COGNEX CORP 10-Q

ITEM 1: FINANCIAL STATEMENTS COGNEX CORPORATION CONSOLIDATED STATEMENTS OF OPERATIONS (In thousands, except per share amounts) Three-months Ended Six-months Ended June 29, 2025 June 30, 2024 June 29, 2025 June 30, 2024 (unaudited) (unaudited) Revenue $ 249,093 $ 239,292 $ 465,129 $ 450,089 Cost of revenue 81,217 72,693 152,930 141,553 Gross profit 167,876 166,599 312,199 308,536 Research, development, and engineering expenses 33,102 34,962 67,829 72,067 Selling, general, and administrative expenses 91,341 93,180 174,845 183,808 Operating income 43,433 38,457 69,525 52,661 Foreign currency gain (loss) ( 1,503 ) ( 181 ) ( 3,956 ) ( 135 ) Investment income 4,040 3,116 8,030 6,236 Other income (expense) 2,092 176 2,261 372 Income before income tax expense 48,062 41,568 75,860 59,134 Income tax expense 7,551 5,356 11,746 10,900 Net income $ 40,511 $ 36,212 $ 64,114 $ 48,234 Net income per weighted-average common and common-equivalent share: Basic $ 0.24 $ 0.21 $ 0.38 $ 0.28 Diluted $ 0.24 $ 0.21 $ 0.38 $ 0.28 Weighted-average common and common-equivalent shares outstanding: Basic 167,886 171,568 168,568 171,630 Diluted 168,563 172,733 169,553 172,699 Cash dividends per common share $ 0.080 $ 0.075 $ 0.160 $ 0.150 The accompanying notes are an integral part of these consolidated financial statements. 3 COGNEX CORPORATION CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS) (In thousands) Three-months Ended Six-months Ended June 29, 2025 June 30, 2024 June 29, 2025 June 30, 2024 (unaudited) (unaudited) Net income $ 40,511 $ 36,212 $ 64,114 $ 48,234 Other comprehensive income (loss), net of tax Available-for-sale investments: Net unrealized gain (loss), net of tax of $ 1,435 and $ 336 in the three-month periods, respectively, and net of tax of $ 2,310 and $ 453 in the six-month periods, respectively 1,742 1,020 4,453 1,379 Reclassification of net realized (gain) loss on the sale of available-for-sale investments into current operations ( 27 ) 10 ( 54 ) 8 Net change related to available-for-sale investments 1,715 1,030 4,399 1,387 Foreign currency translation adjustments: Foreign currency translation adjustments 19,154 ( 10,247 ) 30,601 ( 26,403 ) Net change related to foreign currency translation adjustments 19,154 ( 10,247 ) 30,601 ( 26,403 ) Other comprehensive income (loss), net of tax 20,869 ( 9,217 ) 35,000 ( 25,016 ) Total comprehensive income (loss) $ 61,380 $ 26,995 $ 99,114 $ 23,218 The accompanying notes are an integral part of these consolidated financial statements. 4 COGNEX CORPORATION CONSOLIDATED BALANCE SHEETS (In thousands, except share amounts) June 29, 2025 December 31, 2024 (unaudited) ASSETS Current assets: Cash and cash equivalents $ 179,311 $ 186,094 Current investments, allowance for credit losses of $ 0 in 2025 and 2024 48,892 59,956 Accounts receivable, allowance for credit losses of $ 620 and $ 827 in 2025 and 2024, respectively 183,946 143,359 Unbilled revenue 2,176 3,055 Inventories 144,577 157,527 Prepaid expenses and other current assets 66,823 63,376 Total current assets 625,725 613,367 Non-current investments, allowance for credit losses of $ 0 in 2025 and 2024 324,348 340,898 Property, plant, and equipment, net 93,428 98,445 Operating lease assets 77,990 67,326 Goodwill 397,389 384,937 Intangible assets, net 92,135 90,684 Deferred income taxes 387,232 392,166 Other assets 5,294 5,027 Total assets 2,003,541 1,992,850 LIABILITIES AND SHAREHOLDERS’ EQUITY Current liabilities: Accounts payable $ 42,273 $ 38,046 Accrued expenses 78,344 71,760 Accrued income taxes 5,483 25,685 Deferred revenue and customer deposits 53,077 25,035 Operating lease liabilities 11,260 8,854 Total current liabilities 190,437 169,380 Non-current operating lease liabilities 71,925 61,363 Deferred income taxes 209,289 217,155 Reserve for income taxes 25,742 26,365 Other liabilities 91 1,082 Total liabilities 497,484 475,345 Commitments and contingencies (Note 8) Shareholders’ equity: Preferred stock, $ .01 par value – Authorized: 400 shares in 2025 and 2024, respectively; no shares issued and outstanding — — Common stock, $ .002 par value – Authorized: 300,000 shares in 2025 and 2024, respectively; issued and outstanding: 167,899 and 170,434 shares in 2025 and 2024, respectively 336 341 Additional paid-in capital 1,110,458 1,090,638 Retained earnings 433,040 499,303 Accumulated other comprehensive loss, net of tax ( 37,777 ) ( 72,777 ) Total shareholders’ equity 1,506,057 1,517,505 Total liabilities and shareholders' equity $ 2,003,541 $ 1,992,850 The accompanying notes are an integral part of these consolidated financial statements. 5 COGNEX CORPORATION CONSOLIDATED STATEMENTS OF CASH FLOWS (In thousands) Six-months Ended June 29, 2025 June 30, 2024 (unaudited) Cash flows from operating activities: Net income $ 64,114 $ 48,234 Adjustments to reconcile net income to net cash provided by (used in) operating activities: Stock-based compensation expense 22,233 26,266 Depreciation of property, plant, and equipment 10,627 10,472 (Gain) loss on disposal of property, plant, and equipment 6 — Amortization of intangible assets 5,306 5,540 Excess and obsolete inventory charges 710 1,343 Fair value adjustment on acquired inventories — 1,224 Amortization of discounts or premiums on investments ( 314 ) 562 Realized (gain) loss on sale of investments ( 54 ) 8 Change in deferred income taxes ( 6,193 ) ( 7,538 ) Change in operating assets and liabilities: Accounts receivable ( 38,132 ) ( 47,784 ) Unbilled revenue 901 527 Inventories 12,944 1,145 Prepaid expenses and other current assets ( 2,364 ) ( 6,590 ) Accounts payable 3,575 2,786 Accrued expenses 2,340 6,234 Accrued income taxes ( 20,602 ) ( 14,305 ) Deferred revenue and customer deposits 27,399 9,374 Other 631 3,908 Net cash provided by (used in) operating activities 83,127 41,406 Cash flows from investing activities: Purchases of investments ( 214,754 ) ( 269,860 ) Maturities and sales of investments 248,570 266,090 Purchases of property, plant, and equipment ( 4,695 ) ( 8,571 ) Net payments related to business acquisitions — ( 1,444 ) Net cash provided by (used in) investing activities 29,121 ( 13,785 ) Cash flows from financing activities: Net payments from issuance of common stock under stock plans ( 2,412 ) ( 1,871 ) Repurchase of common stock ( 102,233 ) ( 19,879 ) Payment of dividends ( 26,981 ) ( 25,756 ) Net cash provided by (used in) financing activities ( 131,626 ) ( 47,506 ) Effect of foreign exchange rate changes on cash and cash equivalents 12,595 ( 6,144 ) Net change in cash and cash equivalents ( 6,783 ) ( 26,029 ) Cash and cash equivalents at beginning of period 186,094 202,655 Cash and cash equivalents at end of period $ 179,311 $ 176,626 The accompanying notes are an integral part of these consolidated financial statements. 