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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
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☒ | Quarterly Report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 for the quarterly period ended October 1, 2023 or |
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☐ | Transition Report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 for the transition period from __________ to __________ |
Commission File Number 001-34218
COGNEX CORPORATION
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(Exact name of registrant as specified in its charter) |
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Massachusetts | | 04-2713778 |
(State or other jurisdiction of incorporation or organization) | | (I.R.S. Employer Identification No.) |
One Vision Drive
Natick, Massachusetts 01760-2059
(508) 650-3000
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(Address, including zip code, and telephone number, including area code, of principal executive offices) |
Securities registered pursuant to Section 12(b) of the Act:
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Title of each class | Trading Symbol(s) | Name of each exchange on which registered |
Common Stock, par value $.002 per share | CGNX | The NASDAQ Stock Market LLC |
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and "emerging growth company" in Rule 12b-2 of the Exchange Act (Check one):
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Large accelerated filer | ☒ | | | | | Accelerated filer | ☐ |
Non-accelerated filer | ☐ | | | | | Smaller reporting company | ☐ |
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If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
As of October 1, 2023, there were 172,142,092 shares of Common Stock, $.002 par value per share, of the registrant outstanding.
INDEX
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PART I | FINANCIAL INFORMATION | |
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PART I: FINANCIAL INFORMATION
ITEM 1: FINANCIAL STATEMENTS
COGNEX CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share amounts)
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| Three-months Ended | | Nine-months Ended |
| October 1, 2023 | | October 2, 2022 | | October 1, 2023 | | October 2, 2022 |
| (unaudited) | | (unaudited) |
Revenue | $ | 197,241 | | | $ | 209,622 | | | $ | 640,877 | | | $ | 766,657 | |
Cost of revenue | 54,467 | | | 57,383 | | | 174,680 | | | 214,316 | |
Gross margin | 142,774 | | | 152,239 | | | 466,197 | | | 552,341 | |
Research, development, and engineering expenses | 32,580 | | | 33,954 | | | 104,707 | | | 103,999 | |
Selling, general, and administrative expenses | 82,307 | | | 75,371 | | | 248,767 | | | 236,156 | |
Loss (recovery) from fire (Note 17) | (2,750) | | | 2,891 | | | (5,250) | | | 20,294 | |
Operating income | 30,637 | | | 40,023 | | | 117,973 | | | 191,892 | |
Foreign currency gain (loss) | (8,699) | | | (1,880) | | | (9,910) | | | (4,367) | |
Investment income | 4,891 | | | 1,416 | | | 12,573 | | | 4,389 | |
Other income (expense) | 173 | | | (214) | | | 358 | | | (450) | |
Income before income tax expense | 27,002 | | | 39,345 | | | 120,994 | | | 191,464 | |
Income tax expense | 8,086 | | | 5,365 | | | 18,989 | | | 31,250 | |
Net income | $ | 18,916 | | | $ | 33,980 | | | $ | 102,005 | | | $ | 160,214 | |
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Net income per weighted-average common and common-equivalent share: |
Basic | $ | 0.11 | | | $ | 0.20 | | | $ | 0.59 | | | $ | 0.92 | |
Diluted | $ | 0.11 | | | $ | 0.19 | | | $ | 0.59 | | | $ | 0.91 | |
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Weighted-average common and common-equivalent shares outstanding: |
Basic | 172,169 | | | 173,256 | | | 172,408 | | | 173,640 | |
Diluted | 173,354 | | | 174,327 | | | 173,659 | | | 175,233 | |
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Cash dividends per common share | $ | 0.070 | | | $ | 0.065 | | | $ | 0.210 | | | $ | 0.195 | |
The accompanying notes are an integral part of these consolidated financial statements.
COGNEX CORPORATION
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(In thousands)
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| Three-months Ended | | Nine-months Ended |
| October 1, 2023 | | October 2, 2022 | | October 1, 2023 | | October 2, 2022 |
| (unaudited) | | (unaudited) |
Net income | $ | 18,916 | | | $ | 33,980 | | | $ | 102,005 | | | $ | 160,214 | |
Other comprehensive income (loss), net of tax: | | | | | | | |
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Available-for-sale investments: | | | | | | | |
Net unrealized gain (loss), net of tax of $707 and $(1,564) in the three-month periods, and net of tax of $1,981 and $(6,298) in the nine-month periods, respectively | 738 | | | (5,315) | | | 4,458 | | | (21,185) | |
| | | | | | | |
Reclassification of net realized (gain) loss on the sale of available-for-sale investments into current operations | 624 | | | 79 | | | 624 | | | 103 | |
Net change related to available-for-sale investments | 1,362 | | | (5,236) | | | 5,082 | | | (21,082) | |
| | | | | | | |
Foreign currency translation adjustments: | | | | | | | |
Foreign currency translation adjustments | (2,603) | | | (7,352) | | | (5,828) | | | (13,425) | |
Net change related to foreign currency translation adjustments | (2,603) | | | (7,352) | | | (5,828) | | | (13,425) | |
| | | | | | | |
Other comprehensive income (loss), net of tax | (1,241) | | | (12,588) | | | (746) | | | (34,507) | |
Total comprehensive income | $ | 17,675 | | | $ | 21,392 | | | $ | 101,259 | | | $ | 125,707 | |
The accompanying notes are an integral part of these consolidated financial statements.
