Q3 2023 Cognex Corporation Earnings Call
Speaker 1: Greetings and welcome to the COG-Next 3rd Quarter 2023 Earnings Conference call. At this time, all participants are on a listen only mode. A brief question and answer session will follow the formal presentation. If anyone should require operator assistance during the conference, please press star zero on your telephone keypad. As a reminder, this conference
Greetings and welcome to the Cognex third quarter 2023 earnings conference call at.
At this time all participants are in a listen only mode.
A brief question and answer session will follow the formal presentation.
If anyone should require operator assistance during the conference. Please press star zero on your telephone keypad.
As a reminder, this conference is being recorded.
Speaker 1: It is now my pleasure to introduce your host, Nathan McKern, Head of Investor Relations. Thank you.
It is now my pleasure to introduce your host you said mckern head of Investor Relations. Thank you. Please go ahead.
Speaker 2: Thank you, Donna. Good morning and happy Halloween, everyone, and thank you for joining us. With me on today's call are Rob Willett, Cognex's President and CEO , and Paul Todjem, our CFO , formerly known as Sheriff Woody and Ham from Toy Story at Cognex's annual Halloween celebration last week.
Thank you Donna.
Morning, and happy Halloween, 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, formerly known as Sheriff Woody and half from toy story at Cognex is annual Halloween celebration last week our.
Speaker 2: Our results were released more early today. The press release and quarterly report on Form 10Q are available on the Investor Relations section of our website.
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.
Speaker 2: Both the press release and our call today will reference non- GAAP measures . You can see a reconciliation of certain items from GAP to non-GAP and 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. Our actual results made different materially from our projections due to the risks and uncertainties that are described in our SEC filing, including our most recent form 10K and our form 10Q filed this morning for Q3. With that, I'll tell you.
Both the press release and our call today, we 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.
Our 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 Q3.
With that I'll turn the call over to Rob.
Speaker 3: Thanks, Nathan. Hello everyone and thank you for joining us.
Thanks, Nathan Hello, everyone and thank you for joining us.
Speaker 3: We delivered third quarter revenue, gross margin, and operating expenses in line with our guidance. Businessiel would like to encourage businesses to visit www.ONE.com experience.
We delivered third quarter revenue gross margin and operating expenses in line with our guidance.
Business conditions continue to be difficult.
Speaker 3: the operating environment remains similar to what we saw last quarter across each of our end markets.
Operating environment remains similar to what we saw last quarter across each of our end markets.
Speaker 3: As expected, consumer electronics faced the steepest decline in the quarter. This was driven by both project timing and software demand, particularly in China, where the underlying market remains cautious and customers are managing inventory to lower level.
As expected consumer electronic space, the steepest decline in the quarter. This was driven by both project timing and softer demand, particularly in China, where the underlying market remains cautious and customers are managing inventory to lower levels.
Speaker 3: We expect China to continue to be a challenging market for us and appears in the near to medium term.
We expect China to continue to be a challenging market for us and our peers in the near to medium term.
Speaker 3: Despite these headwinds, we continue to focus on long-term growth and take important steps to execute our strategy.
Despite these headwinds we continue to focus on long term growth and taken important steps to execute our strategy.
Speaker 3: In the third quarter, we grew our served market as we entered two important adjacencies.
In the third quarter, we grew our served market as we enter two important adjacencies.
Speaker 3: the vision sensor market, and the optical components market.
Vision sensor market and the optical components market.
Speaker 3: These two markets expand our served market by $1.5 billion, adding to our served market previously sized at $6.5 billion.
These two markets expand our served market by $1 $5 billion, adding to our served market previously sized at $6 5 billion.
Operator: Greetings and welcome to the Cognex third quarter 2023 earnings conference call. At this time, all participants are on a listen only mode. A brief question and answer session will follow the formal presentation.
Let me start with the exciting market for vision sensors that we recently entered in.
Operator: If anyone should require operator assistance during the conference, please press star zero on your telephone keypad. As a reminder, this conference is being recorded.
In September we launched the insights snap vision sensor redefining standards for ease of use accuracy and functionality and an industrial sensor.
Nathan McCurren: It is now my pleasure to introduce your host, Nathan McCurren, Head of Investor Relations. Thank you, please go ahead. Thank you, Donna.
Speaker 3: How it by pre-trained AI, the InSight SNAP sensor is our easiest to sell and easiest to use product ever launched.
Powered by pre trained AI. The insights snap sensor is are easiest to sell and easiest to use product ever launched.
Nathan McCurren: Good morning and happy Halloween, everyone, and thank you for joining us.
Speaker 3: The insight SNAP sensor solves a range of common quality control challenges, including presence, absence, inspection, assembly verification, and defect detectives.
The insights snap sensor so a range of common quality control challenges, including presence absence inspection assembly verification and defect detection.
Nathan McCurren: With me on today's call, our Rob Willett Cognex's president and CEO and Paul Todgham RCFO, formerly known as Sheriff Woody and Ham from Toy Story at Cognex's annual Halloween celebration last week. Our results were released more released earlier today. The press release and quarterly report on form 10Q are available on the Investor Relations section of our website.
Speaker 3: Vision-based sensors are a step up from conventional laser-based sensors, providing superior capabilities to locate features and pots in any position and to improve defect detection.
Vision based sensors are a step up from conventional laser based sensors, providing superior capabilities to locate features and parts in any position and to improve defect detection.
Nathan McCurren: Both the press release and our call today will refer to different non-gap measures. You can see a reconciliation of certain items from gap to non-gap and exhibit two of the press release.
Speaker 3: Inside Snap shares common hardware with our vision systems and is trained using just a few examples. It does not require any programming or vision knowledge by the user. Additionally, the web-based user interface allows customers to plug in and run the sensor from anywhere using a standard web browser. The first Cognex product to not require software for installation.
Inside snap shares common hardware without vision systems and has trained using just a few examples it does not require any programming or vision knowledge by the user.
Nathan McCurren: Any forward-looking statements we made in the press release or any that we may make during this call are based on information that we believe to be true as of today. Our actual results made different materially from our projections due to the risks and uncertainties that are described in our SEC filing, including our most recent form 10K and our form 10Q filed this morning for Q3.
Additionally, the web based user interface allows customers to plug in and run the sense from anywhere using a standard web browser. The first cognex products to not require software for installation.
Rob Willett: With that, I'll turn the call over to Rob. Thanks, Nathan.
Speaker 3: Vision sensors will allow us to reach the new and broader customer base. We're targeting with our emerging customer sales.
Vision census will allow us to reach the new and broader customer base, we're targeting with our emerging customer salesforce.
Rob Willett: Hello, everyone, and thank you for joining us. We delivered third quarter revenue, gross margin, and operating expenses in line with our guidance. Business conditions continue to be difficult. The operating environment remains similar to what we saw last quarter across each of our end markets. As expected, consumer electronics faced the steepest decline in the quarter. This was driven by both project timing and soft to demand, particularly in China, where the underlying market remains cautious and customers are managing inventory to lower levels. We expect China to continue to be a challenging market for us and appears in the near to medium term.
Speaker 3: Insight Snap will be the gateway for these customers into the Insight Programming Environment. And we'll then offer a pathway to our more powerful vision system.
Insight snap will be the gateway for these customers into the insight programming environment and we will then offer a pathway to a more powerful vision systems.
Rob Willett: Despite these headwinds, we continue to focus on long-term growth and take important steps to execute our strategy.
Speaker 3: While this product will be offered at a lower price point than our vision systems, we expect this to be a gross margin of creatives product line.
While this product will be offered at a lower price point than our vision systems. We expect this to be a gross margin accretive product line.
Speaker 3: We continue to make progress with our emerging customer initiative. We've completed hiring for the year and many of the initial hires are in the final stages of training.
We continue to make progress with our emerging customer initiatives, we've completed hiring for the year and many of the initial hires are in the final stages of training.
Speaker 3: We continue to learn and evolve our model in these early stages. Based on what we're seeing, we remain confident in the growth potential and strong returns of this initiative, and plans to continue to invest in this initiative in 2024.
We continue to lead antibody bar model in these early stages based on what we're seeing we remain confident in the growth potential and strong returns of this initiative and plan to continue to invest in this initiative in 2024.
Speaker 3: The other market we recently entered is the high-end optical components market, a $500 million served market that we entered with our acquisition of Maritess.
The other market. We recently entered is the high end optical components market a $500 million served market that we entered with our acquisition of more attacks.
Rob Willett: In the third quarter, we grew our served market as we entered two important adjacencies, the vision sensor market and the optical components market. These two markets expand our served market by $1.5 billion, adding to our served market previously sized at $6.5 billion. Let me start with the exciting market for vision sensors that we recently entered. In September, we launched the insight SNAP vision sensor, redefining standards for ease of use, accuracy, and functionality in an industrial sensor.
Speaker 3: Maratex is an industry-leading premium optical components provider based in Japan.
<unk> is an industry, leading premium optical components provider based in Japan.
Speaker 3: Let me spend the moment and expand on why we like this transaction.
Let me spend a moment and expand on why we like this transaction.
Speaker 3: First, vision technology relies on acquiring an image before analyzing it. The better the image, the better the performance of our machine vision tool.
First vision technology relies on acquiring an image before analyzing it the better the image the better the performance of our machine vision tools.
Speaker 3: Historically, we focused the majority of our R&D on algorithm development, and customers often used third-party lenses and lights for image acquisition.
Historically, we focused the majority of our R&D on algorithm development and customers often used third party lenses and lights for image acquisition.
Rob Willett: Powered by pre-trained AI, the insight SNAP sensor is our easiest to sell and easiest to use product ever launched. The insight SNAP sensor solves a range of common quality control challenges, including presence absence inspection, assembly verification, and defect detection. Vision-based sensors are a step up from conventional laser-based sensors providing superior capabilities to locate features and parts in any position and to improve defect detection. Insight Snap shares common hardware with our vision systems and is trained using just a few examples.
Speaker 3: Over the past decade, we've invested increasing amounts in up
Over the past decade, we've invested increasing amounts in optics. This led to a proprietary proprietary liquid lenses and more recently computational lighting from our acquisition of <unk>.
Speaker 3: This led to our proprietary liquid lenses, and more recently computational lighting from our acquisition of SAC.
Speaker 3: sophisticated optics allow us to capture images, such as those of barcodes in a dark recess between two boxes on the logistics line. Although on the reflective surface of an electric vehicle battery.
Sophisticated optics allow us to capture images, such as those with Barcodes and adopt recess between two boxes on the logistics line, while those on a reflective surface of an electric vehicle battery.
Speaker 3: These high-quality images, often acquired at fast speeds, can then be analyzed with our advanced barcode reading and deep learning algorithm.
These high quality images, often at quite a fast speeds can then be analyzed with our advanced Barcoding barcode reading and deep learning algorithms.
Speaker 3: Mauritax represents a bigger step into optics for us. Their products capture high-resolution, detailed images for their customers, who are some of the most sophisticated manufacturers that make it up to automotive and electronics capital equipment.
<unk> represents a bigger step into optics for us their products capture high resolution detailed images for their customers who are some of the most sophisticated manufacturers of semiconductor automotive and electronics capital equipment.
Rob Willett: It does not require any programming or vision knowledge by the user. Additionally, the web-based user interface allows customers to plug in and run the sensor from anywhere using a standard web browser. The first Cognex product to not require software for installation. Vision sensors will allow us to reach the new and broader customer base where targeting with our emerging customer sales force. Insight Snap will be the gateway for these customers into the insight programming environment and will then offer a pathway to our more powerful vision systems.
Speaker 3: Maratex also gives us a more substantial presence in Japan and important machine vision market where we have lower share.
<unk> also gives us a more substantial presence in Japan and important machine vision market, where we have lower share.
Speaker 3: Historically, we've considered embedded optics such as our liquid lens technology to be included in the serve markets of the product with which they are integrated.
Historically, we've considered embedded optics, such as our liquid lens technology to be included in the served markets that the product with which they are integrated.
Rob Willett: While this product will be offered at a lower price point than our vision systems, we expect this to be a gross margin or creative product line. We continue to make progress with our emerging customer initiative. We've completed hiring for the year and many of the initial hires are in the final stages of training. We continue to learn and evolve our model in these early stages. Based on what we're seeing, we remain confident in the growth potential and strong returns of this initiative and plans to continue to invest in this initiative in 2024.
Speaker 3: Now owning a portfolio of external optical components exposes us to an additional served market. We size the high end lens and lighting market at approximately $500 million. Maratex is an existing market leader and we aim to gain share in this attractive market.
Now owning a portfolio of external optical components exposes us to an additional served market we sized the high end lens in lighting market at approximately $500 million Mara.
<unk> is an existing market leader and we.
Aimed to gain share in this attractive market.
Speaker 3: Now, let me go into more detail on the financial profile of Mark.
Now let me go into more detail on the financial profile of Mar Tech.
Speaker 3: We expect Mara Text to account for 6 to 8% of our overall revenue.
We expect <unk> to account for 6% to 8% of our overall revenue.
Speaker 3: While the company's revenue has been growing, recently Maratex has been most focused on improving profitability through operational improvements and by focusing on higher end sophisticated segment of the optical components market.
While the company's revenue has been growing recently <unk> has been most focused on improving profitability through operational improvements and by focusing on higher end sophisticated segment of the optical components market.
