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Novanta Announces Financial Results for the Fourth Quarter and Full Year 2016

Mar 6, 2017

- Fourth Quarter 2016 GAAP Revenue of $99 million, up 10% year-over-year

- Full Year 2016 GAAP Revenue of $385 million

- Full Year 2016 GAAP Net Income of $22 million

- Full Year 2016 GAAP Diluted Earnings Per Share of $0.63

- Full Year 2016 Adjusted Earnings Per Share of $1.09

- Full Year 2016 Adjusted EBITDA of $68 million

BEDFORD, Mass., March 6, 2017 /PRNewswire/ -- Novanta Inc. (NASDAQ: NOVT) (the "Company", "we", "our", "Novanta"), a global leader and supplier of photonics, precision motion, and vision technologies to original equipment manufacturers in the medical and advanced industrial markets, today reported financial results for the fourth quarter and full year 2016.

Financial Highlights

Three Months Ended December 31,



Year Ended December 31,


(In millions, except per share amounts)

2016



2015



2016



2015


GAAP
















Revenue

$

98.9



$

90.2



$

384.8



$

373.6


Operating income from continuing operations

$

11.3



$

4.2



$

32.6



$

28.9


Consolidated net income

$

7.8



$

6.1



$

22.0



$

35.6


Diluted EPS

$

0.22



$

0.18



$

0.63



$

1.02


Non-GAAP*
















Adjusted Revenue

$

98.9



$

90.2



$

384.8



$

368.0


Adjusted Operating Income from Continuing Operations

$

16.6



$

11.7



$

55.8



$

49.9


Adjusted EPS

$

0.35



$

0.29



$

1.09



$

0.93


Adjusted EBITDA

$

19.4



$

14.4



$

68.0



$

61.1


*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.

Fourth Quarter

During the fourth quarter of 2016, Novanta generated GAAP revenue of $98.9 million, an increase of 9.6% from $90.2 million in the fourth quarter of 2015. 

In the fourth quarter of 2016, GAAP operating income from continuing operations was $11.3 million, compared to $4.2 million in the fourth quarter of 2015. GAAP consolidated net income was $7.8 million in the fourth quarter of 2016, compared to $6.1 million in the fourth quarter of 2015.  GAAP Diluted EPS was $0.22 in the fourth quarter of 2016, compared to $0.18 in the fourth quarter of 2015.  Adjusted EPS was $0.35 in the fourth quarter of 2016, compared to $0.29 in the fourth quarter of 2015.  The Company ended the fourth quarter of 2016 with 35 million weighted average diluted common shares outstanding.  Adjusted EBITDA was $19.4 million in the fourth quarter of 2016, compared to $14.4 million in the fourth quarter of 2015. 

Operating cash flow from continuing operations for the fourth quarter of 2016 was $13.1 million, compared to $8.0 million for the fourth quarter of 2015.

Full Year

For the full year 2016, Novanta generated GAAP revenue of $384.8 million, an increase of 3% from $373.6 million for the full year 2015.  Adjusted Revenue for the full year of 2016 increased 5% to $384.8 million from $368.0 million for the full year 2015.   

For the full year 2016, GAAP operating income from continuing operations was $32.6 million, compared to $28.9 million for the full year 2015. GAAP consolidated net income for the full year 2016 was $22.0 million, compared to $35.6 million for the full year 2015.  GAAP Diluted EPS was $0.63 for the full year 2016, compared to $1.02 for the full year 2015. Adjusted EPS was $1.09 for the full year 2016, compared to $0.93 for the full year 2015.  Adjusted EBITDA was $68 million for the full year 2016, compared to $61.1 million for the full year 2015.    

Operating cash flow from continuing operations for the full year 2016 was $47.8 million, compared to $33.4 million for 2015.  As of December 31, 2016, cash and cash equivalents were $68.1 million. The Company completed the fourth quarter of 2016 with approximately $81.3 million of total debt, and $13.1 million of Net Debt, as defined in the non-GAAP reconciliation below. 

