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Cognex Reports Record Net Income and Earnings Per Share from Continuing Operations
2016-10-31 20:06:00.102 GMT
Cognex Reports Record Net Income and Earnings Per Share from Continuing
Operations
Business Wire
NATICK, Mass. -- October 31, 2016
Cognex Corporation (NASDAQ: CGNX) today announced its financial results for the third quarter of 2016. In Table 1 below, selected financial data for the quarter and nine months ended October 2, 2016 is compared to the second quarter of 2016, the third quarter of 2015 and the first nine months of 2015.
A reconciliation of certain financial measures from GAAP to non-GAAP is shown in Exhibit 2 of this news release.
Table 1*
Net Income Net Income
from from
Revenue Continuing Continuing
Operations Operations per
Diluted Share
Quarterly Comparisons
Current quarter: Q3-16 $147,952,000 $53,675,000 $0.61
Prior year's quarter: $107,587,000 $25,822,000 $0.29
Q3-15
Change from Q3-15 to 38% 108% 110%
Q3-16
Prior quarter: Q2-16 $147,274,000 $43,014,000 $0.50
Change from Q2-16 to 0% 25% 22%
Q3-16
Year-to-Date Comparisons
Nine months ended Oct. 2, $391,431,000 $111,574,000 $1.29
2016
Nine months ended Oct. 4, $352,789,000 $88,810,000 $1.00
2015
Change from first nine
months of 2015 to first 11% 26% 29%
nine months of 2016
*Table 1 excludes the results of discontinued operations, which relate to the company's Surface Inspection Systems Division (SISD) that was sold on July 6, 2015.
"What an outstanding quarter!" exclaimed Dr. Robert J. Shillman, Chairman of Cognex. "We reported the highest net income and earnings per share from continuing operations for any quarter in our company's 35-year history. Our substantial profit was due to both the strong revenue and gross margin that we reported for the quarter and a lower effective tax rate."
"Our third quarter performance was impressive," said Robert J. Willett, Chief Executive Officer of Cognex. "Revenue grew significantly year-on-year as large opportunities drove growth well above our 20% long-term target for factory automation. Operating margin expanded to 37% compared to 26% in the third quarter a year ago, reflecting the substantial leverage that incremental revenue has on our profitability. And, earnings per share were significantly higher than consensus expectations even when you exclude the $0.07 per share tax benefit from stock option exercises that we recognized during the quarter.
We are pleased to see our hard work deliver such great results."
Details of the Quarter
Statement of Operations Highlights – Third Quarter of 2016
* Revenue for Q3 2016 increased 38% from Q3 2015 and was essentially flat
with Q2 2016. A notable contributor to growth year-on-year was large
orders from the consumer electronics industry. Growth also came from other
industries, including automotive. On a sequential basis, although revenue
grew less than 1%, that was better than expected given the seasonal
softness that Cognex typically experiences during the summer months.
* Gross margin was 78% for Q3 2016 compared to 76% for both Q3 2015 and Q2
2016. Gross margin increased both year-on-year and sequentially due to a
revenue mix towards higher margin products.
* Research, Development & Engineering (RD&E) expenses increased 10% from Q3
2015 and decreased 5% from Q2 2016. RD&E increased year-on-year due to a
higher bonus accrual resulting from the company's strong results. RD&E
decreased on a sequential basis due to lower employee-related costs.
* Selling, General & Administrative (SG&A) expenses increased 17% from Q3
2015 and decreased 2% from Q2 2016. SG&A increased year-on-year due to a
higher bonus accrual, higher commissions, investments in the sales
organization and spending on sales demonstration equipment related to new
product introductions. SG&A decreased on a sequential basis due to lower
employee-related costs and the timing of marketing initiatives.
* Investment and other income was $2,421,000 in Q3 2016, $818,000 in Q3 2015
and $1,669,000 in Q2 2016. The increase both year-on-year and sequentially
was due to a higher average invested balance, an investment gain and
higher other income.
* The effective tax rate was 5% in Q3 2016, 12% in Q3 2015, and 17% in Q2
2016. Excluding discrete tax items, the rate was approximately 18% in all
periods presented (tax adjustments are summarized in Exhibit 2). Notably,
Q3 2016 included a discrete tax benefit of $6 million ($0.07 per share)
related to employee stock options exercised during the quarter. Prior to
Cognex's adoption in Q1 2016 of a new accounting standard related to
share-based compensation, similar tax benefits were recorded as additional
paid-in capital in shareholders' equity on the balance sheet rather than
on the income statement.
