- Third Quarter 2020 GAAP Revenue of $143 million
- Third Quarter 2020 GAAP Net Income of $8 million
- Third Quarter 2020 GAAP Diluted Earnings Per Share of
$0.23
- Third Quarter 2020 Adjusted Earnings Per Share of
$0.42
- Third Quarter 2020 Adjusted EBITDA of $30 million
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 2020.
Financial
Highlights
Three Months Ended
(In millions, except per share
amounts)
October 2,
September 27,
2020
2019
GAAP
Revenue
$
142.9
$
154.1
Operating Income
$
11.9
$
12.8
Consolidated Net Income
$
8.3
$
8.9
Diluted EPS
$
0.23
$
0.25
Non-GAAP*
Adjusted Operating Income
$
19.9
$
25.6
Adjusted Diluted EPS
$
0.42
$
0.52
Adjusted EBITDA
$
30.2
$
31.0
*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
“Novanta continues to execute well in the face of the ongoing
difficulties caused by the COVID-19 pandemic,” said Matthijs
Glastra, Chief Executive Officer of Novanta. “In the third quarter,
our revenue and profit did better than we expected, and we
delivered record cashflow performance. We are very pleased with the
positioning and performance of our portfolio and are investing into
the headwinds, focusing on the long-term growth drivers in our
business. We continue to put the health and safety of our employees
as a priority and are extremely proud of their dedication and
commitment to the company and our customers.”
During the third quarter of 2020, Novanta generated GAAP revenue
of $142.9 million, a decrease of $11.1 million, or 7.2%, versus the
third quarter of 2019. The Company’s acquisition activities
resulted in an increase in revenue of $0.1 million, or 0.1%,
compared to the third quarter of 2019. Changes in foreign currency
exchange rates year over year favorably impacted our revenue by
$2.6 million, or 1.7%, during the third quarter of 2020. Our
year-over-year Organic Revenue Growth, which excludes the net
impact of acquisitions and changes in foreign currency exchange
rates, was a decrease of 9.0% for the third quarter of 2020 (see
“Organic Revenue Growth” in the non-GAAP reconciliations
below).
In the third quarter of 2020, GAAP operating income was $11.9
million, compared to $12.8 million in the third quarter of 2019.
GAAP net income was $8.3 million in the third quarter of 2020,
compared to $8.9 million in the third quarter of 2019. GAAP diluted
earnings per share (“EPS”) was $0.23 in the third quarter of 2020,
compared to $0.25 in the third quarter of 2019.
Adjusted Diluted EPS was $0.42 in the third quarter of 2020,
compared to $0.52 in the third quarter of 2019. The Company ended
the third quarter of 2020 with 35.7 million diluted weighted
average shares outstanding. Adjusted EBITDA was $30.2 million in
the third quarter of 2020, compared to $31.0 million in the third
quarter of 2019.
Operating cash flow for the third quarter of 2020 was $42.1
million, compared to $7.0 million in the third quarter of 2019. The
Company completed the third quarter of 2020 with approximately
$193.4 million of total debt and $106.6 million of total cash. Net
Debt, as defined in the non-GAAP reconciliation below, was $91.4
million.
Financial Guidance
“We are seeing signs of a stronger economic climate, but with a
resurgence of the COVID-19 virus occurring globally, we recognize
we must remain vigilant and conservative in our planning,” said
Matthijs Glastra. “We expect revenue to be up sequentially in the
fourth quarter, and we also expect sequential gross margin
expansion. In addition, we believe the fourth quarter will
demonstrate strong design win momentum on the back of significant
investments in innovation and product launches. While the
resurgence of the virus is concerning, we are focusing on managing
the things we can control.”
For the fourth quarter of 2020, the Company expects GAAP revenue
of approximately $144 million to $149 million, and Adjusted EBITDA
in the range of $30 million to $32 million. The Company’s 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 guidance to the most directly
comparable GAAP financial measure is not provided because of the
inherent difficulty in forecasting and quantifying certain amounts
that are necessary for such reconciliations, including future
changes in the fair value of contingent considerations; divestiture
related expenses; acquisition and 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; goodwill and intangible asset impairment
charges and related asset write-offs; future restructuring
expenses; foreign exchange transaction gains/(losses); and other
charges reflected in the Company’s 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 Tuesday, November 10,
2020 at 10:00 a.m. ET to discuss these results. To access the call,
please dial (888) 346-3959 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 Monday, January 4, 2021.
