Novanta Announces Financial Results for the Fourth Quarter and Full Year 2017
BEDFORD, Mass., Feb. 28, 2018 /PRNewswire/ -- Novanta, Inc. (Nasdaq: NOVT) (the "Company"), a trusted technology partner to medical and advanced technology equipment manufacturers, today reported financial results for the fourth quarter and full year 2017.
Financial Highlights Three Months Ended December 31, Year Ended December 31,
-------------------- ------------------------------- -----------------------
(In millions, except per share amounts) 2017 2016 2017 2016
---- ---- ---- ----
GAAP
Revenue $146.9 $98.9 $521.3 $384.8
Operating Income from Continuing Operations $19.1 $11.3 $57.2 $32.6
Net Income Attributable to Novanta Inc. $8.9 $7.8 $60.1 $22.0
Diluted EPS from Continuing Operations $(0.00) $0.22 $1.13 $0.63
Non-GAAP*
Adjusted Operating Income from Continuing Operations $25.8 $16.6 $90.4 $55.8
Adjusted Diluted EPS $0.44 $0.35 $1.60 $1.09
Adjusted EBITDA $30.0 $19.4 $105.7 $68.0
*Reconciliations of GAAP to non-GAAP financial measures, as well as definitions for the non-GAAP financial measures in this press release and the reasons for their use, are presented below.
"2017 was a defining year for Novanta with strong execution and financial results," said Matthijs Glastra, Chief Executive Officer of Novanta Inc. "We executed well on our strategic priorities and 2020 Strategic Direction. We accelerated organic revenue growth to 8% versus 2016 and made three acquisitions, namely, World of Medicine, Laser Quantum, and ThingMagic. These acquisitions have expanded our positions in growing medical markets and technologies, and are performing ahead of our expectations. Our performance in 2017 gives us confidence to reach our 2020 strategic goals. I am proud of our team of dedicated employees and the culture we have created, and I continue to feel excited about our future."
Fourth Quarter
During the fourth quarter of 2017, Novanta generated GAAP revenue of $146.9 million, an increase of $48.0 million, or 48.6%, versus the fourth quarter of 2016. The net effect of the Company's acquisition activities resulted in an increase in revenue of $39.1 million, or 39.5%, compared to the fourth quarter of 2016. Foreign currency exchange rates favorably impacted our revenue by $0.8 million, or 0.8%, during the fourth quarter of 2017. Our Organic Revenue Growth, which excludes the net impact of acquisitions and foreign currency exchange rates, increased 8.3%, versus the fourth quarter of 2016 (see "Organic Revenue Growth" in the non-GAAP reconciliation below).
In the fourth quarter of 2017, GAAP operating income from continuing operations was $19.1 million, compared to $11.3 million in the fourth quarter of 2016. GAAP net income attributable to Novanta Inc. was $8.9 million in the fourth quarter of 2017, compared to $7.8 million in the fourth quarter of 2016. GAAP diluted earnings (loss) per share ("EPS") from continuing operations was $(0.00) in the fourth quarter of 2017, compared to $0.22 in the fourth quarter of 2016.
In the fourth quarter of 2017, the Company increased the carrying amount of the redeemable noncontrolling interest in Laser Quantum by $8.9 million to reflect the estimated redemption value as of December 31, 2017. This nontaxable adjustment was recognized in retained earnings instead of net income, but resulted in a net ($0.25) reduction in EPS under U.S. GAAP accounting rules. In addition, the Company's GAAP net income and EPS for the fourth quarter of 2017 were negatively impacted by a $2.8 million tax provision recorded to reflect the estimated income tax effect as a result of the enactment of the U.S. Tax Cuts and Jobs Act, primarily from the revaluation of our deferred tax assets and liabilities to the new 21% U.S. federal corporate income tax rate that became effective as of January 1, 2018. Adjusted Diluted EPS was $0.44 in the fourth quarter of 2017, compared to $0.35 in the fourth quarter of 2016. The Company ended the fourth quarter of 2017 with 34.8 million weighted average shares outstanding. Adjusted EBITDA was $30.0 million in the fourth quarter of 2017, compared to $19.4 million in the fourth quarter of 2016.
Operating cash flow from continuing operations for the fourth quarter of 2017 was $22.1 million, compared to $13.1 million for the fourth quarter of 2016.
Full Year
For the full year 2017, Novanta generated GAAP revenue of $521.3 million, an increase of $136.5 million, or 35.5%, versus the full year 2016. The net effect of the Company's acquisitions in 2017 resulted in an increase in revenue of $105.8 million, or 27.5%. Foreign currency exchange rates adversely impacted our revenue by $1.9 million, or 0.5%, in 2017. Our Organic Revenue Growth, which excludes the net impact of acquisitions, divestitures, and foreign currency exchange rates, increased 8.5%, versus full year 2016 (see "Organic Revenue Growth" in the non-GAAP reconciliation below).
For the full year 2017, GAAP operating income from continuing operations was $57.2 million, compared to $32.6 million in 2016. GAAP net income attributable to Novanta Inc. was $60.1 million for the full year 2017, compared to $22.0 million in 2016. GAAP diluted EPS from continuing operations was $1.13 for the full year 2017, compared to $0.63 in 2016.
