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spk04: 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.
spk01: 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.
spk03: 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.
spk10: Paul. Thank you, Rob, and hello, everyone. I apologize in advance if we're the only thing standing between you and a margarita on Cinco de Mayo. We were pleased to deliver revenue at the high end of our expected range for Q1 in a difficult supply and macro environment. Revenue was $282 million, which represents an increase of 18% over a strong quarter a year ago and a new first quarter record. It's worth noting that our two-year growth rate was 69%. Also, we were pleased to begin catching up on orders and backlog because of our hard work to source supply. Looking at the change in revenue for Q1 from a geographic perspective, revenue from Asia increased by 25% year-on-year, Growth in consumer electronics, EV manufacturing, logistics, semi, and the broader market was offset by a two percentage point reduction from currency exchange rates. Within Asia, greater China grew by 27%, despite a few million dollars of revenue being delayed to Q2 due to lockdowns at quarter end that impacted our flow of goods and customer delivery acceptance. Revenue from the Americas increased by 17% year on year, and delivered a substantial contribution in absolute dollars due to growth in logistics, among other industries. In Europe, revenue also increased by 17%, excluding a seven percentage point reduction from currency exchange rates. Growth came from logistics, automotive, medical related, and other industries in Europe's broad factory automation market. Gross margin in Q1 was 72%, as expected. This level is five percentage points below the gross margin reported in last year's first quarter, due almost entirely to the significant premiums we are paying to procure electronic components through brokers. I want to remind you that our gross margin target remains in the mid-70% range. We expect to be back at that level once the global supply challenges have passed. It appears that will be in 2023 at this point. Operating expenses were down slightly on a sequential basis and in line with our guidance. Comparing year on year, operating expenses in Q1 increased by 10% due to incremental investments we made in sales and engineering headcount during 2021. Operating margin was 31% in Q1 of 2022, compared with 33% in Q1 of 2021 and 23% in the prior quarter. While above our long-term target, the decline year on year is due primarily to the supply situation. which is driving elevated product costs near term. Regarding the tax provision, the variance in the effective tax rates presented this quarter bear more discussion than is typically warranted. First, discrete tax items combined for a net expense of $6.3 million in Q1 of 2022 compared to a net benefit of $5.2 million in Q1 of 2021 and a net expense of $25,000 in Q4 2021. Second, The effective tax rate excluding discrete tax items was 16%, 18%, and 8%, respectively. The notable increase on a sequential basis was due to a true-up in Q4 that lowered the 2021 annual tax rate to 16% from a previously estimated 18%. Third, the effective tax rate of 16% in Q1 of 2022, excluding discrete tax items, is below our guidance because we now expect more of our profits this year will be earned and taxed in lower tax jurisdictions. Reported earnings were $0.38 per share in Q1 compared with $0.39 in Q1 of 2021 and $0.30 in Q4 of 2021. Discrete tax items reduced EPS by $0.04 in the quarter, while they added $0.03 per share in Q1 of 2021. On a non-GAAP basis, earnings were $0.42 per share in Q1 compared with $0.36 in Q1 of 2021 and $0.30 in Q4 of 2021, excluding discrete tax items. I want to point out that we are no longer excluding excess and obsolete inventory charges from non-GAAP earnings per share. We had adjusted for it starting in Q2 of 2020 because of the unusually large charge we recorded that quarter as part of our restructuring activities. We no longer believe it is necessary now that 2020 is out of our prior year comparisons. Turning to the balance sheet, Cognex continues to have a strong cash position with $794 million in cash and investments and no debt. Cash outflows in Q1 included our stock buyback activity. We spent $130 million to repurchase Cognex stock, which is the highest amount we have deployed to buy back stock in a single quarter. Our board authorized a new $500 million repurchase program in Q1 after we completed our previous $200 million program. Our accounts receivable balance increased by 19% from the end of 2021 and remains very healthy. Large orders shipped late in Q1 contributed to the increase. Regarding our inventory balance, we are continuing to bring in components and other supply to support customers and a higher level of business. And we are doing so at elevated costs to win market share and underwrite our resilience in a time of global supply chain constraints. Now, I'll turn the call back to Rob.
