Engineering & Capital Goods News

NOVANTA INC Management’s Discussion and Analysis of Financial Condition and Results of Operations (form 10-Q)


Management's Discussion and Analysis of Financial Condition and Results of
Operations ("MD&A") should be read in conjunction with the Consolidated
Financial Statements and Notes included in Item 1 of this Quarterly Report on
Form 10-Q. The MD&A contains certain forward-looking statements within the
meaning of the United States Private Securities Litigation Reform Act of 1995,
Section 27A of the Securities Act of 1933, as amended, and Section 21E of the
Securities Exchange Act of 1934, as amended. In addition to historical financial
information, the following discussion and analysis contains forward-looking
statements that involve risks, uncertainties and assumptions. These
forward-looking statements include, but are not limited to the anticipated
impacts of the COVID-19 pandemic on our business, our financial results and our
financial condition; our belief that the Purchasing Managers Index ("PMI") may
provide an indication of the impact of general economic conditions on our sales
into the advanced industrial end market; our strategy; anticipated financial
performance; expected liquidity and capitalization; drivers of revenue growth
and our growth expectations in various markets; management's plans and
objectives for future operations, expenditures and product development, and
investments in research and development; business prospects; potential of future
product releases and expansion of our product and service offerings; anticipated
revenue performance; industry trends; market conditions; our competitive
positions; changes in economic and political conditions, including supply chain
constraints; changes in accounting principles; changes in actual or assumed tax
liabilities; expectations regarding tax exposures; anticipated reinvestment of
future earnings and dividend policy; anticipated expenditures in regard to the
Company's benefit plans; future acquisitions; integration and anticipated
benefits from acquisitions and dispositions; anticipated economic benefits,
costs and timelines of restructuring programs; ability to repay our
indebtedness; our intentions regarding the use of cash; expectations regarding
legal and regulatory environmental requirements and our compliance thereto; and
other statements that are not historical facts. 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, 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, 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 and our third-party providers' information technology systems;
our failure to comply with data privacy regulations; changes in interest rates,
credit ratings or foreign currency exchange rates; risks associated with our
operations in foreign countries; our increased use of outsourcing in foreign
countries; risks associated with increased outsourcing of components
manufacturing; our exposure to increased tariffs, trade restrictions or taxes on
our products; negative effects on global economic conditions, financial markets
and our business as a result of the United Kingdom's withdrawal from the
European Union; violations of our intellectual property rights and our ability
to protect our intellectual property against infringement by third parties; risk
of losing our competitive advantage; our failure to successfully integrate
recent and future acquisitions into our business; our ability to attract and
retain key personnel; our restructuring and realignment activities and
disruptions to our operations as a result of consolidation of our operations;
product defects or problems integrating our products with other vendors'
products; disruptions in the supply of certain key components or other goods
from our suppliers; our failure to accurately forecast component and raw
material requirements leading to excess inventories or delays in the delivery of
our products; production difficulties and product delivery delays or
disruptions; our exposure to medical device regulations, which may impede or
hinder the approval or sale of our products and, in some cases, may ultimately
result in an inability to obtain approval of certain products or may result in
the recall or seizure of previously approved products; potential penalties for
violating foreign and U.S. 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
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.
federal income taxation even though we are a non-U.S. corporation; changes in
tax laws and fluctuations in our effective tax rates; any need for additional
capital to adequately respond to business challenges or opportunities and repay
or refinance our existing indebtedness, which may not be available on acceptable
terms or at all; our existing indebtedness limiting our ability to engage in
certain activities; volatility in the market price for our common shares; and
our failure to maintain appropriate internal controls in the future. 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 "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 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.

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Accounting Period


The interim consolidated financial statements of Novanta Inc. and its
subsidiaries (collectively referred to as the "Company", "Novanta", "we", "us",
"our") are prepared for each quarterly period ending on the Friday closest to
the end of the calendar quarter, except for the fourth quarter which always ends
on December 31.

