Cognex Reports Results for the First Quarter of 2019

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
the first quarter of 2019. Table 1 below shows selected financial data
for Q1-19 compared with Q1-18 and Q4-18.

*Non-GAAP net income per diluted share excludes tax adjustments. A
reconciliation from GAAP to Non-GAAP is shown in Exhibit 2 of this news
release.

“Our Q1 results were in line with our guidance and we set a new
first-quarter revenue record,” said Dr.
Robert J. Shillman, Founder and Chairman of Cognex. “However, slower
business conditions have dampened our expectations for growth in the
near term. Nevertheless, our products are a key element of factory
automation and logistics, which we believe are both growth markets, and
we remain optimistic about Cognex’s future over the long term.”

“We continue to be encouraged by the increasing adoption of Cognex
products in newer markets including logistics, which is now a more
meaningful part of our revenue,” said Robert
J. Willett, Chief Executive Officer of Cognex. “Overall, however, we
expect to see a slight decline in revenue for 2019, primarily as a
result of significantly lower revenue from consumer electronics amid an
industry slowdown.”

“Our history shows that growth for Cognex is not linear; we’ve had ups
and downs in the past driven by various external factors. This current
slowdown will be temporary and does not change our positive view of the
long-term potential for Cognex,” concluded Mr. Willett.

Details of the Quarter

Statement of Operations Highlights – First Quarter of 2019

• Revenue increased 2% from Q1-18 and declined 10% from Q4-18. Growth
  year-on-year in logistics was partially offset by lower revenue from
  customers in Greater China and in the automotive industry in the
  Americas. It was also impacted by an unfavorable change in currency
  exchange rates. On a sequential basis, Cognex experienced a steeper
  than usual seasonal decline from Q4 to Q1 due to slowing business
  conditions.
• Gross margin was 73% for Q1-19 and Q4-18 compared with 76% for Q1-18.
  Gross margin decreased year-on-year primarily due to unfavorable
  absorption of manufacturing overhead costs.
• Research, Development & Engineering (RD&E) expenses decreased 3% from
  Q1-18 and increased 5% from Q4-18. RD&E decreased year-on-year due to
  the favorable impact of currency exchange rates and lower costs for
  prototyping materials and outsourced engineering services. The
  decrease was partially offset by Cognex’s investment in additional
  engineers. RD&E increased on a sequential basis due to the timing of
  application engineering for large opportunities in consumer
  electronics and higher employee-related costs.
• Selling, General & Administrative (SG&A) expenses increased 5% from
  Q1-18 and 1% from Q4-18. SG&A increased both year-on-year and
  sequentially as a result of Cognex growing its sales and support
  organization. The increase year-on-year was partially offset by costs
  incurred in Q1-18 related to the company’s new ERP system and the
  favorable impact of changes in currency exchange rates.
• Investment and other income was $6 million in Q1-19, $4 million in
  Q1-18 and $4 million in Q4-18. Investment income increased both
  year-on-year and sequentially primarily due to higher yields on
  invested balances. Also contributing was a benefit from the
  revaluation of contingent consideration liabilities related to recent
  acquisitions.
• The effective tax rate was 7% in Q1-19, 2% in Q1-18 and 7% in Q4-18.
  Excluding discrete tax adjustments, the rates were 15%, 15% and 8%,
  respectively (tax adjustments are summarized in Exhibit 2). Notably,
  all periods presented include a varying discrete tax benefit related
  to employee stock options exercised during that quarter. Additionally,
  the tax rate for 2018 was adjusted in Q4-18 to reflect the fact that
  more of the company’s 2018 profits were earned and taxed in lower-tax
  jurisdictions than anticipated.

Balance Sheet Highlights – March 31, 2019

• Cognex’s financial position as of March 31, 2019, continued to be very
  strong, with $864 million in cash and investments and no debt. Cash
  and investments increased by $66 million from the end of 2018. Cash
  inflows consisted of $61 million in cash generated from operations and
  $14 million in cash received from the exercise of employee stock
  options. Cash outflows included $9 million in dividends paid to
  shareholders and $5 million for capital expenditures. Cognex intends
  to repurchase shares of its common stock in Q2-19, subject to market
  conditions and other relevant factors.
• Inventories decreased by $4 million, or 5%, from the end of 2018.
• On January 1, 2019, Cognex adopted a new lease accounting standard
  (ASC 842, “Leases”) on a prospective basis and recorded lease assets
  and lease liabilities of $17 million as the cumulative-effect
  adjustment to the opening balance sheet.

Financial Outlook – Q2 2019

• Revenue for Q2-19 is expected to be between $190 million and $200
  million. While the midpoint of this range represents growth of 12%
  over Q1-19, it’s a decline of 8% from Q2-18 primarily due to lower
  anticipated revenue from consumer electronics.
• Gross margin is expected to be in the mid-70% range, in line with the
  73% gross margin the company reported for Q1-19.
• Cognex expects operating expenses to increase by low-single digits 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 because of
  changes in Cognex’s stock price), and (2) certain one-time discrete
  events, such as tax adjustments (because these costs are outside of
  Cognex’s normal business operations). 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 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 Thursday, May 2,
  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 13689534.
• 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 image-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, expected areas of growth, emerging and growth markets, future
product mix, research and development activities, investments, strategic
plans, and stock repurchases, 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; (17) the impact of
competitive pressures; (18) the impact of competitive pressures; (19)
the challenges in integrating and achieving expected results from
acquired businesses; (20) potential impairment charges with respect to
our investments or for acquired intangible assets or goodwill; (21)
exposure to additional tax liabilities; and (22) 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

Exhibit 2

Exhibit 3

Contacts

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