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What changed in COGNEX CORP's 10-K — 2023 vs 2024

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Paragraph-level year-over-year comparison of COGNEX CORP's 2023 and 2024 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 2024 report.

+243 added−336 removedSource: 10-K (2025-02-13) vs 10-K (2024-02-15)

Top changes in COGNEX CORP's 2024 10-K

243 paragraphs added · 336 removed · 195 edited across 9 sections

Item 1. Business

Business — how the company describes what it does

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Biggest changeWe 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.
Biggest changeWe expect this sales investment to expand our reach, increase penetration, and further diversify our customer base. Expansion of market position We continue to invest in our core markets, such as logistics, automotive, and consumer electronics, where we are a leading provider of vision and ID products for warehouse and factory automation.
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.
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, Japanese Yen, Korean Won, Indian Rupee, and Mexican Pesos.
Culture and Values We pride ourselves on having a unique culture that exemplifies our motto of Work Hard, Play Hard, Move Fast . Our culture guides the actions and behaviors of our Cognoids and is defined by our ten values - Customer First, Excellence, Perseverance, Enthusiasm, Creativity, Pride, Integrity, Recognition, Sharing, and Fun .
We pride ourselves on having a unique culture that exemplifies our motto of Work Hard, Play Hard, Move Fast . Our culture guides the actions and behaviors of our Cognoids and is defined by our ten values - Customer First, Excellence, Perseverance, Enthusiasm, Creativity, Pride, Integrity, Recognition, Sharing, and Fun .
We believe new devices will be difficult to manufacture on a large scale, and therefore will require more innovative vision products in that process. Cognex has close relationships with the largest and most sophisticated companies in the consumer electronics market, and we expect to be a partner of choice as they bring new technologies to market.
We believe new devices will be difficult to manufacture on a large scale, and therefore will require more innovative vision products in that process. Cognex has close relationships with the largest and most sophisticated companies in the consumer electronics market, and we expect to be a partner of choice as they bring new products to market.
Cognex’s reports filed with, or furnished to, the SEC are also available at the SEC’s website at www.sec.gov. Cognex has used, and intends to continue to use, its investor relations website as means of disclosing material non-public information and for complying with our disclosure obligations under Regulation FD.
Cognex’s reports filed with, or furnished to, the SEC are also available at the SEC’s website at www.sec.gov. Cognex has used, and intends to continue to use, its investor relations website as a means of disclosing material non-public information and for complying with our disclosure obligations under Regulation FD.
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.
Lenses and lighting are also available in both embedded and component formats to provide high-quality image acquisition, including a range 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.
Sales Channels and Support Services Cognex sells its products through a worldwide direct sales force that primarily focuses on the development of strategic accounts which generate or are expected to generate significant sales volume, as well as through a global network of distribution and integration partners.
Sales Channels and Support Services Cognex sells its products through a worldwide direct sales force that primarily focuses on the development of strategic accounts that generate or are expected to generate significant sales volume, as well as through a global network of distribution and integration partners.
ITEM 1: BUSINESS Our Company Cognex Corporation (“the Company” or “Cognex”) invents and commercializes technologies that address some of the most critical manufacturing and distribution challenges. We are a leading global provider of machine vision products and solutions that improve efficiency and quality in a wide range of businesses across attractive industrial end markets.
ITEM 1: BUSINESS Our Company Founded in 1981, Cognex Corporation (“the Company” or “Cognex”) invents and commercializes technologies that address some of the most critical manufacturing and distribution challenges. We are a leading global provider of machine vision products and solutions that improve efficiency and quality in a wide range of businesses across attractive industrial end markets.
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.
We believe our e-commerce logistics business is differentiated by the high performance of our barcode 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.
Products and Technology Cognex offers a full range of machine vision systems and sensors, vision software, and industrial image-based barcode readers designed to meet customer needs at different performance and price points. Our products range from deep learning solutions that solve complex applications with unpredictable defects and deviations, to lower-cost vision sensors that conduct simple presence/absence inspections.
Products and Technology Cognex offers a full range of machine vision systems and sensors, vision software, and barcode readers designed to meet customer needs at different performance and price points. Our products range from deep learning solutions that solve complex applications with unpredictable defects and deviations, to lower-cost vision sensors that conduct simple presence/absence inspections.
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.
Our product portfolio meets the 3 Table of Content 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.
We reach a broad base of customers through our worldwide direct sales force that sells primarily to large, strategic customers, as well as through our network of distributors and integrators that sell primarily to smaller customers who may be more geographically remote or may require supplemental technical support or integration assistance.
Increase of sales coverage We reach a broad base of customers through our worldwide direct sales force that sells primarily to large customers, as well as through our network of distributors and integrators that sell primarily to smaller customers who may be more geographically remote or may require integration assistance or supplemental technical support.
Our products have a variety of physical forms, depending on the user's needs. For example, customers can purchase vision software to use with their own camera and processor, or they can purchase a standalone unit that combines camera, processor, and software into a single package.
Our products have a variety of physical forms, depending on the user's needs. For example, customers can purchase vision software to use with their own camera and processor, or they can purchase a standalone system that combines imager, processor, and software into a single package.
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.
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 AI, including rule-based coding, as well as deep learning and edge learning technology leveraging pre-trained models powered by neural networks.
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.
From value solutions to high-performance hardware, Cognex offers industrial cameras, lenses, lighting, vision controllers, frame grabbers, and I/O cards to meet customer requirements. 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.
Our solutions blend physical products and software to capture and analyze visual information, allowing for the automation of manufacturing and distribution tasks for customers worldwide. Machine vision products are used to automate the manufacturing or distribution and tracking of discrete items, such as mobile phones, electric vehicle batteries, and e-commerce packages, by locating, identifying, inspecting, and measuring them.
Our solutions blend physical products and software to capture and analyze visual information, allowing for the automation of manufacturing and distribution tasks for customers worldwide. Machine vision products are used to automate the manufacturing or distribution and tracking of discrete items, such as mobile phones, automotive components, and e-commerce packages, by locating, identifying, inspecting, and measuring them.
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.
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.
Machine vision is particularly valuable for applications in which human vision is inadequate to meet requirements for size, accuracy, or speed, or in instances where substantial cost savings are obtained through the reduction of labor or improved product quality. Cognex operates in one segment.
Machine vision is particularly valuable for applications in which human vision is inadequate to meet requirements for size, accuracy, or speed, or in instances where substantial cost savings are obtained through the reduction of labor or improved product quality.
We invest in technology that addresses the most challenging vision applications, such as our deep learning vision software that solves complex applications with unpredictable defects and deviations.
We also continue to invest in technology that addresses the most challenging vision applications, such as our deep learning vision software that solves complex applications with unpredictable defects and deviations.
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.
We incurred RD&E costs of approximately $140 million (15% of revenue), $139 million (17% of revenue), and $141 million (14% of revenue), for the years ended December 31, 2024, 2023, and 2022, 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.
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.
Today, most applications in logistics are centered around barcode reading. Beyond barcode reading, we expect vision applications in logistics to grow quickly and become a more substantial part of our business. Vision applications include tasks such as inspecting packages for damage, object and symbol recognition, and dimensioning.
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.
Sales to customers based outside of the United States represented approximately 67% of our total revenue in 2024, with approximately 24% from customers based in Europe, approximately 18% from customers based in Greater China, and approximately 25% from customers based in other regions outside the United States. Sales to customers based in Europe are denominated in Euros and U.S.
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.
We invest in technology that makes vision easier to use and more affordable, and therefore, available to a broader base of customers, such as our edge learning products that enable customers with less technical capabilities to use machine vision while minimizing installation and applications support.
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.
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.
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.
As of December 31, 2024, Cognex employed 2,914 Cognoids globally, including 1,586 in sales, marketing, and service activities; 653 in research, development, and engineering; 435 in manufacturing and quality assurance; and 240 in information technology, finance, and administration. Of our 2,914 Cognoids, 1,949 are based outside of the United States.
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.
Cognex ships finished products for customers located in the Americas from our Southborough, Massachusetts distribution center, for 4 Table of Content customers located in Europe from our Cork, Ireland distribution center, and for customers located in Asia from our Singapore distribution center.
Cognex’s primary contract manufacturer is located in Indonesia. Our contract manufacturers use specified components sourced from vendor lists approved by Cognex and assembly/test processes created and controlled by Cognex.
We purchase assembled goods from our contract manufacturers, who use specified components sourced from vendor lists approved by Cognex and assembly/test processes created and controlled by Cognex.
Similar to our deep learning-based systems, our edge learning-based systems use pre-trained models, but on simpler applications that prioritize ease of use and have a broader appeal with easier and faster implementation and training. 3 Table of Content Vision Software Vision software offers customers the flexibility of the Cognex® vision tools library to use with the cameras, frame grabbers, and peripheral equipment of their choice.
Similar to our deep learning-based systems, our edge learning-based systems use pre-trained models, but on simpler applications that prioritize ease of use and have a broader appeal with easier and faster implementation and training.
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 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. 5 Table of Content 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.
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.
As labor becomes more costly and scarce, these customers are looking for productivity initiatives to automate their processes. We also expect leading companies in this space to continue to grow based on new technologies and the devices that incorporate them.
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.
Geographically, our logistics business started primarily in the United States, but has diversified into Europe and Asia, where we believe customers are beginning to catch up with the United States in logistics automation technology and are reducing share with local incumbent suppliers.
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.
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.
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.
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. 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.
Cognex VisionPro® software offers an extensive suite of patented vision tools, including both traditional rule-based tools and deep learning-enabled tools, for advanced programming. Its QuickBuild™ prototyping environment allows customers to build complete vision applications with the simplicity of a graphical flowchart-based programming interface.
Vision Software Vision software offers customers the flexibility of the Cognex vision tools library to use with the cameras, frame grabbers, and peripheral equipment of their choice. Cognex VisionPro® software offers an extensive suite of patented vision tools, including both traditional rule-based tools and deep learning-enabled tools, for advanced programming.
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.
Inorganic growth We plan to drive inorganic growth through deeper penetration of our served machine vision market and expansion in adjacent 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 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.
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. We plan to continue to seek high-return, EPS-accretive acquisition opportunities to expand our product lines, customer base, distribution network, and technical talent.
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.
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.
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.
Operations Most of Cognex’s hardware products, including our vision systems, vision sensors, and barcode readers, are manufactured utilizing third-party contractors, whereby the majority of component procurement, system assembly, and initial testing are performed by electronics manufacturing services suppliers. Cognex’s primary contract manufacturers are located in Indonesia and Malaysia.
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.
Other end market uses of Cognex machine vision include regulated manufacturers reducing counterfeiting, food producers improving food safety, and manufacturers using 3D measurement for robotic guidance. Our Business Strategies Historically, Cognex has been a leader in providing the most powerful machine vision technology to the most sophisticated customers and solving their most challenging automation problems.
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.
Cognex sells to customers in nearly all industries in which discrete items are manufactured on an assembly line or moved through a distribution center or warehouse. Our largest industries by revenue are the logistics, automotive, and consumer electronics industries, which combined represented approximately 60% of our total revenue in 2024.
Our competitors include 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 from various companies.
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 AI. Human Capital Our employees are our most valuable asset and are critical to our success.
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.
Our Industry and Market Opportunity 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 logistics provider can achieve better quality and efficiency by using machine vision.
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.
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 for example, we are moving beyond barcode reading into more complex applications in distribution centers and parcel and post warehouses.
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.
Automotive The automotive market has been one of our largest markets for the past twenty 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.
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.
In 2023, we began investing more aggressively to expand our direct 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.
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.
We believe that these manufacturers are positioned to grow within Asia, and to expand both independently and through partnerships in the Americas and Europe. We expect our existing relationships and proven offerings to position us to capture a significant share of this growth.
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.
Its QuickBuild™ prototyping environment allows customers to build complete vision applications with the simplicity of a graphical flowchart-based programming interface. 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 logistics, automotive, consumer products, and medical-related.
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.
Leading e-commerce players invested significantly in late 2020 through early 2022, then took a post-pandemic “time out” to absorb 1 Table of Content excess capacity from early 2022 into 2023, and began investing at a steadier pace in 2024. We believe that logistics has the potential to be our highest-growth end market over the mid to long-term.
We expect our Emerging Customer strategy to broaden our reach, increase penetration, and further diversify our customer base. Growth through innovation We invest heavily in research and development to maintain our position as a technology leader in machine vision.
Our goal is to expand our business with these customers by offering tailored products and increasing our sales coverage. 2 Table of Content Growth through innovation We invest heavily in research and development to maintain our position as a technology leader in machine vision.
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.
Training services include a variety of product courses that are available at our offices worldwide, at customer facilities, and online. Competition Cognex is one of the leading machine vision companies in the world. Our competitors include other vendors of machine vision systems, controllers, and components; manufacturers of image processing systems, sensors, and components; and system integrators.
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.
This results in a broad base of customers across a variety of industries, including logistics, automotive, consumer electronics, semiconductor, consumer products, medical-related, and food and beverage. Our End Markets Logistics The logistics industry demands high-speed, efficient throughput combined with end-to-end supply chain traceability. Consumers expect fast and cost-effective fulfillment.
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Cognex’s ability to compete depends on our ability to design new products and functionality that meet evolving customer requirements, and then to manufacture and sell those high-quality products in a timely manner. The primary competitive factors affecting the choice of a machine vision system include product functionality and performance, ease of use, vendor reputation, price, and post-sales support.
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Retail distributors, e-commerce platforms, and parcel processing customers face an ongoing tight labor market, increased demand, and increased costs.
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The 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.
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To address these challenges, organizations are increasingly deploying automated traceability , dimensioning , and detection solutions featuring Cognex machine vision, including barcode reading and AI-enabled vision technology, either directly or with the help of partners, such as an original equipment manufacturer ("OEM"), machine builder, or system integrator.
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We plan to continue to seek acquisition opportunities to expand our product lines, customer base, distribution network, and technical talent.
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We also anticipate a multi-year wave of investment in hybrid and electric vehicle (“EV”) manufacturing equipment, particularly related to battery manufacturing and inspection. Cognex works closely with the major EV battery manufacturers who we believe produce the majority of the world’s automotive batteries.
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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.
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We are also well positioned to continue to support traditional powertrain investments on internal combustion engine vehicles, supporting long-term growth in the automotive market. Consumer Electronics Today, electronic components and devices are difficult to manufacture without machine vision. Machine vision has made it possible to achieve the density of today’s integrated circuits and to manufacture them cost-effectively.
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Our relatively high gross margins have the potential to provide us with strong incremental profit margins, leading to high operating leverage in our financial model.
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Electronics producers and leading OEMs rely on Cognex machine vision , including AI-enabled vision technology, 3D vision , and barcode reading, to build, inspect, and track semiconductors, printed circuit boards, electronic hardware, and consumer devices. We anticipate major investments in new generations of consumer electronics. A significant amount of visual inspection in consumer electronics is still performed manually by humans.
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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.
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Semiconductor Machine vision has made it possible to achieve the density in today’s integrated circuits and to manufacture them cost-effectively.
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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.
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Semiconductor manufacturers rely on Cognex machine vision, including AI-based technology, to ensure precise alignment of wafers during masking and etching processes, increase traceability of wafers and die as they move through the front and back-end processes, and improve product quality through advanced inspection procedures.
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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.
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As AI continues to drive demand for high-end logic process chips with our OEM customers, the overall semiconductor market has the potential for outsized growth in the coming years. Other The number of end markets that can benefit from machine vision applications is expanding.
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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.
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There are thousands of such customers and we believe our market share with these customers is high. There is also a much larger segment of customers with less complex applications and less automation engineering capacity who are looking for more standardized products that are easy to implement and easy to use.
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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.
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We continue to introduce products embedded with artificial intelligence ("AI") technology that augments rule-based machine vision with image-based analysis.
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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.
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We are doing so by adding a new sales engineer profile to our team, ambitious recent college graduates, and are investing in their onboarding and training. These entry-level sales personnel are enabling us to broaden and deepen our sales coverage, make many more, shorter sales calls, and reach more customers.
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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.
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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 selective in choosing businesses and technologies that we believe will enhance long-term growth and profitability.
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Cognex manufactures optical components, including our lenses and lighting, at our in-house production plants located in China and Vietnam that are then stocked in our distribution centers.
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In 2023, we began investing more aggressively to expand our direct sales force to include entry-level sales personnel to sell our easier-to-deploy and easier-to-use products.
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Available Information Cognex maintains a website at www.cognex.com.

