Q1 2025 Cognex Corp Earnings Call
Greetings and welcome to the Cognex first quarter 2025 earnings conference call.
At this time all participants are in a listen only mode. A question and answer session will follow the formal presentation. If anyone should require operator assistance. Please press star zero on your telephone keypad.
Eve: Now my pleasure to introduce your host degree of Eve of Investor Relations. Thank you you may begin.
Speaker Change: Thank you operator, good morning, everyone and thank you for joining us.
Speaker Change: Our earnings release was published yesterday after market close and our 10-Q was filed this morning.
Speaker Change: On today's call, we will refer to the materials available on our Investor Relations website.
Rob: We are joined here today by Rob <unk> our CEO.
Speaker Change: That motion are our president and CFO and Dennis there yeah.
Speaker Change: Today, we plan to share several key messages that he is including the CEO transition yesterday.
Speaker Change: Our new five year strategic objectives.
Speaker Change: Our performance in the first quarter and our expectations for the second quarter.
Speaker Change: After our prepared remarks, well open the line for Q&A.
Speaker Change: With our published material in the call today will reference non-GAAP measures you can find a reconciliation of certain items from GAAP to non-GAAP in our press release and earnings presentation.
Speaker Change: Today's earnings materials will contain forward looking statements.
Speaker Change: Any statements regarding our expectations.
Speaker Change: 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 10-K with that I'll turn the call over to Rod.
Rod: Thanks, Grier Hello, everyone and thank you for joining us.
Speaker Change: I am pleased to announce that most our president and C. O O will succeed me as CEO effective June 27.
Speaker Change: While this may seem hard I can assure you. This transition is the culmination of a thoughtful multiyear succession planning process with our board of directors.
Speaker Change: Over the past five years, we have focused on developing and preparing a number of leadership candidate.
Speaker Change: It's very clear to me and the board.
Speaker Change: He is absolutely the right leader to see cognex through its next phase of growth.
Speaker Change: As you can see on page three of the earnings presentation map as Bina called noise in 2017.
Speaker Change: Throughout that time, Matt has successfully navigated a range of challenges and growth opportunities, which proved his readiness to assume the CEO role, including successfully leading our engineering organization overseeing all logistics growth strategy and managing the successful global integration of more attacks.
Speaker Change: The largest acquisition in company history.
Speaker Change: Matt also led our supply chain recovery efforts in 2021, and 2022 addressing formidable challenges, including Covid disruptions chip shortages and a fire in all key contract manufacturer.
Speaker Change: I am honored to have.
Speaker Change: Cognex and our shareholders as only the second CEO in our company's 44 year history.
Speaker Change: Since I joined we have grown revenue from $175 million.
Speaker Change: In 2009 to over $900 million in 2024.
Speaker Change: While supporting strong culture of innovation.
Speaker Change: This is the right time for me to retire from my successful tenure as CEO and I look forward to continue in my role on our board and advising Matt in his new position.
Speaker Change: Let me now turn the call over to Matt to give you a preview of our new five year strategic objectives.
Matt: Thank you Rob I'm excited for the opportunity to lead Cognex as we embark on our next phase of growth.
Then my gratitude to Rob for his mentorship over the past eight years and for Entrusting me with the responsibility to preserve and enhance this exceptional company.
Matt: At Investor Day, I will introduce new strategic objectives, which are outlined on page four.
Matt: Over the next five years, we will concentrate on three key goals that will generate long term shareholder value. These include.
Matt: The first.
Matt: Being the number one provider of AI technology for industrial machine vision applications.
Matt: Second providing the best customer experience in the industry and the third substantially expanding our served customer base.
Matt: Taken together, we expect this strategic focus to yield significant results, including cognex, achieving a number one or number two position in all major markets that we serve.
Matt: We will discuss these strategic objectives in more detail at our 2025 Investor day in June and we hope to see many of you in person at our Natick headquarters for this event.
Matt: On page five you can see the high level agenda for Investor day.
Matt: Starting on the evening of Monday June 9th we will host a welcome reception, which will feature an engaging customer panel discussion and ample time to interact with members of the Cognex management.
Matt: On June 10th you'll hear presentations from cognex leaders, emphasizing our path to achieving our strategic objectives as well as our updated financial framework and capital allocation strategy.
Matt: We also have some cutting edge product demos planned, which you will be able to see firsthand if you attend in person.
Speaker Change: We look forward to discussing these objectives in more detail at our Investor day, we've allotted ample time for Q&A on June 10, and I look forward to addressing your questions at that time Robin Dennis will be taking the questions on today's call I.
Rob: I will turn the call back to Rob to highlight the first quarter performance.
Speaker Change: Matt sure.
Speaker Change: Turning now to first quarter results on page six.
Speaker Change: We remain focused on our two strategic initiatives first we continue to drive innovation.
Speaker Change: We launched the insight 8900 in Q1, bringing the power of embedding AI to our OEM customers.
Speaker Change: Second we continue to support our sales force transformation and expansion, enabling our sales team to reach a broader customer base.
Speaker Change: Quiet new accounts.
Speaker Change: We will provide a more detailed update on this initiative at the Investor day.
Speaker Change: Looking at Q1 performance revenue grew 5% year on year on constant currency basis, representing a third consecutive quarter of organic growth.
Speaker Change: Higher revenue from the logistics and semiconductor industries was partially offset by weakness in the automotive industry well brought in factory automation revenue remained stable.
Speaker Change: Operating expense discipline contributed to a year on year expansion of adjusted EBITDA margin.
Speaker Change: Nearly 500 basis points ahead of our guidance.
Speaker Change: This strong increase demonstrates the leverage our business delivers on incremental revenue and our continued focus on cost management.
Speaker Change: Well there have been modest improvements in global PMI is overall, the macroeconomic environment remains mixed with increasing uncertainty driven by geopolitical RF related risks.
Speaker Change: As always we work closely with our customers and suppliers to assess any changes to their business plans and even more so in an environment that is changing quickly.
Speaker Change: At this time, we have not seen material changes in purchasing activity order cancellations. However, this is a fluid situation.
Speaker Change: We also expect to substantially mitigate any direct cost impacts from tariffs in effect as of the time, we published its earnings release.
