Item 1. Financial Statements
ITEM 1: FINANCIAL STATEMENTS
COGNEX CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share amounts)
Three-months Ended
April 3, 2022 April 4, 2021
(unaudited)
Revenue $ 282,407 $ 239,027
Cost of revenue 78,790 54,045
Gross margin 203,617 184,982
Research, development, and engineering expenses 36,054 34,105
Selling, general, and administrative expenses 80,835 72,424
Operating income 86,728 78,453
Foreign currency gain (loss) ( 444 ) ( 1,008 )
Investment income 1,468 1,554
Other income (expense) ( 48 ) ( 168 )
Income before income tax expense 87,704 78,831
Income tax expense 20,371 8,983
Net income $ 67,333 $ 69,848
Net income per weighted-average common and common-equivalent share:
Basic $ 0.39 $ 0.40
Diluted $ 0.38 $ 0.39
Weighted-average common and common-equivalent shares outstanding:
Basic 174,146 176,288
Diluted 176,668 179,971
Cash dividends per common share $ 0.065 $ 0.060
The accompanying notes are an integral part of these consolidated financial statements.
3
COGNEX CORPORATION
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(In thousands)
Three-months Ended
April 3, 2022 April 4, 2021
(unaudited)
Net income $ 67,333 $ 69,848
Other comprehensive income (loss), net of tax:
Available-for-sale investments:
Net unrealized gain (loss), net of tax of $( 4,036 ) and $( 585 ) in the three-month periods, respectively
( 13,548 ) ( 1,958 )
Reclassification of net realized (gain) loss on the sale of available-for-sale investments into current operations 36 —
Net change related to available-for-sale investments ( 13,512 ) ( 1,958 )
Foreign currency translation adjustments:
Foreign currency translation adjustments ( 2,111 ) ( 2,770 )
Net change related to foreign currency translation adjustments ( 2,111 ) ( 2,770 )
Other comprehensive income (loss), net of tax ( 15,623 ) ( 4,728 )
Total comprehensive income $ 51,710 $ 65,120
The accompanying notes are an integral part of these consolidated financial statements.
4
COGNEX CORPORATION
CONSOLIDATED BALANCE SHEETS
(In thousands)
April 3, 2022 December 31, 2021
(unaudited)
ASSETS
Current assets:
Cash and cash equivalents $ 165,769 $ 186,161
Current investments, amortized cost of $ 149,574 and $ 137,124 in 2022 and 2021, respectively, allowance for credit losses of $ 0 in 2022 and 2021
148,966 137,455
Accounts receivable, allowance for credit losses of $ 766 and $ 776 in 2022 and 2021, respectively
155,065 130,348
Unbilled revenue 1,847 3,990
Inventories 136,660 113,102
Prepaid expenses and other current assets 64,573 68,742
Total current assets 672,880 639,798
Non-current investments, amortized cost of $ 500,273 and $ 587,981 in 2022 and 2021, respectively, allowance for credit losses of $ 0 in 2022 and 2021
479,429 583,748
Property, plant, and equipment, net 77,870 77,546
Operating lease assets 32,217 23,157
Goodwill 241,180 241,713
Intangible assets, net 11,048 11,888
Deferred income taxes 412,333 418,570
Other assets 7,158 7,242
Total assets $ 1,934,115 $ 2,003,662
LIABILITIES AND SHAREHOLDERS’ EQUITY
Current liabilities:
Accounts payable $ 44,733 $ 44,051
Accrued expenses 63,122 92,432
Accrued income taxes 24,465 8,577
Deferred revenue and customer deposits 54,455 35,743
Operating lease liabilities 8,351 7,786
Total current liabilities 195,126 188,589
Non-current operating lease liabilities 26,179 17,795
Deferred income taxes 279,729 293,769
Reserve for income taxes 15,110 14,780
Non-current accrued income taxes 44,010 43,160
Other liabilities 15,216 15,476
Total liabilities 575,370 573,569
Commitments and contingencies (Note 10)
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: 173,738 and 175,481 shares in 2022 and 2021, respectively
347 351
Additional paid-in capital 933,452 914,802
Retained earnings 488,511 562,882
Accumulated other comprehensive loss, net of tax ( 63,565 ) ( 47,942 )
Total shareholders’ equity 1,358,745 1,430,093
Total liabilities and shareholders' equity $ 1,934,115 $ 2,003,662
The accompanying notes are an integral part of these consolidated financial statements.