Item 1A. Risk Factors

Risk Factors — what could go wrong, per management

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Biggest changeAny such compromise to our information security could result in the distraction of management and diversion of information technology resources, theft of our intellectual property, including software source code, a misappropriation of our cash or other assets, an interruption in our operations, the unauthorized publication of our confidential business or proprietary information, the unauthorized release of customer, vendor, or employee data, and the exposure to litigation or regulatory penalties, any of which could harm our business and operating results.
Biggest changeThese threats pose significant risks to our operations, including: • disruption of operations, system outages, data corruption, and other disruptions, impacting our ability to deliver products and services to our customers, • the distraction of management and diversion of information technology resources, • theft of our intellectual property, including software source code, trade secrets, and other confidential business or proprietary information, • financial losses through fraud, theft of assets, or the costs associated with responding to and mitigating the effects of an attack, • reputation damage and loss of trust among stakeholders as a result of breaches of customer, vendor, or employee data, • litigation, regulatory penalties, and increased compliance costs as a result of data breaches and cybersecurity incidents.
Following a business disruption, the Company could be subject to production downtimes, operational delays, substantial recovery time, customer claims, significant expenditures to resume operations, the diversion of management’s attention and resources, or loss of business, any of which could have a material adverse effect on our competitive position, operating results, or financial condition.
Following a business disruption, the Company could be subject to production downtimes, operational delays, substantial recovery time, customer claims, significant expenditures to resume operations, the diversion of management’s attention and resources, or loss of business, any of which could have a material adverse effect on our competitive position, financial condition, or operating results.
The 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.
The 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, 8 Table of Content • 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.
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.
If we determine that any of these investments or intangible assets are impaired, we will be required to take a related charge 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.
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.
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 ("AI") technology that augments rule-based machine vision with image-based analysis.
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.
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 manufactured by a third-party contractor located in Indonesia.
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.
For example, many countries have 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.
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.
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, gross margins, and operating results.
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.
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, 11 Table of Content • 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.
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.
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 revenue.
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.
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. Our Company may be subject to time-consuming and costly litigation or activist shareholder activities.
While management currently intends to hold these securities to full value recovery at maturity, we may determine to sell these securities prior to maturity to fund our operations, make acquisitions, or for other purposes, which may result in a loss.
While management currently intends to hold these securities to full value recovery at maturity, we may determine to sell these securities prior to maturity to fund our operations, complete acquisitions, or for other purposes, which may result in a loss.
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.
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 AI and transformer-based models, are in high demand and competition for their talents is intense.
In-house manufacturing exposes us to various risks that could adversely impact our business operations and financial condition, including, but not limited to, (i) the health and safety of our employees engaged in manufacturing; (ii) the storage, use, and transportation of hazardous materials utilized in the manufacturing process; and (iii) legal risks related to environmental protection and health and safety laws in all applicable jurisdictions.
In-house manufacturing exposes us to various risks that could 10 Table of Content adversely impact our business operations and financial condition, including, but not limited to, (i) the health and safety of our employees engaged in manufacturing; (ii) the storage, use, and transportation of hazardous materials utilized in the manufacturing process; and (iii) legal risks related to environmental protection and health and safety laws in all applicable jurisdictions.
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 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. Economic, political, and other risks associated with international sales and operations could adversely affect our business and operating results.
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.
If components purchased by our contract manufacturers have not been consumed in our production of 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 manufacturers and later sell them back when they are needed to meet our demand.
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.
This trend may continue as companies attempt to strengthen or hold their market positions in an evolving industry and as 6 Table of Content 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.
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.
Significant judgment is required in determining our worldwide provision for income and other taxes. The 12 Table of Content application of tax laws and regulations is subject to legal and factual interpretation, judgment, and uncertainty, and tax laws themselves are subject to change.
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.
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.
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.
Our business, and the businesses of our customers, suppliers, and third-party service providers, could be disrupted by natural disasters, such as extreme weather events and earthquakes, public health crises, such as pandemics and epidemics, man-made disasters, such as terrorism and industrial accidents, or other events outside of our control.
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.
Any failure, or perceived failure, to 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, financial condition, operating results, stock price, and ability to operate in certain geographic regions.
Since 2022, we have been scaling up an additional contract manufacturer located in Malaysia, which is expected to further mitigate risk, diversify supply chain, and expand production capacity. With the acquisition of Moritex Corporation in the fourth quarter of 2023, we began in-house manufacturing of optical components, such as lenses and lighting, in production plants located in Vietnam and China.
Since 2022, we have been scaling up an additional contract manufacturer located in Malaysia, which has further mitigated risk, diversified our supply chain, and expanded our production capacity. With the acquisition of Moritex Corporation in the fourth quarter of 2023, we began in-house manufacturing of optical components, such as lenses and lighting, in production plants located in China and Vietnam.
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.
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.
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.
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 Cognex products utilize components that are available from only one source.
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.
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 manufacture optical components at in-house production plants located in China and Vietnam.
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.
We use time-based and performance-based equity awards, including stock options and restricted stock units ("RSUs"), including performance restricted stock units ("PRSUs"), 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.
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 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 through the first half of 2023.
Additionally, the Company, the technology industry, and the overall stock market have, from time to time, experienced extreme stock price and volume fluctuations that have affected stock prices in ways that may have been unrelated to these companies’ operating performance.
Additionally, the Company, the technology industry, and the overall stock market have, from time to time, experienced extreme stock price and volume fluctuations that have affected stock prices in ways that may have been unrelated to these companies’ operating performance. We believe the price of our stock should reflect expectations for future growth and profitability.
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.
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.
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.
As a result, our business is subject to the risks inherent in international sales and operations, including, among other things: 7 Table of Content • various regulatory and statutory requirements, • export and import restrictions, including trade sanctions, • trade tariffs, • transportation delays, • product certification requirements, • employment regulations and local labor conditions, • corruption, • difficulties protecting intellectual property, • varying data protection and privacy laws, • business systems connectivity issues, • gains and losses associated with foreign currency exposures, • difficulties injecting and repatriating cash, and • potentially adverse tax consequences.
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.
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.
These assets are susceptible to changes in fair value due to a decrease in the historical or projected cash flows from the use of these assets, which may be negatively impacted by economic trends.
The majority of these intangible assets were recorded in the fourth quarter of 2023 when Cognex acquired Moritex Corporation. These assets are susceptible to changes in fair value due to a decrease in the historical or projected cash flows from the use of these assets, which may be negatively impacted by economic trends.
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.
Certain facets 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.
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.
As of December 31, 2024, we had approximately $587 million in cash and investments. 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.
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.
This could have a material adverse effect on our revenue, gross margins, and operating results. If we fail to attract and retain key talent, effectively plan for succession, and maintain our unique corporate culture, our business and operating results could suffer.
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.
As of December 31, 2024, we had approximately $401 million of debt securities in our investment portfolio. 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). As of December 31, 2024, our portfolio of debt securities had a net unrealized loss of $4,904,000.
Nevertheless, our operating results have been materially adversely affected in the past, and could be materially adversely affected in the future, as a result of unfavorable economic conditions and reduced capital spending by manufacturers and logistics companies worldwide.
Nevertheless, our operating results have been materially adversely affected in the past, and could be materially adversely affected in the future, as a result of unfavorable economic conditions and reduced capital spending by manufacturers and logistics companies worldwide. 13 Table of Content Natural disasters, widespread public health crises, and man-made disasters could result in business disruptions that may adversely affect our business and operating results.
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.
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.
Privacy and data security have become significant issues in the United States, Europe, and in many other jurisdictions where we conduct or may in the future conduct our operations.
We are subject to a variety of United States and international laws, rules, policies, and other obligations regarding data protection and security breaches. Privacy and data security have become significant issues in the United States, Europe, and in many other jurisdictions where we conduct or may in the future conduct our operations.
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.
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 or liquidity in the period in which the determination is made.
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.
Although we are taking certain actions to mitigate supply risk and have entered into agreements 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.
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.
