Cognex Reports Results for the First Quarter of 2019

NATICK, Mass.–(BUSINESS WIRE)–lt;a href=”https://twitter.com/search?q=%24CGNX&src=ctag” target=”_blank”gt;$CGNXlt;/agt;–Cognex Corporation (NASDAQ: CGNX) today announced financial results for
the first quarter of 2019. Table 1 below shows selected financial data
for Q1-19 compared with Q1-18 and Q4-18.

 

Table 1

(Dollars in thousands, except per share amounts)

               
     

Revenue

   

 

 

Net Income

   

Net Income
per Diluted
Share

   

Non-GAAP
Net Income
per Diluted
Share*

Quarterly Comparisons

                       
Current quarter: Q1-19     $173,484     $33,104     $0.19     $0.17
Prior year’s quarter: Q1-18     $169,567     $37,217     $0.21     $0.18
Change: Q1-18 to Q1-19     2%     (11%)     (10%)     (6%)
Prior quarter: Q4-18     $193,286     $45,418     $0.26     $0.26
Change: Q4-18 to Q1-19     (10%)     (27%)     (27%)     (35%)
 

*Non-GAAP net income per diluted share excludes tax adjustments. A
reconciliation from GAAP to Non-GAAP is shown in Exhibit 2 of this news
release.

“Our Q1 results were in line with our guidance and we set a new
first-quarter revenue record,” said Dr.
Robert J. Shillman
, Founder and Chairman of Cognex. “However, slower
business conditions have dampened our expectations for growth in the
near term. Nevertheless, our products are a key element of factory
automation and logistics, which we believe are both growth markets, and
we remain optimistic about Cognex’s future over the long term.”

“We continue to be encouraged by the increasing adoption of Cognex
products in newer markets including logistics, which is now a more
meaningful part of our revenue,” said Robert
J. Willett
, Chief Executive Officer of Cognex. “Overall, however, we
expect to see a slight decline in revenue for 2019, primarily as a
result of significantly lower revenue from consumer electronics amid an
industry slowdown.”

“Our history shows that growth for Cognex is not linear; we’ve had ups
and downs in the past driven by various external factors. This current
slowdown will be temporary and does not change our positive view of the
long-term potential for Cognex,” concluded Mr. Willett.

Details of the Quarter

Statement of Operations Highlights – First Quarter of 2019

  • Revenue increased 2% from Q1-18 and declined 10% from Q4-18. Growth
    year-on-year in logistics was partially offset by lower revenue from
    customers in Greater China and in the automotive industry in the
    Americas. It was also impacted by an unfavorable change in currency
    exchange rates. On a sequential basis, Cognex experienced a steeper
    than usual seasonal decline from Q4 to Q1 due to slowing business
    conditions.
  • Gross margin was 73% for Q1-19 and Q4-18 compared with 76% for Q1-18.
    Gross margin decreased year-on-year primarily due to unfavorable
    absorption of manufacturing overhead costs.
  • Research, Development & Engineering (RD&E) expenses decreased 3% from
    Q1-18 and increased 5% from Q4-18. RD&E decreased year-on-year due to
    the favorable impact of currency exchange rates and lower costs for
    prototyping materials and outsourced engineering services. The
    decrease was partially offset by Cognex’s investment in additional
    engineers. RD&E increased on a sequential basis due to the timing of
    application engineering for large opportunities in consumer
    electronics and higher employee-related costs.
  • Selling, General & Administrative (SG&A) expenses increased 5% from
    Q1-18 and 1% from Q4-18. SG&A increased both year-on-year and
    sequentially as a result of Cognex growing its sales and support
    organization. The increase year-on-year was partially offset by costs
    incurred in Q1-18 related to the company’s new ERP system and the
    favorable impact of changes in currency exchange rates.
  • Investment and other income was $6 million in Q1-19, $4 million in
    Q1-18 and $4 million in Q4-18. Investment income increased both
    year-on-year and sequentially primarily due to higher yields on
    invested balances. Also contributing was a benefit from the
    revaluation of contingent consideration liabilities related to recent
    acquisitions.
  • The effective tax rate was 7% in Q1-19, 2% in Q1-18 and 7% in Q4-18.
    Excluding discrete tax adjustments, the rates were 15%, 15% and 8%,
    respectively (tax adjustments are summarized in Exhibit 2). Notably,
    all periods presented include a varying discrete tax benefit related
    to employee stock options exercised during that quarter. Additionally,
    the tax rate for 2018 was adjusted in Q4-18 to reflect the fact that
    more of the company’s 2018 profits were earned and taxed in lower-tax
    jurisdictions than anticipated.

