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Novanta Announces Financial Results for the Fourth Quarter and Full Year 2017

Feb 28, 2018

- Fourth Quarter 2017 GAAP Revenue of $146.9 million, up 49% year over year

- Full Year 2017 GAAP Revenue of $521 million

- Full Year 2017 GAAP Net Income of $60 million

- Full Year 2017 GAAP Diluted Earnings Per Share of $1.13

- Full Year 2017 Adjusted Earnings Per Share of $1.60

- Full Year 2017 Adjusted EBITDA of $106 million

BEDFORD, Mass., Feb. 28, 2018 /PRNewswire/ -- Novanta Inc. (Nasdaq: NOVT) (the "Company"), a trusted technology partner to medical and advanced technology equipment manufacturers, today reported financial results for the fourth quarter and full year 2017. 

Financial Highlights

Three Months Ended December 31,

   

Year Ended December 31,

 

(In millions, except per share amounts)

2017

   

2016

   

2017

   

2016

 

GAAP

                             

Revenue

$

146.9

   

$

98.9

   

$

521.3

   

$

384.8

 

Operating Income from Continuing Operations

$

19.1

   

$

11.3

   

$

57.2

   

$

32.6

 

Net Income Attributable to Novanta Inc.

$

8.9

   

$

7.8

   

$

60.1

   

$

22.0

 

Diluted EPS from Continuing Operations

$

(0.00)

   

$

0.22

   

$

1.13

   

$

0.63

 

Non-GAAP*

                             

Adjusted Operating Income from Continuing Operations

$

25.8

   

$

16.6

   

$

90.4

   

$

55.8

 

Adjusted Diluted EPS

$

0.44

   

$

0.35

   

$

1.60

   

$

1.09

 

Adjusted EBITDA

$

30.0

   

$

19.4

   

$

105.7

   

$

68.0

 

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

 

"2017 was a defining year for Novanta with strong execution and financial results," said Matthijs Glastra, Chief Executive Officer of Novanta Inc. "We executed well on our strategic priorities and 2020 Strategic Direction. We accelerated organic revenue growth to 8% versus 2016 and made three acquisitions, namely, World of Medicine, Laser Quantum, and ThingMagic. These acquisitions have expanded our positions in growing medical markets and technologies, and are performing ahead of our expectations. Our performance in 2017 gives us confidence to reach our 2020 strategic goals. I am proud of our team of dedicated employees and the culture we have created, and I continue to feel excited about our future."

Fourth Quarter

During the fourth quarter of 2017, Novanta generated GAAP revenue of $146.9 million, an increase of $48.0 million, or 48.6%, versus the fourth quarter of 2016. The net effect of the Company's acquisition activities resulted in an increase in revenue of $39.1 million, or 39.5%, compared to the fourth quarter of 2016.  Foreign currency exchange rates favorably impacted our revenue by $0.8 million, or 0.8%, during the fourth quarter of 2017.  Our Organic Revenue Growth, which excludes the net impact of acquisitions and foreign currency exchange rates, increased 8.3%, versus the fourth quarter of 2016 (see "Organic Revenue Growth" in the non-GAAP reconciliation below).       

In the fourth quarter of 2017, GAAP operating income from continuing operations was $19.1 million, compared to $11.3 million in the fourth quarter of 2016. GAAP net income attributable to Novanta Inc. was $8.9 million in the fourth quarter of 2017, compared to $7.8 million in the fourth quarter of 2016.  GAAP diluted earnings (loss) per share ("EPS") from continuing operations was $(0.00) in the fourth quarter of 2017, compared to $0.22 in the fourth quarter of 2016. 

In the fourth quarter of 2017, the Company increased the carrying amount of the redeemable noncontrolling interest in Laser Quantum by $8.9 million to reflect the estimated redemption value as of December 31, 2017. This nontaxable adjustment was recognized in retained earnings instead of net income, but resulted in a net ($0.25) reduction in EPS under U.S. GAAP accounting rules.  In addition, the Company's GAAP net income and EPS for the fourth quarter of 2017 were negatively impacted by a $2.8 million tax provision recorded to reflect the estimated income tax effect as a result of the enactment of the U.S. Tax Cuts and Jobs Act, primarily from the revaluation of our deferred tax assets and liabilities to the new 21% U.S. federal corporate income tax rate that became effective as of January 1, 2018. Adjusted Diluted EPS was $0.44 in the fourth quarter of 2017, compared to $0.35 in the fourth quarter of 2016.  The Company ended the fourth quarter of 2017 with 34.8 million weighted average shares outstanding.  Adjusted EBITDA was $30.0 million in the fourth quarter of 2017, compared to $19.4 million in the fourth quarter of 2016.  

Operating cash flow from continuing operations for the fourth quarter of 2017 was $22.1 million, compared to $13.1 million for the fourth quarter of 2016.

Full Year

For the full year 2017, Novanta generated GAAP revenue of $521.3 million, an increase of $136.5 million, or 35.5%, versus the full year 2016. The net effect of the Company's acquisitions in 2017 resulted in an increase in revenue of $105.8 million, or 27.5%.  Foreign currency exchange rates adversely impacted our revenue by $1.9 million, or 0.5%, in 2017.  Our Organic Revenue Growth, which excludes the net impact of acquisitions, divestitures, and foreign currency exchange rates, increased 8.5%, versus full year 2016 (see "Organic Revenue Growth" in the non-GAAP reconciliation below).       

