- Full Year 2018 GAAP Revenue of $614.3 million
- Full Year 2018 GAAP Net Income of $49.1 million
- Full Year 2018 GAAP Diluted Earnings Per Share of $1.43
- Full Year 2018 Adjusted Earnings Per Share of $2.16
- Full Year 2018 Adjusted EBITDA of $124 million
BEDFORD, Mass.–(BUSINESS WIRE)–Novanta Inc. (Nasdaq: NOVT) (the “Company”), a trusted technology partner to medical and advanced technology equipment manufacturers, today reported financial results for the fourth quarter and full year 2018.
|Three Months Ended December 31,||Year Ended December 31,|
|(In millions, except per share amounts)||2018||2017||2018||2017|
|Net Income Attributable to Novanta Inc.||$||11.6||$||8.9||$||49.1||$||60.1|
|Adjusted Operating Income||$||25.5||$||25.8||$||104.7||$||90.8|
|Adjusted Diluted EPS||$||0.56||$||0.44||$||2.16||$||1.60|
|*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.|
“2018 was an excellent year for Novanta with solid execution and good financial results,” said Matthijs Glastra, Chief Executive Officer of Novanta. “We delivered on our promises for robust top line growth and bottom-line profitability. For the full year, reported revenue growth was very strong at 18%, our Adjusted EPS grew 35% and Adjusted EBITDA grew 17%. As we head into 2019, we remain very confident in our strategy, our business model and our team’s commitment and ability to deliver results.”
During the fourth quarter of 2018, Novanta generated GAAP revenue of $156.2 million, an increase of $9.3 million, or 6.3%, versus the fourth quarter of 2017. The Company’s acquisition activities resulted in an increase in revenue of $3.3 million, or 2.2%, compared to the fourth quarter of 2017. Changes in foreign currency exchange rates year over year adversely impacted our revenue by $1.6 million, or 1.1%, during the fourth quarter of 2018. Our year-over-year Organic Revenue Growth, which excludes the net impact of acquisitions and changes in foreign currency exchange rates, was 5.2% for the fourth quarter of 2018 (see “Organic Revenue Growth” in the non-GAAP reconciliation below).
In the fourth quarter of 2018, GAAP operating income was $15.7 million, compared to $19.1 million in the fourth quarter of 2017. GAAP net income attributable to Novanta was $11.6 million in the fourth quarter of 2018, compared to $8.9 million in the fourth quarter of 2017. GAAP diluted earnings per share (“EPS”) was $0.33 in the fourth quarter of 2018, compared to ($0.00) in the fourth quarter of 2017.
Adjusted Diluted EPS was $0.56 in the fourth quarter of 2018, compared to $0.44 in the fourth quarter of 2017. The Company ended the fourth quarter of 2018 with 35.5 million weighted average shares outstanding. Adjusted EBITDA was $30.8 million in the fourth quarter of 2018, compared to $30.0 million in the fourth quarter of 2017.
Operating cash flow for the fourth quarter of 2018 was $21.9 million, compared to $22.1 million for the fourth quarter of 2017.
For the full year 2018, Novanta generated GAAP revenue of $614.3 million, an increase of $93.0 million, or 17.8%, versus the full year 2017. The Company’s acquisition activities resulted in an increase in revenue of $52.9 million, or 10.2%. Changes in foreign currency exchange rates year over year favorably impacted our revenue by $3.7 million, or 0.6%, in 2018. Our year-over-year Organic Revenue Growth, which excludes the net impact of acquisitions and changes in foreign currency exchange rates, was 7.0% for the full year 2018 (see “Organic Revenue Growth” in the non-GAAP reconciliation below).
For the full year 2018, GAAP operating income was $71.0 million, compared to $57.6 million in 2017. GAAP net income attributable to Novanta was $49.1 million for the full year 2018, compared to $60.1 million in 2017. GAAP diluted EPS was $1.43 for the full year 2018, compared to $1.13 in 2017. In 2018, the Company purchased the remaining equity interest in Laser Quantum, resulting in a reversal of $1.8 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 $0.05 increase in EPS under U.S. GAAP accounting rules.
Adjusted Diluted EPS was $2.16 for the full year 2018, compared to $1.60 in 2017. The Company ended the full year 2018 with 35.5 million weighted average shares outstanding. Adjusted EBITDA was $123.8 million for the full year 2018, compared to $106.1 million in 2017.
Operating cash flow for the full year 2018 was $89.6 million, compared to $63.4 million in 2017. The Company finished 2018 with approximately $207.4 million of total debt and $82.0 million of total cash. Net Debt, as defined in the non-GAAP reconciliation below, was $127.5 million.
