UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 27, 2019

Or

☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from                      to                      

Commission File No.: 001-35083

NOVANTA INC

(Exact name of registrant as specified in its charter)

New Brunswick, Canada	98-0110412
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)
125 Middlesex Turnpike Bedford, Massachusetts, USA	01730
(Address of principal executive offices)	(Zip Code)

Registrant’s telephone number, including area code: (781) 266-5700

N/A

(Former name, former address and former fiscal year, if changed since last report)

Securities registered pursuant to Section 12(b) of the Act:

Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Common shares, no par value	NOVT	The Nasdaq Global Select Market

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes  ☒    No  ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).    Yes  ☒    No  ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large Accelerated Filer	☒	Accelerated Filer	☐
Non-accelerated Filer	☐	Smaller reporting company	☐
Emerging growth company	☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.    ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes  ☐    No   ☒

As of November 1, 2019, there were 35,073,830 of the Registrant’s common shares, no par value, issued and outstanding.

NOVANTA INC.

TABLE OF CONTENTS

Item No.		Page No.
PART I — FINANCIAL INFORMATION		1
ITEM 1.	FINANCIAL STATEMENTS	1
	CONSOLIDATED BALANCE SHEETS (unaudited)	1
	CONSOLIDATED STATEMENTS OF OPERATIONS (unaudited)	2
	CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (unaudited)	3
	CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (unaudited)	4
	CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited)	5
	NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited)	6
ITEM 2.	MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS	32
ITEM 3.	QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK	44
ITEM 4.	CONTROLS AND PROCEDURES	44
PART II — OTHER INFORMATION		46
ITEM 1.	LEGAL PROCEEDINGS	46
ITEM 1A.	RISK FACTORS	46
ITEM 2.	UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS	46
ITEM 3.	DEFAULTS UPON SENIOR SECURITIES	46
ITEM 4.	MINE SAFETY DISCLOSURES	46
ITEM 5.	OTHER INFORMATION	46
ITEM 6.	EXHIBITS	47
SIGNATURES		48

PART I—FINANCIAL INFORMATION

Item 1. Financial Statements

NOVANTA INC.

CONSOLIDATED BALANCE SHEETS

(In thousands of U.S. dollars or shares)

(Unaudited)

	September 27,			December 31,
	2019			2018
ASSETS
Current assets
Cash and cash equivalents	$	61,405		$	82,043
Accounts receivable, net of allowance of $233 and $321, respectively		98,666			83,955
Inventories		118,573			104,764
Prepaid income taxes and income taxes receivable		6,356			1,852
Prepaid expenses and other current assets		11,860			9,155
Total current assets		296,860			281,769
Property, plant and equipment, net		76,122			65,464
Operating lease assets		35,487			—
Deferred tax assets		9,938			9,492
Other assets		2,734			2,269
Intangible assets, net		168,078			142,920
Goodwill		268,741			217,662
Total assets	$	857,960		$	719,576
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities
Current portion of long-term debt	$	—		$	4,535
Accounts payable		47,009			50,733
Income taxes payable		1,661			2,633
Current portion of operating lease liabilities		5,065			—
Accrued expenses and other current liabilities		71,178			46,295
Total current liabilities		124,913			104,196
Long-term debt		227,507			202,843
Operating lease liabilities		32,181			—
Deferred tax liabilities		28,980			22,632
Income taxes payable		4,687			4,463
Other liabilities		36,815			17,187
Total liabilities		455,083			351,321
Commitments and contingencies (Note 15)
Stockholders’ equity:
Common shares, no par value; Authorized shares: unlimited;    Issued and outstanding: 35,089 and 34,886, respectively		423,856			423,856
Additional paid-in capital		51,168			46,018
Accumulated deficit		(47,536	)		(79,092	)
Accumulated other comprehensive loss		(24,611	)		(22,527	)
Total stockholders' equity		402,877			368,255
Total liabilities and stockholders’ equity	$	857,960		$	719,576

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

1

NOVANTA INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

(In thousands of U.S. dollars or shares, except per share amounts)

(Unaudited)

