What changed in this filing

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Item 7. Management’s Discussion and Analysis

2025-02-13 compared with 2024-02-15 · 92 added, 234 removed, 130 unchanged (71% 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 growth opportunities and trends, future financial performance and financial targets, 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 (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, the expected impact of the fire at our primary contract manufacturer's plant on our assets, business and results of operations and related insurance recoveries, 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, customer demand and order rates and timing of related revenue, future product or revenue mix, research and development activities, sales and marketing activities, new product offerings, innovation and product development activities, customer acceptance of our products, capital expenditures, cost and working capital management activities, investments, liquidity, dividends and stock repurchases, strategic and growth plans and opportunities, 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:

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(2) the impact of competitive pressures;

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

(3) the inability to attract and retain skilled employees, effectively plan for succession, 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 on the economic climate in China and the wars in Ukraine and Israel;

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

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

(7) uncertainty surrounding our future capital needs;

(8) information security breaches;

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(12) the inability to obtain, or the delay in obtaining, components for our products at reasonable prices;

(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;

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

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

(15) challenges in accurately forecasting our financial results due to seasonal and cyclical variations in customer purchasing patterns;

(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;

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

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

(19) unfavorable global economic conditions, including increases in interest rates and elevated inflation rates;

(20) business disruptions from natural or man-made disasters, public health crises, or other events outside our control;

(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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however, service revenue accounted for less than 10% of total revenue for all periods presented.

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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.

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 year ended December 31, 2023 totaled $837,547,000, representing a decrease of 17% from the prior year 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.

Gross margin as a percentage of revenue remained consistent with the prior year at 72%, as the deleveraging impact of lower sales volume, less favorable revenue mix, and charges related to the acquisition of Moritex Corporation in the fourth quarter of 2023 were offset by lower inventory costs due to a reduction in premiums paid to brokers for the purchase of components.

Operating expenses were relatively flat with the prior year, as the favorable year-over-year impact of losses from the fire at our contract manufacturer in 2022 compared to recoveries from the fire in 2023, lower incentive compensation, and cost management activities were offset by investments in our “Emerging Customer” sales initiative and costs related to the acquisition of Moritex Corporation in the fourth quarter of 2023.

Operating income decreased to 16% of revenue in 2023 compared to 24% of revenue in 2022 driven by the operating deleveraging resulting from the lower revenue levels.

This lower level of operating income resulted in net income of 14% of revenue in 2023 compared to 21% of revenue in 2022, and net income per diluted share of $0.65 in 2023 compared to $1.23 in 2022.

This results in a broad base of potential customers across a

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variety of industries, including logistics, automotive, consumer electronics, semiconductor, consumer products, medical-related, and food and beverage.

Revenue was $914,515,000 in 2024, representing an increase of 9% over the prior year.

The increase was due to incremental revenue arising from the acquisition of Moritex Corporation (“Moritex”) that closed in the fourth quarter of 2023, as well as higher revenue from customers in the logistics and semiconductor industries.

These increases were partially offset by lower revenue from customers in the automotive industry and softness across our broader factory automation business.

Gross margin was 68% in 2024 compared to 72% in 2023.

The decrease was primarily due to a less favorable revenue mix related to the contribution of Moritex and higher logistics revenue, and to a lesser extent, the impact of pricing pressures.

Operating expenses increased 9% over the prior year.

Investments intended to expand our sales coverage, incremental costs related to the acquisition of Moritex, and higher incentive compensation expenses were partially offset by disciplined cost management and lower total headcount.

Cost recoveries recorded in 2023 related to the 2022 fire at the Company’s contract manufacturer also contributed to the increase.

Operating income decreased to 13% of revenue in 2024 compared to 16% of revenue in 2023 driven by the lower gross margin percentage.

Net income decreased to 12% of revenue, or $0.62 per share, in 2024 compared to 14% of revenue, or $0.65 per share, in 2023.

The following table sets forth certain consolidated financial data as a percentage of revenue:

Year Ended December 31,

2022 (1) 2021

Revenue 100 % 100 % 100 %

Cost of revenue 32 28 28

Gross margin 72 72 73

Gross profit 68 72 72

Research, development, and engineering expenses 15 17 14

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RESULTS OF OPERATIONS

As foreign currency exchange rates are a factor in understanding period-to-period comparisons, we believe the presentation of results on a constant-currency basis in addition to reported results helps improve investors’ ability to understand our operating results and evaluate our performance in comparison to prior periods.

