Richard Morin - Chief Financial Officer Robert Shillman - Chairman Robert Willett - President and Chief Executive Officer.

Bobby Burleson - Canaccord Genuity Inc. Jim Ricchiuti - Needham & Company Jeremie Capron - CLSA Americas Richard Eastman - Robert W. Baird & Co. Inc. Holden Lewis - Oppenheimer & Co., Inc. Tom Hayes - Northcoast Research.

Good day, ladies and gentlemen, and welcome to the Cognex Second Quarter 2015 Earnings Call. At this time, all participants will be in a listen-only mode, but later, there will be a chance to ask questions and instructions will be given at that time. [Operator Instructions] And as a reminder, today's conference is being recorded.

And now, I would like to turn it over to your host, Chief Financial Officer, Dick Morin..

Thank you, and good evening, everyone. Earlier today, we issued a news release announcing Cognex's earnings for the second quarter of 2015, 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 the company's income statement as reported under GAAP in Exhibit 1 of the earnings release and a reconciliation of certain items in the income statement from GAAP to non-GAAP in Exhibit 2.

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..

Yes, thanks, Dick, and hello everyone. I would like to welcome you to our second quarter conference call for 2015. Now if someone was asked me to summarize the press release in two words they would be wow and ouch. And I am going to deal with the wow part and I am going to leave the tough part - ouch part to Rob Willett.

Here we go the three months since our last earnings call have been particularly active with several key developments at Cognex that you will hear more about from Rob, but here are the highlights. We reported outstanding results for Q2 2015 we successfully completed the sale of our Surface Inspection Systems Division.

We introduced important new products and software tools for both our In-Sight and DataMan product lines and we resolved our ongoing patent disputes with Microscan.

The details of the quarter and those recent developments I’m going to hand the microphone over to my partner Rob Willett, our President and CEO and I'll be available at the end of the call to answer any easy questions that you may have for me, give that tough ones to Rob. The microphone is yours Rob..

Okay. Thank you, Dr. Bob. Good evening everyone. So I'd like to first discuss the sale of our Surface Inspection Systems Division or SISD as we call it, which marks an important step for Cognex. SISD is a well-managed profitable business that generated $60 million of revenue in 2014 or 12% of our consolidated total.

We’re pleased that it was part of our company, but we also recognize that it was not a good long-term fit. Our strategic initiatives are centered on Vision and ID products for discrete manufacturing, where we see substantially stronger growth potential and operating margin leverage than in Surface Inspection.

The sale of SISD will allow us to concentrate exclusively on our core business. Because of this sale, our shareholders will see a change in the landscape of our income statement with SISD's financial results now being reported as a discontinued operation.

You can assume that any comments we make about our business during tonight’s call and in future discussions are based upon the results of our continuing operations unless we say otherwise. Now, let's turn to our second quarter financial results. I am pleased that we set new second quarter records for revenue, net income and earnings per share.

They were also the second highest quarterly results we have ever reported. Revenue was $144 million for Q2 representing significant growth both year-on-year and sequentially, where we to includes Surface Inspection revenue the total would have been $155 million and in line with our guidance for the quarter.

This strong performance which came despite a negative impact from currency exchange rates was the result of our ability to deliver on some larger opportunities. Gross margin was strong at 79% an increase from 78% in the prior quarter due to the higher volume in Q2.

Looking year-on-year, gross margin decreased from 80% due to new product introduction costs which offset cost reductions, volume purchasing and manufacturing efficiencies. Operating margin expanded to 36% from 28% in the second quarter of 2014 and 22% in the prior quarter.

The significant increase reflects the substantial leverage that incremental revenue has on our business model. Earnings per share from continuing operations for Q2 were $0.49 compared to $0.25 reported for last years second quarter. With the sale of SISD, we now sell into two markets.

The larger and faster growing market is factory automation; the other is the semiconductor and electronics capital equipment market or semi. Revenue from factory automation was $137 million in Q2 and accounted for 95% of total revenue.

Factory automation grew 63% year-on-year and 44% on a sequential basis due in large part to substantial revenue from the consumer electronics industry. On a constant currency basis factory automation would have grown 72% year-on-year and 46% sequentially.

