Cognex Corp (CGNX) 2015 Q3 法說會逐字稿

Good day, ladies and gentlemen and welcome to the Cognex third-quarter 2015 earnings call. At this time all participants will be in a listen-only mode. Later there will be a chance to ask questions, and instructions will be given at that time.

(Operator Instructions)

As a reminder, today's conference is being recorded. And now I'll turn it over to your host, Chief Financial Officer, Dick Morin.

Thank you, and good evening, everyone. Earlier today we issued a news release announcing Cognex's earnings for the third quarter of 2015, 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 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 a reconciliation of certain items from GAAP to non-GAAP in exhibit 2 of the earnings release. I'd like to emphasise that any forward-looking statements we made in the earnings 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'll turn the call over to Cognex's Chairman, Dr. Bob Shillman.

Thanks, Dick, and hello, everyone. I'd like to welcome each of you to our third-quarter conference call for 2015. As you might have seen in the news release that we issued earlier today, we reported the third highest quarter in the Company's history for revenue, for net income, and for earnings per share from continuing operations. But even though it was the third highest quarter in our history, unfortunately, those results also represent a significant decrease from Q3 of 2014 and Q2 of 2015, due to those prior quarters being our first and second highest quarters in our history, respectively.

Right now I'm at our R&D offices in San Diego, everyone else on the call is in our Natick headquarters. For details of the quarter, I'm going to hand the microphone over to my partner, Rob Willett, our President and CEO. And I will be available at the end of the call to answer any questions that you may have for me. Rob? The microphone is yours.

Thank you, Dr. Bob. Good evening, everyone. As Dr. Bob said a moment ago, revenue of $107.6 million represents a substantial decline from both the third quarter of 2014 and the prior quarter. Both of those quarters included more revenue from large projects than in this year's Q3. Of course, we love large projects, but they do cause this kind of unevenness in our quarterly results. Gross margin was 76%, slightly lower than in the prior quarter, due to product mix and higher support services. Operating margin was 26%. While most companies would be pleased with such a high level of profitability, we are not. Because it was below our 30% long-term target. Earnings per share from continuing operations were $0.29, which included $0.02 per share from favorable discreet tax items.

Turning to the details with the quarter. Factory automation revenue was $102.6 million and accounted for 95% of total revenue. Looking at our factory automation business year on year from a geographic perspective, we had another strong quarter in Asia, excluding Japan. If fact, factory automation revenue from Asia set a new record. Growth was lead by greater China where we continued to make strong progress in the broader automation market. Although we are confident about the long-term prospects in this region, we see uncertainty in the near-term.

In the Americas, lower demand and project delays have slowed growth since the beginning of the year. Spending by US manufacturers in most industries we serve was disappointing in Q3 and we don't expect to see any meaningful change this year. As expected, factory automation revenue from Europe declined significantly year on year. Europe reported a remarkable quarter in Q3 of 2014, due to large orders from the consumer electronics industry. In 2015, more large orders came earlier in the year, while others were delayed until 2016. The weaker euro also contributed to the decline, reducing factory automation from Europe by $4.2 million. And in Japan, revenue from the region's factory automation market continued to disappoint. Revenue from Japan declined year on year, both on a constant currency and reported basis.

In the semiconductor and electronics capital equipment market, revenue was $5 million in the first quarter, or 5% of total revenue. Demand from semi follows the market's cyclical trends. Because of that, our expectations for growth in this small piece of our business continue to be low.

In summary, revenue was as expected in Q3. However, we were disappointed that demand softened as the quarter progressed, notably in greater China and among our automotive customers globally. Slower demand from these two areas, combined with modest growth in the Americas, led us to focus on tightening expenses and increasing productivity. We continue to hire employees and invest in our business, but the rate of increase will be significantly slower than in the past several quarters. In regard to operating expenses, RD&E and SG&A totaled $52.8 million for the third quarter, representing a significant decrease from both Q3 of 2014 and the prior quarter. Meaningful savings came from lower bonus and commission accruals, lower expenses related to patent lawsuits and a reduction in discretionary costs.

Turning now to our outlook. We expect revenue for Q4 to be in the range of $94 million to $97 million. Unfortunately, even the high end of our expectations is lower than the $98.5 million reported for last year's Q4. While this is disappointing, recall that we just finished 24 months of growth that was nearly double our long-term target.

