- Third Quarter 2022 GAAP Revenue increased 26% to $223
million
- Third Quarter 2022 GAAP Consolidated Net Income of $22
million
- Third Quarter 2022 GAAP Diluted Earnings Per Share increased
66% to $0.63
- Third Quarter 2022 Adjusted Earnings Per Share increased 8%
to $0.81
- Third Quarter 2022 Adjusted EBITDA of $49 million
- Raises 2022 Guidance
Novanta Inc. (Nasdaq: NOVT) (“Novanta” or the “Company”), a
trusted technology partner to medical and advanced technology
equipment manufacturers, today reported financial results for the
third quarter 2022.
Financial Highlights
Three Months Ended
(In millions, except per share
amounts)
September 30,
October 1,
2022
2021
GAAP
Revenue
$
223.0
$
177.7
Operating Income
$
28.7
$
15.3
Consolidated Net Income
$
22.5
$
13.6
Diluted EPS
$
0.63
$
0.38
Non-GAAP*
Adjusted Operating Income
$
40.0
$
31.6
Adjusted Diluted EPS
$
0.81
$
0.75
Adjusted EBITDA
$
49.4
$
40.4
*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.
“Novanta delivered another record quarter,” said Matthijs
Glastra, Chair and Chief Executive Officer of Novanta. “In the
third quarter, we delivered double-digit growth for sales and
Adjusted EBITDA. Our teams were able to deliver excellent financial
performance despite inflationary pressures. Customer demand remains
strong across our medical and advanced industrial application
areas, with backlog remaining at near-record levels. Our continued
success with design wins in high growth application areas positions
us to continue to deliver on our strategy as we navigate through
these challenging times.”
Third Quarter
During the third quarter of 2022, Novanta generated GAAP revenue
of $223.0 million, an increase of $45.2 million, or 25.5%, versus
the third quarter of 2021. The Company’s acquisition activities
resulted in an increase in revenue of $22.3 million, or 12.6%,
compared to the third quarter of 2021. Changes in foreign currency
exchange rates year over year adversely impacted our revenue by
$13.7 million, or 7.7%, during the third quarter of 2022. Our
year-over-year Organic Revenue Growth, which excludes the net
impact of acquisitions and changes in foreign currency exchange
rates, was an increase of 20.6% for the third quarter of 2022 (see
“Organic Revenue Growth” in the non-GAAP reconciliations
below).
In the third quarter of 2022, GAAP operating income was $28.7
million, compared to $15.3 million in the third quarter of 2021.
GAAP consolidated net income was $22.5 million in the third quarter
of 2022, compared to $13.6 million in the third quarter of 2021.
GAAP diluted earnings per share (“EPS”) was $0.63 in the third
quarter of 2022, compared to $0.38 in the third quarter of
2021.
Adjusted Diluted EPS was $0.81 in the third quarter of 2022,
compared to $0.75 in the third quarter of 2021. The Company ended
the third quarter of 2022 with 35.9 million diluted weighted
average shares outstanding. Adjusted EBITDA was $49.4 million in
the third quarter of 2022, compared to $40.4 million in the third
quarter of 2021.
Operating cash flow for the third quarter of 2022 was $14.8
million. The Company completed the third quarter of 2022 with
approximately $442.8 million of total debt and $84.6 million of
total cash. Net Debt, as defined in the non-GAAP reconciliation
below, was $363.4 million.
Financial Guidance
“We are very pleased with the positioning and performance of our
diversified portfolio of businesses. Novanta’s exposure to
long-term secular growth applications is expected to help the
company deliver strong year-over-year growth in both the fourth
quarter and the full year,” said Matthijs Glastra. “While
macroeconomic conditions are becoming more uncertain and
challenging, Novanta’s customer backlog remains at near-record
levels and our teams continue to demonstrate the agility and
resiliency to navigate through difficult environments.”