Speaker Change: Dennis will provide more details later in the call.
Speaker Change: Longer term manufacturing and logistics will increasingly rely on automation.
Speaker Change: <unk> greater throughput capacity traceability and quality coal at lower cost and with less labor.
Speaker Change: As the global supply chain shifts to a more regional structure.
Speaker Change: <unk> stands to benefit from these trends.
Speaker Change: I now want to provide you with an update on our product innovation.
Speaker Change: We're excited about the launch of the insight 8900, smart camera and <unk>.
Speaker Change: Can see on slide seven this is the compact fully embedded vision system powered by AI engineers to tackle some of the most complex manufacturing challenges with ease.
Speaker Change: The insight 8900 brings the impressive functionality and AI the Oems combining AI powered a rules based tools and a single powerful vision system.
Speaker Change: Whether the task is simple or complex the insight 89, hundreds that enables our customers to optimize the automation with a compact design that integrates effectively into large scale equipment, such as that widely used in electronics component manufacturing and food and beverage packaging machinery.
Speaker Change: As we continue to execute our AI driven product strategy, we will incorporate AI into more products, making them easier to use enables us to solve applications in a more intuitive and human like way.
Speaker Change: Turning now to what we have seen across our end markets, which you will find on page eight.
Speaker Change: Earnings presentation.
Speaker Change: To increase transparency, we are adding two additional end markets to a quarterly disclosure. The first is semiconductor and the second is packaging, which includes fast moving consumer goods and health care.
Speaker Change: Our discussion of 2025 trends is based on current observations, while acknowledging the heightened macroeconomic uncertainty.
Speaker Change: First quarter growth in logistics and semi markets was somewhat offset by order timing and consumer electronics.
Speaker Change: Ongoing weakness in the automotive sector.
Speaker Change: Starting with logistics revenue continued to grow double digits year on year.
Speaker Change: This is the fifth consecutive quarter of growth and marks the highest level of revenue since Q1 of 2022.
Speaker Change: As of today for the full year, we continue to expect strong growth in logistics, our outlook reflects positive momentum driven by ongoing investments by large e-commerce players and the further penetration of the broader logistics market.
Speaker Change: Moving on to automotive.
Speaker Change: As expected revenue in automotive was down year on year with weakness across all geographies. This reflects continued declines in EV battery investment tentativeness in large capital projects across the broader industry.
Speaker Change: Looking to the full year, we remain cautious about the outlook for auto as we have previously discussed however, we anticipate a more modest decline in 2025 versus last year, which declined 14%.
Speaker Change: Turning our attention to packaging.
Speaker Change: Business remained relatively stable in Q1, and we're beginning to see a modest recovery in health care.
Speaker Change: Post pandemic slowdown.
Speaker Change: Packaging is now our third largest market and is poised to become a more significant business over time.
Speaker Change: This market is particularly promising for us with our new product offerings that are easy to use for our customers.
Speaker Change: We have been proactively pursuing the packaging market through our sales force transformation and expansion investments targeted at reaching a broader cross section of customers.
Speaker Change: For the full year, we expect our packaging business to remain stable with increased penetration opportunities enabled by our sales force transformation efforts.
Speaker Change: Turning to consumer electronics Q1 revenue was down year on year, primarily due to project timing.
Speaker Change: As promised last quarter, we are providing an update on our full year outlook, which currently assumes modest growth.
Speaker Change: This expectation does not include any potential geographic shifts in production due to tariffs.
Speaker Change: Regarding this year's seasonality, we expect electronics revenue to be relatively similar in Q2 and Q3. Unlike 2024 when in Q2 was more pronounced.
Speaker Change: We believe consumer electronics has positive long term trends and we are well positioned in the market.
Speaker Change: Moved into semi semi.
Speaker Change: Semi remains a robust market for us with widespread growth driven by increased investment from major machine builders.
Speaker Change: We continue to see demand driven by high bandwidth memory chip investments. However, we have a more cautious outlook for the full year due to increased uncertainty from trade policy in Paris, and the secondary impact on demands chips.
Speaker Change: Let me now hand, it over to Dennis to walk you through financial results and the outlook for the second quarter.
Dennis: Thank you Raul.
Dennis: Our solid financial highlights can be found on page nine of our earnings presentation at a high level. We are pleased with our Q1 results I'll focus on profitability is yielding strong results.
Dennis: Most 500 basis on year on year increase in our adjusted EBITDA margins.
Dennis: And I joined about a year ago, one of my apologies was to enhance capital efficiency.
Dennis: I am pleased to report that the results are now visible in our numbers.
Dennis: Trailing 12 months free cash flow conversion of 120%.
Dennis: And more than $100 million returned to shareholders in the form share buybacks in Q1.
Dennis: The largest quarterly buybacks since the first quarter of 2022.
Dennis: Looking more closely at the first quarter results on page 10.
Dennis: Revenue of $216 million Watson or off the midpoint of our guidance.
Dennis: This represents 2% year on year growth of 5% on a constant currency basis.
Dennis: In Q4, we noticed accelerated demand late in the quarter plus revenue for.
Dennis: If we adjust for this first quarter revenue growth would be modestly higher.
Dennis: I will now discuss geographic revenue trends on a constant currency basis.
Dennis: The Americas led our year on year growth in the quarter expanding 20% on the back of continued strength in logistics.
Dennis: Revenue in other Asia was roughly flat.
Dennis: Europe declined 7% due to a recall tumultuous market some greater China was down 9% due to lower consumer electronics revenue, which is mostly timing related.
Dennis: <unk> strengths.
Dennis: Automation.
Dennis: Turning to margins.
Dennis: Adjusted gross margin was 67, 6% in the quarter in line with all our guidance.
Dennis: This represents a decline of 120 basis points from 68, 8% mid year ago, which was mainly driven by unfavorable mix and FX headwinds.
Dennis: Higher logistics controversy Jewish law consumer electronics revenue drops to exit.
Dennis: Rising impacts were offset by productivity measures.
Dennis: Adjusted operating expenses declined 8% quarter and 6% sequentially.
Dennis: The reduction was driven by lower wellhead com disciplined cost management lower stock expense.
Dennis: <unk>.