Q4 will also be the only quarter this year that we don't see any large shipments contributing over $2 million of revenue. Gross margin for Q4 is expected to be in the mid-70% range. Operating expenses are expected to increase by approximately 5% from Q3. The effective tax rate is expected to be 17.5%, excluding discrete tax items. Now, let's open the call up for your questions. Operator, we are ready to take questions.

(Operator Instructions)

Bobby Burleson.

Thank you, I wasn't expecting to be first. I think, just to kick it off here I am wondering on China, you mentioned things slowing down there. And I am wondering if you have a sense for whether or not it's end demand related, or some type of inventory reduction? At customers and then also kind of what your sense is from when you can expect to see some firming or a bottom? Thanks.

Hi Bobby. I spent quite a lot of time in China last month, what I observed there is the pace of growth in China has slowed notably during the quarter and it seems tighter credit has become an issue. Also I think it's pretty well documented the sort of over-capacity that we see in the automotive industry in China. We expect our business in China to continue to grow, but it's clearly a growth rate that is slowing down based on those factors.

Thank you and just one more quick one. I'm wondering, competitive environment you have some competitors based in Germany and Japan. I'm wondering if the strong USD is leading to any pricing action that those guys are taking? Any heightened competition based on FX and relative currencies? Thanks.

We don't notice specific competitors trying to take advantage of the strength of the dollar or weakening currency to drop price, I would say. So generally we have one competitor that we consider our main competitor in the markets, a Japanese company, it's a very well-managed company and one that reports very high gross margins, and I don't think their strategy is to try to take share with lower price. Generally I would say we don't see that. However of course we're pricing locally in euros and China so we do take a hit to price when we maintain our local prices as we have been doing in those markets.

Thank you.

Ben Rose, Battle Road Research.

Good afternoon. Rob, I wondered if you could comment on what you are seeing in terms of demand, both in the US and abroad. In terms of other industries outside of automotive. I know you mentioned automotive in your remarks, but is there any additional color you can provide there, noticing that the US was up modestly year over year. I guess a follow-up would be again relating to the duration, what is your sense of the North American outlook?

Hi, Ben. In general we've had a very strong year in automotive and we've been reporting very strong quarters and our strongest quarter ever really this year as we've moved through. But now we're starting to see that growth rate slow down. We are still seeing growth, but we are seeing it slow down in automotive.

In other industries we are seeing, in the US I think we are seeing very broad-base of slow growth or no growth across many of the industries we serve and I think that's due to a number of factors that are pretty well documented by other companies at this point, including the strength of the US dollar, so I would say it's a broad-based slowdown. I think affecting our US growth rate is the fact we haven't seen the kind of large orders we expected in America from logistics companies that generally have been, seem to be delaying some of their spend, whether it's postal or the companies which may be re-prioritizing or just differing spend based on the current conditions.

But you, are sort of more broadly, and I would say in Europe you sort of see the flip side of that where I think the weak euro has really helped a broad base of industries report growth so far this year. So in Europe we saw growth, excluding large orders, factory automation revenue from Europe in Q3 grew double digits year on year in local currency, and growth came from a range of industries including automotive, pharmaceutical, food and logistics.

Your second part of the question, Ben, asked the sort of duration that we expect the slowdown to last for, I think that's very difficult to call, but I would say I don't think we see any change really in the environment until after Chinese New Year. So I think we are in a period, as our guidance gives you that impression that we are not optimistic about the near-term and I think we will see how things progress as we move through the first quarter.

Okay thanks very much for the thorough answer.

Johnny Wright, Nomura.

Good evening, guys. This might go down a dead-end, but on the large project, talking about the fact that there and none of these $2 million plus projects in the 4Q guide, I know you don't like to give much detail around large projects, could you frame either what you might have expected three months ago in terms of large products in 4Q, or what a typical run rate might be for a quarter without mentioning any specific projects obviously?

Yes, so I think as we came through the first half of this year we saw a lot of significant revenue coming from larger orders, specifically in the consumer electronics industry. And I think -- and also we saw opportunities in our funnel with significant size in logistics. I think we would have expected those to keep playing out into the second half of the year, but what we saw is generally projects got delayed for a variety of reasons. Some of which included delays in product road maps, perhaps due to changes in company strategy or due to the availability of engineering resources and other priorities. And in other cases I think we saw our customers trying to cut their spending based on the environment that they saw.

