Cognex Corporation

It is now my pleasure to introduce your host, Nathan McKern, Head of Investor Relations. Thank you. Please go ahead.

Thank you, Donna. Morning, everyone. Thank you for joining us. With me on today's call are Rob Willett, Cognex's President and CEO, and Paul Todgham, our CFO. Our results were released earlier today. The press release, annual report on Form 10-K, and a newly introduced quarterly earnings presentation are available on the Investor Relations section of our website. Today's earnings materials and statements we will make during this call contain forward-looking statements and are based upon information we believe to be true as of today. All forward-looking statements are subject to risks and uncertainties that are described in our SEC filings, including our most recent Form 10-K filed this morning for 2023. Before I hand it over to Rob and Paul to discuss the results and outlook, I want to spend a minute explaining changes to our reporting metrics that you will notice. As we previewed with you on last quarter, after the acquisition of Moritex in the fourth quarter, we now have a more material level of acquisition costs and amortization of intangible assets. As our financial results have begun to be more impacted by these non-recurring and purchase accounting charges, we've made changes to our non-GAAP measures to exclude those charges from the reporting of our adjusted earnings figures. This change in methodology applies to our calculation of non-GAAP operating expense, operating income, and net income per share. We have also introduced, and we expect to be reporting on and speaking to more frequently, adjusted gross margin, adjusted EBITDA, and free cash flow. These changes and the new non-GAAP measures referenced on our call today are clearly defined with a historical look back to prior period impacts in the earnings presentation posted to our website this morning. You can also see a reconciliation of certain items from GAAP to non-GAAP in our earnings press release. We want to emphasize that our previously communicated long-term financial targets of 15% revenue growth, mid-70% gross margin, and over 30% operating margin are unchanged and should be evaluated on an adjusted basis, excluding these non-recurring and purchase accounting charges. Next, Rob will discuss our fourth quarter and 2023 results. Paul will then provide additional detail on the financials, and Rob will conclude with our outlook and a discussion on how our execution of strategic initiatives in 2023 sets us up for the future growth. With that, I'll turn the call over to Rob.

Thanks, Nathan. Hello, everyone, and thank you for joining us. 2023 was a year of perseverance at Cogmex. We advanced many high potential strategic initiatives while navigating a global manufacturing recession. We continued to take important steps towards achieving our strategic priorities and long-term goals. After growing almost 30% in 2021, fueled by pandemic-related acceleration in logistics and electronics investments, Revenue was slightly down in 2022 and declined 17% in 2023. Customers have remained cautious with investments as we observed lower confidence in near-term end demand, leading to increased CAPEX scrutiny and delayed orders. PMI readings have now reached 15 consecutive months in contraction territory. which is the longest such stretch since the tech bubble and 9-11 period over 20 years ago. Investment in China remains especially needed. In addition to these macro challenges faced by both Cognex and its peers, our high exposure to the leaders in the industries we serve was a headwind for us in 2023. About half of our 2023 revenue decline was driven by two large, long-standing customers who reduced their spending after heavy investment in prior years. However, we are confident that we still maintained or gained share with each of these customers. In some of our end markets, notably EV battery and semiconductor manufacturing, large investment plans are underway. Many of these projects have not reached the stage where significant volume of our products is ordered, but we anticipate our customers manufacturing projects that broke ground in 2022 and 2023 will represent future revenue opportunity for Cognex. Throughout 2023, we stayed disciplined in our approach to discretionary spending and thoughtful about hiring. We have faced challenging periods before in our 43-year history, and we have shown the ability to evolve. For example, in the year 2000, semi-customers accounted for over half of our revenue, and we saw a significant downturn in that business. To adjust, we moved fast to diversify our business towards factory automation and penetrate the Chinese market. While different today, we see disruptive trends playing out in our markets, such as the shift away from internal combustion engines towards EVs and deep learning machine vision technology becoming accessible to an increasing number of customers and applications. We are mobilizing to capitalize on these trends and remain focused on the long term and on continuing to evolve to deliver future growth. Before I go into more detail on this evolution and our outlook, let me turn it over to Paul for the financial results for the quarter.