Business Overview

We are a leading global supplier of core technology solutions that give medical
and advanced industrial original equipment manufacturers ("OEMs") a competitive
advantage. We combine deep proprietary technology expertise and competencies in
photonics, vision and precision motion with a proven ability to solve complex
technical challenges. This enables us to engineer core components and
sub-systems that deliver extreme precision and performance, tailored to our
customers' demanding applications.

Reportable Segments

We operate in three reportable segments: Photonics, Vision, and Precision
Motion. The reportable segments and their principal activities are summarized
below.


Photonics

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, particularly ophthalmology
applications. The vast majority of the segment's product offerings are sold to
OEM customers. The segment sells these products both directly, utilizing a
highly technical sales force, and indirectly, through resellers and
distributors.

Vision


Our Vision segment designs, manufactures and markets a range of medical grade
technologies, including medical insufflators, pumps and related disposables;
visualization solutions; wireless technologies, video recorder and video
integration technologies for operating room integrations; optical data
collection and machine vision technologies; radio frequency identification
("RFID") technologies; thermal chart recorders; spectrometry technologies; and
embedded touch screen solutions. The vast majority of the segment's product
offerings are sold to OEM customers. The segment sells these products both
directly, utilizing a highly technical sales force, and indirectly, through
resellers and distributors.

Precision Motion


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. The segment sells
these products both directly, utilizing a highly technical sales force, and
indirectly, through resellers and distributors.

End Markets

We primarily operate in two end markets: the medical market and the advanced
industrial market.


Medical Market

For the nine months ended September 30, 2022, the medical market accounted for
approximately 48% 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.

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Advanced Industrial Market


For the nine months ended September 30, 2022, the advanced industrial market
accounted for approximately 52% of our revenue. Revenue from our products sold
to the advanced industrial market is affected by several factors, including
changing technology requirements and preferences of our customers, productivity
or quality investments in a manufacturing environment, financial conditions 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.

Strategy

Our strategy is to drive sustainable, profitable growth through short-term and
long-term initiatives, including:

disciplined focus on our diversified business model of providing components and
sub-systems to long life-cycle OEM customer platforms in attractive medical and
advanced industrial niche markets;

improving our business mix to increase medical sales as a percentage of total
revenue by:


-

introducing new products aimed at attractive medical applications, such as
minimally invasive and robotic surgery, ophthalmology, patient monitoring, drug
delivery, clinical laboratory testing and life science equipment;


-

deepening our key account management relationships with and driving cross
selling of our product offerings to leading medical equipment manufacturers; and


-

pursuing complementary medical technology acquisitions;

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;

expanding sales and marketing channels to reach new target customers;

improving our existing operations to expand profit margins and improve customer
satisfaction by implementing lean manufacturing principles, strategic sourcing
across our major production sites; and optimizing and limiting the growth of our
fixed cost base; and

attracting, retaining, and developing world-class talented and motivated
employees.

Significant Events and Updates

Acquisition of MPH Medical Devices S.R.O.


On August 11, 2022, we acquired 100% of the outstanding shares of MPH Medical
Devices S.R.O. ("MPH"), a Czech Republic-based manufacturer of medical
consumables with plastics specialization in making disposable tub-set-like
products, for a total purchase price of €21.8 million ($22.4 million), net of
cash acquired. The acquisition was financed with borrowings under our revolving
credit facility and cash available on hand. The addition of MPH is expected to
expand the Company's manufacturing capacity and capabilities in the medical
disposable tube set products within the Vision reportable segment.

Amendment to 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 U.S. dollar borrowings, and increase the uncommitted accordion option from
$200 million to $350 million.

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Impact of COVID-19 and Supply Chain Disruptions 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 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. 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 varied across
the countries in which we operate. Some governmental 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, limitations 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 outbreaks of infection
in various locations within China, governmental authorities have implemented
lockdown orders in some areas, significantly slowing economic and business
activities. Our manufacturing and distribution operations in China have been
impacted to a limited degree by these 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 September 30, 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 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 where feasible
to allow for alternative components to be used 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 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 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; however, our ability to raise our selling prices depends on
market conditions and competitive dynamics. 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.

Russia Ukraine Conflict


In February 2022, Russian forces invaded Ukraine. In response, the United
States, the 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, the 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.

