What changed in this filing

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Item 1. Business

2021-03-01 compared with 2020-02-26 · 151 added, 65 removed, 274 unchanged (44% of the section changed)

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attracting, retaining, and developing world-class talented and motivated employees.

Recent Developments

Impact of COVID-19 on Our Business

Our Employees

In response to the COVID-19 pandemic, we have taken proactive, aggressive actions to protect the health and safety of our employees.

We established steering committees at both the corporate level and at each of our facilities to provide leadership for and manage our COVID-19 risk mitigation actions and countermeasures.

We have provided frequent employee communications that include guidance and updates to our employees with regards to COVID-19 safety procedures and status.

We established rigorous safety measures in all of our facilities, including implementing social distancing protocols, requiring working from home for those employees that do not need to be physically present on the manufacturing floor or in our facilities to perform their work, suspending travel, spreading production over more shifts, implementing temperature checks at the entrances to our facilities, frequently disinfecting our workspaces, and providing masks to those employees who must be physically present in our facilities.

We expect to continue these measures until we determine that the COVID-19 pandemic is adequately contained for purposes of our business.

In connection with our COVID-19 remediation actions, we have incurred additional costs to protect the health of our employees, including investment in technologies and monitoring equipment.

We expect such costs to continue to grow and be significant to our cost of operations.

We may take further actions as government authorities require or recommend or as we determine to be in the best interest of our employees.

We are committed to retaining and supporting our employees during this pandemic.

To retain our employees, we issued to all of our employees, other than the Chief Executive Officer, the Chief Financial Officer, the Chief Human Resources Officer and the Chief Accounting Officer, a special one-time restricted stock unit grant in April 2020 at a total fair value of $14.4 million in the aggregate.

The restricted stock units vested in February 2021.

These actions were implemented to create an ownership mindset and focus among all employees for the duration of the COVID-19 pandemic and through the expected recovery, while maintaining the Company’s talent and capabilities.

Executive Compensation

The Compensation Committee of our Board of Directors approved the 2020 compensation plans for our executive officers and a Section 16 officer (collectively, the “Officers”) in February 2020.

To support our business during the COVID-19 pandemic, the Officers agreed to a reduction in cash compensation.

Further, the Officers did not receive the special one-time restricted stock unit grant issued to the rest of the employees.

In June 2020, our Board of Directors agreed to forgo the cash retainers payable to our non-employee directors for the third quarter of 2020.

Our Customers

The outbreak has significantly increased economic and demand uncertainty.

The spread of COVID-19 has caused a global economic slowdown and a global recession.

In 2020, the decline in customer demand in both the medical and advanced industrial end markets resulted in a decrease in sales to many of our customers.

In the event of a further prolonged economic recession, overall demand for our products could decline further in the near term and our business would be adversely affected to a greater extent.

Our Facilities

Because of the COVID-19 pandemic, governmental authorities worldwide implemented numerous evolving measures to try to contain the spread of the virus, such as travel bans and restrictions, limits on social gatherings, quarantines, shelter-in-place orders, business shutdowns and social distancing.

We have important manufacturing operations in the U.S., the U.K., Germany, and China, all of which have been affected by the COVID-19 pandemic.

As of December 31, 2020, our manufacturing facilities around the world were in operation.

While governmental measures may be modified or extended in the event of a resurgence of COVID-19 infections, the spread of new variants of the virus, and delays in effective vaccination of a large proportion of the populations, we have taken measures to protect our employees and expect our manufacturing facilities to remain operational.

In connection with the COVID-19 pandemic, we have experienced limited absenteeism from those employees who are required to be on site to perform their jobs.

Our Supply Chain

We have experienced limited disruption to our supply chain as a result of the COVID-19 pandemic to date.

We regularly monitor the financial health and manufacturing output of companies in our supply chain.

Hardship on our suppliers or sub-suppliers caused by the COVID-19 pandemic could cause further disruption in our ability to obtain raw materials or components required to manufacture our products, adversely affecting our operations.

To mitigate the risk of any potential supply interruptions from the COVID-19 pandemic, we are identifying alternative suppliers, sourcing raw materials from different supplier locations, and taking other actions to ensure our supply of raw materials.

Although we are mitigating potential supply interruptions from the COVID-19 pandemic, if certain suppliers cannot produce a key component for us, or if the receipt of certain materials is otherwise delayed, we may miss our scheduled shipment deadlines and our relationship with customers may be harmed.

