Cognex Reports Third Quarter Results

November 2, 2015 | By Business Wire News

NATICK, Mass.

Cognex Corporation (NASDAQ: CGNX) today announced its results for the third quarter of 2015. In Table 1 below, selected financial data for the quarter and nine months ended October 4, 2015 is compared to the second quarter of 2015, third quarter of 2014 and the first nine months of 2014. A reconciliation of certain financial measures from GAAP to non-GAAP is shown in Exhibit 2 of this news release.


Table 1*

	Revenue from Continuing Operations	Income from Continuing Operations	Income from Continuing Operations per Diluted Share
Quarterly Comparisons
Current quarter: Q3-15	$107,587,000	$25,822,000	$0.29
Prior year’s quarter: Q3-14	$154,356,000	$47,681,000	$0.53
Change from Q3-14 to Q3-15	(30%)	(46%)	(45%)
Prior quarter: Q2-15	$143,829,000	$43,516,000	$0.49
Change from Q2-15 to Q3-15	(25%)	(41%)	(41%)
Year-to-Date Comparisons
Nine months ended Oct. 4, 2015	$352,789,000	$88,810,000	$1.00
Nine months ended Sept. 28, 2014	$327,948,000	$88,171,000	$0.99
Change from first nine months of 2014 to first nine months of 2015	8%	1%	1%

*Table 1 does not include the financial results of the company’s Surface Inspection Systems Division (SISD), which was sold on July 6, 2015, or the related after-tax gain reported from the transaction.

“Our results for Q3 2015 were quite good,” said Dr. Robert J. Shillman, Chairman of Cognex. “We reported our third best quarterly revenue, net income and earnings per share in our company’s 34-year history, all from continuing operations. Normally, I would say that I am ‘very pleased’ with these results, but I’m not because of the negative comparisons, poor both year-on-year and sequentially due to the fact that those were our best and second best quarters.”

Robert J. Willett, Chief Executive Officer of Cognex, said, “At Cognex we have a saying, ‘Good is not good enough; excellence is expected.’ Although Q3 was good, it was not good enough. During the quarter, we experienced a slowdown in demand from customers in Asia and in the automotive industry, globally. As a result, we are more cautious about our revenue outlook in the near term.”

Details of the Quarter

Statement of Operations Highlights – Third Quarter of 2015

Revenue for Q3 2015 decreased 30% from Q3 2014 and 25% from Q2 2015 due to substantially lower revenue from the consumer electronics industry, where large projects drove revenue to a record level in Q3 2014 and to the second highest level in Q2 2015. In constant currency, revenue decreased 27% year-on-year and 25% sequentially.
Gross margin was 76% for both Q3 2015 and Q3 2014 and 79% for Q2 2015. The decline on a sequential basis was because Q3 included fewer software-intensive projects and higher support services than in Q2.
Research, Development & Engineering (RD&E) expenses decreased 3% from Q3 2014 and 7% from Q2 2015. Cognex’s continued investment in engineering resources was offset by a lower bonus accrual. In constant currency, RD&E increased 1% year-on-year and decreased 7% sequentially.
Selling, General & Administrative (SG&A) expenses decreased 18% from Q3 2014 and 17% from Q2 2015. On a year-on-year basis, Cognex’s investment in its sales and support organization was offset by a lower bonus accrual, commissions, sales demonstration equipment and spending on marketing initiatives. On a sequential basis, costs declined due to the resolution of all outstanding patent litigation and lower bonus accruals, commissions, sales demonstration equipment and travel. In constant currency, SG&A decreased 12% year-on-year and 17% sequentially.
The tax rate was 12% in Q3 2015, 16% in Q3 2014 and 17% in Q2 2015. Excluding discrete tax items, the rate was 17% in Q3 2015 and Q2 2015 and 18% in Q3 2014 (tax adjustments are summarized in Exhibit 2).
On July 6, 2015, Cognex sold its Surface Inspection Systems Division (SISD) in order to focus its efforts on discrete manufacturing, where the company sees stronger long-term growth opportunities. SISD’s financial results prior to the date of sale have been restated as “Income from Discontinued Operations.” In Q3 2015, Cognex reported, also as “Income from Discontinued Operations,” an after-tax gain from the sale of SISD of $78.3 million (the pre-tax gain was $125 million).