We also use results on a constant-currency basis as one measure to evaluate our performance.

Constant-currency information compares results between periods as if exchange rates had remained constant period-over-period.

We generally refer to such amounts calculated on a constant-currency basis as excluding the impact of foreign currency exchange rate changes.

Results on a constant-currency basis are not in accordance with accounting principles generally accepted in the United States of America (U.S.

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

Year Ended December 31, 2024 Compared to Year Ended December 31, 2023

Revenue for the year ended December 31, 2023 was $837,547,000 compared to $1,006,090,000 for the prior year, representing a decrease of 17%.

Changes in foreign exchange rates resulted in a lower level of reported revenue in 2023 as compared to 2022.

Excluding the impact of foreign currency exchange rate changes, revenue decreased

Revenue was $914,515,000 in 2024 compared to $837,547,000 in 2023, representing an increase of 9%.

Revenue from the acquisition of Moritex that closed in the fourth quarter of 2023 represented approximately 8% of total revenue in 2024 and 1% of total revenue in 2023.

Excluding the contribution of Moritex, revenue increased by 1% in 2024 over the prior year due to higher revenue from customers in the logistics and semiconductor industries, partially offset by lower revenue from customers in the automotive industry and softness across our broader factory automation business.

Changes in revenue from an end-market perspective, including Moritex, were as follows:

• Revenue from the logistics industry represented approximately 23% of total revenue in 2024 and increased by 20% from the prior year due to investment by e-commerce customers.

• Revenue from the automotive industry represented approximately 22% of total revenue in 2024 and decreased by 12% from the prior year due to continued weakness in this industry, including lower investment related to electric vehicles.

• Revenue from the consumer electronics industry represented approximately 17% of total revenue in 2024 and increased by 3% from the prior year due to the contribution of Moritex, as well as higher large customer demand.

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by 16% compared to 2022.

On October 18, 2023, Cognex acquired Moritex Corporation, a global provider of premium optical components based in Japan.

During the integration period, Cognex is consolidating Moritex results one month in arrears, and therefore, revenue for the fourth quarter of 2023 included six weeks of Moritex revenue totaling approximately $7,000,000.

The majority of this revenue was from customers based in Asia in similar industries as Cognex’s historical revenue.

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.

Revenue from the automotive industry, our largest market in both 2023 and 2022, decreased approximately 6% from the prior year.

Although automotive revenue related to investment in electric vehicle battery applications grew year-over-year, this increase was more than offset by lower automotive revenue outside of electric vehicle battery applications.

Revenue from the logistics industry decreased approximately 21% from the prior year.

Excluding the decreases in revenue from a few large e-commerce customers, revenue from the remainder of the logistics industry grew, as the broader base of logistics customers continued to invest in automation.

Revenue from the consumer electronics industry decreased approximately 31% from the prior year, with a large portion of the decrease coming from lower large-customer demand.

• Revenue from the semiconductor industry represented approximately 11% of total revenue in 2024 and grew by 80% from the prior year due to the contribution of Moritex, as well as higher global demand for computing chips.

The following table sets forth our disaggregated revenue information by geographic area based on the customers' country of domicile (in thousands) for the years ended December 31, 2024 and 2023.

Twelve-months Ended

December 31, 2023 December 31, 2022 $ Change % Change

December 31, 2024

December 31, 2023

$ Change % Change

Americas $ 350,155 $ 330,415 $ 19,740 6 %

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Total revenue $ 914,515 $ 837,547 $ 76,968 9 %

Changes in revenue from a geographic perspective were as follows:

• Revenue from customers based in the Americas decreased by 15% from the prior year driven by lower revenue in the logistics industry due to the continued pause in investments by a few large e-commerce customers.

Revenue from industries outside of logistics also declined from the prior year, most notably in medical-related industries that had benefited from COVID-related applications in prior years.

Changes in revenue from a geographic perspective, including Moritex, were as follows:

• Revenue from customers based in the Americas increased by 6% from the prior year.

Strong growth in logistics was partially offset by weakness in the automotive industry.

• Revenue from customers based in Europe decreased by 1% from the prior year.

Changes in foreign currency exchange rates resulted in a higher level of reported revenue in 2023, as the U.S.

Dollar weakened versus the Euro and sales denominated in Euros were translated into U.S.

Dollars at a higher rate.

Excluding the impact of foreign currency exchange rate changes, revenue from customers based in Europe decreased by 8% from the prior year.