Rob Willett: The other market we recently entered is the high-end optical components market, a $500 million served market that we entered with our acquisition of Morotex. Morotex is an industry-leading premium optical components provider based in Japan.
Speaker 3: MARTEX's heavy exposure to electronics and SEMI has also negatively impacted its recent growth.
Mara Texas heavy exposure to electronics and semi is also negatively impacted as recent growth.
Speaker 3: But we expect to see growth in those segments rebound as capital investment in equipment to support demand for chips grows over the remainder of this decade.
But we expect to see growth in those segments rebound as capital investment in <unk>.
Shipment to support demand for chips grows over the remainder of this decade.
Rob Willett: Let me spend the moment and expand on why we like this transaction. First, vision technology relies on acquiring an image before analyzing it, the better the image, the better the performance of our machine vision tools. Historically, we've focused the majority of our R&D on algorithm development and customers often used third-party lenses and lights for image acquisition. Over the past decade, we've invested increasing amounts in optics, this led to our proprietary liquid lenses, and more recently computational lighting from our acquisition of SAC.
Speaker 3: We believe we can grow this newly acquired business in line with our total company target growth of 15% in the long term by participating in strong market growth and gaining share. To gain share, we will leverage our sales network to broaden and accelerate distribution of Maritex products, and we will leverage our combined R&D capabilities to accelerate innovation.
We believe we can grow this newly acquired business in line with our total company target growth of 15% in the long term by participating in strong market growth and gaining share.
To gain share we will leverage our sales network to broaden and accelerate distribution of <unk> products, and we will leverage our combined R&D capabilities to accelerate innovation.
Speaker 3: In fact, our engineers are already collaborating on more integrated and advantaged optics and software for our combined businesses.
In fact, our engineers are already collaborating on more integrated and advantaged optics and software for our combined businesses.
Speaker 3: From a margin perspective, Maritex has gross margins of approximately 50%, distinguishing Maritex's premium offering from other less sophisticated optics companies.
From a margin perspective, <unk> has gross margins of approximately 50% distinguishing Maher, Texas premium offering from other less sophisticated optics companies.
Rob Willett: Sophisticated optics allow us to capture images, such as those of barcodes in a dark recess between two boxes on the logistics line, or those on the reflective surface of an electric vehicle battery. These high-quality images, often acquired of fast speeds, can then be analyzed with our advanced barcode reading and deep learning algorithms. Morotex represents a bigger step into optics for us. Their products capture high-resolution detailed images for their customers, who are some of the most sophisticated manufacturers of semiconductor automotive and electronics capital equipment. Morotex also gives us a more substantial presence in Japan, an important machine vision market where we have lower share.
Speaker 3: We expect about two percentage points of dilution to our total company gross margin as we integrate the business.
We expect about two percentage points of dilution to our total company gross margin as we integrate the business.
Speaker 3: Maritech's operating margin is in line with Cosnex's 30% target operating margin, so we expect this transaction to be neutral or accretive on an operating margin basis going forward.
<unk> operating margin is in line with Cognex is 30% target operating margin. So we expect this transaction to be neutral or accretive on an operating margin basis going forward.
Speaker 4: Before I go into further commentary on the outlook for Q4, I'd like to turn the call over to Paul to walk through more of the results. Thank you, Rob.
Before I go into further commentary on the outlook for Q4, I would like to turn the call over to Paul to walk through more of the results.
Thank you, Rob and Hello, everyone.
Speaker 2: Third quarter revenue was $197 million, a 6% year-on-year decline, or a 5% decline in constant currency.
Third quarter revenue was $197 million or 6% year on year decline or a 5% decline in constant currency.
Rob Willett: Historically we've considered embedded optics, such as our liquid lens technology, to be included in the serve markets of the product with which they are integrated. Now owning a portfolio of external optical components exposes us to an additional served market. We cite the high-end lens and lighting market at approximately $500 million. Maratex is an existing market leader and we aim to gain share in this attractive market.
Speaker 5: I will remind you of a couple items that impact the prior period comparison.
I'll remind you of a couple of items that impacted the prior period comparisons.
Speaker 5: First, in 2022, we had $20 million of revenue shift from the third quarter into the fourth quarter due to the fire at our primary contract manufacturer in June of 2022.
First in 2022, we had $20 million of revenue shift from the third quarter into the fourth quarter due to the fire at our primary contract manufacturer in June of 2022.
Speaker 5: This impact was broad, reaching across our geographies and end markets.
This impact was broad reaching across our geographies and end markets.
Speaker 5: An exception was consumer electronics, which was largely unaffected because of the timing of shipments into that market.
An exception was consumer electronics, which was largely unaffected because of the timing of shipments into that market.
Rob Willett: Now let me go into more detail on the financial profile of Maratex. We expect Maratex to account for 6% to 8% of our overall revenue. While the company's revenue has been growing, recently Maratex has been most focused on improving profitability through operational improvements and by focusing on higher end sophisticated segments of the optical components market. Maratex's heavy exposure to electronics and semi has also negatively impacted his recent growth. But we expect to see growth in those segments rebound as capital investment in equipment to support demand for chips grows over the remainder of this decade.
Speaker 5: We also discussed last quarter that approximately $15 million of consumer electronics revenue shifted into Q2 from Q3.
We also discussed last quarter that approximately $15 million of consumer electronics revenue shifted into Q2 from Q3.
Speaker 5: From an end market standpoint, our biggest year-on-year declines were in consumer electronics and SEMI.
From an end market standpoint, our biggest year on year declines were in consumer electronics and semi.
Speaker 5: Revenue from many other end markets, including logistics, automotive, and consumer products increased year on year in Q3.
Revenue for many other end markets, including logistics automotive and consumer products increased year on year in Q3.
Speaker 5: However, each of these markets benefited from relatively easy comparisons due to the disruption caused last year by the fire.
However, each of these markets benefited from relatively easy comparisons due to the disruption caused last year by the fire.
Speaker 5: The underlying business conditions we are seeing in each of these end markets remain consistent with what we reported last quarter.
The underlying business conditions, we are seeing in each of these end markets remained consistent with what we reported last quarter.
Speaker 5: Looking at revenue on a geographic basis, the most dramatic change was in China, which declined by approximately 40% year-on-year in constant currency.
Looking at revenue on a geographic basis, the most dramatic change within China, which declined by approximately 40% year on year in constant currency.
Rob Willett: We believe we can grow this newly acquired business in line with our total company target growth of 15% in the long term by participating in strong market growth and gaining share. To gain share we will leverage our sales network to broaden and accelerate distribution of Maratex products. And we will leverage our combined R&D capabilities to accelerate innovation. In fact, our engineers are already collaborating on more integrated and advantaged optics and software for our combined businesses.
Speaker 5: The Americas and other Asia regions grew by over 20% and by nearly 10% respectively due to increases in logistics, automotive, and other factory automation markets. Europe was
The Americas and other Asia regions grew by over 20% and by nearly 10% respectively due to increases in logistics automotive and other factory automation markets.
Europe was roughly flat in constant currency.
Speaker 5: Gross margin in Q3 was in line with expectations at 72%.
Gross margin in Q3 was in line with expectations at 72%.
Speaker 5: Compared to last year, favorability from the decline in broker buys was offset by unfavorable product and industry.
Compared to last year favorability from the decline in broker buys was offset by unfavorable product and industry mix.
Rob Willett: From a margin perspective, Maratex has gross margins of approximately 50%, distinguishing Maratex's premium offering from other less sophisticated optics companies. We expect about two percentage points of delusion to our total company gross margin as we integrate the business. Maratex operating margin is in line with Cognix's 30% target operating margin. So we expect this transaction to be neutral for a creative on an operating margin basis going forward.
Speaker 5: On a sequential basis, the step down in growth margin was due to unfavorable mix and volume deleverage.
On a sequential basis the step down in gross margin was due to unfavorable mix and volume deleverage.
Let's turn now to operating expenses.
Speaker 5: Operating expenses decreased slightly year on year on a gap.
Operating expenses decreased slightly year on year on a GAAP basis invest.
Speaker 5: investment in our emerging customer initiative, and transaction costs related to the acquisition of Moratex were offset by headcount management, tight management of discretionary spending, and lower incentive compensation.
Investment in our emerging customer initiatives and transaction costs related to the acquisition of more attacks were offset by head count management tight management of discretionary spending and lower incentive compensation.
Speaker 5: On a non-GAAP basis, operating expenses increased by 4% year on year and declined 3% sequentially, excluding fire-related items and more ATT&CK transactions.
On a non-GAAP basis operating expenses increased by 4% year on year and declined 3% sequentially, excluding fire related items and <unk> transaction costs.
Paul Todgham: Before I go into further commentary on the outlook for Q4, I'd like to turn the call over to pull to walk through more of the results. Thank you Rob and hello everyone. Third quarter revenue was $197 million, a 6% year on year decline or a 5% decline in constant currency. I'll remind you of a couple items that impact the prior period comparisons. First, in 2022, we had $20 million of revenue shift from the third quarter into the fourth quarter due to the fire at our primary contract manufacturer in June of 2022.
Speaker 5: non-GAAP operating margin was 15% in Q3, below Q3 of 2022 due primarily to our investment in emerging
non-GAAP operating margin was 15% in Q3 below Q3 of 2022, due primarily to our investment in emerging customers.
Speaker 5: Reported earnings were $0.11 per share in Q3 and $0.16 per share on a non-GAAP basis.
Reported earnings were <unk> 11 per share in Q3, and <unk> 16 per share on a non-GAAP basis.
Speaker 5: we had a couple of significant one-time items negatively impacting our GAP EPS. First, we reported
We had a couple of significant one time items negatively impacting our GAAP EPS.
First we reported a foreign currency loss given.
Speaker 5: Given the large movement in exchange rates between the U.S. dollar and the Japanese yen, we locked in a rate at signing of the Morotex transaction to have certainty around the dollar amount we would pay for the business.
Given the large movement in exchange rates between the U S dollar and the Japanese yen, we locked in a rate at signing of the more tech transaction to have certainty around the dollar amount we would pay for the business.
Paul Todgham: This impact was broad, reaching across our geographies and end markets. An exception was Consumer Electronics, which was largely unaffected because of the timing of shipment into that market. We also discussed last quarter that approximately $15 million of Consumer Electronics revenue shifted into Q2 from Q3. From an end-market standpoint, our biggest year-on-year declines were in consumer electronics and semi. Revenue from many other end-markets, including logistics, automotive, and consumer products increased year-on-year in Q3.
Speaker 5: The yen weakened after we entered into the agreement, and as a result, we reported a pre-tax loss of $8.5 million for the forward contract.
The yen weakened after we entered into the agreement and as a result, we reported a pretax loss of $8 5 million for the forward contract.
Speaker 5: Another headwind to GAAP EPS, with $4 million of unfavorable discreet tax
Another headwind to GAAP EPS was $4 million of unfavorable discrete tax expense.
Speaker 5: Moving on, the non-GAAP effective tax rate was 18% in Q3 of 2023 and 15% in Q3 of 2022.
Moving on the non-GAAP effective tax rate was 18% in Q3 of 2023 and 15% in Q3 of 2022.
Speaker 5: Turning to the balance sheet, Cognex reported a strong cash position at the end of Q3, with $846 million in cash and investments and no debt.
Turning to the balance sheet Cognex reported a strong cash position at the end of Q3 with $846 million in cash and investments and no debt.
Speaker 5: We closed the Moritex Transaction after quarter end. So this balance includes the nearly $300 million we subsequently used in that transaction.
Paul Todgham: However, each of these markets benefited from relatively easy comparisons due to the disruption caused last year by the fire. The underlying business conditions we are seeing in each of these end-markets remain consistent with what we reported last quarter. Looking at revenue on a geographic basis, the most dramatic change was in China, which declined by approximately 40% year-on-year in constant currency. The Americas and other Asia regions grew by over 20% and by nearly 10% respectively due to increases in logistics, automotive, and other factory automation markets.
We closed the <unk> transaction after quarter end. So this balance includes the nearly $300 million. We subsequently used in that transaction.
Speaker 5: After acquiring Moratex, we have sufficient capital to continue to support our organic growth objectives and M&A plans, and for continuing to return capital to shareholders through stock buybacks and dividends.
After acquiring more attacks, we have sufficient capital to continue to support our organic growth objectives, and M&A plans and for continuing to return capital to shareholders through stock buybacks and dividends.
Speaker 5: I want to provide some additional information about Moratex to help you better understand its impact on our business.
I want to provide some additional information about more attacks to help you better understand its impact on our business.
Speaker 5: We are excited about the returns that this investment can deliver. We have a high bar for the financial profile of acquisition targets, and we're pleased that Moratex clears this hurdle to contribute top-line growth and operating margins consistent with our overall company targets.
We are excited about the returns of this investment can deliver we have a high bar for the financial profile of acquisition targets and we're pleased that more attacks cleared this hurdle to contribute top line growth and operating margins consistent with our overall company targets.
Paul Todgham: Europe was roughly flat in constant currency. Growth margin in Q3 was in line with expectations at 72%. Compared to last year, favorability from the decline in broker buys was offset by unfavorable product and industry mix. On a sequential basis, the step down in growth margin was due to unfavorable mix and volume de-leverage.
