Q3 2024 Cognex Corp Earnings Call
Speaker Change: The
Speaker Change: Greetings and welcome to the guy next third quarter, 2024 earnings conference call. At this time, all participants on a listen only mode. A question and answer session will follow the formal presentation.
Speaker Change: If anyone's required operator assistance, please press star zero on your telephone, keep that. It is not my pleasure to introduce your host, Nathan McCurren. Thank you and you may begin.
Nathan McCurren: Thank you, Operator. Good morning, everyone. Thank you for joining us. Our press release was published yesterday after Market Closed and our Quarterly Report on Form 10Q for Q3 2024 was filed this morning.
Nathan McCurren: The press release, earnings presentation, and 10Q are available on the Investor Relations section of our website.
Nathan McCurren: Both our published materials and the call today will reference non-gap measures. You can find a reconciliation of certain items from Gap, to non-gap, and our press release, and earnings presentation.
Nathan McCurren: and the former look in statements we made in the press release, the company and presentation posted to our website, or any that we may make during this call, our based upon information that we believe to be true as of today.
Nathan McCurren: Our actual results may differ from our projections due to the risks and uncertainties that are described in our SEC filings, including our most recent form 10K and form 10K.
Speaker Change: On today's call, Rob Willett, Pagmix's President and CEO, will discuss in-market trends and provide an update on our strategic initiatives.
Speaker Change: and Dennis Fehr, Pognex, the CSO, will discuss our third quarter financial results, and will conclude with our outlook.
Speaker Change: with that, I'll turn the call over to Rob.
Rob Willett: Hello everyone and thank you for joining us on Halloween. Cognics is Fevert Holiday.
Speaker Change: In the third quarter, we delivered revenue and adjusted EBITDA margin in line with our guidance.
Speaker Change: Revenue grew 19% year on year, or 7% excluding the contribution of a moratex acquisition, led by continued momentum in logistics and semiconductor and comparing against a low base in 23 of 2023.
Speaker Change: Conditions across our broader factory automation business remain challenging.
Speaker Change: While most of our factory automation business has been stable for several quarters, we've seen a further step down in autumn, mootiff.
Speaker Change: We continue to manage costs tightly in the third quarter and reduced operating expenses sequentially despite increased costs from the emerging customer initiative and an extra month of Marchex Financials.
Speaker Change: I now want to provide you with an update on our strategic initiatives.
Speaker Change: We continue to make excellent progress in bringing world-class AI to our machine vision products.
Speaker Change: In the third quarter, we launched AI assisted labeling to reduce the time required to train deep learning vision models.
Speaker Change: We've incorporated a new AI model into our vision pro deep learning products that can cut out any object in any image with a single click.
Speaker Change: This makes the labeling process much faster.
Speaker Change: Training AI vision models can sometimes require labeling of over 1,000 images, and this latest model cuts the labeling time by approximately 90%, allowing more customers to adopt our most powerful deep learning products.
Speaker Change: Another example of how we're making our products more accessible to a broader audience can be seen in our AI-driven optical character recognition tool that we launched in Q3.
Speaker Change: Prior OCR offering required significant training, which limited its use to more sophisticated customers.
Speaker Change: Now, with virtually no setup required, customers can leverage this out-of-the-box technology to obtain industry-leading weed rates and performance.
Speaker Change: As AI enables machine vision to solve more human-like tasks, we have conviction that a larger portion of future market growth will be driven by a more diversified set of small, and medium-sized businesses who need products that are easy to implement and wish to live our powerful results.
Speaker Change: I now want to go a bit deeper into our strategic rationale for the emerging customer initiative and give you more color on how we're just going, what we've learned, and what we expect from here.
Speaker Change: Historically, Cosmics has excelled at providing the most powerful vision technology to the world's most advanced manufacturers.
Speaker Change: The Rethalons of Such Customers and I'll share with them as high.
Speaker Change: But there's also a much larger segment of customers with less complex applications and less automation and engineering capacity who are looking for more standardized products that are easy to apply and easy to use.
Speaker Change: The technology we have developed over the last five years, including our Edge Learning, Sensor and Newest ID products, are ideals of these customers.
Speaker Change: And as we launch more of these types of products, we expect to achieve our long-term growth by reaching more of what we estimate to be hundreds of thousands of potential customers.
Speaker Change: We're doing so by adding a new sales-noid profile to our team, ambitious recent college graduates who are less experienced, less expensive to employ and less technical.
Speaker Change: They are enabling us to broaden our sales coverage, make many more shorter sales calls and reach more customers.
Speaker Change: Our first cohort of these sales noise ends at the field at the beginning of 2024 against a challenging macro backdrop who are happy to see their bookings continue to ramp.
Speaker Change: Q3 of 2020 for with our largest quarter and September with our largest months of emerging customer bookings.
Speaker Change: This is helping to offset slow-booking and many over-end markets in 2024, and even resulting in bookings and markets where we have previously had minimal coverage, such as aerospace and agriculture.
Speaker Change: While we will not report the following metric on a regular basis, I want to help you understand the scope of what this program is delivering.
Speaker Change: In the third quarter, the first cohort of the Merch and Customer Sales annoyed sold almost $1 million per week, and referred millions of dollars a vision business that was closed by our more experienced sales teams.
Speaker Change: I will note that this includes bookings by these sales noise to some existing accounts, so it's not necessarily all incremental.
Speaker Change: Our second cohort is now in training and we'll enter the field over the next four months.
Speaker Change: Our emerging customer initiative is a long-term programme still in its early stages and driven with a mindset of continuous improvement.
Speaker Change: We're learning which products are most compelling to these target customers.
Speaker Change: We've responded by evolving the product portfolio to the sales team and equipping them to sell additional vision products.
Speaker Change: Just like prospective customers are established accounts. Also have use cases for our entry level easy to use technology and benefit from more frequent engagement and broader sales coverage from Cogmax.