The decrease came from customers in a variety of industries, most notably the logistics and consumer electronics industries.

• Revenue from customers based in Greater China decreased by 28% from the prior year.

Changes in foreign currency exchange rates resulted in a lower level of reported revenue in 2023, due to the impact of sales denominated in Chinese Renminbi.

Excluding the impact of foreign currency exchange rate changes, revenue from customers based in Greater China decreased by 23% from the prior year.

The decrease was driven by lower revenue in the consumer electronics industry, particularly due to lower large-customer demand.

Challenging business conditions in China also resulted in broad-based declines in revenue from customers in a variety of industries, most notably the automotive and semiconductor industries.

• Revenue from other countries in Asia decreased by 20% from the prior year.

Changes in foreign currency exchange rates resulted in a lower level of reported revenue in 2023, primarily from sales denominated in Japanese Yen and Korean Won.

Excluding the impact of foreign currency exchange rate changes, revenue from other countries in Asia decreased by 17% from the prior year.

The decrease was driven by lower

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revenue in the semiconductor and consumer electronics industries, and, to a lesser extent, the automotive industry.

Revenue from Moritex customers based in Japan in the fourth quarter of 2023 was not material to the overall trend in the other countries in Asia region that includes Japan.

The following table sets forth our gross margin (in thousands) for the years ended December 31, 2023 and 2022.

Growth in logistics was offset by declines in factory automation, most notably in the automotive industry.

• Revenue from customers based in Greater China was flat compared to the prior year.

The Moritex contribution, higher semiconductor revenue, and higher large customer consumer electronics revenue was offset by declines in other factory automation industries, most notably in the automotive industry.

• Revenue from other countries in Asia increased by 49% from the prior year due to the Moritex contribution, higher semiconductor revenue, and growth in logistics.

The following table sets forth our gross profit (in thousands) for the years ended December 31, 2024 and 2023.

Twelve-months Ended

December 31, 2023 December 31, 2022 $ Change % Change

Gross margin $ 601,241 $ 721,905 $ (120,664) (17) %

December 31, 2024

December 31, 2023

$ Change % Change

Gross profit $ 625,794 $ 601,241 $ 24,553 4 %

Percentage of total revenue 68 % 72 %

Gross margin as a percentage of revenue remained consistent at 72% in both 2023 and 2022.

The deleveraging impact of lower sales volume, as well as less favorable revenue mix and charges related to the acquisition of Moritex Corporation in the fourth quarter of 2023, had an unfavorable impact on the gross margin percentage as compared to the prior year.

In accordance with the accounting principles applied in business combinations, the Company recorded Moritex inventories at fair market value, resulting in a $4,000,000 increase to acquired inventories above cost.

Of this $4,000,000 increase to inventories, approximately $2,800,000 was recorded as cost of revenue in the fourth quarter as the majority of the acquired inventories were sold, with the remaining $1,200,000 expected to be recorded as cost of revenue in the first quarter of 2024.

Moritex charges for the fourth quarter of 2023 also included approximately $600,000 of amortization related to acquired technologies.

These decreases were offset by lower inventory costs driven by a reduction in premiums paid to brokers for the purchase of components in response to global supply chain constraints and the expedited replenishment of inventories lost in the fire at our primary contract manufacturer in the second quarter of 2022.

Gross margin decreased to 68% in 2024 compared to 72% in 2023.

The decrease was due to a less favorable revenue mix in 2024 that included higher logistics revenue and products with relatively lower gross margins from the Moritex acquisition that closed in the fourth quarter of 2023, as well as the amortization of Moritex acquired technologies.

Lower average selling prices due to pricing pressures also contributed to the lower margin in 2024.

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Operating Expenses

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Twelve-months Ended

December 31, 2023 December 31, 2022 $ Change % Change

December 31, 2024

December 31, 2023

$ Change % Change

Research, development, and engineering expenses $ 139,815 $ 139,400 $ 415 — %

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Percentage of total revenue 41 % 40 %

Restructuring charges $ — $ 1,657 $ (1,657) (100) %

Percentage of total revenue — % — %

Loss (recovery) from fire $ — $ (8,000) $ 8,000 (100) %

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Research, Development, and Engineering Expenses

Research, development, and engineering (RD&E) expenses in 2023 decreased by $1,733,000, or 1%, from the prior year.

The decrease in RD&E expenses was due primarily to lower incentive compensation expenses resulting from weaker business performance, as well as cost management activities that included the realignment of headcount to the lower business levels.