So as a result, we went from a significant revenue in the first half from those large kind of orders. I'm not sure I want to put a specific number on that, but then really drying up into much less in Q3 and as we said, nothing over $2 million in Q4. And I think, perhaps preempting the second part of your question you might ask would be, when do we think that's going to change? And I think it's the same answer I just gave Ben Rose, which is really not until after Chinese New Year at the soonest.

Okay, great, and given that comment and kind of the near-term bearish outlook, I think you talked about the still adding headcount to support the business growth but at a slower rate than before. Should we consider the SG&A goes up in 2016 or this time to manage the cost base in advance of a relatively tough year?

I think it's a little early to start giving guidance on 2016. But I would say in general that Cognex is a growth business, even though this has been a challenging second half of the year, we're still going to report in the midpoint of guidance, we will report mid single-digit growth for the year, after having grown on the order of 40% last year. So we're a company that believes in our technology, believes in our market and believes in our growth prospects. So we're going to continue to invest and develop the business, not try to cut our way to greatness as we go forward.

But that said, yes, we are going to try to make sure that particularly our R&D spend, which for the first time in a while popped up over 15% of revenue is controlled within the rate of long-term revenue growth that we expect to see as the year plays out. And we'll be keeping an eye on those costs carefully as certainly through this period of slower growth.

Okay. Thanks for your time.

Holden Lewis, Oppenheimer.

Great, thank you very much. Perhaps shifting over a little bit to the gross margin question, I guess in the absence of any sort of large orders in Q4 and the absence of any SISD in the business now, it seems like that would be an environment that you would expect to see a higher than mid-70%s operating margin. You were certainly reporting I think high 70%s on the factory automation business standalone before the split, so I'm just curious why we're looking at the mid-70%s still instead of something closer to the factory automation norm in fourth quarter?

Sure, Holden, yes. As you point out, with the sale of SISD our gross margin target has been adjusted upwards to the high 70% range. The reported gross margin can move depending on a number of factors, including volume obviously in this case I think as we see lower revenues volume is important. The amount of service that we provide to large customers, so we may have in the case of this year, big deployments that we did earlier in the year where we are now having service to support those deployments which will be at lower than fleet average gross margin. And of course the impact of currency exchange rates on revenue is another reason. So I would site those as the main factors that we are forecasting or projecting gross margin to be lower than our current high 70% target.

Okay, but for-ex is fairly stable here sequentially over most of the last three or four quarters, and we're several quarters now beyond the placement of those orders in Q2. So is it primarily just a volume issue and those other two things are out in the wash, or is there something that's really lingering and dragging on for some reason?

Yes, yes, so I think a number of factors, one includes volume as you said. I think also mix of our products in quarters like in Q2, we had a higher amount of software specific deployments which come with higher gross margin, and then that amount of service revenue, the amount of service revenue that we report can also be dilutive. So I would say these are quarter specific in nature, and that's what you are seeing in Q3 and Q4.

Okay and then as I follow-up, so clearly things have slowed down at an increasing rate as we've gone into Q3 and then into Q4 and I know you don't guide for 2016, but normally you expect that the first-quarter 2016 revenue would be somewhat below the fourth quarter revenue from the previous year. Is there any reason that we wouldn't expect that to happen? Do you think the Chinese New Year passing would have that big an impact or have these logistics customers said, look, we just need to turn the calendar then we're spending? Or is there any reason to think the issues you're citing in Q3 and Q4 are really going to be relegated to this or does this feel like broader, longer economic slowdown to you?

That's difficult to call. I would say we are cautious based on what we are seeing right now, and particularly the news out of China in terms of that market. I think when is that going to turn and how does that relate around that period after Chinese New Year is difficult to say. You sort of said, what could turn it? Yes, sure we could see improvements in some of our end user markets and we could see larger orders hitting and coming in, but I think we're not currently feeling that it's an environment to expect that based on the kind of macro envelope that we see. It's too early to be giving you guidance on Q1.

Okay, great. Thank you guys.

Thank you.

Jim Ricchiuti, Needham & Company.

Rob, I was wondering how would you characterize the ID business, overall the ID products business in the quarter?

Yes, so our ID products business continues to perform well. I would say I would characterize it as performing very well in Q3 even with the delay in large logistics orders. So I think within our ID we have our base business in ID and then we have logistics. The base business is performing very well at the moment and logistics less well in the Americas based on deferred orders, deferred large orders that we have seen.

We've launched a number of very important new products in our ID business this year. We launched the DataMan 150 and 260 which we assert our technology leadership in the mid-range fixed mount part of our business, which is very significant and is really our core market, so we continue to be optimistic.

