Novanta Announces Financial Results for the Second Quarter 2018

Published: Aug 08, 2018

 

BEDFORD, Mass., Aug. 8, 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 second quarter 2018.

    Financial Highlights              Three Months Ended
    --------------------              ------------------

    (In millions, except per
     share amounts)            June 29,                       June 30,

                                    2018                           2017
                                    ----                           ----

    GAAP

    Revenue                                            $150.4           $119.1

    Operating Income                                    $17.1            $15.7

    Net Income Attributable to
     Novanta Inc.                                       $11.0             $9.4

    Diluted EPS                                         $0.32            $0.16

    Non-GAAP*

    Adjusted Operating Income                           $25.9            $22.4

    Adjusted Diluted EPS                                $0.51            $0.41

    Adjusted EBITDA                                     $30.4            $25.7

    *Reconciliations of GAAP to non-GAAP
     financial measures, as well as
     definitions for the non-GAAP
     financial measures included in this
     press release and the reasons for
     their use, are presented below.

Second Quarter

"Our company has continued to deliver consistent and predictable growth, with strong revenue, Adjusted EBITDA, and Adjusted EPS growth being demonstrated again this quarter," said Matthijs Glastra, Chief Executive Officer of Novanta. "We feel we are well positioned in a number of secular growth market categories, with the team continuing to deliver solid results."

During the second quarter of 2018, Novanta generated GAAP revenue of $150.4 million, an increase of $31.3 million, or 26.3%, versus the second quarter of 2017. The Company's acquisition activities resulted in an increase in revenue of $21.8 million, or 18.3%, compared to the second quarter of 2017. Changes in foreign currency exchange rates year over year favorably impacted our revenue by $2.1 million, or 1.8%, during the second quarter of 2018. Our Organic Revenue Growth, which excludes the net impact of acquisitions and changes in foreign currency exchange rates, increased 6.2%, versus the second quarter of 2017 (see "Organic Revenue Growth" in the non-GAAP reconciliation below).

In the second quarter of 2018, GAAP operating income was $17.1 million, compared to $15.7 million in the second quarter of 2017. GAAP net income attributable to Novanta was $11.0 million in the second quarter of 2018, compared to $9.4 million in the second quarter of 2017. GAAP diluted earnings per share ("EPS") was $0.32 in the second quarter of 2018, compared to $0.16 in the second quarter of 2017.

Adjusted Diluted EPS was $0.51 in the second quarter of 2018, compared to $0.41 in the second quarter of 2017. The Company ended the second quarter of 2018 with 35.5 million weighted average shares outstanding. Adjusted EBITDA was $30.4 million in the second quarter of 2018, compared to $25.7 million in the second quarter of 2017.

Operating cash flow for the second quarter of 2018 was $20.0 million, compared to $16.8 million for the second quarter of 2017. The Company completed the second quarter of 2018 with approximately $240.1 million of total debt and $107.3 million of total cash. Net Debt, as defined in the non-GAAP reconciliation below, was $132.9 million.

Financial Outlook

For the full year 2018, the Company expects GAAP revenue of approximately $600 million to $607 million, Adjusted EBITDA in the range of $121 million to $125 million, and Adjusted Diluted EPS to be in the range of $1.96 to $2.02. The Company's Adjusted Diluted EPS assumes no significant changes in foreign exchange rates.

For the third quarter of 2018, the Company expects GAAP revenue of approximately $153 million to $156 million. The Company expects Adjusted Diluted EPS to be in the range of $0.50 to $0.53, and Adjusted EBITDA to be approximately $31 million to $33 million. The Company's Adjusted Diluted EPS and Adjusted 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 at 10:00 a.m. ET on Wednesday, August 8, 2018 to discuss these results. To access the call, please dial (877) 870-4263 prior to the scheduled conference call time. Alternatively, the conference call can be accessed online via a live webcast on the Event Calendar page of the Investor Relations section of the Company's website at www.novanta.com.