Looking at factory automation year-on-year from a geographic perspective Europe was our best performing region reporting a largest increase in both percentage growth and absolute dollars. Growth in consumer electronics along with a range of other industries drove the factory automation revenue increase from Europe.

We had another strong quarter in Asia excluding Japan where factory automation revenue grew in a high teens over Q2 of 2014. Demand was particularly strong in greater China, where customers are increasingly using machine vision in their manufacturing processes.

Factory automation revenue from the Americas increased modestly over the second quarter of 2014 spending by manufacturers in the Americas have slowed and we have experienced delays in closing some large projects. And in Japan, revenue from the factory automation market continued to be negatively impacted by the weaker yen.

Our revenue from this region declined year-over-year on a reported basis, but grew high single-digits in constant currency. Revenue from the semiconductor and electronics capital equipment market was $6.7 million in the second quarter or 5% of total revenue. This level represents a decrease of 16% year-over-year, but an increase of 4% over Q1.

Our expectations for this market continued to be low. Moving on to new product development, we are pleased with the productivity and innovation of Cognex engineering. We’d like to draw your attention to two very important product launches during the second quarter there we enforce our market leadership.

We added three, 5 megapixel models to our In-Sight series to vision systems providing higher resolution at extremely fast acquisitions speed for demanding vision applications. All models include Cognex is powerful new PatMax RedLine pattern matching tool, which sets the new industry standard for finding objects.

Importantly PatMax RedLine continues Cognex's leadership in vision algorithms for patent matching which is the critical first step in most vision tasks. We also launched our next-generation DataMan series fixed-mount readers.

Our new DataMan 150, 260, and 360 high-performance readers run the latest Cognex software to achieve the highest possible read/writes. They make us increasingly competitive in the fixed-mount barcode reading market. In regard to our investments, operating expenses in Q2 increased by $4.6 million or 8% on a sequential basis.

Our growth initiatives represented the majority of this increase. We spent more on engineering headcount, outside services the materials for new product development and sales and marketing initiatives. There were also incremental cost of approximately $3.7 million related to the resolution of our patent disputes with Microscan.

We are pleased to have the distraction of this litigation behind us. Turning to our guidance for Q3 revenue is expected to be between $106 million and $109 million. Unfortunately that range is below current Wall Street expectations as well as below the results we reported to date for Q2 and the record results we’ve reported for last years Q3.

Factory automations typically soft during Q3 and in addition to that our near-term outlook has become more cautious for several reasons. The timing of large customer projects is causing fluctuations in our quarterly results, some large orders that we expected this year have been delayed until 2016.

Growth in the Americas is much lower than we expected as non-automotive manufacturers pullback spending for a number of reasons including the strong U.S. dollar, macroeconomic uncertainty and company specific situations and currency exchange rates remain a concern.

Gross margin is expected to be in the mid-70% range slightly lower than the level reported to date for Q2 because it will include a higher proportion of service revenue. Operating expenses are expected to decrease by approximately 5% for Q2.

We’ll see lower expenses related to the Microscan resolution and savings from employees using accrued vacation time during the summer months.

The effective tax rate for continuing operations is expected to be 17.5% excluding discrete tax items and we will report a pretax gain of approximately $125 million in Q3 related to the sale of our Surface Inspection Systems Division net asset to Ametek. Now, let’s open up the call for your questions. Operator, we are ready to take questions..

[Operator Instructions] So our first is from Bobby Burleson from Canaccord. Bobby, your line is open..

Hey guys, thanks for taking the question..

Hey Bobby..

So, just a couple of quick ones on the large order commentary. So it sounds like 2015 is a no-go for additional large orders.

Curious when you mentioned 2016 whether or not there are specific plans or facilities where you expected to deploy to this year that are being delayed to 2016? Or if this is sort of a broader kind of delay with more uncertainty to it? Or is it simply a question of timing of projects that you know to be in the works?.

Yes, thanks. Bobby, I would comment as follows I think in July we store a large customers in consumer electronics and logistics doing a number of things, which is resulted in bookings that we expected in revenue, we expected to see in the second half.

Mostly getting pushed out as far as we can see into 2016, of course you don’t have an order until you have an order right.