Dennis: In recent quarters, we have highlighted our increasing focus on bottom line profitability. It just yielding substantial results.
Dennis: You can see doesn't all our numbers with a 490 basis points year on year improvement in adjusted EBITA margin to 16, 8%, which is love off the high end of our guidance and consensus.
Dennis: We achieved a strong performance will improve cost discipline and operating efficiency.
Dennis: At our upcoming Investor day, and we will introduce our updated long term financial framework, which underscores our commitment to profitable growth and outlines the path towards further increasing adjusted EBITDA margins.
Dennis: Diluted earnings per share on a GAAP basis, whereas the 14th sentence up from seven a year ago and adjusted diluted EPS was <unk> 16 cents up from 11 a year ago.
Dennis: The increase was driven by higher margins, resulting revenue growth and lower operating expenses.
Dennis: Our focus on profitability and disciplined working capital management drove another strong quarter for free cash flow.
Dennis: As first quarter cash generation of $38 million compared to $10 million a year ago.
Dennis: Trailing 12 months free cash flow conversion was 120% of adjusted net income.
Dennis: We have also made significant progress in driving improvements to our cash conversion cycle, reducing the number of base by more than 70 days year on year.
Dennis: Considering our strong cash generation and attractive share price as we deploy capital opportunistic returning $116 million.
Dennis: The shareholders in the quarter, including $102 million.
Dennis: <unk> buybacks, our highest quarterly total in three years.
Dennis: Turning to page 11.
Dennis: I will now address recent developments in tariffs and the impact in cognex.
Dennis: The tariff situation remains fluid and highly uncertain.
Dennis: Cognex utilizes multiple third party contract manufacturers to assemble all of our products in southeast Asia.
Dennis: We've conducted an analysis of tariff impacts based on dose in effect as of April 30 <unk>.
Dennis: Including our universal 10% rate on U S imports elevated tariffs between the U S and China.
Dennis: Even though your food can substantially mitigate the direct cost impact of the tariffs, resulting in no material impact to earnings per share while adjusted EBITDA margin.
Dennis: While we do not expect an impact on profitability, we do expect a dilution of approximately 50 basis points on adjusted gross margin.
Dennis: So tariff rates on U S imports continue to rise what further actions on cost mitigation efforts helped.
Dennis: Any impact.
Dennis: Longer term we believe.
Dennis: Leaf to potential recalibration of global supply chains represent a growth opportunity for us.
Dennis: Cognex is spelled a strong market position globally in a small position to capitalize on any such trends.
Dennis: Moving on to our second quarter guidance, which can be found on page 12 of our presentation.
Dennis: In the second quarter, we expect revenue between 235 and $155 million.
Dennis: This range is reflective of a mixed macro backdrop at the midpoint. This represents modest year on year growth compared to Q2 of 2024, driven by our expectation for continued growth in logistics.
Dennis: Really offset by weaker trends in automotive.
Dennis: As Rob mentioned, we expect consumer electronics to be more evenly weighted across Q2 in Q3 as compared to last year skewing more strongly to Q2.
Dennis: We also expect adjusted gross margin to remain in the high 60% range.
Dennis: Which reflects continued mix headwinds in the year on year comparison.
Dennis: We expect adjusted EBITDA margin between 18.5, and 21, 5% the.
Dennis: The midpoint of this range is comparable to last year, driven by operating expense discipline somewhat offset by gross margin mix.
Dennis: As it relates to cash flow in April we made our final tax payment of approximately $16 million related to onetime transition tax on unremitted foreign earnings related to the tax cuts and job Act of 2017.
Dennis: We expect our adjusted effective tax rate to be approximately 16%.
Dennis: 15% in Q2 of 2024.
Dennis: Lastly, as we mentioned earlier, we will be hosting Investor day on June 10th in our Natick headquarters.
Dennis: Reach out to Investor relations team to RSVP.
Dennis: We look forward to seeing many of you there.
Dennis: Now, Rob and I are ready for your questions.
Operator, Please go ahead.
Operator: Thank you we will.
Operator: We will now be conducting a question and answer session.
Operator: If you'd like to ask a question. Please press star one on your telephone keypad.
Operator: A confirmation tone will indicate your line is in the question queue. You May press star two to remove yourself from the queue for participants using speaker equipment. It may be necessary to pick up the handset before pressing the star keys, we do ask all participants in the queue to please limit yourself to one question and one follow up.
Operator: One moment, please while we poll for questions.
Speaker Change: Our first question comes from the line of Joe Giordano with TD Cowen. Please proceed with your question.
Joe Giordano: Hey, guys good morning.
Speaker Change: Good morning, Joe Good morning, Joe.
Speaker Change: Maybe I'll start on the Opex like I don't want to overreact to any one quarter, but that was nice to see on higher revenues and Opex decline.
Speaker Change: How much of that was there anything kind of like more one time ish in nature in nature, there like how should we think about the ability to leverage D. The opex expense with the remainder of the year and Mike structurally from here.
Speaker Change: Hey, Joe Yeah, we havent been talking in the prior quarter, but I'll focus on profitability.
Speaker Change: Cash on cost management, and I'm really pleased.
Speaker Change: To see the results both on the Opex side, but especially on a flow through to the bottom line.
Speaker Change: They will talk a little bit.
Speaker Change: On Investor day on all cost to profitable growth.
Speaker Change: And Hollywood.
Speaker Change: And also to leverage our expense base and those will play an important role when we think about achieving all profitable.
Speaker Change: <unk> targets.
Speaker Change: Now to your question in regards to onetime effects in there and certainly FX played a role right. So if you think about a strong dollar in the first quarter all of that.
Speaker Change: That hadn't been on topline and bottom line.
Speaker Change: That's a tailwind for us.
Speaker Change: Excellent.
Speaker Change: So in that regard that brought the absolute number of stone.
Speaker Change: The dollar has weakened in the second.
Speaker Change: And Youll see some.
Speaker Change: I'll start in the second quarter or not for us but again.
Speaker Change: Yes, actually better for us both for topline and bottom line so in that regard.
Speaker Change: Paul.
Speaker Change: See that as a positive.
But we also expect that FX will remain volatile throughout the year and us are all well watch that closely.
Speaker Change: Sure.
