Cognex Corporation (NASDAQ: CGNX) today announced financial
results for the third quarter of 2018. Table 1 below shows selected
financial data for Q3-18 compared with Q3-17 and Q2-18, and the
first nine months of 2018 compared with the first nine months of
2017. All periods presented reflect the two-for-one stock split
that occurred in Q4-17.
Table
1*
(Dollars in thousands, except per share
amounts)
Revenue
Net
Income
Net Income per
DilutedShare
Non-GAAP Net Incomeper
DilutedShare**
Quarterly
Comparisons
Current
quarter : Q3-18 $232,221 $80,436
$0.45 $0.39 Prior year’s quarter: Q3-17
$266,042 $102,493 $0.57 $0.51 Change:
Q3-17 to Q3-18 (13%) (22%) (21%) (24%)
Prior quarter: Q2-18
$211,264
$56,196 $0.32 $0.31 Change: Q2-18 to Q3-18
10% 43% 41% 26%
Year-to-Date
Comparisons
Nine months
ended Sep. 30, 2018
$613,052 $173,849
$0.98 $0.88 Nine months ended Oct. 1,
2017 $583,161 $204,459 $1.14 $0.98
Change from first nine months of 2017 to first nine months of 2018
5% (15%) (14%) (10%)
* The financial results for all periods presented reflect the
retroactive adoption of a new revenue recognition standard (ASC
606, “Revenue from Contracts with Customers”) that became effective
on January 1, 2018. This standard did not have a material impact on
total revenue. For a historical perspective, Exhibit 4 of this news
release includes the company’s quarterly Statement of Operations
for 2017 adjusted for the impact of the new standard.**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 results for Q3-18 were very good,” said Dr. Robert J.
Shillman, Chairman of Cognex. “We reported the second-best
quarterly revenue, net income and earnings per share from
continuing operations in our company’s 37-year history. These
results were surpassed only by our spectacular performance in last
year’s third quarter, which was driven by exceptional growth across
our business, particularly in our largest end market—consumer
electronics.”
“I am pleased with the substantial revenue growth and operating
margin expansion that we achieved on a sequential basis,” said
Robert J. Willett, Chief Executive Officer of Cognex. “More
importantly, we accomplished significant company objectives that
are expected to set us up for long-term growth. These include
successfully implementing our new Enterprise Resource Planning
(ERP) system and passing a number of key product development
milestones.”
Mr. Willett continued, “While we are pleased with our Q3-18
results, slower spending trends that we are experiencing in China
have reduced our revenue outlook for Q4-18.”
In separate news releases issued today, Cognex announced that
its Board of Directors declared a quarterly cash dividend of $0.05
per share, payable on November 30, 2018 to all shareholders of
record at the close of business on November 16, 2018. This dividend
represents an increase of $0.005 per share, or 11%, over the $0.045
per share dividend paid in the prior quarter. In addition, the
Board authorized the repurchase of up to $200 million of Cognex
stock in open market transactions, subject to market conditions and
other relevant factors. This new authorization will commence after
Cognex completes an existing $150 million repurchase program, of
which approximately $53 million remains available.
Details of the
Quarter
Statement of Operations Highlights – Third Quarter of
2018
- Revenue decreased 13% from Q3-17 and
increased 10% from Q2-18. In constant currency, revenue decreased
13% year-on-year and grew 12% sequentially. The decline
year-on-year is due to significantly lower revenue in Q3-18 from
large customers in OLED display and smartphone manufacturing
following an extraordinarily high level of investment by them in
machine vision in Q3-17. The increase in revenue on a sequential
basis is due to a higher concentration of large orders from
customers in the consumer electronics market in Q3-18.
- Gross margin was 75% for Q3-18 compared
with 74% for both Q3-17 and Q2-18, consistent with Cognex’s target
range.
- Research, Development & Engineering
(RD&E) expenses increased 14% from Q3-17 and 10% from Q2-18.
The year-on-year increase in RD&E is attributable to Cognex’s
investment in engineering resources for new product development.
The sequential increase is primarily related to personnel-related
costs and engineering materials.
- Selling, General & Administrative
(SG&A) expenses increased 8% from Q3-17 and decreased 1% from
Q2-18. SG&A increased year-on-year due to continued investments
in sales resources as well as higher commissions and travel
expenses. On a sequential basis, the decrease was primarily due to
the impact of currency exchange rate fluctuations in the company’s
international operations.
- Investment and other income totaled
$3.8 million in Q3-18, $2.0 million in Q3-17 and $3.3 million in
Q2-18. The increase both year-on-year and sequentially is from
higher yields and a higher average invested balance. Also
contributing was a lower expense in Q3-18 associated with changes
to the fair value of contingent consideration related to recent
acquisitions.