Any of these results could have a material adverse effect on our operating results. Risks Related to Financial Performance The loss of, or significant curtailment of purchases by, large customers could have an adverse effect on our business. Over the past few years, we had two customers that represented 10% or more of our total revenue.
Furthermore, we are subject to regular review and audit by both domestic and foreign tax authorities and may be assessed additional taxes, penalties, fees, or interest, which could have a material adverse effect on our financial position, liquidity, or results of operations.
Furthermore, we are subject to regular review and audit by both domestic and foreign tax authorities and may be assessed additional taxes, penalties, fees, or interest.
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.
Included in this net loss, were gross unrealized losses totaling $5,317,000, of which $2,118,000 related to debt securities in a loss position for greater than twelve months. 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.
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.
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. New regulations may require us to further modify certain of our information practices and could subject us to additional compliance costs.
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.
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, damage our reputation, inhibit sales, and adversely affect our business, financial condition, and operating results.
While we typically expect these components to be consumed in the production of our finished goods, this arrangement may expose us to an increased risk of excess or obsolete inventory and resulting charges. Disruptions to one of our distribution centers could adversely affect our operating results.
While we typically expect these components to be consumed in the production of our finished goods, this arrangement may expose us to an increased risk of excess or obsolete inventory and resulting charges. We source components from preferred vendors that are selected based on price, quality and performance considerations.
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.
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.
An escalation of the China-Taiwan conflict could result in challenges procuring integrated circuit chips from Taiwan-based vendors. Although we are taking steps to mitigate this risk, including purchasing chips in advance of demand, there can be no assurance that these steps will be successful in securing an adequate supply of chips at our current cost structure.
Although we are taking steps to mitigate this risk, including purchasing chips in advance of demand, there can be no assurance that these steps will be successful in securing an adequate supply of chips at our current cost structure. Furthermore, purchasing inventory in advance of demand may expose us to increased risk of excess and obsolete inventory and resulting charges.
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. In addition, our failure to identify new exposures and hedge them in an effective manner may result in material foreign currency gains or losses.
The success of our foreign currency risk management program depends on forecasts of transaction activity denominated in various currencies. 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.
If the counterparty to any of our hedging arrangements experiences financial difficulties, or is otherwise unable to honor the terms of the contract, we may experience material losses. The success of our foreign currency risk management program depends on forecasts of transaction activity denominated in various currencies.
If the counterparty to any of our hedging arrangements experiences financial difficulties, or is otherwise unable to honor the terms of the contract, we may experience material losses. We may enter into other types of financial instruments in the future to mitigate our foreign currency risk as we deem appropriate.
It is our policy to invest in investment-grade debt securities that minimize our exposure to credit losses; however, no assurances can be made that we will not incur credit losses with respect to our securities portfolio. No credit losses were recorded in 2023.
It is our policy to invest in investment-grade debt securities that minimize our exposure to credit losses; however, no assurances can be made that we will not incur credit losses with respect to our securities portfolio. As of December 31, 2024, we had approximately $91 million in acquired intangible assets, consisting primarily of customer relationships and completed technologies.
The price of the Company’s stock is subject to volatility. We have experienced substantial stock price volatility in the past and may continue to do so in the future.
Stakeholder expectations and priorities continue to change. We cannot guarantee that we will achieve our environmental, social, and governance goals or commitments. The price of the Company’s stock is subject to volatility. We have experienced substantial stock price volatility in the past and may continue to do so in the future.
In addition, competitive pressures could lead to price erosion that could have a material adverse effect on our gross margins and operating results. 6 Table of Content Further, in recent years, we have seen some examples of industry consolidation in our markets.
This could result in decreased market share, reduced pricing power, and a material adverse effect on our revenue, gross margins, and operating results. Further, in recent years, we have seen some examples of industry consolidation in our markets.
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. For example, on June 7, 2022, our primary contract manufacturer experienced a fire at its plant in Indonesia which destroyed a significant amount of Cognex inventories.
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.
Responding to environmental, social, and governance disclosure requests and the implementation of associated initiatives involves risks and uncertainties, requires investments, and depends in part on third-party performance or data that is outside of our control. Initiatives related to climate performance may be dependent upon the availability of alternative energy sources and evolving procurement practices.
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.
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 AI. In recent years, advancements in AI, particularly the availability of sophisticated AI algorithms and open-source machine vision platforms, have lowered the barriers to entry in our market.
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.
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.
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.
In addition, 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. Increased competition may result in decreased demand or prices for our products and services and may harm our operating results.
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.
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 2023, we began investing more aggressively to expand our direct sales force to include entry-level sales personnel to sell our easier-to-deploy and easier-to-use products.
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.
Challenges in obtaining favorable funding may delay, reduce, or eliminate certain business activities or growth initiatives, which could adversely affect our financial condition and operating results. 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.
Our security measures or those of our third-party service providers may not detect or prevent such breaches.
Our security measures or those of our third-party service providers may not detect or prevent such breaches. Cybersecurity threats are becoming increasingly sophisticated and frequent, with attackers employing new and varied methods such as ransomware, phishing, and advanced persistent threats.
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.
While we maintain insurance coverage for certain types of losses, such insurance coverage may be insufficient to cover all losses that may arise. The impact of any such business disruption on the Company is difficult to predict and will depend on the severity of the event and resulting governmental, community, and business actions.
Our revenue levels are impacted by global economic conditions, as we have a significant business presence in many countries throughout the world.
In addition, our failure to identify new exposures and hedge them in an effective manner may result in material foreign currency gains or losses. 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 failure to properly manage the distribution of our products and services could result in the loss of revenues and profits. We utilize a direct sales force, as well as a network of distribution and integration partners, to sell our products and services.
We utilize a direct sales force, as well as a network of distribution and integration partners, to sell our products and services. 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.
The impact of any such business disruption is difficult to predict. 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.
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. Governments, regulators, investors, employees, customers, suppliers, and other stakeholders are increasingly focused on environmental, social, and governance disclosures relating to businesses activities. Performance in this area is driven by transparency, goal setting, and third-party opinion.
Changes in laws or regulations relating to data privacy or data protection, or any actual or perceived failure by us to comply with such laws and regulations, could harm our business. We are subject to a variety of United States and international laws, rules, policies and other obligations regarding data protection and security breaches.
We continuously invest in and enhance our 9 Table of Content cybersecurity measures, including employee training, incident response planning, and collaboration with third-party experts, to mitigate these risks. Changes in laws or regulations relating to data privacy or data protection, or any actual or perceived failure by us to comply with such laws and regulations, could harm our business.
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.
Failing to meet quarterly revenue and earnings expectations due to these seasonal and cyclical trends could negatively impact investor confidence, resulting in stock price volatility and potential reputational damage. 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.
In 2023, approximately 66% of our revenue was derived from customers located outside of the United States. We anticipate that international sales will represent a more significant portion of our revenue in 2024 due to the acquisition of Japan-based Moritex Corporation in the fourth quarter of 2023.
In 2024, approximately 67% of our revenue was derived from customers located outside of the United States.
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.
Adjusting our business and supply chain to comply with new or amended international trade restrictions, sanctions, or tariffs can be expensive, time-consuming, and operationally challenging and may cause our customers to find alternative providers of machine vision products and services.
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Product development is often a complex, time-consuming, and costly process involving significant investment in research and development with no assurance of return on investment. Our strong balance sheet allows us to continue to make significant investments in research, development, and marketing for new products and technologies.
Added
These tools enable new entrants and low-cost providers, particularly in China, to produce vision systems that may perform comparably to our offerings. This commoditization trend intensifies pricing pressures and challenges our ability to differentiate our products solely on performance or features.
Removed
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.
Added
Additionally, large technology companies and other competitors with substantial financial and technological resources may continue to develop and distribute free or low-cost solutions, further eroding market prices. If we fail to effectively respond to these trends through innovation, cost management, or other strategies, our competitive position could weaken.
Removed
In connection with our “Emerging Customer” sales initiative, we are 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, which has resulted, and is expected to continue to result, in increased sales and marketing expenses.
Added
We rely on attracting and retaining talent with these skills to execute our product development plans.
Removed
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.
Added
Our success significantly depends on the continued contributions of our executive officers and other key management personnel. The loss of any of these individuals could materially adversely affect our business, operating results, and financial condition. Effective succession planning is crucial to ensure smooth transitions and maintain business continuity.
Removed
Thus, they may be unwilling or unable to dedicate the resources necessary to promote our products or remain sufficiently trained to provide integration support. In addition, failure of our distributors to adhere to our policies designed to promote compliance with global anti-corruption laws, export controls, and local laws, could subject us to criminal or civil penalties and stockholder litigation.
Added
Failure to attract and retain executive officers and other key management personnel or to implement effective succession planning could have a material adverse effect on our business, reputation, and financial performance. Our failure to properly manage the distribution of our products and services could result in the loss of revenues and profits.