Speaker Change: Emerging customer sales know eggs can also identify more applications for our advanced vision products and refer this business to our more experienced sales know eggs.
Speaker Change: To better serve these accounts and optimize sales coverage, we are combining sales forces under a unified management structure in each geography.
Speaker Change: While we are long-term focused, we acknowledge that we are investing in a challenging market environment. In the near-term, this initiative is generating more customer visits, increasing our customer base, and generating gross margin of credit business.
Speaker Change: In merging customer sales annoyed their on-track to make over 80,000 additional in-person customer visits and to add around 3,000 new accounts this year.
Speaker Change: In the medium and long-term, we've expected sales transformation to support strong growth and profitability. As our sales know is an our serving for mix of new and existing accounts, incremental revenue delivered by the group is no longer a measure we are evaluating to determine success.
Speaker Change: However, we believe this sales transformation supports a long-term target of over 30% adjusted operating margins and positions called next but future success.
Speaker Change: We are excited to continue this initiative and to introduce a new cohort of sales noise each year. As we plan for future years, we will, however, be flexible about cohort sizes, and be responsive to market conditions and resulting growth.
Speaker Change: Turning now to what we are seeing across our end markets, which you will find on page 6 of the earnings presentation. I will discuss the end market results excluding the contribution of Maratex.
Speaker Change: and Markets have been mixed as we have seen both continues softness as well as pockets of growth.
Speaker Change: Starting with Automotive, revenue was down both year on year and sequentially. We continue to see delays, reductions and cancellations of EV battery projects, and then we saw a further step down in our broader automotive business.
Speaker Change: I spent time this past quarter with automotive customers in many geographies.
Speaker Change: This is probably the weakest and most tentative I have seen the automotive market in my 16 years of the card next.
Speaker Change: The Ministry of Suffering from an over-investment in electric vehicles, macro and certainty, increased competition for new entrants and unclear future and use of demand.
Speaker Change: This is all led to minimal capital investment across the Valley chain, which we expect to continue until these customers have more certainty.
Speaker Change: Moving on to logistics.
Speaker Change: Revenue in logistics has grown strong double digits here today.
Speaker Change: We continue to see growth across this business from large e-commerce to parcel a post to base logistics customers globally.
Speaker Change: This is fueled by both Mark Gros and recent product innovations, including the success of the data man 380 that we launched in 2023.
Speaker Change: One recent example of logistics success is our partnership with the e-commerce leader in South Korea. We're seeing regional e-commerce leaders like this order make more of their warehouses and adopt more vision solutions.
Speaker Change: We partnered with this customer to increase its throughput and enable better tracking and tracing of packages by providing a hands-free ID-weeding solution for its inbound freight processes across its network.
Speaker Change: We won this business with better read rates at highest speeds than our competition can support.
Speaker Change: This customer is also investing in robotic, automated bagging across their existing facilities.
Speaker Change: With unmatched read rates and value, our data man code readers were able to unlock this opportunity for us, where we both replaced competitors on existing equipment and one business on investment in new automation.
Speaker Change: We believe logistics is well positioned to continue to be our fastest growth and market, as automation penetration increases.
Speaker Change: E-commerce investment returns. We win share in the parcel of post segment and more customers move beyond purely reading barcos and starts to implement a broader range of vision tools and technology.
Speaker Change: Consumant electronics revenue was up, year on year and down sequentially, folks striven by project timing.
Speaker Change: Q2 of 2023, included $15 million of revenue that shifted forward from Q3.
Speaker Change: This year was also more ways to took you to, but to a lesser extent than in 2023.
Speaker Change: and Cement Electronics as Positive Long-Term Trends.
Speaker Change: Currently, our expectation for near-term investment in consumer electronics are tempered, but we tend to have a better line of sight to this by early Q2 each year.
Speaker Change: Lastly, semi is continuing to build the significant year on your growth. We'll be at off a low 2020-3 base.
Speaker Change: We're seeing increased investment from major machine builders across geographies and are optimistic that these trends can continue.
Speaker Change: Let me now hand it over to Dennis to walk you through the financial results and the outlook for the fourth quarter.
Dennis Fehr: Thank you, Rob. Turning to the financial highlights, which you can see on page 8 of our owning presentation thoughts at the To the Website.
Dennis Fehr: Third quarter results include four months of more attacks from the Anshole, S.E.E.L.E, accounting closed schedules in the corner.
Dennis Fehr: Third quarter ram, you'd off 235 million dollars, came in slightly embossed the midpoint of our guidance range, and increased 19% year in year.
Dennis Fehr: Excluding more at Hex, revenue grew by 7%.
Dennis Fehr: As a reminder, in 2023, we had approximately $15 million of consumer electronics revenue shipped into the second quarter from Q3. From mining hours was an easier comparison.
Dennis Fehr: The justing for this timing effect, Raven, you excluding Mori-Tag for thruously flat yarn here.
Dennis Fehr: Roman Geographic viewpoint excluding Morithecks, Ram Joukou, Yorn Yiren, and all four of our major regions for the first time in over 2 and a half years.
Dennis Fehr: Europe will nearly double the chits in the quarter by the Americans and other Asia of their both up slightly.
Dennis Fehr: Strong Logistics World Files, push D3 regions into a year-go.
Dennis Fehr: China was up significantly in the quarter, snapping a streak of seven consecutive lines. However, entirely due to the timing of consumer electronics revenue and the comparable period.
Dennis Fehr: Turning to margins, adjusted cross margins was 68.7% in 23, down 4 points from 72.7% a year ago.
Dennis Fehr: Grossmargin included a 3 percentage point delusion effect from RITX, which is higher than the typical 2 percentage point impact due to the additional month of RITX financial.
