UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

(Mark One)


☒			Quarterly Report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 for the quarterly period ended ~~October~~July 2, ~~2022~~2023 or


☐			Transition Report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 for the transition period from __________ to __________

Commission File Number 001-34218

COGNEX CORPORATION


(Exact name of registrant as specified in its charter)


Massachusetts						04-2713778
(State or other jurisdiction of incorporation or organization)						(I.R.S. Employer Identification No.)

One Vision Drive

Natick, Massachusetts 01760-2059

(508) 650-3000


(Address, including zip code, and telephone number, including area code, of principal executive offices)

Securities registered pursuant to Section 12(b) of the Act:


Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Common Stock, par value $.002 per share	CGNX	The NASDAQ Stock Market LLC

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

Yes

☒

☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).

Yes

☒

☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and "emerging growth company" in Rule 12b-2 of the Exchange Act (Check one):

Large accelerated filer

☒

Accelerated filer

☐

Non-accelerated filer

☐

Smaller reporting company

☐

Emerging growth company

☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Yes

☐

☒

As of ~~October~~July 2, ~~2022,~~2023, there were ~~172,930,176~~172,293,115 shares of Common Stock, $.002 par value per share, of the registrant outstanding.

INDEX


PART I	FINANCIAL INFORMATION	3

Item 1.	Financial Statements (interim periods unaudited)	3
	Consolidated Statements of Operations for the three-month and six-month periods endedJuly 2, 2023 and ~~nine-month~~ ~~periods ended~~ ~~October 2, 202~~2 ~~and~~ O~~ctober~~July 3, ~~2021~~2022	3
	Consolidated Statements of Comprehensive Income for the three-month and six-month periods endedJuly 2, 2023 and ~~nine-month~~ ~~periods ended~~ O~~ctober 2,~~July 3, 2022 ~~andOctober 3, 2021~~	4
	Consolidated Balance Sheets as of ~~October~~July 2,~~, 2022~~ 2023 and December 31, 20212022	5
	Consolidated Statements of Cash Flows for the ~~nine-month~~ six-month periods ended O~~ctober~~July 2,~~, 202~~2 2023 and O~~ctober~~July 3, ~~2021~~2022	6
	Consolidated Statements of Shareholders’ Equity for the three-month and six-month periods endedJuly 2, 2023 and ~~nine-month~~ ~~periods ended~~ O~~ctober 2,~~ ~~202~~2 ~~and~~ O~~ctober~~July 3, ~~2021~~2022	7
	Notes to Consolidated Financial Statements	9

Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations	2524

Item 3.	Quantitative and Qualitative Disclosures About Market Risk	31

Item 4.	Controls and Procedures	31

PART II	OTHER INFORMATION

Item 1.	Legal Proceedings	32

Item 1A.	Risk Factors	32

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	3332

Item 3.	Defaults Upon Senior Securities	3332

Item 4.	Mine Safety Disclosures	3332

Item 5.	Other Information	3332

Item 6.	Exhibits	3433

	Signatures	3534

PART I: FINANCIAL INFORMATION

ITEM 1: FINANCIAL STATEMENTS

COGNEX CORPORATION

CONSOLIDATED STATEMENTS OF OPERATIONS

(In thousands, except per share amounts)


		Three-months Ended				Nine-months Ended					Three-months Ended				Six-months Ended
		October 2, 2022		October 3, 2021		October 2, 2022		October 3, 2021			July 2, 2023		July 3, 2022		July 2, 2023		July 3, 2022
		(unaudited)				(unaudited)					(unaudited)				(unaudited)
Revenue	Revenue	$	209,622	$	284,848	$	766,657	$	793,033	Revenue	$	242,512	$	274,628	$	443,636	$	557,035
Cost of revenue	Cost of revenue	57,383		85,712		214,316		208,189		Cost of revenue	62,829		78,143		120,213		156,933
Gross margin	Gross margin	152,239		199,136		552,341		584,844		Gross margin	179,683		196,485		323,423		400,102
Research, development, and engineering expenses	Research, development, and engineering expenses	33,954		34,476		103,999		99,883		Research, development, and engineering expenses	33,585		33,991		72,127		70,045
Selling, general, and administrative expenses	Selling, general, and administrative expenses	75,371		77,113		236,156		226,380		Selling, general, and administrative expenses	83,423		79,950		166,460		160,785
Loss from fire (Note 17)		2,891		—		20,294		—
Loss (recovery) from fire (Note 17)										Loss (recovery) from fire (Note 17)	(2,500)		17,403		(2,500)		17,403
Operating income	Operating income	40,023		87,547		191,892		258,581		Operating income	65,175		65,141		87,336		151,869
Foreign currency gain (loss)	Foreign currency gain (loss)	(1,880)		(586)		(4,367)		(2,233)		Foreign currency gain (loss)	(1,605)		(2,043)		(1,211)		(2,487)
Investment income	Investment income	1,416		1,748		4,389		5,025		Investment income	4,095		1,505		7,682		2,973
Other income (expense)	Other income (expense)	(214)		(125)		(450)		(420)		Other income (expense)	112		(188)		185		(236)
Income before income tax expense	Income before income tax expense	39,345		88,584		191,464		260,953		Income before income tax expense	67,777		64,415		93,992		152,119
Income tax expense	Income tax expense	5,365		9,684		31,250		34,607		Income tax expense	10,303		5,514		10,903		25,885
Net income	Net income	$	33,980	$	78,900	$	160,214	$	226,346	Net income	$	57,474	$	58,901	$	83,089	$	126,234

Net income per weighted-average common and common-equivalent share:	Net income per weighted-average common and common-equivalent share:									Net income per weighted-average common and common-equivalent share:
Basic	Basic	$	0.20	$	0.45	$	0.92	$	1.28	Basic	$	0.33	$	0.34	$	0.48	$	0.73
Diluted	Diluted	$	0.19	$	0.44	$	0.91	$	1.26	Diluted	$	0.33	$	0.34	$	0.48	$	0.72

Weighted-average common and common-equivalent shares outstanding:	Weighted-average common and common-equivalent shares outstanding:									Weighted-average common and common-equivalent shares outstanding:
Basic	Basic	173,256		176,812		173,640		176,572		Basic	172,429		173,507		172,527		173,830
Diluted	Diluted	174,327		180,342		175,233		180,109		Diluted	173,622		174,993		173,791		175,874

Cash dividends per common share	Cash dividends per common share	$	0.065	$	0.060	$	0.195	$	0.180	Cash dividends per common share	$	0.070	$	0.065	$	0.140	$	0.130

The accompanying notes are an integral part of these consolidated financial statements.

COGNEX CORPORATION

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(In thousands)


		Three-months Ended				Nine-months Ended					Three-months Ended				Six-months Ended
		October 2, 2022		October 3, 2021		October 2, 2022		October 3, 2021			July 2, 2023		July 3, 2022		July 2, 2023		July 3, 2022
		(unaudited)				(unaudited)					(unaudited)				(unaudited)
Net income	Net income	$	33,980	$	78,900	$	160,214	$	226,346	Net income	$	57,474	$	58,901	$	83,089	$	126,234
Other comprehensive income (loss), net of tax:	Other comprehensive income (loss), net of tax:									Other comprehensive income (loss), net of tax:

Available-for-sale investments:	Available-for-sale investments:									Available-for-sale investments:
Net unrealized gain (loss), net of tax of $(1,564) and $(162) in the three-month periods, and net of tax of $(6,298) and $(808) in the nine-month periods, respectively		(5,315)		(521)		(21,185)		(2,617)
Net unrealized gain (loss), net of tax of $(584) and $(698) in the three-month periods, and net of tax of $1,274 and $(4,734) in the six-month periods, respectively										Net unrealized gain (loss), net of tax of $(584) and $(698) in the three-month periods, and net of tax of $1,274 and $(4,734) in the six-month periods, respectively	(1,706)		(2,322)		3,720		(15,870)

Reclassification of net realized (gain) loss on the sale of available-for-sale investments into current operations	Reclassification of net realized (gain) loss on the sale of available-for-sale investments into current operations	79		(19)		103		(87)		Reclassification of net realized (gain) loss on the sale of available-for-sale investments into current operations	—		(12)		—		24
Net change related to available-for-sale investments	Net change related to available-for-sale investments	(5,236)		(540)		(21,082)		(2,704)		Net change related to available-for-sale investments	(1,706)		(2,334)		3,720		(15,846)

Foreign currency translation adjustments:	Foreign currency translation adjustments:									Foreign currency translation adjustments:
Foreign currency translation adjustments	Foreign currency translation adjustments	(7,352)		(2,136)		(13,425)		(5,243)		Foreign currency translation adjustments	(2,866)		(3,962)		(3,225)		(6,073)
Net change related to foreign currency translation adjustments	Net change related to foreign currency translation adjustments	(7,352)		(2,136)		(13,425)		(5,243)		Net change related to foreign currency translation adjustments	(2,866)		(3,962)		(3,225)		(6,073)

Other comprehensive income (loss), net of tax	Other comprehensive income (loss), net of tax	(12,588)		(2,676)		(34,507)		(7,947)		Other comprehensive income (loss), net of tax	(4,572)		(6,296)		495		(21,919)
Total comprehensive income	Total comprehensive income	$	21,392	$	76,224	$	125,707	$	218,399	Total comprehensive income	$	52,902	$	52,605	$	83,584	$	104,315

The accompanying notes are an integral part of these consolidated financial statements.

COGNEX CORPORATION

CONSOLIDATED BALANCE SHEETS

(In thousands)


		October 2, 2022		December 31, 2021			July 2, 2023		December 31, 2022
		(unaudited)					(unaudited)
ASSETS	ASSETS					ASSETS
Current assets:	Current assets:					Current assets:
Cash and cash equivalents	Cash and cash equivalents	$	266,004	$	186,161	Cash and cash equivalents	$	177,485	$	181,374
Current investments, amortized cost of $213,044 and $137,124 in 2022 and 2021, respectively, allowance for credit losses of $0 in 2022 and 2021		208,430		137,455
Accounts receivable, allowance for credit losses of $741 and $776 in 2022 and 2021, respectively		96,292		130,348
Current investments, amortized cost of $195,690 and $223,545 in 2023 and 2022, respectively, allowance for credit losses of $0 in 2023 and 2022						Current investments, amortized cost of $195,690 and $223,545 in 2023 and 2022, respectively, allowance for credit losses of $0 in 2023 and 2022	191,474		218,759
Accounts receivable, allowance for credit losses of $602 and $730 in 2023 and 2022, respectively						Accounts receivable, allowance for credit losses of $602 and $730 in 2023 and 2022, respectively	147,864		125,417
Unbilled revenue	Unbilled revenue	2,142		3,990		Unbilled revenue	2,243		2,179
Inventories	Inventories	108,553		113,102		Inventories	126,226		122,480
Prepaid expenses and other current assets	Prepaid expenses and other current assets	106,046		68,742		Prepaid expenses and other current assets	73,090		67,490
Total current assets	Total current assets	787,467		639,798		Total current assets	718,382		717,699
Non-current investments, amortized cost of $369,868 and $587,981 in 2022 and 2021, respectively, allowance for credit losses of $0 in 2022 and 2021		343,198		583,748
Non-current investments, amortized cost of $481,101 and $476,148 in 2023 and 2022, respectively, allowance for credit losses of $0 in 2023 and 2022						Non-current investments, amortized cost of $481,101 and $476,148 in 2023 and 2022, respectively, allowance for credit losses of $0 in 2023 and 2022	463,494		454,117
Property, plant, and equipment, net	Property, plant, and equipment, net	79,425		77,546		Property, plant, and equipment, net	81,638		79,714
Operating lease assets	Operating lease assets	31,514		23,157		Operating lease assets	68,594		37,682
Goodwill	Goodwill	237,509		241,713		Goodwill	241,582		242,630
Intangible assets, net	Intangible assets, net	9,420		11,888		Intangible assets, net	10,729		12,414
Deferred income taxes	Deferred income taxes	405,136		418,570		Deferred income taxes	407,257		407,241
Other assets	Other assets	6,567		7,242		Other assets	6,438		6,643
Total assets	Total assets	$	1,900,236	$	2,003,662	Total assets	$	1,998,114	$	1,958,140

LIABILITIES AND SHAREHOLDERS’ EQUITY	LIABILITIES AND SHAREHOLDERS’ EQUITY					LIABILITIES AND SHAREHOLDERS’ EQUITY
Current liabilities:	Current liabilities:					Current liabilities:
Accounts payable	Accounts payable	$	22,220	$	44,051	Accounts payable	$	26,109	$	27,103
Accrued expenses	Accrued expenses	64,115		92,432		Accrued expenses	83,605		93,235
Accrued income taxes	Accrued income taxes	12,055		8,577		Accrued income taxes	19,121		18,129
Deferred revenue and customer deposits	Deferred revenue and customer deposits	54,777		35,743		Deferred revenue and customer deposits	43,439		40,787
Operating lease liabilities	Operating lease liabilities	8,111		7,786		Operating lease liabilities	8,188		8,454
Total current liabilities	Total current liabilities	161,278		188,589		Total current liabilities	180,462		187,708
Non-current operating lease liabilities	Non-current operating lease liabilities	25,260		17,795		Non-current operating lease liabilities	61,852		31,298
Deferred income taxes	Deferred income taxes	259,950		293,769		Deferred income taxes	237,357		249,961
Reserve for income taxes	Reserve for income taxes	12,204		14,780		Reserve for income taxes	19,239		15,866
Non-current accrued income taxes	Non-current accrued income taxes	33,008		43,160		Non-current accrued income taxes	18,338		33,008
Other liabilities	Other liabilities	19,316		15,476		Other liabilities	403		1,905
Total liabilities	Total liabilities	511,016		573,569		Total liabilities	517,651		519,746

Commitments and contingencies (Note 10)	Commitments and contingencies (Note 10)					Commitments and contingencies (Note 10)
Shareholders’ equity:	Shareholders’ equity:					Shareholders’ equity:
Preferred stock, $.01 par value – Authorized: 400 shares in 2022 and 2021, respectively; no shares issued and outstanding		—		—
Common stock, $.002 par value – Authorized: 300,000 shares in 2022 and 2021, respectively; issued and outstanding: 172,930 and 175,481 shares in 2022 and 2021, respectively		346		351
Preferred stock, $.01 par value – Authorized: 400 shares in 2023 and 2022, respectively; no shares issued and outstanding						Preferred stock, $.01 par value – Authorized: 400 shares in 2023 and 2022, respectively; no shares issued and outstanding	—		—
Common stock, $.002 par value – Authorized: 300,000 shares in 2023 and 2022, respectively; issued and outstanding: 172,293 and 172,631 shares in 2023 and 2022, respectively						Common stock, $.002 par value – Authorized: 300,000 shares in 2023 and 2022, respectively; issued and outstanding: 172,293 and 172,631 shares in 2023 and 2022, respectively	345		345
Additional paid-in capital	Additional paid-in capital	960,446		914,802		Additional paid-in capital	1,010,973		979,167
Retained earnings	Retained earnings	510,877		562,882		Retained earnings	537,947		528,179
Accumulated other comprehensive loss, net of tax	Accumulated other comprehensive loss, net of tax	(82,449)		(47,942)		Accumulated other comprehensive loss, net of tax	(68,802)		(69,297)
Total shareholders’ equity	Total shareholders’ equity	1,389,220		1,430,093		Total shareholders’ equity	1,480,463		1,438,394
Total liabilities and shareholders' equity	Total liabilities and shareholders' equity	$	1,900,236	$	2,003,662	Total liabilities and shareholders' equity	$	1,998,114	$	1,958,140

The accompanying notes are an integral part of these consolidated financial statements.

