind of our playbook there.
And then.
Thirdly, we look at adjacent opportunities markets that we're not in today and where we see companies that we could use to enter markets that way.
We're not in or have a very small share, but think we have significant capabilities to bring so we're constantly looking at markets evaluating their technologies in considering acquisitions.
I would say you've seen that that can just tend to ebb and flow I think one year. We did six technology acquisitions of our small size, we acquired Super lab, our biggest acquisition for approximately $200 million a couple of years ago. So we sort of we'll see how that progresses, but you can count on it being very active if also there.
Very selective.
Great. Thank you for the color.
Yeah.
Our next question comes from the line of Matt Summerville with D. A Davidson you May proceed with your question.
Thanks, a couple questions first with respect to your unfilled backlog can you comment on how.
Now maybe versus.
What it look like versus pre COVID-19 levels and it sounds like you've been able to ship into that a little bit and I guess I'm wondering if that maybe was a contributor to somebody upside we saw in Q4 relative to your guidance.
Sure sure Matt Yeah. This is Paul.
The weak part.
Part of our beat to the guidance certainly was the supply environment was a little more favorable than we had expected and we were able to get you know.
Get get more orders out later in the quarter than we had conservatively forecast.
In our guidance knowing that in Q3, we had some unanticipated shortcomings in the supply chain as the quarter progressed. So I do think that's a factor overall our backlog has you know it did grow year on year from where we ended 2020 to where we ended 2021 and in most quarters. Our backlog grew so there was an element of seasonality there.
But there is has been a sort of growth as we've seen healthy business activity.
As logistics grows in share of our business that does tend to come with longer delivery longer time for when when when we fulfill those orders and convert those to revenue. So you would expect a certain element of it and then I think it's magnified somewhat from the.
From the supply dynamics today, but.
But yeah, we with delivery times being what they are right now, we're able to meet customer expectations pretty well and execute against.
New orders and and working through our backlog in Q4 and in the first quarter.
Got it and then maybe if you could just talk about in the automotive.
Side of things how much of the product going out the door today is being driven by some form shaper other around easy proliferation, whether it be on the battery side.
Auto OEM side itself versus how much product is still going into the traditional I sort of business and when you see that crossover I guess maybe.
Maybe happening where E V overtakes driven revenue.
I'll kick off and I'll throw it over to Paul to give you more data on this but you know.
Generally we see we've seen a lot of growth in our automotive businesses as as as we referenced in our prepared remarks and that growth is really primarily being driven by investment in EV.
Our new vehicle development, whether it's hybrid or EV, and and then particularly battery manufacturing certainly as you.
It's a very it is a very significant growth driver, where there's so much capital investment going on and and Cognex machine vision has so much to offer that we've really seen a lot of success in that market and we see it primarily in Asia, where the major EV technology companies.
Or.
Certainly we see that then it becomes a little bit difficult to quantify because it's like you know is when people say how big is your EV business is a hybrid business part of our EV business or not and you know are especially designed tires for EV cars that are more efficient.
Efficient and is that part about EV business or not it's becoming a little blurred, but I think I'm, certainly, it's becoming more and more significant and a big driver for growth, while the internal combustion engine type business than most of the more legacy business that we used to do suddenly is is growing much more slowly if even growing.
Yeah, I, just I'd add to that I think Rob got it but the.
Stuff that we can specifically attribute to E V as well under 50% of our business today, but I do think 2021 was a bit of a turning point for us, whereas you know in 2019 in 2020 E V was sort of a bright spot, but unable to move the needle in a declining industry.
Revenue profile overall, and and you know this year in 2021, the automotive grew faster than our overall revenue growth far in excess of our kind of 10% long run target for growth in automotive and E. V. Really was the biggest driver of that both kind of specific investment in battery manufacturing and other areas as Rob noted.
And then just second order effects of more models coming out bigger changes to two automotive than driving.
Precipitated by by launching more hybrid and EV vehicles, but then driving automotive projects in areas like tires or car seats or areas.
Areas, where it's harder to specifically attribute to due to the to the engine.
Understood. Thank you guys for the call it.
Yeah.
Our next question comes from the line of Jim Ricchiuti with Needham <unk> Co. You May proceed with your question.
I think maybe just.
A follow up to the discussion on automotive.