For the full year 2017, GAAP operating income from continuing operations was $57.2 million, compared to $32.6 million in 2016. GAAP net income attributable to Novanta Inc. was $60.1 million for the full year 2017, compared to $22.0 million in 2016.  GAAP diluted EPS from continuing operations was $1.13 for the full year 2017, compared to $0.63 in 2016. 

For the full year 2017, the Company increased the carrying amount of the redeemable noncontrolling interest in Laser Quantum by $20.2 million to reflect the estimated redemption value as of December 31, 2017. This nontaxable adjustment was recognized in retained earnings instead of net income attributable to Novanta Inc., but resulted in a net ($0.57) reduction in EPS under U.S. GAAP accounting rules.  Adjusted Diluted EPS was $1.60 for the full year 2017, compared to $1.09 in 2016.  The Company ended the full year 2017 with 35.3 million weighted average shares outstanding.  Adjusted EBITDA was $105.7 million for the full year 2017, compared to $68.0 million in 2016. 

Operating cash flow from continuing operations for the full year 2017 was $63.4 million, compared to $47.8 million in 2016. The Company finished 2017 with approximately $237.8 million of Gross Debt, and $137.7 million of Net Debt, as defined in the non-GAAP reconciliation below.

Financial Outlook 

For the full year 2018, the Company expects GAAP revenue of approximately $585 million to $600 million.  The Company expects Adjusted Diluted EPS to be in the range of $1.85 to $1.96, including the impact of the recently enacted U.S. tax law changes, and Adjusted EBITDA to be approximately $117 million to $122 million.  The Company's Adjusted Diluted EPS and EBITDA guidance assumes no significant foreign exchange gains or losses. 

For the first quarter of 2018, the Company expects GAAP revenue of approximately $138 million to $142 million.  This represents reported growth in the range of 27% to 30%, and organic growth in the range of 7.5% to 8.5% year over year. The Company expects Adjusted Diluted EPS to be in the range of $0.40 to $0.43, including the impact of the recently enacted U.S. tax law changes, and Adjusted EBITDA to be approximately $25 million to $27 million.  The Company's Adjusted Diluted EPS and EBITDA guidance assumes no significant foreign exchange gains or losses. 

Novanta provides earnings guidance on a non-GAAP basis and does not provide earnings guidance on a GAAP basis, with the exception of GAAP revenue guidance.  A reconciliation of the Company's forward-looking Adjusted EBITDA and Adjusted EPS guidance to the most directly comparable GAAP financial measures is not provided because of the inherent difficulty in forecasting and quantifying certain amounts that are necessary for such reconciliations, including adjustments that could be made for noncontrolling interest redemption value adjustments; significant discrete income tax expenses (benefits); divestiture related expenses; acquisition-related expenses; impact of purchase price allocations for recently completed acquisitions; gains and losses from sale of real estate assets; costs related to product line closures; future changes in the fair value of contingent considerations; intangible asset impairment charges and related asset write-offs; future restructuring expenses; foreign exchange gains/(losses) on proceeds from divestitures; benefits or expenses associated with the completion of tax audits; and other charges reflected in our reconciliation of historical non-GAAP financial measures, the amounts of which, based on past experience, could be material. For additional information regarding Novanta's non-GAAP financial measures, see "Use of Non-GAAP Financial Measures" below.

Conference Call Information

The Company will host a conference call on Wednesday, February 28, 2018 at 10:00 a.m. ET to discuss these results. To access the call, please dial (877) 870-4263 prior to the scheduled conference call time. The conference ID number is 10113487. Alternatively, the conference call can be accessed online via a live webcast on the Investor Relations section of the Company's website at www.novanta.com.

A playback of this conference call will be available beginning 12:00 p.m. ET, Wednesday, February 28, 2018. The playback phone number is (877) 344-7529 and the code number is 10113487. The playback will remain available until 11:00 p.m. ET, Wednesday, March 21, 2018.

A replay of the audio webcast will be available approximately three hours after the conclusion of the call on the Investor Relations section of the Company's website at www.novanta.com.

Use of Non-GAAP Financial Measures

The non-GAAP financial measures used in this press release are Organic Revenue Growth, Adjusted Gross Profit, Adjusted Gross Profit Margin, Adjusted Operating Income from Continuing Operations and Operating Margin, Adjusted Income from Continuing Operations before Income Taxes, Adjusted Income Tax Provision (Benefit) and Effective Tax Rate, Adjusted Net Income Attributable to Novanta Inc., Net of Tax, Adjusted Diluted EPS, Adjusted EBITDA, Adjusted EBITDA Margin, and Net Debt.

The Company believes that these non-GAAP financial measures provide useful and supplementary information to investors regarding the operating performance of the Company. It is management's belief that these non-GAAP financial measures would be particularly useful to investors because of the significant changes that have occurred outside of the Company's day-to-day business in accordance with the execution of the Company's strategy. This strategy includes streamlining the Company's existing operations through site and functional consolidations, strategic divestitures and product line closures, expanding the Company's business through significant internal investments, and broadening the Company's product and service offerings through acquisition of innovative and complementary technologies and solutions. The financial impact of certain elements of these activities, particularly acquisitions, divestitures, and site and functional restructurings, is often large relative to the Company's overall financial performance and can adversely affect the comparability of its operating results and investors' ability to analyze the business from period to period.

