Q2 2023 Cognex Corporation Earnings Call
Greetings and welcome to the Cognex second quarter 2023 earnings Conference call. At this time all participants are in a listen only mode. A question and answer session will follow the formal presentation.
Anyone should require operator assistance during the conference. Please press star zero on your telephone keypad. Please note. This conference is being recorded.
Now I'll turn the conference over to your host Nathan Mccarran head of Investor Relations for Cognex, you may begin.
Thank you Mollie good morning, everyone and thank you for joining US with me on today's call are Rob Willett, Cognex, as president and CEO and Paul <unk>, our CFO of.
Our results were released earlier today, the press release and quarterly report on Form 10-Q are available on the Investor Relations section of our website.
Both the press release and our call today will reference non-GAAP measures you can see a reconciliation of certain items from GAAP to non-GAAP in exhibit two of the press release.
Any forward looking statements we made in the press release or any that we may make during this call are based upon information that we believe to be true as of today.
Actual results may differ materially from our projections due to the risks and uncertainties that are described in our SEC filings, including our most recent Form 10-K, and our Form 10-Q filed this morning for Q2.
With that I'll turn the call over to Rob.
Thanks, Nathan Hello, everyone and thank you for joining us.
We delivered second quarter revenue at the top end of our expected range gross margin in line with our guidance and operating expenses favorable to expectations.
We had a strong sequential step up in operating margin as gross margin returned to a mid 70% long term target and we carefully managed costs in the quarter.
While these results were inline or better than our outlook conditions weakened as the quarter progressed.
You can see this in the latest PMI data, which has trended downward over the past three months shy.
China has not gained the momentum we expected at the time of our last call and there is slower manufacturing activity in important factory automation markets, including Germany, and the United States.
Our customers remain cautious with their capital investments, particularly in consumer electronics and semi well we had seen the steepest decline in demand.
As a reminder, we tend to see the impact of these dynamics more rapidly than many of our industrial peers, given the short cycle nature of our business.
These challenges are not as apparent in our second quarter results. Since we recognized approximately $15 million of revenue from consumer electronics that we had previously expected in Q3.
Before I go into further commentary on the business and outlook for Q3, I'd like to turn the call over to Paul to walk you through more of the results.
Thank you, Rob and good morning, everyone.
Second quarter revenue was $243 million or 12% year on year decline.
Foreign currency translation remained a headwind reducing revenue by $5 million or 2% year on year.
From an end market standpoint, consumer electronics and semi have had the most significant slowdown in demand.
Revenue from our largest e-commerce customers remain muted in Q3 Q2, yeah.
Yes, it's been roughly flat for each of the past four quarters.
The rate of year on year decline is improving as we anniversary the slowdown in large investments from these few customers.
The remainder of our logistics business has continued to outpace our largest e-commerce customers.
Shifting to automotive EV battery growth continues to materialize.
Yet the growth we're seeing there did not outweigh the decline in traditional automotive.
Revenue in other end markets was mostly lower year on year with the exception of consumer products and food and beverage.
Looking now at the change in revenue on a geographic basis.
Revenue in the Americas declined, 10% and in Europe declined 8% year on year.
Excluding the impact of approximately $15 million of consumer electronics revenue, we had expected in Q3 revenue in China and other Asia each declined by close to 30% year on year, driven by the softness in consumer electronics and semi.
Gross margin in Q2 was 74% which is in line with both our guidance and mid 70% long term target now that the higher priced inventory we source through brokers has worked its way through the P&L.
Slightly offsetting the improvement in gross margin with deleverage on lower revenue and foreign exchange headwinds.
Let's turn now to operating expenses.
Opex declined by 13% year on year on a GAAP basis, which included $20 million of items related to the June 2022 fire at our primary contract manufacturer's facility.
It would be helpful for me to explain two items related to the fire.
First with a noncash net charge of $17 4 million in Q2 of 2022, primarily for the estimated value of inventory on our books that was destroyed or abandoned net of estimated insurance proceeds.
The other was a gain of $2 5 million in Q2 of this year for proceeds from business interruption insurance.
Excluding fire related items operating expenses increased by 3% year on year due to investment in our emerging customer initiatives.
Beyond the investment in emerging customers non-GAAP Opex declined year on year as we have been closely managing costs given the challenging outlook.
On a sequential basis Opex in Q2 declined by 4% excluding the insurance proceeds.
