Greetings. Welcome to the Cognex First Quarter 2024 Earnings Conference Call. [Operator Instructions] I will now turn the conference over to your host, Nathan McCurren, Head of Investor Relations. You may begin.

Thank you, Shamali. Good morning, everyone, and thank you for joining us. Our results were released earlier today. The press release, earnings presentation 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 find a reconciliation of certain items from GAAP to non-GAAP in our press release. 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 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 Q1 2024. On today's call, Rob Willett, Cognex's President and CEO, will discuss our first quarter results. I will then provide additional detail on the financials, and Rob will conclude with an update on our strategic initiatives and our outlook. Laura MacDonald, our Corporate Controller and Interim Principal Financial Officer, has also joined us in the room for the Q&A portion of the call. With that, I'll turn the call over to Rob.

Thanks, Nathan. Hello, everyone, and thank you for joining us. Our first quarter results reflect a challenging but stable business environment. Revenue was above the high end of our guidance range as we saw order volumes slightly higher than we had expected. Revenue, excluding the contribution of Moritex, increased sequentially from the fourth quarter but remained down year-on-year across most of our factory automation end markets. While customers remain cautious with their CapEx investments, I'm encouraged by the early indications of recovery we have started to see in certain end markets. We also expect the slight improvement of macro leading indicators such as the PMI in many of our most important geographies to be a tailwind for our business. This year, we have taken important steps in executing against our strategic initiatives. We expanded the application of our Edge learning technology by launching the In-Sight L38, the world's first AI-enabled 3D industrial vision system. Our 2023 cohort of emerging customer sales noise entered the field and began actively calling on customers. And we operated the Moritex business for a full quarter and advanced its integration. We remain on track for this acquisition to be accretive to adjusted operating margin and adjusted EPS in 2024. I would like to take a moment to welcome Dennis Fehr, who we announced this morning will become our new Chief Financial Officer, effective tomorrow, May 3. Dennis will lead the company's global finance and information technology organizations. Dennis brings over 20 years of experience, spending the last 6 years as a CFO, most recently as the CFO of 6K, Inc. Dennis joined 6K after spending 5 years as the CFO of Fluence Energy, which he led through an IPO in 2021. Prior to Fluence Energy, Dennis was Vice President of Finance at Siemens, where he spent the first 15 years of his career. Dennis brings broad international experience to Cognex, this includes time living and working in China, Mexico, Germany and Indonesia. This knowledge will be a great value to Cognex as we continue to execute on our global growth strategy. You will hear from Dennis on our Q2 earnings call. Before I go into further commentary on the business and outlook for Q2, I'd like to turn the call back over to Nathan to walk you through more of the results.

Thank you, Rob. I will walk through our financial highlights, which you can see on Page 4 of our earnings presentation posted to the website this morning. First quarter revenue of $211 million increased by 5% year-on-year with the contribution from Moritex of just under 8% of total revenue. Excluding Moritex and foreign exchange effects, revenue declined 3%. Turning to margins. Adjusted gross margin was 68.8% in Q1, in line with guidance and down from 71.8% a year ago. Gross margin included a 2 percentage point dilution effect from a full quarter of Moritex. There was also 1.6 percentage points of unfavorable onetime events in the quarter, primarily the strategic logistics project with future recurring revenue that we mentioned on our last call. Sequentially, adjusted gross margin stepped down due to Moritex and onetime effects. Adjusted operating expenses increased 3% year-on-year as expected, driven by a full quarter of Moritex and increased investment in our emerging customer initiatives. Excluding these strategic investments, adjusted OpEx declined 6% year-on-year. Sequentially, adjusted operating expenses increased 5% as expected. In addition to higher costs for the emerging customer initiative and the full quarter of Moritex, there was a reset in incentive compensation at the beginning of the year, as we mentioned last quarter. Adjusted EBITDA margin was 11.9% in Q1, down from 13.5% a year ago. This was driven by a lower gross margin and higher operating expenses related to emerging customers, partially offset by the positive contribution of the Moritex acquisition, which was accretive to adjusted EBITDA margin. Diluted earnings per share on a GAAP basis was $0.07, down year-on-year due to lower operating margins, acquisition and amortization costs and unfavorable discrete tax items. Sequentially, GAAP diluted EPS increased 7%. Adjusted diluted EPS was $0.11, down $0.02 year-on-year and flat sequentially. The adjusted…

