Cognex Corporation (CGNX) Q4 2021 Earnings Call Transcript

Cognex Corporation  (NASDAQ: CGNX) Q4 2021 earnings call dated Feb. 17, 2022

Corporate Participants:

Susan Conway — Senior Director, Investor Relations

Robert Willett — President and Chief Executive Officer

Paul Todgham — Senior Vice President of Finance and Chief Financial Officer

Analysts:

Josh Pokrzywinski — Morgan Stanley — Analyst

Jacob Levinson — Melius Research LLC. — Analyst

Unidentified Participant — — Analyst

Matt Summerville — D.A. Davidson & Company — Analyst

Jim Ricchiuti — Needham & Company — Analyst

Andrew Buscaglia — Berenberg Capital Markets — Analyst

Markus Mittermaier — UBS Securities — Analyst

Jairam Nathan — Daiwa Capital Markets — Analyst

Bobby Eubank — Chevy Chase Trust — Analyst

Presentation:

Operator

Greetings, and welcome to the Cognex Fourth Quarter 2021 Earnings Conference Call. [Operator Instructions] I would now like to turn this conference over to your host, Ms. Susan Conway, Senior Director of Investor Relations. Thank you, ma’am. You may begin.

Susan Conway — Senior Director, Investor Relations

Thank you. Good evening, everyone. Welcome to our year-end earnings conference call. With us are Rob Willett, Cognex’s President and CEO; and Paul Todgham, our Chief Financial Officer. We will start with prepared remarks and then we will open the call for questions,

I would like to remind you that our earnings release and annual report on Form 10-K are available on the Investor Relations section of our website at www.cognex.com/investor. Those contain detailed information about our financial results.

During the call, we may use a non-GAAP financial measure, if we believe it is useful to investors, or if we think it will help them understand our results or business trends. You can see a reconciliation of certain items from GAAP to non-GAAP in Exhibit 2 of the earnings release. 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. However, things can change and actual results may differ materially from those projected or anticipated. For a detailed list of risk factors, you should refer to our SEC filings, including our most recent Form 10-K that we filed tonight.

Now, I will turn the call over to Rob.

Robert Willett — President and Chief Executive Officer

Thanks, Sue. Hello, everyone, and thank you for joining us. I am proud of the results Cognex reported tonight. For 2021, we surpassed $1 billion of annual revenue for the first time in our history. We also set new annual records for net income and earnings per share from continuing operations. Demand for Cognex products was strong worldwide in 2021. Manufacturers implemented Machine Vision to ensure the quality and accurate delivery of so many of the products we all purchase. Growth came from all geographic regions, most major product categories, and a wide range of industries.

Logistics was our largest end-market for the first time in 2021. Now representing approximately 30% of total revenue, logistics grew by approximately 65% year-on-year. E-commerce and omnichannel retailers invested in automation and Cognex’s industry-leading products to enable higher throughput and cost reductions. Also, after struggling in 2020, traditional brick-and-mortar retailers increased investments to compete more effectively for online sales. Automotive represented approximately 20% of our company revenue in 2021. After 2 consecutive years of declining sales, revenue from automotive grew faster than the company average.

Our customers’ increased investment in Cognex products, both for longstanding applications and for production capacity to bring new electric vehicles and related technologies to market. Automotive grew across all regions with notable strength in Asia, given the concentration of EV battery manufacturing in that region. One large market that did not grow in 2021 was consumer electronics. Revenue decreased modestly year-on-year. It represented roughly 20% of the company total, making it our third largest market after being number one in 2020. Unlike 2020, in 2021, customers focused more on upgrading existing lines rather than making big incremental investments for new smartphone technologies or to meet suddenly increasing demand for remote work products.

Otherwise, growth was strong in almost all the other industries we serve, including semi, medical-related industries and consumer products. Together, these smaller markets represented about 30% of total revenue in 2021, and collectively grew in line with the company average year-on-year. This is encouraging, because we have been investing to increase our sales presence as we seek to reach new customers for Machine Vision and win share at competitors accounts.

Turning to a key financial metric, gross margin was 73% in 2021 compared to 75% in 2020. There were two primary factors that resulted in downward pressure. One, in keeping with our customer-first company value, we have been prioritizing delivery during this time of global chip shortages. That added incremental costs in 2021 due to the significant premiums we paid to procure components through brokers and for expedited freight. The good news is that our customers appreciate what we are doing for them. After many months of intense engagement through very challenging conditions, I am pleased to report that delivery times on most major products had improved substantially by year-end.

The second factor that impacted gross margin was the greater percentage of revenue from logistics in 2021, and some comparatively lower margin strategic logistics projects we chose to undertake last year. Cognoids have built a remarkable $300 million business in logistics, a market that is still in the early stages of adopting Cognex Machine Vision technology. We see the engineering support we provide customers to get up and running as a worthwhile cost of winning share, but it is slightly dilutive to our overall gross margin. We are making good progress transitioning our logistics business from customized to standardized solutions that are easier for customers to deploy. We are also developing an experienced group of logistics integrator partners able to deploy these standard solutions quickly and effectively. We believe these developments will enable us to scale more easily and to report higher gross margins in logistics over the long-term.

Overall, it’s a great time to be at Cognex. We believe that macro trends such as widespread labor shortages, the growth of e-commerce and a focus on supply chain integrity further underscore the value proposition for Machine Vision and manufacturing and logistics operations. Delivering on our commitment for a new product development, we launched a long list of high-performance next-generation products in 2021, that we believe keep us at the forefront of Vision technology.

