What changed in this filing

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Item 2. Management’s Discussion and Analysis

2023-10-31 compared with 2023-08-03 · 99 added, 110 removed, 116 unchanged (64% of the section changed)

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These statements are based on our current estimates and expectations as to prospective events and circumstances, which may or may not be in our control and as to which there can be no firm assurances given.

These forward-looking statements, which include statements regarding business and market trends, future financial performance and financial targets, the expected impact of the fire at our primary contract manufacturer's plant on our assets, business, and results of operations and related recoveries, customer demand and order rates and timing of related revenue, managing supply shortages, delivery lead times, future product mix, research and development activities, sales and marketing activities, new product offerings and product development activities, cost management, capital expenditures, investments, liquidity, dividends and stock repurchases, strategic and growth plans and opportunities (including our "Emerging Customer" sales initiative, and estimated tax benefits and expenses and other tax matters, involve known and unknown risks and uncertainties that could cause actual results to differ materially from those projected.

These forward-looking statements, which include statements regarding business and market trends, future financial performance and financial targets, the integration and expected results 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:

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(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;

(4) the failure to effectively manage product transitions or accurately forecast customer 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;

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(12) the inability to attract and retain skilled employees and maintain our unique corporate culture;

(13) the technological obsolescence of current products and the inability to develop new products;

(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;

(14) the failure to properly manage the distribution of products and services, including the management of lead times and delivery dates;

(15) the impact of competitive pressures;

(16) the challenges in integrating and achieving expected results from acquired businesses;

(16) the challenges in integrating and achieving expected results from acquired businesses, including Moritex Corporation;

(17) potential disruptions in our business systems;

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(22) business disruptions from natural or man-made disasters, such as fire, or public health issues;

(23) economic, political, and other risks associated with international sales and operations, including the impact of trade disputes with China and the war in Ukraine;

(23) economic, political, and other risks associated with international sales and operations, including the impact of trade disputes with China, the Russia-Ukraine war, and 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;

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Machine vision is used in a variety of industries where 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;

Virtually every manufacturer or distributor can achieve better quality and efficiency by using machine vision;

thus, our applications have a broad base of customers across a variety of industries, including automotive, logistics, consumer electronics, medical-related, semiconductor, consumer products, and food and beverage.

Revenue for the second quarter of 2023 totaled $242,512,000, representing a decrease of 12% from the second quarter of 2022.

The decrease was driven by three main factors:

(i) lower revenue from the logistics industry primarily as a result of the continued pause in investments by a few large e-commerce customers;

(ii) slower spending trends across our broader factory automation business, most notably in the consumer electronics and semiconductor industries;

and (iii) the unfavorable impact of foreign currency exchange rate changes on revenue.

Gross margin as a percentage of revenue was 74% for the second quarter of 2023 as compared to 72% for the second quarter of 2022.

The increase in gross margin as a percent of revenue was due to lower inventory costs resulting from a reduction in premiums paid to brokers for the purchase of components in response to global supply chain constraints.

Operating expenses for the second quarter of 2023 totaled $114,508,000, representing a decrease of 13% from the second quarter of 2022.

Revenue for the third quarter of 2023 totaled $197,241,000, representing a decrease of 6% from the third quarter of 2022.

The decrease was driven primarily by lower revenue from the consumer electronics industry due to weaker demand and the quarterly timing of large customer 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, as the impact of a less favorable revenue mix was partially offset by lower inventory costs.

Operating expenses for the third quarter of 2023 totaled $112,137,000 and were relatively consistent with operating expenses for the third quarter of 2022.

On June 7, 2022, our primary contract manufacturer suffered a fire at its Indonesian plant destroying a large portion of the Company's component inventories (refer to Note 17 of the consolidated financial statements).

In the second quarter of 2022, the Company recorded a net loss related to the fire of $17,403,000, consisting primarily of losses from inventories and other assets of $44,903,000, partially offset by an estimated insurance recovery of $27,500,000.