6 COGNEX CORPORATION CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY (In thousands, except unit and per unit data) Common Stock Additional Paid-in Capital Retained Earnings Accumulated Other Comprehensive Loss Total Shareholders’ Equity Shares Par Value Balance as of March 30, 2025 167,865 $ 336 $ 1,097,989 $ 405,949 $ ( 58,646 ) $ 1,445,628 Net issuance of common stock under stock plans 34 — 175 — — 175 Excise tax on repurchase of common stock — — — 11 — 11 Stock-based compensation expense — — 12,294 — — 12,294 Payment of dividends ($ 0.080 per common share) — — — ( 13,431 ) — ( 13,431 ) Net income — — — 40,511 — 40,511 Net unrealized gain (loss) on available-for-sale investments, net of tax of $ 1,435 — — — — 1,742 1,742 Reclassification of net realized (gain) loss on the sale of available-for-sale investments ( 27 ) ( 27 ) Foreign currency translation adjustment — — — — 19,154 19,154 Balance as of June 29, 2025 (unaudited) 167,899 $ 336 $ 1,110,458 $ 433,040 $ ( 37,777 ) $ 1,506,057 Common Stock Additional Paid-in Capital Retained Earnings Accumulated Other Comprehensive Loss Total Shareholders’ Equity Shares Par Value Balance as of March 31, 2024 171,662 $ 343 $ 1,047,643 $ 502,338 $ ( 61,135 ) $ 1,489,189 Net issuance of common stock under stock plans 81 — 990 — — 990 Repurchase of common stock ( 242 ) — — ( 10,540 ) — ( 10,540 ) Stock-based compensation expense — — 12,964 — — 12,964 Payment of dividends ($ 0.075 per common share) — — — ( 12,868 ) — ( 12,868 ) Net income — — — 36,212 — 36,212 Net unrealized gain (loss) on available-for-sale investments, net of tax of $ 336 — — — — 1,020 1,020 Reclassification of net realized (gain) loss on the sale of available-for-sale investments — — — — 10 10 Foreign currency translation adjustment — — — — ( 10,247 ) ( 10,247 ) Balance as of June 30, 2024 (unaudited) 171,501 $ 343 $ 1,061,597 $ 515,142 $ ( 70,352 ) $ 1,506,730 The accompanying notes are an integral part of these consolidated financial statements. 7 COGNEX CORPORATION CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY (In thousands of dollars, except unit and per unit data) Common Stock Additional Paid-in Capital Retained Earnings Accumulated Other Comprehensive Loss Total Shareholders’ Equity Shares Par Value Balance as of December 31, 2024 170,434 $ 341 $ 1,090,638 $ 499,303 $ ( 72,777 ) $ 1,517,505 Net issuance of common stock under stock plans 512 1 ( 2,413 ) — — ( 2,412 ) Repurchase of common stock ( 3,047 ) ( 6 ) — ( 102,227 ) — ( 102,233 ) Excise tax on repurchase of common stock — — — ( 1,169 ) — ( 1,169 ) Stock-based compensation expense — — 22,233 — — 22,233 Payment of dividends ($ 0.160 per common share) — — — ( 26,981 ) — ( 26,981 ) Net income — — — 64,114 — 64,114 Net unrealized gain (loss) on available-for-sale investments, net of tax of $ 2,310 — — — — 4,453 4,453 Reclassification of net realized (gain) loss on the sale of available-for-sale investments — — — — ( 54 ) ( 54 ) Foreign currency translation adjustment — — — — 30,601 30,601 Balance as of June 29, 2025 (unaudited) 167,899 $ 336 $ 1,110,458 $ 433,040 $ ( 37,777 ) $ 1,506,057 Common Stock Additional Paid-in Capital Retained Earnings Accumulated Other Comprehensive Loss Total Shareholders’ Equity Shares Par Value Balance as of December 31, 2023 171,599 $ 343 $ 1,037,202 $ 512,543 $ ( 45,336 ) $ 1,504,752 Net issuance of common stock under stock plans 375 — ( 1,871 ) — — ( 1,871 ) Repurchase of common stock ( 473 ) — — ( 19,879 ) — ( 19,879 ) Stock-based compensation expense — — 26,266 — — 26,266 Payment of dividends ($ 0.150 per common share) — — — ( 25,756 ) — ( 25,756 ) Net income — — — 48,234 — 48,234 Net unrealized gain (loss) on available-for-sale investments, net of tax of $ 453 — — — — 1,379 1,379 Reclassification of net realized (gain) loss on the sale of available-for-sale investments — — — — 8 8 Foreign currency translation adjustment — — — — ( 26,403 ) ( 26,403 ) Balance as of June 30, 2024 (unaudited) 171,501 $ 343 $ 1,061,597 $ 515,142 $ ( 70,352 ) $ 1,506,730 The accompanying notes are an integral part of these consolidated financial statements. 8 COGNEX CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) NOTE 1: Summary of Significant Accounting Policies As permitted by the rules of the Securities and Exchange Commission applicable to Quarterly Reports on Form 10-Q, these notes are condensed and do not contain all disclosures required by accounting principles generally accepted in the United States ("GAAP"). Reference should be made to the consolidated financial statements and related notes included in Cognex Corporation's ("Cognex" or the "Company") Annual Report on Form 10-K for the year ended December 31, 2024 for a full description of other significant accounting policies. In the opinion of the management of the Company, the accompanying consolidated unaudited financial statements contain all adjustments, consisting of normal, recurring adjustments and financial statement reclassifications necessary to present fairly the Company’s financial position as of June 29, 2025, and the results of its operations for the three-month and six-month periods ended June 29, 2025 and June 30, 2024, and changes in shareholders’ equity, comprehensive income, and cash flows for the periods presented. The results disclosed in the Consolidated Statements of Operations for the three-month and six-month periods ended June 29, 2025 are not necessarily indicative of the results to be expected for the full year. NOTE 2: New Pronouncements Accounting Standards Update (ASU) 2023-09, "Income Taxes (Topic 740): Improvements to Income