The Cognex In-Sight 3D-L4000 makes our industry-leading true 3D vision tools as easy to use as 2D. This product positions us effectively against some of our competitors who have significant sales and profits in 3D. The DataMan 8700 reassess our technology leadership for handheld barcode reading in automotive, medical devices, electronics and other industries. Our new patented High Speed Steerable Mirror significantly expands the field of view of Cognex DataMan 470 barcode readers. This is invaluable for reading a high volume of barcodes at shorter working distances such in pharmaceutical packaging aggregation and across large fields of view, such as, reading many barcodes on a large pallets in a warehouse.

The Cognex Edge Intelligence software platform helps our customers understand the performance of large numbers of devices deployed across facilities, quickly identifying issues and taking corrective actions. VisionPro 10 enables customers to use our rules based Vision software and Deep Learning technology together more easily in a powerful development environment. We also introduced Cognex Deep Learning technologies that further enable the automation of time consuming manual inspections. VisionPro Deep Learning 2.0 software expanse Cognex capabilities for high-precision measurement of scratches, blemishes, cracks and other defects. Cognex’s Smart Line smart tool combines the high accuracy of 2D vision with the flexibility of Deep Learning to quickly solve complex line detection applications too challenging for rules based vision alone.

Moving on, our head count grew by approximately 200 Cognoids company-wide in 2021, many of these employees are sales noise hired to sell Cognex industry-leading products to manufacturers and logistics customers around the world. Finally, we successfully implemented Salesforce.com to further improve sales productivity and deepen our understanding of customers. We believe our new Customer Relationship Management platform will help us scale and understand our business with greater clarity on our path to the next $1 billion in annual revenue.

Now, I will hand the call over to Paul for details of the quarter.

Paul Todgham — Senior Vice President of Finance and Chief Financial Officer

Thanks, Rob, and hello everyone. Revenue for Q4 was $244 million, which represents an increase of 9% over a strong quarter a year ago and a new fourth quarter record. It’s worth noting that revenue for Q4 was 44% above the pre-COVID period of 2 years ago and consistent with growth of 43% for the full year of 2021, when compared to 2019. Automotive, logistics, consumer products, semi, and food and beverage were growth drivers in Q4. Consumer electronics was a headwind and declined as expected, primarily due to the timing of annual spend. We are pleased to deliver revenue above the top of our expected range in a difficult supply environment.

Gross margin for Q4 was 72%, while this is lower than Q4 of 2020, it’s an improvement over the prior quarter. The decline in gross margin year-on-year was due to higher supply chain costs. On a sequential basis, a more favorable revenue mix more than offset these higher costs. Operating expenses increased by 6% sequentially and were in-line with our guidance range. Comparing year-on-year, operating expenses increased by 8% over Q4 of 2020. These increases were due to incremental investments we made in sales and engineering headcount, along with higher variable and incentive compensation, marketing activities and travel expenses. Operating margin was 23% in Q4 of 2021 and compares unfavorably with 26% in Q4 of 2020 and 31% in the prior quarter. The decline is due to both the supply situation, which is delaying revenue and adding costs near-term, and higher operating expenses we are incurring to drive future growth.

Regarding the tax provision, we recorded discrete tax items in all periods that make comparisons difficult. In Q4 of 2021, discrete items combined for a net expense of $25,000 compared to net benefits of $13.8 million in Q4 of 2020, and $6.3 million in Q3 of 2021. Excluding discrete tax items, the effective tax rate was 8% in Q4 of 2021 compared to 14% in Q4 of 2020 and 18% in Q3 of 2021. The decrease was due to a revision we made in the fourth quarter to reflect a full-year 2021 tax rate of 16% versus our prior estimate of 18%.

Reported earnings were $0.30 per share in Q4, compared with $0.39 in Q4 of 2020, and $0.44 in Q3 of 2021. On a non-GAAP basis, earnings were $0.30 per share again in Q4 compared with $0.32 in Q4 of 2020 and $0.40 in Q3 of 2021. That’s excluding discrete tax items and restructuring and other charges that we removed for comparison sake.

Looking at the change in revenue for Q4 from a geographic perspective, revenue from the Americas increased by low-double digits, year-on-year and delivered the largest contribution to absolute dollars due to growth in logistics, among other industries. Revenue from Asia also increased by low-double digits year-on-year. Continued growth in automotive, logistics, semi and a broader market offset lower revenue from consumer electronics. In Europe, revenue increased by mid-single digits, excluding a 2 percentage point reduction from currency exchange rates. Growth in logistics, automotive, consumer products and other industries in Europe’s broad factory automation market was offset by a decline in revenue from consumer electronics.

Turning to the balance sheet, Cognex continues to have a strong cash position with $907 million in cash and investments and no debt. While this balance is higher than the end of 2020, it is below Q3 of 2021, because we are more opportunistic with our stock buyback activity. We spent $113 million in Q4 to repurchase Cognex stock, which is the highest amount we have deployed to buyback stock in a single quarter. That brought the total for 2021 to $162 million. We plan to continue to buyback stock in Q1 at a regular pace, while maintaining flexibility to be more opportunistic.

Our inventory balance has increased substantially over the past year. We are bringing in components to support customers at a higher level of business and we are doing so at elevated costs to win market share and underwrite our resilience in a time of global supply chain constraints.

Now, I will turn the call back over to Rob.

Robert Willett — President and Chief Executive Officer

Thank you, Paul. Let’s move next to guidance. Cognex reported a record year in 2021, and we are excited about the opportunities that we see for our company in 2022. We believe revenue for the first quarter will be between $265 million and $285 million, which represents low double-digit growth on a sequential basis. We expect higher revenue particularly from the logistics market. Also, thanks to the perseverance of Cognoids and our excellent relationships with suppliers, we are seeing improvement in our delivery times, that is helping us somewhat reduce our substantial backlog.