"We are very proud of our accomplishments in 2016, and how we finished off the year," said Matthijs Glastra, Chief Executive Officer of Novanta Inc.  "We successfully rebranded the Company, we seamlessly transitioned our Company's leadership, and our focus on accelerating profitable growth was evident in our financial results.  We delivered 5% growth on our full year Adjusted Revenue, and our Adjusted Revenue growth in the fourth quarter accelerated to 10%.  Profitability in the fourth quarter exceeded our expectations with 35% Adjusted EBITDA growth and 21% Non-GAAP EPS growth versus the fourth quarter of 2015. In addition, since closing out 2016, we have added two strategic acquisitions, Laser Quantum and ThingMagic, which further our strategy to increase our medical end-market presence with proprietary technology offerings. We are excited about our 2017 outlook and believe we are well positioned to deliver a strong 2017."  

Financial Outlook

"In 2016, we demonstrated our progress on accelerating our revenue growth, delivering strong profitability, generating strong operating cash flows, and remaining financially disciplined and focused around our acquisition strategy," said Robert Buckley, Chief Financial Officer of Novanta Inc.     

For the full year 2017, the Company expects GAAP revenue of approximately $430 million to $435 million.  This compares to GAAP revenue of $384.8 million for the full year 2016. Adjusted EBITDA is expected to be approximately $80 million to $82 million, compared to $68 million for the full year 2016.  In addition, Adjusted EPS is expected to be in the range of $1.20 to $1.25.  This compares to Adjusted EPS of $1.09 for the full year 2016. 

For the first quarter of 2017, the Company expects GAAP revenue of approximately $100 million to $102 million.  The Company expects Adjusted EPS to be in the range of $0.22 to $0.25, presuming no significant foreign exchange gains or losses, and Adjusted EBITDA to be approximately $16.5 million to $17.5 million

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; 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 Monday, March 6, 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 conference call.  

To access the call, please dial (877) 482-5124 prior to the scheduled conference call time.  The conference ID number is 61103173.

A playback of this conference call will be available beginning 1:00 p.m. ET, Monday, March 6, 2017. The playback phone number is (855) 859-2056 or (404) 537-3406 and the code number is 61103173. The playback will remain available until 11:00 p.m. ET, Monday, March 27, 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 Revenue, 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 Income from Continuing Operations, net of tax, Adjusted Diluted EPS from Continuing Operations, 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 is 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 is used to determine bonus payments for senior management and employees. The Company also uses non-GAAP 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 sustainable growth; anticipated financial performance, including profit and revenue growth, and expectations for 2017; market conditions; our Laser Quantum and ThingMagic acquisitions giving us further confidence that we are well positioned to deliver on our full year commitments and furthering our strategic objectives; 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; risk associated with our operations in foreign countries; our failure to comply with local import and export regulations in the jurisdictions in which we operate; negative effect on global economic conditions, financial markets and our business as a result of the potential United Kingdom's 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 make divestitures that provide business benefits; 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; 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; 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 may limit our ability to engage in certain activities; 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, 2015, 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 advanced industrial and healthcare OEMs a competitive advantage. We combine deep expertise at the intersection of photonics and 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. We deliver highly engineered photonics, vision and precision motion solutions to customers around the world. 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 December 31,



Year Ended December 31,



2016



2015



2016



2015


Revenue

$

98,879



$

90,219



$

384,758



$

373,598


Cost of revenue


56,027




53,590




222,306




215,708


Gross profit


42,852




36,629




162,452




157,890


Operating expenses:
















Research and development and engineering


7,973




7,295




32,002




31,043


Selling, general and administrative


19,334




19,080




81,691




82,049


Amortization of purchased intangible assets


2,098




2,018




8,251




7,611


Restructuring, acquisition and divestiture related costs


2,117




4,022




7,945




8,254


Total operating expenses


31,522




32,415




129,889




128,957


Operating income from continuing operations


11,330




4,214




32,563




28,933


Interest income (expense), net


(1,088)




(1,162)




(4,559)




(5,180)


Foreign exchange transaction gains (losses), net


1,339




2,232




2,317




(23)