These decreases were partially offset by the additional costs associated with a new team of optical engineers that joined Cognex with the acquisition of Moritex Corporation on October 18, 2023.

RD&E expenses as a percentage of revenue was 17% in 2023 compared to 14% in 2022.

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

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Research, development, and engineering (RD&E) expenses in 2024 were relatively flat compared to the prior year.

Higher incentive compensation expenses and the additional cost associated with a new team of optical engineers that joined Cognex with the acquisition of Moritex in the fourth quarter of 2023 was offset by a reduction in RD&E headcount outside of Moritex, lower deferred compensation costs related to the 2019 acquisition of Sualab Co, Ltd.

that were fully paid in the fourth quarter of 2023, and disciplined cost management.

RD&E expenses as a percentage of revenue were 15% in 2024 compared to 17% in 2023.

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.

This annual percentage is impacted by revenue levels and investing cycles.

This annual percentage is impacted by revenue levels and investment cycles.

Selling, General, and Administrative Expenses

Selling, general, and administrative (SG&A) expenses in 2023 increased by $27,032,000, or 9%, from the prior year.

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

We launched this initiative in 2023 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.

Costs related to the acquisition of Moritex Corporation on October 18, 2023 also contributed to the higher SG&A expenses.

These costs included additional sales and support personnel, sales demonstration equipment distributed to the Cognex sales force, transaction costs totaling approximately $5,800,000, and approximately $800,000 of amortization related to acquired customer relationships and trademarks.

These increases were partially offset by lower incentive compensation expenses, which included sales commissions and incentive bonuses, resulting from weaker business performance.

Cost management also helped to offset the increases, including the realignment of headcount to support the Emerging Customer sales initiative.

Selling, general, and administrative (SG&A) expenses in 2024 increased by 9% from the prior year.

The increase was due primarily to investments in entry-level sales personnel hired over the past few years intended to transform our sales model, allowing us to broaden and deepen our sales coverage.

Costs related to the acquisition of Moritex that closed in the fourth quarter of 2023 also contributed to the higher SG&A expenses in 2024, including additional sales and support personnel-related costs, the amortization of acquired customer relationship and trademarks, and integration costs.

In addition, incentive compensation expenses were higher in 2024.

These increases were partially offset by Moritex transaction costs incurred in the fourth quarter of 2023, a reduction in SG&A headcount outside of Moritex and entry-level sales, and disciplined cost management.

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.

Since 2022, the Company has also been scaling up an additional contract manufacturer to further mitigate risk, diversify supply chain, and expand production capacity.

In 2022, the Company recorded a net loss related to the fire of $20,779,000, consisting primarily of losses of inventories and other assets of $48,339,000, partially offset by insurance proceeds received from the Company's insurance carrier of $27,560,000.

In 2023, the Company recorded recoveries related to the fire of $8,000,000, consisting of $2,500,000 for proceeds received from the Company's insurance carrier in relation to a business interruption claim and $5,500,000 for proceeds received as part of a financial settlement for lost inventory and other losses incurred as a result of the fire.

Management does not anticipate additional recoveries.

Restructuring Charges

On December 7, 2022, the Company acquired SAC Sirius Advanced Cybernetics GmbH ("SAC"), a leader in computational lighting technology based in Germany.

In December 2022, following its acquisition of SAC, the Company performed restructuring activities to align the cost and operating structure of the acquired business with the Company's business strategy.

The restructuring activities resulted in charges of $1,657,000 in 2022.

No additional charges are expected to be incurred in future periods in relation to this restructuring plan.

On June 7, 2022, the Company’s primary contract manufacturer experienced a fire at its plant in Indonesia, destroying a significant amount of Cognex inventories.

In 2023, the Company recorded recoveries related to the fire totaling $8,000,000, including $5,500,000 for proceeds received from a financial settlement and $2,500,000, for proceeds received from business interruption insurance.

Non-operating Income (Expense)

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Twelve-months Ended

December 31, 2023 December 31, 2022 $ Change % Change

December 31, 2024

December 31, 2023

$ Change % Change

Foreign currency gain (loss) $ 1,531 $ (10,039) $ 11,570 (115) %

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Total non-operating income (expense) $ 16,424 $ 4,646 $ 11,778 254 %

The Company recorded foreign currency losses of $10,039,000 in 2023 and $1,837,000 in 2022.

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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.

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Dollar, or its subsidiaries.

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Investment income increased by $7,378,000, or 110%, from the prior year.