In the second quarter of 2023, the Company recorded a recovery related to the fire of $2,500,000 for proceeds received from the Company's insurance carrier in relation to a business interruption claim.

Excluding the impact of losses and recoveries related to the fire, operating expenses for the second quarter of 2023 increased 3% from the second quarter of 2022, primarily due to headcount to support our "Emerging Customer" sales initiative, annual merit increases provided to employees, and increased travel expenses.

These higher expenses were partially offset by lower incentive compensation and the favorable impact of foreign currency exchange rate changes on expenses.

Operating income increased to 27% of revenue for the second quarter of 2023 as compared to 24% of revenue for the second quarter of 2022.

Excluding the impact of losses and recoveries related to the fire, operating income decreased to 26% of revenue for the second quarter of 2023 as compared to 30% of revenue for the second quarter of 2022 primarily as a result of the lower revenue levels.

Tax expense increased from the second quarter of 2022 primarily due to less favorable discrete tax adjustments.

Net income as percentage of revenue was 24%, or $0.33 per diluted share, for the second quarter of 2023 and 21% of revenue, or $0.34 per diluted share, for the second quarter of 2022.

Excluding the impact of losses and recoveries related to the fire, operating expenses for the third quarter of 2023 increased 5% from the third quarter of 2022, primarily due to additional headcount and expenses incurred to support our "Emerging Customer" sales initiative, partially offset by lower incentive compensation expenses based on the Company's expected performance against relevant full-year goals and lower revenue levels.

Operating income decreased to 16% of revenue for the third quarter of 2023 as compared to 19% of revenue for the third quarter of 2022.

Excluding the impact of losses and recoveries related to the fire, operating income decreased to 14% of revenue for the third quarter of 2023 as compared to 20% of revenue for the third quarter of 2022, primarily as a result of the lower revenue levels and continued investment in our "Emerging Customer" sales initiative.

Net income as a percentage of revenue was 10%, or $0.11 per diluted share, for the third quarter of 2023, and 16% of revenue, or $0.19 per diluted share, for the third quarter of 2022.

Results of Operations

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GAAP) and should be considered in addition to, and not as a substitute for, results prepared in accordance with U.S.

Revenue decreased by $32,116,000, or 12%, for the three-month period and decreased by $113,399,000, or 20%, for the six-month period as compared to the same periods in 2022.

Changes in foreign currency exchange rates resulted in a lower level of reported revenue for both the three-month and six-month periods in 2023 as compared to the same periods in 2022.

Excluding the impact of foreign currency exchange rate changes, revenue decreased by 10% for the three-month period and decreased by 18% for the six-month period as compared to the same periods in 2022.

The largest factor contributing to the decreases in total revenue for both the three-month and six-month periods was a decline in logistics revenue primarily as a result of the continued pause in investments by a few large e-commerce customers.

Slower spending trends across our broader factory automation business further contributed to the decrease in revenue.

The following table sets forth our disaggregated revenue information by geographic area based upon the customer's country of domicile (in thousands) for the three-month and six-month periods ended July 2, 2023 and July 3, 2022 with the dollar and percentage changes between the corresponding periods, and the line item as a percentage of total revenue.

Three-months Ended Six-months Ended

July 2, 2023 July 3, 2022 $ Change % Change July 2, 2023 July 3, 2022 $ Change % Change

Revenue decreased by $12,381,000, or 6%, for the three-month period and decreased by $125,780,000, or 16%, for the nine-month period as compared to the same periods in 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 2023 as compared to the same periods in 2022.

Excluding the impact of foreign currency exchange rate changes, revenue decreased by 5% for the three-month period and decreased by 14% for the nine-month period as compared to the same periods in 2022.

For the three-month period, the decrease in revenue was driven primarily by lower revenue from the consumer electronics industry due to weaker demand and the quarterly timing of large customer deployments.

