BEDFORD, Mass.--(BUSINESS WIRE)--Novanta Inc. (Nasdaq: NOVT) (the “Company”), a trusted technology partner to medical and advanced technology equipment manufacturers, today reported financial results for the third quarter 2018.
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Financial Highlights |
Three Months Ended | ||||||||
| (In millions, except per share amounts) | September 28, | September 29, | |||||||
| 2018 | 2017 | ||||||||
| GAAP | |||||||||
| Revenue | $ | 160.8 | $ | 146.3 | |||||
| Operating Income | $ | 21.0 | $ | 12.4 | |||||
| Net Income Attributable to Novanta Inc. | $ | 14.6 | $ | 7.5 | |||||
| Diluted EPS | $ | 0.60 | $ | (0.00 | ) | ||||
| Non-GAAP* | |||||||||
| Adjusted Operating Income | $ | 29.8 | $ | 25.9 | |||||
| Adjusted Diluted EPS | $ | 0.61 | $ | 0.45 | |||||
| Adjusted EBITDA | $ | 34.2 | $ | 30.3 | |||||
*Reconciliations of GAAP to non-GAAP financial measures, as well as definitions for the non-GAAP financial measures included in this press release and the reasons for their use, are presented below.
Third Quarter
"We are very pleased with our company’s performance in the third quarter,” said Matthijs Glastra, Chief Executive Officer of Novanta. “We delivered record performance from a top line and bottom line perspective. Reported growth was very solid at 10% and our Adjusted EPS and Free Cash Flow showed impressive growth. Despite a more uncertain economic climate, we are confident in the strength of our business model and our team’s ability to execute.”
During the third quarter of 2018, Novanta generated GAAP revenue of $160.8 million, an increase of $14.5 million, or 9.9%, versus the third quarter of 2017. The Company’s acquisition activities resulted in an increase in revenue of $3.2 million, or 2.2%, compared to the third quarter of 2017. Changes in foreign currency exchange rates year over year adversely impacted our revenue by $0.5 million, or 0.3%, during the third quarter of 2018. Our Organic Revenue Growth, which excludes the net impact of acquisitions and changes in foreign currency exchange rates, increased 8.0%, versus the third quarter of 2017 (see “Organic Revenue Growth” in the non-GAAP reconciliation below).
In the third quarter of 2018, GAAP operating income was $21.0 million, compared to $12.4 million in the third quarter of 2017. GAAP net income attributable to Novanta was $14.6 million in the third quarter of 2018, compared to $7.5 million in the third quarter of 2017. GAAP diluted earnings per share (“EPS”) was $0.60 in the third quarter of 2018, compared to ($0.00) in the third quarter of 2017. In the third quarter of 2018, the Company purchased the remaining equity interest in Laser Quantum, resulting in a reversal of $6.9 million of the previously recorded redemption value adjustment to reduce the carrying value of the noncontrolling interest to the actual purchase price. This nontaxable adjustment was recognized in retained earnings instead of net income, but resulted in a $0.19 increase in EPS under U.S. GAAP accounting rules.
Adjusted Diluted EPS was $0.61 in the third quarter of 2018, compared to $0.45 in the third quarter of 2017. The Company ended the third quarter of 2018 with 35.5 million weighted average shares outstanding. Adjusted EBITDA was $34.2 million in the third quarter of 2018, compared to $30.3 million in the third quarter of 2017.
Operating cash flow for the third quarter of 2018 was $27.4 million, compared to $11.8 million for the third quarter of 2017. The Company completed the third quarter of 2018 with approximately $256.4 million of total debt and $111.8 million of total cash. Net Debt, as defined in the non-GAAP reconciliation below, was $147.1 million.
Share Repurchase Authorization
Novanta’s Board of Directors has authorized a new share repurchase program under which the Company may repurchase up to $25 million worth of its common shares. The new program will commence after Novanta completes an existing $10 million share repurchase program, of which approximately $2 million remains available for future share repurchases. The shares may be repurchased under the new program from time to time at the Company’s discretion, based on ongoing assessment of the capital needs of the business, the market price of its common stock, and general market conditions. The Company expects that share repurchases will be made pursuant to a program adopted under Rule 10b-18 under the Securities Exchange Act of 1934, as amended.
The share repurchase programs do not obligate the Company to acquire any particular amount of common stock. No time limit is set for the completion of the share repurchase programs, and the programs may be suspended or discontinued at any time. The Company expects to fund the share repurchases through cash on hand and future cash flow from operations.