Speaker 5: This, along with substantial opportunity for early revenue synergies, leads to an expected return on invested capital well in excess of our cost of capital by years four to five.
This along with substantial opportunity for early revenue synergies leads to an expected return on invested capital well in excess of our cost of capital by years four to five.
Speaker 5: We expect the deal to be accretive to EPS on a gap basis starting in 2025.
We expect the deal to be accretive to EPS on a GAAP basis, starting in 2025.
Speaker 5: First, Moratex is facing similar operating conditions as we are, but with more exposure to electronics and SEMI, so the immediate contribution is less than what we anticipate in the mid to long term.
First more Texas facing similar operating conditions as we are but with more exposure to electronics and semi so the immediate contribution is less than what we anticipate in the mid to long term.
Paul Todgham: Let's turn now to operating expenses. Operating expenses decreased slightly year-on-year on a gap basis. Investment in our emerging customer initiatives and transaction costs related to the acquisition of Moritex were offset by headcount management, tight management of discretionary spending, and lower incentive compensation. On a non-gap basis, operating expenses increased by 4% year-on-year and declined 3% sequentially, excluding fire-related items and Moritex transaction costs. Non-gap operating margin was 15% in Q3. Below Q3 of 2022, due primarily to our investment in emerging customers.
Speaker 5: More importantly, immediate EPS dilution on a gap basis is primarily driven by foregone investment income, intangible asset amortization, and acquisition.
More importantly, the immediate EPS dilution on a GAAP basis is primarily driven by foregone investment income intangible asset amortization and acquisition costs.
Speaker 5: Excluding acquisition costs and intangible amortization, we expect the deal to be immediately accretive to EPS in 2024.
Excluding acquisition costs and intangible amortization, we expect the deal to be immediately accretive to EPS in 2024.
Speaker 5: In the fourth quarter, we expect one-time charges of approximately $15 million driven mostly by items relating to the Morotech acquisition.
In the fourth quarter, we expect onetime charges of approximately $15 million driven mostly by items relating to the <unk> acquisition.
Speaker 5: This includes acquisition expenses, as well as an increase in cost of revenue to increase Moritech's inventory to fair market value consistent with purchase accounting requirements.
This includes acquisition expenses as well as an increase in cost of revenue to increase <unk> inventory to fair market value consistent with purchase accounting requirements.
Paul Todgham: Reported earnings were 11 cents per share in Q3 and 16 cents per share on a non-gap basis. We had a couple of significant one-time items negatively impacting our gap EPS. First, we reported a foreign currency loss. Given the large movement in exchange race between the US dollar and the Japanese yen, we locked in a rate at signing of the Moritex transaction to have certainty around the dollar amount we would pay for the business.
Speaker 5: These changes are roughly evenly split between cost of sales and OPEX with a small portion hitting below the line in other income expenses.
These changes are roughly evenly split between cost of sales and opex with a small portion hitting below the line in other income and expense.
Speaker 5: Additionally, we expect intangible asset amortization related to Moratex of approximately $1 million.
Additionally, we expect intangible asset amortization related to <unk> of approximately $1 million.
Speaker 5: Our fourth quarter results will include about six weeks of operating results from Moratex. As we will be reporting the results of Moratex on a one-month lag, given the differences in time required to close the books each quarter.
Our fourth quarter results will include about six weeks of operating results from more attacks as we will be reporting the results of more attacks on a one month lag given the differences in time required to close the books each quarter we.
Paul Todgham: The yen weakened after we entered into the agreement, and as a result, we reported a pre-tax loss of $8.5 million for the forward contract. Another headwind to gap EPS was $4 million of unfavorable discrete tax expense. Moving on, the non-gap effective tax rate was 18% in Q3 of 2023 and 15% in Q3 of 2022. Turning to the balance sheet, Cognac reported a strong cash position at the end of Q3 with $846 million in cash and investments and no debt.
Speaker 5: We closed the transaction on October 18th, so our Q4 results will include more text operations from then through the end of November .
We closed the transaction on October 18th So our Q4 results will include <unk> operations from them through the end of November.
Speaker 5: As our financial results begin to be more materially impacted by these non-recurring or purchase accounting charges, we will be making changes to our non- GAAP measures going forward.
Yes.
As our financial results begin to be more materially impacted by these nonrecurring purchase accounting charges, we will be making changes to our non-GAAP measures going forward having.
Speaker 5: Having closed the Moritex Transaction in the fourth quarter, we will begin to report non-GAP metrics that exclude the impact of acquisition costs and intangible asset amortization next quarter. We will provide more color as we roll out this change with Q4 reporting.
Having closed the <unk> transaction in the fourth quarter, we will begin to report non-GAAP metrics that exclude the impact of acquisition costs and intangible asset amortization next quarter.
Paul Todgham: We closed the Moritex transaction after quarter-end, so this balance includes the nearly $300 million we subsequently used in that transaction. After requiring Moritex, we have sufficient capital to continue to support our organic growth objectives and M&A plans, and for continuing to return capital to shareholders through stock buybacks and dividends.
We will provide more color as we rollout this change with Q4 reporting.
Speaker 5: As we announce this morning, our Board of Directors has increased the quarterly cash dividend by 7% to 7.5%.
As we announced this morning, our board of Directors has increased the quarterly cash dividend by 7% to seven five cents.
Speaker 3: This demonstrates the continued confidence in Cognex's financial strength and long-term growth prospects. Now, I'll turn the call back over to Rob. Thanks, Paul. Turning now to our fourth quarter outlook, we expect revenue to be between $175 million and $195 million, including $5 million to $7 million of revenue from MarTech.
This demonstrates the continued confidence in cognex of financial strength and long term growth prospects.
Paul Todgham: I want to provide some additional information about Moritex to help you better understand its impact on our... Business. We are excited about the returns that this investment can deliver. We have a high bar for the financial profile of acquisition targets, and we're pleased that Moritex clears this hurdle to contribute top line growth and operating margins consistent with our overall company targets. This, along with substantial opportunity for early revenue synergies, leads to an expected return on invested capital while in excess of our cost of capital by years 4 to 5.
Now I'll turn the call back over to Rob. Thanks, Paul turning now to our fourth quarter outlook, we expect revenue to be between 175, and $195 million, including $5 million to $7 million of revenue for Mar Tech.
Speaker 3: This is relatively in line with the third quarter as we continue to manage through a challenging operating environment.
This is relatively in line with the third quarter as we continued to manage through a challenging operating environment.
Speaker 3: We expect gross margin to be approximately 70% on a non-GAP basis, primarily due to continued operating de-leverage and unfavorable mix.
We expect gross margin to be approximately 70% on a non-GAAP basis, primarily due to continued operating deleverage and unfavorable mix.
Paul Todgham: We expect the deal to be a creative to EPS on a gap basis starting in 2025. First, Moritex is facing similar operating conditions as we are, but with more exposure to electronics and semi. So the immediate contribution is less than what we anticipate in the mid to long term. More importantly, immediate EPS dilution on a gap basis is primarily driven by foregone investment income, intangible asset amortization, and acquisition costs. Excluding acquisition costs and intangible amortization, we expect the deal to be immediately accretive to EPS in 2024.
Speaker 3: As we look forward beyond Q4, we expect it to be challenging to achieve our mid-70% target until we return to stronger growth and fully integrate Maritax.
As we look forward beyond Q4, we expect it to be challenging to achieve our mid 70% target until we return to stronger growth and fully integrate martech.
Speaker 3: Considering near-term pressures, we will remain diligent about cost management. Sequentially, we expect OPEX to increase slightly on a non-gap basis, primarily due to the timing of incentive compensation.
Considering near term pressures, we will remain diligent about cost management sequentially, we expect opex to increase slightly on a non-GAAP basis, primarily due to the timing of incentive compensation.
Speaker 3: We remain confident in our ability to manage through a challenging operating environment, and are excited about the strategic investments we have made, which will help us return to our long-term growth model.
We remain confident in our ability to manage through a challenging operating environment and are excited about the strategic investments, we have made which will help us return to our long term growth model.
Paul Todgham: In the fourth quarter, we expect one time charges of approximately $15 million driven mostly by items relating to the Moritex acquisition. This includes acquisition expenses, as well as an increase in cost of revenue to increase Moritex inventory to fair market value consistent with purchase accounting requirements. These changes are roughly evenly split between cost of sale and OpEx with a small portion hitting below the line in other income expense. Additionally, we expect intangible asset amortization related to Moritex of approximately $1 million.
Speaker 3: Now we will open the call for questions. Operator, please go ahead.
Now we will open the call for questions. Operator. Please go ahead.
Yes.
Speaker 1: Thank you. The floor is now open for questions. If you would like to ask a question, please press star one on your telephone, keypad at this time. A confirmation tone will indicate your line is in the question queue. You may press star two if you would like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up the handset before pressing the starter keys. Again, that's star one to register question at this time. Today's first question is coming from Jacob Levinson of Mealius Research. Please go ahead. The first question is coming from Jacob Levinson of Mealius Research. Please go ahead.
Thank you the floor is now open for questions. If you would like to ask a question. Please press star one on your telephone keypad at this time.
<unk> total indicate your line is in the question queue. You May Press Star two if you would like to remove your question from the queue for participants using speaker equipment. It may be necessary to pick up the handset before pressing the star Keys again Thats Star One to register a question at this time. Today's first question is coming from Jacob Levenson of Melius Research. Please go ahead.
Paul Todgham: Our fourth quarter results will include about six weeks of operating results from Moritex, as we will be reporting the results of Moritex on a one month lag given the differences in time required to close the books each quarter. We close the transaction on October 18, so our Q4 results will include Moritex operations from then through the end of November. As our financial results begin to be more materially impacted by these non-recurring or purchase accounting charges, we will be making changes to our non-gap measures going forward.
Ed.
Good morning, everyone.
Speaker 6: Good morning.
Good morning.
Speaker 7: Maybe just looking around the world at your major end markets and other, the cops are a little wonky, but can you give us a sense of what you're, what you're hearing from the field and what your customers are telling you and consumer electronics and logistics and just kind of what the demand is looking like over the next couple of quarters, because certainly it's a message of starting season. So just curious what you're hearing.
Maybe just.
Looking around the world as your major end markets with comps a little wonky, but can you give us a sense of what you are.
Youre hearing from the field and what your customers are telling them.
In our consumer electronics, and logistics and it was kind of what the demand is looking like over the next couple of quarters because certainly.
Paul Todgham: Having closed the Moritex transaction in the fourth quarter, we will begin to report non-gap metrics that exclude the impact of acquisition costs and intangible asset amortization next quarter. We will provide more color as we roll out this change with Q4 reporting.
Yes.
It's not massive it's earning Susan so just curious what youre hearing.
Speaker 3: Yes, let me start with consumer electronics.
Yes, let me start with consumer electronics.
Paul Todgham: As we announced this morning, our Board of Directors has increased the quarterly cash dividend by seven percent to seven and a half cents.
Speaker 3: So I think the down year we expected in consumer electronics in 2023 played out in Q3. Much as we expected, the year was skied towards Q2. And I think we're waiting to see how next year is gonna play out in that market overall. Certainly, you know.
So I think the down year, we expected in consumer electronics in 2023 played out in Q3.
Paul Todgham: This demonstrates the continued confidence in Cognix's financial strengths and long-term growth prospects.
Rob Willett: Now, I'll turn the call back over to Rob. Thanks, Paul. Turning now to our fourth quarter outlook, we expect revenue to be between $175 and $195 million, including $5 to $7 million of revenue for Moritex. This is relatively in line with the third quarter as we continue to manage through a challenging operating environment. We expect growth margin to be approximately 70% on a non-gap basis, primarily due to continued operating de-leverage and unfavorable mix.
And much as we expected the year was skewed towards Q2, and I think where we.
We're waiting to see kind of how next year is going to play out in that market overall.
Certainly.
Speaker 4: Softer consumer demand in both the premium smartphone segment is a challenge. And I'd say customers are being more conservative on plans to invest capital to automate.
Softer consumer demand in both the premium smartphone segment.
Is.
It is a challenge.
And.
I'd say I'd say customers are being more conservative on plans to invest capital to automate.
Speaker 4: And it also says some of the transition we're expecting in supply chains has been a little slower to materialize than we expected.
And I would also say some of the transition.
<unk> and supply chain, so it's been a little slower to materialize than we expected I.
Rob Willett: As we look forward beyond Q4, we expect it to be challenging to achieve our mid-70% target until we return to stronger growth and fully integrate Moritex. Considering near-term pressures, we will remain diligent about cost management. Sequentially, we expect OPEX to increase slightly on a non-gap basis, primarily due to the timing of insensitive compensation. We remain confident in our ability to manage through a challenging operating environment, and are excited about the strategic investments we have made, which will help us return to our long-term growth model.
Speaker 4: I think we normally don't have a really good sense of how next year is gonna shape out until we get into the spring of next year and that's normally when we give you an overall look. But generally I'd say that market looks very challenging at the moment, but long-term, the potential clearly is still there and strong in consume electronics. Customers.
I think we are.
We normally don't have a really good sense of how next year is going to shape out until we get into the spring of next year and that's normally when we gave you an overlook but.
Generally I would say that market looks very challenging at the moment.
But long term the potential clearly is still there and strong and consumer electronics customers do have ambitious plans for smartphones and wearable devices and new technologies coming to market.