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Item 1C. Cybersecurity

Cybersecurity — threats and controls disclosure

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Biggest changeThe cybersecurity risk management program includes a number of components, including information security program assessments, penetration testing, and threat simulation exercises that are conducted periodically by both internal and external resources, as well as continuous monitoring of critical risks from cybersecurity threats using automated tools.
Biggest changeOur cybersecurity risk 14 Table of Content management program includes a number of components, including information security program assessments, penetration testing, and threat simulation exercises that are conducted periodically by both internal and external resources, as well as continuous monitoring of critical risks from cybersecurity threats using automated tools.
Although such risks have not materially affected us, including our business strategy, results of operations, or financial condition, to date, we have, from time to time, experienced threats to and security incidents related to our data and systems, including denial of service and phishing attacks.
Although such risks have not materially affected us, including our business strategy, results of operations, or financial condition, to date, we have, from time to time, experienced threats and security incidents related to our data and systems, including denial of service and phishing attacks.
The Senior Director of Information Security role is currently held by an individual who has approximately fifteen years of experience managing information security programs. The IS Team is responsible for assessing risks from cybersecurity threats, including their potential business impact and likelihood of occurrence, as well as implementing risk remediations and mitigations.
The Senior Director of Information Security role is currently held by an individual who has over fifteen years of experience managing information security programs. The IS Team is responsible for assessing risks from cybersecurity threats, including their potential business impact and likelihood of occurrence, as well as implementing risk mitigations and remediations.
The IS Team provides reports on cybersecurity risk management processes to the Chief Financial Officer and other leaders of the Company on a quarterly basis, or as potentially critical risks from cybersecurity threats or incidents arise. The IS Team provides reports on an annual basis to the Audit Committee, which oversees cybersecurity risks pursuant to the Audit Committee Charter.
The IS Team provides reports on cybersecurity risk management processes to the Chief Financial Officer and other leaders of the Company on a quarterly basis, or as potentially critical risks from cybersecurity threats or incidents arise. The IS Team provides reports on a semi-annual basis to the Audit Committee, which oversees cybersecurity risks pursuant to the Audit Committee Charter.
During onboarding and periodically thereafter, we conduct trainings for the Company’s employees, contractors, and temporary workers about cybersecurity risks, including sending test phishing emails for training purposes to all users of the Company’s email system.
During onboarding and periodically thereafter, we conduct trainings for the Company’s employees and contractors about cybersecurity risks, including sending test phishing emails for training purposes to all users of the Company’s email system.

Item 2. Properties

Properties — owned and leased real estate

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Biggest changeIn 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.
Biggest changeThis 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 that is currently used as a training center for our sales function.
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.
In 2014, Cognex purchased a 50,000 square-foot building in Cork, Ireland that serves as the distribution center for customers located in Europe. 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.
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.
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.
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.
In 2023, Cognex entered into a lease for a 115,000 square-foot building in Singapore for a term of 10 years and 6 months that serves as the distribution center for customers located in Asia.
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.
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. In 1997, Cognex purchased a three and one-half acre parcel of land adjacent to our corporate headquarters.
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 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.
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.
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.
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. 15 Table of Content Cognex conducts certain of its operations in other leased facilities, predominantly research, development, and engineering, sales, and administration functions.
Removed
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.

