COGNEX CORP

NOTE 1: Summary of Significant Accounting Policies

As permitted by the rules of the Securities and Exchange Commission applicable to Quarterly Reports on Form 10-Q, these notes are condensed and do not contain all disclosures required by generally accepted accounting principles ("GAAP"). Reference should be made to the consolidated financial statements and related notes included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2024 for a full description of other significant accounting policies.

In the opinion of the management of Cognex Corporation (the "Company"), the accompanying consolidated unaudited financial statements contain all adjustments, consisting of normal, recurring adjustments and financial statement reclassifications necessary to present fairly the Company’s financial position as of March 30, 2025, and the results of its operations for the three-month periods ended March 30, 2025 and March 31, 2024, and changes in shareholders’ equity, comprehensive income, and cash flows for the periods presented.

The results disclosed in the Consolidated Statements of Operations for the three-month period ended March 30, 2025 are not necessarily indicative of the results to be expected for the full year.

NOTE 2: New Pronouncements

Accounting Standards Update (ASU) 2023-09, "Income Taxes (Topic 740): Improvements to Income Tax Disclosures"

The amendments in this ASU apply to all entities that are subject to Topic 740, Income Taxes. The amendments require public business entities to disclose specific categories in their rate reconciliation and provide additional information for reconciling items that meet a quantitative threshold. They also require all entities to disclose income taxes paid, net of refunds received, disaggregated by federal, state, and foreign taxes and by individual jurisdictions in which income taxes paid, net of refunds received, are equal to or greater than five percent of total income taxes paid. For public business entities, the amendments in this ASU are effective for annual periods beginning after December 15, 2024. The amendments in this ASU should be applied on a prospective basis. Management does not expect ASU 2023-09 to have a material impact on the Company's financial statements and disclosures.

ASU 2024-03, Income Statement—Reporting Comprehensive Income—Expense Disaggregation Disclosures (Subtopic 220-40)

ASU 2024-03 aims to enhance transparency for users of financial statements by requiring public business entities to disaggregate specific expense categories. ASU 2024-03 mandates disclosures in the notes to financial statements detailing the composition and trends of key expense categories within major income statement captions. These enhanced disclosures are intended to help investors more effectively assess the entity’s performance, understand its cost structure, and make more accurate forecasts of future cash flows. For public business entities, ASU 2024-03 is effective for annual periods beginning after December 15, 2026, and interim periods within annual reporting periods beginning after December 15, 2027. The adoption will result in disclosure changes only.

NOTE 3: Financial Instruments

Cash, Cash Equivalents, and Investments

The following table summarizes the Company’s cash, cash equivalents, and investments as of March 30, 2025 (in thousands):

The following table summarizes the Company’s cash, cash equivalents, and investments as of December 31, 2024 (in thousands):

The Company’s money market instruments are reported at fair value based upon the daily market price for identical assets in active markets, and are therefore classified as Level 1.

The Company’s debt securities are reported at fair value based on model-driven valuations in which all significant inputs are observable or can be derived from or corroborated by observable market data for substantially the full term of the asset or liability, and are therefore classified as Level 2. Management is responsible for estimating the fair value of these financial assets and liabilities, and in doing so, considers valuations provided by a large, third-party pricing service. This service maintains regular contact with market makers, brokers, dealers, and analysts to gather information on market movement, direction, trends, and other specific data. They use this information to structure yield curves for various types of debt securities and arrive at the daily valuations.

Accrued interest receivable is recorded in "Prepaid expenses and other current assets" on the Consolidated Balance Sheets and amounted to $3,284,000 and $4,144,000 as of March 30, 2025 and December 31, 2024, respectively.

Realized Gains (Losses) on Debt Securities

The following table summarizes the Company's gross realized gains and losses on the sale of debt securities for the three-month periods ended March 30, 2025 and March 31, 2024 (in thousands):

Realized gains and losses are included in "Investment income" on the Consolidated Statements of Operations. Prior to the sale of these securities, unrealized gains and losses for these debt securities, net of tax, were recorded in shareholders’ equity as accumulated other comprehensive income (loss).