COGNEX CORPORATION

CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)


		Nine-months Ended					Six-months Ended
		October 2, 2022		October 3, 2021			July 2, 2023		July 3, 2022
		(unaudited)					(unaudited)
Cash flows from operating activities:	Cash flows from operating activities:					Cash flows from operating activities:
Net income	Net income	$	160,214	$	226,346	Net income	$	83,089	$	126,234
Adjustments to reconcile net income to net cash provided by operating activities:	Adjustments to reconcile net income to net cash provided by operating activities:					Adjustments to reconcile net income to net cash provided by operating activities:
Stock-based compensation expense	Stock-based compensation expense	41,419		33,353		Stock-based compensation expense	29,153		28,053
Depreciation of property, plant, and equipment	Depreciation of property, plant, and equipment	12,176		12,641		Depreciation of property, plant, and equipment	8,177		8,114
Loss on disposal of property, plant, and equipment		12		4
(Gain) loss on disposal of property, plant, and equipment						(Gain) loss on disposal of property, plant, and equipment	(8)		12
Amortization of intangible assets	Amortization of intangible assets	2,468		2,773		Amortization of intangible assets	1,685		1,662
Excess and obsolete inventory charges	Excess and obsolete inventory charges	2,728		2,120		Excess and obsolete inventory charges	1,443		741
Non-cash impact of write-offs related to fire (Note 17)	Non-cash impact of write-offs related to fire (Note 17)	45,827		—		Non-cash impact of write-offs related to fire (Note 17)	—		44,903
Amortization of discounts or premiums on investments	Amortization of discounts or premiums on investments	3,976		3,316		Amortization of discounts or premiums on investments	1,200		2,714
Realized loss (gain) on sale of investments	Realized loss (gain) on sale of investments	103		(87)		Realized loss (gain) on sale of investments	—		24

Change in deferred income taxes	Change in deferred income taxes	(14,799)		1,411		Change in deferred income taxes	(14,158)		(10,809)
Change in operating assets and liabilities:	Change in operating assets and liabilities:					Change in operating assets and liabilities:
Accounts receivable	Accounts receivable	31,018		(4,295)		Accounts receivable	(24,420)		(44,118)
Unbilled revenue	Unbilled revenue	1,760		(1,689)		Unbilled revenue	(104)		1,704
Inventories	Inventories	(35,815)		(22,534)		Inventories	(4,981)		(20,122)

Prepaid expenses and other current assets	Prepaid expenses and other current assets	(46,817)		(24,607)		Prepaid expenses and other current assets	(5,289)		(45,752)
Accounts payable	Accounts payable	(21,577)		10,576		Accounts payable	(989)		(23,525)
Accrued expenses	Accrued expenses	(23,813)		4,416		Accrued expenses	(9,219)		(20,024)
Accrued income taxes	Accrued income taxes	(6,644)		(4,936)		Accrued income taxes	(13,684)		(372)
Deferred revenue and customer deposits	Deferred revenue and customer deposits	20,882		16,751		Deferred revenue and customer deposits	3,160		41,535
Other	Other	4,031		3,297		Other	2,347		2,655
Net cash provided by operating activities		177,149		258,856
Net cash provided by (used in) operating activities						Net cash provided by (used in) operating activities	57,402		93,629
Cash flows from investing activities:	Cash flows from investing activities:					Cash flows from investing activities:
Purchases of investments	Purchases of investments	(77,760)		(607,458)		Purchases of investments	(94,060)		(77,760)
Maturities and sales of investments	Maturities and sales of investments	215,876		317,174		Maturities and sales of investments	115,761		164,610
Purchases of property, plant, and equipment	Purchases of property, plant, and equipment	(15,605)		(10,689)		Purchases of property, plant, and equipment	(10,207)		(11,253)

Net cash provided by (used in) investing activities	Net cash provided by (used in) investing activities	122,511		(300,973)		Net cash provided by (used in) investing activities	11,494		75,597
Cash flows from financing activities:	Cash flows from financing activities:					Cash flows from financing activities:
Net payments from issuance of common stock under stock plans	Net payments from issuance of common stock under stock plans	4,225		59,101		Net payments from issuance of common stock under stock plans	2,655		4,414
Repurchase of common stock	Repurchase of common stock	(178,387)		(48,294)		Repurchase of common stock	(49,163)		(154,317)
Payment of dividends	Payment of dividends	(33,837)		(31,800)		Payment of dividends	(24,160)		(22,573)

Net cash provided by (used in) financing activities	Net cash provided by (used in) financing activities	(207,999)		(20,993)		Net cash provided by (used in) financing activities	(70,668)		(172,476)
Effect of foreign exchange rate changes on cash and cash equivalents	Effect of foreign exchange rate changes on cash and cash equivalents	(11,818)		(2,484)		Effect of foreign exchange rate changes on cash and cash equivalents	(2,117)		(5,865)
Net change in cash and cash equivalents	Net change in cash and cash equivalents	79,843		(65,594)		Net change in cash and cash equivalents	(3,889)		(9,115)
Cash and cash equivalents at beginning of period	Cash and cash equivalents at beginning of period	186,161		269,073		Cash and cash equivalents at beginning of period	181,374		186,161
Cash and cash equivalents at end of period	Cash and cash equivalents at end of period	$	266,004	$	203,479	Cash and cash equivalents at end of period	$	177,485	$	177,046

The accompanying notes are an integral part of these consolidated financial statements.

COGNEX CORPORATION

CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY

(In thousands)
Common Stock Additional
Paid-in Capital Retained Earnings Accumulated
Other
Comprehensive
Loss Total
Shareholders’
Equity
Shares Par Value
Balance as of July 3, 2022 173,397 $ 347 $ 947,269 $ 512,230 $ (69,861) $ 1,389,985
Net issuance of common stock under stock plans 73 — (189) — — (189)
Repurchase of common stock (540) (1) — (24,069) — (24,070)
Stock-based compensation expense — — 13,366 — — 13,366
Payment of dividends ($0.065 per common share) — — — (11,264) — (11,264)
Net income — — — 33,980 — 33,980
Net unrealized gain (loss) on available-for-sale investments, net of tax of $(1,564) — — — — (5,315) (5,315)
Reclassification of net realized (gain) loss on the sale of available-for-sale investments — — — — 79 79
Foreign currency translation adjustment — — — — (7,352) (7,352)
Balance as of October 2, 2022 (unaudited) 172,930 $ 346 $ 960,446 $ 510,877 $ (82,449) $ 1,389,220


		Common Stock			Additional Paid-in Capital				Retained Earnings			Accumulated Other Comprehensive Loss				Total Shareholders’ Equity				Common Stock					Additional Paid-in Capital			Retained Earnings			Accumulated Other Comprehensive Loss			Total Shareholders’ Equity
		Shares	Par Value								Shares								Par Value
Balance as of July 4, 2021		176,707	$	353			$	874,883						$	593,290			$	(39,072)		$	1,429,454
Balance as of April 2, 2023																			Balance as of April 2, 2023	172,601			$	345		$	992,690		$	517,526		$	(64,230)		$	1,446,331
Net issuance of common stock under stock plans	Net issuance of common stock under stock plans	415	1		14,693				—			—				14,694			Net issuance of common stock under stock plans	179			1		5,709			—			—			5,710
Repurchase of common stock	Repurchase of common stock	(323)	—		—				(27,417)			—				(27,417)			Repurchase of common stock	(487)			(1)		—			(24,984)			—			(24,985)
Stock-based compensation expense	Stock-based compensation expense	—	—		10,614				—			—				10,614			Stock-based compensation expense	—			—		12,574			—			—			12,574
Payment of dividends ($0.060 per common share)		—	—		—				(10,608)			—				(10,608)
Payment of dividends ($0.070 per common share)																			Payment of dividends ($0.070 per common share)	—			—		—			(12,069)			—			(12,069)
Net income	Net income	—	—		—				78,900			—				78,900			Net income	—			—		—			57,474			—			57,474
Net unrealized gain (loss) on available-for-sale investments, net of tax of $(162)		—	—		—				—			(521)				(521)

Reclassification of net realized (gain) loss on the sale of available-for-sale investments		—	—		—				—			(19)				(19)

Net unrealized gain (loss) on available-for-sale investments, net of tax of $(584)																			Net unrealized gain (loss) on available-for-sale investments, net of tax of $(584)	—			—		—			—			(1,706)			(1,706)

Foreign currency translation adjustment	Foreign currency translation adjustment	—	—		—				—			(2,136)				(2,136)			Foreign currency translation adjustment	—			—		—			—			(2,866)			(2,866)
Balance as of October 3, 2021 (unaudited)		176,799	$	354	$	900,190			$	634,165		$	(41,748)			$	1,492,961

Balance as of July 2, 2023 (unaudited)																			Balance as of July 2, 2023 (unaudited)	172,293			$	345	$	1,010,973		$	537,947		$	(68,802)		$	1,480,463


	Common Stock			Additional Paid-in Capital		Retained Earnings		Accumulated Other Comprehensive Loss		Total Shareholders’ Equity
	Shares	Par Value
Balance as of April 3, 2022	173,738	$	347	$	933,452	$	488,511	$	(63,565)	$	1,358,745
Net issuance of common stock under stock plans	47	—		820		—		—		820
Repurchase of common stock	(388)	—		—		(23,912)		—		(23,912)
Stock-based compensation expense	—	—		12,997		—		—		12,997
Payment of dividends ($0.065 per common share)	—	—		—		(11,270)		—		(11,270)
Net income	—	—		—		58,901		—		58,901


Net unrealized gain (loss) on available-for-sale investments, net of tax of $(698)	—	—		—		—		(2,322)		(2,322)

Reclassification of net realized (gain) loss on the sale of available-for-sale investments	—	—		—		—		(12)		(12)
Foreign currency translation adjustment	—	—		—		—		(3,962)		(3,962)
Balance as of July 3, 2022 (unaudited)	173,397	$	347	$	947,269	$	512,230	$	(69,861)	$	1,389,985

The accompanying notes are an integral part of these consolidated financial statements.

COGNEX CORPORATION

CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY

(In thousands)


		Common Stock			Additional Paid-in Capital				Retained Earnings			Accumulated Other Comprehensive Loss				Total Shareholders’ Equity				Common Stock					Additional Paid-in Capital			Retained Earnings			Accumulated Other Comprehensive Loss			Total Shareholders’ Equity
		Shares	Par Value								Shares								Par Value
Balance as of December 31, 2021		175,481	$	351			$	914,802						$	562,882			$	(47,942)		$	1,430,093
Balance as of December 31, 2022																			Balance as of December 31, 2022	172,631			$	345		$	979,167		$	528,179		$	(69,297)		$	1,438,394
Net issuance of common stock under stock plans	Net issuance of common stock under stock plans	256	—		4,225				—			—				4,225			Net issuance of common stock under stock plans	628			2		2,653			—			—			2,655
Repurchase of common stock	Repurchase of common stock	(2,807)	(5)		—				(178,382)			—				(178,387)			Repurchase of common stock	(966)			(2)		—			(49,161)			—			(49,163)
Stock-based compensation expense	Stock-based compensation expense	—	—		41,419				—			—				41,419			Stock-based compensation expense	—			—		29,153			—			—			29,153
Payment of dividends ($0.195 per common share)		—	—		—				(33,837)			—				(33,837)
Payment of dividends ($0.140 per common share)																			Payment of dividends ($0.140 per common share)	—			—		—			(24,160)			—			(24,160)
Net income	Net income	—	—		—				160,214			—				160,214			Net income	—			—		—			83,089			—			83,089

Net unrealized gain (loss) on available-for-sale investments, net of tax of $(6,298)		—	—		—				—			(21,185)				(21,185)
Net unrealized gain (loss) on available-for-sale investments, net of tax of $1,274																			Net unrealized gain (loss) on available-for-sale investments, net of tax of $1,274	—			—		—			—			3,720			3,720

Reclassification of net realized (gain) loss on the sale of available-for-sale investments		—	—		—				—			103				103

Foreign currency translation adjustment	Foreign currency translation adjustment	—	—		—				—			(13,425)				(13,425)			Foreign currency translation adjustment	—			—		—			—			(3,225)			(3,225)
Balance as of October 2, 2022 (unaudited)		172,930	$	346	$	960,446			$	510,877		$	(82,449)			$	1,389,220
Balance as of July 2, 2023 (unaudited)																			Balance as of July 2, 2023 (unaudited)	172,293			$	345	$	1,010,973		$	537,947		$	(68,802)		$	1,480,463


		Common Stock			Additional Paid-in Capital				Retained Earnings			Accumulated Other Comprehensive Loss				Total Shareholders’ Equity				Common Stock					Additional Paid-in Capital			Retained Earnings			Accumulated Other Comprehensive Loss			Total Shareholders’ Equity
		Shares	Par Value								Shares								Par Value
Balance as of December 31, 2020		175,790	$	352			$	807,739						$	487,912			$	(33,801)		$	1,262,202
Balance as of December 31, 2021																			Balance as of December 31, 2021	175,481			$	351		$	914,802		$	562,882		$	(47,942)		$	1,430,093
Net issuance of common stock under stock plans	Net issuance of common stock under stock plans	1,590	3		59,098				—			—				59,101			Net issuance of common stock under stock plans	183			—		4,414			—			—			4,414
Repurchase of common stock	Repurchase of common stock	(581)	(1)		—				(48,293)			—				(48,294)			Repurchase of common stock	(2,267)			(4)		—			(154,313)			—			(154,317)
Stock-based compensation expense	Stock-based compensation expense	—	—		33,353				—			—				33,353			Stock-based compensation expense	—			—		28,053			—			—			28,053
Payment of dividends ($0.180 per common share)		—	—		—				(31,800)			—				(31,800)
Payment of dividends ($0.130 per common share)																			Payment of dividends ($0.130 per common share)	—			—		—			(22,573)			—			(22,573)
Net income	Net income	—	—		—				226,346			—				226,346			Net income	—			—		—			126,234			—			126,234

Net unrealized gain (loss) on available-for-sale investments, net of tax of $(808)		—	—		—				—			(2,617)				(2,617)
Net unrealized gain (loss) on available-for-sale investments, net of tax of $(4,734)																			Net unrealized gain (loss) on available-for-sale investments, net of tax of $(4,734)	—			—		—			—			(15,870)			(15,870)

Reclassification of net realized (gain) loss on the sale of available-for-sale investments	Reclassification of net realized (gain) loss on the sale of available-for-sale investments	—	—		—				—			(87)				(87)			Reclassification of net realized (gain) loss on the sale of available-for-sale investments	—			—		—			—			24			24
Foreign currency translation adjustment	Foreign currency translation adjustment	—	—		—				—			(5,243)				(5,243)			Foreign currency translation adjustment	—			—		—			—			(6,073)			(6,073)
Balance as of October 3, 2021 (unaudited)		176,799	$	354	$	900,190			$	634,165		$	(41,748)			$	1,492,961
Balance as of July 3, 2022 (unaudited)																			Balance as of July 3, 2022 (unaudited)	173,397			$	347	$	947,269		$	512,230		$	(69,861)		$	1,389,985

The accompanying notes are an integral part of these consolidated financial statements.

COGNEX CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

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, ~~2021~~2022 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, adjustments related to losses and recoveries from the ~~loss from~~ fire (Note 17), and financial statement reclassifications necessary to present fairly the Company’s financial position as of ~~October~~July 2, ~~2022,~~2023, and the results of its operations for the three-month and ~~nine-month~~six-month periods ended ~~October~~July 2, ~~2022~~2023 and ~~October~~July 3, ~~2021,~~2022, 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 and ~~nine-month~~six-month periods ended ~~October~~July 2, ~~2022~~2023 are not necessarily indicative of the results to be expected for the full year.

NOTE 2: New Pronouncements

Accounting Standards Update (ASU) 2020-04, "Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting" ~~and~~, (ASU) 2021-01, "Reference Rate Reform (Topic 848): Scope", and Accounting Standards Update (ASU) 2022-06, "Reference Rate Reform (Topic 848): Deferral of the Sunset Date of Topic 848"

The amendments in these ASUs apply to all entities that have contracts, hedging relationships, and other transactions that reference LIBOR or another reference rate expected to be discontinued because of reference rate reform. Together, the ASUs provide optional expedients and exceptions for applying generally accepted accounting principles (GAAP) to contracts, hedging relationships, and other transactions affected by reference rate reform if certain criteria are met. The expedients and exceptions provided by the amendments do not apply to contract modifications made and hedging relationships entered into or evaluated after December 31, ~~2022,~~2024, except for hedging relationships existing as of December 31, ~~2022,~~2024 that an entity has elected certain optional expedients for and that are retained through the end of the hedging relationship. The amendments in these ASUs are effective for all entities as of March 12, 2020 through December 31, ~~2022.~~2024. Management ~~does~~adopted Topic 848 on January 1, 2023, and now uses the Secured Overnight Financing Rate (SOFR). The adoption did not ~~expect ASU 2020-04 or ASU 2021-01 to~~ have a material impact on the Company's ~~consolidated~~ financial statements and ~~disclosures.~~

~~Accounting Standards Update (ASU) 2021-08, "Business Combinations (Topic 805): Accounting for Contract Assets and Contract Liabilities from Contracts with Customers"~~

The amendments in this ASU primarily address the accounting for contract assets and contract liabilities related to revenue contracts with customers in a business combination. The ASU clarifies that an acquirer should account for the related revenue contracts in accordance with Accounting Standards Codification 606 as if the acquirer had originated the contracts. The amendments in this ASU are effective for fiscal years beginning after December 15, 2022, including interim periods within those fiscal years, although early adoption is permitted. The amendments in the ASU should be applied prospectively to business combinations occurring on or after the effective date of the amendments. The expected financial statement impact of this new accounting standard cannot be reasonably estimated at this time, as the impact in future periods will depend on the contract assets and contract liabilities acquired in future business combinations. Management does not expect this ASU to have a material impact on the Company's disclosures.

