UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended
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.:
(Exact name of registrant as specified in its charter)
|
||
(State or other jurisdiction of incorporation or organization) |
|
(I.R.S. Employer Identification No.) |
|
|
|
|
||
(Address of principal executive offices) |
|
(Zip Code) |
Registrant’s telephone number, including area code: (
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 |
|
|
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.
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).
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.
|
|
|
☒ |
|
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
NOVANTA INC.
TABLE OF CONTENTS
Item No. |
|
|
Page |
||
|
|
||||
|
1 |
||||
|
|
|
|||
ITEM 1. |
|
|
1 |
||
|
|
|
|||
|
|
|
1 |
||
|
|
|
|||
|
|
|
2 |
||
|
|
|
|||
|
|
|
3 |
||
|
|
|
|||
|
|
|
4 |
||
|
|
|
|
|
|
|
|
|
5 |
||
|
|
|
|||
|
|
|
6 |
||
|
|
|
|||
ITEM 2. |
|
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS |
|
28 |
|
|
|
|
|||
ITEM 3. |
|
|
38 |
||
|
|
|
|||
ITEM 4. |
|
|
38 |
||
|
|
||||
|
39 |
||||
|
|
|
|||
ITEM 1. |
|
|
39 |
||
|
|
|
|||
ITEM 1A. |
|
|
39 |
||
|
|
|
|||
ITEM 2. |
|
|
39 |
||
|
|
|
|||
ITEM 3. |
|
|
39 |
||
|
|
|
|||
ITEM 4. |
|
|
39 |
||
|
|
|
|||
ITEM 5. |
|
|
39 |
||
|
|
|
|||
ITEM 6. |
|
|
40 |
||
|
|
||||
|
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 |
$ |
|
|
$ |
|
||
Accounts receivable, net of allowance of $ |
|
|
|
|
|
||
Inventories |
|
|
|
|
|
||
Prepaid income taxes and income taxes receivable |
|
|
|
|
|
||
Prepaid expenses and other current assets |
|
|
|
|
|
||
Total current assets |
|
|
|
|
|
||
Property, plant and equipment, net |
|
|
|
|
|
||
Operating lease assets |
|
|
|
|
|
||
Deferred tax assets |
|
|
|
|
|
||
Other assets |
|
|
|
|
|
||
Intangible assets, net |
|
|
|
|
|
||
Goodwill |
|
|
|
|
|
||
Total assets |
$ |
|
|
$ |
|
||
LIABILITIES AND STOCKHOLDERS’ EQUITY |
|
|
|
|
|
||
Current liabilities |
|
|
|
|
|
||
Current portion of long-term debt |
$ |
|
|
$ |
|
||
Accounts payable |
|
|
|
|
|
||
Income taxes payable |
|
|
|
|
|
||
Current portion of operating lease liabilities |
|
|
|
|
|
||
Accrued expenses and other current liabilities |
|
|
|
|
|
||
Total current liabilities |
|
|
|
|
|
||
Long-term debt |
|
|
|
|
|
||
Operating lease liabilities |
|
|
|
|
|
||
Deferred tax liabilities |
|
|
|
|
|
||
Income taxes payable |
|
|
|
|
|
||
Other liabilities |
|
|
|
|
|
||
Total liabilities |
|
|
|
|
|
||
|
|
|
|
|
|||
Stockholders’ equity: |
|
|
|
|
|
||
Preferred shares, |
|
|
|
|
|
||
Common shares, |
|
|
|
|
|
||
Additional paid-in capital |
|
|
|
|
|
||
Retained earnings |
|
|
|
|
|
||
Accumulated other comprehensive loss |
|
( |
) |
|
|
( |
) |
Total stockholders' equity |
|
|
|
|
|
||
Total liabilities and stockholders’ equity |
$ |
|
|
$ |
|
||
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 |
$ |
|
|
$ |
|
||
Cost of revenue |
|
|
|
|
|
||
Gross profit |
|
|
|
|
|
||
Operating expenses: |
|
|
|
|
|
||
Research and development and engineering |
|
|
|
|
|
||
Selling, general and administrative |
|
|
|
|
|
||
Amortization of purchased intangible assets |
|
|
|
|
|
||
Restructuring, acquisition, and related costs |
|
|
|
|
|
||
Total operating expenses |
|
|
|
|
|
||
Operating income |
|
|
|
|
|
||
Interest income (expense), net |
|
( |
) |
|
|
( |
) |
Foreign exchange transaction gains (losses), net |
|
( |
) |
|
|
( |
) |
Other income (expense), net |
|
( |
) |
|
|
( |
) |
Income before income taxes |
|
|
|
|
|
||
Income tax provision |
|
|
|
|
|
||
Net income |
$ |
|
|
$ |
|
||
|
|
|
|
|
|
||
Earnings per common share (Note 5): |
|
|
|
|
|
||
Basic |
$ |
|
|
$ |
|
||
Diluted |
$ |
|
|
$ |
|
||
|
|
|
|
|
|
||
Weighted average common shares outstanding—basic |
|
|
|
|
|
||
Weighted average common shares outstanding—diluted |
|
|
|
|
|
||
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 |
$ |
|
|
$ |
|
||
Other comprehensive income (loss): |
|
|
|
|
|
||
Foreign currency translation adjustments, net of tax (1) |
|
( |
) |
|
|
|
|
Pension liability adjustments, net of tax (2) |
|
|
|
|
|
||
Total other comprehensive income (loss) |
|
( |
) |
|
|
|
|
Total consolidated comprehensive income |
$ |
|
|
$ |
|
||
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 |
|
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
( |
) |
|
$ |
|
|||||
Net income |
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
— |
|
|
|
|
||
Common shares issued under stock plans |
|
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
Common shares withheld for taxes on vested stock awards |
|
( |
) |
|
|
— |
|
|
|
( |
) |
|
|
— |
|
|
|
— |
|
|
|
( |
) |
Share-based compensation |
|
— |
|
|
|
— |
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
|
||
Other comprehensive income (loss), net of tax |
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
( |
) |
|
|
( |
) |
Balance at March 29, 2024 |
|
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
( |
) |
|
$ |
|
|||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
|
Three Months Ended March 31, 2023 |
|
|||||||||||||||||||||
Balance at December 31, 2022 |
|
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
( |
) |
|
$ |
|
|||||
Net income |
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
— |
|
|
|
|
||
Common shares issued under stock plans |
|
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
Common shares withheld for taxes on vested stock awards |
|
( |
) |
|
|
— |
|
|
|
( |
) |
|
|
— |
|
|
|
— |
|
|
|
( |
) |
Share-based compensation |
|
— |
|
|
|
— |
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
|
||
Other comprehensive income (loss), net of tax |
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
||
Balance at March 31, 2023 |
|
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
( |
) |
|
$ |
|
|||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
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 |
$ |
|
|
$ |
|
||
Adjustments to reconcile net income to |
|
|
|
|
|
||
Depreciation and amortization |
|
|
|
|
|
||
Provision for inventory excess and obsolescence |
|
|
|
|
|
||
Share-based compensation |
|
|
|
|
|
||
Deferred income taxes |
|
( |
) |
|
|
( |
) |
Inventory acquisition fair value adjustments |
|
|
|
|
— |
|
|
Other |
|
|
|
|
|
||
Changes in assets and liabilities which (used)/provided cash, excluding |
|
|
|
|
|
||
Accounts receivable |
|
( |
) |
|
|
( |
) |
Inventories |
|
( |
) |
|
|
|
|
Prepaid income taxes, income taxes receivable, prepaid expenses |
|
( |
) |
|
|
|
|
Accounts payable, income taxes payable, accrued expenses |
|
|
|
|
( |
) |
|
Other non-current assets and liabilities |
|
|
|
|
( |
) |
|
Net cash provided by operating activities |
|
|
|
|
|
||
Cash flows from investing activities: |
|
|
|
|
|
||
Cash paid for business acquisitions, net of working capital adjustments |
|
( |
) |
|
|
— |
|
Purchases of property, plant and equipment |
|
( |
) |
|
|
( |
) |
Net cash used in investing activities |
|
( |
) |
|
|
( |
) |
Cash flows from financing activities: |
|
|
|
|
|
||
Borrowings under revolving credit facilities |
|
|
|
|
— |
|
|
Repayments under term loan and revolving credit facilities |
|
( |
) |
|
|
( |
) |
Payments of withholding taxes from share-based awards |
|
( |
) |
|
|
( |
) |
Other financing activities |
|
( |
) |
|
|
( |
) |
Net cash provided by (used in) financing activities |
|
|
|
|
( |
) |
|
Effect of exchange rates on cash and cash equivalents |
|
( |
) |
|
|
|
|
Decrease in cash and cash equivalents |
|
( |
) |
|
|
( |
) |
Cash and cash equivalents, beginning of the period |
|
|
|
|
|
||
Cash and cash equivalents, end of the period |
$ |
|
|
$ |
|
||
Supplemental disclosure of cash flow information: |
|
|
|
|
|
||
Cash paid for interest |
$ |
|
|
$ |
|
||
Cash paid for income taxes |
$ |
|
|
$ |
|
||
Income tax refunds received |
$ |
|
|
$ |
|
||
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
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
Practical Expedients and Exemptions
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 $
Disaggregated Revenue
See Note 16 for the Company’s disaggregation of revenue by segment, geography and end market.
