Cognex Reports Record Quarterly Revenue

Cognex Corporation (NASDAQ: CGNX) today reported financial results for the third quarter of 2021 which included record quarterly revenue. Table 1 below shows selected financial data for Q3-21 compared with Q3-20 and Q2-21, and for the nine months of 2021 compared with the same period in 2020.

Table 1
(Dollars in thousands, except per share amounts)

 

Revenue

Net Income

Net Income

per Diluted

Share

Non-GAAP

Net Income

per Diluted
Share*

Quarterly Comparisons

Current quarter: Q3-21

$284,848

$78,900

$0.44

$0.40

Prior year’s quarter: Q3-20

$251,073

$87,506

$0.49

$0.47

Change: Q3-20 to Q3-21

13%

(10)%

(10)%

(15)%

Prior quarter: Q2-21

$269,158

$77,598

$0.43

$0.43

Change: Q2-21 to Q3-21

6%

2%

2%

(7)%

Year-to-Date Comparisons

Nine months ended Oct. 3, 2021

$793,033

$226,346

$1.26

$1.20

Nine months ended Sept. 27, 2020

$587,405

$106,841

$0.61

$0.77

Change from first nine months of 2020 to first nine months of 2021

35%

112%

107%

56%

*Non-GAAP net income per diluted share excludes restructuring and other charges that occurred predominantly in Q2-20, and discrete tax adjustments. A reconciliation from GAAP to Non-GAAP is shown in Exhibit 2 of this news release.

“We are pleased to report the highest quarterly revenue in our company’s 40-year history, surpassing the prior record set last quarter,” said Robert J. Willett, Chief Executive Officer of Cognex. “We were also highly profitable and reported an operating margin of 31%, which is above our 30% long-term target. And we were able to accomplish these achievements while operating in a very challenging supply environment.”

Mr. Willett continued, “In regard to supply, we believe we have been managing global chip shortages relatively well so far. However, the constraints are beginning to hold back revenue growth and drive cost increases more noticeably. Demand from customers is high and meeting their needs remains our top priority as we work through this situation.”

Details of the Quarter

Statement of Operations Highlights – Third Quarter of 2021

  • Cognex reported record revenue of $285 million for the third quarter, which represents an increase of 13% from Q3-20 and 6% from Q2-21. As expected, growth in logistics, automotive, and other markets on a year-on-year basis was substantially offset by lower revenue from customers in consumer electronics (Q3-20 included a heavy concentration of electronics revenue that drove substantial growth for the company overall in 2020). The increase in revenue on a sequential basis is due to higher sales to customers in logistics and the timing of revenue from consumer electronics.
  • Gross margin was 70% for Q3-21, 76% for Q3-20, and 75% for Q2-21. The decrease in gross margin, both year-on-year and sequentially, was due to unfavorable revenue mix in Q3-21. In addition, supply chain costs were higher due to global component shortages.
  • Research, Development, & Engineering (RD&E) expenses increased by 14% from Q3-20 and 10% from Q2-21. The increase in RD&E spending, both year-on-year and sequentially, was due to the company’s investment in engineering resources.
  • Selling, General & Administrative (SG&A) expenses increased by 20% from Q3-20 and remained flat with Q2-21. SG&A spending increased over Q3-20 due to higher personnel-related costs (including additional sales headcount), higher incentive compensation costs (including sales commissions and annual company bonus), and the impact of foreign currency exchange rate changes.
  • The effective tax rate was 11% in Q3-21, 14% in Q3-20, and 17% in Q2-21. The effective tax rate was 18% in all periods presented excluding the discrete tax adjustments summarized in Exhibit 2.

Balance Sheet Highlights – October 3, 2021

  • Cognex’s financial position as of October 3, 2021 continued to bestrong, with $985 million in cash and investments and no debt. In the first nine months of 2021, Cognex generated $259 million in cash from operations and $59 million in net proceeds from the exercise of stock options. In addition, the company spent $48 million to repurchase its common stock and paid $32 million in dividends to shareholders. Cognex intends to continue to repurchase shares of its common stock pursuant to its existing stock repurchase program, subject to market conditions and other relevant factors.
  • Inventories at October 3, 2021 increased by $20 million, or 33%, from the end of 2020. Cognex added component inventory to support customer orders and replenished some strategic inventory balances, the cost of which was noticeably higher than in prior periods.

