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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)

☒ | Quarterly Report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 for the quarterly period ended March 29, 2020 or

☐ | Transition Report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 for the transition period from __________ to __________

Commission File Number 001-34218
COGNEX CORP ORATION

(Exact name of registrant as specified in its charter)

Massachusetts |  | 04-2713778
(State or other jurisdiction of incorporation or organization) |  | (I.R.S. Employer Identification No.)

One Vision Drive
Natick, Massachusetts 01760-2059
(508) 650-3000

(Address, including zip code, and telephone number, including area code, of principal executive offices)

Securities registered pursuant to the Section 12(b) of the Act:

Title of each class | Trading Symbol(s) | Name of each exchange on which registered
Common Stock, par value $.002 per share | CGNX | The NASDAQ Stock Market LLC

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

|  | Yes | ☒ |  |  |  |  | No | ☐ |  |  |

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).

|  | Yes | ☒ |  |  |  |  | No | ☐ |  |  |

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and "emerging growth company" in Rule 12b-2 of the Exchange Act (Check one):

Large accelerated filer | ☒ |  |  |  |  | Accelerated filer | ☐
Non-accelerated filer | ☐ |  |  |  |  | Smaller reporting company | ☐
|  |  |  |  |  | Emerging growth company | ☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

|  | Yes | ☐ |  |  |  |  | No | ☒ |  |  |

As of March 29, 2020, there were 171,688,004 shares of Common Stock, $.002 par value per share, of the registrant outstanding.

INDEX

PART I | FINANCIAL INFORMATION | 3
Item 1. | Financial Statements (interim periods unaudited) | 3
| Consolidated Statements of Operations for the three-month periods ended March 29, 2020 and March 31, 2019 | 3
| Consolidated Statements of Comprehensive Income for the three-month periods ended March 29, 2020 and March 31, 2019 | 4
| Consolidated Balance Sheets as of March 29, 2020 and December 31, 2019 | 5
| Consolidated Statements of Cash Flows for the three-month periods ended March 29, 2020 and March 31, 2020 | 6
| Consolidated Statements of Shareholders’ Equity for the three-month periods ended March 29, 2020 and March 31, 2019 | 7
| Notes to Consolidated Financial Statements | 8
Item 2. | Management's Discussion and Analysis of Financial Condition and Results of Operations | 23
Item 3. | Quantitative and Qualitative Disclosures About Market Risk | 27
Item 4. | Controls and Procedures | 27
PART II | OTHER INFORMATION |
Item 1. | Legal Proceedings | 28
Item 1A. | Risk Factors | 28
Item 2. | Unregistered Sales of Equity Securities and Use of Proceeds | 29
Item 3. | Defaults Upon Senior Securities | 29
Item 4. | Mine Safety Disclosures | 29
Item 5. | Other Information | 29
Item 6. | Exhibits | 30
| Signatures | 31

2

PART I: FINANCIAL INFORMATION
ITEM 1: FINANCIAL STATEMENTS
COGNEX CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share amounts)

| Three-months Ended
| March 29, 2020 |  | March 31, 2019
| (unaudited)
Revenue | $ | 167,235 |  |  | $ | 173,484 |
Cost of revenue | 41,200 |  |  | 46,284 |
Gross margin | 126,035 |  |  | 127,200 |
Research, development, and engineering expenses | 35,946 |  |  | 30,242 |
Selling, general, and administrative expenses | 69,138 |  |  | 66,811 |
Operating income | 20,951 |  |  | 30,147 |
Foreign currency gain (loss) | (3,003 | ) |  | (248 | )
Investment income | 5,229 |  |  | 4,905 |
Other income (expense) | (183 | ) |  | 927 |
Income before income tax expense | 22,994 |  |  | 35,731 |
Income tax expense | 2,517 |  |  | 2,627 |
Net income | $ | 20,477 |  |  | $ | 33,104 |
Net income per weighted-average common and common-equivalent share:
Basic | $ | 0.12 |  |  | $ | 0.19 |
Diluted | $ | 0.12 |  |  | $ | 0.19 |
Weighted-average common and common-equivalent shares outstanding:
Basic | 172,408 |  |  | 171,098 |
Diluted | 175,602 |  |  | 175,607 |
Cash dividends per common share | $ | 0.055 |  |  | $ | 0.050 |

The accompanying notes are an integral part of these consolidated financial statements.
3

COGNEX CORPORATION
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(In thousands)

| Three-months Ended
| March 29, 2020 |  | March 31, 2019
| (unaudited)
Net income | $ | 20,477 |  |  | $ | 33,104 |
Other comprehensive income (loss), net of tax: |  |  |
Available-for-sale investments: |  |  |
Net unrealized gain (loss), net of tax of ($952) and $268 in 2020 and 2019, respectively | (3,861 | ) |  | 2,251 |
Reclassification of credit loss on investments into current operations | 160 |  |  | — |
Reclassification of net realized (gain) loss into current operations | (1,850 | ) |  | (40 | )
Net change related to available-for-sale investments | (5,551 | ) |  | 2,211 |
Foreign currency translation adjustments: |  |  |
Foreign currency translation adjustments | (7,365 | ) |  | 218 |
Net change related to foreign currency translation adjustments | (7,365 | ) |  | 218 |
Other comprehensive income (loss), net of tax | (12,916 | ) |  | 2,429 |
Total comprehensive income | $ | 7,561 |  |  | $ | 35,533 |

The accompanying notes are an integral part of these consolidated financial statements.
4

COGNEX CORPORATION
CONSOLIDATED BALANCE SHEETS
(In thousands)

| March 29, 2020 |  | December 31, 2019
| (unaudited) |  |
ASSETS |  |  |
Current assets: |  |  |
Cash and cash equivalents | $ | 239,197 |  |  | $ | 171,431 |
Current investments, amortized cost of $155,671 and $235,610 in 2020 and 2019, respectively, allowance for expected credit losses of $0 in 2020 and 2019 | 159,244 |  |  | 240,470 |
Accounts receivable, less reserves of $2,061 and $1,821 in 2020 and 2019, respectively | 100,463 |  |  | 103,447 |
Unbilled revenue | 5,485 |  |  | 4,782 |
Inventories | 54,985 |  |  | 60,261 |
Prepaid expenses and other current assets | 35,913 |  |  | 26,840 |
Total current assets | 595,287 |  |  | 607,231 |
Non-current investments, amortized cost of $450,719 and $431,633 in 2020 and 2019, respectively, allowance for expected credit losses of $160 and $0 in 2020 and 2019, respectively | 446,955 |  |  | 433,452 |
Property, plant, and equipment, net | 86,702 |  |  | 89,443 |
Operating lease assets | 17,346 |  |  | 17,522 |
Goodwill | 242,214 |  |  | 243,445 |
Intangible assets, net | 38,102 |  |  | 39,490 |
Deferred income taxes | 450,280 |  |  | 449,519 |
Other assets | 8,191 |  |  | 5,833 |
Total assets | $ | 1,885,077 |  |  | $ | 1,885,935 |
LIABILITIES AND SHAREHOLDERS’ EQUITY |  |  |
Current liabilities: |  |  |
Accounts payable | $ | 16,195 |  |  | $ | 17,866 |
Accrued expenses | 63,955 |  |  | 52,199 |
Accrued income taxes | 38,692 |  |  | 30,333 |
Deferred revenue and customer deposits | 26,252 |  |  | 14,432 |
Operating lease liabilities | 5,550 |  |  | 5,647 |
Total current liabilities | 150,644 |  |  | 120,477 |
Non-current operating lease liabilities | 12,416 |  |  | 12,326 |
Deferred income taxes | 330,532 |  |  | 332,344 |
Reserve for income taxes | 11,891 |  |  | 11,563 |
Non-current accrued income taxes | 48,915 |  |  | 51,113 |
Other liabilities | 3,186 |  |  | 2,402 |
Total liabilities | 557,584 |  |  | 530,225 |
Shareholders’ equity: |  |  |
Preferred stock, $.01 par value – Authorized: 400 shares in 2020 and 2019, respectively, no shares issued and outstanding | — |  |  | — |
Common stock, $.002 par value – Authorized: 300,000 shares in 2020 and 2019, respectively, issued and outstanding: 171,688 and 172,440 shares in 2020 and 2019, respectively | 344 |  |  | 345 |
Additional paid-in capital | 664,132 |  |  | 639,372 |
Retained earnings | 713,208 |  |  | 753,268 |
Accumulated other comprehensive loss, net of tax | (50,191 | ) |  | (37,275 | )
Total shareholders’ equity | 1,327,493 |  |  | 1,355,710 |
Total liabilities and shareholders' equity | $ | 1,885,077 |  |  | $ | 1,885,935 |

The accompanying notes are an integral part of these consolidated financial statements.
5