3. Business Combinations
On
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
Based upon the Company’s preliminary valuation, the purchase price for Motion Solutions was allocated as follows (in thousands):
|
Purchase Price |
|
|
|
Allocation |
|
|
Cash |
$ |
|
|
Accounts receivable |
|
|
|
Inventory |
|
|
|
Property, plant and equipment |
|
|
|
Operating lease assets |
|
|
|
Intangible assets |
|
|
|
Goodwill |
|
|
|
Other assets |
|
|
|
Total assets acquired |
|
|
|
Accounts payable |
|
|
|
Operating lease liabilities |
|
|
|
Deferred tax liabilities |
|
|
|
Other liabilities |
|
|
|
Total liabilities assumed |
|
|
|
Total assets acquired, net of liabilities assumed |
|
|
|
Less: cash acquired |
|
|
|
Purchase price, net of cash acquired |
$ |
|
|
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 |
|
|
Period |
|
Developed technologies |
$ |
|
|
||
Customer relationships |
|
|
|
||
Backlog |
|
|
|
||
Total |
$ |
|
|
|
|
The preliminary purchase price allocation resulted in $
The operating results of Motion Solutions were included in the Company’s results of operations beginning January 2, 2024. Motion Solutions contributed revenues of $
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 $
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 |
$ |
|
|
$ |
|
||
Net income |
$ |
|
|
$ |
|
||
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 $
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 |
$ |
( |
) |
|
$ |
( |
) |
|
$ |
( |
) |
Other comprehensive income (loss) |
|
( |
) |
|
|
( |
) |
|
|
|
|
Amounts reclassified from accumulated other comprehensive loss |
|
|
|
|
— |
|
|
|
|
||
Balance at March 29, 2024 |
$ |
( |
) |
|
$ |
( |
) |
|
$ |
( |
) |
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 |
$ |
|
|
$ |
|
||
|
|
|
|
|
|
||
Denominators: |
|
|
|
|
|
||
Weighted average common shares outstanding— basic |
|
|
|
|
|
||
Dilutive common share equivalents |
|
|
|
|
|
||
Weighted average common shares outstanding— diluted |
|
|
|
|
|
||
Antidilutive common share equivalents excluded from above |
|
|
|
|
|
||
|
|
|
|
|
|
||
Earnings per Common Share: |
|
|
|
|
|
||
Basic |
$ |
|
|
$ |
|
||
Diluted |
$ |
|
|
$ |
|
||
For the three months ended March 29, 2024,
For the three months ended 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:
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
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 |
$ |
|
|
$ |
|
|
$ |
— |
|
|
$ |
— |
|
||
Prepaid expenses and other current assets: |
|
|
|
|
|
|
|
|
|
|
|
||||
Foreign currency forward contracts |
|
|
|
|
— |
|
|
|
|
|
|
— |
|
||
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
— |
|
|||
Liabilities |
|
|
|
|
|
|
|
|
|
|
|
||||
Accrued expenses and other current liabilities: |
|
|
|
|
|
|
|
|
|
|
|
||||
Contingent considerations - Current |
$ |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
|
||
Foreign currency forward contracts |
|
|
|
|
— |
|
|
|
|
|
|
— |
|
||
Other liabilities: |
|
|
|
|
|
|
|
|
|
|
|
||||
Contingent considerations - Long-term |
|
|
|
|
— |
|
|
|
— |
|
|
|
|
||
|
$ |
|
|
$ |
— |
|
|
$ |
|
|
$ |
|
|||
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 |
$ |
|
|
$ |
|
|
$ |
— |
|
|
$ |
— |
|
||
Prepaid expenses and other current assets: |
|
|
|
|
|
|
|
|
|
|
|
||||
Foreign currency forward contracts |
|
|
|
|
— |
|
|
|
|
|
|
— |
|
||
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
— |
|
|||
Liabilities |
|
|
|
|
|
|
|
|
|
|
|
||||
Accrued expenses and other current liabilities: |
|
|
|
|
|
|
|
|
|
|
|
||||
Contingent considerations - Current |
$ |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
|
||
Foreign currency forward contracts |
|
|
|
|
— |
|
|
|
|
|
|
— |
|
||
Other liabilities: |
|
|
|
|
|
|
|
|
|
|
|
||||
Contingent considerations - Long-term |
|
|
|
|
— |
|
|
|
— |
|
|
|
|
||
|
$ |
|
|
$ |
— |
|
|
$ |
|
|
$ |
|
|||
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 |
$ |
|
|
Payments |
|
— |
|
Fair value adjustments |
|
— |
|
Effect of foreign exchange rates |
|
( |
) |
Balance at March 29, 2024 |
$ |
|
|
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 $
The Company recognized an aggregate net gain of $
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
The following table summarizes changes in goodwill during the three months ended March 29, 2024 (in thousands):
Balance at beginning of the period |
$ |
|
|
Goodwill acquired from Motion Solutions acquisition |
|
|
|
Effect of foreign exchange rate changes |
|
( |
) |
Balance at end of the period |
$ |
|
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 |
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
Accumulated impairment of goodwill |
|
( |
) |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
Total |
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
|
Reportable Segment |
|
|
|
|
||||||||||
|
Precision Medicine and Manufacturing |
|
|
Medical Solutions |
|
|
Robotics and Automation |
|
|
Total |
|
||||
Goodwill |
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
Accumulated impairment of goodwill |
|
( |
) |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
Total |
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
Intangible Assets
Intangible assets as of March 29, 2024 and December 31, 2023, respectively, are summarized as follows (in thousands):
|
March 29, 2024 |
|
|
December 31, 2023 |
|
||||||||||||||||||
|
Gross Carrying |
|
|
Accumulated |
|
|
Net Carrying |
|
|
Gross Carrying |
|
|
Accumulated |
|
|
Net Carrying |
|
||||||
Amortizable intangible assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Patents and developed technologies |
$ |
|
|
$ |
( |
) |
|
$ |
|
|
$ |
|
|
$ |
( |
) |
|
$ |
|
||||
Customer relationships |
|
|
|
|
( |
) |
|
|
|
|
|
|
|
|
( |
) |
|
|
|
||||
Customer backlog |
|
|
|
|
( |
) |
|
|
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
||
Trademarks and trade names |
|
|
|
|
( |
) |
|
|
|
|
|
|
|
|
( |
) |
|
|
|
||||
Amortizable intangible assets |
|
|
|
|
( |
) |
|
|
|
|
|
|
|
|
( |
) |
|
|
|
||||
Non-amortizable intangible assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Trade names |
|
|
|
|
— |
|
|
|
|
|
|
|
|
|
— |
|
|
|
|
||||
Total intangible assets |
$ |
|
|
$ |
( |
) |
|
$ |
|
|
$ |
|
|
$ |
( |
) |
|
$ |
|
||||
14
NOVANTA INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AS OF March 29, 2024
(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.