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Results of Operations for the Three and Nine Months Ended September 30, 2022
Compared with the Three and Nine Months Ended October 1, 2021

Overview of Financial Results


Total revenue of $223.0 million for the three months ended September 30, 2022
increased $45.2 million, or 25.5%, from the prior year period primarily due to
revenue from prior year acquisitions and increased demand in the advanced
industrial and medical markets. The effect of our prior year acquisitions
resulted in an increase in revenue of $22.3 million, or 12.6%. In addition,
foreign currency exchange rates adversely impacted our revenue by $13.7 million,
or 7.7%, for the three months ended September 30, 2022.

Total revenue of $642.5 million for the nine months ended September 30, 2022
increased $134.7 million, or 26.5%, from the prior year period primarily due to
revenue from prior year acquisitions and increased demand in the advanced
industrial and medical markets. The effect of our prior year acquisitions
resulted in an increase in revenue of $90.1 million, or 17.7%. In addition,
foreign currency exchange rates adversely impacted our revenue by $25.6 million,
or 5.0%, for the nine months ended September 30, 2022.

Operating income of $28.7 million for the three months ended September 30, 2022
increased $13.4 million, or 87.6%, from the prior year period. This increase was
attributable to an increase in gross profit of $22.1 million primarily
attributable to higher revenue, an increase in gross profit margin, and a
decrease in restructuring, acquisition, and related charges of $6.5 million,
partially offset by an increase in research and development and engineering
("R&D") expenses of $3.9 million, an increase in selling, general and
administrative ("SG&A") expenses of $9.0 million and an increase in amortization
expense of $2.3 million.

Operating income of $76.2 million for the nine months ended September 30, 2022
increased $33.9 million, or 79.9%, from the prior year period. This increase was
attributable to an increase in gross profit of $66.5 million primarily
attributable to higher revenue, an increase in gross profit margin, and a
decrease in restructuring, acquisition, and related charges of $13.8 million,
partially offset by an increase in R&D expenses of $10.8 million, an increase in
SG&A expenses of $26.0 million and an increase in amortization expense of $9.7
million.

Basic earnings per common share ("Basic EPS") of $0.63 for the three months
ended September 30, 2022 increased $0.25 from the prior year period. Diluted
earnings per common share ("Diluted EPS") of $0.63 for the three months ended
September 30, 2022 increased $0.25 from the prior year period. The increases
were primarily attributable to an increase in operating income, partially offset
by an increase in income tax provision.

Basic EPS of $1.65 for the nine months ended September 30, 2022 increased $0.62
from the prior year period. Diluted EPS of $1.64 for the nine months ended
September 30, 2022 increased $0.62 from the prior year period. The increases
were primarily attributable to an increase in operating income, partially offset
by an increase in income tax provision.

Revenue

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


                        Three Months Ended
                  September 30,       October 1,        Increase       Percentage
                      2022               2021          (Decrease)        Change
Photonics        $        70,799     $     55,263     $     15,536            28.1 %
Vision                    73,345           65,346            7,999            12.2 %
Precision Motion          78,814           57,117           21,697            38.0 %
Total            $       222,958     $    177,726     $     45,232            25.5 %



                        Nine Months Ended
                  September 30,       October 1,        Increase       Percentage
                      2022               2021          (Decrease)        Change
Photonics        $       203,042     $    176,113     $     26,929            15.3 %
Vision                   200,911          196,429            4,482             2.3 %
Precision Motion         238,577          135,291          103,286            76.3 %
Total            $       642,530     $    507,833     $    134,697            26.5 %




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Photonics

Photonics segment revenue for the three months ended September 30, 2022
increased by $15.5 million, or 28.1%, versus the prior year period, primarily
due to increased demand in advanced industrial and medical markets.

Photonics segment revenue for the nine months ended September 30, 2022 increased
by $26.9 million, or 15.3%, versus the prior year period, primarily due to
increased demand in advanced industrial and medical markets.

Vision

Vision segment revenue for the three months ended September 30, 2022 increased
by $8.0 million, or 12.2%, versus the prior year period, primarily due to
increases in sales from our minimally invasive surgery products.


