Cognex Corp (CGNX) 2011 Q3 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the Cognex third quarter 2011 earnings call. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session, and instructions will follow at that time.

(Operator Instructions)

As a reminder, this program is being recorded. I would now like to introduce your host for today's program, Mr. Richard Morin, Chief Financial Officer. Please go ahead, sir.

Thank you and good evening, everyone. Earlier tonight, we issued a press release announcing Cognex's earnings for the third quarter of 2011, and we have also filed our quarterly report on form 10-Q. For those of you who have not yet seen these materials, both are available on our website at www.cognex.com. They contain highly detailed information about our financial results. During tonight's call, we may use a non-GAAP financial measure if we believe it is useful to investors, or if we believe it will help investors better understand our results or business trends.

For your reference, you can see the company's income statements as reported under GAAP in Exhibit 1 of the earnings press release and a reconciliation of certain items in the income statement from GAAP to non-GAAP in Exhibit 2. I would like to emphasize that 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. Things often change and actual results may differ materially from those projected or anticipated. You should refer to the company's SEC filings, including our most recent form 10-K for a detailed list of these risk factors.

Now, I will turn the call over to Cognex's Chief Executive Officer, Rob Willett.

Thanks, Dick and hello everyone. Welcome to our third quarter conference call for 2011. I know most of you are used to hearing Cognex's Chairman, Dr. Bob Shillman, welcoming participants to our earnings call. Dr. Bob is in Shanghai attending a large factory automation trade show and is visiting both customers and prospects in China. He won't be joining the call this evening.

As you can see in the press release issued earlier today, Q3 of 2011 was a very good quarter for Cognex. Revenue was $80 million, representing a 7% increase over the third quarter of 2010. We're pleased with this growth considering that last year's third quarter was exceptionally strong in factory automation, and that the current quarter was hampered by substantially lower revenue from the semiconductor and electronics industries.

On a sequential basis, revenue decreased by 4%, as expected, but nevertheless, came in near the high end of our guidance. From an operation standpoint, we were highly profitable and continued to report margins that tracked at or above our long-term target.

Gross margin for the third quarter was very strong at 76%. This represents an improvement of approximately 150 basis points year-on-year. Operating income was 28% of revenue, despite substantial investment in new product development and expanding our sales team to drive future growth. And, we delivered net income equal to 23% of revenue. This is in line with our reported results for last year's third quarter, which was an exceptionally strong revenue quarter with substantially lower investments in engineering and sales.

Reported earnings were $0.42 per share, which far exceed Wall Street's expectations. The Thomas Reuters first call consensus estimate for the quarter was $0.37 per share.

Now, let's turn to the details. First, factory automation. Revenue from the factory automation market, which accounted for 74% of total revenue in the third quarter, was $59 million. Factory automation demonstrated substantial growth, increasing by 22% year-on-year, as we continue to execute well on our strategic initiative. From a product standpoint, ID products continue to outperform, increasing 38% year-on-year.

Geographically, we saw high rates of growth in the Americas and Europe, particularly in the automotive and pharmaceutical industries, and in China, overall. Oh, by the way, when we talk about China, we've refined our definition to be greater China, which consists of mainland China, or the People's Republic of China, Hong Kong, and Taiwan. This is the definition we will use now when we say China.

Factory automation revenue declined by 4% from the record level reported in the prior quarter. This is expected given the seasonal softness we typically see during the summer months. Looking at factory automation regionally on a sequential basis, Europe and the Americas held up surprisingly well given the economic environment. Both were helped by a continued strong performance in the automotive industry. In Asia and Japan, revenue was somewhat disappointing due to a slowdown in the electronics industry, which overshadowed good forward momentum in the broader factory automation market.

Turning now to semi, revenue from the semiconductor and electronics capital equipment market was $9 million in the quarter. This represents decreases of 39% from the third quarter of 2010 and 21% from the prior quarter. As you know, customer demand in semi is highly cyclical, and we have seen quarter-on-quarter declines in semi revenue throughout 2011.

In the surface inspection market, revenue in the third quarter was $12 million. As we've said in the past, surface inspection revenue is lumpy, and that was apparent in the quarter. Revenue was flat year-on-year, but increased 12% over the prior quarter. Overall, our surface inspection division had an outstanding quarter with record bookings and significant margin expansion. The second and third quarters of 2011 were the best 2 booking quarters ever for surface inspection. This should translate into substantial revenue over the next 6 months or so.

