What changed in this filing

/stocks — the workspaceLOADING

Item 1. Business

2024-02-15 compared with 2023-02-16 · 69 added, 58 removed, 103 unchanged (55% of the section changed)

5 unchanged sentences

Cognex operates in one segment.

We offer a variety of machine vision products that have similar economic characteristics, production processes, sales distribution channels, and types of customers.

We offer a variety of machine vision products that have similar economic characteristics and are distributed by the same sales channels to the same types of customers.

Cognex sells to customers in nearly all industries in which discrete items are manufactured on an assembly line or moved through a distribution center.

Our largest sales are in the automotive, logistics, and consumer electronics industries, which combined represented approximately 69% of our total revenue in 2022.

Our two largest customers, one in the logistics industry and one in the consumer electronics industry, each represented approximately 11% of our total revenue in 2022.

Our largest industries by revenue are the automotive, logistics, and consumer electronics industries, which combined represented approximately 65% of our total revenue in 2023.

Cognex was incorporated in Massachusetts in 1981.

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.

This results in a broad base of customers across a variety of industries, including automotive, logistics, consumer electronics, medical-related, semiconductor, consumer products, food and beverage, and others.

Virtually every manufacturer or logistics provider can achieve better quality and efficiency by using machine vision.

Cognex is one of the leading machine vision companies in the world.

8 unchanged sentences

Expansion of market position

Our goal is to expand our position as a leading worldwide machine vision provider by growing in our core markets, as well as expanding into new markets and customers with both current and new products and services.

Our goal is to expand our position as a leading worldwide machine vision provider by growing in our core markets, as well as expanding into new markets and with new customers.

We continue to invest in our core markets, such as automotive, logistics, and consumer electronics where we are a leading provider of vision and ID products for factory and warehouse automation.

Within these markets, we are

Table of Content

We continue to invest in our core markets, such as automotive, logistics, and consumer electronics where we are a leading provider of vision and ID products for factory automation.

Within these markets, we are making significant investments to focus on what we believe to be the fastest-growing applications and use cases.

In the logistics market, we are moving beyond barcode reading into more complex applications in e-commerce and omni-channel retail distribution centers, as well as parcel and post warehouses.

In automotive, we are developing new solutions for fast growing electric vehicle manufacturers and suppliers.

making significant investments to focus on what we believe to be the fastest-growing applications and use cases.

In the logistics market, we are moving beyond barcode reading into more complex applications in distribution centers and parcel and post warehouses.

In the automotive market, we are developing new solutions for fast-growing electric vehicle and battery manufacturers and suppliers.

We reach a broad base of customers through our worldwide direct sales force that sells primarily to large, strategic customers, as well as through our network of distributors and integrators that sell primarily to smaller customers who may be more geographically remote or may require supplemental technical support or integration assistance.

Our “Emerging Customer” sales initiative is expanding our sales force to reach customers who may be newer to factory automation and have yet to fully benefit from all that machine vision can offer.

These customers are increasingly looking for automation solutions that are easy to implement, easy to use, and provide the best technology.

Our “Emerging Customer” sales initiative is expanding our sales force to reach customers new to factory automation or new to Cognex, who have yet to fully benefit from all that machine vision can offer.

We believe these potential customers are increasingly looking for automation solutions that are easy to implement, easy to use, and provide the best technology.

We expect our Emerging Customer strategy to broaden our reach, increase penetration, and further diversify our customer base.

2 unchanged sentences

We invest in technology that addresses the most challenging vision applications, such as our deep learning vision software that solves complex applications with unpredictable defects and deviations.

We also invest in technology that makes vision easier to use and more affordable, and therefore, available to a broader base of customers, such as our vision sensor products that enable customers with a lower budget to use machine vision while minimizing installation and applications support.

We also invest in technology that makes vision easier to use and more affordable, and therefore, available to a broader base of customers, such as our vision sensor products that enable customers with less technical capabilities to use machine vision while minimizing installation and applications support.

Inorganic growth

We plan to drive inorganic growth through expansion in adjacent market segments.

We are focusing specifically on segments in which our products and solutions, application expertise, and customer and industry relationships should enable us to provide significant value to end-users.