The Company's Adjusted EBITDA and Organic Revenue Growth are used by management to evaluate operating performance, communicate financial results to the Board of Directors, benchmark results against historical performance and the performance of peers, and evaluate investment opportunities including acquisitions and divestitures. In addition, Adjusted EBITDA and Organic Revenue Growth are used to determine bonus payments for senior management and employees. The Company also uses Adjusted Diluted EPS as a measurement for performance shares issued to certain executives. Accordingly, the Company believes that these non-GAAP measures provide greater transparency and insight into management's method of analysis.

Non-GAAP financial measures should not be considered as substitutes for, or superior to, measures of financial performance prepared in accordance with GAAP. They are limited in value because they exclude charges that have a material effect on the Company's reported results and, therefore, should not be relied upon as the sole financial measures to evaluate the Company's financial results. The non-GAAP financial measures are meant to supplement, and to be viewed in conjunction with, GAAP financial measures. Investors are encouraged to review the reconciliation of these non-GAAP financial measures to their most directly comparable GAAP financial measures as provided in the tables accompanying this press release.

Safe Harbor and Forward-Looking Information

Certain statements in this release are "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995 and are based on current expectations and assumptions that are subject to risks and uncertainties. All statements contained in this news release that do not relate to matters of historical fact should be considered forward-looking statements, and are generally identified by words such as "expect," "intend," "anticipate," "estimate," "believe," "future," "could," "should," "plan," "aim," and other similar expressions. These forward-looking statements include, but are not limited to, statements regarding reaching our 2020 strategic goals; executing our strategy; anticipated financial performance, including our updated financial outlook for the first quarter 2018; expectations regarding market conditions; expectations regarding the Company's future; and other statements that are not historical facts.

These forward-looking statements are neither promises nor guarantees, but involve risks and uncertainties that may cause actual results to differ materially from those contained in the forward-looking statements. Our actual results could differ materially from those anticipated in these forward-looking statements for many reasons, including, but not limited to, the following: economic and political conditions and the effects of these conditions on our customers' businesses and level of business activity; our significant dependence upon our customers' capital expenditures, which are subject to cyclical market fluctuations; our dependence upon our ability to respond to fluctuations in product demand; our ability to continually innovate and successfully commercialize our innovations; failure to introduce new products in a timely manner; customer order timing and other similar factors beyond our control; disruptions or breaches in security of our information technology systems; changes in interest rates, credit ratings or foreign currency exchange rates; risks associated with our operations in foreign countries; risks associated with increased outsourcing of components manufacturing; our failure to comply with local import and export regulations in the jurisdictions in which we operate; negative effects on global economic conditions, financial markets and our business as a result of the United Kingdom's impending withdrawal from the European Union and the actions of the current U.S. government; violations of our intellectual property rights and our ability to protect our intellectual property against infringement by third parties; risk of losing our competitive advantage; our failure to successfully integrate recent and future acquisitions into our businesses; our ability to attract and retain key personnel; our restructuring and realignment activities and disruptions to our operations as a result of consolidation of our operations; product defects or problems integrating our products with other vendors' products; disruptions in the supply of certain key components or other goods from our suppliers; failure to accurately forecast component and raw material requirements for our products; production difficulties and product delivery delays or disruptions; our compliance, or our failure to comply, with various federal, state and foreign regulations including rules and regulations issued by the U.S. Food and Drug Administration and similar international agencies; changes in governmental regulation of our businesses or products; our failure to comply with environmental regulations; our failure to implement new information technology systems and software successfully; our failure to realize the full value of our intangible assets; our exposure to the credit risk of some of our customers and in weakened markets; our reliance on third party distribution channels; being subject to U.S. federal income taxation even though we are a non-U.S. corporation; tax audits by tax authorities; changes in tax laws, and fluctuations in our effective tax rates; anticipated impact from the recently enacted Tax Cuts and Jobs Act in the U.S.; any need for additional capital to adequately respond to business challenges or opportunities and repay or refinance our existing indebtedness, which may not be available on acceptable terms or at all; our existing indebtedness limiting our ability to engage in certain activities; volatility in the market price for our common shares; our ability to access cash and other assets of our subsidiaries; provisions of our articles of incorporation may delay or prevent a change in control; and our failure to maintain appropriate internal controls in the future.

Other important risk factors that could affect the outcome of the events set forth in these statements and that could affect the Company's operating results and financial condition are discussed in Item 1A of our Annual Report on Form 10-K for the fiscal year ended December 31, 2016, our subsequent filings with the Securities and Exchange Commission ("SEC"), and in our future filings with the SEC. Such statements are based on the Company's beliefs and assumptions and on information currently available to the Company. The Company disclaims any obligation to update any forward-looking statements as a result of developments occurring after the date of this document except as required by law.

About Novanta

Novanta is a leading global supplier of core technology solutions that give healthcare and advanced industrial original equipment manufacturers ("OEMs") a competitive advantage. We combine deep proprietary technology expertise in photonics, vision, and precision motion with a proven ability to solve complex technical challenges. This enables Novanta to engineer core components and sub-systems that deliver extreme precision and performance, tailored to our customers' demanding applications. The driving force behind our growth is the team of innovative professionals who share a commitment to innovation and customer success. Novanta's common shares are quoted on Nasdaq under the ticker symbol "NOVT."

More information about Novanta is available on the Company's website at www.novanta.com.  For additional information, please contact Novanta Inc. Investor Relations at (781) 266-5137 or InvestorRelations@novanta.com.