Balance Sheet Highlights – October 4, 2015

Cognex’s financial position as of October 4, 2015, was very strong, with no debt and $593 million in cash and investments. In Q3 2015, Cognex spent $90.5 million to repurchase its common stock (2.5 million shares were repurchased at an average price of $36.41 per share) and paid out $6 million in dividends to shareholders.
Accounts receivable as of October 4, 2015 increased by $31 million, or 77%, from the end of 2014. The increase relates to large orders in 2015, which Cognex expects to collect before year-end.
Inventory increased by $10.6 million, or 36%, from the end of 2014 due to strategic purchases and new product introductions.
The assets and liabilities of SISD, which was sold on July 6, 2015, were reported as “Held for Sale” at December 31, 2014.

Financial Outlook – Q4 2015

Cognex expects revenue for Q4 2015 to be between $94 million and $97 million, which ranges from flat to up 3% compared to Q4 2014 in constant currency. Cognex expects its growth rate in Q4 to be negatively impacted by deterioration in the industrial markets the company serves.
Gross margin is expected to be in the mid-70% range.
Operating expenses are expected to increase by approximately 5% on a sequential basis.
The effective tax rate is expected to be 17.5% 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. In particular, non-GAAP presentations exclude the following: (1) stock option expense for the purpose of calculating non-GAAP adjusted operating income (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), and (2) certain one-time discrete events, such as tax adjustments. Cognex also uses results on a constant-currency basis as one measure to evaluate performance. Constant-currency information compares results between periods as if the exchange rates had remained constant period-over-period. Cognex does not intend for non-GAAP financial measures to be considered in isolation, nor as a substitute for financial information provided in accordance with GAAP.

Analyst Conference Call and Simultaneous Webcast

Cognex will host a conference call today at 5:00 p.m. Eastern Time (ET). The telephone number is (866) 256-9239 (or (703) 639-1213 if outside the United States). A replay will begin at 8:00 p.m. ET today and will run continuously until 11:59 p.m. ET on Thursday, November 5, 2015. The telephone number for the replay is (888) 266-2081 (or (703) 925-2533 if outside the United States). The access code for both the live call and the replay is 1663648.
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 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 1 million vision-based products, representing over $4 billion in cumulative revenue, since the company’s founding in 1981. Headquartered in Natick, Massachusetts, USA, Cognex has regional offices and distributors located throughout the Americas, Europe and Asia. For details visit Cognex online at http://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, expected areas of growth and opportunity, future product and customer mix, research and development activities, collections, future stock repurchases, 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) the loss of a large customer; (2) current and future conditions in the global economy; (3) the reliance on revenue from the consumer electronics or automotive industries; (4) the inability to penetrate new markets; (5) the cyclicality of the semiconductor and electronics industries; (6) the inability to achieve significant international revenue; (7) fluctuations in foreign currency exchange rates and the use of derivative instruments; (8) the inability to attract and retain skilled employees; (9) the reliance upon key suppliers to manufacture and deliver critical components for our products; (10) the failure to effectively manage product transitions or accurately forecast customer demand; (11) the inability to design and manufacture high-quality products; (12) the technological obsolescence of current products and the inability to develop new products; (13) the failure to properly manage the distribution of products and services; (14) the inability to protect our proprietary technology and intellectual property; (15) our involvement in time-consuming and costly litigation; (16) the impact of competitive pressures; (17) the challenges in integrating and achieving expected results from acquired businesses; (18) potential impairment charges with respect to our investments or for acquired intangible assets or goodwill; (19) exposure to additional tax liabilities; (20) information security breaches or business system disruptions; and (21) the other risks detailed in Cognex reports filed with the SEC, including its Form 10-K for the fiscal year ended December 31, 2014.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
	October 4,			July 5,			September 28,			October 4,			September 28,
		2015			2015			2014			2015			2014

Revenue	$	107,587		$	143,829		$	154,356		$	352,789		$	327,948

Cost of revenue (1)		26,319			30,508			37,712			79,171			72,455

Gross margin		81,268			113,321			116,644			273,618			255,493
Percentage of revenue		76	%		79	%		76	%		78	%		78	%

Research, development, and engineering expenses (1)		16,977			18,302			17,532			52,265			41,625
Percentage of revenue		16	%		13	%		11	%		15	%		13	%