spk03: Thank you, Paul. Let's move next to guidance. Cosmex reported a solid start to 2022, and we expect to report good results for Q2. We believe revenue for the second quarter will be between $265 million and $285 million. As mentioned earlier, our customers are facing supply chain challenges and labor shortages that are beginning to slow our growth rate. In addition, we expect Q2 will be a quiet quarter for logistics. We believe this is primarily due to the timing of large projects, and then it will be followed by a more active quarter in Q3. For consumer electronics, our visibility into this year's spending cycle is beginning to crystallize. We believe annual revenue for consumer electronics will be accretive to our growth rate in 2022, and that seasonality will be comparable to last year. For Q2, we expect a seasonal increase on a sequential basis, as usual, and growth over Q2 of 2021. We believe Q3 will be our largest revenue generating quarter for consumer electronics this year. I want to remind you that Cognex products for consumer electronics are predominantly installed on production lines in Asia, China particularly. I'm sure you understand how difficult it is to forecast business in China right now. Despite COVID-related lockdowns, our customers are asking for us to be ready for product shipments for a number of large deployments and onsite support in Q2. Our guidance reflects that timing as well as the assumption that the COVID situation in China does not get worse. We expect gross margin in Q2 will be in the low 70% range. We believe the premium prices we are paying to brokers for scarce components will persist for the remainder of this year. We expect operating expenses will be roughly flat on a sequential basis. Lastly, we expect the effective tax rate will be 16% excluding discrete tax items. Now, we will open the call for questions. Operator, please go ahead.
spk04: At this time, we will be conducting a question and answer session. If you would like to ask a question, please press star 1 on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You might press star 2 if you would like to remove your question from the queue. For participants using speaker equipment, it may be necessary for you to pick up your handset before pressing the star keys. Please limit yourself to one question and one follow-up. One moment while we poll for questions. Our first question comes from the line of Jacob Levinson with Melius Research. You may proceed with your question.
spk07: Good evening, everyone.
spk03: Good evening, Jacob.
spk07: I think there seems to be quite a lot of angst out there, for lack of a better word, around a potential recession. I guess the question is, how do you think your customers respond in that type of scenario? I mean, do they cancel or delay projects, or do you think that they're just going to keep spending on automation because of labor challenges or inflation or whatever the case might be?
spk03: Yes, it's an interesting question, Jacob. I think we've worked in this industry through a number of recessions, and sometimes in a shorter cycle spend can take quite a strong downturn initially, and then we've seen it come back pretty strongly. I would say our major customers, though, in areas like logistics, consumer electronics, EV, longer-term thinkers, and we believe they would continue executing on plans that transcend short-term changes in the business environment. So it could be a mixed picture in that way. We believe Cogmex is well-positioned to weather-difficult conditions, given our strong balance sheet, our large backlog position, willingness by customers to improve productivity through automation and machine vision in environments. But those are sort of traditional things that we've seen in the past that may be more pronounced now than perhaps in coming into previous recessions based on our size and the strength of our customer relationships. So, you know, those are some of the things I would point out.
spk07: Okay, that's helpful. And somewhere related to that, I saw a comment that you folks made in the 10Q on slowing factory automation investment. I assume that That's related primarily to the product shortages that you mentioned, but just curious if there are particular nuances around certain net markets or if that was more just a general comment.
