Cognex Corporation

Greetings and welcome to the Cognic second 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 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, Senior Director of Investor Relations. Thank you, ma'am. You may begin.

Thank you. Good evening, everyone. Welcome to our second quarter earnings conference 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 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 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 file tonight for the second quarter. Now, I'll turn the call over to Rob.

Thanks, Sue. Hello, everyone, and thank you for joining us. The three months since our last earnings call have been particularly active. To begin tonight's call, I want to update you on two big challenges going on in our business right now. One concerns a fire at our primary contract manufacturer that occurred in June. The other relates to overcapacity in our largest end market. First, let's talk about the fire at our primary contract manufacturer. On June 7th, there was a fire at the facility in Indonesia where most Cognex products are manufactured. Thankfully, no one was injured. Also, our area on the production floor and the Cognex specific manufacturing equipment was largely unaffected. However, a significant portion of our component inventory was destroyed. As you can imagine, this is a serious situation because these components touch many of our products. As we've all seen over the past year in everything from cars to video game consoles, the unavailability of one chip in an otherwise completed assembly can hold up a customer delivery until it's sourced. Our top priorities currently are to support customers and source supply. Cognex Salesnoids have been actively communicating with customers and addressing their delivery schedules. We're transitioning customers to next generation Cognex technology for older products containing chips that are hard to replace. Cognoids around the world are moving fast to source components. We're also redesigning products with alternative chips that are easier to procure. I'm communicating directly with CEOs at many of our major suppliers, and I'm grateful they are prioritizing our component shipments. A strong balance sheet and a reputation as a technology leader and a growing customer that pays on time is helping us with suppliers at a time like this. Cognix's culture has shined during this difficult time. The leadership team and I deeply appreciate how Cognoids have stepped up, especially considering all the hard work they had put in before the fire to get us in an excellent supply position. It has required a lot of extra effort, flexibility in taking on new assignments, and ingenuity in finding solutions to help us meet our commitments to customers. We believe the brunt of the business disruption from the fire will be in the third quarter. I will talk more about the implications in the guidance section of tonight's call. Let's move now to our second major challenge. After two years of heavy spend on automation and Cognex machine vision, our largest customer and other technology leaders in e-commerce logistics are postponing investments in new fulfillment centers now that the surge in online shopping during the pandemic is waning. We view this as a temporary setback in our growth profile in logistics that could take multiple quarters to play out. Spending on new capacity for e-commerce fulfillment has been a strong growth driver in our logistics business. We expect that in the near term, more revenue will come from productivity and process improvements at these customers, which is good business for us, but lower volume. The further headwind in logistics is that projects are taking longer to implement and are being delayed because customers and integrated partners are having difficulty sourcing parts. The current situation notwithstanding, we are as excited as ever about our growth opportunity in logistics over the medium and long term. It is a large, fast-growing, emerging market for machine vision where we expect to gain share. We continue to see customers implement machine vision beyond barcode reading to perform tasks such as item detection and dimensioning. and believe that will be a significant growth driver for us. Retailers outside the U.S. are adopting Cogmex products at a rapid rate, and new products we are introducing to implement our technology quickly and easily will open more of the market to Cogmex machine vision. A last point on logistics. As many of you are anticipating, and as we indicated in our last call, is that we recently updated our goal for long-term growth in logistics. We'll share that with you in the guidance section of tonight's call. I'll stop here for now. Paul, the microphone is yours for details of the quarter.