For the full year 2017, the Company increased the carrying amount of the redeemable noncontrolling interest in Laser Quantum by $20.2 million to reflect the estimated redemption value as of December 31, 2017. This nontaxable adjustment was recognized in retained earnings instead of net income attributable to Novanta Inc., but resulted in a net ($0.57) reduction in EPS under U.S. GAAP accounting rules. Adjusted Diluted EPS was $1.60 for the full year 2017, compared to $1.09 in 2016. The Company ended the full year 2017 with 35.3 million weighted average shares outstanding. Adjusted EBITDA was $105.7 million for the full year 2017, compared to $68.0 million in 2016.
Operating cash flow from continuing operations for the full year 2017 was $63.4 million, compared to $47.8 million in 2016. The Company finished 2017 with approximately $237.8 million of Gross Debt, and $137.7 million of Net Debt, as defined in the non-GAAP reconciliation below.
Financial Outlook
For the full year 2018, the Company expects GAAP revenue of approximately $585 million to $600 million. The Company expects Adjusted Diluted EPS to be in the range of $1.85 to $1.96, including the impact of the recently enacted U.S. tax law changes, and Adjusted EBITDA to be approximately $117 million to $122 million. The Company's Adjusted Diluted EPS and EBITDA guidance assumes no significant foreign exchange gains or losses.
For the first quarter of 2018, the Company expects GAAP revenue of approximately $138 million to $142 million. This represents reported growth in the range of 27% to 30%, and organic growth in the range of 7.5% to 8.5% year over year. The Company expects Adjusted Diluted EPS to be in the range of $0.40 to $0.43, including the impact of the recently enacted U.S. tax law changes, and Adjusted EBITDA to be approximately $25 million to $27 million. The Company's Adjusted Diluted EPS and EBITDA guidance assumes no significant foreign exchange gains or losses.
Novanta provides earnings guidance on a non-GAAP basis and does not provide earnings guidance on a GAAP basis, with the exception of GAAP revenue guidance. A reconciliation of the Company's forward-looking Adjusted EBITDA and Adjusted EPS guidance to the most directly comparable GAAP financial measures is not provided because of the inherent difficulty in forecasting and quantifying certain amounts that are necessary for such reconciliations, including adjustments that could be made for noncontrolling interest redemption value adjustments; significant discrete income tax expenses (benefits); divestiture related expenses; acquisition-related expenses; impact of purchase price allocations for recently completed acquisitions; gains and losses from sale of real estate assets; costs related to product line closures; future changes in the fair value of contingent considerations; intangible asset impairment charges and related asset write-offs; future restructuring expenses; foreign exchange gains/(losses) on proceeds from divestitures; benefits or expenses associated with the completion of tax audits; and other charges reflected in our reconciliation of historical non-GAAP financial measures, the amounts of which, based on past experience, could be material. For additional information regarding Novanta's non-GAAP financial measures, see "Use of Non-GAAP Financial Measures" below.
Conference Call Information
The Company will host a conference call on Wednesday, February 28, 2018 at 10:00 a.m. ET to discuss these results. To access the call, please dial (877) 870-4263 prior to the scheduled conference call time. The conference ID number is 10113487. Alternatively, the conference call can be accessed online via a live webcast on the Investor Relations section of the Company's website at www.novanta.com.
A playback of this conference call will be available beginning 12:00 p.m. ET, Wednesday, February 28, 2018. The playback phone number is (877) 344-7529 and the code number is 10113487. The playback will remain available until 11:00 p.m. ET, Wednesday, March 21, 2018.
A replay of the audio webcast will be available approximately three hours after the conclusion of the call on the Investor Relations section of the Company's website at www.novanta.com.
Use of Non-GAAP Financial Measures
The non-GAAP financial measures used in this press release are Organic Revenue Growth, Adjusted Gross Profit, Adjusted Gross Profit Margin, Adjusted Operating Income from Continuing Operations and Operating Margin, Adjusted Income from Continuing Operations before Income Taxes, Adjusted Income Tax Provision (Benefit) and Effective Tax Rate, Adjusted Net Income Attributable to Novanta Inc., Net of Tax, Adjusted Diluted EPS, Adjusted EBITDA, Adjusted EBITDA Margin, and Net Debt.
The Company believes that these non-GAAP financial measures provide useful and supplementary information to investors regarding the operating performance of the Company. It is management's belief that these non-GAAP financial measures would be particularly useful to investors because of the significant changes that have occurred outside of the Company's day-to-day business in accordance with the execution of the Company's strategy. This strategy includes streamlining the Company's existing operations through site and functional consolidations, strategic divestitures and product line closures, expanding the Company's business through significant internal investments, and broadening the Company's product and service offerings through acquisition of innovative and complementary technologies and solutions. The financial impact of certain elements of these activities, particularly acquisitions, divestitures, and site and functional restructurings, is often large relative to the Company's overall financial performance and can adversely affect the comparability of its operating results and investors' ability to analyze the business from period to period.
