UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
☒ | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended September 29, 2017June 30, 2023
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 No.: 001-35083
Novanta Inc.NOVANTA INC.
(Exact name of registrant as specified in its charter)
New Brunswick, Canada | 98-0110412 | |
(State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification No.) | |
125 Middlesex Turnpike , Bedford, Massachusetts, USA | 01730 | |
(Address of principal executive offices) | (Zip Code) |
(781) 266-5700
(Registrant’s telephone number, including area code)code: (781) 266-5700
N/A
(Former name, former address and former fiscal year, if changed since last report)
Securities registered pursuant to Section 12(b) of the Act:
Title of each class | Trading Symbol(s) | Name of each exchange on which registered | ||
Common shares, no par value | NOVT | The Nasdaq Global Select Market |
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 and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (Section (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post 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.
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 October 27, 2017,August 1, 2023, there were 34,592,13835,808,329 of the Registrant’s common shares, no par value, issued and outstanding.
NOVANTA INC.
TABLE OF CONTENTS
Item No. | Page | ||||
1 | |||||
ITEM 1. | 1 | ||||
1 | |||||
2 | |||||
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME | 3 | ||||
4 | |||||
| |||||
| |||||
ITEM 2. | MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS |
| |||
ITEM 3. |
| ||||
ITEM 4. |
| ||||
| |||||
ITEM 1. |
| ||||
ITEM 1A. |
| ||||
ITEM 2. |
| ||||
ITEM 3. |
| ||||
ITEM 4. |
| ||||
ITEM 5. |
| ||||
ITEM 6. |
| ||||
|
NOVANTA INC.
(In thousands of U.S. dollars or shares)
(Unaudited)
| September 29, |
|
| December 31, |
| June 30, |
| December 31, |
| |||||
| 2017 |
|
| 2016 |
| 2023 |
|
| 2022 |
| ||||
ASSETS |
|
|
|
|
|
|
|
|
|
|
|
| ||
Current assets |
|
|
|
|
|
|
|
|
|
|
|
| ||
Cash and cash equivalents | $ | 92,149 |
|
| $ | 68,108 |
| $ | 91,330 |
|
| $ | 100,105 |
|
Accounts receivable, net of allowance of $782 and $565, respectively |
| 83,008 |
|
|
| 63,769 |
| |||||||
Accounts receivable, net of allowance of $1,316 and $995, respectively |
| 144,837 |
|
|
| 137,697 |
| |||||||
Inventories |
| 88,861 |
|
|
| 59,745 |
|
| 162,904 |
|
|
| 167,997 |
|
Prepaid income taxes and income taxes receivable |
| 8,107 |
|
|
| 2,058 |
|
| 3,144 |
|
|
| 1,508 |
|
Prepaid expenses and other current assets |
| 8,253 |
|
|
| 5,570 |
|
| 12,128 |
|
|
| 13,212 |
|
Total current assets |
| 280,378 |
|
|
| 199,250 |
|
| 414,343 |
|
|
| 420,519 |
|
Property, plant and equipment, net |
| 60,244 |
|
|
| 35,421 |
|
| 103,801 |
|
|
| 103,186 |
|
Operating lease assets |
| 43,280 |
|
|
| 43,317 |
| |||||||
Deferred tax assets |
| 11,772 |
|
|
| 8,593 |
|
| 21,215 |
|
|
| 15,113 |
|
Other assets |
| 4,256 |
|
|
| 12,502 |
|
| 5,718 |
|
|
| 4,414 |
|
Intangible assets, net |
| 157,938 |
|
|
| 61,743 |
|
| 160,956 |
|
|
| 175,766 |
|
Goodwill |
| 207,720 |
|
|
| 108,128 |
|
| 483,409 |
|
|
| 478,897 |
|
Total assets | $ | 722,308 |
|
| $ | 425,637 |
| $ | 1,232,722 |
|
| $ | 1,241,212 |
|
LIABILITIES, NONCONTROLLING INTEREST AND STOCKHOLDERS’ EQUITY |
|
|
|
|
|
|
| |||||||
LIABILITIES AND STOCKHOLDERS’ EQUITY |
|
|
|
| ||||||||||
Current liabilities |
|
|
|
|
|
|
|
|
|
|
| |||
Current portion of long-term debt | $ | 9,115 |
|
| $ | 7,366 |
| $ | 4,906 |
|
| $ | 4,800 |
|
Accounts payable |
| 39,666 |
|
|
| 32,213 |
|
| 64,653 |
|
|
| 75,225 |
|
Income taxes payable |
| 6,086 |
|
|
| 3,969 |
|
| 6,592 |
|
|
| 13,660 |
|
Current portion of operating lease liabilities |
| 7,881 |
|
|
| 7,793 |
| |||||||
Accrued expenses and other current liabilities |
| 40,940 |
|
|
| 26,948 |
|
| 51,946 |
|
|
| 63,044 |
|
Total current liabilities |
| 95,807 |
|
|
| 70,496 |
|
| 135,978 |
|
|
| 164,522 |
|
Long-term debt |
| 234,188 |
|
|
| 70,554 |
|
| 403,586 |
|
|
| 430,662 |
|
Operating lease liabilities |
| 40,729 |
|
|
| 40,808 |
| |||||||
Deferred tax liabilities |
| 27,106 |
|
|
| 1,294 |
|
| 16,175 |
|
|
| 17,194 |
|
Income taxes payable |
| 4,154 |
|
|
| 5,710 |
|
| 4,661 |
|
|
| 4,355 |
|
Other liabilities |
| 15,068 |
|
|
| 18,713 |
|
| 5,563 |
|
|
| 6,085 |
|
Total liabilities |
| 376,323 |
|
|
| 166,767 |
|
| 606,692 |
|
|
| 663,626 |
|
Commitments and contingencies (Note 13) |
|
|
|
|
|
|
| |||||||
Redeemable noncontrolling interest |
| 36,838 |
|
|
| — |
| |||||||
Commitments and contingencies (Note 14) |
|
|
|
| ||||||||||
Stockholders’ equity: |
|
|
|
|
|
|
|
|
|
|
| |||
Common shares, no par value; Authorized shares: unlimited; Issued and outstanding: 34,583 and 34,458, respectively |
| 423,856 |
|
|
| 423,856 |
| |||||||
Preferred shares, no par value; Authorized shares: 7,000; |
| — |
|
|
| — |
| |||||||
Common shares, no par value; Authorized shares: unlimited; |
| 423,856 |
|
|
| 423,856 |
| |||||||
Additional paid-in capital |
| 32,283 |
|
|
| 30,276 |
|
| 57,488 |
|
|
| 55,155 |
|
Accumulated deficit |
| (127,660 | ) |
|
| (167,547 | ) | |||||||
Retained earnings |
| 169,728 |
|
|
| 130,584 |
| |||||||
Accumulated other comprehensive loss |
| (19,332 | ) |
|
| (27,715 | ) |
| (25,042 | ) |
|
| (32,009 | ) |
Total stockholders' equity |
| 309,147 |
|
|
| 258,870 |
|
| 626,030 |
|
|
| 577,586 |
|
Total liabilities, noncontrolling interest and stockholders’ equity | $ | 722,308 |
|
| $ | 425,637 |
| |||||||
Total liabilities and stockholders’ equity | $ | 1,232,722 |
|
| $ | 1,241,212 |
|
The accompanying notes are an integral part of these consolidated financial statements.
1
NOVANTA INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands of U.S. dollars or shares, except per share amounts)
(Unaudited)
| Three Months Ended |
|
| Nine Months Ended |
| Three Months Ended |
|
| Six Months Ended |
| ||||||||||||||||||||
| September 29, |
|
| September 30, |
|
| September 29, |
|
| September 30, |
| June 30, |
| July 1, |
| June 30, |
| July 1, |
| |||||||||||
| 2017 |
|
| 2016 |
|
| 2017 |
|
| 2016 |
| 2023 |
|
| 2022 |
|
| 2023 |
|
| 2022 |
| ||||||||
Revenue | $ | 146,296 |
|
| $ | 97,829 |
|
| $ | 374,372 |
|
| $ | 285,879 |
| $ | 229,464 |
|
| $ | 215,356 |
|
| $ | 448,590 |
|
| $ | 419,572 |
|
Cost of revenue |
| 87,589 |
|
|
| 56,617 |
|
|
| 216,082 |
|
|
| 166,279 |
|
| 125,341 |
|
|
| 120,111 |
|
|
| 246,839 |
|
|
| 234,051 |
|
Gross profit |
| 58,707 |
|
|
| 41,212 |
|
|
| 158,290 |
|
|
| 119,600 |
|
| 104,123 |
|
|
| 95,245 |
|
|
| 201,751 |
|
|
| 185,521 |
|
Operating expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||
Research and development and engineering |
| 11,659 |
|
|
| 7,961 |
|
|
| 29,878 |
|
|
| 24,029 |
|
| 23,380 |
|
|
| 21,588 |
|
|
| 46,208 |
|
|
| 42,517 |
|
Selling, general and administrative |
| 27,724 |
|
|
| 20,972 |
|
|
| 74,666 |
|
|
| 62,357 |
|
| 42,187 |
|
|
| 40,538 |
|
|
| 83,110 |
|
|
| 79,890 |
|
Amortization of purchased intangible assets |
| 3,217 |
|
|
| 2,066 |
|
|
| 9,413 |
|
|
| 6,153 |
|
| 5,124 |
|
|
| 7,173 |
|
|
| 10,213 |
|
|
| 14,515 |
|
Restructuring, acquisition and divestiture related costs (gain) |
| 3,834 |
|
|
| (835 | ) |
|
| 6,232 |
|
|
| 5,828 |
| |||||||||||||||
Restructuring, acquisition, and related costs |
| 1,234 |
|
|
| 2,655 |
|
|
| 3,710 |
|
|
| 1,025 |
| |||||||||||||||
Total operating expenses |
| 46,434 |
|
|
| 30,164 |
|
|
| 120,189 |
|
|
| 98,367 |
|
| 71,925 |
|
|
| 71,954 |
|
|
| 143,241 |
|
|
| 137,947 |
|
Operating income from continuing operations |
| 12,273 |
|
|
| 11,048 |
|
|
| 38,101 |
|
|
| 21,233 |
| |||||||||||||||
Operating income |
| 32,198 |
|
|
| 23,291 |
|
|
| 58,510 |
|
|
| 47,574 |
| |||||||||||||||
Interest income (expense), net |
| (2,111 | ) |
|
| (1,081 | ) |
|
| (4,874 | ) |
|
| (3,471 | ) |
| (6,810 | ) |
|
| (2,757 | ) |
|
| (13,142 | ) |
|
| (5,866 | ) |
Foreign exchange transaction gains (losses), net |
| (661 | ) |
|
| 188 |
|
|
| (176 | ) |
|
| 978 |
|
| 74 |
|
|
| 152 |
|
|
| (3 | ) |
|
| 221 |
|
Other income (expense), net |
| (4 | ) |
|
| 686 |
|
|
| 104 |
|
|
| 1,699 |
|
| (191 | ) |
|
| 68 |
|
|
| (357 | ) |
|
| (477 | ) |
Gain on acquisition of business |
| — |
|
|
| — |
|
|
| 26,409 |
|
|
| — |
| |||||||||||||||
Income from continuing operations before income taxes |
| 9,497 |
|
|
| 10,841 |
|
|
| 59,564 |
|
|
| 20,439 |
| |||||||||||||||
Income tax provision |
| 1,131 |
|
|
| 3,371 |
|
|
| 6,934 |
|
|
| 6,192 |
| |||||||||||||||
Income from continuing operations |
| 8,366 |
|
|
| 7,470 |
|
|
| 52,630 |
|
|
| 14,247 |
| |||||||||||||||
Loss from discontinued operations, net of tax |
| — |
|
|
| — |
|
|
| — |
|
|
| — |
| |||||||||||||||
Income before income taxes |
| 25,271 |
|
|
| 20,754 |
|
|
| 45,008 |
|
|
| 41,452 |
| |||||||||||||||
Income tax provision (benefit) |
| 4,392 |
|
|
| 3,275 |
|
|
| 5,864 |
|
|
| 5,153 |
| |||||||||||||||
Consolidated net income |
| 8,366 |
|
|
| 7,470 |
|
|
| 52,630 |
|
|
| 14,247 |
| $ | 20,879 |
|
| $ | 17,479 |
|
| $ | 39,144 |
|
| $ | 36,299 |
|
Less: Net income attributable to noncontrolling interest |
| (834 | ) |
|
| — |
|
|
| (1,444 | ) |
|
| — |
| |||||||||||||||
Net income attributable to Novanta Inc. | $ | 7,532 |
|
| $ | 7,470 |
|
| $ | 51,186 |
|
| $ | 14,247 |
| |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||
Earnings (loss) per common share from continuing operations (Note 5): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||
Basic | $ | (0.00 | ) |
| $ | 0.22 |
|
| $ | 1.15 |
|
| $ | 0.41 |
| |||||||||||||||
Diluted | $ | (0.00 | ) |
| $ | 0.21 |
|
| $ | 1.13 |
|
| $ | 0.41 |
| |||||||||||||||
Loss per common share from discontinued operations (Note 5): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||
Basic | $ | — |
|
| $ | — |
|
| $ | — |
|
| $ | — |
| |||||||||||||||
Diluted | $ | — |
|
| $ | — |
|
| $ | — |
|
| $ | — |
| |||||||||||||||
Earnings (loss) per common share attributable to Novanta Inc. (Note 5): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||
Earnings per common share (Note 4): |
|
|
|
|
|
|
|
| ||||||||||||||||||||||
Basic | $ | (0.00 | ) |
| $ | 0.22 |
|
| $ | 1.15 |
|
| $ | 0.41 |
| $ | 0.58 |
|
| $ | 0.49 |
|
| $ | 1.09 |
|
| $ | 1.02 |
|
Diluted | $ | (0.00 | ) |
| $ | 0.21 |
|
| $ | 1.13 |
|
| $ | 0.41 |
| $ | 0.58 |
|
| $ | 0.49 |
|
| $ | 1.09 |
|
| $ | 1.01 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||
Weighted average common shares outstanding—basic |
| 34,833 |
|
|
| 34,677 |
|
|
| 34,809 |
|
|
| 34,689 |
|
| 35,851 |
|
|
| 35,609 |
|
|
| 35,830 |
|
|
| 35,573 |
|
Weighted average common shares outstanding—diluted |
| 34,833 |
|
|
| 34,928 |
|
|
| 35,235 |
|
|
| 34,889 |
|
| 36,032 |
|
|
| 35,933 |
|
|
| 36,015 |
|
|
| 35,857 |
|
The accompanying notes are an integral part of these consolidated financial statements.
2
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(In thousands of U.S. dollars)
(Unaudited)
| Three Months Ended |
|
| Six Months Ended |
| ||||||||||
| June 30, |
|
| July 1, |
|
| June 30, |
|
| July 1, |
| ||||
| 2023 |
|
| 2022 |
|
| 2023 |
|
| 2022 |
| ||||
Consolidated net income | $ | 20,879 |
|
| $ | 17,479 |
|
| $ | 39,144 |
|
| $ | 36,299 |
|
Other comprehensive income (loss): |
|
|
|
|
|
|
|
|
|
|
| ||||
Foreign currency translation adjustments, net of tax (1) |
| 1,577 |
|
|
| (13,927 | ) |
|
| 6,807 |
|
|
| (18,699 | ) |
Pension liability adjustments, net of tax (2) |
| 89 |
|
|
| 587 |
|
|
| 160 |
|
|
| 900 |
|
Total other comprehensive income (loss) |
| 1,666 |
|
|
| (13,340 | ) |
|
| 6,967 |
|
|
| (17,799 | ) |
Total consolidated comprehensive income | $ | 22,545 |
|
| $ | 4,139 |
|
| $ | 46,111 |
|
| $ | 18,500 |
|
| Three Months Ended |
|
| Nine Months Ended |
| ||||||||||
| September 29, |
|
| September 30, |
|
| September 29, |
|
| September 30, |
| ||||
| 2017 |
|
| 2016 |
|
| 2017 |
|
| 2016 |
| ||||
Consolidated net income | $ | 8,366 |
|
| $ | 7,470 |
|
| $ | 52,630 |
|
| $ | 14,247 |
|
Other comprehensive income (loss): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency translation adjustments, net of tax (1) |
| 3,311 |
|
|
| (563 | ) |
|
| 8,340 |
|
|
| (3,413 | ) |
Pension liability adjustments, net of tax (2) |
| (45 | ) |
|
| 338 |
|
|
| 43 |
|
|
| 1,633 |
|
Total other comprehensive income (loss) |
| 3,266 |
|
|
| (225 | ) |
|
| 8,383 |
|
|
| (1,780 | ) |
Total consolidated comprehensive income (loss) |
| 11,632 |
|
|
| 7,245 |
|
|
| 61,013 |
|
|
| 12,467 |
|
Less: Comprehensive income attributable to noncontrolling interest |
| (834 | ) |
|
| — |
|
|
| (1,444 | ) |
|
| — |
|
Comprehensive income (loss) attributable to Novanta Inc. | $ | 10,798 |
|
| $ | 7,245 |
|
| $ | 59,569 |
|
| $ | 12,467 |
|
|
|
|
|
The accompanying notes are an integral part of these consolidated financial statements.
3
CONSOLIDATED STATEMENTS OF CASH FLOWSSTOCKHOLDERS’ EQUITY
(In thousands of U.S. dollars)dollars or shares)
(Unaudited)
| Nine Months Ended |
| |||||
| September 29, |
|
| September 30, |
| ||
| 2017 |
|
| 2016 |
| ||
Cash flows from operating activities: |
|
|
|
|
|
|
|
Consolidated net income | $ | 52,630 |
|
| $ | 14,247 |
|
Less: Loss from discontinued operations, net of tax |
| — |
|
|
| — |
|
Income from continuing operations |
| 52,630 |
|
|
| 14,247 |
|
Adjustments to reconcile income from continuing operations to net cash provided by operating activities of continuing operations: |
|
|
|
|
|
|
|
Depreciation and amortization |
| 22,440 |
|
|
| 15,317 |
|
Provision for inventory excess and obsolescence |
| 1,837 |
|
|
| 2,387 |
|
Share-based compensation |
| 4,223 |
|
|
| 3,385 |
|
Deferred income taxes |
| (2,913 | ) |
|
| 162 |
|
Earnings from equity-method investment |
| (104 | ) |
|
| (1,698 | ) |
Gain on sale of fixed assets |
| 21 |
|
|
| (1,736 | ) |
Dividend from equity-method investment |
| — |
|
|
| 2,341 |
|
Gain on acquisition of business |
| (26,409 | ) |
|
| — |
|
Inventory acquisition fair value adjustment |
| 4,754 |
|
|
| 173 |
|
Contingent consideration adjustments |
| 425 |
|
|
| 1,427 |
|
Other |
| 851 |
|
|
| 1,417 |
|
Changes in assets and liabilities which (used)/provided cash, excluding effects from businesses purchased or classified as discontinued operations: |
|
|
|
|
|
|
|
Accounts receivable |
| (3,859 | ) |
|
| (3,683 | ) |
Inventories |
| (11,806 | ) |
|
| (1,470 | ) |
Prepaid income taxes, income taxes receivable, prepaid expenses and other current assets |
| (5,806 | ) |
|
| (3,594 | ) |
Accounts payable, income taxes payable, accrued expenses and other current liabilities |
| 5,975 |
|
|
| 6,110 |
|
Other non-current assets and liabilities |
| (972 | ) |
|
| (78 | ) |
Cash provided by operating activities of continuing operations |
| 41,287 |
|
|
| 34,707 |
|
Cash provided by operating activities of discontinued operations |
| — |
|
|
| — |
|
Cash provided by operating activities |
| 41,287 |
|
|
| 34,707 |
|
Cash flows from investing activities: |
|
|
|
|
|
|
|
Purchases of property, plant and equipment |
| (6,502 | ) |
|
| (7,005 | ) |
Acquisition of businesses, net of cash acquired and working capital adjustments |
| (168,332 | ) |
|
| (8,952 | ) |
Proceeds from the sale of property, plant and equipment |
| 44 |
|
|
| 7,037 |
|
Cash used in investing activities of continuing operations |
| (174,790 | ) |
|
| (8,920 | ) |
Cash provided by investing activities of discontinued operations |
| — |
|
|
| 1,498 |
|
Cash used in investing activities |
| (174,790 | ) |
|
| (7,422 | ) |
Cash flows from financing activities: |
|
|
|
|
|
|
|
Borrowings under revolving credit facility |
| 176,769 |
|
|
| — |
|
Repayments of long-term debt and revolving credit facility |
| (15,625 | ) |
|
| (14,375 | ) |
Payments for debt issuance costs |
| (638 | ) |
|
| (2,496 | ) |
Payments of contingent considerations |
| (2,546 | ) |
|
| — |
|
Repurchase of common stock |
| (370 | ) |
|
| (1,634 | ) |
Payments of withholding taxes from stock-based awards |
| (1,846 | ) |
|
| (1,719 | ) |
Capital lease payments |
| (646 | ) |
|
| (905 | ) |
Other financing activities |
| — |
|
|
| (1 | ) |
Cash provided by (used in) financing activities of continuing operations |
| 155,098 |
|
|
| (21,130 | ) |
Cash provided by (used in) financing activities of discontinued operations |
| — |
|
|
| — |
|
Cash provided by (used in) financing activities |
| 155,098 |
|
|
| (21,130 | ) |
Effect of exchange rates on cash and cash equivalents |
| 2,446 |
|
|
| (1,375 | ) |
Increase in cash and cash equivalents |
| 24,041 |
|
|
| 4,780 |
|
Cash and cash equivalents, beginning of period |
| 68,108 |
|
|
| 59,959 |
|
Cash and cash equivalents, end of period | $ | 92,149 |
|
| $ | 64,739 |
|
Supplemental disclosure of cash flow information: |
|
|
|
|
|
|
|
Cash paid for interest | $ | 3,512 |
|
| $ | 2,167 |
|
Cash paid for income taxes | $ | 18,053 |
|
| $ | 10,870 |
|
Income tax refunds received | $ | 185 |
|
| $ | 359 |
|
| Common Shares |
|
| Additional Paid-In |
|
| Retained |
|
| Accumulated Other |
|
|
|
| |||||||||
| # of Shares |
|
| Amount |
|
| Capital |
|
| Earnings |
|
| Comprehensive Loss |
|
| Total |
| ||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
| Three Months Ended June 30, 2023 |
| |||||||||||||||||||||
Balance at March 31, 2023 |
| 35,802 |
|
| $ | 423,856 |
|
| $ | 52,020 |
|
| $ | 148,849 |
|
| $ | (26,708 | ) |
| $ | 598,017 |
|
Consolidated net income |
| — |
|
|
| — |
|
|
| — |
|
|
| 20,879 |
|
|
| — |
|
|
| 20,879 |
|
Common shares issued under stock plans |
| 9 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
Common shares withheld for taxes on vested stock awards |
| (3 | ) |
|
| — |
|
|
| (407 | ) |
|
| — |
|
|
| — |
|
|
| (407 | ) |
Share-based compensation |
| — |
|
|
| — |
|
|
| 5,875 |
|
|
| — |
|
|
| — |
|
|
| 5,875 |
|
Other comprehensive income (loss), net of tax |
| — |
|
|
|
|
|
| — |
|
|
|
|
|
| 1,666 |
|
|
| 1,666 |
| ||
Balance at June 30, 2023 |
| 35,808 |
|
| $ | 423,856 |
|
| $ | 57,488 |
|
| $ | 169,728 |
|
| $ | (25,042 | ) |
| $ | 626,030 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
| Six Months Ended June 30, 2023 |
| |||||||||||||||||||||
Balance at December 31, 2022 |
| 35,711 |
|
| $ | 423,856 |
|
| $ | 55,155 |
|
| $ | 130,584 |
|
| $ | (32,009 | ) |
| $ | 577,586 |
|
Consolidated net income |
| — |
|
|
| — |
|
|
| — |
|
|
| 39,144 |
|
|
| — |
|
|
| 39,144 |
|
Common shares issued under stock plans |
| 164 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
Common shares withheld for taxes on vested stock awards |
| (67 | ) |
|
| — |
|
|
| (10,008 | ) |
|
| — |
|
|
| — |
|
|
| (10,008 | ) |
Share-based compensation |
| — |
|
|
| — |
|
|
| 12,341 |
|
|
| — |
|
|
| — |
|
|
| 12,341 |
|
Other comprehensive income (loss), net of tax |
| — |
|
|
|
|
|
| — |
|
|
|
|
|
| 6,967 |
|
|
| 6,967 |
| ||
Balance at June 30, 2023 |
| 35,808 |
|
| $ | 423,856 |
|
| $ | 57,488 |
|
| $ | 169,728 |
|
| $ | (25,042 | ) |
| $ | 626,030 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
| Three Months Ended July 1, 2022 |
| |||||||||||||||||||||
Balance at April 1, 2022 |
| 35,684 |
|
| $ | 423,856 |
|
| $ | 52,809 |
|
| $ | 75,353 |
|
| $ | (17,325 | ) |
| $ | 534,693 |
|
Consolidated net income |
| — |
|
|
| — |
|
|
| — |
|
|
| 17,479 |
|
|
| — |
|
|
| 17,479 |
|
Common shares issued under stock plans |
| 37 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
Common shares withheld for taxes on vested stock awards |
| (14 | ) |
|
| — |
|
|
| (1,744 | ) |
|
| — |
|
|
| — |
|
|
| (1,744 | ) |
Repurchases of common shares |
| (84 | ) |
|
|
|
|
| (10,000 | ) |
|
|
|
|
|
|
|
| (10,000 | ) | |||
Share-based compensation |
| — |
|
|
| — |
|
|
| 5,081 |
|
|
| — |
|
|
| ��� |
|
|
| 5,081 |
|
Other comprehensive income (loss), net of tax |
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| (13,340 | ) |
|
| (13,340 | ) |
Balance at July 1, 2022 |
| 35,623 |
|
| $ | 423,856 |
|
| $ | 46,146 |
|
| $ | 92,832 |
|
| $ | (30,665 | ) |
| $ | 532,169 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
| Six Months Ended July 1, 2022 |
| |||||||||||||||||||||
Balance at December 31, 2021 |
| 35,601 |
|
| $ | 423,856 |
|
| $ | 53,768 |
|
| $ | 56,533 |
|
| $ | (12,866 | ) |
| $ | 521,291 |
|
Consolidated net income |
| — |
|
|
| — |
|
|
| — |
|
|
| 36,299 |
|
|
| — |
|
|
| 36,299 |
|
Common shares issued under stock plans |
| 171 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
Common shares withheld for taxes on vested stock awards |
| (65 | ) |
|
| — |
|
|
| (9,477 | ) |
|
| — |
|
|
| — |
|
|
| (9,477 | ) |
Repurchases of common shares |
| (84 | ) |
|
| — |
|
|
| (10,000 | ) |
|
| — |
|
|
| — |
|
|
| (10,000 | ) |
Share-based compensation |
| — |
|
|
| — |
|
|
| 11,855 |
|
|
| — |
|
|
| — |
|
|
| 11,855 |
|
Other comprehensive income (loss), net of tax |
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| (17,799 | ) |
|
| (17,799 | ) |
Balance at July 1, 2022 |
| 35,623 |
|
| $ | 423,856 |
|
| $ | 46,146 |
|
| $ | 92,832 |
|
| $ | (30,665 | ) |
| $ | 532,169 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these consolidated financial statements.
4
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands of U.S. dollars)
(Unaudited)
| Six Months Ended |
| |||||
| June 30, |
|
| July 1, |
| ||
| 2023 |
|
| 2022 |
| ||
Cash flows from operating activities: |
|
|
|
|
| ||
Consolidated net income | $ | 39,144 |
|
| $ | 36,299 |
|
Adjustments to reconcile consolidated net income to |
|
|
|
|
| ||
Depreciation and amortization |
| 23,668 |
|
|
| 27,855 |
|
Provision for inventory excess and obsolescence |
| 3,678 |
|
|
| 1,004 |
|
Share-based compensation |
| 12,341 |
|
|
| 11,855 |
|
Deferred income taxes |
| (7,665 | ) |
|
| (9,504 | ) |
Write-off of unamortized deferred financing costs |
| — |
|
|
| 624 |
|
Other |
| 994 |
|
|
| 375 |
|
Changes in assets and liabilities which (used)/provided cash, excluding |
|
|
|
|
| ||
Accounts receivable |
| (6,564 | ) |
|
| (17,627 | ) |
Inventories |
| 1,177 |
|
|
| (33,509 | ) |
Prepaid income taxes, income taxes receivable, prepaid expenses |
| (163 | ) |
|
| (1,107 | ) |
Accounts payable, income taxes payable, accrued expenses |
| (29,283 | ) |
|
| 20,365 |
|
Other non-current assets and liabilities |
| (885 | ) |
|
| (1,222 | ) |
Net cash provided by operating activities |
| 36,442 |
|
|
| 35,408 |
|
Cash flows from investing activities: |
|
|
|
|
| ||
Cash paid for business acquisitions, net of working capital adjustments |
| — |
|
|
| 820 |
|
Purchases of property, plant and equipment |
| (6,946 | ) |
|
| (12,103 | ) |
Payment of contingent consideration related to acquisition of technology assets |
| — |
|
|
| (1,470 | ) |
Other investing activities |
| — |
|
|
| 137 |
|
Net cash used in investing activities |
| (6,946 | ) |
|
| (12,616 | ) |
Cash flows from financing activities: |
|
|
|
|
| ||
Repayments under term loan and revolving credit facilities |
| (30,498 | ) |
|
| (12,833 | ) |
Payments of debt issuance costs |
| — |
|
|
| (2,492 | ) |
Payments of withholding taxes from share-based awards |
| (10,008 | ) |
|
| (9,477 | ) |
Repurchases of common shares |
| — |
|
|
| (10,000 | ) |
Payments of contingent consideration related to acquisitions |
| — |
|
|
| (375 | ) |
Other financing activities |
| (313 | ) |
|
| (296 | ) |
Net cash used in financing activities |
| (40,819 | ) |
|
| (35,473 | ) |
Effect of exchange rates on cash and cash equivalents |
| 2,548 |
|
|
| (4,223 | ) |
Decrease in cash and cash equivalents |
| (8,775 | ) |
|
| (16,904 | ) |
Cash and cash equivalents, beginning of the period |
| 100,105 |
|
|
| 117,393 |
|
Cash and cash equivalents, end of the period | $ | 91,330 |
|
| $ | 100,489 |
|
Supplemental disclosure of cash flow information: |
|
|
|
|
| ||
Cash paid for interest | $ | 12,709 |
|
| $ | 5,244 |
|
Cash paid for income taxes | $ | 21,316 |
|
| $ | 9,698 |
|
Income tax refunds received | $ | 255 |
|
| $ | 164 |
|
The accompanying notes are an integral part of these consolidated financial statements.
