Cognex Corporation Announces Third Quarter Results; Machine Vision Company Reports Increases in Quarterly Revenue and Net Income

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• Gross margin was 73% in the third quarter of 2004 compared to 66% in the comparable quarter in 2003 and 71% in the prior quarter. Cost of revenue for the second and third quarters of 2004 as well as the third quarter of 2003 includes a benefit of $234,000, $422,000, and $296,000, respectively, relating to an inventory reserve recorded in the fourth quarter of 2001. Excluding this benefit, gross margin would have been 72% in the third quarter of 2004, 65% in the third quarter of 2003, and 70% in the prior quarter. The increase in gross margin, both year-on-year and sequentially, is due to higher sales volume as well as product mix.
• Research, Development & Engineering (R, D & E) spending in the third quarter of 2004 increased 5% from the comparable quarter in 2003, and was essentially flat on a sequential basis. The increase year-on-year is due to the accrual of anticipated company bonuses for 2004.
• Selling, General & Administrative (S, G & A) spending in the third quarter of 2004 increased 32% from the comparable quarter in 2003, and 3% on a sequential basis. The increase in S, G & A, both year-on-year and sequentially, is due to higher employee-related costs, including higher commissions resulting from the higher revenue level, the accrual of anticipated company bonuses for 2004, as well as investments in additional end-user sales personnel and marketing activities. Also adding to the year-on-year increase in S, G & A spending is the impact of foreign exchange rates on the company's international operations.
• The company reported a foreign currency loss of $502,000 in the third quarter of 2004, and a net gain of $73,000 for the first nine months of the year. The third quarter loss compares to a gain of $828,000 in the comparable quarter of 2003 and a loss of $50,000 in the prior quarter. The company recognizes foreign currency gains and losses on the revaluation and settlement of accounts receivable balances that are reported in one currency and collected in another.
• Investment and other income was $1,043,000 in the third quarter of 2004 compared to $1,145,000 in the comparable quarter of 2003 and $1,031,000 in the prior quarter. The decrease in investment and other income year-on-year is due to lower yields on cash and investment balances as well as lower realized gains on investments. Investment and other income increased slightly on a sequential basis due to the net effect of higher cash and investment balances offset by lower realized gains on investments.
• The effective tax rate was 29% in the third quarter of 2004 as compared to 31% in the comparable quarter of 2003 and 29% in the prior quarter. The decrease in the effective tax rate year-on-year is due to more of the company's profits being earned and taxed in lower tax jurisdictions in 2004 than in 2003.

Balance Sheet Highlights - October 3, 2004

• Cognex's financial position remains strong at October 3, 2004, with over $380,000,000 in cash and investments and no debt. Cash and investments increased nearly $80,000,000 from the end of 2003, the net result of positive cash flow from operations and cash received from the exercise of employee stock options, less dividend payments of approximately $9,000,000.
• Days sales outstanding (DSO) for the third quarter of 2004 was 60 days, and remains within the company's targeted range.
• Inventories at October 3, 2004 increased by 8% from the end of 2003, and inventory turns in the third quarter were equal to a rate equivalent to 4.2 times per year.

Business Trends and Financial Outlook
For the third quarter of 2004, bookings decreased by 22% on a sequential basis, and the company's book-to-bill ratio was below 1.0 for the quarter. This decrease in bookings was due partially to the expected decrease in the end-user market during the seasonally soft summer months, and more significantly to a dramatic slowdown in orders from customers who make capital equipment for the semiconductor and electronic industries. As a result, Cognex expects revenue for the fourth quarter of 2004 to decrease on a sequential basis to between $42 million and $46 million. At that revenue level, gross margin is expected to be in the high 60% to 70% range. For the fourth quarter, operating expenses (R, D & E and S, G & A) are expected to be relatively flat on a sequential basis. The effective tax rate for the fourth quarter of 2004 is expected to be 29%. As a result of the above, earnings for the fourth quarter are expected to be between $0.10 and $0.14 per diluted share.

Analyst Conference Call and Simultaneous Webcast
Cognex Corporation will host a conference call to discuss its results for the third quarter of 2004, as well as its financial outlook, today at 5:00 p.m. eastern time. The telephone number for the live call is 800-770-5589 (or 973-935-2039 if outside the United States). A replay will begin tonight at approximately 7:00 p.m. eastern time and will run continuously for 72 hours. The telephone number for the replay is 877-519-4471 (or 973-341-3080 if outside the United States) and the access code is 5230486.

Internet users can listen to a real-time audio broadcast of the conference call, as well as an archive replay of the call, on Cognex's website at http://www.cognex.com/investor/default.asp.

About Cognex Corporation
Cognex Corporation designs, develops, manufactures, and markets machine vision systems, or computers that can 'see.' Cognex is the world's leader in the machine vision industry, having shipped more than 225,000 machine vision systems, representing over $1.6 billion in cumulative revenue, since the company's founding in 1981. Cognex's Modular Vision Systems Division, headquartered in Natick, Massachusetts, specializes in machine vision systems that are used for automating the manufacture of a wide range of discrete items and for assuring their quality. Cognex's Surface Inspection Systems Division, headquartered in Alameda, California, specializes in machine vision systems that are used for inspecting the surfaces of products manufactured in a continuous fashion, such as metals, papers and plastics. In addition to its corporate headquarters in Natick, Massachusetts, Cognex also has regional offices located throughout North America, Japan, Europe, and Southeast Asia. Visit Cognex on-line at http://www.cognex.com.

Forward-Looking Statement
Certain statements made in this press release and its attachments, which do not relate solely to historical matters, are forward-looking statements. You can identify these forward-looking statements by use of the words 'expects,' 'anticipates,' 'estimates,' 'believes,' 'projects,' 'intends,' 'plans,' 'will,' 'may,' 'shall' and similar words. These forward-looking statements, which include statements regarding business trends and the company's financial outlook, involve risks and uncertainties that could cause actual results to differ materially from those projected. Such risks and uncertainties include: (1) global economic conditions that impact the capital spending trends of manufacturers in a variety of industries; (2) the cyclicality of the semiconductor and electronics industries; (3) the inability to achieve significant international revenue; (4) fluctuations in foreign exchange rates; (5) the loss of, or significant curtailment of purchases by, any one or more principal customers; (6) the reliance upon certain sole source suppliers to manufacture and deliver critical components for the company's products; and (7) the other risks detailed in the company's reports filed with the SEC, including the company's Form 10-K for the fiscal year ended December 31, 2003. You should not place undue reliance upon any such forward-looking statements, which speak only as of the date made. The company disclaims any obligation to update forward-looking statements after the date of such statements.