NOVANTA INC 10-Q

Item 1. Financial Statements NOVANTA INC. CONSOLIDATED BALANCE SHEETS (In thousands of U.S. dollars or shares) (Unaudited) October 1, December 31, 2021 2020 ASSETS Current assets Cash and cash equivalents $ 102,395 $ 125,054 Accounts receivable, net of allowance of $ 498 and $ 274 , respectively 112,080 75,054 Inventories 119,422 92,737 Prepaid income taxes and income taxes receivable 7,252 3,203 Prepaid expenses and other current assets 12,163 8,125 Total current assets 353,312 304,173 Property, plant and equipment, net 86,279 78,676 Operating lease assets 43,459 34,444 Deferred tax assets 411 10,491 Other assets 2,809 2,894 Intangible assets, net 231,027 148,521 Goodwill 492,940 285,980 Total assets $ 1,210,237 $ 865,179 LIABILITIES AND STOCKHOLDERS’ EQUITY Current liabilities Current portion of long-term debt $ 5,207 $ 5,508 Accounts payable 65,012 42,966 Income taxes payable 5,674 5,787 Current portion of operating lease liabilities 7,575 6,188 Accrued expenses and other current liabilities 104,506 53,780 Total current liabilities 187,974 114,229 Long-term debt 441,831 194,927 Operating lease liabilities 40,850 32,802 Deferred tax liabilities 21,936 24,134 Income taxes payable 5,789 5,112 Other liabilities 11,744 17,166 Total liabilities 710,124 388,370 Commitments and contingencies (Note 15) Stockholders’ equity: Preferred shares, no par value; Authorized shares: 7,000 ; No shares issued and outstanding — — Common shares, no par value; Authorized shares: unlimited; Issued and outstanding: 35,600 and 35,163 , respectively 423,856 423,856 Additional paid-in capital 48,489 58,992 Retained earnings 42,779 6,202 Accumulated other comprehensive loss ( 15,011 ) ( 12,241 ) Total stockholders' equity 500,113 476,809 Total liabilities and stockholders’ equity $ 1,210,237 $ 865,179 The accompanying notes are an integral part of these consolidated financial statements. 1 N OVANTA INC. CONSOLIDATED STATEMENTS OF OPERATIONS (In thousands of U.S. dollars or shares, except per share amounts) (Unaudited) Three Months Ended Nine Months Ended October 1, October 2, October 1, October 2, 2021 2020 2021 2020 Revenue $ 177,726 $ 142,929 $ 507,833 $ 443,125 Cost of revenue 101,428 83,824 290,389 260,873 Gross profit 76,298 59,105 217,444 182,252 Operating expenses: Research and development and engineering 17,468 15,231 53,104 45,005 Selling, general and administrative 31,296 26,788 94,189 82,451 Amortization of purchased intangible assets 4,139 3,533 11,300 10,388 Restructuring, acquisition and related costs 8,120 1,687 16,485 5,591 Total operating expenses 61,023 47,239 175,078 143,435 Operating income 15,275 11,866 42,366 38,817 Interest income (expense), net ( 1,710 ) ( 1,698 ) ( 4,496 ) ( 5,077 ) Foreign exchange transaction gains (losses), net 34 ( 136 ) ( 299 ) ( 164 ) Other income (expense), net ( 71 ) ( 14 ) ( 238 ) 47 Income before income taxes 13,528 10,018 37,333 33,623 Income tax provision (benefit) ( 75 ) 1,760 756 1,758 Consolidated net income $ 13,603 $ 8,258 $ 36,577 $ 31,865 Earnings per common share (Note 5): Basic $ 0.38 $ 0.23 $ 1.03 $ 0.91 Diluted $ 0.38 $ 0.23 $ 1.02 $ 0.89 Weighted average common shares outstanding—basic 35,447 35,142 35,366 35,144 Weighted average common shares outstanding—diluted 35,764 35,688 35,771 35,609 The accompanying notes are an integral part of these consolidated financial statements. 2 NOVANTA INC. CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS) (In thousands of U.S. dollars) (Unaudited) Three Months Ended Nine Months Ended October 1, October 2, October 1, October 2, 2021 2020 2021 2020 Consolidated net income $ 13,603 $ 8,258 $ 36,577 $ 31,865 Other comprehensive income (loss): Foreign currency translation adjustments, net of tax (1) ( 3,248 ) 4,302 ( 3,602 ) ( 1,006 ) Pension liability adjustments, net of tax (2) 448 ( 68 ) 832 769 Total other comprehensive income (loss) ( 2,800 ) 4,234 ( 2,770 ) ( 237 ) Total consolidated comprehensive income $ 10,803 $ 12,492 $ 33,807 $ 31,628 (1) The tax effect on this component of comprehensive income (loss) was nominal for all periods presented. (2) The tax effect on this component of comprehensive income (loss) was nominal for all periods presented. See Note 4 for the total amount of pension liability adjustments reclassified out of accumulated other comprehensive income (loss). The accompanying notes are an integral part of these consolidated financial statements. 3 NOVANTA INC. CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (In thousands of U.S. dollars or shares) (Unaudited) Common Shares Additional Paid-In Retained Accumulated Other Comprehensive # of Shares Amount Capital Earning (Deficit) Loss Total Three Months Ended October 1, 2021 Balance at July 2, 2021 35,489 $ 423,856 $ 52,243 $ 29,176 $ ( 12,211 ) $ 493,064 Consolidated net income — — — 13,603 — 13,603 Common shares issued under stock plans 199 — — — — — Common shares withheld for taxes on vested stock awards ( 88 ) — ( 12,244 ) — — ( 12,244 ) Share-based compensation — — 8,490 — — 8,490 Other comprehensive income (loss), net of tax — — — — ( 2,800 ) ( 2,800 ) Balance at October 1, 2021 35,600 $ 423,856 $ 48,489 $ 42,779 $ ( 15,011 ) $ 500,113 Nine Months Ended October 1, 2021 Balance at December 31, 2020 35,163 $ 423,856 $ 58,992 $ 6,202 $ ( 12,241 ) $ 476,809 Consolidated net income — — — 36,577 — 36,577 Common shares issued under stock plans 658 — — — — — Common shares withheld for taxes on vested stock awards ( 221 ) — ( 30,672 ) — — ( 30,672 ) Share-based compensation — — 20,169 — — 20,169 Other comprehensive income (loss), net of tax — — — — ( 2,770 ) ( 2,770 ) Balance at October 1, 2021 35,600 $ 423,856 $ 48,489 $ 42,779 $ ( 15,011 ) $ 500,113 Three Months Ended October 2, 2020 Balance at July 3, 2020 35,155 $ 423,856 $ 45,338 $ ( 14,712 ) $ ( 22,584 ) $ 431,898 Consolidated net income — — — 8,258 — 8,258 Common shares issued under stock plans 8 — — — — — Common shares withheld for taxes on vested stock awards ( 3 ) — ( 366 ) — — ( 366 ) Share-based compensation — — 7,225 — — 7,225 Other comprehensive income (loss), net of tax — — — — 4,234 4,234 Balance at October 2, 2020 35,160 $ 423,856 $ 52,197 $ ( 6,454 ) $ ( 18,350 ) $ 451,249 Nine Months Ended October 2, 2020 Balance at December 31, 2019 35,052 $ 423,856 $ 49,748 $ ( 38,319 ) $ ( 18,113 ) $ 417,172 Consolidated net income — — — 31,865 — 31,865 Common shares issued under stock plans 264 — 179 — — 179 Common shares withheld for taxes on vested stock awards ( 91 ) — ( 8,302 ) — — ( 8,302 ) Repurchases of common shares ( 65 ) — ( 5,500 ) — — ( 5,500 ) Share-based compensation — — 16,072 — — 16,072 Other comprehensive income (loss), net of tax — — — — ( 237 ) ( 237 ) Balance at October 2, 2020 35,160 $ 423,856 $ 52,197 $ ( 6,454 ) $ ( 18,350 ) $ 451,249 The accompanying notes are an integral part of these consolidated financial statements. 4 NOVANTA INC. CONSOLIDATED STATEMENTS OF CASH FLOWS (In thousands of U.S. dollars) (Unaudited) Nine Months Ended October 1, October 2, 2021 2020 Cash flows from operating activities: Consolidated net income $ 36,577 $ 31,865 Adjustments to reconcile consolidated net income to net cash provided by operating activities: Depreciation and amortization 30,613 28,363 Provision for inventory excess and obsolescence 3,187 3,550 Share-based compensation 20,169 16,072 Deferred income taxes ( 3,064 ) ( 3,455 ) Inventory acquisition fair value adjustments 280 188 Other 934 427 Changes in assets and liabilities which (used)/provided cash, excluding effects from business acquisitions: Accounts receivable ( 21,458 ) 9,655 Inventories ( 11,943 ) 11,937 Prepaid income taxes, income taxes receivable, prepaid expenses and other current assets ( 7,043 ) 5,741 Accounts payable, income taxes payable, accrued expenses and other current liabilities 19,511 ( 13,134 ) Other non-current assets and liabilities ( 1,851 ) 2,477 Cash provided by operating activities 65,912 93,686 Cash flows from investing activities: Acquisition of businesses, net of cash acquired and working capital adjustments ( 285,181 ) — Purchases of property, plant and equipment ( 14,759 ) ( 7,164 ) Payment of contingent consideration related to acquisition of technology assets ( 2,200 ) ( 2,632 ) Cash used in investing activities ( 302,140 ) ( 9,796 ) Cash flows from financing activities: Borrowings under revolving credit facilities 280,000 — Repayments under term loan and revolving credit facilities ( 24,036 ) ( 34,017 ) Payments of debt issuance costs — ( 1,614 ) Payments of withholding taxes from share-based awards ( 30,672 ) ( 8,302 ) Repurchases of common shares — ( 5,500 ) Payment of contingent consideration related to acquisitions ( 1,836 ) ( 1,135 ) Purchase of building under finance lease ( 8,743 ) — Payments of deferred and escrowed purchase price related to acquisitions — ( 5,772 ) Other financing activities ( 423 ) ( 855 ) Cash provided by (used in) financing activities 214,290 ( 57,195 ) Effect of exchange rates on cash and cash equivalents ( 721 ) 991 Increase (decrease) in cash and cash equivalents ( 22,659 ) 27,686 Cash and cash equivalents, beginning of the period 125,054 78,944 Cash and cash equivalents, end of the period $ 102,395 $ 106,630 Supplemental disclosure of cash flow information: Cash paid for interest $ 3,679 $ 4,099 Cash paid for income taxes $ 9,231 $ 4,350 Income tax refunds received $ 1,201 $ 4,613 The accompanying notes are an integral part of these consolidated financial statements. 5 NOVANTA INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS AS OF OCTOBER 1, 2021 (Unaudited) 1. Basis of Presentation Novanta Inc. 