COGNEX CORPORATION
CONSOLIDATED BALANCE SHEETS
(In thousands)
| | | | | | | | | | | |
| October 1, 2023 | | December 31, 2022 |
| (unaudited) | | |
ASSETS | | | |
Current assets: | | | |
Cash and cash equivalents | $ | 395,501 | | | $ | 181,374 | |
Current investments, amortized cost of $120,831 and $223,545 in 2023 and 2022, respectively, allowance for credit losses of $0 in 2023 and 2022 | 117,147 | | | 218,759 | |
Accounts receivable, allowance for credit losses of $580 and $730 in 2023 and 2022, respectively | 130,542 | | | 125,417 | |
Unbilled revenue | 1,588 | | | 2,179 | |
Inventories | 133,866 | | | 122,480 | |
Prepaid expenses and other current assets | 68,347 | | | 67,490 | |
Total current assets | 846,991 | | | 717,699 | |
Non-current investments, amortized cost of $349,060 and $476,148 in 2023 and 2022, respectively, allowance for credit losses of $0 in 2023 and 2022 | 332,991 | | | 454,117 | |
Property, plant, and equipment, net | 82,965 | | | 79,714 | |
Operating lease assets | 66,760 | | | 37,682 | |
Goodwill | 241,042 | | | 242,630 | |
Intangible assets, net | 9,986 | | | 12,414 | |
Deferred income taxes | 403,013 | | | 407,241 | |
Other assets | 6,151 | | | 6,643 | |
Total assets | $ | 1,989,899 | | | $ | 1,958,140 | |
| | | |
LIABILITIES AND SHAREHOLDERS’ EQUITY | | | |
Current liabilities: | | | |
Accounts payable | $ | 23,053 | | | $ | 27,103 | |
Accrued expenses | 79,121 | | | 93,235 | |
Accrued income taxes | 19,302 | | | 18,129 | |
Deferred revenue and customer deposits | 40,246 | | | 40,787 | |
Operating lease liabilities | 7,982 | | | 8,454 | |
Total current liabilities | 169,704 | | | 187,708 | |
Non-current operating lease liabilities | 60,450 | | | 31,298 | |
Deferred income taxes | 233,360 | | | 249,961 | |
Reserve for income taxes | 19,450 | | | 15,866 | |
Non-current accrued income taxes | 18,337 | | | 33,008 | |
Other liabilities | — | | | 1,905 | |
Total liabilities | 501,301 | | | 519,746 | |
| | | |
Commitments and contingencies (Note 10) | | | |
Shareholders’ equity: | | | |
Preferred stock, $.01 par value – Authorized: 400 shares in 2023 and 2022, respectively; no shares issued and outstanding | — | | | — | |
Common stock, $.002 par value – Authorized: 300,000 shares in 2023 and 2022, respectively; issued and outstanding: 172,142 and 172,631 shares in 2023 and 2022, respectively | 344 | | | 345 | |
Additional paid-in capital | 1,023,960 | | | 979,167 | |
Retained earnings | 534,337 | | | 528,179 | |
Accumulated other comprehensive loss, net of tax | (70,043) | | | (69,297) | |
Total shareholders’ equity | 1,488,598 | | | 1,438,394 | |
Total liabilities and shareholders' equity | $ | 1,989,899 | | | $ | 1,958,140 | |
The accompanying notes are an integral part of these consolidated financial statements.
COGNEX CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
| | | | | | | | | | | |
| Nine-months Ended |
| October 1, 2023 | | October 2, 2022 |
| (unaudited) |
Cash flows from operating activities: | | | |
Net income | $ | 102,005 | | | $ | 160,214 | |
Adjustments to reconcile net income to net cash provided by (used in) operating activities: | | | |
Stock-based compensation expense | 41,518 | | | 41,419 | |
Depreciation of property, plant, and equipment | 12,557 | | | 12,176 | |
(Gain) loss on disposal of property, plant, and equipment | (2) | | | 12 | |
Amortization of intangible assets | 2,428 | | | 2,468 | |
Excess and obsolete inventory charges | 1,703 | | | 2,728 | |
Non-cash impact of write-offs related to fire (Note 17) | — | | | 45,827 | |
Amortization of discounts or premiums on investments | 1,347 | | | 3,976 | |
Realized (gain) loss on sale of investments | 624 | | | 103 | |
| | | |
| | | |
Change in deferred income taxes | (14,691) | | | (14,799) | |
Change in operating assets and liabilities: | | | |
Accounts receivable | (6,488) | | | 31,018 | |
Unbilled revenue | 534 | | | 1,760 | |
Inventories | (12,954) | | | (35,815) | |
| | | |
Prepaid expenses and other current assets | (2,007) | | | (46,817) | |
Accounts payable | (3,986) | | | (21,577) | |
Accrued expenses | (13,214) | | | (23,813) | |
Accrued income taxes | (13,513) | | | (6,644) | |
Deferred revenue and customer deposits | (151) | | | 20,882 | |
Other | 2,715 | | | 4,031 | |
Net cash provided by (used in) operating activities | 98,425 | | | 177,149 | |
Cash flows from investing activities: | | | |
Purchases of investments | (174,330) | | | (77,760) | |
Maturities and sales of investments | 402,160 | | | 215,876 | |
Purchases of property, plant, and equipment | (16,062) | | | (15,605) | |
| | | |
| | | |
| | | |
Net cash provided by (used in) investing activities | 211,768 | | | 122,511 | |
Cash flows from financing activities: | | | |
Net payments from issuance of common stock under stock plans | 3,276 | | | 4,225 | |
Repurchase of common stock | (59,640) | | | (178,387) | |
Payment of dividends | (36,209) | | | (33,837) | |
| | | |
Net cash provided by (used in) financing activities | (92,573) | | | (207,999) | |
Effect of foreign exchange rate changes on cash and cash equivalents | (3,493) | | | (11,818) | |
Net change in cash and cash equivalents | 214,127 | | | 79,843 | |
Cash and cash equivalents at beginning of period | 181,374 | | | 186,161 | |
Cash and cash equivalents at end of period | $ | 395,501 | | | $ | 266,004 | |
The accompanying notes are an integral part of these consolidated financial statements.