For the full year 2019, the Company expects GAAP revenue of approximately $645 million to $655 million, Adjusted EBITDA in the range of $131 million to $135 million, and Adjusted Diluted EPS to be in the range of $2.30 to $2.36. The Company’s Adjusted Diluted EPS and Adjusted EBITDA guidance assumes no significant changes in foreign exchange rates.
For the first quarter of 2019, the Company expects GAAP revenue of approximately $154 million to $157 million, Adjusted EBITDA in the range of $27 million to $29 million, and Adjusted Diluted EPS to be in the range of $0.44 to $0.49. 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 future changes in the fair value of contingent considerations; 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; 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 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 Wednesday, February 27, 2019 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 Friday, April 5, 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, Free Cash Flow as a Percentage of Net Income Attributable to Novanta Inc. 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 confidence in our strategy and our business model and our team’s commitment and ability to deliver results; anticipated financial performance, including our financial outlook for the first quarter and full year 2019; expectations regarding market conditions; 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; 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 increased outsourcing of components manufacturing; our exposure to increased tariffs, trade restrictions or taxes on our products; 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 corporate documents 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, 2018, 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.
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.”
NOVANTA INC.CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS(In thousands of U.S. dollars or shares, except per share amounts)(Unaudited)
|Three Months Ended December 31,||Year Ended December 31,|
|Cost of revenue||91,672||84,677||352,809||300,759|
|Research and development and engineering||13,280||11,795||51,024||41,673|
|Selling, general and administrative||28,302||27,380||115,900||101,654|
|Amortization of purchased intangible assets||4,012||2,683||15,550||12,096|
|Restructuring, acquisition and divestiture related costs||3,236||1,310||8,041||7,542|
|Total operating expenses||48,830||43,168||190,515||162,965|
|Interest income (expense), net||(2,499||)||(2,291||)||(9,814||)||(7,165||)|
|Foreign exchange transaction gains (losses), net||311||(271||)||147||(447||)|
|Other income (expense), net||87||59||(44||)||(229||)|
|Gain on acquisition of business||—||—||—||26,409|
|Income before income taxes||13,575||16,570||61,302||76,134|
|Income tax provision||1,931||6,893||10,207||13,827|
|Consolidated net income||11,644||9,677||51,095||62,307|
|Less: Net income attributable to noncontrolling interest||—||(812||)||(1,986||)||(2,256||)|
|Net income attributable to Novanta Inc.||$||11,644||$||8,865||$||49,109||$||60,051|
|Earnings (loss) per common share attributable to Novanta Inc.|
|Weighted average common shares outstanding—basic||34,897||34,842||34,913||34,817|
|Weighted average common shares outstanding—diluted||35,485||34,842||35,473||35,280|
NOVANTA INC.CONDENSED CONSOLIDATED BALANCE SHEETS(In thousands of U.S. dollars)(Unaudited)
|Cash and cash equivalents||$||82,043||$||100,057|
|Accounts receivable, net||83,955||81,482|
|Other current assets||11,007||15,062|
|Total current assets||281,769||287,879|
|Property, plant and equipment, net||65,464||61,718|
|Intangible assets, net||142,920||155,048|
|LIABILITIES, NONCONTROLLING INTEREST AND STOCKHOLDERS’ EQUITY|
|Current portion of long-term debt||$||4,535||$||9,119|
|Accrued expenses and other current liabilities||48,928||49,256|
|Total current liabilities||104,196||98,168|
|Other long-term liabilities||44,282||44,567|
|Redeemable noncontrolling interest||—||46,923|
|Total stockholders’ equity||368,255||311,545|
Total liabilities, noncontrolling interest and stockholders’ equity
NOVANTA INC.CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS(In thousands of U.S. dollars)(Unaudited)
Three Months EndedDecember 31,
|Year Ended December 31,|
|Cash flows from operating activities:|
