What changed in this filing

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Item 2. Management’s Discussion and Analysis

2024-05-02 compared with 2023-10-31 · 94 added, 133 removed, 82 unchanged (73% of the section changed)

1 unchanged sentence

Forward-Looking Statements

Certain statements made in this report, as well as oral statements made by the Company from time to time, constitute forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended.

Readers can identify these forward-looking statements by our use of the words “expects,” “anticipates,” “estimates,” “potential,” “believes,” “projects,” “intends,” “plans,” “will,” “may,” “shall,” “could,” “should,” and similar words and other statements of a similar sense.

Readers can identify these forward-looking statements by our use of the words “expects,” “anticipates,” “estimates,” "potential," “believes,” “projects,” “intends,” “plans,” “will,” “may,” “shall,” “could,” “should,” "opportunity," "goal" and similar words and other statements of a similar sense.

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

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

These forward-looking statements, which include statements regarding business and market growth opportunities and trends, future financial performance and financial targets, customer demand and order rates and timing of related revenue, managing supply challenges, delivery lead times, future product mix, research and development activities, sales and marketing activities (including our Emerging Customer Program), new product offerings and product development activities, customer acceptance of our products, the potential effects of emerging technologies, capital expenditures, cost management activities, investments, liquidity, dividends and stock repurchases, strategic and growth plans, our ability to maintain and grow key relationships, acquisitions, and estimated tax benefits and expenses and other tax matters, involve known and unknown risks and uncertainties that could cause actual results to differ materially from those projected.

Such risks and uncertainties include:

(1) the reliance on key suppliers, such as our primary contract manufacturer, to manufacture and deliver products;

(2) delays in the delivery of our products, the failure to meet delivery schedules, and resulting customer dissatisfaction or loss of sales;

(1) the technological obsolescence of current products and the inability to develop new products, particularly in connection with emerging artificial intelligence technologies;

(2) the impact of competitive pressures;

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

(4) the failure to properly manage the distribution of products and services;

(5) economic, political, and other risks associated with international sales and operations, including the impact of trade disputes, the economic climate in China, and the wars in Ukraine and Israel;

(6) the challenges in integrating and achieving expected results from acquired businesses, including our acquisition of Moritex Corporation;

(7) information security breaches;

(8) the failure to comply with laws or regulations relating to data privacy or data protection;

(9) the inability to protect our proprietary technology and intellectual property;

(10) the failure to manufacture and deliver products in a timely manner;

(11) 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 which could result in excess or obsolete inventory and resulting charges;

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

(13) the inability to manage disruptions to our distribution centers or to our key suppliers;

(6) the expected impact of the fire at our primary contract manufacturer's plant and related recoveries;

(14) the inability to design and manufacture high-quality products;

(15) the loss of, or curtailment of purchases by, large customers in the logistics, consumer electronics, or automotive industries;

(9) information security breaches;

(10) the failure to comply with laws or regulations relating to data privacy or data protection;

(11) the inability to protect our proprietary technology and intellectual property;

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

(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, including Moritex Corporation;

(17) potential disruptions in our business systems;

(16) potential impairment charges with respect to our investments or acquired intangible assets;

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(18) fluctuations in foreign currency exchange rates and the use of derivative instruments;

(21) unfavorable global economic conditions, including increases in interest rates and high inflation rates;

(19) unfavorable global economic conditions, including high interest rates and fluctuating inflation rates;

(20) 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, the Russia-Ukraine war, and the Israel-Hamas war;

(21) 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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Cognex Corporation (the "Company”) invents and commercializes technologies that address some of the most critical manufacturing and distribution challenges.

We are a leading global provider of machine vision products and solutions that improve efficiency and quality in high-growth potential businesses across attractive industrial end markets.

We are a leading global provider of machine vision products and solutions that seek to improve efficiency and quality in a wide range of businesses across attractive industrial end markets.

