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What changed in COGNEX CORP's 10-K — 2022 vs 2023

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Paragraph-level year-over-year comparison of COGNEX CORP's 2022 and 2023 10-K annual filings, covering the Business, Risk Factors, Legal Proceedings, Cybersecurity, MD&A and Market Risk sections. Every new, removed and edited paragraph is highlighted side-by-side so you can see exactly what management changed in the 2023 report.

+285 added−303 removedSource: 10-K (2024-02-15) vs 10-K (2023-02-16)

Top changes in COGNEX CORP's 2023 10-K

285 paragraphs added · 303 removed · 207 edited across 8 sections

Item 1. Business

Business — how the company describes what it does

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Biggest changeOur Business Strategies Expansion of market position Our goal is to expand our position as a leading worldwide machine vision provider by growing in our core markets, as well as expanding into new markets and customers with both current and new products and services. 1 Table of Content We continue to invest in our core markets, such as automotive, logistics, and consumer electronics where we are a leading provider of vision and ID products for factory automation.
Biggest changeThe importance of each of these factors varies depending on the specific needs of the customer. Our Business Strategies Expansion of market position Our goal is to expand our position as a leading worldwide machine vision provider by growing in our core markets, as well as expanding into new markets and with new customers.
Industrial Image-Based Barcode Readers Cognex industrial image-based barcode readers quickly and reliably read 1D, 2D, label-based, and direct part mark (DPM) codes found in nearly every industry including automotive, consumer products, medical-related, and logistics. The DataMan® product line, which includes fixed-mount and handheld models, as well as barcode verifiers, help organizations optimize performance, increase throughput, and control traceability.
Industrial Image-Based Barcode Readers Cognex industrial image-based barcode readers quickly and reliably read 1D, 2D, label-based, and direct part mark (DPM) codes found in nearly every industry including automotive, logistics, consumer products, and medical-related. The DataMan® product line, which includes fixed-mount and handheld models, as well as barcode verifiers, help organizations optimize performance, increase throughput, and control traceability.
Training services include a variety of product courses that are available at our offices worldwide, at customer facilities, and online. Human Capital Our employees are our most valuable asset and critical to our success.
Training services include a variety of product courses that are available at our offices worldwide, at customer facilities, and online. Human Capital Our employees are our most valuable asset and are critical to our success.
We make available, free of charge, on our website in the “Company” section under the caption “Investor Information” followed by “Financial Reports” and then “SEC FiIings,” our Annual Report on Form 10-K, Quarterly Reports on Form 10-Q, and Current Reports on Form 8-K, including exhibits, and amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended, as soon as reasonably practicable after such reports are electronically filed with, or furnished to, the SEC.
We make available, free of charge, on our website in the “Company” section under the caption “Investor Information” followed by “Financial Reports” and then “SEC FiIings,” our Annual Report on Form 10-K, Quarterly Reports on Form 10-Q, and Current Reports on Form 8-K, including exhibits, and amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), as soon as reasonably practicable after such reports are electronically filed with, or furnished to, the SEC.
Cognex’s service offerings represent less than 10% of our total revenue and include maintenance and support, consulting, and training services. Maintenance and support programs can include hardware support programs that entitle customers to have products repaired, as well as software support programs that provide customers with application support and software updates to the latest software releases.
Cognex’s service offerings represent less than 10% of our total revenue and include maintenance and support, consulting, and training services. Maintenance and support programs include hardware support programs that entitle customers to have products repaired, as well as software support programs that provide customers with application support and software updates to the latest software releases.
Regulatory Compliance Cognex’s capital expenditures, earnings, and competitive position are not materially affected by compliance with federal, state, and local environmental provisions which have been enacted or adopted to regulate the distribution of materials into the environment. Available Information Cognex maintains a website at www.cognex.com.
Regulatory Compliance Cognex’s capital expenditures, earnings, and competitive position are not materially affected by compliance with federal, state, and local environmental provisions which have been enacted or adopted to regulate the distribution of materials into the environment. 5 Table of Content Available Information Cognex maintains a website at www.cognex.com.
We are focusing specifically on segments in which our products and solutions, application expertise, and customer and industry relationships should enable us to provide significant value to end-users. We seek out selective opportunities in new applications and markets through the acquisition of businesses and technologies that are synergistic with our core markets.
We are focusing specifically on markets in which we expect our products and solutions, application expertise, and customer and industry relationships to enable us to provide significant value to end-users. We seek out selective opportunities in new applications and markets through the acquisition of businesses and technologies that are synergistic with our core markets.
Information contained on our website is not a part of, or incorporated by reference into, this Annual Report on Form 10-K or in any other document or report that Cognex files with the SEC, and any references to Cognex's website are intended to be inactive textual references only. 5 Table of Content
Information contained on our website is not a part of, or incorporated by reference into, this Annual Report on Form 10-K or in any other document or report that Cognex files with the SEC, and any references to Cognex's website are intended to be inactive textual references only.
Our products are specified in over 100 different machine designs, many of which are in the process of obtaining regulatory approval. As they launch, we believe they will deliver many years of recurring revenue. Applications in this market include lab automation and medical device inspection applications.
Our products are specified in over 100 different machine designs, many of which are in the process of obtaining regulatory approval. As they launch, we believe they will provide the opportunity to deliver many years of recurring revenue. Applications in this market include lab automation and medical device inspection applications.
Geographically, our current logistics business is primarily within the U.S., but, over the long term, we expect to realize the highest rates of growth in Europe and Asia, where we believe customers are beginning to catch up with the U.S. in logistics automation technology and are moving away from local incumbent suppliers.
Geographically, our current logistics business is primarily within the United States, but, over the long term, we expect to realize the highest rates of growth in Europe and Asia, where we believe customers are beginning to catch up with the United States in logistics automation technology and are moving away from local incumbent suppliers.
Our distribution partners provide sales and local support to help Cognex reach the many prospects for our products in factories around the world, and our integration partners are experts in vision and complementary technologies that can provide turnkey solutions for complex automation projects using vision.
Our distribution partners provide sales and local support to help Cognex reach the many prospects for our products in factories around the world, and our integration partners are 4 Table of Content experts in vision and complementary technologies that can provide turnkey solutions for complex automation projects using vision.
Sales to customers based outside of the United States represented approximately 66% of our total revenue in 2022, with approximately 23% from customers based in Europe, 23% from customers based in Greater China, and 20% from customers based in other regions outside the United States. Sales to customers based in Europe are denominated in Euros and U.S.
Sales to customers based outside of the United States represented approximately 66% of our total revenue in 2023, with approximately 26% from customers based in Europe, approximately 20% from customers based in Greater China, and approximately 20% from customers based in other regions outside the United States. Sales to customers based in Europe are denominated in Euros and U.S.
Sustainable profitability We are careful in choosing growth opportunities that we believe will maintain our gross margin percentages, which have averaged in the mid-70 percent range in the past several years and reflect the value our customers place on our innovative products.
Sustainable profitability We prioritize choosing growth opportunities that we believe will maintain our gross margin percentages, which have averaged in the low to mid-70 percent range in the past several years and reflect the value that we believe our customers place on our innovative products.
We offer a variety of machine vision products that have similar economic characteristics, production processes, sales distribution channels, and types of customers. Cognex sells to customers in nearly all industries in which discrete items are manufactured on an assembly line or moved through a distribution center.
We offer a variety of machine vision products that have similar economic characteristics and are distributed by the same sales channels to the same types of customers. Cognex sells to customers in nearly all industries in which discrete items are manufactured on an assembly line or moved through a distribution center.
We incurred RD&E costs of approximately $141 million, $135 million, and $131 million for the years ended December 31, 2022, 2021 and 2020, respectively. We expect to continue our commitment to RD&E, even during periods of lower revenue levels, to introduce new products, platforms, and solutions throughout economic cycles.
We incurred RD&E costs of approximately $139 million (17% of revenue), $141 million (14% of revenue), and $135 million (13% of revenue) for the years ended December 31, 2023, 2022 and 2021, respectively. We expect to continue our commitment to RD&E, even during periods of lower revenue levels, to introduce new platforms, products, and solutions throughout economic cycles.
After the completion of initial testing, assembled products from our contract manufacturers are routed to our distribution centers in Cork, Ireland or Southborough, Massachusetts, USA, where trained Cognex personnel load Cognex software onto the products, provide additional assembly and image alignment as needed, and perform quality control procedures.
After the completion of initial testing, assembled products from our contract manufacturers are routed to our distribution centers where trained Cognex personnel load Cognex software onto the products, provide additional assembly and image alignment as needed, and perform quality control procedures.
We also invest in technology that makes vision easier to use and more affordable, and therefore, available to a broader base of customers, such as our vision sensor products that enable customers with a lower budget to use machine vision while minimizing installation and applications support. Inorganic growth We plan to drive inorganic growth through expansion in adjacent market segments.
We also invest in technology that makes vision easier to use and more affordable, and therefore, available to a broader base of customers, such as our vision sensor products that enable customers with less technical capabilities to use machine vision while minimizing installation and applications support. Inorganic growth We plan to drive inorganic growth through expansion in adjacent markets.
Our “Emerging Customer” sales initiative is expanding our sales force to reach customers who may be newer to factory automation and have yet to fully benefit from all that machine vision can offer. These customers are increasingly looking for automation solutions that are easy to implement, easy to use, and provide the best technology.
Our “Emerging Customer” sales initiative is expanding our sales force to reach customers new to factory automation or new to Cognex, who have yet to fully benefit from all that machine vision can offer. We believe these potential customers are increasingly looking for automation solutions that are easy to implement, easy to use, and provide the best technology.
Dollars, sales to customers based in Greater China are denominated in Renminbi 4 Table of Content for sales within Mainland China and U.S. Dollars in other territories, and sales to customers based in other regions are denominated in U.S. Dollars, Japanese Yen, Korean Won, and Mexican Pesos.
Dollars, sales to customers based in Greater China are denominated in Renminbi for sales within Mainland China and U.S. Dollars in other territories, and sales to customers based in other regions are denominated in U.S. Dollars, Korean Won, Japanese Yen, Mexican Pesos, and Indian Rupee.
Other end market uses of Cognex machine vision include manufacturers of semiconductors, regulated products reducing counterfeiting, food producers improving food safety, manufacturers using 3D measurement for robotic guidance, and many others.
Other end market uses of Cognex machine vision include semiconductor manufacturers identifying defects, regulated manufacturers reducing counterfeiting, food producers improving food safety, and manufacturers using 3D measurement for robotic guidance.
In 2022, we saw a slowdown in this end market as the leading e-commerce players took a post-pandemic “time out” to absorb excess capacity, but we currently continue to expect logistics to be our highest growth end market over the mid to long term. Medical-Related Cognex has a growing customer base of life science equipment suppliers.
Leading e-commerce players have taken a post-pandemic “time out” to absorb excess capacity since early 2022, but we currently continue to expect logistics to be our highest-growth end market over the mid to long-term. Medical-Related Cognex has an established customer base of life science equipment suppliers.
This results in a broad base of customers across a variety of industries, including automotive, logistics, consumer electronics, medical-related, semiconductor, consumer products, food and beverage, and others. Cognex is one of the leading machine vision companies in the world.
Virtually every manufacturer or logistics provider can achieve better quality and efficiency by using machine vision. This results in a broad base of customers across a variety of industries, including automotive, logistics, consumer electronics, medical-related, semiconductor, consumer products, and food and beverage. Cognex is one of the leading machine vision companies in the world.
As of December 31, 2022, Cognex employed 2,441 Cognoids globally, including 1,403 in sales, marketing, and service activities; 621 in research, development, and engineering; 191 in manufacturing and quality assurance; and 226 in information technology, finance, and administration. Of our 2,441 Cognoids, 1,495 are based outside of the United States.
As of December 31, 2023, Cognex employed 2,992 Cognoids globally, including 1,590 in sales, marketing, and service activities; 690 in research, development, and engineering; 445 in manufacturing and quality assurance; and 267 in information technology, finance, and administration. Of our 2,992 Cognoids, 1,996 are based outside of the United States.
Culture Our strong and unique corporate culture reinforces our values of customer first and innovation, and enables us to attract and retain smart, enthusiastic, and creative talent who are motivated to solve the most challenging vision tasks both quickly and painlessly for customers.
Culture Our strong and unique corporate culture reinforces our values of customer first and innovation, and enables us to attract and retain smart, enthusiastic, and creative talent who are motivated to solve the most challenging vision tasks for customers. Our End Markets Automotive The automotive market has been one of our largest markets for the past twenty years.
In recent years, we also have seen demand for machine vision grow from manufacturers of diagnostic tests, vaccines, and protective equipment. Other The number of end markets with a need for machine vision applications is expanding.
During the COVID pandemic, we saw demand for machine vision grow from manufacturers of diagnostic tests, vaccines, and protective equipment. Other The number of end markets that can benefit from machine vision applications is expanding.
These anticipated trends may offset expected reductions in traditional powertrain investments on internal combustion engine vehicles, leading to growth in the automotive market. Consumer Electronics We anticipate major investments in new generations of consumer electronics. We expect leading companies in this space to continue to grow based on new technologies that we expect to succeed and build on the smartphone.
We expect our existing relationships and proven offerings to position us to capture a significant share of this growth. These anticipated trends may offset expected reductions in traditional powertrain investments on internal combustion engine vehicles, leading to growth in the automotive market. 2 Table of Content Consumer Electronics We anticipate major investments in new generations of consumer electronics.
In-Sight vision systems and sensors, which include 2D, 3D, deep learning, and edge learning models, meet various price and performance requirements for factory automation customers. Our deep learning-based systems automate and solve complex inline inspections that typically require human judgment for defect detection, optical character recognition (OCR), assembly verification, or classification.
Our product portfolio meets the varying price and performance requirements of our broad base of industrial customers. Our deep learning-based systems automate and solve complex inline inspections that typically require human judgment for defect detection, optical character recognition (OCR), assembly verification, or classification.
To preserve and enhance our corporate culture, while recognizing differences across and within regions, we have a global team of Cognoids who serve as Ministers of Culture, led by our Chief Culture Officer. We believe in investing in tools and resources that support employees’ learning and development and setting a compensation structure that reflects the Company’s commitment to pay-for-performance philosophy.
To preserve and enhance our corporate culture, while recognizing differences across and within regions, we have a global team of Cognoids who serve as Ministers of Culture, led by our Chief Culture Officer.
We are excited about the opportunities to continue to build an organization that reflects the best of the world around us. As a multi-national company where over half our Cognoids live outside the U.S., diversity means different things to different groups. We are building strategies and plans to continue to enhance our diversity, equity, inclusion, and belonging (DEIB) initiatives.
As a multi-national company where over half our Cognoids live outside the United States, diversity means different things to different groups. We are building strategies and plans to continue to enhance our diversity, equity, inclusion, and belonging (DEIB) initiatives. One specific place where this evolution is visible is through the launch of our DEIB Council.
While our intellectual property rights are important to our success, we believe that our business as a whole is not materially dependent on any particular patent, trademark, copyright, or other intellectual property right. Operations Cognex’s hardware products are manufactured utilizing third-party contractors, whereby the majority of component procurement, system assembly, and initial testing are performed by electronics manufacturing services suppliers.
While our intellectual property rights are important to our success, we believe that our business as a whole is not materially dependent on any particular patent, trademark, copyright, or other intellectual property right.
One specific place where this evolution is visible is through the launch of our DEIB Council. The Council is led by Cognex’s Vice President of Solutions and is comprised of over 50 volunteer Cognoids representing a broad cross-section of functions, geographies, and backgrounds.
The Council is led by our Chief Culture Officer and is comprised of over thirty volunteer Cognoids representing a broad cross-section of functions, geographies, and backgrounds.
We currently expect the proliferation of electronics in automobiles to be a significant growth driver in both electric vehicles and internal combustion engine vehicles. For example, innovations in safety, driver assist, and entertainment features increase the number of items to be placed, tracked, measured, and inspected by machine vision.
For example, innovations in safety, driver assist, and entertainment features increase the number of items to be placed, tracked, measured, and inspected by machine vision. We also anticipate a multi-year wave of investment in Electric Vehicle (“EV”) manufacturing equipment, particularly related to battery manufacturing and inspection.
Research, Development, and Engineering Cognex engages in research, development, and engineering (RD&E) to enhance our existing products and to develop new products and functionality to address market opportunities.
From value solutions to high-performance hardware, Cognex offers industrial cameras, lenses, lighting, vision controllers, frame grabbers, and I/O cards to meet any requirement. Research, Development, and Engineering Cognex engages in research, development, and engineering (RD&E) to enhance our existing products and to develop new products and functionality to address market opportunities.
We are selective in choosing businesses and technologies that we believe will enhance long-term growth and profitability, as well as fit within our corporate culture. We plan to continue to seek acquisition opportunities to expand our product lines, customer base, distribution network, and technical talent.
We plan to continue to seek acquisition opportunities to expand our product lines, customer base, distribution network, and technical talent.
In automotive, we are developing new solutions for fast growing electric vehicle manufacturers and suppliers.
In the logistics market, we are moving beyond barcode reading into more complex applications in distribution centers and parcel and post warehouses. In the automotive market, we are developing new solutions for fast-growing electric vehicle and battery manufacturers and suppliers.
Logistics Logistics has been one of our largest growth drivers over the past five years and has become one of our largest end markets. We believe that our e-commerce logistics business is differentiated by the high performance of our bar-code reading and that growth will be driven by retailers investing in online fulfillment.
Logistics We believe our e-commerce logistics business is differentiated by the high performance of our bar-code reading and that potential growth will be driven by retailers investing in online fulfillment. From an automation perspective, the logistics industry is still in its early stages with a large reliance on human labor and a low rate of robotic automation.
Our Industry Machine vision is used in a variety of industries where technology is widely recognized as an important component of automated production, distribution, and quality assurance. Virtually every manufacturer or distributor can achieve better quality and efficiency by using machine vision.
Our largest industries by revenue are the automotive, logistics, and consumer electronics industries, which combined represented approximately 65% of our total revenue in 2023. Cognex was incorporated in Massachusetts in 1981. Our Industry Machine vision is used in a variety of industries where technology is widely recognized as an important component of automated production, distribution, and quality assurance.
We believe these efforts align with our stockholders’ long-term interests and better position Cognex to operate as a leader in the machine vision industry. Diversity, Equity, Inclusion, and Belonging While we are incredibly proud of our culture, we continue to listen, learn, and grow.
We believe in investing in tools and resources that support employees’ learning and development and setting a compensation structure that reflects the Company’s commitment to a pay-for-performance philosophy. We believe these efforts align with our stockholders’ long-term interests and better position Cognex to continue to operate as a leader in the machine vision industry.
End Markets Automotive The automotive market has been one of our largest markets for the past 20 years. Machine vision is used in almost every step of vehicle manufacturing, from measuring inbound parts, to guiding robot assembly, to inspecting the stitching on leather seats.
Machine vision is used in almost every step of vehicle manufacturing, from measuring inbound parts, to guiding robot assembly, to inspecting the stitching on leather seats. We currently expect the proliferation of electronics in automobiles to be a significant growth driver in both electric vehicles and internal combustion engine vehicles.
Towards the end of 2022, we also began to build out our Emerging Customer sales force that primarily focuses on establishing relationships and selling into new accounts which are newer to factory automation and Cognex.
In 2023, we began ramping up an Emerging Customer sales force that primarily focuses on selling into accounts which are new to machine vision or Cognex.
We believe that these manufacturers are positioned to grow within Asia, and to expand both independently and through partnerships in the Americas and Europe, and we anticipate that our existing relationships and proven offerings will position us to 2 Table of Content capture a significant share of this growth.
Cognex works closely with the major EV battery manufacturers who we believe produce the majority of the world’s automotive batteries. We believe that these manufacturers are positioned to grow within Asia, and to expand both independently and through partnerships in the Americas and Europe.
Vision applications include tasks like inspecting packages for damage, object and symbol recognition, and dimensioning.
Beyond barcode reading, we expect vision applications in logistics to grow quickly and become a more substantial business for us. Vision applications include tasks such as inspecting packages for damage, object and symbol recognition, and dimensioning.
Fully configured finished products for customers in the Americas, with the exception of certain products stocked locally in Mexico, are then shipped from our Southborough, Massachusetts distribution center, while finished products for customers outside of the Americas are shipped from our Cork, Ireland distribution center.
Cognex ships finished products for customers located in the Americas from our Southborough, Massachusetts distribution center, for customers located in Europe from our Cork, Ireland distribution center, and for customers located in Asia from our Singapore distribution center that became operational during the fourth quarter of 2023.
Within these markets, we are making significant investments to focus on what we believe to be the fastest-growing applications and use cases. In the logistics market, we are moving beyond barcode reading into more complex applications in e-commerce and omni-channel retail distribution centers, as well as parcel and post warehouses.
We continue to invest in our core markets, such as automotive, logistics, and consumer electronics where we are a leading provider of vision and ID products for factory and warehouse automation. Within these markets, we are 1 Table of Content making significant investments to focus on what we believe to be the fastest-growing applications and use cases.
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Our largest sales are in the automotive, logistics, and consumer electronics industries, which combined represented approximately 69% of our total revenue in 2022. Our two largest customers, one in the logistics industry and one in the consumer electronics industry, each represented approximately 11% of our total revenue in 2022. Cognex was incorporated in Massachusetts in 1981.
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We are selective in choosing businesses and technologies that we believe will enhance long-term growth and profitability. In the fourth quarter of 2023, we acquired Moritex Corporation, a global provider of premium optical components based in Japan. With an enterprise value of approximately $270 million, this was Cognex's largest acquisition to-date.
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The importance of each of these factors varies depending on the specific needs of the customer.
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A significant amount of visual inspection in consumer electronics is still done manually by humans. As labor becomes more costly and increasingly scarcer, these customers are looking for productivity initiatives to automate these processes. We also expect leading companies in this space to continue to grow based on new technologies that we expect to succeed and build on the smartphone.
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We also anticipate a multi-year wave of investment in Electric Vehicle (“EV”) manufacturing equipment, including related to battery manufacturing and inspection. Cognex works closely with the major EV battery manufacturers in Asia that we believe produce more than 90% of the world’s automotive batteries.
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In-Sight® vision systems and sensors include our 2D and 3D vision systems, as well as our In-Sight SnAPP™ sensor. These products leverage various forms of artificial intelligence, including rule-based coding, as well as deep learning and edge learning technology leveraging pre-trained models powered by neural networks.
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From an automation perspective, the logistics industry is still in its early stages with a large reliance on human labor and a low rate of robotic automation. Beyond barcode reading, we expect vision applications in logistics to grow quickly and become a more substantial business for us.
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Vision Accessories Cognex vision accessories are designed for easy integration with Cognex products and applications. Cameras are available in both area scan and line scan formats to address a wide variety of applications.
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Lenses and lighting are also available in both embedded and component formats to provide high-quality image acquisition, including a portfolio of premium optical components that were added to the Company's vision accessory portfolio with the acquisition of Moritex Corporation in the fourth quarter of 2023.
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Operations Most of Cognex’s hardware products are manufactured utilizing third-party contractors, whereby the majority of component procurement, system assembly, and initial testing are performed by electronics manufacturing services suppliers. With the acquisition of Moritex Corporation in the fourth quarter of 2023, Cognex began in-house manufacturing of optical components, such as lenses and lighting.
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Diversity, Equity, Inclusion, and Belonging While we are incredibly proud of our culture, we continue to listen, learn, and grow. We are excited about the opportunities to continue to build an organization that reflects the best of the world around us.