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. The replay will remain available until Friday, October 5, 2018.

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 and Operating Margin, Adjusted Income before Income Taxes, Adjusted Income Tax Provision and Effective Tax Rate, Adjusted Net Income Attributable to Novanta Inc., Net of Tax, Adjusted Diluted EPS, Adjusted EBITDA, Adjusted EBITDA Margin, Free Cash Flow 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 our ability to deliver consistent and predictable growth; being positioned well in a number of secular growth market categories; executing our strategy; anticipated financial performance, including our financial outlook for the third quarter and full year 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, including its policies on trade tariffs and reactions from other countries to any new tariffs imposed by the U.S.; 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 exposure to medical device regulation, 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; 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 U.S. Tax Cuts and Jobs Act; 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 that 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, 2017, 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 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 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 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
                                                                                                                                  ------------------

                                                                                                                             June 29,                June 30,

                                                                                                                                  2018                     2017
                                                                                                                                  ----                     ----

    Revenue                                                                                                                               $150,400                $119,102

    Cost of revenue                                                                                                                       85,171                  65,613
                                                                                                                                          ------                  ------

    Gross profit                                                                                                                          65,229                  53,489
                                                                                                                                          ------                  ------

    Operating expenses:

    Research and development and engineering                                                                                              12,551                   9,004

    Selling, general and administrative                                                                                                   29,231                  23,810

    Amortization of purchased intangible assets                                                                                            3,893                   3,347

    Restructuring, acquisition and divestiture related costs                                                                               2,439                   1,581
                                                                                                                                           -----                   -----

    Total operating expenses                                                                                                              48,114                  37,742
                                                                                                                                          ------                  ------

    Operating income                                                                                                                      17,115                  15,747

    Interest income (expense), net                                                                                                       (2,561)                (1,435)

    Foreign exchange transaction gains (losses), net                                                                                         177                     486

    Other income (expense), net                                                                                                             (46)                  (119)
                                                                                                                                             ---                    ----

    Income before income taxes                                                                                                            14,685                  14,679

    Income tax provision                                                                                                                   3,060                   4,689
                                                                                                                                           -----                   -----

    Consolidated net income                                                                                                               11,625                   9,990

    Less: Net income attributable to noncontrolling interest                                                                               (625)                  (588)
                                                                                                                                            ----                    ----

    Net income attributable to Novanta Inc.                                                                                                $11,000                  $9,402
                                                                                                                                           =======                  ======


    Earnings per common share attributable to Novanta Inc.:

    Basic                                                                                                                                    $0.32                   $0.16

    Diluted                                                                                                                                  $0.32                   $0.16


    Weighted average common shares outstanding-basic                                                                                      34,949                  34,827

    Weighted average common shares outstanding-diluted                                                                                    35,474                  35,463

 

 

                                                                                                             NOVANTA INC.

                                                                                                CONDENSED CONSOLIDATED BALANCE SHEETS

                                                                                                    (In thousands of U.S. dollars)

                                                                                                             (Unaudited)



                                                                                                                                      June 29,            December 31,

                                                                                                                                           2018                    2017
                                                                                                                                           ----                    ----

                                                                               ASSETS

    Current Assets

    Cash and cash equivalents                                                                                                                    $107,261                $100,057

    Accounts receivable, net                                                                                                                     76,747                  81,482

    Inventories                                                                                                                                  96,377                  91,278

    Prepaid expenses and other current assets                                                                                                    15,356                  15,062
                                                                                                                                                 ------                  ------

    Total current assets                                                                                                                        295,741                 287,879

    Property, plant and equipment, net                                                                                                           64,660                  61,718

    Intangible assets, net                                                                                                                      154,714                 155,048

    Goodwill                                                                                                                                    218,324                 210,988

    Other assets                                                                                                                                  8,322                  11,070
                                                                                                                                                  -----                  ------

    Total assets                                                                                                                                 $741,761                $726,703
                                                                                                                                                 ========                ========