Tax Disclosures" The amendments in this ASU apply to all entities that are subject to Topic 740, Income Taxes. The amendments require public business entities to disclose specific categories in their rate reconciliation and provide additional information for reconciling items that meet a quantitative threshold. They also require all entities to disclose income taxes paid, net of refunds received, disaggregated by federal, state, and foreign taxes and by individual jurisdictions in which income taxes paid, net of refunds received, are equal to or greater than five percent of total income taxes paid. For public business entities, the amendments in this ASU are effective for annual periods beginning after December 15, 2024. The amendments in this ASU should be applied on a prospective basis. Management does not expect ASU 2023-09 to have a material impact on the Company's financial statements and disclosures. Accounting Standards Update (ASU) 2024-03, Income Statement—Reporting Comprehensive Income—Expense Disaggregation Disclosures (Subtopic 220-40) This ASU aims to enhance transparency for users of financial statements by requiring public business entities to disaggregate specific expense categories. This ASU mandates disclosures in the notes to financial statements detailing the composition and trends of key expense categories within major income statement captions. These enhanced disclosures are intended to help investors more effectively assess the entity’s performance, understand its cost structure, and make more accurate forecasts of future cash flows. For public business entities, this ASU is effective for annual periods beginning after December 15, 2026, and interim periods within annual reporting periods beginning after December 15, 2027. The adoption will result in disclosure changes only. 9 COGNEX CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) NOTE 3: Financial Instruments Cash, Cash Equivalents, and Investments The following table summarizes the Company’s cash, cash equivalents, and investments as of June 29, 2025 (in thousands): Fair Value Level Amortized Cost Gross Unrealized Gains Gross Unrealized Losses Fair Value Cash and Cash Equivalents Current Investments Non-current Investments Cash $ 151,362 $ — $ — $ 151,362 $ 151,362 $ — $ — Money market instruments Level 1 656 — — 656 656 — — Certificates of deposit Level 2 25,293 — — 25,293 25,293 — — Treasury bills Level 2 2,000 — — 2,000 2,000 — — Corporate bonds Level 2 334,656 2,292 ( 1,023 ) 335,925 — 47,809 288,115 Treasury notes Level 2 31,408 98 ( 23 ) 31,483 — — 31,484 Asset-backed securities Level 2 5,245 — ( 409 ) 4,836 — 87 4,749 Sovereign bonds Level 2 1,001 — ( 5 ) 996 — 996 — Total $ 551,621 $ 2,390 $ ( 1,460 ) $ 552,551 $ 179,311 $ 48,892 $ 324,348 The following table summarizes the Company’s cash, cash equivalents, and investments as of December 31, 2024 (in thousands): Fair Value Level Amortized Cost Gross Unrealized Gains Gross Unrealized Losses Fair Value Cash and Cash Equivalents Current Investments Non-current Investments Cash $ 170,852 $ — $ — $ 170,852 $ 170,852 $ — $ — Money market instruments Level 1 15,242 — — 15,242 15,242 — — Corporate bonds Level 2 344,804 411 ( 4,299 ) 340,916 — 55,742 285,174 Treasury notes Level 2 46,071 2 ( 439 ) 45,634 — 2,487 43,147 Asset-backed securities Level 2 13,870 — ( 556 ) 13,314 — 737 12,577 Sovereign bonds Level 2 1,013 — ( 23 ) 990 — 990 — Total $ 591,852 $ 413 $ ( 5,317 ) $ 586,948 $ 186,094 $ 59,956 $ 340,898 The Company’s money market instruments are reported at fair value based upon the daily market price for identical assets in active markets, and are therefore classified as Level 1. The Company’s debt securities are reported at fair value based on model-driven valuations in which all significant inputs are observable or can be derived from or corroborated by observable market data for substantially the full term of the asset or liability, and are therefore classified as Level 2. Management is responsible for estimating the fair value of these financial instruments, and in doing so, considers valuations provided by a large, third-party pricing service. This service maintains regular contact with market makers, brokers, dealers, and analysts to gather information on market movement, direction, trends, and other specific data. They use this information to structure yield curves for various types of debt securities and arrive at the daily valuations. Accrued interest receivable is recorded in "Prepaid expenses and other current assets" on the Consolidated Balance Sheets and amounted to $ 3,926,000 and $ 4,144,000 as of June 29, 2025 and December 31, 2024, respectively. 10 COGNEX CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) Realized Gains (Losses) on Debt Securities The following table summarizes the Company's gross realized gains and losses on the sale of debt securities for the three-month and six-month periods ended June 29, 2025 and June 30, 2024 (in thousands): Three-months Ended Six-months Ended June 29, 2025 June 30, 2024 June 29, 2025 June 30, 2024 Gross realized gains $ 30 $ 6 $ 57 $ 8 Gross realized losses ( 3 ) ( 16 ) ( 3 ) ( 16 ) Net realized gains (losses) $ 27 $ ( 10 ) $ 54 $ ( 8 ) Realized gains and losses are included in "Investment income" on the Consolidated Statements of Operations. Prior to the sale of these securities, unrealized gains and losses for these debt securities, net of tax, were recorded in shareholders’ equity as accumulated other comprehensive income (loss). Unrealized Losses on Debt Securities The following table summarizes the Company’s gross unrealized losses and fair values for available-for-sale investments in an unrealized loss position as of June 29, 2025 (in thousands): Unrealized Loss Position For: Less than 12 Months 12 Months or Greater Total Fair Value Unrealized Losses Fair Value Unrealized Losses Fair Value Unrealized Losses Corporate bonds $ 54,076 $ ( 282 ) $ 52,136 $ ( 741 ) $ 106,212 $ ( 1,023 ) Treasury notes 9,708 ( 23 ) — — 9,708 ( 23 ) Asset-backed securities — — 4,836 ( 409 ) 4,836 ( 409 ) Sovereign bonds — — 996 ( 5 ) 996 ( 5 ) $ 63,784 $ ( 305 ) $ 57,968 $ ( 1,155 ) $ 121,752 $ ( 1,460 ) The following table