Cognex Corp: Form 10-Q for the period ended Sep 28, 2025

Forward-Looking Statements

Certain statements made in this report, as well as oral statements made by Cognex Corporation ("Cognex", "we", "us", "our", or the "Company") from time to time, constitute forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended (the "Exchange Act"). Readers can identify these forward-looking statements by our use of the words “expects,” “anticipates,” “estimates,” "potential," “believes,” “projects,” “intends,” “plans,” “will,” “may,” “shall,” “could,” “should,” "opportunity," "goal" and similar words and other statements of a similar sense. These statements are based on our current estimates and expectations as to prospective events and circumstances, which may or may not be in our control and as to which there can be no firm assurances given. These forward-looking statements, which include statements regarding business and market trends, future financial performance and financial targets, the impact of tariffs, 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, commercial partnerships, capital expenditures, cost management activities, investments, liquidity, dividends and stock repurchases, strategic and growth plans and opportunities, acquisitions, and estimated tax benefits and expenses, changes in tax legislation, and other tax matters, involve known and unknown risks and uncertainties that could cause actual results to differ materially from those projected. Such risks and uncertainties include: (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 including managing the change of our Chief Executive Officer, all while maintaining 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, the imposition of tariffs, the economic climate in China, and the wars involving Ukraine and Israel; (6) the challenges in integrating and achieving expected results from acquired businesses; (7) uncertainty surrounding our future capital needs; (8) information security breaches and other cybersecurity threats; (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 inability to manage direct and indirect disruptions to our supply chain, which could cause delays in obtaining components for our products at reasonable prices; (12) the failure to manufacture and deliver products in a timely manner; (13) the inability to obtain, or the delay in obtaining, components for our products at reasonable prices; (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) challenges in accurately forecasting our financial results due to seasonal and cyclical variations in customer purchasing patterns and economic and market volatility; (17) potential impairment charges with respect to our investments or acquired intangible assets; (18) exposure to additional tax liabilities, increases and fluctuations in our effective tax rate, and other tax matters; (19) fluctuations in foreign currency exchange rates and the use of derivative instruments; (20) unfavorable global economic conditions, including, without limitation, increases in interest rates, elevated inflation rates, and recession risks; (21) business disruptions from natural or man-made disasters, public health crises, or other events outside our control; (22) stock price volatility; and (23) our involvement in time-consuming and costly litigation or activist shareholder activities. The foregoing list should not be construed as exhaustive and we encourage readers to refer to the detailed discussion of risk factors included in Part I - Item 1A of the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 2024, as updated by Part II - Item 1A of this Quarterly Report on Form 10-Q. The Company cautions readers not to place undue reliance upon any such forward-looking statements, which speak only as of the date made. The Company disclaims any obligation to subsequently revise forward-looking statements to reflect the occurrence of anticipated or unanticipated events or circumstances after the date such statements are made.

Executive Overview

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 seek to improve efficiency and quality in a wide range of businesses across attractive industrial end markets. 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.

Machine vision is used in a variety of industries where technology is widely recognized as an important component of automated production, distribution, and quality assurance. Virtually every manufacturer or distributor can achieve better quality and efficiency by using machine vision. This results in a broad base of potential customers across a variety of industries, including logistics, automotive, consumer electronics, semiconductor, and packaging.

Revenue for the third quarter of 2025 totaled $276,892,000, representing an increase of 18% over the third quarter of 2024 primarily due to higher revenue in the logistics and consumer electronics industries, as well as one-time revenue related to a strategic channel partnership in the medical lab automation industry. Gross margin as a percentage of revenue was 68% for the third quarters of both 2025 and 2024. Operating expenses for the third quarter of 2025 increased 1% from the third quarter of 2024, as higher incentive compensation accruals due to stronger business performance, the unfavorable impact of foreign exchange rates, and reorganization charges incurred to further drive efficiencies across the organization were partially offset by savings from cost management.