Vision segment revenue for the nine months ended September 30, 2022 increased by
$4.5 million, or 2.3%, versus the prior year period, primarily due to increases
in sales from our minimally invasive surgery products, partially offset by
shortages of raw materials and other supply chain disruptions.

Precision Motion


Precision Motion segment revenue for the three months ended September 30, 2022
increased by $21.7 million, or 38.0%, versus the prior year period, primarily
due to $20.3 million of revenue contributions from 2021 acquisitions.

Precision Motion segment revenue for the nine months ended September 30, 2022
increased by $103.3 million, or 76.3%, versus the prior year period, primarily
due to $88.0 million of revenue contributions from 2021 acquisitions and
increased demand in advanced industrial and medical markets.

Gross Profit and Gross Profit Margin

The following table sets forth the gross profit and gross profit margin for each
of our reportable segments for the periods noted (dollars in thousands):


                                                 Three Months Ended                   Nine Months Ended
                                           September 30,       October 1,       September 30,       October 1,
                                               2022               2021              2022               2021
Gross profit:
Photonics                                 $        34,699     $     25,311     $        94,268     $     83,014
Vision                                             28,201           24,763              79,966           76,132
Precision Motion                                   36,832           27,743             113,846           64,694
Unallocated Corporate and Shared Services          (1,324 )         (1,519 )            (4,151 )         (6,396 )
Total                                     $        98,408     $     76,298     $       283,929     $    217,444
Gross profit margin:
Photonics                                            49.0 %           45.8 %              46.4 %           47.1 %
Vision                                               38.4 %           37.9 %              39.8 %           38.8 %
Precision Motion                                     46.7 %           48.6 %              47.7 %           47.8 %

Total                                                44.1 %           42.9 %              44.2 %           42.8 %

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


Photonics segment gross profit for the three months ended September 30, 2022
increased $9.4 million, or 37.1%, versus the prior year period, primarily due to
an increase in both revenue and gross profit margin. Photonics segment gross
profit margin was 49.0% for the three months ended September 30, 2022, versus a
gross profit margin of 45.8% for the prior year period. The increase in gross
profit margin was primarily attributable to improved factory productivity and
utilization.

Photonics segment gross profit for the nine months ended September 30, 2022
increased $11.3 million, or 13.6%, versus the prior year period, primarily due
to an increase in revenue. Photonics segment gross profit margin was 46.4% for
the nine months

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ended September 30, 2022, versus a gross profit margin of 47.1% 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


Vision segment gross profit for the three months ended September 30, 2022
increased $3.4 million, or 13.9%, versus the prior year period, primarily due to
an increase in revenue. Vision segment gross profit margin was 38.4% for the
three months ended September 30, 2022, versus a gross profit margin of 37.9% for
the prior year period.

Vision segment gross profit for the nine months ended September 30, 2022
increased $3.8 million, or 5.0%, versus the prior year period, primarily due to
an increase in both revenue and gross profit margin. Vision segment gross profit
margin was 39.8% for the nine months ended September 30, 2022, versus a gross
profit margin of 38.8% 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 September 30,
2022 increased $9.1 million, or 32.8%, versus the prior year period, primarily
due to an increase in revenue. Precision Motion segment gross profit margin was
46.7% for the three months ended September 30, 2022, versus a gross profit
margin of 48.6% for the prior year period. The decrease in gross profit margin
was primarily attributable to supply chain disruptions, raw material cost
inflation and unfavorable product mix.

Precision Motion segment gross profit for the nine months ended September 30,
2022 increased $49.2 million, or 76.0%, versus the prior year period, primarily
due to an increase in revenue. Precision Motion segment gross profit margin was
47.7% for the nine months ended September 30, 2022, versus a gross profit margin
of 47.8% for the prior year period.

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 September 30, 2022 decreased by
$0.2 million versus the prior year period.

Unallocated corporate and shared services costs for the nine months ended
September 30, 2022 decreased by $2.2 million versus the prior year period
primarily due to reduced COVID-19 testing costs for employees of $3.1 million.