Speaker 4: do have ambitious plans for smartphones and wearable devices and new technologies coming to market. And automation is still very much front and center in terms of their plans in terms of improving cost and quality. And then finally, the opportunity of machine vision to improve cosmetic appearance in that market and eliminate defect.
And automation is still very much front and center in terms of their plans in terms of improving cost and quality and then finally the opportunity of machine vision to improve cosmetic appearance in that market.
Operator: Now, we will open the call for questions. Operator, please go ahead. Thank you.
Operator: The floor is now open for questions. If you would like to ask a question, please press star 1 on your telephone, keypad at this time. A confirmation tone will indicate your line is in the question queue. You may press star 2 if you would like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up the handset before pressing the starter keys. Again, that's star 1 to register a question at this time.
Emanate defects.
Speaker 4: is very substantial. So I'd say short term looks challenging, long term still very much intact. If I then turn to...
<unk> is very substantial so I would say.
Short term looks challenging long term still very much intact.
I then turn to.
Logistics.
Speaker 4: You know, the justics, you know, did grow in Q3 both year on year and sequentially at Cognac.
<unk> did grow in Q3, both year on year and sequentially at Cognex, but I think our feeling is where we're still bumping along the bottom in terms of that business, it's been a difficult market for the past six quarters.
Speaker 4: But I think our feeling is, you know, we're still bumping along the bottom in terms of that business. It's been a difficult market for the past six quarters.
Jacob Levinson: Today's first question is coming from Jacob Levinson of Mealius Research. Please go ahead. Good morning, everyone. Good morning. Maybe just looking around the world at your major end markets and at the cops are a little wonky, but can you give us a sense of what you're hearing from the field and what your customers are telling you in consumer electronics and logistics and just kind of what the demand is looking like over the next couple of quarters, because certainly, it's not necessarily the turning season, so just curious what you're hearing.
Speaker 4: A few lodge your e-commerce players are still working through excess capacity during due to the pandemic and the rest of logistics is slower.
<unk>.
A few.
Larger E Commerce players is still.
Working through excess capacity during due to the pandemic and the rest of logistics is slower than we like but we do expect logistics will be strongly accretive to growth for many years. After we get through the current situation, we see lots of opportunity and our products.
Speaker 4: But we do expect logistics will be strongly accretive to growth for many years after we get through the current situation.
Speaker 4: We see lots of opportunity and our products increasingly you know, addressing that opportunity as small a customer.
<unk>.
Addressing that opportunity of smaller customers.
Speaker 4: with the potential to contribute more, particularly in developing market.
The potential to contribute more particularly in developing markets definitely vision technology is.
Rob Willett: Yes, let me start with consumer electronics. I think the down year we expected in consumer electronics in 2023 played out in Q3. Much as we expected, the year was skied towards Q2. I think we're waiting to see how next year is going to play out in that market overall. Certainly, it's not to consume a demand in both the premium smartphone segment is a challenge. I'd say customers are being more conservative on plans to invest capital to coordinate.
Speaker 4: definitely vision technology is really exciting in terms of what it can provide. We're penetrating the possible
Is really exciting in terms of what it can provide.
We're penetrating the parcel and post sector of logistics, which is quite a large sector. We haven't been able to address with our products in the past and are now able to and we recorded.
Speaker 4: Sector of logistics, which is quite a large sector. We haven't been able to address with our products in the past, and are now able to, and we recorded that.
Speaker 4: pretty substantial when with a very major player in that sector. So I think it's a promise there. And the potential we see for e-commerce in India for logistics is very strong. But I think getting to your question, I think we're still waiting to see when the inflection point is going to come. We're confident it will. We expected to come at some point next year, but there's still lacking clarity on where we are in terms of that recovery and logistics.
Pretty substantial win with a very major player in that sector.
I think most of promise there and the potential we see for E. Commerce in India from logistics is very strong, but I think getting to your question I think we're still waiting to see when the inflection point is going to come and we're confident it will we expect it to come at some point next year, but there is still lacking clarity on kind of where we are in terms of.
Rob Willett: I'd also say some of the transition we're expecting in supply chains has been a little slower to materialize than we expected. I think we normally don't have a really good sense of how next year is going to shape out until we get into the spring of next year, and that's normally when we give you an overall look. Generally, I'd say that market looks very challenging at the moment, but long-term, the potential clearly is still there and strong in consumer electronics.
That recovery in logistics.
Speaker 7: that felt more and just under different topic and you guys have
Okay. That's helpful.
On a different topic.
You guys have.
Speaker 7: higher gross margins than certainly anything I cover much more like software company and imagine a lot of your acquisition targets are probably going to have a gross margin profile that's maybe more similar to more tax. Like if the question is it feels offically how important are
Higher gross margins, certainly certainly anything or cover much more like a software company and imagine a lot of your acquisition targets or are probably going to have a gross margin profile of those but maybe more similar to <unk>. So.
So I guess the question is philosophically how important are.
Rob Willett: Customers do have ambitious plans for smartphones and wearable devices and new technologies coming to market, and automation is still very much front and center in terms of their plans in terms of improving cost and quality. Then finally, the opportunity of machine vision to improve cosmetic appearance in that market and eliminate defects is very substantial. I'd say short-term looks challenging long-term still very much intact. Act.
Speaker 7: cross margins to you in terms of maintaining your, you know, let's just call it 70% plus type level or where you think over time you're just gonna find acquisitions out there that are gonna be more in that 50% type range. Obviously, not, never miss that, but just curious.
Gross margins too.
In terms of maintaining your.
Call, it 70% plus type level or.
Or do you think over time, you're just kind of fun.
Acquisitions out there that are going to be more on that.
Percent type brands, obviously methanol snap.
Just curious.
Speaker 3: Yeah, so we care very strongly about gross margins, and we believe very strongly that we'll get our gross margins back to the mid-70% range. And that view hasn't changed for us, certainly. If you look at our history, we generally haven't acquired
Yeah. So we kept very strongly about gross margins and we believe very strongly that we'll get our gross margins back to the mid 70% range.
<unk>.
That view hasn't changed for us certainly.
Rob Willett: If I then turn to logistics, logistics did grow in Q3, both year on year and sequentially at Cognex, but I think our feeling is we're still bumping along the bottom in terms of that business. It's been a difficult market for the past six quarters. A few larger e-commerce players are still working through excess capacity due to the pandemic. The rest of logistics is slower than we like, but we do expect logistics will be strongly accretive to growth for many years after we get through the current situation.
We don't we if you look at our history, we generally haven't acquired.
Speaker 4: Companies with revenue, right? So this is kind of a different play for us.
Companies with revenue right. So this is kind of a different play for us, but we think the opportunity to create highly advantaged upticks products and increase the gross margin of those products and integrate them together with software really should give us in the long term a nice route back for that.
Speaker 4: But we think the opportunity to create highly advantage of fixed products and increase the gross margin of those products and integrate them together with software really should give us in the long term a nice route back for that business we've acquired to be similar to our overall gross margin.
Is this we've acquired to be similar to our overall gross margins and then we see lots of things that we're doing which will improve gross margins over time, but in the shorter term what will improve them as if we have more volume as we start to see the emerging customers segment kick back in with higher gross margin accretive and.
Speaker 3: And then we see lots of things that we're doing, which will improve both margins over time. But in the shorter term, what will improve them is if we have more volume as we start to see the emerging customers segment.
Rob Willett: We see lots of opportunity and our products increasingly addressing that opportunity as small customers with the potential to contribute more, particularly in developing markets. The vision technology is really exciting in terms of what it can provide. We're penetrating the possible and post sector of logistics, which is quite a large sector. We haven't been able to address with our products in the past, and are now able to, and we recorded a pretty substantial win with a very major player in that sector.
Speaker 4: Kick back in with higher gross margin accretive and in the long run, operating margin accretive businesses that starts to grow and really gain scale.
In the long run operating margin accretive business as that starts to grow and really gain scale, so certainly and.
Speaker 4: So certainly, and as we see recovery in consumer electronics, which has been very software driven in terms of gross margin, we're confident that we're on a path to get back to mid 70% gross margin. And I would view the gross margin of Maritex as kind of an outlier of any business that we would look to acquire, not as anything typical or indicative of future acquisitions gross margins.
And as we see recovery in consumer electronics, which has been very software driven in terms of gross margin.
We're confident that we're on a path to get back to mid 70% gross margin and I would view the gross margin of Martech as kind of an outlier in any business that we would look to acquire not as anything typical or indicative of future acquisitions gross margins.
Rob Willett: I think it's a promise there, and the potential we see for e-commerce in India for logistics is very strong. But I think getting to your question, I think we're still waiting to see when the inflection point is going to come, and we're confident it will. We expected to come at some point next year, but there's still lacking clarity on where we are in terms of that recovery and logistics. Okay, that's helpful.
Okay, great. Thank you I'll pass it on.
Speaker 1: Thank you. The next question is coming from Piyush, Avansi of City. Please go ahead. Good morning, guys. Thanks.
Thank you. The next question is coming from Piyush <unk> of Citi. Please go ahead.
Hey, good morning, guys. Thanks for taking my questions.
Hello.
Speaker 8: Can we drill down into your 4Q sales guidance a bit? It is sequentially down. I'm sure there is a seasonal component to it, but then cost of capital is also higher. Can you comment if there are any end markets that you expect could get weaker from 3Q to 4Q? We heard like EV projects slipping, there were strikes. And then on the flip side, any end markets where you are seeing more resilience are green shoots emerge.
Okay.
Oil down into your <unk> sales guidance a bit it is sequentially down I am sure. There is a seasonal component towards above cost of capital is also higher can you comment. If there are any end markets that you expect that you expect could get weaker from <unk>, we heard like EV projects slipping there were strikes.
Rob Willett: And just on a different topic, and you guys have a higher gross margins than certainly anything I cover much more like software company and imagine a lot of your acquisition targets are probably going to have a gross margin profile that's maybe more similar to more tax. Like if the question is a philosophical, how important are gross margins to you in terms of maintaining your, you know, it's just called 70% plus type level or what do you think over time?
And then on the flip side any end markets, where you will see more resilient saw green shoot some words.
Speaker 4: Sure, yes. I think it's probably playing out much as we might have expected with consumer electronics this year skewed much more to the second quarter and stepping down in Q3 and as normally in Q4. So we normally see consumer electronics business pretty profitable for us being lower in Q4 and I think that will be...
Sure, Yes, I think it's probably playing out much as we might have expected.
<unk> electronics this year skewed much more to the second quarter and and stepping down in Q3 and as normal really in Q4. So we normally see consumer electronics business pretty profitable for us being lower in Q4, and I think that's that will be.
Rob Willett: You're just going to find acquisitions out there that are going to be more on that 50% type range. Obviously, nothing to snap at, but just curious. Yeah, so we care very strongly about gross margins, and we believe very strongly that we'll get our gross margins back to the mid 70% range, and that's the view hasn't changed for us, certainly. If you look at our history, we generally haven't acquired companies with revenue, right?
Speaker 4: similar this year. I think, you know, another another reason, you know, our
Similar this year I think another another reason.
Speaker 4: Our Q4 is challenged is what we see going on in China, right? That's a region that's showing very significant decline. So we operate in short cycles with an average order to ship time of approximately 60 days. So our business inflects quickly and it's not as backlog driven as many of our industrial peers. So I think you're seeing that play through in our results.
Sure.
Q4 is challenged is what we see going on in China right.
The region that is showing very significant decline. So we operate on short in short cycles with an average order to ship time of approximately 60 days, so our business in flex quickly and not as backlog driven as many of our industrial peers. So I think youre seeing that play through in our results.
Rob Willett: So this is kind of a different play for us, but we think the opportunity to create highly advantaged optics products and increase the gross margin of those products and integrate them together with software really should give us in the long term, a nice route back for that business we've acquired to be similar to our overall gross margins. And then, you know, we see lots of things that we're doing, which will improve gross margins over time, but in the shorter term, what will improve them is if we have more volume, as we start to see the emerging customers segment, kick back in with higher gross margin, a creative and in the long run, operating margin, a creative business as that starts to grow and really gain scale.
Speaker 3: The final thing I would point to is historically quite often one sees a budget flush at the end of the year. We're not anticipating any budget flush this year while we see a lot of our customers under pressure.
The final thing I would point to is historically quite quite often one sees a budget flush at the end of the year, we're not anticipating any budget flush this year, while we see a lot of our customers under under pressure.
Speaker 4: So I think it's a similar picture as we would have expected. Consumer electronics, China, no budget slash, that's why our guidance is where it is.
I think it's a similar picture as we would've expected consumer electronics, China No budget flush that's why our guidance is where it is yeah. I mean, I think if there's any positive obviously the addition of <unk>.
Speaker 5: Yeah, I mean, I think if there's any positive, obviously, the addition of more attacks and then.
More attacks and then.
Rob Willett: So, certainly, and as we see recovery and consumer electronics, which has been very software driven in terms of gross margin, we're confident that we're on a path to get back to mid 70% gross margin, and I would view the gross margin of margins as kind of an outlier of any business that we would look to acquire, not as anything typical or indicative of future acquisitions gross margins. Thank you, Professor Long.