In addition to product revenue derived from the sale of machine vision products, the Company also generates revenue by providing maintenance and support, consulting, and training services to its customers;

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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 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).

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.

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

Revenue for the first quarter of 2024 totaled $210,797,000, representing an increase of 5% from the first quarter of 2023.

The increase was primarily driven by incremental revenue arising from the acquisition of Moritex Corporation ("Moritex") that closed in the fourth quarter of 2023 and a strategic logistics project that completed in the first quarter of 2024, partially offset by lower spending trends across our factory automation business.

Gross margin as a percentage of revenue was 67% for the first quarter of 2024 as compared to 71% for the first quarter of 2023 due primarily to the impact of a less favorable revenue mix and charges related to the Moritex acquisition.

Operating expenses for the first quarter of 2024 increased 5% from the first quarter of 2023.

Investments in our “Emerging Customer” sales initiative and incremental costs related to the acquisition of Moritex were partially offset by the impact of cost management activities and lower stock-based compensation expense.

Operating income decreased to 7% of revenue for the first quarter of 2024 as compared to 11% of revenue for the first quarter of 2023.

The lower gross margin percentage and continued investment in our "Emerging Customer" sales initiative more than offset higher revenue levels.

This lower level of operating income, as well as the unfavorable impact of discrete tax items, resulted in net income of 6% of revenue, or $0.07 per diluted share, for the first quarter of 2024, as compared to 13% of revenue, or $0.15 per diluted share, for the first quarter of 2023.

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 $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)

Revenue increased by $9,673,000, or 5%, for the three-month period as compared to the same period in 2023.

Revenue from the acquisition of Moritex that closed in the fourth quarter of 2023 contributed just under 8% to total revenue.

Revenue from Moritex and a strategic logistics project that completed in the first quarter of 2024 was partially offset by lower spending trends across our factory automation business, most notably in the automotive and consumer electronics industries.

The year-over-year decrease in automotive revenue was due to continued softness across the non-electric vehicle business, as well as delayed spending from electric vehicle battery manufacturers.

Excluding the strategic project, logistics revenue was relatively flat year-over-year.

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 periods ended March 31, 2024 and April 2, 2023.

Three-months Ended

March 31, 2024 April 2, 2023 $ Change % Change

Americas $ 83,135 $ 80,442 $ 2,693 3 %

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Changes in revenue from a geographic perspective were as follows:

• 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)

• Revenue from customers based in the Americas increased by 3% for the three-month period as compared to the same period in 2023.

The increase was primarily driven by a strategic logistics project completed in

the first quarter of 2024, partially offset by continued softness across our factory automation business.

• Revenue from customers based in Europe decreased by 13% for the three-month period as compared to the same period in 2023.

Similar to the Americas, the Europe region continued to experience broader softness across our factory automation business.

• Revenue from customers based in Greater China decreased by 9% for the three-month period as compared to the same period in 2023.

The Greater China region continued to experience a challenging business environment.

The impact of lower spending trends was partially offset by the revenue contribution from the Moritex acquisition, as well higher revenue related to a large consumer electronics customer.

• Revenue from customers based in other countries in Asia increased by 64% for the three-month period as compared to the same period in 2023.

The increase was primarily driven by incremental revenue related to the acquisition of Moritex, for which the majority of revenue currently comes from customers based in Japan, as well as higher revenue from customers in the semiconductor and logistics industries.

The following table sets forth our gross margin (in thousands) for the three-month periods ended March 31, 2024 and April 2, 2023.

Three-months Ended

March 31, 2024 April 2, 2023 $ Change % Change

Gross margin $ 141,937 $ 143,740 $ (1,803) (1) %

Percentage of total revenue 67 % 71 %

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.

Gross margin as a percentage of revenue was 67% and 71% for the three-month periods in 2024 and 2023, respectively.

The decrease was due to less favorable revenue mix in the first quarter of 2024 that included a strategic logistics project and Moritex products, both at lower-than-average gross margins.