spk03: Well, I'd say there's a lot going on out there, Jacob. I'm reminded of Tom Peters' quotation, if you're not confused, you're not paying attention. It's like there's so many variables, I think, currently for anyone running a business. So certainly supply chain challenges are notable. And as I said, I think often what we're seeing now is our deployments and sales are being held up by other suppliers in the automation infrastructure, whether it's integrators or sales of PLCs. We're seeing some major suppliers lead times on PLCs and other motion control equipment going out six months. this point and certainly that is deploying and that's slowing slowing down um some deployments but you know what else i think is uh is is um you know obviously the china covet situation we discussed um also um i think you know spending by companies in europe and america becoming more tentative particularly in automotive and packaging and i think obviously concerns macroeconomic concerns the geopolitical situation with with the war in ukraine etc um so you know and and i think we've also seen um you know we've read this in the press you have that um some some uh new distribution centers and logistics are being delayed more focus is being placed now on productivity and process improvements to reduce cost and improve uh worker safety um so these are all factors that you know are playing into our thinking as we look out about into the year some are playing very positively um particularly around you know a company's interest to reduce costs and improve worker safety others delaying you know greenfield sites um would would have a longer term implement implication the final thing i would say is i think a lot of what we're seeing more is delaying of projects um you know it's like giving us some some concern rather than you know we're not seeing i can't think of really any cancellation of projects that we're seeing nor would we expect to in the near term Great. Thank you. Good luck, guys.
spk04: Our next question comes from the line of Jim Rashudi with Needham & Co. You may proceed with your question.
spk05: Hi. Thank you. The question I have is just with respect to some of the projects in the logistics area. Do these tend to be larger projects? And I guess where I'm going with this is normally if some of these Deployments are not done by Q3. My impression is the customers like to have them in place by the strongest calendar quarter, Q4. Is there a risk that these slip perhaps into 2023?
spk03: Well, I'd say, Jim, we're still kind of continuing to learn about the seasonality in logistics. You know, it appears that Q1 and Q3 will be the stronger revenue generating quarters this year for our logistics. And then we would probably expect, as we have in previous years, lower revenue, certainly in Q4, for the reasons you suggested. I don't necessarily see the dynamic we're playing. You're referring to really having a marked effect on our business this year overall, but the overall quarterly phasing with stronger Q1 and Q3. is probably what we're expecting at this point. Not so much related to any change in the business environment, just more to the timing of deployments.
spk10: Yeah, and Jim, this is Paul. I've shared this before, but the last three years have had quite different seasonality in logistics. In 2020, logistics grew every quarter from Q1 to Q4. So Q4 was actually the highest quarter in logistics in 2020. So kind of bucking that theory of holiday readiness that you said. Last year, it grew from Q1 to Q3 steadily, and then Q4 was down. And then, as Rob mentioned, this year is a different pattern. So we are trying to give color on the overall flavor of the year, but I don't think we have true insight into a pattern, or at least we haven't seen it over the past three years.
spk05: Understood. Thank you. And just with respect to the color you gave on the consumer electronics and logistics market, what are you thinking in terms of automotive markets? Do you see the same trends, more investment over the balance of the year in EV, a little bit more uncertainty in the traditional market?
spk03: Well, certainly we're seeing automotive revenues growing faster in Asia, and that's where global parts suppliers and EV battery manufacturers are concentrated. And we see a lot of investment and very strong growth in that part of the business. And then we're seeing... you know, slower growth or declining growth rates in Europe and America, where there are more traditionally, you know, combustion engine and tier two traditional automotive parts suppliers. So I would expect those dynamics to continue. You know, there are, you know, obviously EV battery projects increasingly in Europe and America, but I think those are probably longer term plays for, you know, Cogmex's growth plans. Thank you.
spk04: Our next question comes from the line of Joe Rischi with Goldman Sachs. You may proceed with your question.
spk02: Hi. Good afternoon, guys.
spk03: Hi, Joe.
spk02: Hey, I want to ask just kind of a broader question around the longer-term growth framework for the logistics business. Obviously, it's been an incredibly great story for you guys. I've been talking about a 50% kind of compounded growth rate over time, but there's news out last week that Amazon had built too many warehouses, has excess fulfillment capacity. I'm just curious. I mean, we don't have to talk about that specific customer, but just more broadly, how you're thinking about the growth rate over the long term and whether there is potential like excess capacity right now and that growth slows for the next, I don't know, 12 to 24 months.