COGNEX CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)

| Three-months Ended
| March 29, 2020 |  | March 31, 2019
| (unaudited)
Cash flows from operating activities: |  |  |
Net income | $ | 20,477 |  |  | $ | 33,104 |
Adjustments to reconcile net income to net cash provided by operating activities: |  |  |
Stock-based compensation expense | 14,790 |  |  | 12,281 |
Depreciation of property, plant, and equipment | 5,631 |  |  | 5,175 |
Amortization of intangible assets | 1,388 |  |  | 769 |
Amortization of discounts or premiums on investments | 106 |  |  | (1,461 | )
Realized (gain) loss on sale of investments | (1,850 | ) |  | (40 | )
Credit loss on investments | 160 |  |  | — |
Revaluation of contingent consideration | — |  |  | (985 | )
Change in deferred income taxes | (1,826 | ) |  | (1,140 | )
Change in operating assets and liabilities: |  |  |
Accounts receivable | 2,182 |  |  | 12,827 |
Unbilled revenue | (703 | ) |  | (1,890 | )
Inventories | 4,954 |  |  | 4,073 |
Prepaid expenses and other current assets | (9,788 | ) |  | 3,191 |
Accounts payable | (1,613 | ) |  | 4,245 |
Accrued expenses | 12,720 |  |  | (11,708 | )
Accrued income taxes | 7,650 |  |  | (3,501 | )
Deferred revenue and customer deposits | 11,961 |  |  | 6,760 |
Other | (1,097 | ) |  | (439 | )
Net cash provided by operating activities | 65,142 |  |  | 61,261 |
Cash flows from investing activities: |  |  |
Purchases of investments | (199,530 | ) |  | (258,596 | )
Maturities and sales of investments | 262,126 |  |  | 193,572 |
Purchases of property, plant, and equipment | (3,074 | ) |  | (5,078 | )
Net cash provided by (used in) investing activities | 59,522 |  |  | (70,102 | )
Cash flows from financing activities: |  |  |
Issuance of common stock under stock plans | 9,971 |  |  | 14,346 |
Repurchase of common stock | (51,036 | ) |  | — |
Payment of dividends | (9,503 | ) |  | (8,564 | )
Net cash provided by (used in) financing activities | (50,568 | ) |  | 5,782 |
Effect of foreign exchange rate changes on cash and cash equivalents | (6,330 | ) |  | 143 |
Net change in cash and cash equivalents | 67,766 |  |  | (2,916 | )
Cash and cash equivalents at beginning of period | 171,431 |  |  | 108,212 |
Cash and cash equivalents at end of period | $ | 239,197 |  |  | $ | 105,296 |

The accompanying notes are an integral part of these consolidated financial statements.
6

COGNEX CORPORATION
CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY
(In thousands)

| Common Stock |  | Additional Paid-in Capital |  | Retained Earnings |  | Accumulated Other Comprehensive Loss |  | Total Shareholders’ Equity
| Shares |  | Par Value |  |  |  |
Balance as of December 31, 2019 | 172,440 |  |  | $ | 345 |  |  | $ | 639,372 |  |  | $ | 753,268 |  |  | $ | (37,275 | ) |  | $ | 1,355,710 |
Issuance of common stock under stock plans | 463 |  |  | 1 |  |  | 9,970 |  |  | — |  |  | — |  |  | 9,971 |
Repurchase of common stock | (1,215 | ) |  | (2 | ) |  | — |  |  | (51,034 | ) |  | — |  |  | (51,036 | )
Stock-based compensation expense | — |  |  | — |  |  | 14,790 |  |  | — |  |  | — |  |  | 14,790 |
Payment of dividends | — |  |  | — |  |  | — |  |  | (9,503 | ) |  | — |  |  | (9,503 | )
Net income | — |  |  | — |  |  | — |  |  | 20,477 |  |  | — |  |  | 20,477 |
Net unrealized gain (loss) on available-for-sale investments, net of tax of ($952) | — |  |  | — |  |  | — |  |  | — |  |  | (3,861 | ) |  | (3,861 | )
Reclassification of credit loss on investments |  |  |  |  |  |  |  |  | 160 |  |  | 160 |
Reclassification of net realized (gain) loss on the sale of available-for-sale investments | — |  |  | — |  |  | — |  |  | — |  |  | (1,850 | ) |  | (1,850 | )
Foreign currency translation adjustment | — |  |  | — |  |  | — |  |  | — |  |  | (7,365 | ) |  | (7,365 | )
Balance as of March 29, 2020 (unaudited) | 171,688 |  |  | $ | 344 |  |  | $ | 664,132 |  |  | $ | 713,208 |  |  | $ | (50,191 | ) |  | $ | 1,327,493 |

| Common Stock |  | Additional Paid-in Capital |  | Retained Earnings |  | Accumulated Other Comprehensive Loss |  | Total Shareholders’ Equity
| Shares |  | Par Value |  |  |  |
Balance as of December 31, 2018 | 170,820 |  |  | $ | 342 |  |  | $ | 529,208 |  |  | $ | 646,214 |  |  | $ | (40,501 | ) |  | $ | 1,135,263 |
Issuance of common stock under stock plans | 717 |  |  | 1 |  |  | 14,345 |  |  | — |  |  | — |  |  | 14,346 |
Stock-based compensation expense | — |  |  | — |  |  | 12,281 |  |  | — |  |  | — |  |  | 12,281 |
Payment of dividends | — |  |  | — |  |  | — |  |  | (8,564 | ) |  | — |  |  | (8,564 | )
Net income | — |  |  | — |  |  | — |  |  | 33,104 |  |  | — |  |  | 33,104 |
Net unrealized gain (loss) on available-for-sale investments, net of tax of $268 | — |  |  | — |  |  | — |  |  | — |  |  | 2,251 |  |  | 2,251 |
Reclassification of net realized (gain) loss on the sale of available-for-sale investments | — |  |  | — |  |  | — |  |  | — |  |  | (40 | ) |  | (40 | )
Foreign currency translation adjustment | — |  |  | — |  |  | — |  |  | — |  |  | 218 |  |  | 218 |
Balance as of March 31, 2019 (unaudited) | 171,537 |  |  | $ | 343 |  |  | $ | 555,834 |  |  | $ | 670,754 |  |  | $ | (38,072 | ) |  | $ | 1,188,859 |

The accompanying notes are an integral part of these consolidated financial statements.
7

COGNEX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
NOTE 1: Summary of Significant Accounting Policies
As permitted by the rules of the Securities and Exchange Commission applicable to Quarterly Reports on Form 10-Q, these notes are condensed and do not contain all disclosures required by generally accepted accounting principles (GAAP). As a result of the adoption of ASU 2016-13 "Measurement of Credit Losses on Financial Instruments," Cognex Corporation (the "Company") has provided new disclosures related to credit losses in this Quarterly Report on Form 10-Q. Reference should be made to the consolidated financial statements and related notes included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2019 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 March 29, 2020, and the results of its operations for the three-month periods ended March 29, 2020 and March 31, 2019, 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 period ended March 29, 2020 are not necessarily indicative of the results to be expected for the full year.
Cash, Cash Equivalents, and Investments
Money market instruments, as well as certificates of deposits and debt securities with original maturities of three months or less, are classified as cash equivalents and are stated at amortized cost. Certificates of deposit and debt securities with original maturities greater than three months and remaining maturities of one year or less are classified as current investments. Debt securities with remaining maturities greater than one year are classified as non-current investments. It is the Company’s policy to invest in debt securities with effective maturities that do not exceed ten years.
Debt securities with original maturities greater than three months are designated as available-for-sale and are reported at fair value, with unrealized gains and losses, net of tax and credit losses, recorded in shareholders’ equity as other comprehensive income (loss). Realized gains and losses are included in current operations, along with the amortization of the discount or premium on debt securities arising at acquisition, and are calculated using the specific identification method. The Company’s limited partnership interest is accounted for using the cost method because the Company’s investment is less than 5% of the partnership and the Company has no influence over the partnership’s operating and financial policies. The carrying value of this investment has been reduced to zero, and therefore, distributions are recorded as investment income as they occur.
Management monitors the carrying value of its investments in debt securities compared to their fair value to determine whether a credit loss or other type of impairment has occurred. If the fair value of a debt security is less than its amortized cost, the Company assesses whether the decline has resulted from a credit loss or other factors. In assessing whether a credit loss exists, the Company compares the present value of the cash flows expected to be collected from the security with the amortized cost basis of the security. If the present value of the cash flows expected to be collected is less than the amortized cost basis of the security, then a credit loss exists and an allowance for credit losses is recorded. The allowance for credit losses is limited by the amount that the fair value is less than the amortized cost basis of the security. Credit losses on impaired securities continue to be measured in subsequent periods, using the present value of expected future cash flows, and changes in the expected credit losses are recorded in current operations. Credit losses are included in "Other income (expense)" on the Consolidated Statement of Operations. When developing an estimate of the expected credit losses, the Company considers all available information relevant to assessing the collectability of cash flows. This information includes internal and external factors, historical and current events, reasonable and supportable forecasts including management's expectations of future economic conditions, the type of security, the credit rating of the security, the size of the loss position, as well as other relevant information.
An impairment is recognized as a write-down if (i) the Company has the intent to sell the security or (ii) it is more likely than not that the Company will be required to sell the security before recovery of the entire amortized cost basis. If impairment is considered upon condition (i) or (ii) described above, the debt security's amortized cost basis is written-down to its fair value and the impairment is recognized in current operations. Subsequent increases in the fair value of the debt securities after the write-down are included in shareholders' equity as other comprehensive income. The differences between the new amortized cost basis and the cash flows expected to be collected are accreted as interest income.
8

