COGNEX CORP

NOTE 1: Summary of Significant Accounting Policies

As permitted by the rules of the Securities and Exchange Commission applicable to Quarterly Reports on Form 10-Q, these notes are condensed and do not contain all disclosures required by accounting principles generally accepted in the United States ("U.S. GAAP"). Reference should be made to the consolidated financial statements and related notes included in Cognex Corporation's ("Cognex" or the "Company") Annual Report on Form 10-K for the year ended December 31, 2025 for a full description of other significant accounting policies.

In the opinion of the management of the Company, the accompanying consolidated unaudited financial statements contain all adjustments, consisting of normal, recurring adjustments and financial statement reclassifications necessary to present fairly the Company’s financial position as of July 5, 2026, and the results of its operations for the three-month and six-month periods ended July 5, 2026 and June 29, 2025, and changes in shareholders’ equity, comprehensive income, and cash flows for the periods presented.

The results disclosed in the Consolidated Statements of Operations for the three-month or six-month periods ended July 5, 2026 are not necessarily indicative of the results to be expected for the full year.

NOTE 2: New Pronouncements

Accounting Standards Update (ASU) 2024-03, Income Statement - Reporting Comprehensive Income - Expense Disaggregation Disclosures (Subtopic 220-40)

This ASU aims to enhance transparency for users of financial statements by requiring public business entities to disaggregate specific expense categories. ASU 2024-03 mandates disclosures in the notes to financial statements detailing the composition and trends of key expense categories within major income statement captions. These enhanced disclosures are intended to help investors more effectively assess the entity’s performance, understand its cost structure, and make more accurate forecasts of future cash flows. For public business entities, ASU 2024-03 is effective for annual periods beginning after December 15, 2026, and interim periods within annual reporting periods beginning after December 15, 2027. The adoption will result in disclosure changes only. Management is currently evaluating the impact that adopting ASU 2024-03 would have on the Company's financial statement disclosures.

Accounting Standards Update (ASU) 2025-06 - Intangibles - Goodwill and Other - Internal-Use Software (Subtopic 350-40): Targeted Improvements to the Accounting for Internal-Use Software

The amendments in this ASU update the accounting and disclosure guidance for internal-use software to better reflect modern, iterative development practices. The amendments replace the former “development stage” model with a judgment-based framework and require entities to evaluate whether significant development uncertainty exists before capitalizing costs. The ASU also incorporates website development guidance into Subtopic 350-40 and aligns disclosures for capitalized software with those for property, plant, and equipment. For public business entities, the amendments in this ASU are effective for annual reporting periods beginning after December 15, 2027, and for interim periods within those annual reporting periods, with early adoption permitted. Management is currently evaluating the impact that adopting ASU 2025-06 would have on the Company's financial statements and disclosures.

Accounting Standards Update (ASU) 2025-11 - Interim Reporting (Topic 270): Narrow-Scope Improvements

The amendments in this ASU improve the navigability and clarity of interim reporting requirements without changing the fundamental nature or scope of existing disclosures. The ASU also clarifies when Topic 270 applies, specifies the form and content of interim financial statements and notes, and introduces a comprehensive list of required interim disclosures compiled from across the Codification. The ASU also adds a disclosure principle requiring entities to disclose events occurring after the most recent annual reporting period that have a material impact on the entity. For public business entities, the amendments in this ASU are effective for annual reporting periods beginning after December 15, 2027, and for interim periods within annual reporting periods beginning after December 15, 2028, with early adoption permitted. Management is currently evaluating the impact that adopting ASU 2025-11 would have on the Company's disclosures.

Accounting Standards Update (ASU) 2025-12 - Codification Improvements

The amendments in this ASU make incremental improvements to clarify, correct, and enhance the usability of the Accounting Standards Codification. The amendments address technical corrections, unintended application issues, and minor improvements across numerous topics, and are not expected to significantly affect current accounting practice. Key areas of clarification include diluted earnings per share calculations, disclosure requirements for lease receivables, guidance on beneficial interests, methods for accounting for treasury stock retirements, and the treatment of receivables transferred from contracts with customers. For public business entities, the amendments in this ASU are effective for annual reporting periods beginning after December 15, 2026, and for interim periods within those annual reporting periods, with early adoption permitted. Management is currently evaluating the impact that adopting ASU 2025-12 would have on the Company's financial statements and disclosures.