Item 1A. Risk Factors

Risk Factors — what could go wrong, per management

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Biggest changeThese acquisitions may involve significant risks and uncertainties, which could include, among others: • the diversion of management's attention from other operational matters, • difficulties or delays integrating personnel, operations, technologies, products, and systems of the acquired business, particularly in locations far from the company's headquarters, • the inability to realize expected synergies or other benefits resulting from the acquisition, • the failure to retain key talent, • the impairment of acquired intangible assets resulting from lower-than-expected cash flows from the acquired assets, • acquisition-related charges, which could adversely impact operating results and cash flows in any given period and could be substantially different from period to period, • difficulties with closing a transaction due to regulatory approvals, employment matters, required consents, litigation, or other challenges, which could increase costs and prevent the acquisition from being completed within the expected timeframe, or from being completed at all, • the inability to protect and secure acquired intellectual property or confidential information, • difficulties or delays completing the development of acquired in-process technology, 11 Table of Content • the failure to retain key customers, and • the failure to achieve projected sales of acquired products.
Biggest changeThe Moritex acquisition, and acquisitions in general, may involve significant risks and uncertainties, which could include, among others: • the diversion of management's attention from other operational matters, • the inability to realize expected synergies or other benefits resulting from the acquisition, including the failure to achieve projected sales of acquired products, • difficulties or delays integrating personnel, operations, technologies, products, processes, and systems of the acquired business, particularly in locations far from the Company's headquarters, • the failure to retain key talent and difficulties integrating corporate cultures, • entry into markets in which we may have limited prior experience and where competitors have stronger market positions, • the inability to protect and secure acquired intellectual property or confidential information, • difficulties or delays completing the development of acquired in-process technology, • the failure to retain key customers, • the impairment of acquired intangible assets resulting from lower-than-expected cash flows from the acquired assets, • acquisition-related charges, which could adversely impact operating results and cash flows in any given period and could be substantially different from period to period, • difficulties with implementing internal controls and accounting systems necessary to be compliant with requirements applicable to public companies subject to SEC reporting, and • difficulties with closing a transaction due to regulatory approvals, employment matters, required consents, litigation, or other challenges, which could increase costs and prevent the acquisition from being completed within the expected timeframe, or from being completed at all.
We refer you to the explanation of the qualifications and limitations on such forward-looking statements, appearing under the heading "Forward-Looking Statements" in Part II - Item 7 of this Annual Report on Form 10-K.
We refer you to the explanation of the qualifications and limitations of such forward-looking statements, appearing under the heading "Forward-Looking Statements" in Part II - Item 7 of this Annual Report on Form 10-K.
If components purchased by our primary contract manufacturer have not been consumed in the production of our finished goods within a certain period of time, we have been required, and may continue to be required, to purchase these components from our contract manufacturer and later sell them back when they are needed to meet our demand.
If components purchased by our primary contract manufacturer have not been consumed in the production of our finished goods within a certain period of time, we have been required, and may continue to be required, to purchase these components from our primary contract manufacturer and later sell them back when they are needed to meet our demand.
Component suppliers may suffer from poor financial conditions, which can lead to business failure for the supplier, further limiting our ability to obtain sufficient quantities of components on reasonable terms, or at all. Therefore, Cognex remains subject to risks of supply shortages and price increases that can adversely affect its business and operating results.
Component suppliers may suffer from poor financial conditions, which can lead to business failure for the supplier, further limiting our ability to obtain sufficient quantities of components on reasonable terms, or at all. Therefore, Cognex remains subject to risks of supply shortages and price increases that can adversely affect our business and operating results.
Finally, the local stocking of finished products in countries outside of our primary distribution centers may result in higher costs and increased risk of excess or obsolete inventory associated with maintaining the appropriate level and mix of stock in multiple inventory locations, resulting in lower gross margins.
Finally, the local stocking of finished products in countries outside of our primary distribution centers may result in higher costs and increased risk of excess or obsolete inventory associated with maintaining the appropriate level and mix of products in multiple inventory locations, resulting in lower gross margins.
Although we believe our tax positions are reasonable, the final determination of tax audits or any related litigation could be different from what is reflected in our financial statements and could have a material adverse effect on our income tax provision, net income, or cash flows in the period in which the determination is made. 12 Table of Content Fluctuations in foreign currency exchange rates and the use of derivative instruments to hedge these exposures could adversely affect our reported results, liquidity, and competitive position.
Although we believe our tax positions are reasonable, the final determination of tax audits or any related litigation could be different from what is reflected in our financial statements and could have a material adverse effect on our income tax provision, net income, or cash flows in the period in which the determination is made. 13 Table of Content Fluctuations in foreign currency exchange rates and the use of derivative instruments to hedge these exposures could adversely affect our reported results, liquidity, and competitive position.
Research is by its nature speculative, and the ultimate commercial success of a product depends on various factors, many of which are not under our control. We may not achieve significant revenue from new product investments for a number of years, if at all. Moreover, new products, if introduced, may not generate the gross margins that we have experienced historically.
Research is by its nature speculative, and the ultimate commercial success of a product depends on various factors, many of which are not under our control. We may not achieve significant revenue from new product investments for several years, if at all. Moreover, new products, if introduced, may not generate the gross margins that we have experienced historically.
We are continually reviewing our go-to-market strategy to help ensure that we are reaching the most customers that we can and with the highest level of service. At times, this may require strategic changes to our sales organization or enlisting or dropping various distributors in certain regions, which could result in additional costs or operational challenges.
We are continually reviewing our go-to-market strategy to help ensure that we are reaching the most customers that we can and with the highest level of service. At times, this may require strategic changes to our sales organization or enlisting or dropping various partners in certain regions, which could result in additional costs or operational challenges.
In addition to trade tariffs, United States export controls that place restrictions on the exportation of our products or a subset of our products, including applicable regulations promulgated by the U.S. Commerce Department’s Bureau of Industry and Security, have had a negative impact on our revenue from customers based in China.
In addition to trade tariffs, U.S. export controls that place restrictions on the exportation of our products or a subset of our products, including applicable regulations promulgated by the U.S. Commerce Department’s Bureau of Industry and Security, have had a negative impact on our revenue from customers based in China.
Further, customer confidence and capital investment can be materially adversely impacted as a result of financial market volatility, negative financial news, declines in income or asset values, energy shortages and cost increases, labor and healthcare costs, and other global economic conditions.
Furthermore, customer confidence and capital investment can be materially adversely impacted as a result of financial market volatility, negative financial news, declines in income or asset values, energy shortages and cost increases, labor and healthcare costs, and other global economic conditions.
As a result, our business is subject to the risks inherent in international sales and operations, including, among other things: • various regulatory and statutory requirements, • difficulties in injecting and repatriating cash, • export and import restrictions, • trade tariffs, • transportation delays, • product certification requirements, • employment regulations and local labor conditions, • difficulties in staffing and managing foreign operations, particularly as we expand our presence globally • corruption, • instability in economic or political conditions, • political or trade sanctions, • difficulties protecting intellectual property, • uncertainties surrounding the interpretation and application of regulatory and statutory requirements, • business systems connectivity issues, and • potentially adverse tax consequences.
As a result, our business is subject to the risks inherent in international sales and operations, including, among other things: • various regulatory and statutory requirements, • difficulties in injecting and repatriating cash, • export and import restrictions, • trade tariffs, • transportation delays, • product certification requirements, • employment regulations and local labor conditions, • difficulties in staffing and managing foreign operations, particularly as we expand our presence globally • corruption, • instability in economic or political conditions, • political or trade sanctions, • difficulties protecting intellectual property, • uncertainties surrounding the interpretation and application of regulatory and statutory requirements, • varying data protection and privacy laws, • business systems connectivity issues, and • potentially adverse tax consequences.
For example, many countries have recently adopted, or are considering the adoption of, revisions to their respective tax laws based on the Organization for Economic Co-operation and Development (“OECD”)’s Inclusive Framework, which could impact our tax liability due to our organizational structure and significant operations outside of the United States.
For example, many countries have recently adopted, or are considering the adoption of, revisions to their respective tax laws based on the Organization for Economic Co-operation and Development’s (“OECD”) Inclusive Framework, which could impact our tax liability due to our organizational structure and significant operations outside of the United States.
Our business, and the businesses of our customers, suppliers, and third-party service providers, could be disrupted by natural disasters, fires, energy shortages, public health crises, such as pandemics and epidemics, man-made disasters, such as cyber-attacks, terrorism or industrial accidents, or other events outside of our control.
Our business, and the businesses of our customers, suppliers, and third-party service providers, could be disrupted by natural disasters, fires, energy shortages, public health crises, such as pandemics and epidemics, man-made disasters, such as cyberattacks, terrorism or industrial accidents, or other events outside of our control.
Furthermore, as we assume more responsibility for the importation of our products into other countries, we face higher compliance risk to adhering to local regulatory and trade requirements.
Furthermore, as we assume more responsibility for the importation of our products into other countries, we face higher compliance risk to adhere to local regulatory and trade requirements.
Certain of our business operations, such as our third-party primary contractor manufacturer in Indonesia, are in locations that may be more prone to earthquakes and other natural disasters, and global climate change may result in certain types of natural disasters occurring more frequently or with more intense effects.
Certain of our business operations, such as our third-party primary contractor manufacturers in Indonesia and Malaysia, are in locations that may be more prone to earthquakes and other natural disasters, and global climate change may result in certain types of natural disasters occurring more frequently or with more intense effects.
We strategically may enter into non-cancelable and/or non-refundable commitments with vendors to purchase materials for our products in advance of demand to address concerns about the availability of future supplies, build safety stock to help ensure customer shipments are not delayed should we experience higher than anticipated demand for materials with long lead times, or take advantage of favorable pricing.
We strategically may enter into non-cancelable and/or non-refundable commitments with vendors to purchase inventory in advance of demand to address concerns about the availability of future supplies, build safety stock to help ensure customer shipments are not delayed should we experience higher than anticipated demand for inventory with long lead times, or take advantage of favorable pricing.
While we engage in product quality programs and processes, including actively monitoring and evaluating the quality of our component suppliers and contract manufacturers, these actions may not be sufficient to avoid a product failure rate that results in: 7 Table of Content • substantial delays in shipment, • significant repair or replacement costs, • product liability claims or lawsuits, particularly in connection with life sciences customers or other high-risk end-user industries • customer dissatisfaction and/or loss of sales, or • potential damage to our reputation.
While we engage in product quality programs and processes, including actively monitoring and evaluating the quality of our component suppliers and contract manufacturers, these actions may not be sufficient to avoid a product failure rate that results in: • substantial delays in shipment, • significant repair or replacement costs, • product liability claims or lawsuits, particularly in connection with life sciences customers, electric vehicle battery manufacturers, or other high-risk end-user industries, • customer dissatisfaction and/or loss of sales, or • potential damage to our reputation.
Risks Related to Financial Matters We are at risk for impairment charges with respect to our investments or acquired intangible assets, which could have a material adverse effect on our operating results. As of December 31, 2022, we had approximately $673 million of debt securities in our investment portfolio.
Risks Related to Financial Matters We are at risk for impairment charges with respect to our investments or acquired intangible assets, which could have a material adverse effect on our operating results. As of December 31, 2023, we had approximately $374 million of debt securities in our investment portfolio.
In addition to the U.S. Dollar, a significant portion of our revenues and expenses are denominated in the Euro and Chinese Renminbi, and to a lesser extent the Japanese Yen, Korean Won, and Mexican Peso. We estimate that approximately 52% of our sales in 2022 were invoiced in currencies other than the U.S.
In addition to the U.S. Dollar, a significant portion of our revenues and expenses are denominated in the Euro and Chinese Renminbi, and to a lesser extent the Korean Won, Japanese Yen, Mexican Peso, and Indian Rupee. We estimate that approximately 52% of our sales in 2023 were invoiced in currencies other than the U.S.
As a result of global economic conditions, our business is subject to the following risks, among others: • our customers may not have sufficient cash flow or access to financing to purchase our products and services, • our customers may not pay us within agreed upon terms or may default on their payments altogether, • our vendors may be unable to fulfill their delivery obligations to us in a timely manner, • lower demand for our products may result in charges for excess and obsolete inventory if we are unable to sell inventory that is either already on hand or committed to purchase, • lower cash flows may result in impairment charges for acquired intangible assets or goodwill, • a decline in our stock price may make stock-based awards a less attractive form of compensation and a less effective form of retention for our employees, and • the trading price of our common stock may be volatile. 13 Table of Content As of December 31, 2022, the Company had approximately $854 million in cash and investments.
As a result of global economic conditions, our business is subject to the following risks, among others: • our customers may not have sufficient cash flow or access to financing to purchase our products and services, • our customers may not pay us within agreed upon terms or may default on their payments altogether, • our suppliers may be unable to fulfill their delivery obligations to us in a timely manner, • lower demand for our products may result in charges for excess and obsolete inventory if we are unable to sell inventory that is either already on hand or that we are committed to purchase, • lower cash flows may result in impairment charges for acquired intangible assets or goodwill, • a decline in our stock price may make stock-based awards a less attractive form of compensation and a less effective incentive for retention for our employees, and • the trading price of our common stock may be volatile. 14 Table of Content As of December 31, 2023, we had approximately $576 million in cash and investments.