Unrealized losses, that have not been recorded through an allowance for credit losses or write-down of the debt security, are recorded in shareholders' equity as other comprehensive loss, net of the applicable taxes.
Accounts Receivable
The Company extends credit with various payment terms to customers based upon an evaluation of their financial condition. Accounts that are outstanding longer than the payment terms are considered to be past due. The Company establishes an allowance against accounts receivable for potential credit losses and records bad debt expense in current operations when it determines receivables are at risk for collection based upon the length of time the receivable has been outstanding, the customer’s current ability to pay its obligations to the Company, general economic and industry conditions, reasonable forecasts about the future, as well as various other factors. Receivables are written off against this allowance in the period they are determined to be uncollectible and payments subsequently received on previously written-off receivables are recorded as a reversal of the bad debt expense. Credit losses are included in "Selling, general, and administrative expenses" on the Consolidated Statement of Operations.
NOTE 2: New Pronouncements
Accounting Standards Update (ASU) 2019-12, "Simplifying the Accounting for Income Taxes"
ASU 2019-12 applies to all entities within the scope of Topic 740, Income Taxes. The amendments in this ASU simplify the accounting for income taxes by removing the following exceptions: 1) exception to the incremental approach for intraperiod tax allocation when there is a loss from continuing operations and income or a gain from other items; 2) exception to the requirement to recognize a deferred tax liability for equity method investments when a foreign subsidiary becomes an equity method investment; 3) exception to the ability not to recognize a deferred tax liability for a foreign subsidiary when a foreign equity method investment becomes a subsidiary; and 4) exception to the general methodology for calculating income taxes in an interim period when a year-to-date loss exceeds the anticipated loss for the year. The amendments in this ASU also simplify the accounting for income taxes by doing the following: 1) requiring that an entity recognize a franchise tax that is partially based on income as an income-based tax and account for any incremental amount incurred as a non-income-based tax; 2) requiring that an entity evaluate when a step up in the tax basis of goodwill should be considered part of the business combination in which the book goodwill was originally recognized and when it should be considered a separate transaction; 3) specifying that an entity is not required to allocate the consolidated amount of current and deferred tax expense to a legal entity that is not subject to tax in its separate financial statements; and 4) requiring that an entity reflect the effect of an enacted change in tax laws or rates in the annual effective tax rate computation in the interim period that included the enacted date. The amendments in this ASU are effective for public companies for annual periods, and interim periods within those annual periods, beginning after December 15, 2020. Early adoption is permitted; however, an entity that elects to early adopt the amendments must adopt all the amendments in the same period. The amendments in this ASU related to separate financial statements of legal entities that are not subject to tax should be applied on a retrospective basis for all periods presented. The amendments related to changes in ownership of foreign equity method investments or foreign subsidiaries should be applied on a modified retrospective basis through a cumulative-effect adjustment to retained earnings as of the beginning of the fiscal year of adoption. The amendments related to franchise taxes that are partially based on income should be applied on either a retrospective basis for all periods presented or a modified retrospective basis through a cumulative-effect adjustment to retained earnings as of the beginning of the fiscal year of adoption. All other amendments should be applied on a prospective basis. Management does not expect ASU 2019-12 to have a material impact on the Company's consolidated financial statements and disclosures.
Accounting Standards Update (ASU) 2020-04, "Reference Rate Reform (Topic 848)"
The amendments in this ASU apply to all entities that have contracts, hedging relationships, and other transactions that reference LIBOR or another reference rate expected to be discontinued because of reference rate reform. The amendments in this ASU provide optional expedients and exceptions for applying generally accepted accounting principles (GAAP) to contracts, hedging relationships, and other transactions affected by reference rate reform if certain criteria are met. The expedients and exceptions provided by the amendments do not apply to contract modifications made and hedging relationships entered into or evaluated after December 31, 2022, except for hedging relationships existing as of December 31, 2022, that an entity has elected certain optional expedients for and that are retained through the end of the hedging relationship. The amendments in this ASU are effective for all entities as of March 12, 2020 through December 31, 2022. Management does not expect ASU 2020-04 to have a material impact on the Company's consolidated financial statements and disclosures.
9

COGNEX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
NOTE 3: Fair Value Measurements
Financial Assets and Liabilities that are Measured at Fair Value on a Recurring Basis
The following table summarizes the financial assets and liabilities required to be measured at fair value on a recurring basis as of March 29, 2020 (in thousands):

| Quoted Prices in Active Markets for Identical Assets (Level 1) |  | Significant Other Observable Inputs (Level 2) |  | Unobservable Inputs (Level 3)
Assets: |  |  |  |  |
Money market instruments | $ | 13,990 |  |  | $ | — |  |  | $ | — |
Corporate bonds | — |  |  | 232,806 |  |  |
Treasury bills | — |  |  | 210,456 |  |  | — |
Asset-backed securities | — |  |  | 121,351 |  |  | — |
Sovereign bonds | — |  |  | 24,570 |  |  | — |
Municipal bonds | — |  |  | 6,980 |  |  |
Agency bonds | — |  |  | 5,915 |  |  | — |
Certificate of deposit |  |  | 4,121 |  |  |
Economic hedge forward contracts | — |  |  | 131 |  |  | — |
Liabilities: |  |  |  |  |
Economic hedge forward contracts | — |  |  | 703 |  |  | — |
Contingent consideration liabilities | — |  |  | — |  |  | 1,153 |

The Company’s money market instruments are reported at fair value based upon the daily market price for identical assets in active markets, and are therefore classified as Level 1.
The Company’s debt securities and forward contracts are reported at fair value based upon model-driven valuations in which all significant inputs are observable or can be derived from or corroborated by observable market data for substantially the full term of the asset or liability, and are therefore classified as Level 2. Management is responsible for estimating the fair value of these financial assets and liabilities, and in doing so, considers valuations provided by a large, third-party pricing service. For debt securities, this service maintains regular contact with market makers, brokers, dealers, and analysts to gather information on market movement, direction, trends, and other specific data. They use this information to structure yield curves for various types of debt securities and arrive at the daily valuations. The Company's forward contracts are typically traded or executed in over-the-counter markets with a high degree of pricing transparency. The market participants are generally large commercial banks. The Company's certificate of deposit is valued at cost, which approximates fair value given its short term to maturity.
The Company recorded credit losses on debt securities totaling $160,000 during the three-month period ended March 29, 2020. No credit losses were recorded during the three-month period ended March 31, 2019.
The Company's contingent consideration liabilities are reported at fair value based upon probability-adjusted present values of the consideration expected to be paid using significant inputs that are not observable in the market and are therefore classified as Level 3. Key assumptions used in these estimates include probability assessments with respect to the likelihood of achieving certain revenue milestones. The fair values of these contingent consideration liabilities were calculated using discount rates consistent with the level of risk of achievement, and are remeasured each reporting period with changes in fair value recorded in "Other income (expense)" on the Consolidated Statements of Operations.
The Company currently has two contingent consideration liabilities related to the Chiaro Technologies, LLC ("Chiaro") and GVi Ventures, Inc. ("GVi") acquisitions. The fair value of the Chiaro contingent consideration liability was $1,153,000 as of March 29, 2020 and December 31, 2019. The undiscounted potential outcomes related to future contingent consideration range from $0 to $1,250,000 based upon certain milestone revenue levels to be paid in 2020 if earned. The GVi contingent consideration liability was written down to zero as of December 31, 2019 resulting from a lower level of revenue in the Americas' automotive industry, and the balance remains at zero as of March 29, 2020. The undiscounted potential outcomes related to future contingent consideration range from $0 to $2,500,000 based upon certain revenue levels over the next two years.
10

COGNEX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
Non-financial Assets that are Measured at Fair Value on a Non-recurring Basis
Non-financial assets such as property, plant and equipment, goodwill, and intangible assets are required to be measured at fair value only when an impairment loss is recognized. The Company did not record an impairment charge related to these assets during the three-month periods ended March 29, 2020 and March 31, 2019.
NOTE 4: Cash, Cash Equivalents, and Investments
Cash, cash equivalents, and investments consisted of the following (in thousands):

| March 29, 2020 |  | December 31, 2019
Cash | $ | 225,207 |  |  | $ | 155,498 |
Money market instruments | 13,990 |  |  | 15,933 |
Cash and cash equivalents | 239,197 |  |  | 171,431 |
Asset-backed securities | 69,956 |  |  | 66,680 |
Corporate bonds | 54,937 |  |  | 65,624 |
Treasury bills | 19,763 |  |  | 92,914 |
Municipal bonds | 6,980 |  |  | 4,630 |
Certificate of deposit | 4,121 |  |  | 4,328 |
Sovereign bonds | 3,487 |  |  | 6,294 |
Current investments | 159,244 |  |  | 240,470 |
Treasury bills | 190,693 |  |  | 216,334 |
Corporate bonds | 177,869 |  |  | 146,474 |
Asset-backed securities | 51,395 |  |  | 46,403 |
Sovereign bonds | 21,083 |  |  | 16,005 |
Agency bonds | 5,915 |  |  | 5,914 |
Municipal bonds | — |  |  | 2,322 |
Non-current investments | 446,955 |  |  | 433,452 |
| $ | 845,396 |  |  | $ | 845,353 |

Asset-backed securities consist of debt securities collateralized by pools of receivables or loans with credit enhancement; corporate bonds consist of debt securities issued by both domestic and foreign companies; treasury bills consist of debt securities issued by the U.S. government; municipal bonds consist of debt securities issued by state and local government entities; certificates of deposit are time deposits held by financial institutions with a fixed interest rate; sovereign bonds consist of direct debt issued by foreign governments; and agency bonds consist of domestic or foreign obligations of government agencies and government-sponsored enterprises that have government backing. All securities are denominated in U.S. Dollars and the certificate of deposit is denominated in Korean Won.
11

