What changed in this filing

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Item 1. Financial Statements

2022-08-09 compared with 2022-05-10 · 196 added, 159 removed, 631 unchanged (36% of the section changed)

47 unchanged sentences

Three Months Ended

Six Months Ended

Cost of revenue

19 unchanged sentences

Three Months Ended

Six Months Ended

Consolidated net income

6 unchanged sentences

The tax effect on this component of comprehensive income (loss) was nominal for all periods presented.

See Note 3 for the total amount of pension liability adjustments reclassified out of accumulated other comprehensive income (loss).

See Note 3 to the Consolidated Financial Statements for the total amount of pension liability adjustments reclassified out of accumulated other comprehensive income (loss).

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

2 unchanged sentences

dollars or shares)

Preferred Shares

Common Shares

Additional Paid-In

Retained Earnings

Accumulated Other Comprehensive

Three Months Ended April 1, 2022

Accumulated Other

Earnings (Deficit)

Comprehensive Loss

Three Months Ended July 1, 2022

Balance at April 1, 2022

Consolidated net income

Common shares issued under stock plans

Common shares withheld for taxes on vested stock awards

Repurchases of common shares

Share-based compensation

Other comprehensive income (loss), net of tax

Balance at July 1, 2022

Six Months Ended July 1, 2022

Balance at December 31, 2021

2 unchanged sentences

Common shares withheld for taxes on vested stock awards

Repurchases of common shares

Share-based compensation

Other comprehensive income (loss), net of tax

Balance at July 1, 2022

Three Months Ended July 2, 2021

Balance at April 2, 2021

Three Months Ended April 2, 2021

Consolidated 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 July 2, 2021

Six Months Ended July 2, 2021

Balance at December 31, 2020

4 unchanged sentences

Other comprehensive income (loss), net of tax

Balance at April 2, 2021

Balance at July 2, 2021

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

1 unchanged sentence

(In thousands of U.S.

Three Months Ended

Six Months Ended

Cash flows from operating activities:

7 unchanged sentences

Write-off of unamortized deferred financing costs

Contingent consideration adjustments

Changes in assets and liabilities which (used)/provided cash, excluding

17 unchanged sentences

Payments of withholding taxes from share-based awards

Payment of contingent consideration related to an acquisition

Purchase of building under finance lease

Repurchases of common shares

Payment of contingent consideration related to acquisitions

Purchase of a building under finance lease

Other financing activities

1 unchanged sentence

Effect of exchange rates on cash and cash equivalents

Decrease in cash and cash equivalents

Increase (decrease) in cash and cash equivalents

Cash and cash equivalents, beginning of the period

6 unchanged sentences

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

AS OF APRIL 1, 2022

AS OF JULY 1, 2022

Basis of Presentation

and its subsidiaries (collectively 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.

(together with its subsidiaries, “Novanta” or the “Company”) 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 photonics, vision and precision motion with a proven ability to solve complex technical challenges.

13 unchanged sentences

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

AS OF APRIL 1, 2022

AS OF JULY 1, 2022

Recent Accounting Pronouncements

32 unchanged sentences

As the Company’s right to payment from a customer is based on the value of engineering services performed, the Company recognizes revenue based on the corresponding value to the customer from the Company’s performance completed to date.

Revenue from engineering services aggregated to less than 3 % of the Company’s consolidated revenue during the three months ended April 1, 2022 and April 2, 2021.

Revenue from engineering services aggregated to less than 3 % of the Company’s consolidated revenue during the six months ended July 1, 2022 and July 2, 2021.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

AS OF APRIL 1, 2022

AS OF JULY 1, 2022

The Company occasionally sells separately priced non-standard/extended warranty services or preventative maintenance plans with the sale of products.

6 unchanged sentences

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.

The Company generally provides warranties for its products.

The standard warranty period is typically 12 months to 36 months .

The Company recognizes liabilities associated with standard warranty periods for its products in accordance with the provisions of ASC 450, “Contingencies,” as the Company has the ability to ascertain the likelihood of the liabilities and can reasonably estimate the amount of the liabilities.

The standard warranty periods for the Company’s products are typically 12 months to 36 months .

The Company recognizes estimated liabilities associated with standard warranty periods for its products in accordance with the provisions of ASC 450, “Contingencies,” as the Company has the ability to ascertain the likelihood of the liabilities and can reasonably estimate the amount of the liabilities.

A provision for the estimated cost related to standard warranties is recorded as cost of revenue at the time revenue is recognized.

2 unchanged sentences

Practical Expedients and Exemptions

The Company expenses incremental direct costs of obtaining a contract when incurred if the expected amortization period is one year or less.

The Company expenses incremental direct costs of obtaining a contract when incurred because the expected amortization period is one year or less.

These costs are recorded within selling, general and administrative expenses in the consolidated statement of operations.

4 unchanged sentences

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 April 1, 2022 and December 31, 2021, contract liabilities were $ 7.5 million and $ 7.3 million, respectively, and are included in accrued expenses and other current liabilities and other liabilities in the accompanying consolidated balance sheets.

The increase in the contract liability balance during the three months ended April 1, 2022 is primarily due to cash payments received in advance of satisfying performance obligations, partially offset by $ 3.2 million of revenue recognized during the period that was included in the contract liability balance as of December 31, 2021.