Novanta Inc.
Investor Relations Contact:
Robert J. Buckley
(781) 266-5137

NOVANTA INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

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

(Unaudited)

 
 

Three Months Ended
December
 31,

   

Year Ended December 31,

 
 

2017

   

2016

   

2017

   

2016

 

Revenue

$

146,918

   

$

98,879

   

$

521,290

   

$

384,758

 

Cost of revenue

 

84,677

     

56,027

     

300,759

     

222,306

 

Gross profit

 

62,241

     

42,852

     

220,531

     

162,452

 

Operating expenses:

                             

Research and development and engineering

 

11,795

     

7,973

     

41,673

     

32,002

 

Selling, general and administrative

 

27,359

     

19,334

     

102,025

     

81,691

 

Amortization of purchased intangible assets

 

2,683

     

2,098

     

12,096

     

8,251

 

Restructuring, acquisition and divestiture related costs

 

1,310

     

2,117

     

7,542

     

7,945

 

Total operating expenses

 

43,147

     

31,522

     

163,336

     

129,889

 

Operating income from continuing operations

 

19,094

     

11,330

     

57,195

     

32,563

 

Interest income (expense), net

 

(2,291)

     

(1,088)

     

(7,165)

     

(4,559)

 

Foreign exchange transaction gains (losses), net

 

(271)

     

1,339

     

(447)

     

2,317

 

Other income (expense), net

 

38

     

502

     

142

     

2,201

 

Gain on acquisition of business

 

     

     

26,409

     

 

Income from continuing operations before income taxes

 

16,570

     

12,083

     

76,134

     

32,522

 

Income tax provision

 

6,893

     

4,327

     

13,827

     

10,519

 

Income from continuing operations

 

9,677

     

7,756

     

62,307

     

22,003

 

Loss from discontinued operations, net of tax

 

     

     

     

 

Consolidated net income

 

9,677

     

7,756

     

62,307

     

22,003

 

Less: Net income attributable to noncontrolling interest

 

(812)

     

     

(2,256)

     

 

Net income attributable to Novanta Inc.

$

8,865

   

$

7,756

   

$

60,051

   

$

22,003

 
                               

Earnings (loss) per common share from continuing operations:

                             

Basic

$

(0.00)

   

$

0.22

   

$

1.14

   

$

0.63

 

Diluted

$

(0.00)

   

$

0.22

   

$

1.13

   

$

0.63

 

Loss per common share from discontinued operations:

                             

Basic

$

   

$

   

$

   

$

 

Diluted

$

   

$

   

$

   

$

 

Earnings (loss) per common share attributable to Novanta Inc.

                             

Basic

$

(0.00)

   

$

0.22

   

$

1.14

   

$

0.63

 

Diluted

$

(0.00)

   

$

0.22

   

$

1.13

   

$

0.63

 
                               

Weighted average common shares outstanding—basic

 

34,842

     

34,706

     

34,817

     

34,694

 

Weighted average common shares outstanding—diluted

 

34,842

     

34,987

     

35,280

     

34,914

 

 

 

NOVANTA INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(In thousands of U.S. dollars)

(Unaudited)

 
 

December 31,

   

December 31,

 
 

2017

   

2016

 

ASSETS

             

Current Assets

             

Cash and cash equivalents

$

100,057

   

$

68,108

 

Accounts receivable, net

 

81,482

     

63,769

 

Inventories

 

91,278

     

59,745

 

Other current assets

 

15,062

     

7,628

 

Total current assets

 

287,879

     

199,250

 

Property, plant and equipment, net

 

61,718

     

35,421

 

Intangible assets, net

 

155,048

     

61,743

 

Goodwill

 

210,988

     

108,128

 

Other assets

 

11,070

     

21,095

 

Total assets

$

726,703

   

$

425,637

 

LIABILITIES, NONCONTROLLING INTEREST AND STOCKHOLDERS' EQUITY

             

Current Liabilities

             

Current portion of long-term debt

$

9,119

   

$

7,366

 

Accounts payable

 

39,793

     

32,213

 

Accrued expenses and other current liabilities

 

49,256

     

30,917

 

Total current liabilities

 

98,168

     

70,496

 

Long-term debt

 

225,500

     

70,554

 

Other long-term liabilities

 

44,567

     

25,717

 

Total liabilities

 

368,235

     

166,767

 

Redeemable noncontrolling interest

 

46,923

     

 

Stockholders' Equity:

             

Total stockholders' equity

 

311,545

     

258,870

 

Total liabilities, noncontrolling interest and stockholders' equity

$

726,703

   

$

425,637

 

 

 

NOVANTA INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands of U.S. dollars)

(Unaudited)

 
 

Three Months Ended
December
 31,

   

Year Ended December 31,

 
 

2017

   

2016

   

2017

   

2016

 

Cash flows from operating activities:

                             

Consolidated net income

$

9,677

   

$

7,756

   

$

62,307

   

$

22,003

 

Less: Loss from discontinued operations, net of tax

 

     

     

     

 

Income from continuing operations

 

9,677

     

7,756

     

62,307

     

22,003

 

Adjustments to reconcile income from continuing operations to net cash provided by operating activities of continuing operations:

                             

Depreciation and amortization

 

8,318

     

5,040

     

30,758

     

20,357

 

Share-based compensation

 

1,270

     

908

     

5,493

     

4,293

 

Gain on acquisition of business

 

     

     

(26,409)

     

 

Deferred income taxes

 

353

     

(1,928)

     

(2,560)

     

(1,766)

 

Earnings from equity-method investment

 

     

(493)

     

(104)

     

(2,191)

 

Dividend from equity-method investment

 

     

