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Cognex Reports Record Revenue, Net Income and Earnings for the Second Quarter of 2014

Cognex Corporation (NASDAQ: CGNX) today announced record revenue, net income and earnings per share for the second quarter of 2014. Selected financial data for the quarter and six months ended June 29, 2014 is compared to the first quarter of 2014, the second quarter of 2013 and the first six months of 2013 in Table 1 below. A reconciliation of certain financial measures from GAAP to non-GAAP is shown in Exhibit 2 of this news release.

 

Table 1

 
     

Revenue

   

Net Income

   

Net Income per
Diluted Share*

Quarterly Comparisons

                 
Current quarter: Q2-14     $108,802,000     $25,948,000     $0.29
Prior year’s quarter: Q2-13     $86,510,000     $16,820,000     $0.19
Change from Q2-13 to Q2-14     26%     54%     54%
Prior quarter: Q1-14     $90,929,000     $18,506,000     $0.21
Change from Q1-14 to Q2-14     20%     40%     41%

Year-to-Date Comparisons

                 
Six months ended June 29, 2014     $199,731,000     $44,454,000     $0.50
Six months ended June 30, 2013     $167,402,000     $32,403,000     $0.37
Change from first six months of 2013 to first six months of 2014    

19%

   

37%

   

36%

*Adjusted for the two-for-one stock split effective September 16, 2013.

 

“What a quarter!” exclaimed Dr. Robert J. Shillman, Chairman of Cognex. “Our record-breaking financial results were above our expectations. We were highly profitable and delivered record earnings per share even with continued investments in engineering and sales to drive future growth.”

“Our second quarter performance was outstanding,” said Robert J. Willett, Chief Executive Officer of Cognex. “The strong upward momentum in our business is driven by past investments we made in our technology and sales team. It’s gratifying to see our hard work deliver these great financial results. Even more exciting is the substantial growth that we expect to report for Q3.”

Details of the Quarter

Statement of Operations Highlights – Second Quarter of 2014

  • Revenue increased 26% over Q2 2013 and 20% over Q1 2014. All three markets served by Cognex contributed to this growth. The largest contributor in absolute dollars came from the factory automation market, which set a new quarterly revenue record. A particular highlight was strong performance in Europe following a lackluster year in 2013. Surface inspection also set a new revenue record, helped by the recognition of previously deferred revenue. And, revenue from the semiconductor and electronics capital equipment market increased both year-on-year and sequentially.
  • Gross margin was 76% in Q2 2014 compared to 77% in Q1 2014 and 76% in Q2 2013. Gross margin decreased on a sequential basis due to product mix: surface inspection systems represented a higher percentage of revenue in Q2 2014 than in Q1 2014.
  • Research, Development & Engineering (RD&E) expenses increased 15% over Q2 2013 and 9% over Q1 2014. The increase, both year-on-year and sequentially, was due to Cognex’s investment in new product development. Stock option expense contributed to the year-on-year increase, and a higher bonus accrual contributed to the sequential increase.
  • Selling, General & Administrative (SG&A) expenses increased 16% over Q2 2013 and 11% over Q1 2014. The increase year-on-year was due to several factors, including investments made to grow Cognex’s sales force and legal fees related to the company’s patent lawsuit against Microscan Systems, Inc. (the lawsuit was decided in Cognex’s favor). Other factors that contributed to the increase included incremental support capabilities and higher stock option expense and commissions. The sequential increase was due to the legal fees for the Microscan lawsuit, a higher bonus accrual, higher travel expenses and incremental support capabilities.
  • The tax rate was 17% in Q2 2014 compared to 19% in Q1 2014 and Q2 2013. Excluding discrete tax items, the tax rate was 19% in each period (tax adjustments are summarized in Exhibit 2).

Balance Sheet Highlights – June 29, 2014

  • Cognex’s financial position as of June 29, 2014, continues to be very strong, with no debt and $468,000,000 in cash and investments. Cognex spent $13,000,000 in the second quarter to repurchase 360,000 shares of its common stock at an average price of $35.33 per share. Cognex repurchased these shares to offset the potential dilution from 2014 employee stock options awards which the company believes are instrumental in its ability to recruit, retain and motivate our high caliber employees. The company intends to continue to repurchase shares of its common stock in the second half of 2014, subject to market conditions and other relevant factors.
  • The increases as of June 29, 2014 in accounts receivable, deferred costs (which are included in other assets on the balance sheet in Exhibit 3) and deferred revenue are due to the company’s progress in fulfilling certain purchase orders during Q2 2014 that are expected to be recognized as revenue primarily in Q3 2014.