Unrealized Losses on Debt Securities

The following table summarizes the Company’s gross unrealized losses and fair values for available-for-sale investments in an unrealized loss position as of March 30, 2025 (in thousands):

The following table summarizes the Company’s gross unrealized losses and fair values for available-for-sale investments in an unrealized loss position as of December 31, 2024 (in thousands):

Management monitors debt securities that are in an unrealized loss position to determine whether a loss exists related to the credit quality of the issuer. When developing an estimate of expected credit losses, management considers all relevant information including historical experience, current conditions, and reasonable forecasts of expected future cash flows. Based on this evaluation, no allowance for credit losses on debt securities was recorded as of March 30, 2025 or December 31, 2024. Management currently intends to hold these securities to full value recovery at maturity.

Debt Securities Maturities

The following table presents the effective maturity dates of the Company’s available-for-sale investments as of March 30, 2025 (in thousands):

Derivative Instruments

The Company’s foreign currency risk management strategy is principally designed to mitigate the potential financial impact of changes in the value of transactions and balances denominated in foreign currencies resulting from changes in foreign currency exchange rates. The Company enters into economic hedges utilizing foreign currency forward contracts with maturities that do not exceed approximately three months to manage the exposure to fluctuations in foreign currency exchange rates arising primarily from foreign-denominated receivables and payables. The gains and losses on these derivatives are intended to be offset by the changes in the fair value of the assets and liabilities being hedged. These economic hedges are not designated as hedging instruments for hedge accounting treatment.

The Company had the following outstanding forward contracts (in thousands):

Information regarding the fair value of the outstanding forward contracts was as follows (in thousands):

The Company’s forward contracts are reported at fair value based on model-driven valuations in which all significant inputs are observable or can be derived from or corroborated by observable market data for substantially the full term of the asset or liability, and are therefore classified as Level 2. The Company's forward contracts are typically traded or executed in over-the-counter markets with a high degree of pricing transparency. The market participants are generally large commercial banks.

Information regarding the effect of derivative instruments on the Consolidated Statement of Operations was as follows (in thousands):

NOTE 4: Inventories

Inventories consisted of the following (in thousands):

NOTE 5: Leases

The Company's leases are primarily leased properties across different worldwide locations where the Company conducts its business. All of these leases are classified as operating leases. Certain leases may contain options to extend or terminate the lease at the Company's sole discretion. As of March 30, 2025, there wereno options to terminate andnineteen options to extend that were accounted for in the determination of the applicable lease term for the Company's outstanding leases. Certain leases contain leasehold improvement incentives, retirement obligations, escalating clauses, rent holidays, and variable payments tied to a consumer price index. There were no restrictions or covenants for outstanding leases as of March 30, 2025. The Company did not have any leases that had not yet commenced but that created significant rights and/or obligations as of March 30, 2025.

The components of lease expense were as follows (in thousands):

(1) Leases with a term of twelve months or less for which the Company elected not to recognize a lease asset or lease liability

Supplemental balance sheet information related to leases was as follows:

Supplemental cash flow information related to leases was as follows (in thousands):

Maturities of lease liabilities as of March 30, 2025 were as follows (in thousands):

The Company leases a building in Singapore that serves as a distribution center for customers in Asia. The lease containstwo components: an 88,000 square-foot premises that had a commencement date in June of 2023 and a second 27,000 square-foot premises that does not commence until the fourth quarter of 2025. Accordingly, the second component of the lease has not yet been recorded on the Consolidated Balance Sheets, nor has it created any significant rights and obligations as of March 30, 2025. This second lease component has an original term ofeight years and the Company has the right and option to extend this term by an additional five years, commencing upon the expiration of the original term. Future payment obligations associated with this lease component total $13,396,000, $163,000 of which is payable in the remainder of 2025 and which reflects the estimated extension period offive years. Future payment obligations related to this lease component are not included in the future operating lease cash payments table above.