You had a good year and 'twenty one clearly what's your line of sight in terms of the growth for 'twenty, two and I know you don't guide by by market vertical, but just in general based on what Youre seeing yeah. How do you how do you view the opportunity in automotive for this year.
Yeah, I'd say, we're relatively positive about the outlook for automotive.
This year.
Thank you.
We see continued strong investment in in E. B battery type manufacturing activities, we could consider to see that scale and grow I think where it's a little less clear is on sort of the more established automotive businesses and in America, and Europe , which is.
It's been a substantial part of our business and you know.
It's difficult as we're just getting off to the start of the year to really to really call a situation. There, but you know we're seeing less activity I would say in that area or is it really a short term phenomenon around chip shortages and COVID-19 and a slow start to the year or is it something more in.
Endemic I guess for the full year, So again, Jim you're right. We don't give a full outlook, there's plenty of good stuff going on but there's also you know kind of what does that legacy tail of business look like going forward.
Got it and then follow up question just as it relates to you mentioned a number of new deep learning products and I think as I recall, you were anticipating very strong growth, maybe a doubling last year.
It's a small part of your business I understand but just in general did that meet your expectations you I think talked about the deal 900 being a store.
I'll start for a new product I'm, just wondering as we think about this opportunity in 2022, how do you view that and which markets are you getting the most traction.
Okay.
Yeah, I think I think our insight D 900, deep learning enabled smart camera you know it was definitely a bright spot for US. This is great powerful technology that we sold very well adopted and particularly our European and American markets.
We launched our updated version of that with what we call and learning tools, which are much more easily easily used and trained and we're very excited about that business as are our customers are very excited about that product.
The other sort of part of the business is in a much more sophisticated.
Deep learning software that requires a lot of programming skill and capability that runs are in more in a in the vision software PC type environment and that tends to be the business that's more in Asia and in very large.
Sophisticated manufacturers of electronics and other products.
And there you know there we were making good progress, but I would say some of the implementation has been a little slower than we would like partly because of Oh, just travel restrictions and other things, where it's been more difficult to provide hands on support and maybe.
Maybe just the speed with which this sophisticated technology is getting adopted so we see a lot of opportunity.
You know what.
We see both parts of that both wheels, if you like the smart camera and the vision software part of it providing growth in the long term, but we'll have to sort of see how those play out.
Time.
And that's I have no doubt it will be very positive to the question is at what pace and what the impact is on this year.
Would you say that you've talked about logistics being out.
In the past that 50% growth business and maybe it's not quite that this year, but as the.
Portfolio of products and deep learning is that your expectation that that has the potential to be 50% plus for the next couple of years.
Yeah, I don't think we give specific guidance and I think the other thing that's kind of becomes more interesting and it's been slightly like the EV discussion is in the end I think these deep learning tools is so powerful and so pervasive that theyre going to become almost everywhere I referenced some new technologies that we launched in my prepared remarks, and I said.
You know we've got rules.
Rules based vision you know Jim.
Technology, you understand very well and deep learning kind of new trainable you know if you like self programming technology that are that are running side by side now and I think we're going to see that more and more about we certainly see we're really excited about our deep deep learning technology and the growth potential, but we I don't think it's going to be so clearly separable as.
We move forward from everything we do.
No that makes sense. Thank you.
Yes.
Our next question comes from the line of Andrew Buscaglia with Baird you.
You May proceed with your question.
Yeah.
Hey, guys.
I wanted to touch on consumer electronics more times, but just in the sense that.
I know you talked to the basketball a R V are kind of Wearables.
Some things like that being kind of like where areas you'll see some growth, but can you comment on like you know.
Volume, they're big enough to really drive that segment and then secondly, how dependent are you on.
I'm really just changes in form factors for handsets.
In order to see consumer electronics.
Grow substantially.
Yeah. Thanks, Andrew I think you know.
I think the dynamics in that market or those we've talked about a number of occasions and under what we see is there.
There are always many technologies and changes in the Roadmaps about large customers, who we work very closely with and as we move through kind of the the season. If you like of standing up new models and launching them you know normally later in the year some of those technologies.
<unk> come in and some of them are kicked out for a later year right. So that can sometimes change what happens similarly with form factors. If we you know we've been at this.
