Cognex Reports Third Quarter Results

Mon Oct 29, 2012 4:00pm EDT

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Cognex Reports Third Quarter Results

Cognex Corporation (NASDAQ: CGNX) today announced its financial results for the third quarter of 2012. Selected financial data for the quarter and nine months ended September 30, 2012, are compared to the second quarter of 2012, the third quarter of 2011 and the first nine months of 2011 in Table 1 below.

       

Table 1

   

 

Revenue

   

Net
Income

 

Net
Income per
Diluted Share

Quarterly Comparisons

             
Current quarter: Q3-12   $80,076,000     $17,805,000   $0.41
Prior year’s quarter: Q3-11   $80,085,000     $18,037,000   $0.42
Change from Q3-11 to Q3-12   0%     (1%)   (3%)
Prior quarter: Q2-12   $84,326,000     $19,767,000   $0.45
Change from Q2-12 to Q3-12   (5%)     (10%)   (10%)

Year to Date Comparisons

             
Nine months ended Sept. 30, 2012   $242,111,000     $51,854,000   $1.19
Nine months ended Oct. 2, 2011   $237,872,000     $50,770,000   $1.19
Change from first nine months of 2011 to first nine months of 2012  

2%

   

2%

 

0%

A reconciliation of certain financial measures from GAAP to non-GAAP is shown in Exhibit 2.

“In view of the pull back in spending by manufacturers, we are quite pleased that third quarter revenue was in line with our expectations and that we reported a high level of profitability (operating margin was 27% and net margin was 22%),” said Dr. Robert J. Shillman, Chairman of Cognex. “While these results were good, it is frustrating to see our momentum dampened by the slowing global economy.”

“We performed well during what is typically a seasonally soft quarter for Cognex,” said Robert J. Willett, Chief Executive Officer of Cognex. “Despite total revenue being flat year-on-year, factory automation revenue grew 4% over the third quarter of 2011 (9% in constant currency), helped by our continued strong performance in ID products and in China.”

Details of the Quarter

Statement of Operations Highlights – Third Quarter of 2012

  • Revenue for the third quarter of 2012 was flat with the third quarter of 2011 and decreased 5% from the prior quarter. Factory automation, the company’s largest market segment, performed better than expected in what is typically a seasonally soft quarter, increasing 4% year-on-year and remaining flat on a sequential basis. Growth year-on-year in factory automation was offset by lower revenue from the semiconductor and electronics capital equipment market (SEMI). Revenue declined on a sequential basis primarily due to lower SEMI revenue. Surface inspection revenue, which is impacted by the timing of deliveries, installations and revenue deferrals, decreased 1% year-on-year and 8% on a sequential basis.
  • Gross margin was 76% in all periods presented.
  • Research, Development & Engineering (RD&E) spending in the third quarter of 2012 decreased 6% from the third quarter of 2011 and 3% from the prior quarter. The company’s investment in engineering personnel hired to accelerate new product introductions was more than offset by a lower bonus accrual and the impact of currency exchange rates on the company’s international operations. RD&E decreased on a sequential basis due to higher employee vacation time and the timing of outside services for products under development.

  • Selling, General & Administrative (SG&A) spending in the third quarter of 2012 increased 2% from the third quarter of 2011 and decreased 5% from the prior quarter. SG&A increased year-on-year due to sales force expansion offset by a lower bonus accrual and the impact of currency exchange rates. The sequential decrease is due to the timing of marketing initiatives, lower stock option expense and higher employee vacation time.
  • Investment and other income was $692,000 in the third quarter of 2012, $761,000 in the third quarter of 2011 and $1,702,000 in the prior quarter. The decrease year-on-year is due to lower yields on investments offset by a higher average invested balance. The sequential decrease is due to gains of approximately $1,000,000 recognized in the prior quarter on the sale of euro-denominated investments.
  • The tax rate was 19% in the third quarter of 2012 compared to 21% in both the third quarter of 2011 and the prior quarter. Excluding tax adjustments, the tax rate was 21% in the third quarter of 2012 and 23% in the third quarter of 2011. The decrease year-on-year is primarily because a higher percentage of income in the third quarter of 2012 was earned in lower tax jurisdictions.

Balance Sheet Highlights – September 30, 2012

  • Cognex’s financial position as of September 30, 2012, was very strong, with no debt and $415,938,000 in cash and investments. Cognex paid out $4,721,000 in dividends to shareholders in the third quarter of 2012.