COGNEX CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

NOTE 3: Fair Value Measurements

Financial Assets and Liabilities that are Measured at Fair Value on a Recurring Basis

The following table summarizes the financial assets and liabilities required to be measured at fair value on a recurring basis as of ~~October~~July 2, ~~2022~~2023 (in thousands):


	Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)			Unobservable Inputs (Level 3)
Assets:
Money market instruments	$	~~504~~30,492	$	—		$	—
Corporate bonds	—		~~455,220~~527,352			—
Treasury bills	—		72,709			—
Asset-backed securities	—		~~56,508~~			—
~~Treasury bills~~	—		~~21,591~~52,340			—

~~Agency bonds~~	—				~~15,759~~
			—
Sovereign bonds	—		~~1,930~~1,932			—
Municipal bonds	—		~~620~~635			—





Economic hedge forward contracts	—		~~835~~118			—
Liabilities:

Economic hedge forward contracts	—		~~442~~31			—

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 and 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. 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. For debt securities, 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. 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.

The fair value of the contingent consideration liability related to the Company's acquisition of GVi Ventures, Inc. in 2017 was written down to zero in 2019 resulting from a lower level of revenue in the Americas' automotive industry. The balance remained at zero through the remainder of the five-year assessment period which concluded during the second quarter of 2022.

Non-financial Assets that are Measured at Fair Value on a Non-recurring Basis

Non-financial assets, such as property, plant and equipment, operating lease assets, goodwill, and intangible assets, are required to be measured at fair value only when an impairment loss is recognized. The Company did not record impairment charges related to non-financial assets during the three-month or ~~nine-month~~six-month periods ended ~~October~~July 2, ~~2022~~2023 or ~~October~~July 3, ~~2021.~~2022.

COGNEX CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

NOTE 4: Cash, Cash Equivalents, and Investments

Cash, cash equivalents, and investments consisted of the following (in thousands):


		October 2, 2022		December 31, 2021			July 2, 2023		December 31, 2022
Cash	Cash	$	265,500	$	185,624	Cash	$	146,993	$	180,959

Money market instruments	Money market instruments	504		537		Money market instruments	30,492		415

Cash and cash equivalents	Cash and cash equivalents	266,004		186,161		Cash and cash equivalents	177,485		181,374
Corporate bonds	Corporate bonds	151,014		73,088		Corporate bonds	165,539		164,055
Asset-backed securities	Asset-backed securities	28,119		37,655		Asset-backed securities	15,339		26,890
Agency bonds		15,759		2,802
Treasury bills	Treasury bills	12,918		18,912		Treasury bills	9,961		11,332
Municipal bonds	Municipal bonds	620		4,998		Municipal bonds	635		624
Agency bonds						Agency bonds	—		15,858

Current investments	Current investments	208,430		137,455		Current investments	191,474		218,759
Corporate bonds	Corporate bonds	304,206		481,218		Corporate bonds	361,813		374,440
Treasury bills						Treasury bills	62,748		44,214
Asset-backed securities	Asset-backed securities	28,389		43,940		Asset-backed securities	37,001		33,539
Treasury bills		8,673		39,753

Sovereign bonds	Sovereign bonds	1,930		2,119		Sovereign bonds	1,932		1,924
Agency bonds		—		16,077
Municipal bonds		—		641

Non-current investments	Non-current investments	343,198		583,748		Non-current investments	463,494		454,117
		$	817,632	$	907,364		$	832,453	$	854,250

Corporate bonds consist of debt securities issued by both domestic and foreign companies; asset-backed securities consist of debt securities collateralized by pools of receivables or loans with credit enhancement; ~~agency bonds consist of domestic or foreign obligations of government agencies and government-sponsored enterprises that have government backing;~~ treasury bills consist of debt securities issued by the U.S. government; municipal bonds consist of debt securities issued by state and local government entities; agency bonds consist of domestic or foreign obligations of government agencies and government-sponsored enterprises that have government backing; and sovereign bonds consist of direct debt issued by foreign governments. All of the Company's securities as of ~~October~~July 2, ~~2022~~2023 and December 31, ~~2021~~2022 were denominated in U.S. Dollars.

Accrued interest receivable is recorded in "Prepaid expenses and other current assets" on the Consolidated Balance ~~Sheet~~Sheets and amounted to ~~$3,011,000~~$4,265,000 and ~~$3,037,000~~$3,620,000 as of ~~October~~July 2, ~~2022~~2023 and December 31, ~~2021,~~2022, respectively.

The following table summarizes the Company’s available-for-sale investments as of July 2, 2023 (in thousands):


	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Fair Value
Current:
Corporate bonds	$	169,464	$	—	$	(3,925)	$	165,539
Asset-backed securities	15,492		—		(153)		15,339



Treasury bills	10,099		—		(138)		9,961
Municipal bonds	635		—		—		635

Non-current:
Corporate bonds	376,629		329		(15,145)		361,813
Treasury bills	63,664		2		(918)		62,748
Asset-backed securities	38,737		—		(1,736)		37,001


Sovereign bonds	2,071		—		(139)		1,932

	$	676,791	$	331	$	(22,154)	$	654,968

COGNEX CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

The following table summarizes the Company’s ~~available-for-sale investments as of October 2, 2022 (in thousands):~~

Amortized
Cost Gross
Unrealized
Gains Gross
Unrealized
Losses Fair Value
Current:
Corporate bonds $ 154,399 $ — $ (3,385) $ 151,014
Asset-backed securities 28,764 — (645) 28,119
Agency bonds 16,140 — (381) 15,759
Treasury bills 13,106 1 (189) 12,918
Municipal bonds 635 — (15) 620
Non-current:
Corporate bonds 328,548 — (24,342) 304,206
Asset-backed securities 30,227 — (1,838) 28,389
Treasury bills 8,987 — (314) 8,673
Sovereign bonds 2,106 — (176) 1,930
$ 582,912 $ 1 $ (31,285) $ 551,628

~~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 ~~October~~July 2, ~~2022~~2023 (in thousands):


		Unrealized Loss Position For:													Unrealized Loss Position For:
		Less than 12 Months				12 Months or Greater				Total					Less than 12 Months				12 Months or Greater				Total
		Fair Value		Unrealized Losses		Fair Value		Unrealized Losses		Fair Value		Unrealized Losses			Fair Value		Unrealized Losses		Fair Value		Unrealized Losses		Fair Value		Unrealized Losses
Corporate bonds	Corporate bonds	$	390,656	$	(23,263)	$	64,564	$	(4,464)	$	455,220	$	(27,727)	Corporate bonds	$	127,474	$	(1,767)	$	350,232	$	(17,303)	$	477,706	$	(19,070)

Treasury bills														Treasury bills	59,832		(838)		11,884		(218)		71,716		(1,056)
Asset-backed securities	Asset-backed securities	56,125		(2,455)		383		(28)		56,508		(2,483)		Asset-backed securities	15,850		(199)		36,490		(1,690)		52,340		(1,889)
Treasury bills		19,427		(499)		101		(4)		19,528		(503)
Agency bonds		15,759		(381)		—		—		15,759		(381)

Sovereign bonds	Sovereign bonds	1,930		(176)		—		—		1,930		(176)		Sovereign bonds	—		—		1,932		(139)		1,932		(139)
Municipal bonds	Municipal bonds	620		(15)		—		—		620		(15)		Municipal bonds	—		—		—		—		—		—

		$	484,517	$	(26,789)	$	65,048	$	(4,496)	$	549,565	$	(31,285)		$	203,156	$	(2,804)	$	400,538	$	(19,350)	$	603,694	$	(22,154)

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 ~~October~~July 2, ~~2022~~2023 or December 31, ~~2021.~~2022. There was no activity recorded in the allowance for credit losses during the three-month or ~~nine-month~~six-month periods ended ~~October~~July 2, ~~2022~~2023 or ~~October~~July 3, ~~2021.~~2022. Management currently intends to hold debt securities that are in an unrealized loss position to full value recovery at maturity.

The Company recorded no gross realized gains on the sale of debt securities for the three-month period ended October 2, 2022 and gross realized gains on the sale of debt securities totaling $133,000 for the nine-month period ended October 2, 2022, and gross realizedor losses on the sale of debt securities ~~totaling $79,000 and $236,000 for~~during the three-month and ~~nine-month~~six-month periods ended ~~October~~July 2, ~~2022, respectively.~~2023. The Company recorded gross realized gains on the sale of debt securities totaling ~~$19,000~~$15,000 and ~~$87,000 for~~$133,000 during the three-month and ~~nine-month~~six-month periods ended ~~October~~July 3, ~~2021,~~2022, respectively, and no gross realized losses on the sale of debt securities ~~for~~totaling $3,000 and $157,000 during the three-month and ~~nine-month~~six-month periods ended ~~October~~July 3, ~~2021.~~2022, respectively. 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 ~~loss.~~

~~COGNEX CORPORATION~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)~~

income (loss).

The following table presents the effective maturity dates of the Company’s available-for-sale investments as of ~~October~~July 2, ~~2022~~2023 (in thousands):


		<1 year		1-2 Years		2-3 Years		3-4 Years		4-5 Years		Total			<1 year		1-2 Years		2-3 Years		3-4 Years		4-5 Years		5-8 Years		Total
Corporate bonds	Corporate bonds	$	151,014	$	157,264	$	104,838	$	42,104	$	—	$	455,220	Corporate bonds	$	165,539	$	129,096	$	95,060	$	56,128	$	81,073	$	456	$	527,352
Treasury bills														Treasury bills	9,961		3,362		16,263		20,408		22,715		—		72,709
Asset-backed securities	Asset-backed securities	28,119		16,384		3,202		8,803		—		56,508		Asset-backed securities	15,339		11,622		11,093		7,227		—		7,059		52,340
Treasury bills		12,918		6,265		2,408		—		—		21,591

Agency bonds		15,759		—		—		—		—		15,759

Sovereign bonds	Sovereign bonds	—		970		—		960		—		1,930		Sovereign bonds	—		974		958		—		—		—		1,932
Municipal bonds	Municipal bonds	620		—		—		—		—		620		Municipal bonds	635		—		—		—		—		—		635

		$	208,430	$	180,883	$	110,448	$	51,867	$	—	$	551,628		$	191,474	$	145,054	$	123,374	$	83,763	$	103,788	$	7,515	$	654,968

NOTE 5: Inventories

Inventories consisted of the following (in thousands):


		October 2, 2022		December 31, 2021			July 2, 2023		December 31, 2022
Raw materials	Raw materials	$	55,801	$	50,452	Raw materials	$	72,327	$	71,720
Work-in-process	Work-in-process	1,182		5,293		Work-in-process	1,339		906
Finished goods	Finished goods	51,570		57,357		Finished goods	52,560		49,854
		$	108,553	$	113,102		$	126,226	$	122,480

Refer to Note 17 for information regarding losses incurred from the fire at the Company's primary contract manufacturer's plant in Indonesia during the second quarter of 2022, including the impact on inventories.

COGNEX CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

NOTE 6: Leases

The Company's leases are primarily leased properties across different worldwide locations where the Company conducts its operations. 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 ~~October~~July 2, ~~2022,~~2023, there were ~~two~~no options to terminate and ~~six~~twenty options to extend that were accounted for in the determination of the lease term for 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 ~~October~~July 2, ~~2022.~~2023.

The total operating lease expense for the three-month and ~~nine-month~~six-month periods ended ~~October~~July 2, ~~2022 were $2,255,000~~2023 was $2,639,000 and ~~$6,699,000,~~$5,031,000, respectively. The total operating lease cash payments for the three-month and ~~nine-month~~six-month periods ended ~~October~~July 2, ~~2022~~2023 were ~~$2,161,000~~$2,364,000 and ~~$6,467,000,~~$4,768,000, respectively. The total lease expense for leases with a term of twelve months or less for which the Company elected not to recognize a lease asset or lease liability for the three-month and ~~nine-month~~six-month periods ended ~~October~~July 2, ~~2022~~2023 was ~~$35,000~~$136,000 and ~~$110,000,~~$160,000, respectively.

The total operating lease expense for the three-month and ~~nine-month~~six-month periods ended ~~October~~July 3, ~~2021 were $2,068,000~~2022 was $2,215,000 and ~~$6,091,000,~~$4,444,000, respectively. The total operating lease cash payments for the three-month and ~~nine-month~~six-month periods ended ~~October~~July 3, ~~2021~~2022 were ~~$2,079,000~~$2,227,000 and ~~$6,154,000,~~$4,306,000, respectively. The total lease expense for leases with a term of twelve months or less for which the Company elected not to recognize a lease asset or lease liability for the three-month and ~~nine-month~~six-month periods ended ~~October~~July 3, ~~2021~~2022 was ~~$36,000~~$37,000 and ~~$114,000,~~$75,000, respectively.

~~COGNEX CORPORATION~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)~~

Future operating lease cash payments are as follows (in thousands):


Year Ended December 31,	Year Ended December 31,	Amount		Year Ended December 31,	Amount
Remainder of fiscal 2022		$	2,245
2023		8,511
Remainder of fiscal 2023				Remainder of fiscal 2023	$	4,863
2024	2024	5,794		2024	11,026
2025	2025	3,837		2025	9,237
2026	2026	2,656		2026	7,722
2027	2027	2,590		2027	7,144
2028				2028	6,922
Thereafter	Thereafter	10,808		Thereafter	56,108
		$	36,441		$	103,022

The discounted present value of the future lease cash payments resulted in a total lease liability of ~~$33,371,000~~$70,040,000 and ~~$25,581,000~~$39,752,000 as of ~~October~~July 2, ~~2022~~2023 and December 31, ~~2021,~~2022, respectively. The Company did not have any leases that had not yet commenced but that created significant rights and obligations as of ~~October~~July 2, ~~2022.~~2023.

In June 2023, the Company entered into a lease for a 115,000 square-foot building in Singapore to serve as a new distribution center for customers in Asia. The lease contains two components, including a 88,000 square-foot premises with a term of ten years, six months. The Company has the right and option to extend the term of this lease component for an additional period of five years, commencing upon the expiration of the original term. This lease component commenced during the second quarter of 2023, and therefore the Company recorded approximately $29,684,000, which reflects an estimated extension period of five years, within "Operating lease assets" and "Operating lease liabilities" on the Consolidated Balance Sheets on the commencement date. The second component of this Singapore lease is for a 27,000 square-foot premises with a term of eight years. The commencement date for this lease component is in the fourth quarter of 2025, and therefore it was not yet recorded on the Consolidated Balance Sheets, nor did it create any significant rights and obligations as of July 2, 2023. The Company has the right and option to extend the term of this lease component for an additional period of five years, commencing upon the expiration of the original term. Future payment obligations associated with this lease component total $13,231,000, none of which is payable in 2023 and which reflects an estimated extension period of five years. Future payment obligations related to this lease component are not included in the future operating lease cash payments table above.

COGNEX CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

In December 2021, the Company entered into a lease for a 65,000 square-foot building in Southborough, Massachusetts for a term of ten years to serve as a new distribution center for customers in the Americas. The Company has the right and option to extend the term of this lease for an additional period of five years, commencing upon the expiration of the original ten-year term. This lease commenced during the first quarter of 2022, and therefore the Company recorded approximately $9,271,000, which does not reflect an estimated extension period, within "Operating lease assets" and "Operating lease liabilities" on the Consolidated Balance Sheets on the commencement date.

The weighted-average discount rate was ~~2.9%~~5.3% and ~~3.4%~~3.3% for the leases outstanding as of ~~October~~July 2, ~~2022~~2023 and December 31, ~~2021,~~2022, respectively. The weighted-average remaining lease term was ~~6.7~~11.0 and ~~5.1~~7.8 years for the leases outstanding as of ~~October~~July 2, ~~2022~~2023 and December 31, ~~2021,~~2022, respectively.

