What changed in this filing

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Item 2. Management’s Discussion and Analysis

2022-05-10 compared with 2021-11-09 · 138 added, 201 removed, 230 unchanged (60% of the section changed)

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Our actual results could differ materially from those anticipated in these forward-looking statements as a result of various important factors, including, but not limited to, the following:

economic and political conditions and the effects of these conditions on our customers’ businesses and level of business activities;

our significant dependence upon our customers’ capital expenditures, which are subject to cyclical market fluctuations;

economic and political conditions and the effects of these conditions on our customers’ businesses, capital expenditures and level of business activities;

risks associated with the COVID-19 pandemic and other events outside of our control;

our dependence upon our ability to respond to fluctuations in product demand;

our ability to continually innovate and successfully commercialize our innovations;

failure to introduce new products in a timely manner;

our ability to continually innovate, introduce new products timely, and successfully commercialize our innovations;

customer order timing and other similar factors beyond our control;

disruptions or breaches in security of our information technology systems;

disruptions or breaches in security of our and our third-party providers’ information technology systems;

our failure to comply with data privacy regulations;

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risks associated with our operations in foreign countries;

risks associated with the COVID-19 pandemic and other events outside our control;

our increased use of outsourcing in foreign countries;

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federal, and state healthcare laws and regulations;

impact of healthcare industry cost containment and healthcare reform measures;

changes in governmental regulations affecting our business or products;

our compliance, or failure to comply, with environmental regulations;

our failure to implement new information technology systems and software successfully;

our failure to realize the full value of our intangible assets;

increasing scrutiny and changing expectations from investors, customers, and governments with respect to Environmental, Social and Governance policies and practices;

our exposure to the credit risk of some of our customers and in weakened markets;

our reliance on third party distribution channels;

our reliance on original equipment manufacturer customers;

being subject to U.S.

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Other important risk factors that could affect the outcome of the events set forth in these statements and that could affect the Company’s operating results and financial condition are discussed in Item 1A of our Annual Report on Form 10-K for the fiscal year ended December 31, 2021 under the heading “Risk Factors” as updated in our other filings with the Securities and Exchange Commission.

In this Quarterly Report on Form 10-Q, the words “anticipates,” “believes,” “expects,” “intends,” “future,” “could,” “estimates,” “plans,” “would,” “should,” “potential,” “continues,” and similar words or expressions (as well as other words or expressions referencing future events, conditions or circumstances) identify forward-looking statements.

In this Quarterly Report on Form 10-Q, the words “expects,” “intends,” “anticipates,” “estimates,” “believes,” “future,” “plans,” “aims,” “would,” “could,” “should,” “potential,” “continues,” and similar words or expressions (as well as other words or expressions referencing future events, conditions or circumstances) identify forward-looking statements.

Readers should not place undue reliance on any such forward-looking statements, which speak only as of the date they are made.

Management and the Company disclaim any obligation to publicly update or revise any such statement to reflect any change in its expectations or in events, conditions, or circumstances on which any such statements may be based, or that may affect the likelihood that actual results will differ from those contained in the forward-looking statements, except as required under applicable law.

Management and the Company disclaim any obligation to publicly update or revise any such forward-looking statements to reflect any changes in its expectations or in events, conditions, or circumstances on which any such statements may be based, or that may affect the likelihood that actual results will differ from those contained in the forward-looking statements, except as required under applicable law.

Accounting Period

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Our 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 segment serves highly demanding photonics-based applications for advanced industrial processes, metrology, medical and life science imaging, DNA sequencing, and medical laser procedures, particularly ophthalmology applications.

The vast majority of the segment’s product offerings are sold to OEM customers.

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visualization solutions;

wireless, recorder and video integration technologies for operating room integrations;

wireless technologies, video recorder and video integration technologies for operating room integrations;

optical data collection and machine vision technologies;

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Precision Motion

Our 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.

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

The vast majority of the segment’s product offerings are sold to OEM customers.

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Medical Market

For the nine months ended October 1, 2021, the medical market accounted for approximately 53% of our revenue.

For the three months ended April 1, 2022, the medical market accounted for approximately 47% of our revenue.

Revenue from our products sold to the medical market is generally affected by hospital and other healthcare provider capital spending, growth rates of surgical procedures, changes in regulatory requirements and laws, aggregation of purchasing by healthcare networks, changes in technology requirements, timing of OEM customers’ product development and new product launches, changes in customer or patient preferences, and general demographic trends.

Advanced Industrial Market

For the nine months ended October 1, 2021, the advanced industrial market accounted for approximately 47% of our revenue.

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, financial

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

For the three months ended April 1, 2022, the advanced industrial market accounted for approximately 53% of our revenue.

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, financial condition s 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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pursuing complementary medical technology acquisitions;

increasing our penetration of high growth advanced industrial applications, such as laser materials processing, robotics, laser additive manufacturing, automation and metrology, by working closely with OEM customers to launch application specific products that closely match the requirements of each application;

increasing our penetration of high growth advanced industrial applications, such as laser materials processing, intelligent end-of-arm robotic technology solutions, robotics, laser additive manufacturing, automation and metrology, by working closely with OEM customers to launch application specific products that closely match the requirements of each application;

broadening our portfolio of enabling proprietary technologies and capabilities through increased investment in new product development, and investments in application development to further penetrate existing customers, while expanding the applicability of our solutions to new markets;

broadening our product and service offerings through the acquisition of innovative and complementary technologies and solutions in medical and advanced industrial technology applications, including increasing our recurring revenue streams such as services, spare parts and consumables;

broadening our product and service offerings through the acquisition of innovative and complementary technologies and solutions in medical and advanced industrial technology applications;

expanding sales and marketing channels to reach new target customers;

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Significant Events and Updates

Acquisition of ATI Industrial Automation, Inc.

On August 30, 2021, we 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 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 our revolving credit facility and cash available on hand.

We expect that the addition of ATI will complement and add intelligent technology solutions to further expand our position in mission critical robotic applications.

ATI will contribute to our operations and growth within the Precision Motion reportable segment.

Acquisition of Schneider Electric Motion USA, Inc.

On August 31, 2021, we 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 adjustment.

The acquisition was financed with borrowings under our revolving credit facility.

We expect that the addition of SEM will complement and expand our presence in life science applications and solutions for industrial automation applications within the Precision Motion reportable segment.