NOTE 3: Financial Instruments

Cash, Cash Equivalents, and Investments

The following table summarizes the Company’s cash, cash equivalents, and investments as of July 5, 2026 (in thousands):

The following table summarizes the Company’s cash, cash equivalents, and investments as of December 31, 2025 (in thousands):

The Company’s money market instruments are reported at fair value based upon the daily market price for identical assets in active markets and are therefore classified as Level 1. Money market instruments consist of treasury bills, corporate commercial paper, and certificates of deposit that are highly liquid and mature in three months or less. Corporate bonds consist of debt securities issued by both domestic and foreign companies; treasury notes consist of debt securities issued by the U.S. government; and asset-backed securities consist of debt securities collateralized by pools of receivables or loans with credit enhancement. All of the Company's securities as of July 5, 2026 and December 31, 2025 were denominated in U.S. Dollars, with the exception of certain certificates of deposit.

The Company’s debt securities are reported at fair value based on model-driven valuations in which all significant inputs are observable or can be derived from or corroborated by observable market data for substantially the full term of the asset or liability and are therefore classified as Level 2. Management is responsible for estimating the fair value of these financial instruments, and in doing so, considers valuations provided by a large, third-party pricing service. This service maintains regular contact with market makers, brokers, dealers, and analysts to gather information on market movement, direction, trends, and other specific data. They use this information to structure yield curves for various types of debt securities and arrive at the daily valuations.

Accrued interest receivable is recorded in "Prepaid expenses and other current assets" on the Consolidated Balance Sheets and amounted to $5,051,000 and $3,852,000 as of July 5, 2026 and December 31, 2025, respectively.

Realized Gains (Losses) on Debt Securities

The following table summarizes the Company's gross realized gains and losses on the sale of debt securities for the three-month and six-month periods ended July 5, 2026 and June 29, 2025, respectively (in thousands):

Realized gains and losses are included in "Investment income" on the Consolidated Statements of Operations. Prior to the sale of these securities, unrealized gains and losses for these debt securities, net of tax, were recorded in shareholders’ equity as accumulated other comprehensive income (loss).

Unrealized Losses on Debt Securities

The following table summarizes the Company’s gross unrealized losses and fair values for available-for-sale investments in an unrealized loss position as of July 5, 2026 (in thousands):

The following table summarizes the Company’s gross unrealized losses and fair values for available-for-sale investments in an unrealized loss position as of December 31, 2025 (in thousands):

Management monitors debt securities that are in an unrealized loss position to determine whether a loss exists related to the credit quality of the issuer. When developing an estimate of expected credit losses, management considers all relevant information including historical experience, current conditions, and reasonable forecasts of expected future cash flows. Based on this evaluation, no allowance for credit losses on debt securities was recorded as of July 5, 2026 or December 31, 2025. Management currently intends to hold these securities to full value recovery at maturity.

Debt Securities Maturities

The following table presents the effective maturity dates of the Company’s available-for-sale investments as of July 5, 2026 (in thousands):

Derivative Instruments

The Company’s foreign currency risk management strategy is designed to mitigate the potential financial impact of changes in the value of transactions and balances denominated in foreign currencies resulting from changes in foreign currency exchange rates. The Company enters into economic hedges utilizing foreign currency forward contracts with maturities of generally up tothree months but not greater thanone year to manage the exposure to fluctuations in foreign currency exchange rates arising primarily from foreign-denominated receivables and payables. The gains and losses on these derivatives are intended to be offset by the changes in the fair value of the assets and liabilities being hedged. These economic hedges are not designated as hedging instruments for hedge accounting treatment.