COGNEX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
On January 1, 2020, the Company adopted Accounting Standards Update (ASU) 2016-13, “Measurement of Credit Losses on Financial Instruments,” using the modified-retrospective approach, which requires the Company to apply the standard on a prospective basis with a cumulative-effect adjustment to retained earnings as of the beginning of the period in which the guidance is effective. The Company did not record an adjustment to retained earnings, as there were no debt securities with credit losses as of the adoption date.
The following table summarizes the Company’s available-for-sale investments as of March 29, 2020 (in thousands):

| Amortized Cost |  | Gross Unrealized Gains |  | Gross Unrealized Losses |  | Fair Value
Current: |  |  |  |  |  |  |
Asset-backed securities | $ | 70,510 |  |  | $ | 25 |  |  | $ | (579 | ) |  | $ | 69,956 |
Corporate bonds | 55,404 |  |  | 20 |  |  | (487 | ) |  | 54,937 |
Treasury bills | 19,328 |  |  | 435 |  |  | — |  |  | 19,763 |
Municipal bonds | 6,944 |  |  | 36 |  |  | — |  |  | 6,980 |
Sovereign bonds | 3,485 |  |  | 2 |  |  | — |  |  | 3,487 |
Non-current: |  |  |  |  |  |  |
Treasury bills | 187,794 |  |  | 2,899 |  |  | — |  |  | 190,693 |
Corporate bonds | 183,646 |  |  | 117 |  |  | (5,894 | ) |  | 177,869 |
Asset-backed securities | 52,405 |  |  | 55 |  |  | (1,065 | ) |  | 51,395 |
Sovereign bonds | 20,944 |  |  | 147 |  |  | (8 | ) |  | 21,083 |
Agency bonds | 5,930 |  |  | — |  |  | (15 | ) |  | 5,915 |
| $ | 606,390 |  |  | $ | 3,736 |  |  | $ | (8,048 | ) |  | $ | 602,078 |

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 March 29, 2020 (in thousands):

| Unrealized Loss Position For: |  |
| Less than 12 Months |  | 12 Months or Greater |  | Total
| Fair Value |  | Unrealized Losses |  | Fair Value |  | Unrealized Losses |  | Fair Value |  | Unrealized Losses
Corporate bonds | $ | 195,755 |  |  | $ | (6,337 | ) |  | $ | 1,146 |  |  | $ | (44 | ) |  | $ | 196,901 |  |  | $ | (6,381 | )
Asset-backed securities | 108,932 |  |  | (1,640 | ) |  | 674 |  |  | (4 | ) |  | 109,606 |  |  | (1,644 | )
Sovereign bonds | 13,662 |  |  | (8 | ) |  | — |  |  | — |  |  | 13,662 |  |  | (8 | )
Agency bonds | 3,123 |  |  | (6 | ) |  | 2,792 |  |  | (9 | ) |  | 5,915 |  |  | (15 | )
| $ | 321,472 |  |  | $ | (7,991 | ) |  | $ | 4,612 |  |  | $ | (57 | ) |  | $ | 326,084 |  |  | $ | (8,048 | )

The Company recorded credit losses on debt securities totaling $160,000 during the three-month period ended March 29, 2020. No credit losses on debt securities were recorded during the three-month period ended March 31, 2019. Credit losses are included in "Other income (expense)" on the Consolidated Statement of Operations.
Accrued interest receivable is recorded in "Prepaid expenses and other current assets" on the Consolidated Balance Sheet and amounted to $2,268,000 and $2,874,000 as of March 29, 2020 and December 31, 2019, respectively.
In its evaluation to determine expected credit losses, management considered all available historical and current information, expectations of future economic conditions, the type of security, the credit rating of the security, and the size of the loss position, as well as other relevant information. The Company does not intend to sell, and is unlikely to be required to sell, any of these available-for-sale investments before their effective maturity or market price recovery.
The following table summarizes the allowance for credit losses activity for the three-month period ended March 29, 2020 (in thousands):

Balance as of December 31, 2019 | $ | — |
Increases to the allowance for credit losses | 160 |
Write-offs | — |
Balance as of March 29, 2020 | $ | 160 |

12

COGNEX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
The Company recorded gross realized gains and gross realized losses on the sale of debt securities totaling $1,865,000 and $15,000, respectively, during the three-month period ended March 29, 2020 and $64,000 and $24,000, respectively, during the three-month period ended March 31, 2019. These 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, are recorded in shareholders’ equity as accumulated other comprehensive loss.
The following table presents the effective maturity dates of the Company’s available-for-sale investments as of March 29, 2020 (in thousands):

| <1 year |  | 1-2 Years |  | 2-3 Years |  | 3-4 Years |  | 4-5 Years |  | Total
Corporate bonds | $ | 54,937 |  |  | $ | 87,940 |  |  | $ | 80,663 |  |  | $ | 9,266 |  |  | $ | — |  |  | $ | 232,806 |
Treasury bills | 19,763 |  |  | 101,648 |  |  | 89,045 |  |  | — |  |  | — |  |  | 210,456 |
Asset-backed securities | 69,956 |  |  | 10,436 |  |  | 33,206 |  |  | 3,393 |  |  | 4,360 |  |  | 121,351 |
Sovereign bonds | 3,487 |  |  | 21,083 |  |  | — |  |  | — |  |  | — |  |  | 24,570 |
Municipal bonds | 6,980 |  |  | — |  |  | — |  |  | — |  |  | — |  |  | 6,980 |
Agency bonds | — |  |  | — |  |  | 5,915 |  |  | — |  |  | — |  |  | 5,915 |
| $ | 155,123 |  |  | $ | 221,107 |  |  | $ | 208,829 |  |  | $ | 12,659 |  |  | $ | 4,360 |  |  | $ | 602,078 |

NOTE 5: Inventories
Inventories consisted of the following (in thousands):

| March 29, 2020 |  | December 31, 2019
Raw materials | $ | 23,246 |  |  | $ | 27,285 |
Work-in-process | 6,034 |  |  | 5,503 |
Finished goods | 25,705 |  |  | 27,473 |
| $ | 54,985 |  |  | $ | 60,261 |

NOTE 6: Leases
The Company's leases are primarily leased properties across different worldwide locations where the Company conducts its operations. All of these leases are classified as operating leases. Certain leases may contain options to extend or terminate the lease at the Company's sole discretion. There were no options to extend or terminate that were included in the determination of the lease term for the leases outstanding as of March 29, 2020. Certain leases contain leasehold improvement incentives, retirement obligations, escalating clauses, rent holidays, and variable payments tied to a consumer price index. There were no restrictions or covenants for the leases outstanding as of March 29, 2020.
The total operating lease expense for the three-month periods ended March 29, 2020 and March 31, 2019 was $1,906,000 and $1,485,000, respectively. The total operating lease cash payments for the three-month periods ended March 29, 2020 and March 31, 2019 were $1,863,000 and $1,401,000, respectively. The total lease expense for leases with a term of twelve months or less for which the Company elected not to recognize a lease asset or lease liability was $39,000 and $169,000 for the three-month periods ended March 29, 2020 and March 31, 2019, respectively.
13

COGNEX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
Future operating lease cash payments are as follows (in thousands):

Year Ended December 31, |  | Amount
Remainder of fiscal 2020 |  | $ | 5,001 |
2021 |  | 6,223 |
2022 |  | 4,739 |
2023 |  | 3,712 |
2024 |  | 1,490 |
2025 |  | 429 |
Thereafter |  | — |
|  | $ | 21,594 |

The discounted present value of the future lease cash payments resulted in a lease liability of $17,966,000 and $17,973,000 as of March 29, 2020 and December 31, 2019, respectively. The Company did not have any leases that had not yet commenced but that created significant rights and obligations as of March 29, 2020 or March 31, 2019.
The weighted-average discount rate was 4.4% and 4.8% for the leases outstanding as of March 29, 2020 and March 31, 2019, respectively. The weighted-average remaining lease term was 3.7 and 4.1 for the leases outstanding as of March 29, 2020 and March 31, 2019, respectively.
The Company owns a building adjacent to its corporate headquarters that is partially occupied by a tenant who has a lease agreement that will expire in 2022. Rental income was $77,000 for both periods ended March 29, 2020 and March 31, 2019, respectively.
Future minimum rental receipts under non-cancelable lease agreements are as follows (in thousands):

Year Ended December 31, |  | Amount
Remainder of fiscal 2020 |  | $ | 230 |
2021 |  | 307 |
2022 |  | 307 |
|  | $ | 844 |

NOTE 7: Goodwill
The changes in the carrying value of goodwill were as follows (in thousands):

Balance as of December 31, 2019 |  | $ | 243,445 |
Foreign exchange rate changes |  | (1,231 | )
Balance as of March 29, 2020 |  | $ | 242,214 |

14

COGNEX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
NOTE 8: Intangible Assets
Amortized intangible assets consisted of the following (in thousands):

| Gross Carrying Value |  | Accumulated Amortization |  | Net Carrying Value
Distribution networks | $ | 38,060 |  |  | $ | 38,060 |  |  | $ | — |
Completed technologies | 31,987 |  |  | 10,154 |  |  | 21,833 |
Customer relationships | 14,407 |  |  | 6,738 |  |  | 7,669 |
In-process technologies | 8,200 |  |  | — |  |  | 8,200 |
Non-compete agreements | 710 |  |  | 395 |  |  | 315 |
Trademarks | 110 |  |  | 25 |  |  | 85 |
Balance as of March 29, 2020 | $ | 93,474 |  |  | $ | 55,372 |  |  | $ | 38,102 |
| Gross Carrying Value |  | Accumulated Amortization |  | Net Carrying Value
Distribution networks | $ | 38,060 |  |  | $ | 38,060 |  |  | $ | — |
Completed technologies | 31,987 |  |  | 9,160 |  |  | 22,827 |
Customer relationships | 14,407 |  |  | 6,402 |  |  | 8,005 |
In-process technologies | 8,200 |  |  | — |  |  | 8,200 |
Non-compete agreements | 710 |  |  | 350 |  |  | 360 |
Trademarks | 110 |  |  | 12 |  |  | 98 |
Balance as of December 31, 2019 | $ | 93,474 |  |  | $ | 53,984 |  |  | $ | 39,490 |