Speaker 4: We are anticipating a slight increase in logistics, but again, I don't think we're not quite ready to call that. The green shoots that suggest we're coming out of the bumping along the bottom that we've been in so far. And then, finally, EV battery is a growth driver for us. It continues to grow. We saw good progress in Q3, good progress that we quoted this year. So certainly, we have expectations to continue to grow some green shoots.
We are anticipating a slight increase in logistics, but again I don't think we would we're not quite ready to call that the green shoots that suggest we're coming out of the bumping along the bottom that we've been in so far and then finally EV battery as a growth driver for us.
It continues to grow.
We saw good progress in Q3, good progress every quarter. This year. So certainly we are.
We have expectations for continued growth in green shoots for for a long time.
Speaker 4: for a long time and that is helping Q4 and we expected to help us next.
That is helping Q4, and we expect it to help us next year.
Piyush Avasthy: Thank you, the next question is coming from Piyush Avasthy of City. Please go ahead. Good morning, guys. Thanks for taking my questions. Hello.
Speaker 8: Garret South Pole and one on margins like operating the leverage continues to be a concern. So is there a game plan? Let's say it and market for me in Sharpie. Are there any levels that you can pull to support profitability as you get into 24?
Got it helpful and one on margins like operating deleverage continues to be a concern is that of being flat in let's say end markets remained choppy are there any levels that you can pull to support profitability as we get into going forward.
Rob Willett: Can we drill down into your four cue sales guidance a bit? It is sequentially down. I'm sure there is a seasonal component to it, but then cost of capital is also higher. Can you comment if there are any end markets that you expect could get weaker from 3Q to 4Q, we heard like EV projects slipping, there was strikes. And then on the flip side, any end markets where you are seeing more resilience are green shoots towards?
Yes, I mean, I think the timing of our emerging customers investment as sort of one. So this year was a pure invest year and emerging customers hiring a full class of trainees setting up the infrastructure to support them and so on we believe that class next year will be driving.
Speaker 5: The timing of our emerging customers investment is sort of one. So, you know, this year was a pure invest year in emerging customers, you know, hiring a full class of trainees, setting up the infrastructure to support them and so on. You know, we believe that class next year will be driving, you know, top line and bottom line benefit to Cognite.
Topline and bottom line benefit to Cognex now, we're continuing to invest again in a second class. So overall.
Rob Willett: Sure, yes. I think it's probably playing out much as we might have expected with consumer electronics this year, skewed much more to the second quarter, and stepping down in Q3 and as normally in Q4, so we normally see consumer electronics business pretty profitable for us being lower in Q4 and I think that will be similar this year. I think another reason our Q4 is challenged is what we see going on in China, right?
Speaker 5: Now, we're continuing to invest again in a second class. So overall, the picture is still investment in emerging customers.
The picture is still is still investment in emerging customers, but I think that's an area that we just see so much opportunity and we see opportunities we seen it throughout this year despite a <unk>.
Speaker 5: But I think that's an area that we just see so much opportunity and we see opportunities.
Speaker 5: you know we've been at throughout this year despite you know a choppy economic environment so we think that can be you know one contributing factor
The economic environment. So we think that can be one contributing factor.
Speaker 5: Once we get back to growth, we see significant leverage in our business, whether that's through COGS to some extent, with volume leverage on our fixed assets, and particularly through our R&D and sales force.
Well, let me see.
We get back to growth, we see significant leverage in our in our business whether that's through.
Through Cogs to some extent with volume leverage on our fixed assets, particularly through through our R&D and sales force.
Rob Willett: That's a region that is showing very significant decline. So we operate on short cycles with an average order to shift time of approximately 60 days, so our business reflects quickly and not as backlog driven as many of our industrial peers. So I think you're seeing that play through in our results. The final thing I would point to is historically quite often one sees a budget flush at the end of the year, we're not anticipating any budget flush this year while we see a lot of our customers under pressure.
Speaker 3: And I think I would add...
Yes.
I think I would add.
Speaker 4: As you look at our results in 2023, the slowdown in investment from a handful about largest customers and logistics and consume electronics in Zemi really represents the majority of our decline. So we're confident that those markets and industries will pivot back into growth and we want to be sure that we're ready to take advantage of that when it comes.
As you look at our results in 2023.
The.
The slowdown in investment from a handful of our largest customers in logistics and consumer electronics and semi really represents the majority of our decline rates. So we're confident that there is markets and industries, we will pivot back into growth and we wanted to be sure that we're ready to take advantage of that when it comes so I think that's how we're certainly.
Speaker 3: So I think that's how we're certainly positioning ourselves as we look to the future.
Positioning ourselves as we as we look to the future.
Rob Willett: So I think it's a similar picture as we would have expected from consumer electronics, China, no budget flush, that's why our guidance is where it is. Yeah, I think if there's any positive, obviously the addition of more attacks and then we are anticipating a slight increase in logistics, but again, I don't think we're not quite ready to call that the green shoots that suggest we're coming out of the bumping along the bottom that we've been in so far.
Speaker 8: Got it. A quick follow up on that. I think one of your competitors is seeing some pale wind from lower raw materials and component cost. I've seen similar dynamics for now.
Got it a quick follow up on that.
Like one of your competitor is seeing some tailwind from lower raw material and component costs.
We're seeing similar documents are now.
Speaker 4: Well, you know, we've, we've, as you kind of mapped the last couple of years, we saw large increases in component costs from semiconductor shortages. We're certainly.
Well, we've as you've kind of mapped the last couple of years, we saw large increases in component costs.
From semiconductor shortages, where we're certainly through that and so now when we are seeing in our system.
Speaker 4: And so now when we are seeing some price reductions coming through, those won't flow through into our P&L for some quarters as the inventory turns. But generally, the story there is good. It is. We are certainly seeing improvements.
Rob Willett: And then finally, EV battery is a growth driver for us. It continues to grow. We saw good progress in Q3, good progress that we quoted this year. So certainly, we have expectations for continued growth and green shoots for a long time, and that is helping Q4 and we expected to help us next year. Got it, Falcon.
Price reductions coming through those won't flow through into our P&L for some quarters as the inventory turns but generally the story. There is good. It is we are certainly seeing improvements.
Speaker 5: in our rural materials. And improvements in daily types as well. It also has to be more responsive. Got it. I appreciate all the-
In raw materials and improvements in lead times as well helps us be more responsive.
Got it I appreciate all the color guys. Good luck.
Thank you.
Rob Willett: And one on margins like operating the leverage continues to be a concern. So is there a game plan? Let's say it and markets remain choppy. Are there any levels that you can pull to support profitability as you get into 24? Yeah, I mean, I think the timing of our emerging customers investment is sort of one. So this year was a pure investor in emerging customers, hiring a full class of trainees, setting up the infrastructure to support them, and so on.
Speaker 1: Thank you. The next question is coming from Jim Raschutte of Needham & Company. Please go ahead.
Thank you. The next question is coming from Jim Ricchiuti of Needham <unk> Company. Please go ahead.
Speaker 9: Hi, good morning. One of you go back to the announcement on the SNAP Center. Is this product going to be going through distribution indirect channels as well?
Hi, Good morning wanted to go back to the announcement on the snap sensor.
Is this product going to be.
Going through distribution indirect channels as well.
Hi, Jim.
Speaker 3: It's interesting, I thought it would, I thought it would be this morning when I was talking about SNAP sensors and how long you've covered Tognex, when I came to Tognex 15 years ago, we had a product called Checo that we were targeting at a similar market and the technology in the channel wasn't really ready for at that time as it is now. So we expect, we will sell the SNAP sensors through all of our channels, you know?
It's interesting I thought it would be this morning, when I was talking about smart sensors, and how long you've covered cognex. When it came to cognex 15 years ago, We had a product called <unk> that we were targeting and a similar market in the technology and the channel wasn't really ready for us at that time as it is as it is now.
Rob Willett: We believe that class next year will be driving top line and bottom line benefit to Cognix. Now, we're continuing to invest again in a second class. So overall, the picture is still investment in emerging customers. But I think that's an area that we just see so much opportunity. And we see opportunities, we've seen it throughout this year, despite a choppy economic environment. So we think that can be one contributing factor. Once we get back to growth, we see significant leverage in our business, whether that's through Cogs, to some extent, with volume leverage on our fixed assets, and particularly through our R&D and Salesforce.
So we expect.
We will sell the snap sensor through all of our channels.
Speaker 4: definitely will be good for distribution and OEMs, but certainly our main thrust is going to be direct sales and that emerging customer segment that we're adding, which is going to call on more entry-level and less penetrated customers for us who need simpler vision, and it's going to be a really nice entry point for them into the vision platform of insight that they can just trade up on without changing programming environments.
Definitely will be good for distribution and Oems, but certainly our main thrust is going to be direct sales and that emerging customer segment that we're adding which is going to call on more entry level and less penetrated customers for US you need simpler vision and it's going to be a really nice entry point for them into division.
Platform of insight that they can just trade up on without changing programming environments and so it's kind of a nice seamless move up to the answer to your question is really primarily direct but certainly all channels firing with this product.
Speaker 4: And so it's kind of a nice seamless move up. So the answer to your question is really primarily direct, but certainly all channels firing with this product.
Rob Willett: And I think I would add, as you look at our results in 2023, the slowdown in investment from a handful about largest customers and logistics and consume electronics and semi really represents the majority of our decline. So we're confident that those markets and industries will pivot back into growth. And we want to be sure that we're ready to take advantage of that when it comes. So I think that's how we're certainly positioning ourselves as we look to the future. Got it.
Speaker 9: Got it. And Rob, I mean, this sounds like a product that has.
Got it and Rob I mean, this sounds like a product that has.
Speaker 9: real attraction in terms of ease of use, the ability to deploy quickly. Is there any sense as to how you might anticipate this out of the gate in early 24? So it's hard to forecast new products, but you have sales force now that's been trained on this presumably and should you should get some benefit fairly quickly.
Some.
Real attraction in terms of ease of use and the ability to deploy quickly is there any sense as to how you might anticipate this out of the gate in early 'twenty four.
They are forecasting new products, but you have.
Rob Willett: A quick follow up on that. I think one of your competitors is seeing some pale wind from lower raw materials and component cost. Are you seeing similar dynamics for now? Well, as you kind of mapped the last couple of years, we saw large increases in component costs from semiconductor shortages. We're certainly through that. And so now when we are seeing some price reductions coming through, those won't slow through into P&L for some quarters as the inventory turns.
Our sales force now that's been trained on this presumably and should you should get some benefit fairly quickly.
Speaker 4: Yeah, so we have that large emerging customer sales force that's reaching the end of its training and entering the field in various markets around the world. And it will be certainly a major product for them to sell. I actually sat through a series of demos by them recently where they demoed the new product to me. It was a prior in process in terms of how easy it is to sell and how well it demos. So yes, we do expect that. And then if they're starting to go into the field around the end of the year and the beginning of next year, I think we'll see it sequentially increase as we move through next year. And we'll see some benefit in Q1.
Yes, so we have that large emerging customer salesforce is reaching the end of its training and are.
Entering the field in various markets around the world and it will be certainly a major product for them to sell I actually sat through a series of demos bye bye them recently, where they demo the new product to meet its primary in process in terms of how easy it is to sell and how well it demos. So yes, we do expect that and then.
Rob Willett: But generally, the story there is good. It is. We are certainly seeing improvements in our raw materials. And improvements are going to be tied as well. It will also be more responsive. Got it. I appreciate all the color guys. Good luck. Thank you.
If theyre starting to go into the field around the end of the year and the beginning of next year I think we'll see it sequentially increase as we move through next year and we'll see some benefit in Q1.
Speaker 9: Got to eat you alluded to an investment in a second class.
Got it.
Moving to our investment in a second class in terms of bringing on.
Speaker 9: bringing on folks in this area. And I'm wondering if you could perhaps size the additional investment. I think, yeah, in the past, you talked about 25 to 30 million annual investment, and I think you have needed.
Jim Rashudy: The next question is coming from Jim Rashudy of Needham & Company. Please go ahead. Hi, good morning.
This area.
And I'm wondering if you could perhaps size the additional investment I think in the past you talked about $25 million to $30 million annual investment and I think you alluded, possibly at the last call about a $10 million additional investor I'm, just trying to get a sense as to what the additional investment is going to be true.
Rob Willett: One of you go back to the announcement on the SNAP Center. Is this product going to be going through distribution indirect channels as well? Hi, Jim. It's interesting. I thought it would be this morning when I was talking about SNAP sensors and how long you've covered COGNACs. When I came to COGNACs 15 years ago, we had a product called CHECO that we were targeting at a similar market. And the technology in the channel wasn't really ready for us at that time as it is now.
Speaker 9: and profit last call, about a $20 million additional investment. I'm just trying to get a sense as to what the additional investment is going to be as you expand this initiative.
Expand this initiative.
Speaker 5: Yeah, sure, Jim. So this year, we size the investment at about 25 to $30 million in operating expenses. And knowing that it would be a ramp up given, you know, hiring timing largely associated with, you know, the college recruitment cycle and which which varies across different geographies, but but, you know, broadly speaking, it's not so different from from what we have in the US.
Yes sure Jim.
So this year, we size the investment at about 25% to $30 million and operating expenses.
And knowing that it would be a ramp up given hiring timing largely associated with the college recruitment cycle, and which varies across different geographies, but.