COGNEX CORPORATION
CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY
(In thousands)
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Common Stock | | Additional Paid-in Capital | | Retained Earnings | | Accumulated Other Comprehensive Loss | | Total Shareholders’ Equity |
| Shares | | Par Value | | | | |
Balance as of July 2, 2023 | 172,293 | | | $ | 345 | | | $ | 1,010,973 | | | $ | 537,947 | | | $ | (68,802) | | | $ | 1,480,463 | |
Net issuance of common stock under stock plans | 40 | | | — | | | 622 | | | — | | | — | | | 622 | |
Repurchase of common stock | (191) | | | (1) | | | — | | | (10,477) | | | — | | | (10,478) | |
Stock-based compensation expense | — | | | — | | | 12,365 | | | — | | | — | | | 12,365 | |
Payment of dividends ($0.070 per common share) | — | | | — | | | — | | | (12,049) | | | — | | | (12,049) | |
Net income | — | | | — | | | — | | | 18,916 | | | — | | | 18,916 | |
| | | | | | | | | | | |
| | | | | | | | | | | |
Net unrealized gain (loss) on available-for-sale investments, net of tax of $707 | — | | | — | | | — | | | — | | | 738 | | | 738 | |
| | | | | | | | | | | |
Reclassification of net realized (gain) loss on the sale of available-for-sale investments | — | | | — | | | — | | | — | | | 624 | | | 624 | |
Foreign currency translation adjustment | — | | | — | | | — | | | — | | | (2,603) | | | (2,603) | |
Balance as of October 1, 2023 (unaudited) | 172,142 | | | $ | 344 | | | $ | 1,023,960 | | | $ | 534,337 | | | $ | (70,043) | | | $ | 1,488,598 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Common Stock | | Additional Paid-in Capital | | Retained Earnings | | Accumulated Other Comprehensive Loss | | Total Shareholders’ Equity |
| Shares | | Par Value | | | | |
Balance as of July 3, 2022 | 173,397 | | | $ | 347 | | | $ | 947,269 | | | $ | 512,230 | | | $ | (69,861) | | | $ | 1,389,985 | |
Net issuance of common stock under stock plans | 73 | | | — | | | (189) | | | — | | | — | | | (189) | |
Repurchase of common stock | (540) | | | (1) | | | — | | | (24,069) | | | — | | | (24,070) | |
Stock-based compensation expense | — | | | — | | | 13,366 | | | — | | | — | | | 13,366 | |
Payment of dividends ($0.065 per common share) | — | | | — | | | — | | | (11,264) | | | — | | | (11,264) | |
Net income | — | | | — | | | — | | | 33,980 | | | — | | | 33,980 | |
| | | | | | | | | | | |
| | | | | | | | | | | |
Net unrealized gain (loss) on available-for-sale investments, net of tax of $(1,564) | — | | | — | | | — | | | — | | | (5,315) | | | (5,315) | |
| | | | | | | | | | | |
Reclassification of net realized (gain) loss on the sale of available-for-sale investments | — | | | — | | | — | | | — | | | 79 | | | 79 | |
Foreign currency translation adjustment | — | | | — | | | — | | | — | | | (7,352) | | | (7,352) | |
Balance as of October 2, 2022 (unaudited) | 172,930 | | | $ | 346 | | | $ | 960,446 | | | $ | 510,877 | | | $ | (82,449) | | | $ | 1,389,220 | |
The accompanying notes are an integral part of these consolidated financial statements.
COGNEX CORPORATION
CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY
(In thousands)
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Common Stock | | Additional Paid-in Capital | | Retained Earnings | | Accumulated Other Comprehensive Loss | | Total Shareholders’ Equity |
| Shares | | Par Value | | | | |
Balance as of December 31, 2022 | 172,631 | | | $ | 345 | | | $ | 979,167 | | | $ | 528,179 | | | $ | (69,297) | | | $ | 1,438,394 | |
Net issuance of common stock under stock plans | 668 | | | 1 | | | 3,275 | | | — | | | — | | | 3,276 | |
Repurchase of common stock | (1,157) | | | (2) | | | — | | | (59,638) | | | — | | | (59,640) | |
Stock-based compensation expense | — | | | — | | | 41,518 | | | — | | | — | | | 41,518 | |
Payment of dividends ($0.210 per common share) | — | | | — | | | — | | | (36,209) | | | — | | | (36,209) | |
Net income | — | | | — | | | — | | | 102,005 | | | — | | | 102,005 | |
| | | | | | | | | | | |
| | | | | | | | | | | |
Net unrealized gain (loss) on available-for-sale investments, net of tax of $1,981 | — | | | — | | | — | | | — | | | 4,458 | | | 4,458 | |
| | | | | | | | | | | |
Reclassification of net realized (gain) loss on the sale of available-for-sale investments | — | | | — | | | — | | | — | | | 624 | | | 624 | |
Foreign currency translation adjustment | — | | | — | | | — | | | — | | | (5,828) | | | (5,828) | |
Balance as of October 1, 2023 (unaudited) | 172,142 | | | $ | 344 | | | $ | 1,023,960 | | | $ | 534,337 | | | $ | (70,043) | | | $ | 1,488,598 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Common Stock | | Additional Paid-in Capital | | Retained Earnings | | Accumulated Other Comprehensive Loss | | Total Shareholders’ Equity |
| Shares | | Par Value | | | | |
Balance as of December 31, 2021 | 175,481 | | | $ | 351 | | | $ | 914,802 | | | $ | 562,882 | | | $ | (47,942) | | | $ | 1,430,093 | |
Net issuance of common stock under stock plans | 256 | | | — | | | 4,225 | | | — | | | — | | | 4,225 | |
Repurchase of common stock | (2,807) | | | (5) | | | — | | | (178,382) | | | — | | | (178,387) | |
Stock-based compensation expense | — | | | — | | | 41,419 | | | — | | | — | | | 41,419 | |
Payment of dividends ($0.195 per common share) | — | | | — | | | — | | | (33,837) | | | — | | | (33,837) | |
Net income | — | | | — | | | — | | | 160,214 | | | — | | | 160,214 | |
| | | | | | | | | | | |
| | | | | | | | | | | |
Net unrealized gain (loss) on available-for-sale investments, net of tax of $(6,298) | — | | | — | | | — | | | — | | | (21,185) | | | (21,185) | |
| | | | | | | | | | | |
Reclassification of net realized (gain) loss on the sale of available-for-sale investments | — | | | — | | | — | | | — | | | 103 | | | 103 | |
Foreign currency translation adjustment | — | | | — | | | — | | | — | | | (13,425) | | | (13,425) | |
Balance as of October 2, 2022 (unaudited) | 172,930 | | | $ | 346 | | | $ | 960,446 | | | $ | 510,877 | | | $ | (82,449) | | | $ | 1,389,220 | |
The accompanying notes are an integral part of these consolidated financial statements.