The Company's Adjusted EBITDA and Organic Revenue Growth are used by management to evaluate operating performance, communicate financial results to the Board of Directors, benchmark results against historical performance and the performance of peers, and evaluate investment opportunities including acquisitions and divestitures. In addition, Adjusted EBITDA and Organic Revenue Growth are used to determine bonus payments for senior management and employees. The Company also uses Adjusted Diluted EPS as a measurement for performance shares issued to certain executives. Accordingly, the Company believes that these non-GAAP measures provide greater transparency and insight into management's method of analysis.
Non-GAAP financial measures should not be considered as substitutes for, or superior to, measures of financial performance prepared in accordance with GAAP. They are limited in value because they exclude charges that have a material effect on the Company's reported results and, therefore, should not be relied upon as the sole financial measures to evaluate the Company's financial results. The non-GAAP financial measures are meant to supplement, and to be viewed in conjunction with, GAAP financial measures. Investors are encouraged to review the reconciliation of these non-GAAP financial measures to their most directly comparable GAAP financial measures as provided in the tables accompanying this press release.
Safe Harbor and Forward-Looking Information
Certain statements in this release are "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995 and are based on current expectations and assumptions that are subject to risks and uncertainties. All statements contained in this news release that do not relate to matters of historical fact should be considered forward-looking statements, and are generally identified by words such as "expect," "intend," "anticipate," "estimate," "believe," "future," "could," "should," "plan," "aim," and other similar expressions. These forward-looking statements include, but are not limited to, statements regarding reaching our 2020 strategic goals; executing our strategy; anticipated financial performance, including our updated financial outlook for the first quarter 2018; expectations regarding market conditions; expectations regarding the Company's future; and other statements that are not historical facts.
These forward-looking statements are neither promises nor guarantees, but involve risks and uncertainties that may cause actual results to differ materially from those contained in the forward-looking statements. Our actual results could differ materially from those anticipated in these forward-looking statements for many reasons, including, but not limited to, the following: economic and political conditions and the effects of these conditions on our customers' businesses and level of business activity; our significant dependence upon our customers' capital expenditures, which are subject to cyclical market fluctuations; our dependence upon our ability to respond to fluctuations in product demand; our ability to continually innovate and successfully commercialize our innovations; failure to introduce new products in a timely manner; customer order timing and other similar factors beyond our control; disruptions or breaches in security of our information technology systems; changes in interest rates, credit ratings or foreign currency exchange rates; risks associated with our operations in foreign countries; risks associated with increased outsourcing of components manufacturing; our failure to comply with local import and export regulations in the jurisdictions in which we operate; negative effects on global economic conditions, financial markets and our business as a result of the United Kingdom's impending withdrawal from the European Union and the actions of the current U.S. government; 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 businesses; 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; failure to accurately forecast component and raw material requirements for our products; production difficulties and product delivery delays or disruptions; our compliance, or our failure to comply, with various federal, state and foreign regulations including rules and regulations issued by the U.S. Food and Drug Administration and similar international agencies; changes in governmental regulation of our businesses or products; our failure to comply with environmental regulations; our failure to implement new information technology systems and software successfully; our failure to realize the full value of our intangible assets; our exposure to the credit risk of some of our customers and in weakened markets; our reliance on third party distribution channels; being subject to U.S. federal income taxation even though we are a non-U.S. corporation; tax audits by tax authorities; changes in tax laws, and fluctuations in our effective tax rates; anticipated impact from the recently enacted Tax Cuts and Jobs Act in the U.S.; 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; our ability to access cash and other assets of our subsidiaries; provisions of our articles of incorporation may delay or prevent a change in control; 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, 2016, our subsequent filings with the Securities and Exchange Commission ("SEC"), and in our future filings with the SEC. Such statements are based on the Company's beliefs and assumptions and on information currently available to the Company. The Company disclaims any obligation to update any forward-looking statements as a result of developments occurring after the date of this document except as required by law.
About Novanta
Novanta is a leading global supplier of core technology solutions that give healthcare and advanced industrial original equipment manufacturers ("OEMs") a competitive advantage. We combine deep proprietary technology expertise 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 our customers' demanding applications. The driving force behind our growth is the team of innovative professionals who share a commitment to innovation and customer success. Novanta's common shares are quoted on Nasdaq under the ticker symbol "NOVT."
More information about Novanta is available on the Company's website at www.novanta.com. For additional information, please contact Novanta Inc. Investor Relations at (781) 266-5137 or InvestorRelations@novanta.com.
Novanta Inc.
