10-Q 1 novt-20240329.htm 10-Q 10-Q
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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 March 29, 2024

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.

(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)

Registrant’s telephone number, including area 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 every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes No

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

 

 

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 May 1, 2024, there were 35,893,906 of the Registrant’s common shares, no par value, issued and outstanding.

 

 


 

NOVANTA INC.

TABLE OF CONTENTS

Item No.

 

Page
No.

 

 

PART I — FINANCIAL INFORMATION

1

 

 

 

ITEM 1.

FINANCIAL STATEMENTS

1

 

 

 

CONSOLIDATED BALANCE SHEETS (unaudited)

1

 

 

 

CONSOLIDATED STATEMENTS OF OPERATIONS (unaudited)

2

 

 

 

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (unaudited)

3

 

 

 

 

 

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (unaudited)

 

4

 

 

 

 

 

CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited)

5

 

 

 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited)

6

 

 

 

ITEM 2.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

28

 

 

 

ITEM 3.

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

38

 

 

 

ITEM 4.

CONTROLS AND PROCEDURES

38

 

 

PART II — OTHER INFORMATION

39

 

 

 

ITEM 1.

LEGAL PROCEEDINGS

39

 

 

 

ITEM 1A.

RISK FACTORS

39

 

 

 

ITEM 2.

UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

39

 

 

 

ITEM 3.

DEFAULTS UPON SENIOR SECURITIES

39

 

 

 

ITEM 4.

MINE SAFETY DISCLOSURES

39

 

 

 

ITEM 5.

OTHER INFORMATION

39

 

 

 

ITEM 6.

EXHIBITS

40

 

 

SIGNATURES

41

 

 

 

 


 

 

PART I—FINANCIAL INFORMATION

Item 1. Financial Statements

NOVANTA INC.

CONSOLIDATED BALANCE SHEETS

(In thousands of U.S. dollars or shares)

(Unaudited)

 

March 29,

 

 

December 31,

 

 

2024

 

 

2023

 

ASSETS

 

 

 

 

 

Current assets

 

 

 

 

 

Cash and cash equivalents

$

93,520

 

 

$

105,051

 

Accounts receivable, net of allowance of $589 and $571, respectively

 

150,911

 

 

 

139,410

 

Inventories

 

161,371

 

 

 

149,371

 

Prepaid income taxes and income taxes receivable

 

7,730

 

 

 

8,105

 

Prepaid expenses and other current assets

 

15,284

 

 

 

13,360

 

Total current assets

 

428,816

 

 

 

415,297

 

Property, plant and equipment, net

 

113,461

 

 

 

109,449

 

Operating lease assets

 

44,649

 

 

 

38,302

 

Deferred tax assets

 

13,247

 

 

 

27,862

 

Other assets

 

5,473

 

 

 

5,617

 

Intangible assets, net

 

215,090

 

 

 

145,022

 

Goodwill

 

589,856

 

 

 

484,507

 

Total assets

$

1,410,592

 

 

$

1,226,056

 

LIABILITIES AND STOCKHOLDERS’ EQUITY

 

 

 

 

 

Current liabilities

 

 

 

 

 

Current portion of long-term debt

$

4,847

 

 

$

4,968

 

Accounts payable

 

71,401

 

 

 

57,195

 

Income taxes payable

 

11,125

 

 

 

7,767

 

Current portion of operating lease liabilities

 

9,240

 

 

 

8,189

 

Accrued expenses and other current liabilities

 

54,793

 

 

 

61,056

 

Total current liabilities

 

151,406

 

 

 

139,175

 

Long-term debt

 

508,858

 

 

 

349,404

 

Operating lease liabilities

 

42,926

 

 

 

37,345

 

Deferred tax liabilities

 

15,228

 

 

 

16,305

 

Income taxes payable

 

4,691

 

 

 

4,435

 

Other liabilities

 

5,768

 

 

 

5,932

 

Total liabilities

 

728,877

 

 

 

552,596

 

Commitments and contingencies (Note 15)