C hallenges in obtaining components and maintaining production have resulted in delays, and may continue to result in delays, in meeting our delivery schedules that, as a result, delay deliveries to our customers past their requested delivery date.
Challenges in obtaining components and maintaining production have resulted in delays, and may continue to result in delays, in meeting our delivery schedules that, as a result, delay deliveries to our customers past their requested delivery date.
In addition, Cognex has no long-term debt. We believe that our strong cash position puts us in a relatively good position to weather economic downturns.
In addition, we have no long-term debt. We believe that our strong cash position puts us in a relatively good position to weather economic downturns.
To support our growth and execute on our operating plans and strategic initiatives, we must effectively attract, train, develop, motivate, and retain skilled employees, while maintaining our unique corporate culture. Technical personnel with experience in machine vision and artificial intelligence are in high demand and competition for their talents is intense.
To support our growth and execute our operating plans and strategic initiatives, we must effectively attract, train, develop, motivate, and retain skilled employees, while maintaining our unique corporate culture. Technical personnel with experience in machine vision, and more recently artificial intelligence and transformer-based models, are in high demand and competition for their talents is intense.
Because the Company relies on single or limited sources for the supply of certain components and manufacture of our products, a business disruption affecting such sources would worsen any adverse consequences to the Company. While the Company maintains insurance coverage for certain types of losses, such insurance coverage may be insufficient to cover all losses that may arise.
Because we rely on single or limited sources for the supply of certain components and manufacture of our products, a business disruption affecting such sources would worsen any adverse consequences to our business. While we maintain insurance coverage for certain types of losses, such insurance coverage may be insufficient to cover all losses that may arise.
If the Company fails to meet expectations related to future growth, profitability, dividends, share repurchases or other market expectations, the price of the Cognex’s stock may decline significantly, which could have a material adverse impact on investor confidence and employee retention. Our Company may be subject to time-consuming and costly litigation or activist shareholder activities.
If we fail to meet expectations related to future growth, profitability, dividends, share repurchases, or other market expectations, the price of our stock may decline significantly, which could have a material adverse impact on investor confidence and employee retention. 15 Table of Content Our Company may be subject to time-consuming and costly litigation or activist shareholder activities.
These debt securities are reported at fair value, with unrealized gains and losses, net of tax, included in shareholders’ equity as other comprehensive income (loss) since these securities are designated as available-for-sale securities. As of December 31, 2022, our portfolio of debt securities had a net unrealized loss of $26,817,000.
These debt securities are reported at fair value, with unrealized gains and losses, net of tax, included in shareholders’ equity as other comprehensive income (loss) since these securities are designated as available-for-sale securities. As of December 31, 2023, our portfolio of debt securities had a net unrealized loss of $9,967,000.
In addition, our reliance on indirect selling methods may reduce visibility to demand and pricing issues. 10 Table of Content To support the expansion of our business internationally, we may decide to make changes to our operating structure in other countries when we believe these changes will make us more competitive by reaching additional customers, offering faster delivery, importation services, and/or local currency sales.
In addition, when we use indirect selling methods, it may reduce visibility to demand and pricing. To support the expansion of our business internationally, we may decide to make changes to our operating structure in other countries when we believe these changes will make us more competitive by reaching additional customers, offering faster delivery, importation services, and/or local currency sales.
Any failure, or perceived failure, by the Company to achieve its goals, further its initiatives, adhere to its public statements, comply with federal, state, or international environmental, social, and governance laws and regulations, or meet evolving and varied stakeholder expectations and standards could result in legal and regulatory proceedings against the Company and adversely affect the Company’s business, reputation, results of operations, financial condition, and stock price. 15 Table of Content The price of the Company’s stock is subject to volatility.
Any failure, or perceived failure, to achieve our goals, further our initiatives, adhere to our public statements, comply with federal, state, or international environmental, social, and governance laws and regulations, or meet evolving and varied stakeholder expectations and standards could result in legal and regulatory proceedings against the Company and adversely affect our business, reputation, results of operations, financial condition, and stock price.
Responding to these environmental, social, and governance considerations and implementation of these goals and initiatives involves risks and uncertainties, requires investments, and depends in part on third-party performance or data that is outside of the Company’s control. The Company cannot guarantee that it will achieve its announced environmental, social, and governance goals and initiatives.
Responding to these environmental, social, and governance considerations and implementation of these goals and initiatives involves risks and uncertainties, requires investments, and depends in part on third-party performance or data that is outside of our control. We cannot guarantee that we will achieve our environmental, social, and governance goals and initiatives.
The loss of this key supplier, or failure of this contract manufacturer to timely supply products, access necessary credit to operate its business, or otherwise remain in business, could have a material adverse impact on our operating results.
Furthermore, the loss of a key supplier, or failure of a key supplier to access necessary credit to operate its business or otherwise remain in business, could have a material adverse impact on our operating results.
We also rely on our contract manufacturers to meet delivery schedules. We have experienced, and may continue to experience, delays in the delivery of our products from our suppliers due to the impact of global supply chain challenges or other factors.
We have experienced, and may continue to experience, delays in the delivery of our products from our suppliers due to the impact of global supply chain challenges or other factors.
Although our primary contract manufacturer has the ability to shift production to plants in other regions when operations in its Indonesia plant are disrupted, production and test equipment located at the Indonesia plant that is unique to the manufacture of Cognex products creates practical challenges to doing so in a timely manner.
Although our third-party and in-house manufacturers have the ability to shift production to plants in other regions when operations in their primary plant are disrupted, production and test equipment located at the plant that is unique to the manufacture of Cognex products creates practical challenges to doing so in a timely manner.
In addition, some stakeholders may disagree with the Company’s goals and initiatives.
In addition, some stakeholders may disagree with our goals and initiatives.
Following the COVID-19 pandemic, Cognex has experienced, and may continue to experience, increased labor shortages or working restrictions due to factors such as health and safety concerns or governmental regulations.
Following the COVID pandemic, we experienced, and may experience again, labor shortages or working restrictions due to factors such as health and safety concerns or governmental regulations.
In the event of a supply disruption from a preferred vendor, these components typically may be purchased from alternative vendors, which may result in higher purchase costs and manufacturing delays based on the time required to identify and obtain sufficient quantities from an alternative source. Certain of Cognex’s products utilize components that are available from only one source.
We source components from preferred vendors that are selected based on price and performance considerations. In the event of a supply disruption from a preferred vendor, these components typically may be purchased from alternative vendors, which may result in higher purchase costs and manufacturing delays based on the time required to identify and obtain sufficient quantities from an alternative source.
Risks Related to our Supply Chain The failure of key suppliers to manufacture and deliver product in a timely manner could negatively affect customer satisfaction and our operating results. A significant portion of our products is presently manufactured by a third-party contractor located in Indonesia.
Any of these adverse circumstances could have a material adverse effect on our operating results. Risks Related to our Supply Chain The failure to manufacture and deliver products in a timely manner could negatively affect customer satisfaction and our operating results. A significant portion of our products is presently manufactured by a third-party contractor located in Indonesia.
Management monitors its debt securities that are in an unrealized loss position to determine whether a loss exists related to the credit quality of the issuer that would be reported in current operations. Management currently intends to hold these securities to full value recovery at maturity.
Management monitors its debt securities that are in an unrealized loss position to determine whether a loss exists related to the credit quality of the issuer that would be reported in current operations.
We use time-based and performance-based equity awards, including stock options and restricted stock units ("RSUs") as a key component of compensation for our more senior employees in order to align employee interests with the interests of our shareholders, provide competitive compensation packages, and encourage employee retention.
We rely on attracting and retaining talent with these skills to execute our product development plans. We use time-based and performance-based equity awards, including stock options and restricted stock units ("RSUs") as a key component of compensation for our more senior employees to align employee interests with the interests of our shareholders, provide competitive compensation packages, and encourage employee retention.
If we fail to successfully protect our intellectual property, our competitive position and operating results could suffer. We rely on our proprietary software technology and hardware designs, as well as the technical expertise, creativity, and knowledge of our personnel to maintain our position as a leading provider of machine vision products.
We rely on our proprietary software technology and hardware designs, as well as the technical expertise, creativity, and knowledge of our personnel to maintain our position as a leading provider of machine vision products.
Furthermore, in certain instances, due to long supplier lead times, we may purchase inventory in advance of receipt of a large customer purchase order, which exposes us to an increased risk of excess or obsolete inventory and resulting charges.
In addition, large customers may receive preferred pricing and a higher level of support, which may lower our gross margin percentage. Furthermore, in certain instances, due to long supplier lead times, we may purchase inventory in advance of receipt of a large customer purchase order, which exposes us to an increased risk of excess or obsolete inventory and resulting charges.
Any of these factors could have a material adverse effect on our operating results. 14 Table of Content In recent years, trade tariffs imposed by the United States on certain components imported from Chinese suppliers resulted in higher costs for our products, which, to date, have been immaterial to our total cost of goods.
In recent years, trade tariffs imposed by the United States on certain components imported from Chinese suppliers resulted in higher costs for our products, which, to date, have not been material to our total cost of goods.
We are limited as to the number of stock options and RSUs that we may grant under our stock plans, and we are unsure how effective different stock-based awards with different vesting schedules will be to retain key talent.
We are limited as to the number of stock options and RSUs that we may grant under our stock plans, and we are unsure how effective different stock-based awards with different vesting schedules will be to retain key talent. Accordingly, we may find it difficult to attract and retain employees, and any such difficulty could materially adversely affect our business.
Due to the impact of global supply chain challenges and other factors, we have experienced, and may continue to experience, disruptions to the supply of components for our products that have resulted, and may continue to result, in higher purchase costs, higher delivery costs, and manufacturing delays. 6 Table of Content Cognex sources components from preferred vendors that are selected based on price and performance considerations.
Due to the impact of global supply chain challenges and other factors, we have experienced, and may continue to experience, disruptions to the supply of components for our products that have resulted, and may continue to result, in higher purchase costs, higher delivery costs, and manufacturing delays.
Dollar, and we expect sales denominated in foreign currencies to continue to represent a significant portion of our total revenue. While we also have expenses denominated in these same foreign currencies, the impact on revenues has historically been, and is expected to continue to be, greater than the offsetting impact on expenses. Therefore, in times when the U.S.
While we also have expenses denominated in these same foreign currencies, the impact on revenues has historically been, and is expected to continue to be, greater than the offsetting impact on expenses. Therefore, in times when the U.S. Dollar strengthens in relation to these foreign currencies, we would expect to report a net decrease in operating income.
Although we are taking certain actions to mitigate supply risk and have entered into agreements, including in broker markets, for the supply of many components, there can be no assurance that Cognex will be able to extend or renew these agreements on similar terms, such as purchase prices, or at all.
If we are unable to secure adequate supply from these sources, we may have to redesign our products, which may lead to higher costs, delays in manufacturing, and possible loss of sales. 11 Table of Content Although we are taking certain actions to mitigate supply risk and have entered into agreements, including in broker markets, for the supply of many components, there can be no assurance that Cognex will be able to extend or renew these agreements on similar terms, such as purchase prices, or at all.
However, cost increases as a result of these or other trade tariffs could be material in the future. Trade tariffs also have had an indirect impact on the economic climate in China, which in turn, has had a negative impact on the Company's revenue from customers based in China who see risk in doing business with a U.S. company.
Trade tariffs and export controls also have had an indirect impact on the economic climate in China, which in turn, has had a negative impact on the Company's revenue from customers based in China who see risk in doing business with a U.S. company.
The Company has experienced substantial stock price volatility in the past and may continue to do so in the future. The price of the Company’s stock may be affected by factors such as the Company’s financial performance, announcements of technological innovations or new products by us or our competitors, market conditions, and other factors.
The price of our stock may be affected by factors such as our financial performance, announcements of technological innovations or new products by us or our competitors, market conditions, and other factors.
Included in this net loss, were gross unrealized losses totaling $27,560,000, of which $12,718,000 were in a loss position for less than twelve months and $14,842,000 were in a loss position for greater than twelve months.
Included in this net loss, were gross unrealized losses totaling $10,555,000, of which $1,561,000 were in a loss position for less than twelve months and $8,994,000 were in a loss position for greater than twelve months.
Dollar may have a material impact on our operating results. General Risk Factors Unfavorable global economic conditions may negatively impact our operating results. Our revenue levels are impacted by global economic conditions, as we have a significant business presence in many countries throughout the world.
Our revenue levels are impacted by global economic conditions, as we have a significant business presence in many countries throughout the world.
Noncompliance could result in significant fines, penalties, claims or legal liability. Any inability to adequately address privacy and data security concerns or comply with applicable privacy or data security laws, regulations and policies could result in additional cost and liability to us, damage our reputation, inhibit sales, and harm our business.
Any inability to adequately address privacy and data security concerns or comply with applicable privacy or data security laws, regulations, and policies could result in additional cost and liability to us, damage our reputation, inhibit sales, and harm our business. If we fail to successfully protect our intellectual property, our competitive position and operating results could suffer.
Even an unsuccessful challenge or investigation into our practices is costly to defend, and could cause adverse publicity, and thus could have a material adverse effect on our business, financial condition, or operating results. Expectations relating to environmental, social, and governance considerations expose the Company to potential liabilities, increased costs, reputational harm, and other adverse effects on our business.