So I don't want to say its definitely coming in 2016, but here's what we did observe some of our customers in consumer electronics for instance have their own product roadmaps and decisions they make about products and when they are coming may have changed.

That can be one reason in some cases I have engineering resources that they have a limited time to deploy before the high season of Christmas and Chinese New Year and they may have run out of resources in order to implement some of the automation projects that they had in mind.

And that applies both the consumer electronics and also to logistics where and those are the two areas where we see the larger business for us. And that’s something we saw across a few customers with whom we expect to do significant business in the second half..

Thanks for that clarification or additional color.

I just wanted to also follow up on what you're seeing for demand or your thoughts around demand for your core factory automation business and IT products, what you think those growth rates look like long-term, if any change?.

Yes, I would say there is no change in the long-term perspective we have, we expect to have factory automation business to grow 20% over the next 3 years to 5 years, but not necessarily in each year or in each quarter. Growth in Q2 and last year was well above that 20% long-term target.

If we peel back to vision and ID as you asked we expect our ID business to grow in excess of that we target 30% last year we were in excess of that, but over the last three years we've met or exceeded both of those targets and we would expect to do that in the next three years as well..

Okay and just one quick one, additional one, if I might. On the competitive environment it sounds like you guys had some critical advantages to your technology versus the competition when you won the large orders that you've shipped thus far especially in consumer electronics.

And I'm wondering whether or not you think that that competitive advantage will be maintained or will extend into 2016 from what you can see?.

Yes, I do Cognex has significant technology and competitive advantage whether it's in the larger if you are talking about consumer electronics and logistics in many cases we have launched new technologies as I referred to such as PatMax RedLine and the new DataMan series of products that we think extends that lead over our competitors.

In some cases like logistics we’re entering new markets somewhere bringing significantly better technology to bear against more entrenched and slower moving incumbent and in markets like consumer electronics. We really have one significant competitor in that space than we think we’re certainly out innovating them in terms of all product technology..

Great, thanks for taking my questions..

Thanks..

Okay thank you. So our next question comes from Jim Ricchiuti from Needham & Company. Jim, your line is open..

Thanks good afternoon. Just with respect to Q3, it sounds like you're suggesting that revenues are going to be above the Q1 levels.

Can you help us understand if Q1 had a large component of logistics revenue?.

Okay. I think generally speaking Jim, no there is not significant difference between the amounts of large logistics revenue we would expect to see in Q1 or Q3 no that's not going to be a major difference. I mean so you might ask kind of why is Q3 going to be higher than Q1 traditionally it often is Q1 is our slowest quarter.

In Q3, we do have some additional service revenue that we're expecting to report as a result of supporting some of the larger deployments that we made in Q2, and that’s also resulting in some slight dilution to gross margin that you might have picked up in my prepared comments..

Okay, that's helpful, Rob. And you talk about the weakening that you've seen in the Americas. I wonder if you can comment or characterize the business in China may be ex some of the large consumer electronics business. But just in general, just given the macro concerns there.

What are you seeing in China and do you see some risks going forward in that market?.

Okay.

Jim, so your question is what do we see in China and what kind of risks do we perceive, right?.

Yes..

Yes. Okay, so we obviously well aware of the kind of that the news out of China and out of manufacturing there. And today we haven't seen a slowdown in our growth in China, and we’re having a very good year in China and we’re also conscious of what we are reading.

Our business in China tends to be driven a lot by consumer electronics and the electronic components and both of those businesses are doing very well. Automotive is a big part of Cognex's business generally less proportionately in China, we’re certainly aware, so I’m sure you are about overcapacity in Chinese automotive.

But again we really haven't seen as yet a slowdown in our business in China. I mean I would say we think of China as a really great long-term growth driver for Cognex we’re seeing that for the last five years.

We are seeing that still currently and there maybe some bumps in the road, but we definitely think about rising labor costs there efforts to automate highly intensive, highly human resource intensive our manufacturing processes as opportunities that are going to continue to drive Cognex’s growth over the long-term in China.

As for the short-term, I really probably can't comment anymore than you can on what to expect there. .

Okay, thanks very much..

Thank you. So we’ll take our next question from Jeremie Capron from CLSA. Jeremie your line is open..