Dennis Fehr: Declenchery, adjusted cross margin decline 1.6% point, driven mostly by extra mori text revenue and mix effect.
Dennis Fehr: Furthermore, Ross Margining Q3 was impacted by competitive pricing pressure.
Dennis Fehr: Many manufacturers are being more discerning on cost in the current market environment and considering the current scarcity of projects, you have prioritized maintaining share.
Dennis Fehr: Lewis has been most pronounced within China.
Dennis Fehr: Adjusted operating expenses increased 10% year and were slightly down sequentially, despite the additional month of more attacks extend.
Dennis Fehr: The year in Korea was driven by more attacks, increase investment in our emerging customer initiative and the headwind in incentive compensation from a no-abonist achievement in April 2023.
Dennis Fehr: The continue our focus on cost management and the current distance environment.
Dennis Fehr: Excluding more attacks and emerging customer initiative adjusted operating expense of 2% on a year-to-date basis, despite incentive compensation has it.
Dennis Fehr: Justin III quarter, we were able to reuse all packs, sequentially by 3 million dollars, excluding these two initiatives.
Dennis Fehr: Adjusted Everdale, Margin, was 17.6% in Q3 in line with the midpoint of our guidance range and upslides the from 17.4% year ago.
Dennis Fehr: Operating Lerage from higher year on year revenue, a smoothly offset by lower adjusted cross margin and strategic investment in the emerging customer initiative.
Dennis Fehr: and just at Everdale Margin, the client by 2.3% at points, the client.
Dennis Fehr: driven by the stepped on and adjusted cross margins as well as slide operating delivery.
Dennis Fehr: I'm Lt. Ernings Percher on the Gap Basis for 1710, up from 1110 in the year-go-pigerate.
Dennis Fehr: The year on young careers was mainly due to an 8.5 million dollar foreign currency loss recognized in Q3 of 2023 and the forward contract to hatch the purchase price of my attack.
Dennis Fehr: I just diluted the EPS was 20 cents, up 19% was 3 cents, year and year due to the contribution for more attacks.
Dennis Fehr: The adjusted effective tax rate was 18% in both Q3 of 2024 and Q3 of 2023.
Dennis Fehr: Free Cash Lo in Q3 was 52 million dollars. Our highest quarterly total is Q4 of 2022.
Dennis Fehr: This compared to 35 million dollars the previous year.
Dennis Fehr: While we are early in the journey and Q3 you are supported by seasonal effects, I'll focus on working count as efficiency is paying off, as shown by a sequential improvement in our cash conversion cycle.
Dennis Fehr: The strong free cash law in the quarter flow to the balance sheet. Their cart next strengthen its position with $607 million in cash and investments and know that.
Dennis Fehr: Cardnex returned $17 million to share holders in the form of stock buybacks and dividends in the quarter.
Dennis Fehr: I will now turn to our outlook for the fourth squad.
Dennis Fehr: In the fourth quarter, the expect revenue between 2010 and 2030 million dollars.
Dennis Fehr: This range reflects the challenging but stable back-to-up your operating against.
Dennis Fehr: The sequential step down is driven by seasonal consumer electronic trends and one month less of more attacks result.
Dennis Fehr: At the midpoint executing Moritex, this represents a high single that should increase the on-year driven by continued growth and logistics and semi.
Dennis Fehr: The expect the Moritex business to return to its typical range of 6 to 8% of revenue in Q4
Dennis Fehr: As the reminder, the fourth quarter of 2023 included six weeks of more attacks results or $7 million in revenue.
Dennis Fehr: For the fourth quarter, we expect a just-it-gross margin in the high 60% range.
Dennis Fehr: The Frencholey makes them competitive pricing I expected to be Sligh Hadvans, partially offset by the favorable impact of one month's less of more it takes financials.
Dennis Fehr: The total gross margin impact of Mojtag is expected to be approximately 2 percentage points in the quarter or an approximately 1 point headwind year or year.
Dennis Fehr: The expected just that Evidar Armaging between 14 and 17%.
Dennis Fehr: The midpoint of this range represents a three percentage point increase year and year driven by continued tight management of operating expenses and positive operating leverage. Slightly offset by lower growth margins and investment in the emerging cost-minor initiative.
Dennis Fehr: Lastly, I would like to call to your attention that we expect to hold our investor day on June 9th and June 10th of next year. So please mark your calendars and consider joining us in person at our Boston area head
Dennis Fehr: Now we will open the call for questions. Operator, please go ahead.
Speaker Change: Thank you. We will now be conducting a question in an session.
Speaker Change: If you'd like to ask the question, please first start one on your telephone feedback. A confirmation told me we'll indicate your line is in the question queue.
Speaker Change: You may press star to remove yourself from the queue. But part of this event is using speaker equipment and may be necessary to pick up the hands that hands that you feel pressing the star keys.
Speaker Change: One moment please love Paul for question.
Speaker Change: I'm our first question. Comes from the line of Jane Cook with Trouest. Please foresee which you are questioning.
Speaker Change: Hi, good morning and thank you for the questions. I guess first on the emerging customer initiative.
Jane Cook: How do we think about the 3000 new customers that you're targeting that you talked about this quarter relative to your targets in the beginning of the year and how that compares to the...
Jane Cook: 50 million of incremental revenue you once talked about and given the combined sales force that you're doing is that represent a cost savings opportunity potentially in 2025.
Speaker Change: and then my second question just on the gross margins for the fourth quarter. Can you just elaborate how much mix and pricing is a headwind to margins as the quenchillage and what's going on in the pricing environment? That sort of seems like a new nuance just wondering, again, how much of a headwind this could be as we look further out. Thank you.
Speaker Change: Great, yeah, thank you, thanks for joining us. I'll talk to you for the first question and I'll give it to Dennis who will give you a little color on Gross Margin. So I think some context overall, I think as we all understand, New Card Mix has very strong share among the most sophisticated manufacturers. And we're looking to...