     

     

2,341

 

Inventory acquisition fair value adjustments

 

     

     

4,754

     

173

 

Other non-cash items

 

(144)

     

851

     

2,990

     

4,346

 

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

                             

Accounts receivable

 

1,782

     

(2,711)

     

(2,077)

     

(6,394)

 

Inventories

 

(1,781)

     

(1,447)

     

(13,587)

     

(2,917)

 

Other operating assets and liabilities

 

2,616

     

5,105

     

1,813

     

7,543

 

Net cash provided by operating activities of continuing operations

 

22,091

     

13,081

     

63,378

     

47,788

 

Net cash provided by operating activities of discontinued operations

 

     

     

     

 

Net cash provided by operating activities

 

22,091

     

13,081

     

63,378

     

47,788

 

Cash flows from investing activities:

                             

Purchases of property, plant and equipment

 

(2,592)

     

(1,457)

     

(9,094)

     

(8,462)

 

Acquisition of businesses, net of cash acquired and working capital adjustments

 

     

(6)

     

(168,332)

     

(8,958)

 

Acquisition of intangible assets

 

     

(3,980)

     

     

(3,980)

 

Proceeds from sale of property, plant and equipment

 

2

     

     

46

     

7,037

 

Net cash used in investing activities of continuing operations

 

(2,590)

     

(5,443)

     

(177,380)

     

(14,363)

 

Net cash provided by investing activities of discontinued operations

 

     

     

     

1,498

 

Net cash used in investing activities

 

(2,590)

     

(5,443)

     

(177,380)

     

(12,865)

 

Cash flows from financing activities:

                             

Borrowings under revolving credit facility

 

     

     

176,769

     

 

Repayments of long-term debt and revolving credit facility

 

(11,300)

     

(1,875)

     

(26,925)

     

(16,250)

 

Other financing activities

 

(468)

     

(184)

     

(6,514)

     

(6,939)

 

Net cash provided by (used in) financing activities of continuing operations

 

(11,768)

     

(2,059)

     

143,330

     

(23,189)

 

Net cash provided by (used in) financing activities of discontinued operations

 

     

     

     

 

Net cash provided by (used in) financing activities

 

(11,768)

     

(2,059)

     

143,330

     

(23,189)

 

Effect of exchange rates on cash and cash equivalents

 

175

     

(2,210)

     

2,621

     

(3,585)

 

Increase in cash and cash equivalents

 

7,908

     

3,369

     

31,949

     

8,149

 

Cash and cash equivalents, beginning of period

 

92,149

     

64,739

     

68,108

     

59,959

 

Cash and cash equivalents, end of period

$

100,057

   

$

68,108

   

$

100,057

   

$

68,108

 

 

 

NOVANTA INC.

Revenue by Reportable Segment

 (In thousands of U.S. dollars)

(Unaudited)

 
 

Three Months Ended December 31,

   

Year Ended December 31,

 
 

2017

   

2016

   

2017

   

2016

 

Revenue

                             

Photonics

$

61,856

   

$

44,251

   

$

232,359

   

$

174,158

 

Vision

 

58,131

     

33,482

     

183,074

     

122,250

 

Precision Motion

 

26,931

     

21,146

     

105,857

     

88,350

 

Total

$

146,918

   

$

98,879

   

$

521,290

   

$

384,758

 

 

 

NOVANTA INC.

Reconciliation of GAAP to Non-GAAP Financial Measures

(In thousands of U.S. dollars)

(Unaudited)

 

Adjusted Gross Profit and Adjusted Gross Profit Margin by Segment (Non-GAAP):

 
 

Three Months Ended December 31,

   

Year Ended December 31,

 
 

2017

   

2016

   

2017

   

2016

 

Photonics

                             

Gross Profit (GAAP)

$

28,694

   

$

19,235

   

$

106,117

   

$

76,696

 

Gross Profit Margin (GAAP)

 

46.4

%

   

43.5

%

   

45.7

%

   

44.0

%

Amortization of intangible assets

 

1,020

     

383

     

4,005

     

1,535

 

Acquisition fair value adjustments

 

     

     

699

     

 

Adjusted Gross Profit (Non-GAAP)

$

29,714

   

$

19,618

   

$

110,821

   

$

78,231

 

Adjusted Gross Profit Margin (Non-GAAP)

 

48.0

%

   

44.3

%

   

47.7

%

   

44.9

%

                               

Vision

                             

Gross Profit (GAAP)

$

21,871

   

$

14,735

   

$

69,249

   

$

47,181

 

Gross Profit Margin (GAAP)

 

37.6

%

   

44.0

%

   

37.8

%

   

38.6

%

Inventory related charges for discontinuation of Radiology products

 

     

     

     

1,370

 

Amortization of intangible assets

 

1,636

     

515

     

4,460

     

2,222

 

Acquisition fair value adjustments

 

     

     

4,055

     

205

 

Adjusted Gross Profit (Non-GAAP)

$

23,507

   

$

15,250

   

$

77,764

   

$

50,978

 

Adjusted Gross Profit Margin (Non-GAAP)

 

40.4

%

   

45.5

%

   

42.5

%

   

41.7

%

                               

Precision Motion

                             

Gross Profit (GAAP)

$

12,006

   

$

9,287

   

$

46,564

   

$

40,044

 

Gross Profit Margin (GAAP)

 

44.6

%

   

43.9

%

   

44.0

%

   

45.3

%

Amortization of intangible assets

 

90

     

102

     

359

     

407

 

Acquisition fair value adjustments

 

     

     

     

 

Adjusted Gross Profit (Non-GAAP)

$

12,096

   

$

9,389

   

$

46,923

   

$

40,451

 

Adjusted Gross Profit Margin (Non-GAAP)

 

44.9

%

   

44.4

%

   

44.3

%

   

45.8

%

                               

Unallocated Corporate and Shared Services

                             

Gross Profit (GAAP)

$

(330)

   

$

(405)

   

$

(1,399)

   

$

(1,469)

 

Amortization of intangible assets

 

     

     

     

 

Acquisition fair value adjustments

 

     

     

     

 

Adjusted Gross Profit (Non-GAAP)

$

(330)

   

$

(405)

   

$

(1,399)

   

$

(1,469)

 
                               

Novanta Inc.

