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 2, 20221, 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.
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).
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).
As of October 2, 2022,1, 2023, there were 172,930,176172,142,092 shares of Common Stock, $.002 par value per share, of the registrant outstanding.
INDEX
| | | | | | | | |
PART I | FINANCIAL INFORMATION | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
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 | | Nine-months Ended |
| | October 2, 2022 | | October 3, 2021 | | October 2, 2022 | | October 3, 2021 | | | October 1, 2023 | | October 2, 2022 | | October 1, 2023 | | October 2, 2022 |
| | (unaudited) | | (unaudited) | | | (unaudited) | | (unaudited) |
Revenue | Revenue | $ | 209,622 | | | $ | 284,848 | | | $ | 766,657 | | | $ | 793,033 | | | Revenue | $ | 197,241 | | | $ | 209,622 | | | $ | 640,877 | | | $ | 766,657 | |
Cost of revenue | Cost of revenue | 57,383 | | | 85,712 | | | 214,316 | | | 208,189 | | | Cost of revenue | 54,467 | | | 57,383 | | | 174,680 | | | 214,316 | |
Gross margin | Gross margin | 152,239 | | | 199,136 | | | 552,341 | | | 584,844 | | | Gross margin | 142,774 | | | 152,239 | | | 466,197 | | | 552,341 | |
Research, development, and engineering expenses | Research, development, and engineering expenses | 33,954 | | | 34,476 | | | 103,999 | | | 99,883 | | | Research, development, and engineering expenses | 32,580 | | | 33,954 | | | 104,707 | | | 103,999 | |
Selling, general, and administrative expenses | Selling, general, and administrative expenses | 75,371 | | | 77,113 | | | 236,156 | | | 226,380 | | | Selling, general, and administrative expenses | 82,307 | | | 75,371 | | | 248,767 | | | 236,156 | |
Loss from fire (Note 17) | 2,891 | | | — | | | 20,294 | | | — | | | |
Loss (recovery) from fire (Note 17) | | Loss (recovery) from fire (Note 17) | (2,750) | | | 2,891 | | | (5,250) | | | 20,294 | |
Operating income | Operating income | 40,023 | | | 87,547 | | | 191,892 | | | 258,581 | | | Operating income | 30,637 | | | 40,023 | | | 117,973 | | | 191,892 | |
Foreign currency gain (loss) | Foreign currency gain (loss) | (1,880) | | | (586) | | | (4,367) | | | (2,233) | | | Foreign currency gain (loss) | (8,699) | | | (1,880) | | | (9,910) | | | (4,367) | |
Investment income | Investment income | 1,416 | | | 1,748 | | | 4,389 | | | 5,025 | | | Investment income | 4,891 | | | 1,416 | | | 12,573 | | | 4,389 | |
Other income (expense) | Other income (expense) | (214) | | | (125) | | | (450) | | | (420) | | | Other income (expense) | 173 | | | (214) | | | 358 | | | (450) | |
Income before income tax expense | Income before income tax expense | 39,345 | | | 88,584 | | | 191,464 | | | 260,953 | | | Income before income tax expense | 27,002 | | | 39,345 | | | 120,994 | | | 191,464 | |
Income tax expense | Income tax expense | 5,365 | | | 9,684 | | | 31,250 | | | 34,607 | | | Income tax expense | 8,086 | | | 5,365 | | | 18,989 | | | 31,250 | |
Net income | Net income | $ | 33,980 | | | $ | 78,900 | | | $ | 160,214 | | | $ | 226,346 | | | Net income | $ | 18,916 | | | $ | 33,980 | | | $ | 102,005 | | | $ | 160,214 | |
| 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 | $ | 0.11 | | | $ | 0.20 | | | $ | 0.59 | | | $ | 0.92 | |
Diluted | Diluted | $ | 0.19 | | | $ | 0.44 | | | $ | 0.91 | | | $ | 1.26 | | | Diluted | $ | 0.11 | | | $ | 0.19 | | | $ | 0.59 | | | $ | 0.91 | |
| 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 | 172,169 | | | 173,256 | | | 172,408 | | | 173,640 | |
Diluted | Diluted | 174,327 | | | 180,342 | | | 175,233 | | | 180,109 | | | Diluted | 173,354 | | | 174,327 | | | 173,659 | | | 175,233 | |
| 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 | | | $ | 0.210 | | | $ | 0.195 | |
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 | | Nine-months Ended |
| | October 2, 2022 | | October 3, 2021 | | October 2, 2022 | | October 3, 2021 | | October 1, 2023 | | October 2, 2022 | | October 1, 2023 | | October 2, 2022 |
| | (unaudited) | | (unaudited) | | (unaudited) | | (unaudited) |
Net income | Net income | $ | 33,980 | | | $ | 78,900 | | | $ | 160,214 | | | $ | 226,346 | | Net income | $ | 18,916 | | | $ | 33,980 | | | $ | 102,005 | | | $ | 160,214 | |
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 $707 and $(1,564) in the three-month periods, and net of tax of $1,981 and $(6,298) in the nine-month periods, respectively | | Net unrealized gain (loss), net of tax of $707 and $(1,564) in the three-month periods, and net of tax of $1,981 and $(6,298) in the nine-month periods, respectively | 738 | | | (5,315) | | | 4,458 | | | (21,185) | |
| 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 | 624 | | | 79 | | | 624 | | | 103 | |
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 | 1,362 | | | (5,236) | | | 5,082 | | | (21,082) | |
| 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 | (2,603) | | | (7,352) | | | (5,828) | | | (13,425) | |
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 | (2,603) | | | (7,352) | | | (5,828) | | | (13,425) | |
| 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 | (1,241) | | | (12,588) | | | (746) | | | (34,507) | |
Total comprehensive income | Total comprehensive income | $ | 21,392 | | | $ | 76,224 | | | $ | 125,707 | | | $ | 218,399 | | Total comprehensive income | $ | 17,675 | | | $ | 21,392 | | | $ | 101,259 | | | $ | 125,707 | |
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 | | October 1, 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 | $ | 395,501 | | | $ | 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 $120,831 and $223,545 in 2023 and 2022, respectively, allowance for credit losses of $0 in 2023 and 2022 | | Current investments, amortized cost of $120,831 and $223,545 in 2023 and 2022, respectively, allowance for credit losses of $0 in 2023 and 2022 | 117,147 | | | 218,759 | |
Accounts receivable, allowance for credit losses of $580 and $730 in 2023 and 2022, respectively | | Accounts receivable, allowance for credit losses of $580 and $730 in 2023 and 2022, respectively | 130,542 | | | 125,417 | |
Unbilled revenue | Unbilled revenue | 2,142 | | | 3,990 | | Unbilled revenue | 1,588 | | | 2,179 | |
Inventories | Inventories | 108,553 | | | 113,102 | | Inventories | 133,866 | | | 122,480 | |
Prepaid expenses and other current assets | Prepaid expenses and other current assets | 106,046 | | | 68,742 | | Prepaid expenses and other current assets | 68,347 | | | 67,490 | |
Total current assets | Total current assets | 787,467 | | | 639,798 | | Total current assets | 846,991 | | | 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 $349,060 and $476,148 in 2023 and 2022, respectively, allowance for credit losses of $0 in 2023 and 2022 | | Non-current investments, amortized cost of $349,060 and $476,148 in 2023 and 2022, respectively, allowance for credit losses of $0 in 2023 and 2022 | 332,991 | | | 454,117 | |
Property, plant, and equipment, net | Property, plant, and equipment, net | 79,425 | | | 77,546 | | Property, plant, and equipment, net | 82,965 | | | 79,714 | |
Operating lease assets | Operating lease assets | 31,514 | | | 23,157 | | Operating lease assets | 66,760 | | | 37,682 | |
Goodwill | Goodwill | 237,509 | | | 241,713 | | Goodwill | 241,042 | | | 242,630 | |
Intangible assets, net | Intangible assets, net | 9,420 | | | 11,888 | | Intangible assets, net | 9,986 | | | 12,414 | |
Deferred income taxes | Deferred income taxes | 405,136 | | | 418,570 | | Deferred income taxes | 403,013 | | | 407,241 | |
Other assets | Other assets | 6,567 | | | 7,242 | | Other assets | 6,151 | | | 6,643 | |
Total assets | Total assets | $ | 1,900,236 | | | $ | 2,003,662 | | Total assets | $ | 1,989,899 | | | $ | 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 | $ | 23,053 | | | $ | 27,103 | |
Accrued expenses | Accrued expenses | 64,115 | | | 92,432 | | Accrued expenses | 79,121 | | | 93,235 | |
Accrued income taxes | Accrued income taxes | 12,055 | | | 8,577 | | Accrued income taxes | 19,302 | | | 18,129 | |
Deferred revenue and customer deposits | Deferred revenue and customer deposits | 54,777 | | | 35,743 | | Deferred revenue and customer deposits | 40,246 | | | 40,787 | |
Operating lease liabilities | Operating lease liabilities | 8,111 | | | 7,786 | | Operating lease liabilities | 7,982 | | | 8,454 | |
Total current liabilities | Total current liabilities | 161,278 | | | 188,589 | | Total current liabilities | 169,704 | | | 187,708 | |
Non-current operating lease liabilities | Non-current operating lease liabilities | 25,260 | | | 17,795 | | Non-current operating lease liabilities | 60,450 | | | 31,298 | |
Deferred income taxes | Deferred income taxes | 259,950 | | | 293,769 | | Deferred income taxes | 233,360 | | | 249,961 | |
Reserve for income taxes | Reserve for income taxes | 12,204 | | | 14,780 | | Reserve for income taxes | 19,450 | | | 15,866 | |
Non-current accrued income taxes | Non-current accrued income taxes | 33,008 | | | 43,160 | | Non-current accrued income taxes | 18,337 | | | 33,008 | |
Other liabilities | Other liabilities | 19,316 | | | 15,476 | | Other liabilities | — | | | 1,905 | |
Total liabilities | Total liabilities | 511,016 | | | 573,569 | | Total liabilities | 501,301 | | | 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: 172,142 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: 172,142 and 172,631 shares in 2023 and 2022, respectively | 344 | | | 345 | |
Additional paid-in capital | Additional paid-in capital | 960,446 | | | 914,802 | | Additional paid-in capital | 1,023,960 | | | 979,167 | |
Retained earnings | Retained earnings | 510,877 | | | 562,882 | | Retained earnings | 534,337 | | | 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 | (70,043) | | | (69,297) | |
Total shareholders’ equity | Total shareholders’ equity | 1,389,220 | | | 1,430,093 | | Total shareholders’ equity | 1,488,598 | | | 1,438,394 | |
Total liabilities and shareholders' equity | Total liabilities and shareholders' equity | $ | 1,900,236 | | | $ | 2,003,662 | | Total liabilities and shareholders' equity | $ | 1,989,899 | | | $ | 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 |