The increase was due primarily to higher yields on the Company's portfolio of debt securities, partially offset by lower average investment balances and changes in realized gains and losses.

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

The Company recorded other income of $592,000 in 2023 and other expense of $412,000 in 2022.

Investment income decreased by $122,000, or 1%, from the prior year.

The decrease was 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 2024.

Income Tax Expense

The following table sets forth income tax information (in thousands) for the twelve-month periods ended December 31, 2023 and December 31, 2022.

The following table sets forth income tax information (in thousands) for the years ended December 31, 2024 and December 31, 2023.

Twelve-months Ended

December 31, 2023 December 31, 2022 $ Change % Change

December 31, 2024

December 31, 2023

$ Change % Change

Income before income tax expense $ 131,489 $ 135,348 $ (3,859) (3) %

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The Company’s effective tax rate was 19% in 2024 and 16% in 2023.

The increase in the effective tax rate from 14% to 16% primarily resulted from the impact of discrete tax items, most notably an increase in tax reserves and an increase in tax expense due to a tax rate revaluation on state tax assets.

These impacts were partially offset by discrete tax benefits related to the release of a valuation allowance.

Excluding the impact of all discrete tax items, the Company's effective tax rate was 15% in 2023 and 16% in 2022 due to an increase in tax credits available in the year, partially offset by an increase in disallowed executive compensation.

The Company recorded discrete tax net expenses of $5,731,000 in 2024 and $2,338,000 in 2023.

Excluding the impact of these discrete tax items, the Company’s effective tax rate was 15% in both years.

Year Ended December 31, 2023 Compared to Year Ended December 31, 2022

Revenue for the year ended December 31, 2022 was $1,006,090,000 compared to $1,037,098,000 for the prior year, representing a decrease of 3%.

Changes in foreign exchange rates resulted in a lower level of reported revenue in 2022 as compared to 2021.

Excluding the impact of foreign currency exchange rate changes, revenue increased by 1% compared to 2021.

The fire on June 7, 2022 at our primary contract manufacturer’s plant in Indonesia, which destroyed a large amount of component inventory, limited our ability to fulfill certain orders in the year ended December 31, 2022, which resulted in lower revenue.

Revenue from the logistics industry, our largest market in 2021, decreased by approximately 25% as a result of the slowing of large e-commerce customer projects as such customers absorbed excess capacity built up during the pandemic.

Excluding these decreases in revenue from a few large logistics customers, revenue from the remainder of the logistics industry grew, as the broader base of logistics customers continued to invest in automation.

The decline in overall revenue from the logistics industry was partially offset by growth in the broader factory automation market, most notably in the consumer electronics, automotive, and semiconductor industries.

Consumer electronics revenue increased by approximately 8%, and 14% on a constant-currency basis, primarily as a result of increased large-customer demand.

Revenue from our largest industry in 2022, automotive, increased by 7%, and 13% on a constant-currency basis, primarily as a result of continued investment in electric vehicles.

Changes in revenue from a geographic perspective were as follows:

• Revenue from customers based in the Americas decreased by 10% from the prior year driven primarily by a decrease in revenue from customers in the logistics industry.

This decrease was partially offset by an increase in revenue from other industries, led by growth in the automotive and consumer electronics industries.

• Revenue from customers based in Europe decreased by 5% from the prior year.

Changes in foreign currency exchange rates resulted in a lower level of reported revenue in 2022, as sales denominated in Euros were translated into U.S.

Dollars at a lower rate.

Excluding the impact of foreign currency exchange rate changes, revenue from customers based in Europe increased by 5% from the prior year.

The increase came from customers in a variety of industries, most notably the automotive and consumer electronics industries, partially offset by a decrease in revenue from customers in the logistics industry.

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• Revenue from customers based in Greater China increased by 14% from the prior year.

Changes in foreign currency exchange rates resulted in a lower level of reported revenue in 2022, primarily from sales denominated in Chinese Renminbi.

Excluding the impact of foreign currency exchange rate changes, revenue from customers based in Greater China increased by 17% from the prior year.

The increase was driven primarily by higher revenue in the consumer electronics industry, particularly due to increased large-customer demand, and to a lesser extent, growth in the semiconductor and automotive industries.

• Revenue from other countries in Asia remained flat with the prior year.

Changes in foreign currency exchange rates resulted in a lower level of reported revenue in 2022, primarily from sales denominated in Japanese Yen and Korean Won.