Even an unsuccessful challenge or investigation into our practices is costly to defend, and could cause adverse publicity, and thus could have a material adverse effect on our business, financial condition, or operating results.
The loss of, or curtailment of purchases by, any one or more of our large customers, has had, and could in the future have a material adverse effect on our operating results. 8 Table of Content Risks Related to Information Technology and Intellectual Property Information security breaches may adversely affect our business.
The loss of, or curtailment of purchases by, any one or more of our large customers, has had, and could in the future have a material adverse effect on our operating results.
Dollar strengthens in relation to these foreign currencies, we would expect to report a net decrease in operating income. Conversely, in times when the U.S. Dollar weakens in relation to these foreign currencies, we would expect to report a net increase in operating income. Thus, changes in the relative strength of the U.S.
Conversely, in times when the U.S. Dollar weakens in relation to these foreign currencies, we would expect to report a net increase in operating income. Thus, changes in the relative strength of the U.S. Dollar may have a material impact on our operating results. General Risk Factors Unfavorable global economic conditions may negatively impact our operating results.
Political uncertainty surrounding trade and other international disputes could have a negative effect on customer confidence and spending, which could adversely affect our business. The imposition of additional tariffs or other trade barriers could increase our costs in certain markets and may cause our customers to find alternative providers of machine vision products and services.
The imposition of additional tariffs or other trade barriers could increase our costs in certain markets and may cause our customers to find alternative providers of machine vision products and services.
The application of tax laws and regulations is subject to legal and factual interpretation, judgment, and uncertainty, and tax laws themselves are subject to change.
Significant judgment is required in determining our worldwide provision for income and other taxes. The application of tax laws and regulations is subject to legal and factual interpretation, judgment, and uncertainty, and tax laws themselves are subject to change.
Our go-to-market strategy has distinct risks and costs, and therefore, our failure to implement the most advantageous balance in the sales and operating model for our products and services could have a material adverse effect on our revenue and profitability. Increased competition may result in decreased demand or prices for our products and services, and may harm our operating results.
Our go-to-market strategy has distinct risks and costs, and therefore, our failure to implement the most advantageous balance in the sales and operating model for our products and services could have a material adverse effect on our revenue and profitability. 7 Table of Content Economic, political, and other risks associated with international sales and operations could adversely affect our business and operating results.
Our inability to obtain components for our products could adversely affect our operating results. Certain key electronic and mechanical components, such as integrated circuit chips, are fundamental to the design of Cognex products.
Delays in customer orders also can result in delayed revenue recognition or loss of business which can impact our operating results in a particular reporting period. Our inability to obtain components for our products could adversely affect our operating results. Certain key electronic and mechanical components, such as integrated circuit chips, are fundamental to the design of Cognex products.
These measures to purchase inventory may expose us to an increased risk of excess or obsolete inventory and resulting charges if actual demand is lower than anticipated.
Supply chain disruptions and unanticipated changes in demand have resulted, and may continue to result, in the Company purchasing a significant amount of inventory in advance of demand. These measures to purchase inventory may expose us to an increased risk of excess or obsolete inventory and resulting charges if actual demand is lower than anticipated.
These measures, however, may not be adequate to: • protect our proprietary technology, • protect our patents from challenge, invalidation, or circumvention, or • ensure that our intellectual property will provide us with competitive advantages.
These measures, however, may not be adequate to: • protect our proprietary technology, • protect our patents from challenge, invalidation, or circumvention, or • ensure that our intellectual property will provide us with competitive advantages. 10 Table of Content Our pending and future patent applications may not issue as patents or, if issued, may not issue in a form that will provide us with any meaningful protection or any competitive advantage.
Any of these adverse circumstances could have a material adverse effect on our operating results. 9 Table of Content Risks Related to Execution of our Business Strategy If we fail to attract and retain key talent and maintain our unique corporate culture, our business and operating results could suffer.
This could lead to more variability in our operating results and could have a material adverse effect on our business, operating results, and financial condition. If we fail to attract and retain key talent and maintain our unique corporate culture, our business and operating results could suffer.
We evaluate long-lived assets for impairment annually each fourth quarter and whenever events or changes in circumstances, referred to as "triggering events," indicate the carrying value may not be recoverable. In 2020, deteriorating global economic conditions from the COVID-19 pandemic triggered a review of long-lived assets for potential impairment, which resulted in intangible asset impairment charges totaling $19,571,000.
We evaluate long-lived assets for impairment annually each fourth quarter and whenever events or changes in circumstances, referred to as "triggering events," indicate the carrying value may not be recoverable.
Successfully managing the interaction of our direct and indirect sales channels to reach various potential customers for our products and services is a complex process.
In addition, successfully managing the interaction of our direct and indirect sales channels, including the newly-added Emerging Customer sales force, to reach various potential customers for our products and services is a complex process. Many of our indirect selling arrangements are non-exclusive, and our distributors are not obligated to buy our products.
A further decline in the cash flows generated by these or other intangible assets may result in future impairment charges. If we determine that any of these investments or intangible assets are impaired, we will be required to take a related charge to earnings that could have a material adverse effect on our operating results.
If we determine that any of these investments or intangible assets are impaired, we will be required to take a related charge to earnings that could have a material adverse effect on our operating results. We may have additional tax liabilities and our effective tax rate may increase or fluctuate, which could adversely affect our operating results and financial condition.
The market for our products is characterized by rapidly changing technology and increasingly capable competitors. Accordingly, we believe that our future success will depend on our ability to accelerate time-to-market for new products with improved functionality, ease-of-use, performance, and price.
Accordingly, we believe that our future success will depend on our ability to accelerate time-to-market for new products with improved functionality, ease-of-use, performance, and price. This includes continuing to introduce products embedded with artificial intelligence technology that augments rule-based machine vision with image-based analysis.
Cognex ships finished products for customers located in the Americas from our Southborough, Massachusetts distribution center, and finished products for customers located outside of the Americas from our Cork, Ireland distribution center.
We ship finished products for customers located in the Americas from our Southborough, Massachusetts distribution center, for customers located in Europe from our Cork, Ireland distribution center, and for customers located in Asia from our Singapore distribution center that became operational during the fourth quarter of 2023.
Our effective income tax rate is dependent on the geographic distribution of our worldwide earnings or losses and the tax laws and regulations in each geographic region in which we operate. Significant judgment is required in determining our worldwide provision for income and other taxes.
As a multinational corporation, we are subject to income taxes, as well as non-income based taxes, in the United States and numerous foreign jurisdictions. Our effective income tax rate is dependent on the geographic distribution of our worldwide earnings or losses and the tax laws and regulations in each geographic region in which we operate.
Risks Related to Revenue Concentrations The loss of, or significant curtailment of purchases by, large customers could have an adverse effect on our business. In 2022, we had two large customers, one in the logistics industry and one in the consumer electronics industry, that each represented more than 10% of our total revenue.
Any of these results could have a material adverse effect on our operating results. 12 Table of Content Risks Related to Revenue Concentrations The loss of, or significant curtailment of purchases by, large customers could have an adverse effect on our business. In 2023, no single customer represented more than 10% of our total revenue.
This could lead to more variability in our operating results and could have a material adverse effect on our business, operating results, and financial condition. Implementation of our acquisition strategy may not be successful, which could affect our ability to increase our revenue or profitability and may otherwise adversely affect our business.
Implementation of our acquisition strategy may not be successful, which could affect our ability to increase our revenue or profitability and may otherwise adversely affect our business. We have acquired, and may continue to acquire, new businesses and technologies.
The fire resulted in delayed shipments and loss of sales which adversely impacted our business, financial condition, and results of operations during 2022.
The fire resulted in delayed shipments, loss of sales, and higher-than-normal purchase costs to replenish component inventories which adversely impacted our business, financial condition, and results of operations primarily during the second half of 2022, with the gross margin impact of higher purchase costs continuing into the first half of 2023.
The regulatory framework for the collection, use, safeguarding, sharing and transfer of information worldwide is rapidly evolving and is likely to remain uncertain for the foreseeable future. These laws continue to develop and may be inconsistent from jurisdiction to jurisdiction. Complying with emerging and changing requirements may be costly and require us to change certain business practices.
The regulatory framework for the collection, use, safeguarding, sharing, and transfer of information worldwide is rapidly evolving and is likely to remain uncertain for the foreseeable future.
We have been working to ramp up an additional contract manufacturer to further mitigate risk, diversify supply chain, and expand production capacity. Changes and additions to our supply chain require considerable time and resources and involve significant risks and uncertainties, and we can provide no assurance of return on, or success of, such investments.
Changes and additions to our supply chain require considerable time and resources and involve significant risks and uncertainties, and we can provide no assurance of return on, or success of, such investments. We also rely on our third-party and in-house manufacturers to meet delivery schedules.
We anticipate that international sales will continue to account for a significant portion of our revenue. In addition, we source components from suppliers located outside of the United States, including China, and utilize third-party contract manufacturers, primarily located in Indonesia, to assemble certain of our products.
In addition, we source components from suppliers located outside of the United States, including China, utilize third-party contract manufacturers, primarily located in Indonesia and Malaysia, to assemble certain of our products, and beginning in the fourth quarter of 2023 with the acquisition of Moritex Corporation, manufacture optical components at production plans located in Vietnam and China.
Further, over the past year, we have seen some examples of industry consolidation in our markets. This trend may continue as companies attempt to strengthen or hold their market positions in an evolving industry and as companies are acquired or are unable to continue operations.
This trend may continue as companies attempt to strengthen or hold their market positions in an evolving industry and as companies are acquired or are unable to continue operations. We believe that industry consolidation may result in stronger competition and may be accompanied by pressure from customers for lower prices.
In recent years, we have encountered increased competition from low-cost vision providers in China, as well as from large technology companies that may offer free open-source solutions. Any of these competitors may have greater financial or other resources than we do, or may develop more compelling technologies.
We also compete with internal engineering departments of current or prospective customers, as well as open-source tools available for free from various companies, including tools using artificial intelligence. In recent years, we have encountered increased competition from low-cost vision providers in China, as well as from large technology companies that may offer free open-source solutions.
Acquisitions are inherently risky and the inability to effectively manage these risks could have a material adverse effect on our operating results. Business system disruptions may adversely affect our business. The Company is making significant investments in business systems related to our sales processes, including systems to help our sales team more efficiently manage customer relationships and sales opportunities.
Acquisitions are inherently risky and the inability to effectively manage these risks could have a material adverse effect on our operating results. 9 Table of Content Risks Related to Information Technology and Intellectual Property Information security breaches may adversely affect our business. We rely on our information technology systems, including third-party services, to effectively run our business.
We may not be able to compete successfully in the future and our investments in research and development, sales and marketing, and support activities may be insufficient to enable us to maintain our competitive advantage. In addition, competitive pressures could lead to price erosion that could have a material adverse effect on our gross margins and operating results.
Any of these competitors may have greater financial or other resources than we do or may develop more compelling technologies. We may not be able to compete successfully in the future and our investments in research and development, sales and marketing, and support activities may be insufficient to enable us to maintain our competitive advantage.
The risk of a cyber attack continues to increase given rapid advancements in technologies as well as the proliferation of diplomatic and armed conflict throughout the world. Our security measures or those of our third-party service providers may not detect or prevent such breaches.
We may be subject to information security failures or breaches caused by hacking, malicious software, acts of vandalism or terrorism, or other events. The risk of a cyberattack continues to increase given rapid advancements in technologies, as well as the proliferation of diplomatic and armed conflict throughout the world.
The machine vision market continues to be fragmented and competitive. Our competitors include primarily other vendors of machine vision systems, controllers, and components; manufacturers of image processing systems, sensors, and components; and system integrators. We also compete with internal engineering departments of current or prospective customers, as well as open-source tools available for free by various companies.
Increased competition may result in decreased demand or prices for our products and services and may harm our operating results. The machine vision market continues to be fragmented and competitive. Our competitors include primarily other vendors of machine vision systems, controllers, and components; manufacturers of image processing systems, sensors, and components; and system integrators.
Large customers may divert management’s attention from other operational matters and pull resources from other areas of the business, resulting in potential loss of sales from other customers. In addition, large customers may receive preferred pricing and a higher level of support, which may lower our gross margin percentage.
However, we have had customers of this size in the past, particularly in the logistics and consumer electronics industries. Large customers may divert management’s attention from other operational matters and pull resources from other areas of the business, resulting in potential loss of sales from other customers.
In addition, the Company makes statements about its environmental, social, and governance goals and initiatives through its Sustainability Reports, information provided on its website, and other communications.
In addition, we make statements about our environmental, social, and governance goals and initiatives through our Sustainability Reports, information provided on our website, and other communications. In addition, future environmental laws and regulations have the potential to affect our operations, increase our costs, decrease our revenue, or change the way we design or manufacture our products.

