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

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

- Full Year 2017 GAAP Revenue of $521 million

- Full Year 2017 GAAP Net Income of $60 million

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

- Full Year 2017 Adjusted Earnings Per Share of $1.60

- Full Year 2017 Adjusted EBITDA of $106 million

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

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

Fourth Quarter

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

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

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

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

Full Year

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

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

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

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

Financial Outlook 

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

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

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

Conference Call Information

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

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

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

Use of Non-GAAP Financial Measures

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

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

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

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

Safe Harbor and Forward-Looking Information

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

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

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

About Novanta

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

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

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