MAY 5, 2009--Cognex (Natick, MA, USA; www.cognex.com has announced its financial results for the first quarter ended Apr. 5, 2009. The company also announced that its board of directors declared a quarterly cash dividend of $0.05 per share, which represents a reduction of $0.10 from the $0.15 dividend paid in the prior quarter. The dividend is payable on Jun. 19, 2009, to all shareholders of record at the close of business on Jun. 5, 2009.
"Our results and the dividend reduction announced today are disappointing, and are due to the dismal global business environment," says Robert J. Shillman, chairman and CEO of Cognex. "Customer demand slowed considerably in the first quarter as manufacturers cut spending, and we see no near-term recovery. In light of these facts, we took action to reduce our costs, and, as a result, we expect operating expenses for the second quarter of 2009 to decrease by 7% to 10% on a sequential basis (excluding pre-tax restructuring charges of approximately $4.5 million). And to further preserve cash, the board reduced our quarterly cash dividend by 67% to $0.05 per share."
Over the past six months, Cognex has implemented a number of cost-containment measures to more closely align expenses to the lower level of customer demand. These measures include the elimination of approximately 145 employees and contractors, cuts in certain executive salaries, a restricted hiring plan, the elimination of salary increases (other than for promotions), a reduction in leased office space, a mandatory shut-down schedule, a lower 401(k) plan contribution match, and decreases in discretionary spending. Projected savings from these actions are estimated to be approximately $21 million on an annualized basis once fully implemented.
Shillman continues, "Despite our cost reductions, we will continue to invest in those strategic initiatives that we believe have the greatest promise for future growth. We see many opportunities for machine vision, both in the markets we serve today and in the new markets we plan to enter, and we intend to capitalize on these opportunities to grow our business irrespective of the down economy."
Revenue for 1Q09 decreased 30% from 1Q08 and 18% from the prior quarter. Revenue from the Semiconductor and Electronics Capital Equipment (SEMI) and Factory Automation markets declined both year-on-year and sequentially, and revenue from the Surface Inspection market declined on a sequential basis. Excluding $4.4 million of revenue in 1Q09 related to a single customer contract that had been deferred until the contract was completed, the largest decline in absolute dollars both year-on-year and sequentially was in Factory Automation.
Gross margin was 68% in 1Q09, 72% in 1Q08, and 71% in the prior quarter. Gross margin in 1Q09 benefited from $4.4 million of revenue related to a single customer contract that had been deferred until the contract was completed. Excluding this revenue, which had a product margin in excess of 90%, gross margin would have been 65%.
The decrease in gross margin year-on-year is due to product mix; revenue from surface inspection systems, which have a lower product margin than modular vision systems, represented a higher percentage of total revenue in 1Q09 than in 1Q08. The decrease on a sequential basis is due to a higher provision for excess inventory in 1Q09.
Research, Development & Engineering (R, D & E) spending in 1Q09 decreased 1% from 1Q08 and 2% from the prior quarter. The decrease in R, D & E spending year-on-year and sequentially is due to cost-saving initiatives implemented by Cognex as well as lower stock option expense.
Selling, General & Administrative (S, G & A) spending in 1Q09 decreased 1% from 1Q08 and 11% from the prior quarter.
S, G & A spending decreased year-on-year due to the impact of foreign exchange rates on the company's international operations as well as cost-savings initiatives in areas such as marketing communications, the sales kick-off meeting, travel and entertainment, and sales demonstration equipment. Offsetting this lower spending were higher employee-related costs, including stock option expense, and a charge of $1 million for the write-down of an intangible asset to its estimated fair value. On a sequential basis, S, G & A spending decreased due to lower employee-related expenses, including stock option expense, and lower discretionary spending.
Cognex reported a restructuring charge of $297,000 in 1Q09 and $258,000 in the prior quarter related to the scheduled mid-2009 closure of the company's Duluth, GA facility.
The company reported a foreign currency loss of $392,000 in 1Q, a foreign currency gain of $1.118 million in 1Q08, and a foreign currency gain of $1.699 million in the prior quarter. The company recognizes foreign currency gains and losses on the revaluation and settlement of receivable and payable balances that are reported in one currency and collected or paid in another.
Investment and other income was $2.684 million in 1Q09, $2.332 million in 1Q08, and $1.819 million in the prior quarter. The increase year-on-year and sequentially is due to higher other income in 1Q09, which was partially offset by lower yields and a lower average invested balance.
The effective tax rate was (18%) in 1Q09, 25% in 1Q08, and 5% in the prior quarter. Excluding discrete tax items, the effective tax rate would have been (18%), 24%, and 25%, respectively. The lower rate on the first quarter's tax benefit is due to more of the company's losses being incurred in lower tax jurisdictions.
Cognex's financial position at Apr. 5, 2009 was strong, with approximately $207 million in cash and investments and no debt. In 1Q09, the company generated positive cash flow from operations of approximately $500,000 and paid out approximately $6 million in dividends to shareholders.
Inventories at Apr. 5, 2009 decreased by approximately $670,000, or 3%, from the end of 2008, and inventory turns in the first quarter were equivalent to 2.1 times per year.
Given the high degree of uncertainty resulting from global economic conditions, Cognex is not providing revenue or earnings per share expectations for 2Q09 as it cannot do so with any degree of confidence.
However, the company expects that revenue for 2Q09 will decrease both year-on-year and sequentially, and that it will report a loss from continuing operations for the quarter both including and excluding pre-tax restructuring charges.