- The effective tax rate was 1% in Q3-18,
9% in Q3-17 and 16% in Q2-18. All periods presented include varying
discrete tax adjustments realized during that quarter. Notably,
Q3-18 included $12.2 million of discrete tax benefits, with the
largest being a $7.7 million reduction of the estimated tax
liability that was recorded in Q4-17 associated with the Tax Cuts
and Jobs Act of 2017 (Tax Act). This estimated tax liability may be
further adjusted as regulatory guidance regarding the Tax Act
continues to develop.
- Excluding all discrete tax events, the
rate was 16%, 18% and 17% in Q3-18, Q3-17 and Q2-18, respectively
(tax adjustments are summarized in Exhibit 2). The decrease in the
rate year-on-year was due primarily to the impact of the Tax Act,
which lowered the U.S. federal statutory corporate tax rate from
35% to 21%.
Balance Sheet Highlights – September 30, 2018
- Cognex’s financial position as of
September 30, 2018, continued to be strong, with $809 million in
cash and investments, with no debt. Cash and investments decreased
by $19 million from the end of 2017. During the first nine months
of 2018, cash inflows consisted of $152 million generated from
operations and $26 million received from the exercise of employee
stock options. Cash outflows included $142 million spent to
repurchase Cognex common stock, $27 million for capital
expenditures, and $23 million in dividends paid to shareholders.
Cognex intends to continue to repurchase shares of its common stock
in Q4-18, subject to market conditions and other relevant
factors.
- Inventories increased by $26 million,
or 38%, from the end of 2017 due to strategic purchases (including
safety stock in anticipation of our ERP implementation in Q3-18)
and in preparation for planned new product introductions.
Financial Outlook – Q4 2018
This financial outlook reflects the new revenue recognition
standard (ASC 606, “Revenue from Contracts with Customers”) that
took effect on January 1, 2018. This standard did not have a
material impact on total revenue. For a historical perspective,
Exhibit 4 of this news release includes the company’s quarterly
Statement of Operations for 2017 adjusted for the impact of the new
standard.
- Revenue for Q4-18 is expected to be
between $180 million and $190 million. At the mid-point, that range
represents a slight increase year-on-year, which is lower than the
company’s long-term growth target due to both the slower spending
by customers in China and a lingering headwind from last year’s
high level of investment by large OLED display and smartphone
manufacturers. Excluding an expected $15 million reduction related
to the OLED/smartphone revenue, the year-on-year anticipated
increase is approximately 10%.
- Gross margin is expected to be in the
mid-70% range, slightly lower than the gross margin reported for
Q3-18.
- Operating expenses are expected to be
approximately flat on a sequential basis.
- The effective tax rate is expected to
be 16% 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 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, 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 Time (ET). 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. ET today and will be available until 11:59
p.m. ET on Thursday, November 1, 2018. 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
13682517.
- 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 1.5 million vision-based products,
representing over $5 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 timing of related revenue, expected areas of
growth, new product introductions, research and development
activities, Cognex’s stock repurchase program and further stock
repurchases, investments, strategic plans and tax matters, 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; (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 challenges in integrating
and achieving expected results from acquired businesses; (19)
potential impairment charges with respect to our investments or for
acquired intangible assets or goodwill; (20) exposure to additional
tax liabilities; 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, 2017. 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 CORPORATIONStatements of
Operations(Unaudited)Dollars in thousands, except per
share amounts
Three-months Ended Nine-months Ended
September 30,2018
July 1, 2018
October 1,2017
September 30,2018
October 1,2017
Revenue (1)
$ 232,221 $ 211,264 $ 266,042
$ 613,052 $ 583,161 Cost of revenue (1)
58,860
54,169 68,061
153,227 142,757
Gross margin
173,361 157,095 197,981
459,825
440,404 Percentage of revenue
75 % 74 % 74 %
75 % 76 % Research, development, and engineering
expenses (1)
29,700 26,888 26,078
87,664 72,225
Percentage of revenue
13 % 13 % 10 %
14
% 12 % Selling, general, and administrative expenses (1)
65,817 66,752 61,054
196,266 160,093 Percentage of
revenue
28 % 32 % 23 %
32 % 27 %
Operating income
77,844 63,455 110,849
175,895
208,086 Percentage of revenue
34 % 30 % 42 %
29 % 36 % Foreign currency (loss)
(379
) (195 ) (127 )
(708 ) (574 ) Investment and
other income
3,808 3,313 2,030
10,638 6,281 Income before income tax expense
81,273 66,573 112,752
185,825 213,793 Income tax
expense
837 10,377 10,259
11,976
9,334 Net income
$ 80,436 $
56,196 $ 102,493
$ 173,849 $
204,459 Percentage of revenue
35 % 27 % 39 %
28 % 35 % Earnings per weighted-average common
and common-equivalent share (2): Basic
$ 0.47
$ 0.33 $ 0.59
$ 1.01 $ 1.18
Diluted
$ 0.45 $ 0.32 $ 0.57
0.98 1.14
Weighted-average common and common-equivalent shares outstanding
(2): Basic
172,189 172,370 173,234
172,613 173,052 Diluted
177,245
177,149 179,354
178,021 179,124
Cash dividends per common share (2)
$ 0.0450
$ 0.0450 $ 0.0425
$ 0.1350
$ 0.1225 Cash and investments per common share (2)
$ 4.70 $ 4.39 $ 4.45
$
4.70 $ 4.45 Book value per common share (2)
$ 6.68 $ 6.27 $ 6.55
$
6.68 $ 6.55 (1) Amounts include stock
option expense, as follows: Cost of revenue
$ 544 $
557 $ 520
$ 1,898 $ 1,404 Research, development, and
engineering
3,197 3,154 2,765
11,166 8,090 Selling,
general, and administrative
5,402 5,291 4,741
18,275 13,861 Total stock option
expense
$ 9,143 $ 9,002 $ 8,026
$ 31,339 $ 23,355
(2) Prior periods 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 the fourth quarter of 2017.