                             

Gross Profit (GAAP)

$

62,241

   

$

42,852

   

$

220,531

   

$

162,452

 

Gross Profit Margin (GAAP)

 

42.4

%

   

43.3

%

   

42.3

%

   

42.2

%

Inventory related charges for discontinuation of Radiology products

 

     

     

     

1,370

 

Amortization of intangible assets

 

2,746

     

1,000

     

8,824

     

4,164

 

Acquisition fair value adjustments

 

     

     

4,754

     

205

 

Adjusted Gross Profit (Non-GAAP)

$

64,987

   

$

43,852

   

$

234,109

   

$

168,191

 

Adjusted Gross Profit Margin (Non-GAAP)

 

44.2

%

   

44.3

%

   

44.9

%

   

43.7

%

 

 

NOVANTA INC.

Reconciliation of GAAP to Non-GAAP Financial Measures

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

(Unaudited)

 

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

 
 

Three Months Ended December 31, 2017

 
 

Operating Income from Continuing Operations

   

Operating Margin

   

Income from Continuing Operations before Income Taxes

   

Income Tax Provision

   

Effective Tax Rate

   

Net Income Attributable to Novanta Inc., Net of Tax

   

Diluted EPS

 

GAAP results

$

19,094

     

13.0

%

 

$

16,570

   

$

6,893

     

41.6

%

 

$

8,865

         

Less: Adjustment of redeemable noncontrolling interest to estimated redemption value

                                         

(8,941)

         

Net income (loss) attributable to Novanta Inc. after adjustment of redeemable noncontrolling interest to estimated redemption value

                                       

$

(76)

   

$

(0.00)

 

Adjustment of redeemable noncontrolling interest to estimated redemption value

                                         

8,941

     

0.25

 

Net income attributable to Novanta Inc.

                                       

$

8,865

         

Non-GAAP Adjustments:

                                                     

Amortization of intangible assets

 

5,429

     

3.7

%

   

5,429

                                 

Restructuring, divestiture and other costs

 

146

     

0.1

%

   

146

                                 

Acquisition related costs

 

1,164

     

0.8

%

   

1,164

                                 

Tax effect on non-GAAP adjustments

                         

2,845

                         

Non-GAAP tax adjustments

                         

(2,584)

                         

Total non-GAAP adjustments

 

6,739

     

4.6

%

   

6,739

     

261

             

6,478

     

0.19

 
                                                       

Adjusted results (Non-GAAP)

$

25,833

     

17.6

%

 

$

23,309

   

$

7,154

     

30.7

%

 

$

15,343

   

$

0.44

 
                                                       

Weighted average shares outstanding - Diluted

                                                 

34,842

 

 

 

NOVANTA INC.

Reconciliation of GAAP to Non-GAAP Financial Measures

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

(Unaudited)

 

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

 
 

Three Months Ended December 31, 2016

 
 

Operating Income from Continuing Operations

   

Operating Margin

   

Income from Continuing Operations before Income Taxes

   

Income Tax Provision

   

Effective Tax Rate

   

Net Income Attributable to Novanta Inc., Net of Tax

   

Diluted EPS

 

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

 

 

 

NOVANTA INC.

Reconciliation of GAAP to Non-GAAP Financial Measures

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

(Unaudited)

 

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

 
 

Year Ended December 31, 2017

 
 

Operating Income from Continuing Operations

   

Operating Margin

   

Income from Continuing Operations before Income Taxes

   

Income Tax Provision

   

Effective Tax Rate

   

Net Income Attributable to Novanta Inc., Net of Tax

   

Diluted EPS

 

GAAP results

$

57,195

     

11.0

%

 

$

76,134

   

$

13,827

     

18.2

%

 

$

60,051

         

Less: Adjustment of redeemable noncontrolling interest to estimated redemption value

                                         

(20,244)

         

Net income attributable to Novanta Inc. after adjustment of redeemable noncontrolling interest to estimated redemption value

                                       

$

39,807

   

$

1.13

 

Adjustment of redeemable noncontrolling interest to estimated redemption value

                                         

20,244

     

0.57

 

Net income attributable to Novanta Inc.

                                       

$

60,051

         

Non-GAAP Adjustments:

                                                     

Amortization of intangible assets

 

20,920

     

4.0

%

   

20,920

                                 

Restructuring, divestiture and other costs

 

346

     

0.0

%

   

346

                                 

Acquisition related costs

 

7,196

     

1.4

%

   

7,196

                                 

Acquisition fair value adjustments

 

4,754

     

0.9

%

   

4,754

                                 

Gain on acquisition of business

                 

(26,409)

                                 

Tax effect on non-GAAP adjustments

                         

9,641

                         

Non-GAAP tax adjustments

                         

759

                         

Total non-GAAP adjustments

 

33,216

     

6.3

%

   

6,807

     

10,400

             

(3,593)

     

(0.10)

 
                                                       

Adjusted results (Non-GAAP)

$

90,411

     

17.3

%

 

$

82,941

   

$

24,227

     

29.2

%

 

$

56,458

   

$

1.60

 
                                                       

Weighted average shares outstanding - Diluted

                                                 

35,280

 

 

 

NOVANTA INC.