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/(Benefit) and Effective Tax Rate, Adjusted Consolidated
Net Income, Adjusted Diluted EPS, Adjusted EBITDA, Adjusted EBITDA
Margin, Free Cash Flow, Free Cash Flow as a Percentage of
Consolidated Net Income, 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-based restricted stock units issued to
certain executives. Accordingly, the Company believes that these
non-GAAP financial 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 anticipated financial performance and
financial position, including our financial outlook for the fourth
quarter 2020; expectations regarding market conditions; statements
regarding the COVID-19 pandemic; expectations regarding design
wins; 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
activities; 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; our failure to
comply with data privacy regulations; changes in interest rates,
credit ratings or foreign currency exchange rates; risks associated
with our operations in foreign countries; risks associated with the
COVID-19 pandemic and other events outside our control; our
increased use of outsourcing in foreign countries; risks associated
with increased outsourcing of components manufacturing; our
exposure to increased tariffs, trade restrictions or taxes on our
products; 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 business; 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; our failure to accurately forecast
component and raw material requirements leading to excess
inventories or delays in the delivery of our products; production
difficulties and product delivery delays or disruptions; our
exposure to medical device regulations, 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; potential penalties for violating foreign, U.S.
federal, and state healthcare laws and regulations; changes in
governmental regulations affecting our business or products; our
compliance, or 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; changes in tax
laws, and fluctuations in our effective tax rates; 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;
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, 2019, as updated by our Quarterly Report on Form
10-Q for the quarter ended October 2, 2020, 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
publicly update or revise any such forward-looking statements as a
result of developments occurring after the date of this document
except as required by law.
About Novanta
Novanta is a leading global supplier of core technology
solutions that give medical and advanced industrial original
equipment manufacturers (“OEMs”) a competitive advantage. We
combine deep proprietary technology expertise and competencies in
photonics, vision, and precision motion with a proven ability to
solve complex technical challenges. This enables Novanta to
engineer core components and sub-systems that deliver extreme
precision and performance, tailored to our customers' demanding
applications. The driving force behind our growth is the team of
innovative professionals who share a commitment to innovation and
customer success. Novanta’s common shares are quoted on Nasdaq
under the ticker symbol “NOVT.”
More information about Novanta is available on the Company’s
website at www.novanta.com. For additional information, please
contact Novanta Investor Relations at (781) 266-5137 or
InvestorRelations@novanta.com.
NOVANTA INC.
CONDENSED CONSOLIDATED
STATEMENTS OF OPERATIONS
(In thousands of U.S. dollars
or shares, except per share amounts)
(Unaudited)
Three Months Ended
October 2,
September 27,
2020
2019
Revenue
$
142,929
$
154,066
Cost of revenue
83,824
90,012
Gross profit
59,105
64,054
Operating expenses:
Research and development and
engineering
15,231
13,811
Selling, general and administrative
26,788
27,926
Amortization of purchased intangible
assets
3,533
3,970
Restructuring, acquisition, and related
costs
1,687
5,546
Total operating expenses
47,239
51,253
Operating income
11,866
12,801
Interest income (expense), net
(1,698
)
(2,153
)
Foreign exchange transaction gains
(losses), net
(136
)
387
Other income (expense), net
(14
)
(48
)
Income before income taxes
10,018
10,987
Income tax provision
1,760
2,064
Consolidated net income
$
8,258
$
8,923
Earnings per common share:
Basic
$
0.23
$
0.25
Diluted
$
0.23
$
0.25
Weighted average common shares
outstanding—basic
35,142
35,074
Weighted average common shares
outstanding—diluted
35,688
35,585
NOVANTA INC.