Impact of COVID-19 on O ur Business

Amendment to Third Amended and Restated Credit Agreement

On March 10, 2022, we entered into an amendment (the “Fifth Amendment”) to the third amended and restated credit agreement, dated as of December 31, 2019 (as amended, the “Credit Agreement”).

The Fifth Amendment amends the Credit Agreement to extend the maturity date thereof from December 31, 2024 to March 10, 2027, update the pricing grid, replace LIBOR with SOFR as the reference rate for US dollar borrowings, and increase the uncommitted accordion option from $200 million to $350 million.

Impact of COVID-19 on Our Business

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 major 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, 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, reducing 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.

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

We established rigorous safety measures in all of our facilities and have adapted our COVID-19 safety measures as the pandemic and related government mandates evolved over the past two years.

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

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

The outbreak has significantly increased economic and demand uncertainty.

Even as governmental restrictions are relaxed and economies gradually, partially or fully, reopen, the ongoing economic impacts and health concerns associated with COVID-19 may continue to affect customer demand and restrictions may resume.

Through October 1, 2021, we experienced some disruptions to our supply chain as a result of the COVID-19 pandemic and the recent electronics and other material shortages.

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

Disruptions to our suppliers or sub-suppliers caused by these events could cause further challenges 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 and the electronics and other material shortages, we are identifying alternative suppliers and distributors, sourcing raw materials from different supplier and distributor locations, modifying our designs to allow for alternative components to be used without compromising quality, performance or other requirements and taking other actions to ensure our supply of raw materials.

In connection with our COVID-19 remediation actions, we have incurred additional costs to protect the health of our employees, including investments in technologies and monitoring equipment, weekly testing of unvaccinated employees for COVID-19 at certain locations and rearranging some of our facilities to accommodate social distancing and flexible post-pandemic work environment.

Infection rates and the corresponding public health restrictions vary across the countries in which we operate.

Many g overnmental authorities have continued to implement numerous evolving measures to try to contain the virus, such as travel bans and restrictions, masking recommendations and mandates, vaccine recommendations and mandates, limit ation s on gatherings, mandatory quarantines, shelter-in-place orders, and business shutdowns.

While COVID-19 restrictions have been relaxed in the U.S.

and Europe, in response to outbreak s of infection in various locations within China , governmental authorities have implemented lockdown order s in some areas , significantly slowing economic and business activit ies .

Our manufacturing and distribution operations in Suzhou, China have been impacted to a limited degree by these recent lockdowns.

The extent to which government lockdowns in China or any other country will impact our business and our financial results will depend on future developments, which are highly uncertain and cannot be reasonably estimated at this time .

Through April 1, 2022 , we have experienced disruptions to our supply chain as a result of the COVID-19 pandemic and global electronics and other raw material shortages.

While we regularly monitor the manufacturing output of companies in our supply chain, disruptions to our suppliers and/or sub-suppliers caused by these events could further challenge our ability to obtain raw materials or components required to manufacture our products, adversely affecting our operations and customer relationships.

To mitigate the risk of any potential supply interruptions from the COVID-19 pandemic and the global electronics and other raw material shortages, we are identifying alternative suppliers and distributors, sourcing raw materials from different supplier and distributor locations, modifying our product designs to allow for alternative components to be used where feasible without compromising quality, performance or other requirements, in-sourcing production of parts where feasible, and taking other actions to ensure a sustainable supply of raw materials.

Despite of our mitigation actions, if certain suppliers cannot produce a key part or 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 backlogs, 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.

The COVID-19 pandemic and the recent electronics and other material shortages have caused inflationary pressures on the market prices for certain of our parts and primary raw materials as well as increases in the costs of freight, packaging, energy and other consumables that are used in our manufacturing processes.

The COVID-19 pandemic and the global electronics and other raw material shortages have caused inflationary pressures on the market prices for certain of our parts and primary raw materials as well as increases in the costs of labor, freight, packaging, energy and other consumables that are used in our manufacturing processes.

We have generally been able to offset increases in these costs through various productivity and cost reduction initiatives, as well as adjusting our selling prices to pass through some of these higher costs to our customers;

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Given the timing of our actions compared to the timing of these inflationary pressures, there may be periods during which we are unable to fully recover the increases in our costs.

Results of Operations for the Three and Nine Months Ended October 1, 2021 Compared with the Three and Nine Months Ended October 2, 2020

Russia Ukraine Conflict

In February 2022, Russian forces invaded Ukraine.

In response, the United States, European Union, and several other countries imposed economic and trade sanctions, and other restrictions (collectively, “global sanctions”) targeting Russia and Belarus.

Russia then imposed retaliatory economic measures against the United States, European Union, and several other countries.

Our sales to Russia are not material.

We continue to assess the conflict and related global sanctions and take steps to attempt to mitigate the potential negative impact on our business.

Any longer-term impact to our business is currently unknown due to the uncertainty around the duration of the conflict, any further global sanctions and their broader impact on the global economy and inflation.

Results of Operations for the Three Months Ended April 1, 2022 Compared with the Three Months Ended April 2, 2021

The following table sets forth our unaudited results of operations as a percentage of revenue for the periods indicated:

Three Months Ended

Nine Months Ended

Cost of revenue

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Overview of Financial Results

Total revenue of $177.7 million for the three months ended October 1, 2021 increased $34.8 million, or 24.3%, from the prior year period primarily due to increased demand in the advanced industrial market related to microelectronics and as a result of increases in industrial manufacturing spending as compared to the 2020 period, which was impacted by COVID-19, as well as revenue from current year acquisitions.

The effect of our current year acquisitions resulted in an increase in revenue of $11.1 million, or 7.7%.

In addition, foreign currency exchange rates positively impacted our revenue by $2.2 million, or 1.5%, for the three months ended October 1, 2021.

Total revenue of $507.8 million for the nine months ended October 1, 2021 increased $64.7 million, or $14.6%, from the prior year period primarily due to increased demand in the advanced industrial market related to microelectronics and as a result of increases in industrial manufacturing spending as compared to the 2020 period, which was impacted by COVID-19.

The effect of our current year acquisitions also resulted in an increase in revenue of $11.1 million, or 2.5%.

In addition, foreign currency exchange rates positively impacted our revenue by $13.8 million, or 3.1%, for the nine months ended October 1, 2021.

Operating income of $15.3 million for the three months ended October 1, 2021 increased $3.4 million, or 28.7%, from the prior year period.