NOTE 7: Goodwill

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


Balance as of December 31, ~~2021~~2022	$	~~241,713~~242,630
Foreign exchange rate changes	~~(4,204)~~(1,048)
Balance as of ~~October~~July 2, ~~2022~~2023	$	~~237,509~~241,582

~~COGNEX CORPORATION~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)~~

NOTE 8: Intangible Assets

Amortized intangible assets consisted of the following (in thousands):


		Gross Carrying Value		Accumulated Amortization		Net Carrying Value			Gross Carrying Value		Accumulated Amortization		Net Carrying Value
Distribution networks		$	38,060	$	38,060	$	—

Completed technologies	Completed technologies	24,217		17,132		7,085		Completed technologies	$	28,017	$	(19,041)	$	8,976
Customer relationships	Customer relationships	10,578		8,420		2,158		Customer relationships	5,838		(4,220)		1,618
Non-compete agreements	Non-compete agreements	710		533		177		Non-compete agreements	340		(205)		135
Trademarks		110		110		—
Balance as of October 2, 2022		$	73,675	$	64,255	$	9,420

Balance as of July 2, 2023								Balance as of July 2, 2023	$	34,195	$	(23,466)	$	10,729

		Gross Carrying Value		Accumulated Amortization		Net Carrying Value			Gross Carrying Value		Accumulated Amortization		Net Carrying Value
Distribution networks		$	38,060	$	38,060	$	—

Completed technologies	Completed technologies	24,217		15,234		8,983		Completed technologies	$	28,017	$	(17,744)	$	10,273
Customer relationships	Customer relationships	10,578		7,891		2,687		Customer relationships	5,838		(3,860)		1,978
Non-compete agreements	Non-compete agreements	710		492		218		Non-compete agreements	340		(177)		163
Trademarks		110		110		—
Balance as of December 31, 2021		$	73,675	$	61,787	$	11,888

Balance as of December 31, 2022								Balance as of December 31, 2022	$	34,195	$	(21,781)	$	12,414

As of ~~October~~July 2, ~~2022,~~2023, estimated future amortization expense related to intangible assets was as follows (in thousands):


Year Ended December 31,	Year Ended December 31,	Amount		Year Ended December 31,	Amount
Remainder of fiscal 2022		$	807
2023		2,594
Remainder of fiscal 2023				Remainder of fiscal 2023	$	1,452
2024	2024	2,080		2024	2,623
2025	2025	1,757		2025	2,300
2026	2026	1,452		2026	1,995
2027	2027	730		2027	1,273
2028				2028	543
Thereafter				Thereafter	543
		$	9,420		$	10,729

COGNEX CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

NOTE 9: 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):


Balance as of December 31, ~~2021~~2022	$	~~5,427~~4,375
Provisions for warranties issued during the period	~~1,733~~1,163
Fulfillment of warranty obligations	~~(2,170)~~(1,537)

Balance as of ~~October~~July 2, ~~2022~~2023	$	~~4,990~~4,001

~~COGNEX CORPORATION~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)~~

NOTE 10: Commitments and Contingencies

As of ~~October~~July 2, ~~2022,~~2023, the Company had outstanding purchase orders totaling ~~$81,565,000~~$40,388,000 to procure inventory from various ~~vendors, due in part to higher inventory purchases in response to global supply chain constraints.~~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. The Company expects the level of outstanding purchase orders to increase for the remainder of the year as it continues to replenish inventories destroyed in the fire on June 7, 2022 at its primary contract manufacturer (refer to Note 17).

A significant portion of the Company's outstanding inventory purchase orders as of ~~October~~July 2, ~~2022,~~2023, 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 ~~this~~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 11: 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.

COGNEX CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

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


		October 2, 2022			December 31, 2021				July 2, 2023			December 31, 2022
Currency	Currency	Notional Value	USD Equivalent		Notional Value	USD Equivalent		Currency	Notional Value	USD Equivalent		Notional Value	USD Equivalent
Derivatives Not Designated as Hedging Instruments:	Derivatives Not Designated as Hedging Instruments:							Derivatives Not Designated as Hedging Instruments:
Euro	Euro	70,000	$	68,290	65,000	$	73,748	Euro	32,500	$	35,371	60,000	$	64,174
Chinese Renminbi	Chinese Renminbi	175,000	25,352		54,374	8,500		Chinese Renminbi	70,000	9,665		55,000	7,619
Mexican Peso	Mexican Peso	185,000	9,155		140,000	6,842		Mexican Peso	120,000	6,979		185,000	9,480
Hungarian Forint								Hungarian Forint	1,950,000	5,671		1,590,000	4,238
British Pound								British Pound	3,540	4,467		3,445	4,161
Japanese Yen	Japanese Yen	600,000	4,159		600,000	5,213		Japanese Yen	600,000	4,159		700,000	5,281
British Pound		3,135	3,481		3,370	4,552
Hungarian Forint		1,280,000	2,948		1,355,000	4,155

Canadian Dollar	Canadian Dollar	—	—		1,480	1,167		Canadian Dollar	1,750	1,321		1,730	1,278

Swiss Franc								Swiss Franc	—	—		1,120	1,218

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

Asset Derivatives

Liability Derivatives

Asset Derivatives

Liability Derivatives

Balance

Fair Value

Balance

Fair Value

Balance

Fair Value

Balance

Fair Value

Sheet
Location

October 2, 2022

December 31, 2021

Sheet
Location

October 2, 2022

December 31, 2021

Sheet
Location

July 2, 2023

December 31, 2022

Sheet
Location

July 2, 2023

December 31, 2022

Derivatives Not Designated as Hedging Instruments:

Economic hedge forward contracts

Prepaid expenses and other current assets

835

Accrued expenses

442

230

Economic hedge forward contracts

Prepaid expenses and other current assets

118

Accrued expenses

479

~~COGNEX CORPORATION~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)~~

The following table presents the gross activity for all derivative assets and liabilities which were presented on a net basis on the Consolidated Balance Sheets due to the right of offset with each counterparty (in thousands):


Asset Derivatives	Asset Derivatives					Liability Derivatives					Asset Derivatives					Liability Derivatives
		October 2, 2022		December 31, 2021			October 2, 2022		December 31, 2021			July 2, 2023		December 31, 2022			July 2, 2023		December 31, 2022
Gross amounts of recognized assets	Gross amounts of recognized assets	$	835	$	39	Gross amounts of recognized liabilities	$	442	$	230	Gross amounts of recognized assets	$	118	$	27	Gross amounts of recognized liabilities	$	31	$	479
Gross amounts offset	Gross amounts offset	—		—		Gross amounts offset	—		—		Gross amounts offset	—		—		Gross amounts offset	—		—
Net amount of assets presented	Net amount of assets presented	$	835	$	39	Net amount of liabilities presented	$	442	$	230	Net amount of assets presented	$	118	$	27	Net amount of liabilities presented	$	31	$	479

Information regarding the effect of derivative instruments on the consolidated financial statements was as follows (in thousands):


		Location in Financial Statements	Three-months Ended				Nine-months Ended					Location in Financial Statements	Three-months Ended				Six-months Ended
			October 2, 2022		October 3, 2021		October 2, 2022		October 3, 2021				July 2, 2023		July 3, 2022		July 2, 2023		July 3, 2022

Derivatives Not Designated as Hedging Instruments:	Derivatives Not Designated as Hedging Instruments:										Derivatives Not Designated as Hedging Instruments:
Gains (losses) recognized in current operations	Gains (losses) recognized in current operations	Foreign currency gain (loss)	$	7,161	$	1,529	$	15,091	$	3,676	Gains (losses) recognized in current operations	Foreign currency gain (loss)	$	859	$	6,191	$	(612)	$	7,930

1716

COGNEX CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

NOTE 12: Revenue Recognition

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


		Three-months Ended				Nine-months Ended					Three-months Ended				Six-months Ended
		October 2, 2022		October 3, 2021		October 2, 2022		October 3, 2021			July 2, 2023		July 3, 2022		July 2, 2023		July 3, 2022
Americas	Americas	$	65,847	$	113,758	$	284,057	$	330,012	Americas	$	82,297	$	91,551	$	162,911	$	218,210
Europe	Europe	48,930		65,146		173,561		182,161		Europe	56,860		61,840		116,702		124,631
Greater China	Greater China	66,460		65,813		193,481		163,757		Greater China	72,351		78,616		105,351		127,021
Other Asia	Other Asia	28,385		40,131		115,558		117,103		Other Asia	31,004		42,621		58,672		87,173
		$	209,622	$	284,848	$	766,657	$	793,033		$	242,512	$	274,628	$	443,636	$	557,035

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


		Three-months Ended				Nine-months Ended					Three-months Ended				Six-months Ended
		October 2, 2022		October 3, 2021		October 2, 2022		October 3, 2021			July 2, 2023		July 3, 2022		July 2, 2023		July 3, 2022
Standard products and services	Standard products and services	$	158,244	$	212,567	$	637,598	$	669,215	Standard products and services	$	194,944	$	221,474	$	385,727	$	479,354
Application-specific customer solutions	Application-specific customer solutions	51,378		72,281		129,059		123,818		Application-specific customer solutions	47,568		53,154		57,909		77,681
		$	209,622	$	284,848	$	766,657	$	793,033		$	242,512	$	274,628	$	443,636	$	557,035

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 ~~$15,581,000~~$18,951,000 and ~~$10,854,000~~$14,578,000 as of ~~October~~July 2, ~~2022~~2023 and December 31, ~~2021,~~2022, 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 ~~nine-month~~six-month period ended ~~October~~July 2, ~~2022~~2023 (in thousands):


Balance as of December 31, ~~2021~~2022	$	~~776~~730
Increases to the allowance for credit losses	350
Write-offs, net of recoveries	~~(36)~~(477)
Foreign exchange rate changes	1 (1)
Balance as of ~~October~~July 2, ~~2022~~2023	$	~~741~~602

1817

COGNEX CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

The following table summarizes the deferred revenue and customer deposits activity for the ~~nine-month~~six-month period ended ~~October~~July 2, ~~2022~~2023 (in thousands):


Balance as of December 31, ~~2021~~2022	$	~~35,743~~40,787
Deferral of revenue billed in the current period, net of recognition	~~51,297~~26,719
Recognition of revenue deferred in prior period	~~(29,351)~~(14,154)
Returned customer deposit	(9,205)
Foreign exchange rate changes	~~(2,912)~~(708)
Balance as of ~~October~~July 2, ~~2022~~2023	$	~~54,777~~43,439

As a practical expedient, the Company has elected not to disclose the aggregate amount of the transaction price allocated to unsatisfied performance obligations, as our contracts have an original expected duration of less than one year.

NOTE 13: Stock-Based Compensation Expense

Stock Plans

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"). In May 2023, the shareholders of the Company approved the Cognex Corporation 2023 Stock Option and Incentive Plan (the “2023 Plan”). The 2023 Plan permits awards of stock options (both incentive and non-qualified options), stock appreciation rights, RSUs, and PRSUs. Up to 8,100,000 shares of common stock (subject to adjustment in the event of stock splits and other similar events) may be issued pursuant to awards granted under the 2023 Plan. In connection with the approval of the 2023 Plan, no further awards will be made under the Cognex Corporation 2001 General Stock Option Plan, as amended and restated (the “2001 Plan”), and the Cognex Corporation 2007 Stock Option and Incentive Plan, as amended and restated (the “2007 Plan”). With the approval of the 2023 Plan, the 10,610,800 shares of common stock subject to awards granted under the 2001 Plan and the 2007 Plan that were outstanding as of May 3, 2023 may become eligible for issuance under the 2023 Plan if such awards are forfeited, cancelled or otherwise terminated (other than by exercise) (the “Carryover Shares”). As of ~~October~~July 2, ~~2022,~~2023, forfeits, cancellations, and other terminations from the 2001 Plan and the 2007 Plan have resulted in 147,585 Carryover Shares, raising the authorized total shares that may be issued under the 2023 Plan to 8,247,585.

As of July 2, 2023, the Company had ~~13,748,000~~8,183,000 shares available for grant under its stock plans. Stock options are granted with an exercise price equal to the market value of the Company’s common stock at the grant date and generally vest over four or five years based upon continuous service and expire ten years from the grant date. RSUs generally vest upon three or four years of continuous employment or incrementally over such three or four-year ~~period.~~periods. PRSUs generally vest upon three years of continuous employment and achievement of performance criteria established by the Compensation Committee of our Board of Directors on or prior to the grant date. Participants are not entitled to dividends on stock options, RSUs, or PRSUs.

COGNEX CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

Stock Options

The following table summarizes the Company’s stock option activity for the ~~nine-month~~six-month period ended ~~October~~July 2, ~~2022:~~2023:

Shares
(in thousands) Weighted-
Average
Exercise
Price Weighted-
Average
Remaining
Contractual
Term (in years) Aggregate
Intrinsic
Value
(in thousands)
Outstanding as of December 31, 2021 7,610 $ 49.38
Granted 1,399 59.79
Exercised (158) 41.83
Forfeited or expired (170) 58.01
Outstanding as of October 2, 2022 8,681 $ 51.03 6.40 $ 22,376
Exercisable as of October 2, 2022 4,335 $ 43.54 5.08 $ 22,334
Options vested or expected to vest as of October 2, 2022 (1) 8,189 $ 50.48 6.27 $ 22,375


	Shares (in thousands)	Weighted- Average Exercise Price		Weighted- Average Remaining Contractual Term (in years)	Aggregate Intrinsic Value (in thousands)
Outstanding as of December 31, 2022	8,467	$	51.56
Granted	1,266	47.28
Exercised	(299)	33.87
Forfeited or expired	(515)	58.22
Outstanding as of July 2, 2023	8,919	$	51.16	6.31	$	70,411
Exercisable as of July 2, 2023	5,213	$	47.62	4.90	$	52,631
Options vested or expected to vest as of July 2, 2023 (1)	8,416	$	50.95	6.17	$	67,670

(1) In addition to the vested options, the Company expects a portion of the unvested options to vest at some point in the future. Options expected to vest are calculated by applying an estimated forfeiture rate to the unvested options.

~~COGNEX CORPORATION~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)~~

The fair values of stock options granted in each period presented were estimated using the following weighted-average assumptions:


		Three-months Ended				Nine-months Ended					Three-months Ended				Six-months Ended
		October 2, 2022		October 3, 2021		October 2, 2022		October 3, 2021			July 2, 2023		July 3, 2022		July 2, 2023		July 3, 2022
Risk-free rate	Risk-free rate	2.7	%	1.4	%	2.1	%	1.3	%	Risk-free rate	3.5	%	1.9	%	3.9	%	1.9	%
Expected dividend yield	Expected dividend yield	0.54	%	0.28	%	0.44	%	0.27	%	Expected dividend yield	0.56	%	0.53	%	0.59	%	0.40	%
Expected volatility	Expected volatility	37	%	39	%	37	%	39	%	Expected volatility	39	%	37	%	39	%	37	%
Expected term (in years)	Expected term (in years)	6.4		7.1		5.5		6.0		Expected term (in years)	5.9		6.1		4.9		5.2

Risk-free rate

The risk-free rate was based upon a treasury instrument whose term was consistent with the contractual term of the option.

Expected dividend yield

Generally, the current dividend yield is calculated by annualizing the cash dividend declared by the Company’s Board of Directors and dividing that result by the closing stock price on the grant date.

Expected volatility

The expected volatility was based upon a combination of historical volatility of the Company’s common stock over the contractual term of the option and implied volatility for traded options of the Company’s stock.

Expected term

The expected term was derived from the binomial lattice model from the impact of events that trigger exercises over time.

The weighted-average grant-date fair values of stock options granted during the three-month and ~~nine-month~~six-month periods ended ~~October~~July 2, ~~2022~~2023 were ~~$18.81~~$20.09 and ~~$21.40,~~$17.86, respectively, and during the three-month and ~~nine-month~~six-month periods ended ~~October~~July 3, ~~2021~~2022 were ~~$35.64~~$18.21 and ~~$33.78,~~$22.33, respectively.

The total intrinsic values of stock options exercised for the three-month and ~~nine-month~~six-month periods ended ~~October~~July 2, ~~2022~~2023 were ~~$516,000~~$2,123,000 and ~~$3,615,000,~~$5,562,000, respectively, and for the three-month and ~~nine-month~~six-month periods ended ~~October~~July 3, ~~2021~~2022 were ~~$21,415,000~~$934,000 and ~~$75,363,000,~~$3,099,000, respectively. The total fair values of stock options vested for the three-month and ~~nine-month~~

COGNEX CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

six-month periods ended ~~October~~July 2, ~~2022~~2023 were ~~$1,159,000~~$892,000 and ~~$27,882,000,~~$32,073,000, respectively, and for the three-month and ~~nine-month~~six-month periods ended ~~October~~July 3, ~~2021~~2022 were ~~$1,498,000~~$1,188,000 and ~~$38,928,000,~~$26,723,000, respectively.