Financial Outlook – Q4 2021

  • Cognex believes revenue in Q4-21 will be between $210 million and $230 million, which is roughly flat at the mid-point compared with a high-growth quarter reported in Q4-20. The company expects to experience a lingering headwind from last year’s high concentration of consumer electronics revenue in the second half of 2020, delayed product sales in Q4-21 because of supply-chain constraints, and low growth in logistics due to the timing of revenue.
  • Gross margin for Q4-21 is expected to be in the low-70% range and below the company’s mid-70% long-term target because of elevated costs, particularly for components and freight.
  • Operating expenses are expected to increase by mid-single digits from Q3-21 due to investments around the company’s growth plans, including additional resources, new product development, and sales and marketing activities.
  • The effective tax rate is expected to be 18%, excluding 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 certain one-time discrete events, such as discrete tax adjustments (because these costs are outside of Cognex’s normal business operations and not used by management to assess Cognex’s operating results). Additionally, the company excludes restructuring charges, intangible asset impairment charges, and excess and obsolete inventory charges because these charges result from discrete activities, such as specific restructuring actions or acquisitions, that management frequently excludes in evaluating Cognex’s operating results. 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.
  • We estimate the tax effect of items identified in the reconciliation 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, we estimate the tax effect 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 Daylight Time (EDT). 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. EDT today and will be available until 11:59 p.m. EDT on Sunday, November 7, 2021. 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 13722693.
  • A real-time audio broadcast of the conference call or an archived recording will be accessible on the Events & Presentations page of the Cognex Investor website: https://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 3 million image-based products, representing over $8 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 statements are based on our current estimates and expectations as to prospective events and circumstances, which may or may not be in our control and as to which there can be no firm assurances given. These forward-looking statements, which include statements regarding business and market trends, future financial performance, the expected impact of the COVID-19 pandemic on our assets, business and results of operations, customer demand and order rates and timing of related revenue, managing supply shortages, future product mix, restructuring and other cost-savings initiatives, research and development activities, sales and marketing activities, new product offerings, capital expenditures, investments, liquidity, dividends and stock repurchases, strategic and growth plans, and estimated tax benefits and expenses and other 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 impact, duration, and severity of the COVID-19 pandemic; (2) potential disruptions to our business due to restructuring activities; (3) the loss of, or curtailment of purchases by, large customers in the consumer electronics and logistics industries; (4) the reliance on revenue from the automotive industry; (5) the reliance on key suppliers to manufacture and deliver critical components for our products; (6) disruptions in the supply chain, which could impact timely delivery of customer orders, cause customer orders to decrease, or increase costs to fulfill orders, including costs for components or freight; (7) the failure to effectively manage product transitions or accurately forecast customer demand; (8) the inability to design and manufacture high-quality products; (9) the inability to attract and retain skilled employees and maintain our unique corporate culture; (10) the failure to effectively manage our growth; (11) the inability to achieve growth in revenue and profits from the logistics industry; (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 impact of competitive pressures; (15) the challenges in integrating and achieving expected results from acquired businesses; (16) potential disruptions in our business systems; (17) information security breaches and cyber-attacks; (18) the inability to protect our proprietary technology and intellectual property; (19) potential impairment charges with respect to our investments or acquired intangible assets; (20) exposure to additional tax liabilities; (21) fluctuations in foreign currency exchange rates and the use of derivative instruments; (22) our involvement in time-consuming and costly litigation; (23) unfavorable global economic conditions; and (24) economic, political, and other risks associated with international sales and operations; and the other risks detailed in Cognex reports filed with the SEC, including its Form 10-K for the fiscal year ended December 31, 2020 and Form 10-Q for the fiscal quarter ended October 3, 2021. 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

Oct. 3,
2021

Jul. 4,
2021

Sept. 27,
2020

Oct. 3,
2021

Sept. 27,
2020

Revenue

$

284,848

$

269,158

$

251,073

$

793,033

$

587,405

Cost of revenue (1)

85,712

68,432

59,741

208,189

151,261

Gross margin

199,136

200,726

191,332

584,844

436,144

Percentage of revenue

70

%

75

%

76

%

74

%

74

%

Research, development, and engineering expenses (1)

34,476

31,302

30,240

99,883

96,583

Percentage of revenue

12

%

12

%

12

%

13

%

16

%

Selling, general, and administrative expenses (1)

77,113

76,843

64,206

226,380

193,497

Percentage of revenue

27

%

29

%

26

%

29

%

33

%

Restructuring charges

251

15,049

Intangible asset impairment charges

19,571

Operating income

87,547

92,581

96,635

258,581

111,444

Percentage of revenue

31

%

34

%

38

%

33

%

19

%

Foreign currency gain (loss)

(586)

(639)

2,357

(2,233)

(310)

Investment and other income

1,623

1,596

2,317

4,605

10,857

Income before income tax expense

88,584

93,538

101,309

260,953

121,991

Income tax expense

9,684

15,940

13,803

34,607

15,150

Net income

$

78,900

$

77,598

$

87,506

$

226,346

$

106,841

Percentage of revenue

28

%

29

%

35

%

29

%

18

%

Net income per weighted-average common and common-equivalent share:

Basic

$

0.45

$

0.44

$

0.50

$

1.28

$

0.62

Diluted

$

0.44

$

0.43

$

0.49

$

1.26

$

0.61

Weighted-average common and common-equivalent shares outstanding:

Basic

176,812

176,626

173,943

176,572

172,881

Diluted

180,342

179,991

177,138

180,109

176,038

Cash dividends per common share

$

0.060

$

0.060

$

0.055

$

0.180

$

0.165

Cash and investments per common share

$

5.57

$

5.39

$

5.80

$

5.57

$

5.80

Book value per common share

$

8.44

$

8.09

$

8.62

$

8.44

$

8.62

(1) Amounts include stock-based compensation expense, as follows:

Cost of revenue

$

366

$

351

$

324

$

965

$

1,041

Research, development, and engineering

3,091

3,064

2,815

10,158

10,582

Selling, general, and administrative

7,157

7,315

6,129

22,230

20,453

Total stock-based compensation expense

$

10,614

$

10,730

$

9,268

$

33,353

$

32,076

Exhibit 2

COGNEX CORPORATION
Reconciliation of Selected Items from GAAP to Non-GAAP
(Unaudited)
Dollars in thousands, except per share amounts

 

Three-months Ended

Nine-months Ended

Oct. 3,
2021

Jul. 4,
2021

Sept. 27,
2020

Oct. 3,
2021

Sept. 27,
2020

Discrete tax adjustments reconciliation

Income before income tax expense (GAAP)

$

88,584

$

93,538

$

101,309

$

260,953

$

121,991

Income tax expense (GAAP)

$

9,684

$

15,940

$

13,803

$

34,607

$

15,150

Effective tax rate (GAAP)

11

%

17

%

14

%

13

%

12

%

Discrete tax benefit related to stock-based compensation

3,250

1,431

4,354

9,888

10,447

Discrete tax benefit (expense) related to tax return filings and other

3,012

(535)

(129)

2,477

(3,638)

Total discrete tax adjustments

$

6,262

$

896

$

4,225

$

12,365

$

6,809

Income tax expense (Non-GAAP)

$

15,946

$

16,836

$

18,028

$

46,972

$

21,959

Effective tax rate (Non-GAAP)

18

%

18

%

18

%

18

%

18

%

 

Restructuring and other charges and discrete tax adjustments reconciliation

Net income (GAAP)

$

78,900

$

77,598

$

87,506

$

226,346

$

106,841

Excess and obsolete inventory charges

303

1,111

603

2,120

9,386

Restructuring charges

251

15,049

Intangible asset impairment charges

19,571

Tax effect on restructuring and other charges

(55)

(200)

(154)

(382)

(7,921)

Discrete tax adjustments

(6,262)

(896)

(4,225)

(12,365)

(6,809)

Net income (Non-GAAP)

$

72,886

$

77,613

$

83,981

$

215,719

$

136,117

Percentage of revenue (Non-GAAP)

26

%

29

%

33

%

27

%

23

%

Net income per diluted weighted-average common and common-equivalent share (GAAP)

$

0.44

$

0.43

$

0.49

$

1.26

$

0.61

Per share impact of non-GAAP adjustments identified above

(0.04)

(0.02)

(0.06)

0.16

Net income per diluted weighted-average common and common-equivalent share (Non-GAAP)

$

0.40

$

0.43

$

0.47

$

1.20

$

0.77

Diluted weighted-average common and common-equivalent shares outstanding

180,342

179,991

177,138

180,109

176,038

Exhibit 3

COGNEX CORPORATION
Balance Sheets
(Unaudited)
Dollars in thousands

 

October 3, 2021

December 31, 2020

Assets

Cash and investments

$

985,386

$

767,438

Accounts receivable

129,784

125,696

Inventories

81,170

60,830

Property, plant, and equipment

76,882

79,173

Operating lease assets

24,154

22,582

Goodwill and intangible assets

254,581

259,633

Deferred tax assets

420,962

434,704

Other assets

75,884

50,646

Total assets

$

2,048,803

$

1,800,702

Liabilities and Shareholders' Equity

Accounts payable and accrued expenses

$

107,134

$

93,534

Deferred revenue and customer deposits

37,843

21,274

Operating lease liabilities

26,811

26,230

Income taxes

68,039

72,551

Deferred tax liabilities

302,019

314,952

Other liabilities

13,996

9,959

Shareholders' equity

1,492,961

1,262,202

Total liabilities and shareholders' equity

$

2,048,803

$

1,800,702

Contacts:

Susan Conway
Investor Relations
+1 508-650-3353
Susan.conway@cognex.com

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