Investor Relations Contact:
Robert J. Buckley
(781) 266-5137
NOVANTA INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands of U.S. dollars or shares, except per share amounts)
(Unaudited)
Three Months Ended Year Ended December 31,
December 31,
------------
2017 2016 2017 2016
---- ---- ---- ----
Revenue $146,918 $98,879 $521,290 $384,758
Cost of revenue 84,677 56,027 300,759 222,306
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Gross profit 62,241 42,852 220,531 162,452
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Operating expenses:
Research and development and engineering 11,795 7,973 41,673 32,002
Selling, general and administrative 27,359 19,334 102,025 81,691
Amortization of purchased intangible assets 2,683 2,098 12,096 8,251
Restructuring, acquisition and divestiture related costs 1,310 2,117 7,542 7,945
----- ----- ----- -----
Total operating expenses 43,147 31,522 163,336 129,889
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Operating income from continuing operations 19,094 11,330 57,195 32,563
Interest income (expense), net (2,291) (1,088) (7,165) (4,559)
Foreign exchange transaction gains (losses), net (271) 1,339 (447) 2,317
Other income (expense), net 38 502 142 2,201
Gain on acquisition of business - - 26,409 -
--- --- ------ ---
Income from continuing operations before income taxes 16,570 12,083 76,134 32,522
Income tax provision 6,893 4,327 13,827 10,519
----- ----- ------ ------
Income from continuing operations 9,677 7,756 62,307 22,003
Loss from discontinued operations, net of tax - - - -
--- --- --- ---
Consolidated net income 9,677 7,756 62,307 22,003
Less: Net income attributable to noncontrolling interest (812) - (2,256) -
---- --- ------ ---
Net income attributable to Novanta Inc. $8,865 $7,756 $60,051 $22,003
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Earnings (loss) per common share from continuing operations:
Basic $(0.00) $0.22 $1.14 $0.63
Diluted $(0.00) $0.22 $1.13 $0.63
Loss per common share from discontinued operations:
Basic $ - $ - $ - $ -
Diluted $ - $ - $ - $ -
Earnings (loss) per common share attributable to Novanta Inc.
Basic $(0.00) $0.22 $1.14 $0.63
Diluted $(0.00) $0.22 $1.13 $0.63
Weighted average common shares outstanding-basic 34,842 34,706 34,817 34,694
Weighted average common shares outstanding-diluted 34,842 34,987 35,280 34,914
NOVANTA INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands of U.S. dollars)
(Unaudited)
December 31, December 31,
2017 2016
---- ----
ASSETS
Current Assets
Cash and cash equivalents $100,057 $68,108
Accounts receivable, net 81,482 63,769
Inventories 91,278 59,745
Other current assets 15,062 7,628
------ -----
Total current assets 287,879 199,250
Property, plant and equipment, net 61,718 35,421
Intangible assets, net 155,048 61,743
Goodwill 210,988 108,128
Other assets 11,070 21,095
------ ------
Total assets $726,703 $425,637
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LIABILITIES, NONCONTROLLING INTEREST AND STOCKHOLDERS' EQUITY
Current Liabilities
Current portion of long-term debt $9,119 $7,366
Accounts payable 39,793 32,213
Accrued expenses and other current liabilities 49,256 30,917
------ ------
Total current liabilities 98,168 70,496
Long-term debt 225,500 70,554
Other long-term liabilities 44,567 25,717
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Total liabilities 368,235 166,767
------- -------
Redeemable noncontrolling interest 46,923 -
------ ---
Stockholders' Equity:
Total stockholders' equity 311,545 258,870
------- -------
Total liabilities, noncontrolling interest and stockholders' equity $726,703 $425,637
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NOVANTA INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands of U.S. dollars)
(Unaudited)
Three Months Ended Year Ended December 31,
December 31,
------------
2017 2016 2017 2016
---- ---- ---- ----
Cash flows from operating activities:
Consolidated net income $9,677 $7,756 $62,307 $22,003
Less: Loss from discontinued operations, net of tax - - - -
--- --- --- ---
Income from continuing operations 9,677 7,756 62,307 22,003
Adjustments to reconcile income from continuing operations to net cash provided by operating activities of continuing operations:
Depreciation and amortization 8,318 5,040 30,758 20,357
Share-based compensation 1,270 908 5,493 4,293
Gain on acquisition of business - - (26,409) -
Deferred income taxes 353 (1,928) (2,560) (1,766)
Earnings from equity-method investment - (493) (104) (2,191)
Dividend from equity-method investment - - - 2,341
Inventory acquisition fair value adjustments - - 4,754 173
Other non-cash items (144) 851 2,990 4,346
Changes in assets and liabilities which provided (used) cash, excluding effects from businesses purchased or classified as held for sale:
Accounts receivable 1,782 (2,711) (2,077) (6,394)
Inventories (1,781) (1,447) (13,587) (2,917)
Other operating assets and liabilities 2,616 5,105 1,813 7,543
----- ----- ----- -----
Net cash provided by operating activities of continuing operations 22,091 13,081 63,378 47,788
Net cash provided by operating activities of discontinued operations - - - -
--- --- --- ---
Net cash provided by operating activities 22,091 13,081 63,378 47,788
------ ------ ------ ------
Cash flows from investing activities:
Purchases of property, plant and equipment (2,592) (1,457) (9,094) (8,462)
Acquisition of businesses, net of cash acquired and working capital adjustments - (6) (168,332) (8,958)
Acquisition of intangible assets - (3,980) - (3,980)
Proceeds from sale of property, plant and equipment 2 - 46 7,037
--- --- --- -----
Net cash used in investing activities of continuing operations (2,590) (5,443) (177,380) (14,363)
Net cash provided by investing activities of discontinued operations - - - 1,498
--- --- --- -----
Net cash used in investing activities (2,590) (5,443) (177,380) (12,865)
------ ------ -------- -------
Cash flows from financing activities:
Borrowings under revolving credit facility - - 176,769 -
Repayments of long-term debt and revolving credit facility (11,300) (1,875) (26,925) (16,250)
Other financing activities (468) (184) (6,514) (6,939)
---- ---- ------ ------
Net cash provided by (used in) financing activities of continuing operations (11,768) (2,059) 143,330 (23,189)
Net cash provided by (used in) financing activities of discontinued operations - - - -
--- --- --- ---
Net cash provided by (used in) financing activities (11,768) (2,059) 143,330 (23,189)
------- ------ ------- -------
Effect of exchange rates on cash and cash equivalents 175 (2,210) 2,621 (3,585)
--- ------ ----- ------
Increase in cash and cash equivalents 7,908 3,369 31,949 8,149
Cash and cash equivalents, beginning of period 92,149 64,739 68,108 59,959
------ ------ ------ ------
Cash and cash equivalents, end of period $100,057 $68,108 $100,057 $68,108
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NOVANTA INC.