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Item 2. Properties

Properties — owned and leased real estate

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Biggest changeIn 2014, Cognex purchased a 50,000 square-foot building in Cork, Ireland. This facility serves as the distribution center for customers outside of the Americas. Cognex conducts certain of its operations in other leased facilities, predominantly research, development, and engineering, sales, and administration functions. These lease agreements expire at various dates through 2032.
Biggest changeCognex conducts certain of its operations in other leased facilities, predominantly research, development, and engineering, sales, and administration functions. These lease agreements expire at various dates through 2033. Certain of these leases contain renewal options, leasehold improvement incentives, retirement obligations, escalation clauses, rent holidays, and variable payments tied to a consumer price index.
ITEM 2: PROPERTIES In 1994, Cognex purchased and renovated a 100,000 square-foot building located in Natick, Massachusetts that serves as our corporate headquarters and is occupied by employees primarily in research, development, and engineering, manufacturing and quality assurance, and administration functions. In 1997, Cognex completed construction of a 50,000 square-foot addition to this building.
ITEM 2: PROPERTIES In 1994, Cognex purchased and renovated a 100,000 square-foot building located in Natick, Massachusetts that serves as our corporate headquarters and is occupied by employees primarily in research, development, and engineering, manufacturing and quality assurance, and administration functions.
In 1995, Cognex purchased an 83,000 square-foot office building adjacent to our corporate headquarters that is occupied by employees primarily in research, development, and engineering, sales, marketing, service, finance, and information technology functions. In 1997, Cognex purchased a three and one-half acre parcel of land adjacent to our corporate headquarters.
In 1997, Cognex completed construction of a 50,000 square-foot addition to this building. 16 Table of Content In 1995, Cognex purchased an 83,000 square-foot office building adjacent to our corporate headquarters that is occupied by employees primarily in marketing, service, information technology, and finance functions.
This land is being held for future expansion and is currently used as an Ultimate Frisbee Field for our Cognoids. In 2007, Cognex purchased a 19,000 square-foot building adjacent to our corporate headquarters. This facility served as the distribution center for customers in the Americas through the first quarter of 2022.
In 1997, Cognex purchased a three and one-half acre parcel of land adjacent to our corporate headquarters. This land is being held for future expansion and is currently used as an Ultimate Frisbee Field for our Cognoids.
This building is being held for future expansion and is expected to be used as a training center. In December 2021, Cognex entered into a lease for a 65,000 square-foot building in Southborough, Massachusetts for a term of 10 years to serve as a new distribution center for customers in the Americas effective as of the second quarter of 2022.
In 2021, Cognex entered into a lease for a 65,000 square-foot building in Southborough, Massachusetts for a term of 10 years that serves as the distribution center for customers located in the Americas.
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Certain of these leases contain renewal options, retirement obligations, escalation clauses, rent holidays, and leasehold improvement incentives.
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In 2007, Cognex purchased a 19,000 square-foot building adjacent to our corporate headquarters that is currently used as a training center as part of our Emerging Customer sales initiative. In 2014, Cognex purchased a 50,000 square-foot building in Cork, Ireland that serves as the distribution center for customers located in Europe.
Added
In June 2023, Cognex entered into a lease for a 115,000 square-foot building in Singapore for a term of 10 years and 6 months to serve as a new distribution center for customers located in Asia that became operational during the fourth quarter of 2023.
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In connection with the acquisition of Moritex Corporation in the fourth quarter of 2023, the Company acquired a 162,000 square-foot building in Shenzhen, China and assumed a lease agreement for a 22,000 square-foot building in Bac Ninh, Vietnam, both of which serve as production plants for optical components.

Item 3. Legal Proceedings

Legal Proceedings — active lawsuits and investigations

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Biggest changeWhile 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. ITEM 4: MINE SAFETY DISCLOSURES Not applicable. 16 Table of Content PART II
Biggest changeWhile 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. ITEM 4: MINE SAFETY DISCLOSURES Not applicable. 17 Table of Content PART II

Item 4. Mine Safety Disclosures

Mine Safety Disclosures — required of mining issuers

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Biggest changeITEM 4. MINE SAFETY DISCLOSURES 16 PART II 17 ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS, AND ISSUER PURCHASES OF EQUITY SECURITIES 17 ITEM 6. [RESERVED] 19 ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS 19 ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK 30 ITEM 8.
Biggest changeITEM 4. MINE SAFETY DISCLOSURES 17 PART II 18 ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS, AND ISSUER PURCHASES OF EQUITY SECURITIES 18 ITEM 6. [RESERVED] 20 ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS 20 ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK 30 ITEM 8.

Item 5. Market for Registrant's Common Equity

Market for Common Equity — stock, dividends, buybacks

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Biggest changeThe following table sets forth information with respect to purchases by the Company of shares of its common stock during each fiscal month of the fourth quarter of 2022: Total Number of Shares Purchased Average Price Paid per Share Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs Approximate Dollar Value of Shares that May Yet Be Purchased Under the Plans or Programs October 3 - October 30, 2022 213,000 $ 43.42 213,000 $ 429,353,000 October 31 - November 27, 2022 186,000 47.50 186,000 420,557,000 November 28 - December 31, 2022 159,000 49.44 159,000 412,686,000 Total 558,000 $ 46.49 558,000 $ 412,686,000 The information required by Item 5 of Form 10-K regarding equity compensation plans is incorporated herein by reference to Item 12 of Part III of this Annual Report.
Biggest changeThe following table sets forth information with respect to purchases by the Company of shares of its common stock during each fiscal month of the fourth quarter of 2023: Total Number of Shares Purchased Average Price Paid per Share Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs Approximate Dollar Value of Shares that May Yet Be Purchased Under the Plans or Programs October 2 - October 29, 2023 74,000 $ 34.98 74,000 $ 350,436,000 October 30 - November 26, 2023 492,000 35.66 (1) 492,000 332,892,000 (1) November 27 - December 31, 2023 — — — 332,892,000 Total 566,000 $ 35.57 566,000 $ 332,892,000 (1) Includes $446,000 of buyback Excise Tax in accordance with the Inflation Reduction Act of 2022.
Future dividends will be declared at the discretion of the Company's Board of Directors and will depend on such factors as the Board deems relevant, including, among other things, the Company's ability to generate positive cash flow from operations. 17 Table of Content Set forth below is a line graph comparing the annual percentage change in the cumulative total shareholder return on the Company’s common stock, based on the market price of the Company’s common stock, with the total return on companies within the Nasdaq Composite Index and the Research Data Group, Inc.
Future dividends will be declared at the discretion of the Company's Board of Directors and will depend on such factors as the Board deems relevant, including, among other things, the Company's ability to generate positive cash flow from operations. 18 Table of Content Set forth below is a line graph comparing the annual percentage change in the cumulative total shareholder return on the Company’s common stock, based on the market price of the Company’s common stock, with the total return on companies within the Nasdaq Composite Index and the Research Data Group, Inc.
Data for the Nasdaq Composite Index and the Nasdaq Lab Apparatus Index was provided to the Company by Research Data Group, Inc. *$100 invested on 12/31/2017 in stock or index, including reinvestment of dividends.
Data for the Nasdaq Composite Index and the Nasdaq Lab Apparatus Index was provided to the Company by Research Data Group, Inc. *$100 invested on 12/31/2018 in stock or index, including reinvestment of dividends.
The Company’s Board of Directors declared and paid cash dividends of $0.055 per share in the first, second, and third quarters of 2020, $0.060 per share in the fourth quarter of 2020 and in the first, second, and third quarters of 2021, and $0.065 per share in the fourth quarter of 2021 and in the first, second, and third quarters of 2022.
The Company’s Board of Directors declared and paid cash dividends of $0.060 per share in the first, second, and third quarters of 2021, $0.065 per share in the fourth quarter of 2021 and in the first, second, and third quarters of 2022, and $0.070 per share in the fourth quarter of 2022 and in the first, second, and third quarters of 2023.
ITEM 5: MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS, AND ISSUER PURCHASES OF EQUITY SECURITIES The Company’s common stock is traded on The NASDAQ Stock Market LLC, under the symbol CGNX. As of January 29, 2023, there were approximately 650 shareholders of record of the Company’s common stock.
ITEM 5: MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS, AND ISSUER PURCHASES OF EQUITY SECURITIES The Company’s common stock is traded on The NASDAQ Stock Market LLC, under the symbol CGNX. As of January 28, 2024, there were approximately 625 shareholders of record of the Company’s common stock.
On March 12, 2020, the Company's Board of Directors authorized the repurchase of an additional $200,000,000 of the Company's common stock.
In March 2022, the Company's Board of Directors authorized the repurchase of an additional $500,000,000 of the Company's common stock.
Under this October 2018 program, in addition to repurchases made in prior years, the Company repurchased 1,215,000 shares at a cost of $51,036,000 in 2020, and 957,000 shares at a cost of $78,652,000 in 2021, which completed purchases under the October 2018 program.
Under this October 2018 program, in addition to repurchases made in prior years, the Company repurchased 957,000 shares at a cost of $78,652,000 in 2021, which completed purchases under the October 2018 program. In March 2020, the Company's Board of Directors authorized the repurchase of an additional $200,000,000 of the Company's common stock.
The dividend was increased to $0.070 per share in the fourth quarter of 2022. Also, in the fourth quarter of 2020, an additional special cash dividend of $2.00 per share was declared and paid. Total dividends paid were $45,921,000 in 2022, $43,263,000 in 2021, and $390,508,000 in 2020, which included $351,428,000 paid for the special cash dividend.
The dividend was increased to $0.075 per share in the fourth quarter of 2023. Total dividends paid were $49,079,000 in 2023, $45,921,000 in 2022, and $43,263,000 in 2021.
Fiscal year ended December 31. 12/17 12/18 12/19 12/20 12/21 12/22 Cognex Corporation 100.00 63.48 92.40 140.04 136.05 82.85 NASDAQ Composite 100.00 97.16 132.81 192.47 235.15 158.65 NASDAQ Stocks 100.00 96.77 135.41 188.97 216.71 130.52 (SIC 3820-3829 U.S. Companies) Lab Apparatus & Analyt,Opt, Measuring, and Controlling Instrument) 18 Table of Content
Fiscal year ended December 31. 12/18 12/19 12/20 12/21 12/22 12/23 Cognex Corporation 100.00 145.56 220.61 214.32 130.52 116.38 NASDAQ Composite 100.00 136.69 198.10 242.03 163.28 236.17 NASDAQ Stocks 100.00 140.44 190.18 225.09 144.46 172.72 (SIC 3820-3829 U.S. Companies) Lab Apparatus & Analyt,Opt, Measuring, and Controlling Instrument) 19 Table of Content
On March 3, 2022, the Company's Board of Directors authorized the repurchase of an additional $500,000,000 of the Company's common stock. Under this March 2022 program, the Company repurchased 1,682,000 shares at a total cost of $87,314,000 in 2022, leaving a remaining balance of $412,686,000.
Under this March 2022 program, the Company repurchased 1,682,000 shares at a cost of $87,314,000 in 2022 and 1,723,000 shares at a cost of $79,794,000 in 2023, including $446,000 of buyback Excise Tax in accordance with the Inflation Reduction Act of 2022, leaving a remaining balance of $332,892,000.
Added
The information required by Item 5 of Form 10-K regarding equity compensation plans is incorporated herein by reference to Item 12 of Part III of this Annual Report.