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 generally accepted accounting principles (GAAP). Reference should be made to the consolidated financial statements and related notes included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2022 for a full description of other significant accounting policies.
In the opinion of the management of Cognex Corporation (the "Company"), the accompanying consolidated unaudited financial statements contain all adjustments, consisting of normal, recurring adjustments, adjustments related to losses and recoveries from the fire (Note 17), and financial statement reclassifications necessary to present fairly the Company’s financial position as of October 1, 2023, and the results of its operations for the three-month and nine-month periods ended October 1, 2023 and October 2, 2022, 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 nine-month periods ended October 1, 2023 are not necessarily indicative of the results to be expected for the full year.
NOTE 2: New Pronouncements
Accounting Standards Update (ASU) 2020-04, "Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting", (ASU) 2021-01, "Reference Rate Reform (Topic 848): Scope", and Accounting Standards Update (ASU) 2022-06, "Reference Rate Reform (Topic 848): Deferral of the Sunset Date of Topic 848"
The amendments in these ASUs apply to all entities that have contracts, hedging relationships, and other transactions that reference LIBOR or another reference rate expected to be discontinued because of reference rate reform. Together, the ASUs provide optional expedients and exceptions for applying generally accepted accounting principles (GAAP) to contracts, hedging relationships, and other transactions affected by reference rate reform if certain criteria are met. The expedients and exceptions provided by the amendments do not apply to contract modifications made and hedging relationships entered into or evaluated after December 31, 2024, except for hedging relationships existing as of December 31, 2024 that an entity has elected certain optional expedients for and that are retained through the end of the hedging relationship. The amendments in these ASUs are effective for all entities as of March 12, 2020 through December 31, 2024. Management adopted Topic 848 on January 1, 2023, and now uses the Secured Overnight Financing Rate (SOFR). The adoption did not have a material impact on the Company's financial statements and disclosures.
COGNEX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
NOTE 3: Fair Value Measurements
Financial Assets and Liabilities that are Measured at Fair Value on a Recurring Basis
The following table summarizes the financial assets and liabilities required to be measured at fair value on a recurring basis as of October 1, 2023 (in thousands):
| | | | | | | | | | | | | | | | | |
| Quoted Prices in Active Markets for Identical Assets (Level 1) | | Significant Other Observable Inputs (Level 2) | | Unobservable Inputs (Level 3) |
Assets: | | | | | |
Money market instruments | $ | 241,716 | | | $ | — | | | $ | — | |
Corporate bonds | — | | | 349,405 | | | — | |
Treasury bills | — | | | 61,742 | | | — | |
Asset-backed securities | — | | | 37,051 | | | — | |
| | | | | |
| | | | | |
| | | | | |
Sovereign bonds | — | | | 1,940 | | | — | |
| | | | | |
| | | | | |
| | | | | |
| | | | | |
| | | | | |
| | | | | |
Economic hedge forward contracts | — | | | 196 | | | — | |
Liabilities: | | | | | |
| | | | | |
Economic hedge forward contracts | — | | | 128 | | | — | |
| | | | | |
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 and 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. Management is responsible for estimating the fair value of these financial assets and liabilities, and in doing so, considers valuations provided by a large, third-party pricing service. For debt securities, 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. 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.
Non-financial Assets that are Measured at Fair Value on a Non-recurring Basis
Non-financial assets, such as property, plant and equipment, operating lease assets, goodwill, and intangible assets, are required to be measured at fair value only when an impairment loss is recognized. The Company did not record impairment charges related to non-financial assets during the three-month or nine-month periods ended October 1, 2023 or October 2, 2022.
COGNEX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
NOTE 4: Cash, Cash Equivalents, and Investments
Cash, cash equivalents, and investments consisted of the following (in thousands):
| | | | | | | | | | | |
| October 1, 2023 | | December 31, 2022 |
Cash | $ | 153,785 | | | $ | 180,959 | |
| | | |
Money market instruments | 241,716 | | | 415 | |
| | | |
| | | |
Cash and cash equivalents | 395,501 | | | 181,374 | |
Corporate bonds | 110,627 | | | 164,055 | |
Asset-backed securities | 3,084 | | | 26,890 | |
Treasury bills | 2,457 | | | 11,332 | |
Sovereign bonds | 979 | | | — | |
Agency bonds | — | | | 15,858 | |
Municipal bonds | — | | | 624 | |
| | | |
| | | |
| | | |
Current investments | 117,147 | | | 218,759 | |
Corporate bonds | 238,778 | | | 374,440 | |
Treasury bills | 59,285 | | | 44,214 | |
Asset-backed securities | 33,967 | | | 33,539 | |
| | | |
Sovereign bonds | 961 | | | 1,924 | |
| | | |
| | | |
| | | |
| | | |
Non-current investments | 332,991 | | | 454,117 | |
| $ | 845,639 | | | $ | 854,250 | |
Corporate bonds consist of debt securities issued by both domestic and foreign companies; asset-backed securities consist of debt securities collateralized by pools of receivables or loans with credit enhancement; treasury bills consist of debt securities issued by the U.S. government; sovereign bonds consist of direct debt issued by foreign governments; agency bonds consist of domestic or foreign obligations of government agencies and government-sponsored enterprises that have government backing; and municipal bonds consist of debt securities issued by state and local government entities. All of the Company's securities as of October 1, 2023 and December 31, 2022 were denominated in U.S. Dollars.
Accrued interest receivable is recorded in "Prepaid expenses and other current assets" on the Consolidated Balance Sheets and amounted to $4,094,000 and $3,620,000 as of October 1, 2023 and December 31, 2022, respectively.