Now in logistics, some projects that we expected to see this year in the Americas were pushed out due to customers juggling multiple priorities in advance of their peak shipping season. But in Europe traction has come along nicely. There's a large long-term potential in China as well for logistics that continues to make us very optimistic about the long-term prospects for ID. So generally we continue to be very positive about our ID business.

Is the base business growing 20% or better?

I don't think we give specific outline on that, but I would say it's definitely performing at our expectations right now even in the current environment.

And with respect to the projects that were pushed in the Americas, are you getting any further sense from those customers, how they are looking at potentially 2016 in terms of getting re-engaged in that process?

I think their need for what we do is still considerable and certainly we have lots of engagement with those large customers. So we believe that we are still very optimistic about the long-term prospects and the prospects as we go into 2016 for logistics business in America.

If you look at the logistics business in the Americas, we know you have your core customers that you have been selling to and then potentially some new e-commerce or traditional brick-and-mortar retailers that are expanding into doing more e-commerce. How do you look at that market opportunity? Are you seeing some of those newer customers hesitant, or are they still do you feel moving forward with plans?

We see those base of new customers coming in who are placing $50,000 to 200,000 orders with us, we see plenty of new customers coming over to Cognex. And these are names that are famous to all of us, particularly in the retail space, so that part of the business look strong and developing well. I think where we have seen -- been disappointed in our growth this year has been more around the very large customers that we have been bringing along and have seen business from in prior quarters, where they seem to have been deferred or delaying projects based on some of the issues I outlined.

And one final question if I may, just on the new product front it looks like you're keeping a pretty healthy level of R&D. It's early yet, but how active a year is it going to be in terms of new products 2016?

First of all you are right, this year has been important that we've introduced some really breakthrough technology in terms of PatMax Redline. So much of Cognex's technology is based around machine vision tools and the PatMax Redline is a future location technology that reinvents PatMax with tremendously more speed and performance on the same hardware. So that's exciting and it's the kind of tool that you see from Cognex, and it's really outperforming everybody else.

We've also introduced two important hardware platforms. In-Sight 5700 series, which is very high performance, high resolution product range and then our new DataMan150 and 260, but you're also asking about next year. Again, it's early to talk about next year, but we have a very full and vigorous pipeline of new technology and products we're bringing to market. And I think you may also hear us talk about even some new markets we'll be entering next year to broaden our served markets. I think as you would expect from Cognex the technology leader and the Company that is investing most in this space, we've got a pretty fulsome pipeline that we will be looking forward to sharing with you next year.

Thank you.

Richard Eastman, Robert W. Baird.

Good afternoon. Robert, could you speak to a minute or two about your sales in China, with two or three buckets give us a sense where your end market exposure is there? In other words, in China is auto approximately half the business or more, and just curious about a couple other end markets that you have exposure to there?

Sure. Rick, consumer electronics traditionally is Cognex's largest market in that space, electronics broadly including contract manufacturing, electronic components and consumer electronics in general. That would be our largest market. And that would be, let's broadly say approximately half of our business. And then automotive is our second largest market. We've seen a lot of growth in the automotive space and that might be approximately a quarter of our overall business there. And then the rest is very broad-based. And particularly we see a lot of growth more in machine builders serving a broad range of industries in all kinds of markets like food and consumer products.

Okay. And when you go to market in China and you have the auto exposure there, are you going to market through the traditional robotics or automation vendors, or are you basically marketing your products in China directly to the end-user?

So domestically in China we go to market much as we do everywhere else in the world, which is we have a direct sales force that sells to strategic accounts and large businesses, and then we have a pretty well-developed network of distributors and machine builders. And broadly speaking, the directive's a little less than 50% and the rest of the business is a little more. The partners a little more than 50% and that gives us great coverage across what is a very large market.

Okay. And just, not to be specific on new products and opportunities for 2016, but how do you feel about as we move into 2016 and through 2016, some of the new end market opportunities or product opportunities that we have been talking about for a few years. Like medical, maybe on the food side, can they drive some noticeable growth, points of growth next year? Do we have enough traction here late in 2015 to maybe deliver on some of these other opportunities in 2016?

I would say whether we really outperform on growth next year is likely to be more a function of how successful we are in ID and logistics broadly. And how successful we are in electronics broadly, based some very significant opportunities that we see in those markets. We are making a lot of progress in terms of percentage growth rates in some of those markets that you cited, and we can have multi-million dollar customers in markets like food and pharmaceuticals. But in terms of really moving the needle, I would be cautious about saying that we're going to see a breakout year in those types of markets. They will be noticeable on a dollar basis to you. It's more of a broad-based business.