Financial Outlook
For the full year 2018, the Company expects GAAP revenue of approximately $610 million to $614 million, Adjusted EBITDA in the range of $122 million to $124 million, and Adjusted Diluted EPS to be in the range of $2.07 to $2.12. The Company’s Adjusted Diluted EPS and Adjusted EBITDA guidance assumes no significant changes in foreign exchange rates.
Novanta provides earnings guidance on a non-GAAP basis and does not provide earnings guidance on a GAAP basis, with the exception of GAAP revenue guidance. A reconciliation of the Company’s forward-looking Adjusted EBITDA and Adjusted EPS guidance to the most directly comparable GAAP financial measures is not provided because of the inherent difficulty in forecasting and quantifying certain amounts that are necessary for such reconciliations, including adjustments that could be made for noncontrolling interest redemption value adjustments; significant discrete income tax expenses (benefits); divestiture related expenses; acquisition related expenses; impact of purchase price allocations for recently completed acquisitions; gains and losses from sale of real estate assets; costs related to product line closures; future changes in the fair value of contingent considerations; intangible asset impairment charges and related asset write-offs; future restructuring expenses; foreign exchange gains/(losses) on proceeds from divestitures; benefits or expenses associated with the completion of tax audits; and other charges reflected in our reconciliation of historical non-GAAP financial measures, the amounts of which, based on past experience, could be material. For additional information regarding Novanta’s non-GAAP financial measures, see “Use of Non-GAAP Financial Measures” below.
Conference Call Information
The Company will host a conference call at 10:00 a.m. ET on Tuesday, November 6, 2018 to discuss these results. To access the call, please dial (877) 870-4263 prior to the scheduled conference call time. Alternatively, the conference call can be accessed online via a live webcast on the Presentations and Events page of the Investor Relations section of the Company's website at www.novanta.com.
A replay of the audio webcast will be available approximately three hours after the conclusion of the call on the Investor Relations section of the Company's website at www.novanta.com. The replay will remain available until Friday, January 4, 2019.
Use of Non-GAAP Financial Measures
The non-GAAP financial measures used in this press release are Organic Revenue Growth, Adjusted Gross Profit, Adjusted Gross Profit Margin, Adjusted Operating Income and Operating Margin, Adjusted Income before Income Taxes, Adjusted Income Tax Provision and Effective Tax Rate, Adjusted Net Income Attributable to Novanta Inc., Net of Tax, Adjusted Diluted EPS, Adjusted EBITDA, Adjusted EBITDA Margin, Free Cash Flow and Net Debt.
The Company believes that these non-GAAP financial measures provide useful and supplementary information to investors regarding the operating performance of the Company. It is management’s belief that these non-GAAP financial measures would be particularly useful to investors because of the significant changes that have occurred outside of the Company’s day-to-day business in accordance with the execution of the Company’s strategy. This strategy includes streamlining the Company’s existing operations through site and functional consolidations, strategic divestitures and product line closures, expanding the Company’s business through significant internal investments, and broadening the Company’s product and service offerings through acquisition of innovative and complementary technologies and solutions. The financial impact of certain elements of these activities, particularly acquisitions, divestitures, and site and functional restructurings, is often large relative to the Company’s overall financial performance and can adversely affect the comparability of its operating results and investors’ ability to analyze the business from period to period.
The Company’s Adjusted EBITDA and Organic Revenue Growth are used by management to evaluate operating performance, communicate financial results to the Board of Directors, benchmark results against historical performance and the performance of peers, and evaluate investment opportunities, including acquisitions and divestitures. In addition, Adjusted EBITDA and Organic Revenue Growth are used to determine bonus payments for senior management and employees. The Company also uses Adjusted Diluted EPS as a measurement for performance shares issued to certain executives. Accordingly, the Company believes that these non-GAAP measures provide greater transparency and insight into management’s method of analysis.
Non-GAAP financial measures should not be considered as substitutes for, or superior to, measures of financial performance prepared in accordance with GAAP. They are limited in value because they exclude charges that have a material effect on the Company’s reported results and, therefore, should not be relied upon as the sole financial measures to evaluate the Company’s financial results. The non-GAAP financial measures are meant to supplement, and to be viewed in conjunction with, GAAP financial measures. Investors are encouraged to review the reconciliation of these non-GAAP financial measures to their most directly comparable GAAP financial measures as provided in the tables accompanying this press release.
