Exhibit 99.1
Cognex Corporation Announces Third Quarter Results
NATICK, Mass.--(BUSINESS WIRE)--Oct. 17, 2006--Cognex Corporation (NASDAQ:
CGNX) today announced its financial results for the third quarter ended October
1, 2006. Revenue, net income and earnings per share for the quarter and for the
nine months ended October 1, 2006 are compared to the third quarter of 2005, to
the second quarter of 2006, and to the first nine months of 2005 (which includes
5 months of results for DVT Corporation acquired on May 9, 2005) in the table
below.
Earnings
per
Diluted
Revenue Net Income Share
- ---------------------------------- ============= ============ ========
Quarterly Comparisons
================================== ------------- ------------ --------
Current quarter: Q3-06 $58,005,000 $10,116,000 $0.22
- ---------------------------------- ------------- ------------ --------
Prior year's quarter: Q3-05 $58,256,000 $10,858,000 $0.22
- ---------------------------------- ------------- ------------ --------
Change from Q3-05 to Q3-06 0% (7%) 0%
- ---------------------------------- ------------- ------------ --------
Prior quarter: Q2-06 $63,074,000 $11,434,000 $0.24
- ---------------------------------- ------------- ------------ --------
Change from Q2-06 to Q3-06 (8%) (12%) (10%)
- ---------------------------------- ------------- ------------ --------
- ---------------------------------- ------------- ------------ --------
Year to Date Comparisons
================================== ------------- ------------ --------
Nine months ended October 1, 2006 $180,119,000 $30,350,000 $0.64
- ---------------------------------- ------------- ------------ --------
Nine months ended October 2, 2005 $156,057,000 $23,952,000 $0.50
- ---------------------------------- ------------- ------------ --------
Change from first nine months of
2005 to first nine months of 2006 15% 27% 28%
- ---------------------------------- ------------- ------------ --------
Beginning in 2006, Cognex has included stock option expense in its results
(Exhibit 2 shows the effect of stock option expensing on certain line items in
the P&L as reported under GAAP). For comparative purposes, the company's results
are shown in the table below excluding stock option expense:
Earnings
per
Diluted
Revenue Net Income Share
- ---------------------------------- ============= ============ ========
Quarterly Comparisons
================================== ------------- ------------ --------
Current quarter: Q3-06 (Non-GAAP) $58,005,000 $12,369,000 $0.27
- ---------------------------------- ------------- ------------ --------
Prior year's quarter: Q3-05 (GAAP) $58,256,000 $10,858,000 $0.22
- ---------------------------------- ------------- ------------ --------
Change from Q3-05 to Q3-06 0% 14% 19%
- ---------------------------------- ------------- ------------ --------
Prior quarter: Q2-06 (Non-GAAP) $63,074,000 $13,708,000 $0.29
- ---------------------------------- ------------- ------------ --------
Change from Q2-06 to Q3-06 (8%) (10%) (8%)
- ---------------------------------- ------------- ------------ --------
- ---------------------------------- ------------- ------------ --------
Year to Date Comparisons
================================== ------------- ------------ --------
Nine months ended
October 1, 2006 (Non-GAAP) $180,119,000 $36,795,000 $0.79
- ---------------------------------- ------------- ------------ --------
Nine months ended
October 2, 2005 (GAAP) $156,057,000 $23,952,000 $0.50
- ---------------------------------- ------------- ------------ --------
Change from first nine months of
2005 to first nine months of 2006 15% 54% 57%
- ---------------------------------- ------------- ------------ --------
"I am disappointed in the level of business in the third quarter
of 2006," said Dr. Robert J. Shillman, Cognex's Chairman and Chief
Executive Officer. "While we were highly profitable...operating income
excluding stock option expense was equal to 25% of revenue (or 19%
including stock option expense); an increase over the 24% reported for
the third quarter of 2005...revenue for the third quarter of 2006 was
below our expectations. The shortfall was in the Factory Automation
market, where sales were even lower than anticipated during the
seasonally-soft summer months, and in the Surface Inspection market,
where a number of projects were delayed."
