Novanta (NOVT) - 2024 Q4 - Annual Report

Revenue and Market Segmentation - Total revenue for 2024 was $949.2 million, an increase of$67.6 million, or 7.7%, compared to 2023, primarily driven by the 2024 acquisition[222]. - The medical market accounted for approximately 55% of total revenue, while the advanced industrial market accounted for approximately 45%[214][215]. - Medical Solutions segment revenue increased by $76.2 million, or 19.9$8.6 million, or 1.7%, in 2024, primarily due to decreased demand in advanced industrial markets[226]. Operating Income and Expenses - Operating income for 2024 was $110.6 million, remaining flat compared to the prior year, with an increase in gross profit of$21.6 million offset by higher operating expenses[223]. - SG&A expenses rose to $175.9 million, or 18.5$164.5 million, or 18.7% of revenue, in 2023[237]. - Operating income for the Automation Enabling Technologies segment was $106.4 million, or 21.7$96.3 million, or 19.3% of revenue, in 2023[246]. - Operating income for the Medical Solutions segment decreased to $57.5 million, or 12.5$63.3 million, or 16.5% of revenue, in 2023[248]. Earnings and Taxation - Basic EPS for 2024 was $1.78, a decrease of$0.25 from $2.03 in 2023, primarily due to increased interest expense and income tax provision[224]. - The effective tax rate for 2024 was 18.9$15.0 million in 2024 versus $10.9 million in 2023[258]. - Net income was$64.1 million for 2024, down from $72.9 million in 2023[261]. Cash Flow and Investments - Cash and cash equivalents totaled$114.0 million as of December 31, 2024, an increase from $105.1 million as of December 31, 2023, primarily due to cash provided by operating activities of$158.5 million[277]. - Net cash provided by operating activities increased to $158.5 million in 2024 from$120.1 million in 2023, attributed to reduced net working capital and lower income tax payments[279]. - Net cash used in investing activities was $208.2 million in 2024, primarily due to$191.2 million for the 2024 acquisition and $17.2 million in capital expenditures[281]. Debt and Borrowing Capacity - The company has the ability to expand its borrowing capacity by up to$350.0 million under its revolving credit agreement[262]. - As of December 31, 2024, the company had $70.4 million in term loan and$348.8 million in revolving credit facility borrowings outstanding under its Senior Credit Facilities[275]. - The maximum consolidated leverage ratio was 1.86 as of December 31, 2024, well below the requirement of 3.50[276]. - Future interest payments under the Senior Credit Facilities are estimated to be approximately $52.7 million through maturity, with$24.4 million payable within the next twelve months[293]. Research and Development - Research and development expenses increased by 4.2% to 95.5 million in 2024, reflecting ongoing investment in product development[234]. - R&D expenses increased to 95.5 million, or 10.1% of revenue, in 2024, up from $91.7 million, or 10.4$192.0 million, enhancing the product portfolio in medical applications[217]. - The company aims to increase medical sales as a percentage of total revenue through new product introductions and strategic acquisitions[219]. Tax and Legal Matters - The company recorded a valuation allowance of $1.9 million on net operating losses and various credits in certain tax jurisdictions in 2024[327]. - As of December 31, 2024, the total amount of unrecognized tax benefits was$4.8 million, with $4.1 million potentially favorably affecting the effective tax rate if recognized[328]. - The undistributed earnings of foreign subsidiaries totaled$494.9 million as of December 31, 2024, with estimated unrecognized tax liabilities of approximately $7.3 million[329]. Inventory and Goodwill - The company evaluates goodwill and indefinite-lived intangible assets for impairment annually, with no impairment noted as of the beginning of the second quarter of 2024[322]. - The company assesses its inventories regularly and may increase reserves for excess and obsolete inventory if sales do not materialize as forecasted[304]. Foreign Currency and Interest Rate Exposure - The company had foreign currency contracts with notional amounts totaling$187.4 million and a net fair value of $0.2 million as of December 31, 2024[336]. - A hypothetical 10$0.7 million decrease in the net fair value of foreign currency contracts[336]. - A hypothetical 10% weakening of the U.S. dollar against other currencies would result in an approximately $0.7 million increase in the net fair value of foreign currency contracts[336]. - The company had$419.2 million of outstanding variable rate debt as of December 31, 2024[337]. - A 100 basis point increase in interest rates would increase the annual pre-tax interest expense by approximately $4.2 million[337].