Item 7. Management's Discussion & Analysis

Management's Discussion & Analysis (MD&A) — revenue / margin commentary

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Biggest changeSuch risks and uncertainties include: (1) the reliance on key suppliers, such as our primary contract manufacturer, to manufacture and deliver products; (2) the expected impact of the fire at our primary contract manufacturer's plant on our assets, business, and results of operations and related insurance recoveries; (3) delays in the delivery of our products, the failure to meet delivery schedules, and resulting customer dissatisfaction or loss of sales; (4) the inability to obtain, or the delay in obtaining, components for our products at reasonable prices; (5) the failure to effectively manage product transitions or accurately forecast customer demand; (6) the inability to manage disruptions to our distribution centers or to our key suppliers; (7) the inability to design and manufacture high-quality products; (8) the impact, duration, and severity of the COVID-19 pandemic, particularly in China, including the availability and effectiveness of vaccines as well as government lockdowns; (9) the loss of, or curtailment of purchases by, large customers in the logistics, consumer electronics, or automotive industries; (10) information security breaches; (11) the failure to comply with laws or regulations relating to data privacy or data protection; (12) the inability to protect our proprietary technology and intellectual property; (13) the inability to attract and retain skilled employees and maintain our unique corporate culture; (14) the technological obsolescence of current products and the inability to develop new products; (15) the failure to properly manage the distribution of products and services, including the management of lead times and delivery dates; (16) the impact of competitive pressures; (17) the challenges in integrating and achieving expected results from acquired businesses; (18) potential disruptions in our business systems; (19) potential impairment charges with respect to our investments or acquired intangible assets; (20) exposure to additional tax liabilities, increases and fluctuations in our effective tax rate, and other tax matters; (21) fluctuations in foreign currency exchange rates and the use of derivative instruments; (22) unfavorable global economic conditions, including increases in interest rates and high inflation rates; (23) business disruptions from natural or man-made disasters, such as fire, or public health issues; (24) economic, political, and other risks associated with international sales and operations, including the impact of trade disputes on the economic climate in China and the war in Ukraine; (25) exposure to potential liabilities, increased costs, reputational harm, and other adverse effects associated with expectations relating to environmental, social, and governance considerations; (26) stock price volatility; and (27) our involvement in time-consuming and costly litigation or activist shareholder activities.
Biggest changeSuch risks and uncertainties include: (1) the technological obsolescence of current products and the inability to develop new products; (2) the impact of competitive pressures; (3) the inability to attract and retain skilled employees and maintain our unique corporate culture; (4) the failure to properly manage the distribution of products and services; (5) economic, political, and other risks associated with international sales and operations, including the impact of trade disputes on the economic climate in China and the wars in Ukraine and Israel; (6) the challenges in integrating and achieving expected results from acquired businesses; (7) information security breaches; (8) the failure to comply with laws or regulations relating to data privacy or data protection; (9) the inability to protect our proprietary technology and intellectual property; (10) the failure to manufacture and deliver products in a timely manner; (11) the inability to obtain, or the delay in obtaining, components for our products at reasonable prices; (12) the failure to effectively manage product transitions or accurately forecast customer demand; (13) the inability to manage disruptions to our distribution centers or to our key suppliers; (14) the inability to design and manufacture high-quality products; (15) the loss of, or curtailment of purchases by, large customers in the logistics, consumer electronics, or automotive industries; (16) potential impairment charges with respect to our investments or acquired intangible assets; (17) exposure to additional tax liabilities, increases and fluctuations in our effective tax rate, and other tax matters; (18) fluctuations in foreign currency exchange rates and the use of derivative instruments; (19) unfavorable global economic conditions, including increases in interest rates and high inflation rates; (20) business disruptions from natural or man-made disasters, such as fire, or public health issues; (21) exposure to potential liabilities, increased costs, reputational harm, and other adverse effects associated with expectations relating to environmental, social, and governance considerations; (22) stock price volatility; and (23) our involvement in time-consuming and costly litigation or activist shareholder activities.
ITEM 7: MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS FORWARD-LOOKING STATEMENTS Certain statements made in this report, as well as oral statements made by the Company from time to time, constitute forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended.
ITEM 7: MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS FORWARD-LOOKING STATEMENTS Certain statements made in this report, as well as oral statements made by the Company from time to time, constitute forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Exchange Act.
Readers can identify these forward-looking statements by our use of the words “expects,” “anticipates,” “estimates,” "potential," “believes,” “projects,” “intends,” “plans,” “will,” “may,” “shall,” “could,” “should,” and similar words and other statements of a similar sense.
Readers can identify these forward-looking statements by our use of the words “expects,” “anticipates,” “estimates,” "potential," “believes,” “projects,” “intends,” “plans,” “will,” “may,” “shall,” “could,” “should,” "opportunity," "goal" and similar words and other statements of a similar sense.
Excluding the impact of foreign currency exchange rate changes, revenue increased by 1% compared to 2021. The fire on June 7, 2022 at our primary contract manufacturer’s plant in Indonesia, which destroyed a large amount of component inventory, limited our ability to fulfill certain orders in the year, which resulted in lower revenue.
Excluding the impact of foreign currency exchange rate changes, revenue increased by 1% compared to 2021. The fire on June 7, 2022 at our primary contract manufacturer’s plant in Indonesia, which destroyed a large amount of component inventory, limited our ability to fulfill certain orders in the year ended December 31, 2022, which resulted in lower revenue.
Foreign currency gains and losses result primarily from the revaluation and settlement of assets and liabilities that are denominated in currencies other than the functional currencies of our subsidiaries or the reporting currency of our company, which is the U.S. Dollar. Investment income increased by $55,000, or 1%, from the prior year.
Foreign currency gains and losses result primarily from the revaluation and settlement of assets and liabilities that are denominated in currencies other than the functional currencies of our subsidiaries or the reporting currency of our company, which is the U.S. Dollar. 27 Table of Content Investment income increased by $55,000, or 1%, from the prior year.
RESULTS OF OPERATIONS As foreign currency exchange rates are a factor in understanding period-to-period comparisons, we believe the presentation of results on a constant-currency basis in addition to reported results helps improve investors’ ability to 20 Table of Content understand our operating results and evaluate our performance in comparison to prior periods.
RESULTS OF OPERATIONS As foreign currency exchange rates are a factor in understanding period-to-period comparisons, we believe the presentation of results on a constant-currency basis in addition to reported results helps improve investors’ ability to understand our operating results and evaluate our performance in comparison to prior periods.
Since the date of the fire, the Company has worked with the contract manufacturer to assess the damage, resume production, maintain standards of product quality, and replenish inventories destroyed by the fire. The Company has also been working to ramp up an additional contract manufacturer to further mitigate risk, diversify supply chain, and expand production capacity.
Since the date of the fire, the Company has worked with the contract manufacturer to assess the damage, resume production, maintain standards of product quality, and replenish inventories destroyed by the fire. The Company has also been scaling up an additional contract manufacturer to further mitigate risk, diversify supply chain, and expand production capacity.
The increase came from customers in a variety of industries, most notably the automotive and consumer electronics industries, partially offset by a decrease in revenue from customers in the logistics industry. • Revenue from customers based in Greater China increased by 14% from the prior year.
The increase came from customers in a variety of industries, most notably the automotive and consumer electronics industries, partially offset by a decrease in revenue from customers in the logistics industry. 25 Table of Content • Revenue from customers based in Greater China increased by 14% from the prior year.
Dividends The Company’s Board of Directors declared and paid cash dividends of $0.055 per share in the first, second, and third quarters of 2020, $0.060 per share in the fourth quarter of 2020 and in the first, second, and third quarters of 2021, and $0.065 per share in the fourth quarter of 2021 and in the first, second, and third quarters of 2022.
The Company’s Board of Directors declared and paid cash dividends of $0.060 per share in the first, second, and third quarters of 2021, $0.065 per share in the fourth quarter of 2021 and in the first, second, and third quarters of 2022, and $0.070 per share in the fourth quarter of 2022 and in the first, second, and third quarters of 2023.
LIQUIDITY AND CAPITAL RESOURCES The Company has historically been able to generate positive cash flow from operations, which has funded its operating activities and other cash requirements and resulted in an accumulated cash and investment balance of $854,250,000 as of December 31, 2022.
LIQUIDITY AND CAPITAL RESOURCES The Company has historically been able to generate positive cash flow from operations, which has funded its operating activities and other cash requirements and resulted in an accumulated cash and investment balance of $576,277,000 as of December 31, 2023.
We believe that a continued commitment to RD&E activities is essential in order to maintain or achieve product leadership with our existing products and to provide innovative new product offerings, as well as to provide engineering support for large customers.
We believe that a continued commitment to RD&E activities is essential to maintain or achieve product leadership with our existing products and to provide innovative new product offerings, as well as to provide engineering support for large 23 Table of Content customers.
These forward-looking statements, which include statements regarding business and market trends, future financial performance and financial targets, the expected impact of the fire at our primary contract manufacturer's plant on our assets, business and results of operations and related insurance recoveries, customer demand and order rates and timing of related revenue, managing supply shortages, delivery lead times, future product mix, research and development activities, sales and marketing activities, new product offerings and product development activities, capital expenditures, investments, liquidity, dividends and stock repurchases, strategic and growth plans, and estimated tax benefits and expenses and other tax matters, involve known and unknown risks and uncertainties that could cause actual results to differ materially from those projected.
These forward-looking statements, which include statements regarding business and market growth opportunities and trends, future financial performance and financial targets, customer demand and order rates and timing of related revenue, managing supply shortages, delivery lead times, future product mix, research and development activities, sales and marketing activities (including our Emerging Customer Program), new product offerings and product development activities, customer acceptance of our products, the potential effects of emerging technologies, capital expenditures, cost management activities, investments, liquidity, dividends and stock repurchases, strategic and growth plans, our ability to maintain and grow key relationships, acquisitions, the expected impact of the fire at our primary contract manufacturer's plant on our assets, business and results of operations and related insurance recoveries, and estimated tax benefits and expenses and other tax matters, involve known and unknown risks and uncertainties that could cause actual results to differ materially from those projected.
In 2022, the Company recorded a net loss related to the fire of $20,779,000, consisting primarily of losses from inventories and other assets of $48,339,000, offset by insurance recoveries of $27,560,000.
In 2022, the Company recorded a net loss related to the fire of $20,779,000, consisting primarily of losses of inventories and other assets of $48,339,000, partially offset by insurance proceeds received from the Company's insurance carrier of $27,560,000.
On March 12, 2020, the Company's Board of Directors authorized the repurchase of an additional $200,000,000 of the Company's common stock.
In March 2020, the Company's Board of Directors authorized the repurchase of an additional $200,000,000 of the Company's common stock.
The following table sets forth certain consolidated financial data as a percentage of revenue: Year Ended December 31, 2022 (1) 2021 2020 Revenue 100 % 100 % 100 % Cost of revenue 28 27 25 Gross margin 72 73 75 Research, development, and engineering expenses 14 13 16 Selling, general, and administrative expenses 31 30 33 Loss from fire 2 — — Restructuring charges — — 2 Intangible asset impairment charges — — 3 Operating income 24 30 21 Non-operating income — 1 2 Income before income tax expense 25 31 23 Income tax expense 3 4 1 Net income 21 % 27 % 22 % (1) Amounts may not total properly due to rounding.
The following table sets forth certain consolidated financial data as a percentage of revenue: Year Ended December 31, 2023 (1) 2022 (1) 2021 Revenue 100 % 100 % 100 % Cost of revenue 28 28 27 Gross margin 72 72 73 Research, development, and engineering expenses 17 14 13 Selling, general, and administrative expenses 40 31 30 Loss (recovery) from fire (1) 2 — Operating income 16 24 30 Non-operating income 1 — 1 Income before income tax expense 16 25 31 Income tax expense 3 3 4 Net income 14 % 21 % 27 % (1) Amounts may not total properly due to rounding.
SG&A expenses in 2021 $ 309,354 Personnel-related costs 24,112 Stock-based compensation 6,436 Travel expenses 5,666 Incentive compensation (24,476) Foreign currency exchange rate changes (14,613) Other 5,628 SG&A expenses in 2022 $ 312,107 SG&A expenses increased primarily due to higher personnel-related costs resulting from headcount additions, primarily for sales personnel to support the Company's anticipated revenue growth, and salary increases provided to employees as part of our merit and promotion process.
Selling, General, and Administrative Expenses Selling, general, and administrative (SG&A) expenses increased in 2022 by $2,753,000, or 1%, from the prior year as detailed in the table below (in thousands). 26 Table of Content SG&A expenses in 2021 $ 309,354 Personnel-related costs 24,112 Stock-based compensation 6,436 Travel expenses 5,666 Incentive compensation (24,476) Foreign currency exchange rate changes (14,613) Other 5,628 SG&A expenses in 2022 $ 312,107 SG&A expenses increased primarily due to higher personnel-related costs resulting from headcount additions, primarily for sales personnel to support the Company's anticipated revenue growth, and salary increases provided to employees as part of our merit and promotion process.
If the Company can objectively determine that control of a good or service has been transferred to the customer in accordance with the agreed-upon requirements in the contract, then customer acceptance is a formality. If acceptance provisions are presumed to be substantive, then revenue is deferred until customer acceptance.
If the Company can objectively determine that control of a good or service has been transferred to the customer in accordance with the agreed-upon requirements in the contract, then customer acceptance is a formality.
This lower level of operating income resulted in net income of 21% of revenue in 2022 compared to 27% of revenue in 2021, and net income per diluted share of $1.23 in 2022 compared to $1.56 in 2021.
This lower level of operating income resulted in net income of 14% of revenue in 2023 compared to 21% of revenue in 2022, and net income per diluted share of $0.65 in 2023 compared to $1.23 in 2022.
The Company’s application-specific customer solutions are comprised of a combination of products and services which are accounted for as one performance obligation to deliver a total solution to the customer. On-site support services that are provided to the customer after the solution is deployed are accounted for as a separate performance obligation.
The Company’s application-specific customer solutions are comprised of a combination of products and services which are accounted for as one performance obligation to deliver a total solution to the customer.
Future dividends will be declared at the discretion of the Company's Board of Directors and will depend on 27 Table of Content such factors as the Board deems relevant, including, among other things, the Company's ability to generate positive cash flow from operations.
Future dividends will be declared at the discretion of the Company's Board of Directors and will depend on such factors as the Board deems relevant, including, among other things, the Company's ability to generate positive cash flow from operations. Future Cash Requirements The Company's material cash requirements include contractual obligations related to inventory purchase commitments and leases.
Changes in foreign currency exchange rates resulted in a higher level of reported revenue in 2021, as sales denominated in Euros were translated into U.S. Dollars at a higher rate. Excluding the impact of foreign currency exchange rate changes, revenue from customers based in Europe increased by 15% from the prior year.
Dollar weakened versus the Euro and sales denominated in Euros were translated into U.S. Dollars at a higher rate. Excluding the impact of foreign currency exchange rate changes, revenue from customers based in Europe decreased by 8% from the prior year.
Under this October 2018 program, in addition to repurchases made in prior years, the Company repurchased 1,215,000 shares at a cost of $51,036,000 in 2020, and 957,000 shares at a cost of $78,652,000 in 2021, which completed purchases under the October 2018 program.
In October 2018, the Company's Board of Directors authorized the repurchase of $200,000,000 of the Company's common stock. Under this October 2018 program, in addition to repurchases made in prior years, the Company repurchased 957,000 shares at a cost of $78,652,000 in 2021, which completed purchases under the October 2018 program.
In addition to product revenue derived from the sale of machine vision products, the Company also 19 Table of Content generates revenue by providing maintenance and support, consulting, and training services to its customers; however, service revenue accounted for less than 10% of total revenue for all periods presented.
In addition to product revenue derived from the sale of machine vision products, the Company also generates revenue by providing maintenance and support, consulting, and training services to its customers; however, service revenue accounted for less than 10% of total revenue for all periods presented. 20 Table of Content Machine vision is used in a variety of industries where technology is widely recognized as an important component of automated production, distribution, and quality assurance.
Foreign currency gains and losses result primarily from the revaluation and settlement of assets and liabilities that are denominated in currencies other than the functional currencies of our subsidiaries or the reporting currency of our company, which is the U.S. Dollar. Investment income decreased by $6,334,000, or 49%, from the prior year.
Remaining foreign currency gains and losses in each year resulted primarily from the revaluation and settlement of assets and liabilities that are denominated in currencies other than the functional currency of the Company, which is the U.S. Dollar, or its subsidiaries. 24 Table of Content Investment income increased by $7,378,000, or 110%, from the prior year.
Revenue Recognition The Company recognizes revenue in accordance with Accounting Standards Codification (ASC) 606, “Revenue from Contracts with Customers.” The core principle of ASC 606 is to recognize revenue in a manner that depicts the transfer of promised goods or services to customers in an amount that reflects the consideration to which the Company expects to be entitled in exchange for those goods or services.
Revenue Recognition The Company recognizes revenue in a manner that depicts the transfer of promised goods or services to customers in an amount that reflects the consideration to which the Company expects to be entitled in exchange for those goods or services.
The decrease in gross margin was also due to an unfavorable impact of foreign currency exchange rate changes. A more favorable revenue mix partially offset this decrease in gross margin.
These circumstances have resulted in broker-buy purchases for components at higher-than-normal costs. The decrease in gross margin was also due to an unfavorable impact of foreign currency exchange rate changes. A more favorable revenue mix partially offset this decrease in gross margin.
We classify interest and penalties related to uncertain tax positions in "Income tax expense" on the Consolidated Statements of Operations. As part of the process of preparing consolidated financial statements, management is required to estimate income taxes in each of the jurisdictions in which the Company operates.
As part of the process of preparing consolidated financial statements, management is required to estimate income taxes in each of the jurisdictions in which the Company operates.
The Company believes that its existing cash and investment balances, together with cash flow from operations, will be sufficient to meet its operating, investing, and financing activities for the next twelve months. In addition, the Company has no long-term debt.
As of December 31, 2023, the Company had a remaining balance payable of $33,006,000 through 2025. We believe that the Company's existing cash and investment balances, together with cash flow from operations, will be sufficient to meet its operating, investing, and financing activities for the next twelve months. In addition, the Company has no long-term debt.