Thanks, Nathan. Let me spend some time discussing the progress we're making on our strategic priorities. We are making strong progress introducing world-class AI to the field of industrial machine vision. Our latest examples of this is our In-Sight L38 3D vision system, which combines AI, 2D and 3D vision technologies to solve a range of inspection and measurement applications. The In-Sight L38 greatly simplifies the process of configuring 3D systems, thanks to embedded AI technology that uses pretrained models with domain-specific data. Cognex has captured these data through our long history of serving customers. The In-Sight L38 example based training replaces complex programming steps previously required in vision application development and enables our technology to address a broad array of applications. The In-Sight L38 unique AI-powered 3D tools can be set up in minutes, requiring this view as 5 to 10 labeled images to automate a task. With a few simple points and click training examples, customers can guide robotic arms to locate items on a conveyor, measure glue to ensure its consistent application or lead tire identification numbers on low-contrast black rubber material. Example based learning solves 3D applications in a more intuitive and human-like way, enabling Cognex to expand its application where human inspectors or off-line measurements have previously been the only viable option. I'll shift now to give you an update on our emerging customer initiative. Our excitement continues to build to this initiative as it broadens our customer base and deepens our penetration into end markets such as packaging, our initial emerging customer sales cohort fully entered the field and began to sell at the beginning of this year. These sales nodes have been demoing and selling to customers we have not previously called on. We've seen a lot of new applications with these customers.…

[Operator Instructions] Our first question comes from the line of Damian Karas with UBS Securities.

Can you hear me?

Yes, we can hear you.

Terrific. Congratulations on completing that CFO search. To start off -- yes. No, I know you put a lot of effort into that. Maybe you could begin by getting your perspective a bit more on the logistics market. You kind of characterize it as stable, but you're expecting to get some more modest growth as the year progresses. Can you talk about what you're seeing across the logistics market. Are there some more strategic projects in the funnel that you've got some good visibility that are likely to hit later this year. And just curious what indications you might have from your largest customer in the space.

Thanks. So let's start with a bit of context. So our logistics business grew 65% in 2021. It was around $300 million fueled by a lot of investment in e-commerce, particularly. And then as that kind of investment really slowed down and stopped, it contracted by 25% in 2022 and by 21% in 2023. So I think we've seen a big downturn in that industry. We're now feeling much more positive that it's starting to come to really come back. So Logistics revenue grew 24% year-on-year in the first quarter of this year, although it's flat if we exclude the very large project that we talked to you about on the last call, but we're having positive conversations and starting to see early indications of recovery. We expect a return to growth of logistics for this year although still below the target of 30% growth that we're expecting from that industry over the long term. And as we -- over the long term, we're expecting to see large e-commerce customers, broader warehouse automation going on. We're starting to penetrate more into parcel post where we see our technology is really starting to be very, very competitive and we're seeing some really good trials with some of the major names in that industry. We're also seeing smaller customers grow nicely with Cognex and the opportunities we see growing there. We're seeing more adoption of other technologies beyond barcode reading that we're marketing, such as Edge Intelligence, which is the technology I referred to in the last call that brings us recurring revenue from customers, and we're bringing more vision to allow us to inspect the packages for damage, due dimensioning, et cetera, products like the In-Sight 28 detector that we referred to. In reference to sort of larger customers and investments, we're starting to see more positive signs that those kind of investments we'll be returning back to what I would consider more normal levels. Although some of those opportunities may result in bookings this year from us, but revenue next year because there's a fairly long lead time on that. It would also just be worth saying that our logistics business is relatively concentrated in the United States, nicely penetrated and growing in Europe over the long term. But we see a lot of growth potential in Asia particularly India and emerging markets. So that's kind of an overall view.

Very helpful color. And then I wanted to ask you about semi. It sounds like the business is improving more than you had expected. Could you just maybe give us a sense for how much of a recovery, how much of a snapback you think you could see in semi this year? And your initial guide for more attacks was up 6% to 8%. Was that factoring in already a better semis outlook for this year? Or just based on what you're seeing, you could that possibly be tracking better?