Thanks and good evening. I wanted to ask about the sale of surface inspection business. I wonder, Rob, if you could elaborate a little bit more in terms of the rationale behind the sale and the stand that you want to focus resources on the faster growing piece of the business here.

But just trying to understand how you think about the dilution to earnings and also to ask about the process for this sale. My understanding is there was not an auction. So, if you could give us more color here that would be greatly appreciated..

Sure. Jeremie, hi. Okay, so your questions are really about the rationale for our divesting the division and a little bit about the process.

I’ll start with the process, now we hired an investment bank, we run a process, we had a lot of interest, we had many bidders and got into a competitive auction and we're happy with the company we went forward with and they were – I think they were strong acquirer.

I think and I also think they'll make an excellent home for our Surface Vision and be interested into invest in that business in a way that we were less so.

The rationale to speak to that for a minute I think at Cognex we love high-quality businesses and which we define as high gross margin and high growth and where we really see that and huge potential for that in the discrete manufacturing space. So we’re happy and confident about focusing on our efforts and resources in that space.

Surface Inspection was a very separate business for us really separate technology with the selling line scan systems that were very large in scale and they’re very kind of computer processing intensive that gross margins were in the low-to-mid 50% range.

So contrast that to the rest of our business, our factory automation business where we make very high gross margins as you’ve seen the products are small, you can hold them in your hand, that have a lot of technology in them in the selling into markets that have very, very significant growth potential.

So they are really very, very different we would run those businesses separately knowing that a day like this might come and we thought this was a good time to divest.

In terms of what we’re doing with the proceeds and well I think I’ll ask Dick to comment on that in a moment, but we have significant cash of Cognex and don’t apologize for having that cash we think that’s the sign of being a successful business.

That said, that our priorities for our cash continue to be acquisitions number one, but as you know we’re very selective about acquisitions.

We maybe surprise some of you with divesting certain division and I think maybe one-day we’ll surprise you with a significant acquisition, but I don’t have anything on the table or large to report in the near-term on that score.

Our second priority for cash is stock buybacks and in that case that you’ve seen that we’ve authorized an additional; the board of Cognex’s authorized an additional $100 million stock buyback. We do that to offset dilution from options, but we’re also authorized regard to make acquisitions of stock opportunistically which we are always considering.

And third, we have the dividend and you can see that we continue to pay the dividend. So I think that's the picture..

Okay, great. And going back to the outlook for the remainder of the year. I think if we strip out the large project from a year ago and obviously, Surface inspection, I think you're looking at a growth rate for the top line around 20% plus.

So it's a bit of a deceleration compared to the first half of the year and I'm wondering if you expect that trend to continue into the rest of the year.

Are you looking at a deceleration in your core markets?.

Okay, Jeremie I think so we’ve reported some great growth in the first half of the year and I think we’re saying we’re going to obviously not grow in Q3 right, we had very high rate of growth last year in Q3 which included some very significant revenue from a large customer that you’ve seen.

I think if I'm to comment about growth in the second half of the year and for the year in general, actually for the year in general we do expect Cognex to grow even given the currency headwind that we see.

We don't expect ourselves to grow at that 20% growth rate that we set as our long-term target just to be clear if you misunderstood me of saying that. That’s not what I'm saying over the next three years as in the last three years we are targeting that 20% growth rate for factory automation and we believe that’s achievable..

Okay, that's very clear. And last one for me, regarding the share repurchase. You have a new authorization, $100 million. What kind of pace should we expect and you've been in the market buying back share for some time.

Should we expect a step up in terms of the pace here?.

We do it ratably quarter-by-quarter, during the first quarter of this year and into most of the second quarter we were unable to buyback any shares due to the fact we are in a self-imposed blackout period due to the fact that we were pursuing the sale of SIST and that was material non-public information.

So you can expect that a level of purchases in the second half of the year will be in excess of what we did in the first half of the year..

All right. Thanks very much..

Okay, thank you. So we’ll take our next question from Rick Eastman from Robert W. Baird. Rick, your line is open..

Yes, good afternoon..

Hi, Rick..

Thank you. Rob, can I ask - can I ask you - you had mentioned earlier, I think the reference was maybe in the first question but in July some of the larger customers both you mentioned consumer electronics as well as logistics kind of deferred some business out to 2016. And I'm curious.