5
COGNEX CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
Three-months Ended
April 3, 2022 April 4, 2021
(unaudited)
Cash flows from operating activities:
Net income $ 67,333 $ 69,848
Adjustments to reconcile net income to net cash provided by operating activities:
Stock-based compensation expense 15,056 12,009
Depreciation of property, plant, and equipment 4,117 4,259
Loss (gain) on disposal of property, plant, and equipment — 3
Amortization of intangible assets 840 927
Excess and obsolete inventory charges 379 705
Amortization of discounts or premiums on investments 1,402 586
Realized loss (gain) on sale of investments 36 —
Change in deferred income taxes ( 3,891 ) 1,250
Change in operating assets and liabilities:
Accounts receivable ( 24,700 ) ( 3,495 )
Unbilled revenue 2,144 3,958
Inventories ( 23,900 ) ( 1,323 )
Prepaid expenses and other current assets 4,212 ( 10,882 )
Accounts payable 708 4,760
Accrued expenses ( 28,718 ) ( 15,973 )
Accrued income taxes 16,745 1,651
Deferred revenue and customer deposits 18,712 30,641
Other ( 958 ) ( 285 )
Net cash provided by operating activities 49,517 98,639
Cash flows from investing activities:
Purchases of investments ( 39,155 ) ( 298,911 )
Maturities and sales of investments 112,976 160,552
Purchases of property, plant, and equipment ( 4,585 ) ( 2,436 )
Net cash provided by (used in) investing activities 69,236 ( 140,795 )
Cash flows from financing activities:
Net proceeds from issuance of common stock under stock plans 3,594 34,744
Repurchase of common stock ( 130,405 ) ( 6,479 )
Payment of dividends ( 11,303 ) ( 10,595 )
Net cash provided by (used in) financing activities ( 138,114 ) 17,670
Effect of foreign exchange rate changes on cash and cash equivalents ( 1,031 ) ( 1,899 )
Net change in cash and cash equivalents ( 20,392 ) ( 26,385 )
Cash and cash equivalents at beginning of period 186,161 269,073
Cash and cash equivalents at end of period $ 165,769 $ 242,688
The accompanying notes are an integral part of these consolidated financial statements.
6
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 December 31, 2021 175,481 $ 351 $ 914,802 $ 562,882 $ ( 47,942 ) $ 1,430,093
Net issuance of common stock under stock plans 136 — 3,594 — — 3,594
Repurchase of common stock ( 1,879 ) ( 4 ) — ( 130,401 ) — ( 130,405 )
Stock-based compensation expense — — 15,056 — — 15,056
Payment of dividends ($ 0.065 per common share)
— — — ( 11,303 ) — ( 11,303 )
Net income — — — 67,333 — 67,333
Net unrealized gain (loss) on available-for-sale investments, net of tax of $( 4,036 )
— — — — ( 13,548 ) ( 13,548 )
Reclassification of net realized (gain) loss on the sale of available-for-sale investments — — — — 36 36
Foreign currency translation adjustment — — — — ( 2,111 ) ( 2,111 )
Balance as of April 3, 2022 (unaudited) 173,738 $ 347 $ 933,452 $ 488,511 $ ( 63,565 ) $ 1,358,745
Common Stock Additional
Paid-in Capital Retained Earnings Accumulated
Other
Comprehensive
Loss Total
Shareholders’
Equity
Shares Par Value
Balance as of December 31, 2020 175,790 $ 352 $ 807,739 $ 487,912 $ ( 33,801 ) $ 1,262,202
Net issuance of common stock under stock plans 898 1 34,743 — — 34,744
Repurchase of common stock ( 80 ) — — ( 6,479 ) — ( 6,479 )
Stock-based compensation expense — — 12,009 — — 12,009
Payment of dividends ($ 0.060 per common share)
— — — ( 10,595 ) — ( 10,595 )
Net income — — — 69,848 — 69,848
Net unrealized gain (loss) on available-for-sale investments, net of tax of $( 585 )
— — — — ( 1,958 ) ( 1,958 )
Foreign currency translation adjustment — — — — ( 2,770 ) ( 2,770 )
Balance as of April 4, 2021 (unaudited) 176,608 $ 353 $ 854,491 $ 540,686 $ ( 38,529 ) $ 1,357,001
The accompanying notes are an integral part of these consolidated financial statements.