We plan to drive inorganic growth through expansion in adjacent markets.

We are focusing specifically on markets in which we expect our products and solutions, application expertise, and customer and industry relationships to enable us to provide significant value to end-users.

We seek out selective opportunities in new applications and markets through the acquisition of businesses and technologies that are synergistic with our core markets.

We are selective in choosing businesses and technologies that we believe will enhance long-term growth and profitability, as well as fit within our corporate culture.

We are selective in choosing businesses and technologies that we believe will enhance long-term growth and profitability.

In the fourth quarter of 2023, we acquired Moritex Corporation, a global provider of premium optical components based in Japan.

With an enterprise value of approximately $270 million, this was Cognex's largest acquisition to-date.

We plan to continue to seek acquisition opportunities to expand our product lines, customer base, distribution network, and technical talent.

Sustainable profitability

We are careful in choosing growth opportunities that we believe will maintain our gross margin percentages, which have averaged in the mid-70 percent range in the past several years and reflect the value our customers place on our innovative products.

We prioritize choosing growth opportunities that we believe will maintain our gross margin percentages, which have averaged in the low to mid-70 percent range in the past several years and reflect the value that we believe our customers place on our innovative products.

Our relatively high gross margins have the potential to provide us with strong incremental profit margins, leading to high operating leverage in our financial model.

Our strong and unique corporate culture reinforces our values of customer first and innovation, and enables us to attract and retain smart, enthusiastic, and creative talent who are motivated to solve the most challenging vision tasks both quickly and painlessly for customers.

The automotive market has been one of our largest markets for the past 20 years.

Our End Markets

The automotive market has been one of our largest markets for the past twenty years.

Machine vision is used in almost every step of vehicle manufacturing, from measuring inbound parts, to guiding robot assembly, to inspecting the stitching on leather seats.

1 unchanged sentence

For example, innovations in safety, driver assist, and entertainment features increase the number of items to be placed, tracked, measured, and inspected by machine vision.

We also anticipate a multi-year wave of investment in Electric Vehicle (“EV”) manufacturing equipment, including related to battery manufacturing and inspection.

Cognex works closely with the major EV battery manufacturers in Asia that we believe produce more than 90% of the world’s automotive batteries.

We believe that these manufacturers are positioned to grow within Asia, and to expand both independently and through partnerships in the Americas and Europe, and we anticipate that our existing relationships and proven offerings will position us to

Table of Content

capture a significant share of this growth.

We also anticipate a multi-year wave of investment in Electric Vehicle (“EV”) manufacturing equipment, particularly related to battery manufacturing and inspection.

Cognex works closely with the major EV battery manufacturers who we believe produce the majority of the world’s automotive batteries.

We believe that these manufacturers are positioned to grow within Asia, and to expand both independently and through partnerships in the Americas and Europe.

We expect our existing relationships and proven offerings to position us to capture a significant share of this growth.

These anticipated trends may offset expected reductions in traditional powertrain investments on internal combustion engine vehicles, leading to growth in the automotive market.

Table of Content

Consumer Electronics

We anticipate major investments in new generations of consumer electronics.

We expect leading companies in this space to continue to grow based on new technologies that we expect to succeed and build on the smartphone.

A significant amount of visual inspection in consumer electronics is still done manually by humans.

As labor becomes more costly and increasingly scarcer, these customers are looking for productivity initiatives to automate these processes.

We also expect leading companies in this space to continue to grow based on new technologies that we expect to succeed and build on the smartphone.

We believe new devices will be difficult to manufacture on a large scale, and therefore will require more innovative vision products in that process.

Cognex has close relationships with the largest and most sophisticated companies in the consumer electronics market, and we expect to be a partner of choice as they bring new technologies to market.

Logistics has been one of our largest growth drivers over the past five years and has become one of our largest end markets.

We believe that our e-commerce logistics business is differentiated by the high performance of our bar-code reading and that growth will be driven by retailers investing in online fulfillment.

We believe our e-commerce logistics business is differentiated by the high performance of our bar-code reading and that potential growth will be driven by retailers investing in online fulfillment.