We expect gross margin in Q1 will be in the low 70% range, which is in-line with the gross margin we reported for Q4. However, that range is below the gross margin we reported in last year’s first quarter due to higher supply chain costs and revenue mix. I want to remind you that our gross margin target remains in the mid-70% range.

We expect operating expenses will be approximately flat on a sequential basis. We believe the incremental investments we made in sales and engineering headcount during 2021, will be roughly offset by a reset of our incentive compensation plans with relevant performance goals for 2022. Lastly, we expect the effective tax rate will be 17%, excluding discrete tax items.

Now, we will open the call for questions. Operator, please go ahead.

Questions and Answers:

Operator

[Operator Instructions] Our first question comes from the line of Josh Pokrzywinski with Morgan Stanley. You may proceed with your question.

Josh Pokrzywinski — Morgan Stanley — Analyst

Hi, good evening, folks.

Robert Willett — President and Chief Executive Officer

Hi, Josh.

Josh Pokrzywinski — Morgan Stanley — Analyst

Hi, there. Tor me, the first question on the logistics side, so you grew 65% last year. I think a large integrator and probably a partner sounds well, grew about 50%. So clearly a good penetration story. I know that there were sort of ebbs and flows in terms of ability to deliver, but that same integration partner is talking about flat in 2022, and given bottlenecks and things like labor since it’s kind of an intensive job to do some of the integration. Understanding that you guys can outgrow the market, is that sort of what you would agree with is an assessment of the market and in any way they’re sort of handicap one way or the other, how you guys are thinking about that outgrowth gap that you had last year is being kind of a reliable number going forward?

Robert Willett — President and Chief Executive Officer

Right. So I think our logistics market is broadening, right? So we have a large customer that has representative, you will see from reading our disclosures. So about half our logistics business are overall. But the rest of our business is growing more quickly, outpacing the growth of that customer and we are broadening our business to reach a lot of different end-user customers and applications in a lot of new geographies as well. In fact, our growth in America and Asia outpaced the growth we saw in the Americas market. So we feel still a very strong undercurrent of growth potential in this marketplace. However, I don’t think we are likely to achieve the kind of growth that we saw last year. We do expect our growth to moderate, and I think it would be a stretch even for us to achieve our 50% stretch goal in logistics, I don’t think we perhaps see that on the cards.

Although, as you know, we don’t give guidance for the full year. I think there is something going on in the marketplace, which is probably referenced by your question where you are referencing a large integrate areas. I think some of the implementation that’s going on is getting delayed because of chip shortages and supply chain challenges and other things. So I think that kind of effect some players revenue in the marketplace, and it’s certainly slowing down all of our growth rates as we seek to implement where there is a lack of labor or parts going on. But overall, we continue to be optimistic, we expect logistics to go on being accretive to our overall growth and being excellent part of our business. I would also say, I think so much as you know of our logistics business has been barcode reading, but there are other vectors for growth also, which are more and more applications, a vision technology in logistics, where over the long run we see strong growth potential. So that’s kind of my overall answer to your question Josh. Please feel to follow-up.

Josh Pokrzywinski — Morgan Stanley — Analyst

I appreciate it. That’s helpful. And then I guess maybe on the consumer electronics side, sort of an unusual down year. I mean, I think we all appreciate the circumstances. So on one hand, there is a content story here. This is a growth model for sure. On the other hand, inventories, I think in the consumer electronics sector as a whole, or maybe you’re looking a little high. So I don’t know how that flows into your customers’ bias for investment. Can we start to swing the pendulum back to growth this year or are those folks still cautious given maybe sort of an inventory overhang kind of weighing on their inventory?

Robert Willett — President and Chief Executive Officer

I think those, like you who have studied Cognex and our electronics business over many years know that it can swing and there can be a tick-tock of investment around new models and new lines and new technologies coming to market. Generally speaking, it’s a little too early in the year for us to really give a good indication of kind of how we see the year shaping up, right? And we would expect in our next earnings call to give you a better view of that. We continue to see strong growth drivers over the long-term, and I sort of feel very confident there will be upswings and good years as well as sort of more challenged years like we saw in 2021, and we will let you know kind of how this year is looking when we next talk.

Josh Pokrzywinski — Morgan Stanley — Analyst

Understood. Really appreciate the color. Thanks, Rob.

Robert Willett — President and Chief Executive Officer

Thank you.

Operator

Our next question comes from the line of Jacob Levinson with Melius Research. You may proceed with your question.

Jacob Levinson — Melius Research LLC. — Analyst

Good evening, everyone.

Robert Willett — President and Chief Executive Officer

Good evening.

Jacob Levinson — Melius Research LLC. — Analyst

I just wanted to touch on Life Sciences for a second, I feel like it’s a market that comes up in your calls on and off, and certainly been a lot of capital flowing into that space over time, but it doesn’t seem like maybe it’s reached the same potential for your business as you have seen in automotive or consumer electronics or logistics for that matter. Is that a market that over time you expect to see potentially having the same level of Machine Vision content in some of these other verticals?

Robert Willett — President and Chief Executive Officer

Yeah, thanks for your question. Life Sciences is definitely a market that we have had a strong interest for a number of years and we see very good potential in the longer term. It’s kind of a journey we have been on for some time, it’s also kind of a regulated industry. So sometimes when speed of penetration into that market can be slower, but then the revenue is more consistent when it arrives and maybe part of a regulatory approved product that has a 7 year to 11-year life, so those are the kind of dynamics that we see in that marketplace.

