Cognex - Q3 2016

Transcript

Operator (participant)

Good day, ladies and gentlemen, and welcome to the Cognex third quarter 2016 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. If anyone should require audio assistance, you can press star then zero, and an audio operator will assist you. And as a reminder, today's conference is being recorded. And now, I'd like to turn the call over to your host, CFO Dick Moran.

Dick Moran (CFO)

Thank you, and good evening, everyone. Earlier today, we issued a news release announcing Cognex's earnings for the third quarter of 2016, and we've 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 a reconciliation of certain items from GAAP to non-GAAP in Exhibit 2 of the earnings release.

I'd like to emphasize 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.

Bob Shillman (Chairman)

Thanks, Dick. Hello, and happy Halloween, everyone. You know, Halloween is trick-or-treat time, but as you've probably seen in our earnings release today, there is no trick, just a great treat for our shareholders: the highest net income and earnings per share from continuing operations for any quarter in our 35-year history. Now, I'm going to be available for any questions that you have for me, but for details of this outstanding quarter, I'm going to hand the microphone over to my partner, Cognex's CEO, Rob Willett. Rob, the microphone is yours.

Robert Willett (CEO)

Thank you, Dr. Bob. Good evening, everyone. I'm pleased with our third quarter results, which included the highest quarterly net income and earnings per share from continuing operations that we have ever reported in our company's history. Revenue was $148 million, which is above the guidance that we gave to investors in August. It also represents substantial growth over Q3 of 2015. This strong performance was helped by our ability to deliver on large opportunities in consumer electronics. Outside of that industry, revenue grew by low double digits year-over-year, despite continued challenging market conditions. We had strong margin performance in the third quarter. Gross margin was 78%, reflecting a revenue mix from higher margin products than in the prior quarter and in last year's Q3. Operating margin expanded to 37% from 26% a year ago.

This significant increase reflects the substantial leverage that incremental revenue has on our business model. We achieved an impressive after-tax margin of 36%, helped by significant tax savings related to stock option exercises during Q3. Those positive items combined to deliver record earnings per share for the quarter of $0.61, significantly exceeding the Thomson Reuters First Call consensus estimate of $0.48 per share. Even excluding the $0.07 per share stock option tax benefit, earnings were well above consensus. Let's now turn to the details of the quarter. In the factory automation market, revenue for Q3 was $142 million, which represents significant growth year-over-year, led by major contributions from consumer electronics. As previously discussed, large electronics orders were split this year between Q2 and Q3. Last year, the majority were recognized in Q2.

On a sequential basis, consumer electronics increased, while the rest of factory automation experienced the normal seasonal slowdown we see during the summer months. Looking at factory automation from a geographic perspective as compared to Q3 a year ago, our Greater China region continued to deliver strong growth in excess of 20%. Sales to consumer electronics, automotive, and consumer products drove factory automation revenue to a new quarterly record, exceeding the prior record set last quarter. Europe delivered the largest contribution to growth at absolute dollars, helped by large electronics orders that were placed in Europe for Cognex products used on assembly lines in China. Outside of those orders, our European factory automation revenue grew year-on-year, although the rate of increase was small. In the Americas, factory automation revenue increased by high single digits year-on-year, as expected. Spending by U.S. manufacturers in many industries remains lackluster.

In other Asia, factory automation revenue grew by more than 20% year-over-year. Growth came primarily from automotive and electronics. In the semiconductor and electronics capital equipment market, revenue was $6 million in the third quarter, up mid-teens over Q3 a year ago. As we've said in the past, demand from semi has been relatively flat on an annual basis for the past several years. Our expectations for growth in this market, in this very small piece of our business, continue to be low. In other news, we recently completed two strategic acquisitions in the high-growth area of 3D vision. First is EnShape, an innovative company located in Jena, Germany, specializing in cutting-edge snapshot technology. This is a fast-growing approach to 3D data capture that we expect will find widespread use in factory automation.