Excluding the impact of foreign currency exchange rate changes, revenue from these customers in other countries in Asia increased by 8% from the prior year, led by higher revenue in semiconductor and automotive industries, and, to a lesser extent, the logistics industry.

These increases were partially offset by a decrease in revenue from the consumer electronic industry.

Gross margin as a percentage of revenue decreased to 72% in 2022 compared to 73% in 2021.

The decrease resulted primarily from higher inventory costs, due largely to global supply chain constraints and the expedited replenishment of inventories lost in the fire at our primary contract manufacturer's plant on June 7, 2022.

These circumstances have resulted in broker-buy purchases for components at higher-than-normal costs.

The decrease in gross margin was also due to an unfavorable impact of foreign currency exchange rate changes.

A more favorable revenue mix partially offset this decrease in gross margin.

A lesser percentage of revenue came from the logistics industry, which has relatively lower gross margins, and a greater percentage of revenue came from the consumer electronics industry, which has relatively higher gross margins.

Further, the Company has increased prices, which has offset the impact of component cost inflation (not including broker-buy purchases) on our gross margin.

Operating Expenses

Research, Development, and Engineering Expenses

Research, development, and engineering (RD&E) expenses in 2022 increased by $5,761,000, or 4%, from the prior year as detailed in the table below (in thousands).

RD&E expenses in 2021 $ 135,372

Personnel-related costs 8,060

Stock-based compensation 4,761

Foreign currency exchange rate changes (6,348)

Incentive compensation (4,453)

RD&E expenses in 2022 $ 141,133

RD&E expenses increased primarily due to higher personnel-related costs resulting from headcount additions to support new product initiatives and salary increases provided to employees as part of our merit and promotion process.

Stock-based compensation expense also increased from the prior year due to a higher level of stock-based grants at a higher average economic value, as well as the impact of a forfeiture rate true-up that resulted in higher expense.

These increases were partially offset by lower incentive compensation expense compared to the prior year due to weaker business performance.

Relevant performance goals for incentive compensation plans are set at the beginning of each year, with the ability to earn upside if the goals are exceeded.

In contrast to 2022, performance goals set for 2021 incentive bonuses were exceeded, resulting in a higher level of bonus expense recorded in 2021.

The impact of foreign currency exchange rate changes further offset the increase to RD&E expenses, as costs denominated in foreign currencies were translated into U.S.

Dollars at a lower rate.

RD&E expenses as a percentage of revenue was 14% in 2022 compared to 13% in 2021.

Selling, General, and Administrative Expenses

Selling, general, and administrative (SG&A) expenses increased in 2022 by $2,753,000, or 1%, from the prior year as detailed in the table below (in thousands).

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SG&A expenses in 2021 $ 309,354

Personnel-related costs 24,112

Stock-based compensation 6,436

Travel expenses 5,666

Incentive compensation (24,476)

Foreign currency exchange rate changes (14,613)

SG&A expenses in 2022 $ 312,107

SG&A expenses increased primarily due to higher personnel-related costs resulting from headcount additions, primarily for sales personnel to support the Company's anticipated revenue growth, and salary increases provided to employees as part of our merit and promotion process.

In addition to salaries and fringe benefits, these personnel-related costs included sales commissions and travel expenses related to the additional headcount.

While travel expenses increased due to the number of sales personnel added, expenses also increased due to a higher level of travel activity as restrictions related to COVID-19 continued to ease.

These increases were partially offset by lower incentive compensation expenses than the prior year, which included sales commissions and incentive bonuses, primarily due to weaker business performance.

Relevant performance goals for these plans are set at the beginning of each year, with the ability to earn upside if the goals are exceeded.

In contrast to 2022, performance goals set for 2021 sales commissions and incentive bonuses were exceeded, resulting in a higher level of incentive compensation expenses recorded in 2021.

The impact of foreign currency exchange rate changes further offset the increase to SG&A expenses, as costs denominated in foreign currencies were translated into U.S.

Dollars at a lower rate.

Loss 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 assess the damage, resume production, maintain standards of product quality, and replenish inventories destroyed by the fire.

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

As a result of the fire, the Company recorded $48,339,000 in gross losses in 2022, related to $37,663,000 of Cognex-owned inventories, $8,709,000 of primarily prepayments related to Cognex-designated components that were owned by the contract manufacturer and other assets, and $1,967,000 related to deleveraging of costs related to our distribution centers.

Gross losses have been reduced by insurance proceeds received from the Company’s insurance carrier of $27,560,000 in the fourth quarter of 2022.