spk03: Yes, I think we expect logistics to be accretive to our overall growth this year, but unlikely to grow anywhere close to our 50% stretch goal after a remarkable year last year and a remarkable three years, really, I think that we've seen. So there's a lot of demand. for machine vision in logistics. However, as I think you correctly referenced, plans for new distribution centers are being delayed. More focus is being placed on productivity, process improvement to reduce costs and improve worker safety. So there are a lot of repetitive motion that goes on in logistics fulfillment. And I think certainly with more concerns about labor and safety and potential unionization in those I think there's more focus going on in pivoting towards those applications. It actually plays very well for Cognex where we sell fixed mount and more sophisticated vision rather than so many handhelds into that marketplace. And as I've mentioned, the deployment is slowing due to supply chain and also labor, meaning engineering and integration issues. shortages. So that's kind of the dynamics for this year. I think we do expect to kind of revisit some of our long-term growth targets around logistics. We're not quite ready to share those with you, but I think you can expect later this year we'll come with what is a very exciting vision for the future of Cognix logistics, particularly as it relates to moving beyond barcodes and more into vision, where we see some very exciting growth opportunities I think you're right to ask for that and give us a little time to come back to you and the community later in the year about how we should think about what's been a 50% stretch goal and what that might look like going forward. Still, I would expect very exciting.
spk02: Got it. That's super helpful and appreciate all that color. My one follow-up question, again, just keeping this a little bit longer term, I'm curious whether there's been like any change to the competitive dynamic, you know, yourselves and your competitor in Asia have enjoyed like some pretty good barriers to entry. I thought it was interesting that, you know, Zebra bought Matrox imaging, you know, announced this this past month. I'm just curious, like whether, is the dynamic changing at all competitively? Any comments that you can make around that would be helpful as well.
spk03: Yeah, sure. I'll make a few general comments. So, you know, Keyance, our main competitor in this marketplace, and we, I think, have gained quite a lot of share over the last few years. I think our technology, our balance sheet, our investments, our R&D spend, our sales improvements have paid dividends through this period. So I would say those dynamics, I think, are borne out if you look over the last, say, 18-month period of results. In terms of new competitors, we're always very focused on what's going on in terms of new entrants and new competitors. Certainly, Zebra is a company we see investing a lot in this space. And of course, we've been very interested and not surprised by Zebra's acquisition of Matrax. Wouldn't say it changes our overall strategy or thoughts, but some thoughts I have about certainly that would be, you know, both companies sell primarily through partners, not direct sales as we in Keyance would be the majority, half of the majority of our business. And, you know, Matrox is a, you know, a very strong technical company. They've been in the industry a little bit longer than we have. They're very strong in rules-based vision and have strong, you know, semiconductor relationships with large OEMs. So those are all interesting things for us to observe as we think about that transaction. Where also there is more activity, I would say, is in local Chinese competitors. And we certainly watch those very carefully. There have been some IPOs locally by some some Chinese machine vision companies. And there's also obviously a large state-owned enterprise in hike robot that also is growing in China. So quite dynamic, I would say probably the companies I've mentioned are gaining, you know, gaining share and growing, and they're probably doing so at the expense of many of the other players in the industry who have been there for a long time and perhaps haven't kept up with R and D and innovation and investment in sales channels. So. Those are some of the broad dynamics I would see, Joe.
spk02: Appreciate the time. Enjoy the margaritas later. Cinco de Mayo.
spk04: Our next question comes from the line of Andrew Buscaglia with Beringberg. You may proceed with your question.
spk08: Hey, guys. I like comment on consumer electronics growing. I was not expecting to hear that, especially this early in the year. What exactly is driving that? What's giving you the visibility to make that comment?