Speaker Change: Make our new technology more available to many more customers and we think there are hundreds of thousands of customers like that so
Speaker Change: We expect to sign up, you know, 3,000 new customers through the current program and it's very first year. So it might sound like a small number, but it's a big step, I think, that this first cohort is making.
Speaker Change: Bell, they're ramping and getting better every day. They're ready to sign up new customers. This is increasing and as we move into next year, we would expect more from them.
Speaker Change: Then we have the second cohort coming online, we'd expect the same or from as we get better and better at this initiative. So you can see, we can give it a turning of flywheel and it's starting to get momentum and it's broadening our customer base over time. And then the context we'd sort of set in the past we have about 30,000 customers.
Speaker Change: That's 3,000 and hopefully more from that cohort next year, the second cohort coming on and adding as we turn the flywheel faster and faster. You can see over a long period we're pretty optimistic about how that can run our customer base overall.
Speaker Change: Second part of your question you asked a little bit about the cost of serving customers. For sure, we're bringing in a different profile of sales annoyed and much more activity. And they make many more sales calls as they're selling easier to sell products.
Speaker Change: and their less expensive to employ.
Speaker Change: So we know our R&D sales force grows and develops in terms over time. We're seeing the potential for higher productivity per sales person, both from sales amount and from a cost point of view. So that's how we certainly think about that. And we have a lot of metrics that we used to track that. In terms of our expectations on entering the year, we...
Speaker Change: We were learning as we went along, I would say we're pretty happy with where this is getting in terms of the expectations we had originally.
Speaker Change: I'd let me take that second question, so when we look at the gross margin
Speaker Change: Ross Margen stepped down about 160 base points, sequentially.
Speaker Change: About one Bayes point, I thought a one four percentage point of that is driven by Morite Hacks, right, for the addition of an extra month of Morite Hacks financials. So in the quarter that the YouTube impact was...
Speaker Change: 3 points instead of the normal 2 points and then the remainder of that is driven by mix and pricing. I mean, we talk about the mix side then we have less of consumer electronics and more of logistics.
Speaker Change: and then on the pricing specifically we have been talking about specifically about China.
Speaker Change: Thank you.
Speaker Change: Thank you. Our next question comes from a line of Tommy Mall with Steven Zank. Please receive us your question.
Speaker Change: Good morning and thank you for taking my questions.
Speaker Change: Good morning.
Speaker Change: Robert wanted to start on logistics that the progression they were seeing again in a third quarter, presumably also in the fourth.
Speaker Change: and if we look around that and market there are some fairly...
Speaker Change: Positive anecdotes just in terms of the pacing of warehouse leasing activity.
Speaker Change: Others in the market talking about some of the end users having absorbed a lot of the over-expacity that was built in years past. So I'm just curious, given that a lot of these large projects can be.
Speaker Change: Can have a lead time for you where you have
Speaker Change: I don't know if you how early you take orders or how early the conversation starts, but are you saying any signs that there could be another inflection higher in the coming quarters?
Speaker Change: So we're certainly very positive about what we're seeing in logistics currently, you know, revenue grew materially on a year on your basis for the third-screen quarter.
Speaker Change: in the third quarter.
Speaker Change: and we expect to finish this year in strong doppelŠ²ige year range. And it's pretty broad across our business, both in terms of the end markets that we're serving and in terms of drug or fees.
Speaker Change: and I think we'll know we're coming off.
Speaker Change: Two years of significantly lower investment. So I think we're starting from a much lower position, basically, where there was over a capacity built during the pandemic that had to be worked through. And it is worked through now. And we're getting back on to the nice growth path we had envisioned, and I think it's coming together very, very nicely. In your question, you asked about visibility, yeah, for sure, you know, longer-le time, big-up projects. So we do have a good good visibility for business that, you know, we see in our pipeline and, and, and, you know, and we see it booking, you know, quite when it comes in, how quickly are not, you know, can vary in other projects that, you know, we want things to come in this quarter that come next and vice versa. But, you know, you know, you know, you're going to have to be a good, you know, you're going to have
Speaker Change: But overall, yeah, I think we have a pretty good sense of what's going on in that market.
Speaker Change: You know, some other things, you know, that we're seeing and that we expect to go on seeing, you know, new, new customer activities from, you know, with many, you know,
Speaker Change: and many new customers signing up, seeing the industry embrace our ancient intelligence platform, which really is adding a lot more capability to our customers in terms of understanding what's going on within the tunnels.
Speaker Change: Repoints they have in a warehouse, and those could be thousands of readpoints, so it's a very data rich resource we're giving to customers. We're seeing more penetration of vision products, which is exciting to us, beyond our traditional ID, where we excel, but we want to go further.
Speaker Change: Nice momentum building in the past, long post sector for our business, although you know, Capac's investment in that market isn't necessarily great. Our business is really, you know, we're starting to penetrate that sector and we're exciting. And then emerging markets, especially India, you know, have a lot of potential for our so-called old.
Speaker Change: So that's a little color on what we see overall.
Speaker Change: Thank you and then for a follow up I wanted to ask about.
Speaker Change: Something you mentioned on the emerging customer initiative. I think I heard you say the first cohort.
Speaker Change: and the third quarter. And if I heard that correctly, I'm just curious, what does that number need to be to hit the targeted 30% operating margin for this initiative? Thank you.
Speaker Change: Yeah, I said, I said almost a million dollars per week with, you know, and that's correct. They did that and then they're also referring significant business.
Speaker Change: Overture, you know, the Councils engineers, who are closing the vision business, etc. As we look at our models, it's some quarters before they break even and then start to reach that 30 percent. It's gross margin or creed F2 on target. So the gross margin is great.