Intensively since about 2014, and we've seen years, where form factors and perhaps even more importantly, the material. That's used whether it's you know metal glass or other technologies can have impacts and then screens and other things also can can drive growth. So I'm. So I think that's that's one thing it's a it's not necessarily.
Handset form factors, it's it can be a number of asps.
Aspect.
And then when you get to know you talked about perhaps some augmented reality and other other technologies coming I mean, I think historically, if we look back at smart watches coming into the market or or are you know that.
Tablets or other things that we've seen over time new screens.
I think generally those tend to be things that are start to be adopted and then we see substantial growth in them in a few years I would say so I wouldnt expect those things to radically moved the needle.
If if we haven't seen them already in the market in the last few years, yeah individually, they're fairly small collectively they can be.
Everything about smartphone can be meaningful and certainly very meaningful to growth. The other thing that I know I've shared in certain conversations not necessarily at an earnings call as you know some.
Some of it with the application of deep learning technology to consumer electronics, and particularly in the area of <unk>.
Visual inspection, there's just such an existing opportunity of a lot of work being done by humans and hard to stop and not being done, particularly well, where we believe our technology can can solve that problem better and we're still feeling any development phases of that but we view that as a meaning.
Growth driver that would allow us to grow in excess of the market without requiring major technology changes or introduction of new products.
And again I'm not sure whether that that's unlikely to be material in 2022, but I think as it is a good driver for us for growth in the years ahead.
Yeah, Okay interesting.
You are kind of all kind of along those lines. How you ended the question.
Three new vision.
That's come up.
A bit of inbound calls just how you guys are introducing new product, we think it's going really well, but there is a really big market share leader there.
And I'm wondering I guess, what is your strategy to compete with something somebody like that who is already a pretty established.
Yeah, just wondering how you how do you intend to make headway in that market. It if you got such a dominant player that yep.
There.
Mhm, Yeah, no. It's a great question and I think I think we have kind of free different product areas in three D and that's where we're making significant headway on the.
The first is the three D. L 4000 product that we launched last year, which is really it's a true smart camera version of three D. That's very easy to use with outstanding upticks and it's.
I'd view the all the existing three D technologies that we see in this kind of line displacement area from.
Particularly for them, they're the market leader in the space that you're referring to you know tend to have a separate separate controller and a and a separate head and require a lot more programming than does our new product range. So ease of use is kind of key in that in that market and our product has really its program.
There's one wood program and insight, which is the world's best selling smart camera made by Cognex and if you can use one of those you can easily use the insight three D. L. 4000. So that's kind of we think a lot of horsepower and usability, we're bringing into that space.
And you know there's a theme I would say in general in envision, which is it's very difficult to sophisticated technology, but it's becoming easier to use less expensive smaller and more easily integrate a bull and those are trends that I think will move all at all markets that we're in over time and certainly that applies to three D.
The second product that where we're seeing a lot of traction is.
Area scan products the three D. A 5000 so that.
Projects, a pattern of light and and moves it and creates a it rather than having to move the product. It can be over a large stationary area and it's very fast and very precise and it's recognized by customers as really the best image acquisition tool for those types of applications.
Which often can include things like structured robot bin picking so we're generally we know what we're looking for it's not random and we know what we're looking for it's not random samples. So that's a market that's been around for a while and we're definitely seeing traction in that space and then the third area is our three D. A 1000 platform.
Which is high.
Higher higher speed moving objects area technology, or so where we projected pattern and look at moving projects products you might think of like a video game in your house, where it's watching you move around if you're familiar with that technology and we're seeing a lot of traction, particularly in the logistics space where am I.
Logistics customers want to know, what's the size and position of our products moving not with great precision, but certainly cost effectively and with superior to kind of all the other products for in the market today for that so I think we're going kind of quite hard at had three D. Vision I'm you know you're right there is.
A big share leader, specifically kind of in that more automation space, where a we're chipping away I think that that position, but we see other and and faster growing market opportunities beyond where they are at the final thing to say is in the end Cognex is advantage. So often it's about having just the best and the most.
Leading tools and certainly really I don't think theres any doubt in the market place that we have the best vision tools and certainly the best three D vision tools.
It can allow customers to do things that generally they can't with any of our competitors.
Okay. That's great. Thanks, Thanks for the answer.
Our next question comes from the line of Markus Mayer with UBS. You May proceed with your question.
Hi, good evening everyone.