Revenue by Reportable Segment
(In thousands of U.S. dollars)
(Unaudited)
Three Months Ended December 31, Year Ended December 31,
------------------------------- -----------------------
2017 2016 2017 2016
---- ---- ---- ----
Revenue
Photonics $61,856 $44,251 $232,359 $174,158
Vision 58,131 33,482 183,074 122,250
Precision Motion 26,931 21,146 105,857 88,350
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Total $146,918 $98,879 $521,290 $384,758
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NOVANTA INC.
Reconciliation of GAAP to Non-GAAP Financial Measures
(In thousands of U.S. dollars)
(Unaudited)
Adjusted Gross Profit and Adjusted Gross Profit Margin by Segment (Non-GAAP):
-----------------------------------------------------------------------------
Three Months Ended December 31, Year Ended December 31,
------------------------------- -----------------------
2017 2016 2017 2016
---- ---- ---- ----
Photonics
Gross Profit (GAAP) $28,694 $19,235 $106,117 $76,696
Gross Profit Margin (GAAP) 46.4% 43.5% 45.7% 44.0%
Amortization of intangible assets 1,020 383 4,005 1,535
Acquisition fair value adjustments - - 699 -
--- --- --- ---
Adjusted Gross Profit (Non-GAAP) $29,714 $19,618 $110,821 $78,231
======= ======= ======== =======
Adjusted Gross Profit Margin (Non-GAAP) 48.0% 44.3% 47.7% 44.9%
Vision
Gross Profit (GAAP) $21,871 $14,735 $69,249 $47,181
Gross Profit Margin (GAAP) 37.6% 44.0% 37.8% 38.6%
Inventory related charges for discontinuation of Radiology products - - - 1,370
Amortization of intangible assets 1,636 515 4,460 2,222
Acquisition fair value adjustments - - 4,055 205
--- --- ----- ---
Adjusted Gross Profit (Non-GAAP) $23,507 $15,250 $77,764 $50,978
======= ======= ======= =======
Adjusted Gross Profit Margin (Non-GAAP) 40.4% 45.5% 42.5% 41.7%
Precision Motion
Gross Profit (GAAP) $12,006 $9,287 $46,564 $40,044
Gross Profit Margin (GAAP) 44.6% 43.9% 44.0% 45.3%
Amortization of intangible assets 90 102 359 407
Acquisition fair value adjustments - - - -
--- --- --- ---
Adjusted Gross Profit (Non-GAAP) $12,096 $9,389 $46,923 $40,451
======= ====== ======= =======
Adjusted Gross Profit Margin (Non-GAAP) 44.9% 44.4% 44.3% 45.8%
Unallocated Corporate and Shared Services
Gross Profit (GAAP) $(330) $(405) $(1,399) $(1,469)
Amortization of intangible assets - - - -
Acquisition fair value adjustments - - - -
--- --- --- ---
Adjusted Gross Profit (Non-GAAP) $(330) $(405) $(1,399) $(1,469)
===== ===== ======= =======
Novanta Inc.
Gross Profit (GAAP) $62,241 $42,852 $220,531 $162,452
Gross Profit Margin (GAAP) 42.4% 43.3% 42.3% 42.2%
Inventory related charges for discontinuation of Radiology products - - - 1,370
Amortization of intangible assets 2,746 1,000 8,824 4,164
Acquisition fair value adjustments - - 4,754 205
--- --- ----- ---
Adjusted Gross Profit (Non-GAAP) $64,987 $43,852 $234,109 $168,191
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Adjusted Gross Profit Margin (Non-GAAP) 44.2% 44.3% 44.9% 43.7%
NOVANTA INC.