Safe Harbor and Forward-Looking Information
Certain statements in this release are “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995 and are based on current expectations and assumptions that are subject to risks and uncertainties. All statements contained in this news release that do not relate to matters of historical fact should be considered forward-looking statements, and are generally identified by words such as “expect,” “intend,” “anticipate,” “estimate,” “believe,” “future,” “could,” “should,” “plan,” “aim,” and other similar expressions. These forward-looking statements include, but are not limited to, statements regarding our ability to deliver strong full year growth; being positioned well in a number of secular growth market categories; our share repurchase programs, including that share repurchases will be made pursuant to a program adopted under Rule 10b-18; executing our strategy; anticipated financial performance, including our financial outlook for the full year 2018; expectations regarding market conditions; expectations regarding the Company’s future; and other statements that are not historical facts.
These forward-looking statements are neither promises nor guarantees, but involve risks and uncertainties that may cause actual results to differ materially from those contained in the forward-looking statements. Our actual results could differ materially from those anticipated in these forward-looking statements for many reasons, including, but not limited to, the following: economic and political conditions and the effects of these conditions on our customers’ businesses and level of business activity; our significant dependence upon our customers’ capital expenditures, which are subject to cyclical market fluctuations; our dependence upon our ability to respond to fluctuations in product demand; our ability to continually innovate and successfully commercialize our innovations; failure to introduce new products in a timely manner; customer order timing and other similar factors beyond our control; disruptions or breaches in security of our information technology systems; changes in interest rates, credit ratings or foreign currency exchange rates; risks associated with our operations in foreign countries; risks associated with increased outsourcing of components manufacturing; our failure to comply with local import and export regulations in the jurisdictions in which we operate; negative effects on global economic conditions, financial markets and our business as a result of the United Kingdom’s impending withdrawal from the European Union and the actions of the current U.S. government, including its policies on trade tariffs and reactions from other countries to any new tariffs imposed by the U.S.; violations of our intellectual property rights and our ability to protect our intellectual property against infringement by third parties; risk of losing our competitive advantage; our failure to successfully integrate recent and future acquisitions into our businesses; our ability to attract and retain key personnel; our restructuring and realignment activities and disruptions to our operations as a result of consolidation of our operations; product defects or problems integrating our products with other vendors’ products; disruptions in the supply of certain key components or other goods from our suppliers; production difficulties and product delivery delays or disruptions; our exposure to medical device regulation, which may impede or hinder the approval or sale of our products and, in some cases, may ultimately result in an inability to obtain approval of certain products or may result in the recall or seizure of previously approved products; changes in governmental regulation of our businesses or products; our failure to comply with environmental regulations; our failure to implement new information technology systems and software successfully; our failure to realize the full value of our intangible assets; our exposure to the credit risk of some of our customers and in weakened markets; our reliance on third party distribution channels; being subject to U.S. federal income taxation even though we are a non-U.S. corporation; tax audits by tax authorities; changes in tax laws, and fluctuations in our effective tax rates; anticipated impact from the U.S. Tax Cuts and Jobs Act; any need for additional capital to adequately respond to business challenges or opportunities and repay or refinance our existing indebtedness, which may not be available on acceptable terms or at all; our existing indebtedness limiting our ability to engage in certain activities; volatility in the market price for our common shares; our ability to access cash and other assets of our subsidiaries; provisions of our articles of incorporation that may delay or prevent a change in control; and our failure to maintain appropriate internal controls in the future.
Other important risk factors that could affect the outcome of the events set forth in these statements and that could affect the Company’s operating results and financial condition are discussed in Item 1A of our Annual Report on Form 10-K for the fiscal year ended December 31, 2017, our subsequent filings with the Securities and Exchange Commission (“SEC”), and in our future filings with the SEC. Such statements are based on the Company’s beliefs and assumptions and on information currently available to the Company. The Company disclaims any obligation to update any forward-looking statements as a result of developments occurring after the date of this document except as required by law.
About Novanta
Novanta is a leading global supplier of core technology solutions that give medical and advanced industrial original equipment manufacturers (“OEMs”) a competitive advantage. We combine deep proprietary technology expertise and competencies in photonics, vision, and precision motion with a proven ability to solve complex technical challenges. This enables Novanta to engineer core components and sub-systems that deliver extreme precision and performance, tailored to our customers' demanding applications. The driving force behind our growth is the team of innovative professionals who share a commitment to innovation and customer success. Novanta’s common shares are quoted on Nasdaq under the ticker symbol “NOVT.”