CONDENSED CONSOLIDATED BALANCE
SHEETS
(In thousands of U.S.
dollars)
(Unaudited)
October 2,
December 31,
2020
2019
ASSETS
Current Assets
Cash and cash equivalents
$
106,630
$
78,944
Accounts receivable, net
82,050
91,078
Inventories
101,737
116,618
Prepaid expenses and other current
assets
12,415
17,872
Total current assets
302,832
304,512
Property, plant and equipment, net
76,115
77,556
Operating lease assets
33,841
35,180
Intangible assets, net
149,613
166,175
Goodwill
279,523
274,710
Other assets
15,610
11,603
Total assets
$
857,534
$
869,736
LIABILITIES AND STOCKHOLDERS’
EQUITY
Current Liabilities
Current portion of long-term debt
$
5,264
$
5,031
Accounts payable
40,906
52,585
Accrued expenses and other current
liabilities
87,383
77,230
Total current liabilities
133,553
134,846
Long-term debt
188,089
215,334
Operating lease liabilities
32,499
34,108
Other long-term liabilities
52,144
68,276
Total liabilities
406,285
452,564
Stockholders’ Equity:
Total stockholders’ equity
451,249
417,172
Total liabilities and stockholders’
equity
$
857,534
$
869,736
NOVANTA INC.
CONDENSED CONSOLIDATED
STATEMENTS OF CASH FLOWS
(In thousands of U.S.
dollars)
(Unaudited)
Three Months Ended
October 2,
September 27,
2020
2019
Cash flows from operating
activities:
Consolidated net income
$
8,258
$
8,923
Adjustments to reconcile consolidated net
income to
net cash provided by operating
activities:
Depreciation and amortization
9,596
9,840
Share-based compensation
7,225
2,243
Deferred income taxes
(175
)
(1,139
)
Other
888
1,153
Changes in assets and liabilities which
(used)/provided cash,
excluding effects from business
acquisitions:
Accounts receivable
7,483
(8,997
)
Inventories
5,990
418
Other operating assets and liabilities
2,849
(5,451
)
Net cash provided by operating
activities
42,114
6,990
Cash flows from investing
activities:
Acquisition of businesses, net of cash
acquired and working capital adjustments
—
(24,259
)
Purchases of property, plant and
equipment
(2,524
)
(2,350
)
Other investing activities
—
1
Net cash used in investing activities
(2,524
)
(26,608
)
Cash flows from financing
activities:
Borrowings under revolving credit
facility
—
37,904
Repayments of term loan and revolving
credit facilities
(31,497
)
(19,423
)
Repurchase of common stock
—
(3,345
)
Other financing activities
(720
)
41
Net cash provided by (used in) financing
activities
(32,217
)
15,177
Effect of exchange rates on cash and cash
equivalents
1,763
(247
)
Increase (decrease) in cash and cash
equivalents
9,136
(4,688
)
Cash and cash equivalents, beginning of
period
97,494
66,093
Cash and cash equivalents, end of
period
$
106,630
$
61,405
NOVANTA INC.
Revenue by Reportable
Segment
(In thousands of U.S.
dollars)
(Unaudited)
Three Months Ended
October 2,
September 27,
2019
2019
Revenue
Photonics
$
46,394
$
54,570
Vision
64,299
69,923
Precision Motion
32,236
29,573
Total
$
142,929
$
154,066
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 Reportable Segment
(Non-GAAP):
Three Months Ended
October 2,
September 27,
2020
2019
Photonics
Gross Profit (GAAP)
$
20,166
$
25,289
Gross Profit Margin (GAAP)
43.5
%
46.3
%
Amortization of intangible assets
776
804
Acquisition fair value adjustments
—
373
Adjusted Gross Profit (Non-GAAP)
$
20,942
$
26,466
Adjusted Gross Profit Margin
(Non-GAAP)
45.1
%
48.5
%
Vision
Gross Profit (GAAP)
$
24,586
$
26,922
Gross Profit Margin (GAAP)
38.2
%
38.5
%
Amortization of intangible assets
1,620
1,707
Acquisition fair value adjustments
—
160
Adjusted Gross Profit (Non-GAAP)
$
26,206
$
28,789
Adjusted Gross Profit Margin
(Non-GAAP)
40.8
%
41.2
%
Precision Motion
Gross Profit (GAAP)
$
15,011
$
12,504
Gross Profit Margin (GAAP)
46.6
%
42.3
%
Amortization of intangible assets
424
286
Acquisition fair value adjustments
—
—
Adjusted Gross Profit (Non-GAAP)
$
15,435
$
12,790
Adjusted Gross Profit Margin
(Non-GAAP)
47.9
%
43.2
%
Unallocated Corporate and Shared
Services
Gross Profit (GAAP)
$
(658
)
$
(661
)
Amortization of intangible assets
—
—
Acquisition fair value adjustments
—
—
Adjusted Gross Profit (Non-GAAP)
$
(658
)
$
(661
)
Novanta Inc.