summarizes the Company’s gross unrealized losses and fair values for available-for-sale investments in an unrealized loss position as of December 31, 2024 (in thousands): Unrealized Loss Position For: Less than 12 Months 12 Months or Greater Total Fair Value Unrealized Losses Fair Value Unrealized Losses Fair Value Unrealized Losses Corporate bonds $ 172,049 $ ( 2,227 ) $ 87,815 $ ( 2,071 ) $ 259,864 $ ( 4,298 ) Treasury notes 42,149 ( 425 ) 2,487 ( 14 ) 44,636 ( 439 ) Asset-backed securities 11,024 ( 547 ) 2,290 ( 10 ) 13,314 ( 557 ) Sovereign bonds — — 990 ( 23 ) 990 ( 23 ) $ 225,222 $ ( 3,199 ) $ 93,582 $ ( 2,118 ) $ 318,804 $ ( 5,317 ) Management monitors debt securities that are in an unrealized loss position to determine whether a loss exists related to the credit quality of the issuer. When developing an estimate of expected credit losses, management considers all relevant information including historical experience, current conditions, and reasonable forecasts of expected future cash flows. Based on this evaluation, no allowance for credit losses on debt securities was recorded as of June 29, 2025 or December 31, 2024. Management currently intends to hold these securities to full value recovery at maturity. 11 COGNEX CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) Debt Securities Maturities The following table presents the effective maturity dates of the Company’s available-for-sale investments as of June 29, 2025 (in thousands): <1 year 1-2 Years 2-3 Years 3-4 Years 4-5 Years 5-8 Years Total Corporate bonds $ 47,809 $ 74,948 $ 106,924 $ 71,479 $ 34,765 $ — $ 335,925 Treasury notes — 15,163 16,320 — — — 31,483 Asset-backed securities 87 — — 1,774 — 2,975 4,836 Sovereign bonds 996 — — — — — 996 $ 48,892 $ 90,111 $ 123,244 $ 73,253 $ 34,765 $ 2,975 $ 373,240 Derivative Instruments The Company’s foreign currency risk management strategy is principally designed to mitigate the potential financial impact of changes in the value of transactions and balances denominated in foreign currencies resulting from changes in foreign currency exchange rates. The Company enters into economic hedges utilizing foreign currency forward contracts with maturities that do not exceed twelve months to manage the exposure to fluctuations in foreign currency exchange rates arising primarily from foreign-denominated receivables and payables. The gains and losses on these derivatives are intended to be offset by the changes in the fair value of the assets and liabilities being hedged. These economic hedges are not designated as hedging instruments for hedge accounting treatment. The Company had the following outstanding forward contracts (in thousands): June 29, 2025 December 31, 2024 Currency Notional Value USD Equivalent Notional Value USD Equivalent Derivatives Not Designated as Hedging Instruments: Singapore Dollar 38,000 $ 29,317 40,000 $ 29,457 Chinese Renminbi 70,000 9,780 95,000 12,990 Mexican Peso 150,000 7,939 220,000 10,701 Hungarian Forint 2,500,000 7,344 2,360,000 5,951 Indian Rupee 500,000 5,844 — — British Pound 4,000 5,486 3,200 4,008 Korean Won 7,000,000 5,155 — — Japanese Yen 300,000 2,080 2,000,000 12,789 Euro — — 25,000 26,029 Swiss Franc — — 2,200 2,432 Canadian Dollar — — 2,000 1,390 12 COGNEX CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) Information regarding the fair value of the outstanding forward contracts was as follows (in thousands): Asset Derivatives Liability Derivatives Fair Value Fair Value Balance Sheet Location Fair Value Level June 29, 2025 December 31, 2024 Balance Sheet Location Fair Value Level June 29, 2025 December 31, 2024 Derivatives Not Designated as Hedging Instruments: Economic hedge forward contracts Prepaid expenses and other current assets Level 2 $ 1,065 $ 689 Accrued expenses Level 2 $ 766 $ 757 Activity: Gross amounts recognized $ 1,065 $ 689 $ 766 $ 757 Gross amounts offset — — — — Net amounts presented on the Consolidated Balance Sheets $ 1,065 $ 689 $ 766 $ 757 The Company’s forward contracts are reported at fair value based on model-driven valuations in which all significant inputs are observable or can be derived from or corroborated by observable market data for substantially the full term of the asset or liability, and are therefore classified as Level 2. The Company's forward contracts are typically traded or executed in over-the-counter markets with a high degree of pricing transparency. The market participants are generally large commercial banks. Information regarding the effect of derivative instruments on the Consolidated Statements of Operations was as follows (in thousands): Statement of Operations Location Three-months Ended Six-months Ended June 29, 2025 June 30, 2024 June 29, 2025 June 30, 2024 Derivatives Not Designated as Hedging Instruments: Gains (losses) recognized in current operations Foreign currency gain (loss) $ ( 420 ) $ 876 $ ( 967 ) $ 631 Activities related to derivative instruments are reflected within "Net cash provided by (used in) operating activities" on the Consolidated Statements of Cash Flows. NOTE 4: Inventories Inventories consisted of the following (in thousands): June 29, 2025 December 31, 2024 Raw materials $ 78,836 $ 86,917 Work-in-process 6,441 5,544 Finished goods 59,300 65,066 $ 144,577 $ 157,527 13 COGNEX CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) NOTE 5: Leases The Company's leases are primarily leased properties across different worldwide locations where the Company conducts its business. All of these leases are classified as operating leases. Certain leases may contain options to extend or terminate the lease at the Company's sole discretion. As of June 29, 2025, there were no options to terminate and twenty options to extend that were accounted for in the determination of the applicable lease term for the Company's outstanding leases. Certain leases contain leasehold improvement incentives, retirement obligations, escalating clauses, rent holidays, and variable payments tied to a consumer price index. There were no restrictions or covenants for outstanding leases as of June 29, 2025. The Company did not have any leases that had not yet commenced but that created significant rights and/or