This increase was attributable to an increase in gross profit of $17.2 million primarily attributable to higher revenue, partially offset by an increase in research and development and engineering (“R&D”) expenses of $2.2 million, selling, general and administrative (“SG&A”) expenses of $4.5 million and restructuring, acquisition, and related charges of $6.4 million.

Operating income of $42.4 million for the nine months ended October 1, 2021 increased $3.5 million, or 9.1%, from the prior year period.

This increase was attributable to an increase in gross profit of $35.2 million primarily attributable to higher revenue, partially offset by an increase in R&D expenses of $8.1 million, SG&A expenses of $11.7 million and restructuring, acquisition, and related charges of $10.9 million.

Basic earnings per common share (“Basic EPS”) of $0.38 for the three months ended October 1, 2021 increased $0.15 from the prior year period.

Diluted earnings per common share (“Diluted EPS”) of $0.38 for the three months ended October 1, 2021 increased $0.15 from the prior year period.

The increases were primarily attributable to an increase in operating income and a decrease in income tax provision (benefit).

Basic EPS of $1.03 for the nine months ended October 1, 2021 increased $0.12 from the prior year period.

Diluted EPS of $1.02 for the nine months ended October 1, 2021 increased $0.13 from the prior year period.

The increases were primarily attributable to an increase in operating income and a decrease in income tax provision.

Total revenue of $204.2 million for the three months ended April 1, 2022 increased $41.6 million, or 25.6%, from the prior year period primarily due to increased demand in the advanced industrial market related to microelectronics applications and as a result of increases in industrial manufacturing spending compared to the prior year period, as well as revenue from prior year acquisitions.

The effect of our prior year acquisitions resulted in an increase in revenue of $32.8 million, or 20.2%.

In addition, foreign currency exchange rates negatively impacted our revenue by $3.3 million, or 2.0%, for the three months ended April 1, 2022.

Operating income of $24.3 million for the three months ended April 1, 2022 increased $13.2 million, or 118.8%, from the prior year period.

This increase was attributable to an increase in gross profit of $21.5 million primarily attributable to higher revenue, an increase in gross profit margin, and a decrease in restructuring, acquisition, and related charges of $5.4 million, partially offset by an increase in research and development and engineering (“R&D”) expenses of $2.2 million, an increase in selling, general and administrative (“SG&A”) expenses of $7.7 million and an increase in amortization expense of $3.8 million.

Basic earnings per common share (“Basic EPS”) of $0.53 for the three months ended April 1, 2022 increased $0.21 from the prior year period.

Diluted earnings per common share (“Diluted EPS”) of $0.53 for the three months ended April 1, 2022 increased $0.21 from the prior year period.

The increases were primarily attributable to an increase in operating income, partially offset by increases in interest expense and income tax provision.

The following table sets forth external revenue by reportable segment for the periods noted (dollars in thousands):

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Precision Motion

Nine Months Ended

Precision Motion

Photonics segment revenue for the three months ended October 1, 2021 increased by $8.9 million, or 19.1%, versus the prior year period, primarily due to increased demand in the advanced industrial market as a result of increases in industrial manufacturing spending as compared to the 2020 period, which was impacted by COVID-19.

Revenue was negatively impacted during the three months ended October 1, 2021 due to temporary production shutdowns in our factories in Taunton, U.K.

and Suzhou, China.

Photonics segment revenue for the nine months ended October 1, 2021 increased by $26.8 million, or 17.9%, versus the prior year period, primarily due to increased demand in the advanced industrial market as a result of increases in industrial manufacturing spending as compared to the 2020 period, which was impacted by COVID-19.

Vision segment revenue for the three months ended October 1, 2021 increased by $1.0 million, or 1.6%, versus the prior year period, primarily due to an increase in demand for our medical end market products.

Vision segment revenue for the nine months ended October 1, 2021 decreased by $1.6 million, or 0.8%, versus the prior year period, primarily due to a decrease in revenue from our minimally invasive surgery (“MIS”) products as a result of continued deferrals of elective surgical procedures during the COVID-19 pandemic.

Photonics segment revenue for the three months ended April 1, 2022 increased by $4.3 million, or 7.3%, versus the prior year period, primarily due to increased demand in advanced industrial and medical markets.

Vision segment revenue for the three months ended April 1, 2022 decreased by $5.6 million, or 8.3%, versus the prior year period, primarily due to raw materials shortage and demand dynamics resulting from continued deferrals of elective surgical procedures as a result of the COVID-19 pandemic.

Precision Motion

Precision Motion segment revenue for the three months ended October 1, 2021 increased by $24.9 million, or 77.2%, versus the prior year period, primarily due to increased demand in advanced industrial and medical markets and $11.1 million of revenue contributions from the ATI and SEM acquisitions.

Precision Motion segment revenue for the nine months ended October 1, 2021 increased by $39.6 million, or 41.3%, versus the prior year period, primarily due to increased demand in advanced industrial market as a result of an increase in industrial manufacturing spending and $11.1 million of revenue contributions from the ATI and SEM acquisitions.

Precision Motion segment revenue for the three months ended April 1, 2022 increased by $42.9 million, or 117.8%, versus the prior year period, primarily due to $32.8 million of revenue contributions from 2021 acquisitions and increased demand in advanced industrial and medical markets.

Gross Profit and Gross Profit Margin

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Three Months Ended

Nine Months Ended

Gross profit:

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Gross profit and gross profit margin can be influenced by a number of factors, including product mix, pricing, volume, manufacturing efficiencies and utilization, costs for raw materials and outsourced manufacturing, trade tariffs, freight costs, headcount, inventory obsolescence and warranty expenses.

Photonics segment gross profit for the three months ended October 1, 2021 increased $5.1 million, or 25.5%, versus the prior year period, primarily due to an increase in both revenue and gross profit margin.

Photonics segment gross profit margin was 45.8% for the three months ended October 1, 2021, versus a gross profit margin of 43.5% for the prior year period.

The increase in gross profit margin was primarily attributable to higher production volumes.

Photonics segment gross profit for the nine months ended October 1, 2021 increased $17.3 million, or 26.3%, versus the prior year period, primarily due to an increase in both revenue and gross profit margin.

Photonics segment gross profit margin was 47.1% for the nine months ended October 1, 2021, versus a gross profit margin of 44.0% for the prior year period.

The increase in gross profit margin was primarily attributable to higher factory utilization associated with higher production volumes.