The Company had the following outstanding forward contracts (in thousands):

Information regarding the fair value of the outstanding forward contracts was as follows (in thousands):

The Company’s foreign currency forward contracts are measured at fair value using observable market inputs, including quoted forward foreign exchange rates obtained from a large, third-party pricing service. As the valuation uses observable market data and does not rely on significant unobservable inputs, these contracts are classified within Level 2 of the fair value hierarchy. The Company's forward contracts are typically traded or executed in over-the-counter markets with a high degree of pricing transparency. The market participants are generally large commercial banks.

Information regarding the effect of derivative instruments on the Consolidated Statements of Operations was as follows (in thousands):

Activities related to derivative instruments are reflected within "Net cash provided by (used in) operating activities" on the Consolidated Statements of Cash Flows.

NOTE 4: Inventories

Inventories consisted of the following (in thousands):

NOTE 5: Goodwill and Intangible Assets

The changes in the carrying value of goodwill were as follows (in thousands):

Amortized intangible assets as of July 5, 2026 consisted of the following (in thousands):

Amortized intangible assets as of December 31, 2025 consisted of the following (in thousands):

Future amortization expense related to intangible assets as of July 5, 2026 is as follows (in thousands):

On April 1, 2026, the Company completed the divestiture of its Japan-focused trading business, which was originally acquired as part of the acquisition of Moritex Corporation ("Moritex") in 2023. In connection with the divestiture, the Company derecognized $541,000 of goodwill and $10,636,000 of customer relationship intangible assets, representing the net carrying amounts attributable to the disposed business.

NOTE 6: Warranty Obligations

The Company records the estimated cost of fulfilling product warranties at the time of sale based upon historical costs to fulfill claims. Obligations may also be recorded subsequent to the time of sale whenever specific events or changes in circumstances impacting product quality become known that would not have been taken into account using historical data. While we engage in extensive product quality programs and processes, including actively monitoring and evaluating the quality of our component suppliers and third-party contract manufacturers, the Company’s warranty obligation is affected by product failure rates, material usage, and service delivery costs incurred in correcting a product failure. An adverse change in any of these factors may result in the need for additional warranty provisions. Warranty obligations are included in “Accrued expenses” on the Consolidated Balance Sheets.

The changes in the warranty obligation for the six-month periods ended July 5, 2026 and June 29, 2025 were as follows (in thousands):

NOTE 7: Commitments and Contingencies

As of July 5, 2026, the Company had outstanding purchase orders totaling $66,839,000 to procure inventory from various vendors. Certain of these purchase orders may be canceled by the Company, subject to cancellation penalties. These purchase commitments relate primarily to expected sales in the next twelve months.

A significant portion of the Company's outstanding inventory purchase orders as of July 5, 2026, as well as additional preauthorized commitments to procure strategic components based on the Company's expected customer demand, are placed with the Company's primary contract manufacturer for the Company's assembled products. The Company has the obligation to purchase any non-cancelable and non-returnable components that have been purchased by the contract manufacturer with the Company's preauthorization, when these components have not been consumed within the period defined in the terms of the Company's agreement with this contract manufacturer. While the Company typically expects such purchased components to be used in future production of Cognex finished goods, these components are considered in the Company's reserve estimate for excess and obsolete inventory. Furthermore, the Company accrues for losses on commitments for the future purchase of non-cancelable and non-returnable components from this contract manufacturer at the time that circumstances, such as changes in demand, indicate that the value of the components may not be recoverable, the loss is probable, and management has the ability to reasonably estimate the amount of the loss. The Company's accrual for such losses was not material as of July 5, 2026 and June 29, 2025.

Various claims and legal proceedings generally incidental to the normal course of business are pending or threatened on behalf of or against the Company. While we cannot predict the outcome of these matters, we believe that any liability arising from them will not have a material adverse effect on our financial position, liquidity, or results of operations.