|
Three Months Ended |
|
|||||
|
March 29, |
|
|
March 31, |
|
||
|
2024 |
|
|
2023 |
|
||
Amortization expense – cost of revenue |
$ |
|
|
$ |
|
||
Amortization expense – operating expenses |
|
|
|
|
|
||
Total amortization expense |
$ |
|
|
$ |
|
||
As of March 29, 2024, estimated amortization expense for each of the five succeeding years and thereafter was as follows (in thousands):
Year Ending December 31, |
|
Cost of Revenue |
|
|
Operating |
|
|
Total |
|
|||
2024 (remainder of year) |
|
$ |
|
|
$ |
|
|
$ |
|
|||
2025 |
|
|
|
|
|
|
|
|
|
|||
2026 |
|
|
|
|
|
|
|
|
|
|||
2027 |
|
|
|
|
|
|
|
|
|
|||
2028 |
|
|
|
|
|
|
|
|
|
|||
Thereafter |
|
|
|
|
|
|
|
|
|
|||
Total |
|
$ |
|
|
$ |
|
|
$ |
|
|||
9. Supplementary Balance Sheet Information
The following tables provide the details of selected balance sheet items as of the periods indicated (in thousands):
Inventories
|
March 29, |
|
|
December 31, |
|
||
|
2024 |
|
|
2023 |
|
||
Raw materials |
$ |
|
|
$ |
|
||
Work-in-process |
|
|
|
|
|
||
Finished goods |
|
|
|
|
|
||
Demo and consigned inventory |
|
|
|
|
|
||
Total inventories |
$ |
|
|
$ |
|
||
Accrued Expenses and Other Current Liabilities
|
March 29, |
|
|
December 31, |
|
||
|
2024 |
|
|
2023 |
|
||
Accrued compensation and benefits |
$ |
|
|
$ |
|
||
Accrued warranty |
|
|
|
|
|
||
Contract liabilities, current portion |
|
|
|
|
|
||
Finance lease obligations |
|
|
|
|
|
||
Other |
|
|
|
|
|
||
Total |
$ |
|
|
$ |
|
||
15
NOVANTA INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AS OF March 29, 2024
(Unaudited)
Accrued Warranty
|
Three Months Ended |
|
|||||
|
March 29, |
|
|
March 31, |
|
||
|
2024 |
|
|
2023 |
|
||
Balance at beginning of the period |
$ |
|
|
$ |
|
||
Provision charged to cost of revenue |
|
|
|
|
|
||
Warranty liabilities acquired from acquisitions |
|
|
|
|
— |
|
|
Use of provision |
|
( |
) |
|
|
( |
) |
Foreign currency exchange rate changes |
|
( |
) |
|
|
|
|
Balance at end of the period |
$ |
|
|
$ |
|
||
Other Long-Term Liabilities
|
March 29, |
|
|
December 31, |
|
||
|
2024 |
|
|
2023 |
|
||
Finance lease obligations |
$ |
|
|
$ |
|
||
Accrued contingent considerations and earn-outs |
|
|
|
|
|
||
Other |
|
|
|
|
|
||
Total |
$ |
|
|
$ |
|
||
10. Debt
Outstanding debt consisted of the following (in thousands):
|
March 29, |
|
|
December 31, |
|
||
|
2024 |
|
|
2023 |
|
||
Senior Credit Facilities – term loan |
$ |
|
|
$ |
|
||
Less: unamortized debt issuance costs |
|
( |
) |
|
|
( |
) |
Total current portion of long-term debt |
$ |
|
|
$ |
|
||
|
|
|
|
|
|
||
Senior Credit Facilities – term loan |
$ |
|
|
$ |
|
||
Senior Credit Facilities – revolving credit facility |
|
|
|
|
|
||
Less: unamortized debt issuance costs |
|
( |
) |
|
|
( |
) |
Total long-term debt |
$ |
|
|
$ |
|
||
|
|
|
|
|
|
||
Total Senior Credit Facilities |
$ |
|
|
$ |
|
||
Senior Credit Facilities
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 $
On March 27, 2020, the Company entered into an amendment (the “First Amendment”) to the Third Amended and Restated Credit Agreement and exercised a portion of the uncommitted accordion option. The First Amendment increased the revolving credit facility commitment under the Third Amended and Restated Credit Agreement by $
On October 5, 2021, the Company entered into an amendment (the “Fourth Amendment”) to the Third Amended and Restated Credit Agreement to exercise the accordion option. The Fourth Amendment increased the revolving credit facility commitment under the Third Amended and Restated Credit Agreement by $
16
NOVANTA INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AS OF March 29, 2024
(Unaudited)
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 $
The outstanding principal balance under the term loan facility is payable in
The Company is required to satisfy certain financial and non-financial covenants under the Third 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 March 29, 2024.
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 Novanta Inc.
Fair Value of Debt
As of March 29, 2024 and December 31, 2023, the outstanding balance of the Company’s debt approximated its fair value based on current rates available to the Company for debt of similar maturities. The fair value of the Company’s debt is classified as Level 2 under the fair value hierarchy.
11. Leases
Most leases held by the Company expire between
The following table summarizes the components of lease costs (in thousands):
|
Three Months Ended |
|
|||||
|
March 29, |
|
|
March 31, |
|
||
|
2024 |
|
|
2023 |
|
||
Operating lease cost |
$ |
|
|
$ |
|
||
Finance lease cost |
|
|
|
|
|
||
Amortization of right-of-use assets |
|
|
|
|
|
||
Interest on lease liabilities |
|
|
|
|
|
||
Variable lease cost |
|
|
|
|
|
||
Total lease cost |
$ |
|
|
$ |
|
||
17
NOVANTA INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AS OF March 29, 2024
(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):
|
March 29, |
|
|
December 31, |
|
||
|
2024 |
|
|
2023 |
|
||
Operating leases |
|
|
|
|
|
||
Operating lease right-of-use assets |
$ |
|
|
$ |
|
||
|
|
|
|
|
|
||
Current portion of operating lease liabilities |
$ |
|
|
$ |
|
||
Operating lease liabilities |
|
|
|
|
|
||
Total operating lease liabilities |
$ |
|
|
$ |
|
||
|
|
|
|
|
|
||
Finance leases |
|
|
|
|
|
||
Property, plant and equipment, gross |
$ |
|
|
$ |
|
||
Accumulated depreciation |
|
( |
) |
|
|
( |
) |
$ |
|
|
$ |
|
|||
|
|
|
|
|
|
||
$ |
|
|
$ |
|
|||
|
|
|
|
|
|||
Total finance lease liabilities |
$ |
|
|
$ |
|
||
|
|
|
|
|
|
||
Weighted-average remaining lease term (in years): |
|
|
|
|
|
||
Operating leases |
|
|
|
|
|
||
Finance leases |
|
|
|
|
|
||
|
|
|
|
|
|
||
Weighted-average discount rate: |
|
|
|
|
|
||
Operating leases |
|
% |
|
|
% |
||
Finance leases |
|
% |
|
|
% |
||
The following table provides additional details of cash flow information related to the Company’s leases (in thousands):
|
Three Months Ended |
|
|||||
|
March 29, |
|
|
March 31, |
|
||
|
2024 |
|
|
2023 |
|
||
Cash paid for amounts included in lease liabilities: |
|
|
|
|
|
||
Operating cash flows from finance leases |
$ |
|
|
$ |
|
||
Operating cash flows from operating leases |
$ |
|
|
$ |
|
||
Financing cash flows from finance leases |
$ |
|
|
$ |
|
||
|
|
|
|
|
|
||
Supplemental non-cash information: |
|
|
|
|
|
||
Right-of-use assets obtained in exchange for new operating lease liabilities(1) |
$ |
|
|
$ |
|
||
(1) The amount for the three months ended March 29, 2024 includes $
18
NOVANTA INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AS OF March 29, 2024
(Unaudited)
Future minimum lease payments under operating and finance leases expiring subsequent to March 29, 2024, 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 |
|
||
2024 (remainder of year) |
$ |
|
|
$ |
|
||
2025 |
|
|
|
|
|
||
2026 |
|
|
|
|
|
||
2027 |
|
|
|
|
|
||
2028 |
|
|
|
|
|
||
Thereafter |
|
|
|
|
|
||
Total minimum lease payments |
|
|
|
|
|
||
Less: Interest |
|
( |
) |
|
|
( |
) |
Present value of lease liabilities |
$ |
|
|
$ |
|
||
12. 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
Common Share Repurchases
In February 2020, the Company’s Board of Directors approved a share repurchase plan (the “2020 Repurchase Plan”), authorizing the repurchase of $
Share-Based Compensation Expense
The table below summarizes share-based compensation expense recorded in the consolidated statements of operations (in thousands):
|
Three Months Ended |
|
|||||
|
March 29, |
|
|
March 31, |
|
||
|
2024 |
|
|
2023 |
|
||
Selling, general and administrative |
$ |
|
|
$ |
|
||
Research and development and engineering |
|
|
|
|
|
||
Cost of revenue |
|
|
|
|
|
||
Total share-based compensation expense |
$ |
|
|
$ |
|
||
Share-based compensation expense reported in selling, general and administrative expenses included expenses related to restricted stock units and deferred stock units granted to the members of the Company’s Board of Directors of $
Restricted Stock Units
The Company’s restricted stock units (“RSUs”) have generally been issued with vesting periods ranging from to
19
NOVANTA INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AS OF March 29, 2024
(Unaudited)
over the requisite service period. The Company reduces the compensation expense by an estimated forfeiture rate which is based on anticipated forfeitures and historical forfeiture experience.