Restricted Stock Units (RSUs)

The following table summarizes the Company's RSUs activity for the ~~nine-month~~six-month period ended ~~October~~July 2, ~~2022:~~2023:

Shares
(in thousands) Weighted-Average
Grant Date Fair Value
Nonvested as of December 31, 2021 823 $ 65.26
Granted 691 58.44
Vested (141) 65.33
Forfeited or expired (61) 65.18
Nonvested as of October 2, 2022 1,312 $ 61.67

~~COGNEX CORPORATION~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)~~


	Shares (in thousands)	Weighted-Average Grant Date Fair Value
Nonvested as of December 31, 2022	1,269	$	61.74
Granted	663	46.86
Vested	(482)	59.40
Forfeited or expired	(65)	61.52
Nonvested as of July 2, 2023	1,385	$	55.44

The fair value of RSUs is determined based on the observable market price of the Company's stock on the grant date less the present value of expected future dividends. The weighted-average grant-date fair values of RSUs granted during the three-month and ~~nine-month~~six-month periods ended ~~October~~July 2, ~~2022~~2023 were ~~$47.12~~$52.53 and ~~$58.44,~~$46.86, respectively, and during the three-month and ~~nine-month~~six-month periods ended ~~October~~July 3, ~~2021~~2022 were ~~$86.34~~$45.25 and ~~$87.38,~~$63.37, respectively. There were ~~67,000~~29,000 and ~~141,000~~482,000 RSUs that vested during the three-month and ~~nine-month~~six-month periods ended ~~October~~July 2, ~~2022,~~2023, respectively, and 020,000 and ~~15,000~~74,000 that vested during the three-month and ~~nine-month~~six-month periods ended ~~October~~July 3, ~~2021,~~2022, respectively.

Performance Restricted Stock Units (PRSUs)

The following table summarizes the Company's PRSUs activity for the ~~nine-month~~six-month period ended ~~October~~July 2, ~~2022:~~2023:

Shares
(in thousands) Weighted-Average
Grant Date Fair Value
Nonvested as of December 31, 2021 — $ —
Granted 33 62.49
Vested — —
Forfeited or expired — —
Nonvested as of October 2, 2022 33 $ 62.49

~~No PRSUs were granted or vested during the three-month period ended October 2, 2022. No PRSUs were granted or vested during the three-month and nine-month periods ended October 3, 2021.~~


	Shares (in thousands)	Weighted-Average Grant Date Fair Value
Nonvested as of December 31, 2022	33	$	62.49
Granted	46	44.86
Vested	—	—
Forfeited or expired	—	—
Nonvested as of July 2, 2023	79	$	52.23

The fair value of PRSUs is calculated using the Monte Carlo simulation model to estimate the probability of satisfying the service and market conditions stipulated in the award grant. There were 0 and 46,000 PRSUs granted during the three-month and six-month periods ended July 2, 2023, respectively, and 0 and 33,000 PRSUs granted during the three-month and six-month periods ended July 3, 2022, respectively. No PRSUs vested during the three-month and six-month periods ended July 2, 2023 and July 3, 2022.

Stock-Based Compensation Expense

The Company stratifies its employee population into ~~two~~three groups: one consisting of the CEO, one consisting of senior management, and another consisting of all other employees. The Company currently applies an estimated annual forfeiture rate of 7%0% to all stock-based awards for the CEO, 8% to all stock-based awards for senior management, and a rate of ~~12%~~13% for all other employees. Each year during the first quarter, the Company revises its forfeiture rate based on updated estimates of employee turnover. This resulted in a decrease to compensation expense of $234,000 in 2023 and an increase to compensation expense of $1,536,000 in ~~2022 and a decrease to compensation expense of $255,000 in 2021.~~2022.

As of ~~October~~July 2, ~~2022,~~2023, total unrecognized compensation expense, net of estimated forfeitures, related to non-vested equity awards, including stock options, RSUs, and PRSUs, was ~~$68,089,000,~~$76,162,000, which is expected to be recognized over a weighted-average period of ~~1.6~~2.2 years.

COGNEX CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

The total stock-based compensation expense and the related income tax benefit recognized for the three-month period ended ~~October~~July 2, ~~2022~~2023 were ~~$13,366,000~~$12,574,000 and ~~$2,133,000,~~$1,892,000, respectively, and for the ~~nine-month~~six-month period ended ~~October~~July 2, ~~2022~~2023 were ~~$41,419,000~~$29,153,000 and ~~$6,496,000,~~$4,200,000, respectively. The total stock-based compensation expense and the related income tax benefit recognized for the three-month period ended ~~October~~July 3, ~~2021~~2022 were ~~$10,614,000~~$12,997,000 and ~~$1,637,000,~~$2,044,000, respectively, and for the ~~nine-month~~six-month period ended ~~October~~July 3, ~~2021~~2022 were ~~$33,353,000~~$28,053,000 and ~~$5,101,000,~~$4,363,000, respectively. No compensation expense was capitalized as of ~~October~~July 2, ~~2022~~2023 or December 31, ~~2021.~~2022.

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

Three-months Ended Nine-months Ended
October 2, 2022 October 3, 2021 October 2, 2022 October 3, 2021
Cost of revenue $ 468 $ 366 $ 1,513 $ 965
Research, development, and engineering 4,209 3,091 12,508 10,158
Selling, general, and administrative 8,689 7,157 27,398 22,230
$ 13,366 $ 10,614 $ 41,419 $ 33,353


	Three-months Ended				Six-months Ended
	July 2, 2023		July 3, 2022		July 2, 2023		July 3, 2022
Cost of revenue	$	441	$	482	$	1,062	$	1,045
Research, development, and engineering	3,308		3,851		9,198		8,299
Selling, general, and administrative	8,825		8,664		18,893		18,709
	$	12,574	$	12,997	$	29,153	$	28,053

~~COGNEX CORPORATION~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)~~

NOTE 14: Stock Repurchase Program

On March 12, 2020, the Company's Board of Directors authorized the repurchase of $200,000,000 of the Company's common stock. ~~As of October 2, 2022,~~Under this March 2020 program, in addition to repurchases made in prior years, the Company repurchased ~~2,737,000 shares at a cost of $200,000,000 under this program, including~~ 1,677,000 shares at a cost of $117,000,000 during the ~~first quarter of~~six-month period ended July 3, 2022, which completed purchases under this program. On March 3, 2022, the Company's Board of Directors authorized the repurchase of an additional $500,000,000 of the Company's common stock. ~~During the nine-month period ended October 2,~~Under this March 2022 program, the Company repurchased ~~1,125,000~~590,000 shares ~~and an additional 5,000~~at a cost of $37,317,000 during the six-month period ended July 3, 2022. Under this same March 2022 program, in addition to repurchases made in the prior year, the Company repurchased 966,000 shares ~~that were repurchased in 2021 and settled in 2022,~~ at a total cost of ~~$61,387,000 under this additional authorization,~~$49,163,000 during the six-month period ended July 2, 2023 leaving a remaining balance of ~~$438,613,000~~$363,523,000 as of ~~October~~July 2, ~~2022.~~2023. 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.

COGNEX CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

NOTE 15: Income Taxes

The Company's effective tax rate was ~~14%~~15% and ~~16%~~12% for the three-month and ~~nine-month~~six-month periods ended ~~October~~July 2, ~~2022,~~2023, respectively, and ~~11%~~9% and ~~13%~~17% for the three-month and ~~nine-month~~six-month periods ~~ended October 3, 2021, respectively.~~

The Company recorded a net discrete tax benefit totaling $930,000 and a net discrete tax expense totaling $616,000 for the three-month and nine-month periods ended October 2, 2022, respectively, and net discrete tax benefits totaling $6,262,000 and $12,365,000 for the same periods in 2021.

Discrete tax items for the three-month and nine-month periods ended October 2, 2022 included (1) a decrease in tax expense during the three-month and nine-month periods ended October 2, 2022 of $928,000 and $3,368,000, respectively, arising from the impact of the loss from fire recorded (refer to Note 17), (2) an increase in tax expense of $1,417,000 arising from an Internal Revenue Service (IRS) audit recorded during the three-month period ended April 3, 2022, which was offset by a decrease in tax expense of $2,519,000 related to releases of reserves for income taxes due to the closure of this Internal Revenue Service (IRS) audit during the three-month period ended July 3, 2022, (3) an increase in tax expense of $1,734,000 to establish a full valuation allowance against deferred tax assets related to foreign tax credits during the three-month period ended April 3, 2022, (4) an increase in tax expense of $883,000 and $4,236,000 during the three-month and nine-month periods ended October 2, 2022, respectively, primarily consisting of transfer pricing and return-to-provision adjustments, and (5) a decrease in tax expense of $884,000 during both the three-month and nine-month periods ended October 2, 2022 related to the release of tax reserves due to closed periods.

Discrete tax items for the three-month and nine-month periods ended October 3, 2021 included a decrease in tax expense of $3,250,000 and $9,888,000, respectively, related to stock-based compensation, primarily from the excess tax benefit arising from the difference between the deduction for tax purposes and the compensation cost recognized for financial reporting purposes from stock option exercises. This impact was not material for the three-month and nine-month periods ended October 2, 2022. The remaining discrete tax benefits for the three-month and nine-month periods ended October 3, 2021 of $3,012,000 and $2,477,000, respectively, consisted of primarily return-to-provision adjustments and the release of tax reserves.

Excluding the impact of these discrete tax items, the Company’s effective tax rate was 16% for both the three-month and nine-month periods ended October 2, 2022, and 18% for both the three-month and nine-month periods ended October 3, 2021.respectively.

The Company has defined its major tax jurisdictions as the United States, Ireland, China, and Korea, and within the United States, Massachusetts. The statutory tax rate is 12.5% in Ireland, 25% in China, and 22% in Korea compared to the U.S. federal statutory corporate tax rate of 21%. These foreign tax rate differences resulted in a ~~lower effective tax rate for the three-month and nine-month periods ended October 2, 2022 as compared~~net decrease to ~~the same periods in 2021 due to more of the Company's profits being earned and taxed in lower tax jurisdictions. The remaining decrease in~~ the effective tax rate for both the three-month and ~~nine-month~~six-month periods ~~was~~ended July 2, 2023 and July 3, 2022.

The Company recorded a net discrete tax expense totaling $399,000 and a net discrete tax benefit totaling $3,195,000 for the three-month and six-month periods ended July 2, 2023, and a net discrete tax benefit totaling $2,352,000 and a net discrete tax expense totaling $3,986,000 for the same periods in 2022.

Discrete tax items for the six-month period ended July 2, 2023 included (1) an increase in tax expense of $1,766,000 related to stock-based compensation; (2) a net decrease in tax expense of $3,051,000 due primarily ~~attributable~~ to ~~lower~~the release of tax reserves on state ~~taxes.~~tax credits and foreign audit settlements; (3) a decrease in tax expense of $2,198,000 for adjustments to certain deferred tax assets; and (4) a net increase in tax expense of $288,000 for return-to-provision adjustments.

~~COGNEX CORPORATION~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)~~

Discrete tax items for the six-month period ended July 3, 2022 included (1) an increase in tax expense of $176,000 related to stock-based compensation; (2) a decrease in tax expense of $1,577,000 arising from audit settlements; (3) an increase in tax expense of $2,316,000 to establish a reserve against certain deferred tax assets; and (4) an increase in tax expense of $3,071,000 consisting primarily of transfer pricing and return-to-provision adjustments.

The Company’s reserve for income taxes, including gross interest and penalties, was ~~$12,772,000~~$19,239,000 as of ~~October~~July 2, ~~2022,~~2023, which ~~included $12,204,000~~was classified as a non-current ~~liability and $568,000 recorded as a reduction to non-current deferred tax assets.~~liability. 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 2019 through ~~2020~~2021 remain open to examination by the IRS, and ~~2017~~2018 through ~~2020~~2021 remain open to examination by various state tax authorities. The tax years ~~2016~~2017 through ~~2021~~2022 remain open to examination by various international taxing authorities in other jurisdictions in which the Company operates. The Company received the Closing Letter for Agreed Income Tax Cases from the IRS and the Company is no longer under audit by the IRS for the tax years 2017 and 2018. The Company is no longer under audit by the Commonwealth of Massachusetts for tax years 2017 and 2018. These audits were completed during the nine-month period ended October 2, 2022 and resulted in no material tax impact to the Company's financial statements.

NOTE 16: Weighted-Average Shares

Weighted-average shares were calculated as follows (in thousands):

Three-months Ended Nine-months Ended
October 2, 2022 October 3, 2021 October 2, 2022 October 3, 2021
Basic weighted-average common shares outstanding 173,256 176,812 173,640 176,572
Effect of dilutive equity awards 1,071 3,530 1,593 3,537
Weighted-average common and common-equivalent shares outstanding 174,327 180,342 175,233 180,109


	Three-months Ended		Six-months Ended
	July 2, 2023	July 3, 2022	July 2, 2023	July 3, 2022
Basic weighted-average common shares outstanding	172,429	173,507	172,527	173,830
Effect of dilutive equity awards	1,193	1,486	1,264	2,044
Weighted-average common and common-equivalent shares outstanding	173,622	174,993	173,791	175,874

Stock options to purchase ~~6,167,000~~6,890,000 and ~~3,297,000~~6,713,000 shares of common stock, on a weighted-average basis, were outstanding during the three-month and ~~nine-month~~six-month periods ended ~~October~~July 2, ~~2022,~~2023, respectively, and ~~586,000~~4,048,000 and ~~655,000~~1,818,000 for the same periods in ~~2021,~~2022, respectively, but were not included in the calculation of dilutive net income per share because they were anti-dilutive. Restricted stock units totaling ~~607,000~~3,000 and ~~26,000~~1,000 shares of common stock, on a weighted-average basis, were outstanding during the three-month and ~~nine-month~~six-month periods ended ~~October~~July 2, ~~2022,~~2023, respectively, and ~~1,000~~480,000 and 21,000 for ~~both~~ the ~~three-month and nine-month~~same periods in ~~2021,~~2022, respectively, but were not included in the calculation of dilutive net income per share because they were anti-dilutive. No PRSUs were excluded in the calculation of dilutive net income per share for the three-month and six-month periods ended July 2, 2023, as PRSUs were not anti-dilutive on a weighted-average basis. PRSUs totaling 33,000 and 0 shares of common stock, on a weighted-average basis, were outstanding during the three-month and ~~nine-month~~six-month periods ended ~~October 2,~~July 3, 2022, respectively, but were not included in the calculation of dilutive net income per share because they were anti-dilutive. ~~There were no anti-dilutive PRSUs outstanding, on a weighted-average basis, during the three-month and nine-month periods October 3, 2021.~~

COGNEX CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

NOTE 17: Loss (Recovery) from Fire

On June 7, 2022, the Company’s primary contract manufacturer experienced a fire at its plant in Indonesia. The fire destroyed a significant amount of Cognex-owned consigned inventories, as well as component inventories owned by the contract manufacturer that were designated for Cognex products. There was no significant damage to the Company's production equipment. Since the date of the fire, ~~and through the date of financial statement issuance,~~ the Company has worked with the contract manufacturer to ~~assess the damage,~~ resume production, maintain standards of product quality, and replenish inventories destroyed by the fire. ~~Additionally, beginning last year, the~~The Company has also been working to ramp up an additional contract manufacturer to further mitigate risk, diversify the supply chain, and expand production capacity. We expect this additional contract manufacturer to commence production later in the year. As a result of the fire, the Company recorded $47,794,000 in gross losses in 2022, including $44,903,000 during

During the three-month period ended July 3, 2022, ~~and $2,891,000 during~~ the ~~three-month period ended October 2, 2022. Gross losses~~Company recorded a net loss related to ~~$37,643,000~~the fire of $17,403,000, consisting primarily ~~Cognex-owned inventory that was destroyed or deemed to have a net realizable value~~ of ~~zero, $8,184,000~~losses from inventories and other assets of ~~primarily prepayments related to Cognex-designated components that were owned~~$44,903,000, partially offset by ~~the contract manufacturer, and $1,967,000 related to deleveraging of costs related to our distribution centers.~~

~~Based on the provisions of the Company's insurance policies, the gross losses have been reduced by the~~an estimated ~~insurance proceeds expected to be received from the Company’s insurance carrier. The Company has determined that partial recovery of the incurred losses is probable and therefore recorded an~~ insurance recovery of ~~$27,500,000~~

~~COGNEX CORPORATION~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)~~

~~during the three-month period ended July 3, 2022.~~$27,500,000. The ~~insurance receivable~~net loss is included in “Prepaid expenses and other current assets” on the Consolidated Balance Sheets as of October 2, 2022. Gross losses, net of insurance recovery, total $2,891,000 and $20,294,000 for the three-month and nine-month periods ended October 2, 2022, respectively, and are presented in the caption “Loss (recovery) from fire” on the Consolidated Statements of Operations. ~~Subsequent to the October 2, 2022 balance sheet date, but prior to the date of financial statement issuance, the~~The Company received insurance proceeds of $27,560,000 from the Company's insurance ~~carrier. In~~carrier in the fourth quarter of 2022, and gross losses recorded during 2022 related to the ~~loss from~~ fire ~~will be~~were further reduced by the proceeds received in excess of the original estimated insurance recovery.