Balance Sheet Highlights – March 31, 2019

  • Cognex’s financial position as of March 31, 2019, continued to be very
    strong, with $864 million in cash and investments and no debt. Cash
    and investments increased by $66 million from the end of 2018. Cash
    inflows consisted of $61 million in cash generated from operations and
    $14 million in cash received from the exercise of employee stock
    options. Cash outflows included $9 million in dividends paid to
    shareholders and $5 million for capital expenditures. Cognex intends
    to repurchase shares of its common stock in Q2-19, subject to market
    conditions and other relevant factors.
  • Inventories decreased by $4 million, or 5%, from the end of 2018.
  • On January 1, 2019, Cognex adopted a new lease accounting standard
    (ASC 842, “Leases”) on a prospective basis and recorded lease assets
    and lease liabilities of $17 million as the cumulative-effect
    adjustment to the opening balance sheet.

Financial Outlook – Q2 2019

  • Revenue for Q2-19 is expected to be between $190 million and $200
    million. While the midpoint of this range represents growth of 12%
    over Q1-19, it’s a decline of 8% from Q2-18 primarily due to lower
    anticipated revenue from consumer electronics.
  • Gross margin is expected to be in the mid-70% range, in line with the
    73% gross margin the company reported for Q1-19.
  • Cognex expects operating expenses to increase by low-single digits on
    a sequential basis.
  • The effective tax rate is expected to be 15% before discrete tax items.

Non-GAAP Financial Measures

  • Exhibit 2 of this news release includes a reconciliation of certain
    financial measures from GAAP to non-GAAP. Cognex believes these
    non-GAAP financial measures are helpful because they allow investors
    to more accurately compare Cognex results over multiple periods using
    the same methodology that management employs in its budgeting process
    and in its review of Cognex’s operating results. Non-GAAP
    presentations exclude the following: (1) stock option expense for
    calculating non-GAAP adjusted operating income and net income from
    continuing operations (because these expenses have no current effect
    on cash or the future uses of cash, and they fluctuate because of
    changes in Cognex’s stock price), and (2) certain one-time discrete
    events, such as tax adjustments (because these costs are outside of
    Cognex’s normal business operations). Cognex does not intend for
    non-GAAP financial measures to be considered in isolation, or 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. However, if
    a specific tax rate or tax treatment is required because of the nature
    of the item and/or the tax jurisdiction where the item was recorded,
    the tax effect is estimated by applying the relevant specific tax rate
    or tax treatment, rather than the effective tax rate.

Analyst Conference Call and Simultaneous Webcast

  • Cognex will host a conference call today at 5:00 p.m. Eastern Daylight
    Time (EDT). The telephone number is (877) 704-4573 (or (201) 389-0911
    if outside the United States). A replay will begin at 8:00 p.m. EDT
    today and will be available until 11:59 p.m. EDT on Thursday, May 2,
    2019. The telephone number for the replay is (877) 660-6853 (or (201)
    612-7415 if outside the United States). The access code for both the
    live call and the replay is 13689534.
  • Internet users can listen to a real-time audio broadcast of the
    conference call or an archived recording on the Cognex Investor
    Relations website: http://www.cognex.com/Investor.

About Cognex Corporation

Cognex Corporation designs, develops, manufactures and markets a wide
range of image-based products, all of which use artificial intelligence
(AI) techniques that give them the human-like ability to make decisions
on what they see. Cognex products include machine vision systems,
machine vision sensors and barcode readers that are used in factories
and distribution centers around the world where they eliminate
production and shipping errors.