Reconciliation of GAAP to Non-GAAP Financial Measures
(In thousands of U.S. dollars except per share amounts)
(Unaudited)
Adjusted Operating Income from Continuing Operations and Adjusted EPS (Non-GAAP):
---------------------------------------------------------------------------------
Three Months Ended December 31, 2017
------------------------------------
Operating Operating Income from Income Tax Effective Net Income
Income from Margin Continuing Provision Tax Rate Attributable
Continuing Operations to Novanta
Operations before Inc., Net of
Income Taxes Tax Diluted EPS
------------ ---------- ------------ ----------- --------- ------------- -----------
GAAP results $19,094 13.0% $16,570 $6,893 41.6% $8,865
------- ---- ------- ------ ----
Less: Adjustment of redeemable noncontrolling interest to estimated redemption value (8,941)
------
Net income (loss) attributable to Novanta Inc. after adjustment of redeemable
noncontrolling interest to estimated redemption value $(76) $(0.00)
Adjustment of redeemable noncontrolling interest to estimated redemption value 8,941 0.25
-----
Net income attributable to Novanta Inc. $8,865
Non-GAAP Adjustments:
Amortization of intangible assets 5,429 3.7% 5,429
Restructuring, divestiture and other costs 146 0.1% 146
Acquisition related costs 1,164 0.8% 1,164
Tax effect on non-GAAP adjustments 2,845
Non-GAAP tax adjustments (2,584)
------
Total non-GAAP adjustments 6,739 4.6% 6,739 261 6,478 0.19
----- --- ----- --- ----- ----
Adjusted results (Non-GAAP) $25,833 17.6% $23,309 $7,154 30.7% $15,343 $0.44
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Weighted average shares outstanding - Diluted 34,842
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NOVANTA INC.
Reconciliation of GAAP to Non-GAAP Financial Measures
(In thousands of U.S. dollars except per share amounts)
(Unaudited)
Adjusted Operating Income from Continuing Operations and Adjusted EPS (Non-GAAP):
---------------------------------------------------------------------------------
Three Months Ended December 31, 2016
------------------------------------
Operating Operating Income from Income Tax Effective Net Income
Income from Margin Continuing Provision Tax Rate Attributable
Continuing Operations to Novanta
Operations before Inc., Net of
Income Taxes Tax Diluted EPS
------------ --------- ------------ ---------- --------- ------------ -----------
GAAP results $11,330 11.5% $12,083 $4,327 35.8% $7,756 $0.22
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Non-GAAP Adjustments:
Amortization of intangible assets 3,099 3.1% 3,099
Restructuring, divestiture and other costs (gain) (93) (0.1)% (93)
Acquisition related costs 2,210 2.3% 2,210
CEO transition costs 25 0.0% 25
Tax effect on non-GAAP adjustments 186
Non-GAAP tax adjustments 584
---
Total non-GAAP adjustments 5,241 5.3% 5,241 770 4,471 0.13
----- --- ----- --- ----- ----
Adjusted results (Non-GAAP) $16,571 16.8% $17,324 $5,097 29.4% $12,227 $0.35
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Weighted average shares outstanding - Diluted 34,987
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NOVANTA INC.
Reconciliation of GAAP to Non-GAAP Financial Measures
(In thousands of U.S. dollars except per share amounts)
(Unaudited)
Adjusted Operating Income from Continuing Operations and Adjusted EPS (Non-GAAP):
---------------------------------------------------------------------------------
Year Ended December 31, 2017
----------------------------
Operating Operating Income from Income Tax Effective Net Income
Income from Margin Continuing Provision Tax Rate Attributable
Continuing Operations to Novanta
Operations before Inc., Net of
Income Taxes Tax Diluted EPS
------------ ---------- ------------ ----------- --------- ------------- -----------
GAAP results $57,195 11.0% $76,134 $13,827 18.2% $60,051
------- ---- ------- -------
Less: Adjustment of redeemable noncontrolling interest to estimated redemption value (20,244)
-------
Net income attributable to Novanta Inc. after adjustment of redeemable noncontrolling
interest to estimated redemption value $39,807 $1.13
Adjustment of redeemable noncontrolling interest to estimated redemption value 20,244 0.57
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Net income attributable to Novanta Inc. $60,051
Non-GAAP Adjustments:
Amortization of intangible assets 20,920 4.0% 20,920
Restructuring, divestiture and other costs 346 0.0% 346
Acquisition related costs 7,196 1.4% 7,196
Acquisition fair value adjustments 4,754 0.9% 4,754
Gain on acquisition of business (26,409)
Tax effect on non-GAAP adjustments 9,641
Non-GAAP tax adjustments 759
---
Total non-GAAP adjustments 33,216 6.3% 6,807 10,400 (3,593) (0.10)
------ --- ----- ------ ------ -----
Adjusted results (Non-GAAP) $90,411 17.3% $82,941 $24,227 29.2% $56,458 $1.60
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Weighted average shares outstanding - Diluted 35,280
======
NOVANTA INC.