Financial Outlook for Q3 2014

  • Revenue for Q3 2014 is expected to be between $165 million and $170 million, which includes expected revenue in excess of $60 million from a major customer. This range represents an increase of more than 50% over the revenue reported for Q2 2014.
  • Gross margin is expected to be in the mid-70% range, slightly lower than in recent quarters.
  • Operating expenses are expected to increase by approximately 25% over Q2 2014. Cognex intends to make further investments in growth areas, some of which are not expected to repeat in Q4. Operating expenses for Q4 2014 are expected to be approximately 10% higher than in Q2 2014.
  • The effective tax rate is expected to be 19% 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 results over multiple periods using the same methodology that management employs in its budgeting process and in its review of operating results. In particular, non-GAAP presentations exclude the following: (1) stock option expense for the purpose of calculating non-GAAP adjusted operating income, non-GAAP adjusted net income and non-GAAP adjusted net income per share (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 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.
  • 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 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, July 31, 2014. 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 1640787.
  • 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 975,000 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, the timing of certain revenue recognition, expected areas of growth, emerging markets, future product mix, research and development activities, investments, stock repurchases, 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 reliance on revenue from the automotive or consumer electronics 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) the loss of a large customer; (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, 2013. 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 Six-months Ended
June 29, March 30, June 30, June 29, June 30,
  2014     2014     2013     2014     2013  
 
Revenue $ 108,802 $ 90,929 $ 86,510 $ 199,731 $ 167,402
 
Cost of revenue (1)   25,790     21,084     21,150     46,874     40,573  
 
Gross margin 83,012 69,845 65,360 152,857 126,829
Percentage of revenue 76 % 77 % 76 % 77 % 76 %
 
Research, development, and engineering expenses (1) 13,622 12,502 11,887 26,124 23,208
Percentage of revenue 13 % 14 % 14 % 13 % 14 %
 
Selling, general, and administrative expenses (1) 38,668 34,900 33,300 73,568 65,467
Percentage of revenue   36 %   38 %   38 %   37 %   39 %
 
Operating income 30,722 22,443 20,173 53,165 38,154
Percentage of revenue 28 % 25 % 23 % 27 % 23 %
 
Foreign currency gain (loss) (96 ) (110 ) 76 (206 ) 139
 
Investment and other income   726     514     517     1,240     1,026  
 
Income before income tax expense 31,352 22,847 20,766 54,199 39,319
 
Income tax expense   5,404     4,341     3,946     9,745     6,916  
 
Net income $ 25,948   $ 18,506   $ 16,820   $ 44,454   $ 32,403  
Percentage of revenue 24 % 20 % 19 % 22 % 19 %
 
Earnings per weighted-average common and common-equivalent share (2):
Basic $ 0.30   $ 0.21   $ 0.19   $ 0.51   $ 0.37  
Diluted $ 0.29   $ 0.21   $ 0.19   $ 0.50   $ 0.37  
 
Weighted-average common and common-equivalent shares outstanding (2):
Basic   86,782     86,879     87,044     86,830     86,784  
Diluted   88,965     89,259     88,714     89,112     88,502  
 
Cash dividends per common share (2) $ -   $ -   $ -   $ -   $ -  
 
Cash and investments per common share (2) $ 5.39   $ 5.34   $ 4.90   $ 5.39   $ 4.90  
 
Book value per common share (2) $ 7.87   $ 7.61   $ 7.07   $ 7.87   $ 7.07  
 
 

(1) Amounts include stock option expense, as follows:

Cost of revenue $ 312 $ 348 $ 224 $ 660 $ 514
Research, development, and engineering 988 1,056 650 2,044 1,463
Selling, general, and administrative   2,656     2,600     1,907     5,256     4,102  
Total stock option expense $ 3,956   $ 4,004   $ 2,781   $ 7,960   $ 6,079  
 
 

(2) Prior year's share and per share amounts have been adjusted to reflect the 2-for-1 stock split of the Company's common stock that occurred in Q3 of 2013.

