COGNEX CORP (CGNX) Business

ITEM 1: BUSINESS

Our Company

Founded in 1981, Cognex Corporation (the "Company” or “Cognex”) makes advanced machine vision easy, paving the way for manufacturing and distribution companies to become faster, smarter, and more efficient through automation. We are a global technology leader in industrial machine vision systems that seek to improve efficiency and help solve critical manufacturing and distribution challenges, providing support across a diverse set of industrial end markets. Our solutions blend hardware and software to capture and analyze visual information, aiding the automation of manufacturing and distribution tasks for customers worldwide. Machine vision products are used to automate the manufacturing and distribution of discrete items, such as mobile phones, automotive components, and consumer goods, by locating, identifying, inspecting, and measuring them. Machine vision can be particularly valuable for applications in which human vision is inadequate to meet requirements for size, accuracy, or speed, or in instances where substantial cost savings can be obtained through the reduction of labor costs or improved product quality.

Cognex sells to customers in nearly all major industries in which discrete items are manufactured on an assembly line or moved through a distribution center or warehouse. Our largest end markets by revenue are the logistics, packaging, consumer electronics, and automotive industries, which combined represented approximately 85% of our total revenue in 2025.

Our Industry and Market Opportunity

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

Our End Markets

Logistics

The logistics industry demands high-speed, efficient throughput combined with end-to-end supply chain traceability. Consumers expect fast and cost-effective fulfillment. Our logistics customers, including e-commerce and parcel companies, are facing challenging labor market conditions, increased demand, and increased costs. To address these challenges, our customers are increasingly deploying automated traceability, dimensioning, and detection solutions featuring Cognex machine vision, including barcode reading and artificial intelligence ("AI")-enabled vision technology, either directly or with the help of partners, such as original equipment manufacturers ("OEM"), machine builders, and system integrators. We believe our e-commerce logistics business is differentiated by the high performance of our barcode reading and that potential growth will be driven by retailers investing in online fulfillment and their stated desire to reduce cost.

From an automation perspective, we believe the logistics industry is currently in its early stages, relying on human labor and a low rate of robotic automation. Today, most applications in logistics are centered around barcode reading. Beyond barcode reading, we expect vision applications in logistics to grow and become a more substantial part of our business. Vision applications include tasks such as side-by-side detection, inspecting packages for damage, object and symbol recognition, and dimensioning. In 2025, we launched our first line of Solutions Experience ("SLX") devices designed for the logistics sector. SLX reflects our mission to make advanced machine vision easy by integrating industry-leading AI with intuitive deployment workflows. This combination is intended to

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enable customers to address critical logistics challenges with minimal training and rapid implementation. By leveraging our latest AI vision tools, we strive to deliver powerful, scalable solutions, helping customers improve efficiency and accuracy in complex logistics environments.

Geographically, our logistics business started primarily in the United States, but has diversified into Europe and Asia, where we believe customers are beginning to catch up with the United States in logistics automation technology. Our leading e-commerce customers invested significantly into floor space capacity in late 2020 through early 2022, then took a post-pandemic “time out” to absorb excess capacity from early 2022 into 2023, and began investing at a steadier pace in 2024 with continued growth in 2025, focusing primarily on optimizing cost of existing facilities. We believe that logistics has the potential to be our highest-growth end market over the mid to long-term.

Packaging

The packaging market spans both fast-moving consumer goods and healthcare-related industries. We believe growth in the packaging market will be driven by increasingly stringent regulations around traceability, quality, and compliance, making machine vision solutions valuable for manufacturers. We believe these regulatory requirements are accelerating the adoption of advanced inspection technologies to help ensure product integrity and regulatory compliance across diverse packaging applications.

We believe the packaging market presents opportunities for growth through increased market penetration, supported by our ongoing salesforce transformation aimed at reaching a broader cross-section of customers. We believe many potential customers in this market can benefit from our portfolio of AI-driven products, which are designed for ease of setup and deployment and are intended to address critical needs for accuracy, speed, and compliance in high-volume production environments. We believe these dynamics present long-term growth potential as packaging manufacturers continue to prioritize automation and quality assurance.

Consumer Electronics

Given size and quality requirements, electronic components and devices are difficult to manufacture without machine vision. Machine vision has helped make it possible to achieve the density of today’s integrated circuits and to manufacture them cost-effectively. Many electronics producers and leading OEMs rely on Cognex machine vision, including AI-enabled vision technology, 3D vision, and barcode reading, to build, inspect, and track electronic hardware and consumer devices. However, we still observe a significant amount of visual inspection in consumer electronics being performed manually. As labor becomes more costly, these customers are looking for productivity initiatives to automate their processes.