Financial Outlook

  • Cognex expects revenue for Q4-12 to be between $78 million and $81 million. Gross margin is expected to continue in the mid-70% range. Operating expenses are expected to increase by up to 5% on a sequential basis, primarily as a result of lower employee vacation time. And the effective tax rate is expected to be 21% before discrete tax items.

Non-GAAP Financial Measures

  • Exhibit 2 of this press release includes a reconciliation of certain financial measures from GAAP to non-GAAP. Cognex believes these non-GAAP financial measures are useful because they allow investors to more accurately assess and compare Cognex results over multiple periods, and to evaluate the effectiveness of the methodology used by management to review its operating results. In particular, the GAAP presentation of cost of revenue, RD&E and SG&A expenditures includes stock option expense. Cognex excludes these expenses for the purpose of calculating non-GAAP adjusted operating income, non-GAAP adjusted net income and non-GAAP adjusted net income per share when it evaluates its continuing operational performance, and in connection with its budgeting process and the allocation of resources, because these expenses have no current effect on cash or the future uses of cash, and they fluctuate as a result of changes in Cognex’s stock price. Cognex also excludes certain items if they are one-time discrete events, such as the impact of tax adjustments. Cognex does not intend for these non-GAAP financial measures to be considered in isolation, nor as a substitute for financial information provided in accordance with GAAP.
  • The tax effect of items identified in the reconciliation is estimated by applying the effective tax rate to the pre-tax amount, unless the nature of the item and/or the tax jurisdiction in which the item has been recorded requires application of a specific tax rate or tax treatment. In that case, the tax effect of such items is estimated by applying such specific tax rate or tax treatment.

Analyst Conference Call and Simultaneous Webcast

  • Cognex will host a conference call on Thursday, November 1, 2012 at 5:00 p.m. eastern time. The call was originally scheduled for today but has been rescheduled due to the state of emergency declared for many states along the Eastern Seaboard on account of Hurricane Sandy. The telephone number is (866) 814-8448 (or (703) 639-1367 if outside the United States). A replay will begin at 8:00 p.m. eastern time on Thursday, November 1, 2012 and will run continuously until 11:59 p.m. eastern time on Sunday, November 4, 2012. The telephone number for the replay is (888) 266-2081 (or (703) 925-2533 if outside the United States) and the access code is 1591612.
  • Internet users can listen to a real-time audio broadcast of the conference call, or an archived replay on the Cognex Investor Relations website at http://www.cognex.com/Investor.

About Cognex Corporation

Cognex Corporation designs, develops, manufactures and markets a range of products that incorporate sophisticated machine vision technology that gives them the ability to “see.” Cognex products include barcode readers, machine vision sensors and machine vision systems that are used in factories, warehouses and distribution centers around the world to guide, gauge, inspect, identify and assure the quality of items during the manufacturing and distribution process. Cognex is the world's leader in the machine vision industry, having shipped more than 800,000 vision-based products, representing over $3 billion in cumulative revenue, since the company's founding in 1981. Headquartered in Natick, Massachusetts, USA, Cognex has regional offices and distributors located throughout North America, Japan, Europe, Asia and Latin America. For details visit Cognex online at http://www.cognex.com.

Certain statements made in this press release, which do not relate solely to historical matters, are forward-looking statements. These statements can be identified by use of the words “expects,” “anticipates,” ”estimates,” “believes,” “projects,” “intends,” “plans,” “will,” “may,” “shall,” “could,” “should,” and similar words. These forward-looking statements, which include statements regarding business and market trends, future financial performance, customer order rates, expected areas of growth, research and development activities and investments, and strategic plans, involve known and unknown risks and uncertainties that could cause actual results to differ materially from those projected. Such risks and uncertainties include: (1) current and future conditions in the global economy; (2) the cyclicality of the semiconductor and electronics industries; (3) the inability to penetrate new markets; (4) the inability to achieve significant international revenue; (5) fluctuations in foreign currency exchange rates; (6) the loss of a large customer; (7) the inability to attract and retain skilled employees; (8) the reliance upon key suppliers to manufacture and deliver critical components for Cognex products; (9) the failure to effectively manage product transitions or accurately forecast customer demand; (10) the inability to design and manufacture high-quality products; (11) the technological obsolescence of current products and the inability to develop new products; (12) the failure to properly manage the distribution of products and services; (13) the inability to protect Cognex proprietary technology and intellectual property; (14) involvement in time-consuming and costly litigation; (15) the impact of competitive pressures; (16) the challenges in integrating and achieving expected results from acquired businesses; (17) potential impairment charges with respect to Cognex’s investments or for acquired intangible assets or goodwill; (18) exposure to additional tax liabilities; (19) information security breaches or business systems disruptions; and (20) the other risks detailed in Cognex reports filed with the SEC, including its Form 10-K for the fiscal year ended December 31, 2011. You should not place undue reliance upon any such forward-looking statements, which speak only as of the date made. Cognex disclaims any obligation to update forward-looking statements after the date of such statements.