5
NOVANTA INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AS OF SEPTEMBER 29, 2017JUNE 30, 2023
(Unaudited)
1. Basis of Presentation
Novanta Inc. and its subsidiaries (collectively referred to as(“Novanta” or the “Company”, “Novanta”, “we”, “us”, “our”) is a leading global supplier of core technology solutions that give healthcaremedical and advanced industrial original equipment manufacturers (“OEMs”) a competitive advantage. Novanta combines deep proprietary technology expertise and competencies in photonics, visionprecision medicine and precision motionmanufacturing, medical solutions, and robotics and automation with a proven ability to solve complex technical challenges. This enables Novanta to engineer core components and sub-systems that deliver extreme precision and performance, tailored to customers'the customers’ demanding applications.
The accompanying unaudited interim consolidated financial statements have been prepared by the Company in United States (“U.S.”) dollars and pursuant to the rules and regulations of the United States Securities and Exchange Commission (“SEC”), the instructions to Form 10-Q and the provisions of Regulation S-X pertaining to interim financial statements. Accordingly, certain information and footnote disclosures normally included in the financial statements prepared in accordance with accounting principles generally accepted in the U.S. GAAP have been condensed or omitted pursuant to such rules and regulations.omitted. The interim consolidated financial statements and notes included in this report should be read in conjunction with the consolidated financial statements and notes included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2016.2022. In the opinion of management, these interim consolidated financial statements include all adjustments and accruals of a normal and recurring nature necessary to fairly state the results of the interim periods presented. The results for interim periods are not necessarily indicative of results to be expected for the full year or for any future periods.
Prior to January 10, 2017, the Company had an approximately 41% ownership interest in Laser Quantum Limited (“Laser Quantum”), a privately held company located in the United Kingdom, which was accounted for under the equity method of accounting. On January 10, 2017, the Company acquired an additional approximately 35% of the outstanding shares of Laser Quantum. As a result of this transaction, the Company’s ownership position in Laser Quantum increased from approximately 41% to approximately 76%. Since January 10, 2017, Laser Quantum has been consolidated in the Company’s consolidated financial statements.
The Company’s unaudited interim consolidated financial statements are prepared for each quarterly period ending on the Friday closest to the end of the calendar quarter, with the exception of the fourth quarter which always ends on December 31.
During the first quarter of 2023, the Company changed the names of its reportable segments from “Photonics” to “Precision Medicine and Manufacturing”, from “Vision” to “Medical Solutions”, and from “Precision Motion” to “Robotics and Automation”, respectively. The segment name changes did not result in any change to the compositions of the Company's segments and therefore did not result in any change to historical results.
Use of Estimates
The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities atas of the dates of the financial statements, and the reported amounts of revenue and expenses during the reporting periods. Estimates and assumptions are reviewed on an on-going basis and the effects of revisions are reflected in the period in which such revisions are deemed to be necessary. The Company evaluates its estimates based on historical experience, current conditions, and various other assumptions that it believes are reasonable under the circumstances. Estimates and assumptions are reviewed on an on-going basis and the effects of revisions are reflected in the period in which they are deemed to be necessary. Actual results could differ significantly from these estimates.
Recent Accounting Pronouncements
None
2. Revenue
The Company recognizes revenue when control of promised goods or services is transferred to customers. The transfer of control generally occurs upon shipment when title and risk of loss pass to the customer. The vast majority of the Company’s revenue is generated from the sale of distinct products. Revenue is measured as the amount of consideration the Company expects to receive in exchange for such products, which is generally at contractually stated prices. Sales taxes and value added taxes collected concurrently with revenue generating activities are excluded from revenue.
Performance Obligations
Substantially all of the Company’s revenue is recognized at a point in time, upon shipment, rather than over time.
At the request of its customers, the Company may perform professional services, generally for the maintenance and repair of products previously sold to those estimates.customers and for engineering services. Professional services for the maintenance and repair of
56
NOVANTA INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
AS OF SEPTEMBER 29, 2017JUNE 30, 2023
(Unaudited)
Recent Accounting Pronouncements
Share-Based Compensation
In May 2017, the Financial Accounting Standards Board (the “FASB”) issued Accounting Standards Update (“ASU”) 2017-09, “Compensation – Stock Compensation (Topic 718)products are typically short in duration, mostly less than one month,” which provides guidance about which changes and generally involve a single distinct performance obligation. The related revenue is recognized at a point in time when control transfers to the terms or conditionscustomer upon completion of professional services. The consideration expected to be received in exchange for such services is typically the contractually stated amount. Certain engineering services are longer in duration and the related revenue is recognized over time. As the Company’s right to payment from a share-based payment award require an entity to apply modification accounting in Topic 718. ASU 2017-09 requires that an entity account forcustomer is based on the effects of a modification unless (i) the fair value of engineering services performed, the modified award isCompany recognizes revenue based on the same ascorresponding value to the fair valuecustomer from the Company’s performance completed to date. Revenue from engineering services aggregated to less than 3% of the original award immediately beforeCompany’s consolidated revenue during the original award is modified; (ii) the vesting conditions of the modified award are the same as the vesting conditions of the original award immediately before the original award is modified;six months ended June 30, 2023 and (iii) the classification of the modified award as an equity instrument or a liability instrument is the same as the classification of the original award immediately before the original award is modified. ASU 2017-09 will become effective prospectively for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2017, with early adoption permitted. July 1, 2022.
The Company does not expectoccasionally sells separately priced non-standard/extended warranty services or preventative maintenance plans with the adoptionsale of ASU 2017-09 to have a material impact on its consolidated financial statements.
Presentationproducts. The transfer of Net Periodic Pension Cost
In March 2017, the FASB issued ASU 2017-07, “Compensation – Retirement Benefits (Topic 715): Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost,” which requires employers that offer or maintain defined benefit plans to disaggregatecontrol over the service component fromplans is over time. The Company recognizes the other components of net benefit cost and provides guidance onrelated revenue ratably over the presentationterms of the service component andplans. The transaction price of a contract is allocated to each performance obligation based on its relative standalone selling price. Standalone selling prices are generally determined based on the other components of net benefitprices charged to customers or using the expected cost in the statement of operations. The new standard is effective for public companies for annual periods beginning after December 15, 2017. plus a margin.
Shipping & Handling Costs
The Company expects to adopt the new standard in the first quarter of 2018 and expects to report its net periodic pension cost related to its frozen U.K. pension plan, consisting of interest cost, expected return on plan assets and amortization of actuarial gains (losses) only, in Other income (expense) in the consolidated statement of operations upon adoption.
Goodwill Impairment
In January 2017, the FASB issued ASU 2017-04, “Intangibles – Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment,” which simplifies the accounting for goodwill impairment. The amendment in ASU 2017-04 removes Step-two of the goodwill impairment test, which requires a hypothetical purchase price allocation. ASU 2017-04 will become effective prospectively for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2019, with early adoption permitted. The Company is currently evaluating the impact of the new standard on its consolidated financial statements.
Statement of Cash Flows Classification of Certain Cash Receipts and Cash Payments
In August 2016, the FASB issued ASU 2016-15, “Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments.” The standard further clarifies the classification in the cash flow statement of the following items: (i) debt prepayment or debt extinguishment costs; (ii) settlement of zero-coupon debt instruments or other debt instruments with coupon interest rates that are insignificant in relation to the effective interest rate of the borrowing; (iii) contingent consideration payments made after a business combination; (iv) proceeds from the settlement of insurance claims; (v) proceeds from the settlement of corporate-owned life insurance policies, including bank-owned life insurance policies; (vi) distributions received from equity method investees; (vii) beneficial interests in securitization transactions; and (viii) separately identifiable cash flows and application of the predominance principle. ASU 2016-15 will become effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2017, with early adoption permitted. ASU 2016-15 should be applied using a retrospective transition method for each period presented. The Company adopted ASU 2016-15 during the first quarter of 2017. The adoption of ASU 2016-15 resulted in ($2.5) million of payments of contingent considerations being reported as cash used in financing activities on the Company’s consolidated statements of cash flows for the nine months ended September 29, 2017.
Leases
In February 2016, the FASB issued ASU 2016-02, “Leases (Topic 842),” which provides comprehensive lease accounting guidance. The standard requires entities to recognize lease assets and liabilities on the balance sheet and to disclose key information about leasing arrangements. ASU 2016-02 will become effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2018, with early adoption permitted. The Company is currently evaluating the potential impact of this
6
NOVANTA INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
AS OF SEPTEMBER 29, 2017
(Unaudited)
guidance and an appropriate implementation strategy. While the Company’s evaluation of this guidance is in the early stages, the Company currently expects adoption of this guidance to have an impact on its consolidated balance sheet.
Revenue from Contracts with Customers
In May 2014, the FASB issued ASU 2014-09, “Revenue from Contracts with Customers (Topic 606),” which provides guidance for revenue recognition. ASU 2014-09 supersedes the revenue recognition requirements in Accounting Standards Codification (“ASC”) 605, “Revenue Recognition (Topic 605),” and requires entities to recognize revenue in a way that depicts the transfer of goods or services to customers at an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. ASU 2014-09 would be effective for annual and interim reporting periods beginning after December 15, 2016 and did not allow early adoption. In August 2015, the FASB issued ASU 2015-14, “Revenue from Contracts with Customers – Deferral of the Effective Date,” which deferred the effective date of ASU 2014-09 by one year to December 15, 2017, with the option of early adoption as of the original effective date. The amendment in ASU 2015-14 resulted in ASU 2014-09 becoming effective for annual and interim reporting periods beginning after December 15, 2017. Upon adoption of Topic 606, an entity may apply the new guidance either retrospectively to each prior reporting period presented (the “full retrospective method”) or retrospectively only to customer contracts not yet completed as of the date of adoption with the cumulative effect of initially applying the standard recognized in beginning retained earnings at the date of the initial application (the “modified retrospective method”).
The Company will adopt the new standard as of January 1, 2018 and has conducted various activities to prepare for the adoption of the new standard. The Company surveyed cross-functional leaders to identify potential revenue streams that could be impacted by Topic 606 and identified certain revenue streams that could be impacted. The Company also reviewed a representative sample of individual customer contracts related to these various revenue streams to determine if the guidance under Topic 606 is expected to have a material impact on revenue recognition.
The Company’s work to date indicates that only a limited number of contracts with customers may require a change in the way revenues are recognized. The Company is still in the process of determining the expected quantitative impact that the adoption of Topic 606 will have on its consolidated financial statements.
The Company concluded that it will adopt the new standard using the modified retrospective method. In addition, the Company will elect to apply certain practical expedients allowed under the guidance. First, the Company does not intend to adjust the promised amount of consideration for the effects of a financing component as the transfer of a promised good to a customer and the customer’s payment for that good are typically expected to be one year or less. Second, the Company will exclude from its transaction price any amounts collected from customers for all sales or other similar taxes, which is consistent with the Company’s current practice. Third, the Company will elect to accountaccounts for shipping and handling activities that occur after the transfer of control over the related goods as fulfillment activities rather than performance obligations. Shipping and handling fees charged to customers are recognized as revenue and the related costs are recorded in cost of revenue at the time of transfer of control.
Warranties
2. Business Combinations
WOM
On July 3, 2017, the Company acquired 100% of the outstanding shares of W.O.M. World of Medicine GmbH (“WOM”), a Berlin, Germany-based provider of medical insufflators, pumps, and related disposablesThe standard warranty periods for OEMs in the minimally invasive surgical market, for a total purchase price of €118.1 million ($134.9 million), net of working capital adjustments. The acquisition was financed with a €118.0 million ($134.7 million) draw-down on the Company’s revolving credit facility.products are typically 12 months to 36 months. The Company expects thatrecognizes estimated liabilities associated with standard warranty periods for its products in accordance with the additionprovisions of WOM will help the Company to better serve customers in minimally invasive surgery applications with a broader range of product offerings. WOM is included in the Company’s Vision reportable segment.
The acquisition of WOM has been accounted for as a business combination. The allocation of the purchase price is based upon a valuation of assets acquired and liabilities assumed. Assets acquired and liabilities assumed have been recorded at their estimated fair values as of the acquisition date. The fair values of intangible assets were based on valuations using an income approach, with estimates and assumptions provided by management of WOM and the Company. The process for estimating the fair values of identifiable intangible assets requires the use of significant estimates and assumptions, including estimating future cash flows and developing appropriate discount rates. The excess of the purchase price over the tangible assets, identifiable intangible assets and assumed liabilities was recorded as goodwill. The Company’s estimates and assumptions in determining the estimated fair values of certain assets and liabilities are subject to change within the measurement period (up to one year from the acquisition date) as a result of additional information obtained with regard to facts and circumstances that existed as of the acquisition date. The purchase price allocation is preliminaryASC 450, “Contingencies,” as the Company is inhas the processability to ascertain the likelihood of collecting additional informationthe liabilities and can reasonably estimate the amount of the liabilities. A provision for the valuationestimated cost related to standard warranties is recorded as cost of inventory, property and equipment, intangible assets, accrued liabilities and unrecognized tax benefits.
7
NOVANTA INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
AS OF SEPTEMBER 29, 2017
(Unaudited)
Based upon a preliminary valuation,revenue at the total purchase price allocationtime revenue is as follows (in thousands):
Purchase Price |
| ||
| Allocation |
| |
Cash | $ | 1,400 |
|
Accounts receivable |
| 11,807 |
|
Inventories |
| 14,549 |
|
Property and equipment |
| 21,940 |
|
Intangible assets |
| 59,732 |
|
Goodwill |
| 53,775 |
|
Other assets |
| 2,660 |
|
Total assets acquired |
| 165,863 |
|
Accounts payable |
| 4,398 |
|
Other liabilities |
| 8,276 |
|
Deferred tax liabilities |
| 18,255 |
|
Total liabilities assumed |
| 30,929 |
|
Total assets acquired, net of liabilities assumed |
| 134,934 |
|
Less: cash acquired |
| 1,400 |
|
Total purchase price, net of cash acquired | $ | 133,534 |
|
recognized. The fair value of intangible assets is comprisedCompany’s estimate of the following (dollar amounts in thousands):
|
|
|
|
| Weighted Average |
| Estimated Fair |
|
| Amortization | |
| Value |
|
| Period | |
Developed technologies | $ | 21,586 |
|
| 10 years |
Customer relationships |
| 34,949 |
|
| 12 years |
Trademarks and trade names |
| 2,284 |
|
| 10 years |
Backlog |
| 913 |
|
| 1 year |
Total | $ | 59,732 |
|
|
|
The purchase price allocation resulted in $59.7 million of identifiable intangible assetscosts to service the warranty obligations is based on historical experience and $53.8 million of goodwill. As the WOM acquisition is an acquisition of outstanding common shares, none of the resulting goodwill is deductible for tax purposes. Intangible assets are being amortized over their weighted average useful lives primarily based upon the pattern in which anticipated economic benefits from such assets are expected to be realized. The goodwill recorded represents the anticipated incremental valueexpectations of future cash flows potentially attributable to: (i) WOM’s ability to grow its business with existing and new customers, including leveragingconditions. To the extent that the Company’s customer base;experience in warranty claims or costs associated with servicing those claims differ from the original estimates, revisions to the estimated warranty liabilities are recorded at that time, with offsetting adjustments to cost of revenue.
Practical Expedients and (ii) cost improvements due to expansion in scale.Exemptions
The operating results of WOM were included in the Company’s results of operations beginning on July 3, 2017. WOM contributed revenues of $24.8 million and an operating loss from continuing operations before income taxes of $1.6 million for the nine months ended September 29, 2017. Operating loss from continuing operations before income taxes for the nine months ended September 29, 2017 included amortization of inventory fair value adjustments and amortization of purchased intangible assets of $4.9 million.
ThingMagic
On January 10, 2017, the Company acquired from Trimble Inc. certain assets and liabilities that constituted the business of ThingMagic, a Woburn, Massachusetts-based provider of ultra-high frequency (“UHF”) radio frequency identification (“RFID”) modules and finished RFID readers to OEMs in the medical and advanced industrial markets, for a total purchase price of $19.1 million, net of working capital adjustments. The acquisition was financed with cash on hand and a $12.0 million draw-down on the Company’s revolving credit facility. The Company expects thatexpenses incremental direct costs of obtaining a contract when incurred because the addition of ThingMagic will broaden its portfolio of RFID
8
NOVANTA INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
AS OF SEPTEMBER 29, 2017
(Unaudited)
solutions, while providing the resources to address the growing need for improvements in workflow solutions, patient safety, anti-counterfeiting, and asset tracking in a medical environment. ThingMagicexpected amortization period is included in the Company’s Vision reportable segment.
The acquisition of ThingMagic has been accounted for as a business combination. The allocation of the purchase price is based upon a valuation of assets and liabilities acquired. Assets acquired and liabilities assumed have been recorded at their estimated fair values as of the acquisition date. The fair values of intangible assets were based on valuations using an income approach, with estimates and assumptions provided by management of ThingMagic and the Company. The process for estimating the fair values of identifiable intangible assets requires the use of significant estimates and assumptions, including estimating future cash flows and developing appropriate discount rates. The excess of the purchase price over the tangible assets, identifiable intangible assets and assumed liabilities was recorded as goodwill. The Company’s estimates and assumptions in determining the estimated fair values of certain assets and liabilities are subject to change within the measurement period (up totypically one year from the acquisition date) as a result of additional information obtained with regards to factsor less. These costs are recorded within selling, general and circumstances that existed as of the acquisition date.
Based upon a preliminary valuation, the total purchase price was allocated as follows (in thousands):
| Purchase Price |
| |
| Allocation |
| |
Inventories | $ | 1,832 |
|
Intangible assets |
| 7,423 |
|
Goodwill |
| 9,929 |
|
Total assets acquired |
| 19,184 |
|
|
|
|
|
Other liabilities |
| 95 |
|
Total liabilities assumed |
| 95 |
|
Total purchase price | $ | 19,089 |
|
The fair value of intangible assets is comprised of the following (dollar amounts in thousands):
|
|
|
|
| Weighted Average |
| Estimated Fair |
|
| Amortization | |
| Value |
|
| Period | |
Developed technologies | $ | 4,600 |
|
| 10 years |
Customer relationships |
| 2,520 |
|
| 10 years |
Trademarks and trade names |
| 303 |
|
| 5 years |
Total | $ | 7,423 |
|
|
|
The purchase price allocation resulted in $7.4 million of identifiable intangible assets and $9.9 million of goodwill. As the ThingMagic acquisition is treated as an acquisition of assets for income tax purposes, the goodwill acquired is expected to be fully deductible. Intangible assets are being amortized over their weighted average useful lives primarily based upon the pattern in which anticipated economic benefits from such assets are expected to be realized. The goodwill recorded represents the anticipated incremental value of future cash flows potentially attributable to: (i) ThingMagic’s ability to grow its business with existing and new customers, including leveraging the Company’s customer base; (ii) cost synergies in combining the research and development capabilities from ThingMagic with the existing RFID capabilities within Novanta; and (iii) cost improvements due to the integration of ThingMagic operations into the Company’s existing infrastructure.
The operating results of ThingMagic were included in the Company’s results of operations beginning on January 10, 2017. ThingMagic contributed revenues of $6.5 million and operating income from continuing operations before income taxes of $0.1 million for the nine months ended September 29, 2017. Operating income from continuing operations before income taxes for the nine months ended September 29, 2017 included amortization of inventory fair value adjustments and amortization of purchased intangible assets of $1.2 million.
The pro forma financial information reflecting the operating results of ThingMagic, as if it had been acquired as of January 1, 2016, would not differ materially from the operating results of the Company as reported for the year ended December 31, 2016.
9
NOVANTA INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
AS OF SEPTEMBER 29, 2017
(Unaudited)
On January 10, 2017, the Company acquired an additional approximately 35% of the outstanding shares of Laser Quantum, a Manchester, United Kingdom-based provider of solid state continuous wave lasers, femtosecond lasers, and optical light engines to OEMs in the medical market, for £25.5 million ($31.1 million) in cash consideration. The purchase price was financed with cash on hand and a $30.0 million draw-down on the Company’s revolving credit facility. As a result of this transaction, the Company’s ownership position in Laser Quantum increased from approximately 41% to approximately 76%. By establishing control through a majority equity ownership, the Company expects to broaden its technology capability in photonics solutions for medical applications, particularly within the growing DNA sequencing market, while providing key enabling photonics-based technologies for instrumentation and life science applications such as biomedical imaging, cell sorting, and ophthalmology. Laser Quantum is included in the Company’s Photonics reportable segment.
As part of this transaction, the Company and the remaining shareholders of Laser Quantum entered into a call and put option agreement for the purchase and sale, in 2020, of all remaining Laser Quantum shares held by the other shareholders, subject to certain conditions. The purchase price for the remaining shares will be based on the proportionate share of the noncontrolling interest (“NCI”) in Laser Quantum’s cash on hand as of December 31, 2019 and a multiple of Laser Quantum’s EBITDA for the twelve months ending December 31, 2019, as defined in the call and put option agreement.
In connection with the purchase price allocation, upon gaining control over Laser Quantum, the Company recognized a nontaxable gain of $26.4 millionadministrative expenses in the consolidated statement of operationsoperations.
The Company does not adjust the promised amount of consideration for the nine months ended September 29, 2017. effects of a financing component because the transfer of a promised good to a customer and the customer’s payment for that good are typically one year or less.The gain representedCompany does not disclose the excess of the fair value of the Company’s previously-held equity interestremaining performance obligation for contracts with an original expected length of one year or less.
Contract Liabilities
Contract liabilities consist of deferred revenue and advance payments from customers, including amounts that are refundable. These contract liabilities are classified as either current or long-term liabilities in Laser Quantum over its carrying value upon gaining control.
The fair value of the approximately 41% equity interest previously held by the Company before the acquisition and the fair value of the approximately 24% NCI held by the remaining shareholders of Laser Quantum after the acquisition were determined using a combination of the discounted cash flow method (an income approach), the guideline public company method (a market approach), and the subject company transaction method (a market approach). The subject company transaction method wasconsolidated balance sheet based on the purchase price paid bytiming of when the Company expects to recognize the related revenue. As of June 30, 2023 and December 31, 2022, contract liabilities were $6.6 million and $8.4 million, respectively, and are included in accrued expenses and other current liabilities and other liabilities in the accompanying consolidated balance sheets. The decrease in the contract liability balance during the six months ended June 30, 2023 is primarily due to $5.3 million of revenue recognized during the period that was included in the contract liability balance as of December 31, 2022, partially offset by cash payments received in advance of satisfying performance obligations.
Disaggregated Revenue
See Note 15 for the acquisitionCompany’s disaggregation of the additional approximately 35% of the outstanding shares, while giving consideration to the control and/or minority nature of the subject equity interests.revenue by segment, geography and end market.
7
NOVANTA INC.
The acquisition of Laser Quantum has been accounted for as a business combination. The allocation of the purchase price is based upon a valuation of assets and liabilities acquired. Assets acquired and liabilities assumed have been recorded at their estimated fair values as of the acquisition date. The fair values of intangible assetsNOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AS OF JUNE 30, 2023
(Unaudited)
3. Accumulated Other Comprehensive Loss
Changes in accumulated other comprehensive loss were based on valuations using an income approach, with estimates and assumptions provided by management of Laser Quantum and the Company. The process for estimating the fair values of identifiable intangible assets requires the use of significant estimates and assumptions, including estimating future cash flows and developing appropriate discount rates. The excess of the purchase price over the tangible assets, identifiable intangible assets and assumed liabilities was recorded as goodwill. The Company’s estimates and assumptions in determining the estimated fair values of certain assets and liabilities are subject to change within the measurement period (up to one year from the acquisition date) as a result of additional information to be obtained with regards to facts and circumstances that existed as of the acquisition date.
Based upon a preliminary valuation, the total purchase price was allocated as follows (in thousands):
| Total Accumulated |
|
|
|
|
|
|
| |||
| Other |
|
| Cumulative |
|
| Pension |
| |||
| Comprehensive |
|
| Translation |
|
| Liability |
| |||
| Loss |
|
| Adjustments |
|
| Adjustments |
| |||
Balance at December 31, 2022 | $ | (32,009 | ) |
| $ | (24,427 | ) |
| $ | (7,582 | ) |
Other comprehensive income (loss) |
| 6,454 |
|
|
| 6,807 |
|
|
| (353 | ) |
Amounts reclassified from accumulated other comprehensive loss |
| 513 |
|
|
| — |
|
|
| 513 |
|
Balance at June 30, 2023 | $ | (25,042 | ) |
| $ | (17,620 | ) |
| $ | (7,422 | ) |
10
NOVANTA INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
AS OF SEPTEMBER 29, 2017
(Unaudited)
Purchase Price |
| ||
| Allocation |
| |
Cash | $ | 15,343 |
|
Accounts receivable |
| 2,739 |
|
Inventories |
| 6,264 |
|
Property and equipment |
| 2,286 |
|
Intangible assets |
| 38,955 |
|
Goodwill |
| 31,041 |
|
Other assets |
| 717 |
|
Total fair value of assets |
| 97,345 |
|
|
|
|
|
Accounts payable |
| 796 |
|
Other liabilities |
| 2,068 |
|
Deferred tax liabilities |
| 7,210 |
|
Total fair value of liabilities |
| 10,074 |
|
Total fair value of assets, net of fair value of liabilities |
| 87,271 |
|
Less: fair value of equity interest previously held by Novanta |
| 34,637 |
|
Less: fair value of noncontrolling interest |
| 21,582 |
|
Total purchase price paid by Novanta |
| 31,052 |
|
Less: cash acquired |
| 15,343 |
|
Purchase price, net of cash acquired | $ | 15,709 |
|
The fair value of intangible assets is comprised of the following (dollar amounts in thousands):
|
|
|
|
| Weighted Average |
| Estimated Fair |
|
| Amortization | |
| Value |
|
| Period | |
Developed technologies | $ | 15,501 |
|
| 15 years |
Customer relationships |
| 19,990 |
|
| 15 years |
Trademarks and trade names |
| 1,964 |
|
| 15 years |
Backlog |
| 1,500 |
|
| 9 months |
Total | $ | 38,955 |
|
|
|
The purchase price allocation resulted in $39.0 million of identifiable intangible assets and $31.0 million of goodwill. As the Laser Quantum acquisition is an acquisition of outstanding common shares, none of the resulting goodwill is deductible for tax purposes. Intangible assets are being amortized over their weighted average useful lives primarily based upon the pattern in which anticipated economic benefitsreclassified from such assets are expected to be realized. The goodwill recorded represents the anticipated incremental value of future cash flow potential attributable to: (i) Laser Quantum’s ability to grow its business with existing and new customers, including leveraging the Company’s broader customer base; and (ii) cost improvements due to expansion in scale.
The operating results of Laser Quantumaccumulated other comprehensive loss were included in the Company’s results of operations beginning on January 10, 2017. Laser Quantum contributed revenues of $32.3 million andother income from continuing operations before income taxes of $7.0 million for the nine months ended September 29, 2017. Operating income from continuing operations before income taxes for the nine months ended September 29, 2017 included $5.8 million of expenses associated with the amortization of inventory fair value step-up and purchased intangible assets.
Unaudited Pro Forma Information
The pro forma information for all periods presented below includes the effects of business combination accounting resulting from the acquisitions of WOM and Laser Quantum, including amortization of inventory fair value adjustments, amortization of intangible assets, interest expense on borrowings in connection with the acquisition, elimination of the gain from business acquisition and income from equity method investment, and the related tax effects as though the acquisitions had been consummated as of
11
NOVANTA INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
AS OF SEPTEMBER 29, 2017
(Unaudited)
January 1, 2016. The pro forma financial information is presented for comparative purposes only and is not necessarily indicative of the results of operations that actually would have been achieved if the acquisitions had taken place on January 1, 2016.
Three Months Ended |
|
| Nine Months Ended |
| |||||||||||
| September 29, |
|
| September 30, |
|
| September 29, |
|
| September 30, |
| ||||
| 2017 |
|
| 2016 |
|
| 2017 |
|
| 2016 |
| ||||
Revenue | $ | 146,296 |
|
| $ | 124,925 |
|
| $ | 415,900 |
|
| $ | 361,701 |
|
Income from continuing operations | $ | 12,727 |
|
| $ | 8,241 |
|
| $ | 32,038 |
|
| $ | 12,804 |
|
Earnings per common share attributable to Novanta Inc. - Basic | $ | 0.12 |
|
| $ | 0.24 |
|
| $ | 0.55 |
|
| $ | 0.36 |
|
Earnings per common share attributable to Novanta Inc. - Diluted | $ | 0.12 |
|
| $ | 0.24 |
|
| $ | 0.55 |
|
| $ | 0.36 |
|
Acquisition Costs
Acquisition-related costs are included in restructuring, acquisition and divestiture related costs(expense) in the consolidated statements of operations. Acquisition-related costs for WOM, ThingMagic and Laser Quantum are as follows (in thousands):
| Three Months Ended |
|
| Nine Months Ended |
| ||
| September 29, |
|
| September 29, |
| ||
| 2017 |
|
| 2017 |
| ||
ThingMagic | $ | — |
|
| $ | 149 |
|
Laser Quantum | $ | — |
|
| $ | 264 |
|
WOM | $ | 3,359 |
|
| $ | 4,351 |
|
3. Discontinued Operations and Divestitures
In July 2014, the Company completed the sale of certain assets and liabilities of its Scientific Lasers business for approximately $6.5 million in cash, net of working capital adjustments. In accordance with the purchase and sale agreement, $1.5 million of the sales proceeds was held in escrow until January 2016. In January 2016, the $1.5 million escrow was released to the Company in full and is reported as cash flow from investing activities of discontinued operations.
4. Accumulated Other Comprehensive Income (Loss)
Changes in accumulated other comprehensive income (loss) was as follows (in thousands):
| Total accumulated |
|
|
|
|
|
|
|
|
| |
| other |
|
| Foreign currency |
|
|
|
|
| ||
| comprehensive |
|
| translation |
|
| Pension |
| |||
| income (loss) |
|
| adjustments |
|
| liabilities |
| |||
Balance at December 31, 2016 | $ | (27,715 | ) |
| $ | (17,222 | ) |
| $ | (10,493 | ) |
Other comprehensive income (loss) |
| 7,509 |
|
|
| 8,340 |
|
|
| (831 | ) |
Amounts reclassified from other comprehensive income (loss) (1) |
| 874 |
|
|
| — |
|
|
| 874 |
|
Balance at September 29, 2017 | $ | (19,332 | ) |
| $ | (8,882 | ) |
| $ | (10,450 | ) |
|
|
5. Earnings (Loss) per Common Share
Basic earnings (loss) per common share is computed by dividing consolidated net income attributable to Novanta Inc. after adjustment of redeemable noncontrolling interest to estimated redemption value by the weighted average number of common shares outstanding
12
NOVANTA INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
AS OF SEPTEMBER 29, 2017
(Unaudited)
during the period. The Company recognizes changes in the redeemable noncontrolling interest redemption value by adjusting the carrying amount of the redeemable noncontrolling interest as of the end of the period to the higher of: (i) the estimated redemption value assuming the end of the period is also the redemption date or (ii) the carrying value without any redemption value adjustments. Such adjustments are recorded in retained earnings in stockholders’ equity instead of net income attributable to Novanta Inc. For both basic and diluted earnings (loss) per common share, such redemption value adjustments are included in the calculation of the numerator.