Operating Expenses


The following table sets forth operating expenses for the periods noted (in
thousands):

                                              Three Months Ended                   Nine Months Ended
                                        September 30,       October 1,     

September 30, October 1,

                                            2022               2021              2022               2021
Research and development and
engineering                            $        21,349     $     17,468     $        63,866     $     53,104
Selling, general and administrative             40,301           31,296             120,191           94,189
Amortization of purchased intangible
assets                                           6,472            4,139              20,987           11,300
Restructuring, acquisition, and
related costs                                    1,625            8,120               2,650           16,485
Total                                  $        69,747     $     61,023     $       207,694     $    175,078

Research and Development and Engineering Expenses


Research and Development and Engineering ("R&D") expenses are primarily
comprised of employee compensation related expenses and cost of materials for
R&D projects. R&D expenses were $21.3 million, or 9.6% of revenue, during the
three months ended September 30, 2022, versus $17.5 million, or 9.8% 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 were $63.9 million, or 9.9% of revenue, during the nine months
ended September 30, 2022, versus $53.1 million, or 10.5% of revenue, during the
prior year period. R&D expenses increased in terms of total dollars primarily
due to expenses related to 2021 acquisitions.

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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
$40.3 million, or 18.1% of revenue, during the three months ended September 30,
2022, versus $31.3 million, or 17.6% of revenue, during the prior year period.
SG&A expenses increased in terms of total dollars and as a percentage of revenue
primarily due to SG&A expenses related to 2021 acquisitions and increases in
variable compensation and discretionary spending.

SG&A expenses were $120.2 million, or 18.7% of revenue, during the nine months
ended September 30, 2022, versus $94.2 million, or 18.5% of revenue, during the
prior year period. SG&A expenses increased in terms of total dollars and as a
percentage of revenue 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 $6.5 million, or 2.9% of
revenue, during the three months ended September 30, 2022, versus $4.1 million,
or 2.3% 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.

Amortization of purchased intangible assets, excluding amortization of developed
technologies that is included in cost of revenue, was $21.0 million, or 3.3% of
revenue, during the nine months ended September 30, 2022, versus $11.3 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 $1.6 million during
the three months ended September 30, 2022, versus $8.1 million during the prior
year period. The acquisition and related costs decreased primarily due to a $2.1
million reduction in acquisition and related expenses and a $1.0 million
reduction in earnout expense related to a prior year acquisition. The
restructuring costs decreased $3.5 million primarily related to decreased
expenses for the restructuring plans.

We recorded restructuring, acquisition, and related costs of $2.7 million during
the nine months ended September 30, 2022, versus $16.5 million during the prior
year period. The acquisition and related costs decreased primarily due to a $3.4
million reduction in earnout expenses related to prior year acquisitions, a $2.0
million reduction in legal fees and a $3.6 million reduction in other
acquisition and related expenses. The restructuring costs decreased $4.9 million
related to decreased expenses for the restructuring plans.

Operating Income (Loss) by Segment

The following table sets forth operating income (loss) by segment for the
periods noted (in thousands):

                                                 Three Months Ended                   Nine Months Ended
                                           September 30,       October 1,       September 30,       October 1,
                                               2022               2021              2022               2021
Operating Income (Loss)
Photonics                                 $        18,351     $      9,294     $        45,782     $     35,885
Vision                                              8,744            5,606              20,811           12,178
Precision Motion                                   15,800           14,957              48,222           34,681
Unallocated Corporate and Shared Services         (14,234 )        (14,582 )           (38,580 )        (40,378 )
Total                                     $        28,661     $     15,275     $        76,235     $     42,366

Photonics


Photonics segment operating income was $18.4 million, or 25.9% of revenue,
during the three months ended September 30, 2022, versus $9.3 million, or 16.8%
of revenue, during the prior year period. The increase in operating income was
primarily due to an increase in gross profit of $9.4 million, and a decrease in
restructuring, acquisition, and related costs of $1.6 million, partially offset
by an increase in R&D costs of $1.0 million and an increase in SG&A expenses of
$0.9 million.