Operating income increased to 21% of revenue for the third quarter of 2025 as compared to 13% of revenue for the third quarter of 2024 due to the leverage achieved from revenue growth on relatively flat operating expenses. Net income decreased to 6% of revenue, or $0.10 per diluted share, for the third quarter of 2025, as compared to 13% of revenue, or $0.17 per diluted share, for the third quarter of 2024, primarily due to a $33 million discrete tax expense accrued in connection with the enactment of United States tax legislation known as the One Big Beautiful Bill Act ("OBBBA") in the third quarter of 2025 (refer to Note 11 to the Consolidated Financial Statements).

Results of Operations

As foreign currency exchange rates are a factor in understanding period-to-period comparisons, we believe the presentation of our results on a constant-currency basis in addition to reported results helps improve investors’ ability to understand our operating results and evaluate our performance in comparison to prior periods. We also use results on a constant-currency basis as one measure to evaluate our performance. Constant-currency information compares results between periods as if exchange rates had remained constant period-over-period. We generally refer to such amounts calculated on a constant-currency basis as excluding the impact of foreign currency exchange rate changes. Results on a constant-currency basis are not in accordance with accounting principles generally accepted in the United States ("U.S. GAAP") and should be considered in addition to, and not a substitute for, results prepared in accordance with U.S. GAAP.

Revenue

Revenue increased by $42,150,000, or 18%, for the three-month period and increased $57,190,000, or 8%, for the nine-month period as compared to the same periods in 2024. The increase was primarily due to higher revenue in the logistics and consumer electronics industries. Additionally, in the third quarter of 2025, the Company recognized $13 million of one-time revenue related to a strategic channel partnership in the medical lab automation industry upon the transfer of software access and inventories to this partner. In the third quarter of 2024, the Company recorded an additional month of Moritex revenue of approximately $5 million to eliminate the one-month lag in consolidating Moritex financial results that had been in place during the integration of this acquisition. The Company acquired Moritex Corporation, a Japanese provider of optics components, in October 2023. This effect did not repeat in the third quarter of 2025, but was offset by the favorable impact of foreign currency exchange rate changes.

The following table sets forth our disaggregated revenue information by geographic area based upon the customer's country of domicile (in thousands) for the three-month and nine-month periods ended September 28, 2025 and September 29, 2024.

(unaudited)

(unaudited)

Changes in revenue from a geographic perspective were as follows:

• Revenue from customers based in the Americas increased by 27% for the three-month period and increased by 18% for the nine-month period as compared to the same periods in 2024. The increase was primarily due to strong growth in logistics and one-time revenue from our new strategic channel partnership mentioned above, which primarily impacted the Americas region.
• Revenue from customers based in Europe increased by 30% for the three-month period and increased by 14% for the nine-month period as compared to the same periods in 2024. The increase was primarily due to procurement changes made by consumer electronics customers to shift their purchases from entities based in China to Europe. Improved trends in the packaging industry, the favorable impact of foreign currency exchange rates, and one-time revenue from our new strategic channel partnership also contributed to the increase in revenue for both the three-month and nine-month periods. These increases were partially offset by weakness in the automotive industry.
• Revenue from customers based in Greater China increased by 10% for the three-month period and decreased by 6% for the nine-month period as compared to the same periods in 2024. The procurement change in Europe mentioned above, as well as shifts in business from consumer electronics customers from China to the Other Asia region, negatively impacted results for both the three-month and nine-month periods. However, for the three-month period, these negative impacts were offset by both increased demand within the consumer electronics industry, as well as a timing shift in large customer deployments from the second quarter into the third quarter of 2025. For these reasons, outside of the procurement change, revenue from Greater China increased year-over-year for both periods.
• Revenue from customers based in other countries in Asia decreased by 4% for the three-month period and decreased by 3% for the nine-month period as compared to the same periods in 2024. Although Other Asia regions benefited from the shift in consumer electronics business out of China noted above, this benefit was offset by the impact of recording an additional month of Moritex revenue in 2024 mentioned previously.

