Cognex Reports Record Results For Fiscal Year 2011

Cognex Corporation (NASDAQ: CGNX) today announced that the company set new records in 2011 for annual revenue, net income and net income per share. Selected financial data for the quarter and year ended December 31, 2011 are compared to the fourth quarter of 2010, the third quarter of 2011, and the year ended December 31, 2010 in Table 1 below.
                 
 

Table 1
 
       

Revenue
     

Net Income
     

Net Income per Diluted Share

Quarterly Comparisons
                       
Current quarter: Q4-11       $ 84,042,000       $ 19,099,000       $ 0.44
Prior year’s quarter: Q4-10       $ 84,920,000       $ 19,764,000       $ 0.47
Change from Q4-10 to Q4-11         (1%)         (3%)         (6%)
Prior quarter: Q3-11       $ 80,085,000       $ 18,037,000       $ 0.42
Change from Q3-11 to Q4-11         5%         6%         6%

Yearly Comparisons
                       
Year ended December 31, 2011       $ 321,914,000       $ 69,869,000       $ 1.63
Year ended December 31, 2010       $ 290,691,000       $ 61,381,000       $ 1.52
Change from 2010 to 2011         11%         14%         7%
  • In looking at the year-on-year comparisons, it should be noted that the quarter and year ended December 31, 2010 included $6.5 million of service revenue from a single factory automation customer contract that had been deferred for several years until the contract was completed. Excluding that contract, revenue for the quarter and year ended December 31, 2011 increased year-on-year by 7% and 13%, respectively. A reconciliation of revenue from GAAP to non-GAAP is shown in Exhibit 2.

“Cognex had another outstanding year in 2011,” said Dr. Robert J. Shillman, Chairman of Cognex. “We set new records for annual revenue, net income and earnings per share. Growth was driven by sales of our machine vision products in both the factory automation and surface inspection markets; in fact, we set new records for annual revenue in each of those markets. And we were highly profitable in 2011, reporting operating margins of 27% and net margins of 22%, even with the significant investments we made in new product development and expansion of our sales team.”

“We ended 2011 on a very good note,” said Robert J. Willett, Chief Executive Officer of Cognex. “Our continued strong execution in factory automation resulted in record quarterly revenue from that market in the fourth quarter. Growth was strongest in the Americas, in particular from automotive and ID products customers, and in China. We also set a new quarterly revenue record in the surface inspection market, substantially exceeding the prior record. Much of that growth came from the paper industry.”

“We believe that Cognex is well positioned as we enter 2012 to deliver on our strategic initiatives,” continued Mr. Willett. “However, that fact may not be obvious in our first quarter revenue outlook for 2012. We’ve detailed the primary reasons why in the Financial Outlook section of this press release.”

Details of the Quarter

Statement of Operations Highlights – Fourth Quarter of 2011
  • Revenue for the fourth quarter of 2011 decreased 1% from the fourth quarter of 2010. However, revenue increased 7% year-on-year excluding the $6.5 million service revenue in Q4-10 mentioned above. Revenue for the fourth quarter of 2011 increased 5% from the prior quarter. Revenue growth, both year-on-year and sequentially, came from the factory automation and surface inspection markets, both of which set new quarterly revenue records. Growth in factory automation and surface inspection was partially offset by lower revenue from the semiconductor and electronics market (SEMI).
  • Gross margin was 75% in the fourth quarter of 2011, 72% in the fourth quarter of 2010, and 76% in the prior quarter. Gross margin increased year-on-year due to improved product margins, and product sales representing a greater percentage of revenue. Gross margin decreased on a sequential basis due to surface inspection systems representing a greater percentage of company revenue.
  • Research, development and engineering (RD&E) spending in the fourth quarter of 2011 increased 16% from the fourth quarter of 2010, and decreased 2% from the prior quarter. The increase year-on-year is due to investments in engineering personnel and materials to accelerate new product introductions.
  • Selling, general and administrative (SG&A) spending in the fourth quarter of 2011 increased 7% from the fourth quarter of 2010, and 10% from the prior quarter. The increase year-on-year is due to sales force expansion and higher stock option expense. The increase on a sequential basis is also due to sales force expansion and stock option expense as well as higher commissions and the timing of year-end audit fees.
  • The tax rate was 12% in the fourth quarter of 2011, compared to 14% in the fourth quarter of 2010 and 21% in the prior quarter. Excluding various tax adjustments, the tax rate was 20% in the current fourth quarter and in the fourth quarter of 2010, and 23% in the prior quarter. A reconciliation of the tax rate from GAAP to non-GAAP is shown in Exhibit 2.