As of July 1, 2022 and December 31, 2021, contract liabilities were $ 7.9 million and $ 7.3 million, respectively, and are included in accrued expenses and other current liabilities and other liabilities in the accompanying consolidated balance sheets.

The increase in the contract liability balance during the six months ended July 1, 2022 is primarily due to cash payments received in advance of satisfying performance obligations, partially offset by $ 3.6 million of revenue recognized during the period that was included in the contract liability balance as of December 31, 2021.

Disaggregated Revenue

1 unchanged sentence

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

AS OF APRIL 1, 2022

AS OF JULY 1, 2022

Accumulated Other Comprehensive Loss

5 unchanged sentences

Amounts reclassified from accumulated other comprehensive loss

Balance at April 1, 2022

Balance at July 1, 2022

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

2 unchanged sentences

For diluted earnings per common share, the denominator includes the dilutive effect of outstanding common share equivalents.

For the three months ended April 1, 2022 and April 2, 2021, respectively, weighted average shares outstanding for the diluted earnings per common share included the dilutive effect of outstanding restricted stock units, stock options, and relative total shareholder return performance-based restricted stock units (“TSR-PSUs”), determined using the treasury stock method.

The dilutive effects of market-based contingently issuable shares 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.

Dilutive effects of attainment-based contingently issuable shares granted to the former Laser Quantum Limited (“Laser Quantum”) noncontrolling interest shareholders, non-GAAP EPS performance-based restricted stock units (“EPS-PSUs”), operating cash flow performance-based restricted stock units (“OCF-PSUs”), and performance-based restricted stock units granted to the ATI Industrial Automation, Inc.

(“ATI”) employees (“ATI-PSUs”) are included in the weighted average common share calculation when the performance targets have been achieved based on the cumulative achievement against the performance targets as of the end of each reporting period.

For the three and six months ended July 1, 2022 and July 2, 2021, weighted average shares outstanding for the diluted earnings per common share included the dilutive effect of outstanding restricted stock units, stock options, relative total shareholder return performance-based restricted stock units (“TSR-PSUs”) and certain other performance-based restricted stock units (“PSUs”), determined using the treasury stock method.

The dilutive effects of market-based contingently issuable shares from the TSR-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 contingently issuable shares from other PSUs are included in the weighted average common share calculation only when the performance targets have been achieved based on the cumulative achievement against the performance targets 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

Six Months Ended

Consolidated net income

5 unchanged sentences

Earnings per Common Share:

For the three months ended April 1, 2022, 36 thousand EPS-PSUs and 37 thousand OCF-PSUs granted to certain members of the executive management team, 55 thousand ATI-PSUs, and 213 thousand shares of restricted stock issued to the former Laser

For both the three and six months ended July 1, 2022, 35 thousand non-GAAP EPS performance-based restricted stock units (“EPS-PSUs”) and 37 thousand operating cash flow performance-based restricted stock units (“OCF-PSUs”) granted to certain members of the executive management team, and 53 thousand performance-based restricted stock units granted to ATI Industrial

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

AS OF APRIL 1, 2022

Quantum non-controlling interest share holders are considered contingently issuable shares and were excluded from the calculation of the denominator as the contingent conditions had not been met as of April 1 , 202 2 .

For the three months ended April 2, 2021, 46 thousand EPS-PSUs and 37 thousand OCF-PSUs granted to certain members of the executive management team, and 213 thousand shares of restricted stock issued to the former Laser Quantum non-controlling interest shareholders were considered contingently issuable shares and were excluded from the calculation of the denominator as the contingent conditions had not been met as of April 2, 2021.

AS OF JULY 1, 2022

Automation employees (“ ATI-PSUs ”) are considered attainment-based contingently issuable shares and were excluded from the calculation of the denominator as the contingent conditions had not been met as of July 1 , 202 2 .

For both the three and six months ended July 2, 2021, 46 thousand EPS-PSUs and 37 thousand OCF-PSUs granted to certain members of the executive management team, and 213 thousand shares of restricted stock issued to the former Laser Quantum non-controlling interest shareholders were considered attainment-based contingently issuable shares and were excluded from the calculation of the denominator as the contingent conditions had not been met as of July 2, 2021.

Fair Value Measurements

12 unchanged sentences

Contingent Considerations

On August 30, 2021, the Company acquired ATI.

Under the purchase and sale agreement for the ATI acquisition, the former shareholders of ATI are eligible to receive contingent consideration based on ATI’s fiscal year 2021 Adjusted EBITDA, as defined in the purchase and sale agreement.

The contingent consideration will be payable in 2022.

The preliminary fair value of the contingent consideration was determined based on the Monte Carlo valuation method and was recorded as part of the purchase price as of the acquisition date.

Once the fair value of the contingent consideration is finalized, subsequent changes in the estimated fair value are recorded in the consolidated statement of operations in restructuring, acquisition, and related costs until the liability is fully settled.

On August 30, 2021, the Company acquired ATI Industrial Automation Inc.

Under the purchase and sale agreement for the ATI acquisition, the former shareholders of ATI (the “Sellers”) are eligible to receive contingent consideration based on ATI’s fiscal year 2021 Adjusted EBITDA, as defined in the purchase and sale agreement.

The contingent consideration will be payable in the third quarter of 2022.