NOTE 8: Stockholders' Equity

Stock Repurchase Program

In March 2022, the Company's Board of Directors (the "Board") authorized a program providing for the repurchase of up to $500,000,000 of the Company's common stock (the "Program"). Under the Program, in addition to repurchases made in prior periods, the Company repurchased 3,047,000 shares at a total cost of $102,233,000 during the six-month period ended June 29, 2025 and 2,501,000 shares at a total cost of $105,231,000 during the six-month period ended July 5, 2026, leaving a remaining balance of $9,789,000 as of July 5, 2026. On February 11, 2026, the Board authorized the repurchase of up to an additional $500,000,000 of the Company's common stock upon completion of the Program. The Company may repurchase shares under these programs in future periods depending on a variety of factors, including, among other things, the impact of dilution from employee stock awards, stock price, share availability, and cash requirements. The Company is authorized to make repurchases of its common stock through open market purchases, pursuant to Rule 10b5-1 trading plans, or in privately negotiated transactions.

Stock-Based Compensation Expense

The Company’s stock-based awards that result in compensation expense consist of stock options, restricted stock units ("RSUs"), and performance restricted stock units ("PRSUs").

The following table summarizes the number of stock-based awards granted by the Company and the weighted-average grant-date fair value per unit for the three-month and six-month periods ended July 5, 2026 and June 29, 2025:

During the first quarters of 2026 and 2025, the Company granted PRSUs that vest upon the achievement of (1) a service condition ofthree years of continuous employment and (2) a performance condition established by the Compensation Committee of the Board as of the grant date. The number of shares earned could range between 0% and 120% based on achievement of the performance condition, which includes certain financial targets. The fair value of these PRSUs is calculated based on the observable market price of the Company's stock on the grant date less the present value of expected future dividends. Compensation expense for these PRSUs is recognized based on the probable outcome of the performance condition with a cumulative catch-up adjustment for prior periods in the period that the probable outcome changes.

The Company stratifies its employee population intotwo groups: one consisting of senior management and members of the Board, and another consisting of all other employees. The Company currently applies an estimated annual forfeiture rate of 12% to all stock-based awards for senior management and members of the Board and a rate of 13% for all other employees. Each year during the first quarter, the Company revises its forfeiture rate based on updated estimates of employee turnover. Credits of $1,576,000 and $4,789,000 were recorded in 2026 and 2025, respectively, to true-up previously recorded compensation expense for this forfeiture rate revision. Additionally, in the first quarter of 2026, the Company revised its forfeiture rate applied specifically to stock-based awards for its former chief executive officer to 100% due to his retirement from the Board effective March 2, 2026, resulting in credits of $5,031,000.

As of July 5, 2026, total unrecognized compensation expense, net of estimated forfeitures, related to non-vested equity awards, including stock options, RSUs, and PRSUs, was $58,768,000, which is expected to be recognized over a weighted-average period of 1.6 years.

The following table presents the stock-based compensation expense by caption for each period presented on the Consolidated Statements of Operations (in thousands):

No compensation expense was capitalized as of July 5, 2026 or December 31, 2025.

NOTE 9: Revenue Recognition

The following table summarizes disaggregated revenue information by geographic area based upon the customer's country of domicile (in thousands):

The following table summarizes disaggregated revenue information by revenue type (in thousands):

Costs to Fulfill a Contract

Costs to fulfill a contract are included in "Prepaid expenses and other current assets" on the Consolidated Balance Sheets and amounted to $20,120,000 and $10,592,000 as of July 5, 2026 and December 31, 2025, respectively.

Accounts Receivable, Contract Assets, and Contract Liabilities

Accounts receivable represents amounts billed and currently due from customers which are reported at their net estimated realizable value. The Company maintains an allowance against its accounts receivable for credit losses. Contract assets consist of unbilled revenue which arises when revenue is recognized in advance of billing for certain application-specific customer solutions contracts. Contract liabilities consist of deferred revenue and customer deposits which arise when amounts are billed to or collected from customers in advance of revenue recognition.

The following table summarizes the deferred revenue and customer deposits activity for the six-month periods ended July 5, 2026 and June 29, 2025, respectively (in thousands):

As a practical expedient, the Company has elected not to disclose the aggregate amount of the transaction price allocated to unsatisfied performance obligations for our contracts that have an original expected duration of less than one year. The remaining unsatisfied performance obligations for our contracts that have an original expected duration of more than one year, primarily related to extended warranties, are not material.