 

 

 

 

 

Stockholders’ equity:

 

 

 

 

 

Preferred shares, no par value; Authorized shares: 7,000;
   
No shares issued and outstanding

 

 

 

 

 

Common shares, no par value; Authorized shares: unlimited;
   Issued and outstanding:
35,891 and 35,814, respectively

 

423,856

 

 

 

423,856

 

Additional paid-in capital

 

67,872

 

 

 

70,180

 

Retained earnings

 

218,138

 

 

 

203,462

 

Accumulated other comprehensive loss

 

(28,151

)

 

 

(24,038

)

Total stockholders' equity

 

681,715

 

 

 

673,460

 

Total liabilities and stockholders’ equity

$

1,410,592

 

 

$

1,226,056

 

 

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

 

 

March 29,

 

 

March 31,

 

 

2024

 

 

2023

 

Revenue

$

230,916

 

 

$

219,126

 

Cost of revenue

 

130,500

 

 

 

121,498

 

Gross profit

 

100,416

 

 

 

97,628

 

Operating expenses:

 

 

 

 

 

Research and development and engineering

 

23,246

 

 

 

22,828

 

Selling, general and administrative

 

43,530

 

 

 

40,923

 

Amortization of purchased intangible assets

 

5,750

 

 

 

5,089

 

Restructuring, acquisition, and related costs

 

2,283

 

 

 

2,476

 

Total operating expenses

 

74,809

 

 

 

71,316

 

Operating income

 

25,607

 

 

 

26,312

 

Interest income (expense), net

 

(8,254

)

 

 

(6,332

)

Foreign exchange transaction gains (losses), net

 

(321

)

 

 

(77

)

Other income (expense), net

 

(116

)

 

 

(166

)

Income before income taxes

 

16,916

 

 

 

19,737

 

Income tax provision

 

2,240

 

 

 

1,472

 

Net income

$

14,676

 

 

$

18,265

 

 

 

 

 

 

 

Earnings per common share (Note 5):

 

 

 

 

 

Basic

$

0.41

 

 

$

0.51

 

Diluted

$

0.41

 

 

$

0.51

 

 

 

 

 

 

 

Weighted average common shares outstanding—basic

 

35,914

 

 

 

35,810

 

Weighted average common shares outstanding—diluted

 

36,127

 

 

 

35,999

 

 

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

 

2


 

NOVANTA INC.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

(In thousands of U.S. dollars)

(Unaudited)

 

Three Months Ended

 

 

March 29,

 

 

March 31,

 

 

2024

 

 

2023

 

Net income

$

14,676

 

 

$

18,265

 

Other comprehensive income (loss):

 

 

 

 

 

Foreign currency translation adjustments, net of tax (1)

 

(4,396

)

 

 

5,230

 

Pension liability adjustments, net of tax (2)

 

283

 

 

 

71

 

Total other comprehensive income (loss)

 

(4,113

)

 

 

5,301

 

Total consolidated comprehensive income

$

10,563

 

 

$

23,566

 

 

(1)
The tax effect on this component of comprehensive income (loss) was nominal for all periods presented.
(2)
The tax effect on this component of comprehensive income (loss) was nominal for all periods presented. See Note 4 to the Consolidated Financial Statements for the total amount of pension liability adjustments reclassified out of accumulated other comprehensive income (loss).

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

 

3


 

NOVANTA INC.

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

(In thousands of U.S. dollars or shares)

(Unaudited)

 

 

Common Shares

 

 

Additional Paid-In

 

 

Retained

 

 

Accumulated Other

 

 

 

 

 

# of Shares

 

 

Amount

 

 

Capital

 

 

Earnings

 

 

Comprehensive Loss

 

 

Total

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended March 29, 2024

 

Balance at December 31, 2023

 

35,814

 

 

$

423,856

 

 

$

70,180

 

 

$

203,462

 

 

$

(24,038

)

 

$

673,460

 

Net income

 

 

 

 

 

 

 

 

 

 

14,676

 