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COGNEX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
NOTE 1: Summary of Significant Accounting Policies
As permitted by the rules of the Securities and Exchange Commission applicable to Quarterly Reports on Form 10-Q, these notes are condensed and do not contain all disclosures required by generally accepted accounting principles (GAAP). Reference should be made to the consolidated financial statements and related notes included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2021 for a full description of other significant accounting policies.
In the opinion of the management of Cognex Corporation (the "Company"), the accompanying consolidated unaudited financial statements contain all adjustments, consisting of normal, recurring adjustments, and financial statement reclassifications necessary to present fairly the Company’s financial position as of April 3, 2022, and the results of its operations for the three-month periods ended April 3, 2022 and April 4, 2021, and changes in shareholders’ equity, comprehensive income, and cash flows for the periods presented.
The results disclosed in the Consolidated Statements of Operations for the three-month period ended April 3, 2022 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"
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, except for hedging relationships existing as of December 31, 2022, 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. Management does 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.
8
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 April 3, 2022 (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 $ 483 $ — $ —
Corporate bonds — 512,138 —
Asset-backed securities — 73,295 —
Treasury bills — 27,588 —
Agency bonds — 18,635 —
Sovereign bonds — 2,007 —
Municipal bonds — 1,733 —
Economic hedge forward contracts — 42 —
Liabilities:
Economic hedge forward contracts — 441 —
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 as of April 3, 2022 and through the remainder of the five-year assessment period which concluded in April 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 periods ended April 3, 2022 or April 4, 2021.
9
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):
April 3, 2022 December 31, 2021
Cash $ 158,285 $ 185,624
Treasury bills 7,001 —
Money market instruments 483 537
Cash and cash equivalents 165,769 186,161
Corporate bonds 97,772 73,088
Asset-backed securities 37,084 37,655
Treasury bills 10,204 18,912
Agency bonds 2,801 2,802
Municipal bonds 1,105 4,998
Current investments 148,966 137,455
Corporate bonds 414,366 481,218
Asset-backed securities 36,211 43,940
Agency bonds 15,834 16,077
Treasury bills 10,383 39,753
Sovereign bonds 2,007 2,119
Municipal bonds 628 641
Non-current investments 479,429 583,748
$ 794,164 $ 907,364
Treasury bills consist of debt securities issued by the U.S. government; corporate bonds consist of debt securities issued by both domestic and foreign companies; asset-backed securities consist of debt securities collateralized by pools of receivables or loans with credit enhancement; agency bonds consist of domestic or foreign obligations of government agencies and government-sponsored enterprises that have government backing; municipal bonds consist of debt securities issued by state and local government entities; and sovereign bonds consist of direct debt issued by foreign governments. All of the Company's securities as of April 3, 2022 and December 31, 2021 were denominated in U.S. Dollars.
Accrued interest receivable is recorded in "Prepaid expenses and other current assets" on the Consolidated Balance Sheet and amounted to $ 2,940,000 and $ 3,037,000 as of April 3, 2022 and December 31, 2021, respectively.
