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 April 1, 2022 

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 May 3, 2022, there were 35,704,230 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	28
ITEM 3.	QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK	39
ITEM 4.	CONTROLS AND PROCEDURES	39
PART II — OTHER INFORMATION		41
ITEM 1.	LEGAL PROCEEDINGS	41
ITEM 1A.	RISK FACTORS	41
ITEM 2.	UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS	41
ITEM 3.	DEFAULTS UPON SENIOR SECURITIES	41
ITEM 4.	MINE SAFETY DISCLOSURES	41
ITEM 5.	OTHER INFORMATION	41
ITEM 6.	EXHIBITS	42
SIGNATURES		43

PART I—FINANCIAL INFORMATION

Item 1. Financial Statements

NOVANTA INC.

CONSOLIDATED BALANCE SHEETS

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

(Unaudited)

	April 1,			December 31,
	2022			2021
ASSETS
Current assets
Cash and cash equivalents	$	98,805		$	117,393
Accounts receivable, net of allowance of $601 and $556, respectively		123,759			115,617
Inventories		139,166			125,657
Prepaid income taxes and income taxes receivable		1,000			1,997
Prepaid expenses and other current assets		12,649			13,161
Total current assets		375,379			373,825
Property, plant and equipment, net		89,652			87,439
Operating lease assets		46,710			48,338
Deferred tax assets		4,498			12,206
Other assets		5,675			5,586
Intangible assets, net		208,455			220,989
Goodwill		475,795			479,500
Total assets	$	1,206,164		$	1,227,883
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities
Current portion of long-term debt	$	4,975		$	5,097
Accounts payable		72,035			68,514
Income taxes payable		7,702			4,514
Current portion of operating lease liabilities		7,468			7,334
Accrued expenses and other current liabilities		90,795			98,479
Total current liabilities		182,975			183,938
Long-term debt		412,521			429,361
Operating lease liabilities		43,889			45,700
Deferred tax liabilities		19,836			33,738
Income taxes payable		4,947			4,217
Other liabilities		7,303			9,638
Total liabilities		671,471			706,592
Commitments and contingencies (Note 14)
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: 35,684 and 35,601, respectively		423,856			423,856
Additional paid-in capital		52,809			53,768
Retained earnings		75,353			56,533
Accumulated other comprehensive loss		(17,325	)		(12,866	)
Total stockholders' equity		534,693			521,291
Total liabilities and stockholders’ equity	$	1,206,164		$	1,227,883

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
	April 1,			April 2,
	2022			2021
Revenue	$	204,216		$	162,584
Cost of revenue		113,940			93,844
Gross profit		90,276			68,740
Operating expenses:
Research and development and engineering		20,929			18,682
Selling, general and administrative		39,352			31,653
Amortization of purchased intangible assets		7,342			3,575
Restructuring, acquisition and related costs		(1,630	)		3,731
Total operating expenses		65,993			57,641
Operating income		24,283			11,099
Interest income (expense), net		(3,109	)		(1,408	)
Foreign exchange transaction gains (losses), net		69			(257	)
Other income (expense), net		(545	)		(70	)
Income before income taxes		20,698			9,364
Income tax provision (benefit)		1,878			(1,946	)
Consolidated net income	$	18,820		$	11,310
Earnings per common share (Note 4):
Basic	$	0.53		$	0.32
Diluted	$	0.53		$	0.32
Weighted average common shares outstanding—basic		35,538			35,279
Weighted average common shares outstanding—diluted		35,781			35,789

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
	April 1,			April 2,
	2022			2021
Consolidated net income	$	18,820		$	11,310
Other comprehensive income (loss):
Foreign currency translation adjustments, net of tax (1)		(4,772	)		(489	)
Pension liability adjustments, net of tax (2)		313			121
Total other comprehensive income (loss)		(4,459	)		(368	)
Total consolidated comprehensive income	$	14,361		$	10,942

⁽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 3 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)