The table below summarizes activities relating to RSUs issued and outstanding under the Company’s Amended and Restated 2010 Incentive Plan during the three months ended March 29, 2024:
|
Shares |
|
|
Weighted |
|
||
Unvested at December 31, 2023 |
|
|
|
$ |
|
||
Granted |
|
|
|
$ |
|
||
Vested |
|
( |
) |
|
$ |
|
|
Forfeited |
|
( |
) |
|
$ |
|
|
Unvested at March 29, 2024 |
|
|
|
$ |
|
||
Expected to vest as of March 29, 2024 |
|
|
|
|
|
||
The total fair value of RSUs that vested during the three months ended March 29, 2024 was $
Performance Stock Units
The Company typically grants PSUs that are based on the Company’s financial metrics, market conditions, or a hybrid of company financial metrics and market conditions. These PSUs generally cliff vest on the first day following the end of the specified performance period.
The number of common shares to be issued upon settlement following vesting of attainment-based PSUs is determined based on the Company’s financial metrics over the specified performance period against the targets established by the Company’s Board of Directors at the time of grant and will be in the range of
The number of common shares to be issued upon settlement following vesting of 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 specified 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
The number of common shares to be issued upon settlement following vesting of PSU awards that are based on the achievement of a hybrid of company 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 and a market-based multiplier based on the relative market performance of the Company’s common stock compared to the Russell 2000 Index. The payout will be in the range of
20
NOVANTA INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AS OF March 29, 2024
(Unaudited)
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 three months ended March 29, 2024:
|
Shares |
|
|
Weighted |
|
||
Unvested at December 31, 2023 |
|
|
|
$ |
|
||
Granted |
|
|
|
$ |
|
||
Performance adjustments(1) |
|
|
|
$ |
|
||
Vested |
|
( |
) |
|
$ |
|
|
Forfeited |
|
( |
) |
|
$ |
|
|
Unvested at March 29, 2024 |
|
|
|
$ |
|
||
Expected to vest as of March 29, 2024 |
|
|
|
|
|
||
(1) The amount shown represents performance adjustments related to the performance-based awards vested during the three months ended March 29, 2024.
The unvested PSUs are shown at target payout levels in the table above. As of March 29, 2024, the maximum number of common shares that could be earned under these PSU grants was approximately
The total fair value of PSUs that vested during the three months ended March 29, 2024 was $
The grant-date fair value per unit of the hybrid PSUs granted during the three months ended March 29, 2024 was estimated using the Monte Carlo valuation method with the following assumptions:
|
Three Months Ended |
|
|
Grant-date stock price |
$ |
|
|
Expected volatility |
|
% |
|
Risk-free interest rate |
|
% |
|
Expected annual dividend yield |
|
|
|
Fair value |
$ |
|
|
Stock Options
In February 2024, the Company granted
21
NOVANTA INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AS OF March 29, 2024
(Unaudited)
The table below summarizes the activities relating to stock options issued and outstanding under the Company’s Amended and Restated 2010 Incentive Plan during the three months ended March 29, 2024:
|
|
|
|
|
|
||
|
|
|
|
|
|
||
|
Shares |
|
|
Weighted |
|
||
Outstanding as of December 31, 2023 |
|
|
|
$ |
|
||
Granted |
|
|
|
$ |
|
||
Exercised |
|
— |
|
|
$ |
— |
|
Forfeited or expired |
|
— |
|
|
$ |
— |
|
Outstanding as of March 29, 2024 |
|
|
|
$ |
|
||
Exercisable as of March 29, 2024 |
|
|
|
|
|
||
Expected to vest as of March 29, 2024 |
|
|
|
|
|
||
The aggregate Black-Scholes fair value of $
|
Three Months Ended |
|
|
Expected option term in years |
|
|
|
Expected volatility |
|
% |
|
Risk-free interest rate |
|
% |
|
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
13. 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 period in which the changes 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
The Company maintains a valuation allowance on balances of certain U.S. state net operating losses, credits and certain non-U.S. tax 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
The Company’s effective tax rate of
22
NOVANTA INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AS OF March 29, 2024
(Unaudited)
compensation awards, partially offset by disallowed compensation and uncertain tax position accruals. For the three months ended March 31, 2023, the tax benefits upon vesting of certain share-based compensation awards had a benefit of
14. Restructuring, Acquisition, and Related Costs
The following table summarizes restructuring, acquisition, and related costs in the accompanying consolidated statements of operations (in thousands):
|
Three Months Ended |
|
|||||
|
March 29, |
|
|
March 31, |
|
||
|
2024 |
|
|
2023 |
|
||
2024 restructuring |
$ |
|
|
$ |
— |
|
|
2022 restructuring |
|
— |
|
|
|
|
|
2020 restructuring |
|
— |
|
|
|
|
|
Total restructuring charges |
|
|
|
|
|
||
Acquisition and related charges |
|
|
|
|
|
||
Total restructuring, acquisition, and related costs |
$ |
|
|
$ |
|
||
2024 Restructuring
The following table summarizes restructuring costs associated with the 2024 restructuring program by reportable segment (in thousands):
|
Three Months Ended |
|
|||||
|
March 29, |
|
|
March 31, |
|
||
|
2024 |
|
|
2023 |
|
||
Precision Medicine and Manufacturing |
$ |
|
|
$ |
— |
|
|
Medical Solutions |
|
|
|
|
— |
|
|
Robotics and Automation |
|
|
|
|
— |
|
|
Unallocated Corporate and Shared Services |
|
|
|
|
— |
|
|
Total |
$ |
|
|
$ |
— |
|
|
2022 Restructuring
23
NOVANTA INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AS OF March 29, 2024
(Unaudited)
2020 Restructuring
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, 2023 |
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
Restructuring charges |
|
|
|
|
|
|
|
|
|
|
|
||||
Cash payments |
|
( |
) |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
Non-cash write-offs and other adjustments |
|
( |
) |
|
|
( |
) |
|
|
( |
) |
|
|
|
|
Balance at March 29, 2024 |
$ |
|
|
$ |
|
|
$ |
|
|
$ |
— |
|
|||
Acquisition and Related Charges
Acquisition costs in connection with business combinations, including finders’ fees, legal, valuation, and other professional or consulting fees, totaled $
15. Commitments and Contingencies
Purchase Commitments
There have been no material changes to the Company’s purchase commitments since December 31, 2023.
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 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 litigation 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 outstanding claims will have a material adverse effect on 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 on its consolidated financial statements.
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
24
NOVANTA INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AS OF March 29, 2024
(Unaudited)
expenses incurred by them in connection with each proceeding in which they 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 or 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 director or officer in connection with any proceeding by reason of their 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 and officers liability insurance to be maintained by the Company.