 

 

 

 

 

14,676

 

Common shares issued under stock plans

 

129

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Common shares withheld for taxes on vested stock awards

 

(52

)

 

 

 

 

 

(8,385

)

 

 

 

 

 

 

 

 

(8,385

)

Share-based compensation

 

 

 

 

 

 

 

6,077

 

 

 

 

 

 

 

 

 

6,077

 

Other comprehensive income (loss), net of tax

 

 

 

 

 

 

 

 

 

 

 

 

 

(4,113

)

 

 

(4,113

)

Balance at March 29, 2024

 

35,891

 

 

$

423,856

 

 

$

67,872

 

 

$

218,138

 

 

$

(28,151

)

 

$

681,715

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended March 31, 2023

 

Balance at December 31, 2022

 

35,711

 

 

$

423,856

 

 

$

55,155

 

 

$

130,584

 

 

$

(32,009

)

 

$

577,586

 

Net income

 

 

 

 

 

 

 

 

 

 

18,265

 

 

 

 

 

 

18,265

 

Common shares issued under stock plans

 

155

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Common shares withheld for taxes on vested stock awards

 

(64

)

 

 

 

 

 

(9,601

)

 

 

 

 

 

 

 

 

(9,601

)

Share-based compensation

 

 

 

 

 

 

 

6,466

 

 

 

 

 

 

 

 

 

6,466

 

Other comprehensive income (loss), net of tax

 

 

 

 

 

 

 

 

 

 

 

 

 

5,301

 

 

 

5,301

 

Balance at March 31, 2023

 

35,802

 

 

$

423,856

 

 

$

52,020

 

 

$

148,849

 

 

$

(26,708

)

 

$

598,017

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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

4


 

NOVANTA INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands of U.S. dollars)

(Unaudited)

 

Three Months Ended

 

 

March 29,

 

 

March 31,

 

 

2024

 

 

2023

 

Cash flows from operating activities:

 

 

 

 

 

Net income

$

14,676

 

 

$

18,265

 

Adjustments to reconcile net income to
   net cash provided by operating activities:

 

 

 

 

 

Depreciation and amortization

 

12,929

 

 

 

11,731

 

Provision for inventory excess and obsolescence

 

1,424

 

 

 

2,067

 

Share-based compensation

 

6,077

 

 

 

6,466

 

Deferred income taxes

 

(3,711

)

 

 

(3,695

)

Inventory acquisition fair value adjustments

 

2,777

 

 

 

 

Other

 

312

 

 

 

520

 

Changes in assets and liabilities which (used)/provided cash, excluding
   effects from business acquisitions:

 

 

 

 

 

Accounts receivable

 

(4,162

)

 

 

(2,920

)

Inventories

 

(3,781

)

 

 

52

 

Prepaid income taxes, income taxes receivable, prepaid expenses
     and other current assets

 

(954

)

 

 

940

 

Accounts payable, income taxes payable, accrued expenses
     and other current liabilities

 

7,052

 

 

 

(22,295

)

Other non-current assets and liabilities

 

190

 

 

 

(886

)

Net cash provided by operating activities

 

32,829

 

 

 

10,245

 

Cash flows from investing activities:

 

 

 

 

 

Cash paid for business acquisitions, net of working capital adjustments

 

(191,200

)

 

 

 

Purchases of property, plant and equipment

 

(6,415

)

 

 

(3,620

)

Net cash used in investing activities

 

(197,615

)

 

 

(3,620

)

Cash flows from financing activities:

 

 

 

 

 

Borrowings under revolving credit facilities

 

198,000

 

 

 

 

Repayments under term loan and revolving credit facilities

 

(35,976

)

 

 

(15,309

)

Payments of withholding taxes from share-based awards

 

(8,385

)

 

 

(9,601

)

Other financing activities

 

(176

)

 

 

(156

)

Net cash provided by (used in) financing activities

 

153,463

 

 

 

(25,066

)

Effect of exchange rates on cash and cash equivalents

 