This was better than our guidance due to head count management, lower incentive compensation and tighter management of discretionary spending.
Operating margin excluding fire related items was 26% in Q2, which was a significant step up sequentially, but below Q2 of 2022, due primarily to operating deleverage and our investment in emerging customers.
The non-GAAP effective tax rate, excluding discrete tax items and fire related items was 15% in Q2 of 2023 and 13% in Q2 of 2022.
Reported earnings were <unk> 33 per share in Q2.
non-GAAP earnings per share were <unk> 32.
Turning to the balance sheet Cognex continues to have a strong cash position with $832 million in cash and investments and no debt.
Cash flows in Q2 reflected a return of $37 million to shareholders in the form of stock buybacks and dividends.
Now I'll turn the call back over to Rob.
Thanks, Paul.
We remain focused on long term growth yet disciplined in the near term as we manage through this softer demand environment.
We had a strong quarter of product launches our investment in emerging customers is on track and momentum is building and EV battery.
Our products and platforms innovation strategy is resulting in more rapid new product introductions and the proliferation of cognex has industry, leading technology across our product lines.
In 2022, we launched a new product platform, which includes our insight 2800 vision system and our day demand to 80 fixed Mount barcode reader.
In the past our next product would have been built on a new architecture today, we're leveraging common architectures, which eliminates the need to replicate prior work, allowing us to move faster to market.
The latest example of this is the data man <unk>, which we launched in July and Leverages. The same platform as the insight 2800 and data man $2 80.
We trialed this product over the past year with a select number of customers, including a global E Commerce leader.
After a very positive reception.
Excited to fully launch this product globally.
The day demand 80 delivers superior barcode reading performance Cognex is famous for but it's easier to sell and easier to use.
We continue to rollout products that offer our industry, leading edge learning technology, which began with the insight 2800.
Our latest launch with edge learning was the advantage 182 series, our next generation image engine for life Science Oems.
The 182, Leverages Cognex is edge learning tools for automating diagnostic tasks by weeding letters numbers in vials and codes on vials running inspections, and detecting substances and blood samples among other applications.
We launched 13, new products in the first half of 2023, a record number of new cognex product introductions and a six month period.
We're excited about bringing these products to a broader audience through our emerging customer sales force.
We have now completed the bulk of hiring of these new sales noise for this year and training is progressing well.
We're learning from this initial stage and remain excited about the growth potential and strong returns of this investment to broaden our customer base.
We also have strong momentum with EV battery manufacturing customers.
We see this as a long term growth driver is the activity. We are now engaged in fuels growth in future years for us.
Some of these projects have faced delays or are ramping up more slowly than our customers' anticipated and we expect EV battery revenue to be lumpy as our customers roll out large projects.
Turning now to our outlook.
We expect revenue in the third quarter to be between 180 and $200 million.
This represents a sequential decline of approximately $25 million at the midpoint adjusting for the approximately $15 million of consumer electronics revenue that shifted from Q3 to Q2.
The decline is primarily driven by further softening of manufacturing investment, resulting in a step down in demand in our factory automation business.
We expect gross margin in Q3 to be in the low 70% range.
Due primarily to further operating deleverage and the negative mix impact of a more significant decline in consumer electronics revenue.
Considering these near term pressures.
We will remain diligent about cost management.
Despite a further ramp in emerging customer investment, we expect opex to decline by low single digits sequentially in the third quarter.
We remain confident in our strategy and our ability to manage through a challenging operating environment and return to our long term growth model.
Now we will open the call for questions. Operator. Please go ahead.
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Our first question.
Comes from Josh Vogel Winski with Morgan Stanley . Please proceed with your question.
Hi, good morning, all.
Good morning, Josh.
Well I was hoping to dig in a little bit on what youre seeing in logistics market. So I think some of your peers out there may be some with perhaps some more inventory destock risk.
Seeing the market get a little choppy here, but you guys are starting to see this for a few quarters now I'm. Just wondering if you feel like we're more bouncing along the bottom or.
<unk> represented sort of another step down in activity.
Yeah. Thanks, Josh I think if we turn our minds to a year ago that with when we really saw some of our big customers and in E. Commerce really return on their investment and kind of new infrastructure right and we've sort of unwound any backlog a longtime ago related to that.
And what we really see now as we're kind of.
We think we're kind of bumping along the bottom of where we were in our logistics bookings are very consistent over the last few quarters as we're waiting really for spending to come back on that is a phenomenon with large customers and we also have as you well know kind of base logistics business, which our other customers.