Balance Sheet Highlights – December 31, 2011
  • Cognex’s financial position as of December 31, 2011 was very strong, with no debt and $357,440,000 in cash and investments. In the fourth quarter of 2011, Cognex paid out $4,217,000 in dividends to shareholders.
  • Inventories as of December 31, 2011 increased by $5,381,000, or 24%, from the end of 2010 in support of the higher level of business in 2011. Also contributing to the increase were strategic purchases and preparation for planned new product introductions.

Financial Outlook
  • For Q1-12, Cognex expects revenue to be between $74 million and $77 million, gross margin to be at approximately the same level as reported for Q4-11, and operating expenses to be essentially flat on a sequential basis. The effective tax rate is expected to be 21%.
  • Revenue for Q1-12 is expected to be essentially flat to up 4% from Q1-11 due to growth in factory automation and surface inspection. This is expected to be offset by significantly lower revenue from the semiconductor, electronics and solar industries due to a continued market downturn. Cognex also anticipates a negative impact from foreign exchange rates.
  • Looking at Q1-12 on a sequential basis, revenue is expected to decrease by 8% to 12% from Q4-11. Cognex expects factory automation revenue to decline as it typically does from Q4 to Q1, surface inspection revenue to be lower than the record level in Q4-11, and a continued decline in SEMI.

Non-GAAP Financial Measures
  • Exhibit 2 of this press release includes a reconciliation of certain financial measures from GAAP to non-GAAP. Cognex believes that these non-GAAP financial measures are useful because they allow investors to more accurately assess and compare the company’s results over multiple periods and to evaluate the effectiveness of the methodology used by management to review its operating results. In particular, the GAAP presentation of cost of revenue, RD&E and SG&A expenditures includes stock option expense. Cognex excludes these expenses for the purpose of calculating non-GAAP adjusted operating income, non-GAAP adjusted net income and non-GAAP adjusted net income per share when it evaluates its continuing operational performance, and in connection with its budgeting process and the allocation of resources, 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. Cognex also excludes certain items if they are one-time discrete events, such as revenue from certain customers and tax adjustments. Cognex does not intend for these 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, unless the nature of the item and/or the tax jurisdiction in which the item has been recorded requires application of a specific tax rate or tax treatment. In that case, the tax effect of such items is estimated by applying such specific tax rate or tax treatment.

Analyst Conference Call and Simultaneous Webcast
  • Cognex will host a conference call today at 5:00 p.m. eastern time. The telephone number is (866) 253-6509 (or (703) 639-1208 if outside the United States). A replay will begin at 8:00 p.m. eastern time today and will run continuously until 11:59 p.m. eastern time on Sunday, February 12, 2012. The telephone number for the replay is (888) 266-2081 (or (703) 925-2533 if outside the United States) and the access code is 1565428.
  • Internet users can listen to a real-time audio broadcast of the conference call or an archived replay on Cognex’s website at 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 700,000 vision-based products, representing over $3 billion in cumulative revenue, since the company's founding in 1981. Headquartered in Natick, Massachusetts, USA, Cognex has regional offices and distributors located throughout North America, Japan, Europe, Asia and Latin America. For details visit Cognex online at http://www.cognex.com.

Certain statements made in this press 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. These forward-looking statements, which include statements regarding business and market trends, future financial performance, customer order rates, growth in particular markets, 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 inability to penetrate new markets; (4) the inability to achieve significant international revenue; (5) fluctuations in foreign currency exchange rates; (6) the loss of a large customer; (7) the inability to attract and retain skilled employees; (8) the reliance upon key suppliers to manufacture and deliver critical components for Cognex products; (9) the failure to effectively manage product transitions or accurately forecast customer demand; (10) the inability to design and manufacture high-quality products; (11) the technological obsolescence of current products and the inability to develop new products; (12) the failure to properly manage the distribution of products and services; (13) the inability to protect Cognex proprietary technology and intellectual property; (14) involvement in time-consuming and costly litigation; (15) the impact of competitive pressures; (16) the challenges in integrating and achieving expected results from acquired businesses; (17) potential impairment charges with respect to Cognex’s investments or for acquired intangible assets or goodwill; (18) exposure to additional tax liabilities; (19) information security breaches or business systems disruptions; 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, 2011. 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 Year Ended
Dec. 31, 2011 Oct. 2,2011 Dec. 31,2010 Dec. 31, 2011 Dec. 31,2010
 
Revenue $ 84,042 $ 80,085 $ 84,920 $ 321,914 $ 290,691
 
Cost of revenue (1)   21,204     18,953     24,017     77,919     77,588  
 
Gross margin 62,838 61,132 60,903 243,995 213,103

Percentage of revenue
75 % 76 % 72 % 76 % 73 %
 
Research, development, and engineering expenses (1) 10,350 10,608 8,940 40,946 33,080
Percentage of revenue 12 % 13 % 11 % 13 % 11 %
 