The Company has entered into a lease for a 6,500 square-foot building in Aachen, Germany for a term often years. The commencement date for this lease is expected to be in the second quarter of 2025, and therefore it has not yet been recorded on the Consolidated Balance Sheets, nor has it created any significant rights and obligations as of March 30, 2025. The Company has the right and option to extend the term of this lease for an additional period offive years, commencing upon the expiration of the original term. Future payment obligations associated with this lease total $9,142,000, $503,000 of which is payable in the remainder of 2025. Future payment obligations related to this lease are not included in the future operating lease cash payments table above.

NOTE 6: Goodwill and Intangible Assets

The changes in the carrying value of goodwill were as follows (in thousands):

Amortized intangible assets as of March 30, 2025 consisted of the following (in thousands):

Amortized intangible assets as of December 31, 2024 consisted of the following (in thousands):

Future amortization expense related to intangible assets as of March 30, 2025 is as follows (in thousands):

NOTE 7: Business Combinations

On October 18, 2023, the Company acquired all the outstanding shares of Moritex Corporation ("Moritex"), a global provider of premium optical components based in Japan, for an enterprise value of ¥40 billion Japanese Yen, or approximately $270 million U.S. Dollars based on the closing date foreign exchange rate.

The cash-free, debt-free enterprise value was adjusted by cash acquired, debt assumed, and final working capital balances to arrive at total consideration to be allocated to assets acquired and liabilities assumed of ¥44,376,245,000 ($296,138,000 based on the closing date foreign exchange rate), of which ¥44,227,414,000 ($295,144,000) was paid in cash on the closing date and ¥148,831,000 ($994,000) was paid during the three-month period ended March 31, 2024 as a purchase price adjustment based on the closing balance sheet.

NOTE 8: Warranty Obligations

The Company records the estimated cost of fulfilling product warranties at the time of sale based upon historical costs to fulfill claims. Obligations may also be recorded subsequent to the time of sale whenever specific events or changes in circumstances impacting product quality become known that would not have been taken into account using historical data. While we engage in extensive product quality programs and processes, including actively monitoring and evaluating the quality of our component suppliers and third-party contract manufacturers, the Company’s warranty obligation is affected by product failure rates, material usage, and service delivery costs incurred in correcting a product failure. An adverse change in any of these factors may result in the need for additional warranty provisions. Warranty obligations are included in “Accrued expenses” on the Consolidated Balance Sheets.

The changes in the warranty obligation were as follows (in thousands):

NOTE 9: Commitments and Contingencies

As of March 30, 2025, the Company had outstanding purchase orders totaling $53,401,000 to procure inventory from various vendors. Certain of these purchase orders may be canceled by the Company, subject to cancellation penalties. These purchase commitments relate primarily to expected sales in the next twelve months.

A significant portion of the Company's outstanding inventory purchase orders as of March 30, 2025, as well as additional preauthorized commitments to procure strategic components based on the Company's expected customer demand, are placed with the Company's primary contract manufacturer for the Company's assembled products. The Company has the obligation to purchase any non-cancelable and non-returnable components that have been purchased by the contract manufacturer with the Company's preauthorization, when these components have not been consumed within the period defined in the terms of the Company's agreement with this contract manufacturer. While the Company typically expects such purchased components to be used in future production of Cognex finished goods, these components are considered in the Company's reserve estimate for excess and obsolete inventory. Furthermore, the Company accrues for losses on commitments for the future purchase of non-cancelable and non-returnable components from this contract manufacturer at the time that circumstances, such as changes in demand, indicate that the value of the components may not be recoverable, the loss is probable, and management has the ability to reasonably estimate the amount of the loss.

Various claims and legal proceedings generally incidental to the normal course of business are pending or threatened on behalf of or against the Company. While we cannot predict the outcome of these matters, we believe that any liability arising from them will not have a material adverse effect on our financial position, liquidity, or results of operations.