That's a business where we.
We expect growth this year still but we're still also seeing some caution that we're seeing elsewhere across all of our markets, where I think sort of macroeconomic concerns and other concerns.
Perhaps hitting that market too. So I think we feel we're kind of.
At the bottom of the trough when will things pick up I guess is the big question. We don't think this year.
We're optimistic about next year.
Understood. That's helpful and then just shifting over to consumer electronics.
If I tried to take a wider view, maybe going back to the old.
OLED cycle several years ago.
I think cognex is outgrowth, because it's sort of.
Happened inside of some of those industry cycles, obviously, we can see some of that spending coming in and I think multiple companies would say that China reopening it was a little disappointing, but what can you tell us about either content growth or anything on.
Canada, New product introduction side, where there is a chance <unk> did in the past for contents go upward.
Guys really just seeing sort of the cycle at this point governor in government activity.
Okay.
Yes. Thanks, I think I think it is a lot about the cycle, we tend to see bigger years very frequently followed by lower years, we sort of saw that when we last spoke to you, but I think that the level of softness is is greater than we anticipated.
So certainly that's a factor going on.
I think some of the things that we expect to drive.
Investment in electronics Hasnt been materializing as quickly as we as we might have thought.
Overall and that does include obviously, the introduction of new products and features and some of the change in.
Location away from China towards Vietnam, and India, I think those things are going a little more slowly than we might've expected.
Josh you also really ask about kind of new technology, and new waves that are coming and I think we see a number of things.
Very optimistic about in terms of long term growth for Cognex in electronics. One is just the number of people still involved in manufacturing of electronics and the challenges of inspection and quality.
<unk>.
That exists and.
The power of our technology to really assist with customers. So those are things that.
Offer us a lot of confidence about longer term growth Youre also asking about kind of you asked about OLED <unk> for us really kind of peak OLED with probably 2017 right. So that's quite a long time ago at this point.
But where we see kind of newer technologies, we saw <unk> <unk> of course, giving us the lift also in the business.
What's coming next.
Clearly, we will see virtual reality products kind of being wheeled up from from a number of companies in the industry, so products like that or other things that we see and our customers.
But it lines do offer us optimism about growth in future years, and some of those devices.
Our costly complex and very very difficult to manufacturer, which is really where.
Industry leaders, who rely on cognex and the power of our engineering and technology to help them. So so challenging year.
Not the strength.
We would like to see in electronics, this year and less strong than when we last spoke with you, but plenty to feel optimistic about as we look forward.
Understood. Thanks for the comprehensive answer best of luck second half.
Our next question comes from the line of Tommy Moll with Stephens Inc. Please proceed with your question.
Good morning, and thanks for taking my questions.
Hi, Tommy.
Rob I wanted to circle back to the comment you made about logistics I think you said you're optimistic about next year and so I just wanted to unpack that a little bit.
Is it based on conversations that you've had with end users or a view on when some of the larger players that are will have fully absorbed.
A lot of the capacity that was built out recently.
We've noticed you've got some content on some symbiotic systems that are being deployed to some of the key players in Omnichannel I'm wondering if that might.
Might be something we should pay attention to anything you can give us on those points would be helpful.
Yeah, Tammi I mean, we work closely with.
The engineering teams at major E Commerce players, we see that they overbuilt capacity around the pandemic and that they can kind of turn the tap off on that about a year ago right and they have plans that go out multi years.
To address.
Growth in their markets, whether it's here in the United States or overseas and.
Those investment plans are moving along.
Take longer to get approved and I would say that there's a lot more scrutiny going on now, but we do see plans, which may get delayed, but we see plans for further investment coming in.
Two to think that we would see that start to flow into our business next year is realistic.
We would expect to sort of inflect inflect back to growth on some of that bigger logistics business, but.
Far from certain at this point, but certainly some reasons for optimism.
Cognex.
Yes, Tommy we spoke about this at our analyst day 11 months ago and.
Different levers of growth in logistics, but one that where we've made some recent progress is the parcel and post sector.
Some technology, we introduced there late last year early this year, we really are starting to see sort of early signs of.
Traction there despite again, a challenging macro environment.
Thank you that's helpful. I also wanted to follow up on the emerging customer initiative investment.
Should we think about the.
The third quarter as the full run rate level of investment there through your operating expense line or does it step up again.