For the fourth quarter of 2022, the Company expects GAAP revenue
of approximately $215 million to $217 million, demonstrating
reported growth of 8% to 9%. The Company expects Adjusted EBITDA to
be in the range of $45.0 million to $46.0 million and Adjusted
Diluted EPS to be in the range of $0.70 to $0.74. The Company’s
guidance assumes no significant changes in foreign exchange
rates.
For the full year 2022, the Company expects GAAP revenue of
approximately $857 million to $859 million, demonstrating reported
growth of 21% to 22%. The Company expects Adjusted Gross Profit
Margin to be approximately 46.0%. The Company expects Adjusted
EBITDA to be in the range of $183 million to $184 million and
Adjusted Diluted EPS to be in the range of $3.02 to $3.06. The
Company’s 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 Gross Profit Margin, Adjusted EBITDA and
Adjusted Diluted 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 future changes in the
fair value of contingent considerations; significant discrete
income tax expenses (benefits); divestitures and related expenses;
acquisitions 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; intangible asset impairment charges and related asset
write-offs; future restructuring expenses; foreign exchange
gains/(losses); benefits or expenses associated with the completion
of tax audits; 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 8,
2022 at 10:00 a.m. ET to discuss these results and to provide a
business update. 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
Events & Presentations page of the Investors 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 in the Investor
Relations section of the Company’s website at www.novanta.com. The
replay will remain available until Monday, January 2, 2023.
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, Organic Revenue Growth and
Adjusted Gross Margin 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, Organic Revenue Growth and Adjusted Gross Margins 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 and full year; expectations for our end markets and market
position; expectations regarding our ability to mitigate supply
chain disruptions and navigate difficult macroeconomic conditions;
inflationary pressures; expectations regarding the benefits of
recent acquisitions; expectations regarding our design win and
customer order activities and demand in our medical and advanced
industrial end-markets; 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, capital expenditures
and level of business activities; risks associated with the
COVID-19 pandemic and other events outside our control; our
dependence upon our ability to respond to fluctuations in product
demand; our ability to continually innovate, introduce new products
timely, 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 and our third-party providers’
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; 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 withdrawal from the European Union;
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; impact of
healthcare industry cost containment and healthcare reform
measures; changes in governmental regulations affecting our
business or products; our failure to implement new information
technology systems and software successfully; our failure to
realize the full value of our intangible assets; increasing
scrutiny and changing expectations from investors, customers, and
governments with respect to Environmental, Social and Governance
policies and practices; our exposure to the credit risk of some of
our customers and in weakened markets; our reliance on third party
distribution channels; our reliance on original equipment
manufacturer customers; 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, 2021, as updated by our subsequent filings with
the Securities and Exchange Commission. 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 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
September 30,
October 1,
2022
2021
Revenue
$
222,958
$
177,726
Cost of revenue
124,550
101,428
Gross profit
98,408
76,298
Operating expenses:
Research and development and
engineering
21,349
17,468
Selling, general and administrative
40,301
31,296
Amortization of purchased intangible
assets
6,472
4,139
Restructuring, acquisition, and related
costs
1,625
8,120
Total operating expenses
69,747
61,023
Operating income
28,661
15,275
Interest income (expense), net
(4,062
)
(1,710
)
Foreign exchange transaction gains
(losses), net
2,086
34
Other income (expense), net
87
(71
)
Income before income taxes
26,772
13,528
Income tax provision (benefit)
4,282
(75
)
Consolidated net income
$
22,490
$
13,603
Earnings per common share:
Basic
$
0.63
$
0.38
Diluted
$
0.63
$
0.38
Weighted average common shares
outstanding—basic
35,729
35,447
Weighted average common shares
outstanding—diluted
35,928
35,764
NOVANTA INC.