Reconciliation of GAAP to Non-GAAP Financial Measures
(In thousands of U.S. dollars except per share amounts)
(Unaudited)
Adjusted Operating Income from Continuing Operations and Adjusted EPS (Non-GAAP):
---------------------------------------------------------------------------------
Year Ended December 31, 2016
----------------------------
Operating Operating Income from Income Tax Effective Net Income
Income from Margin Continuing Provision Tax Rate Attributable
Continuing Operations to Novanta
Operations before Inc., Net
Income of Tax
Taxes Diluted EPS
------------ --------- ----------- ---------- --------- ------------ -----------
GAAP results $32,563 8.5% $32,522 $10,519 32.3% $22,003 $0.63
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Non-GAAP Adjustments:
Amortization of intangible assets 12,415 3.2% 12,415
Restructuring, divestiture and other costs 2,970 0.8% 2,970
Acquisition related costs 4,975 1.3% 4,975
Acquisition fair value adjustments 205 0.1% 205
Inventory related charges for discontinuation of Radiology products 1,370 0.4% 1,370
CEO transition costs 1,306 0.2% 1,306
Tax effect on non-GAAP adjustments 5,668
Non-GAAP tax adjustments 1,465
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Total non-GAAP adjustments 23,241 6.0% 23,241 7,133 16,108 0.46
------ --- ------ ----- ------ ----
Adjusted results (Non-GAAP) $55,804 14.5% $55,763 $17,652 31.7% $38,111 $1.09
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Weighted average shares outstanding - Diluted 34,914
======
NOVANTA INC.
Reconciliation of GAAP to Non-GAAP Financial Measures
(In thousands of U.S. dollars)
(Unaudited)
Adjusted EBITDA (Non-GAAP):
---------------------------
Three Months Ended December 31, Year Ended December 31,
------------------------------- -----------------------
2017 2016 2017 2016
---- ---- ---- ----
Consolidated Net Income (GAAP) $9,677 $7,756 $62,307 $22,003
Net Income Margin 6.6% 7.8% 12.0% 5.7%
Interest (income) expense, net 2,291 1,088 7,165 4,559
Income tax provision 6,893 4,327 13,827 10,519
Depreciation and amortization 8,318 5,040 30,758 20,357
Share-based compensation 1,270 908 5,493 4,293
Restructuring, acquisition and divestiture related costs 1,310 2,117 7,542 7,945
Inventory related charges for discontinuation of Radiology products - - - 1,370
Acquisition fair value adjustments - - 4,754 205
CEO transition costs - 25 - 1,306
Gain on acquisition of business - - (26,409) -
Other, net 233 (1,841) 305 (4,518)
Adjusted EBITDA (Non-GAAP) $29,992 $19,420 $105,742 $68,039
===
Adjusted EBITDA Margin (Non-GAAP) 20.4% 19.6% 20.3% 17.7%
Net Debt (Non-GAAP):
--------------------
December 31, 2017 December 31, 2016
----------------- -----------------
Total Debt (GAAP) $234,619 $77,920
Plus: Deferred financing costs 3,159 3,330
Gross Debt 237,778 81,250
Less: cash and cash equivalents (100,057) (68,108)
Net Debt (Non-GAAP) $137,721 $13,142
===============
Organic Revenue Growth (Non-GAAP):
----------------------------------
Three Months Ended Twelve Months Ended
December 31, 2017 December 31, 2017
Compared to Three Compared to Twelve
Months Ended Months Ended
December 31, 2016 December 31, 2016
----------------- -----------------
Reported growth (GAAP) 48.6% 35.5%
Less: Change attributable to acquisitions 39.5% 27.5%
Plus: Change due to foreign currency (0.8)% 0.5%
Organic growth (Non-GAAP) 8.3% 8.5%
Non-GAAP Measures
Organic Revenue Growth
We define the term "organic revenue" as revenue excluding the impact from business acquisitions, divestitures, product line discontinuations, and the effect of foreign currency translation. We use the related term "organic revenue growth" to refer to the financial performance metric of comparing current period organic revenue with the reported revenue of the corresponding period in the prior year. We believe that this non-GAAP measure, when taken together with our GAAP financial measures, allows us and our investors to better measure our performance and evaluate long-term performance trends. Organic revenue growth also facilitates easier comparisons of our performance with prior and future periods and relative comparisons to our peers. We exclude the effect of foreign currency translation from these measures because foreign currency translation is subject to volatility and can obscure underlying trends. We exclude the effect of acquisitions and divestitures because these activities can vary dramatically between reporting periods and between us and our peers, which we believe makes comparisons of long-term performance trends difficult for management and investors. Beginning in 2017, Organic Revenue Growth is also used as a performance metric to determine bonus payments for senior management and employees.
Adjusted Gross Profit and Adjusted Gross Profit Margin
The calculation of Adjusted Gross Profit and Adjusted Gross Profit Margin is displayed in the tables above. Adjusted Gross Profit and Adjusted Gross Profit Margin excludes amortization of acquired intangible assets, inventory and deferred revenue fair value adjustments from business acquisitions because: (1) the amounts are non-cash; (2) the Company cannot influence the timing and amount of future expense recognition; and (3) excluding such expenses provides investors and management better visibility into the components of operating costs. In addition, the Company excluded prior year inventory related charges associated with a product line closure as these costs occurred outside the Company's day-to-day business for the reasons described above in the introductory paragraphs of the "Use of Non-GAAP Financial Measures".