The estimated fair value of the contingent consideration was determined based on the Monte Carlo valuation method and was recorded as part of the purchase price as of the acquisition date.

Subsequent changes in the estimated fair value are recorded in the consolidated statement of operations in restructuring, acquisition, and related costs until the liability is fully settled.

The fair value of the contingent consideration was $ 44.0 million as of December 31, 2021.

There were no changes in the fair value of the contingent consideration during the three months ended April 1, 2022.

During the three months ended July 1, 2022, the fair value of the contingent consideration was adjusted to $ 45.0 million based on the final determination of ATI’s 2021 Adjusted EBITDA between the Company and the Sellers.

On July 31, 2019, the Company acquired ARGES GmbH (“ARGES”).

5 unchanged sentences

During 2020, the fair value of the contingent consideration was adjusted to € 4.1 million ($ 5.1 million).

During 2021, the fair value of the contingent consideration was adjusted to € 3.3 million ($ 3.8 million).

The Company made the first installment payment of € 0.4 million ($ 0.4

During 2021, the Company made the first

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

AS OF APRIL 1, 2022

million) in March 2021 and the second installment payment of € 0.3 million ($ 0.4 million) in March 2022 .

These installment payments are reported as cash outflows from financing activities in the consolidated statement of cash flows for the respective periods.

Based on the revenue performance and revenue projections as of April 1, 2022, the fair value of the remaining contingent consideration was adjusted to € 1.4 million ($ 1.5 million).

There were no other changes in the fair value of the contingent consideration during the three months ended April 1 , 202 2 .

AS OF JULY 1, 2022

installment payment of € 0.4 million ($ 0.4 million) in March 2021 and adjusted the fair value of the contingent consideration to € 3.3 million ($ 3.8 million) as of December 31, 2021 .

During 2022, the Company made the second installment payment of € 0.3 million ($ 0.4 million) in March 2022 .

The installment payments are reported as cash outflows from financing activities in the consolidated statement of cash flows for the respective periods.

Based on the revenue performance and revenue projection as of April 1, 2022 , the fair value of the remaining contingent consideration was adjusted to € 1.4 million ($ 1.4 million).

There were no other changes in the fair value of the contingent consideration during the three and six months ended July 1 , 202 2 .

On April 16, 2019, the Company acquired Ingenia CAT, S.L.

4 unchanged sentences

Subsequent changes in the estimated fair value of the contingent consideration liability are recorded in the consolidated statement of operations in restructuring, acquisition, and related costs until the liability is fully settled.

During 2020, the fair value of the contingent consideration was adjusted to € 2.3 million ($ 2.9 million).

During 2021, the fair value of the contingent consideration was adjusted to € 1.5 million ($ 1.7 million).The Company made the first installment payment of € 1.0 million ($ 1.1 million) in May 2020 and the second installment payment of € 1.2 million ($ 1.4 million) in May 2021.

These installment payments are reported as cash outflows from financing activities in the consolidated statement of cash flows for the respective periods.

Based on the revenue performance as of April 1, 2022, the end of the relevant performance period, the fair value of the remaining contingent consideration was adjusted to € 1.1 million ($ 1.2 million).

There were no other changes in the fair value of the contingent consideration during the three month ended April 1, 2022.

During 2020, the Company made the first installment payment of € 1.0 million ($ 1.1 million) in May 2020 and adjusted the fair value of the contingent consideration to € 2.3 million ($ 2.9 million) as of the end of the year.

During 2021, the Company made the second installment payment of € 1.2 million ($ 1.4 million) in May 2021 and adjusted the fair value of the contingent consideration to € 1.5 million ($ 1.7 million) as of the end of the year.

The installment payments are reported as cash outflows from financing activities in the consolidated statement of cash flows for the respective periods.

During the six months ended July 1, 2022, the fair value of the remaining contingent consideration was adjusted to € 1.8 million ($ 1.9 million), which is expected to be paid during the three months ending October 1, 2022.

On December 14, 2016 , the Company acquired certain video signal processing and management technologies used in medical visualization solutions.

3 unchanged sentences

As the acquired assets did not meet the definition of a business, the fair value of the contingent consideration is recognized when probable and estimable and is capitalized as part of the cost of the acquired assets.

Subsequent changes in the estimated fair value of this contingent liability are recorded as adjustments to the carrying value of the assets acquired and amortized over the remaining useful life of the underlying assets.

Based on revenue achievements against the target, the Company had recognized an aggregate fair value of € 5.5 million ($ 6.3 million) of the acquired intangible assets as of April 1, 2022.

Subsequent changes in the estimated fair value of this contingent liability are recorded as adjustments to the carrying value of the assets acquired and are amortized over the remaining useful life of the underlying assets.

Based on revenue achievements against the target, the Company had recognized an aggregate fair value of € 5.5 million ($ 6.3 million) of the acquired intangible assets as of July 1, 2022.

The Company made the first installment payment of € 2.4 million ($ 2.6 million) in February 2020, the second installment payment of € 1.8 million ($ 2.2 million) in February 2021, and the final installment payment of € 1.3 million ($ 1.5 million) in March 2022.

The installment payments have been reported as cash outflows from investing activities in the consolidated statements of cash flows.