Okay. And just a last question, I will toss this one at Dick. But, I'm just curious the accounts receivable number has come down sequentially, I think in the second quarter the unbilled piece was rather large, now we didn't seem to disclose the unbills. But is that tied to the tag end of your large customer? In other words is the visibility on collections by year end very high there on the receivables?

Yes, you are absolutely right that the big amount in unbilled revenues at the end of the quarter was tied, at the end of the second quarter was tied principally to a very large customer. All of that was essentially invoiced in Q3, much of it has been collected and you would expect that all of it would be collected by year end.

Okay. And one thought, in the queue there's a bit of a disclosure on a really small acquisition, this Manatee Works, just prospects there or potential there or interest there?

We did make a small acquisition in Q3, Manatee Works is a leader in the space for barcode reading on smartphone platforms. Great technology, wide customer base in terms of a network of systems integrators and solutions that they provide. I think plans for that business complement broader technology and market work that's underway at Cognex and it's too soon to say more about that. A nice, but as you rightly say, small acquisition for us.

Understood. Okay. Thank you.

Joe Radano, Cowen.

Hi everyone, thanks for taking my question. When you look today at Cognex versus maybe six months ago of the large order, given the environment today is there anything incremental that you have identified internally that you want to focus on or maybe where you want to pinpoint allocation of capital, anything around those lines?

Hi Joe, I would say at Cognex we have a pretty well thought through long-term growth strategy or set of strategies. And I would say those have not broadly changed over the last six months and we're very well-connected to our customers who are the most sophisticated manufacturing technology companies in the world. I think we have a good understanding of where they want to go and the importance of vision to their road maps and what we bring to the party.

We're not likely to be changing based on shorter-term macroeconomic headwinds or other things that are going on. But we're trying to be nimble in terms of who the winners are and who's losing share. So in some cases we are certainly making sure that we are focusing our efforts perhaps in different regions or with different customers who we think have the highest potential and the highest appetite for our technology. But in terms of the growth platforms around ID, around China and the long-term automation prospects there around some of the opportunities we see in consumer electronics and automotive, those really haven't changed and nor do I think will change over the next few quarters.

Great. Thanks for that. Are you getting a sense that any of your customers are maybe trying to retool some of their existing lines, almost recycling what they have in an attempt to avoid near-term spending, or is it more of just a, we're just holding back and this is kind of truly more of a push out?

We are managing this business over many years, you can see that there can be times when customers are more focused on retrofitting their existing lines, and at the times when they are building new lines for sure. I would say in our big end-user markets like consumer electronics or automotive, we don't really see a change in that environment over the last few quarters. That tends to be more of a long-term strategy about when they are really introducing new innovative products or technologies and when they are in a the year perhaps when they are more in a sustaining mode. So I think that's well-known to us and I don't think there is a fundamental change in the dynamics of what is going on.

Okay, fair enough. And last one for me, is it a fair statement that 2Q would at least be the only Q of this year so far that contains an order with the magnitude that could potentially be disclosed on the 10-K? Anything outside of a normal run rate type signs?

The 10K disclosure isn't related to any particular quarter. It's related to any customer whose purchases from us where the revenue would exceed 10% of total revenues for the year. And this particular customer did in fact purchase from us in Qs 1, 2, and 3, but the most significant amount of those purchases were in fact in Q2.

Okay, great, that helps, thank you very much.

Johnny Wright, Nomura.

Hi guys, jumping back in, can you give an update on capital allocation strategy given the uptick in the share repurchase this quarter and the new authorization?

We in fact have been consistently buying back shares over the last couple of years. We want to make sure that we buy back all of the dilution that results from stock option grants, which are a very important part of our total compensation package here at Cognex in which we feel very strongly is something we need to continue to do. We also took advantage of the lower price during the quarter and took an opportunistic approach relative to buying back some of our shares. Given that, we were left with only $16 million of authorization left and the Board felt it appropriate to increase that level by authorizing an additional $100 million for purchases as deemed appropriate in the future.

Johnny, just to expand on that answer, I think our number one priority for capital allocation is acquisitions, but we are highly selective in how we think about those, so we really want to buy only really companies that we consider an extraordinary fit and of high quality that we can integrate into the business of Cognex. So there are companies that are on our shopping list that are not necessarily actionable, but if they were and when they are that's a priority for capital allocation. Dick talked about share repurchases, and of course we continue to pay a dividend, so that's a little bit more on that.