We started out the journey there really in barcode reading of things like test tubes and medical samples, and then over the years, we have migrated more into vision-type applications, and where we see a lot of value, and so that can include things like looking at color change and test tube types and data as they move through a product, the reagents may be changed to diagnosis. And then, we have also moved more into vision where we may be looking actually at medical samples and seeing what happens there.

And then more recently, we are also seeing a lot of interest in Cognex technology for different applications, one is actually looking at radiology images. We have customers that are using our Deep Learning technology to do that to help out with what lab technicians would usually do. And then we also have very interesting customers more in the position in the area of patient positioning where there may be things going on with patients in an operating theater or a diagnostic setting where our 3D vision technology is monitoring them and making sure the equipment around them is moving as they are breathing and doing other things. So we are correctly seeing what’s going on with them.

So it’s definitely an exciting area for us. It’s less than 5% of our revenue still today, but it has really great strong consistent growth dynamics. We really look at design wins at OEMs as kind of a key forward metric for us in that market. And to give you a sense of that, we had 30 new design wins last year where customers specified Cognex Vision inside their machines and they may deliver hundreds of thousands or even millions of dollars per design win once they fully come to market in a few years. So it’s a market we really like.

Jacob Levinson — Melius Research LLC. — Analyst

That’s very interesting. Just a quick follow-up, and switching gears a little bit on the balance sheet. I know you mentioned that you have got quite a better cash on hand, maybe an unusually large amount relative to even your past history. I guess, how are you thinking about what you are going to do with that cash, obviously, spent quite a bit of it on your internal product development, but I suppose as it relates to buybacks or M&A or anything like that, I mean, how should we think about that this year?

Paul Todgham — Senior Vice President of Finance and Chief Financial Officer

Yeah, sure, Jacob. This is Paul. I would say, our philosophy is relatively unchanged on this. We have had this level of cash balance before, and as we noted it was down slightly from Q3 given we were more aggressive with the stock buyback in the fourth quarter given some softness in the market. Certainly, our top priority for cash is to support our long-term growth objectives, which would include M&A, obviously after we funded our own organic opportunities which we do and still generate significant excess cash. Second from that would be then sharing our many years of success with shareholders through stock buybacks and a relatively modest, but consistent dividend that we know some shareholders appreciate. So I think those remain our priorities, being opportunistic for M&A at our size and at valuation today, I think it’s benefiting to have maybe a little more dry powder than you might otherwise.

Jacob Levinson — Melius Research LLC. — Analyst

All right. Perfect. Thank you guys. I will pass it on.

Operator

Our next question comes from the line of Joe Giordano with Cowen and Co. You may proceed with your question.

Unidentified Participant — — Analyst

Good evening, this is Michael in for Joe.

Robert Willett — President and Chief Executive Officer

Hi, Michael.

Unidentified Participant — — Analyst

Just wanted to ask you about logistics program, do you have an update here, and what is the potential for this to turn to something a little more material?

Robert Willett — President and Chief Executive Officer

Michael, are you referring to the investment we made last year and a high potential customer or is there something else you are specifically asking about with logistics?

Unidentified Participant — — Analyst

Yes, that’s right, it’s the pilot program.

Robert Willett — President and Chief Executive Officer

Yes. So, we have a roughly $300 million business in logistics now, and we have one very large customer, which you have read about, but we have other customers who I think are looking very much to adopt advanced automation to create e-commerce fulfillment back-end for their businesses, and this is kind of a common trend we see across, and I think we have all seen that in our own lives, where companies that used to be brick-and-mortar retailers, we would go visit to buy off the shelves and now we order online and it’s delivered or we pick it up in the store. So there is a major trend towards the automation of that. So we see a number of customers who are really leaning into that investment to be relevant and competitive in the e-commerce world, and we see that in different regions of the world, I should say.

One customer last year, who we think is a very substantial potential, our company, a customer of Cognex, in fact already was last year and will be again this year, really was making that transition, one from being really more of a conveyor company stocking shelves with people to one with fully automated back-end that was best-in-class, and we have been helping them do that, and we have been helping them working closely with their new and very capable engineering team to bring our technology up to scale. And I think it’s a trend we are going to see not only with this customer, but with other customers who are really leaning into that kind of investment. So that’s kind of, I would say the story of what’s going on there, and I think there are many companies around the world who I would expect to follow a similar path or who are already on that journey.

Paul Todgham — Senior Vice President of Finance and Chief Financial Officer

But I think specifically from a margin point of view, we did call out in both Q2 and Q3 that this was a drag on margin particularly in Q3 as it was a strategic investment with a high service component to do, which we were learning with the customer and making that investment. We don’t anticipate that type of issue this year, so logistics still does remain slightly dilutive to our overall growth, and as logistics grows in revenue that’s obviously a factor for which we have other factors like the growth of Deep Learning and other areas to partially offset, but we don’t anticipate making a large strategic investment on the cost side in logistics in 2020.

Unidentified Participant — — Analyst

Great. Thanks for the color. And then in terms of, you touched on the capital deployment priorities. In terms of M&A, what areas do you see most favorable in this environment?

Robert Willett — President and Chief Executive Officer

Yeah. So I think we run a kind of an ongoing and well structured process where we look at companies in our own served market. Last time, we reported out to you, which is a number of years ago. Now, we had approximately a 20% share in our market. And so we look at other players in that market as acquisition opportunities. And then we also look at technology and engineering organizations who we really like what they are doing and we think they would make good integration opportunities, they would enjoy Cognex, we would bring that technology to market and I think you only have to look at our two acquisitions in Deep Learning SUALAB and ViDi technologies that we bought over the last few years to see kind of our playbook there.