Moving onto operating expenses, RD&E and SG&A totaled $38.7 million for the third quarter. This level of spending is significantly higher than a year ago, since last year at this time we had not yet ramped up our investments in engineering and sales to drive future growth.

Our willingness to invest in our business is paying off. We launched important new products over the past 12 months in areas such as ID products, where we have great momentum. The Cognex DataMan 8000, which is our next-generation handheld ID reader, accounted for approximately $4.5 million of incremental revenue year-to-date. And, we're making great progress in the logistics market with our new DataMan 500. Our initial wins at some large logistics accounts against entrenched competitive laser scanners give us further confidence in the opportunity for Cognex in this market.

Our investment in sales and marketing is also contributing to the bottom line. The expansion of our market presence in Asia helped deliver approximately 25% above factory automation growth for the first 9 months of 2011. Most promising is the fact that, as our sales productivity increases, we are broadening the range of industries that we serve in this high-potential region. We also continue to grow our factory automation business in the Americas and Europe.

In summary, Cognex had a very good third quarter and first 9 months of 2011. We generated $62 million in cash from operations year-to-date, even while we invested in engineering and sales for future growth. In light of the confidence our Board of Directors has and our ability to continue generating both profits and cash, they increased our quarterly cash dividend by 11% to $0.10 per share. This is the fourth dividend increase in the past 2 years and the second increase in 2011. The Board also authorized the repurchase of $80 million of Cognex common stock to help reduce share dilution. This new authorization will commence once we spend the $20 million that is currently available in an existing plan.

Our outlook for the fourth quarter is good, except for semi, electronics, and solar. We are anticipating the current down cycle in these industries to continue for some months. As a result, revenue from the fourth quarter is expected to be between $80 million and $83 million, which is flat to up 4% on a sequential basis. This range represents a decrease of between 2% and 6% year-on-year, primarily because last year's fourth quarter included $6.5 million of service revenue from a single customer contract that had been deferred for several years until the contract was completed. Excluding this contract, we expect Q4 revenue to increase by 2% to 6%.

We expect to continue reporting high gross margins, although somewhat lower percentage-wise than in the third quarter. This is primarily due to product mix, as sales of surface inspection systems are expected to represent a higher percentage of revenue in the fourth quarter. Operating expenses for the fourth quarter are expected to increase by up to 4% on a sequential basis. This is due to savings from vacation time during Q3 that are not expected to repeat and higher outside professional fees in Q4.

The effective tax rate is expected to remain at 23%. The fourth quarter of last year had a lower effective tax rate; it was 20%. And, we had a benefit-to-tax expense of approximately $1.3 million or $0.03 per share of various tax adjustments.

Now, let's open the conference call up for your questions. Operator, we are ready to take questions.

(Operator Instructions)

Jim Ricchiuti, Needham & Company.

Thank you. Good afternoon.

Hello, Jim.

Hi, Jim.

Rob, can you to say what the growth rate was in the factory automation business in the three main regions?

Yes, Dick, do you want to speak to them?

Let's see, quarter on quarter, we saw the Americas was essentially flat. Europe was up slightly. Japan was down roughly 10%, and Asia down 15%.

Okay. Dick, how about year on year, do you have that?

Q3 to Q3?

Yes.

Or year to date?

Q3 over Q3 last year.

Okay, Q3 over Q3 -- Americas up 14%, Japan 4%, Europe 33%, and Asia 35%.

Now, the growth you are seeing in Europe, is that primarily coming out of automotive?

Automotive would be the single largest factor certainly driving that. But we've certainly increased our feet on the street in Europe, so there is still broad-based growth. We did see a lot of success, also, in the pharmaceutical industry and medical devices also. But certainly automotive would be the number one factor.

Okay. Is there any -- can you categorize the bookings in factory automation? I believe you said surface bookings were, again, at a record level in the quarter?

Yes, they were.

I'm sorry, you said -- let's just clarify the question, Jim. You said surface inspection bookings?

Yes, I got that. I was just curious, Rob, how the bookings were in the factory automation business in the quarter.

Yes, one second.

As compared to -- (multiple speakers), what is the comparison, Jim?

If you want to compare year over year. I think that's probably the best comparison, just given the seasonality.

I thought I just did that for factory automation.

You broke it down region by region. Year on year, I think the number I see, Dick, correct me if I'm wrong, is about 19% growth.

In bookings?

Yes.

Terrific. I will jump back in the queue; thank you.

Thank you.

Ben Rose, Battle Road Research.

Good afternoon, Rob and Dick.

Hello, Ben.