Secondly, AQSense of Girona, Spain, brings to Cognex both a user-friendly graphical interface that makes 3D products easier to use and sell, and 3D Vision tools that complement our own powerful algorithms. Not only is all of this new technology exciting, but equally, or perhaps more importantly, with these two acquisitions, we have been able to bring on 11 highly skilled and experienced engineers, of which 7 have advanced degrees in machine vision. We expect these acquisitions will significantly accelerate our efforts to bring new 3D Vision systems to market. Moving on to new product introductions, we expanded our In-Sight product line to include the world's first multi-smart camera vision system. The new In-Sight VC200 can connect and manage up to four smart cameras at the same time without diminished performance, unlike any of our competitors' solutions.

This is important as manufacturers look for vision systems to work together to solve inspection tasks that require multiple views of an object on fast-moving production lines. In summary, Cognex had an outstanding third quarter helped by volume orders from consumer electronics. While that business will not repeat in Q4, factory automation continues to perform well in a difficult environment. In regard to specific guidance for Q4, we believe that revenue will be between $115 million and $118 million. We expect to report double-digit revenue growth year-on-year, with continued strong progress in high-potential markets including logistics, 3D, and China. Gross margin is expected to be in the mid to high 70% range, reflecting a higher proportion of revenue coming from service than in the third quarter. Operating expenses are expected to be essentially flat with Q3.

A true-up of the bonus accrual in Q3 is not expected to repeat in Q4. The effective tax rate is expected to be 18%, excluding discrete tax items. Now, let's open the call up for your questions. Operator, we are ready to take questions.

Operator (participant)

Okay. So, ladies and gentlemen, at this time, if you have a question or comment, press the star followed by the one key on your touch-tone telephone, and you'll be placed into a question queue. So again, for any questions, it's star followed by the one key at this time. Okay. So our first question comes from James Ricchiuti from Needham & Company. Jim, your line is open.

James Ricchiuti (Analyst)

Thank you. Good afternoon. Happy Halloween. I know it's a special holiday for Cognoids, but congrats on the quarter. I wanted to go into a little bit more detail on the guidance. You're talking about, I think, still a fairly slow growth environment for factory automation in general for the broader market. So I'm wondering what you're seeing that gives you the confidence in that 18%-21% kind of year-over-year growth. Is it also a function of an easy comp, or are you seeing certain areas where the growth is going to be stronger?

Dick Moran (CFO)

Yeah. Hi, Jim. Okay. So you're right. We do expect a good quarter in Q4 with revenue growth year-on-year around our 20% long-term growth target and with operating margin expansion. I think we're going to see further large-order revenue from logistics expecting to hit in Q4. So that's certainly a tailwind for us. China factory automation revenue, particularly from electronics, typically softens in Q4 and Q1. So it's probably still growth year-on-year, but the seasonal impact sequentially is difficult. Near-term, the outlook for Europe is cautious, I would say. So there's nothing sort of other than some good revenue landing for logistics in Q4. There's nothing really remarkable, I don't think, about our guidance. It reflects kind of the broad-based state of our business right now.

James Ricchiuti (Analyst)

Rob, normally when I think of logistics, I think of some seasonality to that business and sometimes think that that would be stronger in Q3. It sounds like you are expecting fairly significant shipments in Q4. Is that unusual for this business?

Robert Willett (CEO)

Well, yeah. Interestingly, Jim, it's a market we're still kind of learning about. It doesn't appear as seasonal as we thought it was. We're learning that large orders can land in any quarter. I think some of the things we've thought in the past, such as not a lot of new automation is going to be put in after Thanksgiving and before Chinese New Year in that period, probably still remains true. Certainly, there's business we're doing that's going to get installed before then and even after that point. Yeah, it's a little less seasonal than we had come to believe.

James Ricchiuti (Analyst)

Okay. And I wonder if there's just the last question for me, and I'll jump back in the queue. If you can provide any update, it's still early, but is there anything you can say about your efforts in the ID mobile terminals area, how that's going?

Robert Willett (CEO)

Sure. So your question relates to the MX-1000 product that we launched earlier this year. There's a lot of interest in the product that we're showing to customers now. I think our sense of the market is just as positive as it was, as we've spoken to, in recent times. We have a number of important trials going on with some customers that have very significant potential. I think as we settle along, it's not going to make much of a revenue contribution this year, but I think it'll be interesting at what point we start to see large deployments of the product, which we do expect to see, but we're not sure at which point those really are going to start to hit the revenue line.