10
COGNEX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
The following table summarizes the Company’s available-for-sale investments as of April 3, 2022 (in thousands):
Amortized
Cost Gross
Unrealized
Gains Gross
Unrealized
Losses Fair Value
Current:
Corporate bonds $ 98,122 $ 58 $ ( 408 ) $ 97,772
Asset-backed securities 37,300 12 ( 228 ) 37,084
Treasury bills 10,247 — ( 43 ) 10,204
Agency bonds 2,800 1 — 2,801
Municipal bonds 1,105 — — 1,105
Non-current:
Corporate bonds 433,204 8 ( 18,846 ) 414,366
Asset-backed securities 37,579 — ( 1,368 ) 36,211
Agency bonds 16,133 — ( 299 ) 15,834
Treasury bills 10,592 1 ( 210 ) 10,383
Sovereign bonds 2,130 — ( 123 ) 2,007
Municipal bonds 635 — ( 7 ) 628
$ 649,847 $ 80 $ ( 21,532 ) $ 628,395
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 April 3, 2022 (in thousands):
Unrealized Loss Position For:
Less than 12 Months 12 Months or Greater Total
Fair Value Unrealized
Losses Fair Value Unrealized
Losses Fair Value Unrealized
Losses
Corporate bonds $ 425,643 $ ( 17,258 ) $ 45,219 $ ( 1,996 ) $ 470,862 $ ( 19,254 )
Asset-backed securities 65,603 ( 1,592 ) 556 ( 4 ) 66,159 ( 1,596 )
Treasury bills 15,982 ( 250 ) 102 ( 3 ) 16,084 ( 253 )
Agency bonds 15,834 ( 299 ) — — 15,834 ( 299 )
Sovereign bonds 2,007 ( 123 ) — — 2,007 ( 123 )
Municipal bonds 1,733 ( 7 ) — — 1,733 ( 7 )
$ 526,802 $ ( 19,529 ) $ 45,877 $ ( 2,003 ) $ 572,679 $ ( 21,532 )
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 April 3, 2022 or December 31, 2021. There was no activity recorded in the allowance for credit losses during the three-month periods ended April 3, 2022 or April 4, 2021.
The Company recorded gross realized gains and losses on the sale of debt securities totaling $ 118,000 and $ 154,000 , respectively, for the three-month period ended April 3, 2022, and no gross realized gains or losses on the sale of debt securities for the three-month period ended April 4, 2021. 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.
11
COGNEX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
The following table presents the effective maturity dates of the Company’s available-for-sale investments as of April 3, 2022 (in thousands):
<1 year 1-2 Years 2-3 Years 3-4 Years 4-5 Years Total
Corporate bonds $ 97,772 $ 175,124 $ 168,060 $ 47,259 $ 23,923 $ 512,138
Asset-backed securities 37,084 21,883 — 14,328 — 73,295
Treasury bills 10,204 10,383 — — — 20,587
Agency bonds 2,801 15,834 — — — 18,635
Sovereign bonds — — 1,007 1,000 — 2,007
Municipal bonds 1,105 628 — — — 1,733
$ 148,966 $ 223,852 $ 169,067 $ 62,587 $ 23,923 $ 628,395
NOTE 5: Inventories
Inventories consisted of the following (in thousands):
April 3, 2022 December 31, 2021
Raw materials $ 66,710 $ 50,452
Work-in-process 3,979 5,293
Finished goods 65,971 57,357
$ 136,660 $ 113,102
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 April 3, 2022, there were no options to terminate that were accounted for in the determination of the lease term for outstanding leases, and three options to extend that were accounted for in the determination of the lease term of three of the Company's outstanding leases. Certain leases contain leasehold improvement incentives, retirement obligations, escalating clauses, rent holidays, and variable payments tied to a consumer price index. There were no restrictions or covenants for outstanding leases as of April 3, 2022.