(208

)

 

 

1,012

 

Decrease in cash and cash equivalents

 

(11,531

)

 

 

(17,429

)

Cash and cash equivalents, beginning of the period

 

105,051

 

 

 

100,105

 

Cash and cash equivalents, end of the period

$

93,520

 

 

$

82,676

 

Supplemental disclosure of cash flow information:

 

 

 

 

 

Cash paid for interest

$

7,848

 

 

$

6,137

 

Cash paid for income taxes

$

1,410

 

 

$

4,371

 

Income tax refunds received

$

557

 

 

$

182

 

 

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

5


 

NOVANTA INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

AS OF March 29, 2024

(Unaudited)

1. Basis of Presentation

Novanta Inc. (collectively with its subsidiaries, referred to as “Novanta”, the “Company”, “we”, “us”, “our”) is a leading global supplier of core technology solutions that give medical and advanced industrial original equipment manufacturers (“OEMs”) a competitive advantage. Novanta combines deep proprietary technology expertise and competencies in precision medicine and manufacturing, 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 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 financial statements prepared in accordance with accounting principles generally accepted in the U.S. have been condensed or 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, 2023. 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.

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.

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 at 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. Actual results could differ significantly from these estimates.

Recent Accounting Pronouncements

The following table provides a brief description of recent Accounting Standards Updates (“ASU”) issued by the Financial Accounting Standards Board (“FASB”):

Standard

 

Description

 

Effective Date

 

Effect on the Financial Statements or Other Significant Matters

In October 2023, the FASB issued ASU 2023-06, “Disclosure Improvements: Codification Amendments in Response to SEC’s Disclosure Update and Simplification Initiative.”

 

ASU 2023-06 clarifies or improves disclosure and presentation requirements of a variety of topics, which allow users to easily compare entities subject to the SEC’s existing disclosure requirements with those entities that were not previously subject to such requirements and align the requirements in the FASB Accounting Standards Codification with the SEC’s regulations.

 

The effective date for each amendment in ASU 2023-06 will be the date on which the SEC’s removal of that related disclosure from Regulation S-X or Regulation S-K becomes effective. Early adoption is prohibited.

 

The Company is currently evaluating the impact of ASU 2023-06 on its consolidated financial statements.

6


NOVANTA INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

AS OF March 29, 2024

(Unaudited)

 

Standard

 

Description

 

Effective Date

 

Effect on the Financial Statements or Other Significant Matters

In November 2023, the FASB issued ASU 2023-07, "Segment Reporting (Topic 280) -Improvements to Reportable Segment Disclosures."

 

ASU 2023-07 clarifies or improves financial reporting by requiring disclosure of incremental segment information. The amendments require disclosure, on an annual and interim basis for all public entities, of significant segment expenses included in segment profit or loss, an amount and description of "other segment items" included in segment profit or loss, and an explanation of how reported segment profit or loss is assessed and allocated.

 

The amendments in ASU 2023-07 are effective for fiscal years beginning after December 15, 2023 and interim periods within fiscal years beginning after December 15, 2024. Early adoption is permitted.

 

The Company is currently evaluating the impact of ASU 2023-07 on its consolidated financial statement disclosures.

In December 2023, the FASB issued ASU 2023-09, "Income Taxes (Topic 740) -Improvements to Income Tax Disclosures."

 

ASU 2023-09 provides more transparency about income tax information through improvements to income tax disclosures primarily related to the rate reconciliation and income taxes paid.

 

The amendments in ASU 2023-09 are effective for annual periods beginning after December 15, 2024. Early adoption is permitted.

 

The Company is currently evaluating the impact of ASU 2023-09 on its consolidated financial statement disclosures.

 

2. Revenue

The Company accounts for its revenue transactions in accordance with ASC 606, “Revenue from Contracts with Customers,” which requires entities to recognize revenue in a way that depicts the transfer of control over 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.

