COGNEX CORPORATION Forward-Looking Statements
Certain statements made in this report, as well as oral statements made by the
Company from time to time, constitute forward-looking statements within the
meaning of Section 27A of the Securities Act of 1933, as amended, and
Section 21E of the Securities Exchange Act of 1934, as amended. Readers can
identify these forward-looking statements by our 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 and financial targets, 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, delivery lead times, future product mix, research and
development activities, sales and marketing activities, new product offerings
and product development activities, 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
reliance on key suppliers to manufacture and deliver quality products; (2) the
inability to obtain components for our products; (3) the failure to effectively
manage product transitions or accurately forecast customer demand; (4) the
inability to manage disruptions to our distribution centers; (5) the inability
to design and manufacture high-quality products; (6) the impact, duration, and
severity of the COVID-19 pandemic, including the availability and effectiveness
of vaccines; (7) the loss of, or curtailment of purchases by, large customers in
the logistics industry; (8) information security breaches; (9) the inability to
protect our proprietary technology and intellectual property; (10) the inability
to attract and retain skilled employees and maintain our unique corporate
culture; (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 impact of competitive pressures;
(14) the challenges in integrating and achieving expected results from acquired
businesses; (15) potential disruptions in our business systems; (16) potential
impairment charges with respect to our investments or acquired intangible
assets; (17) exposure to additional tax liabilities; (18) fluctuations in
foreign currency exchange rates and the use of derivative instruments; (19)
unfavorable global economic conditions, including high inflation rates; (20)
business disruptions from natural or man-made disasters or public health issues;
(21) economic, political, and other risks associated with international sales
and operations, including the impact of the war in
Executive Overview
Cognex machine vision is used to automate manufacturing and distribution processes in a variety of industries, where the technology is widely recognized as an important component of automated production and quality assurance. Virtually every manufacturer or distributor can achieve better quality and efficiency by using machine vision, and therefore, Cognex products are used by a broad base of customers across a variety of industries, including logistics, automotive, consumer electronics, medical-related, semiconductor, consumer products, and food and beverage.
Revenue for the first quarter of 2022 totaled
22
--------------------------------------------------------------------------------purchase prices paid to secure strategic inventories during the global supply chain shortage. Operating expenses increased 10% from the prior year primarily due to additional headcount to support higher business levels.
As a result of the lower gross margin percentage, operating income declined to
31% of revenue for the first quarter of 2022 from 33% of revenue for the first
quarter of 2021. Higher income tax expense further resulted in a decline in net
income of 24% of revenue for the first quarter of 2022 compared to 29% of
revenue for the first quarter of 2021. These unfavorable impacts were partially
offset by the favorable impact of the Company's stock buy-back program, that
resulted in net income per diluted share of
Results of Operations
As foreign currency exchange rates are a factor in understanding
period-to-period comparisons, we believe the presentation of results on a
constant-currency basis in addition to reported results helps improve investors'
ability to understand our operating results and evaluate our performance in
comparison to prior periods. We also use results on a constant-currency basis as
one measure to evaluate our performance. Constant-currency information compares
results between periods as if exchange rates had remained constant
period-over-period. We generally refer to such amounts calculated on a
constant-currency basis as excluding the impact of foreign currency exchange
rate changes. Results on a constant-currency basis are not in accordance with
accounting principles generally accepted in
Revenue
Revenue for the first quarter of 2022 was
From a geographic perspective, revenue from customers based in the
Revenue from customers based in
Revenue from customers based in
Revenue from other countries in
As of the date of this report, we expect revenue for the second quarter of 2022 to be relatively consistent with or slightly lower than the first quarter of 2022. On a sequential basis, we believe that higher revenue from the consumer electronics industry will be offset by the timing of large projects in the logistics industry and slower spending trends in the broader factory automation market.
Gross Margin
Gross margin as a percentage of revenue decreased to 72% for the first quarter of 2022 compared to 77% for the first quarter of 2021. The decrease was almost entirely due to higher prices paid to purchase inventories, including higher costs for components and freight, due largely to global supply chain constraints. A relatively smaller portion of the decrease was due to less favorable revenue mix, primarily attributable to a greater percentage of total revenue coming from the logistics industry, which has relatively lower gross margins and included some comparatively lower margins from strategic logistics projects in 2022.
23
--------------------------------------------------------------------------------As of the date of this report, we expect gross margin as a percentage of revenue for the second quarter of 2022 to be in the low-70% range. The expected gross margin percentage reflects our expectations that higher inventory purchase prices will continue throughout and beyond the second quarter of 2022.
Operating Expenses
Research, Development, and Engineering Expenses
Research, development, and engineering (RD&E) expenses increased by$1,949,000 , or 6%, over the first quarter of 2021 as detailed in the table below (in thousands). Three-month period RD&E expenses in 2021 $ 34,105 Personnel-related costs 1,582 Stock-based compensation expense 582 Prototyping materials 580 Outsourced engineering services 428 Incentive compensation (711) Foreign currency exchange rate changes (876) Other 364 RD&E expenses in 2022 $ 36,054
RD&E expenses increased due to higher personnel-related costs due to headcount additions to support new product initiatives and salary increases provided to employees. Stock-based compensation expense was also higher than the prior year due to a higher level of stock-based grants at a higher average economic value, as well as the impact of a forfeiture rate true-up that resulted in higher expense. Higher spending on prototyping materials and outsourced engineering services also contributed to the increase.