Gross Profit

The following table sets forth our gross profit (in thousands) for the three-month and nine-month periods ended September 28, 2025 and September 29, 2024.

(unaudited)

(unaudited)

26

Gross margin was 68% and 67% for the three-month and nine-month periods in 2025, respectively, as compared to 68% for both periods in 2024. The decrease for the nine-month period was primarily due to less favorable industry mix, and to a lesser extent, the impact from tariffs, partially offset by a relatively higher margin from the one-time revenue from our new strategic channel partnership mentioned above.

Operating Expenses

The following table sets forth our operating expenses (in thousands) for the three-month and nine-month periods ended September 28, 2025 and September 29, 2024.

(unaudited)

(unaudited)

Research, Development, and Engineering Expenses

Research, development, and engineering (RD&E) expenses remained relatively flat for the three-month period and decreased by $4,367,000, or 4%, for the nine-month period as compared to the same periods in 2024. The decrease was primarily due to cost management, including a reduction in RD&E headcount, and the impact of recording an additional month of Moritex expenses in 2024 mentioned previously, partially offset by higher incentive compensation accruals and the unfavorable impact of foreign currency exchange rates.

RD&E expenses as a percentage of revenue were 13% and 14% for the three-month and nine-month periods in 2025, respectively, as compared to 15% and 16% for the same periods in 2024, respectively. 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. Having moved towards unified software architecture across various products lines over the last years, however, enabled us to deliver innovation with less RD&E expenses as a percentage of revenue. These percentages are additionally impacted by revenue levels and investment cycles.

Selling, General, and Administrative Expenses

Selling, general, and administrative (SG&A) expenses increased by $1,819,000, or 2%, and decreased by $7,144,000, or 3%, respectively, for the three-month and nine-month periods in 2025 as compared to the same periods in 2024. Savings from cost management, including a reduction in SG&A headcount, lower stock-based compensation expenses, and the impact of recording an additional month of Moritex expenses in 2024 mentioned previously were offset by higher incentive compensation accruals, the unfavorable impact of foreign currency exchange rates, and reorganization charges. For the three-month period, the higher incentive compensation accruals, foreign currency impact, and reorganization charges offset the savings.

Non-operating Income (Expense)

The following table sets forth our non-operating income (expense) (in thousands) for the three-month and nine-month periods ended September 28, 2025 and September 29, 2024.

(unaudited)

(unaudited)

27

The Company recorded foreign currency gains of $840,000 and losses of $3,116,000 for the three-month and nine-month periods in 2025, respectively, and gains of $1,221,000 and $1,086,000 for the same periods in 2024, respectively. Foreign currency gains and losses in each period 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 increased by $636,000, or 18%, for the three-month period and increased by $2,430,000, or 25%, for the nine-month period as compared to the same periods in 2024 due primarily to higher yields on the Company's portfolio of debt securities.

Other income for the nine-month period included a one-time Employee Retention Credit from the U.S. Internal Revenue Service to refund payroll taxes paid during the COVID-19 pandemic.

Income Tax Expense

The following table sets forth income tax information (in thousands) for the three-month and nine-month periods ended September 28, 2025 and September 29, 2024.

(unaudited)

(unaudited)

The Company’s effective tax rate was 72% and 41% for the three-month and nine-month periods in 2025, respectively, and 19% for the same periods in 2024, respectively. The Company recorded a net discrete tax expense of $33,650,000 and $33,132,000 for the three-month and nine-month periods in 2025, respectively, compared to a net discrete tax expense of $889,000 and $3,511,000 for the three-month and nine-month periods in 2024.