This decrease was partially offset by increases in revenue from other industries, most notably logistics and automotive.

Revenue for the third quarter of 2022 was negatively impacted by the fire at our primary contract manufacturer’s plant in Indonesia in June of 2022, which destroyed a large amount of component inventory limiting our ability to fulfill certain 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 continued 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 2022.

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 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)

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Changes in revenue from a geographic perspective were as follows:

• Revenue from customers based in the Americas decreased by 10% for the three-month period and decreased by 25% for the six-month period as compared to the same periods in 2022.

The decreases were primarily driven by lower revenue from customers in the logistics industry.

• Revenue from customers based in Europe decreased by 8% for the three-month period and decreased by 6% for the six-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 decreased by 9% for the three-month period and decreased by 5% for the six-month period as compared to the same periods in 2022.

On both a U.S.

GAAP and constant-currency basis, the decreases were primarily driven by lower revenue from customers in the logistics and consumer electronics industries.

• Revenue from customers based in Greater China decreased by 8% for the three-month period and decreased by 17% for the six-month period as compared to the same periods in 2022.

Excluding the impact of foreign currency exchange rate changes, revenue from customers based in Greater China decreased by 4% for the three-month period and decreased by 12% for the six-month period as compared to the same periods in 2022.

On both a U.S.

GAAP and constant-currency basis, the decreases resulted from broad-based declines in revenue from customers across multiple industries, partially offset by increases in revenue from large projects in the consumer products industry.

• Revenue from customers based in other countries in Asia decreased by 27% for the three-month period and decreased by 33% for the six-month period as compared to the same periods in 2022.

Excluding the impact of foreign currency exchange rate changes, revenue from customers based in other countries in Asia decreased by 23% for the three-month period and 28% for the six-month period as compared to the same periods in 2022.

On both a U.S.

GAAP and constant-currency basis, the decreases resulted from broad-based declines in revenue from customers across multiple industries, most notably the semiconductor industry.

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

Three-months Ended Six-months Ended

July 2, 2023 July 3, 2022 $ Change % Change July 2, 2023 July 3, 2022 $ Change % Change

• Revenue from customers based in the Americas increased by 22% for the three-month period and decreased by 14% for the nine-month period as compared to the same periods in 2022.

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 third quarter of 2022, as well as logistics project timing.

For the nine-month period, the decrease was primarily driven by lower revenue from the logistics industry, mainly attributable to the continued pause in investments by a few large e-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 three-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 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 Greater China decreased by 48% for the three-month period and decreased by 28% 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 Greater China decreased by 41% for the three-month period and decreased by 22% for the nine-month period as compared to the same periods in 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 from customers based in other countries in Asia increased by 10% for the three-month period and 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 across multiple industries, most notably the semiconductor industry.

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)

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Percentage of total revenue 72 % 73 % 73 % 72 %

Gross margin as a percentage of revenue was 74% and 73% for the three-month and six-month periods in 2023, respectively, as compared to 72% and 72% for the same periods in 2022, respectively.

The increases in gross margin as a percent of revenue were primarily due to lower inventory costs resulting from a reduction in premiums paid to brokers for the purchase of components in response to global supply chain constraints.

These increases were partially offset by the unfavorable impact of foreign currency exchange rates on revenue, and reduced cost efficiencies from the lower sales volume.

Gross margin as a percentage of revenue was 72% and 73% for the three-month and nine-month periods in 2023, respectively, as compared to 73% and 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 six-month periods ended July 2, 2023 and July 3, 2022 with the dollar and percentage changes between the corresponding periods, and the line item as a percentage of total revenue.

Three-months Ended Six-months Ended

July 2, 2023 July 3, 2022 $ Change % Change July 2, 2023 July 3, 2022 $ Change % Change

The following table sets forth our operating expenses (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)

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Research, Development, and Engineering Expenses

Research, development, and engineering (RD&E) expenses decreased by $406,000, or 1%, for the three-month period and increased by $2,082,000, or 3%, for the six-month period as compared to the same periods in 2022.