16. Segment Information
Reportable Segments
The Company’s Chief Operating Decision Maker (“CODM”) utilizes certain financial information to make decisions about allocating resources and assessing performance for the 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
Precision Medicine and Manufacturing
The Precision Medicine and Manufacturing segment designs, manufactures and markets photonics-based solutions, including laser scanning, laser beam delivery, CO2 laser, solid state laser, ultrafast laser, and optical light engine products to customers worldwide. The segment serves highly demanding photonics-based applications for advanced industrial processes, medical and life science imaging, DNA sequencing, and medical laser procedures, particularly ophthalmology applications. The vast majority of the segment’s product offerings are sold to OEM customers. The segment sells these products directly, utilizing a highly technical sales force, and indirectly, through resellers and distributors.
Medical Solutions
The Medical Solutions segment designs, manufactures and markets a range of medical grade technologies, including medical insufflators, pumps and related disposables; visualization solutions; wireless technologies, video recorder and video integration technologies for operating room integrations; optical data collection and machine vision technologies; radio frequency identification technologies; thermal chart recorders; spectrometry technologies; embedded touch screen solutions; and high precision customized subsystems. The vast majority of the segment’s product offerings are sold to OEM customers. The segment sells these products directly, utilizing a highly technical sales force, and indirectly, through resellers and distributors.
Robotics and Automation
The Robotics and Automation segment designs, manufactures and markets optical and inductive encoders, precision motors, servo drives and motion control solutions, integrated stepper motors, intelligent robotic end-of-arm technology solutions, and air bearing spindles to customers worldwide. The vast majority of the segment’s product offerings are sold to OEM customers. The segment sells these products directly, utilizing a highly technical sales force, and indirectly, through resellers and distributors.
25
NOVANTA INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AS OF March 29, 2024
(Unaudited)
Reportable Segment Financial Information
Revenue, gross profit, gross profit margin, operating income (loss), and depreciation and amortization expenses by reportable segment were as follows (in thousands, except percentage data):
|
Three Months Ended |
|
|||||
|
March 29, |
|
|
March 31, |
|
||
Revenue |
2024 |
|
|
2023 |
|
||
Precision Medicine and Manufacturing |
$ |
|
|
$ |
|
||
Medical Solutions |
|
|
|
|
|
||
Robotics and Automation |
|
|
|
|
|
||
Total |
$ |
|
|
$ |
|
||
|
Three Months Ended |
|
|||||
|
March 29, |
|
|
March 31, |
|
||
Gross Profit |
2024 |
|
|
2023 |
|
||
Precision Medicine and Manufacturing |
$ |
|
|
$ |
|
||
Medical Solutions |
|
|
|
|
|
||
Robotics and Automation |
|
|
|
|
|
||
Unallocated Corporate and Shared Services |
|
( |
) |
|
|
( |
) |
Total |
$ |
|
|
$ |
|
||
|
Three Months Ended |
|
|||||
|
March 29, |
|
|
March 31, |
|
||
Gross Profit Margin |
2024 |
|
|
2023 |
|
||
Precision Medicine and Manufacturing |
|
% |
|
|
% |
||
Medical Solutions |
|
% |
|
|
% |
||
Robotics and Automation |
|
% |
|
|
% |
||
Total |
|
% |
|
|
% |
||
|
Three Months Ended |
|
|||||
|
March 29, |
|
|
March 31, |
|
||
Operating Income (Loss) |
2024 |
|
|
2023 |
|
||
Precision Medicine and Manufacturing |
$ |
|
|
$ |
|
||
Medical Solutions |
|
|
|
|
|
||
Robotics and Automation |
|
|
|
|
|
||
Unallocated Corporate and Shared Services |
|
( |
) |
|
|
( |
) |
Total |
$ |
|
|
$ |
|
||
|
Three Months Ended |
|
|||||
|
March 29, |
|
|
March 31, |
|
||
Depreciation and Amortization Expenses |
2024 |
|
|
2023 |
|
||
Precision Medicine and Manufacturing |
$ |
|
|
$ |
|
||
Medical Solutions |
|
|
|
|
|
||
Robotics and Automation |
|
|
|
|
|
||
Unallocated Corporate and Shared Services |
|
|
|
|
|
||
Total |
$ |
|
|
$ |
|
||
26
NOVANTA INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AS OF March 29, 2024
(Unaudited)
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 |
|
|||||
|
March 29, |
|
|
March 31, |
|
||
|
2024 |
|
|
2023 |
|
||
United States |
$ |
|
|
$ |
|
||
Germany |
|
|
|
|
|
||
Rest of Europe |
|
|
|
|
|
||
China |
|
|
|
|
|
||
Rest of Asia-Pacific |
|
|
|
|
|
||
Other |
|
|
|
|
|
||
Total |
$ |
|
|
$ |
|
||
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
The Company primarily operates in
|
Three Months Ended |
|
|||||
|
March 29, |
|
|
March 31, |
|
||
|
2024 |
|
|
2023 |
|
||
Medical |
|
% |
|
|
% |
||
Advanced Industrial |
|
% |
|
|
% |
||
Total |
|
% |
|
|
% |
||
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.
27
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 financial results and our financial condition; our belief that the Purchasing Managers Index (“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 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; business prospects; potential of future product 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; changes in actual or assumed tax liabilities and tax law; expectations regarding tax exposures; anticipated reinvestment of future earnings and dividend policy; anticipated expenditures in regard to our benefit plans; future acquisitions and integration and anticipated benefits from acquisitions and dispositions; anticipated economic benefits and expected costs of restructuring programs; our 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 not historical facts. Our actual results could differ materially from those anticipated in these forward-looking statements as a result of various important factors, including, but not limited to, the following: economic and political conditions and the effects of these conditions on our customers’ businesses, capital expenditures and level of business activities; risks associated with epidemics, pandemics or other public health crises, our dependence upon our ability to respond to fluctuations in product demand; our ability to continuously innovate, to introduce new products in a timely manner, and to manage transitions to new product innovations effectively; customer order timing and other similar factors; disruptions or breaches in security of our or our third-party providers’ information technology systems; 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 exposure to increased tariffs, trade restrictions or taxes on our products; 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; our ability to attract and retain key personnel; our restructuring and realignment activities; product defects or problems integrating our products with other vendors’ products; disruptions in the supply of certain key components and other goods from our suppliers; our failure to accurately forecast component and raw material requirements leading to additional costs and significant delays in shipments; production difficulties and product delivery delays or disruptions; our exposure to extensive medical device regulations, which may impede or hinder the approval, certification or sale of our products and, in some cases, may ultimately result in an inability to obtain approval or certification of certain products or may result in the recall or seizure of previously approved or certified products; potential penalties for violating foreign and U.S. federal and state healthcare laws and regulations; impact of healthcare industry cost containment and healthcare reform measures; changes in governmental regulations related to our business or products; actual or perceived failures to comply with applicable data protection, privacy and security laws, regulations, standards, and other requirements; our failure to implement new information technology systems successfully; changes in foreign currency rates; 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, governments and other stakeholders and third parties with respect to corporate sustainability policies and practices; the effects of climate change and related regulatory responses; our exposure to the credit risk of some of our customers and in weakened markets; 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; our 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 Part I, Item 1A of our Annual Report on Form 10-K for the fiscal year ended December 31, 2023 under the heading “Risk Factors”, as updated in our other filings with the Securities and Exchange Commission. In this Quarterly Report on Form 10-Q, the words “expects,” “intends,” “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 forward-looking statements to reflect any changes 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.
28
Accounting Period
The interim consolidated financial statements of Novanta Inc. (the “Company”, “Novanta”, “we”, “us”, “our”) are prepared for each quarterly period ending on the Friday closest to the end of the calendar quarter, except for the fourth quarter which always ends on December 31.
Business Overview
We are a leading global supplier of core technology solutions that give medical and advanced industrial original equipment manufacturers (“OEMs”) a competitive advantage. We combine 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 us to engineer core components and sub-systems that deliver extreme precision and performance, tailored to our customers' demanding applications.
Reportable Segments
We operate in three reportable segments: Precision Medicine and Manufacturing, Medical Solutions, and Robotics and Automation. The reportable segments and their principal activities are summarized below.