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. Novanta combines deep proprietary technology expertise and competencies in photonics, vision and precision motion with a proven ability to solve complex technical challenges. This enables Novanta to engineer core components and sub-systems that deliver extreme precision and performance, tailored to the customers’ demanding applications. The accompanying unaudited interim consolidated financial statements have been prepared by the Company in United States (“U.S.”) dollars and pursuant to the rules and regulations of the United States Securities and Exchange Commission (“SEC”), the instructions to Form 10-Q and the provisions of Regulation S-X pertaining to interim financial statements. Accordingly, certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the U.S. have been condensed or omitted. The interim consolidated financial statements and notes included in this report should be read in conjunction with the consolidated financial statements and notes included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2020. In the opinion of management, these interim consolidated financial statements include all adjustments and accruals of a normal and recurring nature necessary to fairly state the results of the interim periods presented. The results for interim periods are not necessarily indicative of results to be expected for the full year or for any future periods. The Company’s unaudited interim consolidated financial statements are prepared for each quarterly period ending on the Friday closest to the end of the calendar quarter, with the exception of the fourth quarter which always ends on December 31. Use of Estimates The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities as of the dates of the financial statements, and the reported amounts of revenue and expenses during the reporting periods. Estimates and assumptions are reviewed on an on-going basis and the effects of revisions are reflected in the period in which such revisions are deemed to be necessary. The Company evaluates its estimates based on historical experience, current conditions, including estimated economic implications of the COVID-19 pandemic, and various other assumptions that it believes are reasonable under the circumstances. The accounting estimates assessed included, but were not limited to, the Company’s allowance for doubtful accounts and credit losses, inventory and related reserves and the carrying value of goodwill and other long-lived assets. While there was not a material change to the consolidated financial statements related to these estimates as of and for the nine months ended October 1, 2021, the Company’s future assessment of the magnitude and duration of the COVID-19 pandemic, as well as other factors, could result in material impacts to the Company’s consolidated financial statements in future reporting periods. 6 NOVANTA INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued) AS OF OCTOBER 1, 2021 (Unaudited) Recent Accounting Pronouncements The following table provides a brief description of recent Accounting Standards Updates (“ASU”) issued by the Financial Accounting Standards Board (“FASB”): Standard Description Effective Date Effect on the Financial Statements or Other Significant Matters In December 2019, the FASB issued ASU 2019-12, “Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes.” ASU 2019-12 simplifies the accounting for income taxes by removing certain exceptions to the general principles of Accounting Standards Codification (“ASC”) 740, “Income Taxes”, including: (i) the exception to the incremental approach for intraperiod tax allocation when there is a loss from continuing operations and income or a gain from other items; (ii) the exception to the requirement to recognize a deferred tax liability for equity method investments when a foreign subsidiary becomes an equity method investment (or vice-versa); and (iii) the exception for calculating income taxes in an interim period when a year-to-date loss exceeds the anticipated loss for the year. ASU 2019-12 also simplifies GAAP for other areas of ASC 740 by clarifying and amending the existing guidance. January 1, 2021. Early adoption is permitted. The Company adopted ASU 2019-12 during the first quarter of 2021. The adoption of ASU 2019-12 did not have a material impact on the Company’s consolidated financial statements. In March 2020, the FASB issued ASU 2020-04, “Reference rate reform (Topic 848): Facilitation of the effects of reference rate reform on financial reporting.” ASU 2020-04 provides optional expedients and exceptions for applying GAAP to contracts, hedging relationships, and other transactions affected by reference rate reform if certain criteria are met. Upon issuance. ASU 2020-04 is elective. The Company does not expect the impact of ASU 2020-04 to be material to its consolidated financial statements. In October 2021, the FASB issued ASU 2021-08, “Business Combinations (Topic 805): Accounting for Contract Assets and Contract Liabilities from Contracts with Customers.” ASU 2021-08 requires that entities recognize and measure contract assets and liabilities acquired in a business combination in accordance with ASC 606, “Revenue from Contracts with Customers”. ASU 2021-08 also applies to contract assets or liabilities from other contracts to which the provisions of ASC 606 apply. The amendments in ASU 2021-08 do not affect the accounting for other assets or liabilities that may arise from revenue contracts with customers in accordance with ASC 606, such as refund liabilities, or in a business combination, such as customer-related intangible assets and contract-based intangible assets. January 1, 2023. Early adoption is permitted. The Company is evaluating the impact of the adoption of ASU 2021-08 on its consolidated financial statements. 7 NOVANTA INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued) AS OF OCTOBER 1, 2021 (Unaudited) 2. Revenue The Company recognizes revenue when control of promised goods or services is transferred to customers. The transfer of control generally occurs upon shipment when title and risk of loss pass to the customer. The vast majority of the Company’s revenue is generated from the sale of distinct products. Revenue is measured as the amount of consideration the Company expects to receive in exchange for such products, which is generally at contractually stated prices. Sales taxes and value added taxes collected concurrently with revenue generating activities are excluded from revenue. Performance Obligations Substantially all of the Company’s revenue is recognized at a point in time, upon shipment, rather than over time. At the request of its customers, the Company may perform professional services, generally for the maintenance and repair of products previously sold to those customers and for engineering services. Professional services for the maintenance and repair of products are typically short in duration, mostly less than one month , and generally involve a single distinct performance obligation. The related revenue is recognized at a point in time when control transfers to the customer upon completion of professional services. The consideration expected to be received in exchange for such services is typically the contractually stated amount. Certain engineering services are longer in duration and the related revenue is recognized over time, as the Company has a right to consideration from a customer, based on the corresponding value to the customer from the Company’s performance completed to date. Engineering services aggregate to less than 3 % of the Company’s consolidated revenue. The Company occasionally sells separately priced non-standard/extended warranty services or preventative maintenance plans with the sale of products. The transfer of control over the service plans is over time. The Company recognizes the related revenue ratably over the terms of the service plans. The transaction price of a contract is allocated to each performance obligation based on its relative standalone selling price. Standalone selling prices are generally determined based on the prices charged to customers or using the expected cost plus a margin. Shipping & Handling Costs The Company accounts for shipping and handling activities that occur after the transfer of control over the related goods as fulfillment activities rather than performance obligations. The shipping and handling fees charged to customers are recognized as revenue and the related costs are recorded in cost of revenue at the time of transfer of control. Warranties The Company generally provides warranties for its products. The standard warranty period is typically 12 months to 24 months for the Photonics and Precision Motion segments and 12 months to 36 months for the Vision segment. The standard warranty period for product sales is accounted for under the provisions of ASC 450, “Contingencies,” as the Company has the ability to ascertain the likelihood of the liability and can reasonably estimate the amount of the liability. A provision for the estimated cost related to warranty is recorded as cost of revenue at the time revenue is recognized. The Company’s estimate of costs to service the warranty obligations is based on historical experience and expectations of future conditions. To the extent that the Company’s experience in warranty claims or costs associated with servicing those claims differ from the original estimates, revisions to the estimated warranty liability are recorded at that time, with an offsetting adjustment to cost of revenue. 