The total operating lease expense for the three-month periods ended April 3, 2022 and April 4, 2021 were $ 2,229,000 and $ 2,002,000 , respectively. The total operating lease cash payments for the three-month periods ended April 3, 2022 and April 4, 2021 were $ 2,079,000 and $ 2,061,000 , 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 periods ended April 3, 2022 and April 4, 2021 were $ 38,000 and $ 40,000 , respectively.
12
COGNEX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
Future operating lease cash payments are as follows (in thousands):
Year Ended December 31, Amount
Remainder of fiscal 2022 $ 6,960
2023 7,978
2024 4,912
2025 3,197
2026 2,511
2027 2,431
Thereafter 9,823
$ 37,812
The discounted present value of the future lease cash payments resulted in a lease liability of $ 34,530,000 and $ 25,581,000 as of April 3, 2022 and December 31, 2021, respectively. The Company did not have any leases that had not yet commenced but that created significant rights and obligations as of April 3, 2022.
The weighted-average discount rate was 3.0 % and 3.4 % for the leases outstanding as of April 3, 2022 and December 31, 2021, respectively. The weighted-average remaining lease term was 6.6 and 5.1 years for the leases outstanding as of April 3, 2022 and December 31, 2021, respectively.
NOTE 7: Goodwill
The changes in the carrying value of goodwill were as follows (in thousands):
Balance as of December 31, 2021 $ 241,713
Foreign exchange rate changes ( 533 )
Balance as of April 3, 2022 $ 241,180
NOTE 8: Intangible Assets
Amortized intangible assets consisted of the following (in thousands):
Gross
Carrying
Value Accumulated
Amortization Net
Carrying
Value
Distribution networks $ 38,060 $ 38,060 $ —
Completed technologies 24,217 15,892 8,325
Customer relationships 10,578 8,060 2,518
Non-compete agreements 710 505 205
Trademarks 110 110 —
Balance as of April 3, 2022 $ 73,675 $ 62,627 $ 11,048
Gross
Carrying
Value Accumulated
Amortization Net
Carrying
Value
Distribution networks $ 38,060 $ 38,060 $ —
Completed technologies 24,217 15,234 8,983
Customer relationships 10,578 7,891 2,687
Non-compete agreements 710 492 218
Trademarks 110 110 —
Balance as of December 31, 2021 $ 73,675 $ 61,787 $ 11,888
13
COGNEX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
As of April 3, 2022, estimated future amortization expense related to intangible assets was as follows (in thousands):
Year Ended December 31, Amount
Remainder of fiscal 2022 $ 2,435
2023 2,594
2024 2,080
2025 1,757
2026 1,452
2027 730
$ 11,048
NOTE 9: Warranty Obligations
The Company records the estimated cost of fulfilling product warranties at the time of sale based upon historical costs to fulfill claims. Obligations may also be recorded subsequent to the time of sale whenever specific events or changes in circumstances impacting product quality become known that would not have been taken into account using historical data. While we engage in extensive product quality programs and processes, including actively monitoring and evaluating the quality of our component suppliers and third-party contract manufacturers, the Company’s warranty obligation is affected by product failure rates, material usage, and service delivery costs incurred in correcting a product failure. An adverse change in any of these factors may result in the need for additional warranty provisions. Warranty obligations are included in “Accrued expenses” on the Consolidated Balance Sheets.
The changes in the warranty obligation were as follows (in thousands):
Balance as of December 31, 2021 $ 5,427
Provisions for warranties issued during the period 876
Fulfillment of warranty obligations ( 779 )
Balance as of April 3, 2022 $ 5,524
NOTE 10: Commitments and Contingencies
As of April 3, 2022, the Company had outstanding purchase orders totaling $ 88,981,000 to procure inventory from various vendors, due in part to higher inventory purchases in response to global supply chain constraints. Certain of these purchase orders may be canceled by the Company, subject to cancellation penalties. These purchase commitments relate primarily to expected sales in the next twelve months.