CONDENSED CONSOLIDATED BALANCE
SHEETS
(In thousands of U.S.
dollars)
(Unaudited)
September 30,
December 31,
2022
2021
ASSETS
Current Assets
Cash and cash equivalents
$
84,580
$
117,393
Accounts receivable, net
144,633
115,617
Inventories
162,807
125,657
Prepaid expenses and other current
assets
15,715
15,158
Total current assets
407,735
373,825
Property, plant and equipment, net
95,030
87,439
Operating lease assets
43,520
48,338
Intangible assets, net
179,113
220,989
Goodwill
465,052
479,500
Other assets
17,081
17,792
Total assets
$
1,207,531
$
1,227,883
LIABILITIES AND STOCKHOLDERS’
EQUITY
Current Liabilities
Current portion of long-term debt
$
4,366
$
5,097
Accounts payable
79,577
68,514
Accrued expenses and other current
liabilities
74,114
110,327
Total current liabilities
158,057
183,938
Long-term debt
438,447
429,361
Operating lease liabilities
40,907
45,700
Other long-term liabilities
27,918
47,593
Total liabilities
665,329
706,592
Stockholders’ Equity:
Total stockholders’ equity
542,202
521,291
Total liabilities and stockholders’
equity
$
1,207,531
$
1,227,883
NOVANTA INC.
CONDENSED CONSOLIDATED
STATEMENTS OF CASH FLOWS
(In thousands of U.S.
dollars)
(Unaudited)
Three Months Ended
September 30,
October 1,
2022
2021
Cash flows from operating
activities:
Consolidated net income
$
22,490
$
13,603
Adjustments to reconcile consolidated net
income to net cash provided by operating activities:
Depreciation and amortization
13,143
10,889
Share-based compensation
5,954
8,490
Deferred income taxes
(5,124
)
(2,365
)
Other
410
1,214
Changes in assets and liabilities which
(used)/provided cash, excluding effects from business
acquisitions:
Accounts receivable
(16,817
)
(5,878
)
Inventories
(13,043
)
(6,298
)
Other operating assets and liabilities
7,746
(5,757
)
Net cash provided by (used in) operating
activities
14,759
13,898
Cash flows from investing
activities:
Cash paid for businesses acquisition, net
of working capital adjustments
(22,385
)
(285,181
)
Purchases of property, plant and
equipment
(3,282
)
(6,116
)
Net cash provided by (used in) investing
activities
(25,667
)
(291,297
)
Cash flows from financing
activities:
Borrowings under revolving credit
facilities
69,941
280,000
Repayments under term loan and revolving
credit facilities
(24,958
)
(21,330
)
Payments of withholding taxes from
share-based awards
(149
)
(12,244
)
Payments of contingent consideration
related to acquisitions
(45,879
)
—
Other financing activities
(151
)
(142
)
Net cash provided by (used in) financing
activities
(1,196
)
246,284
Effect of exchange rates on cash and cash
equivalents
(3,805
)
(343
)
Increase (decrease) in cash and cash
equivalents
(15,909
)
(31,458
)
Cash and cash equivalents, beginning of
period
100,489
133,853
Cash and cash equivalents, end of
period
$
84,580
$
102,395
NOVANTA INC.
Revenue by Reportable
Segment
(In thousands of U.S.
dollars)
(Unaudited)
Three Months Ended
September 30,
October 1,
2022
2021
Revenue
Photonics
$
70,799
$
55,263
Vision
73,345
65,346
Precision Motion
78,814
57,117
Total
$
222,958
$
177,726
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
September 30,
October 1,
2022
2021
Photonics
Gross Profit (GAAP)
$
34,699
$
25,311
Gross Profit Margin (GAAP)
49.0
%
45.8
%
Amortization of intangible assets
593
771
Acquisition fair value adjustments
—
—
Adjusted Gross Profit (Non-GAAP)
$
35,292
$
26,082
Adjusted Gross Profit Margin
(Non-GAAP)
49.8
%
47.2
%
Vision
Gross Profit (GAAP)
$
28,201
$
24,763
Gross Profit Margin (GAAP)
38.4
%
37.9
%
Amortization of intangible assets
1,204
1,503
Acquisition fair value adjustments
—
—
Adjusted Gross Profit (Non-GAAP)
$
29,405
$
26,266
Adjusted Gross Profit Margin
(Non-GAAP)
40.1
%
40.2
%
Precision Motion
Gross Profit (GAAP)
$
36,832
$
27,743
Gross Profit Margin (GAAP)
46.7
%
48.6
%
Amortization of intangible assets
1,450
1,042
Acquisition fair value adjustments
—
280
Adjusted Gross Profit (Non-GAAP)
$
38,282
$
29,065
Adjusted Gross Profit Margin
(Non-GAAP)
48.6
%
50.9
%
Unallocated Corporate and Shared
Services
Gross Profit (GAAP)
$
(1,324
)
$
(1,519
)
Amortization of intangible assets
—
—
Employee COVID-19 testing costs
—
432
Adjusted Gross Profit (Non-GAAP)
$
(1,324
)
$
(1,087
)
Novanta Inc.