James Ricchiuti (Analyst)

Okay. Thank you.

Operator (participant)

Okay. Thank you. Our next question comes from Ben Rose from Battle Road Research. Ben, your line is open.

Ben Rose (President)

Thank you. Good evening. Also, my best wishes for Happy Halloween. The logistics strength that you're expecting, Rob, in this fourth quarter, is it fair to say that that will be mostly in North America, or will it be spread out perhaps to other regions?

Robert Willett (CEO)

Hi, Ben. Yeah. Logistics is delivering well for Cognex in both the Americas and Europe. We're seeing major successes in both of those markets, and both will make important contributions to Q4.

Ben Rose (President)

Okay. Just a follow-up question regarding Samsung being in the news. I know that they are or have been a Cognex customer in the past, and there's some indication that they may have pulled some of their factory automation sort of in-house in the last couple of years. Could you comment generally on what you're seeing, perhaps from Samsung specifically, as it relates to some of their recent quality problems?

Robert Willett (CEO)

Yeah. Hi, Ben. In general, we don't like to comment about customers and what's going on internally with them, whether we're working with them or not heavily. So I don't really feel comfortable to comment about any specific things going on there.

Ben Rose (President)

Okay. Thank you.

Operator (participant)

Okay. Thank you. Our next question is from Richard Eastman from Robert W. Baird. Richard, your line is open.

Richard Eastman (Analyst)

Yes. Good afternoon. Hi, Rob. Dick.

Robert Willett (CEO)

Hey, Rick.

Dick Moran (CFO)

Hey, Rick.

Richard Eastman (Analyst)

Dr. Bob, of course. Just a very quick question around the consumer electronics strength that you're referencing. As I read through the 10-Q and also your commentary, Rob, is the reference on the consumer electronics strength go beyond the material customer? I mean, is this broad-based with the other half of CE, essentially, also showing the same strength? Is that the message here? I was struggling a little bit to sift through that in the 10-Q.

Robert Willett (CEO)

I would say overall, that's a true statement, Rick. Yeah. I'd say that overall, our consumer electronics business is growing well across a broad range of customers and suppliers.

Richard Eastman (Analyst)

Okay. And then also, Rob, I think you suggested that if you look at factory automation and take out CE, that the balance of the business, all other end markets grew, did you say low double digits?

Robert Willett (CEO)

Yes. Yes, I did.

Richard Eastman (Analyst)

You did. Okay.

Robert Willett (CEO)

Yes. Correct.

Richard Eastman (Analyst)

Okay. Is there any, I know we've been hearing China automotive very strong, but can you just sift through that other component and maybe just flag the better growers within the collective low double-digit growth?

Robert Willett (CEO)

Yes. Well, I can. So I mean, obviously, we said logistics is growing well, but I think we've covered that. If I was to talk about automotive, I would say automotive continues to increase low double digits year on year. We've seen that in specifically some nice growth rates in China, although slowing down slightly, but sequentially, but still growing well. And actually, automotive in Europe performing well also. So automotive is right at that growth rate overall. Markets like food and beverage and consumer products and robotics also performing well at or above that rate. So that would be a general sense of it.

Richard Eastman (Analyst)

Okay. Just my last question. I wanted to ask, maybe Dr. Bob could kind of take this one, but this EnShape acquisition on the sensor side, I understand?

Bob Shillman (Chairman)

Yes.

Richard Eastman (Analyst)

I thought it curious. You talked about kind of snapshot technology. I think Rob referenced that. But is there a shift here, I mean, towards more image-based 3D versus laser-based? Or am I looking too hard here?

Bob Shillman (Chairman)

Well, first of all, all of the 3D that we do is image-based. The laser that's currently used in most of our, in all of our products, is simply used to illuminate the part in a very special way. But an image is what is developed on an array sensor, as all of our sensors are these days. And then we interpret that image using 3D software. So using lasers for 3D is very different than the lasers in ID. In ID, the existing of the old-school method of reading ID was to use a laser and reflect that light, and it was interpreted on a line basis, not on an image basis. But our 3D vision, all of our 3D vision, is based on a full analysis of an image.