                                                              LIABILITIES, NONCONTROLLING INTEREST AND
                                                                        STOCKHOLDERS' EQUITY

    Current Liabilities

    Current portion of long-term debt                                                                                                              $9,127                  $9,119

    Accounts payable                                                                                                                             42,505                  39,793

    Accrued expenses and other current liabilities                                                                                               41,366                  49,256
                                                                                                                                                 ------                  ------

    Total current liabilities                                                                                                                    92,998                  98,168

    Long-term debt                                                                                                                              228,306                 225,500

    Other long-term liabilities                                                                                                                  44,485                  44,567
                                                                                                                                                 ------                  ------

    Total liabilities                                                                                                                           365,789                 368,235
                                                                                                                                                -------                 -------

    Redeemable noncontrolling interest                                                                                                           51,606                  46,923
                                                                                                                                                 ------                  ------

    Stockholders' Equity:

    Total stockholders' equity                                                                                                                  324,366                 311,545
                                                                                                                                                -------                 -------

    Total liabilities, noncontrolling interest and stockholders' equity                                                                          $741,761                $726,703
                                                                                                                                                 ========                ========

 

 

                                                                                                     NOVANTA INC.

                                                                                    CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

                                                                                            (In thousands of U.S. dollars)

                                                                                                      (Unaudited)



                                                                                                                                         Three Months Ended
                                                                                                                                         ------------------

                                                                                                                                    June 29,                June 30,

                                                                                                                                         2018                     2017
                                                                                                                                         ----                     ----

    Cash flows from operating activities:

    Consolidated net income                                                                                                                       $11,625                  $9,990

    Adjustments to reconcile consolidated net income to

       net cash provided by operating activities:

    Depreciation and amortization                                                                                                                 9,120                   7,094

    Share-based compensation                                                                                                                      1,736                   1,318

    Deferred income taxes                                                                                                                       (1,456)                  (888)

    Other                                                                                                                                           539                   1,509

    Changes in assets and liabilities which (used)/provided cash, excluding

       effects from businesses acquired:

    Accounts receivable                                                                                                                           1,105                   1,330

    Inventories                                                                                                                                     879                 (6,495)

    Other operating assets and liabilities                                                                                                      (3,592)                  2,904
                                                                                                                                                 ------                   -----

    Cash provided by operating activities                                                                                                        19,956                  16,762
                                                                                                                                                 ------                  ------

    Cash flows from investing activities:

    Purchases of property, plant and equipment                                                                                                  (4,326)                (1,357)

    Acquisition of businesses, net of cash acquired and working capital adjustments                                                            (27,445)                     98

    Other investing activities                                                                                                                       20                      10
                                                                                                                                                    ---                     ---

    Cash used in investing activities                                                                                                          (31,751)                (1,249)
                                                                                                                                                -------                  ------

    Cash flows from financing activities:

    Borrowings under revolving credit facility                                                                                                   30,272                       -

    Repayments of long-term debt and revolving credit facility                                                                                 (16,532)                (6,875)

    Repurchase of common stock                                                                                                                  (1,929)                      -

    Other financing activities                                                                                                                    (779)                  (310)
                                                                                                                                                   ----                    ----

    Cash provided by (used in) financing activities                                                                                              11,032                 (7,185)
                                                                                                                                                 ------                  ------

    Effect of exchange rates on cash and cash equivalents                                                                                       (3,103)                    784
                                                                                                                                                 ------                     ---

    Increase (decrease) in cash and cash equivalents                                                                                            (3,866)                  9,112

    Cash and cash equivalents, beginning of period                                                                                              111,127                  80,014
                                                                                                                                                -------                  ------

    Cash and cash equivalents, end of period                                                                                                     $107,261                 $89,126
                                                                                                                                                 ========                 =======

 

 

                              NOVANTA INC.