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. 17 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. 16 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 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.
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 25 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 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.
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 2024: 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 September 30 - October 27, 2024 119,000 $ 39.45 119,000 $ 304,355,000 October 28 - November 24, 2024 109,000 39.71 109,000 300,007,000 November 25 - December 31, 2024 928,000 36.87 928,000 265,807,000 Total 1,156,000 $ 37.40 1,156,000 $ 265,807,000 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.
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.
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 12/31/2019 in stock or index, including reinvestment of dividends.
The Company’s Board of Directors declared and paid cash dividends of $0.060 per share in the first, second, and third quarters of 2021, $0.065 per share in the fourth quarter of 2021 and in the first, second, and third quarters of 2022, and $0.070 per share in the fourth quarter of 2022 and in the first, second, and third quarters of 2023.
The Company’s Board of Directors declared and paid cash dividends of $0.065 per share in the first, second, and third quarters of 2022, $0.070 per share in the fourth quarter of 2022 and in the first, second, and third quarters of 2023, and $0.075 per share in the fourth quarter of 2023 and in the first, second, and third quarters of 2024.
The Company believes the number of beneficial owners of the Company’s common stock on that date was substantially greater. In October 2018, the Company's Board of Directors authorized the repurchase of $200,000,000 of the Company's common stock.
The Company believes the number of beneficial owners of the Company’s common stock on that date was substantially greater. In March 2020, the Company's Board of Directors authorized the repurchase of $200,000,000 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.
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 26, 2025, there were approximately 600 shareholders of record of the Company’s common stock.
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.
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 Nasdaq Lab Apparatus & Analytical, Optical, Measuring & Controlling Instrument (SIC 3820-3829 US Companies) Index (the “Nasdaq Lab Apparatus Index”).
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.
The dividend was increased to $0.080 per share in the fourth quarter of 2024. Total dividends paid were $52,329,000 in 2024, $49,079,000 in 2023, and $45,921,000 in 2022.
Under this October 2018 program, in addition to repurchases made in prior years, the Company repurchased 957,000 shares at a cost of $78,652,000 in 2021, which completed purchases under the October 2018 program. In March 2020, the Company's Board of Directors authorized the repurchase of an additional $200,000,000 of the Company's common stock.
Under this March 2020 program, in addition to repurchases made in prior years, the Company repurchased 1,677,000 shares at a cost of $117,000,000 in 2022, which completed purchases under the March 2020 program. In March 2022, the Company's Board of Directors authorized the repurchase of an additional $500,000,000 of the Company's common stock.
The Company may repurchase shares under this program in future periods depending on a variety of factors, including, among other things, the impact of dilution from employee stock awards, stock price, share availability, and cash requirements.
The 2023 repurchase included $446,000 of buyback Excise Tax in accordance with the Inflation Reduction Act of 2022. The Company may repurchase shares under this program in future periods depending on a variety of factors, including, among other things, the impact of dilution from employee stock awards, stock price, share availability, and cash requirements.
Nasdaq Lab Apparatus & Analytical, Optical, Measuring & Controlling Instrument (SIC 3820-3829 US Companies) Index (the “Nasdaq Lab Apparatus Index”). The performance graph assumes an investment of $100 in each of the Company and the two indices, and the reinvestment of any dividends. The historical information set forth below is not necessarily indicative of future performance.
The performance graph assumes an investment of $100 in each of the Company and the two indices, and the reinvestment of any dividends. The historical information set forth below is not necessarily indicative of future performance.
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.
Under this March 2022 program, the Company repurchased 1,682,000 shares at a cost of $87,314,000 in 2022, 1,723,000 shares at a cost of $79,794,000 in 2023, and 1,711,000 shares at a cost of $67,085,000 in 2024, leaving a remaining balance of $265,807,000 as of December 31, 2024.
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
Fiscal year ended December 31. 12/19 12/20 12/21 12/22 12/23 12/24 Cognex Corporation 100.00 151.56 147.25 89.67 79.95 69.20 NASDAQ Composite 100.00 144.92 177.06 119.45 172.77 223.87 NASDAQ Stocks 100.00 132.07 136.90 82.82 96.36 97.07 (SIC 3820-3829 U.S. Companies) Lab Apparatus & Analyt,Opt, Measuring, and Controlling Instrument) 18 Table of Content
Removed
Under this March 2020 program, the Company repurchased 1,060,000 shares, including 5,000 shares that were repurchased in 2021 and settled in 2022, at a cost of $83,000,000 in 2021, and 1,677,000 shares at a cost of $117,000,000 in 2022, which completed purchases under the March 2020 program.
Removed
In March 2022, the Company's Board of Directors authorized the repurchase of an additional $500,000,000 of the Company's common stock.
Removed
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 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.
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, effectively plan for succession, and maintain our unique corporate culture; (4) the failure to properly manage the distribution of products and services; (5) economic, political, and other risks associated with international sales and operations, including the impact of trade disputes on the economic climate in China; (6) the challenges in integrating and achieving expected results from acquired businesses; (7) uncertainty surrounding our future capital needs; (8) information security breaches; (9) the failure to comply with laws or regulations relating to data privacy or data protection; (10) the inability to protect our proprietary technology and intellectual property; (11) the failure to manufacture and deliver products in a timely manner; (12) the inability to obtain, or the delay in obtaining, components for our products at reasonable prices; (13) the inability to design and manufacture high-quality products; (14) the loss of, or curtailment of purchases by, large customers in the logistics, consumer electronics, or automotive industries; (15) challenges in accurately forecasting our financial results due to seasonal and cyclical variations in customer purchasing patterns; (16) potential impairment charges with respect to our investments or acquired intangible assets; (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 elevated inflation rates; (20) business disruptions from natural or man-made disasters, public health crises, or other events outside our control; (21) exposure to potential liabilities, increased costs, reputational harm, and other adverse effects associated with expectations relating to environmental, social, and governance considerations; (22) stock price volatility; and (23) our involvement in time-consuming and costly litigation or activist shareholder activities.
Revenue for application-specific customer solutions is recognized at the point in time when the solution is validated, which is the point in time when the Company can objectively determine that the agreed-upon specifications in the contract have been met and the customer should reasonably accept the performance obligations in the arrangement.
Revenue for application-specific customer solutions is recognized at the point in time when the solution is validated, which is the point in time when the Company can reasonably determine that the agreed-upon specifications in the contract have been met and the customer should reasonably accept the performance obligations in the arrangement.
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.
The following table sets forth our disaggregated revenue information by geographic area based on the customers' country of domicile (in thousands) for the years ended December 31, 2024 and 2023.
These estimates occur in the calculation of income tax credits, benefits, and deductions, and in the calculation of certain tax assets and liabilities, which arise from differences in the timing of the recognition of certain expenses for tax and financial statement purposes.
These estimates occur in the calculation of income tax credits, benefits, and deductions, and in the calculation of certain tax assets and liabilities, which arise 24 Table of Content from differences in the timing of the recognition of certain expenses for tax and financial statement purposes.
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.
LIQUIDITY AND CAPITAL RESOURCES The Company has historically been able to generate positive cash flow from operations, which has funded its operating activities and other cash requirements and resulted in an accumulated cash and investment balance of $586,948,000 as of December 31, 2024.
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.
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 investment cycles. Selling, General, and Administrative Expenses Selling, general, and administrative (SG&A) expenses in 2024 increased by 9% from the prior year.
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.
The following table sets forth certain consolidated financial data as a percentage of revenue: Year Ended December 31, 2024 (1) 2023 (1) 2022 (1) Revenue 100 % 100 % 100 % Cost of revenue 32 28 28 Gross profit 68 72 72 Research, development, and engineering expenses 15 17 14 Selling, general, and administrative expenses 41 40 31 Loss (recovery) from fire — (1) 2 Operating income 13 16 24 Non-operating income 2 1 — Income before income tax expense 14 16 24 Income tax expense 3 3 3 Net income 12 % 14 % 21 % (1) Amounts may not total properly due to rounding.
Gross Margin The following table sets forth our gross margin (in thousands) for the years ended December 31, 2023 and 2022.
Gross Profit The following table sets forth our gross profit (in thousands) for the years ended December 31, 2024 and 2023.
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.
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. Investment income decreased by $122,000, or 1%, from the prior year.
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.
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.
Income Tax Expense The following table sets forth income tax information (in thousands) for the twelve-month periods ended December 31, 2023 and December 31, 2022.
Income Tax Expense The following table sets forth income tax information (in thousands) for the years ended December 31, 2024 and December 31, 2023.
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.
RD&E expenses as a percentage of revenue were 15% in 2024 compared to 17% in 2023. We believe that a continued commitment to RD&E activities is essential to maintain or achieve product leadership with our existing products and to provide innovative new product offerings, as well as to provide engineering support for large customers.