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. These costs are recorded within selling, general and administrative expenses in the consolidated statement of operations. The Company does not adjust the promised amount of consideration for the effects of a financing component because the transfer of a promised good to a customer and the customer’s payment for that good are typically one year or less. The Company does not disclose the value of the remaining performance obligation for contracts with an original expected length of one year or less. 8 NOVANTA INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued) AS OF OCTOBER 1, 2021 (Unaudited) Contract Liabilities Contract liabilities consist of deferred revenue and advance payments from customers, including amounts that are refundable. These contract liabilities are classified as either current or long-term liabilities in the consolidated balance sheet based on the timing of when the Company expects to recognize the related revenue. As of October 1, 2021 and December 31, 2020, contract liabilities were $ 9.5 million and $ 6.5 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 nine months ended October 1, 2021 is primarily due to cash payments received in advance of satisfying performance obligations and acquired contract liabilities of $ 2.0 million from current year acquisitions, partially offset by $ 4.9 million of revenue recognized during the period that was included in the contract liability balance at December 31, 2020. Disaggregated Revenue See Note 16 for the Company’s disaggregation of revenue by segment, geography and end market. 3. Business Combinations On August 30, 2021 , the Company acquired 100 % of the outstanding shares of ATI Industrial Automation, Inc. (“ATI”), an Apex, North Carolina-based leading supplier of intelligent end-of-arm technology solutions to OEMs for advanced industrial and surgical robots for an initial cash purchase price of $ 170.0 million, net of cash acquired, and $ 51.9 million estimated fair value of contingent consideration. The contingent consideration will be payable in 2022 based on a multiple of actual standalone ATI Adjusted EBITDA, as defined in the purchase and sale agreement, for the fiscal year ending December 31, 2021. The initial cash purchase price was financed with borrowings under the Company’s revolving credit facility and cash available on hand. The addition of ATI is expected to complement and add intelligent technology solutions to further expand the Company’s position in mission critical robotic applications. ATI will contribute to the Company’s operations and growth within the Precision Motion reportable segment. On August 31, 2021 , the Company acquired 100 % of the outstanding shares of Schneider Electric Motion USA, Inc. (“SEM”), a Marlborough, Connecticut-based manufacturer of integrated stepper motors and electronic controls for automation equipment for a total purchase price of $ 115.1 million, net of cash acquired, subject to customary working capital adjustments. The acquisition was financed with borrowings under our revolving credit facility. The addition of SEM is expected to complement and expand the Company’s presence in life science applications and solutions for industrial automation applications within the Precision Motion reportable segment. Allocation of Purchase Price The acquisitions of ATI and SEM have been accounted for as business combinations. The purchase price for each acquisition is allocated based upon a valuation of the fair values of assets acquired and liabilities assumed as of the acquisition date. The fair values of intangible assets were based on valuations using a discounted cash flow income approach and a relief from royalty income approach, with estimates and assumptions developed by management. The process for estimating the fair values of identifiable intangible assets requires the use of significant estimates and assumptions, including estimating future cash flows and developing appropriate discount rates. The excess of the purchase price over the fair values of tangible assets, identifiable intangible assets and assumed liabilities was recorded as goodwill for each acquisition. The Company’s estimates and assumptions in determining the estimated fair values of certain assets and liabilities are subject to change within the measurement period (up to one year from the acquisition date) as a result of additional information obtained with regards to facts and circumstances that existed as of the acquisition date. 9 NOVANTA INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued) AS OF OCTOBER 1, 2021 (Unaudited) ATI Based upon a preliminary valuation, the total purchase price for ATI was allocated as follows (in thousands): Purchase Price Allocation Cash $ 10,709 Accounts receivable 12,596 Inventories 17,431 Property, plant and equipment 4,195 Intangible assets 52,400 Goodwill 143,851 Deferred tax assets 345 Other assets 11,425 Total assets acquired 252,952 Accounts payable 5,135 Deferred tax liabilities 228 Other liabilities 14,938 Total liabilities assumed 20,301 Total assets acquired, net of liabilities assumed 232,651 Less: cash acquired 10,709 Less: contingent consideration 51,900 Initial purchase price, net of cash acquired $ 170,042 The purchase price allocation is preliminary as the Company is in the process of collecting additional information for the valuation of inventories, property plant and equipment, intangible assets, other liabilities, contingent consideration and unrecognized tax benefits. The fair value of intangible assets for ATI is comprised of the following (dollar amounts in thousands): Weighted Average Estimated Fair Amortization Value Period Developed technologies $ 19,800 15 years Customer relationships 23,600 15 years Trademarks and trade names 5,600 15 years Backlog 3,400 1 year Total $ 52,400 The purchase price allocation resulted in $ 52.4 million of identifiable intangible assets and $ 143.9 million of goodwill. Goodwill amounting to $ 143.4 million is expected to be deductible for U.S. income tax purposes. Intangible assets are being amortized over their weighted average useful lives primarily based upon the pattern in which anticipated economic benefits from such assets are expected to be realized. The goodwill recorded represents the anticipated incremental value of future cash flows potentially attributable to: (i) ATI’s ability to grow the business with existing and new customers, including leveraging the Company’s customer base; (ii) ATI’s ability to grow the business through new product introductions; and (iii) cost improvements due to the integration of ATI’s operations into the Company’s existing infrastructure. The operating results of ATI were included in the Company’s results of operations beginning on August 31, 2021. ATI contributed revenues of $ 8.7 million and a profit before income taxes of $ 0.8 million to the Company’s operating results for the nine months ended October 1, 2021. ATI’s profit before income taxes for the period from the acquisition date through October 1, 2021 included amortization of inventory fair value adjustments and amortization of purchased intangible assets of $ 0.8 million. 10 NOVANTA INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued) AS OF OCTOBER 1, 2021 (Unaudited) SEM Based upon a preliminary valuation, the total purchase price for SEM was allocated as follows (in thousands): Purchase Price Allocation Cash $ 3,881 Accounts receivable 4,240 Inventories 2,499 Property, plant and equipment 452 Intangible assets 54,570 Goodwill 70,064 Other assets 776 Total assets acquired 136,482 Accounts payable 1,325 Deferred tax liabilities 12,387 Other liabilities 3,750 Total liabilities assumed 17,462 Total assets acquired, net of liabilities assumed 119,020 Less: cash acquired 3,881 Total purchase price, net of cash acquired $ 115,139 The purchase price allocation is preliminary as the Company is in the process of collecting additional information for the valuation of inventories, intangible assets, other liabilities and unrecognized tax benefits. The fair value of intangible assets for SEM is comprised of the following (dollar amounts in thousands): Weighted Average Estimated Fair Amortization Value Period Developed technologies $ 9,110 15 years Customer relationships 41,740 20 years Trademarks and trade names 370 4 years Backlog 3,350 1 year Total $ 54,570 The purchase price allocation resulted in $ 54.6 million of identifiable intangible assets and $ 70.1 million of goodwill. As the SEM acquisition was structured as a stock acquisition for income tax purposes, the goodwill is not expected to be deductible for income tax purposes. Intangible assets are being amortized over their weighted average useful lives primarily based upon the pattern in which anticipated economic benefits from such assets are expected to be realized. The goodwill recorded represents the anticipated incremental value of future cash flows potentially attributable to: (i) SEM’s ability to grow the business with existing and new customers, including leveraging the Company’s customer base; (ii) SEM’s ability to grow the business through new product introductions; and (iii) cost improvements due to the integration of SEM’s operations into the Company’s existing infrastructure. The operating results of SEM were included in the Company’s results of operations beginning on September 1, 2021. SEM contributed revenues of $ 2.4 million and a profit before income taxes of $ 0.1 million to the Company’s operating results for the nine months ended October 1, 2021. SEM’s profit before income taxes for the period from the acquisition date through October 1, 2021 included amortization of inventory fair value adjustments and amortization of purchased intangible assets of $ 0.5 million. Unaudited Pro Forma Information The pro forma information for all periods presented below includes the effects of business combination accounting resulting from the acquisitions of ATI and SEM, including amortization of inventory fair value adjustments, amortization of intangible assets, interest expense on borrowings in connection with the acquisition, and the related tax effects, assuming that the acquisitions had been 11 NOVANTA INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued) AS OF OCTOBER 1, 2021 (Unaudited) consummated as of January 1, 2020. The pro forma financial information is presented for comparative purposes only and is not necessarily indicative of the results of operations that actually would have been achieved if the acquisitions had taken place on January 1, 2020. Three Months Ended Nine Months Ended October 1, October 2, October 1, October 2, 2021 2020 2021 2020 Revenue $ 197,715 $ 186,919 $ 584,051 $ 508,906 Consolidated net income $ 13,995 $ 9,908 $ 38,188 $ 25,551 Acquisition Costs Acquisition costs are included in restructuring and acquisition related costs in the consolidated statements of operations. Acquisition-related costs for ATI and SEM acquisitions are as follows (in thousands): Three Months Ended Nine Months Ended October 1, October 1, 2021 2021 ATI $ 1,956 $ 3,321 SEM $ 864 $ 1,052 4. Accumulated Other Comprehensive Loss Changes in accumulated other comprehensive loss was as follows (in thousands): Total Accumulated Other Cumulative Pension Comprehensive Translation Liability Loss Adjustments Adjustments Balance at December 31, 2020 $ ( 12,241 ) $ ( 2,296 ) $ ( 9,945 ) Other comprehensive income (loss) ( 3,487 ) ( 3,602 ) 115 Amounts reclassified from accumulated other comprehensive loss 717 — 717 Balance at October 1, 2021 $ ( 15,011 ) $ ( 5,898 ) $ ( 9,113 ) The amounts reclassified from accumulated other comprehensive loss were included in other income (expense) in the consolidated statements of operations. 