Now, the difference between the current way that we're doing it at Cognex and the way that EnShape does it is rather, it's quite different. The EnShape method requires generally the part to be stationary. In one quick photograph or maybe two snapshots, all of the 3D image is taken, is acquired. That's different than our existing 3D, where the part is supposed to be moving and usually is moving in a factory. They are complementary technologies. One of the technologies is better for certain aspects: accuracy or reliability and speed. The other technology is better for different aspects. So it's still too soon to know if any one of these methods will dominate or if it's going to be necessary to carry both kinds of products. My sense is that we're going to need two types of 3D technology, maybe even more. There may be other ways.

There are time-of-flight methods. So there are many ways of getting a 3D image, but they all have benefits and drawbacks based on the surface texture, on the type of material that you're looking at, on the speed of the item moving by. And that's why we increased our offering so that we can now serve more of the 3D market.

Richard Eastman (Analyst)

I see. Okay. All right. Very good explanation. Thank you.

Bob Shillman (Chairman)

You're welcome. You're welcome.

Operator (participant)

Okay. Thank you. And our next question comes from Joseph Giordano from Cowen & Company. Joseph, your line is open.

Joseph Giordano (Managing Director)

Hey, guys. This is Tristan Margot for Joe Giordano. Congrats on the quarter, and thanks for taking the question here. I was wondering, could you frame what your level of revenue growth can mean in a CapEx environment that is not flat?

Robert Willett (CEO)

Can you repeat the question? Not sure.

Joseph Giordano (Managing Director)

Yes. Maybe I could rephrase. So my sense is your customers are not spending on CapEx currently, or maybe their level of CapEx is probably decreasing as we speak. And there you are growing your revenue double-digit. What could happen if your customers start to—are you here?

Robert Willett (CEO)

Yes. Yes.

Yeah. Sorry.

Yeah. So yeah. Okay. So I think basically you're asking, is it in a low-growth or decreasing capital environment how we grow relative to increasing capital environment? I think some points to understand would be a vision is a disruptive technology that is replacing tasks in many cases that are done by humans, right? So visual inspection is still very common in a lot of manufacturing activities. And vision is replacing those tasks. So generally, we would expect, we expect this business to grow even in weak capital spending environments. In environments when companies are investing at a faster rate, obviously, we'll grow at a faster rate also. So I think that's what time has proven.

Joseph Giordano (Managing Director)

Sure. Thanks. And then what kind of markets and new applications your two acquisitions in 3D really allow you to go after? I know Dr. Bob talked a little bit about the technology there, but what kind of applications or end markets you can go after?

Robert Willett (CEO)

Yeah. So these are technologies that we're looking forward to applying to a range of markets. Certainly, automotive, consumer electronics, and logistics are all markets that we look forward to taking this technology to, along with a number of other markets. The nice thing about this technology, it fits very well with the broad end-user markets that we serve today and where we have a great reputation, and we have many salespeople calling on those accounts.

Joseph Giordano (Managing Director)

Okay. Thanks. And if I can just sneak one last in, still on M&A, when you do acquisitions this way, are you more looking for, I guess, talent acquisitions or more of a new technology that you don't have or maybe a mix of both?

Robert Willett (CEO)

Yeah. Well, we're a technology company. We love to acquire great technology and great engineers and engineering groups. So those would be good descriptions of the two technologies we announced today. And those are things that we like to see. And we like to see businesses that can help us with our high-growth, high-gross margin profile. Those are things that we prize as we look at acquisitions.

Joseph Giordano (Managing Director)

Great. Thanks. Congrats again on the quarter, guys.

Robert Willett (CEO)

Thank you.

Operator (participant)

Okay. Thank you. So again, ladies and gentlemen, I'll remind you, you can queue up for questions by pressing the star followed with the one key at any time, and you'll be placed into a question queue. So again, for questions, the star followed with the one key. And we'll take our next question from James Ricchiuti from Needham & Company. Jim, your line is open.

James Ricchiuti (Analyst)

Rob, back in September at the investor event, you talked about, I believe, a $200 million market for 3D vision. So I'm curious, do these acquisitions target that market, or do they expand it in some way?