Precision Medicine and Manufacturing
Our Precision Medicine and Manufacturing segment designs, manufactures and markets photonics-based solutions, including laser scanning, laser beam delivery, CO2 laser, solid state laser, ultrafast laser, and optical light engine products to customers worldwide. The segment serves highly demanding photonics-based applications for advanced industrial processes, medical and life science imaging, DNA sequencing, and medical laser 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.
Medical Solutions
Our Medical Solutions segment designs, manufactures and markets a range of medical grade technologies, including medical insufflators, pumps and related disposables; visualization solutions; wireless technologies, video recorder and video integration technologies for operating room integrations; optical data collection and machine vision technologies; radio frequency identification (“RFID”) technologies; thermal chart recorders; spectrometry technologies; embedded touch screen solutions; and high precision customized subsystems. The vast majority of the segment’s product offerings are sold to OEM customers. The segment sells these products directly, utilizing a highly technical sales force, and indirectly, through resellers and distributors.
Robotics and Automation
Our Robotics and Automation segment designs, manufactures and markets optical and inductive encoders, precision motors, servo drives and motion control solutions, integrated stepper motors, intelligent robotic end-of-arm technology solutions, and air bearing spindles to customers worldwide. The vast majority of the segment’s product offerings are sold to OEM customers. The segment sells these products directly, utilizing a highly technical sales force, and indirectly, through resellers and distributors.
End Markets
We primarily operate in two end markets: the medical market and the advanced industrial market.
Medical Market
For the three months ended March 29, 2024, the medical market accounted for approximately 55% 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 technology requirements, timing of OEM customers’ product development and new product launches, changes in customer or patient preferences, and general demographic trends.
29
Advanced Industrial Market
For the three months ended March 29, 2024, the advanced industrial market accounted for approximately 45% of our revenue. Revenue from our products sold to the advanced industrial market is affected by several factors, including changing technology requirements and preferences of our customers, productivity or quality investments in a manufacturing environment, financial conditions of our customers, changes in regulatory requirements and laws, and general economic conditions. We believe that the 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.
Strategy
Our strategy is to drive sustainable, profitable growth through short-term and long-term initiatives, including:
Significant Events and Updates
Acquisition of Motion Solutions
On January 2, 2024, we 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 customary net working capital adjustments. The acquisition was financed with borrowings under our revolving credit facility. The addition of Motion Solutions enhances our product portfolio and further expands our presence in attractive medical and precision medicine spaces. The Motion Solutions acquisition is included in our Medical Solutions reportable segment.
Business Environment
Inflationary Pressures
In the first quarter of 2024, we continued to experience higher than normal inflation of raw material and component 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 timing of our actions compared to the timing of
30
these inflationary pressures, there may be periods during which we are unable to fully recover the increases in our costs. Additionally, the inflationary pressures have given rise to significant increases in interest rates as various governments used monetary policy to contain and reduce inflation. As a result, our weighted average interest rate increased from approximately 5.6% as of March 31, 2023 to approximately 6.4% as of March 29, 2024. These higher interest rates have caused access to credit to be more expensive and have impacted demand from some of our OEM customers, as they see some of their end market customers deferring new capital equipment orders due to the higher interest rate environment.
Geopolitical Conflicts
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 the conflict and further sanctions could have further impact on the global economy and inflation.
In early October 2023, Israel declared war on Hamas. We are monitoring the social, political and economic environment in Israel and in the region for any impact on our businesses. Our historical sales to Israel were around 1% of our total sales. We do not have any assets, employees, or third-party contractors in Israel. Due to the uncertainty around the duration of the conflict, future impacts are unknown to our businesses.
Results of Operations for the Three Months Ended March 29, 2024 Compared with the Three Months Ended March 31, 2023
Overview of Financial Results
Total revenue of $230.9 million for the three months ended March 29, 2024 increased $11.8 million, or 5.4%, from the prior year period primarily due to revenue from the Motion Solutions acquisition, partially offset by decreased demand in our advanced industrial end markets and certain precision medicine applications within our medical end markets. The effect of our Motion Solutions acquisition resulted in an increase in revenue of $21.2 million, or 9.7%.
Operating income of $25.6 million for the three months ended March 29, 2024 decreased $0.7 million, or 2.7%, from the prior year period. This decrease was attributable to an increase in selling, general and administrative expenses of $2.6 million, and an increase in amortization expense of $0.7 million, partially offset by an increase in gross profit of $2.8 million.
Basic earnings per common share (“Basic EPS”) of $0.41 for the three months ended March 29, 2024 decreased $0.10 from the prior year period. Diluted earnings per common share (“Diluted EPS”) of $0.41 for the three months ended March 29, 2024 decreased $0.10 from the prior year period. The decreases were primarily due to an increase in interest expense.
Revenue
The following table sets forth external revenue by reportable segment for the periods noted (dollars in thousands):
|
Three Months Ended |
|
|
|
|
|
|
|
|||||||
|
March 29, |
|
|
March 31, |
|
|
Increase |
|
|
Percentage |
|
||||
|
2024 |
|
|
2023 |
|
|
(Decrease) |
|
|
Change |
|
||||
Precision Medicine and Manufacturing |
$ |
65,234 |
|
|
$ |
69,528 |
|
|
$ |
(4,294 |
) |
|
|
(6.2 |
)% |
Medical Solutions |
|
102,452 |
|
|
|
77,640 |
|
|
|
24,812 |
|
|
|
32.0 |
% |
Robotics and Automation |
|
63,230 |
|
|
|
71,958 |
|
|
|
(8,728 |
) |
|
|
(12.1 |
)% |
Total |
$ |
230,916 |
|
|
$ |
219,126 |
|
|
$ |
11,790 |
|
|
|
5.4 |
% |
31
Precision Medicine and Manufacturing
Precision Medicine and Manufacturing segment revenue for the three months ended March 29, 2024 decreased $4.3 million, or 6.2%, versus the prior year period, primarily due to weaker demand in our advanced industrial end markets and certain precision medicine applications within our medical end markets.
Medical Solutions
Medical Solutions segment revenue for the three months ended March 29, 2024 increased $24.8 million, or 32.0%, versus the prior year period, primarily due to $21.2 million of revenue contributions from the current year acquisition and increase in sales from our detection and analysis products.
Robotics and Automation
Robotics and Automation segment revenue for the three months ended March 29, 2024 decreased $8.7 million, or 12.1%, versus the prior year period, primarily due to a decrease in demand in our advanced industrial end markets and some timing-related impacts of customers managing inventory levels related to their new product launch dynamics.
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 |
|
|||||
|
March 29, |
|
|
March 31, |
|
||
|
2024 |
|
|
2023 |
|
||
Gross profit: |
|
|
|
|
|
||
Precision Medicine and Manufacturing |
$ |
31,784 |
|
|
$ |
34,333 |
|
Medical Solutions |
|
39,391 |
|
|
|
31,886 |
|
Robotics and Automation |
|
30,549 |
|
|
|
32,815 |
|
Unallocated Corporate and Shared Services |
|
(1,308 |
) |
|
|
(1,406 |
) |
Total |
$ |
100,416 |
|
|
$ |
97,628 |
|
Gross profit margin: |
|
|
|
|
|
||
Precision Medicine and Manufacturing |
|
48.7 |
% |
|
|
49.4 |
% |
Medical Solutions |
|
38.4 |
% |
|
|
41.1 |
% |
Robotics and Automation |
|
48.3 |
% |
|
|
45.6 |
% |
Total |
|
43.5 |
% |
|
|
44.6 |
% |
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.
Precision Medicine and Manufacturing
Precision Medicine and Manufacturing segment gross profit for the three months ended March 29, 2024 decreased $2.5 million, or 7.4%, versus the prior year period, primarily due to a decrease in both revenue and gross profit margin. Precision Medicine and Manufacturing segment gross profit margin was 48.7% for the three months ended March 29, 2024, versus a gross profit margin of 49.4% for the prior year period. The decrease in gross profit margin was primarily attributable to inefficient factory utilization and unfavorable product mix.