There were no other changes in the fair value of the contingent consideration during the three and six month ended July 1, 2022.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

AS OF APRIL 1, 2022

AS OF JULY 1, 2022

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 April 1, 2022 (in thousands):

The following table summarizes the fair values of the Company’s assets and liabilities measured at fair value on a recurring basis as of July 1, 2022 (in thousands):

Quoted Prices in

27 unchanged sentences

Contingent considerations - Long-term

Changes in the fair value of Level 3 contingent considerations during the three months ended April 1, 2022 were as follows (in thousands):

Contingent Considerations

Changes in the fair value of Level 3 contingent considerations during the six months ended July 1, 2022 were as follows (in thousands):

Balance at December 31, 2021

1 unchanged sentence

Effect of foreign exchange rates

Balance at April 1, 2022

Balance at July 1, 2022

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

AS OF APRIL 1, 2022

The following table provides qualitative information associated with the fair value measurement of the Company’s Level 3 liabilities:

April 1, 2022

AS OF JULY 1, 2022

The following table provides qualitative information associated with the fair value measurement of the Company’s Level 3 liabilities as of July 1, 2022:

(in thousands)

3 unchanged sentences

Contingent consideration - ATI

Monte Carlo method

Adjusted EBITDA for fiscal year 2021

EBITDA risk premium

EBITDA volatility

Credit spread

Contingent consideration - ARGES

4 unchanged sentences

Contingent consideration - Ingenia

Monte Carlo method

Historical revenues from April 2019 through March 2022

6 unchanged sentences

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 April 1, 2022, the aggregate notional amount and fair value of the Company’s foreign currency forward contracts was $ 40.6 million and a net gain of $ 0.1 million, respectively.

As of July 1, 2022, the aggregate notional amount and fair value of the Company’s foreign currency forward contracts was $ 58.7 million and a net gain of less than $ 0.1 million, respectively.

As of December 31, 2021, the aggregate notional amount and fair value of the Company’s foreign currency forward contracts was $ 50.0 million and a net loss of less than $ 0.1 million, respectively.

The Company recognized an aggregate net loss of $ 0.1 million and an aggregate net gain of $ 0.7 million for the three months ended April 1, 2022 and April 2, 2021, respectively.

The Company recognized an aggregate net loss of $ 1.4 million and $ 1.5 million for the three and six months ended July 1, 2022, respectively.

The Company recognized an aggregate net loss of $ 0.1 million and an aggregate net gain of $ 0.6 million for the three and six months ended July 2, 2021, respectively.

These amounts were included in foreign exchange transaction gains (losses) in the consolidated statements of operations.

4 unchanged sentences

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

AS OF APRIL 1, 2022

The following table summarizes changes in goodwill during the three months ended April 1, 2022 (in thousands):

AS OF JULY 1, 2022

The following table summarizes changes in goodwill during the six months ended July 1, 2022 (in thousands):

Balance at beginning of the period

1 unchanged sentence

Balance at end of the period

Goodwill by reportable segment as of April 1, 2022 was as follows (in thousands):

Goodwill by reportable segment as of July 1, 2022 was as follows (in thousands):

Reportable Segment

4 unchanged sentences

Intangible Assets

Intangible assets as of April 1, 2022 and December 31, 2021, respectively, are summarized as follows (in thousands):

April 1, 2022

Intangible assets as of July 1, 2022 and December 31, 2021, respectively, are summarized as follows (in thousands):

December 31, 2021

13 unchanged sentences

Three Months Ended

Six Months Ended

Amortization expense – cost of revenue

2 unchanged sentences

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

AS OF APRIL 1, 2022

Estimated amortization expense for each of the five succeeding years and thereafter as of April 1, 2022 was as follows (in thousands):

AS OF JULY 1, 2022

Estimated amortization expense for each of the five succeeding years and thereafter as of July 1, 2022 was as follows (in thousands):

Year Ending December 31,

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Accrued Warranty

Three Months Ended

Six Months Ended

Balance at beginning of the period

4 unchanged sentences

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

AS OF APRIL 1, 2022

AS OF JULY 1, 2022

Other Long-Term Liabilities

17 unchanged sentences

Borrowings under the revolving credit facility may be repaid at any time through March 2027 .

The Company made principal payments of € 1.1 million ($ 1.2 million) towards its term loan and $ 10.4 million towards its revolving credit facility during the three months ended April 1, 2022.

The Company made principal payments of € 2.3 million ($ 2.4 million) towards its term loan and $ 10.4 million towards its revolving credit facility during the six months ended July 1, 2022.

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.

2 unchanged sentences

The Fourth Amendment increased the revolving credit facility commitment under the Third Amended and Restated Credit Agreement by $ 200.0 million, from $ 495.0 million to $ 695.0 million, and reset the uncommitted accordion option to $ 200.0 million for potential future expansion.

On March 10, 2022, the Company entered into an amendment (the “Fifth Amendment”) to the Third Amended and Restated Credit Agreement to extend the maturity date from December 31, 2024 to March 10, 2027, update the pricing grid, replace LIBOR with SOFR as the reference rate for US dollar borrowings, and increase the uncommitted accordion option from $ 200 million to $ 350 million.