Selling, general, and administrative expenses (1)		35,806			43,241			43,773			118,980			111,103
Percentage of revenue		33	%		30	%		28	%		34	%		34	%

Operating income		28,485			51,778			55,339			102,373			102,765
Percentage of revenue		26	%		36	%		36	%		29	%		31	%

Foreign currency gain (loss)		(40	)		(39	)		794			580			610

Investment and other income		818			902			978			2,260			2,218

Income from continuing operations before income tax expense		29,263			52,641			57,111			105,213			105,593

Income tax expense on continuing operations		3,441			9,125			9,430			16,403			17,422

Income from continuing operations, net		25,822			43,516			47,681			88,810			88,171
Percentage of revenue		24	%		30	%		31	%		25	%		27	%

Income from discontinued operations, net (1)		78,290			198			2,719			79,518			6,683

Net income	$	104,112		$	43,714		$	50,400		$	168,328		$	94,854

Basic earnings per weighted-average common and common-equivalent share:
Income from continuing operations	$	0.30		$	0.50		$	0.55		$	1.02		$	1.01
Income from discontinued operations		0.91			–			0.03			0.92			0.08
Net income	$	1.21		$	0.50		$	0.58		$	1.94		$	1.09

Diluted earnings per weighted-average common and common-equivalent share:
Income from continuing operations	$	0.29		$	0.49		$	0.53		$	1.00		$	0.99
Income from discontinued operations		0.90			–			0.04			0.90			0.07
Net income	$	1.19		$	0.49		$	0.57		$	1.90		$	1.06

Weighted-average common and common-equivalent shares outstanding:
Basic		86,303			87,199			86,963			86,756			86,875
Diluted		87,776			89,185			89,167			88,559			89,145

Cash dividends per common share	$	0.07		$	0.07		$	–		$	0.14		$	–

Cash and investments per common share	$	6.99		$	5.96		$	5.71		$	6.99		$	5.71

Book value per common share	$	9.58		$	9.11		$	8.43		$	9.58		$	8.43


(1) Amounts include stock option expense, as follows:
Cost of revenue	$	351		$	349		$	253		$	1,167		$	866
Research, development, and engineering		1,130			1,153			836			4,097			2,803
Selling, general, and administrative		2,906			2,985			1,978			10,273			6,803
Discontinued operations		1,106			144			231			1,533			786
Total stock option expense	$	5,493		$	4,631		$	3,298		$	17,070		$	11,258


Exhibit 2
COGNEX CORPORATION
Reconciliation of Selected Items from GAAP to Non-GAAP
(Unaudited)
Dollars in thousands


	Three-months Ended									Nine-months Ended
	October 4,			July 5,			September 28,			October 4,			September 28,
		2015			2015			2014			2015			2014
Adjustment for stock option expense

Operating income (GAAP)	$	28,485		$	51,778		$	55,339		$	102,373		$	102,765
Stock option expense related to continuing operations		4,387			4,487			3,067			15,537			10,472
Operating income (Non-GAAP)	$	32,872		$	56,265		$	58,406		$	117,910		$	113,237
Percentage of revenue (Non-GAAP)		31	%		39	%		38	%		33	%		35	%


Exclusion of tax adjustments

Income from continuing operations before income tax expense (GAAP)	$	29,263		$	52,641		$	57,111		$	105,213		$	105,593

Income tax expense (GAAP)	$	3,441		$	9,125		$	9,430		$	16,403		$	17,422
Effective tax rate (GAAP)		12	%		17	%		16	%		15	%		16	%

Tax adjustments:
Discrete tax events		(1,604	)		(47	)		(869	)		(2,015	)		(1,287	)

Income tax expense excluding tax adjustments (Non-GAAP)	$	5,045		$	9,172		$	10,299		$	18,418		$	18,709
Effective tax rate (Non-GAAP)		17	%		17	%		18	%		18	%		18	%

Income from continuing operations excluding tax adjustments (Non-GAAP)	$	24,218		$	43,469		$	46,812		$	86,795		$	86,884
Percentage of revenue (Non-GAAP)		23	%		30	%		30	%		25	%		26	%


Currency impact on revenue and expenses
	Change			Impact of			Change
	from Q3 2014			Currency			from Q3 2014
	(GAAP)			in Q3 2015			(Non-GAAP)
Revenue		-30	%		-3	%		-27	%