Medical Solutions
Medical Solutions segment gross profit for the three months ended March 29, 2024 increased $7.5 million, or 23.5%, versus the prior year period, primarily due to an increase in revenue, partially offset by a decrease in gross profit margin. Medical Solutions segment gross profit margin was 38.4% for the three months ended March 29, 2024, versus a gross profit margin of 41.1% for the prior year period. Gross profit margin versus prior year decreased by 3.8 percentage point due to $3.9 million of higher amortization expense on intangible assets and inventory fair value adjustments primarily from the current year acquisition, partially offset by a 1.1 percentage point increase in gross profit margin versus the prior year from our minimally invasive surgery products and detection and analysis products.
32
Robotics and Automation
Robotics and Automation segment gross profit for the three months ended March 29, 2024 decreased $2.3 million, or 6.9%, versus the prior year period, primarily due to a decrease in revenue. Robotics and Automation segment gross profit margin was 48.3% for the three months ended March 29, 2024, versus 45.6% for the prior year period. The increase in gross profit margin was primarily attributable to improved factory efficiency.
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. These costs for the three months ended March 29, 2024 decreased $0.1 million versus the prior year period.
Operating Expenses
The following table sets forth operating expenses for the periods noted (in thousands):
|
Three Months Ended |
|
|||||
|
March 29, |
|
|
March 31, |
|
||
|
2024 |
|
|
2023 |
|
||
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 |
$ |
74,809 |
|
|
$ |
71,316 |
|
Research and Development and Engineering Expenses
Research and Development and Engineering (“R&D”) expenses are primarily comprised of employee compensation related expenses and cost of materials for R&D projects. R&D expenses were $23.2 million, or 10.1% of revenue, during the three months ended March 29, 2024, versus $22.8 million, or 10.4% of revenue, during the prior year period. The increase in R&D expenses in terms of total dollars was primarily due to higher compensation related expenses as a result of the current year acquisition.
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 $43.5 million, or 18.9% of revenue, during the three months ended March 29, 2024, versus $40.9 million, or 18.7% of revenue, during the prior year period. The increase in SG&A expenses in terms of total dollars and as a percentage of revenue was primarily due to increases in compensation related expenses and discretionary spending, mostly as a result of the current year acquisition.
Amortization of Purchased Intangible Assets
Amortization of purchased intangible assets, excluding amortization of developed technologies which is included in cost of revenue, was $5.8 million, or 2.5% of revenue, during the three months ended March 29, 2024, versus $5.1 million, or 2.3% of revenue, during the prior year period. The increase in terms of total dollars and as a percentage of revenue was the result of more acquired intangible assets from the current year acquisition.
Restructuring, Acquisition, and Related Costs
We recorded restructuring, acquisition, and related costs of $2.3 million during the three months ended March 29, 2024, versus $2.5 million during the prior year period.
33
Operating Income (Loss) by Segment
The following table sets forth operating income (loss) by segment for the periods noted (in thousands):
|
Three Months Ended |
|
|||||
|
March 29, |
|
|
March 31, |
|
||
|
2024 |
|
|
2023 |
|
||
Operating Income (Loss) |
|
|
|
|
|
||
Precision Medicine and Manufacturing |
$ |
15,744 |
|
|
$ |
16,684 |
|
Medical Solutions |
|
11,989 |
|
|
|
9,841 |
|
Robotics and Automation |
|
12,216 |
|
|
|
12,000 |
|
Unallocated Corporate and Shared Services |
|
(14,342 |
) |
|
|
(12,213 |
) |
Total |
$ |
25,607 |
|
|
$ |
26,312 |
|
Precision Medicine and Manufacturing
Precision Medicine and Manufacturing segment operating income was $15.7 million, or 24.1% of revenue, during the three months ended March 29, 2024, versus $16.7 million, or 24.0% of revenue, during the prior year period. The decrease in operating income was primarily due to a decrease in gross profit of $2.5 million, partially offset by a decrease in restructuring, acquisition, and related costs of $0.9 million and a decrease in R&D expenses of $0.9 million.
Medical Solutions
Medical Solutions segment operating income was $12.0 million, or 11.7% of revenue, during the three months ended March 29, 2024, versus $9.8 million, or 12.7% of revenue, during the prior year period. The increase in operating income was primarily due to an increase in gross profit of $7.5 million, partially offset by an increase in SG&A expenses of $2.0 million, an increase in R&D expenses of $1.8 million, and an increase in amortization expense of 1.2 million as a result of the current year acquisition.
Robotics and Automation
Robotics and Automation segment operating income was $12.2 million, or 19.3% of revenue, during the three months ended March 29, 2024, versus $12.0 million, or 16.7% of revenue, during the prior year period. The increase in operating income was primarily due to a decrease in restructuring, acquisition, and related costs of $1.1 million, a decrease in R&D expenses of $0.7 million, a decrease in amortization expense of $0.4 million due to certain intangible assets being fully amortized in 2023, and a decrease in SG&A expense of $0.3 million, partially offset by a decrease in gross profit of $2.3 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 costs. These costs for the three months ended March 29, 2024 increased $2.1 million versus the prior year period. The increase in operating loss was primarily due to an increase in acquisition related costs of $1.4 million and an increase in SG&A expenses of $0.6 million.
Other Income and Expense Items
The following table sets forth other income and expense items for the periods noted (in thousands):
|
Three Months Ended |
|
|||||
|
March 29, |
|
|
March 31, |
|
||
|
2024 |
|
|
2023 |
|
||
Interest income (expense), net |
$ |
(8,254 |
) |
|
$ |
(6,332 |
) |
Foreign exchange transaction gains (losses), net |
$ |
(321 |
) |
|
$ |
(77 |
) |
Other income (expense), net |
$ |
(116 |
) |
|
$ |
(166 |
) |
Interest Income (Expense), Net
Net interest expense was $8.3 million for the three months ended March 29, 2024, versus $6.3 million for the prior year period. The increase in net interest expense was primarily due to an increase in average debt levels to fund the Motion Solutions acquisition and an increase in the weighted average interest rate on our senior credit facilities, partially offset by an increase in interest income.
34
The weighted average interest rate on our senior credit facilities was 6.54% during the three months ended March 29, 2024, versus 5.55% during the prior year period.
Foreign Exchange Transaction Gains (Losses), Net
Foreign exchange transaction gains (losses) were nominal for both the three months ended March 29, 2024 and the three months ended March 31, 2023.
Other Income (Expense), Net
Net other expense was nominal for both the three months ended March 29, 2024 and the three months ended March 31, 2023.
Income Tax Provision (Benefit)
Our effective tax rate for the three months ended March 29, 2024 was 13.2%, versus 7.5% for the prior year period. Our effective tax rate of 13.2% for the three months ended March 29, 2024 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 of share-based compensation awards, partially offset by disallowed compensation deductions, uncertain tax position accruals, and estimated Pillar Two inclusion. For the three months ended March 29, 2024, the windfall tax benefits upon vesting of certain stock-based compensation awards had a benefit of 6.8% on our effective tax rate.
Our effective tax rate for the three months ended March 31, 2023 was 7.5% which 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 of share-based compensation awards, partially offset by disallowed compensation deductions and uncertain tax position accruals. For the three months ended March 31, 2023, the windfall tax benefits upon vesting of certain stock-based compensation awards had a benefit of 8.2% on our effective tax rate.
On December 12, 2022, the EU member states agreed to implement the Organization for Economic Co-operation and Development (“OECD”) Pillar Two Model Rules. These rules, which impose a global corporate minimum income tax rate of 15%, have been enacted or introduced in proposed legislation in 35 countries. Additional countries are actively considering changes to their tax laws to adopt certain parts of the OECD’s proposals. We have estimated the impact of this minimum tax in our effective tax rate analysis, and it does not have a material impact on the Company’s financial results in the current period. We continue to monitor developments and anticipate further legislative activity in 2024.
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 borrowing capacity under our revolving credit facility provides another potential source of liquidity for 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 business development activities or other future investing cash requirements, subject to approval by the lenders in the Third Amended and Restated Credit 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 geopolitical 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 Part I, Item 1A of our Annual Report on Form 10-K for the fiscal year ended December 31, 2023.