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 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.
These forward-looking statements, which include statements regarding business and market growth opportunities and trends, future financial performance and financial targets, customer demand and order rates and timing of related revenue, managing supply shortages, delivery lead times, future product mix, research and development activities, sales and marketing activities (including our Emerging Customer Program), new product offerings and product development activities, customer acceptance of our products, the potential effects of emerging technologies, capital expenditures, cost management activities, investments, liquidity, dividends and stock repurchases, strategic and growth plans, our ability to maintain and grow key relationships, acquisitions, the expected impact of the fire at our primary contract manufacturer's plant on our assets, business and results of operations and related insurance recoveries, and estimated tax benefits and expenses and other tax matters, involve known and unknown risks and uncertainties that could cause actual results to differ materially from those projected.
These forward-looking statements, which include statements regarding business and market trends, future financial performance and financial targets, customer demand and order rates and timing of related revenue, future product or revenue mix, research and development activities, sales and marketing activities, new product offerings, innovation and product development activities, customer acceptance of our products, capital expenditures, cost and working capital management activities, investments, liquidity, dividends and stock repurchases, strategic and growth plans and opportunities, acquisitions, and estimated tax benefits and expenses and other tax matters, involve known and unknown risks and uncertainties that could cause actual results to differ materially from those projected.
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.
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.
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.
Future Cash Requirements As of December 31, 2024, the Company had inventory purchase commitments of $44,269,000, with the majority payable within twelve months, and lease payment obligations of $115,200,000, with $13,177,000 payable within twelve months.
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.
The Company has established guidelines relative to credit ratings, diversification, and maturities of its investments to maintain liquidity and safety of its investment portfolio. Operating Activities Net cash provided by operating activities totaled $149,081,000 in 2024. Significant uses of cash consisted of an increase in accounts receivable related to growth in logistics revenue and in support of sales initiatives.
Investing activities also included capital expenditures, which totaled $23,077,000 in 2023 and consisted primarily of continued investments in business systems related to the Company's sales process, manufacturing test equipment related to new product introductions, and leasehold improvements. Financing Activities Net cash used in financing activities totaled $125,605,000 in 2023.
Investing Activities Net cash used in investing activities totaled $38,969,000 in 2024. Investing activities included capital expenditures, that totaled $15,043,000 and consisted primarily of continued investments in business systems, manufacturing equipment related to new product introductions, and building and leasehold improvements. Financing Activities Net cash used in financing activities totaled $118,420,000 in 2024.
Twelve-months Ended December 31, 2023 December 31, 2022 $ Change % Change Income before income tax expense $ 135,348 $ 250,695 $ (115,347) (46) % Income tax expense $ 22,114 $ 35,170 $ (13,056) (37) % Effective income tax rate 16 % 14 % The Company’s effective tax rate was 16% in 2023 and 14% in 2022.
Twelve-months Ended December 31, 2024 December 31, 2023 $ Change % Change Income before income tax expense $ 131,489 $ 135,348 $ (3,859) (3) % Income tax expense $ 25,318 $ 22,114 $ 3,204 14 % Effective income tax rate 19 % 16 % The Company’s effective tax rate was 19% in 2024 and 16% in 2023.
The increase was driven primarily by higher revenue in the consumer electronics industry, particularly due to increased large-customer demand, and to a lesser extent, growth in the semiconductor and automotive industries. • Revenue from other countries in Asia remained flat with the prior year.
The Moritex contribution, higher semiconductor revenue, and higher large customer consumer electronics revenue was offset by declines in other factory automation industries, most notably in the automotive industry. • Revenue from other countries in Asia increased by 49% from the prior year due to the Moritex contribution, higher semiconductor revenue, and growth in logistics.
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.
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.
During the fourth quarter of 2023, net cash payments related to the acquisition of Moritex Corporation reduced cash available to invest by approximately $257 million, which resulted in lower investment income for the fourth quarter of 2023. The Company recorded other income of $592,000 in 2023 and other expense of $412,000 in 2022.
The decrease was due to lower average investment balances, partially offset by higher yields on the Company's portfolio of debt securities. During the fourth quarter of 2023, net cash payments related to the acquisition of Moritex reduced cash available to invest by approximately $257 million, which resulted in lower investment income for 2024.
Twelve-months Ended December 31, 2023 December 31, 2022 $ Change % Change Research, development, and engineering expenses $ 139,400 $ 141,133 $ (1,733) (1) % Percentage of total revenue 17 % 14 % Selling, general, and administrative expenses $ 339,139 $ 312,107 $ 27,032 9 % Percentage of total revenue 40 % 31 % Restructuring charges $ — $ 1,657 $ (1,657) (100) % Percentage of total revenue — % — % Loss (recovery) from fire $ (8,000) $ 20,779 $ (28,779) (139) % Percentage of total revenue (1) % 2 % Total operating expenses $ 470,539 $ 475,676 $ (5,137) (1) % Percentage of total revenue 56 % 47 % Research, Development, and Engineering Expenses Research, development, and engineering (RD&E) expenses in 2023 decreased by $1,733,000, or 1%, from the prior year.
Twelve-months Ended December 31, 2024 December 31, 2023 $ Change % Change Research, development, and engineering expenses $ 139,815 $ 139,400 $ 415 — % Percentage of total revenue 15 % 17 % Selling, general, and administrative expenses $ 370,914 $ 339,139 $ 31,775 9 % Percentage of total revenue 41 % 40 % Loss (recovery) from fire $ — $ (8,000) $ 8,000 (100) % Percentage of total revenue — % (1) % Total operating expenses $ 510,729 $ 470,539 $ 40,190 9 % Percentage of total revenue 56 % 56 % Research, Development, and Engineering Expenses Research, development, and engineering (RD&E) expenses in 2024 were relatively flat compared to the prior year.
Operating Expenses The following table sets forth our operating expenses (in thousands) for the years ended December 31, 2023 and 2022.
Lower average selling prices due to pricing pressures also contributed to the lower margin in 2024. 21 Table of Content Operating Expenses The following table sets forth our operating expenses (in thousands) for the years ended December 31, 2024 and 2023.
Cost management also helped to offset the increases, including the realignment of headcount to support the Emerging Customer sales initiative. Loss (Recovery) from Fire On June 7, 2022, the Company’s primary contract manufacturer experienced a fire at its plant in Indonesia.
These increases were partially offset by Moritex transaction costs incurred in the fourth quarter of 2023, a reduction in SG&A headcount outside of Moritex and entry-level sales, and disciplined cost management. Loss (Recovery) from Fire On June 7, 2022, the Company’s primary contract manufacturer experienced a fire at its plant in Indonesia, destroying a significant amount of Cognex inventories.
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.
Investments intended to expand our sales coverage, incremental costs related to the acquisition of Moritex, and higher incentive compensation expenses were partially offset by disciplined cost management and lower total headcount. Cost recoveries recorded in 2023 related to the 2022 fire at the Company’s contract manufacturer also contributed to the increase.
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.
This results in a broad base of potential customers across a 19 Table of Content variety of industries, including logistics, automotive, consumer electronics, semiconductor, consumer products, medical-related, and food and beverage. Revenue was $914,515,000 in 2024, representing an increase of 9% over the prior year.
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.
Twelve-months Ended December 31, 2024 December 31, 2023 $ Change % Change Americas $ 350,155 $ 330,415 $ 19,740 6 % Percentage of total revenue 38 % 39 % Europe $ 217,880 $ 220,665 $ (2,785) (1) % Percentage of total revenue 24 % 26 % Greater China $ 164,147 $ 164,115 $ 32 — % Percentage of total revenue 18 % 20 % Other Asia $ 182,333 $ 122,352 $ 59,981 49 % Percentage of total revenue 20 % 15 % Total revenue $ 914,515 $ 837,547 $ 76,968 9 % Changes in revenue from a geographic perspective, including Moritex, were as follows: • Revenue from customers based in the Americas increased by 6% from the prior year.
In the third quarter of 2023, the Company recorded a foreign currency loss of $8,456,000 on the settlement of a foreign currency forward contract entered into to hedge the Japanese Yen purchase price of the acquisition of Moritex Corporation.
Twelve-months Ended December 31, 2024 December 31, 2023 $ Change % Change Foreign currency gain (loss) $ 1,531 $ (10,039) $ 11,570 (115) % Investment income $ 13,971 $ 14,093 $ (122) (1) % Other income (expense) $ 922 $ 592 $ 330 56 % Total non-operating income (expense) $ 16,424 $ 4,646 $ 11,778 254 % 22 Table of Content In the third quarter of 2023, the Company recorded a foreign currency loss of $8,456,000 on the settlement of a foreign currency forward contract entered into to hedge the Japanese Yen purchase price of the acquisition of Moritex Corporation.
These decreases were partially offset by the additional costs associated with a new team of optical engineers that joined Cognex with the acquisition of Moritex Corporation on October 18, 2023. RD&E expenses as a percentage of revenue was 17% in 2023 compared to 14% in 2022.
Higher incentive compensation expenses and the additional cost associated with a new team of optical engineers that joined Cognex with the acquisition of Moritex in the fourth quarter of 2023 was offset by a reduction in RD&E headcount outside of Moritex, lower deferred compensation costs related to the 2019 acquisition of Sualab Co, Ltd. that were fully paid in the fourth quarter of 2023, and disciplined cost management.
Twelve-months Ended December 31, 2023 December 31, 2022 $ Change % Change Gross margin $ 601,241 $ 721,905 $ (120,664) (17) % Percentage of total revenue 72 % 72 % Gross margin as a percentage of revenue remained consistent at 72% in both 2023 and 2022.
Twelve-months Ended December 31, 2024 December 31, 2023 $ Change % Change Gross profit $ 625,794 $ 601,241 $ 24,553 4 % Percentage of total revenue 68 % 72 % Gross margin decreased to 68% in 2024 compared to 72% in 2023.
Operating income decreased to 16% of revenue in 2023 compared to 24% of revenue in 2022 driven by the operating deleveraging resulting from the lower revenue levels.