A significant portion of the Company's outstanding inventory purchase orders as of April 3, 2022, as well as additional preauthorized commitments to procure strategic components based on the Company's expected customer demand, are placed with the Company's primary contract manufacturer for the Company's assembled products. The Company has the obligation to purchase any non-cancelable and non-returnable components that have been purchased by this 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.
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.
14
COGNEX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
The Company had the following outstanding forward contracts (in thousands):
April 3, 2022 December 31, 2021
Currency Notional
Value USD
Equivalent Notional
Value USD
Equivalent
Derivatives Not Designated as Hedging Instruments:
Euro 70,000 $ 77,366 65,000 $ 73,748
Chinese Renminbi 253,000 39,619 54,374 8,500
Mexican Peso 230,000 11,558 140,000 6,842
Japanese Yen 650,000 5,295 600,000 5,213
British Pound 2,975 3,895 3,370 4,552
Hungarian Forint 1,235,000 3,693 1,355,000 4,155
Canadian Dollar 1,675 1,339 1,480 1,167
Information regarding the fair value of the outstanding forward contracts was as follows (in thousands):
Asset Derivatives Liability Derivatives
Balance Fair Value Balance Fair Value
Sheet
Location April 3, 2022 December 31, 2021 Sheet
Location April 3, 2022 December 31, 2021
Derivatives Not Designated as Hedging Instruments:
Economic hedge forward contracts Prepaid expenses and other current assets $ 42 $ 39 Accrued expenses $ 441 $ 230
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 Liability Derivatives
April 3, 2022 December 31, 2021 April 3, 2022 December 31, 2021
Gross amounts of recognized assets $ 42 $ 39 Gross amounts of recognized liabilities $ 441 $ 230
Gross amounts offset — — Gross amounts offset — —
Net amount of assets presented $ 42 $ 39 Net amount of liabilities presented $ 441 $ 230
Information regarding the effect of derivative instruments on the consolidated financial statements was as follows (in thousands):
Location in Financial Statements Three-months Ended
April 3, 2022 April 4, 2021
Derivatives Not Designated as Hedging Instruments:
Gains (losses) recognized in current operations Foreign currency gain (loss) $ 1,739 $ 2,893
15
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
April 3, 2022 April 4, 2021
Americas $ 126,658 $ 107,836
Europe 62,792 57,048
Greater China 48,406 38,238
Other Asia 44,551 35,905
$ 282,407 $ 239,027
The following table summarizes disaggregated revenue information by revenue type (in thousands):
Three-months Ended
April 3, 2022 April 4, 2021
Standard products and services $ 257,880 $ 222,326
Application-specific customer solutions 24,527 16,701
$ 282,407 $ 239,027
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 $ 11,429,000 and $ 10,854,000 as of April 3, 2022 and December 31, 2021, respectively.
Accounts Receivable, Contract Assets, and Contract Liabilities
Accounts receivable represent amounts billed and currently due from customers which are reported at their net estimated realizable value. The Company maintains an allowance against its accounts receivable for credit losses. Contract assets consist of unbilled revenue which arises when revenue is recognized in advance of billing for certain application-specific customer solutions contracts. Contract liabilities consist of deferred revenue and customer deposits which arise when amounts are billed to or collected from customers in advance of revenue recognition.
The following table summarizes the allowance for credit losses activity for the three-month period ended April 3, 2022 (in thousands):
Balance as of December 31, 2021 $ 776
Write-offs, net of recoveries ( 10 )
Balance as of April 3, 2022 $ 766
16
COGNEX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
The following table summarizes the deferred revenue and customer deposits activity for the three-month period ended April 3, 2022 (in thousands):
Balance as of December 31, 2021 $ 35,743
Deferral of revenue billed in the current period, net of recognition 41,913
Recognition of revenue deferred in prior period ( 23,202 )
Foreign exchange rate changes 1
Balance as of April 3, 2022 $ 54,455
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"). As of April 3, 2022, the Company had 14,242,000 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 years or four years of continuous employment or incrementally over such three or four-year period. 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 RSUs or PRSUs.