As you exit the gear in the fourth quarter and then as you look to next year whats the reasonable timeframe, you envision where we'll be able to look back and have some observations on the.
Performance there versus your expectations for the investment thank you.
Sure I'll start with this year question, Tommy I think yes.
We should hit the ramp rate in Q3, effectively we're hiring largely college grads, which meant sort of hiring began in Q2 and through early to mid Q3. Early Q3. So we really should be at ramp rate with with this with the Q3, which was reflected in our guide and as we've discussed previously about a 25% to 30 million.
Investment this year and our operating expenses.
And roughly $10 million.
In a quarter now that we're at run rate in Q3 Q4.
In terms of next year.
Lots of excitement and more to come but I think it's premature to sort of speculate when we're going to have.
Yes.
Roy or are there other insights.
And I think we would expect to be hiring for a class next year as well.
Thank you I will turn it back.
Our next question comes from the line of Joe Giordano with Cowen.
See with your question.
Hey, guys. Thank you.
Can you give a little color on the margin guidance for next quarter with the mix issues that you called out in the press release like.
Which markets are driving that and is this kind of like in your view kind of a one quarter blip downwards.
Yes, Joe I'll take it I mean.
It is a step down.
This year from Q2 to Q3 in our consumer electronics revenue in the year on year comparison is also very steep.
Consumer electronics is very high software component to the business of the gross margins are high associated with that so that's the biggest factor in Q3, but there could be other other other factors to going forward. We do have growth levers gross margin beyond just the broker by is going away emerging customers for instance, we're seeing good gross margin profile.
The business, we're doing there we have specific initiatives and logistics to improve our gross margins over time as well. So we do expect to be at that mid seventies level, but that's going to be very challenging at lower revenue levels because of the deleveraged.
Right.
And now that we're through August beginning August here do you have more of a full year update on growth for C E Auto logistics.
So I'll start and then I'll invite pulled to come in you know generally we don't give guidance you know for for full year and I Hope I think you know some of the factors. We are seeing we've spoken about consumer electronics and uhm.
The level of revenue, we're expecting much lower in the second half partly as a result of that earlier revenue recognition of 15 million at the end of Q too intense.
In terms of.
Automotives, what what we see going on there as we see.
Nice strength building an E V right. We're seeing we had in in in the last quarter. We had good good growth more than 30% year on year growth in our <unk> business, but it's still representing less than a quarter of <unk>.
<unk> motive business overall, and we're seeing you know headwinds offsetting that currently in order to I think has big.
Big car companies and dealers have excess inventory and there isn't such a desire to produce I'm going on so that sort of taken automotive so and and you also asked about logistics I think I think that's what we're seeing is kind of bumping along at this level currently probably <unk>.
<unk> at that level until things start to pick up with new investments Yep.
Yeah, So I mean.
That'll give me all your info go.
Go ahead jokes.
No I'm sorry go ahead.
Oh, Yeah, I mean without without giving a full year.
Guidance.
Which which we don't do of those three sectors. We would say automotive is probably the healthiest right now.
We've talked about logistics, where we were up against it was about a year on year basis right. We were up against a very tough compare in Q1 of this year and and logistics because Q1 2022.
Our last big quarter of logistics, and then Q.
You too we work through some backlog and then.
As Rob mentioned, it's been sort of fairly steady since then Q3 2020.
To to the lie to this most recent quarter and we're sort of expecting steadiness reflected in our guidance for for Q3, and as Rob that don't necessarily see a big pickup in queue for us so.
Compared to the top compares are largely behind us and logistics, but fairly.
Deep he'll versus what we've already seen in the first half of this year and then consumer electronics were expected to be down meaningfully we expected to put it down modestly an hour sitting down so.
Both of those are <unk>.
Markets are having a tougher your automotive relatively better and then kind of all other industries relatively better as well, we call that consumer products and food and beverages.
Points of strength within that.
Within that other than packaging group.
If I can just sneak in one last one <unk>.
Given them weakness in the market you know a lot.
A lot of smaller companies, probably can't whether that doesn't make sense and you can check your balance sheet in your scale. So it was like the M&A environment changed significantly where new technologies are kind of neat you know maybe.
Maybe the businesses and needed some help and are more willing to be sellers here.
I think that's definitely the dynamic that we see it's similar to what I said to you on the last call, which is I think a lot of companies have very high valuation expectations and.
Pretty.
Strong strong kind of funding environments that no longer exists. So yes, we see we definitely see it as a pretty.