Exhibit 2
COGNEX CORPORATIONReconciliation
of Selected Items from GAAP to
Non-GAAP(Unaudited)Dollars in thousands, except per
share amounts
Three-months Ended Nine-months Ended
September 30,2018
July 1, 2018
October 1,2017
September 30,2018
October 1,2017
Adjustment for stock option expense and tax benefit for stock
option exercises Operating income (GAAP)
$ 77,844
$ 63,455 $ 110,849
$ 175,895 $
208,086 Stock option expense
9,143 9,002 8,026
31,339 23,355 Operating income
(Non-GAAP)
$ 86,987 $ 72,457 $ 118,875
$ 207,234 $ 231,441 Percentage
of revenue (Non-GAAP)
37 % 34 % 45 %
34
% 40 % Net income (GAAP)
$ 80,436 $
56,196 $ 102,493
$ 173,849 $ 204,459 Stock option
expense
9,143 9,002 8,026
31,339 23,355 Tax effect on
stock option expense
(1,654 ) (1,607 ) (2,639 )
(5,608 ) (7,661 ) Discrete tax benefit related to
employee stock option exercises
(2,811 ) (654 )
(8,620 )
(8,400 ) (27,574 ) Net income (Non-GAAP)
$ 85,114 $ 62,937 $ 99,260
$ 191,180 $ 192,579 Percentage of
revenue (Non-GAAP)
37 % 30 % 37 %
31 %
33 % Net income per diluted weighted-average common and
common-equivalent share (GAAP) (1)
$ 0.45 $ 0.32 $
0.57
$ 0.98 $ 1.14 Share impact of non-GAAP
adjustments identified above (1)
0.03 0.04
(0.02 )
0.09 (0.06 ) Net income per diluted
weighted-average common and common-equivalent share (Non-GAAP) (1)
$ 0.48 $ 0.36 $ 0.55
$
1.07 $ 1.08 Diluted weighted-average
common and common-equivalent shares outstanding (GAAP) (1)
177,245 177,149 179,354
178,021
179,124
Exclusion of tax adjustments
Income before income tax expense (GAAP)
$
81,273 $ 66,573 $ 112,752
$
185,825 $ 213,793 Income tax expense
(GAAP)
$ 837 $ 10,377 $ 10,259
$ 11,976
$ 9,334 Effective tax rate (GAAP)
1 % 16 % 9 %
6 % 4 % Tax adjustments: Discrete tax benefit
related to employee stock option exercises
(2,811 )
(654 ) (8,620 )
(8,400 ) (27,574 ) Discrete tax
benefit related to Tax Act
(7,699 ) — —
(7,699
) — Other discrete tax events
(1,657 ) —
(1,765 )
(1,657 ) (1,908 ) Income tax expense
excluding tax adjustments (Non-GAAP)
$ 13,004
$ 11,031 $ 20,644
$ 29,732 $
38,816 Effective tax rate (Non-GAAP)
16 % 17 %
18 %
16 % 18 % Net income excluding tax
adjustments (Non-GAAP)
$ 68,269 $ 55,542
$ 92,108
$ 156,093 $ 174,977
Percentage of revenue (Non-GAAP)
29 % 26 % 35
%
25 % 30 % Net income per diluted
weighted-average common and common-equivalent share (GAAP) (1)
$ 0.45 $ 0.32 $ 0.57
$ 0.98 $ 1.14
Share impact of non-GAAP adjustments identified above (1)
(0.06 ) (0.01 ) (0.06 )
(0.10 ) (0.16 )
Net income per diluted weighted-average common and
common-equivalent share (Non-GAAP) (1)
$ 0.39
$ 0.31 $ 0.51
$ 0.88 $ 0.98
Diluted weighted-average common and common-equivalent
shares outstanding (GAAP) (1)
177,245 177,149
179,354
178,021 179,124
(1) Prior periods 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 the fourth quarter of 2017.