Gross losses net of insurance recovery of $20,779,000 are presented in the caption “Loss from fire” on the Consolidated Statements of Operations.

Restructuring Charges

On December 7, 2022, the Company acquired all of the outstanding shares of SAC Sirius Advanced Cybernetics GmbH ("SAC"), a leader in computational lighting technology based in Germany.

The acquisition of SAC and its technology is expected to expand the Company’s capabilities in defect detection, and accelerate our growth trajectory with electric vehicle battery manufacturers.

The restructuring activities resulted in charges of $1,657,000 in 2022.

Non-operating Income (Expense)

The Company recorded foreign currency losses of $1,837,000 in 2022 and $2,270,000 in 2021.

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 currencies of our subsidiaries or the reporting currency of our company, which is the U.S.

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Investment income increased by $55,000, or 1%, from the prior year.

The slight increase was due primarily t o higher yields on investments, partially offset by lower average investment balances and changes in realized gains and losses .

The Company recorded other expense of $412,000 in 2022 and $591,000 in 2021.

Income Tax Expense

The Company’s effective tax rate was 14% of pre-tax income in 2022, compared to 12% in 2021.

The increase in effective tax rate in 2022 primarily resulted from the impact of discrete tax items, including a decrease in tax benefits related to stock-based compensation, an increase in certain international tax reserves, and a net expense related to return-to-provision adjustments.

These impacts were partially offset by discrete tax benefits related to audit settlements, a release in the valuation allowance, Global Intangible Low-Taxed Income ("GILTI") adjustments, and a rate revaluation on deferred state tax assets.

Excluding the impact of all discrete tax items, the Company’s effective tax rate was 16% of pre-tax income for both 2022 and 2021.

For a discussion of the Company’s fiscal 2023 results compared to fiscal 2022, refer to "Management's Discussion and Analysis of Financial Condition and Results of Operations" in the Company’s Annual Report on Form 10-K for the year ended December 31, 2023, filed with the Securities and Exchange Commission on February 15, 2024.

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 resulted in an accumulated cash and investment balance of $586,948,000 as of December 31, 2024.

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

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

Operating Activities

Net cash provided by operating activities totaled $149,081,000 in 2024.

Significant uses of cash consisted of aggregate payments of $24,040,000 related to the 2019 acquisition of Sualab Co, Ltd.

that were contingent upon the continued employment of key talent, payments made to build up inventory levels, and incentive compensation payments made in the first quarter of 2023 that were earned and accrued in 2022.

Significant uses of cash consisted of an increase in accounts receivable related to growth in logistics revenue and in support of sales initiatives.

Investing Activities

Net cash provided by investing activities totaled $32,273,000 in 2023.

Investing activities included the acquisition of Moritex Corporation in the fourth quarter of 2023 that resulted in a payment, net of cash acquired, of $257,056,000 that was largely funded from the maturities and sales of investments.

Investing activities also included capital expenditures, which totaled $23,077,000 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 $38,969,000 in 2024.

Investing activities included capital expenditures, that totaled $15,043,000 and consisted primarily of continued investments in business systems, manufacturing equipment related to new product introductions, and building and leasehold improvements.

Financing Activities

Net cash used in financing activities totaled $118,420,000 in 2024.

In October 2018, the Company's Board of Directors authorized the repurchase of $200,000,000 of the Company's common stock.

Under this October 2018 program, in addition to repurchases made in prior years, the Company repurchased 957,000 shares at a cost of $78,652,000 in 2021, which completed purchases under the October 2018 program.

In March 2020, the Company's Board of Directors authorized the repurchase of an additional $200,000,000 of the Company's common stock.

Under this March 2020 program, the Company repurchased 1,060,000 shares, including 5,000 shares that were repurchased in 2021 and settled in 2022, at a cost of $83,000,000 in 2021, and 1,677,000 shares at a cost of $117,000,000 in 2022, which completed purchases under the March 2020 program.

In March 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 1,682,000 shares at a cost of $87,314,000 in 2022 and 1,723,000 shares at a cost of $79,794,000 in 2023, including $446,000 of buyback Excise Tax in accordance with the Inflation Reduction Act of 2022, leaving a remaining balance of $332,892,000.

