Cognex Reports Record Fourth Quarter and Full Year Results for 2018

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
2018. Table 1 below shows selected financial data for Q4-18 compared
with Q4-17 and Q3-18, and the year ended December 31, 2018 compared with
the year ended December 31, 2017. Earnings per share for all periods
presented reflect the two-for-one stock split paid on December 1, 2017.

       

Table 1

 
   

Revenue

 

Income/(loss) from Continuing Operations

 

Income/(loss) per share from

Continuing Operations

 

Non-GAAP Income/(loss) per share from
Continuing Operations*

Quarterly Comparisons

               
Current quarter: Q4-18   $193,286,000   $45,418,000   $0.26   $0.26
Prior year’s quarter: Q4-17   $182,922,000   ($27,747,000)   ($0.16)   $0.24
Change: Q4-17 to Q4-18   6%   **   **   8%
Prior quarter: Q3-18   $232,221,000   $80,436,000   $0.45   $0.39
Change: Q3-18 to Q4-18   (17%)   (44%)   (42%)   (33%)

Yearly Comparisons

               
Year ended 12/31/2018   $806,338,000   $219,267,000   $1.24   $1.13
Year ended 12/31/2017   $766,083,000   $176,712,000   $0.98   $1.22
Change: 2017 to 2018   5%   24%   27%   (7%)

* Non-GAAP income/(loss) per share from continuing operations excludes
tax adjustments. A reconciliation from GAAP to Non-GAAP is shown in
Exhibit 2 of this news release.

**Not meaningful.

“For the third year in a row, Cognex reported record revenue, record net
income, and record earnings per share, all from continuing operations,”
said Dr.
Robert J. Shillman
, Chairman of Cognex. “Normally, I would say that
I am very pleased with this achievement, but our success was partly due
to a one-time charge to tax expense in Q4-17 related to the Tax Cuts and
Jobs Act. Nevertheless, we were highly profitable in both 2017 and 2018,
reporting an operating margin of 27% or more for each of those years.”

“We are reporting our ninth consecutive year of revenue growth following
an exceptional growth year in 2017,” said Robert
J. Willett
, Chief Executive Officer of Cognex. “We performed well
across most end markets. An exception was consumer electronics—our
largest industry vertical—where a few large customers in OLED display
and smartphone manufacturing scaled back their spending on machine
vision after making substantial investments in 2017. Putting those
customers aside, revenue from the rest of our business grew by 18%
year-on-year.”

Mr. Willett continued, “As we enter 2019, lower spending by our
customers in China continues to slow our growth rate as it did at the
end of 2018. Similar effects are now evident in other markets that we
serve, most noticeably in the automotive sector in the Americas.”

Summary of the Year

For 2018, Cognex reported record revenue, net income, and earnings per
share, all from continuing operations. The company performed well in
multiple end markets, including logistics, which grew by more than 50%
year-on-year and generated more than $100 million of annual revenue.
Consistent with the company’s belief that investing for the future
remains key to its ongoing success, Cognex invested a record $116
million, or 14% of revenue, in engineering during 2018, marking the
company’s ninth consecutive year of RD&E growth. Cognex also continued
to expand its world-wide sales force and to make strategic IT and
infrastructure investments which included the implementation of an SAP®
Enterprise Resource Planning system.

Details of the Quarter

Statement of Operations Highlights – Fourth Quarter of 2018

  • Revenue for Q4-18 increased 6% from Q4-17 and declined 17% from Q3-18.
    Revenue from multiple end markets grew year-on-year, led by logistics.
    An exception was consumer electronics, where revenue declined in 2018
    after substantial growth in 2017. The decrease in revenue in Q4-18 on
    a sequential basis reflected a high concentration of large orders from
    customers in the consumer electronics market in Q3-18.
  • Gross margin was 73% for Q4-18 compared with 75% for Q3-18 and 76% for
    Q4-17. The decrease was primarily due to revenue mix, with a higher
    percentage of revenue coming from application-specific solutions for
    logistics customers in Q4-18.
  • Research, Development & Engineering (RD&E) expenses increased 7% from
    Q4-17 and decreased 3% from Q3-18. The year-on-year increase in RD&E
    reflects Cognex’s investment in engineering resources and
    employee-related costs for new product development. The sequential
    decrease in RD&E reflects the timing of product development efforts
    related to large opportunities in consumer electronics.
  • Selling, General & Administrative (SG&A) expenses increased 10% from
    Q4-17 and increased 1% from Q3-18. SG&A increased year-on-year due to
    investments in sales resources.
  • The effective tax rate was 7% in Q4-18, 153% in Q4-17, and 1% in
    Q3-18. Excluding all discrete tax events, the rate was 8%, 18% and 16%
    in Q4-18, Q4-17, and Q3-18, respectively (tax adjustments are
    summarized in Exhibit 2). The tax rate decreased year-on-year
    primarily due to a lower U.S. federal statutory corporate tax rate
    resulting from the Tax Cuts and Jobs Act of 2017. The tax rate
    decreased on a sequential basis primarily due to more of the company’s
    profits in 2018 being earned and taxed in lower-tax jurisdictions.