obligations as of June 29, 2025. The components of lease expense were as follows (in thousands): Three-months Ended Six-months Ended June 29, 2025 June 30, 2024 June 29, 2025 June 30, 2024 Operating lease expense $ 3,521 $ 3,474 $ 6,992 $ 7,037 Short-term lease expense (1) 211 $ 57 420 $ 139 (1) Leases with a term of twelve months or less for which the Company elected not to recognize a lease asset or lease liability Supplemental balance sheet information related to leases was as follows: June 29, 2025 December 31, 2024 Weighted average remaining lease term 9.3 years 9.9 years Weighted average discount rate 6.3 % 5.9 % Supplemental cash flow information related to leases was as follows (in thousands): Three-months Ended Six-months Ended June 29, 2025 June 30, 2024 June 29, 2025 June 30, 2024 Cash paid for amounts included in the measurement of operating lease liabilities $ 3,412 $ 3,406 $ 6,834 $ 6,614 Maturities of lease liabilities as of June 29, 2025 were as follows (in thousands): Amount Remainder of fiscal 2025 $ 8,317 2026 15,043 2027 13,361 2028 11,859 2029 9,858 2030 8,816 Thereafter 42,857 Total undiscounted lease payments $ 110,111 Less: imputed interest 26,926 Total operating lease liabilities $ 83,185 14 COGNEX CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) The Company leases a building in Singapore that serves as a distribution center for customers in Asia. The lease contains two components: an 88,000 square-foot premises that had a commencement date in June of 2023 and a second 27,000 square-foot premises that does not commence until the fourth quarter of 2025. Accordingly, the second component of the lease has not yet been recorded on the Consolidated Balance Sheets, nor has it created any significant rights and obligations as of June 29, 2025. This second lease component has an original term of eight years and the Company has the right and option to extend this term by an additional five years , commencing upon the expiration of the original term. Undiscounted lease payment obligations associated with this lease component total $ 14,084,000 , $ 172,000 of which is payable in the remainder of 2025 and which reflects the estimated extension period of five years . Undiscounted lease payment obligations related to this lease component are not included in the lease liability maturity table above as the lease component has not yet commenced. The Company has entered into a lease for a 6,500 square-foot building in Aachen, Germany for a term of ten years . The lease had a commencement date in June of 2025, and therefore, was recorded on the Consolidated Balance Sheet as of June 29, 2025. The Company has the right and option to extend the term of this lease for an additional period of five years , commencing upon the expiration of the original term. Undiscounted lease payment obligations associated with this lease are included in the lease liability maturity table above and total $ 9,742,000 , $ 464,000 of which is payable in the remainder of 2025. NOTE 6: Goodwill and Intangible Assets The changes in the carrying value of goodwill were as follows (in thousands): Balance as of December 31, 2024 $ 384,937 Foreign exchange rate changes 12,452 Balance as of June 29, 2025 $ 397,389 Amortized intangible assets as of June 29, 2025 consisted of the following (in thousands): Gross Carrying Value Accumulated Amortization Net Carrying Value Customer relationships $ 72,881 $ ( 13,151 ) $ 59,730 Completed technologies 60,916 ( 28,904 ) 32,012 Trademarks 883 ( 515 ) 368 Non-compete agreements 340 ( 315 ) 25 Balance as of June 29, 2025 $ 135,020 $ ( 42,885 ) $ 92,135 Amortized intangible assets as of December 31, 2024 consisted of the following (in thousands): Gross Carrying Value Accumulated Amortization Net Carrying Value Customer relationships $ 67,781 $ ( 10,229 ) $ 57,552 Completed technologies 58,373 ( 25,766 ) 32,607 Trademarks 810 ( 337 ) 473 Non-compete agreements 340 ( 288 ) 52 Balance as of December 31, 2024 $ 127,304 $ ( 36,620 ) $ 90,684 15 COGNEX CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) Future amortization expense related to intangible assets as of June 29, 2025 is as follows (in thousands): Amount Remainder of fiscal 2025 $ 5,338 2026 10,415 2027 9,473 2028 8,743 2029 8,743 2030 8,200 Thereafter 41,223 $ 92,135 NOTE 7: Warranty Obligations The Company records the estimated cost of fulfilling product warranties at the time of sale based upon historical costs to fulfill claims. Obligations may also be recorded subsequent to the time of sale whenever specific events or changes in circumstances impacting product quality become known that would not have been taken into account using historical data. While we engage in extensive product quality programs and processes, including actively monitoring and evaluating the quality of our component suppliers and third-party contract manufacturers, the Company’s warranty obligation is affected by product failure rates, material usage, and service delivery costs incurred in correcting a product failure. An adverse change in any of these factors may result in the need for additional warranty provisions. Warranty obligations are included in “Accrued expenses” on the Consolidated Balance Sheets. The changes in the warranty obligation were as follows (in thousands): Balance as of December 31, 2024 $ 5,140 Provisions for warranties issued during the period 2,401 Fulfillment of warranty obligations ( 1,640 ) Foreign exchange rate changes 17 Balance as of June 29, 2025 $ 5,918 NOTE 8: Commitments and Contingencies As of June 29, 2025, the Company had outstanding purchase orders totaling $ 50,682,000 to procure inventory from various vendors. Certain of these purchase orders may be canceled by the Company, subject to cancellation penalties. These purchase commitments relate primarily to expected sales in the next twelve months. A significant portion of the Company's outstanding inventory purchase orders as of June 29, 2025, as well as additional preauthorized commitments to procure strategic components based on the Company's expected customer demand, are placed with the Company's primary contract manufacturer for the Company's assembled products. The Company