We believe that our strong cash position has put us in a relatively good position with respect to anticipated longer-term liquidity needs. The Inflation Reduction Act ("IRA") was enacted into law on August 16, 2022.
We believe that our strong cash position has put us in a relatively good position with respect to anticipated longer-term liquidity needs.
The decrease resulted primarily from higher inventory costs, due largely to global supply chain constraints and the expedited replenishment of inventories lost in the fire at our primary contract manufacturer's plant on June 7, 2022. These circumstances have resulted in broker-buy purchases for components at higher-than-normal costs.
Gross Margin Gross margin as a percentage of revenue decreased to 72% in 2022 compared to 73% in 2021. The decrease resulted primarily from higher inventory costs, due largely to global supply chain constraints and the expedited replenishment of inventories lost in the fire at our primary contract manufacturer's plant on June 7, 2022.
In addition, we consider our ability to accelerate the time to market for new products to be critical to our revenue growth. This annual percentage is impacted by revenue levels and investing cycles.
In addition, we consider our ability to accelerate the time to market for new products to be critical to our revenue growth and competitive position. This annual percentage is impacted by revenue levels and investing cycles. Selling, General, and Administrative Expenses Selling, general, and administrative (SG&A) expenses in 2023 increased by $27,032,000, or 9%, from the prior year.
Revenue for on-site support services related to these solutions is recognized over the time the service is provided. 28 Table of Content In certain instances, an arrangement may include customer-specified acceptance provisions or performance guarantees that allow the customer to accept or reject delivered products that do not meet the customer’s requirements.
In certain instances, an arrangement may include customer-specified acceptance provisions or performance guarantees that allow the customer to accept or reject delivered products that do not meet the customer’s requirements.
Management has 29 Table of Content determined that this change is considered preferable, based on the conclusion that it appropriately matches the Company’s current and deferred income tax implications related to the change in tax structure noted below.
The Company has made an election to account for the impact of the Global Intangible Low-Taxed Income (GILTI) minimum tax in deferred taxes. Management has determined that this change is considered preferable, based on the conclusion that it appropriately matches the Company’s current and deferred income tax implications to its tax structure.
Virtually every manufacturer or distributor can achieve better quality and efficiency by using machine vision, leading to applications with a broad base of customers across a variety of industries, including automotive, logistics, consumer electronics, medical-related, semiconductor, consumer products, food and beverage, and others. Revenue for the year ended December 31, 2022 totaled $1,006,090,000, representing a decrease of 3% from 2021.
Virtually every manufacturer or distributor can achieve better quality and efficiency by using machine vision. This results in a broad base of potential customers across a variety of industries, including automotive, logistics, consumer electronics, medical-related, semiconductor, consumer products, and food and beverage.
Excluding the impact of foreign currency exchange rate changes, revenue from customers based in Greater China increased by 12% from the prior year. The increase was driven primarily by higher revenue in the automotive and semiconductor industries, partially offset by lower revenue in the consumer electronics industry.
Excluding the impact of foreign currency exchange rate changes, revenue from customers based in Greater China decreased by 23% from the prior year. The decrease was driven by lower revenue in the consumer electronics industry, particularly due to lower large-customer demand.
As of December 31, 2022, the Company had inventory purchase commitments of $50,942,000, with the majority payable within 12 months, and lease payment obligations of $44,336,000, with $9,473,000 payable within 12 months.
As of December 31, 2023, the Company had inventory purchase commitments of $61,459,000, with the majority payable within twelve months, and lease payment obligations of $105,697,000, with $13,612,000 payable within twelve months.
The acquisition of SAC and its technology is expected to expand the Company’s capabilities in defect detection, and accelerate our growth trajectory with electric vehicle battery manufacturers. In December 2022, following its acquisition of SAC, the Company performed restructuring activities to align the cost and operating structure of the acquired business with the Company's business strategy.
Restructuring Charges On December 7, 2022, the Company acquired all of the outstanding shares of SAC Sirius Advanced Cybernetics GmbH ("SAC"), a leader in computational lighting technology based in Germany. The acquisition of SAC and its technology is expected to expand the Company’s capabilities in defect detection, and accelerate our growth trajectory with electric vehicle battery manufacturers.
The restructuring activities resulted in charges of $1,657,000 in 2022. As of December 31, 2022, the majority of these restructuring actions were completed and no additional charges are expected to be incurred in future periods in relation to this restructuring plan. Non-operating Income (Expense) The Company recorded foreign currency losses of $1,837,000 in 2022 and $2,270,000 in 2021.
The restructuring activities resulted in charges of $1,657,000 in 2022. No additional charges are expected to be incurred in future periods in relation to this restructuring plan. Non-operating Income (Expense) The following table sets forth our non-operating income (expense) (in thousands) for the years ended December 31, 2023 and 2022.
The dividend was increased to $0.070 per share in the fourth quarter of 2022. Also, in the fourth quarter of 2020, an additional special cash dividend of $2.00 per share was declared and paid. Total dividends paid were $45,921,000 in 2022, $43,263,000 in 2021, and $390,508,000 in 2020, which included $351,428,000 paid for the special cash dividend.
The dividend was increased to $0.075 per share in the fourth quarter of 2023. 28 Table of Content Total dividends paid were $49,079,000 in 2023, $45,921,000 in 2022, and $43,263,000 in 2021.
Management is responsible for determining the appropriate valuation model and estimating the fair value of stock-based awards, and in doing so, considers a number of factors, including information provided by an outside valuation advisor and the observable market price of the Company's common stock on the grant date.
Business Combinations Allocating the purchase price for a business combination requires the Company to identify and estimate the fair values of various assets acquired and liabilities assumed. Management is responsible for determining the appropriate valuation model and estimated fair values, and in doing so, considers a number of factors, including information provided by an outside valuation advisor.
The decrease in the effective tax rate excluding discrete tax items was due to the impact of higher estimated tax credits in 2021, partially offset by more of the Company's profits being earned and taxed in higher tax jurisdictions.
Excluding the impact of all discrete tax items, the Company's effective tax rate was 15% in 2023 and 16% in 2022 due to an increase in tax credits available in the year, partially offset by an increase in disallowed executive compensation.
On March 3, 2022, the Company's Board of Directors authorized the repurchase of an additional $500,000,000 of the Company's common stock. Under this March 2022 program, the Company repurchased 1,682,000 shares at a total cost of $87,314,000 in 2022, leaving a remaining balance of $412,686,000.
In March 2022, the Company's Board of Directors authorized the repurchase of an additional $500,000,000 of the Company's common stock.
Revenue from customers based in Greater China increased by 19% from the prior year. Changes in foreign currency exchange rates resulted in a higher level of reported revenue in 2021, as sales denominated in Chinese 24 Table of Content Renminbi were translated into U.S. Dollars at a higher rate.
The decrease came from customers in a variety of industries, most notably the logistics and consumer electronics industries. • Revenue from customers based in Greater China decreased by 28% from the prior year. Changes in foreign currency exchange rates resulted in a lower level of reported revenue in 2023, due to the impact of sales denominated in Chinese Renminbi.
Operating income decreased to 24% of revenue in 2022 compared to 30% of revenue in 2021. This decrease was driven primarily by the loss from the fire of $20,779,000 and the decrease in revenue of $31,008,000.
Operating income decreased to 16% of revenue in 2023 compared to 24% of revenue in 2022 driven by the operating deleveraging resulting from the lower revenue levels.
As a result, if factors change and different assumptions are used, future stock-based compensation expense could be significantly different from what the Company recorded in the current period. Income Taxes Significant judgment is required in determining worldwide income tax expense based on tax laws in the various jurisdictions in which the Company operates.
If acceptance provisions are presumed to be substantive, then revenue is deferred until customer acceptance. 29 Table of Content Income Taxes Significant judgment is required in determining worldwide income tax expense based on tax laws in the various jurisdictions in which the Company operates.
The decrease resulted primarily from higher inventory costs, due largely to global supply chain constraints and the expedited replenishment of inventories lost in the fire at our primary contract manufacturer's plant on June 7, 2022. These circumstances have resulted in broker-buy purchases for components at higher-than-normal costs.
These decreases were offset by lower inventory costs driven by a reduction in premiums paid to brokers for the purchase of components in response to global supply chain constraints and the expedited replenishment of inventories lost in the fire at our primary contract manufacturer in the second quarter of 2022.
The decrease was due primarily to lower yields on the Company's portfolio of debt securities, partially offset by higher invested balances. The Company recorded other expense of $591,000 in 2021 and $309,000 in 2020. Other income (expense) includes fair value adjustments of contingent consideration liabilities arising from business acquisitions.
The increase was due primarily to higher yields on the Company's portfolio of debt securities, partially offset by lower average investment balances and changes in realized gains and losses.
There can be no assurance, however, that additional insurance coverage and/or recoveries from the contract manufacturer will be available to cover the net loss from the fire. 23 Table of Content Restructuring Charges On December 7, 2022, the Company acquired all of the outstanding shares of SAC Sirius Advanced Cybernetics GmbH ("SAC"), a leader in computational lighting technology based in Germany.
Restructuring Charges On December 7, 2022, the Company acquired SAC Sirius Advanced Cybernetics GmbH ("SAC"), a leader in computational lighting technology based in Germany. In December 2022, following its acquisition of SAC, the Company performed restructuring activities to align the cost and operating structure of the acquired business with the Company's business strategy.
The Company has established guidelines relative to credit ratings, diversification, and maturities of its investments that maintain liquidity. The Company’s cash requirements in 2022 were primarily met with positive cash flows from operations, the sale and maturity of investments, and the proceeds from stock option exercises.
The Company has established guidelines relative to credit ratings, diversification, and maturities of its investments to maintain liquidity and safety of the investment portfolio. Operating Activities Net cash provided by operating activities totaled $112,916,000 in 2023.
These impacts were partially offset by a decrease in tax expenses for certain international tax reserves. 26 Table of Content Excluding the impact of all discrete tax items, the Company’s effective tax rate was an expense of 16% of pre-tax income in 2021 and 17% of pre-tax income in 2020.
The increase in the effective tax rate from 14% to 16% primarily resulted from the impact of discrete tax items, most notably an increase in tax reserves and an increase in tax expense due to a tax rate revaluation on state tax assets. These impacts were partially offset by discrete tax benefits related to the release of a valuation allowance.
Revenue from other countries in Asia increased by 24% from the prior year due primarily to higher revenue in the automotive, semiconductor, and consumer electronics industries. Gross Margin Gross margin as a percentage of revenue decreased to 73% in 2021 compared to 75% in 2020.
Challenging business conditions in China also resulted in broad-based declines in revenue from customers in a variety of industries, most notably the automotive and semiconductor industries. • Revenue from other countries in Asia decreased by 20% from the prior year.
This review resulted in intangible asset impairment charges totaling $19,571,000 recorded in the second quarter of 2020. Non-operating Income (Expense) The Company recorded foreign currency losses of $2,270,000 in 2021 and foreign currency gains of $3,697,000 in 2020.
In December 2022, following its acquisition of SAC, the Company performed restructuring activities to align the cost and operating structure of the acquired business with the Company's business strategy. The restructuring activities resulted in charges of $1,657,000 in 2022. Non-operating Income (Expense) The Company recorded foreign currency losses of $1,837,000 in 2022 and $2,270,000 in 2021.
Removed
Machine vision is used in a variety of industries where technology is widely recognized as an important component of automated production, distribution, and quality assurance.
Added
Revenue for the year ended December 31, 2023 totaled $837,547,000, representing a decrease of 17% from the prior year due primarily to lower spending trends across our factory automation business, most notably in the consumer electronics and semiconductor industries, and the continued pause in investments by a few large e-commerce logistics customers.
Removed
The decrease was driven by three primary factors: (i) lower revenue from the logistics industry, our largest market in 2021, as a result of the slowing of large e-commerce customer projects as such customers absorbed excess capacity built up during the pandemic; (ii) the unfavorable impact of foreign currency exchange rate changes on revenue; and (iii) the impact of the June 7, 2022 fire at our primary contract manufacturer's plant in Indonesia, which destroyed a large amount of component inventory limiting our ability to fulfill certain orders in the year.
Added
Gross margin as a percentage of revenue remained consistent with the prior year at 72%, as the deleveraging impact of lower sales volume, less favorable revenue mix, and charges related to the acquisition of Moritex Corporation in the fourth quarter of 2023 were offset by lower inventory costs due to a reduction in premiums paid to brokers for the purchase of components.
Removed
This decrease was partially offset by growth in the broader factory automation market, most notably in the consumer electronics, automotive, and semiconductor industries. Gross margin as a percentage of revenue was 72% in 2022 compared to 73% in 2021.
Added
Operating expenses were relatively flat with the prior year, as the favorable year-over-year impact of losses from the fire at our contract manufacturer in 2022 compared to recoveries from the fire in 2023, lower incentive compensation, and cost management activities were offset by investments in our “Emerging Customer” sales initiative and costs related to the acquisition of Moritex Corporation in the fourth quarter of 2023.
Removed
A more favorable revenue mix and the Company's price increases partially offset this decrease in gross margin. Operating expenses increased by $30,950,000, or 7%, from 2021. On June 7, 2022, our primary contract manufacturer suffered a fire at its Indonesian plant destroying a large portion of the Company's component inventories.
Added
Year Ended December 31, 2023 Compared to Year Ended December 31, 2022 Revenue Revenue for the year ended December 31, 2023 was $837,547,000 compared to $1,006,090,000 for the prior year, representing a decrease of 17%. Changes in foreign exchange rates resulted in a lower level of reported revenue in 2023 as compared to 2022.
Removed
Excluding the loss from fire of $20,779,000 and restructuring charges of $1,657,000 related to a business acquisition in 2022, operating expenses increased by $8,514,000, or 2%, as higher personnel-related costs and stock-based compensation expense, were largely offset by decreases in incentive compensation due to weaker business performance and the favorable impact of foreign currency exchange rate changes on expenses.
Added
Excluding the impact of foreign currency exchange rate changes, revenue decreased 21 Table of Content by 16% compared to 2022. On October 18, 2023, Cognex acquired Moritex Corporation, a global provider of premium optical components based in Japan.
Removed
As of the date of this report, we expect revenue for the first quarter of 2023 to be lower than the revenue reported for the fourth quarter of 2022 of $239,433,000, primarily due to lower revenue from a few large e-commerce customers and broader macroeconomic softness. 21 Table of Content Gross Margin Gross margin as a percentage of revenue decreased to 72% in 2022 compared to 73% in 2021.
Added
During the integration period, Cognex is consolidating Moritex results one month in arrears, and therefore, revenue for the fourth quarter of 2023 included six weeks of Moritex revenue totaling approximately $7,000,000. The majority of this revenue was from customers based in Asia in similar industries as Cognex’s historical revenue.
Removed
As of the date of this report, we expect gross margin as a percentage of revenue for the first quarter of 2023 to be in the low-70% range, primarily as a result of the significant premiums the Company has paid to replenish inventories lost in the fire at our primary contract manufacturer's plant on June 7, 2022.
Added
The decrease in revenue was due primarily to lower spending trends across our factory automation business, most notably in the consumer electronics and semiconductor industries, and the continued pause in investments by a few large e-commerce logistics customers. Revenue from the automotive industry, our largest market in both 2023 and 2022, decreased approximately 6% from the prior year.
Removed
In addition, we consider our ability to accelerate the time to market for new products to be critical to our revenue growth and competitive position.
Added
Although automotive revenue related to investment in electric vehicle battery applications grew year-over-year, this increase was more than offset by lower automotive revenue outside of electric vehicle battery applications. Revenue from the logistics industry decreased approximately 21% from the prior year.
Removed
This annual percentage is impacted by revenue levels and investing cycles. 22 Table of Content Selling, General, and Administrative Expenses Selling, general, and administrative (SG&A) expenses increased in 2022 by $2,753,000, or 1%, from the prior year as detailed in the table below (in thousands).
Added
Excluding the decreases in revenue from a few large e-commerce customers, revenue from the remainder of the logistics industry grew, as the broader base of logistics customers continued to invest in automation. Revenue from the consumer electronics industry decreased approximately 31% from the prior year, with a large portion of the decrease coming from lower large-customer demand.
Removed
As of December 31, 2022 and through the date of financial statement issuance, management cannot yet estimate additional recoveries that could be available from the contract manufacturer. Any future, additional recoveries in excess of recognized losses will be treated as gain contingencies and will be recognized when the gain is realized or realizable.
Added
The following table sets forth our disaggregated revenue information by geographic area based on the customers' country of domicile (in thousands) for the years ended December 31, 2023 and 2022.
Removed
Year Ended December 31, 2021 Compared to Year Ended December 31, 2020 Revenue Revenue for the year ended December 31, 2021 was $1,037,098,000 compared to $811,020,000 for the prior year, representing an increase of 28%.
Added
Twelve-months Ended December 31, 2023 December 31, 2022 $ Change % Change Americas $ 330,415 $ 390,573 $ (60,158) (15) % Percentage of total revenue 39 % 39 % Europe $ 220,665 $ 234,643 $ (13,978) (6) % Percentage of total revenue 26 % 23 % Greater China $ 164,115 $ 227,447 $ (63,332) (28) % Percentage of total revenue 20 % 23 % Other Asia $ 122,352 $ 153,427 $ (31,075) (20) % Percentage of total revenue 15 % 15 % Total revenue $ 837,547 $ 1,006,090 $ (168,543) (17) % Changes in revenue from a geographic perspective were as follows: • Revenue from customers based in the Americas decreased by 15% from the prior year driven by lower revenue in the logistics industry due to the continued pause in investments by a few large e-commerce customers.
Removed
Revenue from customers in the logistics industry increased by approximately 65% from the prior year, with the most significant portion of this growth coming from e-commerce and omni-channel retailers. Higher sales from traditional brick-and-mortar retailers also contributed to growth in the logistics industry.
Added
Revenue from industries outside of logistics also declined from the prior year, most notably in medical-related industries that had benefited from COVID-related applications in prior years. • Revenue from customers based in Europe decreased by 6% from the prior year. Changes in foreign currency exchange rates resulted in a higher level of reported revenue in 2023, as the U.S.
Removed
Growth in the automotive, semiconductor, medical-related, and consumer products industries also contributed to the increase in total revenue. After declining for two consecutive years, revenue from customers in the automotive industry grew faster than the company average in 2021, due in part to electric vehicle investments.
Added
Changes in foreign currency exchange rates resulted in a lower level of reported revenue in 2023, primarily from sales denominated in Japanese Yen and Korean Won. Excluding the impact of foreign currency exchange rate changes, revenue from other countries in Asia decreased by 17% from the prior year.
Removed
These increases were partially offset by a decrease in revenue from customers in the consumer electronics industry due to lower investment in smartphone manufacturing and other devices that we believe benefited from remote work conditions in 2020.
Added
The decrease was driven by lower 22 Table of Content revenue in the semiconductor and consumer electronics industries, and, to a lesser extent, the automotive industry. Revenue from Moritex customers based in Japan in the fourth quarter of 2023 was not material to the overall trend in the other countries in Asia region that includes Japan.