Balance Sheet Highlights – December 31, 2018

  • Cognex’s financial position as of December 31, 2018, continued to be
    very strong, with $798 million in cash and investments and no debt. Cash
    and investments decreased by $30 million from the end of 2017, the net
    result of $204 million spent to repurchase Cognex’s common stock, $37
    million paid for capital expenditures, and $32 million in dividends
    paid to shareholders. This cash outlay was offset by $223 million in
    cash generated from operations and $27 million in cash received from
    the exercise of employee stock options.
  • Inventory increased by $15 million, or 23%, from the end of 2017, to
    ensure an adequate supply of Cognex products and promote customer
    loyalty.

Financial Outlook – Q1 2019

  • Revenue for Q1-19 is expected to be between $165 million and $175
    million, which, at the mid-point, is essentially flat year-on-year due
    primarily to lower spending by customers in China and the automotive
    sector in the Americas.
  • The company expects gross margin to be in the mid-70% range, similar
    to the gross margin reported for Q4-18.
  • Operating expenses are expected to increase slightly 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 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, 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 Sunday, February 17,
    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 13686219.
  • 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 vision-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, future product mix, research and development activities,
investments, strategic plans, dividends, stock repurchases, 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 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; (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; 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, 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 Twelve-months Ended
December 31, 2018   September 30, 2018   December 31, 2017 December 31, 2018   December 31, 2017
 
Revenue $ 193,286 $ 232,221 $ 182,922 $ 806,338 $ 766,083
Cost of revenue (1) 52,825   58,860   44,532   206,052   187,289  
Gross margin 140,461 173,361 138,390 600,286 578,794
Percentage of revenue 73 % 75 % 76 % 74 % 76 %
Research, development, and engineering

expenses (1)

28,781 29,700 26,980 116,445 99,205
Percentage of revenue 15 % 13 % 15 % 14 % 13 %
Selling, general, and administrative expenses (1) 66,433 65,817 60,635 262,699 220,728
Percentage of revenue 34 % 28 % 33 % 33 % 29 %
Operating income 45,247 77,844 50,775 221,142 258,861
Percentage of revenue 23% 34 % 28 % 27 % 34 %
Foreign currency gain (loss) (356 ) (379 ) (1,027 ) (1,064 ) (1,601 )
Investment and other income 3,858   3,808   2,923   14,496   9,204  
Income before income tax expense 48,749 81,273 52,671 234,574 266,464
Income tax expense 3,331   837   80,418   15,307   89,752  
Net income (loss) $ 45,418   $ 80,436   $ (27,747 ) $ 219,267   $ 176,712  
Percentage of revenue 23 % 35 %

(15)

%

27 % 23 %
 
Net income (loss) per weighted-average common and common-equivalent
share (2):
Basic $ 0.26   $ 0.47   $ (0.16 ) $ 1.27   $ 1.02  
Diluted $ 0.26   $ 0.45   $ (0.16 ) $ 1.24   $ 0.98  
 
Weighted-average common and common-equivalent shares outstanding (2):
Basic 171,501   172,189   173,397   172,333   173,287  
Diluted 175,527   177,245   173,397   177,406   179,551  
 
Cash dividends per common share (2) $ 0.0500   $ 0.0450   $ 0.0450   $ 0.1850   $ 0.1675  
Cash and investments per common share (2) $ 4.67   $ 4.70   $ 4.77   $ 4.67   $ 4.77  
Book value per common share (2) $ 6.65   $ 6.68   $ 6.31   $ 6.65   $ 6.31  
 
(1) Amounts include stock option expense, as follows:
Cost of revenue $ 549 $ 544 $ 477 $ 2,447 $ 1,881
Research, development, and engineering 3,412 3,197 2,932 14,578 11,022
Selling, general, and administrative 5,790   5,402   5,178   24,065   19,039  
Total stock option expense $ 9,751   $ 9,143   $ 8,587   $ 41,090   $ 31,942  

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

(Unaudited)
Dollars
in thousands, except per share amounts

 
Three-months Ended Twelve-months Ended
December 31, 2018   September 30, 2018   December 31, 2017 December 31, 2018   December 31, 2017
Adjustment for stock option expense and tax benefit for stock
option exercises
 