Adjusted Operating Income from Continuing Operations and Adjusted Operating Margin
The calculation of Adjusted Operating Income from Continuing Operations and Adjusted Operating Margin is displayed in the tables above. Adjusted Operating Income from Continuing Operations and Adjusted Operating Margin exclude amortization of acquired intangible assets, inventory and deferred revenue fair value adjustments related to business acquisitions because: (1) the amounts are non-cash; (2) the Company cannot influence the timing and amount of future expense recognition; and (3) excluding such expenses provides investors and management better visibility into the components of operating costs. The Company also excluded prior year CEO transition costs related to CEO succession, prior year inventory related charges associated with a product line closure, and restructuring, acquisition and divestiture related costs due to the significant changes that have occurred outside of the Company's day-to-day business for the reasons described above in the introductory paragraphs of the "Use of Non-GAAP Financial Measures."
Adjusted Income from Continuing Operations before Income Taxes
The calculation of Adjusted Income from Continuing Operations before Income Taxes is displayed in the tables above. The calculation of Adjusted Income from Continuing Operations before Income Taxes excludes amortization of acquired intangible assets, inventory and deferred revenue fair value adjustments related to business acquisitions, prior year CEO transition costs related to CEO succession, prior year inventory related charges associated with a product line closure, and restructuring, acquisition and divestiture related costs for the reasons described for Adjusted Operating Income from Continuing Operations and Adjusted Operating Margin above.
Non-GAAP Income Tax Provision and Effective Tax Rate
The Non-GAAP Income Tax Provision and Effective Tax Rate are calculated based on the Adjusted Income from Continuing Operations before Income Taxes by jurisdiction and the applicable tax rates currently in effect for the respective jurisdictions. In addition, the Company excluded significant discrete income tax expenses (benefits) related to releases of valuation allowances, benefits or expenses associated with the completion of tax audits, effects of changes in tax laws, effects of acquisition related tax planning actions on our effective tax rate, and the income tax effect of non-GAAP adjustments discussed above.
Adjusted Net Income Attributable to Novanta Inc., Net of Tax
The calculation of Adjusted Net Income Attributable to Novanta Inc., net of tax, is displayed in the tables above. Because pre-tax income is included in determining net income attributable to Novanta Inc., net of tax, the calculation of Adjusted Net Income Attributable to Novanta Inc., net of tax, also excludes amortization of acquired intangible assets, inventory and deferred revenue fair value adjustments related to business acquisitions, prior year CEO transition costs related to CEO succession, prior year inventory related charges associated with a product line closure, and restructuring, acquisition and divestiture related costs for the reasons described for Adjusted Income from Continuing Operations before Income Taxes. In addition, the Company excluded significant discrete income tax expenses (benefits) related to releases of valuation allowances, benefits or expenses associated with the completion of tax audits, effects of changes in tax laws, effects of acquisition related tax planning actions on our effective tax rate, and the income tax effect of non-GAAP adjustments discussed above.
Adjusted Diluted EPS
The calculation of Adjusted Diluted EPS is displayed in the tables above. Because Net Income Attributable to Novanta Inc., net of tax, is used in the diluted EPS calculation, the calculation of Adjusted Diluted EPS excludes amortization of acquired intangible assets, inventory and deferred revenue fair value adjustments related to business acquisitions, prior year CEO transition costs related to CEO succession, prior year inventory related charges associated with a product line closure, restructuring, acquisition and divestiture related costs, significant discrete income tax expenses (benefits) related to releases of valuation allowances, benefits or expenses associated with the completion of tax audits, effects of changes in tax laws, effects of acquisition related tax planning actions on our effective tax rate, and the income tax effect of non-GAAP adjustments for the reasons described above for Adjusted Net Income Attributable to Novanta Inc., net of tax. In addition, the Company excluded the adjustment of redeemable noncontrolling interest to estimated redemption value as (1) the adjustment is unusual; (2) the amount is noncash; (3) the amount does not represent a measure of earnings and is excluded from the determination of net income attributable to Novanta Inc.; and (4) the Company believes it may not be indicative of future adjustments and that investors may benefit from an understanding of the Company's operating results without giving effect to this adjustment.
Adjusted EBITDA and Adjusted EBITDA Margin
The Company defines Adjusted EBITDA as the consolidated net income before deducting interest (income) expense, income taxes, depreciation, amortization, non-cash share-based compensation, restructuring, acquisition and divestiture related costs, acquisition fair value adjustments, prior year CEO transition costs, prior year inventory related charges associated with a product line closure, and other non-operating income (expense) items, including foreign exchange gains (losses) and earnings from an equity-method investment for the reasons described above in the introductory paragraphs of the "Use of Non-GAAP Financial Measures."
Adjusted EBITDA includes 100% of the results of our consolidated subsidiaries and therefore does not exclude the Adjusted EBITDA attributable to noncontrolling interests.
Adjusted EBITDA Margin is defined as Adjusted EBITDA as a percentage of Revenue.
In evaluating Adjusted EBITDA and Adjusted EBITDA Margin, you should be aware that in the future the Company may incur expenses that are the same as, or similar to, some of the adjustments in this presentation.
Net Debt
The Company defines Net Debt as its total debt as reported on the consolidated balance sheet as of the end of the period plus unamortized deferred financing costs and less its cash and cash equivalents. Management uses Net Debt to monitor the Company's outstanding debt obligations that could not be satisfied by its cash and cash equivalents on hand.
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SOURCE Novanta Inc.