More information about Novanta is available on the Company’s website at www.novanta.com. For additional information, please contact Novanta Investor Relations at (781) 266-5137 or InvestorRelations@novanta.com.
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NOVANTA INC.
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| Three Months Ended | ||||||||||
| September 28, | September 29, | |||||||||
| 2018 | 2017 | |||||||||
| Revenue | $ | 160,794 | $ | 146,296 | ||||||
| Cost of revenue | 91,160 | 87,589 | ||||||||
| Gross profit | 69,634 | 58,707 | ||||||||
| Operating expenses: | ||||||||||
| Research and development and engineering | 13,204 | 11,659 | ||||||||
| Selling, general and administrative | 29,147 | 27,590 | ||||||||
| Amortization of purchased intangible assets | 3,947 | 3,217 | ||||||||
| Restructuring, acquisition and divestiture related costs | 2,341 | 3,834 | ||||||||
| Total operating expenses | 48,639 | 46,300 | ||||||||
| Operating income | 20,995 | 12,407 | ||||||||
| Interest income (expense), net | (2,396 | ) | (2,111 | ) | ||||||
| Foreign exchange transaction gains (losses), net | 66 | (661 | ) | |||||||
| Other income (expense), net | (44 | ) | (138 | ) | ||||||
| Income before income taxes | 18,621 | 9,497 | ||||||||
| Income tax provision | 3,632 | 1,131 | ||||||||
| Consolidated net income | 14,989 | 8,366 | ||||||||
| Less: Net income attributable to noncontrolling interest | (435 | ) | (834 | ) | ||||||
| Net income attributable to Novanta Inc. | $ | 14,554 | $ | 7,532 | ||||||
| Earnings (loss) per common share attributable to Novanta Inc.: | ||||||||||
| Basic | $ | 0.61 | $ | (0.00 | ) | |||||
| Diluted | $ | 0.60 | $ | (0.00 | ) | |||||
| Weighted average common shares outstanding—basic | 34,899 | 34,833 | ||||||||
| Weighted average common shares outstanding—diluted | 35,485 | 34,833 | ||||||||
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NOVANTA INC.
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| September 28, | December 31, | |||||||
| 2018 | 2017 | |||||||
| ASSETS | ||||||||
| Current Assets | ||||||||
| Cash and cash equivalents | $ | 111,814 | $ | 100,057 | ||||
| Accounts receivable, net | 88,921 | 81,482 | ||||||
| Inventories | 98,917 | 91,278 | ||||||
| Prepaid expenses and other current assets | 13,522 | 15,062 | ||||||
| Total current assets | 313,174 | 287,879 | ||||||
| Property, plant and equipment, net | 66,204 | 61,718 | ||||||
| Intangible assets, net | 150,648 | 155,048 | ||||||
| Goodwill | 219,772 | 210,988 | ||||||
| Other assets | 9,638 | 11,070 | ||||||
| Total assets | $ | 759,436 | $ | 726,703 | ||||
| LIABILITIES, NONCONTROLLING INTEREST AND STOCKHOLDERS’ EQUITY | ||||||||
| Current Liabilities | ||||||||
| Current portion of long-term debt | $ | 9,131 | $ | 9,119 | ||||
| Accounts payable | 48,306 | 39,793 | ||||||
| Accrued expenses and other current liabilities | 51,065 | 49,256 | ||||||
| Total current liabilities | 108,502 | 98,168 | ||||||
| Long-term debt | 247,293 | 225,500 | ||||||
| Other long-term liabilities | 43,965 | 44,567 | ||||||
| Total liabilities | 399,760 | 368,235 | ||||||
| Redeemable noncontrolling interest | — | 46,923 | ||||||
| Stockholders’ Equity: | ||||||||
| Total stockholders’ equity | 359,676 | 311,545 | ||||||
| Total liabilities, noncontrolling interest and stockholders’ equity | $ | 759,436 | $ | 726,703 | ||||
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NOVANTA INC. (Unaudited)
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| Three Months Ended | ||||||||||
| September 28, | September 29, | |||||||||
| 2018 | 2017 | |||||||||
| Cash flows from operating activities: | ||||||||||
| Consolidated net income | $ | 14,989 | $ | 8,366 | ||||||
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Adjustments to reconcile consolidated net income to
net cash provided by operating activities: |
||||||||||
| Depreciation and amortization | 9,199 | 8,864 | ||||||||
| Share-based compensation | 1,695 | 1,436 | ||||||||
| Deferred income taxes | (2,088 | ) | (418 | ) | ||||||
| Inventory acquisition fair value adjustment | — | 3,719 | ||||||||
| Other | 832 | 567 | ||||||||
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Changes in assets and liabilities which (used)/provided cash,