Additionally, restrictions on or disruptions of transportation, such as reduced availability of air transports, port closures and increased border controls or closures, have resulted in higher costs and delays, both for obtaining raw materials from suppliers and for shipping finished products to customers.

Our Liquidity

With respect to liquidity, we have taken actions to reduce costs and cash expenditures across the Company.

These actions included reducing hiring activities, restricting travel, adjusting employee compensation by eliminating fiscal year 2020 cash bonuses and base salary increases, implementing an unpaid time-off program for substantially all of our non-production workforce, limiting discretionary spending, reducing or deferring spending on capital investment projects, deferring lease payments on certain facilities, and deferring certain U.S.

payroll tax payments in accordance with relief provisions under the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”).

As of December 31, 2020, we deferred $2.8 million in certain U.S.

payroll tax payments under the CARES Act.

Due to the uncertainty related to the future impact of the COVID-19 pandemic, we temporarily suspended repurchases under our share repurchase plans in April 2020.

As of December 31, 2020, we had cash and cash equivalents of $125.1 million and available borrowing capacity under our revolving credit facility of $395.2 million.

We have reviewed numerous potential scenarios in connection with the impact of COVID-19 on our business.

Based on our analysis, we believe our existing balances of cash and cash equivalents, anticipated cash flows from our operating activities, and available borrowing capacity under our revolving credit facility will be sufficient to meet our cash needs arising in the ordinary course of business for the next twelve months.

Additionally, we believe we will remain in compliance with our debt covenants for the next twelve months.

We continuously evaluate our business mix and financial performance.

Since 2013, we have executed a series of acquisitions in line with our strategy.

In July 2019, the Company acquired ARGES GmbH (“ARGES”), a Wackersdorf, Germany-based manufacturer of innovative laser scanning subsystems used in industrial materials processing and medical applications, for a total purchase price of €65.5 million ($72.9 million), subject to customary working capital adjustments.

In June 2019, the Company acquired Med X Change, Inc.

(“Med X Change”), a Bradenton, Florida-based provider of medical grade, high definition and 4K video recording and documentation solutions to OEMs in the medical market, for a total purchase price of $21.9 million.

In April 2019, the Company acquired Ingenia-CAT, S.L.

(“Ingenia”), a Barcelona, Spain-based provider of high-performance servo drives and control software to OEMs in the medical and advanced industrial markets, for a total purchase price of €14.3 million ($16.2 million).

In May 2018, the Company acquired Zettlex Holdings Limited (“Zettlex”), a Cambridge, United Kingdom-based provider of inductive encoder products that provide absolute and accurate positioning, even in extreme operating environments, to OEMs in the medical and advanced industrial markets, for a total purchase price of £23.3 million ($32.0 million).

In July 2017, the Company acquired W.O.M.

World of Medicine GmbH (“WOM”), a Berlin, Germany-based provider of medical insufflators, pumps and related disposables to OEMs in the minimally invasive surgery market, for a total purchase price of €118.1 million ($134.9 million).

In January 2017, the Company acquired an additional approximately 35% of the outstanding shares of Laser Quantum Limited (“Laser Quantum”), a Manchester, United Kingdom-based provider of solid state lasers, ultrafast lasers, and optical light engines to OEMs in the medical market, for a total purchase price of £25.5 million ($31.1 million).

As a result of the acquisition of these additional shares, the Company’s equity ownership percentage increased from approximately 41% to approximately 76%.

In September 2018, the Company acquired the remaining approximately 24% of the outstanding shares of Laser Quantum for a total purchase price of $45.1 million.

In January 2017, the Company acquired ThingMagic, a Woburn, Massachusetts-based provider of ultra-high frequency (“UHF”) radio frequency identification (“RFID”) modules and finished RFID readers to OEMs in the medical and advanced industrial markets, for a total purchase price of $19.1 million.

In May 2016, the Company acquired Reach Technology Inc., a Fremont, California-based provider of embedded touch screen technology solutions to OEMs in the medical and advanced industrial markets, for a total purchase price of $9.4 million.

In December 2015, the Company acquired all assets and certain liabilities of Skyetek Inc., a Denver, Colorado-based provider of embedded and standalone RFID solutions for OEM customers in the medical and advanced industrial markets, for a total purchase price of $2.8 million.