In connection with the acquisition of Sualab Co., Ltd. ("Sualab") in the fourth quarter of 2019, the Company acquired in-process technologies valued at $8,200,000. In-process technology is an indefinite-lived intangible asset until the technology is finalized, at which point it is amortized over its estimated useful life.
As of March 29, 2020, estimated future amortization expense related to intangible assets is as follows (in thousands):

Year Ended December 31, |  | Amount
Remainder of fiscal 2020 |  | $ | 4,023 |
2021 |  | 5,232 |
2022 |  | 4,862 |
2023 |  | 4,160 |
2024 |  | 3,593 |
2025 |  | 3,270 |
Thereafter |  | 4,762 |
|  | $ | 29,902 |

NOTE 9: Warranty Obligations
The Company records the estimated cost of fulfilling product warranties at the time of sale based upon historical costs to fulfill claims. Obligations may also be recorded subsequent to the time of sale whenever specific events or 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.
15

COGNEX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
The changes in the warranty obligation were as follows (in thousands):

Balance as of December 31, 2019 | $ | 4,713 |
Provisions for warranties issued during the period | 725 |
Fulfillment of warranty obligations | (419 | )
Balance as of March 29, 2020 | $ | 5,019 |

NOTE 10: Derivative Instruments
The Company’s foreign currency risk management strategy is principally designed to mitigate the potential financial impact of changes in the value of transactions and balances denominated in foreign currencies resulting from changes in foreign currency exchange rates. Currently, the Company enters into economic hedges to manage this risk. The economic hedges utilize foreign currency forward contracts with maturities of up to 45 days 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):

| March 29, 2020 |  | December 31, 2019
Currency | Notional Value |  | USD Equivalent |  | Notional Value |  | USD Equivalent
Derivatives Not Designated as Hedging Instruments: |  |  |  |
Korean Won | 130,400,000 |  |  | $ | 107,516 |  |  | 161,951,500 |  |  | $ | 139,688 |
Euro | 37,500 |  |  | 41,275 |  |  | 18,000 |  |  | 20,249 |
Mexican Peso | 180,000 |  |  | 7,647 |  |  | 80,000 |  |  | 4,223 |
Japanese Yen | 600,000 |  |  | 5,540 |  |  | 575,000 |  |  | 5,291 |
British Pound | 2,750 |  |  | 3,364 |  |  | 2,700 |  |  | 3,569 |
Hungarian Forint | 980,000 |  |  | 3,026 |  |  | 870,000 |  |  | 2,962 |
Canadian Dollar | 1,300 |  |  | 922 |  |  | 1,300 |  |  | 1,000 |
Taiwanese Dollar | 22,000 |  |  | 735 |  |  | 37,450 |  |  | 1,256 |
Singapore Dollar | — |  |  | — |  |  | 845 |  |  | 628 |

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

| Asset Derivatives |  | Liability Derivatives
| Balance |  | Fair Value |  | Balance |  | Fair Value
| Sheet Location |  | March 29, 2020 |  | December 31, 2019 |  | Sheet Location |  | March 29, 2020 |  | December 31, 2019
Derivatives Not Designated as Hedging Instruments: |  |  |  |  |  |
Economic hedge forward contracts | Prepaid expenses and other current assets |  | $ | 131 |  |  | $ | 857 |  |  | Accrued expenses |  | $ | 703 |  |  | $ | 23 |

16

COGNEX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
The following table presents the gross activity for all derivative assets and liabilities which were presented on a net basis on the Consolidated Balance Sheets due to the right of offset with each counterparty (in thousands):

Asset Derivatives |  | Liability Derivatives
|  | March 29, 2020 |  | December 31, 2019 |  |  |  | March 29, 2020 |  | December 31, 2019
Gross amounts of recognized assets |  | $ | 131 |  |  | $ | 857 |  |  | Gross amounts of recognized liabilities |  | $ | 703 |  |  | $ | 23 |
Gross amounts offset |  | — |  |  | — |  |  | Gross amounts offset |  | — |  |  | — |
Net amount of assets presented |  | $ | 131 |  |  | $ | 857 |  |  | Net amount of liabilities presented |  | $ | 703 |  |  | $ | 23 |

Information regarding the effect of derivative instruments on the consolidated financial statements was as follows (in thousands):

| Location in Financial Statements |  | Three-months Ended
|  | March 29, 2020 |  | March 31, 2019
Derivatives Not Designated as Hedging Instruments:
Gains (losses) recognized in current operations | Foreign currency gain (loss) |  | $ | (8,240 | ) |  | $ | 505 |

NOTE 11: Revenue Recognition
The following table summarizes disaggregated revenue information by geographic area based upon the customer's country of domicile (in thousands):

|  | Three-months Ended
|  | March 29, 2020 |  | March 31, 2019
Americas |  | $ | 60,247 |  |  | $ | 64,770 |
Europe |  | 48,582 |  |  | 59,539 |
Greater China |  | 26,403 |  |  | 22,816 |
Other Asia |  | 32,003 |  |  | 26,359 |
|  | $ | 167,235 |  |  | $ | 173,484 |

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

|  | Three-months Ended
|  | March 29, 2020 |  | March 31, 2020
Standard products and services |  | $ | 152,854 |  |  | $ | 161,052 |
Application-specific customer solutions |  | 14,381 |  |  | 12,432 |
|  | $ | 167,235 |  |  | $ | 173,484 |

Costs to Fulfill a Contract
Costs to fulfill a contract are included in "Prepaid expenses and other current assets" on the Consolidated Balance Sheet and amounted to $5,835,000 and $3,963,000 as of March 29, 2020 and December 31, 2019, respectively.
Accounts Receivable, Contract Assets, and Contract Liabilities
Accounts receivable represent amounts billed and currently due from customers which are reported at their net estimated realizable value. The Company maintains an allowance against its accounts receivable for potential credit losses. Contract assets consist of unbilled revenue which arises when revenue is recognized in advance of billing for
17

COGNEX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
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.
On January 1, 2020, the Company adopted Accounting Standards Update (ASU) 2016-13, “Measurement of Credit Losses on Financial Instruments,” using the modified-retrospective approach, which requires the Company to apply the standard on a prospective basis with a cumulative-effect adjustment to retained earnings as of the beginning of the period in which the guidance is effective. The Company did not record an adjustment to retained earnings as this ASU did not have a material impact on the Company's consolidated allowance for credit losses.
The Company recorded credit losses on accounts receivable of $300,000 for the three-month period ended March 29, 2020. No credit losses on accounts receivables were recorded during the three-month period ended March 31, 2019.
The following table summarizes the allowance for credit losses activity for the three-month period ended March 29, 2020 (in thousands):

Balance as of December 31, 2019 | $ | 530 |
Increases to the allowance for credit losses | 300 |
Write-offs | (64 | )
Foreign exchange rate changes | 5 |
Balance as of March 29, 2020 | $ | 771 |

The following table summarizes the deferred revenue and customer deposits activity for the three-month period ended March 29, 2020 (in thousands):

Balance as of December 31, 2019 | $ | 14,432 |
Increases to deferred revenue and customer deposits | 24,625 |
Recognition of revenue | (12,670 | )
Foreign exchange rate changes | (135 | )
Balance as of March 29, 2020 | $ | 26,252 |

As a practical expedient, the Company has elected not to disclose the aggregate amount of the transaction price allocated to unsatisfied performance obligations, as our contracts have an original expected duration of less than one year.
NOTE 12: Stock-Based Compensation Expense
Stock Plans
The Company’s stock-based awards that result in compensation expense consist of stock options and restricted stock units ("RSUs"). As of March 29, 2020, the Company had 16,115,000 shares available for grant. Stock options are granted with an exercise price equal to the market value of the Company’s common stock at the grant date and generally vest over four or five years based upon continuous service and expire ten years from the grant date. RSUs generally vest upon three years of continuous employment or incrementally over such three-year period. Participants are not entitled to dividends on RSUs.
18

COGNEX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
Stock Options
The following table summarizes the Company’s stock option activity for the three-month period ended March 29, 2020:

| Shares (in thousands) |  | Weighted- Average Exercise Price |  | Weighted- Average Remaining Contractual Term (in years) |  | Aggregate Intrinsic Value (in thousands)
Outstanding as of December 31, 2019 | 12,899 |  |  | $ | 37.95 |  |  |  |  |
Granted | 883 |  |  | 50.94 |  |  |  |  |
Exercised | (463 | ) |  | 21.52 |  |  |  |  |
Forfeited or expired | (83 | ) |  | 50.10 |  |  |  |  |
Outstanding as of March 29, 2020 | 13,236 |  |  | $ | 39.32 |  |  | 7.12 |  | $ | 113,087 |
Exercisable as of March 29. 2020 | 6,652 |  |  | $ | 30.93 |  |  | 6.01 |  | $ | 98,637 |
Options vested or expected to vest as of March 29, 2020 (1) | 12,139 |  |  | $ | 38.37 |  |  | 6.98 |  | $ | 112,251 |

(1) In addition to the vested options, the Company expects a portion of the unvested options to vest at some point in the future. Options expected to vest are calculated by applying an estimated forfeiture rate to the unvested options.
The fair values of stock options granted in each period presented were estimated using the following weighted-average assumptions:

| Three-months Ended
| March 29, 2020 |  | March 31, 2019
Risk-free rate | 1.6 | % |  | 2.7 | %
Expected dividend yield | 0.43 | % |  | 0.39 | %
Expected volatility | 37 | % |  | 37 | %
Expected term (in years) | 6.0 |  |  | 5.3 |