Research, development, and engineering expenses		-3	%		-4	%		1	%

Selling, general, and administrative expenses		-18	%		-6	%		-12	%

	Change			Impact of			Change
	from Q2 2015			Currency			from Q2 2015
	(GAAP)			in Q3 2015			(Non-GAAP)
Revenue		-25	%		0	%		-25	%

Research, development, and engineering expenses		-7	%		0	%		-7	%

Selling, general, and administrative expenses		-17	%		0	%		-17	%


Exhibit 3
COGNEX CORPORATION
Balance Sheets
(Unaudited)
Dollars in thousands


	October 4,		December 31,
		2015		2014

Assets

Cash and investments	$	592,651	$	546,995

Accounts receivable		71,012		40,053

Inventories		39,841		29,223

Property, plant, and equipment		51,105		45,963

Goodwill and intangible assets		88,809		87,058

Held for sale assets		–		29,814

Other assets		43,982		42,628

Total assets	$	887,400	$	821,734


Liabilities and Shareholders’ Equity

Accounts payable and accrued liabilities	$	42,897	$	52,837

Income taxes		13,547		5,671

Deferred revenue and customer deposits		15,311		14,598

Held for sale liabilities		–		12,191

Other liabilities		2,852		–

Shareholders’ equity		812,793		736,437

Total liabilities and shareholders’ equity	$	887,400	$	821,734


Exhibit 4
COGNEX CORPORATION
Additional Information Schedule
(Unaudited)
Dollars in thousands, except per share amounts


	Three-months Ended									Nine-months Ended
	October 4,			July 5,			September 28,			October 4,			September 28,
		2015			2015			2014			2015			2014

Revenue	$	107,587		$	143,829		$	154,356		$	352,789		$	327,948

Revenue by geography:
Europe		41	%		56	%		62	%		47	%		48	%
Americas		32	%		24	%		21	%		29	%		30	%
Asia		21	%		15	%		11	%		18	%		14	%
Japan		6	%		5	%		6	%		6	%		8	%
Total		100	%		100	%		100	%		100	%		100	%

Revenue by market:
Factory automation		95	%		95	%		95	%		95	%		93	%
Semiconductor and electronics capital equipment		5	%		5	%		5	%		5	%		7	%
Total		100	%		100	%		100	%		100	%		100	%



Restated 2014 Statements of Operations for discontinued operations:	Three-months Ended												Year Ended
	March 30,			June 29,			September 28,			December 31,			December 31,
		2014			2014			2014			2014			2014
Revenue	$	81,316		$	92,276		$	154,356		$	98,501		$	426,449
Cost of revenue		16,553			18,190			37,712			21,612			94,067
Gross margin		64,763			74,086			116,644			76,889			332,382
Research, development, and engineering expenses		11,569			12,524			17,532			14,206			55,831
Selling, general, and administrative expenses		31,792			35,538			43,773			37,596			148,699
Operating income		21,402			26,024			55,339			25,087			127,852
Foreign currency gain (loss)		(110	)		(74	)		794			421			1,031
Investment and other income		514			726			978			655			2,873
Income from continuing operations before income tax expense		21,806			26,676			57,111			26,163			131,756
Income tax expense		3,990			4,001			9,430			3,494			20,915
Income from continuing operations		17,816			22,675			47,681			22,669			110,841
Income from discontinued operations		690			3,273			2,719			3,962			10,644
Net income	$	18,506		$	25,948		$	50,400		$	26,631		$	121,485

Basic earnings per weighted-average common and common-equivalent share:
Income from continuing operations	$	0.21		$	0.26		$	0.55		$	0.26		$	1.28
Income from discontinued operations		0.00			0.04			0.03			0.05			0.12
Net income	$	0.21		$	0.30		$	0.58		$	0.31		$	1.40

Diluted earnings per weighted-average common and common-equivalent share:
Income from continuing operations	$	0.20		$	0.25		$	0.53		$	0.26		$	1.24
Income from discontinued operations		0.01			0.04			0.04			0.04			0.12
Net income	$	0.21		$	0.29		$	0.57		$	0.30		$	1.36

Weighted-average common and common-equivalent shares outstanding:
Basic		86,879			86,782			86,963			86,811			86,858
Diluted		89,259			88,965			89,167			88,849			89,071