Stock Options
The following table summarizes the Company’s stock option activity for the three-month period ended April 3, 2022:
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 1,003 64.43
Exercised ( 98 ) 47.19
Forfeited or expired ( 86 ) 62.79
Outstanding as of April 3, 2022 8,429 $ 51.06 6.73 $ 233,406
Exercisable as of April 3, 2022 4,332 $ 43.39 5.56 $ 151,220
Options vested or expected to vest as of April 3, 2022 (1) 7,901 $ 50.34 6.62 $ 224,117
(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.
17
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
April 3, 2022 April 4, 2021
Risk-free rate 1.9 % 1.3 %
Expected dividend yield 0.40 % 0.27 %
Expected volatility 37 % 39 %
Expected term (in years) 5.2 5.7
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 periods ended April 3, 2022 and April 4, 2021 were $ 22.45 and $ 33.63 , respectively.
The total intrinsic values of stock options exercised for the three-month periods ended April 3, 2022 and April 4, 2021 were $ 2,165,000 and $ 42,327,000 , respectively. The total fair values of stock options vested for the three-month periods ended April 3, 2022 and April 4, 2021 were $ 25,535,000 and $ 35,600,000 , respectively.
Restricted Stock Units (RSUs)
The following table summarizes the Company's RSUs activity for the three-month period ended April 3, 2022:
Shares
(in thousands) Weighted-Average
Grant Date Fair Value
Nonvested as of December 31, 2021 823 $ 65.26
Granted 466 63.96
Vested ( 54 ) 87.29
Forfeited or expired ( 18 ) 66.10
Nonvested as of April 3, 2022 1,217 $ 63.78
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 periods ended April 3, 2022 and April 4, 2021 were $ 63.96 and $ 89.86 , respectively. The number of RSUs that vested during the three-month periods ended April 3, 2022 and April 4, 2021 were 54,000 and 2,000 , respectively.
18
COGNEX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
Performance Restricted Stock Units (PRSUs)
The following table summarizes the Company's PRSUs activity for the three-month period ended April 3, 2022:
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 April 3, 2022 33 $ 62.49
No PRSUs were granted or vested during the three-month period ended April 4, 2021.
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.
Stock-Based Compensation Expense
The Company stratifies its employee population into two groups: one consisting of senior management and another consisting of all other employees. The Company currently applies an estimated annual forfeiture rate of 7 % to all stock-based awards for senior management and a rate of 12 % 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 an increase to compensation expense of $ 1,536,000 in 2022 and a decrease to compensation expense of $ 255,000 in 2021.
As of April 3, 2022, total unrecognized compensation expense related to non-vested equity awards, including stock options, RSUs and PRSUs, was $ 81,239,000 , which is expected to be recognized over a weighted-average period of 1.8 years.
The total stock-based compensation expense and the related income tax benefit recognized for the three-month period ended April 3, 2022 were $ 15,056,000 and $ 2,319,000 , respectively. The total stock-based compensation expense and the related income tax benefit recognized for the three-month period ended April 4, 2021 were $ 12,009,000 and $ 1,813,000 , respectively. No compensation expense was capitalized as of April 3, 2022 or December 31, 2021.
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
April 3, 2022 April 4, 2021
Cost of revenue $ 563 $ 248
Research, development, and engineering 4,448 4,003
Selling, general, and administrative 10,045 7,758
$ 15,056 $ 12,009
19
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 April 3, 2022, the Company repurchased 2,737,000 shares at a cost of $ 200,000,000 under this program, including 1,677,000 shares at a cost of $ 117,000,000 during the three-month period ended April 3, 2022, which completed purchases under this program. On March 3, 2022, the Company's Board of Directors authorized the repurchase of an additional $ 500,000,000 of the Company's common stock. During the three-month period ended April 3, 2022, the Company repurchased 202,000 shares at a cost of $ 13,405,000 under this program, leaving a remaining balance of $ 486,595,000 as of April 3, 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.