In November 2015, the Company acquired certain assets and liabilities of Lincoln Laser Company, a Phoenix, Arizona-based provider of ultrafast precision polygon scanners and other optical scanning solutions for the medical and advanced industrial markets, for a total purchase price of $12.1 million.

In February 2015, the Company acquired Applimotion Inc., a Loomis, California-based provider of advanced precision motor and motion control technology to OEM customers in the medical and advanced industrial markets, for a total purchase price of $14.0 million.

In March 2014, the Company acquired JADAK LLC, JADAK Technologies Inc.

and Advance Data Capture Corporation (together, “JADAK”), a North Syracuse, New York-based provider of optical data collection and machine vision technologies to OEM medical device manufacturers, for a total purchase price of $93.7 million.

In January 2013, the Company acquired NDS Surgical Imaging LLC, a San Jose, California-based company that designs, manufactures, and markets high definition visualization solutions and imaging informatics products for the surgical and radiology market segments, for a total purchase price of $75.4 million.

Divestitures and Product Rationalization

As part of our ongoing evaluation of our business mix and financial performance, we also review our business for potential divestitures and product rationalizations.

Since 2012, we have executed a series of divestitures and product rationalizations in line with our strategy, and we may divest additional product lines that we do not consider to be core to our business in the future.

In January 2016, the Company discontinued its radiology products, sold under the Dome brand name and operated within the Company’s Visualization Solutions product line.

In June 2015, the Company divested its 50% owned joint venture in India, Excel Laser Technology Private Limited, for net cash proceeds of $0.2 million.

In April 2015, the Company completed the sale of its fiber laser business, operated under the JK Lasers brand name, for $29.6 million in cash.

In July 2014, the Company completed the sale of its Scientific Lasers business, operated under the Continuum and Quantronix brand names, for $6.5 million in cash.

In May 2013, the Company sold its Semiconductor Systems business, operated under the GSI Group brand name, for $9.7 million in cash.

In October 2012, the Company sold its Laser Systems business, operated under the Control Laser and Baublys brand names, for $6.6 million in cash.

Our Chief Operating Decision Maker (“CODM”) utilizes financial information to make decisions about allocating resources and assessing performance for the entire Company.

The following table summarizes significant acquisitions since 2013:

of Acquisition

Total Purchase Price

(in thousands)

Zettlex Holdings Limited

Laser Quantum Limited (24%) (1)

Laser Quantum Limited (35%)

World of Medicine GmbH

NDS Surgical Imaging LLC

After the acquisition of the remaining (approximately 24%) noncontrolling interests of Laser

Quantum Limited (“Laser Quantum”) in September 2018, we owned 100% of the outstanding equity

of Laser Quantum.

Our Chief Operating Decision Maker (“CODM”) is our Chief Executive Officer.

Our CODM utilizes financial information to make decisions about allocating resources and assessing performance for the entire Company.

We evaluate the performance of, and allocate resources to, our segments based on revenue, gross profit and operating profit.

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Camera-based machine vision products and solutions performing image analysis within medical devices.

Radio Frequency Identification (RFID)

Medical and Advanced Industrial

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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.

Approximately 70% of our medical end market sales are related to surgical procedures, both elective and emergency based.

Advanced Industrial Market

For the year ended December 31, 2020, the advanced industrial market accounted for approximately 44% of the Company’s revenue.

financial condition of our customers, changes in regulatory requirements and laws, and general economic conditions.

Revenue from our products sold to the advanced industrial market is affected by a number of factors, including changing technology requirements and preferences of our customers, productivity or quality investments in a manufacturing environment, the financial condition of our customers, changes in regulatory requirements and laws, and general economic conditions.

We believe that the Purchasing Managers Index (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.

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Many of our customers participate in several market industries.

For the year ended December 31, 2020, the Company recognized revenue from an OEM customer in the medical end market which accounted for approximately 11% of our consolidated revenue.

No customer accounted for greater than 10% of our consolidated revenue during the years ended December 31, 2019 or 2018.

Customers of our Photonics, Vision, and Precision Motion segments include a large number of OEM customers who integrate our products into their systems for sale to end users.

Our customers include a large number of OEMs who integrate our products into their systems for sale to end users.

We also sell a very small portion of our products directly to end users.

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Once certain of our products have been designed into a given OEM customer’s product or system, there are generally significant barriers to subsequent supplier changes until the end of the product or system life cycle, especially in the medical market.

While our revenues are not highly seasonal on a consolidated basis, the revenues of some of our individual product lines are impacted in the first quarter by the seasonal spending patterns of our customers due to their annual capital budgeting cycles.