 

Exhibit 1

COGNEX CORPORATION
Statements of Operations
(Unaudited)
Dollars in thousands, except per share amounts
           
 
Three-months Ended Nine-months Ended
Sept. 30, Jul. 1, Oct. 2, Sept. 30, Oct. 2,
  2012     2012     2011     2012     2011  
 
Revenue $ 80,076 $ 84,326 $ 80,085 $ 242,111 $ 237,872
 
Cost of revenue (1)   19,506     20,549     18,953     59,113     56,715  
 
Gross margin 60,570 63,777 61,132 182,998 181,157
Percentage of revenue 76 % 76 % 76 % 76 % 76 %
 
Research, development, and engineering expenses (1) 10,002 10,300 10,608 30,663 30,596
Percentage of revenue 12 % 12 % 13 % 13 % 13 %
 
Selling, general, and administrative expenses (1) 28,765 30,127 28,135 89,441 86,762
Percentage of revenue   36 %   36 %   35 %   37 %   36 %
 
Operating income 21,803 23,350 22,389 62,894 63,799
Percentage of revenue 27 % 28 % 28 % 26 % 27 %
 
Foreign currency loss (409 ) (30 ) (231 ) (1,077 ) (80 )
 
Investment and other income   692     1,702     761     3,369     1,710  
 
Income before income tax expense 22,086 25,022 22,919 65,186 65,429
 
Income tax expense   4,281     5,255     4,882     13,332     14,659  
 
Net income $ 17,805   $ 19,767   $ 18,037   $ 51,854   $ 50,770  
Percentage of revenue 22 % 23 % 23 % 21 % 21 %
 
Earnings per weighted-average common and common-equivalent share:
Basic $ 0.42   $ 0.46   $ 0.43   $ 1.21   $ 1.22  
Diluted $ 0.41   $ 0.45   $ 0.42   $ 1.19   $ 1.19  
 
Weighted-average common and common-equivalent shares outstanding:
Basic   42,912     42,851     42,128     42,777     41,765  
Diluted   43,629     43,601     42,976     43,610     42,682  
 
Cash dividends per common share $ 0.11   $ 0.11   $ 0.09   $ 0.32   $ 0.26  
 
Cash and investments per common share $ 9.68   $ 9.11   $ 8.23   $ 9.68   $ 8.23  
 
Book value per common share $ 14.09   $ 13.80   $ 12.87   $ 14.09   $ 12.87  
 
 
(1) Amounts include stock option expense, as follows:
Cost of revenue $ 125 $ 175 $ 107 $ 608 $ 486
Research, development, and engineering 385 483 394 1,735 1,732
Selling, general, and administrative   982     1,331     1,019     4,452     3,611  
Total stock option expense $ 1,492   $ 1,989   $ 1,520   $ 6,795   $ 5,829  
 

Exhibit 2

COGNEX CORPORATION
Reconciliation of Selected Items from GAAP to Non-GAAP
(Unaudited)
Dollars in thousands, except per share amounts
             
               
Three-months Ended Nine-months Ended
Sept. 30, Jul. 1, Oct. 2, Sept. 30, Oct. 2,
  2012     2012     2011     2012     2011  
                       
 
Revenue (GAAP) $ 80,076 $ 84,326 $ 80,085 $ 242,111 $ 237,872
                       
                       
 
Operating income (GAAP) $ 21,803 $ 23,350 $ 22,389 $ 62,894 $ 63,799
Stock option expense   1,492     1,989  

 

  1,520     6,795     5,829  
Operating income excluding stock option expense (Non-GAAP) $ 23,295   $ 25,339   $ 23,909   $ 69,689   $ 69,628  
Percentage of revenue (Non-GAAP) 29 % 30 % 30 % 29 % 29 %
                       
                       
 
Income before income tax expense (GAAP) $ 22,086   $ 25,022   $ 22,919   $ 65,186   $ 65,429  
 
Income tax expense (GAAP) $ 4,281 $ 5,255 $ 4,882 $ 13,332 $ 14,659
Effective tax rate (GAAP) 19 % 21 % 21 % 20 % 22 %
 
Tax adjustments:
Discrete tax events   (357 )   -     (389 )   (357 )   (389 )
(357 ) - (389 ) (357 ) (389 )
 