NOTE 10: Stockholder's Equity

Stock Repurchase Program

In March 2022, the Company's Board of Directors authorized the repurchase of $500,000,000 of the Company's common stock. Under this March 2022 program, in addition to repurchases made in other periods, the Company repurchased 231,000 shares at a total cost of $9,339,000 during the three-month period ended March 31, 2024 and 3,047,000 shares at a total cost of $103,413,000 during the three-month period ended March 30, 2025, including $1,180,000 of buyback Excise Tax in accordance with the Inflation Reduction Act of 2022, leaving a remaining balance of $164,020,000 as of March 30, 2025. The Company may repurchase shares under this program in future periods depending on a variety of factors, including, among other things, the impact of dilution from employee stock awards, stock price, share availability, and cash requirements. The Company is authorized to make repurchases of its common stock through open market purchases, pursuant to Rule 10b5-1 trading plans, or in privately negotiated transactions.

Stock-Based Compensation Expense

The Company’s stock-based awards that result in compensation expense consist of stock options, restricted stock units ("RSUs"), and performance restricted stock units ("PRSUs").

The following table summarizes the number of stock-based awards granted by the Company and the weighted-average grant-date fair value per unit for the three-month periods ended March 30, 2025 and March 31, 2024:

During the three-month period ended March 30, 2025, the Company granted PRSUs that vest upon the achievement of (1) a service condition ofthree years of continuous employment and (2) a performance condition established by the Compensation Committee of our Board of Directors as of the grant date. The number of shares earned could range between 0% and 120% based on achievement of the performance condition, which includes certain financial targets over thethree-year measurement period. The fair value of these PRSUs is calculated based on the observable market price of the Company's stock on the grant date less the present value of expected future dividends. Compensation expense for these PRSUs is recognized based on the probable outcome of the performance condition with a cumulative catch-up adjustment for prior periods in the period that the probable outcome changes. During the three-month period ended March 30, 2025, the Company recorded $152,000 in compensation expense based on the probable three-year financial target outcome for the PRSUs granted during the three-month period ended March 30, 2025.

The Company stratifies its employee population intotwo groups: one consisting of senior management and another consisting of all other employees. The Company currently applies an estimated annual forfeiture rate of 11% to all stock-based awards for senior management and a rate of 13% for all other employees. Each year during the first quarter, the Company revises its forfeiture rate based on updated estimates of employee turnover. Credits of $4,789,000 and $1,832,000 were recorded in 2025 and 2024, respectively, to true up previously recorded compensation expense for this forfeiture rate revision.

As of March 30, 2025, total unrecognized compensation expense, net of estimated forfeitures, related to non-vested equity awards, including stock options, RSUs, and PRSUs, was $80,214,000, which is expected to be recognized over a weighted-average period of 2.0 years.

The following table presents the stock-based compensation expense by caption for each period presented on the Consolidated Statements of Operations (in thousands):

No compensation expense was capitalized as of March 30, 2025 or December 31, 2024.

NOTE 11: Revenue Recognition

The following table summarizes disaggregated revenue information by geographic area based upon the customer's country of domicile (in thousands):

The following table summarizes disaggregated revenue information by revenue type (in thousands):

Costs to Fulfill a Contract

Costs to fulfill a contract are included in "Prepaid expenses and other current assets" on the Consolidated Balance Sheet and amounted to $12,326,000 and $10,705,000 as of March 30, 2025 and December 31, 2024, respectively.

Accounts Receivable, Contract Assets, and Contract Liabilities

Accounts receivable represent amounts billed and currently due from customers which are reported at their net estimated realizable value. The Company maintains an allowance against its accounts receivable for credit losses. Contract assets consist of unbilled revenue which arises when revenue is recognized in advance of billing for certain application-specific customer solutions contracts. Contract liabilities consist of deferred revenue and customer deposits which arise when amounts are billed to or collected from customers in advance of revenue recognition.

The following table summarizes the allowance for credit losses activity for the three-month period ended March 30, 2025 (in thousands):

The following table summarizes the deferred revenue and customer deposits activity for the three-month period ended March 30, 2025 (in thousands):

As a practical expedient, the Company has elected not to disclose the aggregate amount of the transaction price allocated to unsatisfied performance obligations for our contracts that have an original expected duration of less than one year. The remaining unsatisfied performance obligations for our contracts that have an original expected duration of more than one year, primarily related to extended warranties, are not material.