Pretty rich environment for M&A activity, and we have lots of activity going on.
I think our acquisition in December last year.
A good example of that relic.
Relatively small.
Organization based in Germany.
Great technology, Great engineers and difficulty in accessing the market they need to access which was easy with their technology, they're accessing traditional German automotive primarily what we.
<unk> has been a great acquisition for us and we would love to put more money to work then we did just with that one by.
Yeah, and that was a cool products. So thanks guys.
And our next question comes from the line.
<unk> with Needham and company. Please proceed which have a question.
Hi, Good morning. This is Clinton Shawn for Jam. Thank you very much for taking the questions.
If you could could you elaborate on the tracking that you're seeing with the emerging customers maybe speak to the composition of the funnel and the prospects and could you could you frame.
Maybe for the customer so you're targeting isn't it.
So how many of them is this a first foray into adopting machine vision <unk>.
In an effort to take shampoo or just lodge an existing solution.
Yeah, Thanks, Chris So uhm.
To paint the kind of picture in in context here So cognex.
Businesses succeeded over the years as the name implies that cognition experts, you know where where the most sophisticated provider of vision technology to automation and you can see that in terms of the companies that we work with they they're the most sophisticated automation companies and their industry is very often and that's been great for.
And it's allowed us to serve what is it about our customer base of about 30000 customers worldwide very successfully.
But over the years.
As happens in our industry technology has changed in our products have changed and now all products.
So difficult to use their <unk> easier to use and a lot more powerful.
And that's allowing us to have a different approach to the market where.
As as witness day with a 2800 that we launch with an edge learning technology scenario, where we lead in the market in terms of bringing powerful deep learning tools to customers easily we're able to take this technology and provide it very quickly and easily to customers, who don't have heavy engineering teams on.
Board so that we expect that's abroad and the number of customers that we can serve profitably from the 30000, we serve today to hundreds of thousands perhaps 200000 <unk>.
Going forward over the years and we need a sales force to go out and.
Meat and call on those customers regularly and they don't have to be our sales force does that would have to be highly qualified engineers right. They can be more people coming out of college, who have great sales personalities and reasonable technical skills. So that's kind of the backdrop right. So now we've been we've been running.
Pilots and and working on that process through this year and we've been learning a lot about the customers that we can say with our products how they respond what they need.
And we've been able to profile and we're doing that in a number of markets. Overall. So we're learning to your question about how they knew to vision or are they experienced uses the vision uhm I think we're finding more of them have vision than we had anticipated, but still a good portion so a little less than half really don't have much experience.
Confusion products or revision technology.
<unk> and others of them have.
Less sophisticated division technology, and less capable products from other companies and we are seeing a pretty broad range of those so it's kind of what we're seeing overall, we know we're in the process now training.
A large group of of of emerging customer sales noise and there'll be entering the field around the end of the year and and we'll be we're optimistic about our ability to have them make a lot of sales calls and sell our products very effectively to those target customers that we <unk>.
Have in mind.
Alright, I appreciate the call and thank you very much.
And our next question comes from the line of Jacob Levenson Research. Please proceed with your question.
Hi, good morning, everyone.
Good morning.
Paul <unk> I think I heard it mentioned on the consumer products and food and beverage for a couple of the only verticals as <unk> and do some <unk>.
I suppose there would you mind playing for <unk>, they were and that sort of covered Taiwan bucket might not be holding up so well. So is that is that just a function.
Customers have been delighted projects that they couldn't get thunder and cover it or or maybe projects to address labor shortages religious stomach.
Any color on what you're saying there are very helpful.
Yeah, It's robbed let me start off here I think I think the markets that we have seen some bad attraction in in this down market based logistics, we've spoken about.
Consumer products, which you mentioned N E E. B. So in terms of consumer products, we sell to companies, making often regulated good so difficult to to manufactured goods and they might include.
At the pharmaceuticals, they might include Uhm.
Or blades diapers products like that and often these companies have longer programs that that rolling out.
Some of them can be quite regulated in terms of tax and other things that are going on and they you know they can be more sizable products opportunities to you know food and beverage also kind of fits in with that kind of profile. So we we have seen more traction on that over the years and last quarter was no different where it comes.
Chinese are concerned about tracking on pricing their products through the supply chain <unk> often collecting tax revenue on those types of products, we have great technology for them, which can really read barcodes and capture data very reliably through through the supply chain.