                     Revenue by Reportable Segment

                     (In thousands of U.S. dollars)

                              (Unaudited)



                                    Three Months Ended
                                    ------------------

                               June 29,                June 30,

                                    2018                    2017
                                    ----                    ----

    Revenue

    Photonics                                $64,062              $57,885

    Vision                                  53,823               34,031

    Precision Motion                        32,515               27,186
                                            ------               ------

    Total                                   $150,400             $119,102
                                            ========             ========

 

 

                                                                                               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
                                                                                                                          ------------------

                                                                                                               June 29,                      June 30,

                                                                                                                    2018                           2017
                                                                                                                    ----                           ----

    Photonics

    Gross Profit (GAAP)                                                                                                     $30,737                        $26,668

    Gross Profit Margin (GAAP)                                                                                              48.0%                         46.1%

    Amortization of intangible assets                                                                                         699                            997

    Adjusted Gross Profit (Non-GAAP)                                                                                        $31,436                        $27,665
                                                                                                                            =======                        =======

    Adjusted Gross Profit Margin (Non-GAAP)                                                                                 49.1%                         47.8%


    Vision

    Gross Profit (GAAP)                                                                                                     $20,441                        $14,440

    Gross Profit Margin (GAAP)                                                                                              38.0%                         42.4%

    Amortization of intangible assets                                                                                       1,625                            609

    Adjusted Gross Profit (Non-GAAP)                                                                                        $22,066                        $15,049
                                                                                                                            =======                        =======

    Adjusted Gross Profit Margin (Non-GAAP)                                                                                 41.0%                         44.2%


    Precision Motion

    Gross Profit (GAAP)                                                                                                     $14,702                        $12,749

    Gross Profit Margin (GAAP)                                                                                              45.2%                         46.9%

    Amortization of intangible assets                                                                                         165                             90

    Adjusted Gross Profit (Non-GAAP)                                                                                        $14,867                        $12,839
                                                                                                                            =======                        =======

    Adjusted Gross Profit Margin (Non-GAAP)                                                                                 45.7%                         47.2%


    Unallocated Corporate and Shared Services

    Gross Profit (GAAP)                                                                                                      $(651)                        $(368)

    Amortization of intangible assets                                                                                  -                                -

    Adjusted Gross Profit (Non-GAAP)                                                                                         $(651)                        $(368)
                                                                                                                              =====                          =====


    Novanta Inc.

    Gross Profit (GAAP)                                                                                                     $65,229                        $53,489

    Gross Profit Margin (GAAP)                                                                                              43.4%                         44.9%

    Amortization of intangible assets                                                                                       2,489                          1,696

    Adjusted Gross Profit (Non-GAAP)                                                                                        $67,718                        $55,185
                                                                                                                            =======                        =======

    Adjusted Gross Profit Margin (Non-GAAP)                                                                                 45.0%                         46.3%

 

 

                                                                                                                   NOVANTA INC.

                                                                                              Reconciliation of GAAP to Non-GAAP Financial Measures

                                                                                             (In thousands of U.S. dollars except per share amounts)

                                                                                                                   (Unaudited)



    Adjusted Operating Income and Adjusted EPS (Non-GAAP):
    ------------------------------------------------------


                                                                                        Three Months Ended June 29, 2018
                                                                                        --------------------------------

                                                           Operating          Operating                  Income                              Income Tax   Effective             Net Income         Diluted
                                                             Income             Margin                   before                              Provision     Tax Rate            Attributable          EPS
                                                                                                       Income                                                                 to Novanta
                                                                                                                                                                                    Inc.,
                                                                                                        Taxes                                                                 Net of Tax


    GAAP results                                                      $17,115                   11.4%                                            $14,685              $3,060                20.8%                  $11,000
                                                                      -------                    ----                                             -------              ------                 ----

    Plus: Adjustment of redeemable noncontrolling interest                                                                                                                                                     303
    to estimated redemption value