Rob Willett: So we expect we will sell the SNAP sensors through all of our channels. It's definitely will be good for distribution at OEMs. But certainly our main thrust is going to be direct sales. And that emerging customer segment that we're adding, which is going to call on more entry level and less penetrated customers for us, you need simpler vision. And it's going to be a really nice entry point for them into the vision platform of insight that they can just trade up on without changing programming environments.
Broadly speaking is not so different from what we have in the U S.
Speaker 5: And it was about a $10 million run rate exiting Q3. So that gives you some perspective on where we are right now. We will see a sequential increase.
And it was about a $10 million run rate exiting Q3. So that gives you some perspective on where we where we are right now.
We will see a sequential increase next year.
Speaker 5: next year, partly as folks enter the field and start achieving commissions and then really coming in with an additional class over the course of Q2 and Q3. We're not prepared to fully size that at this point, but it will be a step up in operating expense. Unlike this year, it will be associated with also revenue being delivered by that first class who's now quota carrying it out in the field.
As folks enter the field and start achieving commissions and then really coming in with an additional class kind of over the course of Q2 and Q3.
We haven't we're not prepared to fully size that at this point, but.
Rob Willett: And so it's kind of a nice seamless move up. So the answer to your question is really primarily direct but certainly old channels firing with this product. Got it. And Rob, I mean, this sounds like a product that has some real attraction in terms of ease of use, the ability to deploy quickly. Is there any sense as to how you might anticipate this out of the gate in in early 24? I look so hard that forecast new products, but you have sales force now that's been trained on this presumably and should you should get some benefit fairly quickly.
It will be a step up in operating expense, though unlike this year it'll be associated with also revenue being delivered by by that first class who's now quota carrying it out in the field.
Speaker 9: I think it's looked one more in, I'll go jump back in the queue. That WIND you alluded to in Carsel Post, was that you guys have been excited, I think, on the new product front with a modular vision tunnel. I'm not sure if that has any relation to that WIND or if you could just elaborate on the significance of that, that's what I was supposed to, when you talk about.
Got it and if I could slip one more in could jump back in the queue.
When you.
Moving to and of course, we'll close with that.
You guys have been excited I think on the new product front with the modular vision Pavel I'm not sure if that has any.
In relation to that when or if you could just elaborate on the significance of that parcel post when you talked about.
Speaker 4: Yeah, so we've come to market in this this year, really starting with a 580 at the beginning of the year. And now that's 380, we launched recently with some products that have...
Yes, so we've come to market in this.
This year really starting with the $5 80 at the beginning of the year and now the $3 80, we launched recently with some.
Rob Willett: Yeah, so we have that, you know, large emerging customer sales force that's, you know, reaching the end of its training and, you know, entering the field in various markets around the world. And it will be certainly a major product for them to sell. I actually sat through a series of demos by them recently, you know, where they demoed the new product to me. It was probably impressive in terms of how easy it is to sell and how well it demos.
Products that have.
Speaker 4: Why feel the view of very easy to integrate very high performance that really set them up nicely for a possible and post, but there's a high degree of variability and many, many different boxes moving down a, you know, a mass flow.
Wide field of view, a very easy to integrate very high performance that really set them up nicely for a parcel and post where theres a high degree of variability.
Many many different boxes moving down.
Mass flow type line. So these products now are really suitable for big parcel companies. So part of that success relates to this product, but part of it also is that.
Speaker 4: line. So these products now are really suitable for big parcel companies. So part of that success relates to this product, but part of it also is that that's really becomes a wedge for us to sell other products also to this company. So they certainly see the benefit of just simple presentation scanning of boxes as it moves through their centers.
Rob Willett: So, yes, we do expect that. And then, you know, if they're starting to go into the field around the end of the year and the beginning of next year, I think we'll see it sequentially, you know, increase as we move through next year. And, you know, we'll see some benefit in Q1. Guy, you alluded to an investment in a second class in terms of bringing you on folks in this area. And I'm wondering if you could perhaps size the additional investment.
It's really becomes a wedge for us to sell other products also to this company. So they certainly see the benefit of just simple presentation scanning of boxes as it moves through that.
Their centers, so yes machine vision tunnel nicely, but also other products pull through as a part of that win.
Speaker 4: machine vision tunnel nicely, but also other products pulled through as part of that when.
Rob Willett: I think, you know, in the past, you talked about 25 to 30 million annual investment. And I think you alluded in the last call about a $10 million additional investment. I'm just trying to get a sense as to what the additional investment is going to be. Do you expand this initiative? Yeah, sure, Jim. So this year, we sized the investment at about 25 to 30 million dollars in operating expenses. And knowing that it would be a ramp up given, you know, hiring timing, largely associated with, you know, the college recruitment cycle.
Got it thanks very much.
Speaker 1: Thank you. The next question is coming from Andrew Baskaglia of BNP Paribas. Please go ahead.
Thank you. The next question is coming from Andrew Buscaglia of BNP Paribas. Please go ahead.
Speaker 10: Morning. This is Ed on for Andrew. Thanks for taking my question.
Good morning. This is Ed on for Andrew Thanks for taking my question.
Speaker 10: In light of recent commentary regarding more techs helping beef up stature in Asia, can we gain a little bit more color into the outlook for capturing share in that region and how that fits into Cognix's overall growth strategy? Thanks.
In light of recent commentary regarding more text, helping beef up stature in Asia, we gain a little bit more color on the outlook for capturing share in that region, how that fits into cognex is overall growth strategy. Thanks.
Speaker 3: Sure. Yes. So, so, um, the Martex is a, is a.
Sure yes so.
Tomorrow, Texas is a storied and highly regarded company in Japan, right. It's really the majority of its business and its relationships in that market.
Speaker 4: and highly regarded company in Japan. It's really the majority of its business and its relationships in that market are in Japan.
Rob Willett: And which varies across different geographies. But, but, you know, probably speaking is not so different from from what we have in the US. And it was about a $10 million run rate exiting Q3. So that gives you some perspective on where we are right now. We will see a sequential increase next year, partly as folks enter the field and start achieving commissions. And then really coming in with an additional class over the course of Q2 and Q3.
Our in Japan and.
Speaker 4: And they have very, very strong and very longstanding relationships with some very major semi and electronics and automotive companies in Japan.
They are very very strong and very long standing relationships with some very major semi and electronics and automotive companies in Japan. So so thats.
Speaker 3: Wonderful and those are OEM relationships that tend to be sticky and enduring. So, certainly that's something we very much like about the business and it's one where we can sell additional products to those customers for sure.
Wonderful and those OEM relationships that tend to be.
Sticky and enduring.
Rob Willett: Yeah, we haven't we're not prepared to fully size that at this point, but, you know, it will be a step up in operating expense. Though, you know, unlike this year, it'll be associated with also, you know, revenue being delivered by that first class who's now, you know, quote, a carrying it out in the field.
That's something we very much like about the business and it's one where we can sell additional products to those customers for sure.
Speaker 3: I think in other areas, Maritex has great product that are very suitable for cognizist customer base across all regions and certainly Asia being one which you will lead to there. So we have a large sales force and lots and lots of costs.
In other areas.
<unk> has great products.
Rob Willett: Okay, I think it's one more in a good jump back in the queue that that when you alluded to in car so close with that, you guys have been excited. I think on the new product front with a modular vision title. I'm not sure if that has any relation to that when or if you could just elaborate on the significance of that that was supposed when you talk about. Yeah, so we've come to market in the in this this year, really starting with the 580 at the beginning of the year and now the 380 we launched recently with products that have.
Very suitable for Cognex is customer base across all regions and certainly Asia being one.
You allude to there so we have a large sales force and lots and lots of customers.
Speaker 4: where we're looking forward to taking the more text products throughout Asia. So we certainly see that as good potential. They also have some significant manufacturing and assembly facilities across Asia, you know, in China and in Vietnam, so those also allow us to...
Where we are looking forward to taking the Mar tech products.
Throughout throughout Asia, So, we certainly see that as good potential they also have.
Some significant manufacturing and assembly.
<unk> facilities.
Facilities across Asia, and in China and in Vietnam. So those also allow us to.
Speaker 4: address customers and supply them quickly, which is certainly what some of our larger customers need for their optics products in China. So all of those we see is nice speech heads for us.
Address customers and supply them quickly, which is certainly what some of our larger customers need for their optics products in China. So all of those we see it's nice beachheads for us.
Rob Willett: Why feel the view of very easy to integrate very high performance that really set them up nicely for a possible. There's a high degree of variability and many, many different boxes moving down a, you know, a mass flow type line. So these products now are really suitable for big puzzle companies. So part of that success relates to this product, but part of it also is that that's really becomes a wedge for us to sell other products also to this company. So they certainly see the benefit of just simple presentation scanning of boxes is a move through that their centers. So yes, machine vision tunnel nicely, but also other products pulled through as part of that when.
Speaker 4: into Asia, but particularly of course into Japan.
Into Asia, but particularly of course into Japan.
Speaker 10: That's helpful. And then as a follow up, following this, as biggest deal in the company history, what is the allocation strategy here? And is there an increasing appetite for potential buybacks given the share price having come in a bit? Thanks.
That's helpful and then as a follow up following this is the biggest deal in the company's history.
What is the allocation strategy here and is there an increasing appetite for potential buybacks given the share price having come in a bit. Thanks.
Speaker 5: Sure. So our capital allocation priorities really haven't changed. Obviously, funding organic growth is kind of goes without saying, and we still generate very healthy excess cash beyond that. And our top three priorities have been M&A, followed by stock buybacks, followed by the dividends.
Sure.
So our capital allocation priorities really haven't changed.
Obviously funding organic growth.
Kind of goes without saying and we still generate very healthy excess cash beyond that and our top three priorities have been Emma.
M&A, followed by stock buybacks, followed by the dividend.
Rob Willett: Thanks very much. Thank you.
Speaker 5: And I would say, you know, if we looked over our history prior to this acquisition over the last five years or so, our actual allocation of capital relative to our priorities were not as well matched. So, you know, we spent...
And I would say if we looked over our history. Prior to this acquisition over the last five years or so our actual allocation of capital relative to our priorities.
Andrew Baskaglia: The next question is coming from Andrew Baskaglia of the MP Perry Bob, please go ahead.
Rob Willett: Morning. This is Ed on for Andrew. Thanks for taking my question. In light of recent commentary regarding more text helping beef up stature in Asia, we gain a little more color into the outlook for capturing share in that region now that fits into cognitive overall growth strategy. Sure, yes. So, Fumartex is a storied and highly regarded company in Japan, right? It's really the majority of the business and its relationships in that market, you know, are in Japan and they're very, very strong and very long-standing relationships with some very major semi and electronics and automotive companies in Japan.
We're not as well match. So we spent we did a very significant dividend in 2020 after passing $1 billion in cash.
Speaker 5: We did a very significant dividend in 2020 after passing a million dollars in cash. We did quite a healthy amount of stock buyback activity in 2021 and 2022, and very little M&A activity, excluding, you know, Suilab in 2019. So, you know, we view kind of the acquisition of more attacks in other future deals as more trying to get back aligned with, you know, when we see great technology, we like where we see tremendous energy, whether that's technology, synergies or sales force energies, geographic, you know, we want to lean in.
Cash.
Did quite a healthy amount of stock buyback activity in 2021, and 2022 and very little M&A activity, excluding <unk> in 2019 so.
We view the acquisition of more attacks and other future deals is more trying to get back in line with.
When we see great technology, we like where we see tremendous synergies, whether that's technology synergies our salesforce synergies geographic we want it we want to lean in on the buyback front. Our stated goal is to offset dilution from our employee equity programs and we have been well ahead of that goal for quite some time right now since we pronounced it in the <unk>.
Speaker 5: You know, on the buyback front, our stated goal is to offset delusion from our employee equity programs. And we've been well ahead of that goal for quite some time right now, since we've pronounced it in the 2012-2013 timeframe.
Rob Willett: So that's wonderful and those are OEM relationships that tend to be sticky and enduring. So, certainly that's something we very much like about the business and it's one where we can sell additional products to those customers for sure. I think in other areas, Mollatex has great product products that are very suitable for Cognex's customer base across all regions and certainly Asia being one which you will lead to there. So we have a large sales force and lots and lots of customers where we're looking forward to taking Mollatex products throughout Asia.
12, 2013 timeframe, we tend to have two aspects to our buyback kind of a ratable buying buying regularly in an opportunistic and of course, the opportunistic can change dramatically with.
Speaker 5: We tend to have two aspects to our buyback, kind of a ratable, you know, buying, buying regularly and an opportunistic and, and of course, you know, the opportunistic can, can change, you know, dramatically with, you know, current market conditions and, and.
Current market conditions and.
Speaker 5: current cash flow positions and, you know, the advice and recommendation of our board. So it's something we certainly always evaluate, but we don't feel pressure right now to buy back shares, but we certainly see opportunity to give in where the share price is.
Current cash flow positions in.
The advice and recommendation of our board. So it's something we certainly always.
Evaluate but we don't feel pressure right now to buy back shares, but we certainly see opportunity I think given where the share prices.
Okay. Thank you I'll hop back in the queue.
Speaker 1: Thank you. The next question is coming from Ken Newman of Key Bend Capital Markets. Please go ahead.
Thank you. The next question is coming from Ken Newman with Keybanc capital markets. Please go ahead.