And then thirdly, we look at adjacent opportunities, markets that we are not in today, where we see companies that we could use to enter markets that we are not in or have a very small share, but think we have significant capabilities to bring. So we are constantly looking at markets evaluating their technologies and considering acquisitions, I would say, you have seen that can just tend to ebb-and-flow. I think one year we did six technology acquisitions of a small size, we acquired SUALAB, our biggest acquisition for approximately $200 million a couple of years ago. So we sort of, we will see how that progresses. But you can count on we being very active, if also very selective.

Unidentified Participant — — Analyst

Great, thank you for the color.

Operator

Our next question comes from the line of Matt Summerville with D.A. Davidson. You may proceed with your question.

Matt Summerville — D.A. Davidson & Company — Analyst

Thanks. A couple of questions. First, with respect to your unfilled backlog, can you comment on how that it’s now maybe versus what it looked like in versus pre-kind of COVID levels? And it sounds like you have been able to chip in to that a little bit, and I guess I am wondering if that maybe was a contributor to some of the upside we saw in Q4 relative to your guidance?

Paul Todgham — Senior Vice President of Finance and Chief Financial Officer

Sure, Matt. Yeah, this is Paul. A part of our beat to the guidance certainly was the supply environment was a little more favorable than we had expected and we were able to get more orders out later in the quarter than we had conservatively forecast in our guidance, knowing that in Q3, we had some unanticipated shortcomings in the supply chain as the quarter progressed. So I do think that’s a factor. Overall, our backlog did grow year-on-year from where we ended 2022 to where we ended 2021 and in most quarters, our backlog grew. So there is an element of seasonality in this business. But there has been a sort of growth as we have seen healthy business activity, as logistics grows and share of our business that does tend to come with longer times for when we fulfill those orders and convert those to revenue. So you would expect a certain element of it, and then I think it’s magnified somewhat from the supply dynamics today. But with delivery times being what they are right now, we are able to meet customer expectations pretty well and execute against both new orders and working through our backlog in Q4 and in the first quarter.

Matt Summerville — D.A. Davidson & Company — Analyst

Got it. And then maybe if you could just talk about in the automotive side of things, how much of the product going out the door today is being driven by some form shape or other around EV proliferation, whether it would be on the battery side, the auto OEM side itself versus how much product is still going into the traditional sort of business? And when you see that crossover, I guess maybe half of they where EV overtakes auto-driven revenue? Thank you.

Robert Willett — President and Chief Executive Officer

I will kick-off and I will throw it over to Paul to give you more data on this, but generally, we have seen a lot of growth in our automotive business as we referenced in our prepared remarks. And that growth is really primarily being driven by investment in EV and new vehicle development, whether it’s hybrid or EV, and then particularly battery manufacturing certainly is a very significant growth driver where there’s so much capital investment going on and Cognex Machine Vision has so much to offer that we have really seen a lot of success in that market, and we see it primarily in Asia where the major EV technology companies are. So certainly we see that. Then it becomes a little bit difficult to quantify because it’s like, when people say how big is your EV business, is the hybrid business part of our EV business or not, and our especially designed tires for EV cars that are more efficient, is that part of our EV business or not, it’s becoming a little blurred, but I think certainly, it’s becoming more and more significant and a big driver of the growth. While the internal combustion engine type business, the sort of more legacy business that we used to do certainly is growing much more slowly if even growing at all.

Paul Todgham — Senior Vice President of Finance and Chief Financial Officer

Yeah, I just, I would add to that, I think Rob got it. But stuff that we can specifically attribute to EV is well under 50% of our business today, but I do think 2021 was a bit of a turning point for us, whereas in 2019 and 2020 EV was sort of a bright spot, but unable to move the needle in a declining industry revenue profile overall, and this year in 2021, automotive grew faster than our overall revenue growth, far in excess of our kind of 10% long run target for growth in automotive, and EV really was the biggest driver of that both kind of specific investment in battery manufacturing and other areas as Rob noted. And then just second order effects of more models coming out, bigger changes to automotive than driving which are precipitated by launch of more hybrid and EV vehicles, but then driving automotive projects in areas like tires or car seats or areas where it’s harder to specifically attribute to the engine.

Matt Summerville — D.A. Davidson & Company — Analyst

Understood. Thank you guys for the color.

Operator

Our next question comes from the line of Jim Ricchiuti with Needham & Co. You may proceed with your question.

Jim Ricchiuti — Needham & Company — Analyst

Hi, thanks. Maybe just a follow-up to the discussion on automotive. You had a good year in ’21 clearly. What’s your line of sight in terms of growth for ’22, and I know you don’t guide by market vertical, but just in general based on what you are seeing, how do you view the opportunity in automotive for this year?

Robert Willett — President and Chief Executive Officer

Yeah, I would say, we are relatively positive about the outlook for automotive this year. I think we see continued strong investment in EV battery, tight manufacturing activities, we could consider to see that scale and grow. I think where it’s a little less clear is on sort of more established automotive businesses in America and Europe, which has been a substantial part of our business and it’s difficult as we are just getting off to the start of the year to really call the situation there, but we are seeing less activity, I would say in that area. And is that really a short-term phenomenon around chip shortages and COVID and slow start to the year or is it something more endemic, I guess for the full year. So again Jim, you are right, we don’t give full outlook. There’s plenty of good stuff going on, but there’s also kind of what does that legacy tail of business look like going forward.

Jim Ricchiuti — Needham & Company — Analyst

Got it. And then a follow-up question, just as it relates to, you mentioned a number of new Deep Learning products. And I think as I recall you were anticipating very strong growth, maybe a doubling last year. It’s a small part of your business, I understand, but just in general, did that meet your expectations, you, I think talked about the D900 being a strong start for our new product. I am just wondering as we think about this opportunity in 2022, how do you view that and which markets are you getting the most traction?