excluding
effects from business acquisitions: |
||||||||||
| Accounts receivable | (12,273 | ) | (1,499 | ) | ||||||
| Inventories | (2,497 | ) | (897 | ) | ||||||
| Other operating assets and liabilities | 17,498 | (8,373 | ) | |||||||
| Cash provided by operating activities | 27,355 | 11,765 | ||||||||
| Cash flows from investing activities: | ||||||||||
| Purchases of property, plant and equipment | (4,386 | ) | (3,385 | ) | ||||||
| Acquisition of businesses, net of cash acquired and working capital adjustments | (2,155 | ) | (133,534 | ) | ||||||
| Acquisition of assets | (1,225 | ) | — | |||||||
| Other investing activities | 141 | 34 | ||||||||
| Cash used in investing activities | (7,625 | ) | (136,885 | ) | ||||||
| Cash flows from financing activities: | ||||||||||
| Borrowings under revolving credit facility | 24,981 | 134,769 | ||||||||
| Repayments of long-term debt and revolving credit facility | (7,227 | ) | (6,875 | ) | ||||||
| Acquisition of noncontrolling interest | (30,652 | ) | — | |||||||
| Repurchase of common stock | (1,836 | ) | — | |||||||
| Other financing activities | (252 | ) | (1,084 | ) | ||||||
| Cash provided by (used in) financing activities | (14,986 | ) | 126,810 | |||||||
| Effect of exchange rates on cash and cash equivalents | (191 | ) | 1,333 | |||||||
| Increase in cash and cash equivalents | 4,553 | 3,023 | ||||||||
| Cash and cash equivalents, beginning of period | 107,261 | 89,126 | ||||||||
| Cash and cash equivalents, end of period | $ | 111,814 | $ | 92,149 | ||||||
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NOVANTA INC.
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| Three Months Ended | ||||||||
| September 28, | September 29, | |||||||
| 2018 | 2017 | |||||||
| Revenue | ||||||||
| Photonics | $ | 61,285 | $ | 61,882 | ||||
| Vision | 62,113 | 58,150 | ||||||
| Precision Motion | 37,396 | 26,264 | ||||||
| Total | $ | 160,794 | $ | 146,296 | ||||
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NOVANTA INC.
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Adjusted Gross Profit and Adjusted Gross Profit Margin by Segment (Non-GAAP): |
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| Three Months Ended | ||||||||||
| September 28, | September 29, | |||||||||
| 2018 | 2017 | |||||||||
| Photonics | ||||||||||
| Gross Profit (GAAP) | $ | 29,218 | $ | 28,966 | ||||||
| Gross Profit Margin (GAAP) | 47.7 | % | 46.8 | % | ||||||
| Amortization of intangible assets | 673 | 1,012 | ||||||||
| Acquisition fair value adjustments | — | — | ||||||||
| Adjusted Gross Profit (Non-GAAP) | $ | 29,891 | $ | 29,978 | ||||||
| Adjusted Gross Profit Margin (Non-GAAP) | 48.8 | % | 48.4 | % | ||||||
| Vision | ||||||||||
| Gross Profit (GAAP) | $ | 24,160 | $ | 19,792 | ||||||
| Gross Profit Margin (GAAP) | 38.9 | % | 34.0 | % | ||||||
| Amortization of intangible assets | 1,615 | 1,640 | ||||||||
| Acquisition fair value adjustments | — | 3,719 | ||||||||
| Adjusted Gross Profit (Non-GAAP) | $ | 25,775 | $ | 25,151 | ||||||
| Adjusted Gross Profit Margin (Non-GAAP) | 41.5 | % | 43.3 | % | ||||||
| Precision Motion | ||||||||||
| Gross Profit (GAAP) | $ | 16,788 | $ | 10,291 | ||||||
| Gross Profit Margin (GAAP) | 44.9 | % | 39.2 | % | ||||||
| Amortization of intangible assets | 204 | 89 | ||||||||
| Acquisition fair value adjustments | — | — | ||||||||
| Adjusted Gross Profit (Non-GAAP) | $ | 16,992 | $ | 10,380 | ||||||
| Adjusted Gross Profit Margin (Non-GAAP) | 45.4 | % | 39.5 | % | ||||||
| Unallocated Corporate and Shared Services | ||||||||||
| Gross Profit (GAAP) | $ | (532 | ) | $ | (342 | ) | ||||
| Amortization of intangible assets | — | — | ||||||||
| Acquisition fair value adjustments | — | — | ||||||||
| Adjusted Gross Profit (Non-GAAP) | $ | (532 | ) | $ | (342 | ) | ||||
| Novanta Inc. | ||||||||||
| Gross Profit (GAAP) | $ | 69,634 | $ | 58,707 | ||||||
| Gross Profit Margin (GAAP) | 43.3 | % | 40.1 | % | ||||||
| Amortization of intangible assets | 2,492 | 2,741 | ||||||||
| Acquisition fair value adjustments | — | 3,719 | ||||||||
| Adjusted Gross Profit (Non-GAAP) | $ | 72,126 | $ | 65,167 | ||||||
| Adjusted Gross Profit Margin (Non-GAAP) | 44.9 | % | 44.5 | % | ||||||
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NOVANTA INC.