Vision segment gross profit for the three months ended October 1, 2021 increased $0.2 million, or 0.7%, versus the prior year period.

Vision segment gross profit margin was 37.9% for the three months ended October 1, 2021, versus a gross profit margin of 38.2% for the prior year period.

Vision segment gross profit for the nine months ended October 1, 2021 increased $0.5 million, or 0.6%, versus the prior year period.

Vision segment gross profit margin was 38.8% for the nine months ended October 1, 2021, versus a gross profit margin of 38.2% for the prior year period.

Photonics segment gross profit for the three months ended April 1, 2022 increased $0.3 million, or 1.0%, versus the prior year period, due to an increase in revenue.

Photonics segment gross profit margin was 45.2% for the three months ended April 1, 2022 versus a gross profit margin of 48.1% for the prior year period.

The decrease in gross profit margin was primarily attributable to supply chain disruptions and overall raw material cost inflation.

Vision segment gross profit for the three months ended April 1, 2022 decreased $1.7 million, or 6.3%, versus the prior year period, primarily due to a decrease in revenue.

Vision segment gross profit margin was 40.7% for the three months ended April 1, 2022, versus a gross profit margin of 39.8% for the prior year period.

The increase in gross profit margin was primarily attributable to improved factory efficiency.

Precision Motion

Precision Motion segment gross profit for the three months ended October 1, 2021 increased $12.7 million, or 84.8%, versus the prior year period, primarily due to an increase in both revenue and gross profit margin.

Precision Motion segment gross profit margin was 48.6% for the three months ended October 1, 2021, versus a gross profit margin of 46.6% for the prior year period.

The increase in gross profit margin was primarily attributable to higher factory utilization associated with higher production volumes.

Precision Motion segment gross profit for the nine months ended October 1, 2021 increased $21.9 million, or 51.3%, versus the prior year period, primarily due to an increase in both revenue and gross profit margin.

Precision Motion segment gross profit margin was 47.8% for the nine months ended October 1, 2021, versus a gross profit margin of 44.7% for the prior year period.

The increase in gross profit margin was primarily attributable to higher factory utilization associated with higher production volumes and favorable year over year comparison due to higher inventory obsolescence in the prior year period.

Precision Motion segment gross profit for the three months ended April 1, 2022 increased $22.1 million, or 137.3%, versus the prior year period, primarily due to an increase in both revenue and gross profit margin.

Precision Motion segment gross profit margin was 48.1% for the three months ended April 1, 2022, versus a gross profit margin of 44.1% for the prior year period.

The increase in gross profit margin was primarily attributable to improved factory efficiency and utilization.

Unallocated Corporate and Shared Services

Unallocated corporate and shared services costs primarily represent costs of corporate and shared services functions that are not allocated to the operating segments.

These costs for the three months ended October 1, 2021 increased by $0.9 million versus the prior year period primarily due to COVID-19 testing costs for employees of $0.4 million.

Unallocated corporate and shared services costs for the nine months ended October 1, 2021 increased by $4.5 million versus the prior year period primarily due to COVID-19 testing costs for employees of $3.3 million.

These costs for the three months ended April 1, 2022 decreased by $0.9 million versus the prior year period primarily due to reduced COVID-19 testing costs for employees of $1.3 million.

Operating Expenses

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Three Months Ended

Nine Months Ended

Research and development and engineering

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R&D expenses are primarily comprised of employee compensation related expenses and cost of materials for R&D projects.

R&D expenses were $17.5 million, or 9.8% of revenue, during the three months ended October 1, 2021, versus $15.2 million, or 10.7% of revenue, during the prior year period.

R&D expenses increased in terms of total dollars primarily due to higher compensation related expense and R&D expenses from current year acquisitions.

R&D expenses decreased as a percentage of revenue due to the timing of acquisitions.

R&D expenses were $53.1 million, or 10.5% of revenue, during the nine months ended October 1, 2021, versus $45.0 million, or 10.2% of revenue, during the prior year period.

R&D expenses increased in terms of total dollars and as a percentage of revenue primarily due to higher compensation related expenses.

R&D expenses were $20.9 million, or 10.2% of revenue, during the three months ended April 1, 2022, versus $18.7 million, or 11.5% of revenue, during the prior year period.

R&D expenses increased in terms of total dollars primarily due to expenses related to 2021 acquisitions.

R&D expenses decreased as a percentage of revenue due to leverage from higher sales.

Selling, General and Administrative Expenses

Selling, general and administrative (“SG&A”) expenses include costs for sales and marketing, sales administration, finance, human resources, legal, information systems, and executive management functions.

SG&A expenses were $31.3 million, or 17.6% of revenue, during the three months ended October 1, 2021, versus $26.8 million, or 18.7% of revenue, during the prior year period.

SG&A expenses increased in terms of total dollars primarily due to higher variable compensation expense as a result of the re-establishment of employee bonus plans in 2021 and SG&A expenses from current year acquisitions.

SG&A expenses decreased as a percentage of revenue due to the timing of acquisitions.

SG&A expenses were $94.2 million, or 18.5% of revenue, during the nine months ended October 1, 2021, versus $82.5 million, or 18.6% of revenue, during the prior year period.

SG&A expenses increased in terms of total dollars primarily due to higher share-based compensation expense and higher variable compensation expense as a result of the re-establishment of employee bonus plans in 2021.

SG&A expenses were $39.4 million, or 19.3% of revenue, during the three months ended April 1, 2022, versus $31.7 million, or 19.5% of revenue, during the prior year period.

SG&A expenses increased in terms of total dollars primarily due to SG&A expenses related to 2021 acquisitions and increases in variable compensation and discretionary spending.

Amortization of Purchased Intangible Assets

Amortization of purchased intangible assets, excluding amortization of developed technologies that is included in cost of revenue, was $4.1 million, or 2.3% of revenue, during the three months ended October 1, 2021, versus $3.5 million, or 2.5% of revenue, during the prior year period.

The increase, in terms of total dollars was the result of more acquired intangible assets from current year acquisitions.

Amortization of purchased intangible assets, excluding amortization of developed technologies that is included in cost of revenue, was $11.3 million, or 2.2% of revenue, during the nine months ended October 1, 2021, versus $10.4 million, or 2.3% of revenue, during the prior year period.

The increase, in terms of total dollars was the result of more acquired intangible assets from current year acquisitions.