The following table summarizes the Company’s available-for-sale investments as of October 1, 2023 (in thousands):
| | | | | | | | | | | | | | | | | | | | | | | |
| Amortized Cost | | Gross Unrealized Gains | | Gross Unrealized Losses | | Fair Value |
Current: | | | | | | | |
Corporate bonds | $ | 114,188 | | | $ | — | | | $ | (3,561) | | | $ | 110,627 | |
Asset-backed securities | 3,128 | | | — | | | (44) | | | 3,084 | |
| | | | | | | |
Treasury bills | 2,498 | | | — | | | (41) | | | 2,457 | |
Sovereign bonds | 1,017 | | | — | | | (38) | | | 979 | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
Non-current: | | | | | | | |
Corporate bonds | 251,635 | | | 9 | | | (12,866) | | | 238,778 | |
Treasury bills | 60,871 | | | — | | | (1,586) | | | 59,285 | |
Asset-backed securities | 35,512 | | | — | | | (1,545) | | | 33,967 | |
| | | | | | | |
| | | | | | | |
Sovereign bonds | 1,042 | | | — | | | (81) | | | 961 | |
| | | | | | | |
| $ | 469,891 | | | $ | 9 | | | $ | (19,762) | | | $ | 450,138 | |
COGNEX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
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 October 1, 2023 (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 | $ | 103,100 | | | $ | (2,900) | | | $ | 244,535 | | | $ | (13,527) | | | $ | 347,635 | | | $ | (16,427) | |
| | | | | | | | | | | |
Treasury bills | 56,878 | | | (1,492) | | | 4,864 | | | (135) | | | 61,742 | | | (1,627) | |
Asset-backed securities | 32,425 | | | (1,465) | | | 4,626 | | | (124) | | | 37,051 | | | (1,589) | |
| | | | | | | | | | | |
| | | | | | | | | | | |
Sovereign bonds | — | | | — | | | 1,940 | | | (119) | | | 1,940 | | | (119) | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| $ | 192,403 | | | $ | (5,857) | | | $ | 255,965 | | | $ | (13,905) | | | $ | 448,368 | | | $ | (19,762) | |
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 October 1, 2023 or December 31, 2022. There was no activity recorded in the allowance for credit losses during the three-month or nine-month periods ended October 1, 2023 or October 2, 2022.
The following table summarizes the Company's gross realized gains and losses on the sale of debt securities for the three-month and nine-month periods ended October 1, 2023 and October 2, 2022 (in thousands):
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three-months Ended | | Nine-months Ended |
| | October 1, 2023 | | October 2, 2022 | | October 1, 2023 | | October 2, 2022 |
Gross realized gains | | $ | 109 | | | $ | — | | | $ | 109 | | | $ | 133 | |
Gross realized losses | | (733) | | | (79) | | | (733) | | | (236) | |
Net realized gains (losses) | | $ | (624) | | | $ | (79) | | | $ | (624) | | | $ | (103) | |
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).
The following table presents the effective maturity dates of the Company’s available-for-sale investments as of October 1, 2023 (in thousands):
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| <1 year | | 1-2 Years | | 2-3 Years | | 3-4 Years | | 4-5 Years | | 5-8 Years | | Total |
Corporate bonds | $ | 110,627 | | | $ | 95,497 | | | $ | 65,409 | | | $ | 34,878 | | | $ | 42,539 | | | $ | 455 | | | $ | 349,405 | |
Treasury bills | 2,457 | | | 5,306 | | | 15,016 | | | 21,842 | | | 17,121 | | | — | | | 61,742 | |
Asset-backed securities | 3,084 | | | 12,722 | | | 10,584 | | | 3,978 | | | — | | | 6,683 | | | 37,051 | |
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
Sovereign bonds | 979 | | | — | | | 961 | | | — | | | — | | | — | | | 1,940 | |
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
| $ | 117,147 | | | $ | 113,525 | | | $ | 91,970 | | | $ | 60,698 | | | $ | 59,660 | | | $ | 7,138 | | | $ | 450,138 | |
COGNEX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
NOTE 5: Inventories
Inventories consisted of the following (in thousands):
| | | | | | | | | | | |
| October 1, 2023 | | December 31, 2022 |
Raw materials | $ | 80,091 | | | $ | 71,720 | |
Work-in-process | 1,712 | | | 906 | |
Finished goods | 52,063 | | | 49,854 | |
| $ | 133,866 | | | $ | 122,480 | |
NOTE 6: Leases
The Company's leases are primarily leased properties across different worldwide locations where the Company conducts its operations. 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 October 1, 2023, there were no options to terminate and twenty-nine options to extend that were accounted for in the determination of the lease term for 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 October 1, 2023.
The total operating lease expense for the three-month and nine-month periods ended October 1, 2023 was $5,512,000 and $8,151,000, respectively. The total operating lease cash payments for the three-month and nine-month periods ended October 1, 2023 were $5,168,000 and $7,532,000, respectively. The total lease expense for leases with a term of twelve months or less for which the Company elected not to recognize a lease asset or lease liability for the three-month and nine-month periods ended October 1, 2023 was $132,000 and $292,000, respectively.
The total operating lease expense for the three-month and nine-month periods ended October 2, 2022 was $2,255,000 and $6,699,000, respectively. The total operating lease cash payments for the three-month and nine-month periods ended October 2, 2022 were $2,161,000 and $6,467,000, respectively. The total lease expense for leases with a term of twelve months or less for which the Company elected not to recognize a lease asset or lease liability for the three-month and nine-month periods ended October 2, 2022 was $35,000 and $110,000, respectively.
Future operating lease cash payments are as follows (in thousands):
| | | | | | | | |
Year Ended December 31, | | Amount |
Remainder of fiscal 2023 | | $ | 2,510 | |
2024 | | 11,580 | |
2025 | | 9,677 | |
2026 | | 7,799 | |
2027 | | 7,231 | |
2028 | | 6,992 | |
Thereafter | | 46,421 | |
| | $ | 92,210 | |
The discounted present value of the future lease cash payments resulted in a total lease liability of $68,432,000 and $39,752,000 as of October 1, 2023 and December 31, 2022, respectively. The Company did not have any leases that had not yet commenced but that created significant rights and obligations as of October 1, 2023.