Robert Willett (CEO)

Our sense, Jim, is that they serve that same market, right? But they help us to serve it in a more competitive way. The AQSense businesses create better user environments for 3D. So our customers want to compare CAD drawings to machine vision data online. They have great technology. And then also machine vision tools that are complementary to what we have. And then, as Dr. Bob explains, the snapshot sensing technology is very competitive in certain types of applications, specifically products that are not moving. And we see a lot of that in electronics, for instance. So I think it's complementary. I think our view of that market overall, 3D, that we were just serving with a more limited set of technology, our view is that that market is growing quickly and will go on doing so. And these technologies help us do better.

James Ricchiuti (Analyst)

Yeah. If maybe looking at the acquisition separately, you hadn't been pursuing the same technologies that EnShape is currently working in. Is that fair to say?

Robert Willett (CEO)

No. I wouldn't say that's true. I think, obviously, we have user environments for 3D. We wouldn't be able to sell 3D if we didn't have those. And we have vision tools in 3D. But this team, very good team of engineers with some very complementary or, in some cases, better technology than we have. So they're useful in those respects.

James Ricchiuti (Analyst)

I think I met the approach they're taking to 3D. It seems like it's a little different than yours. I guess what I'm wondering is, maybe if I look at these two acquisitions, is this accelerating your expansion into this market? If so, can you put a timeframe on it? If you look at both acquisitions as you begin to develop more product solutions around this, does it accelerate your?

Robert Willett (CEO)

I think it does accelerate our entry to the market, certainly. We wouldn't have acquired them if it wasn't going to do that for us. Yeah. And I think that technology is something we'll be bringing to the market at some point in the first half of next year. It will be integrated into what we sell or available through our sales force or part of our sales force. So that's certainly true. I think it's worth pointing out too that Cognex has had a great history of acquiring innovative engineering teams in areas around the world and building on those teams. And we've done that again and again in places like Aachen in Germany and Portland, Oregon. These two companies are in great locations for us.

So Jena in Germany is really at the center of optics in Europe, where there are a lot of great optics companies located and a great university and research culture around optics, which is key for 3D, as you will have got the sense hearing Dr. Bob talk about laser-structured light and how that's critical to the way most 3D and factory automation is done. And then Girona in Spain has an excellent research university with a lot of strength in computer vision and vision technology. And so there's a nice beachhead for us to build on and recruit great engineering talent into the work in this area.

Bob Shillman (Chairman)

I'm going to continue with this, Rob. Thank you. Jim, if you look, most of our acquisitions are for talent. Now, we are very fortunate that with these two cases, not only do we get very experienced and very deep talent and energy level with both of these, but in addition, they both had products. They both actually developed products. The one in Germany is a hardware and software-based product. The one in Spain is a software product. But nevertheless, these guys went out there and developed things and actually sold them to customers. And of course, we don't just rely on that. We did our own due diligence on the technology and on the people. But we didn't get a lot of revenue. We typically haven't bought companies for revenue or for distribution, although that's not out of the question.

Most recently, the acquisitions we do are to expand our technological breadth. Both of these do that. We didn't have any expertise in the company for snapshot sensors, although I suppose we could have developed it. We have the brainpower. Everybody's busy. What we did in this case in EnShape is we acquired that snapshot technology, which we believe is very applicable to many of the things that we're looking at.

James Ricchiuti (Analyst)

Okay. That's helpful, Dr. Bob. Thanks a lot.

Robert Willett (CEO)

You're welcome.

Operator (participant)

Okay. Thank you. Our next question comes from Ben Hearnsberger from Stephens. Ben, your line is open.

Bob Shillman (Chairman)

Hey, thanks for taking my question. I wanted to start on the mobile terminal product. Is this going to be sold primarily by your direct sales force or through the channel?

Dick Moran (CFO)

Yeah. Hi, Ben. So yes, we have a sensor sales force and a logistics sales force who are primarily selling it today. So they're calling on those kind of customers who can most benefit from the product. We will have some channels selling it also, but most of the business, I think, will be direct.

