Novanta (US:NOVT)2023-03-01 14:47Financial Performance - Total revenue for 2022 was $860.9 million, an increase of $154.1 million, or 21.8%, compared to 2021, driven by acquisitions and increased demand in advanced industrial and medical markets [224]. - Operating income for 2022 was $103.1 million, an increase of $39.0 million, or 60.9%, primarily due to higher revenue and a decrease in restructuring and related charges [225]. - Basic earnings per share (EPS) for 2022 was $2.08, an increase of $0.66 from $1.42 in 2021, while diluted EPS was $2.06, up $0.65 from $1.41 in 2021 [226]. - Consolidated net income for 2022 was $74.1 million, compared to $50.3 million in 2021 [257]. Market Segmentation - The medical market accounted for approximately 49% of total revenue, while the advanced industrial market accounted for about 51% in 2022 [215][216]. - The Precision Motion segment revenue increased by $96.0 million, or 45.2%, primarily due to $88.0 million from acquisitions and increased demand [231]. Profitability and Margins - The gross profit for 2022 was $378.5 million, an increase of $78.1 million from 2021, with a total gross profit margin of 44.0% [232]. - The Photonics segment gross profit margin improved to 47.0% in 2022 from 46.5% in 2021, attributed to better factory productivity [233]. - Precision Motion segment gross profit for 2022 increased by $46.8 million, or 47.1%, with a gross profit margin of 47.4% compared to 46.8% in 2021 [235]. Operating Expenses - Total operating expenses for 2022 were $275.4 million, a 16.6% increase from $236.3 million in 2021 [236]. - Research and development expenses were $85.8 million, or 10.0% of revenue, in 2022, compared to $72.5 million, or 10.3% of revenue, in 2021 [237]. - Selling, general and administrative expenses increased to $158.9 million, or 18.5% of revenue, in 2022, from $129.2 million, or 18.3% of revenue, in 2021 [239]. - Amortization of purchased intangible assets was $26.3 million, or 3.1% of revenue, in 2022, up from $16.6 million, or 2.3% of revenue, in 2021 [241]. Debt and Interest - The weighted average interest rate increased from approximately 2.3% as of December 31, 2021, to approximately 5.1% as of December 31, 2022 [222]. - Interest expense increased to $15.6 million in 2022 from $7.4 million in 2021, primarily due to higher average debt levels and interest rates [251]. - The company has the ability to expand its borrowing capacity by up to $350.0 million under its revolving credit agreement [258]. - As of December 31, 2022, the company had $81.9 million in term loan and $358.4 million in revolving credit facility borrowings outstanding under its Senior Credit Facilities [274]. Cash Flow and Investments - Cash and cash equivalents totaled $100.1 million as of December 31, 2022, down from $117.4 million as of December 31, 2021, primarily due to $59.0 million of debt repayments and $46.3 million of contingent consideration payments related to acquisitions [276]. - Cash provided by operating activities was $90.8 million in 2022, a decrease from $94.6 million in 2021, attributed to a $48.6 million increase in inventories and an $8.4 million bonus payout in 2022 [278]. - Cash used in investing activities was $42.5 million in 2022, primarily driven by the MPH acquisition, which included a cash consideration of $22.4 million [280]. - Cash used in financing activities was $60.2 million in 2022, mainly due to $59.0 million of repayments under the term loan and revolving credit facility [283]. Future Outlook - The company expects to use approximately $25 million to $30 million in 2023 for capital expenditures related to investments in new property, plant, and equipment [282]. - The company’s maximum consolidated leverage ratio was 2.24 as of December 31, 2022, well below the requirement of 3.50, and the minimum fixed charge coverage ratio was 7.74, exceeding the requirement of 1.50 [275]. Tax and Legal Matters - The effective tax rate for 2022 was 15% of income before income taxes, compared to 10.4% in 2021 [254]. - As of December 31, 2022, the total amount of unrecognized tax benefits was $4.2 million, with $3.7 million potentially favorably affecting the effective tax rate if recognized [323]. - The amount of undistributed earnings of foreign subsidiaries totaled $330.8 million as of December 31, 2022, with estimated unrecognized tax liabilities of approximately $3.6 million [324]. - A valuation allowance of $2.0 million was established in 2022 for state R&D credits and net operating losses in certain tax jurisdictions [322]. - The company is subject to legal proceedings and assesses potential financial exposure on a quarterly basis, with significant judgment required for liability estimates [325]. Inventory and Asset Management - The company regularly reviews inventory quantities and may increase reserves for excess and obsolete inventory if sales do not materialize as planned [302]. - The most recent annual goodwill and indefinite-lived intangible asset impairment test noted no impairment as of the beginning of the second quarter of 2022 [318]. - The company assesses indefinite-lived intangible assets for impairment annually, with impairment charges recorded if fair value is less than carrying value [315]. Market Risks - The company is exposed to market risks from changes in foreign currency exchange rates and interest rates, which could affect operating results and cash flows [328]. - As of December 31, 2022, the company had foreign currency contracts with notional amounts totaling $117.1 million and a net fair value of less than $0.1 million [331]. - A hypothetical 10% strengthening of the U.S. dollar would result in an approximately $0.2 million increase in the net fair value of foreign currency contracts [331]. - The company had $440.3 million of outstanding variable rate debt as of December 31, 2022, with a 100 basis point increase in interest rates potentially increasing annual pre-tax interest expense by approximately $4.4 million [332].