Our cash requirements primarily consist of principal and interest payments associated with our Senior Credit Facilities (as defined below), operating and finance leases, purchase commitments, and pension obligations. Such contractual obligations are
35
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, 2023. Through March 29, 2024, we have not entered into any other material new or modified contractual obligations since December 31, 2023.
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 March 29, 2024, $51.2 million of our $93.5 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 $99.1 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. as of March 29, 2024. Additionally, we may use intercompany loans to address short-term cash flow needs for various subsidiaries.
Senior Credit Facilities
In December 2019, we entered into the Third Amended and Restated Credit 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 Senior Credit Facilities had an original maturity date of December 2024 and 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 Agreement and exercised a portion of the uncommitted accordion option. The First Amendment increased the revolving credit facility commitment under the Credit Agreement by $145.0 million, from $350.0 million to $495.0 million, and reset the uncommitted accordion option to $200.0 million for potential future expansion.
On October 5, 2021, the Company 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 March 29, 2024, we had $76.5 million term loan and $440.6 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 our consolidated leverage ratio, or (b) the Term SOFR Screen Rate, the Alternative Currency Daily Rate or the Alternative Currency Term 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 March 29, 2024, we had outstanding borrowings under the Credit Agreement denominated in Euro and U.S. dollars of $99.1 million and $418.0 million, respectively.
36
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 these financial covenants and our compliance therewith as of March 29, 2024:
|
Requirement |
|
Actual |
Maximum consolidated leverage ratio (1) |
3.50 |
|
2.31 |
Minimum consolidated fixed charge coverage ratio |
1.50 |
|
4.22 |
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 our 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 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 Rule 10b-18 under the Securities Exchange Act of 1934. We did not repurchase any shares during the three months ended March 29, 2024. We had $49.5 million available for share repurchases under the 2020 Repurchase Plan as of March 29, 2024.
Cash Flows for the Three Months Ended March 29, 2024 and March 31, 2023
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):
|
Three Months Ended |
|
|||||
|
March 29, |
|
|
March 31, |
|
||
|
2024 |
|
|
2023 |
|
||
Net cash provided by operating activities |
$ |
32,829 |
|
|
$ |
10,245 |
|
Net cash used in investing activities |
$ |
(197,615 |
) |
|
$ |
(3,620 |
) |
Net cash provided by (used in) financing activities |
$ |
153,463 |
|
|
$ |
(25,066 |
) |
|
|
|
|
|
|
||
|
March 29, |
|
|
December 31, |
|
||
|
2024 |
|
|
2023 |
|
||
Cash and cash equivalents |
$ |
93,520 |
|
|
$ |
105,051 |
|
Unused and available funds under the revolving credit facility |
$ |
254,371 |
|
|
$ |
416,596 |
|
Operating Cash Flows
Cash provided by operating activities was $32.8 million for the three months ended March 29, 2024, versus $10.2 million for the prior year period. Cash provided by operating activities for the three months ended March 29, 2024 increased from the prior year period primarily as a result of better net working capital management.
Investing Cash Flows
Cash used in investing activities was $197.6 million for the three months ended March 29, 2024, primarily driven by the Motion Solutions acquisition. We paid cash consideration of $191.2 million, net of cash acquired and net working capital adjustments. We also paid $6.4 million for capital expenditures.
Cash used in investing activities was $3.6 million for the three months ended March 31, 2023, all related to capital expenditures.
37
We expect to use an aggregate of approximately $20 million to $25 million in 2024 for capital expenditures related to investments in new property, plant and equipment for our existing businesses, which includes a significant one-time facility buildout project in the U.K. that began in 2023 with a target completion date in 2024.
Financing Cash Flows
Cash provided by financing activities was $153.5 million for the three months ended March 29, 2024, primarily driven by $198.0 million of borrowings under our revolving credit facility to fund the Motion Solutions acquisition, partially offset by $36.0 million of term loan and revolving credit facility repayments and $8.4 million of payroll tax payments upon vesting of share-based compensation awards.
Cash used in financing activities was $25.1 million for the three months ended March 31, 2023, primarily due to $15.3 million of term loan and revolving credit facility repayments and $9.6 million of payroll tax payments upon vesting of share-based compensation awards.
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, 2023. There have been no material changes to our critical accounting policies and estimates through March 29, 2024 from those disclosed in our Annual Report on Form 10-K for the fiscal year ended December 31, 2023.
Recent Accounting Pronouncements
See Note 1 to Unaudited Interim Consolidated Financial Statements.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
Our primary market risk exposures are foreign currency exchange rate fluctuations and interest rate sensitivity. During the three months ended March 29, 2024, 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, 2023.
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 March 29, 2024, 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 March 29, 2024.
Changes in Internal Control Over Financial Reporting
There has been no change to our internal control over financial reporting during the fiscal quarter ended March 29, 2024 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
38
PART II—OTHER INFORMATION
Item 1. Legal Proceedings
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.
Item 1A. Risk Factors
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, 2023. There have been no material changes in our risk factors as included in our Annual Report on Form 10-K for the fiscal year ended December 31, 2023.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
None
Item 3. Defaults Upon Senior Securities
None.
Item 4. Mine Safety Disclosures
None.
Item 5. Other Information
None.
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 March 29, 2024, 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 |
|
|
|
|
|
||||||
|
|
|
|
|
None of our officers or directors
39
Item 6. Exhibits
|
|
|
|
Incorporated by Reference |
||||||||
Exhibit Number |
|
Exhibit Description |
|
Form |
|
File No. |
|
Exhibit |
|
Filing Date |
|
Filed/ Furnished |
|
|
|
|
|
|
|
||||||
2.1† |
|
|
10-K |
|
001-35083 |
|
2.3 |
|
2/28/2024 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3.1 |
|
Certificate and Articles of Continuance of the Registrant, dated March 22, 1999 |
|
S-3 |
|
333-202597 |
|
3.1 |
|
03/09/2015 |
|
|
|
|
|
|
|
|
|
||||||
3.2 |
|
|
10-K |
|
001-35083 |
|
3.2 |
|
03/01/2021 |
|
|
|
|
|
|
|
|
|
|
||||||
3.3 |
|
Articles of Reorganization of the Registrant, dated July 23, 2010 |
|
8-K |
|
000-25705 |
|
3.1 |
|
07/23/2010 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3.4 |
|
|
10-K |
|
001-35083 |
|
3.4 |
|
3/1/2023 |
|
|
|
|
|
|
|
|
|
|
||||||
3.5 |
|
Articles of Amendment of the Registrant, dated December 29, 2010 |
|
8-K |
|
000-25705 |
|
3.1 |
|
12/29/2010 |
|
|
|
|
|
|
|
|
|
||||||
3.6 |
|
|
8-K |
|
001-35083 |
|
10.1 |
|
05/12/2016 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3.7 |
|
Articles of Amendment of the Registrant, dated April 29, 2022 |
|
10-Q |
|
001-35083 |
|
3.6 |
|
05/10/2022 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
31.1 |
|
Chief Executive Officer Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 |
|
|
|
|
|
|
|
|
|
* |
|
|
|
|
|
|
|
||||||
31.2 |
|
Chief Financial Officer Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 |
|
|
|
|
|
|
|
|
|
* |
|
|
|
|
|
|
|
||||||
32.1 |
|
|
|
|
|
|
|
|
|
|
** |
|
|
|
|
|
|
|
|
||||||
32.2 |
|
|
|
|
|
|
|
|
|
|
** |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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 |
|
|
|
|
|
|
|
|
|
* |
|
|
|
|
|
|
|
|
|
|
|
|
|
104 |
|
Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101) |
|
|
|
|
|
|
|
|
|
* |
† Certain schedules or appendices to this exhibit have been omitted pursuant to Regulation S-K Item 601(a)(5). A copy of any omitted schedule will be furnished to the Securities and Exchange Commission or its staff upon request.
* Filed herewith
** Furnished herewith
40
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 |
|
Chair of the Board of Directors and Chief Executive Officer |
|
May 7, 2024 |
Matthijs Glastra |
|
|
|
|
|
|
|
||
/s/ Robert J. Buckley |
|
Chief Financial Officer |
|
May 7, 2024 |
Robert J. Buckley |
|
|
|
|
41