Rob Willett: So we certainly see that as good potential. They also have some significant manufacturing and assembly facilities across Asia, you know, in China and in Vietnam. So those also allow us to address customers and supply them quickly, which is certainly what some of our larger customers need for their optics products in China. So all of those we see is nice speech heads for us into Asia, but particularly of course into Japan.
Hi, Good morning, guys. Thanks for taking the question.
Speaker 10: First question for me, you know, we have heard a little bit of color about the weaker discrete automation activity within the distribution channel, this quarter. But I was just curious if you had any color on whether you've seen a material difference in demand momentum between your distribution channel versus the direct sales.
Our next question from me.
You have heard a little bit of color about weaker discrete automation activity within the distribution channel this quarter, but I was just curious if you had any color on whether you've seen a material difference in demand momentum.
Between your distribution channel versus the direct sales force.
Okay.
Speaker 3: I would say generally not. No, I don't think, I don't think. But something to understand about Cognex is, you know, our larger customers tend to be more direct. Right? So our large customers in consumer electronics, and some of our large customers in logistics, we would tend to deal with direct. So that can make our, the percentage of our business, you know, skew more to distribution as those large customers are lower and then back to direct the larger. But,
I would say generally not no I don't think I don't think fitbit, but something to understand about cognex is larger customers tend to be more direct right. So large customers in consumer electronics and some of our large customers and logistics, we would tend to deal with direct so that can make our the percentage of our.
Rob Willett: That's helpful. And then as a follow up, you know, following this is the biggest deal in the company history. What is the allocation strategy here and is there an increasing appetite for potential buybacks given the share price haven't come in a bit. Thanks. Sure. So, you know, our capital allocation priorities really haven't changed, you know, obviously funding organic growth is kind of goes without saying and we still generate, you know, very healthy excess cash beyond that.
Business.
At skew more to distribution is those large customers are lower and then back to direct is larger but.
Speaker 3: Aside from that, I wouldn't say there's an overall tenor change direct bus.
Aside from that I wouldn't say there is an overall tenor of change direct versus distribution.
Rob Willett: And, you know, our top three priorities have been M&A followed by stock buybacks followed by the dividend. And I would say, you know, if we looked over our history prior to this acquisition over the last five years or so, our actual allocation of capital relative to our priorities, we're not as well matched. So, you know, we spent, we did a very significant dividend in 2020 after passing a million dollars in cash.
Speaker 3: distribution and then you know as we move into next year as we see our emerging customers.
Distribution and then as we move into next year as we see our emerging customers emerging customer sales force and to the field those will all be direct sales surpassed we would expect to see more skewing towards direct and probably we will see that as we have over the last 10 years that cognex a larger portion of.
Speaker 4: I'm urging customer sales force, you know, enter the field, those will all be direct sales. So perhaps we would expect to see more skewing toward direct. And probably we'll see that as we have over the last 10 years that Cognix, a larger portion of our business go direct as we've invested more in our direct sales force. And generally speaking, those direct sales tend to be at higher gross margin.
Our business go direct as we've invested more in our direct Salesforce and generally speaking those direct sales tend to be at higher gross margin as well, yes, I think in one note maybe.
Rob Willett: We did quite a healthy amount of stock buyback activity in 2021 and 2022 and very little M&A activity, excluding, you know, Sue allowed in 2019. So, you know, we view kind of the acquisition of more attacks and other future deals is more trying to get back aligned with, you know, when we see great technology, we like where we see tremendous sell synergies, whether that's technology synergies or sales force energies geographic, you know, we want to we want to lean in on the buyback front.
Speaker 5: Yeah, I think in one note, maybe, you know, out relative to some, you know, industrial automation competitors, you know, we don't have a significant channel that carries a lot of inventory for us. So the phenomenon of kind of stalking or destocking as, you know, drivers of quarter to quarter, or year over year fluctuations, it's not entirely absent there, you know, there.
Relative to some industrial automation competitors, we don't have a significant channel that carries a lot of inventory for us. So the phenomenon of kind of stocking or destocking as drivers of quarter to quarter or year over year fluctuations.
Not entirely absent there.
Rob Willett: But our stated goal is to offset delusion from our employee equity programs and we've been well ahead of that goal for quite some time right now since we we pronounced it in in the 2012, 2013 timeframe. We tend to have two aspects to our buyback kind of a ratable, you know, buying, buying regularly and an opportunistic and, and of course, you know, the opportunistic can can change, you know, dramatically with, you know, current market conditions and, you know, current cash flow positions and, and you know, the advice and recommendation of our board. So, it's something we certainly always evaluate, but we don't feel pressure right now to buy back shares, but we certainly see opportunity given where the share price.
Speaker 5: few customers, probably more end customers, that during the supply chain crisis may be bought aggressively on chips and maybe have a few more vision systems than they need. But overall, that phenomenon is quite muted for us. So our results tend to be more a function of the demand we're seeing right now, as opposed to a lag, which may have sort of...
A few customers probably more end customers who.
During the supply chain crisis, maybe bought aggressively on chips and maybe have a few more vision systems, then they need but but overall I think that phenomenon is quite quite muted for us. So our results tend to be more a function of the demand we're seeing right now as opposed to.
Rob Willett: Thank you. I'll hop back in the queue.
A lag which may have sort of buffered some of our competitors' results for a period of time and they are now facing the destocking phenomenon.
Speaker 4: buffered some of our competitors results for a period of time and they're now facing the de-stocking phenomenon. Yeah, it's good to understand about Cognex. We discourage our distributors from holding inventory. We want them to use their working capital, grow their business, not buy inventory from us. So as a result, there isn't that kind of buffer. And I think that's why when you see our business pick up, and it will, it's probably more of a leading indicator for our peers in terms of what they see in terms of market pick-up.
Good to understand about cognex, we discourage distributors from holding inventory, we want them to use that working capital to grow that business not buy inventory from us. So as a result, there isn't that kind of buffer and I think that's why when you see our business pick up and it will it's probably more of a leading indicator for our peers in terms of what they are.
Ken Newman: Thank you. The next question is coming from Ken Newman of Keeping Capital Markets. Please go ahead. Hi, good morning guys. Thanks for taking the questions. First question for me, you know, we have heard a little bit of color about the weaker discrete automation activity within the distribution channel, this quarter. But I was just curious if you had any color on whether you've seen a material difference in demand momentum between your distribution channel versus the direct sales force.
In terms of market pick up.
Speaker 10: Yep, that's very helpful. Appreciate that. For my follow up, you know, I
Yes, that's very helpful. I appreciate that.
For my follow up.
Speaker 11: You guys had mentioned that the EV and still remains pretty stable and strong here. Obviously there's flock moving pieces, especially on the headlines around the strike. But I'm curious, was there an impact from the UAW strike? And then this is now done, is that going to be a material impact on the guy?
I think you guys had mentioned that the EV demand.
It's pretty stable and strong here, obviously, there is lots of moving pieces, especially on the headlines around the strike, but I'm curious was there an impact from the UAW strike and then this is now done as that.
Going to be a material impact on the guide for <unk> or not so much.
Speaker 4: We don't think it was a material impact. No, maybe a million or two of business might have been delayed or pushed out as a result of this strike. And as those looked to being resolved, I think that's no longer really a concern of any magnitude for us.
We.
We don't think it was a material impact maybe a $1 million to a business might have been being delayed or pushed out as a result of the strike.
Ken Newman: I would say generally not, no, I don't think I don't think, but something to understand about Cognex is, you know, our larger customers tend to be more direct, right? So our large customers in consumer electronics and some of our large customers in logistics, we would tend to deal with direct. So that can make our percentage of our business, you know, skew more to distribution as those large customers are lower and then back to direct for larger.
It's linked to being resolved I think that some.
It's no longer really a concern of any magnitude for us.
Very helpful. Thanks.
Speaker 1: Once again, that is Star One, if you would like to register a question at this time. The next question is coming from John Nathan of Dioess Securities. Please go ahead.
Once again that is star one if you would like to register a question at this time.
Next question is coming from Jairam Nathan of Daiwa Securities. Please go ahead.
Ken Newman: But aside from that, I wouldn't say there's an overall tenor of change direct versus distribution. And then, you know, as we move into next year, as we see our emerging customers, our emerging customer sales force, you know, into the field, those will all be direct sales. So perhaps we would expect to see more skewing towards direct. And probably we'll see that as we have over the last 10 years at Cognex, a larger portion of our business code direct as we've invested more in our direct sales force.
Okay.
Speaker 12: Hi, thanks for taking my question. So we have seen many of the soldy weak customers, some of your OEMs kind of pushing out capital investments in batteries, for instance, food, talked about it last week. And are you seeing, do you see any, should we expect any kind of push outs?
Hi, Thanks for taking my question so.
We have seen many of the solve the customers some of them already.
Mmm kind of pushing out.
Capital investments in batteries for instance, food.
<unk> talked about it last week.
Are you seeing or do you see any.
Should we expect any kind of push outs.
In battery investment benefits.
Speaker 3: I think what we're seeing is probably pretty consistent with what I think we've been explaining and communicating over the balance of the year, which is...
Ken Newman: And generally speaking, those direct sales tend to be a higher gross margin as well. Yeah. And one note, maybe, you know, as relative to some, you know, industrial automation competitors, you know, we don't have a significant channel that carries a lot of inventory for us. So the phenomenon of kind of stalking or destocking as, you know, drivers of quarter to quarter year over year fluctuations, it's not entirely absent there. There are a few customers, probably more end customers who, you know, during the supply chain crisis maybe bought aggressively on chips and maybe have a few more vision systems than they need.
I think what we're seeing is probably pretty consistent with what I think we've been.
Explaining and communicating over the over the balance of the year, which is there's a huge demand coming for EV battery manufacturing.
Speaker 4: There's a huge demand coming for EV battery manufacturing.
Speaker 3: But short, there's a little bit of short-term headwind as some investment plans have had to change from...
But short Theres, a little bit of short term headwind as some investment plans have had to change from from Asia to Europe.
Speaker 3: from Asia to Europe and even more to the United States, right? So that's meant that some plants that were planned to be built in other geographies are being built, particularly in America, but also in Europe . So I think that's one phenomenon that's playing out, much as we expected, and as I think most of us understand.
Europe, and even more from to the United States right. So that's meant that some plants that were planned to be built in other geographies are being built particularly in America, but also in Europe. So I think thats thats one phenomenon, that's playing out much as we expected and as as I think most of us understand when new plants.
Ken Newman: But overall, I think that phenomenon is quite muted for us. So, you know, our results tend to be more a function of the demand we're seeing right now as opposed to, you know, a lag, which may have sort of buffered some of our competitors results for a period of time and they're now facing, you know, the destocking phenomenon. Yeah. It's good to understand about Cognex. We discourage our distributors from holding inventory.
Speaker 4: new plants go up, whether it's semiconductor or EV, it's quite a long time to build out the facility. And then automation and particularly vision and robotics is something that goes in pretty late.
Go up whether it's semiconductor or.
Or EV, it's quite a long time to build out that facility and then automation and particularly vision and robotics is something that goes in pretty late in the process. So we are expecting that to come but some of those projects are being delayed by the chip.
Ken Newman: We want them to use their working capital, grow their business, not buy inventory from us. So, as a result, there isn't that kind of buffer and I think that's why when you see our business pick up and it will, it's probably more of a leading indicator for our peers in terms of what they in terms of market pick up. Yep, that's very helpful. Appreciate that. From my follow up, you know, I think you guys had mentioned that the EV demand still remains pretty stable and strong here.
Speaker 3: in the process. So we're expecting that to come, but some of those projects are being delayed by the CHIPS Act for CHIPS and the IRA Act for
Chip sector.
Chip and <unk>.
The IRI Act Forum.
Speaker 3: per EV. So that's a phenomenon. The other factor is some of these projects are delayed because of labor shortages and the shortage of qualified people to get the productions up and running. So I think that's going on. It's as we expected, and we're very optimistic about the long-term prospect. On a sort of longer-term note, I spent quite a lot of the last quarter traveling and visiting.
So that's a phenomenon.
The other factor is some of these projects are delayed because of labor shortages and the shortage of qualified people to get products. The production up and running so I think I think that's going on it's as we expected and we're very optimistic about the long term prospect.
Ken Newman: Obviously there's blocking moving pieces, especially on the headlines around strike, but I'm curious, was there an impact from the UAW strike and then this is now done, is that going to be a material impact on the guy before Q or not so much. We don't think it was a material impact. No, maybe a million or two of business might have been delayed or pushed out as a result of the strike and as those look to being resolved, you know, I think that's no longer really a concern of any magnitude for us. Very helpful, thank you.
On a sort of longer term note I spent quite a lot of the last quarter traveling and visiting.
Speaker 4: I'd say most of the largest EV battery companies in the world and I met with senior management and their plans are really very impressive in terms of the capacity they expect to add between now and the end of the decade. I heard numbers of five to seven X.
I would say most of the largest EV battery companies in the world and I met with senior management and their plans are.
Really very impressive in terms of the capacity they expect to add between now and the end of the decade I heard numbers of 5% to seven X increase in production capacity that they're looking to add and Cognex machine vision is a very important part of their roadmap for improving quality.
