Novanta Announces Financial Results For The Second Quarter 2017

- Second Quarter 2017 GAAP Revenue of $119.1 million, up 22% year over year

- Second Quarter 2017 GAAP Net Income of $9.4 million

- Second Quarter 2017 Adjusted EBITDA of $25.6 million

- Raising Full Year 2017 GAAP Revenue and Adjusted Diluted EPS Guidance

BEDFORD, Mass., Aug. 3, 2017 /PRNewswire/ -- Novanta Inc. (NASDAQ: NOVT) (the "Company" or "Novanta"), a trusted technology partner to medical and advanced technology equipment manufacturers, today reported financial results for the second quarter 2017. 

Second Quarter

"Our company delivered a record quarter with strong double-digit revenue growth and double-digit Adjusted Diluted EPS growth.  Our teams delivered this stellar financial performance while closing the WOM acquisition and after integrating two acquisitions completed in the first quarter," said Matthijs Glastra, Chief Executive Officer of Novanta Inc. "We are proud of our progress executing against our strategic priorities, our increased presence in medical markets and our team's ability to produce sustained profitable growth. We are confident in our 2017 outlook."

During the second quarter of 2017, Novanta generated GAAP revenue of $119.1 million, an increase of $21.4 million, or 21.9%, versus the second quarter of 2016. The net effect of our acquisition activities resulted in an increase in revenue of $15.4 million, or 15.8%, compared to the second quarter of 2016.  Foreign currency exchange rates adversely impacted our revenue by $1.3 million, or 1.3%, during the three months ended June 30, 2017.  Our organic revenue growth, which excludes the net impact of acquisitions and foreign currency exchange rates, increased 7.4%, versus the second quarter of 2016 (see "Organic Revenue Growth" in the non-GAAP reconciliation below).        

In the second quarter of 2017, GAAP operating income from continuing operations was $15.6 million, compared to $7.6 million in the second quarter of 2016. GAAP net income attributable to Novanta Inc. was $9.4 million in the second quarter of 2017, compared to $4.9 million in the second quarter of 2016.  GAAP diluted earnings per share ("EPS") from continuing operations was $0.16 in the second quarter of 2017, compared to $0.14 in the second quarter of 2016. 

In the second quarter of 2017, the Company increased the carrying amount of the redeemable noncontrolling interest in Laser Quantum by $3.7 million to reflect the estimated redemption value as of June 30, 2017. The adjustment was recognized in retained earnings and as a net ($0.11) reduction in earnings per share.  Adjusted Diluted EPS was $0.41 in the second quarter of 2017, compared to $0.27 in the second quarter of 2016.  The Company ended the second quarter of 2017 with 35.5 million weighted average diluted common shares outstanding.  Adjusted EBITDA was $25.6 million in the second quarter of 2017, compared to $17.3 million in the second quarter of 2016. 

Operating cash flow from continuing operations for the second quarter of 2017 was $16.8 million, compared to $15.5 million for the second quarter of 2016. The Company completed the second quarter of 2017 with approximately $111.5 million of total debt, and $25.4 million of Net Debt, as defined in the non-GAAP reconciliation below.

On August 1, 2017, the Company entered into an amendment to its Credit Agreement, dated as of May 19, 2016. The amendment increased the revolving credit facility commitment under the Credit Agreement by $100 million from $225 million to $325 million, and reset the accordion feature to $125 million for potential future expansion. Additionally, the amendment increased the current term loan balance of $65.6 million to $90.6 million.

Financial Outlook 

"With the momentum heading into the third quarter, combined with the closing of the WOM acquisition, we are raising our full year 2017 outlook for revenue, Adjusted Diluted EPS, and Adjusted EBITDA," said Robert Buckley, Chief Financial Officer.   

For the full year of 2017, the Company expects GAAP revenue of approximately $497 million to $502 million.  The Company expects Adjusted Diluted EPS to be in the range of $1.40 to $1.46, and Adjusted EBITDA to be approximately $96 million to $98 million.  The Company's Adjusted Diluted EPS and EBITDA guidance assume no significant foreign exchange gains or losses. 

For the third quarter of 2017, the Company expects GAAP revenue of approximately $130 million to $135 million.  The Company expects Adjusted Diluted EPS to be in the range of $0.34 to $0.39, and Adjusted EBITDA to be approximately $25 million to $27 million. The Company's Adjusted Diluted EPS and EBITDA guidance assume 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 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 Thursday, August 3, 2017 at 10:00 a.m. ET to discuss these results. Matthijs Glastra, Chief Executive Officer, and Robert Buckley, Chief Financial Officer, will host the call.  

To access the call, please dial (877) 482-5124 prior to the scheduled conference call time. The conference ID number is 61105734.  A playback of this conference call will be available beginning 1:00 p.m. ET, Thursday, August 3, 2017. The playback phone number is (855) 859-2056 or (404) 537-3406 and the code number is 61105734. The playback will remain available until 11:00 p.m. ET, Thursday, August 24, 2017.  

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, Adjusted Operating Margin, Adjusted Income from Continuing Operations before Income Taxes, Non-GAAP 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 producing sustained profitable growth; executing our strategy; anticipated financial performance, including our updated financial outlook for the third quarter and full year 2017; 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 innovateand 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 potential withdrawal from the European Union and recent U.S presidential election; our reliance on third party distribution channels; 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; 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; effects of conflict minerals regulations; 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; changes in tax laws, and fluctuations in our effective tax rates; being subject to U.S. federal income taxation even though we are a non-U.S. corporation; 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; volatility in the market price for our common shares; our ability to access cash and other assets of our subsidiaries; the influence over our business of certain significant shareholders; provisions of our articles of incorporation may delay or prevent a change in control; our significant existing indebtedness limiting our ability to engage in certain activities; and our failure to maintain appropriate internal controls in the future.

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