has the obligation to purchase any non-cancelable and non-returnable components that have been purchased by the contract manufacturer with the Company's preauthorization, when these components have not been consumed within the period defined in the terms of the Company's agreement with this contract manufacturer. While the Company typically expects such purchased components to be used in future production of Cognex finished goods, these components are considered in the Company's reserve estimate for excess and obsolete inventory. Furthermore, the Company accrues for losses on commitments for the future purchase of non-cancelable and non-returnable components from this contract manufacturer at the time that circumstances, such as changes in demand, indicate that the value of the components may not be recoverable, the loss is probable, and management has the ability to reasonably estimate the amount of the loss. Various claims and legal proceedings generally incidental to the normal course of business are pending or threatened on behalf of or against the Company. While we cannot predict the outcome of these matters, we believe that any liability arising from them will not have a material adverse effect on our financial position, liquidity, or results of operations. 16 COGNEX CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) NOTE 9: Stockholders' Equity Stock Repurchase Program In March 2022, the Company's Board of Directors (the "Board") authorized a program providing for the repurchase of $ 500,000,000 of the Company's common stock (the "Program"). Under the Program, in addition to repurchases made in other periods, the Company repurchased 473,000 shares at a total cost of $ 19,879,000 during the six-month period ended June 30, 2024 and 3,047,000 shares at a total cost of $ 102,233,000 during the six-month period ended June 29, 2025, leaving a remaining balance of $ 164,020,000 as of June 29, 2025. The Company may repurchase shares under the 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. Stock-Based Compensation Expense The Company’s stock-based awards that result in compensation expense consist of stock options, restricted stock units ("RSUs"), and performance restricted stock units ("PRSUs"). The following table summarizes the number of stock-based awards granted by the Company and the weighted-average grant-date fair value per unit for the three-month and six-month periods ended June 29, 2025 and June 30, 2024: Three-months Ended Six-months Ended June 29, 2025 June 30, 2024 June 29, 2025 June 30, 2024 Stock-Based Awards Granted (in thousands) Weighted- Average Grant-Date Fair Value Stock-Based Awards Granted (in thousands) Weighted- Average Grant-Date Fair Value Stock-Based Awards Granted (in thousands) Weighted- Average Grant-Date Fair Value Stock-Based Awards Granted (in thousands) Weighted- Average Grant-Date Fair Value Stock options 279 $ 10.75 97 $ 18.46 1,639 $ 12.05 1,620 $ 14.89 Restricted stock units 11 $ 28.51 32 $ 43.97 1,259 $ 32.31 797 $ 39.03 Performance restricted stock units — $ — — $ — 184 $ 32.14 55 $ 39.05 290 129 3,082 2,472 During the first quarter of 2025, the Company granted PRSUs that vest upon the achievement of (1) a service condition of three years of continuous employment and (2) a performance condition established by the Compensation Committee of the Board as of the grant date. The number of shares earned could range between 0 % and 120 % based on achievement of the performance condition, which includes certain financial targets over the three-year measurement period. The fair value of these PRSUs is calculated based on the observable market price of the Company's stock on the grant date less the present value of expected future dividends. Compensation expense for these PRSUs is recognized based on the probable outcome of the performance condition with a cumulative catch-up adjustment for prior periods in the period that the probable outcome changes. During the three-month and six-month periods ended June 29, 2025, the Company recorded $ 344,000 and $ 496,000 in compensation expense based on the probable three-year financial target outcome for the PRSUs granted during the first quarter of 2025. The Company stratifies its employee population into two groups: one consisting of senior management and another consisting of all other employees. The Company currently applies an estimated annual forfeiture rate of 11 % to all stock-based awards for senior management and a rate of 13 % for all other employees. Each year during the first quarter, the Company revises its forfeiture rate based on updated estimates of employee turnover. Credits of $ 4,789,000 and $ 1,832,000 were recorded in 2025 and 2024, respectively, to true up previously recorded compensation expense for this forfeiture rate revision. As of June 29, 2025, total unrecognized compensation expense, net of estimated forfeitures, related to non-vested equity awards, including stock options, RSUs, and PRSUs, was $ 69,681,000 , which is expected to be recognized over a weighted-average period of 1.9 years. 17 COGNEX CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) The following table presents the stock-based compensation expense by caption for each period presented on the Consolidated Statements of Operations (in thousands): Three-months Ended Six-months Ended June 29, 2025 June 30, 2024 June 29, 2025 June 30, 2024 Cost of revenue $ 537 $ 413 $ 1,205 $ 1,018 Research, development, and engineering 3,443 3,540 8,139 7,929 Selling, general, and administrative 8,314 9,011 12,889 17,319 Total stock-based compensation expense $ 12,294 $ 12,964 $ 22,233 $ 26,266 No compensation expense was capitalized as of June 29, 2025 or December 31, 2024. NOTE 10: Revenue Recognition The following table summarizes disaggregated revenue information by geographic area based upon the customer's country of domicile (in thousands): Three-months Ended Six-months Ended June 29, 2025 June 30, 2024 June 29, 2025 June 30, 2024 Americas $ 92,137 $ 85,162 $ 191,867 $ 168,297 Europe 66,623 57,151 115,833 109,505 Greater China 45,025 54,410 71,815 84,459 Other Asia 45,308 42,569 85,614 87,828 $ 249,093 $ 239,292 $ 465,129 $ 450,089 The