We anticipate the next wave of innovation in consumer electronics to be driven by emerging product categories such as wearable devices, foldable devices, and other AI-centric consumer hardware. These next-generation devices are expected to be produced at significant scale and will likely involve increasingly complex manufacturing processes. As a result, we expect precision and reliability in production to become more critical, creating opportunities for advanced inspection and machine vision solutions that align with our core capabilities. Cognex has close relationships with some of the largest and most sophisticated companies in the consumer electronics market, and we expect to partner with them as they bring new products to market.

Automotive

The automotive market has historically been one of our largest markets. Machine vision is used in almost every step of vehicle manufacturing, from measuring inbound parts, to guiding robot assembly, to inspecting the stitching on leather seats. We currently expect the proliferation of electronics in automobiles to be a growth driver in both internal combustion engine vehicles and electric vehicles over the long term. For example, innovations in safety, driver assist, and entertainment features will increase the number of items to be placed, tracked, measured, and inspected by machine vision.

We observed the automotive market continue to experience significant headwinds in 2025, driven in part by geopolitical and trade uncertainty. However, we anticipate industry trends such as increasing vehicle complexity, heightened inspection requirements, and the transition to electric and autonomous vehicles to create opportunities that align with our core capabilities. These trends would increase the need for high-precision machine vision systems to support complex assembly processes, battery production, and sensor integration. Additionally, we have seen regulatory pressures and consumer expectations for safety and reliability contributing to higher inspection standards across the industry. We believe these industry dynamics position our products to play an important role in enabling manufacturers to meet evolving requirements efficiently.

Semiconductor

Machine vision has made it possible to achieve the density in today’s integrated circuits and to manufacture them cost-effectively. Many semiconductor manufacturers rely on Cognex machine vision, including AI-based technology,

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to help ensure precise alignment of wafers during masking and etching processes, to increase traceability of wafers and die as they move through the front and back-end processes, and to help improve product quality through advanced inspection procedures.

As AI continues to drive demand for high-end logic process chips with our OEM customers, we believe the overall semiconductor market has the potential for outsized growth in the coming years.

Other

The number of end markets that can benefit from machine vision applications is expanding. Other end market uses of Cognex machine vision include regulated manufacturers reducing counterfeiting, manufacturers using 3D measurement for robotic guidance, and manufacturers serving the aerospace and defense industry.

Our Business Strategies

Our strategy is anchored in our commitment to profitable growth, generating strong free cash flow, and allocating capital with rigor to create long-term shareholder value. We believe that we are positioning Cognex for sustained success through three core strategic objectives. First, we aim to be the leading provider of AI technology for industrial machine vision applications. With nearly a decade of experience in this area, we are building cutting-edge tools that unlock new applications and dramatically simplify the user experience. Second, we remain focused on delivering the best customer experience in our industry by prioritizing reliability, efficiency and ease of doing business. Our commitment spans the full customer lifecycle - from initial engagement through post-sale support. Third, we aim to double our customer base within five years. We expect to achieve this by continuing to advance our salesforce transformation, alongside investments in improved lead generation tools.

Growth through innovation

We invest heavily in research and development to maintain our position as a technology leader in machine vision. We seek to accelerate innovation through continuous investment in AI technology, product development, and platform capabilities to stay ahead of customer needs and industry trends. We invest in technology that we believe makes advanced machine vision easy to use and more affordable, and therefore, available to a broader base of customers, such as our edge learning products that enable customers with less technical capabilities to use machine vision while reducing installation and application support. We also continue to invest in technology that seeks to address the most challenging vision applications, such as our deep learning vision software that is intended to solve complex applications with unpredictable defects and deviations.

Salesforce transformation

Historically, Cognex has been a leader in providing the most powerful machine vision technology to the most sophisticated customers and solving their most challenging automation problems. There are thousands of such customers. There is also a larger segment of customers with less complex applications and less automation engineering capacity that is looking for more standardized products that are easy to implement and easy to use. This segment has not traditionally been served by us. Our goal is to expand our business with these customers by offering tailored products and increasing our sales coverage as part of our strategic objective to double our customer base.

Beginning in 2025, we have evolved our emerging customer initiative to a comprehensive salesforce transformation strategy. While both strategies share the objective of expanding beyond our core customer base and increasing overall customer count, the current strategy represents a fundamentally different model focused on efficiency, scalability, and a better customer experience.