Speaker Change: The Fall Through Is Great, as we see that we've given you a sense in general and what we've invested in the program.
Speaker Change: Overall, this is a bit of a tradition, obviously as one would expect.
Speaker Change: Ovarol, so I think...
Speaker Change: We can all do the math together on how that plays out, Dennis, I don't know if you'd want to. Yeah, maybe first I think we wanted to give you this number right there. You have a bit of a sense right? We also mentioned it's not a number which we want to provide on an ongoing basis. I think in a big picture what we have.
Speaker Change: Typically said, I get the first year's investment year already. We hired them last year. We trained them this year's year for a break even in the next year's and basically the year where we really want to see it to be a creative to our number. So it's perhaps how you can think about the progression.
Speaker Change: Thank you both, I'll turn it back.
Speaker Change: Thank you. Our next question comes from the line of Andrew Vaskalia with B&B, everybody. Please proceed with your question.
Speaker Change: Hey, good morning everyone.
Speaker Change: Good morning. So, for the guidance for Q4 for Grossmargin, are you able to say if it's that similar to Q3 and X?
Speaker Change: More text would be above 70% or this is any other color you can provide.
Speaker Change: To help them out with them.
Speaker Change: Yeah, sure, I wouldn't give you a number on an excluding more attacks, but I can talk you through it on the puts and takes here, right? So if you take our Q324...
Speaker Change: As a starting point, right? And we have, if benefits on the one side is the right way to be up.
Speaker Change: One month last of Mori Tax, that's the percentage point on the positive side. But then on the other side it's clearly worth the talk about where the growth is coming from. It's coming from logistics.
Speaker Change: and then certainly Q4 is typically the weakest quarter on consumer electronics. That means we have a headwind on mix and then we have been talking also about the headwind on pricing, a particularly in China. So these are kind of the puts on takes.
Speaker Change: from Q3 moving into Q4.
Speaker Change: Okay, so okay. And with the emerging customer initiative, are you assuming contribution and Q4 and then should we expect?
Speaker Change: You know, a number for another target for 2025 as a million a week would imply pretty material number, so just wondering what your thoughts are.
Speaker Change: Yeah, and terms of the baseball.
Speaker Change: Goying map. Yeah.
Speaker Change: [inaudible]
Speaker Change: Continuous increase of bookings on that regard, yes absolutely, as a contribution baked into our RQ4 guidance in terms of increased bookings coming out of the emerging customer initiative.
Speaker Change: And then second, when we talk about 2025, I think we think it's too early to talk at about 25, right? So we can talk about broader the market trends that we are seeing there, but in general, a bit early to call 25 at this moment.
Speaker Change: Okay, thank you.
Speaker Change: Thank you. Our next question comes from the line of Game In Carries with UBS. Please receive your question.
Speaker Change: Take a morning everyone.
Speaker Change: Good morning.
Speaker Change: I was wondering if you might be able to just...
Speaker Change: Speak to us about the specific trends you're seeing at the regional level. I know you said kind of all regions were up in the quarter, but maybe you could just take us to walk around the globe and where you're seeing things looking potentially any better or any worse and previously.
Speaker Change: Yeah, I'm happy to do that and I have circled the globes since we last spoke, so I think I have some perspectives on this. I think the America's market is...
Speaker Change: So overall, I mean, markets are tough, right? You look at the PMI's that we see overall, you know, generally there, pretty weak on a global basis. And I think that's a good...
Speaker Change: Metric of what we see in markets and current feelings across really all the Google markets that we're serving and there doesn't so much apply to other sort of growth areas like logistics and semiconductors that are really helping us, but everywhere else. It's week, very week I would say overall America, you know, it's that's certainly applies. You can see that, particularly, you know, negative sentiment in order to motive, I would say, overall other markets are sort of in a low but stable. I would characterize.
Speaker Change: in Europe.
Speaker Change: Simulist Story, even more concern I think around automotive. We put up some pretty good results in Europe in the last quarter, and I think we probably gain some share of hair, but it helps a lot by logistics to perform its logistics business, but the factory automation.
Speaker Change: Situation continues to be in a pretty weak there.
Speaker Change: China, we can go into that in a lot more detail if we're interested about this video. I want to talk about it, but I think the market there has been weak for a long time. We've seen seven consecutive quarters of decline in our business, but we actually grew their last quarter.
Speaker Change: and mostly as a result of the timing of electronics, but our automotive business in China did grow.
Speaker Change: Last quarter, and I think we'll hear and see and my experience having visited China this month is, you know, the amount of motor industry in China is, you know, strong, strengthening and they have over-capacity, which means vision investments are, on perhaps.
Speaker Change: Strong, but the overall market sentiment there in automotive is perhaps a little better than anywhere else. You know, Japan might be a slightly better market overall. I think helped by semi-health, by a weekend, certainly in a week where we see some more positive sentiment there. And then probably...
Speaker Change: The rest of Asia, you know, definitely is more of a growing market, but still a lot of ten seditiveness around what's going on in the world about.
Speaker Change: about the geopolitical situation. So I think that would be a little bit of a colour on how I would call the market to all around the world.
Speaker Change: That's really helpful.
Speaker Change: Rob, you've talked about some of the AI tools that you're building into your solution set.
Speaker Change: I'm curious if that's changing your pricing dynamics at all or maybe the best way I think about that is just as a means to get new customers on board or just in customers to refresh.
Speaker Change: and also I'm just kind of curious to what extent AI might be.
Speaker Change: You know, driving an investment cycle for your customers, right? Like if I just think about consumer electronics,
Speaker Change: I presume a lot of those customer products are going to be evolving to become AI enabled.
Speaker Change: So, you know, kind of getting beyond the near-term PE pressures, you know, how are you thinking about that?
Speaker Change: Great, thank you. So what's going on in the world of AI is we'll hear about it's you know.