Other income (expense), net


502




655




2,201




2,663


Gain (loss) on disposal of business





(4)







19,629


Income from continuing operations before income taxes


12,083




5,935




32,522




46,022


Income tax provision (benefit)


4,327




(168)




10,519




10,394


Income from continuing operations


7,756




6,103




22,003




35,628


Loss from discontinued operations, net of tax











(13)


Consolidated net income

$

7,756



$

6,103



$

22,003



$

35,615


















Earnings per common share from continuing operations:
















Basic

$

0.22



$

0.18



$

0.63



$

1.03


Diluted

$

0.22



$

0.18



$

0.63



$

1.02


Loss per common share from discontinued operations:
















Basic

$



$



$



$

(0.00)


Diluted

$



$



$



$

(0.00)


Earnings per common share:
















Basic

$

0.22



$

0.18



$

0.63



$

1.03


Diluted

$

0.22



$

0.18



$

0.63



$

1.02


















Weighted average common shares outstanding—basic


34,706




34,581




34,694




34,579


Weighted average common shares outstanding—diluted


34,987




34,811




34,914




34,827


 

 


NOVANTA INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(In thousands of U.S. dollars)

(Unaudited)



December 31,



December 31,



2016



2015


ASSETS








Current Assets








Cash and cash equivalents

$

68,108



$

59,959


Accounts receivable, net


63,769




57,188


Inventories


59,745




59,566


Other current assets


7,628




8,499


Total current assets


199,250




185,212


Property, plant and equipment, net


35,421




40,550


Intangible assets, net


61,743




66,269


Goodwill


108,128




103,456


Other assets


21,095




20,558


Total assets

$

425,637



$

416,045


LIABILITIES AND STOCKHOLDERS' EQUITY








Current Liabilities








Current portion of long-term debt

$

7,366



$

7,385


Accounts payable


32,213




24,401


Accrued expenses and other current liabilities


30,917




25,167


Total current liabilities


70,496




56,953


Long-term debt


70,554




88,426


Other long-term liabilities


25,717




25,965


Total liabilities


166,767




171,344


Stockholders' Equity:








Total stockholders' equity


258,870




244,701


Total liabilities and stockholders' equity

$

425,637



$

416,045


 

 


 NOVANTA INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands of U.S. dollars)

(Unaudited)



Three Months Ended December 31,



Year Ended December 31,



2016



2015



2016



2015


Cash flows from operating activities:
















Consolidated net income

$

7,756



$

6,103



$

22,003



$

35,615


Less: Loss from discontinued operations, net of tax











13


Income from continuing operations


7,756




6,103




22,003




35,628


Adjustments to reconcile income from continuing operations to

   net cash provided by operating activities of continuing operations:
















Depreciation and amortization


5,040




5,026




20,357




19,114


Share-based compensation


908




893




4,293




4,387


Loss (gain) on disposal of business





4







(19,629)


Deferred income taxes


(1,928)




(5,474)




(1,766)




(1,692)


Earnings from equity-method investment


(493)




(650)




(2,191)




(2,657)


Dividend from equity-method investment








2,341





Other non-cash items


851




1,996




4,519




4,707


Changes in assets and liabilities which provided (used) cash, excluding effects from businesses purchased or classified as held for sale:
















Accounts receivable


(2,711)




(530)




(6,394)




(7,526)


Inventories


(1,447)




2,014




(2,917)




(3,338)


Other operating assets and liabilities


5,105




(1,429)




7,543




4,435


Net cash provided by operating activities of continuing operations


13,081




7,953




47,788




33,429


Net cash used in operating activities of discontinued operations











(13)


Net cash provided by operating activities


13,081




7,953




47,788




33,416


Cash flows from investing activities:
















Purchases of property, plant and equipment


(1,457)




(1,441)




(8,462)




(5,552)


Acquisition of businesses, net of cash acquired and escrow recovery


(6)




(12,939)




(8,958)




(25,987)


Acquisition of intangible assets


(3,980)







(3,980)