In connection with the Fifth Amendment, the Company capitalized $ 2.5 million deferred financing costs and recorded a $ 0.6 million loss from the write-off of a portion of the unamortized deferred financing costs.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

AS OF APRIL 1, 2022

AS OF JULY 1, 2022

dollar borrowings, and increase the uncommitted accordion option from $ 200 million to $ 350 million.

In connection with the Fifth Amendment, t he Company capitalized $ 2.5 million deferred financing costs and recorded a $ 0.6 million loss from the write-off of a portion of the unamortized deferred financing costs .

The Company is required to satisfy certain financial and non-financial covenants under the 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 April 1 , 202 2 .

The Company was in compliance with these covenants as of July 1, 2022.

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 April 1, 2022 and December 31, 2021, 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.

As of July 1, 2022 and December 31, 2021, 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.

8 unchanged sentences

Three Months Ended

Six Months Ended

Operating lease cost

5 unchanged sentences

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

AS OF APRIL 1, 2022

AS OF JULY 1, 2022

The following table provides additional details of balance sheet information related to the Company’s leases (in thousands, except lease term and discount rate):

18 unchanged sentences

The following table provides additional details of cash flow information related to the Company’s leases (in thousands):

Three Months Ended

Six Months Ended

Cash paid for amounts included in lease liabilities:

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Right-of-use assets obtained in exchange for new operating lease liabilities

During the three months ended April 2, 2021, the Company paid $ 8.7 million upon the exercise of an option to purchase a building under a finance lease agreement in Germany.

During the six months ended July 1, 2021, the Company paid $ 8.7 million upon the exercise of an option to purchase a building under a finance lease agreement in Germany.

The cash payment is presented as a cash outflow from financing activities in the consolidated statement of cash flows.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

AS OF APRIL 1, 2022

Future minimum lease payments under operating and finance leases expiring subsequent to April 1, 2022, 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):

AS OF JULY 1, 2022

Future minimum lease payments under operating and finance leases expiring subsequent to July 1, 2022, 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,

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The Company’s Board of Directors is authorized to designate and issue one or more series of preferred shares, fix the rights, preferences and designation, as deemed necessary or advisable, relating to the preferred shares, provided that no shares of any series may be entitled to more than one vote per share .

As of April 1, 2022, no preferred shares had been issued and outstanding.

As of July 1, 2022, no preferred shares had been issued and outstanding.

Common Share Repurchases

In October 2018, the Company’s Board of Directors approved a share repurchase plan (the “2018 Repurchase Plan”), authorizing the repurchase of $ 25.0 million worth of the Company’s common shares.

During the six months ended July 1, 2022, the Company repurchased 80 thousand shares for an aggregate purchase price of $ 9.5 million at an average price of $ 118.97 per share under the 2018 Repurchase Plan.

As of July 1, 2022, the Company had repurchased a cumulative total of 264 thousand shares under the 2018 Repurchase Plan for an aggregate purchase price of $ 25.0 million at an average price of $ 94.57 per share.

As of July 1, 2022, the Company had completed the 2018 Repurchase Plan.

In February 2020, the Company’s Board of Directors approved a new share repurchase plan (the “2020 Repurchase Plan”), authorizing the repurchase of an additional $ 50.0 million worth of the Company’s common shares.

As of April 1, 2022, the Company had $ 59.5 million available for future share repurchases under these share repurchase plans.

During the six months ended July 1, 2022, the Company repurchase 4 thousand shares for an aggregate purchase price of $ 0.5 million at an average price of $ 116.95 per share under the 2020 Repurchase Plan.

As of July 1, 2022, the Company had $ 49.5 million available for future share repurchases under the 2020 Repurchase Plan.

Share-Based Compensation Expense

1 unchanged sentence

Three Months Ended

Six Months Ended

Selling, general and administrative

1 unchanged sentence

Cost of revenue

Restructuring, acquisition, and related costs

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 $ 1.0 million and $ 1.1 million during the three months ended April 1, 2022 and April 2, 2021, respectively.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

AS OF JULY 1, 2022

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 $ 1.1 million and $ 1.1 million during the six months ended July 1, 2022 and July 2, 2021, respectively.

Restricted Stock Units and Deferred Stock Units

The Company’s restricted stock units (“RSUs”) have generally been issued with vesting periods ranging from zero to five years and vest based solely on service conditions.

Accordingly, the Company recognizes compensation expense on a straight-line basis

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

AS OF APRIL 1, 2022

over the requisite service period.

The Company reduces the compensation expense by an estimated forfeiture rate which is based on an ticipated forfeitures and historical forfeiture experience.

Accordingly, the Company recognizes compensation expense on a straight-line basis 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.

Deferred stock units (“DSUs”) are granted to the members of the Company’s Board of Directors.

Compensation expense associated with the DSUs is recognized in full on the date of grant, as the DSUs are fully vested and non-forfeitable upon grant.

There were 90 thousand and 91 thousand DSUs outstanding as of April 1, 2022 and December 31, 2021, respectively.

There were 88 thousand and 91 thousand DSUs outstanding as of July 1, 2022 and December 31, 2021, respectively.

Outstanding DSUs are included in the calculation of weighted average basic shares outstanding for the respective periods.