The lower gross margin percentage was also due to charges related to the Moritex acquisition that closed in the fourth quarter of 2023 that included the amortization of acquired technologies (approximately $900,000) and the final sell-through of acquired inventories that were written up to fair value (approximately $1,200,000).

These decreases were partially offset by lower inventory costs driven by a reduction in premiums paid to brokers for the purchase of components as supply chain constraints eased.

Operating Expenses

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)

The following table sets forth our operating expenses (in thousands) for the three-month periods ended March 31, 2024 and April 2, 2023.

Three-months Ended

March 31, 2024 April 2, 2023 $ Change % Change

Research, development, and engineering expenses $ 37,105 $ 38,542 $ (1,437) (4) %

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Percentage of total revenue 43 % 41 %

Loss (recovery) from fire $ (2,750) $ 2,891 $ (5,641) (195) % $ (5,250) $ 20,294 $ (25,544) (126) %

Percentage of total revenue (1) % 1 % (1) % 3 %

Total operating expenses $ 127,733 $ 121,579 $ 6,154 5 %

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Research, Development, and Engineering Expenses

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.

Research, development, and engineering (RD&E) expenses decreased by $1,437,000, or 4%, for the three-month period as compared to the same period in 2023, primarily from lower stock-based compensation expense due to the impact of forfeiture adjustments.

Personnel-related costs remained relatively flat, as the additional costs associated with a new team of optical engineers that joined Cognex with the acquisition of Moritex in the fourth quarter of 2023 were offset by lower deferred compensation costs related to the 2019 acquisition of Sualab Co, Ltd.

that were fully paid in October 2023 and cost management activities that included the realignment of headcount to business levels.

RD&E expenses as a percentage of revenue were 18% and 19% for the three-month periods in 2024 and 2023, respectively.

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

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

These percentages are impacted by revenue levels and investing cycles.

These percentages are impacted by revenue levels and investment cycles.

Selling, General, and Administrative Expenses

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 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.

Loss (Recovery) from Fire

On June 7, 2022, the Company’s primary contract manufacturer experienced a fire at its plant in Indonesia.

The fire destroyed a significant amount of Cognex-owned consigned inventories, as well as component inventories owned by the contract manufacturer that were designated for Cognex products.

There was no significant damage to the Company's production equipment.

Since the date of the fire, the Company has worked with the contract manufacturer to resume production, maintain standards of product quality, and replenish inventories destroyed by the fire.

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.

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.

Selling, general, and administrative (SG&A) expenses increased by $7,591,000, or 9%, for the three-month period as compared to the same period in 2023.

The increase in SG&A expenses was primarily due to increased costs related to our “Emerging Customer” sales initiative, including additional headcount, travel expenses, and marketing costs.

We launched this initiative in 2023 to serve a broader customer base and deepen penetration of less served markets, and are continuing to increase our investment in 2024.

Costs related to the acquisition of Moritex that closed in the fourth quarter of 2023 also contributed to the higher SG&A expenses.

These costs included additional sales and support personnel-related costs, the amortization of acquired customer relationships and trademarks (approximately $1,200,000), and integration costs (approximately $1,300,000).

Lower stock-based compensation expense and cost management activities helped to offset the increase in SG&A expenses, including the realignment of headcount to support the Emerging Customer sales initiative.

Non-operating Income (Expense)

The following table sets forth our non-operating income (expense) (in thousands) for the three-month and nine-month periods ended October 1, 2023 and October 2, 2022 with the dollar and percentage changes between the corresponding periods.

Three-months Ended Nine-months Ended

October 1, 2023 October 2, 2022 $ Change % Change October 1, 2023 October 2, 2022 $ Change % Change

(unaudited) (unaudited)

The following table sets forth our non-operating income (expense) (in thousands) for the three-month periods ended March 31, 2024 and April 2, 2023.