From an automation perspective, the logistics industry is still in its early stages with a large reliance on human labor and a low rate of robotic automation.

Beyond barcode reading, we expect vision applications in logistics to grow quickly and become a more substantial business for us.

Vision applications include tasks like inspecting packages for damage, object and symbol recognition, and dimensioning.

Geographically, our current logistics business is primarily within the U.S., but, over the long term, we expect to realize the highest rates of growth in Europe and Asia, where we believe customers are beginning to catch up with the U.S.

in logistics automation technology and are moving away from local incumbent suppliers.

In 2022, we saw a slowdown in this end market as the leading e-commerce players took a post-pandemic “time out” to absorb excess capacity, but we currently continue to expect logistics to be our highest growth end market over the mid to long term.

Vision applications include tasks such as inspecting packages for damage, object and symbol recognition, and dimensioning.

Geographically, our current logistics business is primarily within the United States, but, over the long term, we expect to realize the highest rates of growth in Europe and Asia, where we believe customers are beginning to catch up with the United States in logistics automation technology and are moving away from local incumbent suppliers.

Leading e-commerce players have taken a post-pandemic “time out” to absorb excess capacity since early 2022, but we currently continue to expect logistics to be our highest-growth end market over the mid to long-term.

Medical-Related

Cognex has a growing customer base of life science equipment suppliers.

Cognex has an established customer base of life science equipment suppliers.

Our products are specified in over 100 different machine designs, many of which are in the process of obtaining regulatory approval.

As they launch, we believe they will deliver many years of recurring revenue.

As they launch, we believe they will provide the opportunity to deliver many years of recurring revenue.

Applications in this market include lab automation and medical device inspection applications.

In recent years, we also have seen demand for machine vision grow from manufacturers of diagnostic tests, vaccines, and protective equipment.

The number of end markets with a need for machine vision applications is expanding.

Other end market uses of Cognex machine vision include manufacturers of semiconductors, regulated products reducing counterfeiting, food producers improving food safety, manufacturers using 3D measurement for robotic guidance, and many others.

During the COVID pandemic, we saw demand for machine vision grow from manufacturers of diagnostic tests, vaccines, and protective equipment.

The number of end markets that can benefit from machine vision applications is expanding.

Other end market uses of Cognex machine vision include semiconductor manufacturers identifying defects, regulated manufacturers reducing counterfeiting, food producers improving food safety, and manufacturers using 3D measurement for robotic guidance.

Products and Technology

6 unchanged sentences

Vision sensors can deliver an easy-to-use, low-cost, reliable solution for simple pass/fail inspections, such as checking the presence and size of parts.

In-Sight vision systems and sensors, which include 2D, 3D, deep learning, and edge learning models, meet various price and performance requirements for factory automation customers.

In-Sight® vision systems and sensors include our 2D and 3D vision systems, as well as our In-Sight SnAPP™ sensor.

These products leverage various forms of artificial intelligence, including rule-based coding, as well as deep learning and edge learning technology leveraging pre-trained models powered by neural networks.

Our product portfolio meets the varying price and performance requirements of our broad base of industrial customers.

Our deep learning-based systems automate and solve complex inline inspections that typically require human judgment for defect detection, optical character recognition (OCR), assembly verification, or classification.

6 unchanged sentences

Industrial Image-Based Barcode Readers

Cognex industrial image-based barcode readers quickly and reliably read 1D, 2D, label-based, and direct part mark (DPM) codes found in nearly every industry including automotive, consumer products, medical-related, and logistics.

The DataMan® product line, which includes fixed-mount and handheld models, as well as barcode verifiers, help organizations optimize performance, increase throughput, and control traceability.

Vision Accessories

Cognex vision accessories are designed for easy integration with Cognex products and applications.

Cameras are available in both area scan and line scan formats to address a wide variety of applications.

Lenses and lighting are also available in both embedded and component formats to provide high-quality image acquisition, including a portfolio of premium optical components that were added to the Company's vision accessory portfolio with the acquisition of Moritex Corporation in the fourth quarter of 2023.

From value solutions to high-performance hardware, Cognex offers industrial cameras, lenses, lighting, vision controllers, frame grabbers, and I/O cards to meet any requirement.