The emerging customer initiative primarily emphasized adding headcount and deploying easy-to-use products through a stand-alone sales organization. In contrast, the salesforce transformation centers on leveraging process improvements, data-driven analytics, and advanced tools to create a more efficient and integrated sales organization. This approach includes changes in management practices, the adoption of performance metrics and KPIs, and the use of dashboards and leaderboards to drive accountability and productivity. Beyond product simplicity, the strategy emphasizes delivering an industry-leading customer experience, which is intended to differentiate Cognex in the marketplace and support attractive growth and margin expansion. And finally, we are collaborating more intentionally with our global network of systems integrators, machine builders, and services partners to find and fulfill new business more effectively.

Expansion of market position

We continue to invest in our core markets, such as logistics, packaging, consumer electronics, and automotive, where we are a leading provider of vision and ID products for warehouse and factory automation. Within these markets, we are making investments to focus on what we believe to be the fastest-growing applications and use

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cases. In the logistics market for example, we are moving beyond barcode reading into more complex applications in distribution centers and parcel and post warehouses.

Inorganic growth

We view inorganic growth as a complement to our core organic growth strategy, and we intend to pursue acquisitions that represent a strong strategic fit and deliver meaningful synergies while enhancing long-term growth and profitability. We plan to drive inorganic growth through deeper penetration of our served machine vision market and expansion into adjacent markets. We are focusing specifically on markets in which we expect our products and solutions, application expertise, and customer and industry relationships to enable us to provide value to end users.

We intend to leverage our strong balance sheet and cash generation to execute acquisitions that align with our strategic priorities, including leadership in AI technology, delivering best-in-class customer experience, and expanding our customer base. Potential transactions may include smaller acquisitions or larger opportunities exceeding the size of our previous acquisitions, such as Moritex Corporation ("Moritex"), which we acquired in 2023, with an enterprise value of approximately $270 million.

In evaluating potential inorganic opportunities, we apply a disciplined framework focusing on businesses with attractive growth profiles, strategic alignment, and opportunities to expand our product lines, customer base, or technical talent. Through acquisitions, we aim to enhance our market position, accelerate innovation, and create shareholder value over the long term.

Culture

Our strong and unique corporate culture reinforces our values of customer first and innovation, and enables us to attract and retain smart, enthusiastic, and creative talent who are motivated to solve vision tasks for customers and improve efficiency and quality throughout our served markets.

Products and Technology

Cognex offers a range of machine vision systems and sensors, vision software, and barcode readers designed to meet customer needs at different performance and price points. Our products range from deep learning solutions that solve complex applications with unpredictable defects and deviations, to lower-cost vision sensors that conduct simple presence/absence inspections. Our products have a variety of physical forms, depending on the user's needs. For example, customers can purchase vision software to use with their own camera and processor, or they can purchase a standalone system that combines imager, processor, and software into a single package.

Vision Systems and Sensors

Vision systems combine smart cameras and software to perform a wide range of tasks, including part location, identification, measurement, assembly verification, and robotic guidance. Vision sensors can deliver an easy-to-use, low-cost, reliable solution for simple pass/fail inspections, such as checking the presence and size of parts. In-Sight® vision systems and sensors include our 2D and 3D vision systems. These products leverage various forms of AI, including rule-based coding, as well as deep learning and edge learning technology leveraging pre-trained models powered by neural networks. Our product portfolio is intended to meet the varying price and performance requirements of our broad base of industrial customers. Our deep learning-based systems automate and solve complex inline inspections that typically require human judgment for defect detection, optical character recognition ("OCR"), assembly verification, or classification. Similar to our deep learning-based systems, our edge learning-based systems use pre-trained models, but on simpler applications that prioritize ease of use and have a broader appeal with easier and faster implementation and training.

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OneVision

In 2025, we launched OneVision™, a cloud-based platform designed to transform how manufacturers build, train, and scale AI-powered vision applications. OneVision enables customers to integrate advanced AI models into vision jobs with increased ease, combining the performance of deep learning with the simplicity of edge-based solutions.

The OneVision™ platform is designed to support global manufacturing requirements by offering cloud-based advantages alongside edge computing for low-latency inference. Key capabilities include accelerated AI model training on multi-GPU clusters, access to advanced architectures optimized for deployment on Cognex embedded products, and tools for cross-site project management to help streamline collaboration. OneVision™ helps accelerate customer adoption by removing traditional barriers to deploying AI-powered vision solutions. Its cloud-based architecture combined with edge computing capabilities simplifies the lifecycle - from data curation and model training to validation and deployment - making advanced AI more accessible to a broader range of manufacturers, while easily integrating with our In-Sight product portfolio.