So we're seeing our semi business after a couple of more difficult years in -- well, in 2023 is starting to return back to some pretty nice potential growth. Revenue year-on-year in Q1 was up 6%, excluding Moritex. So still, I think, pretty early on in seeing that start to ramp. But this is a market where we have some longer-term exposure and long-term relationships with OEMs. Some characteristics, certainly like investments in high bandwidth memory, which is really being driven by growth in AI investments, they're starting to look very positive for us. And then Moritex is a very, very highly regarded brand. We have a lot of great relationships with machine builders. I've had the pleasure of visiting a bunch of them in Japan a couple of weeks ago. And that's a business that as those companies start to see their business grow, it should be very beneficial for us in the longer term. So I think we've probably been going through a period where there's been some recalibration around changes that are going on in the market, particularly related to China and perhaps the scaling up of big AI investments and investments such as around the CHIPS Act. So we're optimistic over the long term as those work their way through and those investments become finalized in automation section that we'll really see a nice return to strong growth in that market. And then if we sort of size semi for you, it's around when we include Moritex, around 10% of our business overall with a lot of strong growth potential in the next few years.

And Damian, I'd just point I know you mentioned Moritex. There's some puts and takes in terms of end market growth and timing. We originally guided to 6% to 8% of our total revenue coming from Moritex for the year, and that's still our -- that's still our guidance for that end market, just given how some of the other pieces of the businesses are expected to move throughout the year.

Our next question comes from the line of Rob Mason with Robert W. Baird.

So Rob, you said consumer electronics probably tracks flat year-over-year with last year. I'm just curious how the makeup of that business would compare on a flat basis and really maybe the composition coming from what your historically larger customer versus other customers? Have there been any efforts to change the customer mix diversification efforts on that front that you would comment on?

Rob, I think you're right in interpreting what I said is sort of broadly flat. It's -- there isn't a broad change in our overall exposure to different customers. We do business with a lot of major names in that industry, although historically, we've had 1 very large customer. I would say my sort of outlook for the industry is broad across a range of customers not being overly swung one way or another by a particular customer overall. But as I did mention that industry can be lumpy, and we can see features coming into products that perhaps might have been expected next year coming in or this year moving out. So that can move around quite a lot in our experience.

Sure. And just as a follow-up, on your emerging customer initiative. Curious if you could just comment. I know it's early with all the forces just being in the field to start the year, but early reads on maybe productivity levels. And if you've had any feedback from the field just in terms of things that Cognex can do to help them be more successful and understanding it's kind of a tougher market you're selling into as well. But whether that's lead generation product tweaks, product portfolio enhancements. I'm just curious what the early feedback is.

Yes. I think central thesis around emerging customers was traditionally, we've been very strong at the most sophisticated accounts in the world where they really like to work engineer on engineer. And -- but couple of years ago, we've developed this technology called Edge Learning, which makes difficult machine vision applications pretty easy to demo and sell. So the 2800 is the best example of the product in that area. And then we also have a nice ID portfolio, which is broadly considered the best in the world at reading industrial barcodes such as laser printed 2D matrix buckets or metal applications, those types of things. So with that kind of strength, we realized we needed to go and get this technology to more customers. And if we serve 30,000 or so customers today, there is perhaps 200,000 customers or more that we could be reaching with this technology as it becomes easier. So with that, we brought in very strong young salespeople, most of them engineers, and we've trained them, and they're going into the field now. At the same time, we've implemented Salesforce.com over the last few years, and we have like a lot of intelligence now in terms of what activity goes on, where we're demoing, how to generate leads and get those to those salespeople. So that process is kind of, I think, getting implemented. And I think we're pretty pleased with what we're seeing. I mentioned we expect that team that's gone in the field to make about 80,000 customer visits this year. They're certainly on target to do that. We're going to be able to help them get in front of more customers over time as our lead generation engine spools up, as they learn about to be effective in front of customers. So we expect their productivity. And I would say in the data that I see on average, they're selling more and more each month currently. So and they're getting in front of new customers, and I gave you examples of applications that you probably -- well, we certainly a few years ago would have probably walked away from because there's just going to be too much engineering to make some of those things work. But now our emerging customers salespeople can demo and sell those products in impacts to new business. It's generally what I would observe. So we're going to see the metrics keep moving up. We're pretty pleased with what we're seeing. We will see more products coming to market and more tools, enabling them to address more applications and it builds from here. So based on that confidence, we're bringing in another full class, and we're training them up and we're getting better all the time. It does feel like turning a flywheel, it's getting faster and faster.