Reconciliation of GAAP to Non-GAAP Financial Measures

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

(Unaudited)

 

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

 
 

Year Ended December 31, 2016

 
 

Operating Income from Continuing Operations

   

Operating Margin

   

Income from Continuing Operations before Income Taxes

   

Income Tax Provision

   

Effective Tax Rate

   

Net Income Attributable to Novanta Inc., Net of Tax

   

Diluted EPS

 

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

 

 

 

 

 

NOVANTA INC.

 

Reconciliation of GAAP to Non-GAAP Financial Measures

 

(In thousands of U.S. dollars)

 

(Unaudited)

   

Adjusted EBITDA (Non-GAAP):

   
   

Three Months Ended December 31,

   

Year Ended December 31,

 
   

2017

   

2016

   

2017

   

2016

 
 

Consolidated Net Income (GAAP)

$

9,677

   

$

7,756

   

$

62,307

   

$

22,003

 
 

Net Income Margin

 

6.6

%

   

7.8

%

   

12.0

%

   

5.7

%

 

Interest (income) expense, net

 

2,291

     

1,088

     

7,165

     

4,559

 
 

Income tax provision

 

6,893

     

4,327

     

13,827

     

10,519

 
 

Depreciation and amortization

 

8,318

     

5,040

     

30,758

     

20,357

 
 

Share-based compensation

 

1,270

     

908

     

5,493

     

4,293

 
 

Restructuring, acquisition and divestiture related costs

 

1,310

     

2,117

     

7,542

     

7,945

 
 

Inventory related charges for discontinuation of Radiology products

 

     

     

     

1,370

 
 

Acquisition fair value adjustments

 

     

     

4,754

     

205

 
 

CEO transition costs

 

     

25

     

     

1,306

 
 

Gain on acquisition of business

 

     

     

(26,409)

     

 
 

Other, net

 

233

     

(1,841)

     

305

     

(4,518)

 
 

Adjusted EBITDA (Non-GAAP)

$

29,992

   

$

19,420

   

$

105,742

   

$

68,039

 
 

Adjusted EBITDA Margin (Non-GAAP)

 

20.4

%

   

19.6

%

   

20.3

%

   

17.7

%

   
   

Net Debt (Non-GAAP):

   
   

December 31, 2017

   

December 31, 2016

 
 

Total Debt (GAAP)

$

234,619

   

$

77,920

 
 

Plus: Deferred financing costs

 

3,159

     

3,330

 
 

Gross Debt

 

237,778

     

81,250

 
 

Less: cash and cash equivalents

 

(100,057)

     

(68,108)

 
 

Net Debt (Non-GAAP)

$

137,721

   

$

13,142

 
   

Organic Revenue Growth (Non-GAAP):

   
   

Three Months Ended
December 31, 2017
Compared to Three
Months Ended
December 31, 2016

   

Twelve Months Ended
December 31, 2017
Compared to Twelve
Months Ended
December 31, 2016

 
 

Reported growth (GAAP)

 

48.6

%

   

35.5

%

 

Less: Change attributable to acquisitions

 

39.5

%

   

27.5

%

 

Plus: Change due to foreign currency

 

(0.8)

%

   

0.5

%

 

Organic growth (Non-GAAP)

 

8.3

%

   

8.5

%

 

 

 

 

Non-GAAP Measures

Organic Revenue Growth

We define the term "organic revenue" as revenue excluding the impact from business acquisitions, divestitures, product line discontinuations, and the effect of foreign currency translation. We use the related term "organic revenue growth" to refer to the financial performance metric of comparing current period organic revenue with the reported revenue of the corresponding period in the prior year. We believe that this non-GAAP measure, when taken together with our GAAP financial measures, allows us and our investors to better measure our performance and evaluate long-term performance trends. Organic revenue growth also facilitates easier comparisons of our performance with prior and future periods and relative comparisons to our peers. We exclude the effect of foreign currency translation from these measures because foreign currency translation is subject to volatility and can obscure underlying trends. We exclude the effect of acquisitions and divestitures because these activities can vary dramatically between reporting periods and between us and our peers, which we believe makes comparisons of long-term performance trends difficult for management and investors. Beginning in 2017, Organic Revenue Growth is also used as a performance metric to determine bonus payments for senior management and employees.

Adjusted Gross Profit and Adjusted Gross Profit Margin

The calculation of Adjusted Gross Profit and Adjusted Gross Profit Margin is displayed in the tables above. Adjusted Gross Profit and Adjusted Gross Profit Margin excludes amortization of acquired intangible assets, inventory and deferred revenue fair value adjustments from business acquisitions because: (1) the amounts are non-cash; (2) the Company cannot influence the timing and amount of future expense recognition; and (3) excluding such expenses provides investors and management better visibility into the components of operating costs. In addition, the Company excluded prior year inventory related charges associated with a product line closure as these costs occurred outside the Company's day-to-day business for the reasons described above in the introductory paragraphs of the "Use of Non-GAAP Financial Measures".