Would be curious to get your impressions for your hiring plans from a sales standpoint, Rob, perhaps going out into the next couple of quarters; what's your current perspective there?

Yes. Over this year, we've added a lot of feet on the street and a fair number of engineers into the business. And we're working on making those people productive now, and that's coming along pretty well. I think you can expect us to continue to add head count, but at a slower rate going forward.

Just a couple of comments, or I should say, a question on the semi cap, electronics, and solar businesses expected to be down. Does this feel like a cyclical downturn in some sense, or do you feel like there's a timeline that you can foresee, under which these industries might begin to rebound?

Yes, I think the semi and electronics capital equipment kind of cyclical nature of the market is pretty well known to us, I would suggest. So, this certainly feels like we are in the down cycle, and I'm not quite sure when it will turn up, but I'm sure it will. I think the solar market is a little different, and it's a market that is a little newer to Cognex. I think that we did around $12 million of solar business in 2010. It looks like that market is taking a turn down, and there is excess capacity. And a lot has to do with government subsidies. So, I think it is a little harder to call when that will turn up again, and so I think that is what I would say there.

Okay. Thanks so much.

Jagadish Iyer, Piper Jaffray.

Yes, thanks for taking my question. Two questions, first, how do you see Europe turning out to be, given the turmoil? How should we think about your revenue? Surprisingly, it was pretty high in the third quarter. So, what do you think is the prognosis, at least for Q4 going into 2012, please? And I have a follow-up.

Sure, I think we have a broad base and strong position in Europe factory automation. And automotive would be our largest market, and we think the prospects in that market continue to look good. We see big plans and continued plans into next year for automotive investment in vision in Europe. And then we see other markets also with some pretty good traction. But, you know, obviously, the overall growth scenario and what we all read in the papers suggests that our growth will moderate. But I would say that we are still pretty positive about our prospects through that environment.

On your Q4 guidance, I just wanted to just check in with you -- is both your segments are going to be down, is that the way I should be thinking about it?

We have three segments, right? We have factory automation, where we expect continued growth in factory automation. Then we have another segment, which is semi, which we do expect that to be down. And then the third segment we have is surface inspection, and we expect that to be up. We have had two great bookings quarters, and we are going to see that flow through into revenue. But let me circle back on the factory automation, which is our largest segment, representing more than 70% of our revenue. In that segment, we had a one-off thing happened last year where we recognized $6.5 million of revenue related to many years of work with one customer that was recognized in the quarter. So, on a like-for-like basis, if one subtracts out that $6.5 million of revenue, we certainly expect to record growth in factory automation.

If I just really quick can squeeze one more. How should we think about '12 given what the macro uncertainty is? How are you planning for '12 in terms of each of these segments, in terms of the growth?

We talk about and we think about our business in the long term, in terms of factory automation being a business we expect to grow at 20% a year. And then within that, we have ID products, which is a great growth driver for us, which we expect to grow at 30%. As I mentioned in the last quarter, it grew at 38%. We think those parts of our business have -- will continue to show strong growth through next year. I think if we see hard economic times or more difficult economic times, the growth rate might be slower than that. But overall, we continue to be very positive about the growth within that larger segment.

Semiconductor, as we've said, that's kind of been declining quarter on quarter through the year. At some point, it will hit the bottom, and we honestly don't know when that will be. Then it will turn around and start to grow, and where that will happen in the year is difficult to say.

And then surface inspection, that's the business where we have seen a lot of bookings momentum. That's a business where we have large contracts, or larger contracts, sometimes $500,000 to $3 million-type projects for customers, and there's a cycle for those that turn from bookings into revenue that can last between three months and sometimes more than a year. We have a big order book in that area, and we expect to see that turn into revenue over the next three quarters. We are expecting continued growth in that segment.

Overall, is it fair to say to that you will probably, likely, at least on two out of the three segments, you could potentially see a book-to-bill over 1 in '12?

Yes. Very well -- okay.

That's good. Thank you.

Richard Eastman, Robert W. Baird.

Just a couple of things. Can I just ask -- is it possible to get a [systy] bookings number?

It is not.

(laughter) Okay.

But you may ask. (laughter)

I did, that was a question, actually. Sorry, I didn't put a question mark there. Can I just ask you, when you look at the growth rate there, because I have got to presume that the backlog has got to be $20 million-something. Can I just ask you maybe where that growth is coming from? Is it share gains? Is it emerging markets? Because that was the business that was, if I am not mistaken, kind of impacted by the Japan tsunami, correct?