Robert Willett — President and Chief Executive Officer

I think our In-Sight D900 Deep Learning enabled smart camera was definitely a bright spot for us. This is great powerful technology that we saw very well adopted in particularly our European and American markets, and we launched the updated version of that with what we call Edge Learning tools, which are much more easily, easily used and trained and we are very excited about that business, as our customers are very excited about that product. The other sort of part of the business is in a much more sophisticated Deep Learning software that requires a lot of programing skill and capability that runs in more in the Vision software PC type environment and that tends to be the business that’s more in Asia and in very large sophisticated manufacturers of electronics and other products. And there, we are making good progress.

But I would say some of the implementation has been a little slower than we would like, partly because of just travel restrictions and other things where it’s been more difficult to provide hands-on support. And maybe just the speed with which this sophisticated technology is getting adopted. So we see a lot of opportunity, and we see both parts of that, both wheels, if you like, the smart camera and the Vision software, a part of it providing growth in the long-term, but we will have to sort of see how those play out over time. And that’s I have no doubt it will be very positive. The question is, at what pace and what the impact is on this year.

Jim Ricchiuti — Needham & Company — Analyst

Would you say that you talked about logistics being in the past a 50% growth business and maybe it’s not quite that this year, but is the portfolio of products in Deep Learning, is that your expectation that that has the potential to be 50%-plus for the next couple of years?

Robert Willett — President and Chief Executive Officer

Yeah, I don’t think we give specific guidance and I think the other thing that’s kind of becomes more interesting and it’s a bit slightly like the EV discussion is in the end, I think these Deep Learning tools are so powerful and so pervasive that they are going to become almost everywhere. I referenced some new technologies that we launched in my prepared remarks, and I said, we have got and rules based vision, Jim, technology you understand very well and Deep Learning kind of new trainable, if you like, self programing technology that are running side by side now. And I think we are going to see that more and more, but we certainly see, we are really excited about our Deep Learning technology and the growth potential, but I don’t think it’s going to be so clearly separable as we move forward from everything we do.

Jim Ricchiuti — Needham & Company — Analyst

Yeah, that makes sense. Thank you.

Operator

Our next question comes from the line of Andrew Buscaglia with Berenberg. You may proceed with your question.

Andrew Buscaglia — Berenberg Capital Markets — Analyst

Hey guys. I wanted to touch on consumer electronics one more time. Just in the sense that, I know you have talked in the past about AR, VR and Kind of wearables and some things like that being kind of like were areas you will see some growth, but can you comment on, are volume there big enough to really drive that segment? And then secondly how dependent are you on really just changes in form factors for handsets in order to see consumer electronics grow substantially?

Robert Willett — President and Chief Executive Officer

Yeah. Thanks, Andrew. I think the dynamics in that market are those we have talked about on a number of occasions, and what we see is, there are always many technologies and changes in the roadmaps of our large customers who we work very closely with. And as we move through kind of the season, if you like of standing up new models and launching them normally later in the year, some of those technologies come in and some of them are kicked out for a later year, right? So that can sometimes change what happens or similarly with form factors. We have been at this intensively since about 2014, and we have seen years where form factors and perhaps even more importantly, the material that’s used, whether it’s metal or glass or other technologies can have impacts and then screens and other things also can drive growth. So I think that’s one thing. It’s not necessarily handset form factors, it can be a number of aspects.

Then you get to, you talked about perhaps augmented reality and other technologies coming. I mean, I think historically, if we look back at smart watches coming into the market or the tablets or other things that we have seen over time, new screens, I think generally those tend to be things that are start to be adopted and then we see substantial growth in a few years, I would say. So I wouldn’t expect those things to radically move the needle if we haven’t seen them already in the market in the last few years.

Paul Todgham — Senior Vice President of Finance and Chief Financial Officer

Yeah, individually, they are fairly small. Collectively, they can be everything, but smartphone can be meaningful and certainly very meaningful to growth. The other thing that I know I have shared in certain conversations, not necessarily at an earnings call is some of it would be application of Deep Learning technology to consumer electronics, particularly in the area of of visual inspection, there is just such an existing opportunity of a lot of work being done by humans and hard-to-staff and not being done particularly well, where we believe our technology can solve that problem better, and we are still in development phases of that, but we view that as a meaningful growth driver that would allow us to grow in excess of the market without requiring major technology changes or introduction of new products. And again, I am not sure whether that unlike to be material in 2022, but I think is a good driver for us for growth in the years ahead.

Andrew Buscaglia — Berenberg Capital Markets — Analyst

Yeah, okay, interesting. Yeah, kind of along those lines, how you ended of the question, around 3D vision has come up a bit, even on the call just how you guys are introducing new products. We think it’s going really well. But there is a really big market share leader there, and I am wondering, I guess, what is your strategy to compete with someone like that is already pretty established? Yeah, just wondering how do you intend to make headway in that market, if you got such a dominant player there?

Robert Willett — President and Chief Executive Officer

Yeah, no, it’s a great question, and I think we have kind of three different product areas in 3D that where we are making significant headway. The first is the 3D-L4000 product that we launched last year, which is really, it’s a true smart camera version of 3D that’s very easy to use with outstanding optics, and it’s I would view all the existing 3D technologies that we see in this kind of line displacement area, particularly from their market leader in the space that you are referring to, tend to have a separate controller and a separate head and require a lot more programing than does our new product range.