Three-months Ended

March 31, 2024 April 2, 2023 $ Change % Change

Foreign currency gain (loss) $ 46 $ 394 $ (348) (88) %

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Total non-operating income (expense) $ 3,362 $ 4,054 $ (692) (17) %

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.

The Company recorded foreign currency gains of $46,000 and $394,000 for the three-month periods in 2024 and 2023, respectively, primarily resulting 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 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 $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.

Investment income decreased by $467,000, or 13%, for the three-month period as compared to the same period in 2023.

The decrease was primarily due to lower average investment balances, partially offset by higher yields on the Company's portfolio of debt securities.

During the fourth quarter of 2023, net cash payments related to the acquisition of Moritex reduced cash available to invest by approximately $257 million, which resulted in lower investment income for the first quarter of 2024.

The Company recorded other income of $196,000 and $73,000 for the three-month periods in 2024 and 2023, respectively.

Income Tax Expense

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)

The following table sets forth income tax information (in thousands) for the three-month periods ended March 31, 2024 and April 2, 2023.

Three-months Ended

March 31, 2024 April 2, 2023 $ Change % Change

Income before income tax expense $ 17,566 $ 26,215 $ (8,649) (33) %

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Effective income tax rate 32 % 2 %

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 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.

The Company’s effective tax rate was 32% and 2% for the three-month periods in 2024 and 2023, respectively.

The Company recorded a net discrete tax expense of $3,085,000 for the three-month period in 2024 driven by unfavorable adjustments to certain tax assets and reserves, while in the three-month period in 2023 the Company recorded a net discrete tax benefit of $3,594,000 driven by the release of tax reserves on state tax credits and favorable adjustments to certain deferred tax assets.

Excluding the impact of all discrete tax items, the Company's effective tax rate was 14% and 16% for the three-month periods in 2024 and 2023, respectively.

The decrease was primarily due to more of the Company's profits being taxed in relatively lower tax rate jurisdictions, as well as an increase in available tax credits.

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 $845,639,000 as of October 1, 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 October 1, 2023, the Company's portfolio of debt securities was in a net unrealized loss position of $19,753,000.

As of March 31, 2024, the Company's portfolio of debt securities was in a net unrealized loss position of $9,492,000.

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 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.

Net cash provided by operating activities totaled $13,643,000 for the three-month period in 2024.

Significant uses of cash consisted of an increase in accounts receivable primarily related to the seasonality of large consumer electronics orders, as well as purchases of inventory.

Investing activities

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.

Net cash used in investing activities totaled $49,023,000 for the three-month period in 2024.

Investing activities included capital expenditures that totaled $4,061,000 and consisted primarily of continued investments in business systems, manufacturing test equipment related to new product introductions, as well as building and leasehold improvements.

Financing activities

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, 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 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.

Net cash used in financing activities totaled $25,088,000 for the three-month period in 2024.

In March 2022, the Company's Board of Directors authorized the repurchase of $500,000,000 of the Company's common stock.

Under this March 2022 program, the Company repurchased 231,000 shares at a total cost of $9,339,000 during the three-month period in 2024, leaving a remaining balance of $323,553,000 as of March 31, 2024.

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, second, and third quarters of 2023, totaling $36,209,000.

The Company’s Board of Directors declared and paid cash dividends of $0.075 per share for the first quarter of 2024, totaling $12,888,000.

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 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.

As of March 31, 2024, the Company had inventory purchase commitments of $40,843,000, with the majority payable in the next twelve months, and lease payment obligations of $116,434,000, with $13,809,000 payable in the next twelve months.

Other significant and/or expected cash outlays for 2024 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 expect to continue to make significant cash outlays related to our Emerging Customer sales initiative as we continue to grow our sales force in order to to serve a broader customer base and deepen penetration of less served markets.

• The Tax Cuts and Jobs Act of 2017 subjected unrepatriated foreign earnings to a one-time transition tax.

As of March 31, 2024, the Company had a remaining balance payable of $33,006,000 through 2025.

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