For diluted earnings (loss) per common share, the denominator also includes the dilutive effect of outstanding common share equivalents. The dilutive effects of outstanding common share equivalents, including outstanding service-based restricted stock units, stock options and total shareholder return performanceperformance-based restricted stock units, are determined using the treasury stock method. DilutiveThe dilutive effects of market-based contingently issuable shares are included in the weighted average dilutivecommon share calculation usingbased on the treasury stock methodnumber of shares, if any, that would be issuable as of the end of the reporting period, assuming the end of the reporting period is also the end of the performance period. The dilutive effects of attainment-based contingently issuable shares are included in the weighted average common share calculation based on the cumulative achievement against the performance targets only when the contingenciesperformance targets have been resolved. For periods in which net losses are generated,achieved as of the dilutive potential common shares are excluded fromend of the calculation of diluted earnings per common share as the effect would be anti-dilutive.reporting period.
The following table sets forth the computation of basic and diluted earnings (loss) per common share (in(amounts in thousands, except per share amounts)data):
| Three Months Ended |
|
| Nine Months Ended |
| ||||||||||
| September 29, |
|
| September 30, |
|
| September 29, |
|
| September 30, |
| ||||
| 2017 |
|
| 2016 |
|
| 2017 |
|
| 2016 |
| ||||
Numerators: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations | $ | 8,366 |
|
| $ | 7,470 |
|
| $ | 52,630 |
|
| $ | 14,247 |
|
Less: Net income attributable to noncontrolling interest |
| (834 | ) |
|
| — |
|
|
| (1,444 | ) |
|
| — |
|
Net income attributable to Novanta Inc. |
| 7,532 |
|
|
| 7,470 |
|
|
| 51,186 |
|
|
| 14,247 |
|
Less: Adjustment of redeemable noncontrolling interest to estimated redemption value (see Note 14) |
| (7,585 | ) |
|
| — |
|
|
| (11,303 | ) |
|
| — |
|
Net income (loss) attributable to Novanta Inc. after adjustment of redeemable noncontrolling interest to estimated redemption value | $ | (53 | ) |
| $ | 7,470 |
|
| $ | 39,883 |
|
| $ | 14,247 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Denominators: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average common shares outstanding— basic |
| 34,833 |
|
|
| 34,677 |
|
|
| 34,809 |
|
|
| 34,689 |
|
Dilutive potential common shares (1) |
| — |
|
|
| 251 |
|
|
| 426 |
|
|
| 200 |
|
Weighted average common shares outstanding— diluted |
| 34,833 |
|
|
| 34,928 |
|
|
| 35,235 |
|
|
| 34,889 |
|
Antidilutive common shares excluded from above |
| — |
|
|
| 144 |
|
|
| — |
|
|
| 112 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic Earnings (Loss) per Common Share: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic earnings (loss) per common share attributable to Novanta Inc. | $ | (0.00 | ) |
| $ | 0.22 |
|
| $ | 1.15 |
|
| $ | 0.41 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted Earnings (Loss) per Common Share: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted earnings (loss) per common share attributable to Novanta Inc. | $ | (0.00 | ) |
| $ | 0.21 |
|
| $ | 1.13 |
|
| $ | 0.41 |
|
|
|
| Three Months Ended |
|
| Six Months Ended |
| ||||||||||
| June 30, |
|
| July 1, |
|
| June 30, |
|
| July 1, |
| ||||
| 2023 |
|
| 2022 |
|
| 2023 |
|
| 2022 |
| ||||
Numerators: |
|
|
|
|
|
|
|
|
|
|
| ||||
Consolidated net income | $ | 20,879 |
|
| $ | 17,479 |
|
| $ | 39,144 |
|
| $ | 36,299 |
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
Denominators: |
|
|
|
|
|
|
|
|
|
|
| ||||
Weighted average common shares outstanding— basic |
| 35,851 |
|
|
| 35,609 |
|
|
| 35,830 |
|
|
| 35,573 |
|
Dilutive potential common shares |
| 181 |
|
|
| 324 |
|
|
| 185 |
|
|
| 284 |
|
Weighted average common shares outstanding— diluted |
| 36,032 |
|
|
| 35,933 |
|
|
| 36,015 |
|
|
| 35,857 |
|
Antidilutive potential common shares excluded from above |
| 141 |
|
|
| 146 |
|
|
| 127 |
|
|
| 120 |
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
Earnings per Common Share: |
|
|
|
|
|
|
|
|
|
|
| ||||
Basic | $ | 0.58 |
|
| $ | 0.49 |
|
| $ | 1.09 |
|
| $ | 1.02 |
|
Diluted | $ | 0.58 |
|
| $ | 0.49 |
|
| $ | 1.09 |
|
| $ | 1.01 |
|
Common Share Repurchases
DuringFor both the ninethree and six months ended September 29, 2017,June 30, 2023, 148 thousand shares of performance-based restricted stock units were considered attainment-based contingently issuable shares that were excluded from the Company repurchased 14 thousandcalculation of its common shares in the open market for an aggregate purchase pricedenominator as the performance targets had not been achieved as of $0.4 million at an average price of $26.41 per share.June 30, 2023.
138
NOVANTA INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
AS OF SEPTEMBER 29, 2017JUNE 30, 2023
(Unaudited)
6.For both the three and six months ended July 1, 2022, 125 thousand shares of performance-based restricted stock units were considered attainment-based contingently issuable shares that were excluded from the calculation of the denominator as the performance targets had not been achieved as of July 1, 2022.
5. Fair Value Measurements
ASC 820, “Fair Value Measurements,” establishes a fair value hierarchy based on three levels of inputs, of which the first two are considered observable and the third is considered unobservable:
Level 1: Quoted prices for identical assets or liabilities in active markets which the Company can access.
Level 2: Observable inputs other than those described in Level 1.
Level 3: Unobservable inputs.
Current Assets and Liabilities
The Company’s cash equivalents are highly liquid investments in money market accounts,with original maturities of three months or less, which represent the only asset the Company measuresassets measured at fair value on a recurring basis. The Company determines the fair value of cash equivalents using a market approach based on quoted prices in active markets. The fair values of cash equivalents, accounts receivable, income taxes receivable, accounts payable, income taxes payable and accrued expenses and other current liabilities (excluding contingent considerations) approximate their carrying values because of their short-term nature.
Foreign Currency Contracts
The Company addresses market risks from changes in foreign currency exchange rates through a risk management program that includes the use of derivative financial instruments to mitigate certain balance sheet foreign currency transaction exposures. The Company uses foreign currency forward contracts as a part of its strategy to manage exposures related to foreign currency denominated monetary assets and liabilities. The fair value of these foreign currency forward contracts is reported either in other current assets or in other current liabilities as of the end of the period.
Contingent considerationConsiderations
On December 18, 2015,July 31, 2019, the Company acquired all assets and certain liabilities of Skyetek Inc.ARGES GmbH (“Skyetek”ARGES”). Under the purchase and sale agreement for the SkyetekARGES acquisition, the ownersformer owner of Skyetek were eligible to receive contingent consideration based on the achievement of certain sales order commitment targets from October 2015 through June 2017. The undiscounted range of possible contingent consideration was zero to $0.3 million. If such targets were achieved, the contingent consideration would be payable in 2017. The Company recognized an estimated fair value of $0.2 million as part of the purchase price as of the acquisition date. Based on the actual sales order commitments through June 2017, the Company paid $0.1 million as the final Skyetek contingent consideration during the three months ended September 29, 2017.
On November 11, 2015, the Company acquired Lincoln Laser Company (“Lincoln Laser”). Under the purchase and sale agreement for the Lincoln Laser acquisition, the shareholders of Lincoln Laser wereARGES is eligible to receive contingent consideration based on the achievement of certain revenue targets for fiscal year 2016.by the Company from August 2019 through December 2026. The undiscounted range of possible contingent consideration is zero to €10.0 million ($11.1 million). If the revenue targets are achieved, the contingent consideration would be payable annually with the first payment due in the first quarter of 2021. The estimated fair value of the contingent consideration of $2.3€7.1 million was determined based on the Monte Carlo valuation method and was recorded as part of the purchase price as of the acquisition date. Based on Lincoln Laser’s fiscal year 2016 revenue results, the fair value of the contingent consideration for Lincoln Laser was adjusted to $1.4 million as of December 31, 2016. The Company paid $1.4 million as final settlement of the contingent consideration in the first quarter of 2017.
On February 19, 2015, the Company acquired Applimotion Inc. (“Applimotion”). Under the purchase and sale agreement for the Applimotion acquisition, the shareholders of Applimotion are eligible to receive contingent consideration based on the achievement of certain revenue targets for fiscal years 2015 to 2017. The undiscounted range of contingent considerations is zero to $4.0 million. If such targets are achieved, the contingent consideration will be payable in cash in two installments in 2017 and 2018, respectively. The estimated fair value of the contingent consideration of $1.0 million($7.9 million) was determined based on the Monte Carlo valuation method and was recorded as part of the purchase price as of the acquisition date. Subsequent changes in the estimated fair value of thisthe contingent consideration liability are recorded in the consolidated statement of operations in restructuring, acquisition, and divestiture related costs until the liability is fully settled. Under the Monte Carlo valuation method,During 2020, the fair value of the contingent consideration for Applimotion was $3.6adjusted to €4.1 million ($5.1 million). During 2021, the Company made the first installment payment of €0.4 million ($0.4 million) in March 2021 and adjusted the fair value of the contingent consideration to €3.3 million ($3.8 million) as of December 31, 2016. Based on Applimotion’s revenue performance for 2015 and 2016,2021. During 2022, the Company paid $1.2made the second installment payment of €0.3 million ($0.4 million) in contingent consideration in the first quarter of 2017. Based on the strong revenue performance year to dateMarch 2022 and projections for the remainder of 2017, the Company adjusted the fair value of the contingent consideration to €0.4 million ($0.4 million). The installment payments have been reported as cash outflows from financing activities in the consolidated statement of cash flows for the respective periods. Based on the revenue performance and revenue projections as of June 30, 2023, the Company did not make any adjustments to the fair value of the remaining contingent consideration to $2.8 million, which is reported as a current liability in accrued expenses and other current liabilities onduring the consolidated balance sheet as of September 29, 2017. The second installment of the contingent consideration will be payable in the first quarter of 2018.six months ended June 30, 2023.
9
NOVANTA INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AS OF JUNE 30, 2023
(Unaudited)
Summary by Fair Value Hierarchy
The following table summarizes the fair values of the Company’s financial assets and liabilities measured at fair value on a recurring basis as of September 29, 2017June 30, 2023 (in thousands):
14
|
|
|
| Quoted Prices in |
|
|
|
|
| Significant Other |
| ||||
|
|
|
| Active Markets for |
|
| Significant Other |
|
| Unobservable |
| ||||
|
|
|
| Identical Assets |
|
| Observable Inputs |
|
| Inputs |
| ||||
| Fair Value |
|
| (Level 1) |
|
| (Level 2) |
|
| (Level 3) |
| ||||
Assets |
|
|
|
|
|
|
|
|
|
|
| ||||
Cash equivalents | $ | 2,816 |
|
| $ | 2,816 |
|
| $ | — |
|
| $ | — |
|
Prepaid expenses and other current assets: |
|
|
|
|
|
|
|
|
|
|
| ||||
Foreign currency forward contracts |
| 347 |
|
|
| — |
|
|
| 347 |
|
|
| — |
|
| $ | 3,163 |
|
| $ | 2,816 |
|
| $ | 347 |
|
| $ | — |
|
Liabilities |
|
|
|
|
|
|
|
|
|
|
| ||||
Accrued expenses and other current liabilities: |
|
|
|
|
|
|
|
|
|
|
| ||||
Contingent considerations - Current | $ | 127 |
|
| $ | — |
|
| $ | — |
|
| $ | 127 |
|
Foreign currency forward contracts |
| 274 |
|
|
| — |
|
|
| 274 |
|
|
| — |
|
Other liabilities: |
|
|
|
|
|
|
|
|
|
|
| ||||
Contingent considerations - Long-term |
| 307 |
|
|
| — |
|
|
| — |
|
|
| 307 |
|
| $ | 708 |
|
| $ | — |
|
| $ | 274 |
|
| $ | 434 |
|
NOVANTA INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
AS OF SEPTEMBER 29, 2017
(Unaudited)
|
|
|
|
| Quoted Prices in |
|
|
|
|
|
| Significant Other |
| ||
|
|
|
|
| Active Markets for |
|
| Significant Other |
|
| Unobservable |
| |||
|
|
|
|
| Identical Assets |
|
| Observable Inputs |
|
| Inputs |
| |||
| Fair Value |
|
| (Level 1) |
|
| (Level 2) |
|
| (Level 3) |
| ||||
Assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash equivalents | $ | 3,141 |
|
| $ | 3,141 |
|
| $ | — |
|
| $ | — |
|
Liabilities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Contingent consideration - Current | $ | 2,800 |
|
| $ | — |
|
| $ | — |
|
| $ | 2,800 |
|
Contingent consideration - Long-term |
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
| $ | 2,800 |
|
| $ | — |
|
| $ | — |
|
| $ | 2,800 |
|
The following table summarizes the fair values of the Company’s financial assets and liabilities measured at fair value on a recurring basis as of December 31, 20162022 (in thousands):
|
|
|
| Quoted Prices in |
|
|
|
|
| Significant Other |
| ||||
|
|
|
| Active Markets for |
|
| Significant Other |
|
| Unobservable |
| ||||
|
|
|
| Identical Assets |
|
| Observable Inputs |
|
| Inputs |
| ||||
| Fair Value |
|
| (Level 1) |
|
| (Level 2) |
|
| (Level 3) |
| ||||
Assets |
|
|
|
|
|
|
|
|
|
|
| ||||
Cash equivalents | $ | 1,369 |
|
| $ | 1,369 |
|
| $ | — |
|
| $ | — |
|
Prepaid expenses and other current assets: |
|
|
|
|
|
|
|
|
|
|
| ||||
Foreign currency forward contracts |
| 391 |
|
|
| — |
|
|
| 391 |
|
|
| — |
|
| $ | 1,760 |
|
| $ | 1,369 |
|
| $ | 391 |
|
| $ | — |
|
Liabilities |
|
|
|
|
|
|
|
|
|
|
| ||||
Accrued expenses and other current liabilities: |
|
|
|
|
|
|
|
|
|
|
| ||||
Contingent considerations - Current | $ | 124 |
|
| $ | — |
|
| $ | — |
|
| $ | 124 |
|
Foreign currency forward contracts |
| 412 |
|
|
| — |
|
|
| 412 |
|
|
| — |
|
Other liabilities: |
|
|
|
|
|
|
|
|
|
|
| ||||
Contingent considerations - Long-term |
| 301 |
|
|
| — |
|
|
| — |
|
|
| 301 |
|
| $ | 837 |
|
| $ | — |
|
| $ | 412 |
|
| $ | 425 |
|
|
|
|
|
| Quoted Prices in |
|
|
|
|
|
| Significant Other |
| ||
|
|
|
|
| Active Markets for |
|
| Significant Other |
|
| Unobservable |
| |||
|
|
|
|
| Identical Assets |
|
| Observable Inputs |
|
| Inputs |
| |||
| Fair Value |
|
| (Level 1) |
|
| (Level 2) |
|
| (Level 3) |
| ||||
Assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash equivalents | $ | 9,569 |
|
| $ | 9,569 |
|
| $ | — |
|
| $ | — |
|
Liabilities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Contingent consideration - Current | $ | 2,775 |
|
| $ | — |
|
| $ | — |
|
| $ | 2,775 |
|
Contingent consideration - Long-term |
| 2,381 |
|
|
| — |
|
|
| — |
|
|
| 2,381 |
|
| $ | 5,156 |
|
| $ | — |
|
| $ | — |
|
| $ | 5,156 |
|
Changes in the fair value of Level 3 contingent considerationconsiderations during the ninesix months ended September 29, 2017June 30, 2023 were as follows (in thousands):
| Contingent Consideration |
| |
Balance at December 31, 2016 | $ | 5,156 |
|
Payment to Applimotion |
| (1,200 | ) |
Payment to Lincoln Laser |
| (1,433 | ) |
Payment to Skyetek |
| (148 | ) |
Fair value adjustments (1) |
| 425 |
|
Balance at September 29, 2017 | $ | 2,800 |
|
| Amount |
| |
Balance at December 31, 2022 | $ | 425 |
|
Effect of foreign exchange rates |
| 9 |
|
Balance at June 30, 2023 | $ | 434 |
|
|
|
See Note 9 to Consolidated Financial Statements for a discussion of the estimated fair value of the Company’s outstanding debt.
10
NOVANTA INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AS OF JUNE 30, 2023
(Unaudited)
6. Foreign Currency Contracts
The Company addresses market risks from changes in foreign currency exchange rates through a risk management program that includes the use of derivative financial instruments to mitigate certain foreign currency transaction exposures from future settlement of non-functional currency monetary assets and liabilities as of the end of a period. The Company does not enter into derivative transactions for speculative purposes. Gains and losses on derivative financial instruments substantially offset losses and gains on the underlying hedged exposures and are included in foreign exchange transaction gains (losses) in the consolidated statements of operations. Furthermore, the Company manages its exposures to counterparty risks on derivative instruments by entering into contracts with a diversified group of major financial institutions and by actively monitoring outstanding positions.
As of June 30, 2023, the aggregate notional amount and fair value of the Company’s foreign currency forward contracts was $142.4 million and a net gain of $0.1 million, respectively. As of December 31, 2022, the aggregate notional amount and fair value of the Company’s foreign currency forward contracts was $117.1 million and a net loss of less than $0.1 million, respectively.
The Company recognized an aggregate net gain of $2.1 million and $2.7 million for the three and six months ended June 30, 2023, respectively. The Company recognized an aggregate net loss of $1.4 million and $1.5 million for the three and six months ended July 1, 2022, respectively.
7. Goodwill and Intangible Assets
Goodwill
Goodwill is recorded when the consideration for a business combination exceeds the fair value of net tangible and identifiable intangible assets acquired. The Company tests its goodwill balances annually for impairment annually as of the beginning of the second quarter or more frequently if indicators are present or changes in circumstances suggest that an impairment may exist. The Company performed itsthe most recent annual goodwill and indefinite-lived intangible asset impairment test as of the beginning of the second quarter of 20172023 and noted no impairment of goodwill. impairment.
The following table summarizes changes in goodwill during the ninesix months ended September 29, 2017June 30, 2023 (in thousands):
Balance at beginning of the period | $ | 478,897 |
|
Effect of foreign exchange rate changes |
| 4,512 |
|
Balance at end of the period | $ | 483,409 |
|
15
NOVANTA INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
AS OF SEPTEMBER 29, 2017
(Unaudited)
$ | 108,128 |
| |
Goodwill acquired from Laser Quantum acquisition |
| 31,041 |
|
Goodwill acquired from ThingMagic acquisition |
| 9,929 |
|
Goodwill acquired from WOM acquisition |
| 53,775 |
|
Effect of foreign exchange rate changes |
| 4,847 |
|
Balance at end of the period | $ | 207,720 |
|
Goodwill by reportable segment as of September 29, 2017June 30, 2023 was as follows (in thousands):
| Reportable Segment |
|
|
|
|
| Reportable Segment |
|
|
|
| |||||||||||||||||||
| Photonics |
|
| Vision |
|
| Precision Motion |
|
| Total |
| Precision Medicine and Manufacturing |
|
| Medical Solutions |
|
| Robotics and Automation |
|
| Total |
| ||||||||
Goodwill | $ | 170,450 |
|
| $ | 154,536 |
|
| $ | 33,963 |
|
| $ | 358,949 |
| $ | 210,725 |
|
| $ | 169,428 |
|
| $ | 254,485 |
|
| $ | 634,638 |
|
Accumulated impairment of goodwill |
| (102,461 | ) |
|
| (31,722 | ) |
|
| (17,046 | ) |
|
| (151,229 | ) |
| (102,461 | ) |
|
| (31,722 | ) |
|
| (17,046 | ) |
|
| (151,229 | ) |
Total | $ | 67,989 |
|
| $ | 122,814 |
|
| $ | 16,917 |
|
| $ | 207,720 |
| $ | 108,264 |
|
| $ | 137,706 |
|
| $ | 237,439 |
|
| $ | 483,409 |
|
Goodwill by reportable segment as of December 31, 20162022 was as follows (in thousands):
| Reportable Segment |
|
|
|
| ||||||||||
| Precision Medicine and Manufacturing |
|
| Medical Solutions |
|
| Robotics and Automation |
|
| Total |
| ||||
Goodwill | $ | 208,387 |
|
| $ | 167,891 |
|
| $ | 253,848 |
|
| $ | 630,126 |
|
Accumulated impairment of goodwill |
| (102,461 | ) |
|
| (31,722 | ) |
|
| (17,046 | ) |
|
| (151,229 | ) |
Total | $ | 105,926 |
|
| $ | 136,169 |
|
| $ | 236,802 |
|
| $ | 478,897 |
|
11
| Reportable Segment |
|
|
|
|
| |||||||||
| Photonics |
|
| Vision |
|
| Precision Motion |
|
| Total |
| ||||
Goodwill | $ | 136,278 |
|
| $ | 89,116 |
|
| $ | 33,963 |
|
| $ | 259,357 |
|
Accumulated impairment of goodwill |
| (102,461 | ) |
|
| (31,722 | ) |
|
| (17,046 | ) |
|
| (151,229 | ) |
Total | $ | 33,817 |
|
| $ | 57,394 |
|
| $ | 16,917 |
|
| $ | 108,128 |
|
NOVANTA INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AS OF JUNE 30, 2023
(Unaudited)
Intangible Assets
Intangible assets as of September 29, 2017June 30, 2023 and December 31, 2016,2022, respectively, are summarized as follows (in thousands):
| June 30, 2023 |
|
| December 31, 2022 |
| ||||||||||||||||||
| Gross Carrying |
|
| Accumulated |
|
| Net Carrying |
|
| Gross Carrying |
|
| Accumulated |
|
| Net Carrying |
| ||||||
Amortizable intangible assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Patents and developed technologies | $ | 186,494 |
|
| $ | (139,792 | ) |
| $ | 46,702 |
|
| $ | 184,589 |
|
| $ | (132,350 | ) |
| $ | 52,239 |
|
Customer relationships |
| 224,463 |
|
|
| (132,474 | ) |
|
| 91,989 |
|
|
| 222,173 |
|
|
| (121,527 | ) |
|
| 100,646 |
|
Trademarks and trade names |
| 23,565 |
|
|
| (14,327 | ) |
|
| 9,238 |
|
|
| 23,311 |
|
|
| (13,457 | ) |
|
| 9,854 |
|
Amortizable intangible assets |
| 434,522 |
|
|
| (286,593 | ) |
|
| 147,929 |
|
|
| 430,073 |
|
|
| (267,334 | ) |
|
| 162,739 |
|
Non-amortizable intangible assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Trade names |
| 13,027 |
|
|
| — |
|
|
| 13,027 |
|
|
| 13,027 |
|
|
| — |
|
|
| 13,027 |
|
Total | $ | 447,549 |
|
| $ | (286,593 | ) |
| $ | 160,956 |
|
| $ | 443,100 |
|
| $ | (267,334 | ) |
| $ | 175,766 |
|
| September 29, 2017 |
|
| December 31, 2016 |
| ||||||||||||||||||
| Gross Carrying Amount |
|
| Accumulated Amortization |
|
| Net Carrying Amount |
|
| Gross Carrying Amount |
|
| Accumulated Amortization |
|
| Net Carrying Amount |
| ||||||
Amortizable intangible assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Patents and developed technologies | $ | 129,059 |
|
| $ | (74,456 | ) |
| $ | 54,603 |
|
| $ | 84,742 |
|
| $ | (67,902 | ) |
| $ | 16,840 |
|
Customer relationships |
| 130,311 |
|
|
| (49,765 | ) |
|
| 80,546 |
|
|
| 69,554 |
|
|
| (42,934 | ) |
|
| 26,620 |
|
Customer backlog |
| 3,216 |
|
|
| (2,273 | ) |
|
| 943 |
|
|
| 622 |
|
|
| (540 | ) |
|
| 82 |
|
Non-compete covenant |
| 2,514 |
|
|
| (1,821 | ) |
|
| 693 |
|
|
| 2,514 |
|
|
| (1,419 | ) |
|
| 1,095 |
|
Trademarks and trade names |
| 15,644 |
|
|
| (7,518 | ) |
|
| 8,126 |
|
|
| 10,709 |
|
|
| (6,630 | ) |
|
| 4,079 |
|
Amortizable intangible assets |
| 280,744 |
|
|
| (135,833 | ) |
|
| 144,911 |
|
|
| 168,141 |
|
|
| (119,425 | ) |
|
| 48,716 |
|
Non-amortizable intangible assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Trade names |
| 13,027 |
|
|
| — |
|
|
| 13,027 |
|
|
| 13,027 |
|
|
| — |
|
|
| 13,027 |
|
Totals | $ | 293,771 |
|
| $ | (135,833 | ) |
| $ | 157,938 |
|
| $ | 181,168 |
|
| $ | (119,425 | ) |
| $ | 61,743 |
|
16
NOVANTA INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
AS OF SEPTEMBER 29, 2017
(Unaudited)
All definite-lived intangible assets are amortized either on a straight-line basis or an economic benefit basis over their remaining estimated useful life. Amortization expense for patents and developed technologies is included in cost of revenue in the accompanying consolidated statements of operations. Amortization expense for customer relationships and definite-lived trademarks, trade names and other intangibles is included in operating expenses in the accompanying consolidated statements of operations. Amortization expense for patents and developed technologies is included in cost of revenue in the accompanying consolidated statements of operations. Amortization expense iswas as follows (in thousands):
| Three Months Ended |
|
| Nine Months Ended |
| ||||||||||
| September 29, 2017 |
|
| September 30, 2016 |
|
| September 29, 2017 |
|
| September 30, 2016 |
| ||||
Amortization expense – cost of revenue | $ | 2,741 |
|
| $ | 994 |
|
| $ | 6,078 |
|
| $ | 3,163 |
|
Amortization expense – operating expenses |
| 3,217 |
|
|
| 2,066 |
|
|
| 9,413 |
|
|
| 6,153 |
|
Total amortization expense | $ | 5,958 |
|
| $ | 3,060 |
|
| $ | 15,491 |
|
| $ | 9,316 |
|
| Three Months Ended |
|
| Six Months Ended |
| ||||||||||
| June 30, |
|
| July 1, |
|
| June 30, |
|
| July 1, |
| ||||
| 2023 |
|
| 2022 |
|
| 2023 |
|
| 2022 |
| ||||
Amortization expense – cost of revenue | $ | 3,046 |
|
| $ | 3,336 |
|
| $ | 6,068 |
|
| $ | 6,757 |
|
Amortization expense – operating expenses |
| 5,124 |
|
|
| 7,173 |
|
|
| 10,213 |
|
|
| 14,515 |
|
Total amortization expense | $ | 8,170 |
|
| $ | 10,509 |
|
| $ | 16,281 |
|
| $ | 21,272 |
|
EstimatedAs of June 30, 2023, estimated amortization expense for each of the five succeeding years and thereafter as of September 29, 2017 was as follows (in thousands):
Year Ending December 31, |
| Cost of Revenue |
|
| Operating |
|
| Total |
| |||
2023 (remainder of year) |
| $ | 6,106 |
|
| $ | 10,267 |
|
| $ | 16,373 |
|
2024 |
|
| 9,918 |
|
|
| 17,231 |
|
|
| 27,149 |
|
2025 |
|
| 8,397 |
|
|
| 14,575 |
|
|
| 22,972 |
|
2026 |
|
| 7,013 |
|
|
| 12,402 |
|
|
| 19,415 |
|
2027 |
|
| 4,251 |
|
|
| 10,001 |
|
|
| 14,252 |
|
Thereafter |
|
| 11,017 |
|
|
| 36,751 |
|
|
| 47,768 |
|
Total |
| $ | 46,702 |
|
| $ | 101,227 |
|
| $ | 147,929 |
|
12
NOVANTA INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AS OF JUNE 30, 2023
(Unaudited)
Year Ending December 31, |
| Cost of Revenue |
|
| Operating Expenses |
|
| Total |
| |||
2017 (remainder of year) |
| $ | 2,755 |
|
| $ | 2,697 |
|
| $ | 5,452 |
|
2018 |
|
| 9,331 |
|
|
| 16,591 |
|
|
| 25,922 |
|
2019 |
|
| 8,474 |
|
|
| 14,625 |
|
|
| 23,099 |
|
2020 |
|
| 7,585 |
|
|
| 11,922 |
|
|
| 19,507 |
|
2021 |
|
| 6,703 |
|
|
| 10,708 |
|
|
| 17,411 |
|
Thereafter |
|
| 19,755 |
|
|
| 33,765 |
|
|
| 53,520 |
|
Total |
| $ | 54,603 |
|
| $ | 90,308 |
|
| $ | 144,911 |
|
8. Supplementary Balance Sheet Information
The following tables provide the details of selected balance sheet items as of the periods indicated (in thousands):
Inventories
| September 29, |
|
| December 31, |
| ||
| 2017 |
|
| 2016 |
| ||
Raw materials | $ | 55,418 |
|
| $ | 39,822 |
|
Work-in-process |
| 13,272 |
|
|
| 8,012 |
|
Finished goods |
| 16,634 |
|
|
| 9,511 |
|
Demo and consigned inventory |
| 3,537 |
|
|
| 2,400 |
|
Total inventories | $ | 88,861 |
|
| $ | 59,745 |
|
Inventories
| June 30, |
|
| December 31, |
| ||
| 2023 |
|
| 2022 |
| ||
Raw materials | $ | 114,253 |
|
| $ | 118,292 |
|
Work-in-process |
| 21,339 |
|
|
| 23,328 |
|
Finished goods |
| 26,926 |
|
|
| 25,738 |
|
Demo and consigned inventory |
| 386 |
|
|
| 639 |
|
Total inventories | $ | 162,904 |
|
| $ | 167,997 |
|
Accrued Expenses and Other Current Liabilities
| June 30, |
|
| December 31, |
| ||
| 2023 |
|
| 2022 |
| ||
Accrued compensation and benefits | $ | 25,396 |
|
| $ | 35,501 |
|
Accrued warranty |
| 5,252 |
|
|
| 5,127 |
|
Contract liabilities, current portion |
| 6,373 |
|
|
| 8,128 |
|
Finance lease obligations |
| 701 |
|
|
| 668 |
|
Other |
| 14,224 |
|
|
| 13,620 |
|
Total | $ | 51,946 |
|
| $ | 63,044 |
|
Accrued Warranty
| Six Months Ended |
| |||||
| June 30, |
|
| July 1, |
| ||
| 2023 |
|
| 2022 |
| ||
Balance at beginning of the period | $ | 5,127 |
|
| $ | 4,783 |
|
Provision charged to cost of revenue |
| 1,075 |
|
|
| 1,462 |
|
Use of provision |
| (1,001 | ) |
|
| (1,398 | ) |
Foreign currency exchange rate changes |
| 51 |
|
|
| (106 | ) |
Balance at end of the period | $ | 5,252 |
|
| $ | 4,741 |
|
Other Long-Term Liabilities
| June 30, |
|
| December 31, |
| ||
| 2023 |
|
| 2022 |
| ||
Finance lease obligations | $ | 4,298 |
|
| $ | 4,652 |
|
Accrued contingent considerations and earn-outs |
| 307 |
|
|
| 301 |
|
Other |
| 958 |
|
|
| 1,132 |
|
Total | $ | 5,563 |
|
| $ | 6,085 |
|
| September 29, |
|
| December 31, |
| ||
| 2017 |
|
| 2016 |
| ||
Accrued compensation and benefits | $ | 16,631 |
|
| $ | 9,647 |
|
Accrued warranty |
| 4,773 |
|
|
| 3,142 |
|
Accrued restructuring |
| 575 |
|
|
| 1,371 |
|
Accrued professional services |
| 1,854 |
|
|
| 1,237 |
|
Accrued contingent considerations |
| 2,800 |
|
|
| 2,775 |
|
Customer deposits |
| 3,294 |
|
|
| 1,164 |
|
Other |
| 11,013 |
|
|
| 7,612 |
|
Total | $ | 40,940 |
|
| $ | 26,948 |
|
1713
NOVANTA INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
AS OF SEPTEMBER 29, 2017JUNE 30, 2023
(Unaudited)
| Nine Months Ended |
| |||||
| September 29, 2017 |
|
| September 30, 2016 |
| ||
Balance at beginning of the period | $ | 3,142 |
|
| $ | 3,335 |
|
Provision charged to cost of revenue |
| 2,084 |
|
|
| 1,050 |
|
Acquisition related warranty accrual |
| 1,307 |
|
|
| — |
|
Use of provision |
| (1,818 | ) |
|
| (1,060 | ) |
Foreign currency exchange rate changes |
| 58 |
|
|
| (25 | ) |
Balance at end of period | $ | 4,773 |
|
| $ | 3,300 |
|
Other Long Term Liabilities
| September 29, |
|
| December 31, |
| ||
| 2017 |
|
| 2016 |
| ||
Capital lease obligations | $ | 7,794 |
|
| $ | 8,111 |
|
Accrued pension liabilities |
| 5,256 |
|
|
| 5,957 |
|
Accrued contingent considerations |
| — |
|
|
| 2,381 |
|
Other |
| 2,018 |
|
|
| 2,264 |
|
Total | $ | 15,068 |
|
| $ | 18,713 |
|
9. Debt
DebtOutstanding debt consisted of the following (in thousands):
| September 29, |
|
| December 31, |
| June 30, |
| December 31, |
| |||||
| 2017 |
|
| 2016 |
| 2023 |
|
| 2022 |
| ||||
Senior Credit Facilities – term loan | $ | 9,200 |
|
| $ | 7,500 |
| $ | 4,935 |
|
| $ | 4,832 |
|
Less: unamortized debt issuance costs |
| (85 | ) |
|
| (134 | ) |
| (29 | ) |
|
| (32 | ) |
Total current portion of long-term debt | $ | 9,115 |
|
| $ | 7,366 |
| $ | 4,906 |
|
| $ | 4,800 |
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||
Senior Credit Facilities – term loan | $ | 81,425 |
|
| $ | 63,750 |
| $ | 76,234 |
|
| $ | 77,060 |
|
Senior Credit Facilities – revolving credit facility |
| 156,069 |
|
|
| 10,000 |
|
| 331,585 |
|
|
| 358,413 |
|
Less: unamortized debt issuance costs |
| (3,306 | ) |
|
| (3,196 | ) |
| (4,233 | ) |
|
| (4,811 | ) |
Total long-term debt | $ | 234,188 |
|
| $ | 70,554 |
| $ | 403,586 |
|
| $ | 430,662 |
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||
Total Senior Credit Facilities | $ | 243,303 |
|
| $ | 77,920 |
| $ | 408,492 |
|
| $ | 435,462 |
|
Senior Credit Facilities
In August 2017,On December 31, 2019, the Company entered into an amended and restated credit agreement (the “Third Amended and Restated Credit Agreement”) with existing lenders for an aggregate credit facility of $450.0 million, consisting of a $100.0 million U.S. dollar equivalent euro-denominated (approximately €90.2 million) 5-year term loan facility and a $350.0 million 5-year revolving credit facility (collectively, the “Senior Credit Facilities”).