Amortization of purchased intangible assets, excluding amortization of developed technologies that is included in cost of revenue, was $7.3 million, or 3.6% of revenue, during the three months ended April 1, 2022, versus $3.6 million, or 2.2% of revenue, during the prior year period.

The increase, in terms of total dollars and as a percentage of revenue, was the result of more acquired intangible assets from 2021 acquisitions.

Restructuring, Acquisition, and Related Costs

We recorded restructuring, acquisition, and related costs of $8.1 million during the three months ended October 1, 2021, versus $1.7 million during the prior year period.

The increase in restructuring, acquisition, and related costs versus the prior year period was primarily due to an increase in acquisition costs related to current year acquisitions and restructuring costs related to the 2020 restructuring plan.

We recorded restructuring, acquisition, and related costs of $16.5 million during the nine months ended October 1, 2021, versus $5.6 million during the prior year period.

The increase in restructuring, acquisition, and related costs versus the prior year period was primarily due to an increase in acquisition costs related to current year acquisitions, restructuring costs related to the 2020 restructuring plan, and legal fees related to a dispute involving a company we acquired in 2019.

We recorded restructuring, acquisition, and related costs of $(1.6) million during the three months ended April 1, 2022, versus $3.7 million during the prior year period.

The acquisition and related costs decreased primarily due to a $3.2 million reduction in earnout expenses related to prior year acquisitions and a $0.9 million reduction in legal fees.

The restructuring costs decreased $0.9 million related to decreased spending for the 2020 restructuring plan.

Operating Income (Loss) by Segment

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Three Months Ended

Nine Months Ended

Operating Income (Loss)

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Unallocated Corporate and Shared Services

Photonics segment operating income was $9.3 million, or 16.8% of revenue, during the three months ended October 1, 2021, versus $7.0 million, or 15.1% of revenue, during the prior year period.

The increase in operating income was primarily due to an increase in gross profit of $5.1 million, partially offset by an increase in restructuring charges of $2.3 million.

Photonics segment operating income was $35.9 million, or 20.4% of revenue, during the nine months ended October 1, 2021, versus $22.9 million, or 15.3% of revenue, during the prior year period.

The increase in operating income was primarily due to an increase in gross profit of $17.3 million, partially offset by an increase in R&D spending of $1.5 million and restructuring, acquisition, and related charges of $3.1 million.

Vision segment operating income was $5.6 million, or 8.6% of revenue, during the three months ended October 1, 2021, versus $3.8 million, or 5.9% of revenue, during the prior year period.

The increase in operating income was primarily due to a decrease in SG&A expenses of $0.5 million and restructuring, acquisitions, and related charges of $1.2 million.

Vision segment operating income was $12.2 million, or 6.2% of revenue, during the nine months ended October 1, 2021, versus $14.1 million, or 7.1% of revenue, during the prior year period.

The decrease in operating income was primarily due to an increase in R&D spending of $3.6 million, partially offset by an increase in gross profit of $0.5 million and a decrease in SG&A expenses of $1.0 million.

Photonics segment operating income was $13.4 million, or 21.4% of revenue, during the three months ended April 1, 2022, versus $12.4 million, or 21.2% of revenue, during the prior year period.

The increase in operating income was primarily due to a decrease in restructuring, acquisition and related cost of $1.4 million, partially offset by an increase in SG&A expense of $0.6 million.

Vision segment operating income was $5.0 million, or 8.1% of revenue, during the three months ended April 1, 2022, versus $3.4 million, or 5.0% of revenue, during the prior year period.

The increase in operating income was primarily due to a decrease in restructuring, acquisition, and related charges of $1.6 million and a decrease in R&D spending of $1.2 million, partially offset by a decrease in gross profit of $1.7 million.

Precision Motion

Precision Motion segment operating income was $15.0 million, or 26.2% of revenue, during the three months ended October 1, 2021, versus $7.7 million, or 23.8% of revenue, during the prior year period.

The increase in operating income was primarily due to an increase in gross profit of $12.7 million, partially offset by an increase in R&D spending of $1.7 million, SG&A expenses of $1.3 million and restructuring, acquisition, and related charges of $1.9 million.

Precision Motion segment operating income was $34.7 million, or 25.6% of revenue, during the nine months ended October 1, 2021, versus $20.7 million, or 21.7% of revenue, during the prior year period.

The increase in operating income was primarily due to

an increase in gross profit of $ 21 .

9 million, partially offset by an increase in restructuring, acquisition, and related charges of $ 3 .

4 million, R&D spending of $ 3.0 million and SG&A expenses of $1.0 million.

Precision Motion segment operating income was $18.4 million, or 23.1% of revenue, during the three months ended April 1, 2022, versus $7.4 million, or 20.4% of revenue, during the prior year period.

The increase in operating income was primarily due to an increase in gross profit of $22.1 million and a decrease of restructuring, acquisition, and related charges of $2.1 million, partially offset by increases in R&D spending of $3.6 million, SG&A expenses of $5.7 million and amortization expense of $4.0 million primarily as a result of prior year acquisitions.

Unallocated Corporate and Shared Services

Unallocated corporate and shared services costs primarily represent costs of corporate and shared services functions that are not allocated to the operating segments, including certain restructuring and most acquisition costs.

These costs for the three months ended October 1, 2021 increased by $7.9 million versus the prior year period primarily due to costs related to COVID-19 testing for employees of $0.4 million included in cost of revenue, an increase in SG&A spending of $4.3 million primarily related to the re-establishment of employee bonus plans in 2021, and an increase in restructuring, acquisition, and related charges of $2.9 million.

Unallocated corporate and shared services costs for the nine months ended October 1, 2021 increased by $21.5 million versus the prior year period primarily due to costs related to COVID-19 testing for employees of $3.3 million included in cost of revenue, an increase in SG&A spending of $12.4 million primarily related to share-based compensation, the re-establishment of employee bonus plans in 2021, and an increase in restructuring, acquisition, and related charges of $4.6 million.

These costs for the three months ended April 1, 2022 increased by $0.4 million versus the prior year period primarily due to an increase in SG&A spending of $1.6 million, partially offset by a decrease in costs related to COVID-19 testing for employees of $1.3 million included in cost of revenue.

Other Income and Expense Items

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Three Months Ended

Nine Months Ended

Interest income (expense), net

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Interest Income (Expense), Net

Net interest expense was $1.7 million for both the three months ended October 1, 2021 and the prior year period.

The weighted average interest rate on our senior credit facilities was 2.28% during the three months ended October 1, 2021, versus 2.31% during the prior year period.