Risk-free rate
The risk-free rate was based upon a treasury instrument whose term was consistent with the contractual term of the option.
Expected dividend yield
Generally, the current dividend yield is calculated by annualizing the cash dividend declared by the Company’s Board of Directors and dividing that result by the closing stock price on the grant date.
Expected volatility
The expected volatility was based upon a combination of historical volatility of the Company’s common stock over the contractual term of the option and implied volatility for traded options of the Company’s stock.
Expected term
The expected term was derived from the binomial lattice model from the impact of events that trigger exercises over time.
The weighted-average grant-date fair values of stock options granted during the three-month periods ended March 29, 2020 and March 31, 2019 were $18.46 and $18.59, respectively.
The total intrinsic values of stock options exercised for the three-month periods ended March 29, 2020 and March 31, 2019 were $14,454,000 and $22,579,000, respectively. The total fair values of stock options vested for the three-month periods ended March 29, 2020 and March 31, 2019 were $36,664,000 and $29,972,000, respectively.
19

COGNEX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
Restricted Stock Units (RSUs)
The following table summarizes the Company's RSUs activity for the three-month period ended March 29, 2020:

| Shares (in thousands) |  | Weighted-Average Grant Date Fair Value
Nonvested as of December 31, 2019 | 150 |  |  | $ | 48.63 |
Granted | 390 |  |  | 50.94 |
Vested | — |  |  | — |
Forfeited or expired | (4 | ) |  | 50.28 |
Nonvested as of March 29, 2020 | 536 |  |  | $ | 50.30 |

The weighted-average grant-date fair values of RSUs granted during the three-month period ended March 29, 2020 was $50.94. There were no RSUs that vested during the three-month period ended March 29, 2020. There were no RSUs granted or vested during the three-month period ended March 31, 2019.
Stock-Based Compensation Expense
The Company stratifies its employee population into two groups: one consisting of senior management and another consisting of all other employees. The Company currently applies an estimated annual forfeiture rate of 7% to all equity awards for senior management and a rate of 12% for all other employees. Each year during the first quarter, the Company revises its forfeiture rate. This resulted in an increase to compensation expense of $1,787,000 in 2020 and a decrease to compensation expense of $499,000 in 2019.
As of March 29, 2020, total unrecognized compensation expense related to non-vested equity awards, including stock options and RSUs, was $72,823,000, which is expected to be recognized over a weighted-average period of 2.21 years.
The total stock-based compensation expense and the related income tax benefit recognized for the three-month period ended March 29, 2020 were $14,790,000 and $2,564,000, respectively, and for the three-month period ended March 31, 2019 were $12,281,000 and $2,222,000, respectively. No compensation expense was capitalized as of March 29, 2020 or December 31, 2019.
The following table presents the stock-based compensation expense by caption for each period presented on the Consolidated Statements of Operations (in thousands):

| Three-months Ended
| March 29, 2020 |  | March 31, 2019
Cost of revenue | $ | 354 |  |  | $ | 451 |
Research, development, and engineering | 5,366 |  |  | 4,467 |
Selling, general, and administrative | 9,070 |  |  | 7,363 |
| $ | 14,790 |  |  | $ | 12,281 |

NOTE 13: Stock Repurchase Program
In October 2018, the Company's Board of Directors authorized the repurchase of $200,000,000 of the Company's common stock. As of March 29, 2020, the Company repurchased 2,816,000 shares at a cost of $121,348,000 under this program, including 1,215,000 shares at a cost of $51,036,000 during the three-month period ended March 29, 2020, leaving a remaining balance of $78,652,000. On March 12, 2020 the Company's Board of Directors authorized the repurchase of an additional $200,000,000 of the Company's common stock. Purchases under this March 2020 program will commence upon completion of the October 2018 program. The Company may repurchase shares under these programs in future periods depending upon a variety of factors, including, among other things, the impact of dilution from employee equity 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.
20

COGNEX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
NOTE 14: Income Taxes
A reconciliation of the United States federal statutory corporate tax rate to the Company’s income tax expense, or effective tax rate, was as follows:

| Three-months Ended
| March 29, 2020 |  | March 31, 2019
Income tax expense at U.S. federal statutory corporate tax rate | 21 | % |  | 21 | %
State income taxes, net of federal benefit | 1 | % |  | 1 | %
Foreign tax rate differential | (6 | )% |  | (9 | )%
Tax credit | (1 | )% |  | — | %
Discrete tax benefit related to stock options | (7 | )% |  | (8 | )%
Other discrete tax events | 1 | % |  | — | %
Other | 2 | % |  | 2 | %
Income tax expense | 11 | % |  | 7 | %

The Company is tax resident in numerous jurisdictions around the world and has identified its major tax jurisdictions as the United States, Ireland, and China. The statutory tax rate is 12.5% in Ireland and 25% in China, compared to the U.S. federal statutory corporate tax rate of 21%. These differences resulted in a decrease in the effective tax rate by 6 and 9 percentage points for the three-month periods ended March 29, 2020 and March 31, 2019, respectively. Management has determined that earnings from its legal entity in China will be indefinitely reinvested to provide local funding for growth, and that earnings from all other jurisdictions will not be indefinitely reinvested.
The excess tax benefit arising from the difference between the deduction for tax purposes and the compensation cost recognized for financial reporting purposes from stock option exercises resulted in a decrease in the effective tax rate by 7 and 8 percentage points for the three-month periods ended March 29, 2020 and March 31, 2019, respectively.
During the three-month period ended March 29, 2020, the Company recorded a $306,000 increase in reserves for income taxes, net of deferred tax benefit. Estimated interest and penalties included in these amounts totaled $155,000 for the three-month period ended March 29, 2020.
The Company’s reserve for income taxes, including gross interest and penalties, was $12,919,000 as of March 29, 2020, which included $11,891,000 classified as a non-current liability and $1,028,000 recorded as an increase to a non-current deferred tax liability. The amount of gross interest and penalties included in these balances was $1,109,000. 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. As a result of the expiration of certain statutes of limitations, there is a potential that a portion of these reserves could be released, which would decrease income tax expense by approximately $1,300,000 to $1,400,000 over the next twelve months.
The Company has defined its major tax jurisdictions as the United States, Ireland, and China, and within the United States, Massachusetts. Within the United States, the tax years 2016 through 2019 remain open to examination by the Internal Revenue Service and various state tax authorities. The tax years 2015 through 2019 remain open to examination by various taxing authorities in other jurisdictions in which the Company operates.
NOTE 15: Weighted-Average Shares
Weighted-average shares were calculated as follows (in thousands):

| Three-months Ended
| March 29, 2020 |  | March 31, 2019
Basic weighted-average common shares outstanding | 172,408 |  |  | 171,098 |
Effect of dilutive equity awards | 3,194 |  |  | 4,509 |
Weighted-average common and common-equivalent shares outstanding | 175,602 |  |  | 175,607 |

Stock options to purchase 6,273,000 and 4,832,000 shares of common stock, on a weighted-average basis, were outstanding during the three-month periods ended March 29, 2020 and March 31, 2019, respectively, but were not included in the calculation of dilutive net income per share because they were anti-dilutive. There were no anti-dilutive
21

COGNEX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
restricted stock units outstanding, on a weighted-average basis, during the three-month periods ended March 29, 2020 and March 31, 2019, respectively.
NOTE 16: Subsequent Events
On April 27, 2020, the Company’s Board of Directors declared a cash dividend of $0.055 per share. The dividend is payable on May 29, 2020 to all shareholders of record as of the close of business on May 15, 2020.
In April 2020, recent interpretations of a German law relating to withholding taxes on intellectual property rights have emerged. The Company is currently evaluating this law and any related impact to its financial position or results of operations.
The COVID-19 (also referred to as "coronavirus") outbreak had a modest adverse impact on our business in the first quarter of 2020, primarily near the end of the quarter. This impact has expanded and accelerated into the second quarter, as we have noted lower demand for our products in certain industries, additional disruptions to our supply chain, longer customer delivery times, higher delivery costs, and further shutdowns of customer facilities. While it is difficult for us to quantify the duration and severity of this impact due to many factors beyond our control and knowledge, including changing governmental regulations and the scope and duration of social distancing and commerce restrictions, we expect the impact on our business to be more significant in the second quarter than the first quarter of 2020.
22