Dr. Shillman continued, "For Q4 of 2006, we are planning for modest revenue
growth, if any, because we believe that capital investments by manufacturers in
the semiconductor, electronics, automotive and steel industries, which are
currently among the largest users of Cognex machine vision, will be slow through
year-end."
Details of the Quarter
Statement of Operations Highlights - Third Quarter of 2006
-- Revenue for the third quarter of 2006 was essentially flat with the
third quarter of 2005 as higher revenue from the Semiconductor and
Electronics Capital Equipment market offset lower sales in the Surface
Inspection market. On a sequential basis, revenue decreased 8% due to
lower sales in the Factory Automation and Surface Inspection markets
and, to a lesser extent, the Semiconductor and Electronics Capital
Equipment market.
-- Gross margin was 73% in the third quarter of 2006, 73% in the third
quarter in 2005 and 74% in the prior quarter. Excluding stock option
expense, gross margin increased to 74% in the third quarter of 2006
from 73% in the comparable quarter of 2005, and remained flat with 74%
in the prior quarter despite an 8% decline in revenue, due to product
mix: a greater percentage of revenue came from the sale of modular
vision systems in the third quarter of 2006 than from surface
inspection systems.
-- Research, Development & Engineering (R, D & E) spending in the third
quarter of 2006 increased 11% from the third quarter of 2005 and
decreased 7% from the prior quarter (or decreased 2% and 8%,
respectively, excluding stock option expense). R, D & E spending
excluding stock option expense decreased year-on-year and sequentially
due to lower company bonuses and lower outside services related to
patent activities and new product initiatives.
-- Selling, General & Administrative (S, G & A) spending in the third
quarter of 2006 increased 10% from the third quarter of 2005 (or 0%
excluding stock option expense) and decreased 7% on a sequential basis
(or 8% excluding stock option expense). S, G & A decreased on a
sequential basis due to lower company bonuses and lower spending on
marketing communications and tax services.
-- The company reported a foreign currency loss of $282,000 in the third
quarter of 2006 compared to a loss of $410,000 in the third quarter of
2005 and a loss of $280,000 in the prior quarter. The company
recognizes foreign currency gains and losses on the revaluation and
settlement of accounts receivable and payable balances that are
reported in one currency and collected or paid in another.
-- Investment and other income was $1,518,000 in the third quarter of
2006 compared to $1,156,000 in the third quarter of 2005 and
$1,772,000 in the prior quarter. The increase in investment and other
income year-on-year is due to higher yields. Investment and other
income decreased on a sequential basis due to a lower average invested
balance as Cognex used cash to repurchase nearly $20 million of its
common stock during the third quarter.
-- The effective tax rate was 18% in the third quarter of 2006, 26% in
the third quarter of 2005 and 19% in the prior quarter. The third
quarter of 2006 includes a net benefit of $567,000 resulting from the
unfavorable settlement of a multi-year Japanese tax audit and the
favorable impact of both the expiration of the statute of limitations
for a particular tax year and the adjustment of estimates made based
upon the filing of the actual tax returns for 2005. The second quarter
of 2006 includes a benefit of $869,000 from the settlement of a
multi-year state tax audit. Excluding these items, the tax rates would
have been 23% and 25%, respectively. The decrease in the effective tax
rate, both year-on-year and sequentially, is due to more of the
Company's profits being earned in lower tax jurisdictions than had
been anticipated.
Balance Sheet Highlights - October 1, 2006
-- Cognex's financial position at October 1, 2006 was very strong, with
nearly $267,000,000 in cash and investments, and no debt. For the
first nine months of 2006, Cognex generated positive cash flow from
operations of approximately $41,000,000, paid out over $11, 000,000 in
dividends to shareholders, and spent over $81,000,000 to repurchase
approximately 3,100,000 shares of its common stock on the open market.
-- Days sales outstanding (DSO) for the third quarter of 2006 was 61
days, and remains within the company's targeted range.
-- Inventories at October 1, 2006, increased by approximately $2,200,000,
or 8%, from the end of the second quarter of 2006, and inventory turns
in the third quarter were equivalent to 2.1 times per year. The
inventory increase is primarily due to the lower than expected
customer shipments during the third quarter.