So ease of use is kind of key in that market and our product has really, it’s programmed as one would program an In-Sight, which is the world’s best selling smart camera made by Cognex and if you can use one of those, you can easily use the In-Sight 3D-L4000. So that’s kind of we think a lot of horsepower and usability we are bringing to that space. And there is a theme, I would say in general in Vision, which is, it’s very difficult for sophisticated technology, but it’s becoming easier-to-use, less expensive, smaller, more easily integratable and those are trends that I think will move all markets that we are in over time. And certainly that applies to 3D.

The second products that where we are seeing a lot of traction is our area scan product, the 3D-A5000, so that projects a pattern of light and moves it and creates it, rather than having to move the product, it can be over a large stationary area and it’s very fast and very precise, and it’s recognized by customers as really the best image acquisition tool for those types of applications, which often can include things like structured robot in picking, so where generally we know what we are looking for. It’s not random, and we know what we are looking for, it’s not random sample. So that’s a market that has been around for a while and we are definitely seeing traction in that space.

And then the third area is our 3D-A1000 platform, which is a higher speed, moving objects area technology also where we project to pattern and look at moving products, you might think of like a video game in your house where it’s watching you move around, if you are familiar with that technology. And we are seeing a lot of traction particularly in the logistics space where our logistics customers want to know what’s the size and position of products moving, not with great precision, but certainly cost effectively and were superior to kind of all the other products are in the market today for that. So I think we’re going kind of quite hard at 3D Vision, You are right, there is a big share leader specifically kind of in that more automation space where we are chipping away, I think at that position, but we see other and faster growing market opportunities beyond where they are. The final thing to say is, in the end Cognex’s advantage so often is about having just the best and the most vision tools and certainly really, and I don’t think there’s any doubt in the marketplace that we have the best vision tools and certainly the best 3D vision tools that can allow customers to do things that generally they can’t with any of our competitors.

Andrew Buscaglia — Berenberg Capital Markets — Analyst

Okay. That’s great. Thanks for the answer.

Operator

Our next question comes from the line of Markus Mittermaier with UBS. You may proceed with your question.

Markus Mittermaier — UBS Securities — Analyst

Hi, good evening, everyone. I wanted to come back, if I could, to the outperformance of the guide you mentioned that it was primarily better supply chain availability later in the quarter, is that related to having qualified new suppliers or better broker availability? I am just wondering how sustainable that is into 2022. And then, is there a way to kind of help us quantify where delivery times now stand versus maybe peak pad and versus normal delivery times? That would be helpful. Thank you.

Robert Willett — President and Chief Executive Officer

I am sure, yeah. So I think we really started seeing a lot of supply chain challenges sort of at the summer as we move through the summer, and we have been working very hard, I would say, and at very senior levels in the company to kind of manage our supply chain to improve. And I think as we came through the back end of the year, we really saw traction on that as we got really engaged our suppliers intensely, and also really invested to get to particularly short supply chips kind of into the business and available. And you can see, if you look at our inventory, we certainly built a lot of inventory over that period to make us more robust as we move through the year. I think we know, we are pretty aware that the chip supply situation is very challenging and not getting measurably better, at least not for a little while here, and I think we positioned ourselves appropriately for that, and I think you can see some of that coming through in the fourth quarter, it’s going to help us again, I think in terms of what we are seeing now as our lead times on most of our major products are getting much shorter and it’s becoming a competitive advantage for us, which we can use to win share in the market, because that’s not the case necessarily broadly across our competitive set. So that’s kind of I think where we see things playing out.

Markus Mittermaier — UBS Securities — Analyst

Great, that’s helpful. And then maybe one on logistics, you mentioned in your prepared remarks that you are going from customized to standardized. I wondered what sort of the ultimate goal that you have in mind here between direct and indirect and some of these integrator partners to what extent is that exclusive and how do you think about that strategy here sort of medium term between direct and indirect?

Robert Willett — President and Chief Executive Officer

Yes, I think, we think of ourselves having direct relationships with our customers in logistics, almost all of them, right? So that’s kind of our model. But then in logistics, we are selling great technology that has to be installed onto lines and commissioned, and there is a fair amount of kind of application engineering and start-up engineering required in that market. We have some very sophisticated integrators, we have worked with for many years, who do that extremely well with us, so we may sell to the end user itself and they will come in and perform some of that integration or in some cases they may take the product directly. But in other cases, what we are doing is, we are bringing in logistics, integrators and installers who will help stand up the lines and do some of the more regular but important servicing of the customer in commissioning the product. So as we do less of that work ourselves and we develop as we are doing very well, these partners to do it for us though there we would expect our margins to improve and us to be able to scale more, but generally we are having relationships directly with the customer. invariably, and we understand that relationship and that’s important to us.

Paul Todgham — Senior Vice President of Finance and Chief Financial Officer

And markets, it’s similar to the playbook we use for consumer electronics, where our customer relationships with the end customer are strong as ever and we focus on what we do best and allow partners to take parts of the business that would be potentially a bit of a distraction and also margin dilutive for us, and we focus on what we do best, and that’s what we are executing for logistics, but it isn’t as Rob said, it isn’t a risk of losing the customer relationship.

Markus Mittermaier — UBS Securities — Analyst

That’s very helpful. Thanks so much, and good luck.

Operator

Our next question comes from the line of Jairam Nathan with Daiwa Securities. You may proceed with your question.

Jairam Nathan — Daiwa Capital Markets — Analyst

Hi, thanks for taking my question. So, I have two questions, one short-term and one long-term. So in terms of the quarterly cadence, given that you are delivering revenue out of the backlog, should we, typically first quarter is I am guessing that it used to be the weakest quarter, and then you kind of see a strong 2Q and 3Q. Now, given this condition, do you expect a different cadence in 2022?