Our next question comes from the line of Joe Giordano with Cowen & Company.

This is Michael on for Joe. Great. So on the end market front. I think we're surprised on like the semi strength in the quarter based on some of the industry commentary there. What was driving that outperformance in the quarter? And I have a follow-up.

Well, we -- in semi, we're very strong at the -- in the wafer process, particularly where we're reading IDs, barcodes, letters, numbers reflective surfaces of wafers. So it has been a very strong area for Cognex for a very long time and with [indiscernible] with many -- most of the leading OEMs in those types of spaces and the fans we rely on our equipment. So that business is strengthening nicely. We have good team in ASEAN markets such as Malaysia, certainly where we're seeing strong investments going on in that area. But as we are also reading more and more semi is coming to other markets like Europe and America. But I would say more of the growth that we're seeing is around some of the areas that I described, reading wafers and also kind of inspection and alignment in applications such as high bandwidth memory.

And Michael, 1 thing I'd add is just a reminder that our business is a much shorter cycle than a number of our peers who are supplying to this industry. So as you look at the type of customers who we serve here, they've given very positive outlooks for 2024. You would expect Cognex to react to that a bit faster than some of the other suppliers into the industry, given the short-cycle nature of our business. And we -- on the geography front, a lot of lot of the business here in Asia beyond China or other Asia business is where we saw a lot of that activity.

Great. That's super helpful. And just one more, if I may. You had mentioned that you thought logistics was up for the year. CE likely flat. But can you discuss the puts and takes on the auto side, the growth expectations there, maybe cadence throughout the year as well?

Yes, sure. You asked about automotive. I think context, automotive was our largest and best-performing market last year, representing 25% of our revenue. It looks to be entering a more difficult period at the moment. I think we see that particularly around some of the EV battery investments, which over the long term look very good over the short term, have really been scaled back pushed out, right? So that can give our revenues some big bumps and we saw a pretty nice EV battery order in the first quarter of last year in China, and that did not repeat this year. So certainly, there's some tentativeness there, much as you're reading probably about automotive. We are seeing customers, some of them move more quickly into hybrid back into hybrid, if you like. And we've seen some success with customers there. But the broad view is that automotive is slowing down, looks challenging for this year and EV investments are being pushed out.

Our next question comes from the line of Jacob Levinson with Melius Research.

I know AI and deep learning is certainly is something you folks been doing for quite a while now. But can you help us understand how the proliferation of high-density compute, if you want to call it that really changes or doesn't change for that manner, the capabilities. And I would imagine it be pretty expensive to put GPUs in the computer next to a lot of your cameras. But I guess, how does this computing power that hasn't been available before will it change the product road map for you folks?

Yes. Thanks, Jacob, for the questions. So if we start with a longer-term view, deep learning technology has kind of been something that's been around for a long time. But I think we really began to see in 2013, '14, the work of Jeffrey Hinton started to make that really workable. And we saw then it started to be usable in machine vision and factory automation later in the decade, and we acquired ViDi in 2017 and Sualab in 2019. So I do credit Cognex with seeing this trend early and leading the application of deep learning technology and then as we move now into generative AI to be a leader in that space as it applies to factory automation. And you can really see that, and I really encourage you to come to our website and look at our In-Sight L38 3D vision system, which is taking that powerful technology making it really easy to use and putting it into a point cloud environment to do 3D vision. And so historically, vision has really been 2D, but 3D adds an extra dimension. So that's really an exponential amount of data and has to manage. So it's quite computer intensive. So your question is kind of how chips change that. Well, 1 thing as one works with AI and applies it -- these models used to be very, very difficult, computer-intensive slow to manage. But now with cloud capability and GPUs, we're able to use and train and manage huge data sets very quickly and effectively. But then the reality of factory automation is that it's really happening at the edge, right? So we have to take all that powerful technology, put it into a pretty small form factor and apply it right at the point of manufacture right on…

That's super interesting, Rob. Just switching gears on China, a market that I think is often hard to know what's going on if you're not actually there. And I know the -- obviously, we're asking some of your commentary on the other end markets, but just trying to get a sense of what you're hearing from your folks on the ground in terms of your customers' investment plan for this year.