5. Earnings per Common Share Basic earnings per common share is computed by dividing consolidated net income by the weighted average number of common shares outstanding during the period. For diluted earnings per common share, the denominator includes the dilutive effect of outstanding common share equivalents. For the three and nine months ended October 1, 2021 and October 2, 2020, respectively, weighted average shares outstanding for the diluted earnings per common share included the dilutive effect of outstanding restricted stock units, stock options, and total shareholder return performance-based restricted stock units, 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 and operating cash flow performance-based restricted stock units 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. 12 NOVANTA INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued) AS OF OCTOBER 1, 2021 (Unaudited) 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 Nine Months Ended October 1, October 2, October 1, October 2, 2021 2020 2021 2020 Numerators: Consolidated net income $ 13,603 $ 8,258 $ 36,577 $ 31,865 Denominators: Weighted average common shares outstanding— basic 35,447 35,142 35,366 35,144 Dilutive potential common shares 317 546 405 465 Weighted average common shares outstanding— diluted 35,764 35,688 35,771 35,609 Antidilutive potential common shares excluded from above 1 — 18 17 Earnings per Common Share: Basic $ 0.38 $ 0.23 $ 1.03 $ 0.91 Diluted $ 0.38 $ 0.23 $ 1.02 $ 0.89 For both the three and nine months ended October 1, 2021, 45 thousand non-GAAP EPS performance-based restricted stock units and 37 thousand operating cash flow performance-based restricted stock units 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 are considered contingently issuable shares and were excluded from the calculation of the denominator as the contingent conditions had not been met as of October 1, 2021. For both the three and nine months ended October 2, 2020, 73 thousand non-GAAP EPS performance-based restricted stock units 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 October 2, 2020. 6. Fair Value Measurements ASC 820, “Fair Value Measurements,” establishes a fair value hierarchy based on three levels of inputs, of which the first two are considered observable and the third is considered unobservable: • Level 1: Quoted prices for identical assets or liabilities in active markets which the Company can access • Level 2: Observable inputs other than those described in Level 1 • Level 3: Unobservable inputs Current Assets and Liabilities The Company’s cash equivalents are highly liquid investments with original maturities of three months or less, which represent an asset the Company measures at fair value on a recurring basis. The Company determines the fair value of cash equivalents using a market approach based on quoted prices in active markets. The fair values of cash, accounts receivable, income taxes receivable, accounts payable, income taxes payable and accrued expenses and other current liabilities approximate their carrying values because of their short-term nature. Foreign Currency Contracts The Company addresses market risks from changes in foreign currency exchange rates through a risk management program that includes the use of derivative financial instruments to mitigate certain balance sheet foreign currency transaction exposures. The Company uses foreign currency forward contracts as a part of its strategy to manage exposures related to foreign currency denominated monetary assets and liabilities. The fair value of these foreign currency forward contracts is reported either in other current assets or in other current liabilities as of the end of the period. 13 NOVANTA INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued) AS OF OCTOBER 1, 2021 (Unaudited) Contingent Consideration s 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 of $ 51.9 million was determined based on the Monte Carlo valuation method and was recorded as part of the purchase price as of the acquisition date. Once the fair value of contingent consideration is finalized, 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. There have been no changes in the fair value of the contingent consideration since the date of the acquisition. On July 31, 2019, the Company acquired ARGES GmbH (“ARGES”). Under the purchase and sale agreement for the ARGES acquisition, the former owner of ARGES is eligible to receive contingent consideration based on the achievement of certain revenue targets by the Company from August 2019 through December 2026. The undiscounted range of possible contingent consideration is zero to € 10.0 million ($ 11.1 million). If the revenue targets are achieved, the contingent consideration would be payable annually with the first payment due in the first quarter of 2021. The estimated fair value of the contingent consideration of € 7.1 million ($ 7.9 million) was determined based on the Monte Carlo valuation method and was recorded as part of the purchase price as of the acquisition date. Subsequent changes in the estimated fair value of the contingent consideration liability are recorded in the consolidated statement of operations in restructuring, acquisition, and related costs until the liability is fully settled. During 2020, the fair value of the contingent consideration was adjusted to € 4.1 million ($ 5.1 million). In March 2021, the Company made the first installment payment of € 0.4 million ($ 0.4 million), which is included in cash flows from financing activities in the consolidated statement of cash flows for the nine months ended October 1, 2021. Based on the revenue performance and revenue projections as of October 1, 2021, the fair value of the contingent consideration was adjusted to € 3.7 million ($ 4.3 million). There were no other changes in the fair value of the contingent consideration during the three and nine months ended October 1, 2021. On April 16, 2019, the Company acquired Ingenia CAT, S.L. (“Ingenia”). Under the purchase and sale agreement for the Ingenia acquisition, the shareholders of Ingenia are eligible to receive contingent consideration based on the achievement of certain revenue targets by the Company from April 2019 through March 2022. The undiscounted range of possible contingent consideration is zero to € 8.0 million ($ 9.0 million). If the revenue targets are achieved, the contingent consideration would be payable in cash in three annual installments from 2020 to 2022. The estimated fair value of the contingent consideration of € 5.8 million ($ 6.6 million) was determined based on the Monte Carlo valuation method and was recorded as part of the purchase price as of the acquisition date. Subsequent changes in the estimated fair value of the contingent consideration liability are recorded in the consolidated statement of operations in restructuring, acquisition, and related costs until the liability is fully settled. Based on the revenue performance and revenue projections for fiscal years 2021 and 2022 as of December 31, 2020, the fair value of the contingent consideration was adjusted to € 2.3 million ($ 2.9 million). Based on the revenue performance and revenue projections as of April 2, 2021, the fair value of the contingent consideration was adjusted to € 2.4 million ($ 2.9 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 flows from financing activities in the consolidated statement of cash flows for the respective periods. There were no other changes in the fair value of the contingent consideration during the three and nine months ended October 1, 2021. On December 14, 2016 , the Company acquired certain video signal processing and management technologies used in medical visualization solutions. Under the purchase and sale agreement, the former owners are eligible to receive contingent consideration based on the achievement of certain revenue targets by the Company from 2018 to 2021 from products utilizing the acquired technologies. The undiscounted range of possible contingent consideration is zero to € 5.5 million ($ 6.6 million). If the revenue targets are achieved, the contingent consideration would be payable in cash in four installments from 2019 to 2022. 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. The Company made the first installment payment of € 2.4 million ($ 2.6 million) in February 2020 and the second installment payment of € 1.8 million ($ 2.2 million) in February 2021. These installment payments are reported as cash flows from investing activities in the consolidated statement of cash flows for the respective periods. There were no other changes in the fair value of the contingent consideration during the three and nine months ended October 1, 2021. 