Speaker 4: increase in production capacity that they're looking to add, right? And, you know, Cognex Machine Vision is a very important part of their roadmap for improving quality and throughput.
Operator: Once again, that is star one, if you would like to register a question at this time.
<unk> and throughput.
Speaker 4: And, you know, I think those of us who understand EV batteries know that they're difficult to manufacture and dangerous, so quality is something that's top of mind.
John Nathan: The next question is coming from John Nathan of Daewa Securities, please go ahead. Hi, thanks for taking my question. So, you know, we've seen many of the solve the e-customers, some of your e-m's kind of pushing out capital investments in batteries, for instance, food, talked about it last week and are you seeing, do you see any, should we expect any kind of push outs in battery investment benefits? I think what we're seeing is probably pretty consistent with what I think we've been, you know, explaining and communicating over the balance of the year, which is there's a huge demand coming for a EV battery manufacturing.
And I think I think those of US who understand EV batteries note that they're difficult to manufacturer and dangerous. So quality is something that's top of mind and then they're also longer term investment plans, which you may have been reading about such as solid state batteries and new forms of batteries coming. So this is a very exciting area.
Speaker 3: And then, you know, there are also longer term investment plans, which you may have been reading about, you know, such as solid state.
Speaker 3: EV batteries and new forms of batteries coming. So, this is a very exciting area. It's been paused a little bit while focus has changed.
It's been paused, a little bit well focus has changed and the demand is coming if theres. One other factor I think I would point to is in China. There is an overcapacity of.
Speaker 4: And, you know, the demand is coming. If there's one other factor I think I would point to is in China, there is an overcapacity of of battery capacity. So so as a result, I think some of the investments in that.
Battery.
Capacity. So so as a result, I think some of the investments in that area may have slowed down, but I think we saw that coming to and I don't think that's a real surprise to us overall, so I think a lot of the capacity is going to be added by non Chinese players and outside of Asia.
Speaker 4: area may have slowed down. But I think we saw that coming, too. And I don't think that's a real surprise to us overall. So I think a lot of the capacity is going to be added by non-Chinese players and outside of Asia.
John Nathan: But short, there's a little bit of short-term headwind as some investment plans have had to change from Asia to Europe and even more to the United States, right? So, that's meant that some plants that were planned to be built in other geographies are being built, particularly in America, but also in Europe. So, I think that's one phenomenon that's playing out much as we expected. And as I think most of us understand when new plants go up, whether it's semiconductor or or EV, you know, it's quite a long time to build out the facility and then automation and particularly vision and robotics is something that goes in pretty late in the process.
Speaker 12: Okay, thanks. And just on Moritex, would you, since you're kind of backward integrating, are there, would you expect some loss in revenue as some of your competitors stop buying from them?
Okay, Thanks, and just on what it takes.
Would you consider kind of backward integrating.
Would you expect some loss in revenue.
Some of your competitors solve buying from them.
And could you also talk about Capex.
Speaker 12: any change here to CAPEX since they haven't.
Any change to your Capex since they have a manufacturing facility.
Speaker 3: Right. So we expect Maritex's growth to be in line with our total company growth of about 15% target over the long term. And as we start to sell our products to our sales force, we're expecting good growth prospects and then longer term joint R&D. Your question was around disc synergies. And we expect a small amount of disc synergies. A few of our competitors are currently customers of Maritex. We hope to go on supplying them, but it's possible that they may choose not to buy from our company anymore. But those are really not very significant in terms of what we expect.
So we expect Mara Texas growth to be in line with our total company growth of about 15% target over the long term and as we start to sell our products through our Salesforce, we're expecting good growth prospects and then longer term joint R&D. Your question was around dis synergies and.
John Nathan: So, we're expecting that to come. But some of those projects are being delayed by the chips act for chips and the IRA act for EV. So, that's a phenomenon. The other factor is some of these projects are delayed because of labor shortages and the shortage of, you know, qualified people to get the productions up and running. So, I think that's going on.
We expect a small amount of dis synergies.
A few of our competitors are currently customers of Martech suite, we hope to go on supplying them, but it's possible that they may choose not to buy from.
From from our company anymore, but.
Those are really not very significant in terms of what we expect.
Speaker 3: Um, so, uh, we, we're, we're expecting a lot of growth.
So we're expecting a lot of growth.
Rob Willett: It's as we expected and, you know, we're very optimistic about the long-term prospect. On a sort of longer-term note, I spent quite a lot of the last quarter traveling and visiting, I would say most of the largest EV battery companies in the world and I met with senior management and their plans are really very impressive in terms of the capacity they expect to add between now and the end of the decade.
Speaker 4: as we take their products and move them through our sales force.
We take their products and move them through our sales force and as we bring.
Rob Willett: You know, I heard numbers of 5 to 7x increase in production capacity that they're looking to add, right? And, you know, Cognix Machine Vision is an very important part of their roadmap for improving quality and throughput. And, you know, I think most of us who understand EV batteries know that they're difficult to manufacture and dangerous. So, quality is something that's top of mind. And then, you know, there are also longer-term investment plans which you may have been reading about, you know, such as solid state EV batteries and new forms of batteries coming.
Speaker 4: and as we bring our products to some of the Martex customers in Japan. So very small synergies, very large synergies.
Our products to some of the <unk> customers and in Japan, So very small dis synergies very large synergies and and that potential dis synergies or lost revenue is taken into account in our 6% to 8% estimate of total company revenue that we think more attacks will comprise now.
Speaker 5: And that, you know, potential dis-energies or lost revenue is taken into account in our six to eight percent.
Speaker 5: estimate of total company revenue that we think Morotex will comprise now that we own them. On the CapEx side, yes, they do run two manufacturing facilities, so relative to us as a sort of CapEx as a percent of revenue or what metric you might use, they're slightly higher. But in the grand scheme of our overall, we'll remain a very CapEx light.
Now that we own them and on the Capex side, yes, they do they do run two manufacturing facilities. So.
Relative to us as they sort of capex as a percent of revenue or what metric you might use there they are slightly higher but in the Grand scheme of our overall will remain a very capex light.
Speaker 5: you know, not particularly asset intensive business. So, you know, there might be a modest step up, but not something that I think would have any material impact on our results.
Not particularly asset intensive business. So yes, there might be a modest step up but not something that I think would have any material impact on our results jairam.
Speaker 12: Okay, and my last question is on logistics. Honeywell talked about winning a, seeing a.
Okay.
Last question is on <unk>.
Intellect.
Fixed Honeywell talked about winning a.
Rob Willett: So, this is a very exciting area. It's been paused a little bit while focus has changed and, you know, the demand is coming. If there's one other factor, I think I would point to is in China, there is an over-capacity of battery capacity. So, as a result, I think some of the investments in that area may have slowed down, but I think we saw that coming too. And I don't think that's a real surprise to us overall. So, I think a lot of the capacity is going to be added by non-Chinese players and outside of Asia.
Seeing it.
Speaker 12: significant jump in orders in turn the third quarter sequentially Typically what's the lead lag behind how do you like to have a kind of lag behind them and should be that a sustainable green shoe
A significant chunk in autos.
In the third quarter sequentially.
Typically.
Whats the lead.
Lag behind.
This coupled with like behind them and.
Is that.
A sustainable green shoot.
Speaker 3: So we also saw an increase in orders sequentially, not a large increase. I think, as you said, we sort of think we're bumping along the bottom. I think that there, we think of Intelligrated as.
We also saw an increase in orders sequentially large increase I think as we said we sort of think we're bumping.
Along along the bottom.
There we think of <unk>.
Rob Willett: Thanks, and just on more details. Would you, since you're kind of backward-integrating, would you expect some loss in revenue as some of your competitors sub buying from them? And could you also talk about CAPEX? Any change here to CAPEX, since they have a manufacturing facility? Right, so we expect Maratex is growth to be in line with our total company growth of about 15% target over the long term, and as we start to sell our products through ourselves for us, we're expecting good growth prospects and then longer term joint R&D.
Speaker 4: one of the large integrators in the industry. So, you know, if you look at the overall group, you know, I think they're similar to kind of some of the things that we would see overall, but I would say in general, you know, integrators get orders and contracts before we do. So, I'm not sure that I would view what Honeywell said as a leading indicator for us overall, but generally as integrators get more business, that flows through to us on a lag. Okay, great.
One of the large integrators in the industry.
If you look at the overall group I think.
There are similar to kind of some of the things that we would see overall, but I would say in general integrators get orders and contracts before we do so I'm not sure that I would view, one Honeywell said as a leading indicator for us overall, but generally as integrated get more business that flows through.
Us.
<unk>.
Okay, great. Okay. Thank you.
Speaker 1: Thank you once again. That is star one for any additional questions. We'll pause a moment for any additional questions.
Thank you once again that is star one for any additional questions, we'll pause a moment for any additional questions.
Rob Willett: Your question was around dis synergies and we expect a small amount of dis synergies. A few of our competitors are currently customers of Maratex. We hope to go on supplying them, but it's possible that they may choose not to buy from our company anymore. But those are really not very significant in terms of what we expect. So we're expecting a lot of growth as we take their products and move them through our sales force, and as we bring our products to some of the Maratex customers in Japan.
Okay.
Speaker 1: We're showing no additional questions in queue at this time. I'd like to turn the floor back over to Mr. Willett for closing comments.
Were showing no additional questions in queue at this time I would like to turn the floor back over to Mr. Willis for closing comments.
Speaker 4: Well, thank you. Before we wrap, I want to take a moment to thank Sue Conway, our Senior Director of Investor Relations.
Well, thank you and before we wrap I want to take a moment to thank Sue Conway, our senior director of Investor Relations over 34 years with cognex across accounting and Investor Relations.
Speaker 3: over 34 years with Cognex across accounting and investor relations. After 34 years, Sue will be leaving Cognex at the end of this year.
After 34 years, he will be leaving cognex at the end of this year.
Speaker 4: Sue has been here since the beginning of Cogmix's journey as a public company, and this quarter was the 135th quarterly close or earnings for Cogmix that Sue has helped oversee.
He has been here since the beginning of Cognex. This journey as a public company and this quarter was the 135th quarterly close or earnings for Cognex to Sue has helped oversee.
Rob Willett: So very small dis synergies, very large synergies. And that potential dis synergies are lost revenue is taken into account in our six to eight percent estimate of total company revenue that we think Maratex will comprise now that we own them. On the CAPEX side, yes, they do run to manufacturing facilities. So relative assets, they sort of CAPEX have a percent of revenue or what metric you might use. They're slightly higher, but in the grand scheme of our overall, we'll remain a very CAPEX light, not particularly asset-intensive business. So there might be a modest step up, but not something that I think would have any material impact on our results, Shirem.
Speaker 4: Sue, we will wish you the best in your next chapter, and thank you for all you have done for Cog.
Two we will wish you the best in your next chapter and thank you for all you have done for Cognex.
Speaker 4: With that, we will wrap the call. Thank you for joining us this morning. We look forward to speaking with you again on next quarter's call.
With that we will wrap the call. Thank you for joining us. This morning, we look forward to speaking with you again on next quarter's call.
Speaker 13: Ladies and gentlemen, thank you for your participation. This concludes today's event. You may disconnect your lines and log off the webcast at this time and enjoy the rest of your day. Bye.
Ladies and gentlemen, thank you for your participation. This concludes today's event you may disconnect your lines of log off the webcast at this time and enjoy the rest of your day.
Rob Willett: Okay, and my last question is on, it's on intelligent logistics. Honeywell talked about winning a seeing a significant jump in orders in terms of the third quarter, sequentially. Typically, how what's the lead lag behind how do you lag, just kind of lag behind them, and should be that a sustainable green shoot? So we also saw an increase in orders sequentially, not a large increase. I think as we said, we sort of think we're bumping along the bottom.
Okay.
[music].
Yeah.
Okay.
Yes.
Okay.
Speaker 14: You
Okay.
Yeah.
Yeah.
Yes.
Yeah.
Rob Willett: I think that there, we think of IntelliGrated as one of the large integrators in the industry. So if you look at the overall group, I think, they're similar to some of the things that we would see overall, but I would say in general, integrators get orders and contracts before we do. I'm not sure that I would do what Honeywell said as a leading indicator for us overall, but generally, as integrators get more business, that flows through to us on a lag.
Yes.
Yeah.
Yes.
Rob Willett: Okay, great. Okay, thank you. Thank you.
Rob Willett: Once again, that is star one for any additional questions. We'll pause the moment for any additional questions. We're showing no additional questions in queue at this time.
Rob Willett: I'd like to turn the floor back over to Mr. Willett for closing comments. Well, thank you.
Rob Willett: Before we wrap, I want to take a moment to thank Sue Conway, our Senior Director of Investor Relations. Over 34 years with Cognex across accounting and investor relations, she after 34 years, Sue will be leaving Cognex at the end of this year. Sue has been here since the beginning of Cognex's journey as a public company, and this quarter was the 135th quarterly close or earnings for Cognex that Sue has helped oversee. Sue, we will wish you the best in your next chapter, and thank you for all you have done for Cognex.
Operator: With that, we will wrap the call. Thank you for joining us this morning. We look forward to speaking with you again on next quarter's call. Ladies and gentlemen, thank you for your participation.
Operator: This concludes today's event.
Operator: You may disconnect your lines or log off the webcast at this time and enjoy the rest of your day.