Cognex Q3
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Cognex Q3
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(FOOL CONFERENCE CALL SYNOPSIS)* Randy Befumo (MF Templar)
COGNEX CORPORATION <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: CGNX)") else Response.Write("(NASDAQ: CGNX)") end if %> ALEXANDRIA, Va., October 16, 1996/FOOLWIRE/ --- COGNEX CORPORATION <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: CGNX)") else Response.Write("(NASDAQ: CGNX)") end if %> announced third quarter revenue of $26,540,000, an 11% decrease from the third quarter of 1995's $29,784,000 and a 24% sequential decrease from the second quarter of 1996. Earnings for the quarter were $0.08 per share including a $4.2 million one-time charge for an inventory write-down, compared to a loss of $0.02 per share last year as a result of the Acumen acquisition. Without these charges, net income would have decreased by 35% from last year and would have been down 39% from last quarter's $0.23 per share. Excluding I-Sys, revenue for the quarter would have decreased 21% and year-to-date would have been an increase of 19%.
"TECHNOLOGY" SLOWDOWN HITS COGNEX. The growth they experienced in earlier periods in the end-user business disappeared this quarter as the effect of the slowdown in the semiconductor electronics industry impacted not only the original equipment manufacturers (OEMs), but its end-user business as well.The slowdown in the semiconductor, computer and cellular phones have all hit at once. The company has seen orders from their top ten customers "drop off the charts." Motorola in particular has affected Cognex -- it not only buys a lot of customer equipment itself but it buys a lot of end-user stuff that uses Cognex gear.
REVENUE BREAKDOWN. The OEM business was 72% (excluding I-Sys 64%). Including I-Sys the OEM business was down 24% from last year and down 28% from the prior quarter. End-users represented 36% in Q3 compared to 25% of revenue in 1995. In dollar terms, revenues from end-users increased over $2 million year-on-year. Electronics was 39% and semiconductors was 35% of revenues for the quarter.
SALES FOR CHECKPOINT SIZZLE. Checkpoint showed a significant increase in revenue due in large part to the new Checkpoint 600/PC, which runs Checkpoint directly as a plug-in card on a PC. They also introduced a new software release that has significantly more functionality. Checkpoint revenue increased 96% over last year's third quarter and 42% over the second quarter of 1996. Checkpoint revenue now represents 9% of Cognex's total revenues. Checkpoint is finally at a stage where it is sustainable and does have enough tools to generate interest. In the early years, it had only minimal tools and was up against tough competition. Now, they believe they are not losing against the major competitors, Alan Bradley and Acuity (a division of Robotic Vision Systems, Inc.). As a matter of fact, it is taking orders that its competitors thought they had in the bag.
NEW SOFTWARE PRODUCTS. We introduced two news products during the quarter, software release 2.5 for the Checkpoint 600/PC and out of their Acumen division the AcuFinder, an addition to the product line. The AcuFinder package is designed to locate parts regardless of part rotation and changes in scale and size and they believe it will help them increase their presence in the use of vision-guided robots on the factory floor.
MANUFACTURING AND GROSS MARGINS. Most of their products are now being produced by their contract manufacturer. They have had some changes in the management structure as they fired their Vice President of Manufacturing. They want to get to the point where the contract manufacturer is doing full testing as well as drop-shipping their products. Full testing won't happen this year and they do not have a time schedule for drop-shipping. Gross margins were negatively impacted by warranties due to some retrofitting issues.
$4.2 MILLION INVENTORY WRITE-DOWN. Cognex has too much inventory for the next year given their reduced production schedule. Originally, customers told them to buy up inventory but now are telling the company that they do not need the products anymore. Cognex bought these components in late 1995 and paid peak prices, now only to have them when prices have tumbled. Cognex is choosing to eat the cost, rather than try to pass it on to these customer, as an honorable way of securing business for the future. By taking the charge now there will be less impact on future quarters for negative manufacturing variances. This all translates into a $4.2 million inventory write-down.
NEW CUSTOMERS. During the third quarter, Cognex signed seventy new customers compared to sixty-six last quarter. In the OEM area in 1995, they closed seventeen in the third quarter. In 1996, they closed eighteen. In the systems integrator/end-user business, we closed forty-nine in 1995 and fifty-two in this quarter. Twelve of them represent "significant" customers, which it defines as customers expected to generate in excess of $100,000 in annual revenue when they reach production quantities. Seven of these twelve significant customers are end-users, which are defined as system integrator or the end-users themselves, while the remaining five are OEM. Six of the significant customers have placed orders Checkpoint, which is their easy to use machine vision system which is apparently taking off. This is still not enough to staunch the lost from their old customers, however.
I-SYS ACQUISITION. To recap, management said the I-Sys acquisition made sense because they had great products but no solid sales function. Cognex has taken over the sales function and this quarter they closed their first order for a substantial system. Interest appears good and they are currently in negotiations with the distributors of I-Sys products and are amicably be settling these products. It will take six months to a year to get all of the rights to sell these products back.
HEADCOUNT. World-wide headcount grew to 393 employees, which is an increase of 125 people since last year's third quarter -- but only an increase of seven over last quarter. They have a worldwide sales force of forty full-time sales engineers, and this does include the sales technical support people and does not include the I-Sys sales people. They have slowed down their headcount rate. Although there are no plans to reduce headcount or spending level, they certainly have taken cost reduction measures that include reducing planned hiring, operational spending and capital spending for the remainder of the year. They currently have 45 open positions in the company consistently primarily of end-user sales and support positions. The headcount of 393 is 91 fewer than originally planned for the end of this quarter. At this point, they expect minimal hiring in 1997.
CAPITAL SPENDING & DEPRECIATION. They will complete construction of their 50,000 square foot addition.They will begin to furnish and take occupancy only as needed in the end of 1997 or early 1998, however. This will allow them to defer the cost of running and depreciating the addition until it is necessary to incur those expenses. The addition is two years ahead of plan, so even with a delay they will be one year ahead of plan. Depreciation was $1.3 million and capital spending was $2.7 million for the quarter. The depreciation should continue at that run-rate. As for capital spending, they are still incurring capital expenditures as they complete the construction of the addition.
STOCK BUYBACK & ACQUISITION POTENTIAL. They have an opportunity to buy stock back and to make acquisitions, although the acquisition thing is made difficult by the low stock price. Their acquisitions criteria are as follows: machine vision companies; able to generate profitable growth over the next couple years; earnings accretive within a year or two; and they must have something unique. Acumen, producing $10 million in revenue now, is a perfect example.
FORWARD GUIDANCE. Cognex tends to lag the capital equipment business by a quarter, which tends to lag a quarter behind the chipmakers. Their current guess is sometime in mid-1997. The use of machine vision is growing, the overall long term has not changed at all but it is this slowdown that is hitting them now. * A Fool conference call synopsis represents an effort to highlight the salient points of a conference call and should not be taken as an authoritative accounting or transcription of the entire event. |
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