While our revenues are not highly seasonal on a consolidated basis, the revenues of some of our individual product lines are impacted in the first quarter by the lower seasonal spending patterns of our customers due to their annual capital budgeting cycles.

As of December 31, 2020 and 2019, our consolidated backlog was approximately $239.6 million and $243.1 million, respectively.

The majority of orders included in backlog represent open orders for products and services that, based on management’s projections, have a reasonable probability of being delivered over the subsequent twelve-month period.

Orders included in backlog may be canceled or rescheduled by customers without significant penalty.

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Manufacturing

Manufacturing functions are performed internally when we choose to maintain control over critical portions of the production process or for cost related reasons while some of the less critical portions are outsourced to third parties.

To the extent it makes financial sense, we will consider outsourcing additional portions of the production process.

Manufacturing functions are performed internally either when we choose to maintain control over critical portions of the production process, or for cost related reasons, while other portions of the manufacture of our products are outsourced to highly qualified third parties.

Products offered by our Photonics segment are manufactured at facilities in Bedford, Massachusetts;

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Products offered by our Vision segment are manufactured at facilities in Syracuse and Rochester, New York;

San Jose, California;

Bradenton, Florida;

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Many of our products are produced in manufacturing facilities certified under ISO 9001 certification, while the majority of our products manufactured for the medical market are produced in factories under ISO 13485 certification.

The manufacturing facilities for our medical insufflators, pumps, cameras and accessories products are ISO 14001 certified.

Certain visualization solutions, thermal chart recorders, imaging informatics and medical insufflators, pumps, cameras and accessories products are manufactured under current good manufacturing practices (cGMPs), which is a requirement of their medical device classification by the United States Food and Drug Administration (the “FDA”).

In addition, if these medical devices are classified as Class II devices, a 510(k) premarket notification to the FDA and approval by the FDA is required.

The manufacturing facilities

for o ur medical insufflators, pumps, cameras and accessories products are ISO 14001 certifi ed .

Certain visualization solutions, thermal chart recorders , imaging informatics and medical insufflators, pumps, cameras and accessories products are manufactured under current good manufacturing practices ( c GMPs ), which is a requirement of their medical device classification by the U nited States Food and Drug Administration (the “FDA”).

Marketing, Sales and Distribution

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The markets in which we compete are dynamic and highly competitive.

While no single company competes with us across the breadth of our product offerings, we face a fragmented competitive landscape, with competitors for particular product categories and individual application areas.

While no single company competes with us across the breadth of our product offerings, we face a fragmented competitive landscape, with competitors in particular product categories and individual application areas.

Our competitors range from large foreign and domestic organizations, which produce a comprehensive array of goods and services and may have greater financial and other resources than we do, to small private firms, which produce a limited number of goods or services for specialized market segments.

Competitors for our products are fragmented by particular product category, and the individual markets in which we operate are highly competitive.

Competitors for our products are fragmented by particular product categories, and the individual markets in which we operate are highly competitive.

Our major competitors by reportable segments include, among others:

SCANLAB, Coherent, and Cobolt.

Barco, Omron Microscan, FSN Medical Technologies, and HID Global.

SCANLAB, Coherent, and a few smaller competitors.

Barco, Omron Microscan Systems, and a few smaller competitors.

Precision Motion:

Renishaw, HEIDENHAIN, Physik Instrument, and Allied Motion Technologies.

Renishaw, HEIDENHAIN, Physik Instrument, and a few smaller competitors.

Competitive factors in our Photonics, Vision, and Precision Motion segments include product performance, price, quality and reliability, features, compatibility of products with existing systems, technical support, product breadth, market presence and our overall reputation.

We believe that our products offer a number of competitive advantages, and the breadth of technologies we offer give us deep market application knowledge to better serve our customers’ needs and distinguish us from our competitors.

Ultimately, our ability to deliver high-quality products timely when the customer needs them presents the biggest threat to our competitiveness.

We believe that our products offer a number of competitive advantages, and the breadth of technologies we offer gives us deep market application knowledge to better serve our customers’ needs and distinguishes us from our competitors.

Ultimately, any inability to deliver high-quality products timely when the customer needs them presents the biggest threat to our competitiveness.

Raw Materials, Components and Supplies

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However, there can be no assurance that we will be able to sustain these advantages.