Operating income decreased to 13% of revenue in 2024 compared to 16% of revenue in 2023 driven by the lower gross margin percentage. Net income decreased to 12% of revenue, or $0.62 per share, in 2024 compared to 14% of revenue, or $0.65 per share, in 2023.
In 2023, the Company recorded recoveries related to the fire of $8,000,000, consisting of $2,500,000 for proceeds received from the Company's insurance carrier in relation to a business interruption claim and $5,500,000 for proceeds received as part of a financial settlement for lost inventory and other losses incurred as a result of the fire. Management does not anticipate additional recoveries.
In 2023, the Company recorded recoveries related to the fire totaling $8,000,000, including $5,500,000 for proceeds received from a financial settlement and $2,500,000, for proceeds received from business interruption insurance. Non-operating Income (Expense) The following table sets forth our non-operating income (expense) (in thousands) for the years ended December 31, 2024 and 2023.
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.
Strong growth in logistics was partially offset by weakness in the automotive industry. • Revenue from customers based in Europe decreased by 1% from the prior year. Growth in logistics was offset by declines in factory automation, most notably in the automotive industry. • Revenue from customers based in Greater China was flat compared to the prior year.
In October 2018, the Company's Board of Directors authorized the repurchase of $200,000,000 of the Company's common stock. Under this October 2018 program, in addition to repurchases made in prior years, the Company repurchased 957,000 shares at a cost of $78,652,000 in 2021, which completed purchases under the October 2018 program.
In March 2022, the Company's Board of Directors authorized the repurchase of $500,000,000 of the Company's common stock. Under this program, the Company repurchased 1,711,000 shares at a cost of $67,085,000 in 2024, leaving a remaining balance of $265,807,000 as of December 31, 2024.
Excluding the impact of foreign currency exchange rate changes, revenue from these customers in other countries in Asia increased by 8% from the prior year, led by higher revenue in semiconductor and automotive industries, and, to a lesser extent, the logistics industry. These increases were partially offset by a decrease in revenue from the consumer electronic industry.
Excluding the contribution of Moritex, revenue increased by 1% in 2024 over the prior year due to higher revenue from customers in the logistics and semiconductor industries, partially offset by lower revenue from customers in the automotive industry and softness across our broader factory automation business.
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.
The Company accounts for the impact of the Global Intangible Low-Taxed Income (GILTI) minimum tax in deferred taxes.
Removed
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.
Added
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.
Removed
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.
Added
The increase was due to incremental revenue arising from the acquisition of Moritex Corporation (“Moritex”) that closed in the fourth quarter of 2023, as well as higher revenue from customers in the logistics and semiconductor industries. These increases were partially offset by lower revenue from customers in the automotive industry and softness across our broader factory automation business.
Removed
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.
Added
Gross margin was 68% in 2024 compared to 72% in 2023. The decrease was primarily due to a less favorable revenue mix related to the contribution of Moritex and higher logistics revenue, and to a lesser extent, the impact of pricing pressures. Operating expenses increased 9% over the prior year.
Removed
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.
Added
RESULTS OF OPERATIONS Year Ended December 31, 2024 Compared to Year Ended December 31, 2023 Revenue Revenue was $914,515,000 in 2024 compared to $837,547,000 in 2023, representing an increase of 9%. Revenue from the acquisition of Moritex that closed in the fourth quarter of 2023 represented approximately 8% of total revenue in 2024 and 1% of total revenue in 2023.
Removed
We also use results on a constant-currency basis as one measure to evaluate our performance. Constant-currency information compares results between periods as if exchange rates had remained constant period-over-period. We generally refer to such amounts calculated on a constant-currency basis as excluding the impact of foreign currency exchange rate changes.
Added
Changes in revenue from an end-market perspective, including Moritex, were as follows: • Revenue from the logistics industry represented approximately 23% of total revenue in 2024 and increased by 20% from the prior year due to investment by e-commerce customers. • Revenue from the automotive industry represented approximately 22% of total revenue in 2024 and decreased by 12% from the prior year due to continued weakness in this industry, including lower investment related to electric vehicles. • Revenue from the consumer electronics industry represented approximately 17% of total revenue in 2024 and increased by 3% from the prior year due to the contribution of Moritex, as well as higher large customer demand. 20 Table of Content • Revenue from the semiconductor industry represented approximately 11% of total revenue in 2024 and grew by 80% from the prior year due to the contribution of Moritex, as well as higher global demand for computing chips.
Removed
Results on a constant-currency basis are not in accordance with accounting principles generally accepted in the United States of America (U.S. GAAP) and should be considered in addition to, and not as a substitute for, results prepared in accordance with U.S. GAAP.
Added
The decrease was due to a less favorable revenue mix in 2024 that included higher logistics revenue and products with relatively lower gross margins from the Moritex acquisition that closed in the fourth quarter of 2023, as well as the amortization of Moritex acquired technologies.
Removed
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.
Added
The increase was due primarily to investments in entry-level sales personnel hired over the past few years intended to transform our sales model, allowing us to broaden and deepen our sales coverage.
Removed
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.
Added
Costs related to the acquisition of Moritex that closed in the fourth quarter of 2023 also contributed to the higher SG&A expenses in 2024, including additional sales and support personnel-related costs, the amortization of acquired customer relationship and trademarks, and integration costs. In addition, incentive compensation expenses were higher in 2024.
Removed
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.
Added
The Company recorded discrete tax net expenses of $5,731,000 in 2024 and $2,338,000 in 2023. Excluding the impact of these discrete tax items, the Company’s effective tax rate was 15% in both years.
Removed
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.
Added
Year Ended December 31, 2023 Compared to Year Ended December 31, 2022 For a discussion of the Company’s fiscal 2023 results compared to fiscal 2022, refer to "Management's Discussion and Analysis of Financial Condition and Results of Operations" in the Company’s Annual Report on Form 10-K for the year ended December 31, 2023, filed with the Securities and Exchange Commission on February 15, 2024.
Removed
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.
Added
The Company is authorized to make repurchases of its common stock through open market purchases, pursuant to Rule 10b5-1 trading plans, or in privately negotiated transactions. 23 Table of Content The Company’s Board of Directors declared and paid cash dividends of $0.075 per share in the first, second, and third quarters of 2024 and $0.080 per share in the fourth quarter of 2024, totaling $52,329,000 in 2024.
Removed
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.
Added
As of December 31, 2024, the Company had a remaining balance of $18,338,000 payable in the second quarter of 2025 related to a one-time transition tax on unrepatriated foreign earnings arising from the Tax Cuts and Jobs Act of 2017.
Removed
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
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.
Removed
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.
Removed
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.
Removed
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.
Removed
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
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.
Removed
The deleveraging impact of lower sales volume, as well as less favorable revenue mix and charges related to the acquisition of Moritex Corporation in the fourth quarter of 2023, had an unfavorable impact on the gross margin percentage as compared to the prior year.
Removed
In accordance with the accounting principles applied in business combinations, the Company recorded Moritex inventories at fair market value, resulting in a $4,000,000 increase to acquired inventories above cost.
Removed
Of this $4,000,000 increase to inventories, approximately $2,800,000 was recorded as cost of revenue in the fourth quarter as the majority of the acquired inventories were sold, with the remaining $1,200,000 expected to be recorded as cost of revenue in the first quarter of 2024.
Removed
Moritex charges for the fourth quarter of 2023 also included approximately $600,000 of amortization related to acquired technologies.
Removed
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.
Removed
The decrease in RD&E expenses was due primarily to lower incentive compensation expenses resulting from weaker business performance, as well as cost management activities that included the realignment of headcount to the lower business levels.
Removed
The increase in SG&A expenses was due primarily to increased costs related to our “Emerging Customer” sales initiative, including additional headcount, travel expenses, sales demonstration equipment, and marketing costs.
Removed
We launched this initiative in 2023 to broaden the reach of our sales force to customers who are relatively new to factory automation and have not fully realized the advantages of machine vision. Costs related to the acquisition of Moritex Corporation on October 18, 2023 also contributed to the higher SG&A expenses.
Removed
These costs included additional sales and support personnel, sales demonstration equipment distributed to the Cognex sales force, transaction costs totaling approximately $5,800,000, and approximately $800,000 of amortization related to acquired customer relationships and trademarks. These increases were partially offset by lower incentive compensation expenses, which included sales commissions and incentive bonuses, resulting from weaker business performance.
Removed
The fire destroyed a significant amount of Cognex-owned consigned inventories, as well as component inventories owned by the contract manufacturer that were designated for Cognex products. There was no significant damage to the Company's production equipment.
Removed
Since the date of the fire, the Company has worked with the contract manufacturer to resume production, maintain standards of product quality, and replenish inventories destroyed by the fire. Since 2022, the Company has also been scaling up an additional contract manufacturer to further mitigate risk, diversify supply chain, and expand production capacity.
Removed
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.