Speaker Change: And then while I have both Rob and Matt on here like I had more of a philosophical question about <unk>.
Speaker Change: Embedded versus kind of a computer computer vision like I know that I mean, clearly you guys lead in what you do and how you do it I think there's just been a push from the market to at least make a claim that you could do more things in the and you Couldnt pass without having to have embedded right.
Speaker Change: That theres been technology changes that have allowed that other technology to compete more directly like.
Speaker Change: How do you respond to that and how do you think cognex in the next decade plays in like the combination of those two types of technologies.
Speaker Change: Yeah, well first of all I think that's a great question to bring with you when you come to Investor Day I think.
Speaker Change: Sure.
Speaker Change: Well about how we add Matt certainly havent vision around that.
Speaker Change: A quick answer would be most most customers really want embedded vision. They want the high performance that that provides easier to implement.
Speaker Change: Fewer concerns around security I could list a long list of reasons and that's why we have the best smart camera in the world in terms of sales.
Speaker Change: Globally.
Speaker Change: But but the cloud and more processing power it creates real opportunity.
Speaker Change: We've invested in.
Speaker Change: The connectivity between embedded systems in the cloud provide a lot of opportunity to really supercharge a lot of the capabilities that you find that the embedded level. So that's kind of an exciting future for us.
Speaker Change: We have very strong vision software capabilities that our most sophisticated customers utilize and I think our combination of strength in terms of cloud based AI and embedded systems is really a very powerful thing we expect to do a lot of great things for us in the future.
Speaker Change: Thanks, guys.
Speaker Change: Thank you.
Speaker Change: Our next question comes from the line of Damian Karas with UBS. Please proceed with your question.
Damian Karas: Hey, good morning, everyone.
Speaker Change: Good morning Damian.
Speaker Change: Rob Congratulations on all you've been able to accomplish over the years and I know you're not vanishing from cognex, but wish you the best in your retirement.
Speaker Change: And that obviously congratulations on your new role.
Speaker Change: So maybe just starting with consumer electronics, I would like to hear a little bit more on your thoughts there I know you mentioned it was down in the first quarter, but youre expecting modest growth. This year could you just talk a little bit about what you're hearing from customers.
Speaker Change: What trends you've been seeing in just thinking about.
Speaker Change: Now like a large smartphone maker are looking to move production to India from China like what are the potential implications for cognex around that.
Speaker Change: Yeah. Thanks, Yeah, just to reiterate consumer electronics was down in Q1.
Speaker Change: But we obviously expect normal strong sequential growth into Q2, and then modest growth for the year is what we're currently expecting and then more similar more balanced revenue between Q2 and Q3 than we saw last year, which was.
Speaker Change: More skewed to Q2 Q3, so obviously that they will want to keep that in mind I'm, sorry, more skewed equally balanced between Q and Q2, and Q3 last year with more skewed to Q2.
Speaker Change: Right. Okay, I hope I haven't confused you that I think what what that might be useful as you think about Q2 revenue year on year, obviously had much will have had more revenue in it.
Speaker Change: Consumer electronics, Okay. So to your question about longer term.
Speaker Change: Activity going on and certainly there is a lot going on in this industry that there always is in waves of new features and new new form factors that certainly are exciting for cognex as we think about growth in that industry over over multiple years.
Speaker Change: There are there also.
Speaker Change: I would say a key factor that we see and we've talked about a lot that we continue to see a lot of opportunity and is the replacement of human visual inspectors.
Speaker Change: Industry, where we have a great many human visual inspectors and on technology in the AI and we're developing it is very important for that and then suddenly cosmetic appearance as well as something Thats critical.
Speaker Change: In that market and we will continue to be.
Speaker Change: You asked about geographic shifts.
Speaker Change: This is not a new phenomenon right certainly you know we've been working over multiple years as supply chains have shifted away from China and into markets, including India as you've said, but also Vietnam and.
Speaker Change: In other markets.
Speaker Change: I was in India.
Speaker Change: Last quarter.
Speaker Change: Definitely we see a lot of activity, a well planned and rolling out and new lines.
Speaker Change: Being built by various suppliers.
Speaker Change: That market and I think a lot of ambition to take.
Speaker Change: Not exactly cut and paste.
Speaker Change: A new generation of manufacturing as they move into other geographies in India, particularly in it and that's a comment I think I might I might apply to the world as manufacturing shifts I don't think its necessarily going to be the same manufacturing that shows up on other shores of at least certain markets I think it's going to be one much.
Speaker Change: We're ensuring an automation and I do think that is one that really plays very well into cognex.
Speaker Change: Well I'm sure we can talk more about that at the Investor day.
Speaker Change: That's really helpful.
Speaker Change: And then Dennis I was hoping you could maybe just.
Speaker Change: Unpack a little bit more.
Speaker Change: The tariff details you know like how much are you importing from China into the U S. Like what what are we talking about what kind of components what kind of products.
Speaker Change: And could you just maybe give us a sense like how is your footprint in machine vision market compare to your competitors.
Speaker Change: Yes.
Speaker Change: Happy to that though.
Speaker Change: Our exposure is close to the supply chain in China is really very minimal. So I think that mostly a function of those contract manufacturers across southeast Asia. Certainly there are some some component thing Barton, let accessories and then also some optical equipment.
Speaker Change: Mr. Moura technical session would be if we got.
Speaker Change: Our factory in China.
Speaker Change: Another factory in Vietnam, and also contract manufacturers one of our textbook.
Speaker Change: Yes, pretty flexible in terms of managing our supply chain.
Speaker Change: <unk> title.
Speaker Change: Mitigation actions, which I've been talking about.
Speaker Change: Which enables us to.
Speaker Change: Basically essentially.
Speaker Change: <unk>.
Speaker Change: The impact of Vitaros to kind of a net neutral.
Speaker Change: Our earnings per share on that but we will drive flex the bullets.
Speaker Change: You saw that supply chain on that.
Speaker Change: <unk> been a pretty good position and.
Speaker Change: We'll manage that going forward.
Speaker Change: Terrific best of luck I'll pass it along.
Speaker Change: Thank you.
Speaker Change: Thank you.
Speaker Change: Next question comes from the line of Tommy Moll with Stephens Inc. Please proceed with your question.