Ben Hearnsberger (Analyst)

Okay. Then I had a question on the 3D side. At a high level, as 3D capabilities expand and costs come down, do you expect 3D applications to over time cannibalize 2D machine vision applications?

Bob Shillman (Chairman)

No, this is Bob. I don't understand the term cannibalize. If you mean, are we going to sell more 3D over time to people who in the past bought 2D? Yes, I think there is a good likelihood of that. But 3D is always going to be more expensive. It's more valuable. So whether it costs more to make or not is irrelevant. It has more value, so we're going to charge more for it. So I do expect to see a greater percentage of our revenue coming from 3D. But the overall is going to grow. So you've got to be. I'm just making sure that the audience doesn't think that cannibalizing means holding revenue constant or even going down with the introduction of new products. That's clearly not the case here.

We expect both revenue to go up, and probably it might very well be, we'll have to look at more of the manufacturing of these items, but the gross margins could go up too.

Ben Hearnsberger (Analyst)

Okay. Just to be clear, over time, will traditional 2D applications be replaced by 3D applications, or are they complementary to one another?

Bob Shillman (Chairman)

No. And I'll give you examples. If a pharmaceutical company is putting pills in bottles and they want to check to see if the label's on straight, they're going to use 2D. There's no advantage to using 3D. There are certain applications of parts where customers want to know the height of things. In addition, they want to know if all the buttons are on. Let's take a calculator. I'm looking at a calculator right here in front of me, and there are 20 or 30 buttons here. 2D could easily tell you whether the buttons are there, whether they're printed correctly, but they couldn't tell you very easily whether the buttons are all at the same height or not. So in an inexpensive calculator, they probably don't care if the buttons are all at exactly the same height.

But when you look at a more expensive item, you may indeed care whether the buttons on the side or the front or the back of a cell phone were flush with the case and all sorts of things like that. So no, I would think that there's still going to be a tremendous market for 2D machine vision where 3D doesn't offer any benefit. But there are many applications now where customers want to know the height of things as well as the location and the clarity of things. But you can ask a follow-on. Go ahead.

Ben Hearnsberger (Analyst)

Yeah. No, that's really helpful. I actually have another kind of higher-level question for you. I don't think thermal is an area that you guys participate in. But I guess I'm just curious, given that you're a thought leader in this space, how you think about the opportunity for thermal sensors in machine vision applications.

Bob Shillman (Chairman)

It's a very good question. Whichever technology is used to get an image is not relevant to the analysis of that image. So whether it was an X-ray image or a CT scan image or a thermal image, we could very likely analyze that image. The question comes down to what is the application area. If you're looking for people hiding in a building, we're not into using thermal imaging. That's something we wouldn't chase. But if you're looking for components inside, for example, a piece of electronics and seeing which part is heating up more, then we certainly could analyze and would be interested in analyzing those kinds of images. So machine vision, at least the way Cognex sees it, is there's the optics, there's the hardware for acquiring the image, there's the illumination.

But the core piece of Cognex's machine vision is the analysis of the resulting image irrespective of the modality of the energy that created that image.

Ben Hearnsberger (Analyst)

Okay. That's really helpful. Thanks for taking the time.

Bob Shillman (Chairman)

Oh, that's why we do these calls. Sure.

Operator (participant)

Okay. Thank you. So again, ladies and gentlemen, to queue up for questions, it's star followed with the one key on your touch-tone telephone. Again, star one for any questions. I'm showing we have another question at the moment from Bobby Eubank from Chevy Chase Trust. Bobby, your line is open.

Bobby Eubank (Analyst)

Good afternoon, everyone. Thanks for taking my call. Congratulations on the great quarter, Rob and Dr. Bob. Rob, at any given - or maybe Dr. Bob, this would be a question for you - at any given moment, how many of these kind of smaller bolt-on type acquisitions may you be looking at or in your pipeline?

Dick Moran (CFO)

So we run a pretty disciplined process where we map markets and spaces and look at acquisitions and competitors and technologies in those spaces. So we have a pretty large funnel of companies that we're interested in and working with. So yeah. So they become actionable and available for acquisition at different rates. And you can see, obviously, that they came through this most recent period in quite a big way. But our process continues and our approach continues at a similar flow on an ongoing basis.