following table summarizes disaggregated revenue information by revenue type (in thousands): Three-months Ended Six-months Ended June 29, 2025 June 30, 2024 June 29, 2025 June 30, 2024 Standard products and services $ 216,035 $ 200,856 $ 420,545 $ 388,488 Application-specific customer solutions 33,058 38,436 44,584 61,601 $ 249,093 $ 239,292 $ 465,129 $ 450,089 Costs to Fulfill a Contract Costs to fulfill a contract are included in "Prepaid expenses and other current assets" on the Consolidated Balance Sheet and amounted to $ 14,133,000 and $ 10,705,000 as of June 29, 2025 and December 31, 2024, respectively. Accounts Receivable, Contract Assets, and Contract Liabilities Accounts receivable represent amounts billed and currently due from customers which are reported at their net estimated realizable value. The Company maintains an allowance against its accounts receivable for credit losses. Contract assets consist of unbilled revenue which arises when revenue is recognized in advance of billing for certain application-specific customer solutions contracts. Contract liabilities consist of deferred revenue and customer deposits which arise when amounts are billed to or collected from customers in advance of revenue recognition. 18 COGNEX CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) The following table summarizes the allowance for credit losses activity for the six-month period ended June 29, 2025 (in thousands): Balance as of December 31, 2024 $ 827 Increases to the allowance for credit losses 80 Write-offs, net of recoveries ( 267 ) Foreign exchange rate changes ( 20 ) Balance as of June 29, 2025 $ 620 The following table summarizes the deferred revenue and customer deposits activity for the six-month period ended June 29, 2025 (in thousands): Balance as of December 31, 2024 $ 25,035 Deferral of revenue billed in the current period, net of recognition 40,837 Recognition of revenue deferred in prior period ( 13,450 ) Foreign exchange rate changes 655 Balance as of June 29, 2025 $ 53,077 As a practical expedient, the Company has elected not to disclose the aggregate amount of the transaction price allocated to unsatisfied performance obligations for our contracts that have an original expected duration of less than one year. The remaining unsatisfied performance obligations for our contracts that have an original expected duration of more than one year, primarily related to extended warranties, are not material. 19 COGNEX CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) NOTE 11: Income Taxes The Company's effective tax rate was 16 % and 15 % for the three-month and six-month periods ended June 29, 2025, respectively, and 13 % and 18 % for the three-month and six-month periods ended June 30, 2024, respectively. The Company has defined its major tax jurisdictions as the United States, Ireland, China, Japan, and Korea, and within the United States, Massachusetts. The statutory tax rate is 12.5 % in Ireland, 25 % in China, 34.7 % in Japan, and 21 % in Korea, compared to the U.S. federal statutory corporate tax rate of 21 %. These foreign tax rate differences resulted in a favorable impact to the effective tax rate for both the three-month and six-month periods ended June 29, 2025 and June 30, 2024. The Company recorded a net discrete tax benefit totaling $ 211,000 and $ 518,000 for the three-month and six-month periods ended June 29, 2025, respectively, and a net discrete tax benefit totaling $ 463,000 and a net discrete tax expense totaling $ 2,622,000 for the three-month and six-month periods ended June 30, 2024, respectively. Discrete tax items for the six-month period ended June 29, 2025 included (1) an increase in tax expense of $ 2,668,000 related to stock-based compensation; (2) an increase in tax expense of $ 884,000 for interest expense related to tax reserves; (3) an increase in tax expense of $ 669,000 related to taxability of payroll tax credit refunds received during the year; (4) a decrease in tax expense of $ 2,393,000 for release of tax reserves related to statute of limitation lapse; (5) a net decrease in tax expense of $ 2,013,000 related to an adjustment to the Company's deferred tax position; and (6) a net decrease in tax expense of $ 333,000 related to return-to-provision adjustments. Discrete tax items for the six-month period ended June 30, 2024 included (1) an increase in tax expense of $ 1,371,000 related to stock-based compensation; (2) an increase in tax expense of $ 477,000 related to state tax matters; (3) an increase in tax expense of $ 922,000 for interest expense related to tax reserves; (4) a net decrease in tax expense of $ 1,278,000 related to return-to-provision adjustments; and (5) an increase in tax expense of $ 1,130,000 for other tax matters. The Company’s reserve for income taxes, including gross interest and penalties, was $ 28,109,000 as of June 29, 2025, of which $ 25,742,000 was classified as a non-current liability and $ 2,367,000 was classified as an offset to deferred tax assets. If the Company’s tax positions were sustained or the statutes of limitations related to certain positions expired, these reserves would be released and income tax expense would be reduced in a future period. Within the United States, the tax years 2021 through 2024 remain open to examination by the Internal Revenue Service, and 2020 through 2024 remain open to examination by various state tax authorities. The tax years 2013 through 2024 remain open to examination by various international taxing authorities in other jurisdictions in which the Company operates. On July 4, 2025, tax legislation known as the One Big Beautiful Bill Act ("OBBBA") was enacted in the United States. OBBBA modifies certain international tax provisions such as the tax on Global Intangible Low Taxed Income ("GILTI") and renames GILTI as Net CFC Tested Income ("NCTI"). The Company records NCTI taxes on a deferred basis. The Company is in the early stages of evaluating the impact of U.S. tax law changes introduced by OBBBA on our consolidated financial statements and disclosures. As of the date of this filing, we expect OBBBA to materially increase our deferred tax liability and income tax expense in the third quarter of 2025, while also providing a cash tax benefit estimated between $ 12 million and $ 15 million for the full year. A full quantitative estimate of all specific financial impacts cannot be reasonably determined at this time due to the complexity of the changes in OBBBA and the need for further analysis. 