Balance Sheet Highlights – October 2, 2016
* Cognex's financial position as of October 2, 2016, was very strong, with
$705.5 million in cash and investments and no debt. During Q3 2016, Cognex
paid out $6.4 million in dividends to shareholders and spent $10.2 million
to repurchase 205,900 shares of its common stock at an average price of
$49.65 per share. Cognex intends to continue to repurchase shares of its
common stock in Q4 2016, subject to market conditions and other relevant
factors.
* Accounts receivable and unbilled revenue increased by $49.3 million from
the end of 2015 due to the substantial revenue recognized by Cognex in Q2
and Q3 of 2016. A majority of the increase is expected to be collected by
the end of the year.
* Inventories decreased by $10.1 million, or 27%, from the end of 2015 as a
result of the substantial revenue recognized in the first nine months of
2016.
Financial Outlook – Q4 2016
* Revenue for Q4 2016 is expected to be between $115 million and $118
million. While this range represents a decline from both Q2 and Q3 of 2016
due to large customer deployments in those prior periods that are not
expected to repeat in Q4, it represents an increase of between 18% and 21%
year-on-year.
* Gross margin is expected to be in the mid-to-high 70% range.
* Operating expenses are expected to be essentially flat on a sequential
basis.
* The effective tax rate is expected to be 18% 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 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 (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 3, 2016. 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 1677128.
* 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, the timing of recognition of revenue and collection of receivables, expected areas of growth, research and development activities, product mix, 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 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 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; 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, 2015.
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 2, July 3, October 4, October 2, October 4,
2016 2016 2015 2016 2015
Revenue $ 147,952 $ 147,274 $ 107,587 $ 391,431 $ 352,789
Cost of revenue 32,749 35,213 26,319 88,930 79,171
(1)
Gross margin 115,203 112,061 81,268 302,501 273,618
Percentage of 78 % 76 % 76 % 77 % 78 %
revenue
Research,
development, and 18,603 19,671 16,977 58,829 52,265
engineering
expenses (1)
Percentage of 13 % 13 % 16 % 15 % 15 %
revenue
Selling, general,
and 42,072 42,715 35,806 123,125 118,980
administrative
expenses (1)
Percentage of 28 % 29 % 33 % 31 % 34 %
revenue
Operating income 54,528 49,675 28,485 120,547 102,373
Percentage of 37 % 34 % 26 % 31 % 29 %
revenue
Foreign currency (607 ) 330 (40 ) (377 ) 580
gain (loss)
Investment and 2,421 1,669 818 5,434 2,260
other income
Income from
continuing
operations before 56,342 51,674 29,263 125,604 105,213
income tax
expense
Income tax
expense on 2,667 8,660 3,441 14,030 16,403
continuing
operations
Net income from
continuing 53,675 43,014 25,822 111,574 88,810
operations
Percentage of 36 % 29 % 24 % 29 % 25 %
revenue
Net income (loss)
from discontinued — (255 ) 78,290 (255 ) 79,518
operations (1)
Net income $ 53,675 $ 42,759 $ 104,112 $ 111,319 $ 168,328
Basic earnings
per
weighted-average
common and
common-equivalent
share:
Net income from
continuing $ 0.63 $ 0.51 $ 0.30 $ 1.31 $ 1.02
operations
Net income from
discontinued — (0.01 ) 0.91 — 0.92
operations
Net income $ 0.63 $ 0.50 $ 1.21 $ 1.31 $ 1.94
Diluted earnings
per
weighted-average
common and
common-equivalent
share:
Net income from
continuing $ 0.61 $ 0.50 $ 0.29 $ 1.29 $ 1.00
operations
Net income from
discontinued — (0.01 ) 0.90 (0.01 ) 0.90
operations
Net income $ 0.61 $ 0.49 $ 1.19 $ 1.28 $ 1.90
Weighted-average
common and
common-equivalent
shares
outstanding:
Basic 85,460 85,107 86,303 85,167 86,756
Diluted 87,346 86,806 87,776 86,805 88,559