Tommy Moll: Good morning, and thank you for taking my questions.
Speaker Change: Hey, Tony.
Speaker Change: Rob I wanted to start on logistics essentially to ask for whatever additional detail you can provide whether it's by geography.
Speaker Change: Or customer type you called out E. Commerce is one of the drivers for the full year.
Speaker Change: But.
Speaker Change: Any additional detail you could provide on the outlook would be helpful. Thank you.
Tommy Moll: Yeah. Thanks Tommy.
Tommy Moll: Certainly we're seeing a lot more momentum at all logistics. This system that we have it was our fifth straight quarter of strong double digit growth in that market.
Tommy Moll: <unk> seen the large e-commerce players.
Tommy Moll: Leading into investment.
Tommy Moll: And.
Tommy Moll: No.
Speaker Change: That looks strong and we have good sales and funnel activity. Both there, but also just in the broader market in general.
Tommy Moll: Both are large customers.
Tommy Moll: Growing NR.
Tommy Moll: Smaller customers wholesalers are showing growth the growth. We're seeing currently is more skewed towards the big players currently.
Tommy Moll: But the funnel is building nicely and the whole business.
Tommy Moll: So you asked about trends overall.
Tommy Moll: The first thing to say is I think we all know there's been quite a bit.
Tommy Moll: Period.
Tommy Moll: Spending because we came out of Covid and the market.
Tommy Moll: It is now returning to strong growth.
Tommy Moll: Those of you who attended the two largest trade shows in the industry.
Tommy Moll: Matt in Stuttgart, and pro managed Chicago would have seemed kind of just the level of activity and the number of visitors and cognex. They interest in cognex technology that exists there so a lot of them.
Tommy Moll: The underlying strength I would say.
In terms of maybe some of the trends that we're seeing.
Tommy Moll: I would say the trend is towards driving more productivity and throughput through existing distribution centers.
Tommy Moll: So that's a massive build out of new distribution centers, we would have seen five years ago.
Tommy Moll: And there's so much activity that goes on in existing.
Tommy Moll: Distribution centers.
Tommy Moll: For automation and vision.
Tommy Moll: Just barcode reading division in general here I'm thinking about areas like inbound doctor or processing of pilots that are being D palletize and.
Tommy Moll: I'm kind of a.
Tommy Moll: <unk>.
Tommy Moll: Our bottleneck with a lot of labor and a lot of variation where vision and cognex technology is really able to make a difference.
Tommy Moll: Certainly.
Tommy Moll: We're enjoying what we see is the beginning of a pick up in our parcel business, we've been in that market for a long time.
Tommy Moll: Recognized in terms of the best presentation scanners in the market for reading inbound hospitals, but here now with tunnels and new am machine vision technology that we're bringing to that market, there's a lot of opportunity.
Tommy Moll: Obviously read about what's going on in that market a lot of change and a lot of drive towards greater productivity and efficiency.
Tommy Moll: We're looking forward to capitalizing on that and we can see at the beginning of that but that is a long big capital projects.
Tommy Moll: I think of them as long term things that will pay off very well for us rather than something youll see necessarily in the near term, particularly in the <unk>.
Tommy Moll: Current environment.
Speaker Change: It's a bit of a California I hope that's helpful.
Tommy Moll: Indeed, thank you.
Speaker Change: Dennis I wanted to take a second but at the Apple here on the Opex controls.
Speaker Change: Noting that FX was a good guy in the first quarter, you just reported but can you give us any insight excluding the FX impact would you still characterize the opex dollars is lower year over year.
Speaker Change: And is that repeatable.
Speaker Change: Future quarters, where you may show topline growth.
Speaker Change: Accompanied by Opex decline.
Tony: And Tony I think.
Speaker Change: In general we have been starting managing the opex somewhat in the second half of last year.
Tony: Also talk about the fourth quarter earnings call about taking one time charges.
Tony: Part of that.
Tony: Organization of the.
Tony: Sales to your revenue.
Tony: The teams into one unified management structure.
Tony: Yes, certainly it's almost near perfect akshay lasting.
Tony: Reiterating what I've said before I think.
Tony: Out of our profitable growth very elegant.
Tony: Can you kind of got a lot of leverage to growth and managing our existing cost structure and that's really part of driving driving the bottom line in that regard.
Tony: Really consider consider that there will be also going forward laser focused on the opex side.
Tony: That will be a big a big part of.
Tony: Achieving bottom line numbers.
Dennis: Thank you Dennis I'll turn it back.
Dennis: Thank you.
Speaker Change: Our next question comes from the line of Andrew Buscaglia with Bnb BNP Paribas asset management. Please proceed with your question.
Andrew Buscaglia: Hey, good morning, everyone.
Andrew Buscaglia: Andrew.
Andrew Buscaglia:
Andrew Buscaglia: I wanted to get your take on your.
Andrew Buscaglia: Your comment that youre, not really seeing much delay.
Andrew Buscaglia: A decision, making or customer hesitancy yet.
Speaker Change: First off does that did that surprise you in the quarter, you think a company with a little bit more tied to capex.
Andrew Buscaglia: We would see something like that or.
Andrew Buscaglia: See that coming in the future and then you did talk about a little bit of weakness in auto which seem to be maybe slightly worse than you expected. So are you seeing it maybe maybe in that segment.
Andrew Buscaglia: And maybe comment on your thoughts on auto for the rest of the year.
Andrew Buscaglia:
Andrew Buscaglia: Yeah. Thanks.
Speaker Change: Yes. This is a very fluid situation and there's a lot of obviously volatility in the market. So.
Speaker Change: But I'll give you some color kind of on what we saw we have not seen material changes in purchasing activity order cancellations.
Speaker Change: Currently.
Speaker Change: We're keeping an eye on to what degree customers may be buying forward ahead of tariffs, we don't think that's particularly significant.
At the moment and the numbers that we're seeing.
Speaker Change: If I look around the world and industries, maybe we just start with the U S.
Speaker Change: Yes.
Speaker Change: In the U S. In logistics, the current sentiment seems to be to maintain investment levels.
Speaker Change: Though.
Speaker Change: <unk> is the monitoring potential inflationary trends and other impacts to that capex projects.