| October 2, 2022 | | October 3, 2021 |
| (unaudited) |
Cash flows from operating activities: | | | |
Net income | $ | 160,214 | | | $ | 226,346 | |
Adjustments to reconcile net income to net cash provided by operating activities: | | | |
Stock-based compensation expense | 41,419 | | | 33,353 | |
Depreciation of property, plant, and equipment | 12,176 | | | 12,641 | |
Loss on disposal of property, plant, and equipment | 12 | | | 4 | |
Amortization of intangible assets | 2,468 | | | 2,773 | |
Excess and obsolete inventory charges | 2,728 | | | 2,120 | |
Non-cash impact of write-offs related to fire (Note 17) | 45,827 | | | — | |
Amortization of discounts or premiums on investments | 3,976 | | | 3,316 | |
Realized loss (gain) on sale of investments | 103 | | | (87) | |
| | | |
| | | |
Change in deferred income taxes | (14,799) | | | 1,411 | |
Change in operating assets and liabilities: | | | |
Accounts receivable | 31,018 | | | (4,295) | |
Unbilled revenue | 1,760 | | | (1,689) | |
Inventories | (35,815) | | | (22,534) | |
| | | |
Prepaid expenses and other current assets | (46,817) | | | (24,607) | |
Accounts payable | (21,577) | | | 10,576 | |
Accrued expenses | (23,813) | | | 4,416 | |
Accrued income taxes | (6,644) | | | (4,936) | |
Deferred revenue and customer deposits | 20,882 | | | 16,751 | |
Other | 4,031 | | | 3,297 | |
Net cash provided by operating activities | 177,149 | | | 258,856 | |
Cash flows from investing activities: | | | |
Purchases of investments | (77,760) | | | (607,458) | |
Maturities and sales of investments | 215,876 | | | 317,174 | |
Purchases of property, plant, and equipment | (15,605) | | | (10,689) | |
| | | |
| | | |
| | | |
Net cash provided by (used in) investing activities | 122,511 | | | (300,973) | |
Cash flows from financing activities: | | | |
Net payments from issuance of common stock under stock plans | 4,225 | | | 59,101 | |
Repurchase of common stock | (178,387) | | | (48,294) | |
Payment of dividends | (33,837) | | | (31,800) | |
| | | |
Net cash provided by (used in) financing activities | (207,999) | | | (20,993) | |
Effect of foreign exchange rate changes on cash and cash equivalents | (11,818) | | | (2,484) | |
Net change in cash and cash equivalents | 79,843 | | | (65,594) | |
Cash and cash equivalents at beginning of period | 186,161 | | | 269,073 | |
Cash and cash equivalents at end of period | $ | 266,004 | | | $ | 203,479 | |
| | | | | | | | | | | |
| Nine-months Ended |
| October 1, 2023 | | October 2, 2022 |
| (unaudited) |
Cash flows from operating activities: | | | |
Net income | $ | 102,005 | | | $ | 160,214 | |
Adjustments to reconcile net income to net cash provided by (used in) operating activities: | | | |
Stock-based compensation expense | 41,518 | | | 41,419 | |
Depreciation of property, plant, and equipment | 12,557 | | | 12,176 | |
(Gain) loss on disposal of property, plant, and equipment | (2) | | | 12 | |
Amortization of intangible assets | 2,428 | | | 2,468 | |
Excess and obsolete inventory charges | 1,703 | | | 2,728 | |
Non-cash impact of write-offs related to fire (Note 17) | — | | | 45,827 | |
Amortization of discounts or premiums on investments | 1,347 | | | 3,976 | |
Realized (gain) loss on sale of investments | 624 | | | 103 | |
| | | |
| | | |
Change in deferred income taxes | (14,691) | | | (14,799) | |
Change in operating assets and liabilities: | | | |
Accounts receivable | (6,488) | | | 31,018 | |
Unbilled revenue | 534 | | | 1,760 | |
Inventories | (12,954) | | | (35,815) | |
| | | |
Prepaid expenses and other current assets | (2,007) | | | (46,817) | |
Accounts payable | (3,986) | | | (21,577) | |
Accrued expenses | (13,214) | | | (23,813) | |
Accrued income taxes | (13,513) | | | (6,644) | |
Deferred revenue and customer deposits | (151) | | | 20,882 | |
Other | 2,715 | | | 4,031 | |
Net cash provided by (used in) operating activities | 98,425 | | | 177,149 | |
Cash flows from investing activities: | | | |
Purchases of investments | (174,330) | | | (77,760) | |
Maturities and sales of investments | 402,160 | | | 215,876 | |
Purchases of property, plant, and equipment | (16,062) | | | (15,605) | |
| | | |
| | | |
| | | |
Net cash provided by (used in) investing activities | 211,768 | | | 122,511 | |
Cash flows from financing activities: | | | |
Net payments from issuance of common stock under stock plans | 3,276 | | | 4,225 | |
Repurchase of common stock | (59,640) | | | (178,387) | |
Payment of dividends | (36,209) | | | (33,837) | |
| | | |
Net cash provided by (used in) financing activities | (92,573) | | | (207,999) | |
Effect of foreign exchange rate changes on cash and cash equivalents | (3,493) | | | (11,818) | |
Net change in cash and cash equivalents | 214,127 | | | 79,843 | |
Cash and cash equivalents at beginning of period | 181,374 | | | 186,161 | |
Cash and cash equivalents at end of period | $ | 395,501 | | | $ | 266,004 | |
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 July 2, 2023 | | Balance as of July 2, 2023 | 172,293 | | | $ | 345 | | | $ | 1,010,973 | | | $ | 537,947 | | | $ | (68,802) | | | $ | 1,480,463 | |
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 | 40 | | | — | | | 622 | | | — | | | — | | | 622 | |
Repurchase of common stock | Repurchase of common stock | (323) | | | — | | | — | | | (27,417) | | | — | | | (27,417) | | Repurchase of common stock | (191) | | | (1) | | | — | | | (10,477) | | | — | | | (10,478) | |
Stock-based compensation expense | Stock-based compensation expense | — | | | — | | | 10,614 | | | — | | | — | | | 10,614 | | Stock-based compensation expense | — | | | — | | | 12,365 | | | — | | | — | | | 12,365 | |
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) | — | | | — | | | — | | | (12,049) | | | — | | | (12,049) | |
Net income | Net income | — | | | — | | | — | | | 78,900 | | | — | | | 78,900 | | Net income | — | | | — | | | — | | | 18,916 | | | — | | | 18,916 | |
Net unrealized gain (loss) on available-for-sale investments, net of tax of $(162) | — | | | — | | | — | | | — | | | (521) | | | (521) | | |
| Net unrealized gain (loss) on available-for-sale investments, net of tax of $707 | | Net unrealized gain (loss) on available-for-sale investments, net of tax of $707 | — | | | — | | | — | | | — | | | 738 | | | 738 | |
| 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 | — | | | — | | | — | | | — | | | (19) | | | (19) | | Reclassification of net realized (gain) loss on the sale of available-for-sale investments | — | | | — | | | — | | | — | | | 624 | | | 624 | |
Foreign currency translation adjustment | Foreign currency translation adjustment | — | | | — | | | — | | | — | | | (2,136) | | | (2,136) | | Foreign currency translation adjustment | — | | | — | | | — | | | — | | | (2,603) | | | (2,603) | |
Balance as of October 3, 2021 (unaudited) | 176,799 | | | $ | 354 | | | $ | 900,190 | | | $ | 634,165 | | | $ | (41,748) | | | $ | 1,492,961 | | |
| Balance as of October 1, 2023 (unaudited) | | Balance as of October 1, 2023 (unaudited) | 172,142 | | | $ | 344 | | | $ | 1,023,960 | | | $ | 534,337 | | | $ | (70,043) | | | $ | 1,488,598 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| 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 | |
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 | 668 | | | 1 | | | 3,275 | | | — | | | — | | | 3,276 | |
Repurchase of common stock | Repurchase of common stock | (2,807) | | | (5) | | | — | | | (178,382) | | | — | | | (178,387) | | Repurchase of common stock | (1,157) | | | (2) | | | — | | | (59,638) | | | — | | | (59,640) | |
Stock-based compensation expense | Stock-based compensation expense | — | | | — | | | 41,419 | | | — | | | — | | | 41,419 | | Stock-based compensation expense | — | | | — | | | 41,518 | | | — | | | — | | | 41,518 | |
Payment of dividends ($0.195 per common share) | — | | | — | | | — | | | (33,837) | | | — | | | (33,837) | | |
Payment of dividends ($0.210 per common share) | | Payment of dividends ($0.210 per common share) | — | | | — | | | — | | | (36,209) | | | — | | | (36,209) | |
Net income | Net income | — | | | — | | | — | | | 160,214 | | | — | | | 160,214 | | Net income | — | | | — | | | — | | | 102,005 | | | — | | | 102,005 | |
| 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 $1,981 | | Net unrealized gain (loss) on available-for-sale investments, net of tax of $1,981 | — | | | — | | | — | | | — | | | 4,458 | | | 4,458 | |
| 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 | — | | | — | | | — | | | — | | | 103 | | | 103 | | Reclassification of net realized (gain) loss on the sale of available-for-sale investments | — | | | — | | | — | | | — | | | 624 | | | 624 | |
Foreign currency translation adjustment | Foreign currency translation adjustment | — | | | — | | | — | | | — | | | (13,425) | | | (13,425) | | Foreign currency translation adjustment | — | | | — | | | — | | | — | | | (5,828) | | | (5,828) | |
Balance as of October 2, 2022 (unaudited) | 172,930 | | | $ | 346 | | | $ | 960,446 | | | $ | 510,877 | | | $ | (82,449) | | | $ | 1,389,220 | | |
Balance as of October 1, 2023 (unaudited) | | Balance as of October 1, 2023 (unaudited) | 172,142 | | | $ | 344 | | | $ | 1,023,960 | | | $ | 534,337 | | | $ | (70,043) | | | $ | 1,488,598 | |
| | | 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 | 256 | | | — | | | 4,225 | | | — | | | — | | | 4,225 | |
Repurchase of common stock | Repurchase of common stock | (581) | | | (1) | | | — | | | (48,293) | | | — | | | (48,294) | | Repurchase of common stock | (2,807) | | | (5) | | | — | | | (178,382) | | | — | | | (178,387) | |
Stock-based compensation expense | Stock-based compensation expense | — | | | — | | | 33,353 | | | — | | | — | | | 33,353 | | Stock-based compensation expense | — | | | — | | | 41,419 | | | — | | | — | | | 41,419 | |
Payment of dividends ($0.180 per common share) | — | | | — | | | — | | | (31,800) | | | — | | | (31,800) | | |
Payment of dividends ($0.195 per common share) | | Payment of dividends ($0.195 per common share) | — | | | — | | | — | | | (33,837) | | | — | | | (33,837) | |
Net income | Net income | — | | | — | | | — | | | 226,346 | | | — | | | 226,346 | | Net income | — | | | — | | | — | | | 160,214 | | | — | | | 160,214 | |