Thanks. Any sense of a max net cash balance you guys would want to run, or is it just really going to be opportunity on the buy back and see what acquisitions come along?

No. I don't think there's any ceiling on our capital. I think we consider our cash to be the consequence of our success, so we don't apologize for that. We think it does give us a lot of strategic options going forward.

Great. Thanks guys.

Holden Lewis, Oppenheimer

Thank you very much. You called out Europe and specifically European automotive as being fairly healthy. I guess along the lines of the conversation you just had on China, can you give us a sense have how big automotive is in Europe, what your exposure might be to Volkswagen, and though things are strong now are you seeing some of the issues in that industry over there perhaps sort of causing that strength to fade? What kind of visibility do you have on that?

I spent some time, a few days with the European sales team last month, and kind of looking at that. We've had a lot of strength and success in the European automotive business which is -- last year was our second largest European market after consumer electronics. So in that market I would say what we do see is some caution creeping in among the industry in terms of their plan, coming off a period of very high growth.

It's difficult to say what degree that the impact of the Volkswagen situation or something more broadly, whether it also relates to China and the excess capacity that exists in China, but still manufacturing in Europe of luxury vehicles is for China. So there are those aspects going on.

I think an important thing to realize about our business with automotive is, the majority of it is really with tier one automotive suppliers, not necessarily end-user brand owners. Those tier one suppliers can be affected by changes, by end-users significantly. So it's sometimes a little difficult to call whether one particular brand owner's problem will translate into less or more business for our tier one customers.

I think another thing to bear in mind is that quality scandals and problems can often lead to good growth opportunities for Cognex. Whether there are problems around manufacturing quality, such as the airbag problem we saw earlier in the year. That often can lead to a lot of opportunity for machine vision to be installed. So I would say we're cautious about what's going on in Europe and in automotive, but we still think the long-term prospects are good and it's a little bit difficult to see how that plays out over the next few quarters.

Okay, thanks and then lastly, can you talk a little bit about the month-to-month cadence during the quarter? Is this a case where, obviously when you first gave guidance, you were into the quarter and things looked good the first couple of months and than it was that big last month of the quarter that was weak, or did you see a softening as you went kind of thing?

I would say we've seen a softening as we have moved forward through the year in general, so that's what I would say we have seen.

Okay. Great. Thanks guys.

(Operator Instructions)

Jeremie Capron

Hi, this is Grace Lee sitting in for Jeremie Capron. I have a question regarding the operating expenses guidance for fourth quarter. You are guiding for 5% increase quarter over quarter, and that seems to put the operating expenses the highest in the fourth quarter. In the past few years. Could you give us the color around what leads to the increase in operating expenses for 4Q guidance?

The guidance we gave was 5% up over Q3, which -- I think that's what I would point to, it probably means it's higher Q4 expenses then we have seen in prior years. I would say that, Grace, we consistently invest in innovation and in our sales channel to ensure that we are well-positioned for the long-term. Right now we do have a stronger focus on discretionary cost management and productivity. Some of the savings that we saw in Q3 were around employee vacation time and lower bonus and commission accruals, and we won't have the benefit of all of those in Q4. That's the sequential color on that overall.

I think the overall color would be, we consider ourselves a growth business, we're still growing this year, we expect to go on growing whether it's at the very fast growth rates we have shown you in recent years, or the slower growth rates we currently are showing. Our view at the long-term growth prospects of Cognex for our factory automation business continue to be around 20%. So as long as we consider that the case, we're going to be investing with that prize in mind, and that's our strategy.

Okay. That's very helpful. Thank you.

Okay, I'm showing no further questions in the queue. I'd like to turn it back to Dr. Shillman for any concluding remarks.

Thank you. To wrap up, we wish we had reported record-breaking results earlier tonight for the third quarter, but we didn't, and it looks like we won't be breaking any records for the next quarter either. Although our growth may be stalled, we are confident about the future of machine vision and of our company which continues to be the world market leader in our business. And we will persevere. Just as we have during past slowdowns. We will continue to work hard, play hard and move fast, so that we will be ready when conditions improve. I want to thank all of you again for joining us tonight and we look forward to speaking with you on our next quarter's call. Good evening.

Okay ladies and gentlemen this does conclude your conference. You may now disconnect and have a great day.