	Three Months Ended						Nine Months Ended
	September 27,			September 28,			September 27,			September 28,
	2019			2018			2019			2018
Revenue	$	154,066		$	160,794		$	466,397		$	458,159
Cost of revenue		90,012			91,160			270,272			261,137
Gross profit		64,054			69,634			196,125			197,022
Operating expenses:
Research and development and engineering		13,811			13,204			41,196			37,744
Selling, general and administrative		27,926			29,147			88,977			87,598
Amortization of purchased intangible assets		3,970			3,947			11,740			11,538
Restructuring and acquisition related costs		5,546			2,341			11,913			4,805
Total operating expenses		51,253			48,639			153,826			141,685
Operating income		12,801			20,995			42,299			55,337
Interest income (expense), net		(2,153	)		(2,396	)		(6,357	)		(7,315	)
Foreign exchange transaction gains (losses), net		387			66			455			(164	)
Other income (expense), net		(48	)		(44	)		(186	)		(131	)
Income before income taxes		10,987			18,621			36,211			47,727
Income tax provision		2,064			3,632			4,655			8,276
Consolidated net income		8,923			14,989			31,556			39,451
Less: Net income attributable to noncontrolling interest		—			(435	)		—			(1,986	)
Net income attributable to Novanta Inc.	$	8,923		$	14,554		$	31,556		$	37,465
Earnings per common share attributable to Novanta Inc. (Note 5):
Basic	$	0.25		$	0.61		$	0.90		$	1.12
Diluted	$	0.25		$	0.60		$	0.89		$	1.11
Weighted average common shares outstanding—basic		35,074			34,899			35,012			34,918
Weighted average common shares outstanding—diluted		35,585			35,485			35,523			35,469

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

2

NOVANTA INC.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(In thousands of U.S. dollars)

(Unaudited)

	Three Months Ended						Nine Months Ended
	September 27,			September 28,			September 27,			September 28,
	2019			2018			2019			2018
Consolidated net income	$	8,923		$	14,989		$	31,556		$	39,451
Other comprehensive income (loss):
Foreign currency translation adjustments, net of tax (1)		(2,821	)		(490	)		(3,144	)		(2,482	)
Pension liability adjustments, net of tax (2)		490			223			1,060			978
Total other comprehensive income		(2,331	)		(267	)		(2,084	)		(1,504	)
Total consolidated comprehensive income		6,592			14,722			29,472			37,947
Less: Comprehensive income attributable to noncontrolling interest		—			(435	)		—			(1,986	)
Comprehensive income attributable to Novanta Inc.	$	6,592		$	14,287		$	29,472		$	35,961

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

(2)  The tax effect on this component of comprehensive income 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)

	Novanta Inc. Stockholders
	Common Shares					Additional Paid-In			Accumulated			Accumulated Other Comprehensive
	# of Shares			Amount		Capital			Deficit			Income (Loss)			Total
	Three Months Ended September 27, 2019
Balance at June 28, 2019		34,972		$	423,856	$	41,065		$	(56,459	)	$	(22,280	)	$	386,182
Net income		—			—		—			8,923			—			8,923
Common shares issued for business combination		124			—		10,900			—			—			10,900
Common shares issued under stock plans		36			—		425			—			—			425
Common shares withheld for taxes on vested stock awards		(1	)		—		(120	)		—			—			(120	)
Repurchases of common shares		(42	)		—		(3,345	)		—			—			(3,345	)
Share-based compensation		—			—		2,243			—			—			2,243
Other comprehensive income, net of tax		—			—		—			—			(2,331	)		(2,331	)
Balance at September 27, 2019		35,089		$	423,856	$	51,168		$	(47,536	)	$	(24,611	)	$	402,877
	Nine Months Ended September 27, 2019
Balance at December 31, 2018		34,886		$	423,856	$	46,018		$	(79,092	)	$	(22,527	)	$	368,255
Net income		—			—		—			31,556			—			31,556
Common shares issued for business combination		124			—		10,900			—			—			10,900
Common shares issued under stock plans		245			—		425			—			—			425
Common shares withheld for taxes on vested stock awards		(85	)		—		(6,839	)		—			—			(6,839	)
Repurchases of common shares		(81	)		—		(6,684	)		—			—			(6,684	)
Share-based compensation		—			—		7,348			—			—			7,348
Other comprehensive income, net of tax		—			—		—			—			(2,084	)		(2,084	)
Balance at September 27, 2019		35,089		$	423,856	$	51,168		$	(47,536	)	$	(24,611	)	$	402,877
	Three Months Ended September 28, 2018
Balance at June 29, 2018		34,671		$	423,856	$	31,793		$	(112,167	)	$	(19,117	)	$	324,365
Net income		—			—		—			14,554			—			14,554
Redeemable noncontrolling interest redemption value adjustment		—			—		—			6,877			—			6,877
Acquisition of noncontrolling interest		213			—		14,401			—			—			14,401
Common shares issued under stock plans		62			—		—			—			—			—
Common shares withheld for taxes on vested stock awards		(2	)		—		(116	)		—			—			(116	)
Repurchase of common shares		(28	)		—		(1,836	)		—			—			(1,836	)
Share-based compensation		—			—		1,695			—			—			1,695
Other comprehensive income, net of tax		—			—		—			—			(267	)		(267	)
Balance at September 28, 2018		34,916		$	423,856	$	45,937		$	(90,736	)	$	(19,384	)	$	359,673