Hello, Rick. I think that the Japan tsunami incident was a quarter-to-quarter type situation, which we have now booked the business we were expecting to, that may have got pushed a quarter by that event. Where's the growth coming from? It's coming from two markets that we serve. Metals is probably the best market where we see a lot of investment and a lot of adoption of vision in other places in the production process -- applications like aluminum, for instance. And then the paper market is pretty robust. And then there's a new segment that we have moved into, which is glass, right, as a segment we weren't serving about 18 months ago, where we are starting to record some initial bookings. But that is not really moving the needle at this point, but might move it more next year.

Okay. And then, can I just switch to semi-OEM business. Is there any reason, given the transition that has taken place there from maybe systems to more software, is there any reason that that business does not bottom somewhere in the $3 million quarterly rate, revenue rate, run rate?

I guess I am having trouble understanding the question. What do you mean?

Okay. Our semi-OEM business was just under $9 million this quarter?

That's correct.

Is there any reason that -- if we look back to the last trough that that business -- you wouldn't expect that business to bottom somewhere in the $3 million quarterly revenue rate? Would that still be a decent assumption?

That it would go down that low?

Yes.

I don't think that's the general feeling that we have right now, or the sense that we are getting from our customers. We certainly expect that it will go lower than the $8.9 million or so that we did this past quarter, but the sense that we are getting now -- these guys, you have got to understand, they have been wrong in their forecast more often than they have been correct. But they do expect that the bottoming out will probably happen sometime between now and the first half of next year, and maybe see some pick-up in the second half. So as of right now, we are not thinking that it would go as low as $3 million.

Okay. And then just, Rob, the solar business, I think the over-capacity is pretty well documented there, but is that a business that shuts down very quickly? I mean, you talked about doing $12 million last year, and I think up until spring of this year, that was still one of the drivers in the revenue. Did that maybe surprise you a little bit here in this quarter and into the fourth quarter?

From my experience of it, or our experience of it, which is still relatively new, it seems like it's moved more slowly than the semi industry does. We saw it building well through last year and into the start of this year, and then we have seen it decline through Q2, Q3, and I think we expect that to go on through Q4, probably Q1 as well. So, I'd say, to me, it looks a little bit more like semi in slow motion.

I see. I think the only thing that I was maybe getting at here -- in the factory automation business, I understand the year-over-year tough compare that's been hanging out there. But I would have thought that there might be more of a seasonal bump in that business from the third to the fourth quarter than maybe the guidance suggests. And is the variance from that maybe solar or --?

Yes, so it's really -- electronics, we consider, looks like it's continuing to be softer in Japan and Asia. We are expecting that softness to continue. And then solar would be the other factor.

Okay.

The one thing I would like to add to that, Rick, is that clearly as we take a look at Q4, semi is going to be down. On the factory automation side, what we are seeing is that the electronics in factory automation, I am not talking about the semiconductor-related electronics, that we have found to be slower than anticipated. The other thing, as we take a look at the fourth quarter, Europe was especially strong in the third quarter, much, much stronger than we typically see in the Summer months. And we fared much better than we typically do when whole countries go on vacation in July and August or whatever. So, that all contributes to a tougher hill to climb, if you will, vis-a-vis Q4.

I see. Okay, very good. Thank you.

Chuck Murphy, Sidoti & Company.

Good afternoon, guys.

Hello, Chuck.

I was just wondering if you could give us the DataMan 500 sales, either for the third quarter or year to date.

In general, what we have said on that is that we are seeing that product ramp very successfully. We have a number of large customers in the logistics market that are starting to buy from us, and we expect that to be at a $10 million run rate as we exit the year. That is what we continue to see.

Okay. At the beginning of the year, your target was $10 million. It's kind of coming close to $10 million; it's not significantly different than that?

Sure. What we've said is, it is going to ramp to that level as we exit the year.

Okay.

Right, and yes, that continues to be our expectation. We are very pleased with how that product is performing, and with the sales funnel that we see for that.

Any thoughts on how we should look at growth of that product in 2012?

Consider it as part of our ID business. And it's probably a faster growing part of our ID business. I know we have said in the long term, we expect ID to grow at 30% a year. I think you could expect that business, the logistics and ID-related part of logistics, to grow at a faster rate than that.

Okay. You said the DataMan 8000 contributed $4.5 million -- was that for the quarter or was that year to date?

That's year to date.

Remind me, when did you launch that one?

At the very back end of last year.

Okay, so same time as 500?