Tracking and tracing technology, so they look to us and yeah. So that's the kind of business that we've seen in <unk>.
Pretty healthy over the last few years and still looks I think quite good for us yeah.
And some of the Covid headwinds you mentioned, Jake we would've put those that are medical related industry. So a little bit of a separate classification, then consumer products and food and beverage.
Okay. That's helpful.
The bus to work.
And as a reminder, if anyone has any questions you may 1st Star one on your telephone keypad to join the question in here. Thank you.
Our next question comes from the line of <unk>.
Hi, Thanks for taking my question.
What kind of follow up on the imaging.
Customer initiatives. So so have you.
What about the the payback period, how should we think of the payback period for that.
Investment $25 million to $30 million and internally what metrics or you.
Using it kind of assumes put employee.
Kind of <unk>, yeah and.
Give someone details on that.
Yeah, I think you know for competitive reasons, we wanted to be a little bit careful, but what we say about that but.
We arrived we're running pilots of course sales per salesperson is pretty important we implemented them salesforce dot com over the last few years. So we're really able to have a much more professional I would say approach to tracking sales activity and call and what the calls were also.
Gain a lot of data in value from the market, where we can also sell these customers into more sophisticated technology as they grow and develop with us. So we have a lot of K P. Ice around this that we're tracking tracking very carefully uhm I think of this as a you know a longterm initiative for Cognex. So I think if this goes very well.
We will put salespeople in the field, we will see them ramp to our expectations there'll be contributing.
Hopefully accretive too gross margin and over time the people behind now will be operating margin accretive, but I think if this goes well, we're gonna keep adding them because I think we like some other companies see a lot of potential for a lodger and user sales presence, where we're currently on customers that are underserved today.
And thanks for them.
I'm sorry go ahead.
My boss did a great job nothing to add from the finance side [laughter].
[laughter]. Thanks, it's on the battery side Nobody'll seeing we are hearing of some push ups in China and and even in the U S. Forward I think a couple of weeks back talked about.
Kind of pushing out the ramp on the <unk> the higher losses.
Are you seeing any.
Any impact from.
Lower than expected pricing for <unk> and things like that.
Thank you.
It says here.
Is that that's not apparent to me no I.
Who manufacturer easy batteries in there you know there aren't a ton of them.
Thinking really of 10 or so they.
They have plans to execute on scaling up manufacturer right, so China might be a little different.
I can see Pepsi with more capacity in China or any of the battery, but I think outside of China.
And that's the only things down in terms of time to execution, you know and then it's not and it is not an example of E V. But you know I think we will read about semiconductor I think who faces some sort of similar challenges and where they're looking to.
They're looking to start up manufacturing and I'd states, it's proving more difficult finding the qualified labor that they need or getting the resources lined up and executing on that so I see that sort of phenomenon being driven by the investment.
The I R, a and and and and I and I think it's a phenomenon that's just causing some delays.
Okay. Thanks, and the final question is on four Q and I know you don't you guys only do one portrayed but.
Seasonal equal to his typically been down about 10% or so sequentially D would you expect any any change in that seasonality. This here.
Q Q for you know it it's difficult to make calls and <unk> <unk> Q.
Q for some of the phenomenon.
Phenomena that go on in queue for it tends to be a lower consumer electronics quota for us and you know there's no reason to think different from this year.
And they can be end of the year spend that goes on in kind of budget slash spend in this case, we're we're <unk>, we're not expecting that given the environment that we see.
Yeah, I would just caution item that we've had we've had a lot of variation of our seasonality with you know.
The impact of logistics I know any.
720, 22, 2021, 2020, there was quite different seasonality and logistics from Q3 to queue for consumer electronics. This is more predictable as as as Rob noted and then excluding those two industries I think the presence or absence of a budget flushes, probably the the biggest driver of how well revenue hold up in Q4 versus potentially declines best so.
No.
There's a reason we're not really giving we're not getting guidance on that I think the only one of those that we could probably call that would be.
At this point, we're not projecting an increase in logistics in Q4 is kind of per per Rob's comments, and we would expect consumer electronics remained needed.
Okay, ladies and gentlemen, got a little note here from head of I are saying that the the <unk>.
Ramp on some projects in E V. Nothing to do really with college, Max I think to do with the market overall and and that's it had to do with companies struggling with execution rarely and moving a geography away from.