Selling, general, and administrative expenses (1) 30,932 28,135 29,018 117,694 104,235
Percentage of revenue 37 % 35 % 34 % 37 % 36 %
 
Restructuring charges   -     -     -     -     75  
 
Operating income 21,556 22,389 22,945 85,355 75,713
Percentage of revenue 26 % 28 % 27 % 27 % 26 %
 
Foreign currency loss (424 ) (231 ) (257 ) (504 ) (328 )
 
Investment and other income   556     761     300     2,266     718  
 
Income before income tax expense 21,688 22,919 22,988 87,117 76,103
 
Income tax expense   2,589     4,882     3,224     17,248     14,722  
 
Net income $ 19,099   $ 18,037   $ 19,764   $ 69,869   $ 61,381  
Percentage of revenue 23 % 23 % 23 % 22 % 21 %
 
Earnings per weighted-average common and common-equivalent share:
Basic $ 0.45   $ 0.43   $ 0.49   $ 1.67   $ 1.54  
Diluted $ 0.44   $ 0.42   $ 0.47   $ 1.63   $ 1.52  
 
Weighted-average common and common-equivalent shares outstanding:
Basic   42,144     42,128     40,640     41,859     39,924  
Diluted   42,982     42,976     41,631     42,762     40,297  
 
Cash dividends per common share $ 0.10   $ 0.09   $ 0.08   $ 0.36   $ 0.25  
 
Cash and investments per common share $ 8.47   $ 8.23   $ 6.89   $ 8.47   $ 6.89  
 
Book value per common share $ 13.10   $ 12.87   $ 11.53   $ 13.10   $ 11.53  
 
 
(1)Amounts include stock option expense, as follows:
Cost of revenue $ 142 $ 107 $ 99 $ 628 $ 278
Research, development, and engineering 536 394 340 2,268 1,020
Selling, general, and administrative   1,561     1,019     916     5,172     1,729  
Total stock option expense $ 2,239   $ 1,520   $ 1,355   $ 8,068   $ 3,027  

                           
 

Exhibit 2
 
COGNEX CORPORATION
Reconciliation of Selected Items from GAAP to Non-GAAP
(Unaudited)
Dollars in thousands, except per share amounts
 
 
Three-months Ended Year Ended
Dec. 31, 2011 Oct. 2,2011 Dec. 31,2010 Dec. 31, 2011 Dec. 31,2010
                                         
 
Revenue (GAAP) $ 84,042 $ 80,085 $ 84,920 $ 321,914 $ 290,691
                                         
                                         
 
Revenue (GAAP) $ 84,042 $ 80,085 $ 84,920 $ 321,914 $ 290,691
Revenue related to a single customer contract $ -   $ -   $ 6,500   $ -   $ 6,500  
Revenue excluding single customer contract (Non-GAAP) $ 84,042   $ 80,085   $ 78,420   $ 321,914   $ 284,191  
                                         
                                         
 
Factory automation revenue (GAAP) $ 62,697 $ 59,268 $ 60,626 $ 235,602 $ 200,285
Revenue related to a single customer contract $ -   $ -   $ 6,500   $ -   $ 6,500  
Factory automation revenue excluding single customer contract (Non-GAAP) $ 62,697   $ 59,268   $ 54,126   $ 235,602   $ 193,785  
Percentage of revenue excluding single customer contract (Non-GAAP) 75 % 74 % 69 % 73 % 68 %
                                         
                                         
 
Gross margin (GAAP) $ 62,838 $ 61,132 $ 60,903 $ 243,995 $ 213,103
Gross margin on revenue related to a single customer contract $ -   $ -   $ 3,300   $ -   $ 3,300  
Gross margin excluding single customer contract (Non-GAAP) $ 62,838   $ 61,132   $ 57,603   $ 243,995   $ 209,803  
Percentage of revenue excluding single customer contract (Non-GAAP) 75 % 76 % 73 % 76 % 74 %
                                         
                                         
 
Operating income (GAAP) $ 21,556 $ 22,389 $ 22,945 $ 85,355 $ 75,713
Operating income related to a single customer contract (Non-GAAP)   -     -     3,300     -     3,300  
Operating income excluding single customer contract (Non-GAAP) $ 21,556   $ 22,389   $ 19,645   $ 85,355   $ 72,413  
Percentage of revenue excluding single customer contract (Non-GAAP) 26 % 28 % 25 % 27 % 25 %
                                         
                                         
 