| 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 $(6,298) | | Net unrealized gain (loss) on available-for-sale investments, net of tax of $(6,298) | — | | | — | | | — | | | — | | | (21,185) | | | (21,185) | |
| 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 | — | | | — | | | — | | | — | | | 103 | | | 103 | |
Foreign currency translation adjustment | Foreign currency translation adjustment | — | | | — | | | — | | | — | | | (5,243) | | | (5,243) | | Foreign currency translation adjustment | — | | | — | | | — | | | — | | | (13,425) | | | (13,425) | |
Balance as of October 3, 2021 (unaudited) | 176,799 | | | $ | 354 | | | $ | 900,190 | | | $ | 634,165 | | | $ | (41,748) | | | $ | 1,492,961 | | |
Balance as of October 2, 2022 (unaudited) | | Balance as of October 2, 2022 (unaudited) | 172,930 | | | $ | 346 | | | $ | 960,446 | | | $ | 510,877 | | | $ | (82,449) | | | $ | 1,389,220 | |
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, 20212022 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 2, 2022,1, 2023, and the results of its operations for the three-month and nine-month periods ended October 2, 20221, 2023 and October 3, 2021,2, 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 periods ended October 2, 20221, 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 doesadopted 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 2, 20221, 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 | $ | 504241,716 | | | $ | — | | | $ | — | |
Corporate bonds | — | | | 455,220349,405 | | | — | |
Treasury bills | — | | | 61,742 | | | — | |
Asset-backed securities | — | | | 56,508 | | | — | |
Treasury bills | — | | | 21,59137,051 | | | — | |
| | | | | |
Agency bonds | — | | | 15,759 | | |
| | | — | | |
Sovereign bonds | — | | | 1,9301,940 | | | — | |
Municipal bonds | — | | | 620 | | | — | |
| | | | | |
| | | | | |
| | | | | |
| | | | | |
| | | | | |
Economic hedge forward contracts | — | | | 835196 | | | — | |
Liabilities: | | | | | |
| | | | | |
Economic hedge forward contracts | — | | | 442128 | | | — | |
| | | | | |
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 periods ended October 2, 20221, 2023 or October 3, 2021.2, 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 | | October 1, 2023 | | December 31, 2022 |
Cash | Cash | $ | 265,500 | | | $ | 185,624 | | Cash | $ | 153,785 | | | $ | 180,959 | |
| Money market instruments | Money market instruments | 504 | | | 537 | | Money market instruments | 241,716 | | | 415 | |
| Cash and cash equivalents | Cash and cash equivalents | 266,004 | | | 186,161 | | Cash and cash equivalents | 395,501 | | | 181,374 | |
Corporate bonds | Corporate bonds | 151,014 | | | 73,088 | | Corporate bonds | 110,627 | | | 164,055 | |
Asset-backed securities | Asset-backed securities | 28,119 | | | 37,655 | | Asset-backed securities | 3,084 | | | 26,890 | |
Agency bonds | 15,759 | | | 2,802 | | |
Treasury bills | 12,918 | | | 18,912 | | |
Municipal bonds | 620 | | | 4,998 | | |
| Current investments | 208,430 | | | 137,455 | | |
Corporate bonds | 304,206 | | | 481,218 | | |
Asset-backed securities | 28,389 | | | 43,940 | | |
Treasury bills | Treasury bills | 8,673 | | | 39,753 | | Treasury bills | 2,457 | | | 11,332 | |
Sovereign bonds | Sovereign bonds | 1,930 | | | 2,119 | | Sovereign bonds | 979 | | | — | |
Agency bonds | Agency bonds | — | | | 16,077 | | Agency bonds | — | | | 15,858 | |
Municipal bonds | Municipal bonds | — | | | 641 | | Municipal bonds | — | | | 624 | |
| | Current investments | | Current investments | 117,147 | | | 218,759 | |
Corporate bonds | | Corporate bonds | 238,778 | | | 374,440 | |
Treasury bills | | Treasury bills | 59,285 | | | 44,214 | |
Asset-backed securities | | Asset-backed securities | 33,967 | | | 33,539 | |
| Sovereign bonds | | Sovereign bonds | 961 | | | 1,924 | |
| Non-current investments | Non-current investments | 343,198 | | | 583,748 | | Non-current investments | 332,991 | | | 454,117 | |
| | $ | 817,632 | | | $ | 907,364 | | | $ | 845,639 | | | $ | 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; treasury bills consist of debt securities issued by the U.S. government; sovereign bonds consist of direct debt issued by foreign governments; 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;and municipal bonds consist of debt securities issued by state and local government entities; and sovereign bonds consist of direct debt issued by foreign governments.entities. All of the Company's securities as of October 2, 20221, 2023 and December 31, 20212022 were denominated in U.S. Dollars.
Accrued interest receivable is recorded in "Prepaid expenses and other current assets" on the Consolidated Balance SheetSheets and amounted to $3,011,000$4,094,000 and $3,037,000$3,620,000 as of October 2, 20221, 2023 and December 31, 2021,2022, respectively.
The following table summarizes the Company’s available-for-sale investments as of October 1, 2023 (in thousands):
| | | | | | | | | | | | | | | | | | | | | | | |
| Amortized Cost | | Gross Unrealized Gains | | Gross Unrealized Losses | | Fair Value |
Current: | | | | | | | |
Corporate bonds | $ | 114,188 | | | $ | — | | | $ | (3,561) | | | $ | 110,627 | |
Asset-backed securities | 3,128 | | | — | | | (44) | | | 3,084 | |
| | | | | | | |
Treasury bills | 2,498 | | | — | | | (41) | | | 2,457 | |
Sovereign bonds | 1,017 | | | — | | | (38) | | | 979 | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
Non-current: | | | | | | | |
Corporate bonds | 251,635 | | | 9 | | | (12,866) | | | 238,778 | |
Treasury bills | 60,871 | | | — | | | (1,586) | | | 59,285 | |
Asset-backed securities | 35,512 | | | — | | | (1,545) | | | 33,967 | |
| | | | | | | |
| | | | | | | |
Sovereign bonds | 1,042 | | | — | | | (81) | | | 961 | |
| | | | | | | |
| $ | 469,891 | | | $ | 9 | | | $ | (19,762) | | | $ | 450,138 | |
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 2, 20221, 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 | $ | 103,100 | | | $ | (2,900) | | | $ | 244,535 | | | $ | (13,527) | | | $ | 347,635 | | | $ | (16,427) | |
| Treasury bills | | Treasury bills | 56,878 | | | (1,492) | | | 4,864 | | | (135) | | | 61,742 | | | (1,627) | |
Asset-backed securities | Asset-backed securities | 56,125 | | | (2,455) | | | 383 | | | (28) | | | 56,508 | | | (2,483) | | Asset-backed securities | 32,425 | | | (1,465) | | | 4,626 | | | (124) | | | 37,051 | | | (1,589) | |
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 | — | | | — | | | 1,940 | | | (119) | | | 1,940 | | | (119) | |
Municipal bonds | 620 | | | (15) | | | — | | | — | | | 620 | | | (15) | | |
| | | $ | 484,517 | | | $ | (26,789) | | | $ | 65,048 | | | $ | (4,496) | | | $ | 549,565 | | | $ | (31,285) | | |
| | | $ | 192,403 | | | $ | (5,857) | | | $ | 255,965 | | | $ | (13,905) | | | $ | 448,368 | | | $ | (19,762) | |
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 2, 20221, 2023 or December 31, 2021.2022. There was no activity recorded in the allowance for credit losses during the three-month or nine-month periods ended October 2, 20221, 2023 or October 3, 2021.2, 2022.
The Company recorded nofollowing table summarizes the Company's 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 realized losses on the sale of debt securities totaling $79,000 and $236,000 for the three-month and nine-month periods ended October 2, 2022, respectively. The Company recorded gross realized gains on the sale of debt securities totaling $19,000 and $87,000 for the three-month and nine-month periods ended October 3, 2021, respectively, and no gross realized losses on the sale of debt securities for the three-month and nine-month periods ended October 3, 2021. 1, 2023 and October 2, 2022 (in thousands):
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three-months Ended | | Nine-months Ended |
| | October 1, 2023 | | October 2, 2022 | | October 1, 2023 | | October 2, 2022 |
Gross realized gains | | $ | 109 | | | $ | — | | | $ | 109 | | | $ | 133 | |
Gross realized losses | | (733) | | | (79) | | | (733) | | | (236) | |
Net realized gains (losses) | | $ | (624) | | | $ | (79) | | | $ | (624) | | | $ | (103) | |
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 2, 20221, 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 | $ | 110,627 | | | $ | 95,497 | | | $ | 65,409 | | | $ | 34,878 | | | $ | 42,539 | | | $ | 455 | | | $ | 349,405 | |
Treasury bills | | Treasury bills | 2,457 | | | 5,306 | | | 15,016 | | | 21,842 | | | 17,121 | | | — | | | 61,742 | |
Asset-backed securities | Asset-backed securities | 28,119 | | | 16,384 | | | 3,202 | | | 8,803 | | | — | | | | 56,508 | | Asset-backed securities | 3,084 | | | 12,722 | | | 10,584 | | | 3,978 | | | — | | | 6,683 | | | 37,051 | |
Treasury bills | 12,918 | | | 6,265 | | | 2,408 | | | — | | | — | | | | 21,591 | | |
| Agency bonds | 15,759 | | | — | | | — | | | — | | | — | | | | 15,759 | | |
Sovereign bonds | — | | | 970 | | | — | | | 960 | | | — | | | | 1,930 | | |
Municipal bonds | 620 | | | — | | | — | | | — | | | — | | | | 620 | | |
| | | $ | 208,430 | | | $ | 180,883 | | | $ | 110,448 | | | $ | 51,867 | | | $ | — | | | | $ | 551,628 | | |
| Sovereign bonds | | Sovereign bonds | 979 | | | — | | | 961 | | | — | | | — | | | — | | | 1,940 | |
| | | | $ | 117,147 | | | $ | 113,525 | | | $ | 91,970 | | | $ | 60,698 | | | $ | 59,660 | | | $ | 7,138 | | | $ | 450,138 | |
COGNEX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
NOTE 5: Inventories
Inventories consisted of the following (in thousands):
| | | | | | | | | | | |
| October 2, 2022 | | December 31, 2021 |
Raw materials | $ | 55,801 | | | $ | 50,452 | |
Work-in-process | 1,182 | | | 5,293 | |
Finished goods | 51,570 | | | 57,357 | |
| $ | 108,553 | | | $ | 113,102 | |
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. | | | | | | | | | | | |
| October 1, 2023 | | December 31, 2022 |
Raw materials | $ | 80,091 | | | $ | 71,720 | |
Work-in-process | 1,712 | | | 906 | |
Finished goods | 52,063 | | | 49,854 | |
| $ | 133,866 | | | $ | 122,480 | |
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 2, 2022,1, 2023, there were twono options to terminate and sixtwenty-nine 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 2, 2022.1, 2023.