NOTE 10: Income Taxes

The Company's effective tax rate was 19% and 18% for the three-month and six-month periods ended July 5, 2026, respectively and 16% and 15% for the three-month and six-month periods ended June 29, 2025, respectively.

For the three-month period ended July 5, 2026, the Company recorded a net discrete tax expense of $450,000 primarily driven by return-to-provision adjustments and uncertain tax reserves. For the six-month period ended July 5, 2026, the Company recorded a net discrete tax benefit of $729,000 primarily driven by excess tax benefits related to stock-based compensation.

For the three-month period ended June 29, 2025, the Company recorded a net discrete tax benefit of $211,000, primarily driven by adjustments to uncertain tax reserves partially offset by excess tax liabilities related to stock-based compensation. For the six-month period ended June 29, 2025, the Company recorded a net discrete benefit of $518,000 primarily driven by adjustments to deferred tax balances and uncertain tax reserves partially offset by excess tax liabilities related to stock-based compensation.

Excluding the impact of discrete tax items, the Company's effective tax rate was 18% for the three-month and six-month periods in 2026 and 16% for the same periods in 2025. The increase was primarily due to a greater portion of Company's pre-tax income being earned in higher tax rate jurisdictions.

The Company has defined its major tax jurisdictions as the United States, Ireland, China, Japan, and Korea, and within the United States, Massachusetts. The statutory tax rate is 12.5% in Ireland,25% in China,34.8% in Japan, and 22% in Korea, compared to the U.S. federal statutory corporate tax rate of 21%. These foreign tax rate differences resulted in a favorable impact to the effective tax rate for both the three-month and six-month periods ended July 5, 2026 and June 29, 2025.

The Company’s reserve for income taxes, including gross interest and penalties, was $24,935,000 as of July 5, 2026, of which $21,963,000 was classified as a non-current liability and $2,972,000 was classified as an offset to deferred tax assets. If the Company’s tax positions were sustained or the statutes of limitations related to certain positions expired, these reserves would be released and income tax expense would be reduced in a future period.

Within the United States, the tax years 2022 through 2025 remain open to examination by the Internal Revenue Service, and 2021 through 2025 remain open to examination by various state tax authorities. The tax years 2017 through 2025 remain open to examination by various international taxing authorities in other jurisdictions in which the Company operates.

The Organization for Economic Cooperation and Development ("OECD") provided model rules for a 15% global minimum tax, known as Pillar Two. Pillar Two has now been enacted by most key non-United States jurisdictions where the Company operates. From 2024 to 2025, the Company met at least one of the tests under the transitional safe harbor exception for all jurisdictions except for the United States. During 2024 and 2025, the Company had favorable treatment under a safe harbor that exempted U.S. multinational entity exposure to top-up tax under Pillar Two, which expired at the end of 2025. In 2026, OECD released the framework for a side-by-side system, providing a permanent solution for multinational entities headquartered in jurisdictions that had not fully adopted the Pillar Two Model Rules into domestic law but have current domestic tax regimes meeting certain requirements, including high statutory tax rates (at least 20%). However, given that uncertainty remains related to the implementation of this arrangement across the various jurisdictions in which the Company operates, the Company anticipates exposure to top-up tax effective January 1, 2026. This minimum tax is treated as a period cost but did not have a material impact on the Company's financial results of operations for the six-month period ended July 5, 2026. The Company continues to monitor legislative developments.

NOTE 11: Earnings per Share

The following table shows the computation of basic and diluted earnings per share for the three-month and six-month periods ended July 5, 2026 and June 29, 2025 (in thousands, except per share amounts):

The computation of diluted weighted-average common shares outstanding excludes the following weighted average anti-dilutive stock-based awards outstanding for the three-month and six-month periods ended July 5, 2026 and June 29, 2025 (in thousands):

NOTE 12: Segment Information

The Company operates inone segment, machine vision technology. The Company has a single, company-wide management team that administers operations as a whole rather than as discrete operating segments. The Company’s chief operating decision maker is the chief executive officer, who assesses performance and allocates resources at the corporate level, as compared to the geography, product line, or end market levels. The Company offers a variety of machine vision products that have similar economic characteristics and are distributed by the same sales channels to the same types of customers.