ITEM 2: MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Forward-Looking Statements
Certain statements made in this report, as well as oral statements made by the Company from time to time, constitute forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. Readers can identify these forward-looking statements by our use of the words “expects,” “anticipates,” “estimates,” “believes,” “projects,” “intends,” “plans,” “will,” “may,” “shall,” “could,” “should,” and similar words and other statements of a similar sense. These statements are based upon 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, the expected impact of the COVID-19 outbreak on our business and results of operations, customer order rates and timing of related revenue, future product mix, research and development activities, investments, strategic plans, and estimated tax benefits and expenses and other tax matters, involve known and unknown risks and uncertainties that could cause actual results to differ materially from those projected. Such risks and uncertainties include: (1) the impact, duration and severity of the COVID-19 outbreak; (2) current and future conditions in the global economy, including the impact of the COVID-19 outbreak and the imposition of tariffs or export controls; (3) the loss of, or curtailment of purchases by, a large customer; (4) the reliance on revenue from the consumer electronics or automotive industries; (5) the inability to penetrate the logistics industry and other new markets; (6) the inability to achieve significant international revenue; (7) fluctuations in foreign currency exchange rates and the use of derivative instruments; (8) information security breaches or business system disruptions; (9) the inability to attract and retain skilled employees; (10) the failure to effectively manage our growth; (11) the reliance upon key suppliers to manufacture and deliver critical components for our products; (12) the failure to effectively manage product transitions or accurately forecast customer demand; (13) the inability to design and manufacture high-quality products; (14) the technological obsolescence of current products and the inability to develop new products; (15) the failure to properly manage the distribution of products and services; (16) the inability to protect our proprietary technology and intellectual property; (17) our involvement in time-consuming and costly litigation; (18) the impact of competitive pressures; (19) the challenges in integrating and achieving expected results from acquired businesses, including the recent acquisition of Sualab; (20) potential impairment charges with respect to our investments or for acquired intangible assets or goodwill; and (21) exposure to additional tax liabilities. 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, 2019, 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 Corporation is a leading worldwide provider of machine vision products that capture and analyze visual information in order to automate manufacturing and distribution tasks where vision is required. 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.
Cognex machine vision is used to automate manufacturing and distribution processes in a variety of industries, where the technology is widely recognized as an important component of automated production and quality assurance. Virtually every manufacturer can achieve better quality and manufacturing efficiency by using machine vision, and therefore, Cognex products are used by a broad base of customers across a variety of industries, including consumer electronics, automotive, consumer products, food and beverage, pharmaceuticals, and medical devices. Cognex products are also used to automate distribution processes in the logistics industry, including for applications in retail distribution and ecommerce to scan, track, and sort goods through distribution centers.
Revenue for the first quarter of 2020 totaled $167,235,000, representing a decrease of 4% from the first quarter of 2019. The decrease was driven by lower revenue from the automotive industry, which is our largest market, partially offset by higher revenue from the electronics industry. Although revenue for the first quarter of 2020 was adversely impacted by the COVID-19 outbreak, first in China and then later in the quarter in other regions, we expect this impact to be more significant to our business in the second quarter of 2020. Gross margin was 75% for the first quarter of 2020 compared to 73% for the first quarter of 2019 due primarily to favorable product mix toward higher-margin sales in the electronics industry. Operating expenses increased by 8% over the prior year due to investments to support
23

the Company's strategic priorities, including ongoing costs related to the acquisition of Sualab Co., Ltd. in the fourth quarter of 2019. The Company also recorded higher stock expense and incentive compensation accruals in the first quarter of 2020. As a result of the lower revenue level and continued investments, operating income was 13% of revenue for the first quarter of 2020 compared to 17% for the first quarter of 2019, net income was 12% of revenue for the first quarter of 2020 compared to 19% for the first quarter of 2019, and net income per diluted share was $0.12 for the first quarter of 2020 compared to $0.19 for the first quarter of 2019.
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. 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 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.
Revenue
Revenue for the first quarter of 2020 totaled $167,235,000, representing a decrease of $6,249,000, or 4%, over the first quarter of 2019. Changes in foreign currency exchange rates did not have a material impact on revenue.
The COVID-19 outbreak had a modest adverse impact on our business in the first quarter of 2020, primarily near the end of the quarter. This impact included lower demand for our products in certain industries, disruptions to our supply chain, and the shutdown of certain customer facilities. This impact was most significant in the automotive industry, for which revenue had been declining prior to the COVID-19 outbreak and this decline was further exacerbated by the effects of COVID-19. These conditions also had a lesser impact on the timing of revenue from customers in the logistics industry, resulting in delays in shipments and on-site customer installations. The decrease in automotive and other industries was partially offset by higher revenue from customers in the electronics industry, as well as from customers in a few other smaller industries we serve.
From a geographic perspective, revenue from customers based in the Americas decreased by 7% and revenue from customers based in Europe decreased by 18%, with the most significant decrease coming from the automotive industry. Revenue from customers based in Greater China and other countries in Asia, however, increased by 16% and 21%, respectively, as higher revenue from the electronics industry was only partially offset by lower revenue from the automotive industry.
As of the date of this report, we expect revenue for the second quarter of 2020 to be lower than the first quarter of 2020 due to the continued impact of COVID-19 on our business. This impact has expanded and accelerated into the second quarter, as we have noted lower demand for our products in certain industries, additional disruptions to our supply chain, longer customer delivery times, and further shutdowns of customer facilities. The shutdown of certain customer facilities may impact our ability to deliver products and perform on-site services, which may delay revenue recognition. While it is difficult for us to quantify this impact due to many factors beyond our control and knowledge, including changing governmental regulations and the scope and duration of social distancing and commerce restrictions, we expect the impact on our business to be more significant in the second quarter than the first quarter of 2020.
Gross Margin
Gross margin as a percentage of revenue was 75% for the first quarter of 2020 compared to 73% for the first quarter of 2019. The increase in the gross margin percentage was due primarily to favorable product mix toward higher-margin sales in the electronics industry.
As of the date of this report, we expect gross margin as a percentage of revenue for the second quarter of 2020 to be in the mid-70s range, but lower than the gross margin reported for the first quarter of 2020 due to the anticipated lower revenue level and less favorable product mix. We also expect to incur higher delivery costs in the second quarter resulting from expediting materials and freight surcharges passed on by carriers as a result of COVID-19.
Operating Expenses
Research, development, and engineering (RD&E) expenses increased by $5,704,000, or 19%, from the first quarter of 2019 as detailed in the table below (in thousands).
24

| Three-month period
RD&E expenses for the first quarter of 2019 | $ | 30,242 |
Personnel-related costs | 1,628 |
Acquisition deferred compensation | 1,310 |
Stock expense | 958 |
Incentive compensation | 948 |
Other | 860 |
RD&E expenses for the first quarter of 2020 | $ | 35,946 |

RD&E expenses increased due to higher personnel-related costs resulting primarily from headcount additions to support the Company's strategic priorities, of which $914,000 related to a team of deep learning engineers from the Company's acquisition of Sualab Co., Ltd. in the fourth quarter of 2019. The consideration from this acquisition included deferred payments that are being recorded as compensation expense over four years from the closing date, which accounted for an additional $1,310,000 of the increase in RD&E expense.
The Company recorded higher stock expense and incentive compensation accruals in the first quarter of 2020. Stock expense was higher than the prior year due partially to the impact of revised forfeiture rates. Annual incentive compensation plans were reset at the beginning of the year with relevant performance goals for 2020. We will continue to monitor the achievement of these performance goals for the remainder of the year due to the impact of COVID-19 on our business, among other factors, which may result in adjustments to our incentive compensation accruals in future quarters.
RD&E expenses as a percentage of revenue were 21% for the first quarter of 2020 compared to 17% for the first quarter of 2019. We believe that a continued commitment to RD&E activities is essential in order to maintain or achieve product leadership with our existing products, to provide innovative new product offerings, as well as to provide engineering support for large customers. In addition, we consider our ability to accelerate time to market for new products to be critical to our revenue growth. Therefore, we expect to continue to make significant RD&E investments in the future, and currently intend to continue our product development plans during periods of lower revenue levels, which may result in a higher level of RD&E expenses as a percentage of revenue in future quarters compared to the 21% reported in the first quarter of 2020.
Selling, General, and Administrative Expenses
Selling, general, and administrative (SG&A) expenses increased by $2,327,000, or 3%, from the first quarter of 2019 as detailed in the table below (in thousands).

| Three-month period
SG&A expense in the first quarter of 2019 | $ | 66,811 |
Personnel-related costs | 2,048 |
Stock expense | 1,785 |
Incentive compensation | 1,129 |
Travel expense | (1,745 | )
Other | (890 | )
SG&A expense in the first quarter of 2020 | $ | 69,138 |

SG&A expenses increased due to higher personnel-related costs resulting primarily from headcount additions and the reallocation of sales resources to support the Company's strategic priorities. Although our total sales personnel at the end of the first quarter of 2020 was relatively flat with the first quarter of 2019, we have reallocated our sales resources to areas of our business where we see the highest opportunity for growth, which has resulted in a shift toward regions with relatively higher labor costs.
The Company recorded higher stock expense and incentive compensation accruals in the first quarter of 2020. Stock expense was higher than the prior year due partially to the impact of revised forfeiture rates. Annual incentive compensation plans were reset at the beginning of the year with relevant performance goals for 2020. We will continue to monitor the achievement of these performance goals for the remainder of the year due to the impact of COVID-19 on our business, among other factors, which may result in adjustments to our incentive compensation accruals in future quarters.
25