Considering the diversified nature of our businesses, we do not believe that any individual patent is material to our business as a whole.

Considering the diversified nature of our businesses, we do not believe that any individual patent is mater ial to our business as a whole.

We also protect our proprietary rights by controlling access to our proprietary information and by maintaining confidentiality agreements with our employees, consultants, and certain customers and suppliers.

For a further discussion of the importance of risks associated with our intellectual property rights, see applicable risk factors under Item 1A of this Annual Report on Form 10-K.

Human Resources

As of December 31, 2019 and 2018, we employed 2,290 and 2,262 employees, respectively.

We also utilize temporary and contract personnel that are not included in these headcount numbers.

Human Capital

We believe that our employees are our most important asset.

The Chief Human Resources Officer ("CHRO") is responsible for developing and executing our human capital strategy.

This includes the acquisition, development, and retention of talent to deliver on our strategy as well as the design of employee compensation and benefits and diversity, equity and inclusion programs.

The CHRO and the Chief Executive Officer ("CEO") regularly update our board of directors on the operation and status of these human capital activities;

including, but not limited to, Novanta’s talent development, diversity, equity and inclusion, and succession planning programs.

As of December 31, 2020, we employed approximately 2,200 people, of which approximately 37% were in the United States, 51% in Europe, and 12% in Asia.

We win with our customers by delivering new technology innovations through our highly technical Research & Development (“R&D”) team of approximately 420 employees.

We believe that our employees should have a meaningful role helping us develop our culture.

We utilize survey feedback mechanisms for employee engagement and organizational health to measure our current situation and gain insight into areas where we can improve.

We have conducted surveys of our entire employee population in 2018 and 2020 and we compare our employee engagement and organizational health scores against benchmark populations with our survey vendors.

We have achieved employee participation levels of nearly 90% of our active employees and have developed specific action plans across the Company as a result of their feedback.

We are executing on our action plans with the expectation to improve our overall organization health and employee engagement.

All employees are responsible for upholding the Novanta Code of Ethics and Business Conduct, which is important in delivering on our strategy.

We maintain a compliance hotline for the confidential reporting of any suspected policy violations or unethical business conduct on the part of our businesses, employees, officers, directors, or suppliers and provide training and education to our global workforce with respect to our Novanta Code of Ethics and Business Conduct, anti-corruption and anti-bribery policies, data privacy regulations and workplace harassment.

Diversity and inclusion

The Novanta Way defines the fabric of our culture and how we work together, and it starts with building cohesive teams.

Our teams must be diverse and inclusive, based on trust, commitment, and accountability.

Our diversity is reflected in governance, leadership, influence, and technical expertise at all levels in the organization.

We do not tolerate discrimination and harassment.

We expect our teams to respect our core values and to conduct themselves ethically at all times in accordance with the Novanta Code of Ethics and Business Conduct.

As of December 31, 2020, our board of directors was 75% comprised of men and 25% comprised of women, which was a doubling of women representation on our board of directors from 2019.

In addition, in December 2020, our board of directors elected a new director as of February 2021, which will result in 33% of our board of directors coming from underrepresented communities.

As of December 31, 2020, our gender diversification efforts resulted in 35% of our workforce being women, and the proportion of women in management positions amounted to 25%.

During 2020, in line with our strategic initiative of increasing representation of employees from underrepresented communities, we launched a series of diversity, equity and inclusion initiatives to make stronger progress on our goals by the year 2023.

Compensation and Benefits

We strive to provide market competitive compensation, benefits and services that help meet the varying needs of our employees.

In addition to salaries and wages, these programs, which vary by country, can include annual bonuses, sales commissions, stock-based compensation awards, defined contribution retirement savings plans with company matching contributions, healthcare and insurance benefits, flexible spending accounts, health savings account with company matching contributions, unlimited paid time off, paid family leave, and tuition assistance.

facilities have a dedicated medical professional on site to provide basic healthcare

services to employees, provide general first aid, assess employee health risks and promote employee health.

Our bonus and commission payment programs allow for higher payouts when goals are exceeded and lower payouts when goals are not met.

In response to the COVID-19 pandemic, we recognized the importance of retaining and supporting our employees.

To further that end, we issued to all of our employees, other than the Chief Executive Officer, the Chief Financial Officer, the Chief Human Resources Officer and the Chief Accounting Officer, a special one-time restricted stock unit grant in April 2020 at a total fair value of $14.4 million in the aggregate.