|Consolidated net income||$||11,644||$||9,677||$||51,095||$||62,307|
| Adjustments to reconcile consolidated net income to|
net cash provided by operating activities:
|Depreciation and amortization||9,666||8,318||37,052||30,758|
|Gain on acquisition of business||—||—||—||(26,409||)|
|Deferred income taxes||(2,767||)||353||(6,076||)||(2,560||)|
|Inventory acquisition fair value adjustment||—||—||—||4,754|
|Other non-cash items||519||(144||)||2,794||2,886|
| Changes in assets and liabilities which provided/(used) cash,|
excluding effects from business acquisitions:
|Other operating assets and liabilities||2,597||2,616||13,827||1,813|
|Net cash provided by operating activities||21,927||22,091||89,647||63,378|
|Cash flows from investing activities:|
|Purchases of property, plant and equipment||(3,013||)||(2,592||)||(14,658||)||(9,094||)|
|Acquisition of businesses, net of cash acquired and working capital adjustments||—||—||(29,600||)||(168,332||)|
|Acquisition of assets||(374||)||—||(1,599||)||—|
|Other investing activities||54||2||267||46|
|Net cash used in investing activities||(3,333||)||(2,590||)||(45,590||)||(177,380||)|
|Cash flows from financing activities:|
|Borrowings under revolving credit facility||—||—||55,253||176,769|
|Repayments of term loan and revolving credit facility||(45,589||)||(11,300||)||(74,648||)||(26,925||)|
|Acquisition of noncontrolling interest||—||—||(30,800||)||—|
|Repurchase of common stock||(2,085||)||—||(5,850||)||(370||)|
|Other financing activities||(216||)||(468||)||(4,119||)||(6,144||)|
|Net cash provided by (used in) financing activities||(47,890||)||(11,768||)||(60,164||)||143,330|
|Effect of exchange rates on cash and cash equivalents||(475||)||175||(1,907||)||2,621|
|Increase (decrease) in cash and cash equivalents||(29,771||)||7,908||(18,014||)||31,949|
|Cash and cash equivalents, beginning of period||111,814||92,149||100,057||68,108|
|Cash and cash equivalents, end of period||$||82,043||$||100,057||$||82,043||$||100,057|
NOVANTA INC.Revenue by Reportable Segment(In thousands of U.S. dollars)(Unaudited)
|Three Months Ended December 31,||Year Ended December 31,|
NOVANTA INC.Reconciliation of GAAP to Non-GAAP Financial Measures(In thousands of U.S. dollars)(Unaudited)
Adjusted Gross Profit and Adjusted Gross Profit Margin by Segment (Non-GAAP):
|Three Months Ended December 31,||Year Ended December 31,|
|Gross Profit (GAAP)||$||27,599||$||28,694||$||117,109||$||106,117|
|Gross Profit Margin (GAAP)||44.4||%||46.4||%||47.0||%||45.7||%|
|Amortization of intangible assets||664||1,020||2,750||4,005|
|Acquisition fair value adjustments||—||—||—||699|
|Adjusted Gross Profit (Non-GAAP)||$||28,263||$||29,714||$||119,859||$||110,821|
|Adjusted Gross Profit Margin (Non-GAAP)||45.5||%||48.0||%||48.1||%||47.7||%|
|Gross Profit (GAAP)||$||22,876||$||21,871||$||87,198||$||69,249|
|Gross Profit Margin (GAAP)||37.7||%||37.6||%||37.4||%||37.8||%|
|Amortization of intangible assets||1,732||1,636||6,658||4,460|
|Acquisition fair value adjustments||—||—||—||4,055|
|Adjusted Gross Profit (Non-GAAP)||$||24,608||$||23,507||$||93,856||$||77,764|
|Adjusted Gross Profit Margin (Non-GAAP)||40.5||%||40.4||%||40.3||%||42.5||%|
|Gross Profit (GAAP)||$||14,727||$||12,006||$||59,477||$||46,564|
|Gross Profit Margin (GAAP)||44.3||%||44.6||%||45.0||%||44.0||%|
|Amortization of intangible assets||203||90||652||359|
|Acquisition fair value adjustments||—||—||—||—|
|Adjusted Gross Profit (Non-GAAP)||$||14,930||$||12,096||$||60,129||$||46,923|
|Adjusted Gross Profit Margin (Non-GAAP)||44.9||%||44.9||%||45.5||%||44.3||%|
|Unallocated Corporate and Shared Services|
|Gross Profit (GAAP)||$||(696||)||$||(330||)||$||(2,256||)||$||(1,399||)|
|Amortization of intangible assets||—||—||—||—|
|Acquisition fair value adjustments||—||—||—||—|
|Adjusted Gross Profit (Non-GAAP)||$||(696||)||$||(330||)||$||(2,256||)||$||(1,399||)|
|Gross Profit (GAAP)||$||64,506||$||62,241||$||261,528||$||220,531|
|Gross Profit Margin (GAAP)||41.3||%||42.4||%||42.6||%||42.3||%|
|Amortization of intangible assets||2,599||2,746||10,060||8,824|
|Acquisition fair value adjustments||—||—||—||4,754|
|Adjusted Gross Profit (Non-GAAP)||$||67,105||$||64,987||$||271,588||$||234,109|
|Adjusted Gross Profit Margin (Non-GAAP)||43.0||%||44.2||%||44.2||%||44.9||%|
Novanta Inc.Investor Relations Contact:Robert J. Buckley(781) 266-5137