Is the logistics commentary there more specific to the U.S.?.

So about our logistics business Rick, we’re seeing a lot of great growth in Europe, so when we haven't seen any deferrals going on of any significance there and really we have those phenomenon more in the U.S. yes. And then we think of logistics as being e-commerce, retail and postal and parcel.

And I would say we've seen in the e-commerce area yes we've seen customers deferring orders significant orders for Cognex in that space. And that has sometimes to do with their own internal priorities and to do with the engineering capacity to implement what they want to do in advance that the kind of Christmas rush season.

And but also in postal you know we’ve seen and not just for us we’ve seen with other companies in our space and even our competitors business with large postal and parcel providers in the Americas getting pushed out. For what appear in that case to be more financially driven reasons..

I see. And then I can let me just follow on with the consumer electronics reference.

Obviously, we had a good second quarter which would be consistent but the consumer electronics slowdown would impact your Europe revenue in the second half, is that fair?.

Partly. Yes we have consumer electronics revenue in all regions but certainly last year a lot of it I was reported in Europe..

Yes, I understand. And would you be willing to maybe just comment on what your large order revenue -- or range it out maybe for the second quarter? Again I know you don't really define large orders but just the reference to deferrals going forward.

Is there just a revenue number that you could give us a feel for, for the second quarter?.

We can't do that Rick based on the kind of confidentiality arrangements we have with customers very sensitive area, but if we do have I think you get a better picture over that if you can wait until you see our 10-K coming out next year..

Okay, no, I understand. And then maybe also for Dick, the 17.5% exclusive of - tax rate, I'm sorry, exclusive of SISD.

That's as good a guess going forward as - sustainable guess, going forward without SISD?.

Yes, that’s our best estimate right now excluding SISD as we mentioned in the past all of SISD’s revenues and profits were essentially tax in the U.S..

Okay. And then just a last question and maybe if Dr. Bob is on the call still. I was curious, you know, this kind of emerging advanced driver assistance kind of optics or Vision Systems - they referenced it as ADAS. I'm curious we have not historically had interest in that market.

I think at one point we bought that lane departure business but we sold that. But I'm curious, is our interest any greater in that space and if not why is it not interesting? It seems like a big space and it seems like it could use somewhat similar technology and similar optics.

Can you comment on that?.

Sure I'd be happy to. We also felt and this was I don’t know five, seven years ago, seven years ago or more that this would be a great opportunity for machine vision and the kinds of technology that Cognex is known to be able to develop.

We did as you recall enter the business through an acquisition of a small company from Carnegie Mellon, that's been out from Carnegie Mellon, called AssistWare.

But we soon discovered that the business opportunity, the channel to that market, was very complex we couldn't sell directly to the car manufacturers but had to go through a first or second tier supplier. We also felt that it was far too soon the technology was fully mature and not developed nearly enough.

Although it could detect it could keep a car within lane that you need far more than that.

So based on that at that time, we decided to exit that business I think that's the only example other than SISD recently where we bought a company and soon after two or three years later after realizing the difficulty of making money in that business that we got out of it.

Now, times have changed and everyone knows about the Google cars nevertheless to guide a car without an operator has not only immense technical complexity, which requires a fusion of technologies a machine vision, radar, sonar and GPS.

But in addition to the enormous technical difficulty are the legal difficulties of whose is going to be responsible for mistaken when it happens and compounding that are the extreme price pressures that OEMs put on suppliers of anything that goes in a car.

Now automotive is a very strong market for us, but our market is served, we serve that market through assisting automotive manufacturers and component suppliers to automotive manufacturers in making and manufacturing parts at higher quality and lower cost. So we are solely on the factory floor, we are not a part of the bill of materials.

And what we learn through the AssistWare endeavor was that when you're part of the bill of materials. There is a whole host of other problems ranging from pricing to the very large indemnification provisions that we would had to provide.

So adding to that I would say that although you see, so you’ve heard a lot of – a number of reasons why we’re not in it now and I'm likely to get into it. Adding to that is the strong likelihood that although you see things on TV those are unlikely to become volume opportunities in my view for at least 20 years.