COGNEX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
In June 2023, the Company entered into a lease for a 115,000 square-foot building in Singapore to serve as a new distribution center for customers in Asia. The lease contains two components, including a 88,000 square-foot premises with a term of ten years, six months. The Company has the right and option to extend the term of this lease component for an additional period of five years, commencing upon the expiration of the original term. This lease component commenced during the second quarter of 2023, and therefore the Company recorded approximately $29,639,000, which reflects an estimated extension period of five years, within "Operating lease assets" and "Operating lease liabilities" on the Consolidated Balance Sheets on the commencement date. The second component of this Singapore lease is for a 27,000 square-foot premises with a term of eight years. The commencement date for this lease component is in the fourth quarter of 2025, and therefore it was not yet recorded on the Consolidated Balance Sheets, nor did it create any significant rights and obligations as of October 1, 2023. The Company has the right and option to extend the term of this lease component for an additional period of five years, commencing upon the expiration of the original term. Future payment obligations associated with this lease component total $13,231,000, none of which is payable in 2023 and which reflects an estimated extension period of five years. Future payment obligations related to this lease component are not included in the future operating lease cash payments table above.
In December 2021, the Company entered into a lease for a 65,000 square-foot building in Southborough, Massachusetts for a term of ten years to serve as a new distribution center for customers in the Americas. 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 ten-year term. This lease commenced during the first quarter of 2022, and therefore the Company recorded approximately $9,271,000, which does not reflect an estimated extension period, within "Operating lease assets" and "Operating lease liabilities" on the Consolidated Balance Sheets on the commencement date.
The weighted-average discount rate was 5.4% and 3.3% for the leases outstanding as of October 1, 2023 and December 31, 2022, respectively. The weighted-average remaining lease term was 10.8 and 7.8 years for the leases outstanding as of October 1, 2023 and December 31, 2022, respectively.
NOTE 7: Goodwill
The changes in the carrying value of goodwill were as follows (in thousands):
| | | | | | | | |
Balance as of December 31, 2022 | | $ | 242,630 | |
Foreign exchange rate changes | | (1,588) | |
Balance as of October 1, 2023 | | $ | 241,042 | |
NOTE 8: Intangible Assets
Amortized intangible assets consisted of the following (in thousands):
| | | | | | | | | | | | | | | | | |
| Gross Carrying Value | | Accumulated Amortization | | Net Carrying Value |
| | | | | |
Completed technologies | $ | 28,017 | | | $ | (19,590) | | | $ | 8,427 | |
Customer relationships | 5,838 | | | (4,400) | | | 1,438 | |
Non-compete agreements | 340 | | | (219) | | | 121 | |
| | | | | |
Balance as of October 1, 2023 | $ | 34,195 | | | $ | (24,209) | | | $ | 9,986 | |
| | | | | |
| Gross Carrying Value | | Accumulated Amortization | | Net Carrying Value |
| | | | | |
Completed technologies | $ | 28,017 | | | $ | (17,744) | | | $ | 10,273 | |
Customer relationships | 5,838 | | | (3,860) | | | 1,978 | |
Non-compete agreements | 340 | | | (177) | | | 163 | |
| | | | | |
Balance as of December 31, 2022 | $ | 34,195 | | | $ | (21,781) | | | $ | 12,414 | |
COGNEX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
As of October 1, 2023, estimated future amortization expense related to intangible assets was as follows (in thousands):
| | | | | | | | |
Year Ended December 31, | | Amount |
Remainder of fiscal 2023 | | $ | 709 | |
2024 | | 2,623 | |
2025 | | 2,300 | |
2026 | | 1,995 | |
2027 | | 1,273 | |
2028 | | 543 | |
Thereafter | | 543 | |
| | $ | 9,986 | |
NOTE 9: 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, 2022 | $ | 4,375 | |
Provisions for warranties issued during the period | 1,722 | |
Fulfillment of warranty obligations | (2,292) | |
| |
Balance as of October 1, 2023 | $ | 3,805 | |
NOTE 10: Commitments and Contingencies
As of October 1, 2023, the Company had outstanding purchase orders totaling $70,635,000 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 October 1, 2023, 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.
COGNEX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
NOTE 11: 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 approximately three 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.
Additionally, during the three-month period ended October 1, 2023, the Company entered into a foreign currency forward contract to exchange U.S. Dollars for ¥40,000,000,000 to hedge the Japanese Yen purchase price of the acquisition of Moritex Corporation (refer to Note 19 of the consolidated financial statements). Upon the settlement of this contract, the Company recorded a foreign currency loss of $8,456,000, which was recorded in "Foreign currency gain (loss)" on the Consolidated Statements of Operations for the three-month period ended October 1, 2023.
The Company had the following outstanding forward contracts (in thousands):
| | | | | | | | | | | | | | | | | | | | | | | |
| October 1, 2023 | | December 31, 2022 |
Currency | Notional Value | | USD Equivalent | | Notional Value | | USD Equivalent |
Derivatives Not Designated as Hedging Instruments: | | | | |
Japanese Yen | 40,600,000 | | | $ | 272,499 | | | 700,000 | | | $ | 5,281 | |
Euro | 37,500 | | | 39,741 | | | 60,000 | | | 64,174 | |
Singapore Dollar | 40,500 | | | 29,747 | | | — | | | — | |
Chinese Renminbi | 200,000 | | | 27,445 | | | 55,000 | | | 7,619 | |
Mexican Peso | 100,000 | | | 5,722 | | | 185,000 | | | 9,480 | |
Hungarian Forint | 1,930,000 | | | 5,221 | | | 1,590,000 | | | 4,238 | |
British Pound | 3,230 | | | 3,956 | | | 3,445 | | | 4,161 | |
| | | | | | | |
| | | | | | | |
Canadian Dollar | 1,650 | | | 1,225 | | | 1,730 | | | 1,278 | |
| | | | | | | |
Swiss Franc | — | | | — | | | 1,120 | | | 1,218 | |
Information regarding the fair value of the outstanding forward contracts was as follows (in thousands):
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Asset Derivatives | | Liability Derivatives |
| Balance | | Fair Value | | Balance | | Fair Value |