During the three-month period ended July 2, 2023, the Company recorded a recovery ~~recorded~~related to the fire of ~~$27,500,000.~~$2,500,000 for proceeds received from the Company's insurance carrier in relation to a business interruption claim. This recovery amount is presented in the caption “Loss (recovery) from fire” on the Consolidated Statements of Operations.

As of ~~October~~July 2, ~~2022~~2023 and through the date of financial statement issuance, management cannot yet estimate additional recoveries that could be available from the contract manufacturer. Any future, additional recoveries in excess of recognized losses will be treated as gain contingencies and will be recognized when the gain is realized or realizable. There can be no assurance, however, that the insurance coverage and/or recoveries from the contract manufacturer will be available to cover the losses from the fire.

~~After considering~~

NOTE 18: Restructuring Charges

On December 7, 2022, the Company acquired all ~~the relevant events and circumstances resulting from the fire, management does not believe that the carrying value~~ of the outstanding shares of SAC Sirius Advanced Cybernetics GmbH ("SAC"), a leader in computational lighting technology based in Germany. Following its acquisition of SAC, the Company ~~exceeds its fair value, or that~~performed restructuring activities to align the ~~carrying amount~~cost and operating structure of the ~~Company’s intangible assets may not be recoverable.~~acquired business with the Company's business strategy. As ~~such, no goodwill or intangible asset impairment~~of December 31, 2022, the majority of these restructuring actions were completed. No additional charges were recorded during ~~2022 as a result of~~ the ~~fire.~~three-month and six-month periods ended July 2, 2023, or are expected to be incurred in future periods in relation to this restructuring plan.

The following table summarizes the activity in the Company’s restructuring reserve related to these restructuring activities, which is included in “Accrued expenses” on the Consolidated Balance Sheets (in thousands):


	One-time Termination Benefits		Contract Termination Costs		Total
Balance as of December 31, 2022	$	964	$	75	$	1,039

Cash payments	(703)		(48)		(751)


Foreign exchange rate changes	9		1		10
Balance as of July 2, 2023	$	270	$	28	$	298

NOTE ~~18:~~19: Subsequent Events

On ~~November~~August 3, ~~2022,~~2023, the Company’s Board of Directors declared a cash dividend of $0.07 per share. The dividend is payable on ~~December 2, 2022~~September 1, 2023 to all shareholders of record as of the close of business on ~~November~~August 18, ~~2022.~~2023.

2423

ITEM 2: MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Forward-Looking Statements

Certain statements made in this report, as well as oral statements made by the Company from time to time, constitute forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. Readers can identify these forward-looking statements by our use of the words “expects,” “anticipates,” “estimates,” “potential,” “believes,” “projects,” “intends,” “plans,” “will,” “may,” “shall,” “could,” “should,” and similar words and other statements of a similar sense. These statements are based on our current estimates and expectations as to prospective events and circumstances, which may or may not be in our control and as to which there can be no firm assurances given. These forward-looking statements, which include statements regarding business and market trends, future financial performance and financial targets, the expected impact of the fire at our primary contract manufacturer's ~~warehouse~~plant on our assets, business, and results of operations and related ~~insurance~~ recoveries, customer demand and order rates and timing of related revenue, managing supply shortages, delivery lead times, future product mix, research and development activities, sales and marketing activities, new product offerings and product development activities, cost management, capital expenditures, investments, liquidity, dividends and stock repurchases, strategic and growth plans and opportunities (including our "Emerging Customer" sales initiative, and estimated tax benefits and expenses and other tax matters, involve known and unknown risks and uncertainties that could cause actual results to differ materially from those projected. Such risks and uncertainties include: (1) the reliance on key suppliers, such as our primary contract manufacturer, to manufacture and deliver ~~quality~~ products; (2) delays in the delivery of our products, the failure to meet delivery schedules, and resulting customer dissatisfaction or loss of sales; (3) the inability to obtain, or the delay in obtaining, components for our products at reasonable prices; (4) the failure to effectively manage product transitions or accurately forecast customer demand; (5) the inability to manage disruptions to our distribution centers or to our key suppliers; (6) the expected impact of the fire at our primary contract manufacturer's plant and related recoveries; (7) the inability to design and manufacture high-quality products; ~~(7) the impact, duration, and severity of the COVID-19 pandemic, including the availability and effectiveness of vaccines as well as government lockdowns;~~ (8) the loss of, or curtailment of purchases by, large customers in the logistics, or consumer electronics, or automotive industries; (9) information security breaches; (10) the failure to comply with laws or regulations relating to data privacy or data protection;(11) the inability to protect our proprietary technology and intellectual property; ~~(11)~~(12) the inability to attract and retain skilled employees and maintain our unique corporate culture; ~~(12)~~(13) the technological obsolescence of current products and the inability to develop new products; ~~(13)~~(14) the failure to properly manage the distribution of products and services, including the management of lead times and delivery dates; ~~(14)~~(15) the impact of competitive pressures; ~~(15)~~(16) the challenges in integrating and achieving expected results from acquired businesses; ~~(16)~~(17) potential disruptions in our business systems; ~~(17)~~(18) potential impairment charges with respect to our investments or acquired intangible assets; ~~(18)~~(19) exposure to additional tax ~~liabilities; (19)~~liabilities, increases and fluctuations in our effective tax rate, and other tax matters; (20) fluctuations in foreign currency exchange rates and the use of derivative instruments; ~~(20)~~(21) unfavorable global economic conditions, including increases in interest rates and high inflation rates; ~~(21)~~(22) business disruptions from natural or man-made disasters, such as fire, or public health issues; ~~(22)~~(23) economic, political, and other risks associated with international sales and operations, including the impact of trade disputes with China and the war in Ukraine; (24) exposure to potential liabilities, increased costs, reputational harm, and ~~(23)~~other adverse effects associated with expectations relating to environmental, social, and governance considerations; (25) stock price volatility; and (26) our involvement in time-consuming and costly ~~litigation.~~litigation or activist shareholder activities. The foregoing list should not be construed as exhaustive and we encourage readers to refer to the detailed discussion of risk factors included in Part I - Item 1A of the Company's Annual Report on Form 10-K for the fiscal year ended December 31, ~~2021,~~2022, as updated by Part II - Item 1A of this Quarterly Report on Form 10-Q. The Company cautions readers not to place undue reliance upon any such forward-looking statements, which speak only as of the date made. The Company disclaims any obligation to subsequently revise forward-looking statements to reflect the occurrence of anticipated or unanticipated events or circumstances after the date such statements are made.

Executive Overview

Cognex Corporation is(the “Company”) invents and commercializes technologies that address some of the most critical manufacturing and distribution challenges. We are a leading ~~worldwide~~global provider of machine vision products and solutions that ~~capture~~improve efficiency and ~~analyze visual information~~quality in ~~order to automate manufacturing and distribution tasks where vision is required.~~high-growth potential businesses across attractive industrial end markets. In addition to product revenue derived from the sale of machine vision products, the Company also generates revenue by providing maintenance and support, consulting, and training services to its customers; however, service revenue accounted for less than 10% of total revenue for all periods presented.

~~Cognex machine~~Machine vision is used ~~to automate manufacturing and distribution processes~~ in a variety of industries where ~~the~~ technology is widely recognized as an important component of automated production, distribution, and quality assurance. Virtually every manufacturer or distributor can achieve

better quality and efficiency by using machine ~~vision, and therefore, Cognex products are used by~~vision; thus, our applications have a broad base of customers across a variety of industries, including automotive, logistics, ~~automotive,~~ consumer electronics, medical-related, semiconductor, consumer products, and food and beverage.

Revenue for the ~~third~~second quarter of ~~2022~~2023 totaled ~~$209,622,000,~~$242,512,000, representing a decrease of ~~26%~~12% from the ~~third~~second quarter of ~~2021.~~2022. The decrease was driven by three ~~primary~~main factors: (i) lower revenue from the logistics industry primarily as a result of the ~~slowing of~~continued pause in investments by a few large ~~customer projects due to a slowdown in capacity expansion for~~ e-commerce ~~fulfillment;~~customers; (ii) ~~the impact of the fire on June 7, 2022 at~~slower spending trends across our ~~primary contract manufacturer in Indonesia, which destroyed a large amount of component inventory limiting our ability to fulfill certain orders~~broader factory automation business, most notably in the ~~quarter;~~consumer electronics and semiconductor industries; and (iii) the unfavorable impact of foreign currency exchange rate changes on revenue. Gross margin as a percentage of revenue was ~~73%~~74% for the ~~third~~second quarter of ~~2022~~2023 as compared to ~~70%~~72% for the ~~third~~second quarter of ~~2021~~2022. The increase in gross margin as a percent of revenue was due to lower inventory costs resulting from a ~~more favorable revenue mix, partially offset by~~reduction in premiums paid to brokers for the ~~unfavorable effect~~purchase of ~~currency exchange rates on revenue.~~components in response to global supply chain constraints.

Operating expenses ~~of $112,216,000 were flat~~ for the ~~third~~second quarter of ~~2022 over~~2023 totaled $114,508,000, representing a decrease of 13% from the ~~prior year.~~second quarter of 2022. On June 7, 2022, our primary ~~third-party~~ contract manufacturer suffered a fire at its Indonesian ~~facility~~plant destroying a large portion of the Company's component ~~inventories.~~inventories (refer to Note 17 of the consolidated financial statements). In the ~~third~~second quarter of 2022, the Company recorded a net loss ~~of $2,891,000 primarily~~ related to the ~~deleveraging~~fire of ~~fixed costs~~$17,403,000, consisting primarily of ~~distribution centers~~losses from inventories and ~~inventory write-offs~~other assets of $44,903,000, partially offset by an estimated insurance recovery of $27,500,000. In the second quarter of 2023, the Company recorded a recovery related to the fire of $2,500,000 for ~~products deemed~~proceeds received from the Company's insurance carrier in relation to ~~have~~ a ~~net realizable value~~business interruption claim. Excluding the impact of ~~zero as a result of~~losses and recoveries related to the ~~fire. Excluding this recorded loss from~~ fire, operating expenses ~~were 2% lower~~for the second quarter of 2023 increased 3% from the ~~third~~second quarter of ~~2021~~ 2022, primarily due ~~primarily~~ to headcount to support our "Emerging Customer" sales initiative, annual merit increases provided to employees, and increased travel expenses. These higher expenses were partially offset by lower incentive compensation and the favorable impact of foreign currency exchange rate changes on ~~expenses, partially offset by additional headcount~~expenses.

Operating income increased to ~~support our continued growth plans~~27% of revenue for the second quarter of 2023 as compared to 24% of revenue for the second quarter of 2022. Excluding the impact of losses and ~~salary increases provided to employees~~recoveries related to ~~merit and promotions.~~

Asthe fire, operating income decreased to 26% of revenue for the second quarter of 2023 as compared to 30% of revenue for the second quarter of 2022 primarily as a result of the lower revenue ~~level, operating income declined to 19% of revenue for~~levels. Tax expense increased from the ~~third~~second quarter of 2022 primarily due to less favorable discrete tax adjustments. Net income as ~~compared to 31%~~percentage of revenue was 24%, or $0.33 per diluted share, for the ~~third~~second quarter of ~~2021. Operating income, excluding the impact of the recorded loss from fire of $2,891,000, was 20%~~2023 and 21% of revenue, or $0.34 per diluted share, for the ~~third~~second quarter of 2022. Tax expense declined as a result of lower operating income in the third quarter of 2022 as compared to the third quarter of 2021. Net income declined to 16% of revenue for the third quarter of 2022 from 28% of revenue for the third quarter of 2021.

Results of Operations

As foreign currency exchange rates are a factor in understanding period-to-period comparisons, we believe the presentation of results on a constant-currency basis in addition to reported results helps improve investors’ ability to understand our operating results and evaluate our performance in comparison to prior periods. We also use results on a constant-currency basis as one measure to evaluate our performance. Constant-currency information compares results between periods as if exchange rates had remained constant period-over-period. We generally refer to such amounts calculated on a constant-currency basis as excluding the impact of foreign currency exchange rate changes. Results on a constant-currency basis are not in accordance with accounting principles generally accepted in the United States of America (U.S. GAAP) and should be considered in addition to, and not as a substitute for, results prepared in accordance with U.S. GAAP.

Revenue

Revenue decreased by ~~$75,226,000,~~$32,116,000, or ~~26%~~12%, for the three-month period and decreased by ~~$26,376,000,~~$113,399,000, or 3%20%, for the ~~nine-month~~six-month period as compared to the same periods in ~~2021.~~2022. Changes in foreign currency exchange rates resulted in a lower level of reported revenue for both the three-month and six-month periods in ~~2022~~2023 as compared to ~~2021.~~the same periods in 2022. Excluding the impact of foreign currency exchange rate changes, revenue decreased ~~21%~~by 10% for the three-month period and ~~was flat~~decreased by 18% for the ~~nine-month~~six-month period as compared to the same periods in ~~2021.~~2022.

The largest ~~contributors~~factor contributing to the decreases in total revenue ~~decline over the prior year~~ for both the three-month and ~~nine-month~~six-month periods ~~were lower~~was a decline in logistics revenue ~~from the logistics industry~~primarily as a result of the ~~slowing~~continued pause in investments by a few large e-commerce customers. Slower spending trends across our broader factory automation business further contributed to the decrease in revenue.

The following table sets forth our disaggregated revenue information by geographic area based upon the customer's country of ~~large customer projects,~~domicile (in thousands) for the ~~impact of~~three-month and six-month periods ended July 2, 2023 and July 3, 2022 with the ~~fire at our primary contract manufacturer in Indonesia, which destroyed a large amount of component inventory limiting our ability to fulfill certain orders,~~dollar and percentage changes between the corresponding periods, and the ~~unfavorable impact~~line item as a percentage of ~~foreign currency exchange rate changes on~~total revenue.


	Three-months Ended										Six-months Ended
	July 2, 2023			July 3, 2022			$ Change		% Change		July 2, 2023			July 3, 2022			$ Change		% Change
	(unaudited)										(unaudited)
Americas	$	82,297		$	91,551		$	(9,254)	(10)	%	$	162,911		$	218,210		$	(55,299)	(25)	%
Percentage of total revenue	34		%	33		%					37		%	39		%
Europe	$	56,860		$	61,840		$	(4,980)	(8)	%	$	116,702		$	124,631		$	(7,929)	(6)	%
Percentage of total revenue	23		%	23		%					26		%	22		%
Greater China	$	72,351		$	78,616		$	(6,265)	(8)	%	$	105,351		$	127,021		$	(21,670)	(17)	%
Percentage of total revenue	30		%	29		%					24		%	23		%
Other Asia	$	31,004		$	42,621		$	(11,617)	(27)	%	$	58,672		$	87,173		$	(28,501)	(33)	%
Percentage of total revenue	13		%	16		%					13		%	16		%
Total revenue	$	242,512		$	274,628		$	(32,116)	(12)	%	$	443,636		$	557,035		$	(113,399)	(20)	%

Changes in revenue from a geographic perspective were as follows:

•Revenue from customers based in the Americas decreased ~~from the prior year~~ by ~~42%~~10% for the three-month period and ~~14%~~decreased by 25% for the ~~nine-month~~six-month period as compared to the same periods in ~~2021.~~2022. The ~~decrease in revenue for the three-month and nine-month periods was~~decreases were primarily driven by lower revenue from customers in the logistics ~~industry due to the slowing of large customer projects and the impact of the June fire on inventory levels, partially offset by increases in the automotive~~ industry.

•Revenue from customers based in Europe decreased by ~~25%~~8% for the three-month period and 5%decreased by 6% for the ~~nine-month~~six-month period as compared to the same periods in ~~2021. Changes in foreign currency exchange rates resulted in a lower level of reported revenue in 2022, as sales denominated in Euros were translated into U.S. Dollars at a lower rate.~~2022. Excluding the impact of foreign currency ~~exchange~~exchange rate changes, revenue from customers based in Europe decreased by ~~13%~~9% for the three-month period ~~due~~and decreased by 5% for the six-month period as compared to the same periods in 2022. On both a ~~decline in~~U.S. GAAP and constant-currency basis, the decreases were primarily driven by lower revenue from

customers in the logistics ~~industry due to the slowing of large customer projects~~ and the impact of the June fire on inventory levels. Excluding the impact of foreign currency exchange rate changes, revenue increased 5% for the nine-month period with broad-based growth across a variety ofconsumer electronics industries.