Speaker Change: Projects.
Speaker Change: You tend to have longer lead times, and we tend to have better visibility I think about spending plans and there is as we talked about in the previous question. So quite good paybacks on automation and logistics facilities. So I think that's what.
Speaker Change: Would suggest.
Speaker Change: Providing visit certain level of confidence I think.
Speaker Change: A positive view.
Speaker Change: Auto obviously is a much more difficult industry and we're seeing a mixed reaction.
Speaker Change: In some instances, we're seeing international manufacturers, increasing more accelerating domestic production capacity and build in the U S.
Speaker Change: Suddenly hearing I've met with some customers some in Asia in the last quarter, who see the situation and maybe looking to lean into that but others, particularly domestic American suppliers I think perhaps.
Speaker Change: Now much more cautious in light of all that Eric volatility.
Speaker Change: And they are focusing more on cost savings.
Speaker Change: Health care investments seem to be increasing currently and I think thats, probably more of a trend coming out of that post COVID-19, where there was.
Speaker Change: High level of spending and now it's returning after a very dry period.
Speaker Change: And.
Speaker Change: So yes.
Speaker Change: That's a bit of color there, let's maybe move on to China.
Speaker Change: So we have been.
Speaker Change: Yes.
Speaker Change: A significant business in China, and it's pretty broad across the whole market.
Speaker Change: Large factory automation and logistics machine builders are taking what I would consider more of a wait and see attitude related to any new products in the United States.
They're concerned to see how this plays out there focusing I think more of that gross activities into into Europe.
Speaker Change: At the end at the moment that would be a trend. So I would describe that as sort of uncertainty and caution there.
Speaker Change: Korea.
Speaker Change: Suddenly hearing from our Korean customers.
Speaker Change: They expect to increase investment in the U S, but that thinking cautiously I forgot about the near term.
Speaker Change: And then I think our customers and as Yan.
Speaker Change: Southeast Asia outside of China, and view this as an opportunity for sure and I think I think they see opportunities, particularly as trade tariff deals come signed.
Speaker Change: They see more manufacturing activity moving into that area. So so.
Speaker Change: It's a very complicated picture, there's a lot of uncertainty, but thats a bit of color on what we're seeing.
Speaker Change: Yeah interesting yeah, a lot of.
Speaker Change: Moving parts, but.
Speaker Change: But yeah, that's good color. Thank you.
Speaker Change: I also wanted to get your take on gross margins in that.
Speaker Change: Sort of each quarter or do you think you think we've seen the bottom here and your margins and they take a little bit lower and now you've got this incremental 50 basis point headwind from tariffs it seems.
Speaker Change: Do you expect margins to improve sequentially from here despite that headwind in and what were the biggest hits within gross margin in Q1.
Speaker Change: Yeah happy to take that so I think the two topics, which we have been really seeing in this quarter are our mix and FX on that regard.
Speaker Change: FX headwinds in the quarter based on where the dollar is right now it would not see that again in the second quarter, but.
Speaker Change: FX may may remain volatile and then the second item mix. So I think mix, we have been talking about this for a while and thats really a continuous trend that we are seeing logistics to be our strongest growth market.
Speaker Change: Clearly that with growing.
Speaker Change: Growing logistics much faster than in other areas. We will also see continued mix headwinds to the gross margin Oh YY thing what do you feel like what's really.
Speaker Change: You see that.
Speaker Change: It does.
Speaker Change: Volume growth is flowing through to the bottom line.
Speaker Change: Steve.
Speaker Change: I'd say, a strong adjusted EBITDA margin, which we have been seeing in this quarter I think we really.
Speaker Change: Yes, the profitability is coming off.
Speaker Change: Pretty happy about it so in that regard.
Speaker Change: I'll be very focused on bottom line.
Speaker Change: Well, certainly talk a little bit more about.
Speaker Change: Also.
Speaker Change: Cost productivity and Opex leverage.
Speaker Change: Investor Day.
Speaker Change: Thank you.
Speaker Change: Thank you our.
Speaker Change: Our next question comes from the line of Jamie Cook with Truth Securities. Please proceed with your question.
Speaker Change: Hey, this is actually Kevin Wilson on for Jamie Good morning, and thanks for the time.
Speaker Change: Hi, Kevin Good morning.
Speaker Change: Congrats Rob and Matt.
Speaker Change: And just wanted to ask about that new packaging perfect. Thank you split out I know there are a lot of different end markets you serve within that including health care I'm. Just wondering if you talk more about the penetration opportunity for those markets maybe the current degree of machine vision adoption there.
Speaker Change: The competitive landscape in those markets and then any thoughts on outside of packaging and medical which.
Speaker Change: <unk> smaller markets like aerospace.
Speaker Change: True other bucket that you might see the most potential for.
Speaker Change: Long term adoption of machine vision growing meaningfully over the next few years. Thanks.
Speaker Change: Yes, great. Thanks.
Speaker Change: So as to increase transparency we added.
Speaker Change: And market to what we're splitting out and that includes fast moving consumer goods and healthcare.
Speaker Change: So give me an idea about what's in that fast moving consumer goods includes industries like food and beverage and tobacco, but also products like razor blades.
Speaker Change: And some of the applications would include in packaging and labeling inspection, but we see our optical character recognition and traceability of products, particularly important end markets like tobacco pharmaceuticals.
Speaker Change: Hi speed barcode reading.
Speaker Change: And then assembly verification, maybe I think of things like toys that go into concessions.
Speaker Change: We see in retail.
Speaker Change: Listing market out there.
Speaker Change: Pretty broad based.
Speaker Change: Care, including pharmaceutical medical devices life Sciences contact lenses.
Speaker Change: Overall now.
Speaker Change: Just hearing you describe it it's a very broad market.
Speaker Change: There's a lot of fun.
Speaker Change: Machine builders to supply into that market and then a lot of consumer packaged goods and users.
Speaker Change: Many many many hundreds of manufacturing plants.
Speaker Change: And it plays very well I think it's a cognex this strategy about how we want to develop our technology and our sales channel because our technology is now easier to use easier to apply.
Speaker Change: Easy to demonstrate a quick payback into a lot of those.