A few weeks earlier, yes.

What is the difference between the two? I mean, I know you said handheld for the 8000, in terms of end markets?

So, the handheld, automotive, aerospace, medical devices would be key where we are reading hard-to-read barcodes, often printed on metal parts. The DataMan 500 is generally -- oh, and I should say that the DataMan 8000 is most often reading 2D barcodes and the DataMan 500 is reading 1D barcodes in logistics in very high-speed applications. A very different market, a market that Cognex has not served before.

Got you. Okay, that's all I had. Thank you.

Thank you.

Walter Ramsley, Walrus Partners.

Thanks a lot. I have a few questions. First of all, have there been any increase in order cancellations?

No.

Okay, good. Any weakening in the credit quality of the accounts receivable?

Absolutely not.

(multiple speakers) good. Anything lengthening in the sales cycle?

No. We talked about that a little in our Q2 conference call about three months ago. I would say that situation has not changed since then, has not worsened. In fact, it's probably got a little better. I think we are starting to see some larger orders starting to break loose here.

Is there any potential to increase the service revenue?

In our surface inspection business, we are making a lot of great progress on improving the service revenue, yes. Service revenue in our module [division] systems business is relatively small, and it's growing at a healthy clip, but it's not a focus for growth.

Okay. And then, you mentioned the automobile industry a number of times, can you tell us what the percentage of the total revenue that that area is generating?

I think if you pegged our automobile revenue, overall this year, running at around a $60 million size.

That's pretty good. As far as that goes, are the customers pretty much going with tried-and-true applications that they've used before and just kind of rolling it out further, or are there new applications that they are using the technology for?

Well, the automotive industry is kind of large and complex, but certainly powertrain. There is a lot more use of the machine vision in the powertrain part of automotive and the use of ID in that process. Electronics and automotive, as you know from your car or new cars, is kind of a big growth area where Cognex sells substantially. That kind of new growth things that are really driving what we see in terms of vision investment in automotive is more in energy efficiency, so hybrid electric-type products, battery for automotive, those type of applications. We are seeing some substantial investment, partly driven by government regulations, partly driven just by consumer demand in that industry.

So, that business looks like it should hold up pretty well, even if the whole unit sales of cars levels off?

I think we are expecting a number of quarters of continued strength in the automotive industry. We're extremely strong in European automotive and in American automotive. In Europe, we see a lot of investment by German automotive for export into China. We see that continuing.

I was going to ask about China also. The sales into China, is that primarily to joint ventures where there is a European or American partner that already knows what they are doing, or is this to 100% Chinese companies that are putting in machine vision for the first time, let's say?

Our largest end user market in China would be electronics. And you know, there are some pretty famous electronics subcontract manufacturers in China that are our customers. Many of them are Taiwanese-owned or Chinese-owned. Yes, that would be our business. But then we also have many American multinational and European multinational customers in China as well.

So, even if that country slows down a little bit, you see the growth continuing there?

We have seen our growth rate in China slow from very, very fast, to fast. In the last quarter, factory automation orders in China grew at 41% year on year. They had been growing at a rate around 100%.

Okay. That sounds pretty good.

We still expect -- China, really, and China manufacturing is still pretty early in its adoption of vision, and there are a lot of great macroeconomic factors that are driving that, increasing labor costs being one of them. Increased high-tech manufacturing processes being another. We are very positive, and we have been investing significantly. Cognex now has over 100 people in our business in China, up from less than half that 18 months ago.

That sounds great. Just one last thing. The Board, which obviously separate from you guys, but they authorized this gigantic stock buyback. Do you think that precludes any acquisition activity on your end, or are you still pursuing acquisitions?

Let me say that we have more than, as you can see, more than $300 million in cash on our balance sheet. We are well funded, and acquisitions is the number one thing we would like to do with that cash. So, we have a very active acquisition funnel, and we have more prospects that we are working on at the moment on the acquisition front then we've had at any time during the last two years. The answer to your question is -- certainly not; we don't see that stock buyback slowing down our acquisition appetite in any way.

Good. Anyway, congratulations again, and appreciate the chance to talk with you.

Thank you.

Jagadish Iyer, Piper Jaffray.

Thanks for taking my call. One quick question -- how should we think about revenues as you progress towards 2012? Do you expect the first half to be a little bit softer, and second half to be much stronger? Can you give us some color on the linearity of how we should be thinking about the revenue, if any by segments or overall is fine.