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Photonics segment operating income was $45.8 million, or 22.5% of revenue,
during the nine months ended September 30, 2022, versus $35.9 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 $11.3 million, and a decrease in
restructuring, acquisition, and related costs of $2.6 million, partially offset
by an increase in R&D costs of $2.0 million and an increase in SG$A expenses of
$1.8 million.

Vision

Vision segment operating income was $8.7 million, or 11.9% of revenue, during
the three months ended September 30, 2022, versus $5.6 million, or 8.6% of
revenue, during the prior year period. The increase in operating income was
primarily due to an increase in gross profit of $3.4 million and a decrease in
restructuring, acquisition, and related costs of $0.3 million, partially offset
by an increase in SG&A expenses of $0.8 million.

Vision segment operating income was $20.8 million, or 10.4% of revenue, during
the nine months ended September 30, 2022, versus $12.2 million, or 6.2% of
revenue, during the prior year period. The increase in operating income was
primarily due to an increase in gross profit of $3.8 million, a decrease in
restructuring, acquisition, and related costs of $3.2 million, a decrease in R&D
costs of $1.2 million, and a decrease in amortization expense of $1.2 million,
partially offset by an increase in SG&A expenses of $0.8 million.

Precision Motion


Precision Motion segment operating income was $15.8 million, or 20.0% of
revenue, during the three months ended September 30, 2022, versus $15.0 million,
or 26.2% of revenue, during the prior year period. The increase in operating
income was primarily due to an increase in gross profit of $9.1 million and a
decrease in restructuring, acquisition, and related costs of $2.6 million,
partially offset by increases in R&D costs of $2.7 million, SG&A expenses of
$5.4 million, and amortization expense of $2.8 million primarily as a result of
prior year acquisitions.

Precision Motion segment operating income was $48.2 million, or 20.2% of
revenue, during the nine months ended September 30, 2022, versus $34.7 million,
or 25.6% of revenue, during the prior year period. The increase in operating
income was primarily due to an increase in gross profit of $49.2 million, and a
decrease in restructuring, acquisition, and related costs of $4.2 million,
partially offset by increases in R&D costs of $10.0 million, SG&A expenses of
$19.1 million, and amortization expense of $10.8 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 September 30, 2022 decreased by $0.3 million
versus the prior year period primarily due to a decrease in costs related to
COVID-19 testing for employees of $0.4 million included in cost of revenue, and
a decrease in restructuring, acquisition, and related costs of $2.1 million,
partially offset by an increase in SG&A expenses of $1.9 million.

Unallocated corporate and shared services costs for the nine months ended
September 30, 2022 decreased by $1.8 million versus the prior year period
primarily due to a decrease in costs related to COVID-19 testing for employees
of $3.1 million included in cost of revenue, and a decrease in restructuring,
acquisition, and related costs of $3.8 million, partially offset by an increase
in SG&A expenses of $4.3 million.

Other Income and Expense Items


The following table sets forth other income and expense items for the periods
noted (in thousands):

                                             Three Months Ended                   Nine Months Ended
                                       September 30,       October 1,      

September 30, October 1,

                                           2022               2021              2022               2021
Interest income (expense), net        $        (4,062 )   $     (1,710 )   $        (9,928 )   $     (4,496 )
Foreign exchange transaction gains
(losses), net                                   2,086               34               2,307             (299 )
Other income (expense), net                        87              (71 )              (390 )           (238 )




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Interest Income (Expense), Net


Net interest expense was $4.1 million for the three months ended September 30,
2022, versus $1.7 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 3.37% during
the three months ended September 30, 2022, versus 2.28% during the prior year
period.

Net interest expense was $9.9 million for the nine months ended September 30,
2022, versus $4.5 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 2.72% during
the nine months ended September 30, 2022, versus 2.12% during the prior year
period.

Foreign Exchange Transaction Gains (Losses), Net


Foreign exchange transaction gains (losses) were $2.1 million net gains for the
three months ended September 30, 2022, versus less than $0.1 million net gains
in the prior year period. The increase in net gains was primarily due to changes
in the value of the U.S. Dollar against the British Pound and Euro.

Foreign exchange transaction gains (losses) were $2.3 million net gains for the
nine months ended September 30, 2022, versus $(0.3) million net losses in the
prior year period. The increase in net gains was primarily due to changes in the
value of the U.S. Dollar against the British Pound and Euro.