NOTE 12: Income Taxes

The Company's effective tax rate was 15% and 32% for the three-month periods ended March 30, 2025 and March 31, 2024, respectively.

The Company has defined its major tax jurisdictions as the United States, Ireland, China, Japan, and Korea, and within the United States, Massachusetts. The statutory tax rate is 12.5% in Ireland,25% in China,34.6% in Japan, and 21% in Korea, compared to the U.S. federal statutory corporate tax rate of 21%. These foreign tax rate differences resulted in a favorable impact to the effective tax rate for both the three-month periods ended March 30, 2025 and March 31, 2024.

The Company recorded a net discrete tax benefit totaling $307,000 for the three-month period ended March 30, 2025 and a net discrete tax expense totaling $3,085,000 for the three-month period ended March 31, 2024.

Discrete tax items for the three-month period ended March 30, 2025 included (1) an increase in tax expense of $1,616,000 related to stock-based compensation; (2) an increase in tax expense of $386,000 for interest expense related to tax reserves; (3) a net decrease in tax expense of $278,000 related to return-to-provision adjustments; and (4) a net decrease in tax expense of $2,031,000 related to an adjustment to the Company's deferred tax position.

Discrete tax items for the three-month period ended March 31, 2024 included (1) an increase in tax expense of $1,123,000 related to stock-based compensation; (2) an increase in tax expense of $458,000 related to state tax matters; (3) an increase in tax expense of $458,000 for interest expense related to tax reserves; and (4) a net increase in tax expense of $1,046,000 for other tax matters.

The Company’s reserve for income taxes, including gross interest and penalties, was $29,561,000 as of March 30, 2025, of which $27,194,000 was classified as a non-current liability and $2,367,000 was classified as an offset to deferred tax assets. If the Company’s tax positions were sustained or the statutes of limitations related to certain positions expired, these reserves would be released and income tax expense would be reduced in a future period.

Within the United States, the tax years 2021 through 2024 remain open to examination by the IRS, and 2020 through 2024 remain open to examination by various state tax authorities. The tax years 2013 through 2024 remain open to examination by various international taxing authorities in other jurisdictions in which the Company operates.

NOTE 13: Earnings per Share

The following table shows the computation of basic and diluted earnings per share for the three-month periods ended March 30, 2025 and March 31, 2024 (in thousands, except per share amounts):

The computation of diluted weighted-average common shares outstanding excludes the following weighted average anti-dilutive stock-based awards outstanding for the three-month periods ended March 30, 2025 and March 31, 2024 (in thousands):

NOTE 14: Segment and Geographic Information

The Company operates inone segment, machine vision technology. The Company has a single, company-wide management team that administers operations as a whole rather than as discrete operating segments. The Company’s chief operating decision maker is the chief executive officer, who assesses performance and allocates resources at the corporate level, as compared to the geography, product line, or end market levels. The Company offers a variety of machine vision products that have similar economic characteristics and are distributed by the same sales channels to the same types of customers.

The measure of segment profit or loss for the Company's single segment is net income. Segment expenses were disaggregated based on the information the chief operating decision maker uses to assess performance and allocate resources considering both quantitative and qualitative factors. The following table summarizes significant segment expenses, which represents the difference between segment revenue and segment net income (in thousands):

(1) Cost of revenue includes depreciation and amortization expense (including amortization of acquired technologies) of $3,018,000 and $3,150,000 for March 30, 2025 and March 31, 2024, respectively.

(2) Incentive compensation includes company bonus and sales commissions.

(3) Other segment expenses include outside services, prototyping materials, sales demonstration equipment, travel and entertainment, marketing programs, and rent, among other less significant expenses.

Segment assets amounted to $1,932,503 and $1,992,850 as of March 30, 2025 and December 31, 2024, respectively.

NOTE 15: Subsequent Events

On April 30, 2025, the Company’s Board of Directors declared a cash dividend of $0.08 per share. The dividend is payable on May 29, 2025 to all shareholders of record as of the close of business on May 15, 2025.