Financial Outlook
-- For the fourth quarter of 2006, Cognex expects revenue to be between
$58 million and $61 million. Gross margin is expected to be in the
low-to-mid-70% range. Operating expenses (R, D & E and S, G & A) are
expected to increase by approximately 5% on a sequential basis. The
effective tax rate is expected to be 25%. As a result of the above,
earnings for the fourth quarter of 2006 are expected to be between
$0.19 and $0.23 per diluted share (or between $0.24 and $0.28 per
diluted share excluding an estimated $0.05 per diluted share for
estimated stock option expense of $400,000 in Cost of Goods Sold and
$3,100,000 in Operating Expenses).
Non-GAAP Financial Measures
This press release and its attachments contain non-GAAP financial measures.
In particular, Cognex incurs expense related to stock options included in its
GAAP presentation of cost of revenue, research, development, and engineering
expenses (R,D&E), and selling, general and administrative expenses (S,G&A).
Cognex excludes these expenses for the purpose of calculating non-GAAP adjusted
gross margin, non-GAAP adjusted operating income, non-GAAP adjusted net income
and non-GAAP adjusted earnings 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 the net benefit resulting from the unfavorable
settlement of the multi-year Japanese tax audit and the favorable impact of the
statute of limitations expiration for a particular tax year and the adjustment
to estimates made based upon the filing of the actual 2005 tax returns, and the
benefit from the multi-year state tax audit settlement from non-GAAP adjusted
earnings per share because they are one-time favorable items. Cognex believes
that these non-GAAP financial measures are useful to investors because they
allow investors to more accurately assess and compare Cognex's results over
multiple periods and to evaluate the effectiveness of the methodology used by
management to review the operating results of the company. However, these
non-GAAP financial measures are not meant to be considered in isolation, nor as
a substitute for financial information provided in accordance with GAAP. Exhibit
2 shows a reconciliation of these financial measures from GAAP to non-GAAP.
Analyst Conference Call and Simultaneous Webcast
Cognex will host a conference call to discuss its results for the third
quarter of 2006, as well as its financial outlook, today at 5:00 p.m. eastern
time. The telephone number for the live call is 800-770-5589 (or 973-935-2039 if
outside the U.S.). A replay will begin tonight at approximately 7:00 p.m.
eastern time and will run continuously for 72 hours. The telephone number for
the replay is 877-519-4471 (or 973-341-3080 if outside the U.S.) and the access
code is 7918041.
Internet users can listen to a real-time audio broadcast of the conference
call, as well as an archive replay of the call, on Cognex's website at
http://www.cognex.com/investor/default.asp.
About Cognex Corporation
Cognex Corporation designs, develops, manufactures, and markets machine
vision sensors and systems, or devices that can "see." Cognex vision sensors are
used in factories around the world to automate the manufacture of a wide range
of items and to assure their quality. Cognex is the world's leader in the
machine vision industry, having shipped more than 350,000 machine vision
systems, representing over $2 billion in cumulative revenue, since the company's
founding in 1981. In addition to its corporate headquarters in Natick,
Massachusetts, Cognex also has regional offices and distributors located
throughout North America, Japan, Europe, Asia, and Latin America. Visit Cognex
on-line at http://www.cognex.com/.
Forward-Looking Statement
Certain statements made in this press release, which do not relate solely
to historical matters, are forward-looking statements. You can identify these
forward-looking statements by use of the words "expects," "anticipates,"
"estimates," "believes," "projects," "intends," "plans," "will," "may," "shall"
and similar words. These forward-looking statements, which include statements
regarding business trends, revenue growth and the company's financial outlook,
involve known and unknown risks and uncertainties that could cause actual
results to differ materially from those projected. Such risks and uncertainties
include: (1) global economic conditions that impact the capital spending trends
of manufacturers in a variety of industries, including, but not limited to the
semiconductor, electronics, automotive and steel industries; (2) the cyclicality
of the semiconductor and electronics industries; (3) the reliance upon certain
sole-source suppliers to manufacture and deliver critical components for the
company's products; (4) the inability to design and manufacture high-quality
products; (5) the technological obsolescence of current products and the
inability to develop new products; (6) the inability to protect the company's
proprietary technology and intellectual property; (7) the challenges in
integrating acquisitions and achieving anticipated benefits; and (8) the other
risks detailed in the company's reports filed with the SEC, including the
company's Form 10-K for the fiscal year ended December 31, 2005. You should not
place undue reliance upon any such forward-looking statements, which speak only
as of the date made. The company disclaims any obligation to update
forward-looking statements after the date of such statements.