14 NOVANTA INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued) AS OF OCTOBER 1, 2021 (Unaudited) 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 October 1, 2021 (in thousands): Quoted Prices in Significant Other Active Markets for Significant Other Unobservable Identical Assets Observable Inputs Inputs Fair Value (Level 1) (Level 2) (Level 3) Assets Cash equivalents $ 3,089 $ 3,089 $ — $ — Prepaid expenses and other current assets: Foreign currency forward contracts 202 — 202 — $ 3,291 $ 3,089 $ 202 $ — Liabilities Accrued expenses and other current liabilities: Contingent considerations - Current $ 55,469 $ — $ — $ 55,469 Foreign currency forward contracts 10 — 10 — Other liabilities: Contingent considerations - Long-term 3,605 — — 3,605 $ 59,084 $ — $ 10 $ 59,074 The following table summarizes the fair values of the Company’s assets and liabilities measured at fair value on a recurring basis as of December 31, 2020 (in thousands): Quoted Prices in Significant Other Active Markets for Significant Other Unobservable Identical Assets Observable Inputs Inputs Fair Value (Level 1) (Level 2) (Level 3) Assets Cash equivalents $ 11,047 $ 11,047 $ — $ — Prepaid expenses and other current assets: Foreign currency forward contracts 27 — 27 — $ 11,074 $ 11,047 $ 27 $ — Liabilities Accrued expenses and other current liabilities: Contingent considerations - Current $ 4,280 $ — $ — $ 4,280 Foreign currency forward contracts — — — — Other liabilities: Contingent considerations - Long-term 7,276 — — 7,276 $ 11,556 $ — $ — $ 11,556 Changes in the fair value of Level 3 contingent considerations during the nine months ended October 1, 2021 were as follows (in thousands): Contingent Considerations Balance at December 31, 2020 $ 11,556 Acquisition of ATI 51,900 Payments ( 4,036 ) Fair value adjustments 26 Effect of foreign exchange rates ( 372 ) Balance at October 1, 2021 $ 59,074 15 NOVANTA INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued) AS OF OCTOBER 1, 2021 (Unaudited) The following table provides qualitative information associated with the fair value measurement of the Company’s Level 3 liabilities: Liability October 1, 2021 Fair Value (in thousands) Valuation Technique Unobservable Inputs Percentage Applied Contingent consideration (ATI) $ 51,900 Monte Carlo method Historical and projected adjusted N/A EBITDA for fiscal year 2021 EBITDA risk premium 7.2 % EBITDA volatility 27.0 % Credit spread 2.1 % Contingent consideration (ARGES) $ 4,282 Monte Carlo method Historical and projected revenues from August 2019 through December 2026 N/A Revenue volatility 21.0 % Cost of debt 2.6 % Discount rate 3.7 % Contingent consideration (Ingenia) $ 1,493 Monte Carlo method Historical and projected revenues from April 2019 through March 2022 N/A Revenue volatility 38.5 % Cost of debt 3.1 % Discount rate 9.6 % Contingent consideration (Other) $ 1,399 Discounted cash flow method Historical and projected revenues for fiscal years 2018 to 2021 N/A Revenue discount rate 22.8 % Increases or decreases in the unobservable inputs noted above would result in a higher or lower fair value measurement. See Note 10 to Consolidated Financial Statements for a discussion of the estimated fair value of the Company’s outstanding debt. 7. Foreign Currency Contracts The Company addresses market risks from changes in foreign currency exchange rates through a risk management program that includes the use of derivative financial instruments to mitigate certain foreign currency transaction exposures from future settlement of non-functional currency monetary assets and liabilities as of the end of a period. The Company does not enter into derivative transactions for speculative purposes. Gains and losses on derivative financial instruments substantially offset losses and gains on the underlying hedged exposures. 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 October 1, 2021, the aggregate notional amount and fair value of the Company’s foreign currency forward contracts was $ 48.3 million and a net gain of $ 0.2 million, respectively. As of December 31, 2020, the aggregate notional amount and fair value of the Company’s foreign currency forward contracts was $ 28.5 million and a net gain of less than $ 0.1 million, respectively. The Company recognized an aggregate net gain of $ 0.3 million and $ 0.9 million for the three and nine months ended October 1, 2021, respectively, and an aggregate net gain of $ 1.0 million and $ 1.4 million for the three and nine months ended October 2, 2020, respectively. These amounts were included in foreign exchange transaction gains (losses) in the consolidated statement of operations for all periods presented. 16 NOVANTA INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued) AS OF OCTOBER 1, 2021 (Unaudited) 8. Goodwill and Intangible Assets Goodwill Goodwill is recorded when the consideration for a business combination exceeds the fair value of net tangible and identifiable intangible assets acquired. The Company tests its goodwill balances for impairment annually as of the beginning of the second quarter or more frequently if indicators are present or changes in circumstances suggest that an impairment may exist. The Company performed the most recent annual goodwill and indefinite-lived intangible asset impairment test as of the beginning of the second quarter of 2021 and noted no impairment. The following table summarizes changes in goodwill during the nine months ended October 1, 2021 (in thousands): Balance at beginning of the period $ 285,980 Goodwill acquired from acquisitions 213,915 Effect of foreign exchange rate changes ( 6,955 ) Balance at end of the period $ 492,940 Goodwill by reportable segment as of October 1, 2021 was as follows (in thousands): Reportable Segment Photonics Vision Precision Motion Total Goodwill $ 215,453 $ 161,885 $ 266,831 $ 644,169 Accumulated impairment of goodwill ( 102,461 ) ( 31,722 ) ( 17,046 ) ( 151,229 ) Total $ 112,992 $ 130,163 $ 249,785 $ 492,940 Goodwill by reportable segment as of December 31, 2020 was as follows (in thousands): Reportable Segment Photonics Vision Precision Motion Total Goodwill $ 218,517 $ 165,195 $ 53,497 $ 437,209 Accumulated impairment of goodwill ( 102,461 ) ( 31,722 ) ( 17,046 ) ( 151,229 ) Total $ 116,056 $ 133,473 $ 36,451 $ 285,980 Intangible Assets Intangible assets as of October 1, 2021 and December 31, 2020, respectively, are summarized as follows (in thousands): October 1, 2021 December 31, 2020 Gross Carrying Amount Accumulated Amortization Net Carrying Amount Gross Carrying Amount Accumulated Amortization Net Carrying Amount Amortizable intangible assets: Patents and developed technologies $ 190,485 $ ( 118,535 ) $ 71,950 $ 164,430 $ ( 110,572 ) $ 53,858 Customer relationships 229,369 ( 101,546 ) 127,823 167,429 ( 92,892 ) 74,537 Customer backlog 6,753 ( 563 ) 6,190 — — — Trademarks and trade names 24,052 ( 12,015 ) 12,037 18,367 ( 11,268 ) 7,099 Amortizable intangible assets 450,659 ( 232,659 ) 218,000 350,226 ( 214,732 ) 135,494 Non-amortizable intangible assets: Trade names 13,027 — 13,027 13,027 — 13,027 Totals $ 463,686 $ ( 232,659 ) $ 231,027 $ 363,253 $ ( 214,732 ) $ 148,521 All definite-lived intangible assets are amortized either on a straight-line basis or an economic benefit basis over their remaining estimated useful life. Amortization expense for patents and developed technologies is included in cost of revenue in the accompanying consolidated statements of operations. Amortization expense for customer relationships and definite-lived trademarks, 17 NOVANTA INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued) AS OF OCTOBER 1, 2021 (Unaudited) trade names and other intangibles is included in operating expenses in the accompanying consolidated statements of operations. Amortizat ion expense was as follows (in thousands): Three Months Ended Nine Months Ended October 1, October 2, October 1, October 2, 2021 2020 2021 2020 Amortization expense – cost of revenue $ 3,316 $ 2,820 $ 9,275 $ 8,270 Amortization expense – operating expenses 4,139 3,533 11,300 10,388 Total amortization expense $ 7,455 $ 6,353 $ 20,575 $ 18,658 Estimated amortization expense for each of the five succeeding years and thereafter as of October 1, 2021 was as follows (in thousands): Year Ending December 31, Cost of Revenue Operating Expenses Total 2021 (remainder of year) $ 4,029 $ 5,294 $ 9,323 2022 13,854 27,032 40,886 2023 12,544 20,998 33,542 2024 10,170 17,631 27,801 2025 8,579 14,917 23,496 Thereafter 22,774 60,178 82,952 Total $ 71,950 $ 146,050 $ 218,000 9. Supplementary Balance Sheet Information The following tables provide the details of selected balance sheet items as of the periods indicated (in thousands): Inventories October 1, December 31, 2021 2020 Raw materials $ 75,445 $ 55,657 Work-in-process 21,409 15,487 Finished goods 20,781 20,234 Demo and consigned inventory 1,787 1,359 Total inventories $ 119,422 $ 92,737 Accrued Expenses and Other Current Liabilities October 1, December 31, 2021 2020 Accrued compensation and benefits $ 20,546 $ 12,510 Accrued warranty 4,527 4,919 Contract liabilities, current portion 9,190 6,173 Finance lease obligations 590 9,720 Accrued earn-out and contingent considerations 55,469 10,796 Other 14,184 9,662 Total $ 104,506 $ 53,780 18 NOVANTA INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued) AS OF OCTOBER 1, 2021 (Unaudited) Accrued Warranty Nine Months Ended October 1, October 2, 2021 2020 Balance at beginning of the period $ 4,919 $ 5,756 Provision charged to cost of revenue 1,215 1,255 Warranty liabilities acquired from acquisitions 541 — Use of provision ( 2,075 ) ( 1,941 ) Foreign currency exchange rate changes ( 73 ) 32 Balance at end of the period $ 4,527 $ 5,102 Other Long Term Liabilities October 1, December 31, 2021 2020 Finance lease obligations $ 5,461 $ 5,908 Accrued pension liabilities 326 1,511 Accrued contingent considerations 3,605 7,276 Other 2,352 2,471 Total $ 11,744 $ 17,166 10. Debt Debt consisted of the following (in thousands): October 1, December 31, 2021 2020 Senior Credit Facilities – term loan $ 5,238 $ 5,545 Less: unamortized debt issuance costs ( 31 ) ( 37 ) Total current portion of long-term debt $ 5,207 $ 5,508 Senior Credit Facilities – term loan $ 90,092 $ 99,534 Senior Credit Facilities – revolving credit facility 355,288 99,761 Less: unamortized debt issuance costs ( 3,549 ) ( 4,368 ) Total long-term debt $ 441,831 $ 194,927 Total Senior Credit Facilities $ 447,038 $ 200,435 Senior Credit Facilities On December 31, 2019, the Company entered into an amended and restated credit agreement (the “Third Amended and Restated Credit Agreement”) with existing lenders for an aggregate credit facility of $ 450.0 million, consisting of a $ 100.0 million U.S. dollar equivalent euro-denominated (approximately € 90.2 million) 5 -year term loan facility and a $ 350.0 million 5 -year revolving credit facility (collectively, the “Senior Credit Facilities”). The Senior Credit Facilities mature in December 2024 and includes an uncommitted “accordion” feature pursuant to which the commitments under the revolving credit facility may be increased by an additional $ 200.0 million in aggregate, subject to certain customary conditions. 