Net interest expense was $4.5 million for the nine months ended October 1, 2021, versus $5.1 million in the prior year period.

The decrease in net interest expense was primarily due to a decrease in average debt levels and a decrease in the weighted average interest rate on our senior credit facilities.

The weighted average interest rate on our senior credit facilities was 2.12% during the nine months ended October 1, 2021, versus 2.37% during the prior year period.

Net interest expense was $3.1 million for the three months ended April 1, 2022, versus $1.4 million in the prior year period.

The increase in net interest expense was primarily due to an increase in average debt levels and an increase in the weighted average interest

rate on our senior credit facilities.

The weighted average interest rate on our senior credit facilities was 2 .

49 % during the three months ended April 1 , 202 2 , versus 2 .

02 % during the prior year period.

Foreign Exchange Transaction Gains (Losses), Net

Foreign exchange transaction gains (losses) were less than $0.1 million net gain for the three months ended October 1, 2021, versus $(0.1) million net losses in the prior year period.

Foreign exchange transaction gains (losses) were $(0.3) million net losses for the nine months ended October 1, 2021, versus $(0.2) million net losses in the prior year period.

Foreign exchange transaction gains (losses) were $0.1 million of net gain for the three months ended April 1, 2022, versus $(0.3) million of net losses in the prior year period.

Other Income (Expense), Net

Net other expense was nominal for both the three and nine months ended October 1, 2021 and the three and nine months ended October 2, 2020.

Other expense was $0.5 million for the three months ended April 1, 2022, versus $0.1 million in the prior year period.

The increase in other expense was primarily due to $0.6 million of loss from the write-off of a portion of the unamortized deferred financing cost as a result of the Fifth Amendment.

Income Tax Provision (Benefit)

Our effective tax rate for the three months ended October 1, 2021 was (0.6%), versus 17.6% for the prior year period.

Our 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, windfall tax benefits upon vesting of certain share-based compensation awards and a release of uncertain tax position reserves due to expiration of statutes of limitation, partially offset by an increase in our valuation allowance.

Our effective tax rate of 17.6 % for the three months ended October 2 , 202 0 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.

Our effective tax rate for the nine months ended October 1, 2021 was 2.0%, versus 5.2% for the prior year period.

Our 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 positions reserves, and windfall tax benefits upon vesting of certain share-based compensation awards, partially offset by the revaluation of long term deferred tax balances resulting from the U.K.

corporate tax rate change during the period and an increase in our valuation allowances.

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 our effective tax rate.

Our 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 our 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 release of the valuation allowance had a benefit of 7.9% and 3.3%, respectively, on our effective tax rate.

Our effective tax rate for the three months ended April 1, 2022 was 9.1%, versus (20.8)% for the prior year period.

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

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

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

Our effective tax rate of (20.8)% for the three months ended April 2, 2021 differs from the Canadian statutory tax rate of 29.0% primarily due to the mix of income earned in jurisdictions with varying tax rates, estimated deductions for Foreign Derived Intangible Income, U.K.

patent box deductions, other tax credits, and windfall tax benefits upon vesting of certain stock-based compensation awards during the period.

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

Liquidity and Capital Resources

We assess our liquidity in terms of our ability to generate cash to fund our operating, investing, and financing activities.

Our primary ongoing cash requirements are funding operations, capital expenditures, investments in businesses, and repayment of debt and related interest payments.

Our primary ongoing cash requirements are funding operations, capital expenditures, investments in businesses, and repayment of our debt and related interest payments.

Our primary sources of liquidity are cash flows from operations and borrowings under our revolving credit facility.

We believe our future operating cash flows will be sufficient to meet our future operating and capital expenditure cash needs for the foreseeable future, including at least the next 12 months.

The availability of borrowing capacity under our revolving credit facility provides a potential source of liquidity for any future capital expenditures and other liquidity needs.

In addition, we have the ability to expand our borrowing capacity by up to $200.0 million by exercising the accordion feature under our revolving credit agreement.

We may also seek to raise additional capital, which could be in the form of bonds, convertible debt or preferred or common equity, to fund business development activities or other future investing cash requirements, subject to approval by the lenders in the Third Amended and Restated Credit Agreement.

The availability of borrowing capacity under our revolving credit facility provides another potential source of liquidity for any future capital expenditures and other liquidity needs.

In addition, we have the ability to expand our borrowing capacity by up to $350.0 million by exercising the accordion option under our revolving credit agreement.

There is no assurance that such capital will be available on reasonable terms or at all.

Significant factors affecting the management of our ongoing cash requirements are the adequacy of available bank lines of credit and our ability to attract long term capital with satisfactory terms.

The sources of our liquidity are subject to all of the risks of our business and could be adversely affected by, among other factors, risks associated with events outside our control, such as the economic consequences of the COVID-19 pandemic, worsening supply chain disruptions and electronics and material shortages, a decrease in demand for our products, our ability to integrate current and future acquisitions, deterioration in certain financial ratios, availability of borrowings under our revolving credit facility, and market changes in general.

The sources of our liquidity are subject to all of the risks of our business and could be adversely affected by, among other factors, risks associated with events outside of our control, such as economic consequences of the COVID-19 pandemic, worsening supply chain disruptions and electronics and other material shortages, a decrease in demand for our products, our ability to integrate current and future acquisitions, deterioration in certain financial ratios, availability of borrowings under our revolving credit facility, and market changes in general.

See “Risks Relating to Our Common Shares and Our Capital Structure” included in Item 1A of our Annual Report on Form 10-K for the fiscal year ended December 31, 2021.

Our cash requirements primarily consist of the principal and interest payments associated with our Senior Credit Facilities, operating and finance leases, purchase commitments, pension obligations, contingent considerations and earn-outs.

Such contractual obligations are described in our Management’s Discussion and Analysis of Financial Condition and Results of Operations and in the Notes to Consolidated Financial Statements, each included in our Annual Report on Form 10-K for the fiscal year ended December 31, 2021.

T hrough April 1, 2022, we have not entered into any other material new or modified contractual obligations since December 31, 2021 .

Our ability to make payments on our indebtedness and to fund our operations may be dependent upon the earnings and the distribution of funds from our subsidiaries.

Local laws and regulations and/or the terms of our indebtedness restrict certain of our subsidiaries from paying dividends and transferring assets to us.