Paul Todgham — Senior Vice President of Finance and Chief Financial Officer

Yeah, I mean, Jairam, we are not obviously not giving full year guidance, but I think we are not expecting to grow as fast as we did in 2021, right? I mean, we would love to do better than expectations, but we are seeing given the overall environment certain supply chain challenges and others that we are seeing. And at this point, it’s a bit early to call the quarterly cadence. We will certainly share more about consumer electronics, but as you have just sort of starting to do your work, I would think that 2021 is as good a guide as any, and for what we know so far.

Jairam Nathan — Daiwa Capital Markets — Analyst

Okay, good. That’s helpful. And in terms of logistics. I think, you know I think one of the question I always get is with automotive and consumer electronics, you guys get the opportunity to raise or to kind of an upgrade opportunity right when the companies, your customers upgrade their products or come out with new products, I think we haven’t — like how should we think of logistics in that sense, I understand that we don’t probably — growth will be very strong, we are still in early stages of that growth. But beyond that, how should we think of logistics as how do you sell an upgrade up to a warehouse?

Robert Willett — President and Chief Executive Officer

Yeah, I would think of it as being pretty similar. In general, the products in the technology have a life. There are lots of demands for higher throughput and upgrading of automation equipment within the distribution center or in the further down the supply chain where we play. So it’s certainly, certainly that. think, we are also kind of in an interesting world right now though where e-commerce is still kind of growing quickly and more and more players are entering in and third-party logistics players are starting to become big players also.

And then sort of I would say, an initial wave of investment as they are building out those capabilities, and so it will be interesting to see after that wave, then we get more into a cadence of replacement. But I would expect in a few years we will be having discussion about the cadence of that replacement and how many years it is. And then at the same time, we will be doing more and more challenging and value-added applications for them as the industry becomes more sophisticated. So, but I think probably automotive or factory automation is probably a good kind of guide for how that might all play out.

Jairam Nathan — Daiwa Capital Markets — Analyst

Okay, great. Thank you.

Operator

Our next question comes from the line of Bobby Eubank with Chevy Chase Trust. You may proceed with your question.

Bobby Eubank — Chevy Chase Trust — Analyst

Hello. Congrats on the quarter. Couple of questions here, but Paul, maybe this one is for you. If I look at your forward valuation relative to kind of your legacy largest customer, your consumer electronics customer, you are kind of the cheapest you have ever looked relative, and how do you think about the buyback as this market continues with growth stock following all, at what point would you consider kind of using that balance sheet? That would be my first question. Thanks.

Paul Todgham — Senior Vice President of Finance and Chief Financial Officer

Yeah, sure, Bobby. I mean I think we have and we will continue to do so. I mean, we are conservative, and we are happy to have a good amount of cash on our balance sheet. But after our last earnings call, our stock did take a hit. And then the market has been relatively soft and it’s no surprise that we just told you that Q4 was the largest quarter we had ever had in stock buyback activity, and going into 2021, we expect to be doing a mix of regular ongoing purchases through just a ratable plan and as well as opportunistic when we feel there is opportunity. So yeah, I mean, I think we have the potential, but fundamentally as a growth technology company, we are not trying to change the stock price to buyback activities. We want to make sure we are offsetting our dilution from our equity programs, and when the opportunity presents itself to do more than that or to get ahead of that dilution, we will take the opportunity to do so.

Bobby Eubank — Chevy Chase Trust — Analyst

And you guys have been, have a good track record with being opportunistic better, so I commend you on that. Can I just kind of talk about what strategy and competitive positioning, large customer in logistics, how do you feel about that relationship going forward, some of the comments they have made? And then what other areas are you seeing kind of accelerate. Do you think on the back of COVID, things like protein would be rapid accelerate in automation. Are you guys starting to see some of those dollars flow yet or is the supply chain still holding back some of the maybe legacy industries that need to automate and they just haven’t been able to get the parts they want? Thanks.

Paul Todgham — Senior Vice President of Finance and Chief Financial Officer

Can I just quickly ask to clarifying I didn’t think I heard, was it protein or what was the word you said that?

Bobby Eubank — Chevy Chase Trust — Analyst

Yes, as an example. Some of the protein companies or food and beverage in America, and some of the challenges.

Robert Willett — President and Chief Executive Officer

Got it, okay. Yeah. Well, something just great about being at Cognex and being the leader in Machine Vision as you see new applications all the time and some of them you have seen for many, many years and suddenly they start to get traction as the automation capabilities of companies develop and as our technology becomes easier and better to use. So that’s always interesting, and we are always, we really talked about the implementation of some of our CRM systems and we are getting better at understanding and kind of where those opportunities are and spending time with those customers.

You asked about our largest customer, generally, we don’t talk specifically about customers over the long-term, but there is, we have certainly seen substantial growth with that customer and we see more opportunities certainly there, and perhaps more generally within logistics overall. I think a great thing about Cognex is we do partner with the most sophisticated players in the world in automation and discrete manufacturing, and so, often the technology and the relationships we develop there bleed out into the rest of the industry and we see the potential for that going on too.

Paul Todgham — Senior Vice President of Finance and Chief Financial Officer

Your comment on protein reminds me and all of us here on the East Coast that it’s awfully close to dinnertime. I think we are coming to near the end.

Bobby Eubank — Chevy Chase Trust — Analyst

Thanks a lot guys.

Operator

We have reached the top of the hour. I would like to turn this call back over to Mr. Rob Willett for closing remarks.

Robert Willett — President and Chief Executive Officer

Thank you. Thank you for joining us tonight. We look forward to speaking with you again on next quarter’s call. Good night.

Operator

[Operator Closing Remarks]