COGNEX CORPORATION
Statements of Operations
(Unaudited)
In thousands, except per share amounts
Three Months Ended Nine Months Ended
October July October October October
1, 2, 2, 1, 2,
2006 2006 2005 2006 2005
----------------------------------------------
Revenue $58,005 $63,074 $58,256 $180,119 $156,057
Cost of revenue (1) 15,447 16,593 15,755 48,750 45,610
-------- -------- -------- --------- ---------
Gross margin 42,558 46,481 42,501 131,369 110,447
Percentage of revenue 73% 74% 73% 73% 71%
Research, development,
and engineering
expenses (1) 7,997 8,582 7,224 24,496 20,724
Percentage of revenue 14% 14% 12% 14% 13%
Selling, general, and
administrative expenses
(1) 23,414 25,277 21,351 72,470 60,353
Percentage of revenue 40% 40% 37% 40% 39%
-------- -------- -------- --------- ---------
Operating income 11,147 12,622 13,926 34,403 29,370
Percentage of revenue 19% 20% 24% 19% 19%
Foreign currency loss (282) (280) (410) (707) (602)
Investment and other
income 1,518 1,772 1,156 4,856 3,599
-------- -------- -------- --------- ---------
Income before taxes 12,383 14,114 14,672 38,552 32,367
Income tax provision 2,267 2,680 3,814 8,202 8,415
-------- -------- -------- --------- ---------
Net income $10,116 $11,434 $10,858 $ 30,350 $ 23,952
Percentage of revenue 17% 18% 19% 17% 15%
======== ======== ======== ========= =========
Net income per diluted
common and common
equivalent share (2) $ 0.22 $ 0.24 $ 0.22 $ 0.64 $ 0.50
======== ======== ======== ========= =========
Diluted weighted-average
common and common
equivalent shares
outstanding 46,579 47,517 48,469 47,086 47,703
======== ======== ======== ========= =========
Cash dividends per
common share $ 0.085 $ 0.080 $ 0.080 $ 0.245 $ 0.240
======== ======== ======== ========= =========
(1)Amounts include
stock option
expense, as
follows:
Cost of revenue $ 413 $ 426 - 1,194 -
Research,
development, and
engineering 941 948 - 2,671 -
Selling, general,
and
administrative 2,121 2,131 - 6,071 -
-------- -------- -------- --------- ---------
Total stock-based
compensation
expense $ 3,475 $ 3,505 - $ 9,936 -
======== ======== ======== ========= =========
(2)Net income per
diluted common and
common equivalent
share excluding
stock option
expense $ 0.27 $ 0.29 $ 0.22 $ 0.79 $ 0.50
======== ======== ======== ========= =========
COGNEX CORPORATION
Reconciliation of Selected Items from GAAP to Non-GAAP
(Unaudited)
In thousands, except per share amounts
Nine Months
Three Months Ended Ended
October 1, July 2, October 1,
2006 2006 2006
---------- ----------------------
Revenue (GAAP) $ 58,005 $ 63,074 $ 180,119
========== ========== ===========
Gross margin (GAAP) $ 42,558 $ 46,481 $ 131,369
Stock option expense 413 426 1,194
---------- ---------- -----------
Gross margin (Non-GAAP) $ 42,971 $ 46,907 $ 132,563
========== ========== ===========
Percentage of revenue 74% 74% 74%
R, D & E expenses (GAAP) $ 7,997 $ 8,582 $ 24,496
Stock option expense (941) (948) (2,671)
---------- ---------- -----------
R, D & E expenses (Non-GAAP) $ 7,056 $ 7,634 $ 21,825
========== ========== ===========
S, G & A expenses (GAAP) $ 23,414 $ 25,277 $ 72,470
Stock option expense (2,121) (2,131) (6,071)
---------- ---------- -----------
S, G & A expenses (Non-GAAP) $ 21,293 $ 23,146 $ 66,399
========== ========== ===========