Speaker Change: Moving at a great pace, it's very exciting to keep the abilities I alluded to some in my opening remarks but really taking very complicated problems that really weren't solvable by machine mission before or not economically solvable.
Speaker Change: and making them...
Speaker Change: Much easier to deploy. This is very sophisticated technology overall, but what it is is allowing us to serve more customers who can now apply our technology in a more robust way. And it's the beginning. There's a lot of very powerful technology coming to market. We're investing in it. We think we're ahead in that space.
Speaker Change: Based on the acquisitions and the investments that we've made and the caliber of our engineers and you know it's something we have very, very clearly in our sights. I've met with some of the most sophisticated manufacturers in consumer electronics and other spaces over the last few months and I think they're very excited about as we are about what we see the potential of this technology is.
Speaker Change: It does have the potential for us to broaden what we do and serve many, many more applications and to do so more cost effectively with less engineering time spent by us or by our customers overall. And then as we've alluded to and you know, continues to be true, this technology it gets applied in a very powerful, complex way and I think it's in video chips, you know, banging out huge data.
Speaker Change: Mass is a data to accomplish tasks.
Speaker Change: It then we're very good at taking that technology and deploying it in a much more energy and process their intensive way into embedded systems.
Speaker Change: and that's what we say more in.
Speaker Change: Lower Price Point for XC.
Speaker Change: Feet selling what we call edge learning technology this.
Speaker Change: can be trained on just a very few samples and it doesn't have the power but has...
Speaker Change: In some cases, quite close to the power of the products that we sell at the high end. So that's something that we then will allow us to broaden our customer base. And that links very closely to our aspirations with the emerging customer segment where we can take.
Speaker Change: Alphate Technology, that then over time we learnt how to make easy to deploy to put on low cost hardware and sell very broadly and broaden those customers away beyond 30,000 towards the hundreds of thousands we aspire to. So that's kind of the journey that we're on and we're excited but we also know it's a whole industry is moving fast in that direction so we need to make sure we're innovating and we're getting ahead.
Speaker Change: Absolutely thanks for all the color.
Speaker Change: Thank you. Our next question comes from the line of Joe Gerda with Town and Company. Please see which are questions.
Speaker Change: Good morning, this is Michael Onford Show.
Speaker Change: Tell me my phone, how I call.
Speaker Change: Yes, so earlier you mentioned about a 1 million per week sale cadence from that first car court for the emerging customer. Excuse me. Customer initiative?
Speaker Change: and then like a certain degree of referral business. So all this was hit despite clearly factory automation being weak.
Speaker Change: and that's the primary and market for those types of customers. So can you just give us a sense of what the revenue uplift would be in a more normalized market environment? Thank you.
Speaker Change: Yes.
Speaker Change: I wouldn't say it's a 1 million cadence, I'd say it's growing all the time, right? So we've hired a team, we're getting them out and they're growing and in the third quarter they were selling almost a million per week our aspirations are for them to sell more and more. As we move forward.
Speaker Change: and they are referring business, you're quite right. In terms of where that ends up, in terms of where we can get to and the potential of that, that's something that we're going to discover.
Speaker Change: But right now we, as we're looking up that hill and we're seeing our progress, we're pretty happy with what it is. But I can't give you more detail on that at this point. Maybe we'll... to ask ya.
Speaker Change: Well, what we also said is that in this quarter we made changes that nowadays emerging customer sales nodes also selling to existing customers.
Speaker Change: and therefore not all of this revenue coming out of debt is incremental, right? So that's regard to keep that in mind when you think about that $1 million. Yeah, yeah. And actually to that point, I think you might be mentioning, I'll give you a concrete example. You know why? Why we're doing that?
Speaker Change: We have seen within our existing customers that we are just not making enough calls within them at deeper levels within and broadly enough within those existing customers. So I was at one of the world's largest automotive companies in recent weeks.
Speaker Change: and I think it's kind of instructive as to who Cardnex is. I was in there with the head of automation engineering in a three hour meeting discussing the application of advanced machine vision to robot guidance.
Speaker Change: Right? Imagine those kind of videos you see on YouTube, right? Okay. And great meeting, we'll count at the meeting, and I notice there's a cubicle outside with one of our competitors.
Speaker Change: Demoing Vision sensors and IT products. And that's the place generally we haven't been.
Speaker Change: at CardMex and there's a lot of business in that space.
Speaker Change: and with the emerging customers calling out existing accounts.
Speaker Change: That's where we see, we can get a big bang from the buck in addition to signing up these thousands of new customers were targeted. So I hope you see that and perhaps you can also see why it's a little difficult for us to pass and quantify what's incremental versus just pure sales of dollars.
Speaker Change: Great, thanks, guys.
Speaker Change: and the
Speaker Change: Thank you.
Speaker Change: Our next question comes from a line of Jim, a security with Needham and Company. Please proceed with your question.
Speaker Change: Hi, thank you. I'm just kidding. One of you focus on the...
Speaker Change: and the other category that you guys sometimes talk about it in your deck.
Speaker Change: The Semi Stanker Semi.
Speaker Change: I wonder if you can talk to where you're seeing the strongest demand, particularly in light of concern some people have about.
Speaker Change: and Mortis Recovery in the WFE market at the early part of it.
Speaker Change: 2020. And then also, I noticed you highlighted strength in the medical market, maybe you could talk to what you're seeing there.
Speaker Change: Yeah, I'm happy to do that. Thanks for the question. So yeah, I mean, it is hard to call a long-term trajectory of semiconductor capex, you know, having...
Speaker Change: Having been in that a long time as have you, we know how that market is. I think there's debate about how we had to start a super cycle or how we really, you know, how we, in more of a cyclical position we talk to, you know, machine builders. I'm not sure I have great visibility on that either to tell you the truth. But we are seeing strong investment, definitely, you know, a lot around high bandwidth memory.