It’s going to be 20 years before car manufacture before there is no steering wheel on a car and that's when there is a volume in your factory. If you think of the analogy and I'm old enough to remember this of automated elevators.

It took I believe 10 to 15 years for people to be comfortable to get into an elevator that just had buttons and didn't have a person sitting on a seat controlling it.

So it’s going be far more complex than that, we are not just going up and down in a tube with nothing to hit, but we will – the Jetsons will be in cars where there are other vehicles, other people, other dogs and cats and trees and all sorts of things.

So although you see automotive companies interested in this and making parking systems and other things most of the reports that I read indicate that no one runs with those on, everyone turns them off. And that’s likely to be the case until there is truly an automated guided car which again I think is very far in the future.

We like to invest in the future, but our window is three years something like that. We want to show return to our shareholders, and not only that, our engineers what to see the products that they design in the market in their lifetime. And I'll just give an example of that.

We had a superb engineer I won’t say what department he was in, but he left for a fantastic what sounded like a fantastic engineering opportunity with government funded organizations and he is coming back after six months because he says I want to design products that will get to the market in my lifetime not ten years from now.

So I know there was a lot of extra material here that you didn't necessarily ask for, but I hope I answered your question, if not, I would be happy to expound on more of it. But you got the drift, we’re not going to have anything to do with automated guided cars.

However, we do have a lot to do with automated guided vehicles in factors that’s a different story. That’s a controlled environment and we see that as a very interesting market and we have a large customer already using our product in that regard..

Excellent. Okay. Well, I appreciate your perspective on the opportunity. That's what I was after, so that was very helpful. And then could I just ask one more technical question, Dick or Rob.

Was the ID products business in the quarter at least – did that grow above your 30% target in the second quarter?.

We don’t give specific results for ID on a quarterly basis Rick, but our ID business continues to perform very well, we’re very happy with the growth rate the we are seeing on that and we expect to see that continue..

Okay, great. Thank you again..

Thank you. And we’ll take our next question coming from Holden Lewis from Oppenheimer. Holden, your line is open..

Great, thank you very much. Good afternoon. Two things. First, I just wanted to – I remember in the last quarterly call you sort of indicated that US business you're seeing spending – people were a bit more hesitant to spend than you expected.

If you sort of take out the noise of what's going on with the big logistics orders and all of that stuff, do you feel like the baseline business activity slowed down, relative to where it was in that proceeding quarter? Or do you feel like it's the same environment and a lot of this noise is just the logistics push-outs?.

I would say as we’ll be in reading I would say industrial America does not appear to be very healthy at the moment. I would say that doesn't apply to automotive right. So automotive is a big part of our business in that Holden is doing very well pretty much everywhere.

But outside of automotive, we saw softness in consumer products, tobacco, food and I know you are asked exclude as but parcel and post, right. And I think I would bucket some of those reasons as restructuring, it’s going on particularly in some large consumer product companies.

Our M&A activity in areas like tobacco and food and then also in some of those customers we did to have very large and successful projects last year. And I'm thinking that applies to consumer products tobacco and food and those have not repeated nor do we think they will repeat this year.

So that’s the challenge and I think it’s overly discussed, but obviously the strong dollar is also impacting well those organizations are looking to invest right now. So Americas organization I think it’s outside of automotive is struggling with some deceleration and demand. .

Okay, thank you. Such as the second question if I might is why are we only looking for 5% sequential decline in the operating costs? It seems like the orders that have been coming through they sort of boosted up the R&D. Certainly there's been SG&A associated with those.

You know if you're seeing a lot of those orders kind of come off why do – why is the spending level really not coming off materially with it?.

We think about investing in our business over the long-term Holden, so we have some product roadmaps that are quite lengthy and extensive and we are not a company that’s managing for the quarterly bottom line or managing to win in the long-term, right.

So certainly we are not going to be doing anything disruptive to start that vision of where are going.

But I would also say that some of the larger business that we reported to night does have some expense tail on it particularly in service and other elements that does continue on even though we may have reported revenue in one quarter or may require ongoing support subsequently. So for those reasons that’s what’s driving our guidance in expenses..