The outstanding principal balance under the term loan facility is payable in quarterly installments of €1.1 million beginning in March 2020, with the remaining balance due upon maturity. The Company may make additional principal payments at any time, which will reduce the next quarterly installment payment due. Borrowings under the revolving credit facility may be repaid at any time through March 2027. The Company made principal payments of €2.3 million ($2.4 million) towards its term loan and $28.1 million towards its revolving credit facility during the six months ended June 30, 2023.
On March 27, 2020, the Company entered into an amendment (the “Third“First Amendment”) to the second amended and restated credit agreement, dated as of May 19, 2016 (the “SecondThird Amended and Restated Credit Agreement”).Agreementand exercised a portion of the uncommitted accordion option. The ThirdFirst Amendment increased the revolving credit facility commitment under the SecondThird Amended and Restated Credit Agreement by $100$145.0 million, from $225$350.0 million to $325$495.0 million, and reset the uncommitted accordion featureoption to $125$200.0 million for potential future expansion. Additionally, the Third Amendment increased the term loan balance from $65.6 million to $90.6 million. Under the Third Amendment,
On October 5, 2021, the Company is required to pay quarterly scheduled principal repayments of $2.3 million beginning in October 2017, with the final installment of $56.1 million due upon maturity in May 2021. Quarterly installments due in the next twelve months under the term loan amount to $9.2 million and are classified as a current liability on the consolidated balance sheet. The increase in the amount outstanding under the Company’s revolving credit facility in the nine months ended September 29, 2017 was related to additional borrowings to fund the WOM, Laser Quantum and ThingMagic acquisitions.
18
NOVANTA INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
AS OF SEPTEMBER 29, 2017
(Unaudited)
The Company incurred $0.7 million in financing costs relatedentered into an amendment (the “Fourth Amendment”) to the Third Amendment. These costs are presented as a reduction to the debt balances on the consolidated balance sheet and will be amortized over the term of the Second Amended and Restated Credit Agreement.Agreement to exercise the accordion option. The Fourth Amendment increased the revolving credit facility commitment under the Third Amended and Restated Credit Agreement by $200.0 million, from $495.0 million to $695.0 million, and reset the uncommitted accordion option to $200.0 million for potential future expansion.
On March 10, 2022, the Company entered into an amendment (the “Fifth Amendment”) to the Third Amended and Restated Credit Agreement to extend the maturity date from December 31, 2024 to March 10, 2027, update the pricing grid, replace LIBOR with SOFR as the reference rate for U.S. dollar borrowings, and increase the uncommitted accordion option from $200 million to $350 million. In connection with the Fifth Amendment, the Company capitalized $2.5 million deferred financing costs and recorded a $0.6 million loss from the write-off of a portion of the unamortized deferred financing costs.
The Company is required to satisfy certain financial and non-financial covenants under the SecondThird Amended and Restated Credit Agreement. The Third Amended and Restated Credit Agreement also contains customary events of default. The Company was in compliance with these covenants as of September 27, 2017.June 30, 2023.
Liens
The Company’s obligations under the Senior Credit Facilities are secured, on a senior basis, by a lien on substantially all of the assets of the Company and certain U.S., U.K. and German subsidiaries as defined in the Second Amended and Restated Credit Agreement and guaranteed by the Company and these subsidiaries. The Second Amended and Restated Credit Agreement also contains customary events of default.Novanta Inc.
14
NOVANTA INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AS OF JUNE 30, 2023
(Unaudited)
Fair Value of Debt
As of September 29, 2017June 30, 2023 and December 31, 2016,2022, the outstanding balance of the Company’s debt approximated its fair value based on current rates available to the Company for debt of the same maturity.similar maturities. The fair value of the Company’s debt is classified as Level 2 under the fair value hierarchy.
10. Leases
Most leases held by the Company expire between 2023 and 2036. In the U.K., where longer lease terms are more common, the Company has a land lease that extends through 2078. Certain leases include one or more options to renew, with renewal terms that can extend the lease term from one to ten years, and options to terminate the leases within one year. The exercise of lease renewal or termination options is at the Company’s sole discretion; therefore, the majority of renewal options to extend the lease terms are not included in the Company’s right-of-use assets and operating lease liabilities as they are not reasonably certain of being exercised. The Company regularly evaluates the renewal options and includes the renewal periods in the lease term when they are reasonably certain of being exercised. The depreciable lives of the right-of-use assets and leasehold improvements are limited to the expected lease terms.
The following table summarizes the components of lease costs (in thousands):
| Three Months Ended |
|
| Six Months Ended |
| ||||||||||
| June 30, |
|
| July 1, |
|
| June 30, |
|
| July 1, |
| ||||
| 2023 |
|
| 2022 |
|
| 2023 |
|
| 2022 |
| ||||
Operating lease cost | $ | 2,639 |
|
| $ | 2,648 |
|
| $ | 5,277 |
|
| $ | 5,392 |
|
Finance lease cost |
|
|
|
|
|
|
|
|
|
|
| ||||
Amortization of right-of-use assets |
| 151 |
|
|
| 150 |
|
|
| 301 |
|
|
| 301 |
|
Interest on lease liabilities |
| 69 |
|
|
| 78 |
|
|
| 140 |
|
|
| 157 |
|
Variable lease cost |
| 325 |
|
|
| 353 |
|
|
| 561 |
|
|
| 618 |
|
Total lease cost | $ | 3,184 |
|
| $ | 3,229 |
|
| $ | 6,279 |
|
| $ | 6,468 |
|
10. Share-based15
NOVANTA INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AS OF JUNE 30, 2023
(Unaudited)
The following table provides additional details of balance sheet information related to the Company’s leases (in thousands, except lease term and discount rate):
| June 30, |
|
| December 31, |
| ||
| 2023 |
|
| 2022 |
| ||
Operating leases |
|
|
|
|
| ||
Operating lease right-of-use assets | $ | 43,280 |
|
| $ | 43,317 |
|
|
|
|
|
|
| ||
Current portion of operating lease liabilities | $ | 7,881 |
|
| $ | 7,793 |
|
Operating lease liabilities |
| 40,729 |
|
|
| 40,808 |
|
Total operating lease liabilities | $ | 48,610 |
|
| $ | 48,601 |
|
|
|
|
|
|
| ||
Finance leases |
|
|
|
|
| ||
Property, plant and equipment, gross | $ | 9,582 |
|
| $ | 9,582 |
|
Accumulated depreciation |
| (5,971 | ) |
|
| (5,670 | ) |
Finance lease assets included in property, plant and equipment, net | $ | 3,611 |
|
| $ | 3,912 |
|
|
|
|
|
|
| ||
Accrued expenses and other current liabilities | $ | 701 |
|
| $ | 668 |
|
Other liabilities |
| 4,298 |
|
|
| 4,652 |
|
Total finance lease liabilities | $ | 4,999 |
|
| $ | 5,320 |
|
|
|
|
|
|
| ||
Weighted-average remaining lease term (in years): |
|
|
|
|
| ||
Operating leases |
| 7.9 |
|
|
| 8.2 |
|
Finance leases |
| 6.0 |
|
|
| 6.5 |
|
Weighted-average discount rate: |
|
|
|
|
| ||
Operating leases |
| 4.82 | % |
|
| 4.64 | % |
Finance leases |
| 5.54 | % |
|
| 5.54 | % |
The following table provides additional details of cash flow information related to the Company’s leases (in thousands):
|
| Six Months Ended |
| |||||
|
| June 30, |
|
| July 1, |
| ||
|
| 2023 |
|
| 2022 |
| ||
Cash paid for amounts included in lease liabilities: |
|
|
|
|
|
| ||
Operating cash flows from finance leases |
| $ | 140 |
|
| $ | 157 |
|
Operating cash flows from operating leases |
| $ | 3,966 |
|
| $ | 4,010 |
|
Financing cash flows from finance leases |
| $ | 313 |
|
| $ | 296 |
|
Supplemental non-cash information: |
|
|
|
|
|
| ||
Right-of-use assets obtained in exchange for new operating lease liabilities |
| $ | 3,186 |
|
| $ | 2,931 |
|
16
NOVANTA INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AS OF JUNE 30, 2023
(Unaudited)
Future minimum lease payments under operating and finance leases expiring subsequent to June 30, 2023, including operating leases associated with facilities that have been vacated as a result of the Company’s restructuring actions, are summarized as follows (in thousands):
Year Ending December 31, | Operating Leases |
|
| Finance Leases |
| ||
2023 (remainder of year) | $ | 4,763 |
|
| $ | 477 |
|
2024 |
| 9,571 |
|
|
| 954 |
|
2025 |
| 9,347 |
|
|
| 954 |
|
2026 |
| 7,977 |
|
|
| 979 |
|
2027 |
| 7,093 |
|
|
| 1,003 |
|
Thereafter |
| 21,202 |
|
|
| 1,507 |
|
Total minimum lease payments |
| 59,953 |
|
|
| 5,874 |
|
Less: Interest |
| (11,343 | ) |
|
| (875 | ) |
Present value of lease liabilities | $ | 48,610 |
|
| $ | 4,999 |
|
11. Preferred and Common Shares and Share-Based Compensation
Preferred Shares
In May 2021, the Company’s shareholders approved a special resolution to amend the Company’s articles to authorize up to 7.0 million preferred shares for future issuance. The Company’s Board of Directors is authorized to designate and issue one or more series of preferred shares, fix the rights, preferences and designation, as deemed necessary or advisable, relating to the preferred shares, provided that no shares of any series may be entitled to more than one vote per share. As of June 30, 2023, no preferred shares had been issued and outstanding.
Common Share Repurchases
In February 2020, the Company’s Board of Directors approved a new share repurchase plan (the “2020 Repurchase Plan”), authorizing the repurchase of $50.0 million worth of the Company’s common shares. During the six months ended July 1, 2022, the Company repurchased 4 thousand shares under the 2020 Repurchase Plan for an aggregate purchase price of $0.5 million and an average price of $116.95 per share. During the six months ended June 30, 2023, the Company did not repurchase any shares. As of June 30, 2023, the Company had $49.5 million available for future share repurchases under the 2020 Repurchase Plan.
Share-Based Compensation Expense
The table below summarizes share-based compensation expense recorded in income from continuing operations in the consolidated statements of operations (in thousands):
| Three Months Ended |
|
| Nine Months Ended |
| Three Months Ended |
|
| Six Months Ended |
| ||||||||||||||||||||
| September 29, |
|
| September 30, |
|
| September 29, |
|
| September 30, |
| June 30, |
| July 1, |
| June 30, |
| July 1, |
| |||||||||||
| 2017 |
|
| 2016 |
|
| 2017 |
|
| 2016 |
| 2023 |
|
| 2022 |
|
| 2023 |
|
| 2022 |
| ||||||||
Selling, general and administrative | $ | 1,336 |
|
| $ | 914 |
|
| $ | 3,911 |
|
| $ | 3,112 |
| $ | 4,871 |
|
| $ | 4,056 |
|
| $ | 10,402 |
|
| $ | 9,257 |
|
Research and development and engineering |
| 59 |
|
|
| 18 |
|
|
| 156 |
|
|
| 82 |
|
| 542 |
|
|
| 494 |
|
|
| 985 |
|
|
| 1,194 |
|
Cost of revenue |
| 41 |
|
|
| 56 |
|
|
| 156 |
|
|
| 191 |
|
| 462 |
|
|
| 531 |
|
|
| 954 |
|
|
| 1,404 |
|
Total share-based compensation expense | $ | 1,436 |
|
| $ | 988 |
|
| $ | 4,223 |
|
| $ | 3,385 |
| $ | 5,875 |
|
| $ | 5,081 |
|
| $ | 12,341 |
|
| $ | 11,855 |
|
Share-based compensation expense reported in selling, general and administrative expenses during each of the nine-month periods ended September 29, 2017 and September 30, 2016, respectively, included $0.5 million of expenseexpenses related to restricted stock units and deferred stock units granted to the members of the Company’s Board of Directors.Directors of $0.9 million and $1.1 million during the six months ended June 30, 2023 and July 1, 2022, respectively.
Service-based Restricted Stock Units and Deferred Stock Units
The Company’s restricted stock units (“RSUs”) have generally been issued with vesting periods of three, four, and ranging from zero to five years and vest based solely on service conditions. Accordingly, the Company recognizes compensation expense on a straight-line basis
17
NOVANTA INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AS OF JUNE 30, 2023
(Unaudited)
over the requisite service period. The Company reduces the compensation expense by an estimated forfeiture rate which is based on anticipated forfeitures and actualhistorical forfeiture experience.
Deferred stock units (“DSUs”) are granted solely to the members of the Company’s Board of Directors and have been issued as fully vested and non-forfeitable awards upon grant. The compensation(the “Board”). Compensation expense associated with the DSUs is recognized in full on the respective date of grant, as the DSUs are fully vested and non-forfeitable upon grant. Outstanding DSUs are converted into common shares upon Board members' resignation or retirement from the Board. There were 41 thousand and 38 thousand DSUs outstanding as of June 30, 2023 and December 31, 2022, respectively. Outstanding DSUs are included in the calculation of weighted average basic shares outstanding for the respective periods.
19
NOVANTA INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
AS OF SEPTEMBER 29, 2017
(Unaudited)
The table below summarizes activities relating to RSUs and DSUs issued and outstanding under the Company’s Amended and Restated 2010 Incentive Plan during the ninesix months ended September 29, 2017:June 30, 2023:
| Shares (In thousands) |
|
| Weighted Average Grant Date Fair Value |
| |||||||||
Unvested at December 31, 2016 |
| 635 |
|
| $ | 13.97 |
| |||||||
| Shares |
|
| Weighted |
| |||||||||
Unvested at December 31, 2022 |
| 238 |
|
| $ | 128.26 |
| |||||||
Granted |
| 242 |
|
| $ | 25.04 |
|
| 87 |
|
| $ | 155.65 |
|
Vested |
| (206 | ) |
| $ | 14.09 |
|
| (97 | ) |
| $ | 120.96 |
|
Forfeited |
| (25 | ) |
| $ | 16.33 |
|
| (17 | ) |
| $ | 138.06 |
|
Unvested at September 29, 2017 |
| 646 |
|
| $ | 17.99 |
| |||||||
Expected to vest as of September 29, 2017 |
| 616 |
|
|
|
|
| |||||||
Unvested at June 30, 2023 |
| 211 |
|
| $ | 142.37 |
| |||||||
Expected to vest as of June 30, 2023 |
| 190 |
|
|
|
|
The total fair value of RSUs and DSUs that vested during the ninesix months ended September 29, 2017June 30, 2023 was $5.2$15.1 million based on the market price of the underlying stockshares on the date of vesting.
Performance-based AwardsPerformance Stock Units
The Company granted two types of performance-based awards to certain members of the executive management team: non-GAAP EPStypically grants performance-based restricted stock unitsunit awards (“EPS-PSUs”PSUs”) that are based on the Company's financial metrics, market conditions, or a hybrid of financial metrics and relative total shareholder return performance-based restrictedmarket conditions. These performance stock units (“TSR-PSUs”). Both types of performance-based restricted stock unitsunit awards generally cliff vest on the first day following the end of the three-yearspecified performance period.
The number of common shares to be issued upon settlement following vesting of the EPS-PSUsCompany's financial metrics attainment-based PSUs (“attainment-based PSUs”) is determined based on the Company’s cumulative non-GAAP EPSfinancial metrics over the three-yearspecified performance period against the targettargets established by the Company’s Board of Directors at the time of grant and will be in the range of zero to 200%200% of the target number of shares. The Company recognizes the related compensation expense ratably over the performance period based on the number of shares that are deemed probable of vesting at the end of the three-yearspecified performance cycle.period. This probability assessment is performed quarterly and the cumulative effect of a change in the estimated compensation expense, if any, is recognized in the consolidated statement of operations in the period in which such determination is made.
The number of common shares to be issued upon settlement following vesting of the TSR-PSUsmarket condition-based PSUs (“market-based PSUs”) is determined based on the relative market performance of the Company’s common stock compared to the Russell 2000 Index over the three-yearspecified performance period using a payout formula established by the Company’s Board of Directors at the time of grant and will be in the range of zero to 200%200% of the target number of shares. The Company recognizes the related compensation expense based on the fair value of the TSR-PSUs,market-based PSUs, determined using the Monte-Carlo valuation model as of the grant date, of grant, on a straight-line basis from the grant date to the end of the three-yearspecified performance period. Compensation expense on market-based PSUs will not be affected by the number of TSR-PSUsshares that will actuallyultimately vest at the end of the three-yearspecified performance period.
The number of common shares to be issued upon settlement following vesting of the PSU awards that are based on achievement of a hybrid of financial metrics and market conditions (“Hybrid PSUs”) is determined based on the Company's financial metrics achieved over the specified performance period against the targets established by the Company's Board of Directors at the time of grant with a market condition multiplier and will be in the range of zero to 260% of the target number of shares. The Company determines the fair value of these Hybrid PSUs using the Monte-Carlo valuation model as of the grant date. The Company recognizes compensation expense associated with the Hybrid PSUs ratably over the performance period based on the fair value of the PSUs as of the grant date and the number of shares that are deemed probable of vesting at the end of the specified performance
18
NOVANTA INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AS OF JUNE 30, 2023
(Unaudited)
period. The probability assessment is performed quarterly and the cumulative effect of a change in the estimated compensation expense, if any, is recognized in the consolidated statement of operations in the period in which such determination is made.
The table below summarizes the activities relating to the performance-based awards issued and outstanding under the Company’s Amended and Restated 2010 Incentive Plan during the ninesix months ended September 29, 2017:June 30, 2023:
| Shares |
|
| Weighted |
| ||
Unvested at December 31, 2022 |
| 216 |
|
| $ | 144.16 |
|
Granted |
| 57 |
|
| $ | 179.15 |
|
Performance adjustments(1) |
| 20 |
|
| $ | 122.24 |
|
Vested |
| (70 | ) |
| $ | 116.56 |
|
Forfeited |
| (12 | ) |
| $ | 166.77 |
|
Unvested at June 30, 2023 |
| 211 |
|
| $ | 160.70 |
|
Expected to vest as of June 30, 2023 |
| 251 |
|
|
|
|
(1) The amount shown represents performance adjustments related to the performance-based awards granted on February 20, 2020. These units vested at a blended payout of 142% during the six months ended June 30, 2023 based on the achievement of cumulative Non-GAAP EPS and applicable relative TSR performance conditions, respectively, over the performance period of fiscal years 2020 through 2022.
The unvested PSUs are shown at target payout levels in the table above. As of June 30, 2023, the maximum number of common shares that could be earned under these PSU grants was approximately 374 thousand shares.
The total fair value of PSUs that vested during the six months ended June 30, 2023 was $9.9 million based on the market price of the underlying common shares on the date of vesting.
| Shares (In thousands) |
|
| Weighted Average Grant Date Fair Value |
| ||
Unvested at December 31, 2016 |
| 29 |
|
| $ | 14.13 |
|
Granted |
| 60 |
|
| $ | 28.80 |
|
Vested |
| — |
|
| $ | — |
|
Forfeited |
| — |
|
| $ | — |
|
Unvested at September 29, 2017 |
| 89 |
|
| $ | 24.00 |
|
The grant-date fair value of the TSR-PSUsHybrid PSUs granted during the six months ended June 30, 2023 was estimated using the Monte Carlo valuation method with the following assumptions:
| Six Months Ended |
| |
Grant-date stock price | $ | 156.72 |
|
Expected volatility |
| 35.89 | % |
Risk-free interest rate |
| 4.44 | % |
Expected annual dividend yield |
| — |
|
Fair value | $ | 181.45 |
|
Stock Options
In February 2023, the Company granted 48 thousand nonqualified stock options to certain members of the executive management team to purchase common shares of the Company at a strike price equal to the closing market price on the date of grant. The stock options vest ratably over three years on the anniversary of the date of grant was estimated usingand expire on the Monte-Carlo valuation model withseventh anniversary of the following assumptions:
20
NOVANTA INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
AS OF SEPTEMBER 29, 2017
(Unaudited)
Nine Months Ended September 29, 2017 |
| ||
Grant-date stock price | $ | 24.30 |
|
Expected volatility |
| 28.6 | % |
Risk-free interest rate |
| 1.44 | % |
Expected annual dividend yield |
| — |
|
Weighted average fair value | $ | 33.31 |
|
Stock Options
date of grant. The Company estimates the fair value of stock options is estimated using the Black-Scholes valuation model. Key input assumptions include the expected option term, the expected volatility of the common stock over the expected term of the options, the risk-free interest rate, and the expected dividend yield. CompensationThe Company recognizes compensation expense related to the stock options is recognized in the consolidated statement of operations on a straight-line basis over the vesting period. Noperiod in the consolidated statement of operations.
19
NOVANTA INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AS OF JUNE 30, 2023
(Unaudited)
The table below summarizes the activities relating to stock options wereissued and outstanding under the Company’s Amended and Restated 2010 Incentive Plan during the six months ended June 30, 2023:
|
|
|
|
|
| ||
|
|
|
|
|
| ||
| Shares |
|
| Weighted |
| ||
Outstanding as of December 31, 2022 |
| 84 |
|
| $ | 72.18 |
|
Granted |
| 48 |
|
| $ | 135.86 |
|
Exercised |
| — |
|
| $ | — |
|
Forfeited or expired |
| — |
|
| $ | — |
|
Outstanding as of June 30, 2023 |
| 132 |
|
| $ | 102.86 |
|
Exercisable as of June 30, 2023 |
| 57 |
|
|
|
| |
Expected to vest as of June 30, 2023 |
| 75 |
|
|
|
|
The aggregate Black-Scholes fair value of $3.0 million for the stock options granted during the ninesix months ended September 29, 2017.June 30, 2023 was estimated using the following assumptions as of the grant date:
Six Months Ended | |||
Expected option term in years | 4.5 | ||
Expected volatility | 40.7 | % | |
Risk-free interest rate | 4.00 | % | |
Expected annual dividend yield | — |
The expected option term was calculated using the simplified method permitted under Codification of Staff Accounting Bulletins Topic 14, “Share-Based Payment”.The expected volatility was determined based on the historical volatility of the Company’s common shares over the expected option term. The risk-free interest rate was based on treasury instrument whose term was six months longer than the expected option term. The expected annual dividend yield is zero as the Company does not have plans to issue dividends.
11.12. Income Taxes
The Company determines its estimated annual effective tax rate at the end of each interim period based on full-year forecasted pre-tax income and facts known at that time. The estimated annual effective tax rate is applied to the year-to-date pre-tax income at the end of each interim period with the cumulative effect of any changes in the estimated annual effective tax rate being recorded in the fiscal quarterperiod in which the change ischanges are determined. The tax effect of significant unusual items is reflected in the period in which they occur. Since the Company is incorporated in Canada, it is required to use Canada’s statutory tax rate of 29.0%29.0% in the determination of the estimated annual effective tax rate.
The Company’s effective tax rate on income from continuing operations of 11.9% for the three months ended September 29, 2017 differs from the Canadian statutory tax rate of 29.0% due to the mix of income earned in jurisdictions with varying tax rates, losses in jurisdictions with a full valuation allowance, recognition of net tax benefits associated with uncertain tax positions upon expiration of statute of limitations and conclusion of income tax audits, and other discrete items for the period.
The Company’s effective tax rate on income from continuing operations of 11.6% for the nine months ended September 29, 2017 differs from the Canadian statutory tax rate of 29.0% due to the mix of income earned in jurisdictions with varying tax rates, losses in jurisdictions with a full valuation allowance, the impact associated with establishing control over Laser Quantum upon the acquisition of an additional approximately 35% of Laser Quantum’s outstanding shares, recognition of net tax benefits associated with uncertain tax positions upon expiration of statute of limitations and conclusion of income tax audits, and other discrete items for the period. The Company reported a nontaxable gain of $26.4 million on its previously-held Laser Quantum equity interest and wrote off $1.5 million of Laser Quantum related deferred tax liability, which had a combined 13.7% favorable impact on the effective tax rate for the nine months ended September 29, 2017.
The Company’s effective tax rate on income from continuing operations of 31.1% for the three months ended September 30, 2016 differed from the Canadian statutory rate of 28.5% primarily due to the mix of income earned in jurisdictions with varying tax rates and losses in jurisdictions with a full valuation allowance.
The Company’s effective tax rate on income from continuing operations of 30.3% for the nine months ended September 30, 2016 differed from the Canadian statutory rate of 28.5% primarily due to the mix of income earned in jurisdictions with varying tax rates, losses in jurisdictions with a full valuation allowance, and the impact of other discrete items for the period. The Company received a tax free cash dividend of $2.3 million from Laser Quantum, which had a 1.9% favorable impact on the effective tax rate for the nine months ended September 30, 2016.
The Company maintains a valuation allowance on somebalances of its deferredcertain U.S. state net operating losses, credits and certain non-U.S. tax assets in certain jurisdictions.attributes that the Company has determined are not more likely than not to be realized. A valuation allowance is required when, based upon an assessment of various factors, including recent operating loss history, anticipated future earnings, and prudent and reasonable tax planning strategies, it is more likely than not that some portion of the deferred tax assets will not be realized. In conjunction with the Company’s ongoing review of its actual results and anticipated future earnings, the Company continuously reassesses the possibility of adding a new or additional valuation allowance or releasing the valuation allowance currently in place on its deferred tax assets.
The Company’s effective tax rate of 17.4% for the three months ended June 30, 2023 differs from the Canadian statutory tax rate of 29.0% primarily due to the mix of income earned in jurisdictions with varying tax rates, estimated deductions for Foreign Derived Intangible Income, U.K. patent box deductions and R&D tax credits, partially offset by disallowed compensation deductions and uncertain tax position accruals.
2120
NOVANTA INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
AS OF SEPTEMBER 29, 2017JUNE 30, 2023
(Unaudited)
12.The Company’s effective tax rate of 13.0% for the six months ended June 30, 2023 differs from the Canadian statutory tax rate of 29.0% primarily due to the mix of income earned in jurisdictions with varying tax rates, estimated deductions for Foreign Derived Intangible Income, U.K. patent box deductions, R&D tax credits, and tax benefits upon vesting of certain share-based compensation awards, partially offset by disallowed compensation deductions and uncertain tax position accruals. For the six months ended June 30, 2023, the tax benefits upon vesting of certain share-based compensation awards had a benefit of 4.0% on the Company’s effective tax rate.
The Company’s effective tax rate of 15.8% for the three months ended July 1, 2022 differs from the Canadian statutory tax rate of 29.0% primarily due to the mix of income earned in jurisdictions with varying tax rates, estimated deductions for Foreign Derived Intangible Income, U.K. patent box deductions, and R&D tax credits, partially offset by disallowed compensation deductions and uncertain tax position accruals.
The Company’s effective tax rate of 12.4% for the six months ended July 1, 2022 differs from the Canadian statutory tax rate of 29.0% primarily due to the mix of income earned in jurisdictions with varying tax rates, estimated deductions for Foreign Derived Intangible Income, U.K. patent box deductions, R&D tax credits, and windfall tax benefits upon vesting of certain share-based compensation awards during the period, partially offset by disallowed compensation deductions and uncertain tax position accruals. For the six months ended July 1, 2022, the windfall tax benefits upon vesting of certain share-based compensation awards had a benefit of 1.4% on the Company’s effective tax rate.