Yes. The China market is certainly the most difficult market geographically for us at the moment. We've seen revenue decline year-on-year for 6 straight quarters. In China, it was down 17% year-on-year in Q1, excluding Moritex. We have a pretty large team in China, and we're very successful with larger customers, particularly in that space. So I think we see this as a broad-based phenomenon. I can't think of a company in the automation space that's putting up good results in China at the moment. So I think this is pretty typical of what we're seeing. There's -- it's certainly intense competition as one would expect in that market. We've seen quite a lot of PE and BC funded companies kind of in that market over recently. And I think some of them are obviously struggling with the market conditions that we're seeing there. Our decline in automotive in the quarter was most pronounced in China also. So that's certainly a tough situation. We do see the phenomenon of customers moving production or diversifying production away from China. I think we're often familiar with that. phenomenon, so into markets, particularly India and Vietnam. So that's another dynamic that's going on there. In terms of Cognex and the team, I think we're enthusiastic about adding Moritex to our business, and Moritex has a good business in China and is able to be very competitive now selling more alongside Cognoids, so that's a positive development. And the kind of technology that we talked about, the our 3D AI technology certainly is something that our Cognoids there are very enthusiastic about demoing and selling, and I'm very pleased with the progress that I see them starting to make our edge learning technology broadly in that market. So plenty to work on but difficult conditions.

Our next question comes from the line of Tommy Moll with Stephens Inc.

I wanted to start on logistics, where in the quarter, it looks like revenue was flat year-over-year, excluding the large project that you've referenced a number of times. You've given us some reason to be optimistic about the recovery in that end market. And so my follow-up question is, are you seeing those positive signs fairly concentrated among a smaller list of customers? And the reason I asked that is just because it looks like the base business there was still flat year-over-year. Maybe I'm missing something, though.

Yes. So my optimism about logistics really comes from our funnel. So we certainly see a nice build our business overall. The logistics win we had was with a big customer, but not necessarily our biggest customer in that space. And we do see some nice -- yes, progress in penetrating parcel and post where we're seeing. Obviously, that's a industry dominated by some very large names that we're all aware of, and we're making now a lot of progress with our new modular vision tunnel that we've launched this year, which brings a lot of functionalities, demoing really well with those customers. Now in terms of smaller customers, we see -- we do see that as a growth part of our business and it continues to feel that way. I don't know if Nathan you can give us any color on Q1 and base logistics on...

Yes. I mean I think you're probably referenced it, we said stable year-over-year. And I think the thing to point out is we are seeing kind of broader based funnel optimism. And so we saw -- typically, this business has been higher penetration in Americas. We saw some strength in other parts of Asia in the quarter and expect to see going forward growth from both the large e-commerce customers that we've referenced as well as our base logistics. I think you should probably expect a little bit less of a bifurcation there than what we've talked over the past 18 months or so, just given really the hyper growth that happened and with the large e-commerce customers followed by really a pause in their greenfield investment. We would expect those to converge a little bit more going forward and see more similar trends across the full spectrum.

And then following up on emerging customer initiatives, which quarter this year do you hit the full run rate for the expense investment there? Is it Q4? Or is it really first quarter of next year before we'll see that full run rate? And a related question, Rob, is there any chance that you roll out a third cohort here as well? It sounds like things have gone well. But the first, you're ramping a second. Just wonder what else might be on the marker board.

I'll take the cost side first. I mean, as we talked last year, the initiative ramps throughout the year. And there's kind of 2 components to it in 2024. First is really the run rate of the investment that we made in 2023, but you should expect that to be pretty stable throughout the year. And then the second piece is what Rob will speak to more in a second, is the class that we're bringing in 2024, and that part of the cost you should expect to ramp throughout the year with -- and last year, I mean, just keep in mind what the investment is here. A lot of this is, is hiring of college graduates, so a lot of summer start dates. And so that really ramps linearly up through Q3 with Q3 and Q4 looking fairly similar. So really kind of Q3 being the peak and Q4 looking similar to Q3 is the expectation on the OpEx side.