Gross Profit (GAAP)
$
59,105
$
64,054
Gross Profit Margin (GAAP)
41.4
%
41.6
%
Amortization of intangible assets
2,820
2,797
Acquisition fair value adjustments
—
533
Adjusted Gross Profit (Non-GAAP)
$
61,925
$
67,384
Adjusted Gross Profit Margin
(Non-GAAP)
43.3
%
43.7
%
NOVANTA INC.
Reconciliation of GAAP to
Non-GAAP Financial Measures
(Amounts in thousands except
per share amounts)
(Unaudited)
Adjusted
Operating Income and Adjusted Diluted EPS
(Non-GAAP):
Three Months Ended October 2,
2020
Operating Income
Operating Margin
Income before Income Taxes
Income Tax Provision
Effective Tax Rate
Consolidated Net Income
Diluted EPS
GAAP results
$
11,866
8.3
%
$
10,018
$
1,760
17.6
%
$
8,258
$
0.23
Non-GAAP Adjustments:
Amortization of intangible assets
6,353
4.4
%
6,353
Restructuring costs
1,074
0.8
%
1,074
Acquisition and related costs
613
0.4
%
613
Foreign exchange transaction (gains)
losses, net
136
Tax effect on non-GAAP adjustments
1,806
Non-GAAP tax adjustments
(462
)
Total non-GAAP adjustments
8,040
5.6
%
8,176
1,344
6,832
0.19
Adjusted results (Non-GAAP)
$
19,906
13.9
%
$
18,194
$
3,104
17.1
%
$
15,090
$
0.42
Weighted average shares outstanding -
Diluted
35,688
NOVANTA INC.
Reconciliation of GAAP to
Non-GAAP Financial Measures
(Amounts in thousands except
per share amounts)
(Unaudited)
Adjusted
Operating Income and Adjusted Diluted EPS
(Non-GAAP):
Three Months Ended September
27, 2019
Operating Income
Operating Margin
Income before Income Taxes
Income Tax Provision
Effective Tax Rate
Consolidated Net Income
Diluted EPS
GAAP results
$
12,801
8.3
%
$
10,987
$
2,064
18.8
%
$
8,923
$
0.25
Non-GAAP Adjustments:
Amortization of intangible assets
6,767
4.4
%
6,767
Restructuring costs
1,466
1.0
%
1,466
Acquisition and related costs
4,080
2.6
%
4,080
Acquisition fair value adjustments
533
0.3
%
533
Foreign exchange transaction (gains)
losses, net
(387
)
Tax effect on non-GAAP adjustments
2,731
Non-GAAP tax adjustments
101
Total non-GAAP adjustments
12,846
8.3
%
12,459
2,832
9,627
0.27
Adjusted results (Non-GAAP)
$
25,647
16.6
%
$
23,446
$
4,896
20.9
%
$
18,550
$
0.52
Weighted average shares outstanding -
Diluted
35,585
NOVANTA INC.
Reconciliation of GAAP to
Non-GAAP Financial Measures
(In thousands of U.S.
dollars)
(Unaudited)
Adjusted EBITDA
(Non-GAAP):
Three Months Ended
October 2,
September 27,
2020
2019
Consolidated Net Income (GAAP)
$
8,258
$
8,923
Net Income Margin
5.8
%
5.8
%
Interest (income) expense, net
1,698
2,153
Income tax provision
1,760
2,064
Depreciation and amortization
9,596
9,840
Share-based compensation
7,004
2,243
Restructuring, acquisition, and related
costs
1,687
5,546
Acquisition fair value adjustments
—
533
Other, net
150
(339
)
Adjusted EBITDA (Non-GAAP)
$
30,153
$
30,963
Adjusted EBITDA Margin
(Non-GAAP)
21.1
%
20.1
%
Organic Revenue
Growth (Non-GAAP):
Three Months Ended October 2,
2020
Compared to
Three Months Ended September
27, 2019
Reported Revenue Growth/(Decline)
(GAAP)
(7.2
)%
Less: Change attributable to
acquisitions
0.1
%
Plus: Change due to foreign currency
(1.7
)%
Organic Revenue Growth/(Decline)
(Non-GAAP)
(9.0
)%
Net Debt
(Non-GAAP):
October 2,
December 31,
2020
2019
Total Debt (GAAP)
$
193,353
$
220,365
Plus: Deferred financing costs
4,681
4,187
Gross Debt
198,034
224,552
Less: Cash and cash equivalents
(106,630
)
(78,944
)
Net Debt (Non-GAAP)
$
91,404
$
145,608
Free Cash Flow
(Non-GAAP):
Three Months Ended
October 2,
September 27,
2020
2019
Cash Provided by Operating Activities
(GAAP)
$
42,114
$
6,990
Less: Purchases of property, plant and
equipment
(2,524
)
(2,350
)
Plus: Proceeds from sale of property,
plant and equipment
—
1
Free Cash Flow (Non-GAAP)
$
39,590
$
4,641
Consolidated Net Income (GAAP)
$
8,258
$
8,923
Cash Provided by Operating Activities
as a Percentage of Consolidated Net Income
510.0
%
78.3
%
Free Cash Flow as a Percentage of
Consolidated Net Income
479.4
%
52.0
%
Non-GAAP Financial
Measures
Organic Revenue Growth
The Company defines the term “organic revenue” as revenue
excluding the impact from business acquisitions, divestitures,
product line discontinuations, and the effect of foreign currency
translation. The Company uses 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. The Company believes that
this non-GAAP financial measure, when taken together with our GAAP