Gross Profit (GAAP)
$
98,408
$
76,298
Gross Profit Margin (GAAP)
44.1
%
42.9
%
Amortization of intangible assets
3,247
3,316
Acquisition fair value adjustments
—
280
Employee COVID-19 testing costs
—
432
Adjusted Gross Profit (Non-GAAP)
$
101,655
$
80,326
Adjusted Gross Profit Margin
(Non-GAAP)
45.6
%
45.2
%
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
30, 2022
Operating Income
Operating Margin
Income before Income Taxes
Income Tax Provision /
(Benefit)
Effective Tax Rate
Consolidated Net Income
Diluted EPS
GAAP results
$
28,661
12.9
%
$
26,772
$
4,282
16.0
%
$
22,490
$
0.63
Non-GAAP Adjustments:
Amortization of intangible assets
9,719
4.3
%
9,719
Restructuring costs
1,776
0.8
%
1,776
Acquisition and related costs
(151
)
(0.1
)%
(151
)
Foreign exchange transaction (gains)
losses, net
(2,086
)
Tax effect on non-GAAP adjustments
2,205
Non-GAAP tax adjustments
521
Total non-GAAP adjustments
11,344
5.0
%
9,258
2,726
6,532
0.18
Adjusted results (Non-GAAP)
$
40,005
17.9
%
$
36,030
$
7,008
19.5
%
$
29,022
$
0.81
Weighted average shares outstanding -
Diluted
35,928
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 1,
2021
Operating Income
Operating Margin
Income before Income Taxes
Income Tax Provision /
(Benefit)
Effective Tax Rate
Consolidated Net Income
Diluted EPS
GAAP results
$
15,275
8.6
%
$
13,528
$
(75
)
-0.6
%
$
13,603
$
0.38
Non-GAAP Adjustments:
Amortization of intangible assets
7,455
4.2
%
7,455
Restructuring costs
5,185
2.9
%
5,185
Acquisition and related costs
2,935
1.7
%
2,935
Employee COVID-19 testing costs
432
0.2
%
432
Acquisition inventory fair value
adjustments
280
0.2
%
280
Foreign exchange transaction (gains)
losses, net
(34
)
Tax effect on non-GAAP adjustments
3,025
Non-GAAP tax adjustments
21
Total non-GAAP adjustments
16,287
9.2
%
16,253
3,046
13,207
0.37
Adjusted results (Non-GAAP)
$
31,562
17.8
%
$
29,781
$
2,971
10.0
%
$
26,810
$
0.75
Weighted average shares outstanding -
Diluted
35,764
NOVANTA INC.
Reconciliation of GAAP to
Non-GAAP Financial Measures
(In thousands of U.S.
