Cognex announced its Q1 2015 earnings after market close on Monday, May 4th. The company reported quarterly revenues of $113 million, 84% (approximately $95 million) of which was attributed to its factory automation segment. Cognex reported that this year-over-year revenue increase occurred despite the global currency exchange rate fluctuations, which constituted a negative impact of approximately $7 million. RD&E and SG&A expenses reportedly grew faster than revenues this past quarter due primarily to growth investments including new product development and sales initiatives. Legal fees related to Cognex’s recently-resolved patent dispute with Microscan also contributed to this rise in expenses.
Cognex performed well on a year-over-year basis. Revenues increased by 25% since Q1 2014, which was attributed primarily to a 26% year-over-year increase in factory automation sales. This division also saw a 2% increase from Q4 2014. Sequential increases such as these are not typical of Q1, which is usually Cognex’s weakest quarter. Overall revenue and net income decreased sequentially by 3% and 23%, respectively. Operating expenses increased by 9% since Q4 2014 due to growth investments in both engineering and sales.
CEO Rob Willett reported that Cognex well exceeded its long-term target for factory automation revenue growth in Europe, which was 20%. 38% of revenues this quarter came from Europe, more than any other geographic region including the Americas. Asia, excluding Japan, was Cognex’s best-performing region this quarter in terms of percentage growth; factory automation revenue grew more than 50% year-over-year, which came primarily from increased demand for machine vision from factories in Greater China. Severe pricing pressures, escalating labor costs, and slowing economic growth are all prompting Chinese manufacturers to ramp up their investments in automation solutions to enable them to sustain their competitive edge. The struggling factory automation market in Japan is also dwindling due to the weaker yen; revenue in this region declined in the low teens as compared to Q1 2014.
Cognex reported a 75% gross margin and 21% operating margin, down from the 77% and 25% respectively, in Q1 2014. The decline in gross margin was attributed to volume pricing discounts on large orders and a shift in revenue mix to relatively lower margin maintenance and support services. Operating margins are expected to improve as the year progresses.
On Thursday, April 30th, a New York federal jury decided that Cognex owes Microscan $4.4 million for infringing a barcode patent, a year after a different jury awarded Cognex $2.6 million for Microscan’s alleged infringement of another barcode patent (see here). With this latest dispute, Microscan alleged that Cognex’s DataMan imagers (7500, 8500, and other variants) infringed upon one of Microscan’s existing patents, titled, “Optical symbol scanner with low angle illumination.” The jury found that Cognex infringed on all three asserted patent claims despite Cognex’s assertion that these claims were invalid. Microscan collected royalty damages for past infringement. Cognex spent a total of approximately $1 million this quarter in relation to this lawsuit.
Cognex’s outlook for the remainder of 2015 is positive. The business has generated substantial momentum, generating large orders from consumer electronics manufacturers (like Apple), large retailers, and logistics service providers. From where the company stands today with respect to its sales pipeline, Cognex does expect Q2 and Q3 2015 to be the largest revenue quarters. The company expects a 30% sequential revenue increase in Q2 amounting to $152-157 million. Gross margin is expected to stay in the mid-70% range, only slightly lower than Q1. Operating expenses are expected to increase by approximately 5% sequentially to support further investments in growth areas. However, revenues are projected to grow at a much faster rate than expenses for the full year, which could lead to potential improvement in operating margins for 2015.
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