Operating income (GAAP) $ 11,147 $ 12,622 $ 34,403
Stock option expense 3,475 3,505 9,936
---------- ---------- -----------
Operating income (Non-GAAP) $ 14,622 $ 16,127 $ 44,339
========== ========== ===========
Percentage of revenue 25% 26% 25%
Net income (GAAP) $ 10,116 $ 11,434 $ 30,350
Stock option expense, net of tax 2,253 2,274 6,445
Net income excluding stock option ---------- ---------- -----------
expense (Non-GAAP) $ 12,369 $ 13,708 $ 36,795
Tax benefit from discrete events $ (567) $ (869) $ (1,436)
---------- ---------- -----------
Net income excluding stock option
expense and tax benefit (Non-GAAP) $ 11,802 $ 12,839 $ 35,359
========== ========== ===========
Percentage of revenue 20% 20% 20%
Net income per diluted share (GAAP) $ 0.22 $ 0.24 $ 0.64
Stock option expense, net of tax 0.05 0.05 0.15
---------- ---------- -----------
Net income per diluted share
excluding stock option expense
(Non-GAAP) 0.27 0.29 0.79
Tax benefit from discrete events (0.01) (0.02) (0.03)
---------- ---------- -----------
Net income per diluted share
excluding stock option expense and
tax benefit (Non-GAAP) $ 0.26 $ 0.27 $ 0.76
========== ========== ===========
COGNEX CORPORATION
Balance Sheets
(Unaudited)
In thousands
October 1, December 31,
2006 2005
-----------------------
Assets
Cash and investments $ 266,961 $ 312,258
Accounts receivable 39,893 42,051
Inventories 28,195 18,819
Property, plant, and equipment 24,335 24,175
Other assets 170,099 167,259
---------- ------------
Total assets $ 529,483 $ 564,562
========== ============
Liabilities and Shareholders' Equity
Current liabilities $ 63,299 $ 58,041
Shareholders' equity 466,184 506,521
---------- ------------
Total liabilities and shareholders' equity $ 529,483 $ 564,562
========== ============
COGNEX CORPORATION
Additional Information Schedule
(Unaudited)
Dollars in thousands
Three Months Ended Nine Months Ended
October October October October
1, July 2, 2, 1, 2,
2006 2006 2005 2006 2005
-------------------------- -------------------
Revenue $58,005 $63,074 $58,256 $180,119 $156,057
======== ======== ======== ========= =========
Revenue by division:
Modular Vision Systems
Division 88% 86% 84% 88% 84%
Surface Inspection
Systems Division 12% 14% 16% 12% 16%
-------- -------- -------- --------- ---------
Total 100% 100% 100% 100% 100%
======== ======== ======== ========= =========
Revenue by geography:
Americas 37% 35% 37% 35% 37%
Japan 28% 26% 30% 28% 28%
Europe 26% 30% 27% 28% 29%
Asia 9% 9% 6% 9% 6%
-------- -------- -------- --------- ---------
Total 100% 100% 100% 100% 100%
======== ======== ======== ========= =========
Revenue by market:
Discrete factory
automation 56% 55% 57% 56% 57%
Semiconductor and
electronics capital
equipment 32% 31% 27% 32% 27%
Surface inspection 12% 14% 16% 12% 16%
-------- -------- -------- --------- ---------
Total 100% 100% 100% 100% 100%
======== ======== ======== ========= =========
Revenue by product:
Vision sensors 49% 46% 44% 48% 43%
PC-based vision
systems 34% 35% 34% 35% 34%
Surface inspection
vision systems 7% 10% 12% 8% 12%
Service 10% 9% 10% 9% 11%
-------- -------- -------- --------- ---------
Total 100% 100% 100% 100% 100%
======== ======== ======== ========= =========
CONTACT: Cognex Corporation
Susan Conway, 508-650-3353
Director of Investor Relations
susan.conway@cognex.com