Yes. And your question about 2025, obviously, too soon to make a call on that. But we would see emerging customers as a long-term initiative with a lot of long-term potential to, as I say, take our customers from 30,000 to -- with like hundreds of thousands. So this is a multiyear initiative overall, I would see it as that. But in terms of 2025, we start to really think about get concrete on our plans probably in the fall for that as we start to get into recruiting for next year and next season. And plan our budget for that period.

Our next question comes from the line of Andrew Buscaglia with BNP Paribas Asset Management.

So you made the comment that you think gross margin marks the low point in Q1 and guided obviously a step up into Q2. A couple of questions on that I guess what gives you the confidence that, that is the low point? Presumably, you have logistics improving and you got a large order that was somewhat dilutive to that gross margin. So I guess you're not assuming any larger orders in the rest of the year. And can you just comment on some of the things that you see in the back half that would give some confidence in that comment?

Yes. Well, first of all, Q1 gross margin was dragged down by that larger order we described, right, and a low revenue quarter. It was -- so those are kind of factors that impacted us. Overall, through the year, Moritex is about a 2% headwind. So with that as sort of context. But then what should lift gross margin for Cognex going forward is obviously revenue, revenue particularly in markets like electronics, but particularly factory automation, factory automation for us is a high margin business in a broad-based way, right? And so as we begin to see that market recover, that has strong gross margins overall. And as we've discussed, it's been under pressure for quite a few quarters now, our industry has and as that returns, it would lift gross margin. And then our emerging customer initiative is selling high gross margin, very, very competitive products. So that's going to be gross margin accretive for us also we expected generally selling to smaller customers who perhaps do get the same kind of discounts that large customers do. So there are many reasons to feel positive about gross margin and our return back in the long run to that 75% target that we have. But in the near term, which is a sense is where you're more interested, those one-time factors being behind us in Q1 to build a business, particularly consumer electronics, which tends to be high gross margin business and semi also and scale going back and return on factory automation business.

Yes. Okay. Okay. And then my next question, I wanted to go back to consumer electronics, a flattish this year. You commented on uncertainty around project size and timing. I'm wondering, there's not much innovation in phones and handsets these days, but the latest is implementation of AI features. And I'm wondering, that's not a physical form factor change, but I'm wondering what you're referencing there in terms of these projects, whether the timing is tough, but does AI have an influence on machine vision as it relates to consumer electronics?

Well, if we talk more about kind of the market customers and why we are excited about the long-term potential there. This is a market that has waves of innovation that comes through it, right? And I think we're living through a couple of years where that innovation hasn't come through in products, but I'm very confident it will, right? And I think if we think of all the AI technology and chips that we're starting to see broadly released in the world that's going to drive our whole generation of new products. It may be smartphones. It may be augmented reality, virtual reality also. And I think some of the spending and investment we're seeing in semi that we all understand, we'll drive growth in that area. The second reason that I think I expect Cognex' business to grow is in just in the replacement of humans in the manufacturing of electronics, particularly smartphones. And I think the potential of that technology is so big. And as perhaps I've mentioned on occasion, just hope some -- one of our customers spend over $1 billion a year on human visual inspectors, right? So it gives you an idea, the potential that exists to replace some of that with machine vision. And machine vision when you look at our newest launches is becoming more human-like in what it can do. So in the long run, the potential for those in that industry and that kind of technology in that industry is very significant. I don't see that popping this year, right? But I'm aware of kind of road maps for many companies in that industry and the exciting plans that they have. And we might get lucky and see some of it in the products that are launched ahead of the holidays this year. But I think at this point, we're assuming that may be out further years out for us.

Our next question comes from the line of Piyush Avasthy with Citi Research.

Following up on your auto commentary, Rob, you have been very constructive on the EV battery space. Can you help us better understand on what surprised you? I understand some bigger projects being pushed out, but for EV battery investments in China, is that softening for you guys as well?