| Sheet Location | | October 1, 2023 | | December 31, 2022 | | Sheet Location | | October 1, 2023 | | December 31, 2022 |
| | | | | | |
| | | | | | | | | | | |
Derivatives Not Designated as Hedging Instruments: | | | | | | |
Economic hedge forward contracts | Prepaid expenses and other current assets | | $ | 196 | | | $ | 27 | | | Accrued expenses | | $ | 128 | | | $ | 479 | |
COGNEX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
The following table presents the gross activity for all derivative assets and liabilities which were presented on a net basis on the Consolidated Balance Sheets due to the right of offset with each counterparty (in thousands):
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Asset Derivatives | | Liability Derivatives |
| | October 1, 2023 | | December 31, 2022 | | | | October 1, 2023 | | December 31, 2022 |
Gross amounts of recognized assets | | $ | 196 | | | $ | 27 | | | Gross amounts of recognized liabilities | | $ | 128 | | | $ | 479 | |
Gross amounts offset | | — | | | — | | | Gross amounts offset | | — | | | — | |
Net amount of assets presented | | $ | 196 | | | $ | 27 | | | Net amount of liabilities presented | | $ | 128 | | | $ | 479 | |
Information regarding the effect of derivative instruments on the consolidated financial statements was as follows (in thousands):
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Location in Financial Statements | | Three-months Ended | | Nine-months Ended |
| | October 1, 2023 | | October 2, 2022 | | October 1, 2023 | | October 2, 2022 |
| | | |
| | | | | | | | | |
| | | | | | | | | |
| | | | | | | | | |
| | | | | | | | | |
| | | | | | | | | |
| | | | | | | | | |
Derivatives Not Designated as Hedging Instruments: | | | |
Gains (losses) recognized in current operations | Foreign currency gain (loss) | | $ | (7,527) | | | $ | 7,161 | | | $ | (8,139) | | | $ | 15,091 | |
COGNEX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
NOTE 12: 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 | | Nine-months Ended |
| | October 1, 2023 | | October 2, 2022 | | October 1, 2023 | | October 2, 2022 |
Americas | | $ | 80,156 | | | $ | 65,847 | | | $ | 243,067 | | | $ | 284,057 | |
Europe | | 51,827 | | | 48,930 | | | 168,529 | | | 173,561 | |
Greater China | | 34,485 | | | 66,460 | | | 139,837 | | | 193,481 | |
Other Asia | | 30,773 | | | 28,385 | | | 89,444 | | | 115,558 | |
| | $ | 197,241 | | | $ | 209,622 | | | $ | 640,877 | | | $ | 766,657 | |
The following table summarizes disaggregated revenue information by revenue type (in thousands):
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three-months Ended | | Nine-months Ended |
| | October 1, 2023 | | October 2, 2022 | | October 1, 2023 | | October 2, 2022 |
Standard products and services | | $ | 170,104 | | | $ | 158,244 | | | $ | 555,831 | | | $ | 637,598 | |
Application-specific customer solutions | | 27,137 | | | 51,378 | | | 85,046 | | | 129,059 | |
| | $ | 197,241 | | | $ | 209,622 | | | $ | 640,877 | | | $ | 766,657 | |
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 $17,827,000 and $14,578,000 as of October 1, 2023 and December 31, 2022, 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.
The following table summarizes the allowance for credit losses activity for the nine-month period ended October 1, 2023 (in thousands):
| | | | | |
Balance as of December 31, 2022 | $ | 730 | |
Increases to the allowance for credit losses | 350 | |
Write-offs, net of recoveries | (500) | |
Foreign exchange rate changes | — | |
Balance as of October 1, 2023 | $ | 580 | |
COGNEX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
The following table summarizes the deferred revenue and customer deposits activity for the nine-month period ended October 1, 2023 (in thousands):
| | | | | |
Balance as of December 31, 2022 | $ | 40,787 | |
Deferral of revenue billed in the current period, net of recognition | 28,249 | |
Recognition of revenue deferred in prior period | (18,809) | |
Returned customer deposit | (9,205) | |
Foreign exchange rate changes | (776) | |
Balance as of October 1, 2023 | $ | 40,246 | |
As a practical expedient, the Company has elected not to disclose the aggregate amount of the transaction price allocated to unsatisfied performance obligations, as our contracts have an original expected duration of less than one year.
NOTE 13: Stock-Based Compensation Expense
Stock Plans
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"). In May 2023, the shareholders of the Company approved the Cognex Corporation 2023 Stock Option and Incentive Plan (the “2023 Plan”). The 2023 Plan permits awards of stock options (both incentive and non-qualified options), stock appreciation rights, RSUs, and PRSUs. Up to 8,100,000 shares of common stock (subject to adjustment in the event of stock splits and other similar events) may be issued pursuant to awards granted under the 2023 Plan. In connection with the approval of the 2023 Plan, no further awards will be made under the Cognex Corporation 2001 General Stock Option Plan, as amended and restated (the “2001 Plan”), and the Cognex Corporation 2007 Stock Option and Incentive Plan, as amended and restated (the “2007 Plan”). With the approval of the 2023 Plan, the 10,610,800 shares of common stock subject to awards granted under the 2001 Plan and the 2007 Plan that were outstanding as of May 3, 2023 may become eligible for issuance under the 2023 Plan if such awards are forfeited, cancelled or otherwise terminated (other than by exercise) (the “Carryover Shares”). As of October 1, 2023, forfeits, cancellations, and other terminations from the 2001 Plan and the 2007 Plan have resulted in 214,024 Carryover Shares, raising the authorized total shares that may be issued under the 2023 Plan to 8,314,024.
As of October 1, 2023, the Company had 8,035,000 shares available for grant under its stock plans. Stock options are granted with an exercise price equal to the market value of the Company’s common stock at the grant date and generally vest over four or five years based upon continuous service and expire ten years from the grant date. RSUs generally vest upon three or four years of continuous employment or incrementally over such three or four-year periods. PRSUs generally vest upon three years of continuous employment and achievement of performance criteria established by the Compensation Committee of our Board of Directors on or prior to the grant date. Participants are not entitled to dividends on stock options, RSUs, or PRSUs.