Proceeds from the sale of business, net of transaction costs











29,570


Proceeds from the sale of property, plant and equipment





4




7,037




127


Net cash used in investing activities of continuing operations


(5,443)




(14,376)




(14,363)




(1,842)


Net cash provided by investing activities of discontinued operations





209




1,498




209


Net cash used in investing activities


(5,443)




(14,167)




(12,865)




(1,633)


Cash flows from financing activities:
















Borrowings under revolving credit facility











13,000


Repayments of long-term debt and revolving credit facility


(1,875)




(11,875)




(16,250)




(30,500)


Other financing activities


(184)




(1,216)




(6,939)




(4,035)


Net cash used in financing activities of continuing operations


(2,059)




(13,091)




(23,189)




(21,535)


Net cash used in financing activities of discontinued operations












Net cash used in financing activities


(2,059)




(13,091)




(23,189)




(21,535)


Effect of exchange rates on cash and cash equivalents


(2,210)




(825)




(3,585)




(1,435)


Increase (decrease) in cash and cash equivalents


3,369




(20,130)




8,149




8,813


Cash and cash equivalents, beginning of period


64,739




80,089




59,959




51,146


Cash and cash equivalents, end of period

$

68,108



$

59,959



$

68,108



$

59,959


 

 


Reconciliation of GAAP to Non-GAAP Financial Measures

(In thousands of U.S. dollars)

(Unaudited)


Adjusted Revenue by Segment (Non-GAAP):



Three Months Ended December 31,



Year Ended December 31,



2016



2015



2016



2015


Photonics
















Revenue (GAAP)

$

44,251



$

39,856



$

174,158



$

168,331


JK Lasers divestiture











(5,731)


Acquisition fair value adjustments












Adjusted Revenue (Non-GAAP)

$

44,251



$

39,856



$

174,158



$

162,600


















Vision
















Revenue (GAAP)

$

33,482



$

31,406



$

122,250



$

124,725


Acquisition fair value adjustments





28




32




143


Adjusted Revenue (Non-GAAP)

$

33,482



$

31,434



$

122,282



$

124,868


















Precision Motion
















Revenue (GAAP)

$

21,146



$

18,957



$

88,350



$

80,542


Acquisition fair value adjustments












Adjusted Revenue (Non-GAAP)

$

21,146



$

18,957



$

88,350



$

80,542


















Novanta Inc.
















Revenue (GAAP)

$

98,879



$

90,219



$

384,758



$

373,598


JK Lasers divestiture











(5,731)


Acquisition fair value adjustments





28




32




143


Adjusted Revenue (Non-GAAP)

$

98,879



$

90,247



$

384,790



$

368,010


 

 


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,



2016



2015



2016



2015


Photonics
















Gross Profit (GAAP)

$

19,235



$

16,426



$

76,696



$

73,602


Gross Profit Margin (GAAP)


43.5

%



41.2

%



44.0

%



43.7

%

JK Lasers divestiture











(1,587)


Amortization of intangible assets


383




585




1,535




2,133


Acquisition fair value adjustments





215







215


Adjusted Gross Profit (Non-GAAP)

$

19,618



$

17,226



$

78,231



$

74,363


Adjusted Gross Profit Margin (Non-GAAP)


44.3

%



43.2

%



44.9

%



45.7

%

















Vision
















Gross Profit (GAAP)

$

14,735



$

12,143



$

47,181



$

48,966


Gross Profit Margin (GAAP)


44.0

%



38.7

%



38.6

%



39.3

%

Inventory related charges for discontinuation of
radiology products








1,370





Amortization of intangible assets


515




547




2,222




2,188


Acquisition fair value adjustments





28




205




143


Adjusted Gross Profit (Non-GAAP)

$

15,250



$

12,718



$

50,978



$

51,297


Adjusted Gross Profit Margin (Non-GAAP)


45.5

%



40.5

%



41.7

%



41.1

%

















Precision Motion
















Gross Profit (GAAP)

$

9,287



$

8,400



$

40,044



$

36,709


Gross Profit Margin (GAAP)