dollars)
(Unaudited)
Adjusted EBITDA
(Non-GAAP):
Three Months Ended
September 30,
October 1,
2022
2021
Consolidated Net Income (GAAP)
$
22,490
$
13,603
Consolidated Net Income Margin
10.1
%
7.7
%
Interest (income) expense, net
4,062
1,710
Income tax provision (benefit)
4,282
(75
)
Depreciation and amortization
13,143
10,755
Share-based compensation
5,954
5,525
Restructuring, acquisition, and related
costs
1,625
8,120
Acquisition fair value adjustment
—
280
Employee COVID-19 testing costs
—
432
Other, net
(2,173
)
37
Adjusted EBITDA (Non-GAAP)
$
49,383
$
40,387
Adjusted EBITDA Margin
(Non-GAAP)
22.1
%
22.7
%
Organic Revenue
Growth (Non-GAAP):
Three Months Ended September
30, 2022
Compared to
Three Months Ended October 1,
2021
Reported Revenue Growth/(Decline)
(GAAP)
25.5
%
Less: Change attributable to
acquisitions
12.6
%
Plus: Change due to foreign currency
7.7
%
Organic Revenue Growth/(Decline)
(Non-GAAP)
20.6
%
Net Debt
(Non-GAAP):
September 30,
December 31,
2022
2021
Total Debt (GAAP)
$
442,813
$
434,458
Plus: Deferred financing costs
5,133
4,126
Gross Debt
447,946
438,584
Less: Cash and cash equivalents
(84,580
)
(117,393
)
Net Debt (Non-GAAP)
$
363,366
$
321,191
Free Cash Flow
(Non-GAAP):
Three Months Ended
September 30,
October 1,
2022
2021
Net Cash Provided by Operating
Activities (GAAP)
$
14,759
$
13,898
Less: Purchases of property, plant and
equipment
(3,282
)
(6,116
)
Plus: Proceeds from sale of property,
plant and equipment
—
—
Free Cash Flow (Non-GAAP)
$
11,477
$
7,782
Consolidated Net Income (GAAP)
$
22,490
$
13,603
Net Cash Provided by Operating
Activities as a Percentage of Consolidated Net Income
65.6
%
102.2
%
Free Cash Flow as a Percentage of
Consolidated Net Income
51.0
%
57.2
%
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. Additionally,
the Company excluded costs directly related to employee COVID-19
testing as these costs are unique to the COVID-19 pandemic and have
had a significant impact on the Company’s operating results.
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, and costs directly related to
employee COVID-19 testing for the reasons described for Adjusted
Gross Profit and Adjusted Gross Profit Margin above. The Company
also excludes 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 and inventory fair value adjustments related to business
acquisitions, costs directly related to employee COVID-19 testing,
and restructuring, acquisition and related costs for the reasons
described for Adjusted Operating Income and Adjusted Operating
Margin above. The Company excludes write-off of unamortized
deferred financing costs because they only arise in certain
specific situations when the Company’s existing credit agreement is
terminated or modified. The Company also excludes 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
excludes 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 and inventory fair value adjustments related to
business acquisitions, costs directly related to employee COVID-19
testing, restructuring, acquisition and related costs, write-off of
unamortized deferred financing costs, and foreign exchange
transaction gains (losses) for the reasons described for Adjusted
Income before Income Taxes. In addition, the Company excludes
significant discrete income tax expenses (benefits) related to
releases of valuation allowances, expenses (benefits) 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
calculation of diluted EPS, Adjusted Diluted EPS excludes
amortization of acquired intangible assets and inventory fair value
adjustments related to business acquisitions, costs directly
related to employee COVID-19 testing, restructuring, acquisition
and related costs, write-off of unamortized deferred financing
costs, foreign exchange transaction gains (losses), significant
discrete income tax expenses (benefits) related to releases of
valuation allowances, expenses (benefits) 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 income before
deducting interest (income) expense, income tax provision
(benefit), depreciation, amortization, non-cash share-based
compensation, costs directly related to employee COVID-19 testing,
restructuring, acquisition and related costs, acquisition fair
value adjustments, other non-operating (income) expense items,
including foreign exchange transaction (gains) losses, write-off of
unamortized deferred financing costs, 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 net cash provided by
operating activities less cash paid for purchases of property,
plant and equipment and plus cash proceeds from sales 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.
View source
version on businesswire.com: https://www.businesswire.com/news/home/20221108005125/en/
Novanta Inc. Investor Relations Contact: Ray Nash (781)
266-5137
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