I wanted to come back if I could to the outperformance. What's the guide you mentioned that it was primarily we have a supply chain availability later in the quarter is that related to having 45, new suppliers or better broker availability I'm just wondering how sustainable that is into 'twenty 'twenty. Two and then is there a way to kind of help us quantify where they live.
Lead times, notwithstanding versus what it was maybe Pete bond and in versus normal.
Delivery time stuff would be helpful. Thank you.
I'm sure yeah. So so we've I.
I think we really started seeing a lot of supply chain challenges that if it does.
Summer as we move through the summer and you know we've been working very hard I would say and are at very senior levels in the company to kind of manage our supply chain to to improve and I think as we came through the back end of the year, we really saw traction on that as we got you know really engaged our supply is in.
Tensely, and Oh, and also really am invested too to get a CR, particularly short supply chips.
Into the business and available.
You can see if you look at our inventory you know, we certainly built a lot of inventory over that period too to make us more robust as we move through the year.
I think where we know it we're pretty aware that the chip supply situation is very challenging and not you know and I'm not getting measurably better you know at least not for for them for a little while here and I think we've positioned ourselves appropriately.
For that and I think you can see some of that coming through.
In the fourth quarter.
It's going to help US again, I think you know in terms of what we're seeing now is our lead times on most of our major products are getting.
Much shorter and it's becoming a competitive advantage for us, which we can use to win share in the market because that's not the case necessarily broadly across our competitive set. So we that's kind of a I think where we are we see things playing out.
Great. That's helpful. And then maybe one on logistics you mentioned in your prepared remarks that you are going from customized standardized I wonder what's sort of the ultimate goal that you have in mind here between direct and indirect and some of these integrated partners to what extent is that it's not exclusive and how do you think about that strategy.
Chi here sort of medium term between direct and indirect.
Yeah, I think we think of ourselves having direct relationships with our customers and logistics almost all of them right. So that's kind of the the.
Our model, but then in logistics, we're selling and a great technology that has to be installed onto lines and commissioned and there's a fair amount of kind of application engineering and startup engineering required in that market. We have some very sophisticated integrated we've worked with for many years, who do that extremely.
Well with us so we may sell to the end user itself when they will come in and perform some of that integration or in some cases, we may they may take the product directly but in other cases, what we're doing is we're bringing in.
Logistics integrators, and installers, who will help stand up the lines and and do some of them more regular but important servicing of the customer and commissioning the product. So as we do less of that work ourselves and we develop as we're doing very well these partners to do it for us.
Do you know that that we would expect our margins to improve and us to be able to scale more but generally we're having relationships directly with the customer invariably and we understand that relationship and that's important to us and end markets. It's similar to the playbook, we used for consumer electronics, where.
Our customer relationships with the end customer are as strong as ever and we focus on what we do best.
And allow partners to take parts of the business that would be potentially.
Potentially a bit of a distraction and and also a margin dilutive for us.
We focus on on what we do best and that's what we're executing for logistics, but it isn't as Rob said it isn't a risk of losing the customer relationship.
That's very helpful. Thanks, so much and good luck.
Our next question comes from the line of Jairam Nathan with Dialer Securities. You May proceed with your question.
Hi, Thanks for taking my question so.
So I had two questions one short term and one long term so in terms of the quarterly cadence given that you are.
Delivering revenue out of backlog.
Should we typically first quarter is I'm guessing that people used to be the weakest quarter.
And then you kind of see a strong two two and three Q.
No given this current.
Condition do you expect a different cadence in 2022.
Yeah, I mean, John we're not obviously not giving full year guidance, but I think you know.
We're not expecting to grow as fast as we did in 2021 right I mean, we would love to do better than expectations, but we.
We are seeing you know given the overall environment certain supply chain challenges and others that were seeing and at this point, it's a bit early to call. The quarterly cadence. We will we'll certainly share more about consumer electronics, but as you were just sort of starting to do your work I would think that 2021 is as good a guide as any.
You know for what we know so far.
Okay. Okay. That's helpful.
In terms of logistics I think.
One question I always get is.
With automotive and consumer electronics.
Do you guys get the opportunity to tourists or to kind of an upgrade opportunity you'd hate when when the companies your customers upgrade their products or to come out with new products. I think we haven't like how should we think of logistics in that sense I understand that we don't probably go to the very strong.