Other Income (Expense), Net

Net other expense was nominal for the three and nine months ended September 30,
2022
and October 1, 2021, respectively.

Income Tax Provision (Benefit)


Our effective tax rate for the three months ended September 30, 2022 was 16.0%,
versus (0.6)% for the prior year period. Our effective tax rate of 16.0% for the
three months ended September 30, 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, and R&D tax credits, partially offset by disallowed
compensation expenses and uncertain tax position accruals.

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 for the nine months ended September 30, 2022 was 13.8%,
versus 2.0% for the prior year period. Our effective tax rate of 13.8% for the
nine months ended September 30, 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, R&D tax credits and windfall tax benefits upon
vesting of certain share-based compensation awards, partially offset by
disallowed compensation expenses and uncertain tax position accruals. For the
nine months ended September 30, 2022, the windfall tax benefits upon vesting of
certain stock-based compensation awards had a benefit of 0.2% on our effective
tax rate.

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.

The Inflation Reduction Act of 2022 (the "IRA") was passed into law on August
16, 2022. The provisions of the IRA will be effective beginning with fiscal year
2023, with certain exceptions. The IRA has several new provisions including a
15% corporate alternative minimum tax ("CAMT") for certain large corporations
that have at least an average of $1.0 billion of adjusted financial statement
income over a consecutive three-tax-year period. The IRA also introduced a 1%
excise tax imposed on certain stock

                                       39
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repurchases by publicly traded U.S. corporations made after December 31, 2022.
Based on our initial evaluation, we do not believe the IRA will have a material
impact on our income tax provision and cash taxes. We continue to monitor the
changes in tax laws and regulations to evaluate their potential impact on our
business.

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 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 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. 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 (as amended, the "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 of our control, such
as economic consequences of the COVID-19 pandemic and the Russia-Ukraine war,
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, higher interest
rates in the U.S. and Europe, 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. Through
September 30, 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 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 September 30, 2022, $57.7 million of our $84.6 million cash and cash
equivalents was held by subsidiaries outside of Canada and the U.S. 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). Approximately
$137.9 million of our outstanding term loan and revolver borrowings under our
Senior Credit Facilities were held in our subsidiaries outside of Canada and the
U.S. Additionally, we may use intercompany loans to address short-term cash flow
needs for various subsidiaries.

We deferred certain U.S. payroll tax payments in 2020 in accordance with relief
provisions under the CARES Act. 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 of deferred U.S. Payroll taxes by December 31,
2022.

Senior Credit Facilities

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 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. We may make additional
principal payments at any time, which will reduce the next quarterly installment
payment due. We may pay down outstanding borrowings under our revolving credit
facility with cash on hand and cash generated from future operations at any
time.

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In March 2020, we entered into an amendment (the "First Amendment") to the
Credit Agreement and exercised a portion of the uncommitted accordion option.
The First Amendment increased the revolving credit facility commitment under the
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 Credit Agreement to exercise the accordion option. The Fourth
Amendment increased the revolving credit facility commitment under the 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 U.S. dollar borrowings, and increase the uncommitted
accordion option from $200 million to $350 million.

As of September 30, 2022, we had $75.7 million term loan and $372.3 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 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 September 30, 2022, we had outstanding
borrowings under the Credit Agreement denominated in Euro and U.S. Dollars of
$137.9 million and $310.0 million, respectively.

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 covenants and
our compliance therewith as of September 30, 2022:

                                                  Requirement      Actual
Maximum consolidated leverage ratio (1)                   3.50        2.33

Minimum consolidated fixed charge coverage ratio 1.50 8.89

(1)

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

Our Board of Directors may approve share repurchase plans from time to time.
Under these repurchase plans, shares may be repurchased at our discretion based
on ongoing assessment of the capital needs of the business, the market price of
our common shares, and general market conditions. Shares may also be repurchased
through an accelerated share purchase agreement, on the open market or in
privately negotiated transactions in accordance with applicable federal
securities laws. Repurchases may be made under certain SEC regulations, which
would permit common shares to be repurchased when we would otherwise be
prohibited from doing so under insider trading laws. While the share repurchase
plans are generally intended to offset dilution from equity awards granted to
our employees and directors, the plans do not obligate us to acquire any
particular amount of common shares. No time limit is typically set for the
completion of the share repurchase plans, and the plans may be suspended or
discontinued at any time. We expect to fund share repurchases through cash on
hand and cash generated from operations.