These increases were partially offset by lower travel expenses resulting from COVID-19 restrictions. We expect these restrictions to continue in the second quarter of 2020, resulting in a further reduction in travel expenses compared to both the first quarter of 2020 and the second quarter of 2019.
Non-operating Income (Expense)
The Company recorded foreign currency losses of $3,003,000 for the first quarter of 2020 and $248,000 for the first quarter of 2019. Foreign currency gains and losses result primarily from the revaluation and settlement of accounts receivable, accounts payable, and intercompany balances that are reported in one currency and collected in another. The increase in foreign currency losses in the first quarter of 2020 was primarily related to the revaluation of an intercompany balance that was created by the migration of acquired intellectual property from one subsidiary to another in the fourth quarter of 2019. This intercompany balance is expected to be settled in 2020.
Investment income increased by $324,000, or 7%, from the prior year. The increase was due to higher yields on the Company's portfolio of debt securities, and to a lesser extent additional funds available for investment.
The Company recorded other expense of $183,000 for the first quarter of 2020 and other income of $927,000 for the first quarter of 2019. Other income (expense) includes fair value adjustments of contingent consideration liabilities arising from business acquisitions. The Company recorded a $1,060,000 decrease in the fair value of its GVi contingent consideration liability that was recorded as other income in the first quarter of 2019, resulting from a lower level of revenue in the Americas’ automotive industry.
Income Tax Expense
The Company’s effective tax rate was 11% of pre-tax income for the first quarter of 2020 compared to 7% of pre-tax income for the first quarter of 2019.
The effective tax rate included a decrease in tax expense of $1,680,000 for the first quarter of 2020 and $2,730,000 for the first quarter of 2019 primarily from the excess tax benefit arising from the difference between the deduction for tax purposes and the compensation cost recognized for financial reporting purposes from stock option exercises. The Company cannot predict the level of stock option exercises by employees in future periods.
Other discrete tax items included an increase in tax expense of $242,000 for the first quarter of 2020 from the final true-up of the prior year's tax accrual upon filing the related tax return.
Excluding the impact of these discrete items, the Company’s effective tax rate was 17% of pre-tax income for the first quarter of 2020 compared to 15% of pre-tax income for the first quarter of 2019. This increase was due to more of the Company's profits being earned and taxed in higher tax jurisdictions, which included the impact of changes made to the Company's international tax structure in the fourth quarter of 2019.
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 has resulted in an accumulated cash and investment balance of $845,396,000 as of March 29, 2020. The Company has established guidelines relative to credit ratings, diversification, and maturities of its investments that maintain liquidity.
The Company’s cash requirements for the first quarter of 2020 were primarily met with positive cash flows from operations and the sale of investments. Cash requirements consisted of operating activities, the repurchase of common stock, the payment of dividends, and capital expenditures. Capital expenditures for the first quarter of 2020 totaled $3,074,000 and consisted primarily of computer hardware and software, manufacturing test equipment related to new product introductions, and improvements made to the Company's headquarters building in Natick, Massachusetts and various leased facilities.
In October 2018, the Company's Board of Directors authorized the repurchase of $200,000,000 of the Company's common stock. As of March 29, 2020, the Company repurchased 2,816,000 shares at a cost of $121,348,000 under this program, including 1,215,000 shares at a cost of $51,036,000 for the first quarter of 2020, leaving a remaining balance of $78,652,000. On March 12, 2020 the Company's Board of Directors authorized the repurchase of an additional $200,000,000 of the Company's common stock. Purchases under this March 2020 program will commence upon completion of the October 2018 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 equity 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.
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The Company’s Board of Directors declared and paid cash dividends of $0.050 per share in the first, second, and third quarters of 2019. The dividend was increased to $0.055 per share in the fourth quarter of 2019 and the first quarter of 2020. Total dividends paid amounted to $9,503,000 for the first quarter of 2020. Future dividends will be declared at the discretion of the Company’s Board of Directors and will depend upon such factors as the Board deems relevant including, among other things, the Company’s ability to generate positive cash flows from operations.
The Company believes that its existing cash and investment balances, together with cash flow from operations, will be sufficient to meet its operating, investing, and financing activities for the next twelve months. As of March 29, 2020, the Company had $845,396,000 in cash and investments. In addition, the Company has no long-term debt and does not anticipate needing debt financing in the near future. We believe that our strong cash position has put us in a relatively good position to maintain our liquidity during downturns in our business related to COVID-19 and with respect to our 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.
ITEM 3: QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
There have been no material changes to the Company’s exposures to market risk since December 31, 2019.
ITEM 4: CONTROLS AND PROCEDURES
As required by Rules 13a-15 and 15d-15 of the Securities Exchange Act of 1934, 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 Chief Financial Officer concluded that such disclosure controls and procedures were effective as of that date. From time to time, the Company reviews its disclosure controls and procedures, 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.
There was no change in the Company's internal control over the financial reporting that occurred during the quarter ended March 29, 2020 that has materially affected, or is reasonably likely to materially affect, the Company's internal control over financial reporting. We have considered the impact of COVID-19 on our internal controls over financial reporting. Personnel constraints related to working from home have made our ability to execute certain controls more challenging; however, we have enhanced existing monitoring controls in an effort to ensure we continue to have effective internal controls during this time.
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PART II: OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
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.
ITEM 1A. RISK FACTORS
For a complete 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, 2019. The following information updates, and should be read in conjunction with, Part I - Item 1A of the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 2019.
Our business has been, and is expected to continue to be, adversely affected by the recent COVID-19 outbreak.
The COVID-19 (also referred to as “coronavirus”) outbreak, which was first reported in China in the beginning of 2020, developed into a global pandemic in March 2020. The COVID-19 outbreak had a modest adverse impact on our business in the first quarter of 2020, primarily near the end of the quarter. This impact has expanded and accelerated into the second quarter, as we have noted lower demand for our products in certain industries, additional disruptions to our supply chain, longer customer delivery times, higher delivery costs, and further shutdowns of customer facilities.
We face several risks and uncertainties related to the impact of COVID-19 on our business. It is difficult for us to quantify the duration and severity of this impact due to many factors beyond our control and knowledge, including changing governmental regulations and the scope and duration of social distancing and commercial restrictions. These risks and uncertainties include, among others:

• | our customers may further delay or cancel orders for our products,

• | additional customer facilities may be shutdown for extended periods of time, resulting in our inability to deliver products, perform on-site services, or make on-site sales visits,

• | our customers may not have sufficient cash flow or access to financing to purchase our products,

• | our customers may not pay us within agreed upon terms or may default on their payments altogether,

• | our vendors may be unable to fulfill their delivery obligations to us within acceptable lead times for extended periods of time, which may force us to seek alternative sources of supply at higher costs,

• | our contract manufacturers may experience interruptions that result in delivery delays and higher costs for our products,

• | we may experience manufacturing delays and higher costs in the event of a supply disruption from a single-source vendor,

• | we may experience extended customer delivery times and higher delivery costs,

• | our distribution centers in Natick, Massachusetts and Cork, Ireland may be forced to operate with a significantly reduced workforce or be forced to shut down altogether due to government regulations or health concerns,

• | our online sales and marketing efforts may be less effective than face-to-face activities, resulting in less customer acquisition and lower sales from new products,

• | challenges involved in working from home may delay certain of our new product introductions,

• | lower demand for our products may result in charges for excess and obsolete inventory if we are unable to sell inventory that is either already on hand or committed to purchase,

• | lower cash flows may result in impairment charges for acquired intangible assets or goodwill,

• | our investment portfolio of debt securities may be exposed to material credit losses, and

• | a decline in our stock price may make stock-based awards a less attractive form of compensation and a less attractive form of retention for our employees.

These risks and uncertainties could have a material adverse effect on the continuity of our business and our results of operations and financial condition. The impact of COVID-19 also may exacerbate other risks discussed in Part I - Item 1A of the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 2019, any of which could have a material adverse effect on our business, results of operations and financial condition. This situation is continuously changing and additional impacts on our business may arise of which we are not currently aware.
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ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
The following table sets forth information with respect to purchases by the Company of shares of its common stock during the three-month period ended March 29, 2020:

| Total Number of Shares Purchased |  | Average Price Paid per Share |  | Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs (1) |  | Approximate Dollar Value of Shares that May Yet Be Purchased Under the Plans or Programs (1)
January 1 - January 26, 2020 | — |  |  | $ | — |  |  | — |  |  | $ | 129,688,000 |
January 27 - February 23, 2020 | — |  |  | — |  |  | — |  |  | 129,688,000 |
February 24 - March 29, 2020 | 1,215,000 |  |  | 42.01 |  |  | 1,215,000 |  |  | 278,652,000 |
Total | 1,215,000 |  |  | $ | 42.01 |  |  | 1,215,000 |  |  | $ | 278,652,000 |

(1) In October 2018, the Company's Board of Directors authorized the repurchase of $200,000,000 of the Company's common stock. Purchases under this program commenced in October 2018. On March 12, 2020, the Company's Board of Directors authorized the repurchase of an additional $200,000,000 of the Company's common stock. This new authorization will commence once the Company completes the October 2018 program, with repurchases subject to market conditions and other relevant factors. 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.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4. MINE SAFETY DISCLOSURES
Not applicable.
ITEM 5. OTHER INFORMATION
None.
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ITEM 6. EXHIBITS

Exhibit Number |  |  |
31.1 |  |  | Certification of Principal Executive Officer pursuant to Rule 13a-14(a)/15d-14(a) under the Securities Exchange Act of 1934*
31.2 |  |  | Certification of Principal Financial Officer pursuant to Rule 13a-14(a)/15d-14(a) under the Securities Exchange Act of 1934*
32.1 |  |  | Certification of Principal Executive Officer pursuant to 18 U.S.C. 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002**
32.2 |  |  | Certification of Principal Financial Officer pursuant to 18 U.S.C. 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002**
101.SCH |  |  | Inline XBRL Taxonomy Extension Schema Document*
101.CAL |  |  | Inline XBRL Taxonomy Extension Calculation Linkbase Document*
101.LAB |  |  | Inline XBRL Taxonomy Extension Label Linkbase Document*
101.PRE |  |  | Inline XBRL Taxonomy Extension Presentation Linkbase Document*
101.DEF |  |  | Inline XBRL Taxonomy Extension Definition Linkbase Document*
104 |  |  | Cover Page Interactive Data File (formatted as Inline XBRL with applicable taxonomy extension information contained in Exhibits 101.*)
* |  |  | Filed herewith
** |  |  | Furnished herewith

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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

Date: | April 27, 2020 |  | COGNEX CORPORATION
|  |  | By: | /s/ Robert J. Willett
|  |  |  | Robert J. Willett
|  |  |  | President and Chief Executive Officer
|  |  |  | (Principal Executive Officer)
|  |  | By: | /s/ Paul D. Todgham
|  |  |  | Paul D. Todgham
|  |  |  | Senior Vice President of Finance and Chief Financial Officer
|  |  |  | (Principal Financial Officer)

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