For both the three-month and six-month periods, personnel-related costs increased as a result of headcount additions to support new product initiatives and compensation increases provided to employees as part of our annual merit process.

Incentive compensation expenses for both the three-month and six-month periods in 2023 were lower than the prior year comparable periods in 2022 based on the Company's expected performance against relevant full-year goals.

Foreign currency exchange rate changes further offset the increases to personnel-related costs, as costs denominated in foreign currencies were translated into U.S.

Dollars at a lower rate.

For the three-month period in 2023, increases in personnel-related costs did not offset the decreases in incentive compensation and foreign currency exchange rate changes which drove the slight overall decrease to total RD&E expenses.

RD&E expenses as a percentage of revenue were 14% and 16% for the three-month and six-month periods in 2023, respectively, as compared to 12% and 13% for the same periods in 2022, respectively.

Research, development, and engineering (RD&E) expenses decreased by $1,374,000, or 4%, for the three-month period and increased by $708,000, or 1%, for the nine-month period as compared to the same periods in 2022.

For both the three-month and nine-month periods, personnel-related costs increased as a result of headcount additions to support new product initiatives and compensation increases provided to employees as part of our annual merit process, although this increase moderated for the three-month period as headcount levels were realigned to the lower business levels.

These increases were offset by lower incentive compensation expenses for both the three-month and nine-month periods based on the Company's expected performance 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 same periods in 2022, respectively.

We believe that a continued commitment to RD&E activities is essential in order to maintain product leadership with our existing products and to provide innovative new product offerings, as well as to provide engineering support for large customers.

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Selling, General, and Administrative Expenses

Selling, general, and administrative (SG&A) expenses increased by $3,473,000, or 4%, for the three-month period and increased by $5,675,000, or 4%, for the six-month period as compared to the same periods in 2022.

SG&A expenses increased due to costs related to our “Emerging Customer” sales initiative, including primarily compensation for additional headcount, travel expenses, and sales demonstration equipment.

Selling, general, and administrative (SG&A) expenses increased by $6,936,000, or 9%, for the three-month period and increased by $12,611,000, or 5%, for the nine-month period as compared to the same periods in 2022.

SG&A expenses increased due to costs related to our “Emerging Customer” sales initiative, including additional headcount, travel expenses, and sales demonstration equipment.

We launched this initiative towards the end of 2022 to broaden the reach of our sales force to customers who are relatively new to factory automation and have not fully realized the advantages of machine vision.

Unrelated to our "Emerging Customer" sales initiative, for both the three-month and six-month periods in 2023, we also had higher personnel-related costs resulting primarily from compensation increases provided to employees as part of our annual merit process.

Travel expenses also increased due primarily to a higher level of travel activity now that restrictions related to the COVID-19 pandemic have eased or been eliminated.

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 from compensation increases provided to employees as part of our annual merit process.

Transaction costs related to the acquisition of Moritex Corporation (refer to Note 19 of the consolidated financial statements) further contributed to the 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, due to lower revenue levels and based on the Company's expected performance against relevant full-year goals.

Foreign currency exchange rate changes further offset increases to total SG&A expenses, as costs denominated in foreign currencies were translated into U.S.

Dollars at a lower rate.

Loss (Recovery) from Fire

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The Company has also been working to ramp up an additional contract manufacturer to further mitigate risk, diversify the supply chain, and expand production capacity.

As of July 2, 2023 and through the date of financial statement issuance, management cannot yet estimate additional recoveries that could be available from the contract manufacturer.

Any future, additional recoveries in excess of recognized losses will be treated as gain contingencies and will be recognized when the gain is realized or realizable.

There can be no assurance, however, that additional insurance coverage and/or recoveries from the contract manufacturer will be available to cover the net loss from the fire.

