Cognex Corp Q3 2024 Earnings Call Transcript

The following is excerpted from the question-and-answer section of the transcript.

Question: Jamie Cook - Truist Securities - Analyst : I guess, first, on the emerging customer initiative, how do we think about the 3,000 new customers that you're targeting -- that you talked about this quarter relative to your targets in the beginning of the year and how that compares to the $50 million of incremental revenue you once talked about? And given the combined sales force that you're doing, does that represent a cost savings opportunity potentially in 2025? And then my second question, just on the gross margins for the fourth quarter. Can you just elaborate how much mix and pricing is a headwind to margins sequentially? And just what's going on in the pricing environment? That seems like a new nuance. Just wondering, again, how much of a headwind this could be as we look further out.

Question: Tommy Moll - Stephens Inc. - Analyst : Rob, I wanted to start on Logistics, the progression there we're seeing again in the third quarter, presumably also in the fourth. And if we look around that end market, there are some fairly positive anecdotes just in terms of the pacing of warehouse leasing activity. Others in the market talking about some of the end users having absorbed a lot of the overcapacity that was built in years past. And so I'm just curious, given that a lot of these large projects can be -- can have a lead time for you, where you have -- I don't know how early you take orders or how early the conversations start. But are you seeing any signs that there could be another inflection higher in the coming quarters?

Question: Tommy Moll - Stephens Inc. - Analyst : And then for a follow-up, I wanted to ask about something you mentioned on the emerging customer initiative. I think I heard you say the first cohort hit the $1 million a week run rate in the third quarter. And if I heard that correctly, I'm just curious, what does that number need to be to hit the targeted 30% operating margin for this initiative? REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. OCTOBER 31, 2024 / 12:30PM, CGNX.OQ - Q3 2024 Cognex Corp Earnings Call

Question: Andrew Buscaglia - BNP Paribas Exane - Analyst : Good morning, everyone. So for the guidance for Q4 for gross margin, are you able to say -- is that similar to Q3 and more tech would be above 70%? Or is there any other color you can provide to help us out with that?

Question: Andrew Buscaglia - BNP Paribas Exane - Analyst : Okay. So -- okay. And with the emerging customer initiative, are you assuming contribution in Q4? And then should we expect a number or another target for 2025 as $1 million a week would imply a pretty material number? So just wondering what your thoughts are? In terms of the guiding that. REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. OCTOBER 31, 2024 / 12:30PM, CGNX.OQ - Q3 2024 Cognex Corp Earnings Call

Question: Damian Karas - UBS Equities - Analyst : Good morning, everyone. I was wondering if you might be able to just speak to us about the specific trends you're seeing at the regional level? I know you said all regions were up in the quarter, but maybe you could just take us a walk around the globe and where you're seeing things looking potentially any better or any worse than previously?

Question: Damian Karas - UBS Equities - Analyst : That's really helpful. And Rob, you talked about some of the AI tools that you're building into your solution set. I'm curious if that's changing your pricing dynamics at all? Or maybe the best way to think about that is just as a means to get new customers on board or existing customers to refresh. And also, I'm just curious to what extent AI might be driving an investment cycle for your customers, right? Like if I just think about consumer electronics, I presume a lot of those customer products are going to be evolving to become AI-enabled. So getting beyond the near-term CE pressures, how are you thinking about that?

Question: Damian Karas - UBS Equities - Analyst : Absolutely. Thanks for all the color. REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. OCTOBER 31, 2024 / 12:30PM, CGNX.OQ - Q3 2024 Cognex Corp Earnings Call

Question: Michael Anastasiou - TD Cowen - Analyst : This is Michael on for Joe. So earlier, you mentioned about $1 million per week sale cadence from that first cohort for the emerging customer -- excuse me, customer initiatives. And then like a certain degree of referral business. So all this was hit despite, clearly, factory automation being weak, and that's like the primary end market for those types of customers. So can you just give us a sense of what the revenue uplift would be in a more normalized market environment?

Question: Jim Ricchiuti - Needham & Company LLC - Analyst : I wanted to focus on the -- in the other category that you guys sometimes talk about, it's in your deck. SEMI, strength in semi, I wonder if you can talk to where you're seeing the strongest demand, particularly in light of concerns some people have about maybe a more modest recovery in the WFE market in the early part of 2025? And then also, I noticed you highlighted strength in the medical market, Rob. Maybe you could talk to what you're seeing there?

Question: Jim Ricchiuti - Needham & Company LLC - Analyst : Got it. Just a quick follow-up. Rob, it sounds like you were in China and spent a lot of time with customers. Just curious, I know it's early, but are you seeing -- are the customers that you talked to at all hopeful of stronger business just given some of the government initiatives to try to stimulate growth?

Question: Jacob Levinson - Melius Research - Analyst : Good morning, everyone. Rob, just on the Logistics business. I think we've heard some mixed signals from some of the players in that space, and it feels a little [sound-out] at this point after the post-COVID overhang. I know a few years ago, you had a pretty large concentration with an e-commerce customer that we all know well. You mentioned that you're making progress in post and parcel. And I mentioned a Korean e-commerce company. So can you just give us a sense of how that business has changed over the last couple of years and maybe just the breadth of the customers that you have today versus a few years ago? REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. OCTOBER 31, 2024 / 12:30PM, CGNX.OQ - Q3 2024 Cognex Corp Earnings Call

Question: Jacob Levinson - Melius Research - Analyst : Okay. That's helpful. Just pivoting quickly on semiconductor. I feel like that's -- that was the original machine vision market, I suppose, way back when, but as I understand it, a lot of those customers brought those capabilities in-house a long time ago. It's not a market that I think we've heard a lot about from you folks in the last couple of years. But what what's changed? I mean, have you just had success. And you mentioned the machine builders, have there been other portions of that market where you've been able to make inroads over time?

Question: Jacob Levinson - Melius Research - Analyst : Great. I'll pass it on.

Question: Rob Mason - Robert W. Baird & Co lnc - Analyst : Hopping between calls here, so apologies if this has already been addressed. But Rob, I heard your commentary opening up around Automotive. Taking an incremental step lower, it sounded like. I'm just curious where you think that is in terms of the market bottoming? And what potentially could be a catalyst there to see investment flow back? Does it just need to be redirected back towards more traditional? Or are you still going to be relying on EV to drive that?

Question: Rob Mason - Robert W. Baird & Co lnc - Analyst : Understood. Okay. And just real quickly, just -- I know it's, again, a challenging market backdrop, as you noted, but you introduced some newer 3D vision products this year. I'm just curious, what the sense of uptake has been there?