The Company recognizes revenue when control of promised goods or services is transferred to the customer. 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 customers and for engineering services. Professional services are typically short in duration and aggregate to less than 3% of the Company’s consolidated revenue. Revenue is typically recognized at a point in time when control transfers to the customer upon completion of professional services. These services generally involve a single distinct performance obligation. The consideration expected to be received in exchange for such services is normally the contractually stated amount.

The Company occasionally sells separately priced non-standard/extended warranty services or preventative maintenance plans with the sale of products. The transfer of control over the service plans is over time. The Company recognizes the related revenue ratably over the terms of the service plans. 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 prices charged to customers or using the expected cost plus a margin.

7


NOVANTA INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

AS OF March 29, 2024

(Unaudited)

 

Shipping & Handling Costs

The Company accounts 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

The standard warranty periods for the Company’s products are typically 12 months to 36 months. The Company recognizes estimated liabilities associated with standard warranty periods for its products in accordance with the provisions of ASC 450, “Contingencies,” as the Company has the ability to ascertain the likelihood of the liabilities and can reasonably estimate the amount of the liabilities. A provision for the estimated cost related to standard warranties is recorded as cost of revenue at the time revenue is recognized. The Company’s estimate of the costs to service the warranty obligations is based on historical experience and expectations of future conditions. To the extent that the Company’s 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 Exemptions

The Company expenses incremental direct costs of obtaining a contract when incurred because the expected amortization period is typically one year or less. These costs are recorded within selling, general and administrative expenses in the consolidated statement of operations.

The Company does not adjust the promised amount of consideration for the 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 Company does not disclose the value of the remaining 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 the consolidated balance sheet based on the timing of when the Company expects to recognize the related revenue. As of March 29, 2024 and December 31, 2023, contract liabilities were $6.7 million and $5.8 million, respectively, and are included in accrued expenses and other current liabilities and other liabilities in the accompanying consolidated balance sheets. The increase in the contract liability balance during the three months ended March 29, 2024 is primarily due to cash payments received in advance of satisfying performance obligations partially offset by $2.7 million of revenue recognized during the period that was included in the contract liability balance as of December 31, 2023.

Disaggregated Revenue

See Note 16 for the Company’s disaggregation of revenue by segment, geography and end market.

3. Business Combinations

On January 2, 2024, the Company completed the acquisition of Motion Solutions Parent Corp. (“Motion Solutions”), an Irvine, California-based provider of highly engineered integrated solutions, specializing in proprietary precision motion and advanced motion control solutions, for a total purchase price of $192.0 million in cash, net of working capital adjustments. The acquisition was financed with borrowings under the Company’s revolving credit facility. The addition of Motion Solutions enhances the Company’s product portfolio and further expands its presence in attractive medical and precision medicine spaces. Motion Solutions is included in the Medical Solutions reportable segment.

Allocation of Purchase Price

The acquisition of Motion Solutions has been accounted for as a business combination. The purchase price is allocated based upon a valuation of the fair values 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 excess of the purchase price over the fair values of the acquired

8


NOVANTA INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

AS OF March 29, 2024

(Unaudited)

 

tangible assets, identifiable intangible assets and assumed liabilities was recorded as goodwill. The fair values of identifiable intangible assets were based on valuations using an income approach, specifically the multi-period excess earnings method for customer relationships and the relief-from-royalty method for developed technologies. The process for estimating the fair values of identifiable intangible assets requires the use of significant estimates and assumptions, including revenue growth rates, customer attrition rates, royalty rates, discount rates, technology obsolescence curves, and EBITDA margins. The Company’s estimates and assumptions in determining the estimated fair value 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 regard to facts and circumstances that existed as of the acquisition date.