financial measures, allows the Company and its investors to better
measure the Company’s performance and evaluate long-term
performance trends. Organic revenue growth also facilitates easier
comparisons of the Company’s performance with prior and future
periods and relative comparisons to its peers. The Company excludes
the effect of foreign currency translation from these measures
because foreign currency translation is subject to volatility and
can obscure underlying business trends. The Company excludes the
effect of acquisitions and divestitures because these activities
can vary dramatically between reporting periods and between the
Company and its peers, which the Company believes makes comparisons
of long-term performance trends difficult for management and
investors. 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
underlying trend and performance of our businesses.
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
underlying trend and performance of our businesses. The Company
also excluded restructuring, acquisition, and 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, restructuring, acquisition, and related costs for the
reasons described for Adjusted Operating Income and Adjusted
Operating Margin above. The Company also excluded foreign exchange
transaction gains (losses) from the calculation of Adjusted Income
before Income Taxes as the Company cannot fully influence the
timing and amount of foreign exchange transaction gains
(losses).
Non-GAAP Income Tax Provision/(Benefit) and Effective Tax
Rate
The Non-GAAP Income Tax Provision/(Benefit) 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
the Company’s effective tax rate, and the income tax effect of
non-GAAP adjustments discussed above.
Adjusted Consolidated Net Income
The calculation of Adjusted Consolidated Net Income is displayed
in the tables above. Because income before income taxes is included
in determining Consolidated Net Income, the calculation of Adjusted
Consolidated Net Income also excludes amortization of acquired
intangible assets, inventory fair value adjustments related to
business acquisitions, restructuring, acquisition, and related
costs, and foreign exchange transaction gains (losses). 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 the Company’s 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 Consolidated Net Income 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 related costs, foreign exchange transaction gains
(losses), 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
the Company’s effective tax rate, and the income tax effect of
non-GAAP adjustments for the reasons described above for Adjusted
Consolidated Net Income.
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 related costs, acquisition fair
value adjustments, other non-operating income (expense) items,
including foreign exchange transaction gains (losses) and net
periodic pension costs of the Company’s frozen U.K. defined benefit
pension plan 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.
Free Cash Flow and Free Cash Flow as a Percentage of
Consolidated Net Income
The Company defines Free Cash Flow as cash provided by operating
activities less cash paid for purchases of property, plant and
equipment and plus cash proceeds from sale of property, plant and
equipment. Free Cash Flow as a Percentage of Consolidated Net
Income is defined as Free Cash Flow divided by Consolidated Net
Income. Management believes these non-GAAP financial measures are
important indicators of the Company’s liquidity as well as its
ability to service its outstanding debt and to fund future
growth.
Net Debt
The Company defines Net Debt as its total debt as reported on
the consolidated balance sheet plus unamortized deferred financing
costs and less its cash and cash equivalents as of the end of the
period presented. Management uses Net Debt to monitor the Company’s
outstanding debt obligations that could not be satisfied by its
cash and cash equivalents on hand.
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version on businesswire.com: https://www.businesswire.com/news/home/20201110005169/en/
Novanta Inc. Investor Relations Contact: Ray Nash (781)
266-5137
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