Speaker Change: and over a lot of chips for data centers overall. And I think just the quality of cosmetics is technology in that space, you know, for precise alignment and inspection, for traceability for...
Speaker Change: Wafel probing for those type of applications is very well recognized and good. So we see that and then our business with martex really in martex was...
Speaker Change: Defeat.
Speaker Change: The significant part of its revenue is in semi, is giving us nice...
Speaker Change: Edith's additional exposure to that market and cross-selling opportunities to sell optics or software where we were previously on reselling one in respectively cognizant. Well, more text. So, we like what we see, we're confident, you know, but we're seeing at the moment in the near time. But next year perhaps more difficult to call as you note.
Speaker Change: and...
Speaker Change: The second body of question asked about medical related industries, which are about 10%
Speaker Change: of our revenue. They grew nicely in the third quarter, and although year to date has been down, I think what we're seeing is pretty consistent with what other players supplying into this industry is saying was there was just an over-investment in my big machine builders around COVID, around kind of the supply chain disruption that we've seen. It was kind of massive, I would say, and I think we've now seen that unwind, and I think we're probably going to be returning over the next few quarters to a much more normal.
Speaker Change: Caden's of spending an investment in collaboration with those kind of companies. You know, we...
Speaker Change: We have great technology for them and particularly our new edge learning tools and deep learning tools I think are really resonating very well with those customers who want to do a lot more inspection inspection of medical samples and inspection of medical products to make sure quality is there to see college changes and test students.
Speaker Change: Layers of fluid intestines and applications like that. We all know it's a very long sale cycle also, so while they may have overordered for some of the existing customers we expect new customers to come online, who would think would be long-term customers in that space.
Speaker Change: and I do think.
Speaker Change: Probably as we look at the vision industry and we think kind of longer term that investment we're making in AI and the capabilities we're having, not everybody is going to be able to do that, right? So certainly as I meet with customers particularly in the life science segment, you know, this potential reduction of players you can really meet the needs for what they want to do and we're excited to be there.
Speaker Change: and John Lewis, Chris K. K.
Speaker Change: Are you seeing um...
Speaker Change: are the customers that you talk to at all hopeful of the stronger business just given some of the government initiatives to try to stimulate growth.
Yes, it's not obvious to me, Jim, that that stimulus impacts manufacturing per se. I think it's probably more about the real estate market, but if it feeds back into consumer demand.
Speaker Change: and then that obviously drives domestic consumption of manufacturing. I don't think it's there yet.
Speaker Change: Overall, but as I mentioned, if you look at our overall business in China, you know.
Speaker Change: It's been declining sequentially for seven quarters, but we did but that trend in this quarter. Too early to say whether that is a turning point or religious stuff.
[inaudible] Just yeah, you're over year. I'm not too much to quench the need. You're over year.
Yes, anyway, so I think too soon to say is the answer to that question, but the market itself is weak, you know, very weak compared to where it was, you know, and...
Speaker Change: There's a lot of excess manufacturing capacity, which is meaning, you know, not a lot of desire to invest in new automation or applications at the moment and then in our own space.
You know, there's a more local and Chinese competitors who are getting stronger. They're gaining, Sherry would say...
Speaker Change: Patit Kelly versus European companies and some of the small-edge avenues players in that space. And as we think about opposition in that market, we believe very strongly it's important that we maintain share.
So particularly at the lower end of the market simpler applications like simpler barcode reading. We're pricing just more aggressively in that market to make sure that we're maintaining share while we get our new products ready, which will be higher gross margin. And then we can...
Peter with...
Speaker Change: Very, very competitive technology is we have as the market recovers and then we tend to sell older generations of products that those lower price points to make sure that we're still maintaining share. But that is a little diluted to our gross margin and you'll see a little of that in the Q3 results if you look closely.
Good to be here. That's very helpful. Thank you, Robert.
Speaker Change: [inaudible]
Speaker Change: Thank you.
Our next question comes from the line of Jacob Levinson with Melee's research. Please receive your question.
Speaker Change: Good morning everyone.
Speaker Change: Good morning.
Rob just on the logistics business, I think we've heard some mixed signals from some of the players in that space and it fills a little fond at this point after the post-COVID overhang. I know a few years ago you had a...
and a pretty large concentration with any commerce customer that we all know well. You mentioned that you're making progress in post-emparcel and I mentioned a coray any commerce company, so can you just give us a sense of how that business is?
Speaker Change: changed over the last couple of years and maybe just the breath of the customers that you have today and versus a few years ago.
Speaker Change: Yes.
So I think I'm not sure I heard you correctly. If you said bottom doubt, I would agree with that. I think that's kind of where we are and we're now seeing a nice growth trajectory and we probably we have now for a few quarters.
Speaker Change: and that's building. That is really happening across all of our ledgers.
and the politics business, though I would say, maybe for different reasons, I think the big e-commerce players are coming back and spending strongly and rolling out new generations of automation, and you can see that in what they're saying publicly. And we're right there with them, and it's very exciting.
and then you see that even in the customer I mentioned, out in Korea or in others, overall. But then yeah, our...
I'm more second tier of customers, small players, what we sometimes call our base logistics business. That definitely is signing up many new customers and we're seeing a lot of nice business there. I think of a large.
Speaker Change: I sort of an e-commerce company, you know, not huge in terms of revenue but playing in a niche. Actually a few companies like that, where there is...
You pass food or run.
Food Delivery, type businesses, you know, certainly was seeing pick up in the number of customers we have in those spaces and the growth and investment that we're seeing. So I think it's, you know, it's still quite early. I think in the recovery, but what we're seeing in terms of activity, what we're seeing in terms of their response to our new products, which we've really spent a lot of time and investment in and a really now hitting their strides nicely is something where we're encouraged by and likewise, our past-long post, a segment where we've been underrepresented. Well, I don't think the segment itself is.