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 feature. The First Amendment increased the revolving credit facility commitment under the Third Amended and Restated Credit Agreement by $ 145.0 million, from $ 350.0 million to $ 495.0 million, and reset the uncommitted accordion feature to $ 200.0 million for potential future expansion. 19 NOVANTA INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued) AS OF OCTOBER 1, 2021 (Unaudited) The outstanding principal balance under the term loan facility is payable in quarterly installments of € 1.1 million beginning in March 2020, with the remaining balance due upon maturity. The Company may make additional principal payments at any time, which will reduce the next quarterly installment payment due. Borrowings under the revolving credit facility may be repaid at any time through December 2024 . The Company made principal payments of € 3.4 million ($ 4.0 million) towards its term loan and $ 20.0 million towards its revolving credit facility during the nine months ended October 1, 2021. 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 October 1, 2021. Liens The Company’s obligations under the Senior Credit Facilities are secured, on a senior basis, by a lien on substantially all of the assets of Novanta Inc. Fair Value of Debt As of October 1, 2021 and December 31, 2020, the outstanding balance of the Company’s debt approximated its fair value based on current rates available to the Company for debt of similar maturities. The fair value of the Company’s debt is classified as Level 2 under the fair value hierarchy. 11. Leases Most leases held by the Company expire between 2021 and 2034 . In the U.K., where longer lease terms are more common, the Company has a land lease that extends through 2078 . Certain leases include one or more options to renew, with renewal terms that can extend the lease term from one to 10 years , and options to terminate the leases within one year . The exercise of lease renewal or termination options is at the Company’s sole discretion; therefore, the majority of renewals to extend the lease terms are not included in the Company’s right-of-use assets and operating lease liabilities as they are not reasonably certain of being exercised. The Company regularly evaluates the renewal options and includes the renewal periods in the lease term when they are reasonably certain of being exercised. The depreciable lives of the right-of-use assets and leasehold improvements are limited to the expected lease terms. The following table summarizes the components of lease costs (in thousands): Three Months Ended Nine Months Ended October 1, October 2, October 1, October 2, 2021 2020 2021 2020 Operating lease cost $ 2,418 $ 1,786 $ 6,213 $ 5,693 Finance lease cost Amortization of right-of-use assets 149 253 451 748 Interest on lease liabilities 85 108 257 326 Variable lease cost 275 320 834 1,043 Total lease cost $ 2,927 $ 2,467 $ 7,755 $ 7,810 20 NOVANTA INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued) AS OF OCTOBER 1, 2021 (Unaudited) The following table provides additional details of balance sheet information related to the Company’s leases (in thousands, except lease term and discount rate): October 1, December 31, 2021 2020 Operating leases Operating lease right-of-use assets $ 43,459 $ 34,444 Current portion of operating lease liabilities $ 7,575 $ 6,188 Operating lease liabilities 40,850 32,802 Total operating lease liabilities $ 48,425 $ 38,990 Finance leases Property, plant and equipment, gross $ 9,582 $ 19,819 Accumulated depreciation ( 4,918 ) ( 4,934 ) Finance lease assets included in property, plant and equipment, net $ 4,664 $ 14,885 Accrued expenses and other current liabilities $ 590 $ 9,720 Other liabilities 5,461 5,908 Total finance lease liabilities $ 6,051 $ 15,628 Weighted-average remaining lease term (in years): Operating leases 8.4 9.3 Finance leases 7.8 3.5 Weighted-average discount rate: Operating leases 4.96 % 5.50 % Finance leases 5.54 % 3.00 % The following table provides additional details of cash flow information related to the Company’s leases (in thousands): Nine Months Ended October 1, October 2, 2021 2020 Cash paid for amounts included in lease liabilities: Operating cash flows from finance leases $ 257 $ 357 Operating cash flows from operating leases $ 5,562 $ 5,088 Financing cash flows from finance leases $ 9,166 $ 1,034 Supplemental non-cash information: Right-of-use assets obtained in exchange for new operating lease liabilities $ 15,340 $ 3,050 During the nine months ended October 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. 21 NOVANTA INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued) AS OF OCTOBER 1, 2021 (Unaudited) Future minimum lease payments under operating and finance leases expiring subsequent to October 1, 2021, including operating leases associated with facilities that have been vacated as a result of the Company’s restructuring actions, are summarized as follows (in thousands): Year Ending December 31, Operating Leases Finance Leases 2021 (remainder of year) $ 2,141 $ 227 2022 9,539 907 2023 8,241 930 2024 7,230 954 2025 6,967 954 Thereafter 27,090 3,486 Total minimum lease payments 61,208 7,458 Less: Interest ( 12,783 ) ( 1,407 ) Present value of lease liabilities $ 48,425 $ 6,051 12. Preferred and Common Shares and Share-Based Compensation Preferred Shares In May 2021, the Company’s shareholders approved a special resolution to amend the Company’s articles to authorize up to 7.0 million preferred shares for future issuance. The Company’s Board of Directors is authorized to designate and issue one or more series of preferred shares, fix the rights, preferences and designation, as deemed necessary or advisable, relating to the preferred shares, provided that no shares of any series may be entitled to more than one vote per share . As of October 1, 2021, 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. 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 October 1, 2021, the Company had $ 59.5 million available for future share repurchases under these share repurchase plans. Share-Based Compensation Expense The table below summarizes share-based compensation expense recorded in the consolidated statements of operations (in thousands): Three Months Ended Nine Months Ended October 1, October 2, October 1, October 2, 2021 2020 2021 2020 Selling, general and administrative $ 4,360 $ 4,265 $ 13,123 $ 10,225 Research and development and engineering 534 1,150 1,776 2,204 Cost of revenue 631 1,589 2,305 3,185 Restructuring, acquisition, and related costs 2,965 221 2,965 458 Total share-based compensation expense $ 8,490 $ 7,225 $ 20,169 $ 16,072 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 $ 1.0 million during the nine months ended October 1, 2021 and October 2, 2020, respectively. On May 13, 2021, the Company’s shareholders approved the Amended and Restated 2010 Incentive Award Plan, which increased the number of shares authorized for issuance under the plan from 4,398,613 shares to 6,148,613 shares, extended the term of the plan through May 13, 2031, and included certain provisions that reflect good corporate governance practices. 22 NOVANTA INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued) AS OF OCTOBER 1, 2021 (Unaudited) 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 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 91 thousand and 162 thousand DSUs outstanding as of October 1, 2021 and December 31, 2020, 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 nine months ended October 1, 2021: Shares (In thousands) Weighted Average Grant Date Fair Value Unvested at December 31, 2020 625 $ 58.79 Granted 169 $ 136.85 Vested ( 485 ) $ 51.21 Forfeited ( 20 ) $ 103.20 Unvested at October 1, 2021 289 $ 113.94 Expected to vest as of October 1, 2021 272 The total fair value of RSUs and DSUs that vested during the nine months ended October 1, 2021 was $ 68.0 million based on the market price of the underlying shares on the date of vesting. Performance Stock Units The Company typically grants two types of annual performance-based stock awards to certain members of the executive management team: non-GAAP EPS performance-based restricted stock units (“EPS-PSUs”) and relative total shareholder return performance-based restricted stock units (“TSR-PSUs”). 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 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 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 February 2021, the Company granted operating cash flow performance-based restricted stock units (“OCF-PSUs”) to certain members of the executive management team. Upon completion of the requisite service periods, the OCF-PSUs will vest in two tranches if the Company achieves the cumulative operating cash flow performance target for fiscal years 2021 through 2023 as approved by the Company’s Compensation Committee as of the date of grant. The first fifty percent of the OCF-PSU grant will vest at the end of the four-year service period from the date of grant and the remaining fifty percent of the OCF-PSU grant will vest at the 23 NOVANTA INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued) AS OF OCTOBER 1, 2021 (Unaudited) end of the five-year service period from the date of grant. The Company recognizes compensation expense ratably over the requisite service period based on the expectation that 100 percent of the OCF-PSUs are deemed probable of vesting. 