spk03: Well, we have very close working relationships with a number of very large consumer electronics providers, but also their supply chains and their customers. So we have pretty good insights by this time of year. about their plans to roll out new technology and new models and invest in new lines. And that's been the case for us for many years now. So it's really, that's kind of our read. And that's really what we're sharing. I would say there's certainly, there are always dynamics of new features and new technology coming into the electronic space. And there are years where that really pops for us. And you've seen that years like 2017, And then there are years that are more muted or have declined. And I think we're calling this year as one of moderate growth.
spk08: Okay. And the comment on automotive, you're talking about faster growth in Asia, but maybe some declining growth rates in North America from traditional OEs. Do you guys do work or intend to do work with some of the newer non-traditional EV makers that are based out of the US?
spk03: Well, as we often say, you know, we're the leading provider of advanced machine vision technology for industrial automation in the world. And, you know, we work with the most sophisticated customers in general. And those, you know, those in general are very sophisticated users and they have excellent engineering teams. So they're exactly the kind of companies that we work with. Okay.
spk08: Well, actually maybe a question, if those guys are still investing, how come, you know, you wouldn't see that automotive growth this year. So it's kind of like newer EV makers are still, you know, moving forward with their plans.
spk03: I think we have seen good, good automotive growth and in the first quarter and, you know, we're, um, and, you know, so I don't think we've given more guidance for the year overall. Um, so, but, but I think the comment I would make is we see, you know, strong growth in EV and EV battery. and much more muted growth in traditional automotive. So that, you know, that's traditionally been a large market for us. So it's more of a mixed thing. And you can count on, you know, the innovators, particularly the EV battery and the electric vehicle companies, certainly who are experiencing great growth, you know, providing us with strong growth also.
spk10: Yeah. And the scale of EV in Asia remains, you know, is the highest concentration of our, you know, of the mix. So, you know, EV is growing everywhere, but different base levels and different timing durations of rollouts of CapEx in the different geographies.
spk03: And it might help to understand, too, that EV is a supply chain ecosystem that includes a lot of OEMs and subcontractors and machine builders and battery manufacturers. So much more than it is selling directly to end-user brands. that you might recognize, even though those brands are often contrasting with the machine builders.
spk10: Yeah, it's a fair point, Rob. We recognize the revenue where we execute the project, not necessarily where the OEM might be located, their headquarters.
spk03: Yeah, and certainly the large EV battery manufacturing companies are almost all Asian.
spk08: Got it. Thank you.
spk04: Our next question comes from the line of Rob Mason with Baird. You may proceed with your question.
spk09: Yes, good evening. Just to follow up on that last question around automotive and EV, Rob, could you frame the growth rate range that we're falling into right now? I mean, is it triple digits? You said strong. But just, you know, perhaps a reference point for the rate of growth that you're seeing.
spk03: Rob, is your question about EV or automotive in general?
spk09: The EV portion of your automotive business.
spk03: Right. So I'm not sure we would necessarily give you specifics, but, you know, it's certainly, you know, growing a lot faster than our overall growth rate. Maybe I'll leave it at that. Okay.
spk09: Okay. And also it, it, clearly you're seemingly a little more comfortable around your supply position relative to how the ecosystem that you're selling into is faring. But I'm just curious how you're handicapping that and how it's played out for you if you saw any increase in decommits that you were able to just manage around or I guess how you're accounting for that risk in your outlook as we go forward here still because it is It is still challenging for many.