13. Restructuring, Acquisition, and Divestiture Related Costs
The following table summarizes restructuring, acquisition, and divestiture related costs in the accompanying consolidated statements of operations (in thousands):
| Three Months Ended |
|
| Six Months Ended |
| ||||||||||
| June 30, |
|
| July 1, |
|
| June 30, |
|
| July 1, |
| ||||
| 2023 |
|
| 2022 |
|
| 2023 |
|
| 2022 |
| ||||
2022 restructuring | $ | 677 |
|
| $ | — |
|
| $ | 2,874 |
|
| $ | — |
|
2020 restructuring |
| 459 |
|
|
| 610 |
|
|
| 733 |
|
|
| 1,232 |
|
Total restructuring charges |
| 1,136 |
|
|
| 610 |
|
|
| 3,607 |
|
|
| 1,232 |
|
Acquisition and related charges |
| 98 |
|
|
| 2,045 |
|
|
| 103 |
|
|
| (207 | ) |
Total restructuring, acquisition, and related costs | $ | 1,234 |
|
| $ | 2,655 |
|
| $ | 3,710 |
|
| $ | 1,025 |
|
2022 Restructuring
| Three Months Ended |
|
| Nine Months Ended |
| ||||||||||
| September 29, |
|
| September 30, |
|
| September 29, |
|
| September 30, |
| ||||
| 2017 |
|
| 2016 |
|
| 2017 |
|
| 2016 |
| ||||
2016 restructuring | $ | — |
|
| $ | (1,621 | ) |
| $ | 186 |
|
| $ | 2,955 |
|
2011 restructuring |
| — |
|
|
| — |
|
|
| 14 |
|
|
| 108 |
|
Total restructuring and divestiture charges |
| — |
|
|
| (1,621 | ) |
|
| 200 |
|
|
| 3,063 |
|
Acquisition and related charges |
| 3,834 |
|
|
| 786 |
|
|
| 6,032 |
|
|
| 2,765 |
|
Total restructuring, acquisition and divestiture related costs (gain) | $ | 3,834 |
|
| $ | (835 | ) |
| $ | 6,232 |
|
| $ | 5,828 |
|
2016 Restructuring
DuringAs a result of the Company’s ongoing evaluations and efforts to reduce its operating costs, while improving efficiency and effectiveness, the Company initiated the 2022 restructuring program in the third quarter of 2015,2022. This program is focused on reducing operating complexity in the Company, initiatedincluding reducing infrastructure costs and streamlining the 2016Company’s operating model to better serve its customers. In addition, the program is focused on cost reduction actions that improve gross margins for the overall company in line with the Company's multi-year gross margin expansion program. During the three and six months ended June 30, 2023, the Company recorded $0.7 million and $2.9 million, respectively, in severance and other charges in connection with the 2022 restructuring program, which included consolidating certain of its manufacturing operations to optimize its facility footprint and better utilize resources, costs associated with discontinuing its radiology product line and reducing redundant costs due to productivity cost savings and business volume reductions. The Company substantially completed the 2016 restructuring program during the second quarter of 2016.program. As of September 29, 2017,June 30, 2023, the Company had incurred cumulative costs of $4.3 million related to this restructuring plan totaling $6.4 million.plan. The Company anticipates substantially completing the 2022 restructuring program by the end of 2023 and expects to incur additional restructuring charges of $0.2$1.5 million to $0.3$2.0 million related to the 20162022 restructuring plan.program.
The following table summarizes restructuring costs for each segment and unallocated corporate and shared services related toassociated with the 2016 restructuring plan (in thousands):
| Three Months Ended |
|
| Nine Months Ended |
| ||||||||||
| September 29, |
|
| September 30, |
|
| September 29, |
|
| September 30, |
| ||||
| 2017 |
|
| 2016 |
|
| 2017 |
|
| 2016 |
| ||||
Photonics | $ | — |
|
| $ | 45 |
|
| $ | — |
|
| $ | 813 |
|
Vision |
| — |
|
|
| (1,728 | ) |
|
| 185 |
|
|
| 1,730 |
|
Precision Motion |
| — |
|
|
| — |
|
|
| — |
|
|
| 106 |
|
Unallocated Corporate and Shared Services |
| — |
|
|
| 62 |
|
|
| 1 |
|
|
| 306 |
|
Total | $ | — |
|
| $ | (1,621 | ) |
| $ | 186 |
|
| $ | 2,955 |
|
2011 Restructuring
In November 2011, the Company announced a strategic initiative (“2011 restructuring”), which aimed to consolidate operations to reduce the Company’s cost structure and improve operational efficiency. As part of this initiative, the Company eliminated facilities through the consolidation of certain manufacturing, sales and distribution facilities and the exit of Semiconductor Systems and Laser Systems businesses. The Company substantially completed the 20112022 restructuring program by the end of 2013. In March 2016, the Company sold its previously exited Laser Systems facility located in Orlando, Florida for cash at the net carrying value of $3.5 million. In December 2016, the lease agreement for the Company’s previously exited laser scanner business facility was terminated.reportable segment (in thousands):
| Three Months Ended |
|
| Six Months Ended |
| ||||||||||
| June 30, |
|
| July 1, |
|
| June 30, |
|
| July 1, |
| ||||
| 2023 |
|
| 2022 |
|
| 2023 |
|
| 2022 |
| ||||
Precision Medicine and Manufacturing | $ | 265 |
|
| $ | — |
|
| $ | 988 |
|
| $ | — |
|
Medical Solutions |
| 35 |
|
|
| — |
|
|
| 40 |
|
|
| — |
|
Robotics and Automation |
| 266 |
|
|
| — |
|
|
| 1,536 |
|
|
| — |
|
Unallocated Corporate and Shared Services |
| 111 |
|
|
| — |
|
|
| 310 |
|
|
| — |
|
Total | $ | 677 |
|
| $ | — |
|
| $ | 2,874 |
|
| $ | — |
|
2221
NOVANTA INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
AS OF SEPTEMBER 29, 2017JUNE 30, 2023
(Unaudited)
2020 Restructuring
The Company initiated the 2020 restructuring program in the third quarter of 2020. This program is focused on reducing operating complexity in the Company, including reducing infrastructure costs and streamlining the Company’s operating model to better serve its customers. In addition, the program is focused on cost reduction actions that improve gross margins for the overall company. During the three and six months ended June 30, 2023, the Company recorded $0.5 million and $0.7 million respectively, in severance and other costs in connection with the 2020 restructuring program. As of June 30, 2023, the Company had incurred cumulative costs of $14.6 million related to this restructuring plan. The 2020 restructuring program is expected to be completed in 2023 and to incur additional restructuring charges of $0.5 million to $1.0 million.
The following table summarizes restructuring costs associated with the 2020 restructuring program by reportable segment (in thousands):
| Three Months Ended |
|
| Six Months Ended |
| ||||||||||
| June 30, |
|
| July 1, |
|
| June 30, |
|
| July 1, |
| ||||
| 2023 |
|
| 2022 |
|
| 2023 |
|
| 2022 |
| ||||
Precision Medicine and Manufacturing | $ | 301 |
|
| $ | 501 |
|
| $ | 507 |
|
| $ | 1,194 |
|
Medical Solutions |
| — |
|
|
| 65 |
|
|
| — |
|
|
| 106 |
|
Robotics and Automation |
| 158 |
|
|
| 44 |
|
|
| 226 |
|
|
| (68 | ) |
Total | $ | 459 |
|
| $ | 610 |
|
| $ | 733 |
|
| $ | 1,232 |
|
Rollforward of Accrued Expenses Related to Restructuring
The following table summarizes the accrual activities, by component, related to the Company’s restructuring plans recorded in the accompanying consolidated balance sheets (in thousands):
| Total |
|
| Employee Related |
|
| Facility Related |
|
| Other |
| ||||
Balance at December 31, 2022 | $ | 2,410 |
|
| $ | 1,902 |
|
| $ | 452 |
|
| $ | 56 |
|
Restructuring charges |
| 3,607 |
|
|
| 2,587 |
|
|
| 244 |
|
|
| 776 |
|
Cash payments |
| (3,185 | ) |
|
| (2,136 | ) |
|
| (258 | ) |
|
| (791 | ) |
Non-cash charges and other adjustments |
| 55 |
|
|
| 36 |
|
|
| 19 |
|
|
| — |
|
Balance at June 30, 2023 | $ | 2,887 |
|
| $ | 2,389 |
|
| $ | 457 |
|
| $ | 41 |
|
| Total |
|
| Severance |
|
| Facility |
|
| Depreciation |
|
| Other |
| |||||
Balance at December 31, 2016 | $ | 1,736 |
|
| $ | 611 |
|
| $ | 1,111 |
|
| $ | — |
|
| $ | 14 |
|
Restructuring charges |
| 200 |
|
|
| 185 |
|
|
| — |
|
|
| — |
|
|
| 15 |
|
Cash payments |
| (1,068 | ) |
|
| (652 | ) |
|
| (399 | ) |
|
| — |
|
|
| (17 | ) |
Non-cash write-offs and other adjustments |
| (62 | ) |
|
| (65 | ) |
|
| 11 |
|
|
| — |
|
|
| (8 | ) |
Balance at September 29, 2017 | $ | 806 |
|
| $ | 79 |
|
| $ | 723 |
|
| $ | — |
|
| $ | 4 |
|
Acquisition and Related Charges
Acquisition related costs in connection with business combinations, including finders’ fees, legal, valuation, and other professional or consulting fees, totaled $3.8$0.1 million for both the three and six months ended June 30, 2023, and $0.2 million and $6.0$0.3 million for the three and ninesix months ended September 29, 2017, respectively, and $0.8 million and $2.8 million forJuly 1, 2022, respectively. During the three and ninesix months ended September 30, 2016, respectively.July 1, 2022, the Company recognized $1.8 million and $(0.5) million, respectively, in earn-out expenses related to prior-year acquisitions. The majority of acquisition and related costs for the three and ninesix months ended September 29, 2017June 30, 2023 were included in the Company’s Unallocated Corporate and Shared Services costs.reportable segment. The majority of acquisition and related costs for the three and six months ended July 1, 2022 were included in the Company’s Precision Medicine and Manufacturing, Robotics and Automation, and Unallocated Corporate and Shared Services reportable segments.
13.14. Commitments and Contingencies
Leases
The Company leases certain equipment and facilities under operating and capital lease agreements. Excluding the operating and capital leases acquired as part of the WOM acquisition, there have been no material changes to the Company’s leases through September 29, 2017 from those discussed in Note 15 to Consolidated Financial Statements in the Company’s Annual Report on Form 10-K for the year ended December 31, 2016.
Future minimum lease payments under the existing operating and capital leases for WOM are as follows (in thousands):
Year Ending December 31, |
| Operating Lease |
|
| Capital Lease (1) |
| ||
2017 (remainder of year) |
| $ | 573 |
|
| $ | 40 |
|
2018 |
|
| 2,250 |
|
|
| 130 |
|
2019 |
|
| 2,150 |
|
|
| 90 |
|
2020 |
|
| 2,128 |
|
|
| 75 |
|
2021 |
|
| 2,005 |
|
|
| — |
|
Thereafter |
|
| 7,207 |
|
|
| — |
|
Total minimum lease payments |
| $ | 16,313 |
|
| $ | 335 |
|
|
|
Purchase Commitments
Excluding WOM’s purchase commitments, thereThere have been no material changes to the Company’s purchase commitments since December 31, 2016. As of September 29, 2017, WOM had unconditional commitments primarily for inventory purchases of $20.5 million. These purchase commitments are expected to be incurred as follows: $13.3 million in the remainder of 2017, and $7.2 million in 2018.2022.
Legal Contingencies
The Company is subject to various legal proceedings and claims that arise in the ordinary course of business. The Company reviews the status of each significant matter and assesses the potential financial exposure on a quarterly basis. If the potential loss from any claim or legal proceeding is considered probable and the amount can be reasonably estimated, the Company accrues a liability for the estimated loss. Significant judgment is required in both the determination of probability and the determination as to
22
NOVANTA INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AS OF JUNE 30, 2023
(Unaudited)
whether an exposure is reasonably estimable. Because of uncertainties related to these matters, accruals are based only on the best information available as of the date of the consolidated balance sheet. As additional information becomes available, the Company reassesses the potential liability related to any pending claims and litigations and may revise its estimates. When a material loss contingency is considered reasonably possible but not probable, the Company does not record a liability, but instead discloses the nature and the amount of the claim, and an estimate of the potential loss or a range of potential losses, if such an estimate can be reasonably made. Legal fees are expensed as incurred. The Company does not believe that the outcome of theseoutstanding claims will have a material adverse effect uponon its consolidated financial statements but there can be no assurance that any such claims or any similar claims, would not have a material adverse effect upon itson the consolidated financial statements.
23
NOVANTA INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
AS OF SEPTEMBER 29, 2017
(Unaudited)
Guarantees and Indemnifications
In the normal course of its operations, the Company executes agreements that provide for indemnification and guarantees to counterparties in transactions such as business dispositions, sale of assets, sale of products, and operating leases. Additionally, the by-laws of the Company require it to indemnify certain current or former directors, officers, and employees of the Company against expenses incurred by them in connection with each proceeding in which he or she isthey are involved as a result of serving or having served in certain capacities. Indemnification is not available with respect to a proceeding as to which it has been adjudicated that the person did not act in good faith in the reasonable belief that the action was in the best interests of the Company. Certain of the Company’s officers and directors are also a party to indemnification agreements with the Company. These indemnification agreements provide, among other things, that the director andor officer shall be indemnified to the fullest extent permitted by applicable law against all expenses, judgments, fines and amounts paid in settlement actually and reasonably incurred by such officerdirector or directorofficer in connection with any proceeding by reason of his or hertheir relationship with the Company. In addition, the indemnification agreements provide for the advancement of expenses incurred by such director or officer in connection with any proceeding covered by the indemnification agreement, subject to the conditions set forth therein and to the extent such advancement is not prohibited by law. The indemnification agreements also set out the procedures for determining entitlement to indemnification, the requirements relating to notice and defense of claims for which indemnification is sought, the procedures for enforcement of indemnification rights, the limitations on and exclusions from indemnification, and the minimum levels of directors’directors and officers’officers liability insurance to be maintained by the Company.
15. Segment Information
Reportable Segments
14. Redeemable Noncontrolling Interest
As a result of theThe Company’s acquisition of additional outstanding shares of Laser Quantum from the remaining shareholders on January 10, 2017, the Company increased its ownership position in Laser Quantum from approximately 41%Chief Operating Decision Maker (“CODM”) utilizes certain financial information to approximately 76%make decisions about allocating resources and began to consolidate the operating results of Laser Quantum in the consolidated financial statements. As part of the purchase agreement, the Company and the remaining equity holders entered into a call and put option agreementassessing performance for the purchase and sale, in 2020, of all remaining Laser Quantum shares held by the remaining shareholders, subject to certain conditions. The purchase price for the remaining shares will be based on the proportionate share of the noncontrolling interest in Laser Quantum’s cash on hand as of December 31, 2019 and a multiple of Laser Quantum’s EBITDA for the twelve months ending December 31, 2019, as defined in the call and put option agreement. As a result of the put option held by the remaining shareholders, the noncontrolling interest is considered a redeemable equity instrument and is presented as temporary equity on the consolidated balance sheet. The proportionate share of the net income from Laser Quantum attributable to the noncontrolling interest has been reported as a reduction to the consolidated net income in the Company’s consolidated statements of operations and an increase to the carrying value of the redeemable noncontrolling interest.
The initial value of the noncontrolling interest of £17.7 million ($21.6 million) was measured at fair value at the date of the acquisition. The value of the noncontrolling interest was determined using a combination of the discounted cash flow method (an income approach), the guideline public company method (a market approach), and the subject company transaction method (a market approach). The Company carries the redeemable noncontrolling interest at the higher of (i) the carrying value without any redemption value adjustments or (ii) the estimated redemption value as of the end of the reporting period. The estimated redemption value is determined as of the end of the reporting period as if it were also the redemption date for the instrument. The resulting adjustments are recorded in retained earnings in shareholders’ equity and do not affect net income attributable to Novanta Inc.
During the nine months ended September 29, 2017, the Company increased the carrying amount of the redeemable noncontrolling interest by $11.3 million to reflect the estimated redemption value as of September 29, 2017. The following table presents the reconciliation of changes in the Company’s noncontrolling interest (in thousands):
| Redeemable noncontrolling interests |
| |
Balance as of December 31, 2016 | $ | — |
|
Acquisition of noncontrolling interest |
| 21,582 |
|
Net income attributable to noncontrolling interest |
| 1,444 |
|
Adjustment of redeemable noncontrolling interest to estimated redemption value (1) |
| 11,303 |
|
Foreign currency translation |
| 2,509 |
|
Balance as of September 29, 2017 | $ | 36,838 |
|
24
NOVANTA INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
AS OF SEPTEMBER 29, 2017
(Unaudited)
15. Segment Information
entire Company. The Company evaluates the performance of and allocates resources to its segments based on revenue, gross profit and operating profit. The Company’s reportable segments have been identified based on commonality and adjacency of technologies, applications and customers amongst the Company’s individual product lines.
The Company determined that disclosing revenue by specific product is impracticable due to the highly customized and extensive portfolio of technologies offered to customers.
Based upon the information provided to the CODM, the Company has determined that it operates in three reportable segments: Photonics, Vision,Precision Medicine and Precision Motion.Manufacturing, Medical Solutions, and Robotics and Automation. The reportable segments and their principal activities are described below.
PhotonicsPrecision Medicine and Manufacturing
The PhotonicsPrecision Medicine and Manufacturing segment designs, manufactures and markets photonics-based solutions, including CO2 lasers, continuous wave and femtosecond lasers, optical light engines, and laser scanning, and laser beam delivery, products, to customers worldwide.CO2 laser, solid state laser, ultrafast laser, and optical light engine products. The segment serves highly demanding photonics-based applications such asfor advanced industrial material processing,processes, metrology, medical and life science imaging, DNA sequencing, and medical laser procedures.procedures, particularly ophthalmology applications. The vast majority of the segment’s product offerings are sold to OEM customers.customers worldwide. The segment sells these products both directly, utilizing a highly technical sales force, and indirectly, through resellers and distributors.
Vision23
NOVANTA INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AS OF JUNE 30, 2023
(Unaudited)
Medical Solutions
The VisionMedical Solutions segment designs, manufactures and markets a range of medical grade technologies, including medical insufflators, pumps and related disposables; surgical displaysvisualization solutions; wireless technologies, video recorder and video integration technologies for operating room integration technologies;integrations; optical data collection and machine vision technologies; radio frequency identification (“RFID”) technologies; thermal printers;chart recorders; spectrometry technologies,technologies; and embedded touch screen solutions. The vast majority of the segment’s product offerings are sold to OEM customers.customers worldwide. The segment sells these products both directly, utilizing a highly technical sales force, and indirectly, through resellers and distributors.
Precision MotionRobotics and Automation
The Precision MotionRobotics and Automation segment designs, manufactures and markets optical and inductive encoders, precision motormotors, servo drives and motion control solutions, integrated stepper motors, intelligent robotic end-of-arm technology solutions, air bearings, and air bearing spindles and precision machined components to customers worldwide.spindles. The vast majority of the segment’s product offerings are sold to OEM customers.customers worldwide. The segment sells these products both directly, utilizing a highly technical sales force, and indirectly, through resellers and distributors.
Reportable Segment Financial Information
Revenue, gross profit, gross profit margin, operating income (loss) from continuing operations,, and depreciation and amortization expenses by reportable segmentssegment were as follows (in thousands, except percentage data):
| Three Months Ended |
|
| Six Months Ended |
| ||||||||||
| June 30, |
|
| July 1, |
|
| June 30, |
|
| July 1, |
| ||||
Revenue | 2023 |
|
| 2022 |
|
| 2023 |
|
| 2022 |
| ||||
Precision Medicine and Manufacturing | $ | 74,333 |
|
| $ | 69,461 |
|
| $ | 143,861 |
|
| $ | 132,243 |
|
Medical Solutions |
| 83,322 |
|
|
| 65,516 |
|
|
| 160,962 |
|
|
| 127,566 |
|
Robotics and Automation |
| 71,809 |
|
|
| 80,379 |
|
|
| 143,767 |
|
|
| 159,763 |
|
Total | $ | 229,464 |
|
| $ | 215,356 |
|
| $ | 448,590 |
|
| $ | 419,572 |
|
| Three Months Ended |
|
| Six Months Ended |
| ||||||||||
| June 30, |
|
| July 1, |
|
| June 30, |
|
| July 1, |
| ||||
Gross Profit | 2023 |
|
| 2022 |
|
| 2023 |
|
| 2022 |
| ||||
Precision Medicine and Manufacturing | $ | 36,513 |
|
| $ | 31,182 |
|
| $ | 70,846 |
|
| $ | 59,569 |
|
Medical Solutions |
| 34,257 |
|
|
| 26,535 |
|
|
| 66,143 |
|
|
| 51,765 |
|
Robotics and Automation |
| 34,909 |
|
|
| 38,864 |
|
|
| 67,724 |
|
|
| 77,014 |
|
Unallocated Corporate and Shared Services |
| (1,556 | ) |
|
| (1,336 | ) |
|
| (2,962 | ) |
|
| (2,827 | ) |
Total | $ | 104,123 |
|
| $ | 95,245 |
|
| $ | 201,751 |
|
| $ | 185,521 |
|
| Three Months Ended |
|
| Six Months Ended |
| ||||||||||
| June 30, |
|
| July 1, |
|
| June 30, |
|
| July 1, |
| ||||
Gross Profit Margin | 2023 |
|
| 2022 |
|
| 2023 |
|
| 2022 |
| ||||
Precision Medicine and Manufacturing |
| 49.1 | % |
|
| 44.9 | % |
|
| 49.2 | % |
|
| 45.0 | % |
Medical Solutions |
| 41.1 | % |
|
| 40.5 | % |
|
| 41.1 | % |
|
| 40.6 | % |
Robotics and Automation |
| 48.6 | % |
|
| 48.4 | % |
|
| 47.1 | % |
|
| 48.2 | % |
Total |
| 45.4 | % |
|
| 44.2 | % |
|
| 45.0 | % |
|
| 44.2 | % |
| Three Months Ended |
|
| Six Months Ended |
| ||||||||||
| June 30, |
|
| July 1, |
|
| June 30, |
|
| July 1, |
| ||||
Operating Income (Loss) | 2023 |
|
| 2022 |
|
| 2023 |
|
| 2022 |
| ||||
Precision Medicine and Manufacturing | $ | 19,611 |
|
| $ | 13,996 |
|
| $ | 36,295 |
|
| $ | 27,431 |
|
Medical Solutions |
| 10,083 |
|
|
| 7,024 |
|
|
| 19,924 |
|
|
| 12,066 |
|
Robotics and Automation |
| 15,248 |
|
|
| 14,083 |
|
|
| 27,248 |
|
|
| 32,421 |
|
Unallocated Corporate and Shared Services |
| (12,744 | ) |
|
| (11,812 | ) |
|
| (24,957 | ) |
|
| (24,344 | ) |
Total | $ | 32,198 |
|
| $ | 23,291 |
|
| $ | 58,510 |
|
| $ | 47,574 |
|
24
NOVANTA INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AS OF JUNE 30, 2023
(Unaudited)
| Three Months Ended |
|
| Six Months Ended |
| ||||||||||
| June 30, |
|
| July 1, |
|
| June 30, |
|
| July 1, |
| ||||
Depreciation and Amortization Expenses | 2023 |
|
| 2022 |
|
| 2023 |
|
| 2022 |
| ||||
Precision Medicine and Manufacturing | $ | 2,661 |
|
| $ | 2,697 |
|
| $ | 5,257 |
|
| $ | 5,474 |
|
Medical Solutions |
| 4,044 |
|
|
| 4,322 |
|
|
| 8,017 |
|
|
| 8,749 |
|
Robotics and Automation |
| 4,917 |
|
|
| 6,678 |
|
|
| 9,762 |
|
|
| 13,415 |
|
Unallocated Corporate and Shared Services |
| 315 |
|
|
| 114 |
|
|
| 632 |
|
|
| 217 |
|
Total | $ | 11,937 |
|
| $ | 13,811 |
|
| $ | 23,668 |
|
| $ | 27,855 |
|
Revenue by Geography
The Company aggregates geographic revenue based on the customer locations where products are shipped to. Revenue by geography was as follows (in thousands):
| Three Months Ended |
|
| Six Months Ended |
| ||||||||||
| June 30, |
|
| July 1, |
|
| June 30, |
|
| July 1, |
| ||||
| 2023 |
|
| 2022 |
|
| 2023 |
|
| 2022 |
| ||||
United States | $ | 107,594 |
|
| $ | 86,649 |
|
| $ | 211,436 |
|
| $ | 169,355 |
|
Germany |
| 32,097 |
|
|
| 33,123 |
|
|
| 66,959 |
|
|
| 64,901 |
|
Rest of Europe |
| 34,537 |
|
|
| 37,918 |
|
|
| 63,902 |
|
|
| 71,260 |
|
China |
| 20,854 |
|
|
| 29,871 |
|
|
| 38,652 |
|
|
| 56,670 |
|
Rest of Asia-Pacific |
| 27,390 |
|
|
| 23,090 |
|
|
| 55,501 |
|
|
| 47,585 |
|
Other |
| 6,992 |
|
|
| 4,705 |
|
|
| 12,140 |
|
|
| 9,801 |
|
Total | $ | 229,464 |
|
| $ | 215,356 |
|
| $ | 448,590 |
|
| $ | 419,572 |
|
The majority of revenue from Precision Medicine and Manufacturing, Medical Solutions and Robotics and Automation segments is generated from sales to customers within the United States and Europe.Each segment also generates revenue across the other geographies, with no significant concentration of any segment’s remaining revenue.
Revenue by End Market
| Three Months Ended |
|
| Nine Months Ended |
| ||||||||||
| September 29, |
|
| September 30, |
|
| September 29, |
|
| September 30, |
| ||||
| 2017 |
|
| 2016 |
|
| 2017 |
|
| 2016 |
| ||||
Revenue |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Photonics | $ | 61,882 |
|
| $ | 43,425 |
|
| $ | 170,503 |
|
| $ | 129,907 |
|
Vision |
| 58,150 |
|
|
| 31,601 |
|
|
| 124,943 |
|
|
| 88,768 |
|
Precision Motion |
| 26,264 |
|
|
| 22,803 |
|
|
| 78,926 |
|
|
| 67,204 |
|
Total | $ | 146,296 |
|
| $ | 97,829 |
|
| $ | 374,372 |
|
| $ | 285,879 |
|
The Company primarily operates in two end markets: the medical market and the advanced industrial market. Revenue by end market was approximately as follows:
| Three Months Ended |
|
| Six Months Ended |
| ||||||||||
| June 30, |
|
| July 1, |
|
| June 30, |
|
| July 1, |
| ||||
| 2023 |
|
| 2022 |
|
| 2023 |
|
| 2022 |
| ||||
Medical |
| 53 | % |
|
| 47 | % |
|
| 53 | % |
|
| 47 | % |
Advanced Industrial |
| 47 | % |
|
| 53 | % |
|
| 47 | % |
|
| 53 | % |
Total |
| 100 | % |
|
| 100 | % |
|
| 100 | % |
|
| 100 | % |
The majority of revenue from the Precision Medicine and Manufacturing and Robotics and Automation segments is generated from sales to customers in the advanced industrial market. The majority of revenue from the Medical Solutions segment is generated from sales to customers in the medical market.