The restricted stock units vested in February 2021.

This action was implemented to create an ownership mindset, increase retention, and to provide some certainty and employee engagement in uncertain times.

We wanted to create an urgency and focus among all employees to do what was necessary to ensure the Company’s financial health for the duration of the pandemic and through the expected recovery, while preserving our differentiated talent and capabilities throughout the Company.

Growth and Development

We invest significant resources to develop the talent needed to remain at the forefront of innovation and make Novanta an employer of choice.

In certain countries, we offer college tuition reimbursement for eligible employees for undergraduate and graduate studies.

In 2019, we founded Novanta University as a primary instrument of company-wide learning management.

A full-time specialist and the Company’s human resources department coordinate the onboarding of new employees and the regular training of the entire workforce.

Internal and external courses are available for this purpose.

In addition to Novanta University, we utilize our Novanta Growth System, which provides processes, tools, and trainings with a focus on continuous improvement.

Safety and Wellbeing of Our Employees

We provide mandatory safety trainings in our production facilities, which are designed to focus on empowering our employees with the knowledge and tools they need to make safe choices and to mitigate risks.

In response to the COVID-19 pandemic, we have taken proactive, mandatory actions to protect the health and safety of our employees.

We established steering committees at both the Company level and at each of our facilities to provide leadership for and to manage our COVID-19 risk mitigation actions and countermeasures consistently across our locations worldwide.

We have provided frequent employee communications that include guidance and updates to our employees with regards to COVID-19 safety procedures and status.

We established rigorous safety measures in all of our facilities, including implementing social distancing protocols, requiring working from home for those employees that do not need to be physically present on the manufacturing floor or in our facilities to perform their work, suspending travel, spreading production over more shifts, implementing health checks at the entrances to our facilities, frequently disinfecting our workspaces, and providing masks to those employees who need to be physically present in our facilities.

Many of these actions were at a significant cost to the Company and we expect to continue these measures until we determine that the COVID-19 pandemic is adequately contained and the safety of our employees is reasonably assured.

Cybersecurity

We have adopted and are implementing the National Institute of Standards and Technology (NIST) Cybersecurity Framework (CSF).

The NIST CSF integrates industry standards and best practices to help organizations manage their cybersecurity risks.

The NIST CSF helps organizations understand their cybersecurity risks (threats, vulnerabilities and impacts) and how to reduce these risks with customized measures, such as organization-wide cybersecurity awareness training.

The Company’s Audit Committee is responsible for the oversight of cybersecurity risks.

The Audit Committee reviews quarterly with management and internal audit the Company’s cybersecurity program and related matters.

There have been no material information security breaches for the years ended December 31, 2020, 2019, and 2018, respectively.

Net expenses incurred in connection with information security breaches have been immaterial for the years ended December 31, 2020, 2019, and 2018, respectively.

Government Regulation

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Such regulations went into effect in the European Union (“EU”) in 2006 (“The Restriction of Hazardous Substances Directive” (“RoHS”)) and in 2007 (“Registration, Evaluation, Authorisation and Restriction of Chemicals” (“REACH”)), and in China in 2007 (“Management Methods for Controlling Pollution Caused by Electronic Information Products Regulation” (“China-RoHS”)).

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

Our capital expenditures, earnings, and competitive position have not been, and are not expected to be, materially affected by our compliance with federal, state, and local environmental provisions that have been enacted or adopted to regulate the distribution of materials into the environment.

Medical Device Regulations

Certain products manufactured by us are integrated into systems by our customers that are subject to regulation by the FDA.

Certain products manufactured by us are integrated into systems by our customers that are subject to regulation by the Federal Food and Drug Administration (“the FDA”).

We must comply with certain quality control measurements in order for our products to be effectively used in our customers’ end products.

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We are also subject to certain medical device regulations.

Medical devices are subject to extensive and rigorous regulation by the FDA and by other federal, state and local authorities.

Medical devices are subject to extensive and rigorous regulation by the FDA and other federal, state and local authorities.

The Federal Food, Drug and Cosmetic Act (the “FDCA”) and related regulations govern the conditions of safety, efficacy, clearance, approval, manufacturing, quality system requirements, labeling, packaging, distribution, storage, recordkeeping, reporting, marketing, advertising, and promotion of products.

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Some pre-amendment devices are unclassified, but are subject to the FDA’s premarket notification and clearance process in order to be commercially distributed.