spk03: Yes. You know, I think we've been about a year really into this kind of problem. And for us, it's tended to be, you know, suppliers of chips who have decommitted, you know, where we have, you know, we have a buy schedule agreed with them that goes out years in some cases. And, you know, in a period of extreme growth that we saw, you know, going back a year where we were reporting 40%. growth rates. Obviously, we were consuming large amounts of chips and burning through our strategic reserves of chips. So we had that dynamic. And then we had some suppliers of specialty custom chips were really decommitting, and they were decommitting out six months. So I think when we last spoke to you, we sort of thought, I think, that we were kind of making really great headway. And we expected to see our that kind of broker by headwind really diminish by the end of the year, right? But more recently, you know, we've seen some decommits, you know, continue. And that's problematic for us. You know, one of our suppliers particularly is, you know, came with, you know, a schedule that, you know, they've pushed back a good six months. And, you know, I'm hearing a lot in the industry about the pain that that's caused. So certainly those are challenges. We're then working very hard to design out those chips or replace them with other opportunities. And then we have to go out into the broker market sometimes and source chips from brokers. And that can be, in the current environment, very expensive. We're saying that we think that kind of process of going out and sourcing in the broker market is going to continue for us. Obviously, it goes into inventory and then it comes into revenue. So there's a bit of delayed timing where we can see what sitting more costly inventory will go into products and subsequent quarters. So we kind of, we have a view of that. I'll turn it over to Paul to sort of try to size that for you.
spk10: Yeah. Yeah. Hi, Rob. For, you know, for the last three quarters, we've given some sizing of, I'll start with the revenue sizing, then we'll go to the gross margin. You know, we've done some sizing of, you know, how much revenue might have been shifted or pushed out a quarter because, you know, that would be recognized in a normal supply environment and was delayed. So, you know, that Those were positive numbers. We pushed some revenue and it kind of grew through the back half of last year. Because of the investment we've made to secure supply and positioning, and as Rob mentioned in the prepared remarks, we're basically back to normal delivery times for the vast majority of our products. And we delivered about $20 million of orders in the quarter that had been in the backlog for some period of time, which primarily benefited Europe and the Americas. And this was partially offset by a few million dollars of orders that we would have recognized in China were it not for COVID-related delays in transit and customer acceptance at quarter end. And then on the gross margin side, yeah, I think what's maybe a little more unique for Cognex relative to others who are citing several different factors, core component, cost, inflation, freight, and broker buys, is really the broker buys are the vast majority of the delta between last year's gross margin of 77% and certainly the US versus a 72% now versus a 75% or mid-70s target. It was a little over 400 basis points of margin headwind driven by the broker buys, which was very comparable to what we saw in Q4 and comparable to what we expect to see in Q2. I have some hope it might get better in the back half, but we're not counting on it at this point.
spk09: Very good. That's helpful. Thank you.
spk04: As a reminder, if you would like to ask a question, please press star 1 on your telephone keypad one moment while we poll for questions. Our next question comes from the line of Joe Giordano with Cowan. You may proceed with your question.
spk11: Hey, guys. How are you? Hi, Joe. Hey, I just wanted to confirm one thing I think you said, but Are both consumer electronics and logistics expected to be accretive for the full year to total company growth?
spk03: Yes, they are.
spk11: Okay. I thought that's what you said. And you kind of, I think, indirectly answered this too, but based on 3Q logistics expected to be like a more active quarter, and I think you mentioned 3Q is expected to be your highest revenue quarter for CE, is it fair, like, based on everything we know right now, that 3Q is likely sequentially a higher revenue quarter for the full company than 2Q?
spk10: Yeah, hey, Joe. Again, we just guide for the current quarter, of course, but putting those trends together and thinking about the seasonality of consumer electronics, which does tend to be a seasonal build, and this year we are expecting Q1 and Q3 to be our largest quarters for logistics. I think that's a safe bet.
spk11: Okay. I think there was a question earlier talking about the angst that's in the market right now. You know, sometimes angst is good for a company with a lot of cash and no debt to be active and opportunistic. So just curious what you think about the M&A markets. Are there parts of the market that are kind of under pressure where you can kind of step in or is there stuff looking more attractive now? Just what's your overall view there?
spk03: I think we're always out. We're very selective, and we like companies with great technology, for sure. My sense is it's a little early. I think maybe the realization of what we're looking at maybe hasn't filtered into the M&A environment, particularly in terms of valuation. But certainly that's something that we're thinking a lot about.
spk11: And if I could just sneak one last one, just the logistics pushout, is there visibility around, like, you know, is this pushed into 3Q and you kind of had, you know, you've had that discussion, you've had the visibility, or is this pushed into 3Q and then maybe it's canceled or maybe it's pushed into next year? Like, how solid is that, the timing around those pushouts?