Cognex is the world’s leader in the machine vision industry, having
shipped more than 2 million image-based products, representing over $6
billion in cumulative revenue, since the company’s founding in 1981.
Headquartered in Natick, Massachusetts, USA, Cognex has offices and
distributors located throughout the Americas, Europe and Asia. For
details visit Cognex online at www.cognex.com.

Certain statements made in this news 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 and other
statements of a similar sense. These forward-looking statements, which
include statements regarding business and market trends, future
financial performance, customer order rates and the timing of related
revenue, expected areas of growth, emerging and growth markets, future
product mix, research and development activities, investments, strategic
plans, and stock repurchases, involve known and unknown risks and
uncertainties that could cause actual results to differ materially from
those projected. Such risks and uncertainties include: (1) the loss of a
large customer; (2) current and future conditions in the global economy,
including the imposition of tariffs or export controls; (3) the reliance
on revenue from the consumer electronics or automotive industries; (4)
the inability to penetrate new markets; (5) the inability to achieve
significant international revenue; (6) fluctuations in foreign currency
exchange rates and the use of derivative instruments; (7) information
security breaches or business system disruptions; (8) the inability to
attract and retain skilled employees; (9) the failure to effectively
manage our growth; (10) the reliance upon key suppliers to manufacture
and deliver critical components for our products; (11) the failure to
effectively manage product transitions or accurately forecast customer
demand; (12) the inability to design and manufacture high-quality
products; (13) the technological obsolescence of current products and
the inability to develop new products; (14) the failure to properly
manage the distribution of products and services; (15) the inability to
protect our proprietary technology and intellectual property; (16) our
involvement in time-consuming and costly litigation; (17) the impact of
competitive pressures; (18) the impact of competitive pressures; (19)
the challenges in integrating and achieving expected results from
acquired businesses; (20) potential impairment charges with respect to
our investments or for acquired intangible assets or goodwill; (21)
exposure to additional tax liabilities; and (22) the other risks
detailed in Cognex reports filed with the SEC, including its Form 10-K
for the fiscal year ended December 31, 2018. 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

March 31,
2019

   

December 31,
2018

   

April 1,
2018

 
Revenue $ 173,484 $ 193,286 $ 169,567
Cost of revenue (1) 46,284   52,825   40,198  
Gross margin 127,200 140,461 129,369
Percentage of revenue 73 % 73 % 76 %
Research, development, and engineering expenses (1) 30,242 28,781 31,076
Percentage of revenue 17 % 15 % 18 %
Selling, general, and administrative expenses (1) 66,811 66,433 63,697
Percentage of revenue 39 % 34 % 38 %
Operating income 30,147 45,247 34,596
Percentage of revenue

17

%

23 % 20 %
Foreign currency gain (loss) (248 ) (356 ) (134 )
Investment and other income 5,832   3,858   3,517  
Income before income tax expense 35,731 48,749 37,979
Income tax expense 2,627   3,331   762  
Net income $ 33,104   $ 45,418   $ 37,217  
Percentage of revenue 19 % 23 % 22 %
 
Net income per weighted-average common and common-equivalent share:
Basic $ 0.19   $ 0.26   $ 0.21  
Diluted $ 0.19   $ 0.26   $ 0.21  
 
Weighted-average common and common-equivalent shares outstanding:
Basic 171,098   171,501   173,280  
Diluted 175,607   175,527   179,641  
 
Cash dividends per common share $ 0.050   $ 0.050   $ 0.045  
Cash and investments per common share $ 5.03   $ 4.67   $ 4.65  
Book value per common share $ 6.93   $ 6.65   $ 6.23  
 
(1) Amounts include stock option expense, as follows:
Cost of revenue $ 451 $ 549 $ 797
Research, development, and engineering 4,467 3,412 4,815
Selling, general, and administrative 7,363   5,790   7,582  
Total stock option expense $ 12,281   $ 9,751   $ 13,194  
 

Exhibit 2

   