Vision Software

Vision software offers customers the flexibility of the Cognex vision tools library to use with third-party cameras, frame grabbers, and peripheral equipment. Cognex VisionPro® software offers a suite of patented vision tools, including both traditional rule-based tools and deep learning-enabled tools, for advanced programming. Its QuickBuild™ prototyping environment is intended to allow customers to build vision applications with the simplicity of a graphical flowchart-based programming interface.

Barcode Readers

Cognex industrial image-based barcode readers read 1D, 2D, label-based, and direct part mark ("DPM") codes found in nearly every industry including logistics, automotive, consumer products, and medical-related. The DataMan® product line, which includes fixed-mount and handheld models, as well as barcode verifiers, help organizations improve performance, increase throughput, and help control traceability.

Vision Accessories

Cognex vision accessories are designed for easy integration with Cognex products and applications. Cameras are available in both area scan and line scan formats to address a variety of applications. Lenses and lighting are also available in both embedded and component formats to support image acquisition, including a range of optical components that were added to the Company's vision accessory portfolio with the acquisition of Moritex. From value solutions to high-performance hardware, Cognex offers industrial cameras, lenses, lighting, vision controllers, frame grabbers, and I/O cards to help meet customer requirements.

Research, Development, and Engineering

Cognex engages in research, development, and engineering ("RD&E") to enhance our existing products and to develop new products and functionality to address market opportunities. We believe that a continued commitment to RD&E activities is essential to maintain or achieve product leadership with our existing products and to provide innovative new product offerings, as well as to provide engineering support for large customers. In addition, we consider our ability to accelerate time to market for new products to be critical to our revenue growth. We incurred RD&E costs of approximately $139 million (14% of revenue), $140 million (15% of revenue), and $139 million (17% of revenue), for the years ended December 31, 2025, 2024, and 2023, respectively.

We expect to continue our commitment to RD&E to introduce new platforms, products, and solutions throughout economic cycles. Over the past several years, we have designed and launched a comprehensive product ecosystem, with hardware, software, services, and support, designed to help customers standardize on the Cognex vision platform globally. We expect to realize productivity gains in research and development through our new platform strategy, which will help enable greater engineering efficiency and accelerated product development cycles. In addition, we have introduced AI-assisted coding tools for our software engineers, further enhancing development speed and reducing complexity. These advancements are expected to improve scalability, optimize resource utilization, and support our long-term innovation objectives which we believe will enable us to reduce RD&E costs as a percentage of revenue.

Intellectual Property

We rely on the technical expertise, creativity, and knowledge of our personnel, and therefore, we utilize patent, trademark, copyright, and trade secret protection to maintain our competitive position and protect our proprietary rights in our products and technology. While our intellectual property rights are important to our success, we believe that our business as a whole is not materially dependent on any particular patent, trademark, copyright, or other intellectual property right.

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Operations

Most of Cognex’s hardware products, including our vision systems, vision sensors, and barcode readers, are manufactured utilizing third-party contractors, whereby the majority of component procurement, system assembly, and initial testing are performed by electronics manufacturing services suppliers. Cognex’s primary contract manufacturers are located in Indonesia and Malaysia. We purchase assembled goods from our contract manufacturers, who use specified components sourced from vendor lists approved by Cognex and assembly/test processes created and controlled by Cognex. After the completion of initial testing, assembled products from our contract manufacturers are routed to our distribution centers where trained Cognex personnel load Cognex software onto the products, provide additional assembly and image alignment as needed, and perform quality control procedures. Cognex manufactures optical components, including our lenses and lighting, at our in-house production plants located in China and Vietnam that are then stocked in our distribution centers in the United States, Europe, and Asia. Cognex ships finished products for customers from these distribution centers.

Sales Channels and Support Services

Our go-to-market strategy has evolved through our salesforce transformation into an integrated global organization supported by a unified product ecosystem and a strong focus on delivering a holistic customer experience. As part of this transformation, we have aligned our sales teams around three distinct selling approaches, each with a dedicated mission.