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Adjusted Operating Income and Adjusted EPS (Non-GAAP): |
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| Three Months Ended September 28, 2018 | |||||||||||||||||||||||||||||||
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Operating |
Operating |
Income |
Income Tax |
Effective Tax |
Net Income |
Diluted |
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| GAAP results | $ | 20,995 | 13.1 | % | $ | 18,621 | $ | 3,632 | 19.5 | % | $ | 14,554 | |||||||||||||||||||
| Plus: Redeemable noncontrolling interest redemption value adjustment | 6,877 | ||||||||||||||||||||||||||||||
| Net income attributable to Novanta Inc. after adjustment for redeemable noncontrolling interest redemption value | $ | 21,431 | $ | 0.60 | |||||||||||||||||||||||||||
| Redeemable noncontrolling interest redemption value adjustment | (6,877 | ) | (0.19 | ) | |||||||||||||||||||||||||||
| Net income attributable to Novanta Inc. | $ | 14,554 | |||||||||||||||||||||||||||||
| Non-GAAP Adjustments: | |||||||||||||||||||||||||||||||
| Amortization of intangible assets | 6,439 | 4.0 | % | 6,439 | |||||||||||||||||||||||||||
| Restructuring, divestiture and other costs | 137 | 0.1 | % | 137 | |||||||||||||||||||||||||||
| Acquisition related costs | 2,204 | 1.3 | % | 2,204 | |||||||||||||||||||||||||||
| Tax effect on non-GAAP adjustments | 1,703 | ||||||||||||||||||||||||||||||
| Non-GAAP tax adjustments | 34 | ||||||||||||||||||||||||||||||
| Total non-GAAP adjustments | 8,780 | 5.4 | % | 8,780 | 1,737 | 7,043 | 0.20 | ||||||||||||||||||||||||
| Adjusted results (Non-GAAP) | $ | 29,775 | 18.5 | % | $ | 27,401 | $ | 5,369 | 19.6 | % | $ | 21,597 | $ | 0.61 | |||||||||||||||||
| Weighted average shares outstanding - Diluted | 35,485 | ||||||||||||||||||||||||||||||
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NOVANTA INC.
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Adjusted Operating Income and Adjusted EPS (Non-GAAP): |
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| Three Months Ended September 29, 2017 | ||||||||||||||||||||||||||||||||
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Operating |
Operating |
Income |
Income Tax |
Effective Tax |
Net Income |
Diluted |
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| GAAP results | $ | 12,407 | 8.5 | % | $ | 9,497 | $ | 1,131 | 11.9 | % | $ | 7,532 | ||||||||||||||||||||
| Less: Redeemable noncontrolling interest redemption value adjustment | (7,585 | ) | ||||||||||||||||||||||||||||||
| Net income (loss) attributable to Novanta Inc. after adjustment for redeemable noncontrolling interest redemption value | $ | (53 | ) | $ | (0.00 | ) | ||||||||||||||||||||||||||
| Redeemable noncontrolling interest redemption value adjustment | 7,585 | 0.22 | ||||||||||||||||||||||||||||||
| Net income attributable to Novanta Inc. | $ | 7,532 | ||||||||||||||||||||||||||||||
| Non-GAAP Adjustments: | ||||||||||||||||||||||||||||||||
| Amortization of intangible assets | 5,958 | 4.1 | % | 5,958 | ||||||||||||||||||||||||||||
| Acquisition related costs | 3,834 | 2.6 | % | 3,834 | ||||||||||||||||||||||||||||
| Acquisition fair value adjustment | 3,719 | 2.5 | % | 3,719 | ||||||||||||||||||||||||||||
| Tax effect on non-GAAP adjustments | 3,374 | |||||||||||||||||||||||||||||||
| Non-GAAP tax adjustments | 1,923 | |||||||||||||||||||||||||||||||
| Total non-GAAP adjustments | 13,511 | 9.2 | % | 13,511 | 5,297 | 8,214 | 0.23 | |||||||||||||||||||||||||
| Adjusted results (Non-GAAP) | $ | 25,918 | 17.7 | % | $ | 23,008 | $ | 6,428 | 27.9 | % | $ | 15,746 | $ | 0.45 | ||||||||||||||||||
| Weighted average shares outstanding - Diluted | 34,833 | |||||||||||||||||||||||||||||||
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NOVANTA INC.