Cash dividends $ 0.075 $ 0.075 $ 0.07 $ 0.22 $ 0.14
per common share
Cash and
investments per $ 8.23 $ 7.72 $ 6.99 $ 8.23 $ 6.99
common share
Book value per $ 11.02 $ 10.42 $ 9.58 $ 11.02 $ 9.58
common share
(1) Amounts
include stock
option expense,
as follows:
Cost of revenue $ 273 $ 229 $ 351 $ 795 $ 1,167
Research,
development, and 1,366 1,397 1,130 4,942 4,097
engineering
Selling, general,
and 2,983 2,831 2,906 10,146 10,273
administrative
Discontinued — — 1,106 — 1,533
operations
Total stock $ 4,622 $ 4,457 $ 5,493 $ 15,883 $ 17,070
option expense
Exhibit 2
COGNEX CORPORATION
Reconciliation of Selected Items from GAAP to Non-GAAP
(Unaudited)
Dollars in thousands
Three-months Ended Nine-months Ended
October 2, July 3, October 4, October 2, October 4,
2016 2016 2015 2016 2015
Adjustment
for stock
option
expense
Operating
income $ 54,528 $ 49,675 $ 28,485 $ 120,547 $ 102,373
(GAAP)
Stock option
expense
related to 4,622 4,457 4,387 15,883 15,537
continuing
operations
Operating
income $ 59,150 $ 54,132 $ 32,872 $ 136,430 $ 117,910
(Non-GAAP)
Percentage
of revenue 40 % 37 % 31 % 35 % 33 %
(Non-GAAP)
Net income
from
continuing $ 53,675 $ 43,014 $ 25,822 $ 111,574 $ 88,810
operations
(GAAP)
Stock
options
expense 4,622 4,457 4,387 15,883 15,537
related to
continuing
operations
Tax effect
on stock (1,520 ) (1,459 ) (1,474 ) (5,207 ) (5,218 )
options
Net income
from
continuing $ 56,777 $ 46,012 $ 28,735 $ 122,250 $ 99,129
operations
(Non-GAAP)
Percentage
of revenue 38 % 31 % 27 % 31 % 28 %
(Non-GAAP)
Exclusion of
tax
adjustments
Income from
continuing
operations
before $ 56,342 $ 51,674 $ 29,263 $ 125,604 $ 105,213
income tax
expense
(GAAP)
Income tax
expense $ 2,667 $ 8,660 $ 3,441 $ 14,030 $ 16,403
(GAAP)
Effective
tax rate 5 % 17 % 12 % 11 % 15 %
(GAAP)
Tax
adjustments:
Discrete tax
benefit
related to (6,038 ) (745 ) — (7,246 ) —
employee
stock option
exercises
Other
discrete tax (1,436 ) 104 (1,604 ) (1,332 ) (2,015 )
events
Income tax
expense
excluding $ 10,141 $ 9,301 $ 5,045 $ 22,608 $ 18,418
tax
adjustments
(Non-GAAP)
Effective
tax rate 18 % 18 % 17 % 18 % 18 %
(Non-GAAP)
Net income
from
continuing
operations $ 46,201 $ 42,373 $ 24,218 $ 102,996 $ 86,795
excluding
tax
adjustments
(Non-GAAP)
Percentage
of revenue 31 % 29 % 23 % 26 % 25 %
(Non-GAAP)
Exhibit 3
COGNEX CORPORATION
Balance Sheets
(Unaudited)
Dollars in thousands
October 2, 2016 December 31, 2015 Assets
Cash and investments $ 705,450 $ 621,531
Accounts receivable 82,068 42,846
Unbilled revenue 10,090 24
Inventories 27,226 37,334
Property, plant, and equipment 55,730 53,285
Goodwill and intangible assets 87,547 87,763
Other assets 51,976 44,973
Total assets $ 1,020,087 $ 887,756
Liabilities and Shareholders' Equity
Accounts payable and accrued liabilities $ 52,699 $ 41,132
Deferred revenue and customer deposits 15,905 11,571
Income taxes 5,920 6,134
Other liabilities 1,615 3,252
Shareholders' equity 943,948 825,667
Total liabilities and shareholders' $ 1,020,087 $ 887,756
equity
Exhibit 4
COGNEX CORPORATION
Additional Information Schedule
(Unaudited)
Dollars in thousands
Three-months Ended Nine-months Ended
October 2, July 3, October 4, October 2, October 4,
2016 2016 2015 2016 2015
Revenue $ 147,952 $ 147,274 $ 107,587 $ 391,431 $ 352,789
Revenue by
geography:
Europe 50 % 48 % 41 % 46 % 47 %
Americas 25 % 28 % 32 % 29 % 29 %
Greater China 13 % 13 % 14 % 13 % 12 %
Other Asia 12 % 11 % 13 % 12 % 12 %
Total 100 % 100 % 100 % 100 % 100 %
Revenue by
market:
Factory 96 % 96 % 95 % 95 % 95 %
automation
Semiconductor
and
electronics 4 % 4 % 5 % 5 % 5 %
capital
equipment
Total 100 % 100 % 100 % 100 % 100 %
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businesswire.com:
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Cognex reports record net income and EPS from continuing operations for Q3
2016
Contact:
Cognex Corporation
Susan Conway, 508-650-3353
Senior Director of Investor Relations
susan.conway@cognex.com
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