Research, Development, and Engineering

2 unchanged sentences

In addition, we consider our ability to accelerate time to market for new products to be critical to our revenue growth .

We incurred RD&E costs of approximately $141 million, $135 million, and $131 million for the years ended December 31, 2022, 2021 and 2020, respectively.

We expect to continue our commitment to RD&E, even during periods of lower revenue levels, to introduce new products, platforms, and solutions throughout economic cycles.

We incurred RD&E costs of approximately $139 million (17% of revenue), $141 million (14% of revenue), and $135 million (13% of revenue) for the years ended December 31, 2023, 2022 and 2021, respectively.

We expect to continue our commitment to RD&E, even during periods of lower revenue levels, to introduce new platforms, products, and solutions throughout economic cycles.

Intellectual Property

1 unchanged sentence

While our intellectual property rights are important to our success, we believe that our business as a whole is not materially dependent on any particular patent, trademark, copyright, or other intellectual property right.

Cognex’s hardware products are manufactured utilizing third-party contractors, whereby the majority of component procurement, system assembly, and initial testing are performed by electronics manufacturing services suppliers.

Most of Cognex’s hardware products are manufactured utilizing third-party contractors, whereby the majority of component procurement, system assembly, and initial testing are performed by electronics manufacturing services suppliers.

With the acquisition of Moritex Corporation in the fourth quarter of 2023, Cognex began in-house manufacturing of optical components, such as lenses and lighting.

Cognex’s primary contract manufacturer is located in Indonesia.

Our contract manufacturers use specified components sourced from vendor lists approved by Cognex and assembly/test processes created and controlled by Cognex.

After the completion of initial testing, assembled products from our contract manufacturers are routed to our distribution centers in Cork, Ireland or Southborough, Massachusetts, USA, where trained Cognex personnel load Cognex software onto the products, provide additional assembly and image alignment as needed, and perform quality control procedures.

Fully configured finished products for customers in the Americas, with the exception of certain products stocked locally in Mexico, are then shipped from our Southborough, Massachusetts distribution center, while finished products for customers outside of the Americas are shipped from our Cork, Ireland distribution center.

After the completion of initial testing, assembled products from our contract manufacturers are routed to our distribution centers where trained Cognex personnel load Cognex software onto the products, provide additional assembly and image alignment as needed, and perform quality control procedures.

Cognex ships finished products for customers located in the Americas from our Southborough, Massachusetts distribution center, for customers located in Europe from our Cork, Ireland distribution center, and for customers located in Asia from our Singapore distribution center that became operational during the fourth quarter of 2023.

Sales Channels and Support Services

Cognex sells its products through a worldwide direct sales force that primarily focuses on the development of strategic accounts which generate or are expected to generate significant sales volume, as well as through a global network of distribution and integration partners.

Our distribution partners provide sales and local support to help Cognex reach the many prospects for our products in factories around the world, and our integration partners are experts in vision and complementary technologies that can provide turnkey solutions for complex automation projects using vision.

Our distribution partners provide sales and local support to help Cognex reach the many prospects for our products in factories around the world, and our integration partners are

Table of Content

experts in vision and complementary technologies that can provide turnkey solutions for complex automation projects using vision.

Through each of these channels, sales engineers call directly on targeted accounts, with the assistance of application engineers, and manage the activities of our distribution and integration partners within their territories in order to provide an advantageous sales model for our products.

Towards the end of 2022, we also began to build out our Emerging Customer sales force that primarily focuses on establishing relationships and selling into new accounts which are newer to factory automation and Cognex.

Sales to customers based outside of the United States represented approximately 66% of our total revenue in 2022, with approximately 23% from customers based in Europe, 23% from customers based in Greater China, and 20% from customers based in other regions outside the United States.

In 2023, we began ramping up an Emerging Customer sales force that primarily focuses on selling into accounts which are new to machine vision or Cognex.

Sales to customers based outside of the United States represented approximately 66% of our total revenue in 2023, with approximately 26% from customers based in Europe, approximately 20% from customers based in Greater China, and approximately 20% from customers based in other regions outside the United States.