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Adjusted EBITDA (Non-GAAP): |
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| Three Months Ended | ||||||||||
| September 28, | September 29, | |||||||||
| 2018 | 2017 | |||||||||
| Consolidated Net Income (GAAP) | $ | 14,989 | $ | 8,366 | ||||||
| Net Income Margin | 9.3 | % | 5.7 | % | ||||||
| Interest (income) expense, net | 2,396 | 2,111 | ||||||||
| Income tax provision | 3,632 | 1,131 | ||||||||
| Depreciation and amortization | 9,199 | 8,864 | ||||||||
| Share-based compensation | 1,695 | 1,436 | ||||||||
| Restructuring, acquisition and divestiture related costs | 2,341 | 3,834 | ||||||||
| Acquisition fair value adjustments | — | 3,719 | ||||||||
| Other, net | (22 | ) | 799 | |||||||
| Adjusted EBITDA (Non-GAAP) | $ | 34,230 | $ | 30,260 | ||||||
| Adjusted EBITDA Margin (Non-GAAP) | 21.3 | % | 20.7 | % | ||||||
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Organic Revenue Growth (Non-GAAP): |
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Three Months Ended |
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| Reported Growth (GAAP) | 9.9 | % | |||
| Less: Change attributable to acquisitions | 2.2 | % | |||
| Plus: Change due to foreign currency | 0.3 | % | |||
| Organic Growth (Non-GAAP) | 8.0 | % | |||
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Net Debt (Non-GAAP): |
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| September 28, | December 31, | |||||||||
| 2018 | 2017 | |||||||||
| Total Debt (GAAP) | $ | 256,424 | $ | 234,619 | ||||||
| Plus: Deferred financing costs | 2,449 | 3,159 | ||||||||
| Gross Debt | 258,873 | 237,778 | ||||||||
| Less: Cash and cash equivalents | (111,814 | ) | (100,057 | ) | ||||||
| Net Debt (Non-GAAP) | $ | 147,059 | $ | 137,721 | ||||||
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Free Cash Flow (Non-GAAP): |
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| Three Months Ended | ||||||||||
| September 28, | September 29, | |||||||||
| 2018 | 2017 | |||||||||
| Cash Provided by Operating Activities (GAAP) | $ | 27,355 | $ | 11,765 | ||||||
| Less: Purchases of property, plant and equipment | (4,386 | ) | (3,385 | ) | ||||||
| Plus: Proceeds from sale of property, plant and equipment | 141 | 34 | ||||||||
| Free Cash Flow (Non-GAAP) | $ | 23,110 | $ | 8,414 | ||||||
Non-GAAP Measures
Organic Revenue Growth
We define the term “organic revenue” as revenue excluding the impact from business acquisitions, divestitures, product line discontinuations, and the effect of foreign currency translation. We use the related term “organic revenue growth” to refer to the financial performance metric of comparing current period organic revenue with the reported revenue of the corresponding period in the prior year. We believe that this non-GAAP measure, when taken together with our GAAP financial measures, allows us and our investors to better measure our performance and evaluate long-term performance trends. Organic revenue growth also facilitates easier comparisons of our performance with prior and future periods and relative comparisons to our peers. We exclude the effect of foreign currency translation from these measures because foreign currency translation is subject to volatility and can obscure underlying business trends. We exclude the effect of acquisitions and divestitures because these activities can vary dramatically between reporting periods and between us and our peers, which we believe makes comparisons of long-term performance trends difficult for management and investors. Beginning in 2017, Organic Revenue Growth is also used as a performance metric to determine bonus payments for senior management and employees.