Speaker Change: Plants.
Speaker Change: As a result really of our edge learning technology.
Speaker Change: We looked at in a new product like our data Matt to 90 barcode reader.
Speaker Change: Very very powerful a lot of AI, but very easy and intuitive to setup and see results on now there are so many of those funds and so many opportunities.
Speaker Change: Its a major reason we wanted to expand our sales force through our emerging customer program, where we have territory sales engineers, who can make many many sales calls a week and reach and demonstrate out product as customers deploy more and more easily.
Speaker Change: I think we like about the packaging market.
Speaker Change: There's less volatility and cyclicality, it's broad.
Speaker Change: And there is spending that goes on.
Speaker Change: Italy through the cycle in those markets.
Speaker Change: You you asked about other other the other area.
Speaker Change: Lee interesting markets. There you mentioned aerospace certainly with increased defense spending and it's an opportunity for us to call more on those customers and again our territory sales engineers are helping us to do that and generally you know volumes tend to be smaller and those kind of markets right that it does lend itself very well to spend them.
Speaker Change: Our products, particularly in companion barcode readers reading of turbine blades for engines and other applications like that which can be easily demonstrated and sold.
Speaker Change: That's a bit of color on that.
Speaker Change: Thanks, that's very helpful. And then following up on that emerging customer Salesforce, which you just mentioned there.
Speaker Change: Standing the sales transformation efforts.
Speaker Change: Quantifying credential revenue from that cohort.
Speaker Change: More difficult, but just wondering if you could provide color qualitatively on how bookings and sales for.
Speaker Change:
Speaker Change: West sophisticated customer base have gone in the quarter.
Speaker Change: And then any thoughts on the opex spend associated with emerging customer.
Speaker Change: Are you considering pulling back costs or just anything around opex spending given just how that initiative has performed relative to your targets. When you started the program. Thanks.
Speaker Change: Okay.
Speaker Change: Yes, I'll start with sort of the topline in the channel and I think Dennis May comment a little on expenses.
Speaker Change: When you come to Investor day, you're going to hear about our long term strategy and a big part of that is substantially expanding our served customer base. So if we go back to what I just mentioned about markets like consumer packaged goods health care aerospace.
Speaker Change: Getting more into those markets is one of the reasons that we invested in this channel.
Speaker Change: We don't get a break out quarterly results on that and really the team itself is quite now integrated into an overall team that refers business and is selling much more efficiently and well whether a ton more demonstrate and sell business for more technically detailed.
Speaker Change: And that involves business that are.
Speaker Change: Long serving account sales engineers handle.
Speaker Change: So but to recap some of the things that we've talked about in the past.
Speaker Change: We we.
Speaker Change: Added 3000, new customers.
Speaker Change: Through this program last year and that was through the first cohort of sales territory sales engineers that went into the field at nail set generated billions of dollars of referrals.
Speaker Change: For a more experienced sales team and then the second class went into all metrics, we would track towards that.
Speaker Change: Doubling that number of new customers served and.
Speaker Change: That number of activities that they generate of overall and then this year I think you'll hear more about that.
Speaker Change: At Investor Day, but you know this.
Speaker Change: We were able to kind of manage our level of sales engineers that we have as we move through now that we have a good base established in our strong patent of referrals. So we can ramp that up or down.
Speaker Change: As we move forward based on the offering operating environment.
Speaker Change: That we see.
Dennis May: Dennis Yes.
Speaker Change: Just to add.
Speaker Change: First of all as Ralph already mentioned I think we're not not having it is really a separate.
Speaker Change: And then once were they marched into the broader sales organization.
Speaker Change: Then when we think of all of our investing in health capacity in them.
Speaker Change: Certainly if youre thinking about the <unk>.
Speaker Change: Overall market environment.
Speaker Change: Times of heightened uncertainty and hold their bubble.
Speaker Change: Bubble mindful.
Speaker Change: So in general I think that comes back from a more general comments I made earlier on the call that we're laser focused here.
Speaker Change: Being part of our.
Speaker Change: Profitable growth story tool.
Speaker Change: The efficiencies on Opex in <unk>.
Speaker Change: Average excess thing expense lines in that regard do not expect us to grow.
Opex side, I expect that extra tool to broad slower than our revenue line.
Speaker Change: <unk> will be a great discussion on Investor day.
Speaker Change: Okay.
Speaker Change: Thank you.
Speaker Change: Thank you.
Speaker Change: Our next question comes from the line of Piyush <unk> with Citi. Please proceed with your question.
Piyush: Good morning, guys. Thanks for taking my questions.
Speaker Change: Good morning, good morning.
Speaker Change: I think I think you highlighted re shoring and Recalibration of global supply chain is an opportunity I understand it's still early in the macro environment remains fluid, but have you seen a step up in conversations with your customers and would be curious to know if there's any particular end market.
Speaker Change: If you could remind us how long does it generally take corp.
Speaker Change: These conversations to convert to orders for Cognex.
Speaker Change: Yes. Thanks.
Speaker Change: So this is not a new topic, obviously, we've seen FX by previous administrations.
Speaker Change: Yes.
Speaker Change: Investment Act to build new Fabs and other things in the United States.
Speaker Change: Those projects are still maybe some of the moving along and will result in cognex sales as they are brought up and start to produce so that's it but I think what we're contemplating now.
Speaker Change: Much larger potential impact on us.
Speaker Change: Our U S business and our U S long term growth prospects. If the current plan continues to play out and perhaps that settled down in terms of the company's abilities to invest.
Speaker Change: Statements I had you know when I was out in Asia.
Speaker Change: This year so far.
Speaker Change: I would say enthusiasm around that and the opportunities to invest in the U S market I think they are waiting to see kind of exactly how that will play out but certainly bringing.
Speaker Change: Manufacturing investment to the United States is something I've heard a number of very very large customers talk very seriously about and then I've also heard them talk about the need for increased automation and <unk>.
Speaker Change: Fewer humans and that process, obviously labor wages and United States are much higher than what they might see in other markets.
Speaker Change: They are very serious about wanting to talk about automation as the answer to that and there was some discussions at the beginning but a note of caution with the diesel.
Speaker Change: Long term plan.