The total operating lease expense for the three-month and nine-month periods ended October 1, 2023 was $5,512,000 and $8,151,000, respectively. The total operating lease cash payments for the three-month and nine-month periods ended October 1, 2023 were $5,168,000 and $7,532,000, 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 periods ended October 1, 2023 was $132,000 and $292,000, respectively.
The total operating lease expense for the three-month and nine-month periods ended October 2, 2022 werewas $2,255,000 and $6,699,000, respectively. The total operating lease cash payments for the three-month and nine-month periods ended October 2, 2022 were $2,161,000 and $6,467,000, 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 periods ended October 2, 2022 was $35,000 and $110,000, respectively.
The total operating lease expense for the three-month and nine-month periods ended October 3, 2021 were $2,068,000 and $6,091,000, respectively. The total operating lease cash payments for the three-month and nine-month periods ended October 3, 2021 were $2,079,000 and $6,154,000, 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 periods ended October 3, 2021 was $36,000 and $114,000, 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 | | $ | 2,510 | |
2024 | 2024 | | 5,794 | | 2024 | | 11,580 | |
2025 | 2025 | | 3,837 | | 2025 | | 9,677 | |
2026 | 2026 | | 2,656 | | 2026 | | 7,799 | |
2027 | 2027 | | 2,590 | | 2027 | | 7,231 | |
2028 | | 2028 | | 6,992 | |
Thereafter | Thereafter | | 10,808 | | Thereafter | | 46,421 | |
| | $ | 36,441 | | | $ | 92,210 | |
The discounted present value of the future lease cash payments resulted in a total lease liability of $33,371,000$68,432,000 and $25,581,000$39,752,000 as of October 2, 20221, 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 2, 2022.1, 2023.
COGNEX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
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 $29,639,000, 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 October 1, 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.
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%5.4% and 3.4%3.3% for the leases outstanding as of October 2, 20221, 2023 and December 31, 2021,2022, respectively. The weighted-average remaining lease term was 6.710.8 and 5.17.8 years for the leases outstanding as of October 2, 20221, 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, 20212022 | | $ | 241,713242,630 | |
Foreign exchange rate changes | | (4,204)(1,588) | |
Balance as of October 2, 20221, 2023 | | $ | 237,509241,042 | |
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 | | | $ | (19,590) | | | $ | 8,427 | |
Customer relationships | Customer relationships | 10,578 | | | 8,420 | | | 2,158 | | Customer relationships | 5,838 | | | (4,400) | | | 1,438 | |
Non-compete agreements | Non-compete agreements | 710 | | | 533 | | | 177 | | Non-compete agreements | 340 | | | (219) | | | 121 | |
Trademarks | 110 | | | 110 | | | — | | |
Balance as of October 2, 2022 | $ | 73,675 | | | $ | 64,255 | | | $ | 9,420 | | |
| Balance as of October 1, 2023 | | Balance as of October 1, 2023 | $ | 34,195 | | | $ | (24,209) | | | $ | 9,986 | |
| | | 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 | |
COGNEX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
As of October 2, 2022,1, 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 | | $ | 709 | |
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 | | | $ | 9,986 | |
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, 20212022 | $ | 5,4274,375 | |
Provisions for warranties issued during the period | 1,7331,722 | |
Fulfillment of warranty obligations | (2,170)(2,292) | |
| |
Balance as of October 2, 20221, 2023 | $ | 4,9903,805 | |
COGNEX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
NOTE 10: Commitments and Contingencies
As of October 2, 2022,1, 2023, the Company had outstanding purchase orders totaling $81,565,000$70,635,000 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 2, 2022,1, 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 thisthe 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.
COGNEX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
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.
Additionally, during the three-month period ended October 1, 2023, the Company entered into a foreign currency forward contract to exchange U.S. Dollars for ¥40,000,000,000 to hedge the Japanese Yen purchase price of the acquisition of Moritex Corporation (refer to Note 19 of the consolidated financial statements). Upon the settlement of this contract, the Company recorded a foreign currency loss of $8,456,000, which was recorded in "Foreign currency gain (loss)" on the Consolidated Statements of Operations for the three-month period ended October 1, 2023.
The Company had the following outstanding forward contracts (in thousands):
| | | October 2, 2022 | | December 31, 2021 | | October 1, 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: | | | | |
Japanese Yen | | Japanese Yen | 40,600,000 | | | $ | 272,499 | | | 700,000 | | | $ | 5,281 | |
Euro | Euro | 70,000 | | | $ | 68,290 | | | 65,000 | | | $ | 73,748 | | Euro | 37,500 | | | 39,741 | | | 60,000 | | | 64,174 | |
Singapore Dollar | | Singapore Dollar | 40,500 | | | 29,747 | | | — | | | — | |
Chinese Renminbi | Chinese Renminbi | 175,000 | | | 25,352 | | | 54,374 | | | 8,500 | | Chinese Renminbi | 200,000 | | | 27,445 | | | 55,000 | | | 7,619 | |
Mexican Peso | Mexican Peso | 185,000 | | | 9,155 | | | 140,000 | | | 6,842 | | Mexican Peso | 100,000 | | | 5,722 | | | 185,000 | | | 9,480 | |
Japanese Yen | 600,000 | | | 4,159 | | | 600,000 | | | 5,213 | | |
Hungarian Forint | | Hungarian Forint | 1,930,000 | | | 5,221 | | | 1,590,000 | | | 4,238 | |
British Pound | British Pound | 3,135 | | | 3,481 | | | 3,370 | | | 4,552 | | British Pound | 3,230 | | | 3,956 | | | 3,445 | | | 4,161 | |
Hungarian Forint | 1,280,000 | | | 2,948 | | | 1,355,000 | | | 4,155 | | |
| Canadian Dollar | Canadian Dollar | — | | | — | | | 1,480 | | | 1,167 | | Canadian Dollar | 1,650 | | | 1,225 | | | 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 | | October 1, 2023 | | December 31, 2022 | | Sheet Location | | October 1, 2023 | | December 31, 2022 |
| | Derivatives Not Designated as Hedging Instruments: | Derivatives Not Designated as Hedging Instruments: | | | | | | | Derivatives Not Designated as Hedging Instruments: | | | | | | |
Economic hedge forward contracts | Economic hedge forward contracts | Prepaid expenses and other current assets | | $ | 835 | | | $ | 39 | | | Accrued expenses | | $ | 442 | | | $ | 230 | | Economic hedge forward contracts | Prepaid expenses and other current assets | | $ | 196 | | | $ | 27 | | | Accrued expenses | | $ | 128 | | | $ | 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 | | October 1, 2023 | | December 31, 2022 | | | October 1, 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 | | $ | 196 | | | $ | 27 | | | Gross amounts of recognized liabilities | | $ | 128 | | | $ | 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 | | $ | 196 | | | $ | 27 | | | Net amount of liabilities presented | | $ | 128 | | | $ | 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 | | Nine-months Ended |
| | | October 2, 2022 | | October 3, 2021 | | October 2, 2022 | | October 3, 2021 | | | October 1, 2023 | | October 2, 2022 | | October 1, 2023 | | October 2, 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) | | $ | (7,527) | | | $ | 7,161 | | | $ | (8,139) | | | $ | 15,091 | |
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 | | Nine-months Ended |
| | October 2, 2022 | | October 3, 2021 | | October 2, 2022 | | October 3, 2021 | | October 1, 2023 | | October 2, 2022 | | October 1, 2023 | | October 2, 2022 |
Americas | Americas | | $ | 65,847 | | | $ | 113,758 | | | $ | 284,057 | | | $ | 330,012 | | Americas | | $ | 80,156 | | | $ | 65,847 | | | $ | 243,067 | | | $ | 284,057 | |
Europe | Europe | | 48,930 | | | 65,146 | | | 173,561 | | | 182,161 | | Europe | | 51,827 | | | 48,930 | | | 168,529 | | | 173,561 | |
Greater China | Greater China | | 66,460 | | | 65,813 | | | 193,481 | | | 163,757 | | Greater China | | 34,485 | | | 66,460 | | | 139,837 | | | 193,481 | |
Other Asia | Other Asia | | 28,385 | | | 40,131 | | | 115,558 | | | 117,103 | | Other Asia | | 30,773 | | | 28,385 | | | 89,444 | | | 115,558 | |
| | $ | 209,622 | | | $ | 284,848 | | | $ | 766,657 | | | $ | 793,033 | | | $ | 197,241 | | | $ | 209,622 | | | $ | 640,877 | | | $ | 766,657 | |
The following table summarizes disaggregated revenue information by revenue type (in thousands):
| | | Three-months Ended | | Nine-months Ended | | Three-months Ended | | Nine-months Ended |
| | October 2, 2022 | | October 3, 2021 | | October 2, 2022 | | October 3, 2021 | | October 1, 2023 | | October 2, 2022 | | October 1, 2023 | | October 2, 2022 |
Standard products and services | Standard products and services | | $ | 158,244 | | | $ | 212,567 | | | $ | 637,598 | | | $ | 669,215 | | Standard products and services | | $ | 170,104 | | | $ | 158,244 | | | $ | 555,831 | | | $ | 637,598 | |
Application-specific customer solutions | Application-specific customer solutions | | 51,378 | | | 72,281 | | | 129,059 | | | 123,818 | | Application-specific customer solutions | | 27,137 | | | 51,378 | | | 85,046 | | | 129,059 | |
| | $ | 209,622 | | | $ | 284,848 | | | $ | 766,657 | | | $ | 793,033 | | | $ | 197,241 | | | $ | 209,622 | | | $ | 640,877 | | | $ | 766,657 | |
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$17,827,000 and $10,854,000$14,578,000 as of October 2, 20221, 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 period ended October 2, 20221, 2023 (in thousands):
| | | | | |
Balance as of December 31, 20212022 | $ | 776730 | |
Increases to the allowance for credit losses | 350 | |
Write-offs, net of recoveries | (36)(500) | |
Foreign exchange rate changes | 1— | |
Balance as of October 2, 20221, 2023 | $ | 741580 | |
COGNEX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
The following table summarizes the deferred revenue and customer deposits activity for the nine-month period ended October 2, 20221, 2023 (in thousands):
| | | | | |
Balance as of December 31, 20212022 | $ | 35,74340,787 | |
Deferral of revenue billed in the current period, net of recognition | 51,29728,249 | |
Recognition of revenue deferred in prior period | (29,351)(18,809) | |
Returned customer deposit | (9,205) | |
Foreign exchange rate changes | (2,912)(776) | |
Balance as of October 2, 20221, 2023 | $ | 54,77740,246 | |
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 2, 2022,1, 2023, forfeits, cancellations, and other terminations from the 2001 Plan and the 2007 Plan have resulted in 214,024 Carryover Shares, raising the authorized total shares that may be issued under the 2023 Plan to 8,314,024.