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Item 7A. Quantitative and Qualitative Disclosures About Market Risk

Market Risk — interest-rate, FX, commodity exposure

10 edited+3 added−3 removed6 unchanged
Biggest changeThe Company had the following outstanding forward contracts (in thousands): December 31, 2022 December 31, 2021 Currency Notional Value USD Equivalent High Rate Low Rate Notional Value USD Equivalent High Rate Low Rate Derivatives Not Designated as Hedging Instruments: Euro 60,000 $ 64,174 0.9350 0.9350 65,000 $ 73,748 0.8814 0.8814 Mexican Peso 185,000 9,480 19.51 19.51 140,000 6,842 20.46 20.46 Chinese Renminbi 55,000 7,619 7.22 7.22 54,374 8,500 6.40 6.40 Japanese Yen 700,000 5,281 132.56 132.56 600,000 5,213 115.10 115.10 Hungarian Forint 1,590,000 4,238 375.19 375.19 1,355,000 4,155 326.11 326.11 British Pound 3,445 4,161 0.8279 0.8279 3,370 4,552 0.7403 0.7403 Canadian Dollar 1,730 1,278 1.35 1.35 1,480 1,167 1.27 1.27 Swiss Franc 1,120 1,218 0.92 0.92 — — — — A change in foreign currency exchange rates could materially impact the fair value of these contracts; however, if this occurred, the fair value of the underlying exposures hedged by the contracts would change by a similar amount.
Biggest changeThe Company enters into economic hedges utilizing foreign currency forward contracts with maturities of up to three months to manage the exposure to fluctuations in foreign currency exchange rates arising primarily from foreign-denominated receivables and payables. 30 Table of Content The Company had the following outstanding forward contracts as of December 31, 2023 and 2022 (in thousands): December 31, 2023 December 31, 2022 Currency Notional Value USD Equivalent High Rate Low Rate Notional Value USD Equivalent High Rate Low Rate Derivatives Not Designated as Hedging Instruments: Euro 40,000 $ 44,302 0.9029 0.9029 60,000 $ 64,174 0.9350 0.9350 Singapore Dollar 39,700 30,136 1.32 1.32 — — — — Mexican Peso 145,000 8,505 17.05 17.05 185,000 9,480 19.51 19.51 Chinese Renminbi 50,000 7,025 7.12 7.12 55,000 7,619 7.22 7.22 Hungarian Forint 2,240,000 6,466 346.45 346.45 1,590,000 4,238 375.19 375.19 British Pound 3,345 4,258 0.7855 0.7855 3,445 4,161 0.8279 0.8279 Japanese Yen 600,000 4,255 141.02 141.02 700,000 5,281 132.56 132.56 Canadian Dollar 1,470 1,112 1.32 1.32 1,730 1,278 1.35 1.35 Swiss Franc — — 0 0 1,120 1,218 0.92 0.92 A change in foreign currency exchange rates could materially impact the fair value of these contracts; however, if this occurred, the fair value of the underlying exposures hedged by the contracts would change by a similar amount.
Dollar strengthens in relation to these foreign currencies, we would expect to report a net decrease in operating income. Conversely, in times when the U.S. Dollar weakens in relation to these foreign currencies, we would expect to report a net increase in operating income. Thus, changes in the relative strength of the U.S.
Conversely, in times when the U.S. Dollar weakens in relation to these foreign currencies, we would expect to report a net increase in operating income. Thus, changes in the relative strength of the U.S. Dollar may have a material impact on our operating results.
Dollar may have a material impact on our operating results. Interest Rate Risk The Company’s investment portfolio of debt securities includes corporate bonds, asset-backed securities, treasury bills, agency bonds, sovereign bonds, and municipal bonds. Debt securities with original maturities greater than three months are designated as available-for-sale and are reported at fair value.
Interest Rate Risk The Company’s investment portfolio of debt securities includes corporate bonds, treasury notes, asset-backed securities, and sovereign bonds. Debt securities with original maturities greater than three months are designated as available-for-sale and are reported at fair value.
Given the relatively short maturities and investment-grade quality of the Company’s portfolio of debt securities as of December 31, 2022, a sharp rise in interest rates should not have a material adverse effect on the fair value of these instruments. As a result, the Company does not currently hedge these interest rate exposures.
Given the relatively short maturities and investment-grade quality of the Company’s portfolio of debt securities as of December 31, 2023, we do not expect a sharp rise in interest rates to have a material adverse effect on the fair value of these instruments.
Dollar, and we expect sales denominated in foreign currencies to continue to represent a significant portion of our total revenue. While we also have expenses denominated in these same foreign currencies, the impact on revenues has historically been, and is expected to continue to be, greater than the offsetting impact on expenses. Therefore, in times when the U.S.
While we also have expenses denominated in these same foreign currencies, the impact on revenues has historically been, and is expected to continue to be, greater than the offsetting impact on expenses. Therefore, in times when the U.S. Dollar strengthens in relation to these foreign currencies, we would expect to report a net decrease in operating income.
To the extent that these forecasts are overstated or understated during periods of currency volatility, we could experience unanticipated foreign currency gains or losses that could have a material impact on our results of operations.
To the extent that these forecasts are overstated or understated during periods of currency volatility, we could experience unanticipated foreign currency gains or losses that could have a material impact on our results of operations. Furthermore, our failure to identify new exposures and hedge them in an effective manner may result in material foreign currency gains or losses.
As of December 31, 2022, the fair value of the Company’s portfolio of debt securities amounted to $672,876,000 with amortized cost amounts totaling $699,693,000, maturities that do not exceed six years, and a yield to maturity of 1.94%.
As of December 31, 2023, the fair value of the Company’s portfolio of debt securities amounted to $373,622,000, with amortized cost amounts totaling $383,589,000, maturities that do not exceed seven years, and a yield to maturity of 2.3%.
The following table presents the hypothetical change in the fair value of the Company’s portfolio of debt securities arising from selected potential changes in interest rates (in thousands).
As a result, the Company does not currently hedge these interest rate exposures. 31 Table of Content The following table presents the hypothetical change in the fair value of the Company’s portfolio of debt securities arising from selected potential changes in interest rates (in thousands).
Dollar, a significant portion of our revenues and expenses are denominated in the Euro and Chinese Renminbi, and to a lesser extent the Japanese Yen, Korean Won, and Mexican Peso. We estimate that approximately 52% of our sales in 2022 were invoiced in currencies other than the U.S.
The Company’s functional currency/reporting currency exchange rate exposures result from revenues and expenses that are denominated in currencies other than the U.S. Dollar. In addition to the U.S. Dollar, a significant portion of our revenues and expenses are denominated in the Euro and Chinese Renminbi, and to a lesser extent the Korean Won, Japanese Yen, Mexican Peso, and Indian Rupee.
The Company’s investment policy allows investment in debt securities with effective maturities up to ten years, however as of December 31, 2022, 77% of the investment portfolio has effective maturity dates of less than three years.
As of December 31, 2023, 68% of the investment portfolio had effective maturity dates of less than three years.
Removed
The Company enters into economic hedges utilizing foreign currency forward contracts with maturities of up to 3 months to manage the exposure to fluctuations in foreign currency exchange rates arising primarily from foreign-denominated receivables and payables.
Added
We estimate that approximately 52% of our sales in 2023 were invoiced in currencies other than the U.S. Dollar, and we expect sales denominated in foreign currencies to continue to represent a significant portion of our total revenue.
Removed
Furthermore, our failure to identify new exposures and hedge them in an effective manner may result in material foreign currency gains or losses. 30 Table of Content The Company’s functional currency/reporting currency exchange rate exposures result from revenues and expenses that are denominated in currencies other than the U.S. Dollar. In addition to the U.S.
Added
In July 2023, the Company’s investment policy was modified to reduce effective maturities of newly purchased securities to up to five years. As of December 31, 2023, the Company held investments with maturities in excess of the five-year limit that were approved as pre-existing exceptions to the new policy.
Removed
Type of security Valuation of securities given an interest rate decrease No change in interest rates Valuation of securities given an interest rate increase (100 BP) (50 BP) 50 BP 100 BP Corporate bonds $ 547,596 $ 543,045 $ 538,495 $ 533,945 $ 529,394 Asset-backed securities 61,450 60,939 60,429 59,918 59,407 Treasury bills 56,485 56,016 55,546 55,077 54,608 Agency bonds 16,126 15,992 15,858 15,724 15,590 Sovereign bonds 1,956 1,940 1,924 1,907 1,891 Municipal bonds 635 630 624 619 614 $ 684,248 $ 678,562 $ 672,876 $ 667,190 $ 661,504 31 Table of Content
Added
Type of security Valuation of securities given an interest rate decrease No change in interest rates Valuation of securities given an interest rate increase (100 BP) (50 BP) 50 BP 100 BP Corporate bonds $ 314,317 $ 311,567 $ 308,816 $ 306,066 $ 303,316 Treasury notes 44,298 43,911 43,523 43,135 42,748 Asset-backed securities 19,658 19,486 19,314 19,142 18,970 Sovereign bonds 2,003 1,986 1,969 1,951 1,933 $ 380,276 $ 376,950 $ 373,622 $ 370,294 $ 366,967 32 Table of Content

Other CGNX 10-K year-over-year comparisons