Bob Shillman (Chairman)

Great. And let me say that the way that Rob is able to integrate these is very well done and very objective. And the fact that we don't buy, for a long time, we haven't bought anything large. So it's rather easy. These are typically engineering-oriented acquisitions, and we know how to manage. We've grown to learn how to manage remote engineering sites. And we keep people where they are. We don't aggregate them. We don't move them around the world. They're happy where they are. We leave them where they are. Furthermore, that offers us the great opportunity of attracting more exceptional engineers in those off-remote from the U.S. places. It's a wonderful method of growing the company because it allows us to get larger but to maintain an entrepreneurial, very small company feeling. And that is very key to our success.

Bobby Eubank (Analyst)

Certainly. You would think that maybe 3 years out, 5 years out, before any meaningful revenue contribution for your typical kind of technology or engineer-based acquisition?

Dick Moran (CFO)

No. No, not at all. So in the case of the two companies we've just announced acquiring, they have products and they have teams that we should be able to integrate and turn into revenue in the first half of next year.

Bob Shillman (Chairman)

Yeah. Bobby, it depends what you mean by meaningful. As a percentage of the $450 million or $500 million, it's not going to be meaningful. But they're certainly going to be measurable. And we assume in the five, I'm going to assume, but Rob knows best, $5 million-$10 million for each one of these.

Bobby Eubank (Analyst)

Great. Great. And then my final question, keeping it rather high level here on, if you think about the industry, we're still probably in the lower left side, the favorable side of the adoption curve. If the technology is truly disruptive, as we've talked about several times, kind of what are the barriers for accelerating that adoption and even seeing a pickup in that 20% growth rate that you're looking at for the fourth quarter? Why aren't more people knocking on the door saying, "Wow, I'm seeing what my competitors are doing with the technology, and I really want that"?

Bob Shillman (Chairman)

Well, I'm not at all disappointed with 10%-20% growth. We certainly want to grow as fast as the market, perhaps faster than the market so we can take some of our competitors' share. But we've been around for 35 years, and we're at the top of our game primarily because we didn't have an arbitrary growth rate in mind. And let's say we do somewhere around, I don't know, $450 million-$500 million this year. 20% growth is an extra $100 million. That's a lot of new business to be able to find. All right? Don't forget, every year we start. We have a backlog, but bookings start at zero. We don't have recurring revenue of any significant amount. We have to start with zero every year. So to add another $100 million on top of $500 million is not easy to find.

When you said that machine vision is in the lower left part of the curve, I'm not sure that's true. I'm not sure that's true. 3D is at the lower left part of the curve, but machine vision isn't necessarily that embryonic. It's been around. We've been around 35 years. And so customers now know about machine vision, and more and more of them are using it. But I don't have any expectation of growth faster than 20%.

Bobby Eubank (Analyst)

Great. Well, thanks for the great quarter.

Robert Willett (CEO)

Bobby, let me just also kind of chime in here. So I mean, generally, our technology is becoming faster, less expensive, easier to use, right? And that's making it available to lots more engineers who want to use it on their production floors. So that certainly is helping the introduction of vision and the use of vision become more pervasive. And then, but in terms of limitations, why it's not growing even faster than it already is, some of the limitations that are kind of we speak about are the ability of engineers at our customers to absorb and implement the technology. So those can be challenges, particularly at our large customers, to stop them growing more quickly. They have other competing priorities. And then there are other such challenges like security, right?

Network security and concerns about internet security and other things where if those were not concerns, we might be growing even faster than we are already. But those are some of the barriers to faster growth, I would say.

Bobby Eubank (Analyst)

Appreciate it.

Operator (participant)

Okay. Thank you. So I'm showing no further questions in the queue. I'd like to turn it back to Dr. Bob for any concluding remarks.

Bob Shillman (Chairman)

Sure. Well, like I said, there's no trick at Cognex. Well, the trick is to keep it going. And we have a full bag of tricks that help us keep it going. And the main aspect of the company is hiring great people and finding great people and acquiring great people. I want to thank you for participating in our call today, and I look forward to speaking, the whole team looks forward to speaking to you again next quarter. Good night.

Operator (participant)

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