NOTE 15: Income Taxes
The Company's effective tax rate was 23 % for the three-month period ended April 3, 2022 and 11 % for the three-month period ended April 4, 2021.
Discrete tax items for the three-month period ended April 4, 2021 included a decrease in tax expense of $ 5,207,000 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 period ended April 3, 2022.
Discrete tax items for the three-month period ended April 3, 2022 included (1) an increase in tax expense of $ 1,417,000 arising from an Internal Revenue Service (IRS) audit, (2) an increase in tax expense of $ 1,734,000 to establish a full valuation allowance against deferred tax assets related to foreign tax credits, and (3) an increase in tax expense of $ 3,187,000 consisting primarily of transfer pricing and return-to-provision adjustments.
Excluding the impact of these discrete tax items, the Company’s effective tax rate was 16 % for the three-month period ended April 3, 2022 and 18 % for the three-month period ended April 4, 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 differences resulted in a lower effective tax rate for the three-month period ended April 3, 2022 as compared to the same period in 2021 due to more of the Company's profits being earned and taxed in lower tax jurisdictions. The remaining decrease in the effective tax rate for the three-month period was primarily attributable to higher estimated R&D tax credit utilization.
The Company’s reserve for income taxes, including gross interest and penalties, was $ 15,678,000 as of April 3, 2022, which included $ 15,110,000 classified as a non-current liability and $ 568,000 recorded as a reduction to non-current deferred tax assets. If the Company’s tax positions were sustained or the statutes of limitations related to certain positions expired, these reserves would be released and income tax expense would be reduced in a future period.
Within the United States, the tax years 2017 through 2020 remain open to examination by the IRS and various state tax authorities. The tax years 2016 through 2021 remain open to examination by various taxing authorities in other jurisdictions in which the Company operates. The Company is under audit by the IRS for the tax years 2017 and 2018. Management expects to release reserves associated with the periods under audit in the second or third quarter of 2022 when the Company receives the Closing Letter for Agreed Income Tax Cases from the IRS, resulting in a decrease in tax expense of approximately $ 2,400,000 . The Company is no longer under audit by the Commonwealth of Massachusetts for tax years 2017 and 2018. The audit was completed during the three-month period ended April 3, 2022 and resulted in no material tax impact to the Company's financial statements.
20
COGNEX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
NOTE 16: Weighted-Average Shares
Weighted-average shares were calculated as follows (in thousands):
Three-months Ended
April 3, 2022 April 4, 2021
Basic weighted-average common shares outstanding 174,146 176,288
Effect of dilutive equity awards 2,522 3,683
Weighted-average common and common-equivalent shares outstanding 176,668 179,971
Stock options to purchase 1,282,000 and 485,000 shares of common stock, on a weighted-average basis, were outstanding during the three-month periods ended April 3, 2022 and April 4, 2021, respectively, but were not included in the calculation of dilutive net income per share because they were anti-dilutive. Restricted stock units totaling 20,000 and 124,000 shares of common stock, on a weighted-average basis, were outstanding during the three-month periods ended April 3, 2022 and April 4, 2021, respectively, but were not included in the calculation of dilutive net income per share because they were anti-dilutive. There were no anti-dilutive performance restricted stock units outstanding, on a weighted-average basis, during the three-month periods ended April 3, 2022 or April 4, 2021.
NOTE 17: Subsequent Events
On May 5, 2022, the Company’s Board of Directors declared a cash dividend of $ 0.065 per share. The dividend is payable on June 3, 2022 to all shareholders of record as of the close of business on May 20, 2022.
21
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