Exhibit 3
COGNEX CORPORATIONBalance
Sheets(Unaudited)Dollars in thousands
September 30, 2018 December 31, 2017
Assets
Cash and investments
$ 809,316 $ 827,984 Accounts
receivable
135,441 119,388 Unbilled revenue
13,948
7,454 Inventories
94,035 67,923 Property, plant, and
equipment
88,930 78,048 Goodwill and intangible assets
124,090 126,397 Other assets
58,936 60,559
Total assets
$ 1,324,696 $ 1,287,753
Liabilities and Shareholders' Equity Accounts payable and
accrued expenses
$ 88,927 $ 91,712 Deferred revenue
and customer deposits
13,252 9,420 Income taxes
67,599 85,044 Other liabilities
5,474 5,904
Shareholders' equity
1,149,444 1,095,673 Total
liabilities and shareholders' equity
$ 1,324,696 $
1,287,753
Exhibit 4
COGNEX CORPORATIONRestated
Statements of Operations under ASC 606 "Revenue from Contracts with
Customers"(Unaudited)Dollars in thousands
Three-months Ended
April 2,2017
July 2,2017
October 1,2017
December 31,2017
Revenue $ 139,039 $ 178,080 $ 266,042 $ 182,922 Cost of
revenue 32,532 42,164 68,061 44,532
Gross margin 106,507 135,916 197,981 138,390 Percentage of revenue
77 % 76 % 74 % 76 % Research, development, and engineering expenses
22,770 23,377 26,078 26,980 Percentage of revenue 16 % 13 % 10 % 15
% Selling, general, and administrative expenses 46,521 52,518
61,054 60,635 Percentage of revenue 33 % 29 % 23 % 33 % Operating
income 37,216 60,021 110,849 50,775 Percentage of revenue 27 % 34 %
42 % 28 % Foreign currency (loss) (263 ) (184 ) (127 ) (1,027 )
Investment and other income 2,282 1,969 2,030
2,923 Income before income tax expense 39,235 61,806 112,752
52,671 Income tax expense (benefit) (6,236 ) 5,311 10,259
80,418 Net income (loss) $ 45,471 $ 56,495
$ 102,493 $ (27,747 ) Percentage of revenue 33 % 32 %
39 % (15 )% Earnings per weighted-average common and
common-equivalent share (1): Basic $ 0.26 $ 0.33 $
0.59 $ (0.16 ) Diluted $ 0.25 $ 0.32 $ 0.57
$ (0.16 ) Weighted-average common and
common-equivalent shares outstanding (1): Basic 172,646
173,278 173,234 173,397 Diluted 178,354
179,228 179,354 173,397
(1) Prior periods 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 the fourth quarter of 2017.
Adjustments to certain financial data
as a result of the implementation of ASC 606 "Revenue from
Contracts with Customers on Jan. 1 2018"
Three-months Ended
April 2,2017
July 2,2017
October 1,2017
December 31,2017
Revenue as reported $ 134,942 $ 172,904 $ 259,739 $ 180,365
Adjustments to revenue 4,097 5,176 6,303 2,557
Revenue as restated $ 139,039 $ 178,080 $
266,042 $ 182,922 Cost of revenue as reported
28,225 37,471 62,360 40,642 Adjustments to cost of revenue 4,307
4,693 5,701 3,890 Cost of revenue as
restated $ 32,532 $ 42,164 $ 68,061 $ 44,532
Gross margin as reported $ 106,717 $ 135,433 $
197,379 $ 139,723 Adjustments to gross margin (210 ) 483 602
(1,333 ) Gross margin as restated $ 106,507 135,916
$ 197,981 $ 138,390 Gross margin
percentage as reported 79 % 78 % 76 % 77 % Adjustments to gross
margin percentage (2 )% (2 )% (2 )% (1 )% Gross margin percentage
as restated 77 % 76 % 74 % 76 % Operating income as reported
$ 37,426 $ 59,538 $ 110,247 $ 52,108 Adjustments to operating
income (210 ) 483 602 (1,333 ) Operating income as
restated $ 37,216 $ 60,021 $ 110,849 $ 50,775
Operating margin as reported 28 % 34 % 42 % 29 %
Adjustments to operating margin (1 )% — % — % (1 )% Operating
margin as restated 27 % 34 % 42 % 28 %
View source
version on businesswire.com: https://www.businesswire.com/news/home/20181029005764/en/
Cognex CorporationSusan Conway, 508-650-3353Senior Director of
Investor Relationssusan.conway@cognex.com
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