You were saying that you know all these stages of that growth but.
On that how should we think of logistics as how do you sell and upgrade into a largest software madhouse.
Yeah, I would think if I think of it as being pretty similar in general you know the products and the technology have a life there lots of demand for <unk>.
Higher throughput and upgrading of automation equipment within within the distribution center or in the further down the supply chain, where we play. So there's certainly certainly that I think I think we're also kind of in an interesting world right now, though where you know E. Commerce is still kind of growing quickly and more and more.
Players are entering it and you know third party logistics players are you know.
Im starting to become big players also and Thats sort of I'd say, an initial wave of investment there.
They're building out those capabilities.
And so it'll be interesting to see after that wave then we get more into at a cadence of replacement, but I would expect you know I would expect in a few years, we'll be having discussions about the cadence of that replacement and how many years. It is an and.
And then at the same time, we'll be doing more and more challenging end value added applications for them is as the industry becomes more sophisticated so but I think probably you know automotive for factory automation is probably a good kind of guide for how that might well Oh play out.
Okay, great. Thank you.
Our next question comes from the line of Bobby Eubank with Chevy Chase Trust you May proceed with your question.
Congrats on the quarter.
Couple of questions here, but Paul maybe this one's for you if I look at your point.
Forward valuation relative to kind of your legacy your largest customer or consumer electronics customer you're kind of the cheapest you've ever looked relative how do you think about the buyback.
If market continues with a gross box all all at what point would you consider kind of using that balance sheet. That's my first question. Thanks.
Yeah sure Bobby I mean, I think we have and we will continue to do so I mean, we are conservative and we are happy to have.
A good amount of cash our balance sheet, but.
After our last earnings call our stocked it did take a hit and then the market has been relatively soft and it's no surprise that we just told you that Q4 was the largest quarter, we've ever had in stock buyback activity and going into 2020 . One we expect to be doing a mix of regular ongoing purchases through just a wrap.
Double play out and as well as opportunistic when we feel there is opportunity so yeah.
Yeah, I mean, I think we have the potential and but fundamentally as a growth technology company, we're not trying to change the stock price to buyback activities. We want to make sure. We are offsetting our dilution from our equity programs and when the opportunity presents itself to do more than that or to get ahead of that dilution will take the opportunity to do so.
And you guys have been have a good track record with being opportunistic but also commend you on that can I was just kind of talk about like.
Strategy and competitive positioning large customer are in logistics.
How do you feel about that relationship going forward. Some of the comments they've made and then what other areas are you seeing kind of accelerate your thinking on the back of Covid things like protein would be that that accelerated and automation are you guys starting to see some of those dollars flow yet worth of supply chain still holding back some of the maybe legacy industries that need to automate.
I haven't been able to get the parts they want.
Can I just quickly ask a clarifying I didn't think I heard was it protein or what was what was the word you said that yes. We have an example, some of the protein companies or food and beverage in America, Oh got it okay and some of the challenges.
Yeah, well you know suddenly just great about being at Cognex, and you know being the leader in machine vision as you see new applications, all the time and.
Some of them you've seen for many many years and suddenly they start to get traction as the automation capabilities of companies develop and as our technology becomes easier and better to use. So that's always interesting and we're always we really we talked about the implementation of some of our CRM systems, and we're getting better at understanding kind of where those opportunities are and spending time.
With those customers.
You know you asked about our largest customer journey you know generally we we we don't talk specifically about customers over the over the long term, but we've.
We've certainly seen substantial growth with that customer and now we are at we see more opportunities.
Suddenly there and and.
And perhaps more generally within logistics overall.
I think a great thing about Cognex is we do partner with the most sophisticated players in the world and automation and discrete manufacturing and so often the technology and the relationships we develop there.
Bleed out into the rest of the industry and we see the potential for that going on too.
Your comment on protein reminds me and all of US here on the East coast that it's awfully close to dinnertime.
I think we're coming to near the address.
Yes.
That's right.
We have reached the top of the hour I would like to turn this call back over to Mr. Rob Willett for closing remarks.
Thank you. Thank you for joining US Tonight, we look forward to speaking with you again on next quarters call Goodnight.
This concludes today's conference you may disconnect. Your lines at this time. Thank you for your participation enjoy the rest of your day.
Yeah.
Okay.
Yes.
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