43.9

%



44.3

%



45.3

%



45.6

%

Amortization of intangible assets


102




111




407




389


Acquisition fair value adjustments












Adjusted Gross Profit (Non-GAAP)

$

9,389



$

8,511



$

40,451



$

37,098


Adjusted Gross Profit Margin (Non-GAAP)


44.4

%



44.9

%



45.8

%



46.1

%

















Unallocated Corporate and Shared Services
















Gross Profit (GAAP)

$

(405)



$

(340)



$

(1,469)



$

(1,387)


Amortization of intangible assets












Acquisition fair value adjustments












Adjusted Gross Profit (Non-GAAP)

$

(405)



$

(340)



$

(1,469)



$

(1,387)


















Novanta Inc.
















Gross Profit (GAAP)

$

42,852



$

36,629



$

162,452



$

157,890


Gross Profit Margin (GAAP)


43.3

%



40.6

%



42.2

%



42.3

%

JK Lasers divestiture











(1,587)


Inventory related charges for discontinuation of radiology products








1,370





Amortization of intangible assets


1,000




1,243




4,164




4,710


Acquisition fair value adjustments





243




205




358


Adjusted Gross Profit (Non-GAAP)

$

43,852



$

38,115



$

168,191



$

161,371


Adjusted Gross Profit Margin (Non-GAAP)


44.3

%



42.2

%



43.7

%



43.8

%

 

 


Reconciliation of GAAP to Non-GAAP Financial Measures

(In thousands of U.S. dollars)

(Unaudited)


Adjusted Operating Income from Continuing Operations and Adjusted EPS (Non-GAAP):



Three Months Ended December 31, 2016



Operating Income from Continuing Operations



Operating Margin



Income from Continuing Operations before Income Taxes



Income Tax Provision (Benefit)



Effective Tax Rate



Income from Continuing Operations, Net of Tax



Diluted EPS from Continuing Operations


GAAP results

$

11,330




11.5

%


$

12,083



$

4,327




35.8

%


$

7,756



$

0.22


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






























Weighted average shares outstanding - Diluted


























34,987


 

 


Reconciliation of GAAP to Non-GAAP Financial Measures

(In thousands of U.S. dollars)

(Unaudited)


Adjusted Operating Income from Continuing Operations and Adjusted EPS (Non-GAAP):



Three Months Ended December 31, 2015



Operating Income from Continuing Operations



Operating Margin



Income from Continuing Operations before Income Taxes



Income Tax Provision (Benefit)



Effective Tax Rate



Income from Continuing Operations, Net of Tax



Diluted EPS from Continuing Operations


GAAP results

$

4,214




4.7

%


$

5,935



$

(168)




(2.8)%



$

6,103



$

0.18


Non-GAAP Adjustments:




























   Amortization of intangible assets


3,262




3.6

%



3,262

















   Restructuring, divestiture and other costs


2,653




2.9

%



2,653

















   Acquisition related costs


1,369




1.5

%



1,369

















   Acquisition fair value adjustments


243




0.3

%



243

















   Loss on JK Lasers sale








4

















   Unrealized foreign currency loss on JK Lasers sale








118

















   Tax effect on non-GAAP adjustments











3,337














   Non-GAAP tax adjustments











356














   Total non-GAAP adjustments


7,527




8.3

%



7,649




3,693








3,956




0.11






























Adjusted results (Non-GAAP)

$

11,741




13.0

%


$

13,584



$

3,525




25.9

%


$

10,059



$

0.29






























Weighted average shares outstanding - Diluted


























34,811


 

 


Reconciliation of GAAP to Non-GAAP Financial Measures

(In thousands of U.S. dollars)

(Unaudited)


Adjusted Operating Income from Continuing Operations and Adjusted EPS (Non-GAAP):



Year Ended December 31, 2016



Operating Income from Continuing Operations



Operating Margin



Income from Continuing Operations before Income Taxes



Income Tax Provision (Benefit)