    Net income attributable to Novanta Inc. after                                                                                                                                                          $11,303             $0.32
    adjustment of redeemable noncontrolling interest to
    estimated redemption value

    Adjustment of redeemable noncontrolling interest to                                                                                                                                                      (303)           (0.01)
    estimated redemption value


    Net income attributable to Novanta Inc.                                                                                                                                                                $11,000

    Non-GAAP Adjustments:

    Amortization of intangible assets                           6,382                   4.2%                                          6,382

    Restructuring, divestiture and other costs                    988                   0.7%                                            988

    Acquisition related costs                                   1,451                   0.9%                                          1,451

    Tax effect on non-GAAP adjustments                                                                                                                         1,590

    Non-GAAP tax adjustments                                                                                                                                      14
                                                                                                                                                                 ---

    Total non-GAAP adjustments                                        8,821                    5.8%                                              8,821               1,604                                         7,217             0.20
                                                                      -----                     ---                                               -----               -----                                         -----             ----


    Adjusted results (Non-GAAP)                                       $25,936                   17.2%                                            $23,506              $4,664                19.8%                  $18,217            $0.51
                                                                      =======                    ====                                             =======              ======                 ====                   =======            =====


    Weighted average shares outstanding - Diluted                                                                                                                                                                            35,474
                                                                                                                                                                                                                             ======

 

 

 

                                                                                                                      NOVANTA INC.

                                                                                                  Reconciliation of GAAP to Non-GAAP Financial Measures

                                                                                                 (In thousands of U.S. dollars except per share amounts)

                                                                                                                       (Unaudited)



    Adjusted Operating Income and Adjusted EPS (Non-GAAP):
    ------------------------------------------------------


                                                                                        Three Months Ended June 30, 2017
                                                                                        --------------------------------

                                                           Operating          Operating                   Income                              Income Tax   Effective             Net Income         Diluted
                                                             Income             Margin                    before                              Provision     Tax Rate            Attributable          EPS
                                                                                                        Income                                                                 to Novanta
                                                                                                                                                                                     Inc.,
                                                                                                         Taxes                                                                 Net of Tax


    GAAP results                                                      $15,747                    13.2%                                            $14,679              $4,689                31.9%                   $9,402
                                                                      -------                     ----                                             -------              ------                 ----

    Less: Adjustment of redeemable noncontrolling                                                                                                                                                           (3,718)
    interest to estimated redemption value


    Net income attributable to Novanta Inc. after                                                                                                                                                            $5,684             $0.16
    adjustment of redeemable noncontrolling interest
    to estimated redemption value

    Adjustment of redeemable noncontrolling interest to                                                                                                                                                       3,718              0.11
    estimated redemption value


    Net income attributable to Novanta Inc.                                                                                                                                                                  $9,402

    Non-GAAP Adjustments:

    Amortization of intangible assets                           5,043                    4.3%                                          5,043

    Restructuring, divestiture and other costs                    163                    0.1%                                            163

    Acquisition related costs                                   1,418                    1.2%                                          1,418

    Tax effect on non-GAAP adjustments                                                                                                                          1,535

    Non-GAAP tax adjustments                                                                                                                                       50
                                                                                                                                                                  ---

    Total non-GAAP adjustments                                        6,624                     5.6%                                              6,624               1,585                                         5,039             0.14
                                                                      -----                      ---                                               -----               -----                                         -----             ----


    Adjusted results (Non-GAAP)                                       $22,371                    18.8%                                            $21,303              $6,274                29.5%                  $14,441            $0.41
                                                                      =======                     ====                                             =======              ======                 ====                   =======            =====


    Weighted average shares outstanding - Diluted                                                                                                                                                                             35,463
                                                                                                                                                                                                                              ======

 

 

                                                                                 NOVANTA INC.

