Cognex Corporation

Greetings and welcome to the Cognix first quarter 2021 earnings conference call. At this time, all participants are in a listen-only mode. A question and answer session will follow the formal presentation. If anyone should require operator assistance during the conference, please press star zero on your telephone keypad. As a reminder, this conference is being recorded. I would now like to turn this conference over to your host, Ms. Susan Conway, Director of Investor Relations. Thank you. You may begin.

Thank you. Good evening, everyone. Welcome to our first quarter earnings conference call. With us are Rob Willett, Cognix's president and CEO, and Paul Todgham, our chief financial officer. We'll start with prepared remarks and then open the call for questions. I'd like to remind you that our earnings release and quarterly report on Form 10-Q are available in the investor relations section of our website at www.cognex.com forward slash investor. Both contain detailed information about our financial results. During the call, we may use a non-GAAP financial measure if we believe it is useful to investors or if we think it will help them better understand our results or business trends. You can see a reconciliation of certain items from GAAP to non-GAAP in Exhibit 2 of the earnings release. Any forward-looking statements we made in the earnings release or any that we may make during this call are based upon information that we believe to be true as of today. However, things can change, and actual results may differ materially from those projected or anticipated. For a detailed list of risk factors, you should refer to our SEC filings, including our most recent Form 10-K and our Form 10-Q filed tonight for Q1. Now, I'll turn the call over to Rob.

Thanks, Sue. Hello, everyone. Thank you for joining us. Now, I know many of you are used to hearing Dr. Bob Shulman kick off our calls. We'll miss him following his retirement as chairman of Cognex's board of directors. If he were joining us today, he would probably say, wow, what a quarter. For me, I'll start with we are pleased with our strong start to 2021. Cognex reported record first quarter revenue, net income, and earnings per share. We're also highly profitable, reporting an after-tax margin of 29%, demonstrating the substantial leverage we have in our business model. Most importantly, we're feeling more positive about business activity overall than we have in many months. Revenue for Q1 was $239 million, and in the top half of our expected range. the growth rate year-on-year was 43%, the third quarter in a row in which revenue grew by more than 30% year-on-year. Revenue also increased on a sequential basis, which is contrary to our typical seasonal experience. The biggest contributor to growth was logistics, which for the first time in our history was our largest end market. we reported another record revenue quarter in logistics due to continued strong demand from the e-commerce sector. Notably, we believe the strength we have been experiencing is broadening. Sectors that struggled in 2020, such as brick and mortar retail and airport baggage handling, are beginning to invest again. Revenue from most manufacturing industries increased meaningfully year on year. Highlights include automotive, which grew quicker than expected and at the fastest rate in some time. Consumer products and food and beverage picked up noticeably. Medical related industries and semi continued to be strong. Consumer electronics also grew year on year in Q1. As many of you are anticipating, we're ready to share our view of this year's spending cycle. For 2021, we believe revenue for consumer electronics will be modestly below the level we reported last year. This follows a very good year in 2020, during which consumer electronics was Cogmex's largest industry and grew by about 30% over 2019. We expect less investment in smartphone manufacturing and in devices needed for online learning and working from home. As for timing, We believe Q3 will be our largest revenue generating quarter for consumer electronics. However, in Q3 this year, we expect a lower concentration of electronics revenue than we saw in Q3 of last year. Moving now to our supply chain. The team continues to do a good job navigating a difficult environment. Supply chains are under pressure for most companies, including Cognex, because of increased customer demand, lengthening component lead times, some vendors struggling to supply parts, elevated freight costs, and COVID concerns. Our close relationships with suppliers and our practice of holding substantial component inventory are helping us manage well through these challenges. Let's talk next about new product development. Since the start of the year, we introduced three powerful next-generation platforms that we've been working on for a number of years. First is the Insight 3DL4000, which we discussed on our February call. This exciting new smart camera platform leverages Insight's widely used spreadsheet interface for the fast-growing industrial 3D vision market. We believe the L4000 is a breakthrough product that makes Cogmex's industry-leading true 3D vision tools as easy to use as 2D. As one customer summed up nicely, a new application can be up and running in minutes. The L4000 positions us very effectively against some of our competitors who have significant sales and profits in 3D vision. Second, we launched the DataMan 8700 series, our next generation of industrial handheld barcode readers. The 8700 series reasserts our technology leadership for handheld barcode reading in automotive, medical devices, electronics, and other industries. Customers tell us its speed and accuracy in reading the most difficult codes etched on metal and other surfaces leapfrogs the other products available today. Oil resistance, robust industrial protocols, wireless communication options, and a built-in OLED display are all key differentiators for our new range of handheld readers. Third, we introduced an edge platform for extracting more value from the billions of digital images generated daily by Cosmex products. Cogmex Edge Intelligence, or EI, helps customers understand the performance of devices deployed across facilities, quickly identify issues, and take corrective action. We held extensive beta trials at EI with some of the world's largest logistics and consumer products companies. They praised EI's ability to reduce costly downtime, provide immediate actionable quality data, and improve productivity. EI also easily integrates with industry 4.0 solutions from larger automation companies, providing access to valuable factory data for predictive analytics. I'm proud of the team's success introducing these products during COVID. Our first virtual launch about a year ago at the start of the pandemic was the Insight D900 deep learning smart camera. Today, we're successfully launching new products, training our sales engineers, distributive partners, and customers, and holding technical discussions, trade shows, and product demonstrations virtually. We're winning a lot of business in this manner and intend to continue to do so in 2021 and beyond. Cognoids continue to work productively together and with our customers, partners, and vendors. Even so, it's encouraging that life in most of our markets is starting to improve. We look forward to collaborating more in person as the world moves beyond the pandemic. Now, I'll hand the call over to Paul for details of the quarter.