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 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 nine months ended October 1, 2021: Shares (In thousands) Weighted Average Grant Date Fair Value Unvested at December 31, 2020 142 $ 88.99 Granted 67 $ 150.89 Performance adjustment 28 $ 67.72 Vested ( 75 ) $ 64.25 Forfeited — $ — Unvested at October 1, 2021 162 $ 122.26 Expected to vest as of October 1, 2021 177 The unvested PSUs are shown at target in the table above. As of October 1, 2021, the maximum number of common shares to be earned under these PSU grants was approximately 286 thousand shares. The performance adjustment shares and vested shares shown in the table above are for performance-based awards granted on February 22, 2018. These awards vested at 160 % of target number of common shares during the nine months ended October 1, 2021 based on the achievement of cumulative Non-GAAP EPS and applicable relative TSR performance conditions during the performance period of fiscal years 2018 through 2020. The total fair value of PSUs that vested during the nine months ended October 1, 2021 was $ 9.3 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: Nine Months Ended October 1, 2021 Grant-date stock price $ 138.23 Expected volatility 42.44 % Risk-free interest rate 0.22 % Expected annual dividend yield — Fair value $ 166.64 Stock Options No stock options were granted during the nine months ended October 1, 2021. There were 60 thousand fully-vested stock options outstanding as of October 1, 2021. 13. Income Taxes The Company determines its estimated annual effective tax rate at the end of each interim period based on full-year forecasted pre-tax income and facts known at that time. The estimated annual effective tax rate is applied to the year-to-date pre-tax income at the end of each interim period with the cumulative effect of any changes in the estimated annual effective tax rate being recorded in the fiscal quarter in which the changes are determined. The tax effect of significant unusual items is reflected in the period in which they occur. Since the Company is incorporated in Canada, it is required to use Canada’s statutory tax rate of 29.0 % in the determination of the estimated annual effective tax rate. 24 NOVANTA INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued) AS OF OCTOBER 1, 2021 (Unaudited) The Company maintains a valuation allowance on balances of certain U.S. state net operating losses and certain non-U.S. tax attributes that the Company has determined are 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 ( 0.6 %) for the three months ended October 1, 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, partially offset by an increase in valuation allowances. The Company’s effective tax rate of 2.0 % for the nine months ended October 1, 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 and an increase in valuation allowances during the period. For the nine months ended October 1, 2021, the windfall tax benefits upon vesting of certain share-based compensation awards had a benefit of 14.5 % on the Company’s effective tax rate. The Company’s effective tax rate of 17.6 % for the three months ended October 2, 2020 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 other tax credits. The Company’s effective tax rate of 5.2 % for the nine months ended October 2, 2020 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, windfall tax benefits upon vesting of certain share-based compensation awards during the period, and a release of a portion of the valuation allowance on the deferred tax assets in Canada. For the nine months ended October 2, 2020, the windfall tax benefits upon vesting of certain share-based compensation awards and the valuation allowance release had a benefit of 7.9 % and 3.3 %, respectively, on the Company’s effective tax rate. 14. Restructuring, Acquisition, and Related Costs The following table summarizes restructuring, acquisition, and related costs in the accompanying consolidated statements of operations (in thousands): Three Months Ended Nine Months Ended October 1, October 2, October 1, October 2, 2021 2020 2021 2020 2020 restructuring $ 5,185 $ 1,006 $ 7,688 $ 1,006 2019 restructuring — 68 208 667 2018 restructuring — — — 754 Total restructuring charges $ 5,185 $ 1,074 $ 7,896 $ 2,427 Acquisition and related charges 2,935 613 8,589 3,164 Total restructuring, acquisition, and related costs $ 8,120 $ 1,687 $ 16,485 $ 5,591 2020 Restructuring As a result of the Company’s ongoing evaluations and efforts to reduce its operating costs, while improving efficiency and effectiveness, the Company initiated the 2020 restructuring program in the third quarter of 2020. This program is focused on reducing operating complexity in the Company, including reducing infrastructure costs and streamlining the Company’s operating model to better serve its customers. In addition, the program will be focused on cost reduction actions that improve gross margins for the overall company. During the three and nine months ended October 1, 2021, the Company recorded $ 5.2 million and $ 7.7 million, respectively, in severance and other costs in connection with the 2020 restructuring program. As of October 1, 2021, the Company 25 NOVANTA INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued) AS OF OCTOBER 1, 2021 (Unaudited) had incurred cumulative costs related to this restructuring plan totaling $ 10.4 million. The Company anticipates substantially completing the 2020 restructuring program in the second quarter of 202 2 and expects to incur additional restructuring charges of $ 3.0 million to $ 4.0 million related to the 2020 restructuring program. The following table summarizes restructuring costs associated with the 2020 restructuring program by reportable segment (in thousands): Three Months Ended Nine Months Ended October 1, October 2, October 1, October 2, 2021 2020 2021 2020 Photonics $ 2,349 $ — $ 2,839 $ — Vision 193 1,006 890 1,006 Precision Motion 2,643 — 3,959 — Unallocated Corporate and Shared Services — — — — Total $ 5,185 $ 1,006 $ 7,688 $ 1,006 2019 Restructuring 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”). During the three and nine months ended October 1, 2021, the Company incurred zero and $ 0.2 million, respectively, in severance and related costs in connection with the 2019 restructuring plan. As of October 2, 2021, the Company incurred cumulative costs related to this restructuring plan totaling $ 9.0 million. The 2019 restructuring program was completed in the first quarter of 2021. Rollforward of Accrued Expenses Related to Restructuring The following table summarizes the accrual activities, by component, related to the Company’s restructuring plans recorded in the accompanying consolidated balance sheets (in thousands): Total Severance Facility Other Balance at December 31, 2020 $ 1,800 $ 1,681 $ 116 $ 3 Restructuring charges 7,896 6,292 1,183 421 Cash payments ( 2,333 ) ( 1,837 ) ( 215 ) ( 281 ) Non-cash charges and other adjustments (1) ( 3,486 ) ( 2,981 ) ( 505 ) — Balance at October 1, 2021 $ 3,877 $ 3,155 $ 579 $ 143 (1) Non-cash charges included stock compensation charges amounting to $ 3.0 million associated with severance agreements for certain employees. Acquisition and Related Charges Acquisition costs in connection with business combinations, including finders’ fees, legal, valuation, and other professional or consulting fees, totaled $ 2.9 million and $ 4.7 million for the three and nine months ended October 1, 2021, respectively, and less than $ 0.1 million and $ 0.1 million for the three and nine months ended October 2, 2020, respectively. The Company incurred $ 0.1 million and $ 1.9 million for the three and nine months ended October 1, 2021, respectively, and $ 0.4 million and $ 1.0 million for the three and nine months ended October 2, 2020, respectively, in legal costs related to a dispute involving a company that was acquired in 2019. Acquisition and related costs recognized under earn-out agreements in connection with acquisitions totaled less than ($ 0.1 ) million and $ 1.9 million for the three and nine months ended October 1, 2021, respectively, and $ 0.2 million and $ 2.0 million for the three and nine months ended October 2, 2020, respectively. The majority of acquisition and related costs for the three months ended October 1, 2021 were included in the Company’s Unallocated Corporate and Shared Services reportable segment. The majority of acquisition and related costs for the nine months ended October 1, 2021 were included in the Company’s Precision Motion, Vision and Unallocated Corporate and Shared Services reportable segments. The majority of acquisition and related costs for the three and nine months ended October 2, 2020 were included in the Company’s Precision Motion and Vision reportable segments. 