	Preferred Shares				Common Shares					Additional Paid-In			Retained Earnings		Accumulated Other Comprehensive
	# of Shares		Amount		# of Shares			Amount		Capital			(Deficit)		Loss			Total
	Three Months Ended April 1, 2022
Balance at December 31, 2021		—		—		35,601		$	423,856	$	53,768		$	56,533	$	(12,866	)	$	521,291
Consolidated net income		—		—		—			—		—			18,820		—			18,820
Common shares issued under stock plans		—		—		134			—		—			—		—			—
Common shares withheld for taxes on vested stock awards		—		—		(51	)		—		(7,733	)		—		—			(7,733	)
Share-based compensation		—		—		—			—		6,774			—		—			6,774
Other comprehensive income (loss), net of tax		—		—		—			—		—			—		(4,459	)		(4,459	)
Balance at April 1, 2022		—		—		35,684		$	423,856	$	52,809		$	75,353	$	(17,325	)	$	534,693
	Three Months Ended April 2, 2021
Balance at December 31, 2020		—		—		35,163		$	423,856	$	58,992		$	6,202	$	(12,241	)	$	476,809
Consolidated net income		—		—		—			—		—			11,310		—			11,310
Common shares issued under stock plans		—		—		354			—		—			—		—			—
Common shares withheld for taxes on vested stock awards		—		—		(133	)		—		(18,272	)		—		—			(18,272	)
Share-based compensation		—		—		—			—		6,644			—		—			6,644
Other comprehensive income (loss), net of tax		—		—		—			—		—			—		(368	)		(368	)
Balance at April 2, 2021		—		—		35,384		$	423,856	$	47,364		$	17,512	$	(12,609	)	$	476,123

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)

	Three Months Ended
	April 1,			April 2,
	2022			2021
Cash flows from operating activities:
Consolidated net income	$	18,820		$	11,310
Adjustments to reconcile consolidated net income to    net cash provided by operating activities:
Depreciation and amortization		14,044			9,849
Provision for inventory excess and obsolescence		397			1,136
Share-based compensation		6,774			6,644
Deferred income taxes		(5,140	)		(968	)
Write-off of unamortized deferred financing costs		624			—
Contingent consideration adjustments		(2,275	)		126
Other		240			287
Changes in assets and liabilities which (used)/provided cash, excluding    effects from business acquisitions:
Accounts receivable		(8,949	)		(15,828	)
Inventories		(14,928	)		675
Prepaid income taxes, income taxes receivable, prepaid expenses      and other current assets		4,040			(4,277	)
Accounts payable, income taxes payable, accrued expenses      and other current liabilities		(38	)		13,745
Other non-current assets and liabilities		(2,262	)		569
Net cash provided by operating activities		11,347			23,268
Cash flows from investing activities:
Working capital adjustments from business acquisition		820			—
Purchases of property, plant and equipment		(6,308	)		(3,268	)
Payment of contingent consideration related to acquisition of technology assets		(1,470	)		(2,200	)
Other investing activities		137			—
Net cash used in investing activities		(6,821	)		(5,468	)
Cash flows from financing activities:
Repayments under term loan and revolving credit facilities		(11,640	)		(1,345	)
Payments of debt issuance costs		(2,133	)		—
Payments of withholding taxes from share-based awards		(7,733	)		(18,272	)
Payment of contingent consideration related to an acquisition		(375	)		(435	)
Purchase of building under finance lease		—			(8,743	)
Other financing activities		(148	)		(140	)
Net cash used in financing activities		(22,029	)		(28,935	)
Effect of exchange rates on cash and cash equivalents		(1,085	)		(357	)
Decrease in cash and cash equivalents		(18,588	)		(11,492	)
Cash and cash equivalents, beginning of the period		117,393			125,054
Cash and cash equivalents, end of the period	$	98,805		$	113,562
Supplemental disclosure of cash flow information:
Cash paid for interest	$	2,737		$	1,115
Cash paid for income taxes	$	2,624		$	1,983
Income tax refunds received	$	128		$	45

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

5

NOVANTA INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

AS OF APRIL 1, 2022

(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, 2021. 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, and various other assumptions that it believes are reasonable under the circumstances. Actual results could differ significantly from these estimates.

6

NOVANTA INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

AS OF APRIL 1, 2022

(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 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. Adoption of ASU 2020-04 is elective.	In March 2022, the Company amended the Third Amended and Restated Credit Agreement and replaced LIBOR with SOFR as the new reference rate for U.S. dollar borrowings. The ASU did not have any impact on the Company’s 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 early adopted ASU 2021-08 as of January 1, 2022.  The adoption of ASU 2021-08 did not have any material impact on the Company’s consolidated financial statements.

