Cognex Corporation

Greetings. Welcome to the CHI Next Second Quarter 2024 Earnings Conference Call. At this time, all participants are on 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. I will now turn the conference over to your host, Nathan McCurran, Head of Investor Relations. You may begin.

Thank you, operator. Good morning, everyone, and thank you for joining us. Our press release was published yesterday after market closed, and our quarterly report on Form 10-Q for Q2 2024 was filed this morning. The press release, earnings presentation, and 10-Q are available on the Investor Relations section of our website. Both our published materials and the call today will reference non-GAAP measures. You can find a reconciliation of certain items from GAAP to non-GAAP in our press release and earnings presentations. Any forward-looking statements we made in the press release, the accompanying presentation posted to our website, or any that we may make during this call are based upon information that was believed to be true as of today. Our actual results may differ from our projections due to the risks and uncertainties that are described in our SEC filings, including our most recent Form 10-K and Form 10-Q. On today's call, Rob Willis, Cogmex's President and CEO, will discuss end-market trends and provide an update on our strategic initiatives. Dennis Fair, Cognex's CFO, will discuss our second quarter financial results and will conclude with our outlook. With that, I'll turn the call over to Rob.

Thanks, Nathan. Hello, everyone, and thank you for joining us. In the second quarter, we delivered revenue and gross margin in line with our guidance. Revenue increased sequentially, driven by typical consumer electronics seasonality. Excluding Marutex, Revenue was down year on year in total and across most of our factory automation and markets. This reflects a business environment that remains challenging but stable. Operating expenses were favorable to expectations and contributed to a sequential adjusted EBITDA margin increase of eight percentage points. This increase demonstrates the leverage our business delivers on incremental revenue and our continued focus on cost management. Earlier in the year, we were encouraged by positive signals in macro leading indicators, notably favorable PMI readings in March, while we also noted that EV demand remained uncertain. However, macro sentiment has now declined again and we have seen additional delays and reductions in EV projects. While most of our manufacturing customers remain cautious with their CapEx investment, positive momentum continues to build in logistics and semi. In Q2, we continued to execute against our strategic initiatives. We drove innovation by incorporating AI into more of our products, and we continued to grow our emerging customer initiative. I now want to provide you with an update on our product innovation We're focused on infusing new AI into all our product launches to drive adoption by more customers. Early in the second quarter, we expanded the application of our edge learning technology by launching the Insight L38, the world's first AI-enabled 3D industrial vision system. This product, which we introduced to you on our last calls, has been very well received by customers with a win rate over two times higher than our previous 3D offering. We also launched our new modular vision tunnel, which introduces AI into logistics tunnel reading. The speed, power, and AI-assisted decoding of this new tunnel contributes significantly to its industry-leading performance. Within our ID products, we have enhanced the setup and tuning process for our data man barcode readers by using AI, and it's showing great results. Our added tuning functionality selects the best parameters to optimize read rates. We're now using AI to help our customers by auto-tuning the best settings for light, exposure, filters, and dynamic range, which come together in combination to read barcodes more effectively. We've also launched new apps that bring additional capabilities to our Insight Snap sensor. We recently introduced a new counting app, which counts objects using AI, even in highly chaotic scenes. For example, the tool can count how many screws are in a pile of screws, nuts, and other objects. This task previously required linking many tools together using complex programming, which limited its use to sophisticated engineers. As we continue to execute our AI-driven product strategy, we will incorporate AI into more products, making them easier to use and able to solve applications in a more intuitive and human-like way. To reach a broader customer base with our latest technology, we continue to invest in our emerging customer initiative. Our 2023 cohort of emerging customer salesnoids has driven strong customer activity in the first half of the year and is on target to meet or exceed 80,000 customer visits in 2024. This activity has resulted in steadily increasing monthly bookings through the first half of the year. We're pleased to see them getting traction as they're calling on and winning large numbers of new customers. In addition to selling our easier-to-use products, our emerging customer sales are generating strong referrals for our more sophisticated vision products, leading to new opportunities for our account sales engineers. While we are pleased with the activity and the funnel creation we're seeing from our emerging customer team, this initiative is focused on factory automation customers who are in end markets where we're seeing prolonged macro softness. This market softness is impacting sales more than we had anticipated, so we now expect it will take longer for the first cohort of emerging customer sales nodes to deliver incremental revenue of $50 million. While the revenue ramp on this initiative is taking longer, our emerging customer team continues to steadily increase monthly bookings, and we remain confident that the high level of activity we're seeing will deliver increasing levels of success. The orders we are seeing reinforce our confidence in this initiative being gross margin accretive to our mid-70s target. We are continuing to execute on our emerging customer initiative. Our 2024 cohort of trainees is now in training and will enter the field at the start of 2025. Turning now to what we're seeing across our end markets, which you will find on slide six of the earnings presentation, I will discuss the end market results excluding the contribution of Martex. End markets have been mixed as we have seen both continued weakness as well as pockets of accelerated growth. Starting with automotive, revenue was down both year on year and sequentially. We continue to see delays and scaling back of EV battery projects, which led to a revenue decline year on year in the second quarter. Additionally, we saw a further step down in our broader automotive business, particularly in Europe. We are seeing more sensitiveness from auto customers driven by concern around near-term and political uncertainty. While we've seen a slowdown in greenfield and discretionary productivity projects, we still see a baseline of maintenance and product upgrades on existing lines. We also continue to expect our EV battery business to be a growth driver over the long term. Moving on to logistics. In the first half of the year, logistics achieved strong double-digit revenue growth year on year, and we expect growth to continue in the back half of the year. We saw growth across this business, including large e-commerce customers, parcel and post customers, and across our base logistics business globally. We believe logistics is well positioned to grow as automation penetration increases and e-commerce investment returns. Consumer electronics revenue was down year on year. Q2 of 2023 included $15 million of revenue that shifted forward from Q3. This year, we again expect consumer electronics revenue to be more heavily weighted to Q2, but to a lesser extent than in 2023. Consumer electronics has positive long-term trends, but we continue to have tempered expectation for investment in 2024. Semi had strong momentum in the quarter with significant year-on-year growth. Coming off a down year in 2023, we're now seeing strong growth. Customers are making significant investments in high-bandwidth memory to support growth in AI. We're optimistic over the long term that we can see a strong return to growth in SEMI as projects to localize chip production and to further support big AI investments reach the automation phase. Let me now hand it over to Dennis to walk you through more of the financial results and the outlook for the third quarter.