Cognex Corporation

Greetings and welcome to Cognix first quarter 2022 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 today's 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, Senior Director of Investor Relations. Thank you, ma'am. You may begin.

Thank you. Good evening, everyone. Welcome to our first quarter earnings call for 2022. With us are Rob Willett, Cognex's president and CEO, and Paul Todgham, our chief financial officer. I'd like to remind you that our earnings release and quarterly report on Form 10-Q are available on 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 for GAAP to non-GAAP in Exhibit 2 of the earnings release. Any forward-looking statements 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. We are pleased with our results for the first quarter of 2022. Cognix reported record first quarter revenue following a milestone year in 2021. It was also the second highest quarterly revenue in our 41-year history. And we reported an operating margin greater than 30% and an after-tax margin of 24%. Revenue for Q1 grew by 18% year on year to $282 million, near the top of our expected range. Companies invested in automation and Cognex's industry-leading machine vision products to support the growth of e-commerce, address widespread labor shortages, and meet increasing requirements for product traceability. Importantly, Our product delivery times were mostly back to normal by the end of Q1, thanks to the perseverance of Cognoids, our close relationships with suppliers, and our aggressive buying actions to secure supply. Though costly, the premium prices we are paying to secure scarce components through brokers is the right thing to do. We are prioritizing the needs of our customers and winning market share ahead of shorter-term margin and cash flow considerations. While Cognex's supply chain situation has improved, it's becoming more challenging for many of our customers and partners to source basic parts since we last spoke with you in February. As you know, Cognex products are often part of a broader automation deployment. It's taking customers longer to implement projects, and some projects are getting delayed due to longer lead times from suppliers of other equipment they need, like PLCs, robots, and conveyors. That's backing up opportunities for Cognex and delaying revenue. While this dynamic did not have a material impact on our Q1 results, it is causing us to become more cautious about our outlook. From an end market standpoint, the biggest contributor to year-on-year revenue growth in Q1 was Logistics. E-commerce, omnichannel, and brick and mortar retailers continued to invest in Cognex's machine vision products to enable higher throughput and cost reductions. In the broader factory automation market, revenue from automotive increased year on year and set a quarterly record in Q1. Customers in Asia continued to invest in Cognex products for production capacity to bring new batteries for electric vehicles to market. Spending by customers in Europe and the Americas on traditional vehicles was more muted as they held back orders due to a lack of business confidence and supply and labor shortages. Consumer electronics revenue grew well in Q1 year on year. We expect this year's spending cycle for consumer electronics will be moderately higher than in 2021, and that played out in Q1 as well. I'll say more about this year's outlook for consumer electronics in the guidance section of today's call. In other markets, SEMI continued to perform above overall growth rate. Turning now to other news. It's been great to engage closely with Cognoids and customers again as the world opens up and becomes more accessible. In recent weeks, I joined Cognoids in Karlsruhe, Aachen, and Cork offices to celebrate product launches and innovations. We also recognize Cognoids reaching career milestones, as we do at Cogmex with Perseverance Awards. In this difficult labor environment, I'm pleased to report that Cognex's work hard, play hard, move fast culture continues to flourish. Regarding our China team, many Cognoids are working online and making virtual sales calls. The circumstances in China are difficult now, and we're doing all we can to support them. In the realm of new product development, there's tremendous excitement within Cognex about our new product lineup for 2022 and beyond. Our excitement was shared by customers last month at Modex, a major supply chain trade show held in Atlanta. The Cognex booth was busy and well attended. Customers at Modex saw our breakthrough Insight 2800 series vision system that we launched in April. The Insight 2800 integrates Cognex's new edge learning technology, making powerful deep learning vision tools much simpler to use and train. Manufacturers can quickly automate inspection tasks of varying complexity with as few as five images. A few years ago, this work would have required a PhD, a very large image library, and a massive fan called GPU to perform. Bringing our deep learning technology into an easy to use, small, smart camera where training and processing takes place directly on the device was not an easy feat. It's representative of an overall dynamic in a high tech business like Cognex. Our products continually get smarter, smaller, faster, less expensive, and easier to use. This has led to increased demand over time. And this allowed us to introduce new customers to the potential of machine vision. And the products we launch are almost always gross margin accretive to those they replace. Customer feedback on the Insight 2800 is very good. Experienced automation engineers are enthused about how quickly they can solve existing and new applications that would have previously required hours or weeks. New users of machine vision find the Insight 2800 extremely simple to use and deploy without needing to have any machine vision experience. In other product news, we recently introduced the Dataman 280 series of fixed-mount barcode readers. The Dataman 280 features a high-resolution sensor which, when combined with our latest decode algorithms and dynamic image formation system, dramatically improves code reading performance and line coverage. This technology, along with the latest connectivity options for today's Industry 4.0 manufacturing needs, allows users to read complex barcodes across the broadest set of applications. It performs exceptionally well on high-speed production lines throughout factory automation and logistics supply chains, from reading 1D and 2D label-based codes on boxes to small direct part mark codes etched on critical medical devices. And now I'll turn it over to Paul.