The table below summarizes activities relating to RSUs and DSUs issued and outstanding under the Company’s Amended and Restated 2010 Incentive Plan during the three months ended April 1, 2022:

The table below summarizes activities relating to RSUs and DSUs issued and outstanding under the Company’s Amended and Restated 2010 Incentive Plan during the six months ended July 1, 2022:

(In thousands)

2 unchanged sentences

Unvested at December 31, 2021

Unvested at April 1, 2022

Expected to vest as of April 1, 2022

The total fair value of RSUs and DSUs that vested during the three months ended April 1, 2022 was $ 12.9 million based on the market price of the underlying shares on the date of vesting.

Unvested at July 1, 2022

Expected to vest as of July 1, 2022

The total fair value of RSUs and DSUs that vested during the six months ended July 1, 2022 was $ 17.4 million based on the market price of the underlying shares on the date of vesting.

Performance Stock Units

1 unchanged sentence

Both types of performance-based restricted stock units generally cliff vest on the first day following the end of the three-year performance period.

The number of common shares to be issued upon settlement following vesting of the EPS-PSUs is determined based on the Company’s cumulative non-GAAP EPS over a three-year performance period against the performance targets established by the Company’s Board of Directors at the time of grant and will be in the range of zero to 200 % of the target number of shares.

The number of common shares to be issued upon settlement following the vesting of EPS-PSUs is determined based on the Company’s cumulative non-GAAP EPS over a three-year performance period against the performance targets established by the Company’s Board of Directors at the time of grant and will be in the range of zero to 200 % of the target number of shares.

The Company recognizes compensation expense ratably over the performance period based on the number of shares that are deemed probable of vesting at the end of the three-year performance cycle.

This probability assessment is performed quarterly and the cumulative effect of a change in the estimated compensation expense, if any, is recognized in the consolidated statement of operations in the period in which such determination is made.

The number of common shares to be issued upon settlement following vesting of the TSR-PSUs is determined based on the relative market performance of the Company’s common shares compared to the Russell 2000 Index over a three-year performance period using a payout formula established by the Company’s Board of Directors at the time of grant and will be in the range of zero to 200 % of the target number of shares.

The number of common shares to be issued upon settlement following the vesting of TSR-PSUs is determined based on the relative market performance of the Company’s common shares compared to the Russell 2000 Index over a three-year performance period using a payout formula established by the Company’s Board of Directors at the time of grant and will be in the range of zero to 200 % of the target number of shares.

The Company recognizes the related compensation expense based on the fair value of the TSR-PSUs, determined using the Monte Carlo valuation method as of the grant date, on a straight-line basis from the grant date to the end of the three-year performance period.

Compensation expense will not be affected by the number of TSR-PSUs that will actually vest at the end of the three-year performance period.

In January 2022, the Company granted ATI-PSUs to ATI employees.

Compensation expense will not be affected by the number of TSR-PSUs that will ultimately vest at the end of the three-year performance period.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

AS OF JULY 1, 2022

In January 2022, the Company granted ATI-PSU s to ATI employees.

The number of common shares to be issued upon settlement following vesting is determined based on a performance matrix for a four-year performance period against certain performance targets and will be in the range of zero to 100 % of the target number of shares.

The Company recognizes compensation expense ratably over the performance period based on the number of shares that are deemed probable of vesting at the end of the four-year performance cycle.

This probability assessment is performed quarterly and the cumulative effect of a change in the estimated compensation expense, if any, is recognized in the consolidated statements of operations in the period in which such determination is made.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

AS OF APRIL 1, 2022

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 April 1, 2022:

This probability assessment is performed quarterly and the cumulative effect of a change in the estimated compensation expense, if any, is recognized in the consolidated statement s of operations in the period in which such determination is made.

(In thousands)

2 unchanged sentences

Unvested at December 31, 2021

Unvested at April 1, 2022

Expected to vest as of April 1, 2022

Unvested at July 1, 2022

Expected to vest as of July 1, 2022

The unvested PSUs are shown at target in the table above.

As of April 1, 2022, the maximum number of common shares to be earned under these PSU grants was approximately 350 thousand shares.

The total fair value of PSUs that vested during the three months ended April 1, 2022 was $ 7.2 million based on the market price of the underlying common shares on the date of vesting.

As of July 1, 2022, the maximum number of common shares to be earned under these PSU grants was approximately 337 thousand shares.

The total fair value of PSUs that vested during the six months ended July 1, 2022 was $ 7.2 million based on the market price of the underlying common shares on the date of vesting.

The fair value of the TSR-PSUs at the date of grant was estimated using the Monte Carlo valuation method with the following assumptions:

Three Months Ended

April 1, 2022

Six Months Ended

Grant-date stock price

7 unchanged sentences

The Company recognizes compensation expense related to the stock options on a straight-line basis over the vesting period in the consolidated statement of operations.