Exactly, you know, investing heavily, you know, I thought I think if you look at the CapEx numbers from the big, possible players that kind of down, it's what they're saying, but we ourselves, because our share was low and we have great technology now, I see growth.
and that business for us too. So that's an overall picture for you.
Speaker Change: Okay, that's all Paul, just...
and Paving Quickly on Semiconductor, I feel like that's
That was the original machine vision market as opposed way back one, but as I understand it, a lot of those customers brought those capabilities in house a long time ago. It's not a market that I think we've heard a lot about from you folks in the last couple of years, but what's...
What's changed from interview just had success and you mentioned machine builders or there have been other portions of that market where you've been able to make inroads over time.
Speaker Change: Good.
Speaker Change: Yeah, I think...
Gosh, if we just stuff our history books at Dagmax, we go back 30 years, for sure, I think.
Speaker Change: I'm directly, I think I'm right in saying that in the late 1970% of our business was in Japan and it was almost all semiconductor. So that's, you know, the things have changed a lot and you're right, a lot of those capabilities were bought in house in the late 90s.
and the Co-Nex technology is great and we have that they rely on us to do very difficult tasks that no one else can do and they have specced into their machines in a market that generally doesn't change providers of technology very easily and more of a copy exact.
Speaker Change: Kind of mentality. So, you know, we benefit from that in a lot of areas of inspection.
Covereting with Wifers and other difficult material and to her run.
I speak pick and place on a line type things, just we do better than anybody in the world and work really closely with those big machine-bloss. So generally our business with them is going to kind of move with their own sales. You know, it's kind of its a market driven thing where we are we are spectrum. And then we see and we are seeing opportunities to sell new technology, particularly around the application of deep learning. Some of the factors I talked about when I talked about AI and what it can do, which can, in many cases, be incremental business, you know, into similar applications that can be done more effectively.
McQuireless Engineering also. Overall, it's a relatively small number of customers compared to what we see in the rest of our business. Our share is long-term and good with them, and we're seeing just the quality of our technology and the demand for their products really leading to some nice growth for us.
Great, thank you. I'll pass it on.
Thank you. Our next question comes from the line of Rob Mason with Behr. Please receive with your question.
Speaker Change: I just get morning pubs
Huffing between calls here so apologies if this has already been addressed. But Robert heard your commentary opening up around automotive.
and taking incremental step, lowered sound alike. I'm just curious where you think that is in terms of...
Market Bottoming and what potentially could be a catalyst there to see investment flow back, did it just need to be redirected back towards more traditional or still going to be relied on EV.
Speaker Change: to drive that.
I think the market is, you know, looks.
[inaudible] I think as we might segment by region and application so I think.
Speaker Change: The companies that's spoken to in America and Europe are really feeling quite burned by their investments in EV that they haven't really come through for them. I think we probably all know that. I think they built infrastructure to supply.
Perhaps hundreds of thousands of EV, you know, I think in a Tier 1 supplier I met with recently and I know who you know I've made very big investments to supply one of the biggest automotive companies in the world with hundreds of thousands of a particular area and it's really just tens of thousands and they put capital into that and it's painful for them and I think sometimes with different pricing or you want to play in the EV space you're going to price lower because it's the future right so I think I heard quite a lot of that in Europe and America and so I think we building around that when the EV supply EV demand isn't there right and you know we'll we'll read a lot about that, the like of charging infrastructure, the like of range, the reasons western can too cost.
The reason Western consumers aren't buying EVs, that'll change at some point, but I don't think in the near term, right? Because I do think in the long run the technology will be superior, and I think it will be driven and adopted, but it's going to take time. And where will it happen that becomes the next question, right?
So I think as I'm in China and sure if you hear those people go to China and see, you know, it's a very different picture there. It's really great movement in EVs. I mean, EVs are being adopted and embraced by consumers and driven by the government there. And if you look at our own business, you know, we did actually see.
Some growth in the EV business in the last quarter, you know, while we saw the rest of the non-EV business, slow down. So that's those dynamics that I think are in China and are going to continue, but there is an over-capacity in order of the most in China. So I think that has to be consumed first.
and then I think the other countries that are big and automotive, one thinks of Japan and Korea.
Speaker Change: I think they've been faster or past it just been fast growth over in some cases and they're more in the hybrid mode and I think that's really paying off well for them now so I think where you might see some better results out of
and particularly out of Japanese companies, it's because they've been a little more thoughtful and cautious, and they have great use for our technology, but it's early days in terms of how they're applying it more to inspection or other aspects of.
Speaker Change: Heather, that's both.
of batteries and other newer energy technologies that they have under development. So I've said a lot about that. But overall it's a pretty mixed picture, but we're not optimistic next year or at least for the next few quarters in terms of order of order.
and I understand it. Okay. It just real quickly. I just, I know it's again challenging market backdrop as you've noted, but you have to do some newer 3D vision projects about products this year. I'm just curious what the, you know, the sense of take has been there.
Yeah, we launched an excellent product, the first product I've had to bring.
AII23D, an industrial 3D system. We launched it in April. We're happy to see that the growth that's going on in that and we think very much has.
Very significant opportunity for him here. So it's something we're pleased about. It's a good example, I think you're both.
Launching new products, high gross, high gross products, high gross potential. We hope to do a lot of that next year. And sell them through what is a larger sales force to many more customers.
Speaker Change: and I think we're a little low on time, maybe that's our good note and thank you.
So I'll operate her. I'm going to wrap up. I'm just going to say to everybody, you know, I really, really appreciate your joining us this morning and your questions and we look forward to seeing you again on the next quarter's call.
Speaker Change: Thank you.
Speaker Change: Thank you, there's doesn't include today's teleconference and we thank you for your participation. May this can ensure lots of this time.