There is no assurance that the applicable laws and regulations and/or the terms of our indebtedness will permit our subsidiaries to provide us with sufficient dividends, distributions or loans when necessary.

As of October 1, 2021, $69.0 million of our $102.4 million cash and cash equivalents was held by subsidiaries outside of Canada and the United States.

There is no assurance that applicable laws and regulations and/or the terms of our indebtedness will permit our subsidiaries to provide us with sufficient dividends, distributions or loans when necessary.

As of April 1, 2022, $64.7 million of our $98.8 million cash and cash equivalents was held by subsidiaries outside of Canada and the United States.

Generally, our intent is to use cash held in these foreign subsidiaries to fund our local operations or acquisitions by those local subsidiaries and to pay down borrowings under our Senior Credit Facilities (as defined below).

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payroll tax payments in 2020 in accordance with relief provisions under the CARES Act.

As of October 1, 2021, we had $2.8 million in such deferred U.S.

payroll tax payments under the CARES Act.

As permitted under the CARES Act, we expect to pay half of the deferred U.S.

payroll tax payments by December 31, 2021 and the remaining half by December 31, 2022.

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 may designate and issue one or more series of preferred shares in order to raise additional capital .

As of October 1 , 2021, no preferred shares ha d been issued and outstanding.

We paid $1.4 million of such deferred payroll tax payments in December 2021.

As permitted under the CARES Act, we expect to pay the remaining $1.4 million deferred U.S.

Payroll taxes by December 31, 2022.

Senior Credit Facilities

In December 2019, we entered into the Third Amended and Restated Credit Agreement, consisting of a $100.0 million U.S.

In December 2019, we entered into the Credit Agreement, consisting of a $100.0 million U.S.

dollar equivalent euro-denominated 5-year term loan facility (approximately €90.2 million) and a $350.0 million 5-year revolving credit facility (collectively, the “Senior Credit Facilities”).

The Senior Credit Facilities mature in December 2024 and included 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.

The Senior Credit Facilities mature in December 2024 and included an uncommitted accordion option pursuant to which the commitments under the revolving credit facility may be increased by an additional $200.0 million in aggregate, subject to certain customary conditions.

The term loan facility requires quarterly scheduled principal repayments of approximately €1.1 million beginning in March 2020 with the remaining principal balance due upon maturity.

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We may pay down outstanding borrowings under our revolving credit facility with cash on hand and cash generated from future operations at any time.

In March 2020, we 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.

As of October 1, 2021, we had $95.3 million term loan and $355.3 million revolver borrowings outstanding under our Senior Credit Facilities.

The borrowings outstanding under the Senior Credit Facilities bear interest at rates based on (a) the Base Rate, as defined in the Third Amended and Restated Credit Agreement, plus a margin ranging between 0.25% and 1.25% per annum, determined by reference to our consolidated leverage ratio, or (b) the Eurocurrency Rate, as defined in the Third Amended and Restated Credit Agreement, plus a margin ranging between 1.25% and 2.25% per annum, determined by reference to our consolidated leverage ratio.

In March 2020, we entered into an amendment (the “First Amendment”) to the Third Amended and Restated Credit Agreement and exercised a portion of the uncommitted accordion option.

The First Amendment increased the revolving credit facility commitment under the Third Amended and Restated Credit Agreement by $145.0 million, from $350.0 million to $495.0 million, and reset the uncommitted accordion option to $200.0 million for potential future expansion.

On October 5, 2021, the Company entered into an amendment (the “Fourth Amendment”) to the 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 option to $200.0 million for potential future expansion.

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

As of April 1, 2022, we had $88.7 million term loan and $334.5 million revolver borrowings outstanding under our Senior Credit Facilities.

The borrowings outstanding under the Senior Credit Facilities bear interest at rates based on (a) the Base Rate, as defined in the Credit Agreement, plus a margin ranging between 0.00% and 0.75% per annum, determined by reference to our consolidated leverage ratio, or (b) the Eurocurrency Rate, as defined in the Credit Agreement, plus a margin ranging between 0.75% and 1.75% per annum, determined by reference to our consolidated leverage ratio.

In addition, we are obligated to pay a commitment fee on the unused portion of the revolving credit facility, ranging between 0.20% and 0.30% per annum, determined by reference to our consolidated leverage ratio.

As of October 1, 2021, we had outstanding borrowings under the Third Amended and Restated Credit Agreement denominated in Euro and U.S.

As of April 1, 2022, we had outstanding borrowings under the Credit Agreement denominated in Euro and U.S.

Dollars of $155.2 million and $268.0 million, respectively.

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 feature.

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.

The Third Amended and Restated Credit Agreement contains various covenants that we believe are usual and customary for this type of agreement, including a maximum consolidated leverage ratio and a minimum consolidated fixed charge coverage ratio (as defined in the Third Amended and Restated Credit Agreement).

The following table summarizes these financial covenants and our compliance therewith as of October 1, 2021:

The Credit Agreement contains various covenants that we believe are usual and customary for this type of agreement, including a maximum consolidated leverage ratio and a minimum consolidated fixed charge coverage ratio (as defined in the Credit Agreement).

The following table summarizes these financial covenant s and our compliance therewith as of April 1 , 202 2 :

Maximum consolidated leverage ratio (1)

Minimum consolidated fixed charge coverage ratio

Maximum consolidated leverage ratio shall be increased to 4.00 for four consecutive quarters following a designated acquisition, as defined in the Fifth Amendment.

Share Repurchase Plans

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

Share repurchases have been made under the 2018 Repurchase Plan pursuant to

Rule 10b-18 under the Securities Exchange Act of 1934 .

We had $9.5 million available for share repurchases under the 2018 Repurchase Plan as of October 1 , 202 1 .

Share repurchases have been made under the 2018 Repurchase Plan pursuant to Rule 10b-18 under the Securities Exchange Act of 1934.

Through April 1, 2022, we have repurchased 185 thousand shares for an aggregate purchase price of $15.5 million under the 2018 Repurchase plan.

We had $9.5 million available for share repurchases under the 2018 Repurchase Plan as of April 1, 2022.

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

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No shares have been repurchased under the 2020 Repurchase Plan to date.