Based upon the Company’s preliminary valuation, the purchase price for Motion Solutions was allocated as follows (in thousands):

 

Purchase Price

 

 

Allocation

 

Cash

$

776

 

Accounts receivable

 

8,515

 

Inventory

 

13,554

 

Property, plant and equipment

 

3,126

 

Operating lease assets

 

8,076

 

Intangible assets

 

80,400

 

Goodwill

 

108,791

 

Other assets

 

561

 

Total assets acquired

 

223,799

 

Accounts payable

 

5,305

 

Operating lease liabilities

 

8,514

 

Deferred tax liabilities

 

17,540

 

Other liabilities

 

464

 

Total liabilities assumed

 

31,823

 

Total assets acquired, net of liabilities assumed

 

191,976

 

Less: cash acquired

 

776

 

Purchase price, net of cash acquired

$

191,200

 

 

The purchase price allocation is preliminary as the Company is in the process of collecting additional information.

 

The fair value of intangible assets for Motion Solutions is comprised of the following:

 

 

 

 

 

 

 

Estimated Fair

 

 

Amortization

 

Value
(In thousands)

 

 

Period

Developed technologies

$

34,400

 

 

7 years

Customer relationships

 

41,900

 

 

13 years

Backlog

 

4,100

 

 

1 year

Total

$

80,400

 

 

 

 

The preliminary purchase price allocation resulted in $80.4 million of identifiable intangible assets and $108.8 million of goodwill. As the Motion Solutions acquisition was structured as a stock acquisition for income tax purposes, the goodwill is not deductible. The goodwill recorded represents the anticipated incremental value of future cash flows potentially attributable to: (i) Motion Solutions’s ability to grow the business with existing and new customers, including leveraging the Company’s customer base; (ii) Motion Solutions’s ability to grow the business through new product introductions; and (iii) cost improvements due to the integration of Motion Solutions’s operations into the Company’s existing infrastructure.

The operating results of Motion Solutions were included in the Company’s results of operations beginning January 2, 2024. Motion Solutions contributed revenues of $21.2 million and a loss before income taxes of $2.0 million to the Company’s operating results for the three months ended March 29, 2024. The loss before income taxes from Motion Solutions for the period from the

9


NOVANTA INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

AS OF March 29, 2024

(Unaudited)

 

acquisition date through March 29, 2024 included amortization of inventory fair value adjustments of $2.8 million and amortization of purchased intangible assets of $2.7 million.

Unaudited Pro Forma Information

The pro forma information for all periods presented below includes the effect of business combination accounting resulting from the acquisition of Motion Solutions, including amortization of inventory fair value adjustments, amortization of intangible assets, interest expense on borrowings in connection with the acquisition, and the related tax effects, assuming that the acquisition had been consummated as of January 1, 2023. 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, 2023.

 

Three Months Ended

 

 

Three Months Ended

 

 

March 29,

 

 

March 31,

 

 

2024

 

 

2023

 

Revenue

$

230,916

 

 

$

237,854

 

Net income

$

17,120

 

 

$

12,115

 

Acquisition Costs

Acquisition costs are included in restructuring and acquisition related costs in the consolidated statements of operations. Acquisition-related costs for Motion Solutions was $1.0 million for the three months ended March 29, 2024.

4. Accumulated Other Comprehensive Loss

Changes in accumulated other comprehensive loss were as follows (in thousands):

 

Total Accumulated

 

 

 

 

 

 

 

 

Other

 

 

Cumulative

 

 

Pension

 

 

Comprehensive

 

 

Translation

 

 

Liability

 

 

Loss

 

 

Adjustments

 

 

Adjustments

 

Balance at December 31, 2023

$

(24,038

)

 

$

(16,604

)

 

$

(7,434

)

Other comprehensive income (loss)

 

(4,330

)

 

 

(4,396

)

 

 

66

 

Amounts reclassified from accumulated other comprehensive loss

 

217

 

 

 

 

 

 

217

 

Balance at March 29, 2024

$

(28,151

)

 

$

(21,000

)

 

$

(7,151

)

The amounts reclassified from accumulated other comprehensive loss were included in other income (expense) in the consolidated statements of operations.

5. Earnings per Common Share

Basic earnings per common share is computed by dividing net income by the weighted average number of common shares outstanding during the period. Fully vested restricted stock units and deferred stock units granted to members of the Company’s Board of Directors are included in the calculation of weighted average number of common shares outstanding.