COGNEX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
Stock Options
The following table summarizes the Company’s stock option activity for the nine-month period ended October 1, 2023:
| | | | | | | | | | | | | | | | | | | | | | | |
| Shares (in thousands) | | Weighted- Average Exercise Price | | Weighted- Average Remaining Contractual Term (in years) | | Aggregate Intrinsic Value (in thousands) |
Outstanding as of December 31, 2022 | 8,467 | | | $ | 51.56 | | | | | |
Granted | 1,395 | | | 47.49 | | | | | |
Exercised | (325) | | | 33.87 | | | | | |
Forfeited or expired | (562) | | | 57.71 | | | | | |
Outstanding as of October 1, 2023 | 8,975 | | | $ | 51.19 | | | 6.13 | | $ | 17,396 | |
Exercisable as of October 1, 2023 | 5,182 | | | $ | 47.67 | | | 4.67 | | $ | 17,378 | |
Options vested or expected to vest as of October 1, 2023 (1) | 8,493 | | | $ | 51.01 | | | 5.98 | | $ | 17,396 | |
(1) In addition to the vested options, the Company expects a portion of the unvested options to vest at some point in the future. Options expected to vest are calculated by applying an estimated forfeiture rate to the unvested options.
The fair values of stock options granted in each period presented were estimated using the following weighted-average assumptions:
| | | | | | | | | | | | | | | | | | | | | | | |
| Three-months Ended | | Nine-months Ended |
| October 1, 2023 | | October 2, 2022 | | October 1, 2023 | | October 2, 2022 |
Risk-free rate | 4.1 | % | | 2.7 | % | | 4.0 | % | | 2.1 | % |
Expected dividend yield | 0.57 | % | | 0.54 | % | | 0.59 | % | | 0.44 | % |
Expected volatility | 39 | % | | 37 | % | | 39 | % | | 37 | % |
Expected term (in years) | 5.9 | | 6.4 | | 4.9 | | 5.5 |
Risk-free rate
The risk-free rate was based upon a treasury instrument whose term was consistent with the contractual term of the option.
Expected dividend yield
Generally, the current dividend yield is calculated by annualizing the cash dividend declared by the Company’s Board of Directors and dividing that result by the closing stock price on the grant date.
Expected volatility
The expected volatility was based upon a combination of historical volatility of the Company’s common stock over the contractual term of the option and implied volatility for traded options of the Company’s stock.
Expected term
The expected term was derived from the binomial lattice model from the impact of events that trigger exercises over time.
The weighted-average grant-date fair values of stock options granted during the three-month and nine-month periods ended October 1, 2023 were $20.55 and $18.11, respectively, and during the three-month and nine-month periods ended October 2, 2022 were $18.81 and $21.40, respectively.
The total intrinsic values of stock options exercised for the three-month and nine-month periods ended October 1, 2023 were $557,000 and $6,119,000, respectively, and for the three-month and nine-month periods ended
COGNEX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
October 2, 2022 were $516,000 and $3,615,000, respectively. The total fair values of stock options vested for the three-month and nine-month periods ended October 1, 2023 were $962,000 and $33,035,000, respectively, and for the three-month and nine-month periods ended October 2, 2022 were $1,159,000 and $27,882,000, respectively.
Restricted Stock Units (RSUs)
The following table summarizes the Company's RSUs activity for the nine-month period ended October 1, 2023:
| | | | | | | | | | | |
| Shares (in thousands) | | Weighted-Average Grant Date Fair Value |
Nonvested as of December 31, 2022 | 1,269 | | | $ | 61.74 | |
Granted | 748 | | | 46.78 | |
Vested | (500) | | | 59.43 | |
Forfeited or expired | (86) | | | 60.65 | |
Nonvested as of October 1, 2023 | 1,431 | | | $ | 54.79 | |
The fair value of RSUs is determined based on the observable market price of the Company's stock on the grant date less the present value of expected future dividends. The weighted-average grant-date fair values of RSUs granted during the three-month and nine-month periods ended October 1, 2023 were $46.17 and $46.78, respectively, and during the three-month and nine-month periods ended October 2, 2022 were $47.12 and $58.44, respectively. There were 18,000 and 500,000 RSUs that vested during the three-month and nine-month periods ended October 1, 2023, respectively, and 67,000 and 141,000 that vested during the three-month and nine-month periods ended October 2, 2022, respectively.
Performance Restricted Stock Units (PRSUs)
The following table summarizes the Company's PRSUs activity for the nine-month period ended October 1, 2023:
| | | | | | | | | | | |
| Shares (in thousands) | | Weighted-Average Grant Date Fair Value |
Nonvested as of December 31, 2022 | 33 | | | $ | 62.49 | |
Granted | 46 | | | 44.86 | |
Vested | — | | | — | |
Forfeited or expired | — | | | — | |
Nonvested as of October 1, 2023 | 79 | | | $ | 52.23 | |
The fair value of PRSUs is calculated using the Monte Carlo simulation model to estimate the probability of satisfying the service and market conditions stipulated in the award grant. There were no PRSUs granted during the three-month periods ended October 1, 2023 and October 2, 2022. There were 46,000 and 33,000 PRSUs granted during the nine-month periods ended October 1, 2023 and October 2, 2022, respectively. No PRSUs vested during the three-month and nine-month periods ended October 1, 2023 and October 2, 2022.
Stock-Based Compensation Expense
The Company stratifies its employee population into three groups: one consisting of the CEO, one consisting of senior management, and another consisting of all other employees. The Company currently applies an estimated annual forfeiture rate of 0% to all stock-based awards for the CEO, 8% 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. This resulted in a decrease to compensation expense of $234,000 in 2023 and an increase to compensation expense of $1,536,000 in 2022.
As of October 1, 2023, total unrecognized compensation expense, net of estimated forfeitures, related to non-vested equity awards, including stock options, RSUs, and PRSUs, was $68,509,000, which is expected to be recognized over a weighted-average period of 2.0 years.
COGNEX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
The total stock-based compensation expense and the related income tax benefit recognized for the three-month period ended October 1, 2023 were $12,365,000 and $1,971,000, respectively, and for the nine-month period ended October 1, 2023 were $41,518,000 and $6,053,000, respectively. The total stock-based compensation expense and the related income tax benefit recognized for the three-month period ended October 2, 2022 were $13,366,000 and $2,133,000, respectively, and for the nine-month period ended October 2, 2022 were $41,419,000 and $6,496,000, respectively. No compensation expense was capitalized as of October 1, 2023 or December 31, 2022.
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 | | Nine-months Ended |
| October 1, 2023 | | October 2, 2022 | | October 1, 2023 | | October 2, 2022 |
Cost of revenue | $ | 435 | | | |