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Item 7A. Quantitative and Qualitative Disclosures About Market Risk

Market Risk — interest-rate, FX, commodity exposure

11 edited+3 added−2 removed6 unchanged
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.
Biggest changeThe Company had the following outstanding forward contracts as of December 31, 2024 and 2023 (in thousands): December 31, 2024 December 31, 2023 Currency Notional Value USD Equivalent High Rate Low Rate Notional Value USD Equivalent High Rate Low Rate Derivatives Not Designated as Hedging Instruments: Singapore Dollar 40,000 $ 29,457 1.36 1.36 39,700 $ 30,136 1.32 1.32 Euro 25,000 26,029 0.9605 0.9605 40,000 44,302 0.9029 0.9029 Chinese Renminbi 95,000 12,990 7.31 7.31 50,000 7,025 7.12 7.12 Mexican Peso 220,000 10,701 20.56 20.56 145,000 8,505 17.05 17.05 Hungarian Forint 2,360,000 5,951 396.59 396.59 2,240,000 6,466 346.45 346.45 British Pound 3,200 4,008 0.7983 0.7983 3,345 4,258 0.7855 0.7855 Japanese Yen 2,000,000 3,750 156.52 156.52 600,000 4,255 141.02 141.02 Swiss Franc 2,200 2,432 0.9047 0.9047 — — — — Canadian Dollar 2,000 1,390 1.44 1.44 1,470 1,112 1.32 1.32 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.
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.
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, 2024, the Company held investments with maturities in excess of the five-year limit that were approved as pre-existing exceptions to the new policy.
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.
Given the relatively short maturities and investment-grade quality of the Company’s portfolio of debt securities as of December 31, 2024, we do not expect a sharp rise in interest rates to 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.
As of December 31, 2023, 68% of the investment portfolio had effective maturity dates of less than three years.
As of December 31, 2024, 63% of the investment portfolio had effective maturity dates of less than three years.
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.
Dollar may have a material impact on our operating results. 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.
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 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.
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.
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.
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.
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.
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%.
As of December 31, 2024, the fair value of the Company’s portfolio of debt securities amounted to $400,854,000, with amortized cost amounts totaling $405,758,000, maturities that do not exceed six years, and a yield to maturity of 3.8%.
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.
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, Indian Rupee, and Mexican Peso. We estimate that approximately 55% of our sales in 2024 were invoiced in currencies other than the U.S.
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).
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).
Removed
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.
Added
The 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.
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 $ 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
Added
Furthermore, our failure to identify new exposures and hedge them in an effective manner may result in material foreign currency gains or losses. 25 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
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 $ 348,034 $ 344,475 $ 340,916 $ 337,357 $ 333,798 Treasury notes 46,586 46,109 45,634 45,157 44,680 Asset-backed securities 13,592 13,453 13,314 13,175 13,036 Sovereign bonds 1,011 1,000 990 980 969 $ 409,223 $ 405,037 $ 400,854 $ 396,669 $ 392,483 26 Table of Content

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