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

Under this program, the Company repurchased 1,711,000 shares at a cost of $67,085,000 in 2024, leaving a remaining balance of $265,807,000 as of December 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’s Board of Directors declared and paid cash dividends of $0.060 per share in the first, second, and third quarters of 2021, $0.065 per share in the fourth quarter of 2021 and in the first, second, and third quarters of 2022, and $0.070 per share in the fourth quarter of 2022 and in the first, second, and third quarters of 2023.

The dividend was increased to $0.075 per share in the fourth quarter of 2023.

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.

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Total dividends paid were $49,079,000 in 2023, $45,921,000 in 2022, and $43,263,000 in 2021.

The Company’s Board of Directors declared and paid cash dividends of $0.075 per share in the first, second, and third quarters of 2024 and $0.080 per share in the fourth quarter of 2024, totaling $52,329,000 in 2024.

Future dividends will be declared at the discretion of the Company's Board of Directors and will depend on such factors as the Board deems relevant, including, among other things, the Company's ability to generate positive cash flow from operations.

Future Cash Requirements

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

As of December 31, 2024, the Company had inventory purchase commitments of $44,269,000, with the majority payable within twelve months, and lease payment obligations of $115,200,000, with $13,177,000 payable within twelve months.

Other significant and/or expected cash outlays for 2024 include:

• 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 reach customers who are new to machine vision or Cognex.

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

As of December 31, 2023, the Company had a remaining balance payable of $33,006,000 through 2025.

As of December 31, 2024, the Company had a remaining balance of $18,338,000 payable in the second quarter of 2025 related to a one-time transition tax on unrepatriated foreign earnings arising from the Tax Cuts and Jobs Act of 2017.

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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The Company’s application-specific customer solutions are comprised of a combination of products and services which are accounted for as one performance obligation to deliver a total solution to the customer.

Revenue for application-specific customer solutions is recognized at the point in time when the solution is validated, which is the point in time when the Company can objectively determine that the agreed-upon specifications in the contract have been met and the customer should reasonably accept the performance obligations in the arrangement.

Revenue for application-specific customer solutions is recognized at the point in time when the solution is validated, which is the point in time when the Company can reasonably determine that the agreed-upon specifications in the contract have been met and the customer should reasonably accept the performance obligations in the arrangement.

Although the customer may have taken legal title and physical possession of the goods when they arrived at the customer’s designated site, the significant risks and rewards of ownership transfer to the customer only upon validation.

In certain instances, an arrangement may include customer-specified acceptance provisions or performance guarantees that allow the customer to accept or reject delivered products that do not meet the customer’s requirements.

If the Company can objectively determine that control of a good or service has been transferred to the customer in accordance with the agreed-upon requirements in the contract, then customer acceptance is a formality.

If acceptance provisions are presumed to be substantive, then revenue is deferred until customer acceptance.

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Significant judgment is required in determining worldwide income tax expense based on tax laws in the various jurisdictions in which the Company operates.

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As part of the process of preparing consolidated financial statements, management is required to estimate income taxes in each of the jurisdictions in which the Company operates.

These estimates occur in the calculation of income tax credits, benefits, and deductions, and in the calculation of certain tax assets and liabilities, which arise from differences in the timing of the recognition of certain expenses for tax and financial statement purposes.

These estimates occur in the calculation of income tax credits, benefits, and deductions, and in the calculation of certain tax assets and liabilities, which arise

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from differences in the timing of the recognition of certain expenses for tax and financial statement purposes.

We assess the likelihood of the realization of deferred tax assets and record a corresponding valuation allowance as necessary if we determine those deferred tax assets may not be realized due to the uncertainty of the timing and amount to be realized of certain federal, state, and international tax credit carryovers.

The Company has made an election to account for the impact of the Global Intangible Low-Taxed Income (GILTI) minimum tax in deferred taxes.

Management has determined that this change is considered preferable, based on the conclusion that it appropriately matches the Company’s current and deferred income tax implications to its tax structure.

Business Combinations

Allocating the purchase price for a business combination requires the Company to identify and estimate the fair values of various assets acquired and liabilities assumed.

Management is responsible for determining the appropriate valuation model and estimated fair values, and in doing so, considers a number of factors, including information provided by an outside valuation advisor.

Management bases the fair value of assets, including identifiable intangible assets acquired and liabilities assumed, on detailed valuations that use information and assumptions provided by management, which consider management’s best estimates of inputs and assumptions that a market participant would use.

The Company accounts for the impact of the Global Intangible Low-Taxed Income (GILTI) minimum tax in deferred taxes.

NEW PRONOUNCEMENTS

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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-K

Item 7. Management’s Discussion and Analysis