In many cases, our customers are responsible for compliance with the FDA’s

requirements applicable to medical devices.

In many cases, our customers are responsible for compliance with the FDA’s requirements applicable to medical devices.

However, we also currently market certain Class II medical device products independently that are subject to these requirements.

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The FDA requires each manufacturer to determine whether the proposed change requires submission of a 510(k) or a PMA in the first instance, but the FDA can review any such decision and disagree with a manufacturer’s determination.

Many minor modifications today are accomplished by a letter-to-file in which the manufacturer documents the change in an internal letter-to-file.

The letter-to-file is in lieu of submitting a new 510(k) to obtain clearance for every change.

Many minor modifications are accomplished by a letter-to-file in which the manufacturer documents the change in an internal letter-to-file.

The letter-to-file is prepared by the manufacturer in lieu of submitting a new 510(k) to obtain clearance for every change.

The FDA can always review these letters-to-file in an inspection.

If the FDA disagrees with a manufacturer’s determination, the FDA can require the manufacturer to cease marketing and/or request the recall of the modified device until 510(k) marketing clearance or PMA approval is obtained.

Also, in these circumstances, we may be subject to significant regulatory fines or penalties.

In these circumstances, we may also be subject to significant regulatory fines or penalties.

Post-market Regulations

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correction, removal and recall reporting regulations, which require that manufacturers report to the FDA field corrections and product recalls or removals if undertaken to reduce a risk to health posed by the device or to remedy a violation of the FDCA that may present a risk to health;

requirements governing Unique Device Identifiers (UDI) on devices and also requiring the submission of certain information about each device to the FDA’s Global Unique Device Identification Database (GUDID);

requirements governing Unique Device Identifiers on devices and also requiring the submission of certain information about each device to the FDA’s Global Unique Device Identification Database;

the FDA’s recall authority, whereby the agency can order device manufacturers to recall from the market a product that is in violation of governing laws and regulations;

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Our manufacturing processes are required to comply with the applicable portions of the QSR, which cover the methods and the facilities and controls for the design, manufacture, testing, production, processes, controls, quality assurance, labeling, packaging, distribution, installation and servicing of finished devices intended for human use.

The QSR also requires, among other things, maintenance of a device master file, device history file, and a complaint s file.

The QSR also requires, among other things, maintenance of a device master file, device history file, and a complaints file.

As a manufacturer, we are subject to periodic scheduled or unscheduled inspections by the FDA.

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federal civil and criminal false claims laws and civil monetary penalty laws, which prohibit, among other things, individuals or entities from knowingly presenting, or causing to be presented, claims for payment to the federal government, including federal healthcare programs, that are false or fraudulent;

the federal Health Insurance Portability and Accountability Act of 1996, or HIPAA, which created additional federal criminal statutes that prohibit, among other things, executing a scheme to defraud any healthcare benefit program and making false statements relating to healthcare matters;

HIPAA, as amended by the Health Information Technology for Economic and Clinical Health Act of 2009, or HITECH, and their implementing regulations, which imposes certain requirements on certain types of individuals and entities relating to the privacy, security and transmission of individually identifiable health information;

the federal Health Insurance Portability and Accountability Act of 1996 (“HIPAA”) which created additional federal criminal statutes that prohibit, among other things, executing a scheme to defraud any healthcare benefit program and making false statements relating to healthcare matters;

HIPAA, as amended by the Health Information Technology for Economic and Clinical Health Act of 2009 (“HITECH”), and their implementing regulations, which imposes certain requirements on certain types of individuals and entities relating to the privacy, security and transmission of individually identifiable health information;

the federal Physician Payments Sunshine Act, which requires certain manufacturers of drugs, devices, biologics and medical supplies for which payment is available under Medicare, Medicaid or the Children’s Health Insurance Program to annually report to the federal government information related to payments or other transfers of value made to physicians and teaching hospitals, as well as ownership and investment interests held by physicians and their immediate family members;

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We make available, free of charge through our website (https://investors.novanta.com), our annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, proxy and information statements, and amendments to these reports as soon as reasonably practicable after we electronically file these materials with, or otherwise furnish them to, the Securities and Exchange Commission (“SEC”).

our reports and other information are filed with securities commissions or other similar authorities in Canada and are available over the Internet at https:// www.sedar.com.

In addition, our reports and other information are filed with securities commissions or other similar authorities in Canada and are available over the Internet at https://www.sedar.com.

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-K

Item 1. Business