For diluted earnings per common share, the denominator 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 performance-based restricted stock units, are determined using the treasury stock method. Performance-based restricted stock units are considered contingently issuable shares, the vesting of which may be based on achievement of specified company performance conditions (“attainment-based PSUs”), certain market conditions (“market-based PSUs”) or a hybrid of company performance conditions and market conditions (“hybrid PSUs”). The dilutive effects of market-based PSUs are included in the weighted average common share calculation based on the number 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 and hybrid PSUs are included in the weighted average common share calculation based on the cumulative

10


NOVANTA INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

AS OF March 29, 2024

(Unaudited)

 

achievement against the performance targets only when the performance targets have been achieved as of the end of the reporting period.

The following table sets forth the computation of basic and diluted earnings per common share (amounts in thousands, except per share data):

 

Three Months Ended

 

 

March 29,

 

 

March 31,

 

 

2024

 

 

2023

 

Numerators:

 

 

 

 

 

Net income

$

14,676

 

 

$

18,265

 

 

 

 

 

 

 

Denominators:

 

 

 

 

 

Weighted average common shares outstanding— basic

 

35,914

 

 

 

35,810

 

Dilutive common share equivalents

 

213

 

 

 

189

 

Weighted average common shares outstanding— diluted

 

36,127

 

 

 

35,999

 

Antidilutive common share equivalents excluded from above

 

71

 

 

 

113

 

 

 

 

 

 

 

Earnings per Common Share:

 

 

 

 

 

Basic

$

0.41

 

 

$

0.51

 

Diluted

$

0.41

 

 

$

0.51

 

For the three months ended March 29, 2024, 182 thousand shares of attainment-based PSUs and hybrid PSUs were excluded from the calculation of the denominator because they were considered contingently issuable shares and the related performance targets had not been achieved as of March 29, 2024.

For the three months ended March 31, 2023, 151 thousand shares of attainment-based PSUs and hybrid PSUs were excluded from the calculation of the denominator because they were considered contingently issuable shares and the related performance targets had not been achieved as of March 31, 2023.

6. 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 with original maturities of three months or less, which represent assets 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 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.

11


NOVANTA INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

AS OF March 29, 2024

(Unaudited)

 

Contingent Considerations

On July 31, 2019, the Company acquired ARGES GmbH (“ARGES”). Under the purchase and sale agreement for the ARGES acquisition, the former owner of ARGES is eligible to receive contingent consideration based on the achievement of certain revenue targets 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 €7.1 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 the contingent consideration liability are recorded in the consolidated statement of operations in restructuring, acquisition and related costs until the liability is fully settled. During 2020, the fair value of the contingent consideration was adjusted to €4.1 million ($5.1 million). 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, 2021. The Company made the second installment payment of €0.3 million ($0.4 million) in March 2022. Based on the revenue performance and revenue projections as of December 31, 2022, the fair value of the remaining contingent consideration was adjusted to €0.4 million ($0.4 million). The Company made the third installment payment of €0.1 million ($0.1 million) in July 2023. Based on the revenue performance and revenue projections as of March 29, 2024, the Company did not make any further adjustments to the fair value of the remaining contingent consideration during the three months ended March 29, 2024. The installment payments have been reported as cash outflows from financing activities in the consolidated statement of cash flows for the respective periods.

Summary by Fair Value Hierarchy

The following table summarizes the fair values of the Company’s assets and liabilities measured at fair value on a recurring basis as of March 29, 2024 (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

$

1,754

 

 

$

1,754

 

 

$

 

 

$

 

Prepaid expenses and other current assets:

 

 

 

 

 

 

 

 

 

 

 

Foreign currency forward contracts

 

459

 

 

 

 

 

 

459

 

 

 

 

 

$

2,213

 

 

$

1,754

 

 

$

459

 

 

$

 

Liabilities

 

 

 

 

 

 

 

 

 

 

 

Accrued expenses and other current liabilities:

 

 

 

 

 