Adjusted Gross Profit and Adjusted Gross Profit Margin
The calculation of Adjusted Gross Profit and Adjusted Gross Profit Margin is displayed in the tables above. Adjusted Gross Profit and Adjusted Gross Profit Margin exclude amortization of acquired intangible assets 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 costs.
Adjusted Operating Income and Adjusted Operating Margin
The calculation of Adjusted Operating Income and Adjusted Operating Margin is displayed in the tables above. Adjusted Operating Income and Adjusted Operating Margin exclude amortization of acquired intangible assets 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 costs. The Company also excluded restructuring, acquisition and divestiture related costs due to the significant changes that have occurred outside of the Company’s day-to-day business for the reasons described above in the introductory paragraphs of the “Use of Non-GAAP Financial Measures.”
Adjusted Income before Income Taxes
The calculation of Adjusted Income before Income Taxes is displayed in the tables above. The calculation of Adjusted Income before Income Taxes excludes amortization of acquired intangible assets, inventory fair value adjustments related to business acquisitions, and restructuring, acquisition and divestiture related costs for the reasons described for Adjusted Operating Income and Adjusted Operating Margin above.
Non-GAAP Income Tax Provision and Effective Tax Rate
The Non-GAAP Income Tax Provision and Effective Tax Rate are calculated based on the Adjusted Income before Income Taxes by jurisdiction and the applicable tax rates currently in effect for the respective jurisdictions. In addition, the Company excluded significant discrete income tax expenses (benefits) related to releases of valuation allowances, benefits or expenses associated with the completion of tax audits, effects of changes in tax laws, effects of acquisition related tax planning actions on our effective tax rate, and the income tax effect of non-GAAP adjustments discussed above.
Adjusted Net Income Attributable to Novanta Inc., Net of Tax
The calculation of Adjusted Net Income Attributable to Novanta Inc., Net of Tax, is displayed in the tables above. Because pre-tax income is included in determining net income attributable to Novanta Inc., net of tax, the calculation of Adjusted Net Income Attributable to Novanta Inc., Net of Tax, also excludes amortization of acquired intangible assets, inventory fair value adjustments related to business acquisitions, and restructuring, acquisition and divestiture related costs for the reasons described for Adjusted Income before Income Taxes. In addition, the Company excluded significant discrete income tax expenses (benefits) related to releases of valuation allowances, benefits or expenses associated with the completion of tax audits, effects of changes in tax laws, effects of acquisition related tax planning actions on our effective tax rate, and the income tax effect of non-GAAP adjustments discussed above.
Adjusted Diluted EPS
The calculation of Adjusted Diluted EPS is displayed in the tables above. Because Net Income Attributable to Novanta Inc., Net of Tax, is used in the diluted EPS calculation, the calculation of Adjusted Diluted EPS excludes amortization of acquired intangible assets, inventory fair value adjustments related to business acquisitions, 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 redeemable noncontrolling interest redemption value adjustment 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 related costs, acquisition fair value adjustments, other non-operating income (expense) items, foreign exchange gains (losses), and earnings from an equity-method investment for the reasons described above in the introductory paragraphs of the “Use of Non-GAAP Financial Measures.”
Adjusted EBITDA includes 100% of the results of our consolidated subsidiaries and therefore does not exclude the Adjusted EBITDA attributable to noncontrolling interests.
Adjusted EBITDA Margin is defined as Adjusted EBITDA as a percentage of Revenue.
In evaluating Adjusted EBITDA and Adjusted EBITDA Margin, you should be aware that in the future the Company may incur expenses that are the same as, or similar to, some of the adjustments in this presentation.
Free Cash Flow
The Company defines Free Cash Flow as cash provided by (used in) operating activities less cash paid for purchases of property, plant and equipment and plus cash proceeds from sale of property, plant and equipment. Management believes free cash flow is an important measure of its liquidity as well as its ability to service the Company’s outstanding debt, and to fund future growth.
Net Debt
The Company defines Net Debt as its total debt as reported on the consolidated balance sheet plus unamortized deferred financing costs and less its cash and cash equivalents as of the end of the period presented. Management uses Net Debt to monitor the Company’s outstanding debt obligations that could not be satisfied by its cash and cash equivalents on hand.