spk10: Yeah, I mean, I think Again, there's a reason we give quarterly guidance and not beyond that. I think, as Rob noted, there is tremendous volatility right now. So even thinking it's a good bet, that's a good bet based on the information we have today. Could things delay further and could get worse? Of course they could. But there are several moving pieces associated with these sort of long-term multi-year plans that the pushes do tend to be kind of historically of this duration, not, you know, not dramatic changes given all the other parts that are sort of lined up. So I'd say it could get worse, but, you know, we think that the downside of that is bound to some extent given the commitments our partners are making.
spk03: And I'll also comment that I think, you know, Cognex tends to deal with the most sophisticated businesses. You know, I think we certainly saw that initially in the downturn that, some of these logistics players who are technically sophisticated really kind of leaned in and invested heavily. So I think while what they see going on in their business in terms of sales to customers might be changing, their automation plans are pretty well established. And it's more the order and the focus of how they implement them. So we have, I'd say, quite a high degree of confidence that that business is coming our way and would not be Thanks, guys.
spk04: Our next question comes from the line of Jerome Nathan with Daiwa. You may proceed with your question.
spk06: Hi. Thanks for taking my question. I just had a pricing question. Many of the companies have been raising prices to offset some of these cost headwinds. Can you talk about what Cognix has done? Are these numbers net of these price increases?
spk10: Yeah, I can take it, Charam. Obviously, the current inflation environment is something we haven't seen in some time. Our philosophy on pricing really is, our strategy is focused more on offsetting what we believe is permanent inflation at the gross margin line. The biggest driver of our lower gross margin right now is broker buys. Although we're getting some offset for some pricing actions we've taken at an operating income level, we're really focused on trying to come through this period of supply chain volatility with the price increases we've taken and realized essentially matching the inflation that we think will be with us for some time. And based on what we saw in Q1, we believe we are keeping pace with that underlying cost increases that are permanent. But of course, we'll continue to monitor and react accordingly. We try not to be more specific than that knowing you know our largest partner says very little and for competitive reasons You know don't don't wish to disclose further Okay, thank you, and they just and as a follow-up.
spk06: I see that logistics has has been you know Cited as a growth driver and all of your segments all of your regions And I was just wondering if you could kind of give us some more nuance on on how the regional growth has been you know are you seeing a more weakness in the U.S. or more push outs in the U.S. and less so in our international?
spk03: I'll make a general comment and then Paul may be more specific. But I would say that the majority of our logistics business is still U.S. focused. But we've been investing for a number of years and building up our capabilities in Europe and Asia. And so we're generally seeing much higher growth rates in those markets. And I think that's some of the exciting part of our logistics business and why we're confident about continuing to grow very strongly as a business, regardless necessarily of what happens in the U.S.
spk10: That's right. You got the data and that's been playing out the sort of relatively faster growth abroad for some time now. And I think we've also been quite happy with just the diversification of our logistics business. you know, number of customers and depth of relationships with those customers, which has been expanding nicely too.
spk03: We're seeing some really, you know, really great e-commerce, you know, technical and leaders in Asian markets, particularly adopting Cognix Vision in a, you know, in a big and exciting way and similarly in Europe. So, yeah, we have a lot of enthusiasm about that. And I know in our discussions here with you, it tends to be a little U.S. focused. So I would, you know, recommend them. We talk about that more in the future.
spk06: Okay, great. Thank you. Thanks.
spk04: As a reminder, if you would like to ask a question, please press star 1 on your telephone keypad. We have reached the end of the call. I would now like to turn this call back over to Mr. Rob Willett for closing comments.
spk03: Thank you so much, and thank you everyone for joining us tonight. We look forward to speaking with you again on next Quotas Cole.
spk04: This concludes today's conference. You may disconnect your lines at this time. Thank you for your participation. Enjoy the rest of your day.
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