In the third quarter of 2022, 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.

In the third quarter of 2023, the Company recorded a recovery related to the fire of $2,750,000 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.

As of October 1, 2023 and through the date of financial statement issuance, management does not anticipate additional recoveries other than disclosed.

Non-operating Income (Expense)

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

Three-months Ended Six-months Ended

July 2, 2023 July 3, 2022 $ Change % Change July 2, 2023 July 3, 2022 $ Change % Change

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)

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Total non-operating income (expense) $ (3,635) $ (678) $ (2,957) 436 % $ 3,021 $ (428) $ 3,449 (806) %

The Company recorded foreign currency losses of $1,605,000 and $1,211,000 for the three-month and six-month periods in 2023, respectively, and $2,043,000 and $2,487,000 for the three-month and six-month periods in 2022, respectively.

Foreign currency gains and losses result primarily from the revaluation and settlement of assets and liabilities that are denominated in currencies other than the functional currency of the Company, which is the U.S.

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.

In the third quarter of 2023, the Company recorded a foreign currency loss of $8,456,000 on the settlement 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 in 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 for the three-month and six-month periods in 2023 was $4,095,000 and $7,682,000, respectively, representing increases of $2,590,000 and $4,709,000, respectively, from the prior comparable periods in 2022.

Investment income for the three-month and nine-month periods in 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 increases were primarily due to higher yields on the Company's portfolio of debt securities, and to a lesser extent, higher investment balances.

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

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.

Income Tax Expense

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

Three-months Ended Six-months Ended

July 2, 2023 July 3, 2022 $ Change % Change July 2, 2023 July 3, 2022 $ Change % Change

The following 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)

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Effective income tax rate 30 % 14 % 16 % 16 %

The Company’s effective tax rate was 15% and 12% for the three-month and six-month periods ended July 2, 2023, respectively, and 9% and 17% for the same periods in 2022, respectively.

The Company’s effective tax rate was 30% and 16% for the three-month and nine-month periods in 2023, respectively, and 14% and 16% for the same periods in 2022.

The increase in the effective tax rate from 14% to 30% for the three-month period primarily resulted from the impact of discrete tax items.

Compared to a net discrete tax expense recorded for the three-month period in 2023, the Company recorded a net discrete tax benefit for the three-month period in 2022 primarily driven by audit settlements which decreased income tax expense.

The decrease in the effective tax rate from 17% to 12% for the six-month period primarily resulted from the impact of discrete tax items.

The Company recorded a net discrete tax benefit for the six-month period in 2023 due primarily to the release of tax reserves on state tax credits, foreign audit settlements, and adjustments to certain deferred tax assets.

The Company recorded a net discrete tax expense for the six-month period in 2022 primarily driven by an increase in valuation allowance as well as transfer pricing and return-to-provision adjustments which were partially offset by a decrease in tax expense from audit settlements.

Compared to a net discrete tax benefit recorded for the three-month period in 2022, the Company recorded a net discrete tax expense for the three-month period in 2023 primarily driven by return-to-provision adjustments and an adjustment related to deferred state taxes due to a reduction in our blended state rate.

The effective tax rate remained at 16% for both the nine-month periods in 2023 and 2022.

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 $832,453,000 as of July 2, 2023.

The Company has established guidelines relative to credit ratings, diversification, and maturities of its investments to maintain the liquidity and safety of the investment portfolio.

As of July 2, 2023, the Company's portfolio of debt securities was in a net unrealized loss position of $21,823,000.

The Company currently does not intend to sell debt securities in an unrealized loss position to meet current liquidity needs as it has the ability and intention to hold these investments until full value recovery at maturity.

However, if the Company is required to sell these debt securities to meet future liquidity needs, for example, to acquire new businesses or technologies, it is prepared to sell these investments at a loss.