Speaker Change: New automotive plants, sorry, you semiconductor compliance.
Speaker Change: Therefore in onshore and it will take a long time to be commissioned.
Speaker Change: Commissioned and brought up and its normally at the end of that process that cognex vision and sold.
Speaker Change: And I wanted to go back to China. It was down in the quarter, but I assume you expect improvement in consumer electronics and into Q3 Q five congrats should help what's can you elaborate on the trends I think there is a bit off and be American sentiment. That's going on I don't know if you sense that and I think you'd thought you have talked about pricing challenges.
Speaker Change: And as well do you.
Speaker Change: We expect pricing to improve as demand picks up or do you think pricing could stay challenged in that region.
Speaker Change: Yeah.
Speaker Change: Yes.
Speaker Change: So overall, our revenue in China was down about 9% on a constant currency basis in the quarter.
Speaker Change: Year on year.
Speaker Change: Whole story, there is consumer electronics timing right like so aside from that I would say that our business in China was relatively stay.
Speaker Change: Stable.
Speaker Change: Yes automotive.
Speaker Change: Has has been stronger in China than in other markets I think I think those who study the automotive market can see the power of.
Speaker Change: Chinese automotive and how that's performing and I think we see that reflected in our business.
Speaker Change: Also.
Speaker Change: And.
Speaker Change: I mentioned some trends around machine builders.
Speaker Change: Important customers to us and some caution that theyre seeing currently in that market you asked about kind of.
Speaker Change: Anti American.
Speaker Change: Sentiment.
Speaker Change: And I'd say most.
Speaker Change: The majority of our customers are large sophisticated global players right. So I think they are a very mature and measured in how they how they think about these topics and they are really interested in performance and value and productivity.
Speaker Change: Certainly.
Speaker Change: A quarter of our greater China revenue is from smaller local manufacturers that may it may be more challenging to add some of those conversations.
Speaker Change: I would also say that.
Speaker Change: Conversations that we've seen in the quarter.
Speaker Change: Even from large players are tend to be more and really understanding our supply chain and at the components that go into our products and where they come from I think we have a good story to tell on.
Speaker Change: And that story is that as Dennis outlined that our supply chain is not particularly dependent on.
Speaker Change: Chinese sourcing, which I think gives them confidence that we can go on supporting them globally.
Speaker Change: As this current situation plays out.
Speaker Change: Taking your question on the on the gross margin side and then on the pricing.
Speaker Change: In General certainly China is a competitive market and I think our strategy midstream put understated.
Basically price aggressive in what we call up and minus one minus two products. So that means older generations on kind of that's where we are competing let's say call. It.
Speaker Change: But.
Speaker Change: Other players in the market, but I think other than in the prior quarter Thats right.
Speaker Change: Really also flagging that as a headwind to our gross margin and bottom line in this quarter, we have been able to work to offset these pressures.
Speaker Change: Those Cogs productivity, that's really also kind of the way forward for us.
Speaker Change: We think the first step was to start offsetting it but certainly and part of our focus on improving the bottom line.
Speaker Change: The focus will be enough to more than offset pricing pressures and to get actually a positive effect to the bottom line.
Speaker Change: <unk> falls, so I think.
Speaker Change: Our own into management P&L.
Speaker Change: Profitable.
Speaker Change: What we are doing.
Speaker Change: I appreciate all the color good luck, Rob on whatever is next time congrats mark.
Speaker Change: Yeah.
Speaker Change: Thank you.
Speaker Change: Thank you.
Speaker Change: Our next question comes from the line of Jacob 11th soon with Melius Research. Please proceed with your question.
Speaker Change: And Jacob is your line on mute.
Speaker Change:
Speaker Change: Alright, sorry about that I'm sure what's going on there.
Speaker Change: Yes, hi.
Speaker Change: So I just wanted to say.
Speaker Change: Welcome Matt.
Speaker Change: <unk> for Robert.
Speaker Change: I'm, a great run and certainly after 17 years with bank.
Speaker Change: Thank you deserved.
Speaker Change: So in that way so.
Speaker Change: Two on that.
Speaker Change: I just said.
Speaker Change: We're coming up on the hour here. So I just had a quick question for Dennis but yeah.
Speaker Change: Certainly your stock is down.
Speaker Change: Quite a bit this theory, even after the the rebound here.
Speaker Change: You bought back some shares in the quarter, but can you just give us a sense of how you're balancing them out maybe the buyback opportunity versus.
Speaker Change: Yeah.
Speaker Change: Keeping some cash generated from Devon.
Speaker Change: Certain outlook out there.
Speaker Change: It's a great question I think.
Speaker Change: First of all I think the basis as well.
Strong cash generation I think over the last three.
Speaker Change: Three quarters, and if you look at trailing 12 months cash generation I think thats been a failure are performing very well in that regard. We are certainly mindful about our capital allocation priority is on the one side when we are thinking about share buybacks.
Speaker Change: Long term objective to offset dilution was having having purchased.
Speaker Change: About $150 million over the last two quarters.
Speaker Change: Not feeling so strongly it has been.
Speaker Change: Have to buyback more than call it the second quarter and therefore.
Speaker Change: Therefore, it will be probably a little bit more on more.
Speaker Change: <unk> done that five that in but I wouldn't say.
Speaker Change: Yes, that's convenient that we feel the need to have a rainy day fund alright, thats much more of a mall and Mike also preserving M&A firepower, which is also an important part to all our capital allocation strategy.
Speaker Change: And Jacob is your line on mute again.
Speaker Change: That's everything for me I appreciate the time and also your folks and Jim.
Speaker Change: Excellent looking forward to it.
Speaker Change: Thank you.
Speaker Change: And we have reached the end of the question and answer session I would like to turn the floor back to Matt <unk> for closing remarks.
Speaker Change: Thank you for joining us. This morning, we look forward to seeing you all at Investor Day in June and speaking with you again on next quarter's call.
Speaker Change: Thank you. This concludes today's conference you may disconnect your lines at this time.
Speaker Change: You for your participation.
Speaker Change: Yeah.
Speaker Change: Yes.
Speaker Change: Yes.
Speaker Change: Yes.
Speaker Change: [music].
Speaker Change: Okay.
Speaker Change: [music].