The first thing I would say is, I think we see semi is in decline, right, and that is going to bottom out at some point and come back. So, that would probably be an argument for your thinking that semi would be bigger in the second half than in the first half. Factory automation, that is a good continued growth driver, so we would expect more steady growth, but that can be influenced by the macroeconomic situation. And then surface inspection, I think as we have already said, we've got a couple of great booking quarters behind us that we do expect to turn into revenue over the next six months or so. So, that might be an argument for some pretty strong revenue from that division in the first two quarters.

Thank you.

Jim Ricchiuti, Needham & Company.

Your ID business, overall, just given the growth, is that now north of 20% of your total revenues, would you say?

No, it's just slightly south of that, I would think. Basically, if we did $43 million of ID business last year, we are [clocking] up a growth of slightly north of $30 million this year, putting us close to $60 million, I think, as a run rate for the year. $60 million out of wherever you project our revenue to be for the year.

Got it. Rob, is there anything you can say just in terms of plans for headcount additions in the sales and marketing area or in engineering, just given what you are seeing out there?

We've certainly -- we've added a lot of -- we've made a lot of investments in sales and marketing, particularly in China over the last year or so. We're expecting to slow down the rate of increase as we bring the people we've got up to productivity. So, I think you can expect a slower rate of growth going forward, substantially slower. But still, we do expect to add feet on the street to continue fueling our long-term growth prospects.

The factory automation business, the partnership that you have in Japan with Mitsubishi, any update on how that is progressing?

I think from a relationship development point of view, it is going extremely well, as we develop the 26 or so tier-one distributors we have selling Cognex products. They are selling our vision products, and they are starting to sell our ID products; so we see that going well. What we have noticed, in general, in the Japanese market is more softness. In fact, it is probably the softest of our global markets, in terms of regions. We put that down more to semi and electronics, which are a very big part of our business there and of our market there. We are not such a big player in Japanese automotive. In fact, it doesn't play a big part in our revenue mix, Japanese automotive in Japan, but that market itself is also soft, as you probably read.

Anyway, you asked about Mitsubishi, the Mitsubishi relationship is great, building strength, and it is going to be a great long-term driver for Cognex. But the market itself in Japan is slow at the moment.

I know this may be tough to answer, but as you think about 2012, and clearly there are external issues that impacted the business negatively with Mitsubishi this year, namely the tsunami and the slowdown there. How should we think about that portion of the business, the Mitsubishi relationship, the revenue-generating potential for that in 2012?

That business has gone, in very rough numbers, from the business we put through Mitsubishi from being on a run rate of about $2 million in 2009, it grew to about -- I'm talking in dollars here -- $6 million in 2010, and it will come in this year, I would expect, between $8 million and $10 million. It is continuing to grow. I would expect it to continue to grow annually for a number of years. Quite what growth rate we put on that, I think, is a little hard to call given the situation of the market at the moment. We still see it as a major growth driver for Cognex, and continuing to be so for the next few years.

That's helpful. Dick, just a question for you. Did you guys buy back any stock in the quarter?

Yes, we did. We spent $10 million and bought roughly 378,000 shares, or some number like that.

Okay, terrific. Thanks very much.

Thank you. (Operator Instructions)

Richard Eastman, Robert W. Baird.

Robert, has there been any change to your M&A strategy here going forward because, historically, we've been more interested in buying technology and then trying to improve it internally and come back to market with it. Is there any thought that going forward that we look for established revenue profit distribution, or do we stay with the technology-oriented acquisitions?

So, we are looking at opportunities that help grow our business in vision, I should say everything we want to do is in vision, we are looking at technology, but we are also looking at channel addition. Rick, over the last few years, we have spent a lot of time really on market work, trying to understand our core and adjacent markets very well. That took us to logistics, it has taken us to image engines for life sciences that we have spoken about with our core business. It's markets like that and our core markets that we see growing in, and it can be either technology or it can be channel addition.

And size, have we stepped up at all in terms of size, revenue, or anything?

You mean in terms of acquisition sizes we are interested in pursuing?

Yes.

We are interested in a range, but within the range of acquisitions we have done in the past.

Okay, same thing. Thank you.

Thank you.

Thank you. This does conclude the question-and-answer session of today's program. I would like to turn the program back to Robert Willett for any closing remarks.

Okay, that does conclude our call. Thank you for joining us tonight. We reported very good results for the third quarter, and we look forward to talking to you again next quarter. Good-bye.

Thank you, ladies and gentlemen, for your participation in today's conference. This does conclude the program. You may now disconnect. Good day.