25
NOVANTA INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
AS OF SEPTEMBER 29, 2017
(Unaudited)
| Three Months Ended |
|
| Nine Months Ended |
| ||||||||||
| September 29, |
|
| September 30, |
|
| September 29, |
|
| September 30, |
| ||||
| 2017 |
|
| 2016 |
|
| 2017 |
|
| 2016 |
| ||||
Gross Profit |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Photonics | $ | 28,966 |
|
| $ | 18,603 |
|
| $ | 77,423 |
|
| $ | 57,461 |
|
Vision |
| 19,792 |
|
|
| 12,343 |
|
|
| 47,378 |
|
|
| 32,446 |
|
Precision Motion |
| 10,291 |
|
|
| 10,592 |
|
|
| 34,558 |
|
|
| 30,757 |
|
Unallocated Corporate and Shared Services |
| (342 | ) |
|
| (326 | ) |
|
| (1,069 | ) |
|
| (1,064 | ) |
Total | $ | 58,707 |
|
| $ | 41,212 |
|
| $ | 158,290 |
|
| $ | 119,600 |
|
| Three Months Ended |
|
| Nine Months Ended |
| ||||||||||
| September 29, |
|
| September 30, |
|
| September 29, |
|
| September 30, |
| ||||
| 2017 |
|
| 2016 |
|
| 2017 |
|
| 2016 |
| ||||
Gross Profit Margin |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Photonics |
| 46.8 | % |
|
| 42.8 | % |
|
| 45.4 | % |
|
| 44.2 | % |
Vision |
| 34.0 | % |
|
| 39.1 | % |
|
| 37.9 | % |
|
| 36.6 | % |
Precision Motion |
| 39.2 | % |
|
| 46.5 | % |
|
| 43.8 | % |
|
| 45.8 | % |
Total |
| 40.1 | % |
|
| 42.1 | % |
|
| 42.3 | % |
|
| 41.8 | % |
| Three Months Ended |
|
| Nine Months Ended |
| ||||||||||
| September 29, |
|
| September 30, |
|
| September 29, |
|
| September 30, |
| ||||
| 2017 |
|
| 2016 |
|
| 2017 |
|
| 2016 |
| ||||
Operating Income (Loss) from Continuing Operations |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Photonics | $ | 15,233 |
|
| $ | 8,185 |
|
| $ | 35,746 |
|
| $ | 24,704 |
|
Vision |
| 846 |
|
|
| 2,307 |
|
|
| 4,893 |
|
|
| (4,164 | ) |
Precision Motion |
| 5,493 |
|
|
| 6,195 |
|
|
| 20,238 |
|
|
| 16,608 |
|
Unallocated Corporate and Shared Services |
| (9,299 | ) |
|
| (5,639 | ) |
|
| (22,776 | ) |
|
| (15,915 | ) |
Total | $ | 12,273 |
|
| $ | 11,048 |
|
| $ | 38,101 |
|
| $ | 21,233 |
|
| Three Months Ended |
|
| Nine Months Ended |
| ||||||||||
| September 29, |
|
| September 30, |
|
| September 29, |
|
| September 30, |
| ||||
| 2017 |
|
| 2016 |
|
| 2017 |
|
| 2016 |
| ||||
Depreciation and Amortization |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Photonics | $ | 3,666 |
|
| $ | 1,820 |
|
| $ | 10,693 |
|
| $ | 5,123 |
|
Vision |
| 4,362 |
|
|
| 2,460 |
|
|
| 9,276 |
|
|
| 7,861 |
|
Precision Motion |
| 588 |
|
|
| 603 |
|
|
| 1,746 |
|
|
| 1,845 |
|
Unallocated Corporate and Shared Services |
| 248 |
|
|
| 281 |
|
|
| 725 |
|
|
| 1,104 |
|
Total | $ | 8,864 |
|
| $ | 5,164 |
|
| $ | 22,440 |
|
| $ | 15,933 |
|
Is i
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”) should be read in conjunction with the Consolidated Financial Statements and Notes included in Item 1 of this Quarterly Report on Form 10-Q. The MD&A contains certain forward-looking statements within the meaning of the United States Private Securities Litigation Reform Act of 1995, Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. In addition to historical financial information, the following discussion and analysis contains forward-looking statements that involve risks, uncertainties and assumptions. These forward-looking statements include, but are not limited to, our ability to manage or mitigate the impact of global supply chain disruptions, inflationary pressures and other macroeconomic conditions; our belief that the Purchasing Managers Index (PMI)(“PMI”) may provide an indication of the impact of general economic conditions on our sales into the advanced industrial end market; our strategy; anticipated financial performance; expected liquidity and capitalization; drivers of revenue growth;growth and our growth expectations in various markets; management’s plans and objectives for future operations, expenditures and product development, and investments in research and development; expectations regarding our acquisitions of WOM, Laser Quantum and ThingMagic; business prospects; potential of future product releases; anticipated revenue performance;releases and expansion of our product and service offerings; industry trends; market conditions; our competitive positions; changes in economic and political conditions, including supply chain disruptions and constraints and inflationary pressures; changes in accounting principles andprinciples; changes in actual or assumed tax liabilities; and expectations regarding tax exposure. These forward-lookingexposures; anticipated reinvestment of future earnings and dividend policy; anticipated expenditures in regard to the Company’s benefit plans; future acquisitions and integration and anticipated benefits from acquisitions and dispositions; anticipated economic benefits and expected costs of restructuring programs; ability to repay our indebtedness; our intentions regarding the use of cash; expectations regarding legal and regulatory requirements, including environmental requirements, and our compliance thereto; and other statements that are neither promises nor guarantees, but involve risks and uncertainties that may cause actual results to differ materially from those contained in the forward-looking statements.not historical facts. Our actual results could differ materially from those anticipated in these forward-looking statements for many reasons,as a result of various important factors, including, but not limited to, the following: the PMI not providing a good indication of the impact of general economic conditions on our sales into the advanced industrial end market in any particular period or at all; economic and political conditions and the effects of these conditions on our customers’ businesses, capital expenditures and level of business activities; negative effect on global economic conditions, financial marketsrisks associated with epidemics or pandemics, such as the COVID-19 pandemic, and other events outside of our business as a result of the United Kingdom’s impending withdrawal from the European Union and the 2016 U.S. presidential election; our significant dependence upon our customers’ capital expenditures, which are subject to cyclical market fluctuations;control; our dependence upon our ability to respond to fluctuations in product demand; our ability to continually innovate, introduce new products timely, and successfully commercialize our innovations; failure to introduce new products in a timely manner; customer order timing and other similar factors beyond our control; disruptions or breaches in security of our and our third-party providers’ information technology systems; our failure to comply with data privacy regulations; changes in interest rates, credit ratings or foreign currency exchange rates; risks associated with our operations in foreign countries; our increased use of outsourcing in foreign countries; risks associated with increased outsourcing of components manufacturing; our failureexposure to comply with local importincreased tariffs, trade restrictions or taxes on our products; negative effects on global economic conditions, financial markets and export regulations inour business as a result of the jurisdictions in which we operate;United Kingdom’s withdrawal from the European Union; violations of our intellectual property rights and our ability to protect our intellectual property against infringement by third parties; risk of losing our competitive advantage; our failure to successfully integrate recent and future acquisitions into our business or grow acquired businesses;business; our ability to attract and retain key personnel; our restructuring and realignment activities and disruptions to our operations as a result of consolidation of our operations; product defects or problems integrating our products with other vendors’ products; disruptions in the supply of certain key components andor other goods from our suppliers; our failure to accurately forecast component and raw material requirements leading to excess inventories or delays in the delivery of our products; production difficulties and product delivery delays or disruptions; our compliance,exposure to medical device regulations, which may impede or hinder the approval or sale of our failureproducts and, in some cases, may ultimately result in an inability to comply, with variousobtain approval of certain products or may result in the recall or seizure of previously approved products; potential penalties for violating foreign and U.S. federal and state healthcare laws and foreign regulations; impact of healthcare industry cost containment and healthcare reform measures; changes in governmental regulation ofregulations affecting our business or products; effects of compliance with conflict minerals regulations; our compliance, or failure to comply, with environmental regulations; our failure to implement new information technology systems and software successfully; our failure to realize the full value of our intangible assets; our reliance on original equipment manufacturer customers; increasing scrutiny and changing expectations from investors, customers, and governments with respect to Environmental, Social and Governance policies and practices; our exposure to the credit risk of some of our customers and in weakened markets; our reliance on third party distribution channels; changes in tax laws, and fluctuations in our effective tax rates; being subject to U.S. federal income taxation even though we are a non-U.S. corporation; changes in tax laws and fluctuations in our effective tax rates; any need for additional capital to adequately respond to business challenges or opportunities and repay or refinance our existing indebtedness, which may not be available on acceptable terms or at all; volatility in the market price for our common shares; our ability to access cash and other assets of our subsidiaries; the influence of certain significant shareholders over our business; provisions of our articles of incorporation delaying or preventing a change in control; our significant existing indebtedness limiting our ability to engage in certain activities; volatility in the market price for our common shares; and our failure to maintain appropriate internal controls in the future. Other important risk factors that could affect the outcome of the events set forth in these statements and that could affect the Company’s operating results and financial condition are discussed in Item 1A of our Annual Report on Form 10-K for the fiscal year ended December 31, 20162022 under the heading “Risk Factors.”Factors”, as updated herein and in our other filings with the Securities and Exchange Commission. In this Quarterly Report on Form 10-Q, the words “anticipates,” “believes,” “expects,” “intends,” “future,” “could,“anticipates,” “estimates,” “believes,” “future,” “plans,” “aims,” “would,” “could,” “should,” “potential,” “continues,” and similar words or expressions (as well as other words or expressions referencing future events, conditions, or circumstances) identify forward-looking statements. Readers should not place undue reliance on any such forward-looking statements, which speak only as of the date they are made. Management and the Company disclaim any obligation to publicly update or revise any such statementforward-looking statements to reflect any changechanges in its expectations or in events, conditions, or circumstances on which any such statements may be based, or that may affect the likelihood that actual results will differ from those contained in the forward-looking statements, except as required under applicable law.
26
Accounting Period
The interim consolidated financial statements of Novanta Inc. and its subsidiaries (collectively referred to as the(the “Company”, “Novanta”, “we”, “us”, “our”) are prepared for each quarterly period ending on the Friday closest to the end of the calendar quarter, with the exception ofexcept for the fourth quarter which always ends on December 31.
We are a leading global supplier of core technology solutions that give healthcaremedical and advanced industrial original equipment manufacturers (“OEMs”) a competitive advantage. We combine deep proprietary technology expertise and competencies in photonics, visionprecision medicine and precision motionmanufacturing, medical solutions, and robotics and automation with a proven ability to solve complex technical challenges. This enables Novantaus to engineer core components and sub-systems that deliver extreme precision and performance, tailored to our customers' demanding applications.
During the first quarter of 2023, we changed the names of our reportable segments from “Photonics” to “Precision Medicine and Manufacturing”, from “Vision” to “Medical Solutions”, and from “Precision Motion” to “Robotics and Automation”, respectively. The driving force behindsegment name changes did not result in any change to the compositions of our growth is our team of innovative professionals who share a commitmentsegments and therefore did not result in any change to innovation and customer success.historical results.
Reportable Segments
We operate in three reportable segments: Photonics, Vision,Precision Medicine and Precision Motion.Manufacturing, Medical Solutions, and Robotics and Automation. The reportable segments and their principal activities consist of the following:are summarized below.
PhotonicsPrecision Medicine and Manufacturing
The PhotonicsOur Precision Medicine and Manufacturing segment designs, manufactures and markets photonics-based solutions, including laser scanning, laser beam delivery, CO2 lasers, continuous wavelaser, solid state laser, ultrafast laser, and femtosecond lasers, optical light engines, and laser scanning and laser beam deliveryengine products to customers worldwide. The segment serves highly demanding photonics-based applications such asfor advanced industrial material processing,processes, metrology, medical and life science imaging, DNA sequencing, and medical laser procedures.procedures, particularly ophthalmology applications. The vast majority of the segment’s product offerings are sold to OEM customers. The segment sells these products both directly, utilizing a highly technical sales force, and indirectly, through resellers and distributors.
VisionMedical Solutions
Our VisionMedical Solutions segment designs, manufactures and markets a range of medical grade technologies, including medical insufflators, pumps and related disposables; surgical displaysvisualization solutions; wireless technologies, video recorder and video integration technologies for operating room integration technologies;integrations; optical data collection and machine vision technologies; radio frequency identification (“RFID”) technologies; thermal printers;chart recorders; spectrometry technologies,technologies; and embedded touch screen solutions. The vast majority of the segment’s product offerings are sold to OEM customers. The segment sells these products both directly, utilizing a highly technical sales force, and indirectly, through resellers and distributors.
Precision MotionRobotics and Automation
Our Precision MotionRobotics and Automation segment designs, manufactures and markets optical and inductive encoders, precision motormotors, servo drives and motion control solutions, integrated stepper motors, intelligent robotic end-of-arm technology solutions, air bearings, and air bearing spindles and precision machined components to customers worldwide. The vast majority of the segment’s product offerings are sold to OEM customers. The segment sells these products both directly, utilizing a highly technical sales force, and indirectly, through resellers and distributors.
End Markets
We primarily operate in two end markets: the advanced industrialmedical market and the advanced industrial market.
Medical Market
For the six months ended June 30, 2023, the medical market.market accounted for approximately 53% of our revenue. Revenue from our products sold to the medical market is generally affected by hospital and other healthcare provider capital spending, growth rates of surgical procedures, changes in regulatory requirements and laws, aggregation of purchasing by healthcare networks, changes in
27
technology requirements, timing of OEM customers’ product development and new product launches, changes in customer or patient preferences, and general demographic trends.
Advanced Industrial Market
For the three and ninesix months ended September 29, 2017,June 30, 2023, the advanced industrial market accounted for approximately 50% and 55%47% of our revenue, respectively.revenue. Revenue from our products sold to the advanced industrial market is affected by a number ofseveral factors, including changing technology requirements and preferences of our customers, productivity or quality investments in a manufacturing environment, the financial conditionconditions of our customers, changes in regulatory requirements and laws, and general economic conditions. We believe that the Purchasing Managers Index (PMI)PMI on manufacturing activities specific to different regions around the world may provide an indication of the impact of general economic conditions on our sales into the advanced industrial market.
Medical MarketStrategy
For the three and nine months ended September 29, 2017, the medical market accounted for approximately 50% and 45% of our revenue, respectively. Our revenue from products sold to the medical market is generally affected by hospital and other health care provider capital spending, changes in regulatory requirements and laws, aggregation of purchasing by healthcare networks, trends in surgical procedures, changes in technology requirements, changes in customers or patient preferences, and general demographic trends.
Our strategy is to drive sustainable, profitable growth through short-term and long-term initiatives, including:
disciplined focus on our diversified business model of providing mission-critical functionality to long life-cycle OEM customer platforms in attractive medical and advanced industrial niche markets;
improving our business mix to increase medical sales as a percentage of total revenue by:
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increasing our penetration of high growth advanced industrial applications, such as laser materials processing, intelligent end-of-arm robotic technology solutions, robotics, laser additive manufacturing, automation and metrology, by working closely with OEM customers to launch application specific products that closely match the requirements of each application;
broadening our portfolio of enabling proprietary technologies and capabilities through increased investment in new product development, expanded sales and marketing channels to reach target customers, and investments in application development to further penetrate existing customers, while expanding the applicability of our solutions to new markets;
broadening our product and service offerings through the acquisition of innovative and complementary technologies and solutions in medical and advanced industrial technology applications, including increasing our recurring revenue streams such as services, spare partsapplications;
improving our existing operations to expand profit margins and improve customer satisfaction by implementing lean manufacturing principles, and strategic sourcing across our major production sites; and
attracting, retaining, and developing world-class talented, diverse, and motivated employees.
Significant Events and Updates
Third AmendmentBusiness Environment
Global Supply Chain Disruptions
Over the past three years, we experienced disruptions to Second Amended and Restated Credit Agreement
On August 1, 2017, we entered into an amendment (the “Third Amendment”) to the second amended and restated credit agreement, datedour supply chain as of May 19, 2016 (the “Second Amended and Restated Credit Agreement”). The Third Amendment increased the revolving credit facility commitment under the Second Amended and Restated Credit Agreement by $100 million, from $225 million to $325 million, and reset the uncommitted accordion feature to $125 million for potential future expansion. Additionally, the Third Amendment increased the term loan balance from $65.6 million to $90.6 million.
Acquisition of W.O.M. World of Medicine
On July 3, 2017, we acquired 100% of the outstanding stock of W.O.M. World of Medicine GmbH (“WOM”), a Berlin, Germany-based provider of medical insufflators, pumps and related disposables for OEMs in the minimally invasive surgical market, for a total purchase price of €118.1 million ($134.9 million), net of working capital adjustments. The acquisition was financed with a €118.0 million ($134.7 million) draw-down on our revolving credit facility. We expect that the addition of WOM will help to better serve our customers in minimally invasive surgery applications with a broader range of product offerings. WOM is included in our Vision reportable segment.
Acquisition of Laser Quantum Limited
On January 10, 2017, we acquired an additional approximately 35% of the outstanding shares of Laser Quantum Limited (“Laser Quantum”), a Manchester, United Kingdom-based provider of solid state continuous wave lasers, femtosecond lasers, and optical light engines to OEMs in the medical market. Cash paid for the acquisition was £25.5 million ($31.1 million) and was financed with cash on hand and a $30.0 million draw-down on our revolving credit facility. In addition, we entered into a call and put option agreement with the remaining equity holders for the purchase and sale in 2020 of all remaining Laser Quantum shares held by the remaining equity holders, subject to certain conditions. The purchase price for the remaining shares will be based on the proportionate share of the noncontrolling interest in Laser Quantum’s cash on hand as of December 31, 2019 and a multiple of Laser Quantum’s EBITDA for the twelve months ending December 31, 2019, as defined in the call and put option agreement. As a result of this transaction, our ownership position in Laser Quantum increased from approximately 41% to approximately 76%. The financial results of Laser Quantum were previously accounted for under the equity method of accounting. As a result of the acquisitionCOVID-19 pandemic and global electronics and other raw material shortages. While we regularly monitor the manufacturing output of the
additional shares, the financial results of Laser Quantum have been consolidatedcompanies in our consolidated financial statements since January 2017. In connection withsupply chain, disruptions to our suppliers and/or sub-suppliers could further challenge our ability to manufacture our products, adversely affecting our operations and customer relationships. To mitigate the purchase price allocation underrisk of supply chain interruptions, we are identifying alternative suppliers and distributors, sourcing raw materials from different supplier and distributor locations, modifying our product designs to allow for alternative components to be used without compromising quality and performance, in-sourcing production of parts where feasible, and taking other actions to ensure a sustainable supply of raw materials. Additionally, restrictions on or disruptions of transportation, such as reduced availability of air transports, port closures and backlogs and increased border controls or closures, have resulted in higher costs and delays for obtaining raw materials from suppliers. Our supply chain disruptions and customer orders to secure supply caused
28
significantly elevated customer order backlog levels in the business combination rules,last two years. While our backlog coverage level remains comparable to year-end 2022, we recognized a nontaxable gainanticipate that our customers will gradually shorten their order lead times as supply chain disruptions ease over time in the near future.
Inflationary Pressures
The COVID-19 pandemic and the global supply chain disruptions have caused inflationary pressures on the market prices for raw materials and components as well as increases in the costs of $26.4 million duringlabor. We continue to experience higher than normal inflation of raw materials and components prices and labor costs. We have generally been able to offset increases in these costs through various productivity cost reduction initiatives, as well as increasing our selling prices to pass through some of these higher costs to our customers. However, our ability to raise our selling prices depends on market conditions and competitive dynamics. Given the three months ended March 31, 2017, representing the excess fair valuetiming of our previously-held equity interest in Laser Quantum over its carrying value. By establishing control through a majority equity ownership,actions compared to the timing of these inflationary pressures, there may be periods during which we expectare unable to broaden our technology capability in photonics solutions for medical applications, particularly withinfully recover the growing DNA sequencing market, while providing key enabling photonics-based technologies for instrumentation and life science applications such as biomedical imaging, cell sorting, and ophthalmology. Laser Quantum is includedincreases in our Photonics reportable segment.costs. Additionally, the inflationary pressures have given rise to significant increases in interest rates as various governments used monetary policy to reduce inflation. As a result, our weighted average interest rate increased from approximately 2.4% as of July 1, 2022 to approximately 5.8% as of June 30, 2023.
AcquisitionRussia Ukraine Conflict
In February 2022, Russian forces invaded Ukraine. In response, the U.S., the European Union (“EU”), and several other countries imposed economic and trade sanctions and other restrictions (collectively, “global sanctions”) targeting Russia and Belarus. Russia then imposed retaliatory economic measures against the U.S., the EU, and several other countries. Our historical sales to Russia were not material. We also do not have any assets, employees or third-party contractors in Russia or Ukraine. However, the duration of ThingMagicthe conflict and further sanctions could have further impact on the global economy and inflation. Due to the uncertainty around the duration of the conflict, these longer-term factors are unknown to our business.
On January 10, 2017, we acquired ThingMagic, a Woburn, Massachusetts-based provider of ultra-high frequency (“UHF”) RFID modules and finished RFID readers to OEMs in the medical and advanced industrial markets, for a total purchase price of $19.1 million, net of working capital adjustments. The acquisition was financed with cash on hand and a $12.0 million draw-down on our revolving credit facility. We expect that the addition of ThingMagic will broaden our portfolio of RFID solutions, while providing the resources to address the growing need for improvements in workflow solutions, patient safety, anti-counterfeiting, and asset tracking in a medical environment. ThingMagic is included in our Vision reportable segment.
Results of Operations for the Three and NineSix Months Ended September 29, 2017June 30, 2023 Compared with the Three and NineSix Months Ended September 30, 2016July 1, 2022
The following table sets forth our unaudited results of operations as a percentage of revenue for the periods indicated:
| Three Months Ended |
|
| Nine Months Ended |
| ||||||||||
| September 29, |
|
| September 30, |
|
| September 29, |
|
| September 30, |
| ||||
| 2017 |
|
| 2016 |
|
| 2017 |
|
| 2016 |
| ||||
Revenue |
| 100.0 | % |
|
| 100.0 | % |
|
| 100.0 | % |
|
| 100.0 | % |
Cost of revenue |
| 59.9 |
|
|
| 57.9 |
|
|
| 57.7 |
|
|
| 58.2 |
|
Gross profit |
| 40.1 |
|
|
| 42.1 |
|
|
| 42.3 |
|
|
| 41.8 |
|
Operating expenses: |
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|
|
|
|
|
|
|
|
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Research and development and engineering |
| 8.0 |
|
|
| 8.1 |
|
|
| 8.0 |
|
|
| 8.4 |
|
Selling, general and administrative |
| 19.0 |
|
|
| 21.4 |
|
|
| 19.9 |
|
|
| 21.8 |
|
Amortization of purchased intangible assets |
| 2.2 |
|
|
| 2.1 |
|
|
| 2.5 |
|
|
| 2.2 |
|
Restructuring, acquisition and divestiture related costs |
| 2.6 |
|
|
| (0.9 | ) |
|
| 1.7 |
|
|
| 2.0 |
|
Total operating expenses |
| 31.7 |
|
|
| 30.8 |
|
|
| 32.1 |
|
|
| 34.4 |
|
Operating income from continuing operations |
| 8.4 |
|
|
| 11.3 |
|
|
| 10.2 |
|
|
| 7.4 |
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Interest income (expense), net |
| (1.4 | ) |
|
| (1.1 | ) |
|
| (1.3 | ) |
|
| (1.2 | ) |
Foreign exchange transaction gains (losses), net |
| (0.5 | ) |
|
| 0.2 |
|
|
| (0.0 | ) |
|
| 0.3 |
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Other income (expense), net |
| (0.0 | ) |
|
| 0.7 |
|
|
| 0.0 |
|
|
| 0.6 |
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Gain on acquisition of business |
| — |
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|
| — |
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|
| 7.1 |
|
|
| — |
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Income from continuing operations before income taxes |
| 6.5 |
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|
| 11.1 |
|
|
| 15.9 |
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|
| 7.1 |
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Income tax provision |
| 0.8 |
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| 3.4 |
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|
| 1.9 |
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|
| 2.2 |
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Income from continuing operations |
| 5.7 |
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|
| 7.6 |
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|
| 14.1 |
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|
| 5.0 |
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Loss from discontinued operations, net of tax |
| — |
|
|
| — |
|
|
| — |
|
|
| — |
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Consolidated net income |
| 5.7 |
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|
| 7.6 |
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|
| 14.1 |
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|
| 5.0 |
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Less: Net income attributable to noncontrolling interest |
| (0.6 | ) |
|
| — |
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|
| (0.4 | ) |
|
| — |
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Net income attributable to Novanta Inc. |
| 5.1 | % |
|
| 7.6 | % |
|
| 13.7 | % |
|
| 5.0 | % |
Overview of Financial Results
Total revenue of $229.5 million for the three months ended September 29, 2017June 30, 2023 increased $48.5$14.1 million, or 49.5%6.6%, versusfrom the prior year.year period primarily due to increased demand in the advanced industrial and medical markets and revenue from a prior year acquisition. The net effect of our current and prior year acquisitionsacquisition resulted in an increase in revenue of $40.8$3.3 million, or 41.7%1.5%. In addition, foreign currency exchange rates adversely impacted our revenue by $0.3$0.1 million, or 0.3%less than 0.1%, for the three months ended September 29, 2017.June 30, 2023.
Total revenue of $448.6 million for the ninesix months ended September 29, 2017June 30, 2023 increased $88.5$29.0 million, or 31.0%6.9%, versusfrom the prior year.year period primarily due to increased demand in the advanced industrial and medical markets and revenue from a prior year acquisition. The net effect of our current and prior year acquisitions and prior year decision to discontinue our radiology productsacquisition resulted in an increase in
revenue of $66.8$6.8 million, or 23.3%1.6%. In addition, foreign currency exchange rates adversely impacted our revenue by $2.7$5.9 million, or 0.9%1.4%, for the ninesix months ended September 29, 2017.June 30, 2023.
Operating income from continuing operations increased $1.2 million from $11.0of $32.2 million for the three months ended SeptemberJune 30, 2016 to $12.32023 increased $8.9 million, foror 38.2%, from the three months ended September 29, 2017.prior year period. This increase was primarily attributable to an increase in gross profit of $17.5$8.9 million asprimarily due to higher revenue, an increase in gross profit margin, a resultdecrease in amortization expense of higher revenue,$2.0 million, and a decrease in restructuring, acquisition, and related charges of $1.4 million, partially offset by an increase in operatingresearch and development and engineering expenses of $16.3$1.8 million primarily due to current year and prior year acquisitions.an increase in selling, general and administrative expenses of $1.6 million.
Operating income from continuing operations increased $16.9 million from $21.2of $58.5 million for the ninesix months ended SeptemberJune 30, 2016 to $38.12023 increased $10.9 million, foror 23.0%, from the nine months ended September 29, 2017.prior year period. This increase was primarily attributable to an increase in gross profit of $38.7$16.2 million asprimarily due to higher revenue, an increase in gross profit margin, and a resultdecrease in amortization expense of higher revenue,$4.3 million, partially offset by an increase in operatingrestructuring, acquisition, and related charges of $2.7 million, an increase in research and development and engineering expenses of $21.8$3.7 million, primarily due to current year and prior year acquisitions.an increase in selling, general and administrative expenses of $3.2 million.
DilutedBasic earnings per common share (“DilutedBasic EPS”) from continuing operations decreased $0.21 from an earnings per share of $0.21 during the three months ended September 30, 2016 to a loss per share from continuing operations of $(0.00)$0.58 for the three months ended September 29, 2017.June 30, 2023 increased $0.09 from the prior year period. Diluted EPS from continuing operationsearnings per common share (“Diluted EPS”) of $0.58 for the three months ended September 29, 2017 was negatively impacted by the $7.6 million Laser Quantum redeemable noncontrolling interest redemption value adjustment. This nontaxable redemption value adjustment was recorded as a reduction to retained earnings in stockholders’ equity instead of net income in the consolidated statement of operations. However, it was included in the earnings per share calculation as a reduction to net income attributable to Novanta Inc., which resulted in a $0.22 reduction to both Basic and Diluted EPS. (See Note 5 to the accompanying Consolidated Financial Statements.)
Diluted EPS from continuing operations of $1.13 for the nine months ended September 29, 2017June 30, 2023 increased $0.72$0.09 from the prior year. This increase wasyear period. The increases were primarily attributable to higheran increase in operating income, from continuing operations and a $26.4 million gain on acquisition of the additional approximately 35% of Laser Quantum equity interest in January 2017, partially offset by the adjustmentan increase in interest expense and an increase in income tax provision.
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Basic earnings per common share (“Basic EPS”) of Laser Quantum redeemable noncontrolling interest to the estimated redemption value as of September 29, 2017. Diluted EPS from continuing operations$1.09 for the ninesix months ended September 29, 2017 was negatively impacted byJune 30, 2023 increased $0.07 from the $11.3 million redeemable noncontrolling interest redemption value adjustment. This nontaxable redemption value adjustment was recorded as a reduction to retained earnings in stockholders’ equity instead of net income in the consolidated statement of operations. However, it was included in theprior year period. Diluted earnings per common share calculation as a reduction to net income(“Diluted EPS”) of $1.09 for the six months ended June 30, 2023 increased $0.08 from the prior year period. The increases were primarily attributable to Novanta Inc., which resultedan increase in a $0.32 reduction to both Basicoperating income, partially offset by an increase in interest expense and Diluted EPS. (See Note 5 to the accompanying Consolidated Financial Statements.)an increase in income tax provision.
Revenue
The following table sets forth external revenue by reportable segment for the periods noted (dollars in thousands):
| Three Months Ended |
|
|
|
|
|
|
| |||||||
| June 30, |
|
| July 1, |
|
| Increase |
|
| Percentage |
| ||||
| 2023 |
|
| 2022 |
|
| (Decrease) |
|
| Change |
| ||||
Precision Medicine and Manufacturing | $ | 74,333 |
|
| $ | 69,461 |
|
| $ | 4,872 |
|
|
| 7.0 | % |
Medical Solutions |
| 83,322 |
|
|
| 65,516 |
|
|
| 17,806 |
|
|
| 27.2 | % |
Robotics and Automation |
| 71,809 |
|
|
| 80,379 |
|
|
| (8,570 | ) |
|
| (10.7 | )% |
Total | $ | 229,464 |
|
| $ | 215,356 |
|
| $ | 14,108 |
|
|
| 6.6 | % |
| Six Months Ended |
|
|
|
|
|
|
| |||||||
| June 30, |
|
| July 1, |
|
| Increase |
|
| Percentage |
| ||||
| 2023 |
|
| 2022 |
|
| (Decrease) |
|
| Change |
| ||||
Precision Medicine and Manufacturing | $ | 143,861 |
|
| $ | 132,243 |
|
| $ | 11,618 |
|
|
| 8.8 | % |
Medical Solutions |
| 160,962 |
|
|
| 127,566 |
|
|
| 33,396 |
|
|
| 26.2 | % |
Robotics and Automation |
| 143,767 |
|
|
| 159,763 |
|
|
| (15,996 | ) |
|
| (10.0 | )% |
Total | $ | 448,590 |
|
| $ | 419,572 |
|
| $ | 29,018 |
|
|
| 6.9 | % |
Precision Medicine and Manufacturing
Three Months Ended |
| ||||||||||||||
| September 29, |
|
| September 30, |
|
| Increase |
|
| Percentage |
| ||||
| 2017 |
|
| 2016 |
|
| (Decrease) |
|
| Change |
| ||||
Photonics | $ | 61,882 |
|
| $ | 43,425 |
|
| $ | 18,457 |
|
|
| 42.5 | % |
Vision |
| 58,150 |
|
|
| 31,601 |
|
|
| 26,549 |
|
|
| 84.0 | % |
Precision Motion |
| 26,264 |
|
|
| 22,803 |
|
|
| 3,461 |
|
|
| 15.2 | % |
Total | $ | 146,296 |
|
| $ | 97,829 |
|
| $ | 48,467 |
|
|
| 49.5 | % |
| Nine Months Ended |
| |||||||||||||
| September 29, |
|
| September 30, |
|
| Increase |
|
| Percentage |
| ||||
| 2017 |
|
| 2016 |
|
| (Decrease) |
|
| Change |
| ||||
Photonics | $ | 170,503 |
|
| $ | 129,907 |
|
| $ | 40,596 |
|
|
| 31.2 | % |
Vision |
| 124,943 |
|
|
| 88,768 |
|
|
| 36,175 |
|
|
| 40.8 | % |
Precision Motion |
| 78,926 |
|
|
| 67,204 |
|
|
| 11,722 |
|
|
| 17.4 | % |
Total | $ | 374,372 |
|
| $ | 285,879 |
|
| $ | 88,493 |
|
|
| 31.0 | % |
Photonics
PhotonicsPrecision Medicine and Manufacturing segment revenue for the three months ended September 29, 2017 June 30, 2023increased by $18.5$4.9 million, or 42.5%7.0%, versus the prior year period, primarily as a result of the Laser Quantum acquisition, whichdue to increased segment revenues by $13.6 million, and an increasedemand in revenue of our laser beam delivery products of $4.6 million as a result of increased volumes in the advanced industrial and medical markets.
PhotonicsPrecision Medicine and Manufacturing segment revenue for the ninesix months ended September 29, 2017 June 30, 2023increased by $40.6$11.6 million, or 31.2%8.8%, versus the prior year period, primarily as a result of the Laser Quantum acquisition, whichdue to increased segment revenues by $32.3 million, and an increasedemand in revenue of our laser beam delivery products and our CO2 lasers products of $8.4 million as a result of increased volumes in the advanced industrial and medical markets.
VisionMedical Solutions
VisionMedical Solutions segment revenue for the three months ended September 29, 2017June 30, 2023 increased by $26.5$17.8 million, or 84.0%27.2%, versus the prior year. The increase wasyear period, primarily due to a $27.1increased demand in medical markets, and $3.3 million increase inof revenue as a result of the WOM and ThingMagic acquisitions.contributions from our 2022 acquisition.
VisionMedical Solutions segment revenue for the ninesix months ended September 29, 2017June 30, 2023 increased by $36.2$33.4 million, or 40.8%26.2%, versus the prior year. The increase wasyear period, primarily due to a $31.9increased demand in medical markets, and $6.8 million increase inof revenue as a result of the WOM, ThingMagiccontributions from our 2022 acquisition.