Thanks and can you maybe just maybe parse out a little bit? I mean can we kind of think about R&D kind of staying in this $18 million range that you've been at in the last three or four quarters and then the sequential decline kind of comes out of SG&A or does it split? How do we sort of model out that 5%?.

Yes, we don’t go into that level of detail what I would say and this is very broad is that we broadly target between them 10% and 15% of revenue is what we’re looking to spend on R&D over the long-term right.

So that’s if you look back at the years of Cognex certainly that I've been with the company that supplied pretty uniformly through that with the exception where we saw in 2009, revenue dropped a lot. But as I say again we’re kind - we are managing over the long-term more on projects and opportunities and within that 10% to 15% range..

Okay. Great, thank you..

Thank you, sir. And our next question comes from Tom Hayes from Northcoast Research. Tom, your line is open..

Thank you. Good evening gentlemen..

Hey Tom..

Hi..

Rob, I was just wondering if you could maybe go a little bit on the new products you talked about the 5-megapixel products.

Maybe discuss the target markets and then the opportunity for those products?.

Sure. At Cognex we’re innovating on a regular basis and our customers are looking for very high performance, high speed, higher resolution vision products to do a range of tasks.

The products that we launched over the last quarter specifically the In-Sight 5705, 5705C for Color and the 8405 are all very high performance products where our new PatMax RedLine algorithm allows us to perform very high resolution tasks at very, very high speeds that are previously unachievable.

Where do we see that happening? It happens in very demanding tasks..

So certainly we see a lot of very powerful technology we are bringing to those customers that we think is going to drive growth in the long-term. We also talked about the DataMan products that we launched, which are fixed-mount barcode readers.

This is part of our very successful and fast growing ID business and in that space we've been very, very strongly positioned in sort of mid to high range tasks, where we're reading barcodes in manufacturing, but we've focused on new product introductions in recent years more in handhelds and in logistics.

So what we've announced over the last quarter and the products we’ve launched selling very successfully in the market, address that market where we've been in factory automation for a long time and they really serve to reestablish our market leadership in that space which is pretty significant for us..

Great, thank you..

Sure..

Thank you, sir. [Operator Instructions] So we’ll take our next question from Jim Ricchiuti from Needham & Company. Jim, you are now open..

Rob, I just wanted to go back to a point you made earlier where you were talking about cash and acquisitions. And clearly in the past, finding the right type of acquisitions for Cognex has been challenging.

And my question is, I'm just wondering as the business scales with respect to some of these larger deployments, putting aside some of them getting pushed out.

But I'm wondering if this opens up a new set of acquisition targets as you try to execute on your longer term strategy?.

Potentially, Jim what I would say go back to kind of what I said is that we are very selective. I think if you're hinting at some kind of service organization to acquire I think that would not be something we'd normally be looking to do.

I think in general we are trying to make our products very powerful through technology rather than requiring a lot of support which is why we’re able to have the kind of gross margin and pull through on incremental revenue that we've been able to demonstrate.

And where we have been doing small acquisition over the last few years is really for in technology, we’ve made some acquisitions that is really in just one or two people and some great technology often that helps us adapt our products better or make them more user-friendly and more programmable. So those are some of the areas.

I think in terms of larger acquisitions, we continue to focus on markets that we find attractive.

And you’ve seen over the last few years we've entered a number of those markets and I'm referring to of course logistics if we go back, but then also that the 3D displacement sensor market which we think is very attractive and where we are sort of that only about year and a half into our journey into that space, but we really like what we see.

And then the life science - the image engine for life science market again these are areas where we found markets that we like and I think you can expect over the next few quarters you will be hearing about other markets we’re looking to enter, probably through our own product development but potentially also augmented with acquisitions.

So I think that’s kind of a trying to summarize our acquisition strategy it's not really to bolt-on service capacity in any respect..

Okay, thank you. End of Q&A.

Okay thank you. I am showing no further questions in the queue at this time. I would like to turn it back to Dr. Shillman for any concluding remarks..

Yes, thanks. Well as all of you can see we had an outstanding second quarter and first half of 2015, but as you've also heard the rest of the year is unlikely to break new records. Nevertheless, we remain very optimistic about 2016 and the long-term prospects for our company.

Thanks for joining us tonight and we look forward to speaking with you on our future earnings calls. That’s it. Good night..

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