 

Exhibit 2

COGNEX CORPORATION
Reconciliation of Selected Items from GAAP to Non-GAAP
(Unaudited)
Dollars in thousands, except per share amounts
             
               
Three-months Ended Six-months Ended
June 29, March 30, June 30, June 29, June 30,
  2014       2014       2013     2014       2013  
Adjustment for stock option expense                  
 
Operating income (GAAP) $ 30,722 $ 22,443 $ 20,173 $ 53,165 $ 38,154
Stock option expense   3,956     4,004  

 

  2,781     7,960     6,079  
Operating income (Non-GAAP) $ 34,678   $ 26,447   $ 22,954   $ 61,125   $ 44,233  
Percentage of revenue (Non-GAAP) 32 % 29 % 27 % 31 % 26 %
 
Net income (GAAP) $ 25,948 $ 18,506 $ 16,820 $ 44,454 $ 32,403
Stock option expense 3,956 4,004 2,781 7,960 6,079
Tax effect on stock options   (1,266 )   (1,306 )   (910 )   (2,572 )   (2,004 )
Net income (Non-GAAP) $ 28,638   $ 21,204   $ 18,691   $ 49,842   $ 36,478  
Percentage of revenue (Non-GAAP) 26 % 23 % 22 % 25 % 22 %
 
Net income per diluted share (GAAP) (1) $ 0.29 $ 0.21 $ 0.19 $ 0.50 $ 0.37
Stock option expense per diluted share 0.04 0.04 0.03 0.09 0.07
Tax effect on stock options   (0.01 )   (0.01 )   (0.01 )   (0.03 )   (0.03 )
Net income per diluted share excluding stock option expense (Non-GAAP) $ 0.32   $ 0.24   $ 0.21   $ 0.56   $ 0.40  
 
(1) Prior year's per share amounts have been adjusted to reflect the 2-for-1 stock split of the Company's common stock that occurred in Q3 of 2013.
                         
 
Exclusion of tax adjustments                  
 
Income before income tax expense (GAAP) $ 31,352   $ 22,847   $ 20,766   $ 54,199   $ 39,319  
 
Income tax expense (GAAP) $ 5,404 $ 4,341 $ 3,946 $ 9,745 $ 6,916
Effective tax rate (GAAP) 17 % 19 % 19 % 18 % 18 %
 
Tax adjustments:
Discrete tax events   (553 )   -     -     (553 )   (555 )
(553 ) - - (553 ) (555 )
 
Income tax expense excluding tax adjustments (Non-GAAP) $ 5,957   $ 4,341   $ 3,946   $ 10,298   $ 7,471  
Effective tax rate (Non-GAAP) 19 % 19 % 19 % 19 % 19 %
 

 

Exhibit 3

COGNEX CORPORATION
Balance Sheets
(Unaudited)
In thousands
   
 
 
June 29, December 31,
  2014   2013
 
Assets
 
Cash and investments $ 467,574 $ 455,121
 
Accounts receivable 69,780 53,015
 
Inventories 30,737 25,694
 
Property, plant, and equipment 38,321 37,136
 
Goodwill and intangible assets 94,581 96,412
 
Other assets   59,463   42,321
 
Total assets $ 760,456 $ 709,699
 
 
Liabilities and Shareholders' Equity
 
Accounts payable and accrued liabilities $ 48,250 $ 43,818
 
Income taxes 4,372 6,028
 
Deferred revenue and customer deposits 25,327 15,941
 
Shareholders' equity   682,507   643,912
 
Total liabilities and shareholders' equity $ 760,456 $ 709,699
 

 

Exhibit 4

COGNEX CORPORATION
Additional Information Schedule
(Unaudited)
Dollars in thousands
                     
         
Three-months Ended Six-months Ended
June 29, March 30, June 30, June 29, June 30,
  2014     2014     2013     2014       2013  
 
Revenue $ 108,802   $ 90,929   $ 86,510   $ 199,731   $ 167,402  
 
Revenue by division:
Modular Vision Systems Division 85 % 90 % 86 % 87 % 86 %
Surface Inspection Systems Division   15 %   10 %   14 %   13 %   14 %
Total   100 %   100 %   100 %   100 %   100 %
 
Revenue by geography:
Americas 36 % 42 % 35 % 39 % 35 %
Europe 31 % 33 % 31 % 32 % 31 %
Asia 22 % 15 % 21 % 18 % 22 %
Japan   11 %   10 %   13 %   11 %   12 %
Total   100 %   100 %   100 %   100 %   100 %
 
Revenue by market:
Factory automation 77 % 83 % 78 % 80 % 78 %
Web and surface inspection 15 % 10 % 14 % 13 % 14 %
Semiconductor and electronics capital equipment   8 %   7 %   8 %   7 %   8 %
Total   100 %   100 %   100 %   100 %   100 %
                                         

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