Robotics and Reach acquisitions. This increase was partially offset by a decline in revenue of $1.3 million attributable to our decision to discontinue our radiology products in January 2016.Automation
Precision Motion
Precision MotionRobotics and Automation segment revenue for the three months ended September 29, 2017 increasedJune 30, 2023decreased by $3.5$8.6 million, or 15.2%10.7%, versus the prior yearperiod, primarily due to an increasea decrease in revenue of our Celera Motion products and air bearing spindles products as a result of increased demand in the advanced industrialmicroelectronics market.
Robotics and medical markets.
Precision MotionAutomation segment revenue for the ninesix months ended September 29, 2017 increasedJune 30, 2023decreased by $11.7$16.0 million, or 17.4%10.0%, versus the prior yearperiod, primarily due to an increasea decrease in revenue of our Celera Motion products and air bearing spindles products as a result of increased demand in the advanced industrial and medical markets.microelectronics market.
30
Gross Profit and Gross Profit Margin
The following table sets forth the gross profit and gross profit margin for each of our reportable segments for the periods noted (dollars in thousands):
| Three Months Ended |
|
| Six Months Ended |
| ||||||||||
| June 30, |
|
| July 1, |
|
| June 30, |
|
| July 1, |
| ||||
| 2023 |
|
| 2022 |
|
| 2023 |
|
| 2022 |
| ||||
Gross profit: |
|
|
|
|
|
|
|
|
|
|
| ||||
Precision Medicine and Manufacturing | $ | 36,513 |
|
| $ | 31,182 |
|
| $ | 70,846 |
|
| $ | 59,569 |
|
Medical Solutions |
| 34,257 |
|
|
| 26,535 |
|
|
| 66,143 |
|
|
| 51,765 |
|
Robotics and Automation |
| 34,909 |
|
|
| 38,864 |
|
|
| 67,724 |
|
|
| 77,014 |
|
Unallocated Corporate and Shared Services |
| (1,556 | ) |
|
| (1,336 | ) |
|
| (2,962 | ) |
|
| (2,827 | ) |
Total | $ | 104,123 |
|
| $ | 95,245 |
|
| $ | 201,751 |
|
| $ | 185,521 |
|
Gross profit margin: |
|
|
|
|
|
|
|
|
|
|
| ||||
Precision Medicine and Manufacturing |
| 49.1 | % |
|
| 44.9 | % |
|
| 49.2 | % |
|
| 45.0 | % |
Medical Solutions |
| 41.1 | % |
|
| 40.5 | % |
|
| 41.1 | % |
|
| 40.6 | % |
Robotics and Automation |
| 48.6 | % |
|
| 48.4 | % |
|
| 47.1 | % |
|
| 48.2 | % |
Total |
| 45.4 | % |
|
| 44.2 | % |
|
| 45.0 | % |
|
| 44.2 | % |
Three Months Ended |
|
| Nine Months Ended |
| |||||||||||
| September 29, |
|
| September 30, |
|
| September 29, |
|
| September 30, |
| ||||
| 2017 |
|
| 2016 |
|
| 2017 |
|
| 2016 |
| ||||
Gross profit: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Photonics | $ | 28,966 |
|
| $ | 18,603 |
|
| $ | 77,423 |
|
| $ | 57,461 |
|
Vision |
| 19,792 |
|
|
| 12,343 |
|
|
| 47,378 |
|
|
| 32,446 |
|
Precision Motion |
| 10,291 |
|
|
| 10,592 |
|
|
| 34,558 |
|
|
| 30,757 |
|
Unallocated Corporate and Shared Services |
| (342 | ) |
|
| (326 | ) |
|
| (1,069 | ) |
|
| (1,064 | ) |
Total | $ | 58,707 |
|
| $ | 41,212 |
|
| $ | 158,290 |
|
| $ | 119,600 |
|
Gross profit margin: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Photonics |
| 46.8 | % |
|
| 42.8 | % |
|
| 45.4 | % |
|
| 44.2 | % |
Vision |
| 34.0 | % |
|
| 39.1 | % |
|
| 37.9 | % |
|
| 36.6 | % |
Precision Motion |
| 39.2 | % |
|
| 46.5 | % |
|
| 43.8 | % |
|
| 45.8 | % |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
| 40.1 | % |
|
| 42.1 | % |
|
| 42.3 | % |
|
| 41.8 | % |
Gross profit and gross profit margin can be influenced by a number of factors, including product mix, pricing, volume, manufacturing efficiencies and utilization, costs for raw materials and outsourced manufacturing, trade tariffs, freight costs, headcount, inventory obsolescence and warranty expenses.
PhotonicsPrecision Medicine and Manufacturing
PhotonicsPrecision Medicine and Manufacturing segment gross profit for the three months ended September 29, 2017 June 30, 2023increased $10.4$5.3 million, or 55.7%17.1%, versus the prior year period, primarily due to an increase in both revenue as a result of the Laser Quantum acquisition, which increasedand gross profit by $7.5 million. Photonicsmargin. Precision Medicine and Manufacturing segment gross profit margin was 46.8%49.1% for the three months ended September 29, 2017,June 30, 2023, versus a gross profit margin of 42.8%44.9% for the prior year.year period. The increase in gross profit margin was primarily attributable to changes inimproved factory productivity and favorable product mixmix.
Precision Medicine and temporary manufacturing inefficiencies in the prior year resulting from the implementation of an enterprise resource planning (“ERP”) system of our laser beam delivery product line during the three months ended September 30, 2016.
PhotonicsManufacturing segment gross profit for the ninesix months ended September 29, 2017 June 30, 2023increased $20.0$11.3 million, or 34.7%18.9%, versus the prior year period, primarily due to an increase in both revenue as a result of the Laser Quantum acquisition, which increasedand gross profit by $16.5 million. Photonicsmargin. Precision Medicine and Manufacturing segment gross profit margin was 45.4%49.2% for the ninesix months ended September 29, 2017,June 30, 2023, versus a gross profit margin of 44.2%45.0% for the prior year.year period. The increase in gross profit margin was primarily attributable to changes inimproved factory productivity and favorable product mix.
VisionMedical Solutions
VisionMedical Solutions segment gross profit for the three months ended September 29, 2017 June 30, 2023increased $7.4$7.7 million, or 60.3%29.1%, versus the prior year. The increase wasyear period, primarily attributabledue to an increase in both revenue from the WOM and ThingMagic acquisitions, which increased gross profit by $7.1 million. Visionmargin. Medical Solutions segment gross profit margin was 34.0%41.1% for the three months ended September 29, 2017,June 30, 2023, versus a gross profit margin of 39.1%40.5% for the prior year.year period. The increase in gross profit margin was primary attributable to improved factory efficiency.
Medical Solutions segment gross profit for the six months ended June 30, 2023increased $14.4 million, or 27.8%, versus the prior year period, primarily due to an increase in both revenue and gross profit margin. Medical Solutions segment gross profit margin was 41.1% for the six months ended June 30, 2023, versus a gross profit margin of 40.6% for the prior year period. The increase in gross profit margin was primary attributable to improved factory efficiency.
Robotics and Automation
Robotics and Automation segment gross profit for the three months ended June 30, 2023decreased $4.0 million, or 10.2%, versus the prior year period, primarily due to a decrease in revenue. Robotics and Automationsegment gross profit margin was 48.6% for the three months ended June 30, 2023, versus a gross profit margin of 48.4% for the prior year period.
Robotics and Automation segment gross profit for the six months ended June 30, 2023decreased $9.3 million, or 12.1%, versus the prior year period, primarily due to a decrease in both revenue and gross profit margin. Robotics and Automationsegment gross profit margin was 47.1% for the six months ended June 30, 2023, versus a gross profit margin of 48.2% for the prior year period. The
31
decrease in gross profit margin was primarily attributable to an increase in amortization of inventory fair value adjustments and amortization of developed technology of $4.7 million, which resulted in an 8.1 percentage pointinefficient factory utilization due to a decrease in gross profit margin, partially offset by changes in product mix.
Vision segment gross profit for the nine months ended September 29, 2017 increased $14.9 million, or 46.0%, versus the prior year. The increase was primarily attributable to an increase in revenue from the WOM, ThingMagic and Reach acquisitions, which increased gross profit by $9.1 million, and the discontinuation of our radiology products in January 2016. Vision segment gross profit margin was 37.9% for the nine months ended September 29, 2017, versus a gross profit margin of 36.6% for the prior year. The increase in gross profit margin was primarily attributable to changes in product mix, cost savings from prior year restructuring activities, and a $1.6 million chargedemand in the prior year relatedmicroelectronics market.
Unallocated Corporate and Shared Services
Unallocated corporate and shared services costs primarily represent costs of corporate and shared services functions that are not allocated to the discontinuation of our radiology products, which had a 2.7 percentage point unfavorable impact on gross profit margin for the nine months ended September 30, 2016. Gross profit margin in the nine months ended September 29, 2017 was negatively impacted by an increase in amortization of inventory fair value adjustments and amortization of developed technology of $5.0 million, which resulted in a 4.0 percentage point decrease in gross profit margin.
Precision Motion
Precision Motion segment gross profitoperating segments. These costs for the three months ended September 29, 2017 decreased $0.3June 30, 2023 increased$0.2 million or 2.8%, versus the prior year. Precision Motion segment gross profit margin was 39.2%year period.
Unallocated corporate and shared services costs for the threesix months ended September 29, 2017, versus a gross profit margin of 46.5% for the prior year. The decrease in gross profit margin was attributable to temporary supply chain transition challenges, which led to production inefficiencies and quality impacts.
Precision Motion segment gross profit for the nine months ended September 29, 2017 June 30, 2023increased $3.8$0.1 million or 12.4%, versus the prior year. The increase was primarily attributable to an increase in revenue. Precision Motion segment gross profit margin was 43.8% for the nine months ended September 29, 2017, versus a gross profit margin of 45.8% for the prior year. The decrease in gross profit margin was attributable to temporary supply chain transition challenges, which led to production inefficiencies and quality impacts.year period.
Operating Expenses
The following table sets forth operating expenses for the periods noted (in thousands):
| Three Months Ended |
|
| Six Months Ended |
| ||||||||||
| June 30, |
|
| July 1, |
|
| June 30, |
|
| July 1, |
| ||||
| 2023 |
|
| 2022 |
|
| 2023 |
|
| 2022 |
| ||||
Research and development and engineering | $ | 23,380 |
|
| $ | 21,588 |
|
| $ | 46,208 |
|
| $ | 42,517 |
|
Selling, general and administrative |
| 42,187 |
|
|
| 40,538 |
|
|
| 83,110 |
|
|
| 79,890 |
|
Amortization of purchased intangible assets |
| 5,124 |
|
|
| 7,173 |
|
|
| 10,213 |
|
|
| 14,515 |
|
Restructuring, acquisition, and related costs |
| 1,234 |
|
|
| 2,655 |
|
|
| 3,710 |
|
|
| 1,025 |
|
Total | $ | 71,925 |
|
| $ | 71,954 |
|
| $ | 143,241 |
|
| $ | 137,947 |
|
| Three Months Ended |
|
| Nine Months Ended |
| ||||||||||
| September 29, |
|
| September 30, |
|
| September 29, |
|
| September 30, |
| ||||
| 2017 |
|
| 2016 |
|
| 2017 |
|
| 2016 |
| ||||
Research and development and engineering | $ | 11,659 |
|
| $ | 7,961 |
|
| $ | 29,878 |
|
| $ | 24,029 |
|
Selling, general and administrative |
| 27,724 |
|
|
| 20,972 |
|
|
| 74,666 |
|
|
| 62,357 |
|
Amortization of purchased intangible assets |
| 3,217 |
|
|
| 2,066 |
|
|
| 9,413 |
|
|
| 6,153 |
|
Restructuring, acquisition and divestiture related costs |
| 3,834 |
|
|
| (835 | ) |
|
| 6,232 |
|
|
| 5,828 |
|
Total | $ | 46,434 |
|
| $ | 30,164 |
|
| $ | 120,189 |
|
| $ | 98,367 |
|
Research and Development and Engineering Expenses
Research and developmentDevelopment and engineeringEngineering (“R&D”) expenses are primarily comprised of employee compensation related expenses and cost of materials for R&D projects. R&D expenses were $11.7$23.4 million, or 8.0%10.2% of revenue, during the three months ended September 29, 2017,June 30, 2023, versus $8.0$21.6 million, or 8.1%10.0% of revenue, during the prior year.year period. R&D expenses increased in terms of total dollars and as a percentage of revenue, primarily due to R&Dhigher compensation related expenses from current year acquisitions.as a result of higher headcount.
R&D expenses were $29.9$46.2 million, or 8.0%10.3% of revenue, during the ninesix months ended SeptemberJune 30, 2017,2023, versus $24.0$42.5 million, or 8.4%10.1% of revenue, during the prior year.year period. R&D expenses increased in terms of total dollars and as a percentage of revenue, primarily due to R&Dhigher compensation related expenses from current and prior year acquisitions.as a result of higher headcount.
Selling, General and Administrative Expenses
Selling, general and administrative (“SG&A”) expenses include costs for sales and marketing, sales administration, finance, human resources, legal, information systems, and executive management functions. SG&A expenses were $27.7$42.2 million, or 19.0%18.4% of revenue, during the three months ended September 29, 2017,June 30, 2023, versus $21.0$40.5 million, or 21.4%18.8% of revenue, during the prior year.year period. SG&A expenses increased in terms of total dollars primarily due to current year acquisitionsincreases in compensation related expenses and higher variable compensation associated with the Company’s financial performance. These increases were partially offset by former CEO transition costs of $1.3 million incurred in the three months ended September 30, 2016 that were not incurred in the comparable period in 2017.discretionary spending.
SG&A expenses were $74.7$83.1 million, or 19.9%18.5% of revenue, during the ninesix months ended SeptemberJune 30, 2017,2023, versus $62.4$79.9 million, or 21.8%19.0% of revenue, during the prior year.year period. SG&A expenses increased in terms of total dollars primarily due to currentincreases in compensation related expenses and prior year acquisitions and higher variable compensation associated with the Company’s financial performance. These increases were partially offset by former CEO transition costs of $1.3 million incurred in the nine months ended September 30, 2016 that were not incurred in the comparable period in 2017.discretionary spending.
Amortization of Purchased Intangible Assets
Amortization of purchased intangible assets, excluding the amortization of developed technologies that is included in cost of revenue, was $3.2$5.1 million, or 2.2% of revenue, during the three months ended September 29, 2017,June 30, 2023, versus $2.1$7.2 million, or 2.1%3.3% of revenue, during the prior year.year period. The increase,decrease, in terms of total dollars and as a percentage of revenue, was the result of more acquired intangible assets from current year acquisitions.primarily due to certain intangibles being fully amortized in 2022.
Amortization of purchased intangible assets, excluding the amortization of developed technologies that is included in cost of revenue, was $9.4$10.2 million, or 2.5%2.3% of revenue, during the ninesix months ended SeptemberJune 30, 2017,2023, versus $6.2$14.5 million, or 2.2%3.5% of revenue, during the prior year.year period. The increase,decrease, in terms of total dollars and as a percentage of revenue, was the result of more acquired intangible assets from current and prior year acquisitions.primarily due to certain intangibles being fully amortized in 2022.
32
Restructuring, Acquisition, and Divestiture Related Costs (Gain)
We recorded restructuring, acquisition, and divestiture related costs (gain) of $3.8$1.2 million during the three months ended September 29, 2017,June 30, 2023, versus a gain of $0.8$2.7 million during the prior year. The increase in restructuring, acquisition and divestiture related costs versus the prior year was primarily due to an increase in acquisition related charges of $3.0 million mostly related to an investment banking success fee related to the acquisition of WOM. Restructuring, acquisition and divestiture related costs (gain) forperiod. During the three months ended September 30, 2016, included a $1.6July 1, 2022, the Company recognized $1.8 million gain fromincreases in the salefair value of our facility in Chatsworth, California.certain prior-year acquisition contingent considerations.
We recorded restructuring, acquisition, and divestiture related costs of $6.2$3.7 million during the ninesix months ended SeptemberJune 30, 2017,2023, versus $5.8$1.0 million during the prior year.year period. During the six months ended July 1, 2022, the Company recognized a $0.5 million net reduction in the fair value of certain prior-year acquisition contingent considerations. The increase in restructuring acquisition and divestiture related costs versus the prior year wasincreased $2.4 million primarily due to an increase in acquisition related charges, partially offset by a decrease in restructuring related charges as a result of the 2016increased expenses related to our restructuring program which was substantially completed in the prior year.plans.
Operating Income from Continuing Operations(Loss) by Segment
The following table sets forth operating income from continuing operations(loss) by segment for the periods noted (in thousands):
| Three Months Ended |
|
| Six Months Ended |
| ||||||||||
| June 30, |
|
| July 1, |
|
| June 30, |
|
| July 1, |
| ||||
| 2023 |
|
| 2022 |
|
| 2023 |
|
| 2022 |
| ||||
Operating Income (Loss) |
|
|
|
|
|
|
|
|
|
|
| ||||
Precision Medicine and Manufacturing | $ | 19,611 |
|
| $ | 13,996 |
|
| $ | 36,295 |
|
| $ | 27,431 |
|
Medical Solutions |
| 10,083 |
|
|
| 7,024 |
|
|
| 19,924 |
|
|
| 12,066 |
|
Robotics and Automation |
| 15,248 |
|
|
| 14,083 |
|
|
| 27,248 |
|
|
| 32,421 |
|
Unallocated Corporate and Shared Services |
| (12,744 | ) |
|
| (11,812 | ) |
|
| (24,957 | ) |
|
| (24,344 | ) |
Total | $ | 32,198 |
|
| $ | 23,291 |
|
| $ | 58,510 |
|
| $ | 47,574 |
|
Precision Medicine and Manufacturing
Three Months Ended |
|
| Nine Months Ended |
| |||||||||||
| September 29, |
|
| September 30, |
|
| September 29, |
|
| September 30, |
| ||||
| 2017 |
|
| 2016 |
|
| 2017 |
|
| 2016 |
| ||||
Operating Income (Loss) from Continuing Operations: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Photonics | $ | 15,233 |
|
| $ | 8,185 |
|
| $ | 35,746 |
|
| $ | 24,704 |
|
Vision |
| 846 |
|
|
| 2,307 |
|
|
| 4,893 |
|
|
| (4,164 | ) |
Precision Motion |
| 5,493 |
|
|
| 6,195 |
|
|
| 20,238 |
|
|
| 16,608 |
|
Unallocated Corporate and Shared Services |
| (9,299 | ) |
|
| (5,639 | ) |
|
| (22,776 | ) |
|
| (15,915 | ) |
Total | $ | 12,273 |
|
| $ | 11,048 |
|
| $ | 38,101 |
|
| $ | 21,233 |
|
PhotonicsPrecision Medicine and Manufacturing segment operating income from continuing operations was $15.2$19.6 million, or 24.6%26.4% of revenue, during the three months ended September 29, 2017,June 30, 2023, versus $8.2$14.0 million, or 18.8%20.1% of revenue, during the prior year.year period. The increase in operating income from continuing operations was primarily due to an increase in gross profit of $10.4$5.3 million and a decrease in R&D expenses of $0.8 million, partially offset by increasesan increase in operatingSG&A expenses related to the current year acquisition. Photonicsof $0.5 million.
Precision Medicine and Manufacturing segment operating income from continuing operations for the three months ended September 29, 2017 was negatively affected by a $1.8 million increase in amortization of intangible assets.
Photonics operating income from continuing operations was $35.7$36.3 million, or 21.0%25.2% of revenue, during the ninesix months ended September 29, 2017,June 30, 2023, versus $24.7$27.4 million, or 19.0%20.7% of revenue, during the prior year.year period. The increase in operating income from continuing operations was primarily due to an increase in gross profit of $20.0$11.3 million, partially offset by increasesan increase in operating expenses,restructuring, acquisition, and related to the current year acquisition. Photonicscosts of $2.1 million.
Medical Solutions
Medical Solutions segment operating income from continuing operations for the nine months ended September 29, 2017 was negatively affected by a $5.9 million increase in amortization of inventory fair value adjustments and amortization of intangible assets.
Vision
Vision operating income from continuing operations was $0.8$10.1 million, or 1.5%12.1% of revenue, during the three months ended September 29, 2017,June 30, 2023, versus $2.3$7.0 million, or 7.3%10.7% of revenue, during the prior year. Vision operating income from continuing operations for the three months ended September 29, 2017 was negatively affected by $6.7 million in amortization of inventory fair value adjustments and amortization of intangible assets, versus $1.9 million in amortization of inventory fair value adjustments and amortization of intangible assets during the prior year.
Vision operating income from continuing operations was $4.9 million, or 3.9% of revenue, during the nine months ended September 29, 2017, versus an operating loss of $4.2 million, or (4.7%) of revenue, during the prior year.year period. The increase in operating income from continuing operations was primarily due to an increase in gross profit of $14.9$7.7 million, and a decrease in restructuring charges of $3.2 million primarily related to our 2016 restructuring program, which was substantially completed in the prior year, partially offset by increasesan increase in other operatingR&D expenses related to current year acquisitions. Visionof $3.0 million and an increase in SG&A expenses of $1.9 million.
Medical Solutions segment operating income from continuing operations for the nine months ended September 29, 2017 was negatively affected by $10.7 million in amortization of inventory fair value adjustments and amortization of intangible assets, versus $5.7 million in amortization of inventory fair value adjustments and amortization of intangible assets during the prior year. Vision operating income from continuing operations for the nine months ended September 30, 2016 was positively affected by a $1.6 million gain from the sale of our facility in Chatsworth, California.
Precision Motion
Precision Motion operating income from continuing operations was $5.5$19.9 million, or 20.9%12.4% of revenue, during the threesix months ended September 29, 2017,June 30, 2023, versus $6.2$12.1 million, or 27.2%9.5% of revenue, during the prior year. The decrease in operating income from continuing operations was primarily due to a decrease in gross profit of $0.3 million.
Precision Motion operating income from continuing operations was $20.2 million, or 25.6% of revenue, during the nine months ended September 29, 2017, versus $16.6 million, or 24.7% of revenue, during the prior year.year period. The increase in operating income from continuing operations was primarily due to an increase in gross profit of $3.8$14.4 million and a decrease in amortization expense of $0.6 million, partially offset by an increase in R&D expenses of $4.3 million and an increase in SG&A expenses of $2.8 million.
Robotics and Automation
Robotics and Automation segment operating income was $15.2 million, or 21.2% of revenue, during the three months ended June 30, 2023, versus $14.1 million, or 17.5% of revenue, during the prior year period. The increase in operating income was primarily due to a decrease in amortization expense of $1.7 million due to certain intangible assets being fully amortized in 2022, a decrease in restructuring, acquisition, and related costs of $1.6 million, and a decrease in SG&A expenses of $1.6 million, partially offset by a decrease in gross profit of $4.0 million.
Robotics and Automation segment operating income was $27.2 million, or 19.0% of revenue, during the six months ended June 30, 2023, versus $32.4 million, or 20.3% of revenue, during the prior year period. The decrease in operating income was primarily due
33
to a decrease in gross profit of $9.3 million, partially offset by a decrease in amortization expense of $3.5 million due to certain intangible assets being fully amortized in 2022 and a decrease in SG&A expenses of $0.6 million.
Unallocated Corporate and Shared Services
Unallocated corporate and shared services costs primarily represent costs of corporate and shared services functions that are not allocated to the operating segments, including certain restructuring and most acquisition related costs. These costs for the three months ended September 29, 2017 June 30, 2023increased by $3.7$0.9 million versus the prior year primarily due to an increase in restructuringperiod.
Unallocated corporate and acquisition related costs of $2.6 million. Theseshared services costs for the ninesix months ended September 29, 2017June 30, 2023 increased by $6.9$0.6 million versus the prior year primarily due to an increase in restructuring and acquisition related costs of $3.3 million and an increase in SG&A expenses of $3.6 million as a result of higher variable compensation associated with the Company’s financial performance and an increase in professional services costs.period.
Other Income and Expense Items
The following table sets forth other income and expense items for the periods noted (in thousands):
| Three Months Ended |
|
| Six Months Ended |
| ||||||||||
| June 30, |
|
| July 1, |
|
| June 30, |
|
| July 1, |
| ||||
| 2023 |
|
| 2022 |
|
| 2023 |
|
| 2022 |
| ||||
Interest income (expense), net | $ | (6,810 | ) |
| $ | (2,757 | ) |
| $ | (13,142 | ) |
| $ | (5,866 | ) |
Foreign exchange transaction gains (losses), net | $ | 74 |
|
| $ | 152 |
|
| $ | (3 | ) |
| $ | 221 |
|
Other income (expense), net | $ | (191 | ) |
| $ | 68 |
|
| $ | (357 | ) |
| $ | (477 | ) |
| Three Months Ended |
|
| Nine Months Ended |
| ||||||||||
| September 29, |
|
| September 30, |
|
| September 29, |
|
| September 30, |
| ||||
| 2017 |
|
| 2016 |
|
| 2017 |
|
| 2016 |
| ||||
Interest income (expense), net | $ | (2,111 | ) |
| $ | (1,081 | ) |
| $ | (4,874 | ) |
| $ | (3,471 | ) |
Foreign exchange transaction gains (losses), net |
| (661 | ) |
|
| 188 |
|
|
| (176 | ) |
|
| 978 |
|
Other income (expense), net |
| (4 | ) |
|
| 686 |
|
|
| 104 |
|
|
| 1,699 |
|
Gain on acquisition of business |
| — |
|
|
| — |
|
|
| 26,409 |
|
|
| — |
|
Interest Income (Expense), Net
Net interest expense was $2.1$6.8 million for the three months ended September 29, 2017,June 30, 2023, versus $1.1$2.8 million infor the prior year.year period. The increase in net interest expense from the prior year was primarily due to an increase in the weighted average debt levels as a result of current year acquisitions.interest rate on our senior credit facilities. The weighted average interest rate on our senior credit facilities was 3.10%6.14% during the three months ended September 29, 2017,June 30, 2023, versus 3.52%2.29% during the three months ended September 30, 2016.prior year period.
Net interest expense was $4.9$13.1 million for the ninesix months ended September 29, 2017,June 30, 2023, versus $3.5$5.9 million infor the prior year.year period. The increase in net interest expense from the prior year was primarily due to an increase in the weighted average debt levels as a result of current year acquisitions.interest rate on our senior credit facilities. The weighted average interest rate on our senior credit facilities was 3.41%5.84% during the ninesix months ended September 29, 2017,June 30, 2023, versus 3.49%2.39% during the nine months ended September 30, 2016.prior year period.
Foreign Exchange Transaction Gains (Losses), Net
Foreign exchange transaction gains (losses), net, were $0.7 million net lossesnominal for both the three and six months ended September 29, 2017, versus $0.2 million net gains forJune 30, 2023 and the prior year. The decrease was due to changes in the value of the U.S. Dollar against the British Pound, Eurothree and Japanese Yen.
Foreign exchange transaction gains (losses), net, were $0.2 million net losses for the ninesix months ended September 29, 2017, versus $1.0 million net gains for the prior year. The decrease was due to changes in the value of the U.S. Dollar against the British Pound, Euro and Japanese Yen.July 1, 2022.
Other Income (Expense), Net
Other incomeNet other expense was nominal and $0.1 million for both the three and ninesix months ended September 29, 2017, respectively, versus $0.7June 30, 2023 and $1.7 million for the three and ninesix months ended September 30, 2016, respectively. The decrease in other income was primarily due to earnings from our equity-method investment in Laser Quantum reported in other income (expense) in the prior year. In January 2017, the Company acquired an additional approximately 35% of the outstanding shares of Laser Quantum. As a result of this acquisition, earnings from Laser Quantum are consolidated in the Company’s consolidated financial statements for the three and nine months ended September 29, 2017.July 1, 2022.
Gain on Acquisition of BusinessIncome Tax Provision (Benefit)
The gain on acquisition of business during the nine months ended September 29, 2017 was related to a nontaxable gain of $26.4 million recognized as a result of the Laser Quantum acquisition in January 2017.
Income Taxes
TheOur effective tax rate for the three months ended September 29, 2017June 30, 2023 was 11.9%17.4%, versus 31.1%15.8% for the prior year.year period. Our effective tax rate on income from continuing operations of 11.9%17.4% for the three months ended September 29, 2017June 30, 2023 differs from the Canadian statutory tax rate of 29.0% primarily due to the mix of income earned in jurisdictions with varying tax rates, losses in jurisdictions with a full valuation allowance, recognition of netestimated deductions for Foreign Derived Intangible Income, U.K. patent box deductions and R&D tax benefits associated withcredits, partially offset by disallowed compensation deductions and uncertain tax positions upon expiration of statute of limitations and conclusion of income tax audits, and other discrete items for the period.position accruals.
The effective tax rate for the nine months ended September 29, 2017 was 11.6%, versus 30.3% for the prior year. Our effective tax rate on income from continuing operations of 11.6%15.8% for the ninethree months ended September 29, 2017July 1, 2022 differs from the Canadian statutory tax rate of 29.0% primarily due to the mix of income earned in jurisdictions with varying tax rates, losses in jurisdictions with a full
valuation allowance, the impact associated with establishing control over Laser Quantum upon the acquisition of an additional 35% of Laser Quantum’s outstanding shares, recognition of netestimated deductions for Foreign Derived Intangible Income, U.K. patent box deductions, R&D tax benefits associated withcredits, partially offset by disallowed compensation deductions and uncertain tax positions upon expiration of statute of limitations and conclusion of income tax audits, and other discrete items for the period. We reported a nontaxable gain of $26.4 million on our previously-held Laser Quantum equity interest and wrote off $1.5 million of Laser Quantum related deferred tax liability, which had a combined 13.7% favorable impact on ourposition accruals.
Our effective tax rate for the ninesix months ended September 29, 2017.June 30, 2023, was 13.0%, versus 12.4% for the prior year period. Our effective tax rate of 13.0% for the six months ended June 30, 2023 differs from the Canadian statutory tax rate of 29.0% primarily due to the
34
mix of income earned in jurisdictions with varying tax rates, estimated deductions for Foreign Derived Intangible Income, U.K. patent box deductions, R&D tax credits and tax benefits upon vesting of certain share-based compensation awards, partially offset by disallowed compensation deductions and uncertain tax position accruals. For the six months ended June 30, 2023, the tax benefits upon vesting of certain stock-based compensation awards had a benefit of 4.0% on our effective tax rate.
Our effective tax rate of 12.4% for the six months ended July 1, 2022 differs from the Canadian statutory tax rate of 29.0% primarily due to the mix of income earned in jurisdictions with varying tax rates, estimated deductions for Foreign Derived Intangible Income, U.K. patent box deductions, R&D tax credits and windfall tax benefits upon vesting of certain share-based compensation awards, partially offset by disallowed compensation deductions and uncertain tax position accruals. For the six months ended July 1, 2022, the windfall tax benefits upon vesting of certain stock-based compensation awards had a benefit of 1.4% on our effective tax rate.
On December 12, 2022, the EU member states agreed to implement the Organization for Economic Co-operation and Development’s (“OECD”) Pillar Two Model Rules to be effective as of January 2024. These rules will impose a global corporate minimum income tax rate of 15%. Other countries are also actively considering changes to their tax laws to adopt certain parts of the OECD’s proposals. The OECD continues to release additional guidance on these rules. The Company is analyzing the potential impact and will continue to monitor the related developments.