•Revenue from customers based in Greater China ~~was flat~~decreased by 8% for the three-month p~~eriod~~period and ~~increased 18%~~decreased by 17% for the ~~nine-month~~six-month period as compared to the same periods in ~~2021.~~2022. Excluding the impact of foreign currency exchange rate changes, revenue from customers based in Greater China ~~increased 5%~~decreased by 4% for the three-month period and ~~21%~~decreased by 12% for the ~~nine-month period. The increase~~six-month period as compared to the same periods in 2022. On both a U.S. GAAP and constant-currency basis, the ~~three-month period was led by strong growth~~decreases resulted from broad-based declines in ~~consumer electronics~~ revenue from customers across multiple industries, partially offset by ~~the impact of the June fire on inventory levels. The increase~~increases in revenue ~~for~~from large projects in the ~~nine-month period came from customers in multiple industries, led by strong growth in~~ consumer ~~electronics.~~products industry.

•Revenue from customers based in other countries in Asia decreased by ~~29%~~27% for the three-month period and ~~was flat~~decreased by 33% for the ~~nine-month~~six-month period as compared to the same periods in ~~2021.~~2022. Excluding the impact of foreign currency exchange rate changes, revenue from customers based in other countries in Asia decreased by ~~20%~~23% for the three-month period ~~due~~and 28% for the six-month period as compared to the same periods in 2022. On both a U.S. GAAP and constant-currency basis, the decreases resulted from broad-based declines in revenue from customers inacross multiple industries, ~~and~~most notably the impact of the June fire on inventory levels. Excluding the impact of foreign currency exchange rate changes, revenue increased 6% for the nine-month period, as a result of increases in revenue from customers in the automotive and logistics industries.semiconductor industry.

As of the date of this report, we currently expect that revenue for the fourth quarter of 2022 will be significantly higher than the third quarter of 2022. Production has resumed at our primary contract manufacturer in Indonesia and component inventory has returned to more typical levels. We currently expect that revenue for the fourth quarter of 2022 will be roughly flat with the fourth quarter of 2021 as we anticipate that lower spending on large customer projects in the logistics industry and the unfavorable impact of foreign currency exchange rate changes will be offset by broad-based growth in other industries.

Gross Margin

The following table sets forth our gross margin (in thousands) for the three-month and six-month periods ended July 2, 2023 and July 3, 2022 with the dollar and percentage changes between the corresponding periods, and the line item as a percentage of total revenue.


	Three-months Ended										Six-months Ended
	July 2, 2023			July 3, 2022			$ Change		% Change		July 2, 2023			July 3, 2022			$ Change		% Change
	(unaudited)										(unaudited)
Gross margin	$	179,683		$	196,485		$	(16,802)	(9)	%	$	323,423		$	400,102		$	(76,679)	(19)	%
Percentage of total revenue	74		%	72		%					73		%	72		%

Gross margin as a percentage of revenue was 74% and 73% for the three-month and six-month periods in 2023, respectively, as compared to 72% and 72% for the ~~three-month and nine-month~~same periods in 2022, ~~compared~~respectively. The increases in gross margin as a percent of revenue were primarily due to ~~70% and 74%~~lower inventory costs resulting from a reduction in premiums paid to brokers for the ~~three-month and nine-month periods~~purchase of components in ~~2021, respectively. The increase in the three-month period was due~~response to ~~a more favorable revenue mix,~~global supply chain constraints. These increases were partially offset by the unfavorable ~~effect~~impact of foreign currency exchange rates on ~~revenue.~~ revenue, and reduced cost efficiencies from the lower sales volume.

Operating Expenses

The ~~decrease in~~following table sets forth our operating expenses (in thousands) for the nine-month period was due to higher prices to purchase inventories, including higher cost of components, due largely to global supply chain constraints, which include broker-buy purchases at higher-than-normal prices, offset slightly by an overall, more favorable revenue mix.

~~As of~~three-month and six-month periods ended July 2, 2023 and July 3, 2022 with the ~~date of this report, we currently expect that gross margin~~dollar and percentage changes between the corresponding periods, and the line item as a percentage of revenue for the fourth quarter of 2022 will be in the low 70% range. The expected gross margin percentage reflects our expectations that higher inventory purchase prices will continue to put pressure on margins throughout and beyond the fourth quarter of 2022 as the cost to replenish inventories destroyed by the June fire includes broker-buy purchases at higher-than-normal prices, which will be expensed as inventory is sold.total revenue.

~~Operating Expenses~~


	Three-months Ended										Six-months Ended
	July 2, 2023			July 3, 2022			$ Change		% Change		July 2, 2023			July 3, 2022			$ Change		% Change
	(unaudited)										(unaudited)
Research, development, and engineering expenses	$	33,585		$	33,991		$	(406)	(1)	%	$	72,127		$	70,045		$	2,082	3	%
Percentage of total revenue	14		%	12		%					16		%	13		%
Selling, general, and administrative expenses	$	83,423		$	79,950		$	3,473	4	%	$	166,460		$	160,785		$	5,675	4	%
Percentage of total revenue	34		%	29		%					38		%	29		%
Loss (recovery) from fire	$	(2,500)		$	17,403		$	(19,903)	(114)	%	$	(2,500)		$	17,403		$	(19,903)	(114)	%
Percentage of total revenue	(1)		%	6		%					(1)		%	3		%
Total operating expenses	$	114,508		$	131,344		$	(16,836)	(13)	%	$	236,087		$	248,233		$	(12,146)	(5)	%
Percentage of total revenue	47		%	48		%					53		%	45		%

Research, Development, and Engineering Expenses

Research, development, and engineering (RD&E) expenses decreased by ~~$522,000,~~$406,000, or 2%1%, for the three-month period and increased by ~~$4,116,000,~~$2,082,000, or 4%3%, for the ~~nine-month~~six-month period as compared to the same periods in ~~2021 as detailed in~~2022. For both the ~~table below (in thousands).~~

Three-month period Nine-month period
RD&E expenses in 2021 $ 34,476 $ 99,883
Personnel-related costs 2,535 6,117
Stock-based compensation expense 1,282 2,776
Incentive compensation (2,620) (3,997)
Foreign currency exchange rate changes (1,905) (4,063)
Other 186 3,283
RD&E expenses in 2022 $ 33,954 $ 103,999

~~Personnel-related~~three-month and six-month periods, personnel-related costs increased ~~due to~~as a result of headcount additions to support new product initiatives and ~~salary~~compensation increases provided to employees as part of our annual merit ~~and promotion~~ process. ~~Stock-based compensation expense was~~

~~also higher than the prior year due to a higher level of stock-based grants at a higher average economic value, as well as the impact of a forfeiture rate true-up that resulted in higher expense.~~

~~These increases were offset by lower incentive~~Incentive compensation expenses ~~than~~for both the prior year. Relevant performance goals for these compensation plans are set at the beginning of each year, with the ability to earn upside if the goals are exceeded. In contrast to the current year, performance goals set for 2021 incentive bonusesthree-month and six-month periods in 2023 were ~~exceeded, resulting in a higher level of bonus expense recorded in 2021. RD&E expenses were also~~ lower than the prior year ~~primarily due to~~comparable periods in 2022 based on the ~~impact of foreign~~Company's expected performance against relevant full-year goals. Foreign currency exchange rate changes further offset the increases to personnel-related costs, as costs denominated in foreign currencies were translated into U.S. Dollars at a lower rate. For the three-month period in 2023, increases in personnel-related costs did not offset the decreases in incentive compensation and foreign currency exchange rate changes which drove the slight overall decrease to total RD&E expenses.

RD&E expenses as a percentage of revenue were ~~16%~~14% and ~~14%~~16% for the three-month ~~period~~ and ~~nine-month period,~~six-month periods in 2023, respectively, as compared to 12% and 13% for the same periods in ~~2021.~~2022, respectively. We believe that a continued commitment to RD&E activities is essential in order to maintain ~~or achieve~~ product leadership with our existing products and to provide innovative new product offerings, as well as to provide engineering support for large customers. In addition, we consider our ability to accelerate the time to market for new products to be critical to our revenue ~~growth. This quarterly percentage is~~growth and competitive position. These percentages are impacted by revenue levels and investing cycles.

Selling, General, and Administrative Expenses

Selling, general, and administrative (SG&A) expenses ~~decreased~~increased by ~~$1,742,000,~~$3,473,000, or 2%4%, for the three-month period and increased ~~$9,776,000,~~by $5,675,000, or 4%, for the ~~nine-month~~six-month period as compared to the same periods in ~~2021 as detailed in the table below (in thousands).~~

Three-month period Nine-month period
SG&A expenses in 2021 $ 77,113 $ 226,380
Personnel-related costs 5,977 19,814
Stock-based compensation expense 1,708 5,574
Travel expenses 1,675 4,631
Sales demonstration equipment (429) 637
Incentive compensation (6,977) (16,041)
Foreign currency exchange rate changes (4,275) (9,512)
Other 579 4,673
SG&A expenses in 2022 $ 75,371 $ 236,156

~~Personnel-related costs~~2022. SG&A expenses increased due to costs related to our “Emerging Customer” sales initiative, including primarily compensation for additional headcount, ~~additions,~~travel expenses, and sales demonstration equipment. We launched this initiative towards the end of 2022 to broaden the reach of our sales force to customers who are relatively new to factory automation and have not fully realized the advantages of machine vision.

Unrelated to our "Emerging Customer" sales initiative, for both the three-month and six-month periods in 2023, we also had higher personnel-related costs resulting primarily ~~for Sales personnel to support the Company's anticipated revenue growth, and salary~~from compensation increases provided to employees given the increasingly competitive job market within certain regions and specialties. In addition to salaries and fringe benefits, these personnel-related costs included sales commissions and travel expenses related to the additional headcount. Stock-based compensation expense was also higher than the prior year due to a higher average economic valueas part of ~~stock-based grants, as well as the impact of a forfeiture rate true-up that resulted in higher expense. While travel expenses increased due to the number of sales personnel added,~~our annual merit process. Travel expenses also increased due primarily to a higher level of travel activity asnow that restrictions related to the COVID-19 ~~continued to ease. Higher spending on sales demonstration equipment tied to new product launches in the first quarter also contributed to the year-to-date increase.~~pandemic have eased or been eliminated.

These increases to total SG&A expenses were partially offset by lower incentive compensation expenses than the prior year, which included sales commissions and incentive bonuses. Relevant performance goals for these plans are set at the beginning of each year, with the ability to earn upside if the goals are exceeded. In contrast to the current year, performance goals set for 2021 incentive bonuses, ~~were exceeded, resulting in a higher level of bonus expense recorded in 2021. SG&A expenses were also lower than the prior year~~ due to lower revenue levels and based on the ~~impact of foreign~~Company's expected performance against relevant full-year goals. Foreign currency exchange rate changes further offset increases to total SG&A expenses, as costs denominated in foreign currencies were translated into U.S. Dollars at a lower rate.

Loss (Recovery) from Fire

On June 7, 2022, the Company’s primary contract manufacturer experienced a fire at its plant in Indonesia. The fire destroyed a significant amount of Cognex-owned consigned inventories, as well as component inventories owned by the contract manufacturer that were designated for Cognex products. There was no significant damage to the Company's production equipment. Since the date of the fire, ~~and continuing through the date of this report,~~ the Company has worked with the contract manufacturer to ~~assess the damage,~~ resume production, maintain standards of product quality, and replenish inventories destroyed by the fire. ~~Additionally, beginning last year, the~~The Company has also been working to ramp up an additional contract manufacturer to further mitigate risk, diversify the supply chain, and expand production capacity. ~~We expect this additional contract manufacturer to commence production later in the year. As a result of the fire, the~~

Company recorded $47,794,000 in gross losses in 2022, including $44,903,000 in the second quarter and $2,891,000 in the third quarter. Gross losses related to $37,643,000 of Cognex-owned inventories, $8,184,000 of primarily prepayments related to Cognex-designated components that were owned by the contract manufacturer, and $1,967,000 related to deleveraging of costs related to our distribution centers.

Based on the provisions of the Company's insurance policies, the gross losses have been reduced by the estimated insurance proceeds expected to be received from the Company’s insurance carrier. The Company has determined that partial recovery of the incurred losses is probable and therefore recorded an insurance recovery of $27,500,000 inIn the second quarter of ~~2022. Gross~~2022, the Company recorded a net loss related to the fire of $17,403,000, consisting primarily of losses ~~net~~from inventories and other assets of $44,903,000, partially offset by an estimated insurance recovery ~~total $2,891,000 and $20,294,000 for~~of $27,500,000. In the ~~three-month and nine-month periods ended October 2, 2022, respectively, and are presented in~~second quarter of 2023, the ~~caption “Loss from fire” on the Consolidated Statements of Operations. Subsequent~~Company recorded a recovery related to the ~~October 2, 2022 balance sheet date, but prior to the date~~fire of ~~financial statement issuance, the Company~~$2,500,000 for proceeds received ~~insurance proceeds of $27,560,000~~ from the Company's insurance ~~carrier. In the fourth quarter of 2022, the loss from fire will be reduced by the proceeds received~~carrier in ~~excess of the original estimated insurance recovery recorded of $27,500,000.~~relation to a business interruption claim.

As of ~~October~~July 2, ~~2022~~2023 and through the date of financial statement issuance, management cannot yet estimate additional recoveries that could be available from the contract manufacturer. Any future, additional recoveries in excess of recognized losses will be treated as gain contingencies and will be recognized when the gain is realized or realizable. There can be no assurance, however, that ~~the~~additional insurance coverage and/or recoveries from the contract manufacturer will be available to cover the ~~losses~~net loss from the fire.

Non-operating Income (Expense)

The following table sets forth our non-operating income (expense) (in thousands) for the three-month and six-month periods ended July 2, 2023 and July 3, 2022 with the dollar and percentage changes between the corresponding periods.


	Three-months Ended								Six-months Ended
	July 2, 2023		July 3, 2022		$ Change		% Change		July 2, 2023		July 3, 2022		$ Change		% Change
	(unaudited)								(unaudited)
Foreign currency gain (loss)	$	(1,605)	$	(2,043)	$	438	(21)	%	$	(1,211)	$	(2,487)	$	1,276	(51)	%
Investment income	$	4,095	$	1,505	$	2,590	172	%	$	7,682	$	2,973	$	4,709	158	%
Other income (expense)	$	112	$	(188)	$	300	(160)	%	$	185	$	(236)	$	421	(178)	%
Total non-operating income (expense)	$	2,602	$	(726)	$	3,328	(458)	%	$	6,656	$	250	$	6,406	2,562	%

The Company recorded foreign currency losses of ~~$1,880,000~~$1,605,000 and ~~$4,367,000~~$1,211,000 for the three-month and ~~nine-month~~six-month periods in 2023, respectively, and $2,043,000 and $2,487,000 for the three-month and six-month periods in 2022, ~~respectively, compared to foreign currency losses of $586,000 and $2,233,000 for the same periods in 2021.~~respectively. Foreign currency gains and losses result primarily from the revaluation and settlement of assets and liabilities that are denominated in currencies other than the functional currency of the Company, which is the U.S. Dollar, or its subsidiaries.

Investment income ~~decreased $332,000, or 19%,~~ for the three-month ~~period~~ and ~~$636,000, or 13%, for the nine-month period, compared to the same~~six-month periods in ~~2021.~~2023 was $4,095,000 and $7,682,000, respectively, representing increases of $2,590,000 and $4,709,000, respectively, from the prior comparable periods in 2022. The ~~decrease for the three-month period was~~increases were primarily due ~~primarily~~ to ~~lower investment balances, partially offset by~~ higher yields on the Company's portfolio of debt ~~securities. The decrease in the nine-month period was due~~securities, and to ~~lower~~a lesser extent, higher investment ~~balances and lower yields on the Company's portfolio of debt securities year-to-date.~~balances.

The Company recorded other ~~expense~~income of ~~$214,000~~$112,000 and ~~$450,000~~$185,000 for the three-month and ~~nine-month~~six-month periods in 2023, respectively, compared to other expense of $188,000 and $236,000 for the three-month and six-month periods in 2022, respectively.

Income Tax Expense

The following table sets forth our effective income tax rate reconciliation (in thousands) for the three-month and six-month periods ended July 2, 2023 and July 3, 2022 with the dollar and percentage changes between the corresponding periods.


	Three-months Ended										Six-months Ended
	July 2, 2023			July 3, 2022			$ Change		% Change		July 2, 2023			July 3, 2022			$ Change		% Change
	(unaudited)										(unaudited)
Income before income tax expense	$	67,777		$	64,415		$	3,362	5	%	$	93,992		$	152,119		$	(58,127)	(38)	%
Income tax expense	$	10,303		$	5,514		$	4,789	87	%	$	10,903		$	25,885		$	(14,982)	(58)	%
Effective income tax rate	15		%	9		%					12		%	17		%

The Company’s effective tax rate was 15% and 12% for the three-month and six-month periods ended July 2, 2023, respectively, ~~compared to $125,000~~ and ~~$420,000~~9% and 17% for the same periods in ~~2021.~~

~~Income Tax Expense (Benefit)~~2022, respectively.