Effective Tax Rate



Income from Continuing Operations, Net of Tax



Diluted EPS from Continuing Operations


GAAP results

$

32,563




8.5

%


$

32,522



$

10,519




32.3

%


$

22,003



$

0.63


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














   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






























Weighted average shares outstanding - Diluted


























34,914


 

 


Reconciliation of GAAP to Non-GAAP Financial Measures

(In thousands of U.S. dollars)

(Unaudited)


Adjusted Operating Income from Continuing Operations and Adjusted EPS (Non-GAAP):



Year Ended December 31, 2015



Operating Income from Continuing Operations



Operating Margin



Income from Continuing Operations before Income Taxes



Income Tax Provision (Benefit)



Effective Tax Rate



Income from Continuing Operations, Net of Tax



Diluted EPS from Continuing Operations


GAAP results

$

28,933




7.7

%


$

46,022



$

10,394




22.6

%


$

35,628



$

1.02


Non-GAAP Adjustments:




























   Amortization of intangible assets


12,323




3.3

%



12,323

















   Restructuring, divestiture and other costs


6,970




1.9

%



6,970

















   Acquisition related costs


1,303




0.4

%



1,303

















   Acquisition fair value adjustments


358




0.1

%



358

















   Gain on JK Lasers sale








(19,629)

















   Unrealized foreign currency loss on JK Lasers sale








1,350

















   Tax effect on non-GAAP adjustments











4,636














   Non-GAAP tax adjustments











1,171














   Total non-GAAP adjustments


20,954




5.7

%



2,675




5,807








(3,132)




(0.09)






























Adjusted results (Non-GAAP)

$

49,887




13.4

%


$

48,697



$

16,201




33.3

%


$

32,496



$

0.93






























Weighted average shares outstanding - Diluted


























34,827






























 

 

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,



2016



2015



2016



2015


Consolidated net income (GAAP)

$

7,756



$

6,103



$

22,003



$

35,615


Net income margin


7.8

%



6.8

%



5.7

%



9.5

%

Interest (income) expense, net


1,088




1,162




4,559




5,180


Income tax provision (benefit)


4,327




(168)




10,519




10,394


Depreciation and amortization


5,040




5,026




20,357




19,114


Share-based compensation


908




893




4,293




4,387


Restructuring, acquisition, divestiture and other costs


2,117




4,022




7,945




8,273


Inventory related charges for discontinuation of radiology products








1,370





Acquisition fair value adjustments





243




205




358


CEO transition costs


25







1,306





Loss from discontinued operations, net of tax











13


Loss (gain) on disposal of business





4







(19,629)


Other, net


(1,841)




(2,887)




(4,518)




(2,640)


Adjusted EBITDA (Non-GAAP)

$

19,420



$

14,398



$

68,039



$

61,065


Adjusted EBITDA margin (Non-GAAP)


19.6

%



16.0

%



17.7

%



16.3

%

 

 

Net Debt (Non-GAAP):



December 31, 2016



December 31, 2015


Total Debt (GAAP)

$

77,920



$

95,811


Plus: Deferred financing costs


3,330




1,689


Gross Debt


81,250




97,500


Less: cash and cash equivalents


(68,108)




(59,959)


Net Debt (Non-GAAP)

$

13,142



$

37,541


 

 


Organic Revenue Growth (Non-GAAP):



Three Months Ended December 31, 2016 Compared to Three Months Ended December 31, 2016



Twelve Months Ended December 31, 2016 Compared to Twelve Months Ended December 31, 2016


Reported growth (GAAP)


9.6

%



3.0

%

Less: Change attributable to acquisitions and divestitures


(0.7)

%



(0.1)

%

Plus: Change due to foreign currency


1.0

%



0.5

%

Organic growth (Non-GAAP)


9.9

%



3.4

%

 

Non-GAAP Measures

Adjusted Revenue

Adjusted Revenue excludes the JK Lasers business to show only the results of ongoing operations of the Company. As the JK Lasers business was sold in April 2015, we excluded JK Lasers revenue from Adjusted Revenue because divestiture activities can vary between reporting periods and between us and our peers, which we believe make comparisons of long-term performance trends difficult for management and investors, and could result in overstating or understating to our investors the underlying performance of our operations. Additionally, Adjusted Revenue includes estimated revenue from contracts acquired with business acquisitions that will not be fully recognized due to business combination rules. Because GAAP accounting rules require the elimination of this revenue, GAAP results alone do not fully capture all of our economic activities.  These non-GAAP adjustments are intended to reflect the full amount of such revenue.