As of October 1, 2023, the Company had 13,748,0008,035,000 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 period ended October 2, 2022:1, 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 | 1,395 | | | 47.49 | | | | | |
Exercised | (325) | | | 33.87 | | | | | |
Forfeited or expired | (562) | | | 57.71 | | | | | |
Outstanding as of October 1, 2023 | 8,975 | | | $ | 51.19 | | | 6.13 | | $ | 17,396 | |
Exercisable as of October 1, 2023 | 5,182 | | | $ | 47.67 | | | 4.67 | | $ | 17,378 | |
Options vested or expected to vest as of October 1, 2023 (1) | 8,493 | | | $ | 51.01 | | | 5.98 | | $ | 17,396 | |
(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 | | Nine-months Ended |
| | October 2, 2022 | | October 3, 2021 | | October 2, 2022 | | October 3, 2021 | | October 1, 2023 | | October 2, 2022 | | October 1, 2023 | | October 2, 2022 |
Risk-free rate | Risk-free rate | 2.7 | % | | 1.4 | % | | 2.1 | % | | 1.3 | % | Risk-free rate | 4.1 | % | | 2.7 | % | | 4.0 | % | | 2.1 | % |
Expected dividend yield | Expected dividend yield | 0.54 | % | | 0.28 | % | | 0.44 | % | | 0.27 | % | Expected dividend yield | 0.57 | % | | 0.54 | % | | 0.59 | % | | 0.44 | % |
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 | | 6.4 | | 4.9 | | 5.5 |
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 periods ended October 2, 20221, 2023 were $18.81$20.55 and $21.40,$18.11, respectively, and during the three-month and nine-month periods ended October 3, 20212, 2022 were $35.64$18.81 and $33.78,$21.40, respectively.
The total intrinsic values of stock options exercised for the three-month and nine-month periods ended October 2, 20221, 2023 were $516,000$557,000 and $3,615,000,$6,119,000, respectively, and for the three-month and nine-month periods ended
COGNEX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
October 3, 20212, 2022 were $21,415,000$516,000 and $75,363,000,$3,615,000, respectively. The total fair values of stock options vested for the three-month and nine-month periods ended October 2, 20221, 2023 were $1,159,000$962,000 and $27,882,000,$33,035,000, respectively, and for the three-month and nine-month periods ended October 3, 20212, 2022 were $1,498,000$1,159,000 and $38,928,000,$27,882,000, respectively.
Restricted Stock Units (RSUs)
The following table summarizes the Company's RSUs activity for the nine-month period ended October 2, 2022:1, 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 | 748 | | | 46.78 | |
Vested | (500) | | | 59.43 | |
Forfeited or expired | (86) | | | 60.65 | |
Nonvested as of October 1, 2023 | 1,431 | | | $ | 54.79 | |
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 periods ended October 2, 20221, 2023 were $47.12$46.17 and $58.44,$46.78, respectively, and during the three-month and nine-month periods ended October 3, 20212, 2022 were $86.34$47.12 and $87.38,$58.44, respectively. There were 67,00018,000 and 141,000500,000 RSUs that vested during the three-month and nine-month periods ended October 2, 2022,1, 2023, respectively, and 067,000 and 15,000141,000 that vested during the three-month and nine-month periods ended October 3, 2021,2, 2022, respectively.
Performance Restricted Stock Units (PRSUs)
The following table summarizes the Company's PRSUs activity for the nine-month period ended October 2, 2022:1, 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 October 1, 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 no PRSUs granted during the three-month periods ended October 1, 2023 and October 2, 2022. There were 46,000 and 33,000 PRSUs granted during the nine-month periods ended October 1, 2023 and October 2, 2022, respectively. No PRSUs vested during the three-month and nine-month periods ended October 1, 2023 and October 2, 2022.
Stock-Based Compensation Expense
The Company stratifies its employee population into twothree 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 2, 2022,1, 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,$68,509,000, which is expected to be recognized over a weighted-average period of 1.62.0 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 1, 2023 were $12,365,000 and $1,971,000, respectively, and for the nine-month period ended October 1, 2023 were $41,518,000 and $6,053,000, respectively. The total stock-based compensation expense and the related income tax benefit recognized for the three-month period ended October 2, 2022 were $13,366,000 and $2,133,000, respectively, and for the nine-month period ended October 2, 2022 were $41,419,000 and $6,496,000, respectively. The total stock-based compensation expense and the related income tax benefit recognized for the three-month period ended October 3, 2021 were $10,614,000 and $1,637,000, respectively, and for the nine-month period ended October 3, 2021 were $33,353,000 and $5,101,000, respectively. No compensation expense was capitalized as of October 2, 20221, 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 | | Nine-months Ended |
| October 1, 2023 | | October 2, 2022 | | October 1, 2023 | | October 2, 2022 |
Cost of revenue | $ | 435 | | | $ | 468 | | | $ | 1,497 | | | $ | 1,513 | |
Research, development, and engineering | 3,459 | | | 4,209 | | | 12,657 | | | 12,508 | |
Selling, general, and administrative | 8,471 | | | 8,689 | | | 27,364 | | | 27,398 | |
| $ | 12,365 | | | $ | 13,366 | | | $ | 41,518 | | | $ | 41,419 | |
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 2,737,0001,677,000 shares, at a cost of $200,000,000 under this program, including 1,677,000and an additional 5,000 shares that were repurchased in 2021 and settled in 2022, at a cost of $117,000,000 during the first quarter ofnine-month period ended October 2, 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. DuringUnder this March 2022 program, the Company repurchased 1,125,000 shares at a total cost of $61,387,000 during the nine-month period ended October 2, 2022. Under this same March 2022 program, in addition to repurchases made in the prior year, the Company repurchased 1,125,0001,157,000 shares and an additional 5,000 shares that were repurchased in 2021 and settled in 2022, at a total cost of $61,387,000 under this additional authorization,$59,640,000 during the nine-month period ended October 1, 2023, leaving a remaining balance of $438,613,000$353,046,000 as of October 2, 2022.1, 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 30% and 16% for the three-month and nine-month periods ended October 1, 2023, respectively, and 14% and 16% for the three-month and nine-month periods ended October 2, 2022, respectively, and 11% and 13% for the three-month and nine-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.
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 lowernet decrease to the effective tax rate for both the three-month and nine-month periods ended October 1, 2023 and October 2, 2022.
The Company recorded a net discrete tax expense totaling $4,035,000 and $840,000 for the three-month and nine-month periods ended October 2, 2022 as compared to1, 2023, respectively and a net discrete tax benefit totaling $2,000 and a net discrete tax expense totaling $3,984,000 for the same periods in 20212022.
Discrete tax items for the nine-month period ended October 1, 2023 included (1) a net decrease in tax expense of $3,043,000 due primarily to the release of tax reserves on state tax credits and foreign audit settlements; (2) a decrease in tax expense of $2,198,000 for adjustments to certain deferred tax assets; (3) an increase in tax expense of $2,178,000 for an adjustment related to deferred state taxes due to more ofa reduction in the Company's profits being earnedblended state rate; (4) a net increase in tax expense of $2,134,000 for return-to-provision adjustments; and taxed(5) an increase in lower tax jurisdictions. The remainingexpense of $1,769,000 related to stock-based compensation.
Discrete tax items for the nine-month period ended October 2, 2022 included (1) a net increase in tax expense of $3,822,000 primarily for return-to-provision adjustments; (2) a net decrease in the effective tax rate for the three-monthexpense of $2,461,000 arising primarily from audit settlements and nine-month periods was primarily attributablereleases of reserves; (3) an increase in tax expense of $2,316,000 to lower state taxes.
COGNEX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
establish a reserve against certain deferred tax assets; and (4) an increase in tax expense of $307,000 related to stock-based compensation;The Company’s reserve for income taxes, including gross interest and penalties, was $12,772,000$19,450,000 as of October 2, 2022,1, 2023, which included $12,204,000was 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 20202022 remain open to examination by the IRS, and 20172018 through 20202022 remain open to examination by various state tax authorities. The tax years 20162017 through 20212022 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 | | Nine-months Ended |
| October 1, 2023 | | October 2, 2022 | | October 1, 2023 | | October 2, 2022 |
Basic weighted-average common shares outstanding | 172,169 | | | 173,256 | | | 172,408 | | | 173,640 | |
Effect of dilutive equity awards | 1,185 | | | 1,071 | | | 1,251 | | | 1,593 | |
Weighted-average common and common-equivalent shares outstanding | 173,354 | | | 174,327 | | | 173,659 | | | 175,233 | |
| | | | | | | |
| | | | | | | |
Stock options to purchase 6,167,0006,893,000 and 3,297,0006,775,000 shares of common stock, on a weighted-average basis, were outstanding during the three-month and nine-month periods ended October 2, 2022,1, 2023, respectively, and 586,0006,167,000 and 655,0003,297,000 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 607,0003,000 and 26,0001,000 shares of common stock, on a weighted-average basis, were outstanding during the three-month and nine-month periods ended October 2, 2022,1, 2023, respectively, and 1,000607,000 and 26,000 for both the three-month and nine-monthsame periods in 2021, but were not included in the calculation of dilutive net income per share because they were anti-dilutive. PRSUs totaling 33,000 and 0 shares of common stock, on a weighted-average basis, were outstanding during the three-month and nine-month periods ended October 2, 2022, respectively, but were not included in the calculation of dilutive net income per share because they were anti-dilutive. ThereNo PRSUs were no anti-dilutive PRSUs outstanding, on a weighted-average basis, duringexcluded in the calculation of dilutive net income per share for the three-month and nine-month periods ended October 3, 2021.1, 2023, as PRSUs were not anti-dilutive on a weighted-average basis. PRSUs totaling 33,000 shares of common stock, on a weighted average basis, were outstanding during the three-month period ended October 2,
COGNEX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
2022, 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 nine-month period ended October 2, 2022 as PRSUs were not anti-dilutive on a weighted-average basis.