So yes, I think for -- maybe on the order of 6 months now, we've started to see sort of concern around EV battery investment that it may be getting a little ahead of demand in general in the world. And we've been working -- we're working closely with really all the large EV battery manufacturers, I think tenants that I think are really constitute most of the investment going on. And it's a huge investment that's going on with the idea that this is a multiyear phenomenon. And there are 2 ways in which Cognex really benefits can really help those customers and where we do very well. One is just helping them build out their capacity. And we've been working with customers in that area. And I would say, I can think of quite a few instances where those plans have been slowed down over the last 6 months and pushed out partly that's just to do with demand. Customers are not buying as many EVs as perhaps the industry had expected. And secondly, just uncertainty about the political environment and whether the subsidies that are being discussed for consumers who buy cars and for companies that invest in building out battery plants and EV plants, whether those are still going to be there. So I think that kind of concern. I think over the long term, EVs, no doubt, will have a larger and larger market share of automotive overall. There'll be waves of technology coming, whether that's the current cylindrical prismatic pouch technologies that we see moving more patch to solid state. So there are going to be waves of investment there. Those are challenging technical problems to deal with. And we're certainly working closely with customers, and I think they recognize the value of our…

Got it. Helpful. Next for my follow-up, like a 2-part question. One, like we have been hearing a lot about India and the growth potential there. Maybe you -- and you have kind of mentioned India and Vietnam a couple of times, so maybe size the opportunity for us. And then on Japan, the yen has been under pressure, but you reiterated your [indiscernible] and revenue contribution from Moritex, -- maybe a little color there, like how the presence you are seeing in the end market? Any concerns related to FX, that would be helpful.

Yes. I'm mindful of the time. So I'm going to answer your question quickly, please excuse me. Yes, India, huge opportunity. I was -- I visited it regularly. I was there early in the first quarter. And just huge potential we see. We're building our business there. It's still a relatively small part of Cognex overall, but the growth dynamics is probably one of our, if not our past growing market. The yen -- yes, the weak yen, it creates some interesting dynamics. It certainly is helping the cost of goods for some of our competitors and helping their gross margins and making the strong dollar in a way, making the business environment more challenging for us. But we have great technology, and we're on a great team in Japan. So we're able to be competitive. Okay. I think we have time for one more question.

Last question comes from the line are Jairam Nathan with Daiwa Capital Markets.

Just 2 of them. Just wanted to clarification first on the recurring revenue and the large project that you had on logistics. Are those the same things and has the recurring revenue started flowing in? Or is that a future business?

Yes. Yes, so that large project came with -- comes with a nice piece of regular recurring revenue, which we do with our edge intelligence, allowing to extract huge value out of a vision data and manage our business systems more effectively and build on a kind of a regular basis and tied to that large installation, where we took a lower price get this technology embedded, and we're excited about that.

Okay. Great. And then finally, you let your biggest competitor, the kind of equate revenue growth to employees, employee headcount increases. And I just wanted to kind of -- I understand if I look at sales per employee or marketing employee for you guys for the emerging customer will not be as high as it is currently just because of the nature of large customers in your current mix. But when you look at -- and I understand it's early days, but if -- how is the sales per employee on the emerging customer tracking? How do you expect it to track compared to the current average or is that one way you get to the $50 million. And I'm just trying to understand what's the potential here?

Yes, for competitive reasons, there's not necessary data that we share at this point. But certainly, yes, emerging customers, we have much more modest expectations for them out of the gate. We expect to see good improvement. And obviously, our emerging customer initiative, we hope will create salespeople, which will go on and manage larger accounts in the future. So a nice feeding ground for that. But certainly, it's going to dilute sales per salesperson in the initial years.

Okay. Okay. Like do you think it will be high -- they could do -- like if I kind of look at your best emerging customer employee or salesperson, like can you give us an idea of how they are tracking versus the average or...

Yes, Jairam, this initiative will actually ramp over time. And so we'll expect to see more revenue to go on. But I think we're not going to give an actual number on what we expect for each of those heads versus a more tenured sales employee.

And we have reached the end of the question-and-answer session. I'll now turn the call back over to Rob Willett for closing comments.

Well, thank you for joining us this morning. Thank you for your interesting questions. We've enjoyed talking with you, and we look forward to speaking with you again on next quarter's call.

This concludes today's conference, and you may disconnect your lines at this time. Thank you for your participation.