Operating income (GAAP) $ 45,247 $ 77,844   $ 50,775 $ 221,142   $ 258,861
Stock option expense 9,751   9,143   8,587   41,090   31,942  
Operating income (Non-GAAP) $ 54,998   $ 86,987   $ 59,362   $ 262,232   $ 290,803  
Percentage of revenue (Non-GAAP)

28

%

37 % 32 % 33 % 38 %
 
Net income (loss) (GAAP) $ 45,418 $ 80,436 $ (27,747 ) $ 219,267 $ 176,712
Stock option expense 9,751 9,143 8,587 41,090 31,942
Tax effect on stock option expense (1,709 ) (1,654 ) (2,812 ) (7,317 ) (10,473 )
Discrete tax benefit related to employee stock option exercises (88 ) (2,811 ) (10,995 ) (8,488 ) (38,569 )
Net income (loss) (Non-GAAP) $ 53,372   $ 85,114   $ (32,967 ) $ 244,552   $ 159,612  
Percentage of revenue (Non-GAAP) 28 % 37 %

(18)

%

30 % 21 %
 
Net income (loss) per diluted weighted-average common and
common-equivalent share (GAAP) (1)
$ 0.26 $ 0.45 $ (0.16 ) $ 1.24 $ 0.98
Share impact of non-GAAP adjustments identified above (1) 0.04   0.03   (0.03 ) 0.14   (0.09 )
Net income (loss) per diluted weighted-average common and
common-equivalent share (Non-GAAP) (1)
$ 0.30   $ 0.48   $ (0.19 ) $ 1.38   $ 0.89  
 
Diluted weighted-average common and common-equivalent shares
outstanding (GAAP) (1)
175,527   177,245   173,397   177,406   179,551  
                             
Exclusion of tax adjustments                            
Income before income tax expense (GAAP) $ 48,749   $ 81,273   $ 52,671   $ 234,574   $ 266,464  
 
Income tax expense (GAAP) $ 3,331 $ 837 $ 80,418 $ 15,307 $ 89,752
Effective tax rate (GAAP) 7 % 1 % 153 % 7 % 34 %
 
Tax adjustments:
Discrete tax benefit related to employee stock option exercises (88 ) (2,811 ) (10,995 ) (8,488 ) (38,569 )
Discrete tax benefit related to Tax Act (89 ) (7,699 ) 82,769 (7,788 ) 82,769
Other discrete tax events (190 ) (1,657 ) (594 ) (1,847 ) (2,502 )
Income tax expense excluding tax adjustments (Non-GAAP) $ 3,698   $ 13,004   $ 9,238   $ 33,430   $ 48,054  
Effective tax rate (Non-GAAP) 8% 16 % 18 % 14 % 18 %
 
Net income from continuing operations excluding tax adjustments
(Non-GAAP)
$ 45,051   $ 68,269   $ 43,433   $ 201,144   $ 218,410  
Percentage of revenue (Non-GAAP) 23% 29 % 24 % 25 % 29 %
 
Net income (loss) per diluted weighted-average common and
common-equivalent share (GAAP) (1)
$ 0.26 $ 0.45 $ (0.16 ) $ 1.24 $ 0.98
Share impact of non-GAAP adjustments identified above (1)   (0.06 ) 0.40   (0.11 ) 0.24  
Net income per diluted weighted-average common and common-equivalent
share (Non-GAAP) (1)
$ 0.26   $ 0.39   $ 0.24   $ 1.13   $ 1.22  
 
Diluted weighted-average common and common-equivalent shares
outstanding (GAAP) (1) (2)
175,527   177,245   180,542   177,406   179,551  
                           

(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.
(2) For the fourth quarter
of 2017, includes potential common stock equivalents of 7,145 that were
excluded in the GAAP net loss per share calculation because they were
anti-dilutive.

Exhibit 3

   

COGNEX CORPORATION
Balance Sheets
(Unaudited)
Dollars
in thousands

 

 
December 31, 2018 December 31, 2017
Assets
Cash and investments $ 797,599 $ 827,984
Accounts receivable 119,172 119,388
Unbilled revenue 8,312 7,454
Inventories 83,282 67,923
Property, plant, and equipment 91,396 78,048
Goodwill and intangible assets 123,321 126,397
Other assets 66,585 60,559
   
Total assets $ 1,289,667   $ 1,287,753
 
Liabilities and Shareholders’ Equity
Accounts payable and accrued expenses $ 76,450 $ 91,712
Deferred revenue and customer deposits 9,845 9,420
Income taxes 64,243 85,044
Other liabilities 3,866 5,904
Shareholders’ equity 1,135,263 1,095,673
   
Total liabilities and shareholders’ equity $ 1,289,667   $ 1,287,753

Exhibit 4

 

COGNEX CORPORATION
Restated 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 gain (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 )%
 
Net income (loss) 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 %

Contacts

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

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