The table below summarizes activities relating to stock options issued and outstanding under the Company’s Amended and Restated 2010 Incentive Plan during the three months ended April 1, 2022:

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

AS OF JULY 1, 2022

The table below summarizes activities relating to stock options issued and outstanding under the Company’s Amended and Restated 2010 Incentive Plan during the six months ended July 1, 2022:

(In thousands)

Average Exercise

Average Exercise Price

Outstanding as of December 31, 2021

Forfeited or expired

Outstanding as of April 1, 2022

Exercisable as of April 1, 2022

Expected to vest as of April 1, 2022

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

AS OF APRIL 1, 2022

The aggregate Black-Scholes fair value of $ 1.9 million for the stock options granted during the three months ended April 1, 2022 was estimated using the following assumptions as of the grant date:

Three Months Ended

April 1, 2022

Outstanding as of July 1, 2022

Exercisable as of July 1, 2022

Expected to vest as of July 1, 2022

The aggregate Black-Scholes fair value of $ 1.9 million for the stock options granted during the six months ended July 1, 2022 was estimated using the following assumptions as of the grant date:

Six Months Ended

Expected option term in year

2 unchanged sentences

Expected annual dividend yield

The expected option term was calculated using the simplified method provided by Codification of Staff Accounting Bulletins Topic 14:

“Share-Based Payment”.

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.

7 unchanged sentences

state net operating losses and certain non-U.S.

tax attributes that the Company has determined are more likely than not to be realized.

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 9.1 % for the three months ended April 1, 2022 differs from the Canadian statutory tax rate of 29.0 % primarily due to the mix of income earned in jurisdictions with varying tax rates, estimated deductions for Foreign Derived Intangible Income, U.K.

patent box deductions, other tax credits, and windfall tax benefits upon vesting of certain share-based compensation awards, partially offset by disallowed compensation and uncertain tax position accruals.

For the three months ended April 1, 2022, the windfall tax benefits upon vesting of certain share-based compensation awards had a benefit of 3 % on the Company’s effective tax rate.

The Company’s effective tax rate of ( 20.8 %) for the three months ended April 2, 2021 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, other tax credits, and windfall tax benefits upon vesting of certain share-based compensation awards during the period.

For the three months ended April 2, 2021, the windfall tax benefits upon vesting of certain share-based compensation awards had a benefit of 35.9 % on the Company’s effective tax rate.

The Company’s effective tax rate of 15.8 % for the three months ended July 1, 2022 differs from the Canadian statutory tax rate of 29.0 % primarily due to the mix of income earned in jurisdictions with varying tax rates, estimated deductions for Foreign Derived Intangible Income, U.K.

patent box deductions, and R&D tax credits, partially offset by disallowed compensation and uncertain tax position accruals.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

AS OF APRIL 1, 2022

AS OF JULY 1, 2022

The Company’s effective tax rate of 12.4 % for the six months ended July 1, 2022 differs from the Canadian statutory tax rate of 29.0 % primarily due to the mix of income earned in jurisdictions with varying tax rates, estimated deductions for Foreign Derived Intangible Income, U.K.

patent box deductions, R&D tax credits, and windfall tax benefits upon vesting of certain share-based compensation awards during the period, partially offset by disallowed compensation and uncertain tax position accruals .

For the six months ended July 1, 2022 , the windfall tax benefits upon vesting of certain share-based compensation awards had a benefit of 1.4 % on the Company’s effective tax rate.

Beginning in January 2022, the Tax Cuts and Jobs Act of 2017 (“TCJA”) requires research and development (“R&D”) expenditures be capitalized and amortized for income tax purposes over five years for domestic research and fifteen years for foreign research, rather than being deducted as incurred.

This has the effect of increasing the Company’s cash taxes and deferred tax assets.

Since January 2022, the Company has recognized deferred tax assets of $ 6.3 million for the relevant R&D expenditures.

This provision also has an indirect benefit of 3 % on the Company’s effective tax rate for the six months ended July 1, 2022, as the Company’s estimated Foreign Derived Intangible Income deduction has increased as a result of increased US taxable income.

The provision for income taxes for both the three months and the six months ended July 1, 2022 reflects the impact of the TCJA.

The Company’s effective tax rate of 19.2 % for the three months ended July 2, 2021 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, other tax credits, and a release of uncertain tax position reserves, partially offset by the revaluation of long term deferred tax balances resulting from the U.K.

corporate tax rate change.

The Company’s effective tax rate of 3.5 % for the six months ended July 2, 2021 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, other tax credits, a release of uncertain tax position reserves, and windfall tax benefits upon vesting of certain share-based compensation awards, partially offset by the revaluation of long term deferred tax balances resulting from the U.K.

corporate tax rate change during the period.

For the six months ended July 2, 2021, the windfall tax benefits upon vesting of certain share-based compensation awards had a benefit of 14.7 % on the Company’s effective tax rate.

Restructuring, Acquisition, and Related Costs

1 unchanged sentence

Three Months Ended

Six Months Ended

2020 restructuring

7 unchanged sentences

In addition, the program is focused on cost reduction actions that improve gross margins for the overall company.

During the three months ended April 1, 2022, the Company recorded $ 0.6 million in severance and other costs in connection with the 2020 restructuring program.

As of April 1, 2022, the Company had incurred cumulative costs related to this restructuring plan totaling $ 8.7 million.

During the three and six months ended July 1, 2022, the Company recorded $ 0.6 million and $ 1.2 million, respectively, in severance and other costs in connection with the 2020 restructuring program.

As of July 1, 2022, the Company had incurred cumulative costs related to this restructuring plan totaling $ 9.3 million.