Cash Flows for the Nine Months Ended October 1, 2021 and October 2, 2020

Cash Flows for the Three Months Ended April 1, 2022 and April 2, 2021

The following table summarizes our cash flows, cash and cash equivalents, and unused and available funds under our revolving credit facility for the periods indicated (in thousands):

Nine Months Ended

Three Months Ended

Net cash provided by operating activities

Net cash used in investing activities

Net cash provided by (used in) financing activities

Net cash used in financing activities

Cash and cash equivalents

Unused and available funds under revolving credit facility

Unused and available funds under the revolving credit facility

Operating Cash Flows

Cash provided by operating activities was $65.9 million for the nine months ended October 1, 2021, versus $93.7 million for the prior year period.

Cash provided by operating activities for the nine months ended October 1, 2021 decreased from the prior year period primarily due to an increase in accounts receivable and inventories due to increases in revenue and demand, and the $8.3 million payout of an acquisition earnout recorded as compensation, partially offset by an increase in days payables outstanding and substantially no bonus payout in 2021 as a result of the elimination of our 2020 annual bonus plan.

Cash provided by operating activities for the nine months ended October 2, 2020 was positively impacted by an increase in our inventory turnover ratio from 3.1 at December 31, 2019 to 3.3 at October 2, 2020 and a decrease in accounts receivable, offset by a decrease in our days payables outstanding which decreased from 53 days at December 31, 2019 to 44 days at October 2, 2020.

During the nine months ended October 2, 2020, we paid the 2019 annual employee bonuses which had been accrued for as of December 31, 2019.

Cash provided by operating activities was $11.3 million for the three months ended April 1, 2022, versus $23.3 million for the prior year period.

Cash provided by operating activities for the three months ended April 1, 2022 decreased from the prior year period primarily due to a $14.9 million increase in inventories driven by increased customer demand and higher critical raw material purchases, and a bonus payout in 2022 of $8.4 million compared to no bonus payout in 2021 as a result of the elimination of our 2020 annual bonus plan, partially offset by an increase in profit before tax from higher revenue and gross profit margin expansion.

Cash provided by operating activities for the three months ended April 2, 2021 was positively impacted by an increase in our inventory turnover ratio from 3.7 at December 31, 2020 to 4.1 at April 2, 2021 and an increase in our days payables outstanding which increased from 45 days at December 31, 2020 to 51 days at April 2, 2021, offset by an increase in accounts receivable as a result of increased revenue.

Investing Cash Flows

Cash used in investing activities was $302.1 million for the nine months ended October 1, 2021, primarily driven by the ATI and SEM acquisitions.

In connection with these acquisitions, we paid cash consideration of $285.2 million (net of cash acquired of $14.6 million) during the nine months ended October 1, 2021.

We also paid capital expenditures of $14.8 million and a contingent consideration payment of $2.2 million related to our 2016 asset acquisition of video signal processing and management technologies during the nine months ended October 1, 2021.

Cash used in investing activities was $9.8 million for the nine months ended October 2, 2020, primarily related to capital expenditures of $7.2 million and a contingent consideration payment of $2.6 million related to our 2016 asset acquisition of video signal processing and management technologies.

Cash used in investing activities was $6.8 million for the three months ended April 1, 2022, primarily driven by capital expenditures of $6.3 million and a contingent consideration payment of $1.5 million related to our 2016 asset acquisition of video signal processing and management technologies.

Cash used in investing activities was $5.5 million for the three months ended April 2, 2021, primarily driven by capital expenditures of $3.3 million and a contingent consideration payment of $2.2 million related to our 2016 asset acquisition of video signal processing and management technologies.

We expect to use an aggregate of approximately $25 million to $30 million in fiscal 2022 for capital expenditures related to investments in new property, plant and equipment for our existing businesses.

Financing Cash Flows

Cash provided by financing activities was $214.3 million for the nine months ended October 1, 2021, primarily due to $280.0 million of borrowings under our revolving credit facility used to fund the cash considerations paid for the ATI and SEM acquisitions, partially offset by $30.7 million of payroll tax payments upon vesting of share-based compensation awards, $24.0 million of term loan

and revolver credit facility repayments, a $8.

7 million payment for the purchase of a building under a finance lease agreement , and $1.8 million of contingent consideration payments related to acquisition s .

Cash used in financing activities was $57.2 million for the nine months ended October 2, 2020, primarily due to $34.0 million in repayments of borrowings under our Senior Credit Facilities, $8.3 million of payroll tax payments upon vesting of share-based compensation awards, $5.8 million payments of deferred and escrowed purchase price related to prior year acquisitions, $5.5 million of repurchases of common shares, and $1.6 million of fees paid in connection with the First Amendment to our Third Amended and Restated Credit Agreement.

Off-Balance Sheet Arrangements, Contractual Obligations

Contractual Obligations

Our contractual obligations primarily consist of the principal and interest payments associated with our Senior Credit Facilities, operating and finance leases, purchase commitments, pension obligations, contingent considerations and earn-outs.

Excluding the estimated contingent considerations payments and non-cancellable inventory purchase commitments from current year acquisitions, through October 1, 2021, we have not entered into any other material new or modified contractual obligations since December 31, 2020 .

Off-Balance Sheet Arrangements

Through October 1, 2021, we have not entered into any other off-balance sheet arrangements or material transactions with any unconsolidated entities or other persons.

Cash used in financing activities was $22.0 million for the three months ended April 1, 2022, primarily due to $11.6 million of term loan and revolving credit facility repayments, $7.7 million of payroll tax payments upon vesting of share-based compensation awards, and $2.1 million of debt issuance costs in connection with the Fifth Amendment.

Cash used in financing activities was $28.9 million for the three months ended April 2, 2021, primarily due to $18.3 million of payroll tax payments upon vesting of share-based compensation awards, $8.7 million of payment for the purchase of a building under a finance lease, and $1.3 million of term loan repayments.

Critical Accounting Policies and Estimates

The critical accounting policies that we believe impact significant judgments and estimates used in the preparation of our consolidated financial statements presented in this periodic report on Form 10-Q are described in our Management’s Discussion and Analysis of Financial Condition and Results of Operations and in the Notes to Consolidated Financial Statements, each included in our Annual Report on Form 10-K for the fiscal year ended December 31, 2021.

There have been no material changes to our critical accounting policies and estimates through October 1, 2021 from those disclosed in our Annual Report on Form 10-K for the fiscal year ended December 31, 2020.

There have been no material changes to our critical accounting policies and estimates through April 1, 2022 from those disclosed in our Annual Report on Form 10-K for the fiscal year ended December 31, 2021.

Recent Accounting Pronouncements

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

What changed 10-Q

Item 2. Management’s Discussion and Analysis