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 completed
the 2018 Repurchase Plan in the second quarter of 2022 and repurchased 80
thousand shares for an aggregate purchase price of $9.5 million at an average
price of $118.97 per share. Since the inception of the 2018 Repurchase Plan, we
have repurchased a cumulative total of 264 thousand shares at an average price
of $94.57 per share.

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. Share repurchases have been made under the 2020
Repurchase Plan pursuant to Rule 10b-18 under the Securities Exchange Act of
1934. During the nine months ended September 30, 2022, we repurchased 4 thousand
shares for an aggregate purchase price of $0.5 million at an average price of
$116.95 per share under the 2020 Repurchase Plan. As of September 30, 2022, we
had $49.5 million available for share repurchases under the 2020 Repurchase
Plan.

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Cash Flows for the Nine Months Ended September 30, 2022 and October 1, 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
                                                         September 30,        October 1,
                                                             2022                2021
Net cash provided by operating activities               $        50,167     $       65,912
Net cash used in investing activities                   $       (38,283 )   $     (302,140 )
Net cash used in financing activities                   $       (36,669 )   $      214,290

                                                         September 30,       December 31,
                                                             2022                2021
Cash and cash equivalents                               $        84,580     $      117,393
Unused and available funds under the revolving credit
facility                                                $       322,713     $      348,421


Operating Cash Flows

Cash provided by operating activities was $50.2 million for the nine months
ended September 30, 2022, versus $65.9 million for the prior year period. Cash
provided by operating activities for the nine months ended September 30, 2022
decreased from the prior year period primarily due to a $46.6 million increase
in inventories driven by increased customer demand and higher critical raw
material purchases, a $34.4 million increase in accounts receivable primarily
driven by increased revenue, 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.

Beginning in January 2022, the Tax Cuts and Jobs Act of 2017 ("TCJA") requires
R&D expenditures be capitalized and amortized for income tax purposes over five
years for domestic research and fifteen years for foreign research, rather than
being deducted as incurred. This has the effect of increasing our cash taxes and
deferred tax assets. If this provision under the TCJA is not deferred, modified,
or repealed with retroactive effect going back to January 1, 2022, our operating
cash flows are expected to decrease by approximately $9.2 million for the year
ending December 31, 2022.

Investing Cash Flows

Cash used in investing activities was $38.3 million for the nine months ended
September 30, 2022, primarily driven by the MPH acquisition. We paid cash
consideration of $22.4 million, net of cash acquired. We also paid capital
expenditures of $15.4 million and a contingent consideration payment of $1.5
million related to our 2016 asset acquisition of video signal processing and
management technologies during the nine months ended September 30, 2022.

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.

We expect to use an aggregate of approximately $20 million to $25 million in
2022 for capital expenditures related to investments in new property, plant and
equipment for our existing businesses.

Financing Cash Flows


Cash used in financing activities was $36.7 million for the nine months ended
September 30, 2022, primarily due to $46.3 million of contingent consideration
payments related to prior year acquisitions, $37.8 million of term loan and
revolving credit facility repayments, $10.0 million of repurchases of common
stock, $9.6 million of payroll tax payments upon vesting of share-based
compensation awards, and $2.5 million of debt issuance costs in connection with
the Fifth Amendment, partially offset by $69.9 million of borrowings under our
revolving credit facility used to fund the contingent consideration paid for the
ATI acquisition and cash consideration paid for the MPH acquisition.

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

                                       42
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and revolver credit facility repayments, $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 acquisitions.

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
September 30, 2022 from those disclosed in our Annual Report on Form 10-K for
the fiscal year ended December 31, 2021.

Recent Accounting Pronouncements

See Note 1 to Consolidated Financial Statements.

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