Liquidity and Capital Resources
We assess our liquidity in terms of our ability to generate cash to fund our operating, investing, and financing activities. Our primary ongoing cash requirements are funding operations, capital expenditures, investments in businesses, and repayment of our debt and related interest payments. Our primary sources of liquidity are cash flows from operations and borrowings under our revolving credit facility. We believe our future operating cash flows will be sufficient to meet our future operating and capital expenditure cash needs for the foreseeable future, including at least the next 12 months. The availability of borrowingsborrowing capacity under our revolving credit facility provides an additionalanother potential source of liquidity for acquisitions.any future capital expenditures and other liquidity needs. In addition, we have the ability to expand our borrowing capacity by up to $350.0 million by exercising the accordion option under our revolving credit agreement. We may also seek to raise additional capital, which could be in the form of bonds, convertible debt or preferred or common equity, to fund major business development activities or other future investing cash requirements, subject to approval by the lenders in the SecondThird Amended and Restated Credit Agreement.Agreement (as amended, the “Credit Agreement”). There is no assurance that such capital will be available on reasonable terms or at all.
Significant factors affecting the management of our ongoing cash requirements are the adequacy of available bank lines of credit and our ability to attract long term capital with satisfactory terms. The sources of our liquidity are subject to all of the risks of our business and could be adversely affected by, among other factors, risks associated with events outside of our control, such as economic consequences of global pandemics and geo-political conflicts, monetary policy changes in the U.S. and other countries and their impact on the global financial markets, supply chain disruptions and electronics and other material shortages, a decrease in demand for our products, our ability to integrate current and future acquisitions, deterioration in certain financial ratios, availability of borrowings under our revolving credit facility, and other market changes in general. See “Risks Relating to Our Common Shares and Our Capital Structure” included in Item 1A of our Annual Report on Form 10-K for the fiscal year ended December 31, 2016.2022.
Our ability to makecash requirements primarily consist of principal and interest payments on our indebtedness and to fund our operations may be dependent upon the earnings and the distribution of funds from our subsidiaries. Local laws and regulations and/or the terms of our indebtedness restrict certain of our subsidiaries from paying dividends and transferring assets to us. We cannot assure you that applicable laws and regulations and/or the terms of our indebtedness will permit our subsidiaries to provide usassociated with sufficient dividends, distributions or loans when necessary.
In October 2013, the Company’s Board of Directors authorized a share repurchase plan under which the Company may repurchase outstanding shares of the Company’s common stock up to an aggregate amount of $10.0 million. The shares may be repurchased from time to time, at the Company’s discretion, based on ongoing assessment of the capital needs of the business, the market price of the Company’s common stock, and general market conditions. Shares may also be repurchased through an accelerated stock purchase agreement, on the open market or in privately negotiated transactions in accordance with applicable federal securities laws. Repurchases may be made under certain SEC regulations, which would permit common stock to be purchased when the Company would otherwise be prohibited from doing so under insider trading laws. The share repurchase plan does not obligate the Company to acquire any particular amount of common stock. No time limit was set for the completion of the share repurchase program, and the program may be suspended or discontinued at any time. The Company expects to fund share repurchases through cash on hand and future cash flows from operations. As of December 31, 2016, the Company had repurchased 282 thousand shares for an aggregate purchase price of $3.8 million at an average price of $13.43 per share. During the nine months ended September 29, 2017, the Company repurchased 14 thousand shares in the open market for an aggregate purchase price of $0.4 million at an average price of $26.41 per share.
As of September 29, 2017, $67.0 million of our $92.1 million cash and cash equivalents was held by subsidiaries outside of Canada and the United States. Generally, our intent is to use cash held in these foreign subsidiaries to fund our local operations or acquisitions by those local subsidiaries and to pay down borrowings under our revolving credit facility. Approximately 58.4% of our outstanding borrowings under our Senior Credit Facilities (defined below) was held in our subsidiaries outside of Canada and the United States. In certain instances, we have identified excess cash for which we may repatriate and we have established deferred tax liabilities for the expected tax cost. Additionally, we may use intercompany loans to address short-term cash flow needs for various subsidiaries.
Second Amended and Restated Credit Agreement
In May 2016, we entered into the second amended and restated senior secured credit agreement (the “Second Amended and Restated Credit Agreement”), consisting of a $75.0 million, 5-year term loan facility and a $225.0 million, 5-year revolving credit facility (collectively, the “Senior Credit Facilities”). The Senior Credit Facilities mature in May 2021. In August 2017, we entered into a third amendment (the “Third amendment”) to the Second Amended and Restated Credit Agreement. The Third Amendment increased the revolving credit facility commitment by $100 million from $225 million to $325 million and reset the accordion feature
to $125 million for future expansion. Additionally, the Third Amendment increased the term loan balance from $65.6 million to $90.6 million.
As of September 29, 2017, we had term loans of $90.6 million and revolving loans of $156.1 million outstanding under the Second Amended and Restated Credit Agreement.
The Second Amended and Restated Credit Agreement contains various covenants that we believe are usual and customary for this type of agreement, including a maximum allowed leverage ratio, and a minimum required fixed charge coverage ratio (as defined in the Second Amended and Restated Credit Agreement). The following table summarizes these financial covenant requirements and our compliance as of September 29, 2017:
| Requirement |
|
| Actual |
| ||
Maximum consolidated leverage ratio |
| 3.00 |
|
|
| 2.35 |
|
Minimum consolidated fixed charge coverage ratio |
| 1.50 |
|
|
| 5.56 |
|
Cash Flows for the Nine Months Ended September 29, 2017 and September 30, 2016
The following table summarizes our cash flows from continuing operations, cash and cash equivalent balances and unused and available funds under our revolving credit facility for the periods indicated (in thousands):
| Nine Months Ended |
| |||||
| September 29, 2017 |
|
| September 30, 2016 |
| ||
Net cash provided by operating activities of continuing operations | $ | 41,287 |
|
| $ | 34,707 |
|
Net cash used in investing activities of continuing operations | $ | (174,790 | ) |
| $ | (8,920 | ) |
Net cash provided by (used in) financing activities of continuing operations | $ | 155,098 |
|
| $ | (21,130 | ) |
| September 29, 2017 |
|
| December 31, 2016 |
| ||
Cash and cash equivalents | $ | 92,149 |
|
| $ | 68,108 |
|
Unused and available funds under revolving credit facility | $ | 168,931 |
|
| $ | 215,000 |
|
Our cash flows for the nine months ended September 29, 2017 were not affected by the $11.3 million redemption value adjustment to the carrying value of Laser Quantum redeemable noncontrolling interest because it was non-cash and was not reported in our consolidated statement of operations.
Operating Cash Flows
Cash provided by operating activities of continuing operations was $41.3 million for the nine months ended September 29, 2017, versus $34.7 million for the prior year. Cash provided by operating activities of continuing operations for the nine months ended September 30, 2017 increased from the prior year primarily due to the increase in income from continuing operations.
Cash provided by operating activities of continuing operations for the nine months ended September 29, 2017 was positively impacted by an increase in our outstanding payables and accrued expenses. Cash provided by operating activities of continuing operations was negatively impacted by an increase in outstanding trade receivables and an increase in inventories, excluding trade receivables and inventories acquired from current year acquisitions, and an increase in income tax payments.
Cash provided by operating activities of continuing operations for the nine months ended September 30, 2016 was positively impacted by an increase in our days payables outstanding which increased from 41 days at December 31, 2015 to 45 days at September 30, 2016 and by a decrease in inventories, excluding inventories acquired from the Reach acquisition, as our inventory turnover ratio increased from 3.6 at December 31, 2015 to 3.8 at September 30, 2016.
Investing Cash Flows
Cash used in investing activities of continuing operations was $174.8 million for the nine months ended September 29, 2017, primarily driven by our acquisitions of WOM, ThingMagic and Laser Quantum. In connection with these acquisitions, we paid $185.0 million in cash considerations, which is reported in the consolidated statement of cash flows as $168.3 million cash outflows from investing activities (net of cash acquired of $16.7 million and working capital adjustments) for the nine months ended September 29, 2017. We also paid $6.5 million for capital expenditures during the nine months ended September 29, 2017.
Cash used in investing activities of continuing operations was $8.9 million for the nine months ended September 30, 2016, primarily related to $9.4 million cash consideration paid for the Reach acquisition in May 2016 and $7.0 million in capital expenditures, partially offset by $3.6 million in net cash consideration received from the sale of our Orlando, Florida facility in March 2016, $3.4 million in net cash consideration received from the sale of our Chatsworth, California facility in August 2016, and $0.4 million proceeds received from the finalization of the Lincoln Laser acquisition working capital adjustments.
Cash provided by investing activities of discontinued operations for the nine months ended September 30, 2016 was related to $1.5 million cash proceeds released from the escrow for our Scientific Lasers divestiture.
Financing Cash Flows
Cash provided by financing activities of continuing operations was $155.1 million for the nine months ended September 29, 2017, primarily due to $176.8 million of borrowings under our revolving credit facility used to fund a portion of the cash considerations paid for the WOM, ThingMagic and Laser Quantum acquisitions, partially offset by $5.6 million of contractual term loan payments, $10.0 million of optional repayments of borrowings under our revolving credit facility, $2.5 million of contingent consideration payments, $1.8 million of payroll tax payments on stock-based compensation awards, $0.4 million of repurchase of the Company’s common shares and $0.6 million of principal payments under our capital lease obligations. We also paid $0.6 million for debt issuance costs as a result of the Third Amendment to the Second Amended and Restated Credit Agreement entered into in August 2017.
Cash used in financing activities of continuing operations was $21.1 million for the nine months ended September 30, 2016, consisting of $5.6 million of contractual term loan payments, $8.8 million of optional repayments of borrowings under our revolving credit facility, $1.7 million of payroll tax payments on stock-based compensation awards, $1.6 million for the repurchase of the Company’s common shares, and $0.9 million of principal payments under our capital lease obligations. We also paid $2.5 million for debt issuance costs as a result of the Second Amended and Restated Credit Agreement signed in May 2016.
Off-Balance Sheet Arrangements, Contractual Obligations
Contractual Obligations
Our contractual obligations primarily consist of the principal and interest associated with our debt,below), operating and capitalfinance leases, purchase commitments, and pension obligations. Such contractual obligations are described in our Management’s Discussion and Analysis of Financial Condition and Results of Operations and in the Notes to Consolidated Financial Statements, each included in our Annual Report on Form 10-K for the fiscal year ended December 31, 2016. Excluding leases and purchase commitments in the ordinary course of business acquired as a result of the WOM acquisition and the signing of the Third Amendment to the Second Amended and Restated Credit Agreement, through September 29, 2017,2022. Through June 30, 2023, we have not entered into any other material new or modified contractual obligations since the end of the fiscal year ended December 31, 2016.2022.
Our ability to make payments on our indebtedness and to fund our operations may be dependent upon the operating income and the distribution of funds from our subsidiaries. However, as local laws and regulations and/or the terms of our indebtedness restrict certain of our subsidiaries from paying dividends and transferring assets to us, there is no assurance that our subsidiaries will be permitted to provide us with sufficient dividends, distributions or loans when necessary.
As of June 30, 2023, $51.2 million of our $91.3 million cash and cash equivalents was held by subsidiaries outside of Canada and the U.S.Generally, our intent is to use cash held in these foreign subsidiaries to fund our local operations or acquisitions by those local subsidiaries and to pay down borrowings under our Senior Credit Facilities. Approximately $135.8 million of our outstanding term loan and revolver borrowings under our Senior Credit Facilities were held in our subsidiaries outside of Canada and the U.S. Additionally, we may use intercompany loans to address short-term cash flow needs for various subsidiaries.
35
Senior Credit Facilities
In August 2017,December 2019, we entered into the Third Amendment to the Second Amended and Restated Credit Agreement.Agreement, originally consisting of a $100.0 million U.S. dollar equivalent euro-denominated (approximately €90.2 million) 5-year term loan facility and a $350.0 million 5-year revolving credit facility (collectively, the “Senior Credit Facilities”). The ThirdSenior Credit Facilities had an original maturity date of December 2024and included an uncommitted accordion option pursuant to which the commitments under the revolving credit facility may be increased by an additional $200.0 million in aggregate, subject to certain customary conditions. The term loan facility requires quarterly scheduled principal repayments of approximately €1.1 million beginning in March 2020 with the remaining principal balance due upon maturity.We may make additional principal payments at any time, which will reduce the next quarterly installment payment due. We may pay down outstanding borrowings under our revolving credit facility with cash on hand and cash generated from future operations at any time.
On March 27, 2020, we entered into an amendment (the “First Amendment”) to the Credit Agreementand exercised a portion of the uncommitted accordion option. The First Amendment increased the revolving credit facility commitment under the Second Amended and Restated Credit Agreement by $100$145.0 million, from $225$350.0 million to $325$495.0 million, and reset the uncommitted accordion featureoption to $125$200.0 million for potential future expansion. Additionally,
On October 5, 2021, the ThirdCompany entered into an amendment (the “Fourth Amendment”) to the Credit Agreement to exercise the accordion option. The Fourth Amendment increased the revolving credit facility commitment under the Credit Agreement by $200.0 million, from $495.0 million to $695.0 million, and reset the uncommitted accordion option to $200.0 million for potential future expansion.
On March 10, 2022, the Company entered into an amendment (the “Fifth Amendment”) to the Credit Agreement to extend the maturity date thereof from December 31, 2024 to March 10, 2027, update the pricing grid, replace LIBOR with SOFR as the reference rate for U.S. dollar borrowings, and increase the uncommitted accordion option from $200 million to $350 million.
As of June 30, 2023, we had $81.2 million term loan balance from $65.6and $331.6 million revolver borrowings outstanding under our Senior Credit Facilities. The borrowings outstanding under the Senior Credit Facilities bear interest at rates based on (a) the Base Rate, as defined in the Credit Agreement, plus a margin ranging between 0.00% and 0.75% per annum, determined by reference to $90.6 million.our consolidated leverage ratio, or (b) the Term SOFR Loans, Alternative Currency Loans, and Letters of Credit Rate, as defined in the Credit Agreement, plus a margin ranging between 0.75% and 1.75% per annum, determined by reference to our consolidated leverage ratio. In addition, we are obligated to pay a commitment fee on the unused portion of the revolving credit facility, ranging between 0.20% and 0.30% per annum, determined by reference to our consolidated leverage ratio. As of June 30, 2023, we had outstanding borrowings under the Credit Agreement denominated in Euro and U.S. Dollars of $135.8 million and $277.0 million, respectively.
The Credit Agreement contains various covenants that we believe are usual and customary for this type of agreement, including a maximum consolidated leverage ratio and a minimum consolidated fixed charge coverage ratio (as defined in the Credit Agreement). The following table summarizes contractual obligationsthese financial covenants and our compliance therewith as of June 30, 2023:
| Requirement |
| Actual |
Maximum consolidated leverage ratio (1) | 3.50 |
| 2.00 |
Minimum consolidated fixed charge coverage ratio | 1.50 |
| 5.63 |
Share Repurchase Plans
Our Board of Directors may approve share repurchase plans from time to time. Under these repurchase plans, shares may be repurchased at September 29, 2017our discretion based on ongoing assessment of the capital needs of the business, the market price of our common shares, and general market conditions. Shares may also be repurchased through an accelerated share purchase agreement, on the open market or in privately negotiated transactions in accordance with applicable federal securities laws. Repurchases may be made under certain SEC regulations, which would permit common shares to be repurchased when we would otherwise be prohibited from doing so under insider trading laws. While the share repurchase plans are generally intended to offset dilution from equity awards granted to our employees and directors, the plans do not obligate us to acquire any particular amount of common shares. No time limit is typically set for the completion of the share repurchase plans, and the plans may be suspended or discontinued at any time. We expect to fund share repurchases through cash on hand and cash generated from operations.
In February 2020, our Board of Directors approved a new share repurchase plan (the “2020 Repurchase Plan”) authorizing the repurchase of $50.0 million worth of common shares. Share repurchases have been made under the 2020 Repurchase Plan pursuant to
36
Rule 10b-18 under the Securities Exchange Act of 1934. The Company did not repurchase any shares during the six months ended June 30, 2023. As of June 30, 2023, we had $49.5 million available for share repurchases under the 2020 Repurchase Plan.
Cash Flows for the Six Months Ended June 30, 2023 and July 1, 2022
The following table summarizes our cash flows, cash and cash equivalents, and unused and available funds under our revolving credit facility for the periods indicated (in thousands):
| Six Months Ended |
| |||||
| June 30, |
|
| July 1, |
| ||
| 2023 |
|
| 2022 |
| ||
Net cash provided by operating activities | $ | 36,442 |
|
| $ | 35,408 |
|
Net cash used in investing activities | $ | (6,946 | ) |
| $ | (12,616 | ) |
Net cash used in financing activities | $ | (40,819 | ) |
| $ | (35,473 | ) |
|
|
|
|
|
| ||
| June 30, |
|
| December 31, |
| ||
| 2023 |
|
| 2022 |
| ||
Cash and cash equivalents | $ | 91,330 |
|
| $ | 100,105 |
|
Unused and available funds under the revolving credit facility | $ | 363,415 |
|
| $ | 336,587 |
|
Operating Cash Flows
Cash provided by operating activities was $36.4 million for the six months ended June 30, 2023, versus $35.4 million for the prior year period. Cash provided by operating activities for the six months ended June 30, 2023 increased from the prior year period primarily due to higher operating income and less cash outflow from net working capital, partially offset by higher income tax payment, higher interest payments, and higher incentive compensation payments.
Investing Cash Flows
Cash used in investing activities was $6.9 million for the six months ended June 30, 2023, all related to capital expenditures.
Cash used in investing activities was $12.6 million for the Senior Credit Facilitiessix months ended July 1, 2022, primarily driven by capital expenditures of $12.1 million and WOM (in thousands):a contingent consideration payment of $1.5 million related to our 2016 asset acquisition of video signal processing and management technologies.
Contractual Obligations |
| Total |
|
| 2017 (remainder of year) |
|
| 2018 - 2019 |
|
| 2020 - 2021 |
|
| Thereafter |
| |||||
Senior Credit Facilities (1) |
| $ | 246,694 |
|
| $ | 2,300 |
|
| $ | 18,400 |
|
| $ | 225,994 |
|
| $ | — |
|
Interest on Senior Credit Facilities (2) |
|
| 22,403 |
|
|
| 1,690 |
|
|
| 12,834 |
|
|
| 7,879 |
|
|
| — |
|
Capital leases |
|
| 335 |
|
|
| 40 |
|
|
| 220 |
|
|
| 75 |
|
|
| — |
|
Operating leases (3) |
|
| 16,313 |
|
|
| 573 |
|
|
| 4,400 |
|
|
| 4,133 |
|
|
| 7,207 |
|
Purchase commitments (4) |
|
| 20,517 |
|
|
| 13,295 |
|
|
| 7,222 |
|
|
| — |
|
|
| — |
|
Total contractual cash obligations |
| $ | 306,262 |
|
| $ | 17,898 |
|
| $ | 43,076 |
|
| $ | 238,081 |
|
| $ | 7,207 |
|
|
|
|
|
|
|
|
|
Off-Balance Sheet ArrangementsWe expect to use an aggregate of approximately $25 million to $30 million in 2023 for capital expenditures related to investments in new property, plant and equipment for our existing businesses, which includes a significant one-time buildout project in the U.K. for our Solid State and Ultrafast Lasers products.
Through September 29, 2017, we have not entered into any other off-balance sheet arrangements or material transactionsFinancing Cash Flows
Cash used in financing activities was $40.8 million for the six months ended June 30, 2023, primarily due to $30.5 million of term loan and revolving credit facility repayments and $10.0 million of payroll tax payments upon vesting of share-based compensation awards.
Cash used in financing activities was $35.5 million for the six months ended July 1, 2022, primarily due to $10 million of repurchases of common stock, $9.5 million of payroll tax payments upon vesting of share-based compensation awards, $12.8 million of term loan and revolving credit facility repayments, and $2.5 million of debt issuance costs in connection with any unconsolidated entities or other persons.the Fifth Amendment.
Critical Accounting Policies and Estimates
The critical accounting policies that we believe impact significant judgments and estimates used in the preparation of our consolidated financial statements presented in this periodic report on Form 10-Q are described in our Management’s Discussion and Analysis of Financial Condition and Results of Operations and in the Notes to Consolidated Financial Statements, each included in our Annual Report on Form 10-K for the fiscal year ended December 31, 2016.2022. There have been no material changes to our critical accounting policies and estimates through September 29, 2017June 30, 2023 from those discusseddisclosed in our Annual Report on Form 10-K for the fiscal year ended December 31, 2016.2022.
37
Recent Accounting Pronouncements
See Note 1 to Consolidated Financial Statements.None.
Item 3. Quantitative and Qualitative Disclosures aboutAbout Market Risk
Our primary market risk exposures are foreign currency exchange rate fluctuations and interest rate sensitivity. During the three months ended September 29, 2017,June 30, 2023, there have been no material changes to the information included under Part II, Item 7A, “Quantitative and Qualitative Disclosures About Market Risk,” in our Annual Report on Form 10-K for the fiscal year ended December 31, 2016.2022.
Item 4. Controls and Procedures
Evaluation of Disclosure Controls and Procedures
As required by Rule 13a-15(b) under the Securities and Exchange Act of 1934 (the “Exchange Act”), our management carried out an evaluation, with the participation of our Chief Executive Officer and Chief Financial Officer, of the effectiveness of our disclosure controls and procedures (as defined in Rule 13a-15(e) of the Exchange Act) as of September 29, 2017,June 30, 2023, the end of the period covered by this report. Based upon this evaluation, our Chief Executive Officer and Chief Financial Officer have concluded that our disclosure controls and procedures were effective as of September 29, 2017.June 30, 2023.
Changes in Internal Control overOver Financial Reporting
There has been no change into our internal control over financial reporting that occurred during the fiscal quarter ended September 29, 2017June 30, 2023 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
38
The Company is subject to various legal proceedings and claims that arise in the ordinary course of business. The Company does not believe that the outcome of these claims will have a material adverse effect upon its financial condition or results of operations but there can be no assurance that any such claims, or any similar claims, would not have a material adverse effect upon its financial condition or results of operations.
The Company’s risk factors are described in Part I, Item 1A, “Risk Factors”, of the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2016. There have been no material changes2022. The risks described in the risks affecting the Company since the filing of suchour Annual Report on Form 10-K.10-K for the fiscal year ended December 31, 2022 are not the only risks we face. Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial also may materially adversely affect our business, financial position, or future results of operations. The risk factors set forth below update, and should be read together with, the risk factors described in our Annual Report on Form 10-K for the fiscal year ended December 31, 2022.
Our results of operations could be adversely affected by economic and political conditions and the effects of these conditions on our customers’ businesses, capital expenditures and levels of business activities.
A large portion of our product sales are dependent on our customers’ need for increased capacity, productivity and cost saving initiatives, improved product quality and performance, and new investments. Weaknesses in our end markets could negatively impact our revenue and gross margin and consequently have a material adverse effect on our business, financial condition and results of operations. A severe and/or prolonged overall economic downturn or a negative or uncertain political climate could lead to weaknesses in our end markets and adversely affect our customers’ financial condition and the timing or levels of our customers’ capital expenditures or business activities. We have experienced significant cyclical end market fluctuations in the past. For example, diminished growth expectations, economic and political uncertainty in regions across the globe and effects of the COVID-19 pandemic adversely impacted our customers’ financial condition and ability to maintain product order levels and reduced the demand for our products in 2020. In addition, certain sub-segments of the advanced industrial market that we serve, including the microelectronics and industrial capital equipment sectors, are cyclical and have historically experienced periods of oversupply, resulting in downturns in demand for capital equipment in which many of our products are used. It is difficult to predict the timing, length and severity of these downturns and their impact on our business. Further, our order levels or results of operations for a given period may not be indicative of order levels or results of operations for subsequent periods. For the foreseeable future, our operations will continue to depend upon industries that are subject to market cycles which, in turn, could adversely affect the market demand for our products.
We have also faced increases in inflationary conditions in materials and components as well as labor costs, and we expect these inflationary conditions to continue at least for the remainder of 2023. These inflationary conditions have caused us to increase prices; however, such price increases may not be accepted by our customers or may not adequately offset the increases in our costs, thereby negatively affecting our results of operations. Changes in global economic conditions, including inflationary conditions, could also shift market demand to products or services for which we do not have competitive advantages. This could negatively affect the amount of business that we are able to obtain. In addition, if we are unable to successfully anticipate changes in economic and political conditions, we may be unable to effectively plan for and respond to those changes, and our business could be negatively affected.
Adverse developments that affect financial institutions, transactional counterparties, or other third parties, or concerns or rumors about these events, have in the past and may in the future lead to market-wide liquidity problems. Uncertainty may remain over liquidity concerns in the broader financial services industry, and there may be unpredictable impacts to our business and our industry.
Item 2. Unregistered Sales of Equity Securities, and Use of Proceeds, and Issuer Purchases of Equity Securities
None.None
Item 3. Defaults Upon Senior Securities
None.
39
Item 4. Mine Safety Disclosures
None.
Rule 10b5-1 Trading Plans
None.The adoption or termination of contracts, instructions or written plans for the purchase or sale of our securities by our Section 16 officers and directors during the three months ended June 30, 2023, each of which is intended to satisfy the affirmative defense conditions of Rule 10b5-1(c) under the Exchange Act (“Rule 10b5-1 Plan”), are summarized below.
Name | Title | Action | Date | Total Shares to Be Sold | Expiration Date | |||||
Matthijs Glastra(1) | Chair of the Board of Directors and Chief Executive Officer | Adoption | June 14, 2023 | 20,000 | October 2, 2024 | |||||
Robert J. Buckley | Chief Financial Officer | Adoption | June 9, 2023 | 27,000 | March 28, 2024 |
(1) Mr. Glastra adopted this written plan through a trust for which he and his spouse are the trustees.
None of our officers or directors adopted or terminated a “non-Rule 10b5-1 trading arrangement” as defined in Item 408 of Regulation S-K.
List of Exhibits
Incorporated by Reference | ||||||||||||
Exhibit Number | Exhibit Description | Form | File No. | Exhibit | Filing Date | Filed/ Furnished | ||||||
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3.1 | Certificate and Articles of Continuance of the Registrant, dated March 22, 1999 | S-3 |
| 333-202597 |
| 3.1 |
| 03/09/2015 |
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3.2 | 10-K |
| 001-35083 |
| 3.2 |
| 03/01/2021 |
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3.3 | Articles of Reorganization of the Registrant, dated July 23, 2010 | 8-K |
| 000-25705 |
| 3.1 |
| 07/23/2010 |
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3.4 |
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| 10K |
| 001-35083 |
| 3.4 |
| 3/1/2023 |
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3.5 | Articles of Amendment of the Registrant, dated December 29, 2010 | 8-K |
| 000-25705 |
| 3.1 |
| 12/29/2010 |
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3.6 |
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| 8-K |
| 001-35083 |
| 10.1 |
| 05/12/2016 |
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3.7 |
| Articles of Amendment of the Registrant, dated April 29, 2022 |
| 10-Q |
| 001-35083 |
| 3.6 |
| 05/10/2022 |
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10.1 |
| Form of Grant Notice and Award Agreement for Performance Stock Unit Awards with rTSR Modifier |
| 10-Q |
| 001-35083 |
| 10.1 |
| 5/9/2023 |
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10.2 |
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31.1 | Chief Executive Officer Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 |
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31.2 | Chief Financial Officer Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 |
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32.1 |
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32.2 |
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See the Company’s SEC filings on Edgar at: http://www.sec.gov/ for all Exhibits.40
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| Incorporated by Reference | ||||||||||
Exhibit Number |
| Exhibit Description |
| Form |
| File No. |
| Exhibit |
| Filing Date |
| Filed/ Furnished | ||
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2.1 |
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| 8-K |
| 001-35083 |
| 2.1 |
| 06/09/17 |
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3.1 |
| Certificate and Articles of Continuance of the Registrant, dated March 22, 1999. |
| S-3 |
| 333-202597 |
| 3.1 |
| 03/09/15 |
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3.2 |
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| 10-Q |
| 000-25705 |
| 3.2 |
| 04/13/10 |
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3.3 |
| Articles of Reorganization of the Registrant, dated July 23, 2010. |
| 8-K |
| 000-25705 |
| 3.1 |
| 07/23/10 |
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3.4 |
| Articles of Amendment of the Registrant, dated December 29, 2010. |
| S-3 |
| 333-202597 |
| 3.2 |
| 03/09/15 |
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3.5 |
| Articles of Amendment of the Registrant, dated May 11, 2016. |
| 8-K |
| 001-35083 |
| 10.1 |
| 05/12/16 |
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10.1 |
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| 001-35083 |
| 10.1 |
| 08/03/17 |
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10.2† |
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10.3† |
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31.1 |
| Chief Executive Officer Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. |
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| * | ||
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31.2 |
| Chief Financial Officer Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. |
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| * | ||
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32.1 |
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32.2 |
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101.INS |
| XBRL Instance Document. |
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101.SCH |
| XBRL Schema Document |
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101.CAL |
| XBRL Calculation Linkbase Document. |
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101.DEF |
| XBRL Definition Linkbase Document. |
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101.LAB |
| XBRL Labels Linkbase Document. |
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101.PRE |
| XBRL Presentation Linkbase Document. |
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| * |
† This exhibit constitutes a management contract, compensatory plan, or arrangement.
Incorporated by Reference | ||||||||||||
Exhibit Number | Exhibit Description | Form | File No. | Exhibit | Filing Date | Filed/ Furnished | ||||||
101.INS | Inline eXtensible Business Reporting Language (XBRL) Instance Document – the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document. | |||||||||||
101.SCH | Inline XBRL Taxonomy Extension Schema Document | * | ||||||||||
101.CAL | Inline XBRL Taxonomy Extension Calculation Linkbase Document | * | ||||||||||
101.DEF | Inline XBRL Taxonomy Extension Definition Linkbase Document | * | ||||||||||
101.LAB | Inline XBRL Taxonomy Extension Label Linkbase Document | * | ||||||||||
101.PRE | Inline XBRL Taxonomy Extension Presentation Linkbase Document | * | ||||||||||
104 | Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101) | * |
* Filed herewith
Attached as Exhibit 101 to this report are the following formatted in XBRL (Extensible Business Reporting Language): (i) Consolidated Balance Sheets at September 29, 2017 and December 31, 2016, (ii) Consolidated Statements of Operations for the three and nine months ended September 29, 2017 and September 30, 2016, (iii) Consolidated Statements of Comprehensive Income (Loss) for the three and nine months ended September 29, 2017 and September 30, 2016, (iv) Consolidated Statements of Cash Flows for the nine months ended September 29, 2017 and September 30, 2016, and (v) Notes to Consolidated Financial Statements.41
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.
Novanta Inc. (Registrant)
Name | Title | Date | ||
/s/ Matthijs Glastra |
|
| ||
Matthijs Glastra | ||||
/s/ Robert J. Buckley | Chief Financial Officer |
| ||
Robert J. Buckley |
42
44