Operating income (GAAP) $ 21,556 $ 22,389 $ 22,945 $ 85,355 $ 75,713
Stock option expense   2,239     1,520   #   1,355     8,068     3,027  
Operating income excluding stock option expense (Non-GAAP) $ 23,795   $ 23,909   $ 24,300   $ 93,423   $ 78,740  
Percentage of revenue (Non-GAAP) 28 % 30 % 29 % 29 % 27 %
                                         
                                         
 
Income before income tax expense (GAAP) $ 21,688   $ 22,919   $ 22,988   $ 87,117   $ 76,103  
 
Income tax expense (GAAP) $ 2,589 $ 4,882 $ 3,224 $ 17,248 $ 14,722
Tax rate (GAAP) 12 % 21 % 14 % 20 % 19 %
 
Tax adjustments:
True up of annual tax rate (1,963 ) - (1,167 ) - -
Discrete tax events   213     (389 )   (124 )   (176 )   (842 )
 
Income tax expense excluding tax adjustments (Non-GAAP) $ 4,339   $ 5,271   $ 4,515   $ 17,424   $ 15,564  
Effective tax rate (Non-GAAP) 20 % 23 % 20 % 20 % 20 %
 
Net income excluding tax adjustments (Non-GAAP) $ 17,349   $ 17,648   $ 18,473   $ 69,693   $ 60,539  
Percentage of revenue (Non-GAAP) 21 % 22 % 22 % 22 % 21 %
                                         
                                         
 
Net Income (GAAP) $ 19,099 $ 18,037 $ 19,764 $ 69,869 $ 61,381
Stock option expense, net of tax   1,525     1,019     911     5,408     2,031  
Net income excluding stock option expense (Non-GAAP) $ 20,624   $ 19,056   $ 20,675   $ 75,277   $ 63,412  
Percentage of revenue (Non-GAAP) 25 % 24 % 24 % 23 % 22 %
                                         
                                         
 
Net income per diluted share (GAAP) $ 0.44 $ 0.42 $ 0.47 $ 1.63 $ 1.52
Stock option expense per diluted share, net of tax $ 0.04   $ 0.02   $ 0.03   $ 0.13   $ 0.06  
Net income per diluted share excluding stock option expense (Non-GAAP) $ 0.48   $ 0.44   $ 0.50   $ 1.76   $ 1.58  
                                         
                                         
 
Net income per diluted share (GAAP) $ 0.44 $ 0.42 $ 0.47 $ 1.63 $ 1.52
Tax adjustments $ (0.04 ) $ (0.01 ) $ (0.03 ) $ (0.00 ) $ (0.02 )
Net income per diluted share excluding tax adjustments (Non-GAAP) $ 0.40   $ 0.41   $ 0.44   $ 1.63   $ 1.50  

Exhibit 3
               
 
COGNEX CORPORATION
Balance Sheets
(Unaudited)
In thousands
 
 
 
December 31, 2011 December 31,2010
 
Assets
 
Cash and investments $ 357,440 $ 283,081
 
Accounts receivable 48,206 45,901
 
Inventories 28,098 22,717
 
Property, plant, and equipment 31,744 29,596
 
Goodwill and intangible assets 100,939 105,334
 
Other assets   45,454   46,475
 
Total assets $ 611,881 $ 533,104
 
 
Liabilities and Shareholders' Equity
 
Accounts payable and accrued liabilities $ 39,388 $ 36,499
 
Income taxes 6,055 13,132
 
Deferred revenue and customer deposits 13,458 10,162
 
Shareholders' equity   552,980   473,311
 
Total liabilities and shareholders' equity $ 611,881 $ 533,104

                               
 

Exhibit 4
 
COGNEX CORPORATION
Additional Information Schedule
(Unaudited)
Dollars in thousands
 
 
Three-months Ended Year Ended
Dec. 31, 2011 Oct. 2,2011 Dec. 31,2010 Dec. 31, 2011 Dec. 31,2010
 
Revenue $ 84,042   $ 80,085   $ 84,920   $ 321,914   $ 290,691  
 
Revenue by division:
Modular Vision Systems Division 81 % 85 % 85 % 85 % 85 %
Surface Inspection Systems Division   19 %   15 %   15 %   15 %   15 %
Total   100 %   100 %   100 %   100 %   100 %
 
Revenue by geography:
Americas 35 % 33 % 33 % 34 % 33 %
Europe 31 % 37 % 33 % 33 % 31 %
Asia 17 % 15 % 15 % 17 % 15 %
Japan   17 %   15 %   19 %   16 %   21 %
Total   100 %   100 %   100 %   100 %   100 %
 
Revenue by market:
Factory automation 75 % 74 % 71 % 73 % 69 %
Web and surface inspection 19 % 15 % 15 % 15 % 15 %
Semiconductor and electronics capital equipment   6 %   11 %   14 %   12 %   16 %
Total   100 %   100 %   100 %   100 %   100 %

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