26 NOVANTA INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued) AS OF OCTOBER 1, 2021 (Unaudited) 15. Commitments and Contingencies Purchase Commitments Excluding ATI’s purchase commitments, there have been no material changes to the Company’s purchase commitments since December 31, 2020. As of October 1, 2021, ATI had noncancellable commitments of $ 17.9 million, primarily related to inventory purchases. The majority of these purchase commitments are expected to be incurred within the next twelve months. Legal Contingencies In April 2020, the Company received notification of an arbitration demand filed with the American Arbitration Association against a business acquired by the Company in June 2019. The arbitration demand was filed by a contract counterparty to a joint product development agreement entered into by the business before Novanta acquired it. The arbitration demand alleged breach of contract and other claims arising out of allegations that the business failed to engage in required marketing activities for the product developed under the joint product development agreement. The claimant sought compensatory and punitive damages, lost profits and other relief. During the second quarter of 2021, the arbitrator formally closed the arbitration pursuant to a settlement between the parties. No financial damages payments were made by the Company. The Company is subject to various legal proceedings and claims that arise in the ordinary course of business. The Company reviews the status of each significant matter and assesses the potential financial exposure on a quarterly basis. If the potential loss from any claim or legal proceeding is considered probable and the amount can be reasonably estimated, the Company accrues a liability for the estimated loss. Significant judgment is required in both the determination of probability and the determination as to whether an exposure is reasonably estimable. Because of uncertainties related to these matters, accruals are based only on the best information available as of the date of the consolidated balance sheet. As additional information becomes available, the Company reassesses the potential liability related to any pending claims and 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. The Company does not believe that the outcome of these claims will have a material adverse effect on its consolidated financial statements but there can be no assurance that any such claims, or any similar claims, would not have a material adverse effect on the consolidated financial statements. Guarantees and Indemnifications In the normal course of its operations, the Company executes agreements that provide for indemnification and guarantees to counterparties in transactions such as business dispositions, sale of assets, sale of products and operating leases. Additionally, the by-laws of the Company require it to indemnify certain current or former directors, officers, and employees of the Company against expenses incurred by them in connection with each proceeding in which they are involved as a result of serving or having served in certain capacities. Indemnification is not available with respect to a proceeding as to which it has been adjudicated that the person did not act in good faith in the reasonable belief that the action was in the best interests of the Company. Certain of the Company’s officers and directors are also a party to indemnification agreements with the Company. These indemnification agreements provide, among other things, that the director and 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 officer or director in connection with any proceeding by reason of his or her relationship with the Company. In addition, the indemnification agreements provide for the advancement of expenses incurred by such director or officer in connection with any proceeding covered by the indemnification agreement, subject to the conditions set forth therein and to the extent such advancement is not prohibited by law. The indemnification agreements also set out the procedures for determining entitlement to indemnification, the requirements relating to notice and defense of claims for which indemnification is sought, the procedures for enforcement of indemnification rights, the limitations on and exclusions from indemnification, and the minimum levels of directors’ and officers’ liability insurance to be maintained by the Company. 16. Segment Information Reportable Segments The Company’s Chief Operating Decision Maker (“CODM”) utilizes financial information to make decisions about allocating resources and assessing performance for the entire Company. The Company evaluates the performance of and allocates resources to 27 NOVANTA INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued) AS OF OCTOBER 1, 2021 (Unaudited) its segments based on revenue, gross profit and operating profit. The Company’s reportable segments have been identified based on commonality and adjacency of technologies, applications and customers amongst the Company’s individual product lines. The Company determined that disclosing revenue by specific product was impracticable due to the highly customized and extensive portfolio of technologies offered to customer s . Based upon the information provided to the CODM, the Company has determined that it operates in three reportable segments: Photonics, Vision, and Precision Motion. The reportable segments and their principal activities consist of the following: Photonics 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. 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. Vision The Vision segment designs, manufactures and markets a range of medical grade technologies, including medical insufflators, pumps and related disposables; visualization solutions; wireless, recorder and video integration technologies for operating room integrations; optical data collection and machine vision technologies; radio frequency identification (“RFID”) technologies; thermal chart recorders; spectrometry technologies; and embedded touch screen solutions. The vast majority of the segment’s product offerings are sold to OEM customers. The segment sells these products both directly, utilizing a highly technical sales force, and indirectly, through resellers and distributors. Precision Motion The Precision Motion segment designs, manufactures and markets optical and inductive encoders, precision motor and motion control sub-assemblies, servo drives, 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. Reportable Segment Financial Information Revenue, gross profit, gross profit margin, operating income (loss), and depreciation and amortization expenses by reportable segment were as follows (in thousands, except percentage data): Three Months Ended Nine Months Ended October 1, October 2, October 1, October 2, Revenue 2021 2020 2021 2020 Photonics $ 55,263 $ 46,394 $ 176,113 $ 149,337 Vision 65,346 64,299 196,429 198,047 Precision Motion 57,117 32,236 135,291 95,741 Total $ 177,726 $ 142,929 $ 507,833 $ 443,125 Three Months Ended Nine Months Ended October 1, October 2, October 1, October 2, Gross Profit 2021 2020 2021 2020 Photonics $ 25,311 $ 20,166 $ 83,014 $ 65,725 Vision 24,763 24,586 76,132 75,676 Precision Motion 27,743 15,011 64,694 42,753 Unallocated Corporate and Shared Services ( 1,519 ) ( 658 ) ( 6,396 ) ( 1,902 ) Total $ 76,298 $ 59,105 $ 217,444 $ 182,252 28 NOVANTA INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued) AS OF OCTOBER 1, 2021 (Unaudited) Three Months Ended Nine Months Ended October 1, October 2, October 1, October 2, Gross Profit Margin 2021 2020 2021 2020 Photonics 45.8 % 43.5 % 47.1 % 44.0 % Vision 37.9 % 38.2 % 38.8 % 38.2 % Precision Motion 48.6 % 46.6 % 47.8 % 44.7 % Total 42.9 % 41.4 % 42.8 % 41.1 % Three Months Ended Nine Months Ended October 1, October 2, October 1, October 2, Operating Income (Loss) 2021 2020 2021 2020 Photonics $ 9,294 $ 7,026 $ 35,885 $ 22,878 Vision 5,606 3,799 12,178 14,098 Precision Motion 14,957 7,675 34,681 20,728 Unallocated Corporate and Shared Services ( 14,582 ) ( 6,634 ) ( 40,378 ) ( 18,887 ) Total $ 15,275 $ 11,866 $ 42,366 $ 38,817 Three Months Ended Nine Months Ended October 1, October 2, October 1, October 2, Depreciation and Amortization Expenses 2021 2020 2021 2020 Photonics $ 2,901 $ 2,864 $ 8,703 $ 8,303 Vision 5,239 5,296 15,793 15,845 Precision Motion 2,691 1,369 5,916 4,055 Unallocated Corporate and Shared Services 59 67 201 160 Total $ 10,890 $ 9,596 $ 30,613 $ 28,363 Revenue by Geography The Company aggregates geographic revenue based on the customer locations where products are shipped to. Revenue by geography was as follows (in thousands): Three Months Ended Nine Months Ended October 1, October 2, October 1, October 2, 2021 2020 2021 2020 United States $ 72,972 $ 57,635 $ 191,699 $ 171,364 Germany 25,313 18,885 71,448 64,266 Rest of Europe 34,163 30,483 105,338 94,281 China 22,230 17,409 68,286 50,285 Rest of Asia-Pacific 21,256 16,414 64,765 55,956 Other 1,792 2,103 6,297 6,973 Total $ 177,726 $ 142,929 $ 507,833 $ 443,125 The majority of revenue from our Photonics, Vision and Precision Motion segments is generated from sales to customers within the United States and Europe. Each segment also generates revenue across the other geographies, with no significant concentration of any segment’s remaining revenue. 29 NOVANTA INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued) AS OF OCTOBER 1, 2021 (Unaudited) Revenue by End Market The Company primarily operates in two end markets: the medical market and advanced industrial market. Revenue by end market was approximately as follows: Three Months Ended Nine Months Ended October 1, October 2, October 1, October 2, 2021 2020 2021 2020 Medical 53 % 54 % 53 % 56 % Advanced Industrial 47 % 46 % 47 % 44 % Total 100 % 100 % 100 % 100 % The majority of revenue from the Photonics and Precision Motion segments is generated from sales to customers in the advanced industrial market. The majority of revenue from the Vision segment is generated from sales to customers in the medical market. 17. Subsequent Events On October 5, 2021, the Company entered into an amendment (the “Fourth Amendment”) to the Third Amended and Restated Credit Agreement to exercise the accordion option. The Fourth Amendment increased the revolving credit facility commitment under the Third Amended and Restated Credit Agreement by $ 200.0 million, from $ 495.0 million to $ 695.0 million, and reset the uncommitted accordion feature to $ 200.0 million for potential future expansion. 30