These increases were partially offset by lower incentive compensation expenses
than the prior year. Relevant performance goals for these plans are set at the
beginning of each year, with the ability to earn upside if the goals are
exceeded. Performance goals set for 2021 incentive bonuses were exceeded,
resulting in a higher level of bonus expense recorded in the first quarter of
2021. RD&E expenses were also lower than the prior year due to the impact of
foreign currency exchange rate changes, as costs denominated in foreign
currencies were translated into
RD&E expenses as a percentage of revenue were 13% for the first quarter of 2022 compared to 14% for the first quarter of 2021. We believe that a continued commitment to RD&E activities is essential in order to maintain or achieve product leadership with our existing products and to provide innovative new product offerings, as well as to provide engineering support for large customers. In addition, we consider our ability to accelerate the time to market for new products to be critical to our revenue growth. This quarterly percentage is impacted by revenue levels and investing cycles.
Selling, General, and Administrative Expenses
Selling, general, and administrative (SG&A) expenses increased by$8,411,000 , or 12%, over the first quarter of 2021 as detailed in the table below (in thousands). Three-month period SG&A expenses in 2021 $ 72,424 Personnel-related costs 6,380 Stock-based compensation expense 2,387 Travel expenses 1,432 Sales demonstration equipment 1,311 Incentive compensation (3,351) Foreign currency exchange rate changes (1,966) Other 2,218 SG&A expenses in 2022 $ 80,835 24
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SG&A expenses increased due to higher personnel-related costs due to headcount additions, primarily for Sales personnel to support the company's revenue growth, and salary increases provided to employees. In addition to salaries and fringe benefits, these personnel-related costs included sales commissions and travel expenses related to the additional headcount. Stock-based compensation expense was also higher than the prior year due to a higher average economic value of stock-based grants, as well as the impact of a forfeiture rate true-up that resulted in higher expense. While travel expenses increased due to the number of sales personnel added, they also increased due to a higher level of travel activity as restrictions related to COVID-19 continued to ease. Higher spending on sales demonstration equipment tied to new product launches also contributed to the increase.
These increases were partially offset by lower incentive compensation expenses
than the prior year, which included sales commissions and incentive bonuses.
Relevant performance goals for these plans are set at the beginning of each
year, with the ability to earn upside if the goals are exceeded. Performance
goals set for 2021 incentive bonuses were exceeded, resulting in a higher level
of bonus expense recorded in the first quarter of 2021. SG&A expenses were also
lower than the prior year due to the impact of foreign currency exchange rate
changes, as costs denominated in foreign currencies were translated into
Non-operating Income (Expense)
The Company recorded foreign currency losses of
Investment income decreased by
The Company recorded other expense of
Income Tax Expense (Benefit)
The Company's effective tax rate was 23% of pre-tax income for the first quarter of 2022 and 11% of pre-tax income for the first quarter of 2021.
Discrete tax items for the first quarter of 2021 included a decrease in tax
expense of
Discrete tax items for the first quarter of 2022 included an increase in tax
expense of
Discrete tax items for the first quarter of 2022 also included an increase in
tax expense of
Excluding the impact of these discrete items, the Company's effective tax rate was 16% of pre-tax income for the first quarter of 2022 and 18% of pre-tax income for the first quarter of 2021. The decrease in the effective tax rate was due to more of the Company's profits being earned and taxed in lower tax jurisdictions, as well as higher estimated R&D tax credit utilization.
Liquidity and Capital Resources
The Company has historically been able to generate positive cash flow from
operations, which has funded its operating activities and other cash
requirements and has resulted in an accumulated cash and investment balance of
25
--------------------------------------------------------------------------------The Company's cash requirements for the first quarter of 2022 were primarily met with positive cash flows from operations, as well as the sale and maturity of investments. Cash requirements consisted of operating activities, the repurchase of common stock, the payment of dividends, and capital expenditures. Cash flows from operating activities included an increase in accounts receivable and inventories to support higher business levels. The increase in inventories also resulted from the Company's initiative to secure key strategic components to meet customer demand, as well as carry higher stocking levels to mitigate the Company's exposure to demand changes or supply disruptions. The Company expects inventory levels to continue to increase for the remainder of the year as inventory is received that was purchased in response to global supply chain challenges.
Capital expenditures for the first quarter of 2022 totaled
On
The Company's Board of Directors declared and paid cash dividends of
The Company believes that its existing cash and investment balances, together with cash flow from operations, will be sufficient to meet its operating, investing, and financing activities for the next twelve months. In addition, the Company has no long-term debt. We believe that our strong cash position has put us in a relatively good position with respect to anticipated longer-term liquidity needs.
New Pronouncements
Refer to Part I - Note 2 within this Form 10-Q, for a full description of recently issued accounting pronouncements including the expected dates of adoption and the expected impact on the financial position and results of operations of the Company.
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