Six-months Ended

July 2, 2023 July 3, 2022 $ Change % Change

Net cash provided by (used in) operating activities $ 57,402 $ 93,629 $ (36,227) (39) %

Net cash provided by (used in) investing activities $ 11,494 $ 75,597 $ (64,103) (85) %

Net cash provided by (used in) financing activities $ (70,668) $ (172,476) $ 101,808 (59) %

As 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 provided by operating activities decreased by $36,227,000 during the six-month period ended 2023 as compared to the same period in 2022.

This decrease was driven by a decline in net income of $43,145,000 resulting primarily from lower revenue year-over-year.

Cash outlays from operating activities in both the six-month periods ended July 2, 2023 and July 3, 2022 consisted of incentive compensation payments that were earned and accrued in 2022 and 2021, respectively.

Net cash provided by operating activities totaled $98,425,000 for the nine-month period in 2023.

Significant uses of cash for the nine-month period consisted of payments made to build up inventory levels, as well as incentive compensation payments made in the first quarter that were earned and accrued in 2022.

Investing activities

Net cash provided by investing activities decreased by $64,103,000 during the six-month period ended 2023 as compared to the same period in 2022.

This decrease was driven by a $48,849,000 decline in cash provided by the maturities and sales of investments and a $16,300,000 increase in cash used in the purchases of investments.

Capital expenditures for the six-month period in 2023 totaled $10,207,000 and consisted primarily of continued investments in business systems related to the Company's sales process, manufacturing test equipment related to new product introductions, and leasehold improvements related to one of the Company's offices in Shanghai, China.

Net cash provided by investing activities totaled $211,768,000 for the nine-month period in 2023.

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 $16,062,000 for the nine-month period in 2023 and consisted primarily of continued investments in business systems related to the Company's sales process, manufacturing test equipment related to new product introductions, and leasehold improvements.

Financing activities

Net cash used in financing activities decreased by $101,808,000 during the six-month period ended 2023 as compared to the same period in 2022.

This decrease was driven by a $105,154,000 decline in cash used to repurchase common stock.

Net cash used in financing activities totaled $92,573,000 for the nine-month period in 2023.

On March 12, 2020, the Company's Board of Directors authorized the repurchase of $200,000,000 of the Company's common stock.

Under this March 2020 program, in addition to repurchases made in prior years, the Company repurchased 1,677,000 shares at a cost of $117,000,000 during the six-month period ended July 3, 2022, which completed purchases under this program.

Under this March 2020 program, in addition to repurchases made in prior years, the Company repurchased 1,677,000 shares, and an additional 5,000 shares that were repurchased in 2021 and settled in 2022, at a cost of $117,000,000 during the nine-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.

Under this March 2022 program, the Company repurchased 590,000 shares at a cost of $37,317,000 during the six-month period ended July 3, 2022.

Under this same March 2022 program, in addition to repurchases made in the prior year, the Company repurchased 966,000 shares at a total cost of $49,163,000 during the six-month period ended July 2, 2023 leaving a remaining balance of $363,523,000 as of July 2, 2023.

Under 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 1,157,000 shares at a total cost of $59,640,000 during the nine-month period ended October 1, 2023, leaving a remaining balance of $353,046,000 as of October 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 $0.070 per share for the first and second quarters of 2023, totaling $24,160,000.

The Company’s Board of Directors declared and paid cash dividends of $0.070 per share for the first, second, and third quarters of 2023, totaling $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.

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The Company's future material cash requirements include contractual obligations related to inventory purchase commitments and leases.

As of July 2, 2023, the Company had inventory purchase commitments of $40,388,000, with the majority payable during 2023, and lease payment obligations of $116,253,000, with $4,863,000 payable during 2023.

During 2023, we also expect significant cash outlays related to the Company's "Emerging Customer" sales initiative as we continue to grow our sales force in order to reach customers who may not be utilizing machine vision to its full potential.

As of October 1, 2023, the Company had 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.

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Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 2. Management’s Discussion and Analysis