The Company anticipates substantially completing the 2020 restructuring program in the fourth quarter of 2022 and expects to incur additional restructuring charges of $ 3.0 million to $ 3.5 million related to the 2020 restructuring program.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

AS OF JULY 1, 2022

The following table summarizes restructuring costs associated with the 2020 restructuring program by reportable segment (in thousands):

Three Months Ended

Six Months Ended

Precision Motion

2 unchanged sentences

During the fourth quarter of 2018, the Company implemented a restructuring plan intended to realign operations, reduce costs, achieve operational efficiencies and focus resources on growth initiatives (the “2019 restructuring plan”).

The Company did no t incur any costs related to the 2019 restructuring plan during the three months ended April 1, 2022.

The Company did no t incur any costs related to the 2019 restructuring plan during the three and six months ended July 1, 2022.

As of December 31, 2021, the Company incurred cumulative costs related to this restructuring plan totaling $ 9.0 million.

The 2019 restructuring program was completed in 2021.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

AS OF APRIL 1, 2022

Rollforward of Accrued Expenses Related to Restructuring

5 unchanged sentences

Non-cash charges and other adjustments

Balance at April 1, 2022

Balance at July 1, 2022

Acquisition and Related Charges

Acquisition costs in connection with business combinations, including finders’ fees, legal, valuation, and other professional or consulting fees, totaled less than $ 0.1 million and $ 0.2 million for the three months ended April 1, 2022 and April 2, 2021 respectively.

The Company incurred zero and $ 0.9 million for the three months ended April 1, 2022 and April 2, 2021, respectively, in legal costs related to a dispute involving a company that was acquired in 2019.

During the three months ended April 1, 2022, the Company recognized $ 2.3 million reductions in the fair values of certain prior-year acquisition contingent considerations.

During the three months ended April 2, 2021, the Company recognized $ 1.0 million of earn-out expense related to a prior-year acquisition.

The majority of acquisition and related costs for the three months ended April 1, 2022 were included in the Company’s Precision Motion and Photonics reportable segments.

The majority of acquisition and related costs for the three months ended April 2, 2021 were included in the Company’s Precision Motion and Vision reportable segments.

Acquisition costs in connection with business combinations, including finders’ fees, legal, valuation, and other professional or consulting fees, totaled $ 0.2 million and $ 0.3 million for the three and six months ended July 1, 2022, respectively, and $ 1.6 million and $ 1.8 million for the three months and six months ended July 2, 2021, respectively.

The Company incurred zero costs for the three and six months ended July 1, 2022, and $ 0.8 million and $ 1.8 million in legal costs for the three and six months ended July 2, 2021 related to a dispute involving a company that was acquired in 2019.

During the three and six months ended July 1, 2022, the Company recognized $ 1.8 million and ($ 0.5 ) million, respectively, of earn-out expenses related to prior-year acquisitions.

During the three and six months ended July 2, 2021, the Company recognized $ 0.9 million and $ 1.9 million, respectively, of earn-out expenses related to prior-year acquisitions.

The majority of acquisition and related costs for the three and six months ended July 1, 2022 were included in the Company’s Precision Motion, Photonics, and Unallocated Corporate and Shared Services reportable segments.

The majority of acquisition and related costs for the three and six months ended July 2, 2021 were included in the Company’s Precision Motion, Vision, and Unallocated Corporate and Shared Services reportable segments.

Commitments and Contingencies

1 unchanged sentence

There have been no material changes to the Company’s purchase commitments since December 31, 2021.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

AS OF JULY 1, 2022

Legal Contingencies

5 unchanged sentences

As additional information becomes available, the Company reassesses the potential liability related to any pending claims and litigations and may revise its estimates.

When a material loss contingency is 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 made.

Legal fees are expensed as incurred.

5 unchanged sentences

Certain of the Company’s officers and directors are also a party to indemnification agreements with the Company.

These indemnification agreements provide,

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

AS OF APRIL 1, 2022

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.

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.

8 unchanged sentences

Photonics, Vision, and Precision Motion.

The reportable segments and their principal activities consist of the following:

The reportable segments and their principal activities are described below.

The Photonics 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, metrology, 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 vast majority of the segment’s product

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

AS OF JULY 1, 2022

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 .

10 unchanged sentences

Precision Motion

The Precision Motion segment designs, manufactures and markets optical and inductive encoders, precision motor, servo drives and motion control solutions, integrated stepper motors, intelligent robotic end-of-arm technology solutions, air bearings, and air bearing spindles to customers worldwide.

The Precision Motion 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, air bearings, 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 both directly, utilizing a highly technical sales force, and indirectly, through resellers and distributors.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

AS OF APRIL 1, 2022

Reportable Segment Financial Information

1 unchanged sentence

Three Months Ended

Six Months Ended

Precision Motion

Three Months Ended

Six Months Ended

Precision Motion

1 unchanged sentence

Three Months Ended

Six Months Ended

Gross Profit Margin

Precision Motion

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

AS OF JULY 1, 2022

Three Months Ended

Six Months Ended

Operating Income (Loss)

2 unchanged sentences

Three Months Ended

Six Months Ended

Depreciation and Amortization Expenses

1 unchanged sentence

Unallocated Corporate and Shared Services

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

AS OF APRIL 1, 2022

Revenue by Geography

2 unchanged sentences

Three Months Ended

Six Months Ended

United States

8 unchanged sentences

Three Months Ended

Six Months Ended

Advanced Industrial

2 unchanged sentences

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 1. Financial Statements