On July 4, 2025, tax legislation known as the One Big Beautiful Bill Act ("OBBBA") was enacted in the United States. OBBBA modifies certain international tax provisions such as the tax on Global Intangible Low Taxed Income ("GILTI") and renames GILTI as Net CFC Tested Income ("NCTI"). The Company records NCTI taxes on a deferred basis, and as a result of OBBBA's enactment, accrued a discrete tax expense of approximately $33,265,000 to increase its deferred tax liability during the third quarter of 2025, increasing the Company's effective tax rate significantly. The legislation is expected to result in a full-year cash tax benefit estimated between $12 million and $15 million, primarily driven by the Company's ability to immediately expense research and development costs. However, this benefit does not directly impact the Company's effective tax rate.

Excluding the impact of discrete tax items, the Company's effective tax rate was 18% and 17% for the three-month and nine-month periods in 2025, respectively, compared to 17% and 15% for the same periods in 2024, respectively. The year-over-year increases were due to more of the Company's profits taxed in relatively higher tax rate jurisdictions.

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 $600,344,000 as of September 28, 2025. 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 $170,612,000 for the nine-month period in 2025 as compared to $97,677,000 in the same period of 2024. The increase in operating cash flow from the prior year was primarily driven by stronger business performance.

Investing Activities

Net cash provided by investing activities totaled $47,624,000 for the nine-month period in 2025. Investing activities included capital expenditures that totaled $6,147,000 and consisted primarily of continued investments in business systems, test equipment related to new product introductions, and building and leasehold improvements.

Financing Activities

Net cash used in financing activities totaled $169,197,000 for the nine-month period in 2025.

In March 2022, the Company's Board of Directors (the "Board") authorized a program providing for the repurchase of $500,000,000 of the Company's common stock (the "Program"). Under the Program, in addition to repurchases made in other periods, the Company repurchased 3,594,000 shares at a total cost of $126,233,000 during the nine-month period in 2025. As of September 28, 2025, the remaining balance of the Program was $140,020,000. The Company may repurchase shares under the Program in future periods depending on a variety of factors, including, among other things, the impact of dilution from employee stock awards, stock price, share availability, and cash requirements. The Company is authorized to make repurchases of its common stock through open market purchases, pursuant to Rule 10b5-1 trading plans, or in privately negotiated transactions.

The Board declared and paid cash dividends of $0.08 per share for the first, second, and third quarters of 2025, totaling $40,424,000. Future dividends will be declared at the discretion of the Board 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

As of September 28, 2025, the Company had inventory purchase commitments of $42,597,000, with the majority payable within twelve months, and lease payment obligations of $112,656,000, with $16,024,000 payable within twelve months.

We believe that the Company's existing cash and investment balances, together with cash flow from operations, will be sufficient to meet its operating, investing, and financing activities for the next twelve months. In addition, the Company has no long-term debt. We believe that our strong cash position has put us in a relatively good position with respect to anticipated longer-term liquidity needs.

New Pronouncements

Refer to Part I - Note 2 within this Form 10-Q, for a full description of recently issued accounting pronouncements including the expected dates of adoption and the expected impact on the financial position and results of operations of the Company.

As required by Rules 13a-15 and 15d-15 of the Exchange Act, the Company has evaluated, with the participation of management, including the Chief Executive Officer and the Chief Financial Officer, the effectiveness of its disclosure controls and procedures (as defined in such rules) as of the end of the period covered by this report. Based on such evaluation, the Chief Executive Officer and the Chief Financial Officer concluded that such disclosure controls and procedures were effective as of that date.

There were no changes in the Company's internal control over financial reporting that occurred during the quarter ended September 28, 2025 that materially affected, or are reasonably likely to materially affect, the Company's internal control over financial reporting. The Company continues to review its disclosure controls and procedures, including its internal control over financial reporting, and may from time to time make changes aimed at enhancing their effectiveness and to ensure that the Company’s systems evolve with its business.

For a list of factors that could affect the Company’s business, results of operations, and financial condition, see the risk factors discussion provided in Part I—Item 1A of the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2024.