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, theThe 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
During the year. As a result of the fire,nine-month period ended October 2, 2022, the Company recorded a net loss related to the fire of $20,294,000, consisting primarily of losses from inventories and other assets of $47,794,000, in gross losses in 2022, including $44,903,000 during the three-month period ended July 3, 2022 and $2,891,000 during the three-month period ended October 2, 2022. Gross2022, partially offset by an estimated insurance recovery of $27,500,000. These losses related to $37,643,000 of primarily Cognex-owned inventory that was destroyed or deemed to have a net realizable value of zero, $8,184,000 of primarily prepayments related to Cognex-designated components that were owned byare presented in the contract manufacturer, and $1,967,000 related to deleveraging of costs related to our distribution centers.
Basedcaption “Loss (recovery) from fire” on the provisionsConsolidated Statements of Operations. The Company received insurance proceeds of $27,560,000 from the Company's insurance policies,carrier in the fourth quarter of 2022, and gross losses have beenrecorded during 2022 related to the fire were further reduced by the proceeds received in excess of the original estimated insurance recovery.
During the nine-month period ended October 1, 2023, the Company recorded recoveries related to the fire of $5,250,000, consisting of $2,500,000 during the three-month period ended July 2, 2023 for proceeds received from the Company's insurance carrier in relation to a business interruption claim and $2,750,000 during the three-month period ended October 1, 2023 for proceeds received as part of a financial settlement for lost inventory and other losses incurred as a result of the fire. The Company expects to receive an additional $2,750,000 by the end of 2023. These recovery amounts are presented in the caption “Loss (recovery) from fire” on the Consolidated Statements of Operations.
As of October 1, 2023 and through the date of financial statement issuance, management does not anticipate additional recoveries other than disclosed.
NOTE 18: Restructuring Charges
On December 7, 2022, the Company acquired all 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 performed restructuring activities to align the cost and operating structure of the acquired business with the Company's business strategy. As of December 31, 2022, the majority of these restructuring actions were completed. No additional charges were recorded during the three-month and nine-month periods ended October 1, 2023, or are expected to be received fromincurred in future periods in relation to this restructuring plan.
The following table summarizes the activity in the Company’s insurance carrier. The Company has determined that partial recovery ofrestructuring reserve related to these restructuring activities, which is included in “Accrued expenses” on the incurred losses is probable and therefore recorded an insurance recovery of $27,500,000Consolidated Balance Sheets (in thousands):
| | | | | | | | | | | | | | | | | | | | | |
| One-time Termination Benefits | | Contract Termination Costs | | | | Total | | |
Balance as of December 31, 2022 | $ | 964 | | | $ | 75 | | | | | $ | 1,039 | | | |
| | | | | | | | | |
Cash payments | (973) | | | (56) | | | | | (1,029) | | | |
| | | | | | | | | |
| | | | | | | | | |
Foreign exchange rate changes | 9 | | | 1 | | | | | 10 | | | |
Balance as of October 1, 2023 | $ | — | | | $ | 20 | | | | | $ | 20 | | | |
| | | | | | | | | |
| | | | | | | | | |
| | | | | | | | | |
| | | | | | | | | |
| | | | | | | | | |
| | | | | | | | | |
COGNEX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
during the three-month period ended July 3, 2022. The insurance receivable 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 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 Company 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 in excess of the original estimated insurance recovery recorded of $27,500,000.
As of October 2, 2022 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 all the relevant events and circumstances resulting from the fire, management does not believe that the carrying value of the Company exceeds its fair value, or that the carrying amount of the Company’s intangible assets may not be recoverable. As such, no goodwill or intangible asset impairment charges were recorded during 2022 as a result of the fire.
NOTE 18:19: Subsequent Events
On November 3, 2022,October 18, 2023, the Company acquired all of the outstanding shares of Moritex Corporation, a leading global provider of optics components with a strong presence in Japan, for an enterprise value of ¥40 billion, or approximately $270 million based on closing-date foreign exchange rates, in an all-cash transaction. Given the timing of this acquisition, the Company is in the process of completing the purchase price allocation for the consideration paid. Transaction costs incurred to date were not material and were expensed as incurred. The financial results of Moritex Corporation prior to the acquisition date are not material to the consolidated financial results of the Company.
On October 31, 2023, the Company’s Board of Directors declared a cash dividend of $0.07$0.075 per share. The dividend is payable on December 2, 20221, 2023 to all shareholders of record as of the close of business on November 18, 2022.17, 2023.
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 integration and expected impact of the fire at our primary contract manufacturer's warehouse on our assets, business and results of operations and related insurance recoveries,from acquired businesses, including Moritex Corporation, 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;demand which could result in excess or obsolete inventory and resulting charges; (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 inability to keep pace with the rapid rate of technological change and customer demands in the high-technology marketplace, the inability to develop and introduce new products to the market in a successful and timely manner, and 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)businesses, including Moritex Corporation; (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, the Russia-Ukraine war, in Ukraine; and (23)the Israel-Hamas war; (24) exposure to potential liabilities, increased costs, reputational harm, and 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 worldwideglobal provider of machine vision products and solutions that captureimprove efficiency and analyze visual informationquality 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 machineMachine 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 byvision; 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 quarter of 20222023 totaled $209,622,000,$197,241,000, representing a decrease of 26%6% from the third quarter of 2021.2022. The decrease was driven primarily by three primary factors: (i) lower revenue from the logisticsconsumer electronics industry as a result ofdue to weaker demand and the slowingquarterly timing of large customer projects due to a slowdown in capacity expansion for e-commerce fulfillment; (ii) the impact of the fire on June 7, 2022 at our primary contract manufacturer in Indonesia, which destroyed a large amount of component inventory limiting our ability to fulfill certain orders in the quarter; and (iii) the unfavorable impact of foreign currency exchange rate changes on revenue.deployments. Gross margin as a percentage of revenue was 72% for the third quarter of 2023 as compared to 73% for the third quarter of 2022, compared to 70%as the impact of a less favorable revenue mix was partially offset by lower inventory costs.
Operating expenses for the third quarter of 2021 due to a more favorable revenue mix, partially offset by the unfavorable effect of currency exchange rates on revenue.
Operating2023 totaled $112,137,000 and were relatively consistent with operating expenses of $112,216,000 were flat for the third quarter of 2022 over the prior year.2022. On June 7, 2022, our primary third-party contract manufacturer suffered a fire at its Indonesian facilityplant destroying a large portion of the Company's component inventories. Ininventories (refer to Note 17 of the consolidated financial statements). Excluding the impact of losses and recoveries related to the fire, operating expenses for the third quarter the Company recorded a loss of $2,891,000 primarily related to the deleveraging of fixed costs of distribution centers and inventory write-offs for products deemed to have a net realizable value of zero as a result of the fire. Excluding this recorded loss from fire, operating expenses were 2% lower2023 increased 5% from the third quarter of 2021 2022, primarily due primarily to additional headcount and expenses incurred to support our "Emerging Customer" sales initiative, partially offset by lower incentive compensation andexpenses based on the favorable impact of foreign currency exchange rate changes on expenses, partially offset by additional headcount to support our continued growth plansCompany's expected performance against relevant full-year goals and salary increases provided to employees related to merit and promotions.
As a result of the lower revenue level, operatinglevels.
Operating income declineddecreased to 16% of revenue for the third quarter of 2023 as compared to 19% of revenue for the third quarter of 2022 as compared2022. Excluding the impact of losses and recoveries related to 31%the fire, operating income decreased to 14% of revenue for the third quarter of 2021. Operating income, excluding the impact of the recorded loss from fire of $2,891,000, was2023 as compared to 20% of revenue for the third quarter of 2022. Tax expense declined2022, primarily as a result of the lower operating incomerevenue levels and continued investment in the third quarter of 2022 as compared to the third quarter of 2021.our "Emerging Customer" sales initiative. Net income declined to 16%as a percentage of revenue was 10%, or $0.11 per diluted share, for the third quarter of 2022 from 28%2023, and 16% of revenue, or $0.19 per diluted share, for the third quarter of 2021.2022.
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,$12,381,000, or 26%6%, for the three-month period and decreased by $26,376,000,$125,780,000, or 3%16%, for the nine-month period as compared to the same periods in 2021.2022. Changes in foreign currency exchange rates resulted in a lower level of total reported revenue for both the three-month and nine-month periods in 20222023 as compared to 2021.the same periods in 2022. Excluding the impact of foreign currency exchange rate changes, revenue decreased 21%by 5% for the three-month period and was flatdecreased by 14% for the nine-month period as compared to the same periods in 2021.2022.
The largest contributors to the revenue decline over the prior year forFor the three-month and nine-month periods wereperiod, the decrease in revenue was driven primarily by lower revenue from the logisticsconsumer electronics industry as a result ofdue to weaker demand and the slowingquarterly timing of large customer projects,deployments. This decrease was partially offset by increases in revenue from other industries, most notably logistics and automotive. Revenue for the impactthird quarter of 2022 was negatively impacted by the fire at our primary contract manufacturermanufacturer’s plant in Indonesia in June of 2022, which destroyed a large amount of component inventory limiting our ability to fulfill certain orders,orders.
For the nine-month period, the decrease in revenue was due primarily to lower spending trends across our factory automation business, most notably in the consumer electronics and semiconductor industries, and the unfavorablecontinued pause in investments by a few large e-commerce logistics customers. Although this trend in logistics was a primary driver of the overall revenue decrease for the nine-month period, logistics revenue for the three-month period was higher than the prior year comparable quarter due to project timing and the negative impact the fire had on revenue across multiple industries, including logistics, specifically for the third quarter of foreign currency exchange rate2022.