Income tax expense excluding tax adjustments (Non-GAAP) $ 4,638   $ 5,255   $ 5,271   $ 13,689   $ 15,048  
Effective tax rate (Non-GAAP) 21 % 21 % 23 % 21 % 23 %
 
Net income excluding tax adjustments (Non-GAAP) $ 17,448   $ 19,767   $ 17,648   $ 51,497   $ 50,381  
Percentage of revenue (Non-GAAP) 22 % 23 % 22 % 21 % 21 %
                       
                       
 
Net Income (GAAP) $ 17,805 $ 19,767 $ 18,037 $ 51,854 $ 50,770
Stock option expense, net of tax   1,013     1,343     1,019     4,583     3,882  
Net income excluding stock option expense (Non-GAAP) $ 18,818   $ 21,110   $ 19,056   $ 56,437   $ 54,652  
Percentage of revenue (Non-GAAP) 24 % 25 % 24 % 23 % 23 %
                       
                       
 
Net income per diluted share (GAAP) $ 0.41 $ 0.45 $ 0.42 $ 1.19 $ 1.19
Stock option expense per diluted share, net of tax $ 0.02   $ 0.03   $ 0.02   $ 0.10   $ 0.09  
Net income per diluted share excluding stock option expense (Non-GAAP) $ 0.43   $ 0.48   $ 0.44   $ 1.29   $ 1.28  
                                           

Exhibit 3

COGNEX CORPORATION
Balance Sheets
(Unaudited)
In thousands
   
 
 
September 30, December 31,
2012 2011
 
Assets
 
Cash and investments $ 415,938 $ 357,440
 
Accounts receivable 44,761 48,206
 
Inventories 24,995 28,098
 
Property, plant, and equipment 34,344 31,744
 
Goodwill and intangible assets 97,472 100,939
 
Other assets   44,605   45,454
 
Total assets $ 662,115 $ 611,881
 
 
Liabilities and Shareholders' Equity
 
Accounts payable and accrued liabilities $ 36,485 $ 39,388
 
Income taxes 8,473 6,055
 
Deferred revenue and customer deposits 11,755 13,458
 
Shareholders' equity   605,402   552,980
 
Total liabilities and shareholders' equity $ 662,115 $ 611,881
 

Exhibit 4

COGNEX CORPORATION
Additional Information Schedule
(Unaudited)
Dollars in thousands
                     
       
Three-months Ended Nine-months Ended
Sept. 30, Jul. 1, Oct. 2, Sept. 30, Oct. 2,
  2012     2012     2011     2012       2011  
 
Revenue $ 80,076   $ 84,326   $ 80,085   $ 242,111   $ 237,872  
 
Revenue by division:
Modular Vision Systems Division 85 % 85 % 85 % 85 % 87 %
Surface Inspection Systems Division   15 %   15 %   15 %   15 %   13 %
Total   100 %   100 %   100 %   100 %   100 %
 
Revenue by geography:
Americas 36 % 32 % 33 % 35 % 34 %
Europe 30 % 31 % 37 % 31 % 34 %
Asia 22 % 21 % 15 % 20 % 17 %
Japan   12 %   16 %   15 %   14 %   15 %
Total   100 %   100 %   100 %   100 %   100 %
 
Revenue by market:
Factory automation 77 % 73 % 74 % 75 % 73 %
Web and surface inspection 15 % 15 % 15 % 15 % 13 %
Semiconductor and electronics capital equipment   8 %   12 %   11 %   10 %   14 %
Total   100 %   100 %   100 %   100 %   100 %
                     
 
 
 
                     
Three-months Ended
Sept. 30, Jul. 1,
2012 2012 Increase/ Operational Currency
(GAAP) (GAAP) (Decrease) Change Impact
 
Revenue $ 80,076 $ 84,326 $ (4,250 ) $ (3,444 ) $ (806 )
Research, development, and engineering expenses 10,002 10,300 (298 ) (236 ) (62 )
Selling, general & administrative expenses 28,765 30,127 (1,362 ) (1,130 ) (232 )
 
 
Sept. 30, Oct. 2,
2012 2011 Increase/ Operational Currency
(GAAP) (GAAP) (Decrease) Change Impact
 
Revenue $ 80,076 $ 80,085 $ (9 ) $ 3,413 $ (3,422 )
Research, development, and engineering expenses 10,002 10,608 (606 ) (293 ) (313 )
Selling, general & administrative expenses     28,765       28,135       630       1,725       (1,095 )

Cognex Corporation
Susan Conway, 508-650-3353
Director of Investor Relations
susan.conway@cognex.com