                                                             Reconciliation of GAAP to Non-GAAP Financial Measures

                                                                        (In thousands of U.S. dollars)

                                                                                  (Unaudited)



    Adjusted EBITDA (Non-GAAP):
    ---------------------------


                                                                                                                        Three Months Ended
                                                                                                                        ------------------

                                                                                                                   June 29,                June 30,

                                                                                                                        2018                     2017
                                                                                                                        ----                     ----

    Consolidated Net Income (GAAP)                                                                                              $11,625                 $9,990

    Net Income Margin                                                                                                            7.7%                  8.4%

    Interest (income) expense, net                                                                                              2,561                  1,435

    Income tax provision                                                                                                        3,060                  4,689

    Depreciation and amortization                                                                                               9,120                  7,094

    Share-based compensation                                                                                                    1,736                  1,318

    Restructuring, acquisition and divestiture related costs                                                                    2,439                  1,581

    Other, net                                                                                                                  (131)                 (367)
                                                                                                                                 ----                   ----

    Adjusted EBITDA (Non-GAAP)                                                                                                  $30,410                $25,740
                                                                                                                                =======                =======

    Adjusted EBITDA Margin (Non-GAAP)                                                                                           20.2%                 21.6%

 

    Organic Revenue Growth (Non-GAAP):
    ----------------------------------


                                              Three Months Ended June 29, 2018
                                               Compared to Three Months Ended
                                                        June 30, 2017
                                                        -------------

    Reported Growth (GAAP)                                                      26.3%

    Less: Change attributable to acquisitions                                   18.3%

    Plus: Change due to foreign currency                                       (1.8)%
                                                                                -----

    Organic Growth (Non-GAAP)                                                    6.2%
                                                                                  ---

 

    Net Debt (Non-GAAP):
    --------------------


                                    June 29,            December 31,

                                         2018                    2017
                                         ----                    ----

    Total Debt (GAAP)                          $237,433                 $234,619

    Plus: Deferred financing costs                2,697                    3,159
                                                  -----                    -----

    Gross Debt                                  240,130                  237,778

    Less: Cash and cash equivalents           (107,261)               (100,057)
                                               --------                 --------

    Net Debt (Non-GAAP)                        $132,869                 $137,721
                                               ========                 ========

 

    Free Cash Flow (Non-GAAP):
    --------------------------


                                                                     Three Months Ended
                                                                     ------------------

                                                              June 29,                  June 30,

                                                                   2018                       2017
                                                                   ----                       ----

    Cash Provided by Operating Activities (GAAP)                           $19,956                  $16,762

    Less: Purchases of property, plant and equipment                       (4,326)                 (1,357)

    Plus: Proceeds from sale of property, plant and equipment                   20                       10
                                                                               ---                      ---

    Free Cash Flow (Non-GAAP)                                              $15,650                  $15,415
                                                                           =======                  =======
 

 

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 business 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 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.

Adjusted Operating Income and Adjusted Operating Margin

The calculation of Adjusted Operating Income and Adjusted Operating Margin is displayed in the tables above. Adjusted Operating Income and Adjusted Operating Margin exclude amortization of acquired intangible assets 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 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 before Income Taxes

The calculation of Adjusted Income before Income Taxes is displayed in the tables above. The calculation of Adjusted Income before Income Taxes excludes amortization of acquired intangible assets, and restructuring, acquisition and divestiture related costs for the reasons described for Adjusted Operating Income 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 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, and restructuring, acquisition and divestiture related costs for the reasons described for Adjusted Income 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, 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, other non-operating income (expense) items, 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.

Free Cash Flow

The Company defines Free Cash Flow as cash provided by (used in) operating activities less cash paid for purchases of property, plant and equipment and plus cash proceeds from sale of property, plant and equipment. Management believes free cash flow is an important measure of its liquidity as well as its ability to service the Company's outstanding debt, and to fund future growth.

Net Debt

The Company defines Net Debt as its total debt as reported on the consolidated balance sheet plus unamortized deferred financing costs and less its cash and cash equivalents as of the end of the period presented. 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.

 
 
Company Codes: NASDAQ-NMS:NOVT
 

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