20 COGNEX CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) NOTE 12: Earnings per Share The following table shows the computation of basic and diluted earnings per share for the three-month and six-month periods ended June 29, 2025 and June 30, 2024 (in thousands, except per share amounts): Three-months Ended Six-months Ended June 29, 2025 June 30, 2024 June 29, 2025 June 30, 2024 Net income 40,511 36,212 $ 64,114 $ 48,234 Basic weighted-average common shares outstanding 167,886 171,568 168,568 171,630 Effect of dilutive stock-based awards 677 1,165 985 1,069 Diluted weighted-average common shares outstanding 168,563 172,733 169,553 172,699 Earnings per share Basic 0.24 0.21 0.38 0.28 Diluted 0.24 0.21 0.38 0.28 The computation of diluted weighted-average common shares outstanding excludes the following weighted average anti-dilutive stock-based awards outstanding for the three-month and six-month periods ended June 29, 2025 and June 30, 2024 (in thousands): Three-months Ended Six-months Ended June 29, 2025 June 30, 2024 June 29, 2025 June 30, 2024 Stock options 10,418 8,325 10,095 8,415 Restricted stock units 15 1 — 9 Performance restricted stock units 184 — — — Total weighted average anti-dilutive stock-based awards outstanding 10,617 8,326 10,095 8,424 NOTE 13: Segment Information The Company operates in one segment, machine vision technology. The Company has a single, company-wide management team that administers operations as a whole rather than as discrete operating segments. The Company’s chief operating decision maker is the chief executive officer, who assesses performance and allocates resources at the corporate level, as compared to the geography, product line, or end market levels. The Company offers a variety of machine vision products that have similar economic characteristics and are distributed by the same sales channels to the same types of customers. 21 COGNEX CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) The measure of segment profit or loss for the Company's single segment is net income. Segment expenses were disaggregated based on the information the chief operating decision maker uses to assess performance and allocate resources considering both quantitative and qualitative factors. The following table summarizes significant segment expenses, which represents the difference between segment revenue and segment net income (in thousands): Three-months Ended Six-months Ended June 29, 2025 June 30, 2024 June 29, 2025 June 30, 2024 Revenue $ 249,093 $ 239,292 $ 465,129 $ 450,089 Less: Cost of revenue (1) 81,217 72,693 152,930 141,553 Gross profit 167,876 166,599 312,199 308,536 Less: Research, development, and engineering expenses Salaries and fringe benefits 19,557 20,337 37,831 40,054 Incentive compensation (2) 2,368 1,801 3,439 2,785 Stock-based compensation 3,443 3,540 8,139 7,929 Depreciation and amortization 737 795 1,492 1,618 Other segment expenses (3) 6,997 8,489 16,928 19,681 Total research, development, and engineering expenses 33,102 34,962 67,829 72,067 Selling, general, and administrative expenses Salaries and fringe benefits 44,440 45,212 86,635 89,894 Incentive compensation (2) 13,858 12,006 24,740 23,066 Stock-based compensation 8,314 9,011 12,889 17,319 Depreciation and amortization 4,118 4,137 8,279 8,256 Other segment expenses (3) 20,611 22,814 42,302 45,273 Total selling, general, and administrative expenses 91,341 93,180 174,845 183,808 Operating income 43,433 38,457 69,525 52,661 Foreign currency gain (loss) ( 1,503 ) ( 181 ) ( 3,956 ) ( 135 ) Investment income 4,040 3,116 8,030 6,236 Other income (expense) 2,092 176 2,261 372 Income before income tax expense 48,062 41,568 75,860 59,134 Income tax expense 7,551 5,356 11,746 10,900 Net income $ 40,511 $ 36,212 $ 64,114 $ 48,234 (1) Cost of revenue includes depreciation and amortization expense (including amortization of acquired technologies) of $ 3,144,000 and $ 6,162,000 for the three-month and six-month periods ended June 29, 2025, respectively, and $ 2,988,000 and $ 6,138,000 for the three-month and six-month periods ended June 30, 2024, respectively. (2) Incentive compensation includes company bonus and sales commissions. (3) Other segment expenses include outside services, prototyping materials, sales demonstration equipment, travel and entertainment, marketing programs, and rent, among other less significant expenses. Segment assets amounted to $ 2,003,541 and $ 1,992,850 as of June 29, 2025 and December 31, 2024, respectively. 22 COGNEX CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) NOTE 14: Subsequent Events On July 30, 2025, the Board declared a cash dividend of $ 0.08 per share. The dividend is payable on August 28, 2025 to all shareholders of record as of the close of business on August 14, 2025. In July 2025, the Company entered into a commercial partnership with a strategic channel partner (the “Partner”) to better serve Original Equipment Manufacturer (OEM) customers in the specialized field of medical lab automation. Through 2030, the Partner has exclusive rights to sell machine vision hardware into these applications in combination with licensed Company software, in exchange for annual minimum license fees paid to the Company. The Company expects to recognize the minimum license fees as revenue in the third quarter of 2025, at the point in time when the Partner receives access to the software. Although the license revenue will be recognized upfront, payments are expected to be received over the duration of the partnership, resulting in unbilled revenue. Also in the third quarter of 2025, the Company will transfer related inventories at cost to the Partner. As a result of the upfront recognition of the license revenue and transfer of inventories, the Company expects a one-time benefit ranging from $ 8 million to $ 14 million of revenue in the third quarter of 2025. 23