The following table sets forth our disaggregated revenue information by geographic area based upon the customer's country of domicile (in thousands) for the three-month and nine-month periods ended October 1, 2023 and October 2, 2022 with the dollar and percentage changes onbetween the corresponding periods, and the line item as a percentage of total revenue.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three-months Ended | | Nine-months Ended |
| | October 1, 2023 | | October 2, 2022 | | $ Change | | % Change | | October 1, 2023 | | October 2, 2022 | | $ Change | | % Change |
| | (unaudited) | | | | | | (unaudited) | | | | |
Americas | | $ | 80,156 | | | $ | 65,847 | | | $ | 14,309 | | | 22 | % | | $ | 243,067 | | | $ | 284,057 | | | $ | (40,990) | | | (14) | % |
Percentage of total revenue | | 41 | % | | 31 | % | | | | | | 38 | % | | 37 | % | | | | |
Europe | | $ | 51,827 | | | $ | 48,930 | | | $ | 2,897 | | | 6 | % | | $ | 168,529 | | | $ | 173,561 | | | $ | (5,032) | | | (3) | % |
Percentage of total revenue | | 26 | % | | 23 | % | | | | | | 26 | % | | 23 | % | | | | |
Greater China | | $ | 34,485 | | | $ | 66,460 | | | $ | (31,975) | | | (48) | % | | $ | 139,837 | | | $ | 193,481 | | | $ | (53,644) | | | (28) | % |
Percentage of total revenue | | 17 | % | | 32 | % | | | | | | 22 | % | | 25 | % | | | | |
Other Asia | | $ | 30,773 | | | $ | 28,385 | | | $ | 2,388 | | | 8 | % | | $ | 89,444 | | | $ | 115,558 | | | $ | (26,114) | | | (23) | % |
Percentage of total revenue | | 16 | % | | 14 | % | | | | | | 14 | % | | 15 | % | | | | |
Total revenue | | $ | 197,241 | | | $ | 209,622 | | | $ | (12,381) | | | (6) | % | | $ | 640,877 | | | $ | 766,657 | | | $ | (125,780) | | | (16) | % |
Changes in revenue from a geographic perspective were as follows:
•Revenue from customers based in the Americas decreased from the prior yearincreased by 42%22% for the three-month period and decreased by 14% for the nine-month period as compared to the same periods in 2021. The decrease in2022. For the three-month period, the increase was driven primarily by higher revenue from the logistics and automotive industries due to the negative impact that the fire had on revenue for these industries during the three-month andthird quarter of 2022, as well as logistics project timing. For the nine-month periodsperiod, the decrease was primarily driven by lower revenue from customers in the logistics industry, duemainly attributable to the slowing ofcontinued pause in investments by a few large customer projectse-commerce customers.
•Revenue from customers based in Europe increased by 6% for the three-month period and decreased by 3% for the nine-month period as compared to the same periods in 2022. Excluding the impact of foreign currency exchange rate changes, revenue from customers based in Europe remained flat for the June firethree-month period and decreased by 3% for the nine-month period as compared to the same periods in 2022. For the three-month period, the increase in revenue on inventory levels,a U.S. GAAP basis was driven primarily by higher revenue from the automotive industry, partially offset by lower revenue from the consumer electronics industry. For the nine-month period, the decrease in revenue on a U.S. GAAP basis was driven primarily by lower revenue from the logistics and consumer electronics industries, partially offset by increases in revenue from the automotive industry.
•Revenue from customers based in EuropeGreater China decreased by 25%48% for the three-month period and 5%decreased by 28% for the nine-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. Excluding the impact of foreign currency exchange rate changes, revenue from customers based in Europe decreased by 13% for the three-month period, due to a decline in 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 of industries.
•Revenue from customers based in Greater China was flat for the three-month period and increased 18% for the nine-month period 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 41% for the three-month period and 21% for the nine-month period. The increase in the three-month period was leddecreased by strong growth in consumer electronics revenue, partially offset by the impact of the June fire on inventory levels. The increase in revenue22% for the nine-month period came from customers in multiple industries, led by strong growth in consumer electronics.
•Revenue from other countries in Asia decreased by 29% for the three-month period and was flat for the nine-month periodas compared to the same periods in 2021.2022. These decreases in revenue were driven primarily by lower revenue from the consumer electronics industry due to weaker demand, and for the three-month period specifically, the quarterly timing of large customer deployments. Challenging business conditions in China also resulted in broad-based declines in revenue from customers across multiple industries, further contributing to the overall decreases in revenue for the nine-month period.
•Revenue from customers based in other countries in Asia increased by 8% for the three-month period and decreased by 23% for the nine-month period as compared to the same periods in 2022. Excluding the impact of foreign currency exchange rate changes, revenue decreasedfrom customers based in other countries in Asia increased by 20%10% for the three-month period dueand decreased by 18% for the nine-month period as compared to the same periods in 2022. For the three-month period, the increases were driven by higher revenue from the automotive and logistics industries. For the nine-month period, the decreases resulted from broad-based declines in revenue from customers inacross multiple industries, andmost 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 nine-month periods ended October 1, 2023 and October 2, 2022 with the dollar and percentage changes between the corresponding periods, and the line item as a percentage of total revenue.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three-months Ended | | Nine-months Ended |
| | October 1, 2023 | | October 2, 2022 | | $ Change | | % Change | | October 1, 2023 | | October 2, 2022 | | $ Change | | % Change |
| | (unaudited) | | | | | | (unaudited) | | | | |
Gross margin | | $ | 142,774 | | | $ | 152,239 | | | $ | (9,465) | | | (6) | % | | $ | 466,197 | | | $ | 552,341 | | | $ | (86,144) | | | (16) | % |
Percentage of total revenue | | 72 | % | | 73 | % | | | | | | 73 | % | | 72 | % | | | | |
Gross margin as a percentage of revenue was 73%72% and 72%73% for the three-month and nine-month periods in 20222023, respectively, as compared to 70%73% and 74%72% for the same periods in 2022. Gross margin as a percentage of revenue remained relatively flat for these periods, as the impact of a less favorable revenue mix was offset by lower inventory costs. These lower costs were driven by a reduction in premiums paid to brokers for the purchase of components in response to global supply chain constraints and the replenishment of inventory after the fire at our primary contract manufacturer’s plant in Indonesia in June of 2022.
Operating Expenses
The following table sets forth our operating expenses (in thousands) for the three-month and nine-month periods in 2021, respectively. The increase inended October 1, 2023 and October 2, 2022 with the three-month period was due to a more favorable revenue mix, partially offset bydollar and percentage changes between the unfavorable effect of foreign currency exchange rates on revenue. The decrease incorresponding periods, and 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 the date of this report, we currently expect that gross marginline 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 | | Nine-months Ended |
| | October 1, 2023 | | October 2, 2022 | | $ Change | | % Change | | October 1, 2023 | | October 2, 2022 | | $ Change | | % Change |
| | (unaudited) | | | | | | (unaudited) | | | | |
Research, development, and engineering expenses | | $ | 32,580 | | | $ | 33,954 | | | $ | (1,374) | | | (4) | % | | $ | 104,707 | | | $ | 103,999 | | | $ | 708 | | | 1 | % |
Percentage of total revenue | | 17 | % | | 16 | % | | | | | | 16 | % | | 14 | % | | | | |
Selling, general, and administrative expenses | | $ | 82,307 | | | $ | 75,371 | | | $ | 6,936 | | | 9 | % | | $ | 248,767 | | | $ | 236,156 | | | $ | 12,611 | | | 5 | % |
Percentage of total revenue | | 42 | % | | 36 | % | | | | | | 39 | % | | 31 | % | | | | |
Loss (recovery) from fire | | $ | (2,750) | | | $ | 2,891 | | | $ | (5,641) | | | (195) | % | | $ | (5,250) | | | $ | 20,294 | | | $ | (25,544) | | | (126) | % |
Percentage of total revenue | | (1) | % | | 1 | % | | | | | | (1) | % | | 3 | % | | | | |
Total operating expenses | | $ | 112,137 | | | $ | 112,216 | | | $ | (79) | | | — | % | | $ | 348,224 | | | $ | 360,449 | | | $ | (12,225) | | | (3) | % |
Percentage of total revenue | | 57 | % | | 54 | % | | | | | | 54 | % | | 47 | % | | | | |
Research, Development, and Engineering Expenses
Research, development, and engineering (RD&E) expenses decreased by $522,000,$1,374,000, or 2%4%, for the three-month period and increased by $4,116,000,$708,000, or 4%1%, for the nine-month period as compared to the same periods in 2021 as detailed in2022. 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-relatedthree-month and nine-month periods, personnel-related costs increased due toas a result of headcount additions to support new product initiatives and salarycompensation increases provided to employees as part of our annual merit and promotion process. Stock-based compensation expense was
also higher thanprocess, although this increase moderated for the prior year duethree-month period as headcount levels were realigned 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.
lower business levels. These increases were offset by lower incentive compensation expenses thanfor both the prior year. Relevantthree-month and nine-month periods based on the Company's expected 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 bonuses 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 the impact of foreign currency exchange rate changes, as costs denominated in foreign currencies were translated into U.S. Dollars at a lower rate.against relevant full-year goals.
RD&E expenses as a percentage of revenue were 17% and 16% for the three-month and nine-month periods in 2023, respectively, as compared to 16% and 14% for the three-month period and nine-month period, respectively, 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 isgrowth 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 decreasedincreased by $1,742,000,$6,936,000, or 2%9%, for the three-month period and increased $9,776,000,by $12,611,000, or 4%5%, for the nine-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 costs2022. SG&A expenses increased due to costs related to our “Emerging Customer” sales initiative, including 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 nine-month periods, we also had higher personnel-related costs resulting primarily for Sales personnel to support the Company's anticipated revenue growth, and salaryfrom 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-relatedas part of our annual merit process. Transaction costs included sales commissions and travel expenses related to the additional headcount. Stock-based compensation expense was also higher thanacquisition of Moritex Corporation (refer to Note 19 of the prior year due to a higher average economic value 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, expenses also increased due to a higher level of travel activity as restrictions related to COVID-19 continued to ease. Higher spending on sales demonstration equipment tied to new product launches in the first quarter alsoconsolidated financial statements) further contributed to the year-to-date increase.increases to total SG&A expenses.