The ~~Company's~~increase in the effective tax rate ~~was 14% and 16%~~from 9% to 15% for the three-month ~~and nine-month periods ended October 2, 2022, respectively, and 11% and 13%~~period primarily resulted from the impact of discrete tax items. Compared to a net discrete tax expense recorded for the three-month ~~and nine-month periods ended October 3, 2021, respectively.~~period in 2023, the Company recorded a net discrete tax benefit for the three-month period in 2022 primarily driven by audit settlements which decreased income tax expense.

The decrease in the effective tax rate from 17% to 12% for the six-month period primarily resulted from the impact of discrete tax items. The Company recorded a net discrete tax benefit ~~totaling $930,000~~for the six-month period in 2023 due primarily to the release of tax reserves on state tax credits, foreign audit settlements, and adjustments to certain deferred tax assets. The Company recorded a net discrete tax expense ~~totaling $616,000~~ for the ~~three-month and nine-month periods ended October 2,~~six-month period in 2022 ~~respectively, and net discrete tax benefits totaling $6,262,000 and $12,365,000 for the same periods in 2021.~~

Discrete tax items for the three-month and nine-month periods ended October 2, 2022 included (1) a decrease in tax expense during the three-month and nine-month periods ended October 2, 2022 of $928,000 and $3,368,000, respectively, arising from the impact of the loss from fire recorded (refer to Note 17), (2)primarily driven by an increase in ~~tax expense of $1,417,000 arising from an Internal Revenue Service (IRS) audit recorded during the three-month period ended April 3, 2022,~~valuation allowance as well as transfer pricing and return-to-provision adjustments which ~~was~~were partially offset by a decrease in tax expense ~~of $2,519,000 related to releases of reserves for income taxes due to the closure of this Internal Revenue Service (IRS)~~from audit during the three-month period ended July 3, 2022, (3) an increase in tax expense of $1,734,000 to establish a full valuation allowance against deferred tax assets related to foreign tax credits during the three-month period ended April 3, 2022, (4) an increase in tax expense of $883,000 and $4,236,000 during the three-month and nine-month periods ended October 2, 2022, respectively, primarily consisting of transfer pricing and return-to-provision adjustments, and (5) a decrease in tax expense of $884,000 during both the three-month and nine-month periods ended October 2, 2022 related to the release of tax reserves due to closed periods.

recognized for financial reporting purposes from stock option exercises. This impact was not material for the three-month and nine-month periods ended October 2, 2022. The remaining discrete tax benefits for the three-month and nine-month periods ended October 3, 2021 of $3,012,000 and $2,477,000, respectively, consisted of primarily return-to-provision adjustments and the release of tax reserves.

Excluding the impact of these discrete items, the Company’s effective tax rate was 16% for both the three-month and nine-month periods ended October 2, 2022, and 18% for both the three-month and nine-month periods ended October 3, 2021. The decrease in the effective tax rate for the three-month and nine-month periods ended October 2, 2022 and October 3, 2021 was due to more of the Company's profits being earned and taxed in lower tax jurisdictions, as well as lower state taxes.

The Inflation Reduction Act ("IRA") was enacted into law on August 16, 2022. Included in the IRA was a provision to implement a 15% corporate alternative minimum tax on “adjusted financial statement income” for applicable corporations and a 1% excise tax on repurchases of stock. These provisions are effective for tax years beginning after December 31, 2022. We are in the process of evaluating the provisions of the IRA, but we do not currently believe the IRA will have a material impact on our reported results, cash flows, approach to stock repurchases, or financial position when it becomes effective.settlements.

Liquidity and Capital Resources

The Company has historically been able to generate positive cash flow from operations, which has funded its operating activities and other cash requirements and has resulted in an accumulated cash and investment balance of ~~$817,632,000~~$832,453,000 as of ~~October~~July 2, ~~2022.~~2023. The Company has established guidelines relative to credit ratings, diversification, and maturities of its investments ~~that~~to maintain ~~liquidity.~~the liquidity and safety of the investment portfolio.

As of July 2, 2023, the Company's portfolio of debt securities was in a net unrealized loss position of $21,823,000. The ~~Company’s~~Company currently does not intend to sell debt securities in an unrealized loss position to meet current liquidity needs as it has the ability and intention to hold these investments until full value recovery at maturity. However, if the Company is required to sell these debt securities to meet future liquidity needs, for example, to acquire new businesses or technologies, it is prepared to sell these investments at a loss.


	Six-months Ended
	July 2, 2023		July 3, 2022		$ Change		% Change
	(unaudited)
Net cash provided by (used in) operating activities	$	57,402	$	93,629	$	(36,227)	(39)	%
Net cash provided by (used in) investing activities	$	11,494	$	75,597	$	(64,103)	(85)	%
Net cash provided by (used in) financing activities	$	(70,668)	$	(172,476)	$	101,808	(59)	%

Operating activities

Net cash ~~requirements for~~provided by operating activities decreased by $36,227,000 during the ~~nine-month~~six-month period ended 2023 as compared to the same period in ~~2022 were~~2022. This decrease was driven by a decline in net income of $43,145,000 resulting primarily ~~met with positive cash flows~~ from ~~operations, as well as the sale and maturity of investments.~~lower revenue year-over-year. Cash ~~requirements consisted of operating activities, the repurchase of common stock, the payment of dividends, and capital expenditures. Cash flows~~outlays from operating activities ~~included~~in both the ~~purchase~~six-month periods ended July 2, 2023 and July 3, 2022 consisted of ~~inventories intended~~incentive compensation payments that were earned and accrued in 2022 and 2021, respectively.

Investing activities

Net cash provided by investing activities decreased by $64,103,000 during the six-month period ended 2023 as compared to ~~support higher~~the same period in 2022. This decrease was driven by a $48,849,000 decline in cash provided by the maturities and sales of investments and a $16,300,000 increase in cash used in the purchases of investments. Capital expenditures for the six-month period in 2023 totaled $10,207,000 and consisted primarily of continued investments in business levels, secure key strategic components to meet customer demand, and carry higher stocking levels to mitigate the Company's exposure to demand changes or supply disruptions. It is expected that paymentssystems related to the Company's outstanding inventory purchase orders, which total $81,565,000 as of October 2, 2022 (refer to Note 10), will result in significant cash outflows for inventories through the remainder of the year and thereafter. This is due in part to the Company's efforts to replenish inventories destroyed by the fire on June 7, 2022 at the Company's primary contract manufacturer.

~~Capital expenditures for the nine-month period in 2022 totaled $15,605,000 and consisted primarily of computer hardware and software,~~sales process, manufacturing test equipment related to new product introductions, and leasehold improvements related to one of the Company's offices in Shanghai, China.

Financing activities

Net cash used in financing activities decreased by $101,808,000 during the six-month period ended 2023 as compared to the same period in 2022. This decrease was driven by a ~~new distribution center~~$105,154,000 decline in ~~Southborough, Massachusetts. During the first quarter of 2022, the Company placed into service new business systems related~~cash used to its sales process. The Company expects to continue to make investments in its business systems intended to improve productivity or provide competitive advantages, although these investments are not expected to be material over the long term.repurchase common stock.

The Company’s Board of Directors declared and paid cash dividends of ~~$0.065~~$0.070 per share for the first ~~second~~ and ~~third~~second quarters of ~~2022,~~2023, totaling ~~$33,837,000.~~$24,160,000. Future dividends will be declared at the discretion of the Company's Board of Directors and will depend on such factors as the Board deems relevant, including, among other things, the Company's ability to generate positive cash flow from operations.

Future Cash Requirements

The Company's future material cash requirements include contractual obligations related to inventory purchase commitments and leases. As of July 2, 2023, the Company ~~believes~~had inventory purchase commitments of $40,388,000, with the majority payable during 2023, and lease payment obligations of $116,253,000, with $4,863,000 payable during 2023. During 2023, we also expect significant cash outlays related to the Company's "Emerging Customer" sales initiative as we continue to grow our sales force in order to reach customers who may not be utilizing machine vision to its full potential.

We believe that ~~its~~the Company's existing cash and investment balances, together with cash flow from operations, will be sufficient to meet its operating, investing, and financing activities for the next twelve months. In addition, the Company has no long-term debt. We believe that our ~~strong cash position~~balance sheet condition has put us in a ~~relatively good~~strong position with respect to anticipated longer-term liquidity needs.

New Pronouncements

Refer to Part I - Note 2 within this Form 10-Q, for a full description of recently issued accounting pronouncements including the expected dates of adoption and the expected impact on the financial position and results of operations of the Company.

ITEM 3: QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

There have been no material changes to the Company’s exposures to market risk since December 31, ~~2021.~~2022.

ITEM 4: CONTROLS AND PROCEDURES

As required by Rules 13a-15 and 15d-15 of the Securities Exchange Act of 1934, the Company has evaluated, with the participation of management, including the Chief Executive Officer and the Chief Financial Officer, the effectiveness of its disclosure controls and procedures (as defined in such rules) as of the end of the period covered by this report. Based on such evaluation, the Chief Executive Officer and Chief Financial Officer concluded that such disclosure controls and procedures were effective as of that date. From time to time, the Company reviews its disclosure controls and procedures, and may from time to time make changes aimed at enhancing their effectiveness and to ensure that the Company’s systems evolve with its business.

There was no change in the Company's internal control over financial reporting that occurred during the quarter ended ~~October~~July 2, ~~2022~~2023 that materially affected, or is reasonably likely to materially affect, the Company's internal control over financial reporting.

PART II: OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

ITEM 1A. RISK FACTORS

For a list of factors that could affect the Company’s business, results of operations, and financial condition, see the risk factors discussion provided in Part I—Item 1A of the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, ~~2021. The following information updates, and should be read in conjunction with, Part I - Item 1A of the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 2021.~~2022.

Our primary contract manufacturer experienced a fire at its plant in Indonesia at which Cognex products are manufactured and inventory is stored, which has had, and may continue to have, a negative impact on our business and results of operations.

On June 7, 2022, our primary contract manufacturer experienced a fire at its plant in Indonesia. The fire destroyed a significant amount of Cognex-owned consigned inventories as well as component inventories owned by the contract manufacturer that were designated for Cognex products. Since the date of the fire and continuing through the date of this report, we have worked with the contract manufacturer to assess the damage, resume production, and replenish inventories destroyed by the fire. We also have been working to ramp up an additional contract manufacturer to further mitigate risk, diversify supply chain, and expand production capacity. We expect this additional contract manufacturer to commence production later in the year, although no assurances can be made in this regard.

Our inability to manufacture and deliver quality product in a timely manner to our customers as a result of the fire could result in delayed shipments, loss of sales and/or customer dissatisfaction, any of which could adversely impact our business, financial condition or results of operations. Delays in customer orders also would result in delayed revenue recognition which could impact our operating results in a particular quarter. We cannot predict the extent to which orders may be delayed or sales may be lost. In addition, our efforts to replenish the inventory lost in the fire may include purchases at higher-than-normal prices to increase speed to production, which would put pressure on our operating margins. We also can provide no assurance that insurance coverage and/or recoveries from the contract manufacturer will be available to cover our losses from the fire. Our assessment of the impact of the fire on our business remains ongoing as of the date of this report and, as a result, we cannot predict the full extent of the impact that the fire may have on our business, results of operations and financial condition.

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

The following table sets forth information with respect to purchases by the Company of shares of its common stock during the three-month period ended ~~October~~July 2, ~~2022:~~2023:

Total
Number
of Shares
Purchased Average
Price Paid
per Share Total Number of
Shares
Purchased as
Part of Publicly
Announced
Plans or
Programs (1) Approximate
Dollar Value
of Shares that
May Yet Be
Purchased
Under the
Plans or
Programs (1)
July 4, 2022 - July 31, 2022 — $ — — $ 462,683,000
August 1, 2022 - August 28, 2022 211,000 46.75 211,000 452,827,000
August 29, 2022 - October 2, 2022 329,000 43.20 329,000 438,613,000
Total 540,000 $ 44.58 540,000 $ 438,613,000


	Total Number of Shares Purchased	Average Price Paid per Share		Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs (1)	Approximate Dollar Value of Shares that May Yet Be Purchased Under the Plans or Programs (1)
April 3, 2023 - April 30, 2023	158,000	$	48.51	158,000	$	380,851,000
May 1, 2023 - May 28, 2023	161,000	50.06		161,000	372,792,000
May 29, 2023 - July 2, 2023	168,000	55.13		168,000	363,523,000
Total	487,000	$	51.31	487,000	$	363,523,000

(1) On March 3, 2022, the Company's Board of Directors authorized the repurchase of an additional $500,000,000 of the Company's common stock. Purchases under this program commenced in March 2022. 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.

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

None.

ITEM 4. MINE SAFETY DISCLOSURES

Not applicable.

ITEM 5. OTHER INFORMATION

~~None.~~

During the three-month period ended July 2, 2023, none of the Company’s directors or officers (as defined in Rule 16a-1(f) of the Securities Exchange Act of 1934) adopted, terminated or modified a Rule 10b5-1 trading arrangement or non-Rule 10b5-1 trading arrangement (as such terms are defined in Item 408 of Regulation S-K).

3332

ITEM 6. EXHIBITS


Exhibit Number
10.1						Cognex Corporation 2023 Stock Option and Incentive Plan (incorporated herein by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K, as filed with the SEC on May 4, 2023)
10.2						Form of Non-Qualified Stock Option Agreement under the Cognex Corporation 2023 Stock Option and Incentive Plan (incorporated herein by reference to Exhibit 10.2 to the Company’s Current Report on Form 8-K, as filed with the SEC on May 4, 2023)
10.3						Form of Restricted Stock Unit Award Agreement under the Cognex Corporation 2023 Stock Option and Incentive Plan (incorporated herein by reference to Exhibit 10.3 to the Company’s Current Report on Form 8-K, as filed with the SEC on May 4, 2023)
10.4						Form of Performance Restricted Stock Unit Award Agreement under the Cognex Corporation 2023 Stock Option and Incentive Plan (incorporated herein by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K, as filed with the SEC on May 4, 2023)
31.1						Certification of Principal Executive Officer pursuant to Rule 13a-14(a)/15d-14(a) under the Securities Exchange Act of 1934*
31.2						Certification of Principal Financial Officer pursuant to Rule 13a-14(a)/15d-14(a) under the Securities Exchange Act of 1934*
32.1						Certification of Principal Executive Officer pursuant to 18 U.S.C. 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002**
32.2						Certification of Principal Financial Officer pursuant to 18 U.S.C. 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002**
101.SCH						Inline XBRL Taxonomy Extension Schema Document*
101.CAL						Inline XBRL Taxonomy Extension Calculation Linkbase Document*
101.LAB						Inline XBRL Taxonomy Extension Label Linkbase Document*
101.PRE						Inline XBRL Taxonomy Extension Presentation Linkbase Document*
101.DEF						Inline XBRL Taxonomy Extension Definition Linkbase Document*
104						Cover Page Interactive Data File (formatted as Inline XBRL with applicable taxonomy extension information contained in Exhibits 101.*)
*						Filed herewith
**						Furnished herewith

3433

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

Date:

~~November~~August 3, ~~2022~~2023

COGNEX CORPORATION

By:

/s/ Robert J. Willett

Robert J. Willett

President and Chief Executive Officer

(Principal Executive Officer)

By:

/s/ Paul D. Todgham

Paul D. Todgham

Senior Vice President of Finance and Chief Financial Officer

(Principal Financial Officer)

3534


	Shares (in thousands)	Weighted-Average Grant Date Fair Value
Nonvested as of December 31, 2021	823	$	65.26
Granted	691	58.44
Vested	(141)	65.33
Forfeited or expired	(61)	65.18
Nonvested as of October 2, 2022	1,312	$	61.67


	Three-month period		Nine-month period
RD&E expenses in 2021	$	34,476	$	99,883
Personnel-related costs	2,535		6,117
Stock-based compensation expense	1,282		2,776
Incentive compensation	(2,620)		(3,997)
Foreign currency exchange rate changes	(1,905)		(4,063)
Other	186		3,283
RD&E expenses in 2022	$	33,954	$	103,999


	Three-month period		Nine-month period
SG&A expenses in 2021	$	77,113	$	226,380
Personnel-related costs	5,977		19,814
Stock-based compensation expense	1,708		5,574
Travel expenses	1,675		4,631
Sales demonstration equipment	(429)		637
Incentive compensation	(6,977)		(16,041)
Foreign currency exchange rate changes	(4,275)		(9,512)
Other	579		4,673
SG&A expenses in 2022	$	75,371	$	236,156