•Market Creation and Expansion – a team focused on acquiring new customers and deepening relationships with existing accounts by promoting AI-enabled, easy-to-use products;

•Market Penetration – more advanced sales engineers dedicated to increasing share of wallet within existing accounts by leveraging the full Cognex ecosystem and supporting new accounts requiring more sophisticated vision solutions; and

•Partner Enablement – experienced sales engineers who manage relationships with value-added partners, including machine builders, system integrators, and automation solution providers, helping to ensure integration and coordination between partners and end users.

This structured approach is intended to enhance customer engagement and expand market reach across diverse customer segments.

Sales to customers based outside of the United States represented approximately 67% of our total revenue in 2025, with approximately 25% from customers based in Europe, approximately 16% from customers based in Greater China, and approximately 26% from customers based in other regions outside the United States. Sales to customers based in Europe are denominated in Euros and U.S. Dollars, sales to customers based in Greater China are denominated in Renminbi for sales within Mainland China and U.S. Dollars in other territories, and sales to customers based in other regions are denominated in U.S. Dollars, Japanese Yen, Korean Won, Indian Rupee, and Mexican Pesos.

Cognex’s service offerings represent less than 10% of our total revenue and include maintenance and support, consulting, and training services. Maintenance and support programs include hardware support programs that entitle customers to have products repaired, as well as software support programs that provide customers with application support and software updates to the latest software releases. Application support is provided by technical support personnel located at Cognex regional offices, as well as by field service engineers that provide support at the customer’s production site. We also provide consulting services that range from a specific area of functionality to a completely integrated installed application. Training services include a variety of product courses that are available at our offices worldwide, at customer facilities, and online. We are committed to delivering the industry’s best customer experience. We believe that this is achieved through a direct sales model, a unified product ecosystem, and enhanced customer support capabilities, all designed to provide simplicity, speed, and reliability for customers worldwide.

Competition

Cognex is one of the leading machine vision companies in the world. Our competitors include other vendors of machine vision systems, controllers, and components; manufacturers of image processing systems, sensors, and components; and system integrators. We also compete with internal engineering departments of current or prospective customers, as well as open-source tools available from various companies, including tools using AI.

Human Capital

Our employees are our most valuable asset and are critical to our success. We create and maintain an environment where “Cognoids,” a unique name for our employees, can engage with each other, perform their best work, develop

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their careers, and be creative. As of December 31, 2025, Cognex employed 2,745 Cognoids globally, including 1,600 in selling, general, and administrative activities, 575 in research, development, and engineering, and 570 in manufacturing, quality assurance, and service activities. Of our 2,745 Cognoids, 1,876 are based outside of the United States.

We pride ourselves on having a unique culture that exemplifies our motto of Work Hard, Play Hard, Move Fast. Our culture guides the actions and behaviors of our Cognoids and is defined by our ten values - Customer First, Excellence, Perseverance, Enthusiasm, Creativity, Pride, Integrity, Recognition, Sharing, and Fun. We are committed to finding the very best talent to be part of our growing technology company. We believe our culture enables us to attract and retain smart, energetic, and creative talent, and is central to our ability to execute our operating plans and strategic initiatives. To preserve and enhance our corporate culture, while recognizing differences across and within regions, we have a global team of Cognoids who serve as Ministers of Culture, led by our Chief Culture Officer.

We believe in investing in tools and resources that support employees’ learning and development and setting a compensation structure that reflects the Company’s commitment to a pay-for-performance philosophy. We believe these efforts align with our stockholders’ long-term interests and better position Cognex to continue to operate as a leader in the machine vision industry.

Regulatory Compliance

Cognex’s capital expenditures, earnings, and competitive position are not materially affected by compliance with federal, state, and local environmental provisions, which have been enacted or adopted to regulate the distribution of materials into the environment.

Available Information

Cognex maintains a website at www.cognex.com. We make available, free of charge, on our website in the “Company” section under the caption “Investor” followed by “Financials” and then “SEC Filings,” our Annual Report on Form 10-K, Quarterly Reports on Form 10-Q, and Current Reports on Form 8-K, including exhibits, and amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), as soon as reasonably practicable after such reports are electronically filed with, or furnished to, the SEC. Cognex’s reports filed with, or furnished to, the SEC are also available at the SEC’s website at www.sec.gov. Cognex has used, and intends to continue to use, its investor relations website as a means of disclosing material non-public information and for complying with our disclosure obligations under Regulation FD. Information contained on our website is not a part of, or incorporated by reference into, this Annual Report on Form 10-K or in any other document or report that Cognex files with the SEC, and any references to Cognex's website are intended to be inactive textual references only.