Sales to customers based in Europe are denominated in Euros and U.S.

Dollars, sales to customers based in Greater China are denominated in Renminbi

Table of Content

for sales within Mainland China and U.S.

Dollars, sales to customers based in Greater China are denominated in Renminbi for sales within Mainland China and U.S.

Dollars in other territories, and sales to customers based in other regions are denominated in U.S.

Dollars, Japanese Yen, Korean Won, and Mexican Pesos.

Dollars, Korean Won, Japanese Yen, Mexican Pesos, and Indian Rupee.

Cognex’s service offerings represent less than 10% of our total revenue and include maintenance and support, consulting, and training services.

Maintenance and support programs can include hardware support programs that entitle customers to have products repaired, as well as software support programs that provide customers with application support and software updates to the latest software releases.

Maintenance and support programs include hardware support programs that entitle customers to have products repaired, as well as software support programs that provide customers with application support and software updates to the latest software releases.

Application support is provided by technical support personnel located at Cognex regional offices, as well as by field service engineers that provide support at the customer’s production site.

2 unchanged sentences

Human Capital

Our employees are our most valuable asset and critical to our success.

Our employees are our most valuable asset and are critical to our success.

We create and maintain an environment where “Cognoids,” a unique name for our employees, can engage with each other, perform their best work, develop their careers, and be creative.

10 unchanged sentences

To preserve and enhance our corporate culture, while recognizing differences across and within regions, we have a global team of Cognoids who serve as Ministers of Culture, led by our Chief Culture Officer.

We believe in investing in tools and resources that support employees’ learning and development and setting a compensation structure that reflects the Company’s commitment to pay-for-performance philosophy.

We believe these efforts align with our stockholders’ long-term interests and better position Cognex to operate as a leader in the machine vision industry.

We believe these efforts align with our stockholders’ long-term interests and better position Cognex to continue to operate as a leader in the machine vision industry.

Diversity, Equity, Inclusion, and Belonging

1 unchanged sentence

We are excited about the opportunities to continue to build an organization that reflects the best of the world around us.

As a multi-national company where over half our Cognoids live outside the U.S., diversity means different things to different groups.

As a multi-national company where over half our Cognoids live outside the United States, diversity means different things to different groups.

We are building strategies and plans to continue to enhance our diversity, equity, inclusion, and belonging (DEIB) initiatives.

One specific place where this evolution is visible is through the launch of our DEIB Council.

The Council is led by Cognex’s Vice President of Solutions and is comprised of over 50 volunteer Cognoids representing a broad cross-section of functions, geographies, and backgrounds.

The Council is led by our Chief Culture Officer and is comprised of over thirty volunteer Cognoids representing a broad cross-section of functions, geographies, and backgrounds.

Regulatory Compliance

Cognex’s capital expenditures, earnings, and competitive position are not materially affected by compliance with federal, state, and local environmental provisions which have been enacted or adopted to regulate the distribution of materials into the environment.

Table of Content

Available Information

Cognex maintains a website at www.cognex.com.

We make available, free of charge, on our website in the “Company” section under the caption “Investor Information” followed by “Financial Reports” and then “SEC FiIings,” our Annual Report on Form 10-K, Quarterly Reports on Form 10-Q, and Current Reports on Form 8-K, including exhibits, and amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended, as soon as reasonably practicable after such reports are electronically filed with, or furnished to, the SEC.

We make available, free of charge, on our website in the “Company” section under the caption “Investor Information” followed by “Financial Reports” and then “SEC FiIings,” our Annual Report on Form 10-K, Quarterly Reports on Form 10-Q, and Current Reports on Form 8-K, including exhibits, and amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), as soon as reasonably practicable after such reports are electronically filed with, or furnished to, the SEC.

Cognex’s reports filed with, or furnished to, the SEC are also available at the SEC’s website at www.sec.gov.

1 unchanged sentence

Information contained on our website is not a part of, or incorporated by reference into, this Annual Report on Form 10-K or in any other document or report that Cognex files with the SEC, and any references to Cognex's website are intended to be inactive textual references only.

Table of Content

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-K

Item 1. Business