COGNEX CORPORATION
Reconciliation of Selected Items
from GAAP to Non-GAAP

(Unaudited)
Dollars
in thousands, except per share amounts

 
Three-months Ended

March 31,
2019

   

December 31,
2018

   

April 1,
2018

Adjustment for stock option expense and tax benefit for stock
option exercises
                 
Operating income (GAAP) $ 30,147     $ 45,247     $ 34,596
Stock option expense 12,281   9,751   13,194  
Operating income (Non-GAAP) $ 42,428   $ 54,998   $ 47,790  
Percentage of revenue (Non-GAAP)

24

%

28 % 28 %
 
Net income (GAAP) $ 33,104 $ 45,418 $ 37,217
Stock option expense 12,281 9,751 13,194
Tax effect on stock option expense (2,222 ) (1,709 ) (2,347 )
Discrete tax benefit related to employee stock option exercises (2,730 ) (88 ) (4,935 )
Net income (Non-GAAP) $ 40,433   $ 53,372   $ 43,129  
Percentage of revenue (Non-GAAP) 23 % 28 % 25 %
 
Net income per diluted weighted-average common and common-equivalent
share (GAAP)
$ 0.19 $ 0.26 $ 0.21
Share impact of non-GAAP adjustments identified above 0.04   0.04   0.03  
Net income per diluted weighted-average common and common-equivalent
share (Non-GAAP)
$ 0.23   $ 0.30   $ 0.24  
 
Diluted weighted-average common and common-equivalent shares
outstanding (GAAP)
175,607   175,527   179,641  
                         
 
Exclusion of tax adjustments                        
Income before income tax expense (GAAP) $ 35,731   $ 48,749   $ 37,979  
 
Income tax expense (GAAP) $ 2,627 $ 3,331 $ 762
Effective tax rate (GAAP) 7 % 7 % 2 %
 
Tax adjustments:
Discrete tax benefit related to employee stock option exercises (2,730 ) (88 ) (4,935 )
Discrete tax benefit related to Tax Act (89 )
Other discrete tax events (3 ) (190 )  
Income tax expense excluding tax adjustments (Non-GAAP) $ 5,360   $ 3,698   $ 5,697  
Effective tax rate (Non-GAAP) 15% 8 % 15 %
 
Net income excluding tax adjustments (Non-GAAP) $ 30,371   $ 45,051   $ 32,282  
Percentage of revenue (Non-GAAP)

18

%

23 % 19 %
 
Net income per diluted weighted-average common and common-equivalent
share (GAAP)
$ 0.19 $ 0.26 $ 0.21
Share impact of non-GAAP adjustments identified above (0.02 )   (0.03 )
Net income per diluted weighted-average common and common-equivalent
share (Non-GAAP)
$ 0.17   $ 0.26   $ 0.18  
 
Diluted weighted-average common and common-equivalent shares
outstanding (GAAP)
175,607   175,527   179,641  
 

Exhibit 3

 

COGNEX CORPORATION
Balance Sheets
(Unaudited)
Dollars
in thousands

       
March 31, 2019 December 31, 2018
Assets
Cash and investments $ 863,687 $ 797,599
Accounts receivable 106,424 119,172
Unbilled revenue 10,202 8,312
Inventories 79,208 83,282
Property, plant, and equipment 91,273 91,396
Operating lease assets 17,354
Goodwill and intangible assets 122,552 123,321
Other assets 63,072 66,585
   
Total assets $ 1,353,772   $ 1,289,667
 
Liabilities and Shareholders’ Equity
Accounts payable and accrued expenses $ 69,477 $ 76,450
Operating lease liabilities 17,336
Deferred revenue and customer deposits 16,625 9,845
Income taxes 60,421 64,243
Other liabilities 1,054 3,866
Shareholders’ equity 1,188,859 1,135,263
   
Total liabilities and shareholders’ equity $ 1,353,772   $ 1,289,667

Contacts

Susan Conway
Senior Director of Investor Relations
Cognex
Corporation
Phone: (508) 650-3353
Email: [email protected]

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