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 currency exchange rate changes, as costs denominated in foreign currencies were translated into U.S. Dollars at a lower rate.Company's expected performance against relevant full-year goals.
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, theThe 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
In the third quarter of 2022, the Company recorded a loss of $2,891,000 primarily related to commence production later in the year. Asdeleveraging of fixed costs of distribution centers and inventory write-offs for products deemed to have a net realizable value of zero as a result of the fire,fire. In the
third quarter of 2023, 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 lossesa recovery related to $37,643,000the fire of Cognex-owned inventories, $8,184,000$2,750,000 for proceeds received as part of primarily prepayments relateda financial settlement for lost inventory and other losses incurred as a result of the fire. The Company expects to Cognex-designated components that were ownedreceive an additional $2,750,000 by the contract manufacturer, and $1,967,000 related to deleveragingend 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 in the second quarter of 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 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 Company 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 in excess of the original estimated insurance recovery recorded of $27,500,000.2023.
As of October 2, 20221, 2023 and through the date of financial statement issuance, management cannot yet estimatedoes not anticipate 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.other than disclosed.
Non-operating Income (Expense)
The following table sets forth our non-operating income (expense) (in thousands) for the three-month and nine-month periods ended October 1, 2023 and October 2, 2022 with the dollar and percentage changes between the corresponding periods.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three-months Ended | | Nine-months Ended |
| | October 1, 2023 | | October 2, 2022 | | $ Change | | % Change | | October 1, 2023 | | October 2, 2022 | | $ Change | | % Change |
| | (unaudited) | | | | | | (unaudited) | | | | |
Foreign currency gain (loss) | | $ | (8,699) | | | $ | (1,880) | | | $ | (6,819) | | | 363 | % | | $ | (9,910) | | | $ | (4,367) | | | $ | (5,543) | | | 127 | % |
Investment income | | $ | 4,891 | | | $ | 1,416 | | | $ | 3,475 | | | 245 | % | | $ | 12,573 | | | $ | 4,389 | | | $ | 8,184 | | | 186 | % |
Other income (expense) | | $ | 173 | | | $ | (214) | | | $ | 387 | | | (181) | % | | $ | 358 | | | $ | (450) | | | $ | 808 | | | (180) | % |
Total non-operating income (expense) | | $ | (3,635) | | | $ | (678) | | | $ | (2,957) | | | 436 | % | | $ | 3,021 | | | $ | (428) | | | $ | 3,449 | | | (806) | % |
The Company recorded foreign currency losses of $8,699,000 and $9,910,000 for the three-month and nine-month periods in 2023, respectively, and $1,880,000 and $4,367,000 for the three-month and nine-month periods in 2022, respectively, compared torespectively. In the third quarter of 2023, the Company recorded a foreign currency lossesloss of $586,000 and $2,233,000 for$8,456,000 on the same periods in 2021. Foreignsettlement of a foreign currency forward contract entered into to hedge the Japanese Yen purchase price of the acquisition of Moritex Corporation (refer to Note 19 of the consolidated financial statements). Remaining foreign currency gains and losses resultin each period resulted 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 periods in 2021.2023 was $4,891,000 and $12,573,000, respectively, representing increases of $3,475,000 and $8,184,000, respectively, from the prior comparable periods in 2022. The decrease for the three-month period wasincreases 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 duesecurities, and to lowera lesser extent, higher investment balances and lower yields on the Company's portfolio of debt securities year-to-date.balances.
The Company recorded other income of $173,000 and $358,000 for the three-month and nine-month periods in 2023, respectively, compared to other expense of $214,000 and $450,000 for the three-month and nine-month periods in 2022, respectively, compared to $125,000 and $420,000 for the same periods in 2021.respectively.
Income Tax Expense (Benefit)
The Company'sfollowing table sets forth income tax information (in thousands) for the three-month and nine-month periods ended October 1, 2023 and October 2, 2022 with the dollar and percentage changes between the corresponding periods.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three-months Ended | | Nine-months Ended |
| | October 1, 2023 | | October 2, 2022 | | $ Change | | % Change | | October 1, 2023 | | October 2, 2022 | | $ Change | | % Change |
| | (unaudited) | | | | | | (unaudited) | | | | |
Income before income tax expense | | $ | 27,002 | | | $ | 39,345 | | | $ | (12,343) | | | (31) | % | | $ | 120,994 | | | $ | 191,464 | | | $ | (70,470) | | | (37) | % |
Income tax expense | | $ | 8,086 | | | $ | 5,365 | | | $ | 2,721 | | | 51 | % | | $ | 18,989 | | | $ | 31,250 | | | $ | (12,261) | | | (39) | % |
Effective income tax rate | | 30 | % | | 14 | % | | | | | | 16 | % | | 16 | % | | | | |
The Company’s effective tax rate was 14%30% and 16% for the three-month and nine-month periods ended October 2, 2022,in 2023, respectively, and 11%14% and 13%16% for the same periods in 2022.
The increase in the effective tax rate from 14% to 30% for the three-month and nine-month periods ended October 3, 2021, respectively.
Theperiod primarily resulted from the impact of discrete tax items. Compared to a net discrete tax benefit recorded for the three-month period in 2022, the Company recorded a net discrete tax benefit totaling $930,000 and a net discrete tax expense totaling $616,000 for the three-month period in 2023 primarily driven by return-to-provision adjustments 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 $2,519,000adjustment related to releases of reserves for incomedeferred state taxes due to the closure of this Internal Revenue Service (IRS) audit during the three-month period ended July 3, 2022, (3) an increasea reduction 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.our blended state rate.
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 items, the Company’s effective tax rate wasremained at 16% for both the three-month and nine-month periods ended October 2, 2022,in 2023 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.
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$845,639,000 as of October 2, 2022.1, 2023. The Company has established guidelines relative to credit ratings, diversification, and maturities of its investments thatto maintain liquidity.the liquidity and safety of the investment portfolio.
The Company’sAs of October 1, 2023, the Company's portfolio of debt securities was in a net unrealized loss position of $19,753,000. Although the Company typically holds investments in an unrealized loss position until full value recovery at maturity, if the Company is required to sell debt securities to meet liquidity needs, it may sell these investments at a loss. In preparation for the acquisition of Moritex Corporation (refer to Note 19 of the consolidated financial statements), the Company liquidated certain debt securities in an unrealized loss position and recorded gross realized losses of approximately $733,000 in the third quarter of 2023, and approximately $1,332,000 in the fourth quarter of 2023 prior to the October 18, 2023 purchase date.
Operating activities
Net cash requirementsprovided by operating activities totaled $98,425,000 for the nine-month period in 2022 were primarily met with positive2023. Significant uses of cash flows from operations,for the nine-month period consisted of payments made to build up inventory levels, as well as incentive compensation payments made in the salefirst quarter that were earned and maturity of investments. Cash requirements consisted of operatingaccrued in 2022.
Investing activities the repurchase of common stock, the payment of dividends, and capital expenditures. Cash flows from operating
Net cash provided by investing activities included the purchase of inventories intended to support higher 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 payments 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 expenditurestotaled $211,768,000 for the nine-month period in 20222023. Investing activities included proceeds from the maturities and sales of investments to fund the acquisition of Moritex Corporation. Investing activities also included capital expenditures, which totaled $15,605,000$16,062,000 for the nine-month period in 2023 and consisted primarily of computer hardware and software,continued investments in business systems related to the Company's sales process, manufacturing test equipment related to new product introductions, and leasehold improvements related to a new distribution centerimprovements.
Financing activities
Net cash used in Southborough, Massachusetts. Duringfinancing activities totaled $92,573,000 for the first quarter of 2022, the Company placed into service new business systems related to its sales process. The Company expects to continue to make investmentsnine-month period 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.2023.
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 2,737,0001,677,000 shares, at a cost of $200,000,000 under this program, including 1,677,000and an additional 5,000 shares that were repurchased in 2021 and settled in 2022, at a cost of $117,000,000 during the first quarter ofnine-month period ended October 2, 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. DuringUnder this March 2022 program, the Company repurchased 1,125,000 shares at a total cost of $61,387,000 during the nine-month period ended October 2, 2022. Under this same March 2022 program, in addition to repurchases made in the prior year, the Company repurchased 1,125,0001,157,000 shares and an additional 5,000 shares that were repurchased in 2021 and settled in 2022, at a total cost of $61,387,000 under this additional authorization,$59,640,000 during the nine-month period ended October 1, 2023, leaving a remaining balance of $438,613,000$353,046,000 as of October 2, 2022.1, 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.
The Company’s Board of Directors declared and paid cash dividends of $0.065$0.070 per share for the first, second, and third quarters of 2022,2023, totaling $33,837,000.$36,209,000. 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 October 1, 2023, the Company believeshad inventory purchase commitments of $70,635,000, with the majority payable in the next twelve months, and lease payment obligations of $105,441,000, with $11,255,000 payable in the next twelve months.
Other significant and/or expected cash outlays for 2023 are as follows:
•On October 18, 2023, the Company acquired all of the outstanding shares of Moritex Corporation, a leading global provider of optics components with a strong presence in Japan, for an enterprise value of ¥40 billion, or approximately $270 million based on closing-date foreign exchange rates, in an all-cash transaction. The payment related to this acquisition was made in full during the fourth quarter of 2023.
•On October 16, 2019, the Company acquired all the outstanding shares of Sualab Co., Ltd., a provider of deep learning-based vision software for industrial image analysis based in Korea. The total consideration for the acquisition included deferred payments of $24,040,000 contingent on the continued employment of key talent that had been accrued over the term of employment. These payments were made in full during the fourth quarter of 2023.
•For the remainder of 2023, we 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 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 positionbalance sheet condition has put us in a relatively goodstrong 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 2, 20221, 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
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.
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 2, 2022:1, 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) |
July 3, 2023 - July 30, 2023 | 144,000 | | | $ | 56.00 | | | 144,000 | | | $ | 355,464,000 | |
July 31, 2023 - August 27, 2023 | 47,000 | | | 52.09 | | | 47,000 | | | 353,046,000 | |
August 28, 2023 - October 1, 2023 | — | | | — | | | — | | | — | |
Total | 191,000 | | | $ | 55.05 | | | 191,000 | | | $ | 353,046,000 | |
(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 October 1, 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).
ITEM 6. EXHIBITS
| | | | | | | | |
Exhibit Number | | |
3.1 | | |
31.1 | | |
31.2 | | |
32.1 | | |
32.2 | | |
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 |
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 3, 2022October 31, 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) |