Organic Revenue

We define the term "organic revenue" as revenue excluding the impact from business acquisitions, divestitures, and the effect of foreign currency translation. We use the related term "organic revenue growth/(decline)" to refer to the measure of comparing current period organic revenue with 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/(decline) also provides for 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, and could result in overstating or understating to our investors the performance of our operations.

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 exclude the JK Lasers business to show only the results of ongoing operations, as the JK Lasers business was sold in April 2015. Adjusted Gross Profit and Adjusted Gross Profit Margin also excludes amortization of acquired intangible assets and revenue and inventory 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 expenses. In addition, the Company excluded inventory related charges associated with a product line closure as these costs 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 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 and revenue and inventory 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 expenses.  The Company also excluded restructuring, acquisition and divestiture related costs, CEO transition costs, and inventory related charges associated with a product line closure from Adjusted Operating Income from Continuing Operations and Adjusted Operating Margin 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 and revenue and inventory fair value adjustments related to business acquisitions, restructuring, acquisition and divestiture related costs, CEO transition costs, and inventory related charges associated with a product line closure for the reasons described for Adjusted Operating Income from Continuing Operations and Adjusted Operating Margin above.  In addition, the gain on sale of JK Lasers and the related unrealized foreign exchange loss on the U.S. dollar sales proceeds held by our U.K. subsidiary are excluded to only show the results of our ongoing operations, as the JK Lasers business was sold in April 2015.

Non-GAAP Income Tax Provision (Benefit) and Effective Tax Rate

The Non-GAAP Income Tax Provision (Benefit) and Effective Tax Rate is calculated based on the Adjusted Income from Continuing Operations before Income Taxes by jurisdiction, which contemplates tax rates currently in effect to determine our tax provision. 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, tax benefit associated with a dividend from the Company's equity investment, and the income tax effect of non-GAAP adjustments discussed above.

Adjusted Income from Continuing Operations, Net of Tax

The calculation of Adjusted Income from Continuing Operations, net of tax, is displayed in the tables above.  Because pre-tax income is included in determining income from continuing operations, net of tax, the calculation of Adjusted Income from Continuing Operations, net of tax, also excludes amortization of acquired intangible assets and revenue and inventory fair value adjustments related to business acquisitions, restructuring, acquisition and divestiture related costs, CEO transition costs, inventory related charges associated with a product line closure, the gain on sale of JK Lasers and the related unrealized foreign exchange loss on the U.S. dollar sales proceeds held by our U.K. subsidiary 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, tax benefit associated with a dividend from the Company's equity investment, and the income tax effect of non-GAAP adjustments discussed above.

Adjusted Diluted EPS from Continuing Operations

The calculation of Adjusted Diluted EPS from Continuing Operations is displayed in the tables above.  Because income from continuing operations, net of tax is used in the diluted EPS calculation, the calculation of Adjusted Diluted EPS from Continuing Operations excludes amortization of acquired intangible assets and revenue and inventory fair value adjustments related to business acquisitions, restructuring, acquisition and divestiture related costs, CEO transition costs, inventory related charges associated with a product line closure, the gain on sale of JK Lasers and the related unrealized foreign exchange loss on the U.S. dollar sales proceeds held by our U.K. subsidiary, 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, tax benefit associated with a dividend from the Company's equity investment, and the income tax effect of non-GAAP adjustments for the reasons described above for Adjusted Income from Continuing Operations, net of tax. 

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, CEO transition costs, acquisition fair value adjustments, inventory related charges associated with product line closures, and other non-operating income (expense) items, including the gain on the sale of JK Lasers, 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 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.

* * * *

 

SOURCE Novanta Inc.


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