Adjusted Operating Income from Continuing Operations and Adjusted Operating Margin

The calculation of Adjusted Operating Income from Continuing Operations and Adjusted Operating Margin is displayed in the tables above. Adjusted Operating Income from Continuing Operations and Adjusted Operating Margin exclude amortization of acquired intangible assets, inventory and deferred revenue fair value adjustments related to business acquisitions because: (1) the amounts are non-cash; (2) the Company cannot influence the timing and amount of future expense recognition; and (3) excluding such expenses provides investors and management better visibility into the components of operating costs.  The Company also excluded prior year CEO transition costs related to CEO succession, prior year inventory related charges associated with a product line closure, and restructuring, acquisition and divestiture related costs due to the significant changes that have occurred outside of the Company's day-to-day business for the reasons described above in the introductory paragraphs of the "Use of Non-GAAP Financial Measures."

Adjusted Income from Continuing Operations before Income Taxes

The calculation of Adjusted Income from Continuing Operations before Income Taxes is displayed in the tables above.  The calculation of Adjusted Income from Continuing Operations before Income Taxes excludes amortization of acquired intangible assets, inventory and deferred revenue fair value adjustments related to business acquisitions, prior year CEO transition costs related to CEO succession, prior year inventory related charges associated with a product line closure, and restructuring, acquisition and divestiture related costs for the reasons described for Adjusted Operating Income from Continuing Operations and Adjusted Operating Margin above.

Non-GAAP Income Tax Provision and Effective Tax Rate

The Non-GAAP Income Tax Provision and Effective Tax Rate are calculated based on the Adjusted Income from Continuing Operations before Income Taxes by jurisdiction and the applicable tax rates currently in effect for the respective jurisdictions. In addition, the Company excluded significant discrete income tax expenses (benefits) related to releases of valuation allowances, benefits or expenses associated with the completion of tax audits, effects of changes in tax laws, effects of acquisition related tax planning actions on our effective tax rate, and the income tax effect of non-GAAP adjustments discussed above.

Adjusted Net Income Attributable to Novanta Inc., Net of Tax

The calculation of Adjusted Net Income Attributable to Novanta Inc., net of tax, is displayed in the tables above.  Because pre-tax income is included in determining net income attributable to Novanta Inc., net of tax, the calculation of Adjusted Net Income Attributable to Novanta Inc., net of tax, also excludes amortization of acquired intangible assets, inventory and deferred revenue fair value adjustments related to business acquisitions, prior year CEO transition costs related to CEO succession, prior year inventory related charges associated with a product line closure, and restructuring, acquisition and divestiture related costs for the reasons described for Adjusted Income from Continuing Operations before Income Taxes. In addition, the Company excluded significant discrete income tax expenses (benefits) related to releases of valuation allowances, benefits or expenses associated with the completion of tax audits, effects of changes in tax laws, effects of acquisition related tax planning actions on our effective tax rate, and the income tax effect of non-GAAP adjustments discussed above.

Adjusted Diluted EPS

The calculation of Adjusted Diluted EPS is displayed in the tables above.  Because Net Income Attributable to Novanta Inc., net of tax, is used in the diluted EPS calculation, the calculation of Adjusted Diluted EPS excludes amortization of acquired intangible assets, inventory and deferred revenue fair value adjustments related to business acquisitions, prior year CEO transition costs related to CEO succession, prior year inventory related charges associated with a product line closure, restructuring, acquisition and divestiture related costs, significant discrete income tax expenses (benefits) related to releases of valuation allowances, benefits or expenses associated with the completion of tax audits, effects of changes in tax laws, effects of acquisition related tax planning actions on our effective tax rate, and the income tax effect of non-GAAP adjustments for the reasons described above for Adjusted Net Income Attributable to Novanta Inc., net of tax.  In addition, the Company excluded the adjustment of redeemable noncontrolling interest to estimated redemption value as (1) the adjustment is unusual; (2) the amount is noncash; (3) the amount does not represent a measure of earnings and is excluded from the determination of net income attributable to Novanta Inc.; and (4) the Company believes it may not be indicative of future adjustments and that investors may benefit from an understanding of the Company's operating results without giving effect to this adjustment.

Adjusted EBITDA and Adjusted EBITDA Margin

The Company defines Adjusted EBITDA as the consolidated net income before deducting interest (income) expense, income taxes, depreciation, amortization, non-cash share-based compensation, restructuring, acquisition and divestiture related costs, acquisition fair value adjustments, prior year CEO transition costs, prior year inventory related charges associated with a product line closure, and other non-operating income (expense) items, including foreign exchange gains (losses) and earnings from an equity-method investment for the reasons described above in the introductory paragraphs of the "Use of Non-GAAP Financial Measures."

Adjusted EBITDA includes 100% of the results of our consolidated subsidiaries and therefore does not exclude the Adjusted EBITDA attributable to noncontrolling interests.

Adjusted EBITDA Margin is defined as Adjusted EBITDA as a percentage of Revenue.

In evaluating Adjusted EBITDA and Adjusted EBITDA Margin, you should be aware that in the future the Company may incur expenses that are the same as, or similar to, some of the adjustments in this presentation.

Net Debt

The Company defines Net Debt as its total debt as reported on the consolidated balance sheet as of the end of the period plus unamortized deferred financing costs and less its cash and cash equivalents. Management uses Net Debt to monitor the Company's outstanding debt obligations that could not be satisfied by its cash and cash equivalents on hand.

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SOURCE Novanta Inc.


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