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’s right to payment from a customer is based on the value of engineering services performed, the Company recognizes revenue based on the corresponding value to the customer from the Company’s performance completed to date. Revenue from engineering services aggregated to less than 3% of the Company’s consolidated revenue during the three months ended April 1, 2022 and April 2, 2021.

7

NOVANTA INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

AS OF APRIL 1, 2022

(Unaudited)

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. 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 36 months. The Company recognizes liabilities associated with standard warranty periods for its products in accordance with the provisions of ASC 450, “Contingencies,” as the Company has the ability to ascertain the likelihood of the liabilities and can reasonably estimate the amount of the liabilities. A provision for the estimated cost related to standard warranties is recorded as cost of revenue at the time revenue is recognized. The Company’s estimate of the 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 liabilities are recorded at that time, with offsetting adjustments 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.

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 April 1, 2022 and December 31, 2021, contract liabilities were $7.5 million and $7.3 million, respectively, and are included in accrued expenses and other current liabilities and other liabilities in the accompanying consolidated balance sheets. The increase in the contract liability balance during the three months ended April 1, 2022 is primarily due to cash payments received in advance of satisfying performance obligations, partially offset by $3.2 million of revenue recognized during the period that was included in the contract liability balance as of December 31, 2021.

Disaggregated Revenue

See Note 15 for the Company’s disaggregation of revenue by segment, geography and end market.

8

NOVANTA INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

AS OF APRIL 1, 2022

(Unaudited)

3. 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, 2021	$	(12,866	)	$	(5,753	)	$	(7,113	)
Other comprehensive income (loss)		(4,568	)		(4,772	)		204
Amounts reclassified from accumulated other comprehensive loss		109			—			109
Balance at April 1, 2022	$	(17,325	)	$	(10,525	)	$	(6,800	)

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

4. 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 months ended April 1, 2022 and April 2, 2021, respectively, weighted average shares outstanding for the diluted earnings per common share included the dilutive effect of outstanding restricted stock units, stock options, and relative total shareholder return performance-based restricted stock units (“TSR-PSUs”), determined using the treasury stock method. The dilutive effects of market-based contingently issuable shares are included in the weighted average common share calculation based on the number of shares, if any, that would be issuable as of the end of the reporting period, assuming the end of the reporting period is also the end of the performance period. Dilutive effects of attainment-based contingently issuable shares granted to the former Laser Quantum Limited (“Laser Quantum”) noncontrolling interest shareholders, non-GAAP EPS performance-based restricted stock units (“EPS-PSUs”), operating cash flow performance-based restricted stock units (“OCF-PSUs”), and performance-based restricted stock units granted to the ATI Industrial Automation, Inc. (“ATI”) employees (“ATI-PSUs”) are included in the weighted average common share calculation when the performance targets have been achieved based on the cumulative achievement against the performance targets as of the end of each reporting period.

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
	April 1,		April 2,
	2022		2021
Numerators:
Consolidated net income	$	18,820	$	11,310
Denominators:
Weighted average common shares outstanding— basic		35,538		35,279
Dilutive potential common shares		243		510
Weighted average common shares outstanding— diluted		35,781		35,789
Antidilutive potential common shares excluded from above		93		27
Earnings per Common Share:
Basic	$	0.53	$	0.32
Diluted	$	0.53	$	0.32

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

9

NOVANTA INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

AS OF APRIL 1, 2022

(Unaudited)

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 April 1, 2022.

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

5. 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.

Contingent Considerations

On August 30, 2021, the Company acquired ATI. Under the purchase and sale agreement for the ATI acquisition, the former shareholders of ATI are eligible to receive contingent consideration based on ATI’s fiscal year 2021 Adjusted EBITDA, as defined in the purchase and sale agreement. The contingent consideration will be payable in 2022. The preliminary fair value of the contingent consideration was determined based on the Monte Carlo valuation method and was recorded as part of the purchase price as of the acquisition date. Once the fair value of the contingent consideration is finalized, subsequent changes in the estimated fair value are recorded in the consolidated statement of operations in restructuring, acquisition, and related costs until the liability is fully settled. The fair value of the contingent consideration was $44.0 million as of December 31, 2021. There were no changes in the fair value of the contingent consideration during the three months ended April 1, 2022.