Cognex Corporation

As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Nathan McKern, Head of Investor Relations. Thank you. Please go ahead.

Thank you, Donna. Good morning and happy Halloween, everyone, and thank you for joining us. With me on today's call are Rob Willett, Cognex's President and CEO, and Paul Todgham, our CFO, formerly known as Sheriff Woody and Ham from Toy Story at Cognex's annual Halloween celebration last week. Our results were released earlier today. The press release and quarterly report on Form 10-Q are available on the Investor Relations section of our website. Both the press release and our call today will reference non-GAAP measures. You can see a reconciliation of certain items from GAAP to non-GAAP in Exhibit 2 of the press release. Any forward-looking statements we made in the press release or any that we may make during this call are based upon information that we believe to be true as of today. Our actual results may differ materially from our projections due to the risks and uncertainties that are described in our SEC filings, including our most recent Form 10-K and our Form 10-Q filed this morning for Q3. With that, I'll turn the call over to Rob.

Thanks, Nathan. Hello, everyone, and thank you for joining us. We delivered third quarter revenue, gross margin, and operating expenses in line with our guidance. business conditions continue to be difficult. The operating environment remains similar to what we saw last quarter across each of our end markets. As expected, consumer electronics faced the steepest decline in the quarter. This was driven by both project timing and softer demand, particularly in China, where the underlying market remains cautious and customers are managing inventory to lower levels. We expect China to continue to be a challenging market for us and our peers in the near to medium term. Despite these headwinds, we continue to focus on long-term growth and take important steps to execute our strategy. In the third quarter, we grew our served market as we entered two important adjacencies, the vision sensor market and the optical components market. These two markets expand our served market by $1.5 billion, adding to our served market previously sized at $6.5 billion. Let me start with the exciting market for vision sensors that we recently entered. In September, we launched the Insight Snap vision sensor, redefining standards for ease of use, accuracy, and functionality in an industrial sensor. Powered by pre-trained AI, the Insight Snap Sensor is our easiest to sell and easiest to use product ever launched. The Insight Snap Sensor solves a range of common quality control challenges, including presence absence inspection, assembly verification, and defect detection. Vision-based sensors are a step up from conventional laser-based sensors, providing superior capabilities to locate features and parts in any position and to improve defect detection. InsightSnap shares common hardware with our vision systems and is trained using just a few examples. It does not require any programming or vision knowledge by the user. Additionally, the web-based user interface allows customers to plug in and run the sensor from anywhere using a standard web browser. The first Cognex product to not require software for installation. Vision sensors will allow us to reach the new and broader customer base we're targeting with our emerging customer sales force. InsightSnap will be the gateway for these customers into the Insight programming environment and will then offer a pathway to our more powerful vision systems. While this product will be offered at a lower price point than our vision systems, we expect this to be a gross margin accretive product line. We continue to make progress with our emerging customer initiative. We've completed hiring for the year, and many of the initial hires are in the final stages of training. We continue to learn and evolve our model in these early stages. Based on what we're seeing, we remain confident in the growth potential and strong returns of this initiative and plan to continue to invest in this initiative in 2024. The other market we recently entered is the high-end optical components market. a $500 million served market that we entered with our acquisition of Moritex. Moritex is an industry-leading premium optical components provider based in Japan. Let me spend a moment and expand on why we like this transaction. First, vision technology relies on acquiring an image before analyzing it. The better the image, the better the performance of our machine vision tools. Historically, we focused the majority of our R&D on algorithm development, and customers often used third-party lenses and lights for image acquisition. Over the past decade, we've invested increasing amounts in optics. This led to our proprietary liquid lenses, and more recently, computational lighting from our acquisition of SACs. Sophisticated optics allow us to capture images such as those of barcodes in a dark recess between two boxes on the logistics line or those on the reflective surface of an electric vehicle battery. These high-quality images, often acquired at fast speeds, can then be analyzed with our advanced barcode reading and deep learning algorithms. Maritex represents a bigger step into optics for us. Their products capture high-resolution, detailed images for their customers, who are some of the most sophisticated manufacturers of semiconductor automotive and electronics capital equipment. Marutex also gives us a more substantial presence in Japan, an important machine vision market where we have lower share. Historically, we've considered embedded optics, such as our liquid lens technology, to be included in the served markets of the product with which they are integrated. Now, owning a portfolio of external optical components exposes us to an additional served market. We size the high-end lens and lighting market at approximately $500 million. Maritex is an existing market leader, and we aim to gain share in this attractive market. Now, let me go into more detail on the financial profile of Maritex. We expect Marutex to account for 6% to 8% of our overall revenue. While the company's revenue has been growing, recently Marutex has been most focused on improving profitability through operational improvements and by focusing on higher-end, sophisticated segments of the optical components market. Marutex's heavy exposure to electronics and SEMI has also negatively impacted its recent growth. But we expect to see growth in those segments rebound as capital investment in equipment to support demand for chips grows over the remainder of this decade. We believe we can grow this newly acquired business in line with our total company target growth of 15% in the long term by participating in strong market growth and gaining share. To gain share, we will leverage our sales network to broaden and accelerate distribution of Maritex products, and we will leverage our combined R&D capabilities to accelerate innovation. In fact, our engineers are already collaborating on more integrated and advantaged optics and software for our combined businesses. From a margin perspective, Maritex has gross margins of approximately 50%. distinguishing Marutex's premium offering from other less sophisticated optics companies. We expect about two percentage points of dilution to our total company gross margin as we integrate the business. Marutex's operating margin is in line with Cognex's 30% target operating margin, so we expect this transaction to be neutral or accretive on an operating margin basis going forward. Before I go into further commentary on the outlook for Q4, I'd like to turn the call over to Paul to walk through more of the results.