 

 

 

 

 

 

Contingent considerations - Current

$

46

 

 

$

 

 

$

 

 

$

46

 

Foreign currency forward contracts

 

125

 

 

 

 

 

 

125

 

 

 

 

Other liabilities:

 

 

 

 

 

 

 

 

 

 

 

Contingent considerations - Long-term

 

303

 

 

 

 

 

 

 

 

 

303

 

 

$

474

 

 

$

 

 

$

125

 

 

$

349

 

 

12


NOVANTA INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

AS OF March 29, 2024

(Unaudited)

 

The following table summarizes the fair values of the Company’s assets and liabilities measured at fair value on a recurring basis as of December 31, 2023 (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

$

1,392

 

 

$

1,392

 

 

$

 

 

$

 

Prepaid expenses and other current assets:

 

 

 

 

 

 

 

 

 

 

 

Foreign currency forward contracts

 

379

 

 

 

 

 

 

379

 

 

 

 

 

$

1,771

 

 

$

1,392

 

 

$

379

 

 

$

 

Liabilities

 

 

 

 

 

 

 

 

 

 

 

Accrued expenses and other current liabilities:

 

 

 

 

 

 

 

 

 

 

 

Contingent considerations - Current

$

48

 

 

$

 

 

$

 

 

$

48

 

Foreign currency forward contracts

 

312

 

 

 

 

 

 

312

 

 

 

 

Other liabilities:

 

 

 

 

 

 

 

 

 

 

 

Contingent considerations - Long-term

 

311

 

 

 

 

 

 

 

 

 

311

 

 

$

671

 

 

$

 

 

$

312

 

 

$

359

 

Changes in the fair value of Level 3 contingent considerations during the three months ended March 29, 2024 were as follows (in thousands):

 

 

Amount

 

Balance at December 31, 2023

$

359

 

Payments

 

 

Fair value adjustments

 

 

Effect of foreign exchange rates

 

(10

)

Balance at March 29, 2024

$

349

 

See Note 10 to Consolidated Financial Statements for a discussion of the estimated fair value of the Company’s outstanding debt.

7. 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 these 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 March 29, 2024, the aggregate notional amount and fair value of the Company’s foreign currency forward contracts was $187.6 million and a net gain of $0.3 million, respectively. As of December 31, 2023, the aggregate notional amount and fair value of the Company’s foreign currency forward contracts was $172.3 million and a net gain of $0.1 million, respectively.

The Company recognized an aggregate net gain of $1.2 million for the three months ended March 29, 2024 and an aggregate net gain of $0.6 million for the three months ended March 31, 2023. These amounts were included in foreign exchange transaction gains (losses) in the consolidated statements of operations.

13


NOVANTA INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

AS OF March 29, 2024

(Unaudited)

 

8. Goodwill and Intangible Assets

Goodwill

Goodwill is recorded when the consideration paid for a business combination exceeds the fair value of net tangible and identifiable intangible assets acquired. The Company tests its goodwill balances 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 the most recent annual goodwill and indefinite-lived intangible asset impairment test as of the beginning of the second quarter of 2023 and noted no impairment.

The following table summarizes changes in goodwill during the three months ended March 29, 2024 (in thousands):

Balance at beginning of the period

$

484,507

 

Goodwill acquired from Motion Solutions acquisition

 

108,791

 

Effect of foreign exchange rate changes

 

(3,442

)

Balance at end of the period

$

589,856

 

Goodwill by reportable segment as of March 29, 2024 was as follows (in thousands):

 

Reportable Segment

 

 

 

 

 

Precision Medicine and Manufacturing

 

 

Medical Solutions

 

 

Robotics and Automation

 

 

Total

 

Goodwill

$

210,042

 

 

$

276,696

 

 

$

254,347

 

 

$

741,085

 

Accumulated impairment of goodwill

 

(102,461

)

 

 

(31,722

)

 

 

(17,046

)

 

 

(151,229

)

Total

$

107,581

 

 

$

244,974

 

 </