The measure of segment profit or loss for the Company's single segment is net income. Segment expenses were disaggregated based on the information the chief operating decision maker uses to assess performance and allocate resources considering both quantitative and qualitative factors. The following table summarizes significant segment expenses, which represent the difference between segment revenue and segment net income (in thousands):

(1) Cost of revenue includes depreciation and amortization expense (including amortization of acquired technologies) of $3,036,000 and $6,103,000 for the three-month and six-month periods ended July 5, 2026, respectively, and $3,144,000 and $6,162,000 for the three-month and six-month periods ended June 29, 2025, respectively.

(2) Incentive compensation includes company bonus and sales commissions.

(3) Other segment expenses include outside services, prototyping materials, sales demonstration equipment, travel and entertainment, marketing programs, rent, and reorganization charges, among other less significant expenses.

Segment assets amounted to $2,178,650,000 and $2,016,555,000 as of July 5, 2026 and December 31, 2025, respectively.

NOTE 13: Business Disposal

On April 1, 2026, the Company completed the divestiture of its Japan-focused trading business, which was originally acquired as part of the acquisition of Moritex in 2023. The disposal group met the definition of a business under ASC 805 as it included inputs and substantive processes that together significantly contributed to the ability to create outputs. The transaction resulted in gross proceeds received from the buyer of ¥1,882,688,000 Japanese Yen ($12,049,000 U.S. Dollars based on the closing-date foreign exchange rate).

Carrying amounts of major assets and liabilities included as part of the disposal group were as follows (in thousands):

In the first quarter of 2026, the Company recognized a pre-tax loss of ¥240,445,000 Japanese Yen ($1,539,000 U.S. Dollars based on the closing-date foreign exchange rate), which includes direct costs associated with the divestiture of ¥82,895,000 Japanese Yen ($530,000 U.S. Dollars based on the closing-date foreign exchange rate) and is presented within “Other income (expense)” in the Consolidated Statements of Operations for the six-month period ended July 5, 2026. The transaction did not have a material impact on the Company’s income tax expense or tax position.

The divested business was not considered core to the Company’s operations and its sale does not represent a strategic shift that would have a major effect on the Company’s operations or financial results. For the year ended December 31, 2025, the divested business accounted for approximately 2% of the Company’s overall revenue. Accordingly, the transaction does not meet the criteria for discontinued operations presentation and as a result, the results of operations of the disposal group are presented within continued operations for the six-month period ended July 5, 2026. The business was not a reportable segment and was included within the Company’s single operating segment as described in Note 12, Segment Information.

The Company allocated ¥1,661,888,000 Japanese Yen ($10,636,000 U.S. Dollars based on the closing-date foreign exchange rate) of net customer relationships to the disposal group based on the relative fair value attributable to the disposal group using an income approach, which the Company determined to be the most appropriate basis for allocation as it best reflects the economic benefits and expected future cash flows associated with these relationships. The income approach is consistent with the valuation methodology used in the original acquisition‑date valuation and incorporates management’s best estimates and assumptions that a market participant would consider.

The Company allocated ¥84,563,000 Japanese Yen ($541,000 U.S. Dollars based on the closing-date foreign exchange rate) of goodwill to the disposal group based on its relative fair value compared to the Company’s total fair value. Following the divestiture, the remaining goodwill associated with the continuing reporting unit was supported by a substantial excess of fair value of the reporting unit over its carrying value, and therefore no impairment charge was recognized.

NOTE 14: Subsequent Events

On August 5, 2026, the Board declared a cash dividend of $0.085 per share. The dividend is payable on September 3, 2026 to all shareholders of record as of the close of business on August 20, 2026.