Uhm certain markets towards the United States because of the inflation reduction act and the incentives to build out here of us as in Europe and other parts of Asia I did mention to you that I think there may be more more supply and more capacity in China. Currently uhm. So that may mean that some of the plans that may be cooling a little but.
It doesn't change I think I'll longterm view about the huge opportunity we see in helping to automate this.
Important growth industry.
Thanks, guys I'm thinking.
Our next question comes from the line of Raw Nation. When Bird. Please proceed with your question.
Good morning, there was questions around the logistics business earlier on.
Just to maybe seeing some green shoots around the parcel post effort to try to penetrate that further I'm just curious.
Is that mainly going to be through the.
<unk> of some greenfield opportunities I would I would think that's more of a brownfield opportunity, but just you know.
Seeing those early signs and then just around the maybe the installed base.
Is there a refresh cycle that needs to happen there I'm just curious what the state of the current technology is an installed base.
Hi, Robin Thanks for the for the question, Yes, I think we were really focusing quite a lot on big E Commerce, Uhm and those answers, but I'm glad you brought up a parcel and post because those are important markets that were making a lot of progress and we launch the modular vision tunnel earlier this year, which is.
And the data manned 580, which is very capable for parcel and packaging companies and.
And those companies are wearing trials with them on on this product and that technology and I think it's going very well and their their applications very often are about you know getting more capacity out of existing facilities that they have this note. This almost no cognex product in those facilities. So it's replacing older.
Online scan technologies that is hard to maintain and and you know somewhat out of date that their replacing with with our technologies and then there are also potential new facilities also being built for them.
We see some of those in Europe , currently where we're working and I think we're well positioned so that is another area, where we may see inflection you know in our business.
I see.
Just a quick question Paul the third quarter operation topics guidance calls for expenses to be down even though the emerging customer.
<unk> will be going up and I may have missed this I joined late but did you quantify what that investment will be sequentially and an emerging customer level and then you know I'm just curious how the fourth quarter of Opex would look if that becomes more visible.
Fourth quarter that increased emerging customer with us Sir yeah, I mean, the emerging customers as of a few million dollar increase I'd say again, it's it's about a 30 25 to 30 million dollar annual investment in about a 10 million dollar run right in Q3, and Q4, so not necessarily a step.
We're we're managing discretionary expenses.
Quite tightly.
Emerging customers investment is is sort of at at run rate reflected in our guidance and there's always a little bit of movement and you know things like uhm incentive compensation.
Understood.
Very good thank you.
And our next question comes from the line of Keith how some with North Coast researched. Please proceed with your questions.
Good morning, I, just want to unpack your commentary regarding your new products over the past six months.
Is there an opportunity with the new products. There are openings at the news cases are new and markets that perhaps we haven't seen in a historical results.
Hi, Sam.
I think I think a big play there, which I I tried to tried to cover in my prepared remarks is really that's a lot of the products, we're launching are easier to use and easier to sell.
Going forward, so that certainly in a big play in that regard you know I would also point is this drug.
<unk> My son was asking about possible and post the products, we've launched over the last year of the last six months such as the module Division tunnel. The data manned 580, a very much targeted at.
High speed high performance Maslow type applications lots of puzzles moving down Ah Ah line lots of image capture lots of management of data that comes off and out.
A tunnel right. So those are markets that we haven't been able to serve without technology before but parcel and posts and logistics is now an area that we can set up so I would say any points of those as markets, where we have little or no presence today and would expect to have significant presence. Thanks to these products going forward.
Great. That's helpful. I appreciate it and then just follow up you know there's been a lot of communication you know the past year or two regarding nearshoring manufacture of silliest moving plants auto China to Vietnam to India and whatnot.
Seeing the growth opportunities from that transition or these yet to develop and maybe come through work on that.
We certainly do see lots of activity in that area and we see some of our large customers you know and diversifying their supply chains away from China, particularly in consumer electronics.
But it also an automotive and I would say.
It's definitely a trend is continuing and will continue over many years I think some of the challenges around execution, though have been have been difficult for then labor labor shortages getting the quality of engineering and just quality of production and some of these markets. So that may be causing some of the progress to be a little slower than than than we would expect.
And then they would've expected I think.
Great. Thank you.
And we have reached T. And then a question and answer session I'll now turn the call back over to Rob was excellent closing remarks.
Well, thank you very much for joining mmm.
We look forward to speaking with you again on next quarter's call.
And this concludes today's conference and you may disconnect or not at this time.
For your participation.
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