Novanta Announces Financial Results for the Fourth Quarter and Full Year 2019

  • Full Year 2019 GAAP Revenue of $626.1 million
  • Full Year 2019 GAAP Net Income of $40.8 million
  • Full Year 2019 GAAP Diluted Earnings Per Share of $1.15
  • Full Year 2019 Adjusted Earnings Per Share of $2.14
  • Full Year 2019 Adjusted EBITDA of $120.7 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 2019.

Financial Highlights

Three Months Ended

December 31,

 

Year Ended December 31,

(In millions, except per share amounts)

2019

2018

2019

2018

GAAP

 

 

 

 

 

 

 

Revenue

$

159.7

 

$

156.2

 

$

626.1

 

$

614.3

Operating Income

$

13.0

 

$

15.7

 

$

55.3

 

$

71.0

Net Income Attributable to Novanta Inc.

$

9.2

 

$

11.6

 

$

40.8

 

$

49.1

Diluted EPS

$

0.26

 

$

0.33

 

$

1.15

 

$

1.43

Non-GAAP*

 

 

 

 

 

 

 

Adjusted Operating Income

$

25.4

 

$

25.5

 

$

99.6

 

$

104.7

Adjusted Diluted EPS

$

0.55

 

$

0.55

 

$

2.14

 

$

2.15

Adjusted EBITDA

$

30.5

 

$

30.8

 

$

120.7

 

$

123.8

*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.

“We are pleased with the company’s performance in 2019, despite facing challenges in the industrial capital spending markets. In the fourth quarter, revenue was stronger than expected, and we delivered on our goals for profitability,” said Matthijs Glastra, Chief Executive Officer of Novanta. “Our medical business continued to grow at a double-digit pace, and our revenue from new products continued to reach new record levels. We remain very confident in the strategy of the company, and the execution of our teams, even as we work through the current economic environment.”

Fourth Quarter

During the fourth quarter of 2019, Novanta generated GAAP revenue of $159.7 million, an increase of $3.5 million, or 2.3%, versus the fourth quarter of 2018. The Company’s acquisition activities resulted in an increase in revenue of $6.9 million, or 4.4%, compared to the fourth quarter of 2018. Changes in foreign currency exchange rates year over year adversely impacted our revenue by $0.8 million, or 0.5%, during the fourth quarter of 2019. 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 1.6% for the fourth quarter of 2019 (see “Organic Revenue Growth” in the non-GAAP reconciliation below).

In the fourth quarter of 2019, GAAP operating income was $13.0 million, compared to $15.7 million in the fourth quarter of 2018. GAAP net income attributable to Novanta Inc. was $9.2 million in the fourth quarter of 2019, compared to $11.6 million in the fourth quarter of 2018. GAAP diluted earnings per share (“EPS”) was $0.26 in the fourth quarter of 2019, compared to $0.33 in the fourth quarter of 2018.

Adjusted Diluted EPS was $0.55 in the fourth quarter of 2019, compared to $0.55 in the fourth quarter of 2018. The Company ended the fourth quarter of 2019 with 35.6 million diluted weighted average shares outstanding. Adjusted EBITDA was $30.5 million in the fourth quarter of 2019, compared to $30.8 million in the fourth quarter of 2018.

Operating cash flow for the fourth quarter of 2019 was $35.4 million, compared to $21.9 million in the fourth quarter of 2018.

Full Year

For the full year 2019, Novanta generated GAAP revenue of $626.1 million, an increase of $11.8 million, or 1.9%, versus the full year 2018. The Company’s acquisition activities resulted in an increase in revenue of $17.4 million, or 2.8%. Changes in foreign currency exchange rates year over year adversely impacted our revenue by $9.8 million, or 1.6%, in 2019. Our year-over-year Organic Revenue Growth, which excludes the net impact of acquisitions and changes in foreign currency exchange rates, was 0.7% for the full year 2019 (see “Organic Revenue Growth” in the non-GAAP reconciliation below).

For the full year 2019, GAAP operating income was $55.3 million, compared to $71.0 million in 2018. GAAP net income attributable to Novanta Inc. was $40.8 million for the full year 2019, compared to $49.1 million in 2018. GAAP diluted EPS was $1.15 for the full year 2019, compared to $1.43 in 2018.

Adjusted Diluted EPS was $2.14 for the full year 2019, compared to $2.15 in 2018. The Company ended the full year 2019 with 35.5 million diluted weighted average shares outstanding. Adjusted EBITDA was $120.7 million for the full year 2019, compared to $123.8 million in 2018.

Operating cash flow for the full year 2019 was $63.2 million. The Company completed 2019 with approximately $220.4 million of total debt and $78.9 million of total cash. Net Debt, as defined in the non-GAAP reconciliation below, was $145.6 million.

Financial Outlook

“We continue to build momentum around our new products introductions and design win activities, and we see strong medical end market demand for our products. However, we are expecting short-term disruptions to our business in the first quarter due to the public health epidemic originating in China. This epidemic is expected to have a temporary impact on our sales of products sold directly into China, on our supply of products sourced from China to feed our global factories, as well as impact on our demand from our non-China-based customers due to their dependencies on the Chinese market,” said Robert Buckley, Chief Financial Officer.

For the first quarter of 2020, the Company expects GAAP revenue of approximately $144 million to $154 million. We estimate that the effects of COVID-19 on our revenue in the first quarter will be approximately $10 million to $15 million. The Company expects Adjusted EBITDA to be in the range of $23 million to $26 million and Adjusted Diluted EPS to be in the range of $0.34 to $0.42.

“The effects of the COVID-19 outbreak represent our view as of today, based on our current expectations regarding the timing of business resumption in our operations, customers, and our Chinese supply chain. A further worsening of the situation is currently not anticipated in our guidance. We believe this disruption is only temporary and that overall, we remain fundamentally strong and well positioned for growth and success. Therefore, we are not updating our full year guidance at this time,” said Robert Buckley.

Share Repurchase Authorization

Novanta’s Board of Directors has authorized a new share repurchase program under which the Company may repurchase up to $50 million worth of its common shares. The new program will commence after Novanta completes an existing $25 million share repurchase program, of which approximately $13.3 million remains available for future share repurchases. The shares may be repurchased under the new program from time to time at the Company’s discretion, based on ongoing assessment of the capital needs of the business, the market price of its common stock, and general market conditions. The Company expects that share repurchases will be made pursuant to a program adopted under Rule 10b-18 under the Securities Exchange Act of 1934, as amended.

The share repurchase programs do not obligate the Company to acquire any particular amount of common stock. No time limit is set for the completion of the share repurchase programs, and the programs may be suspended or discontinued at any time. The Company expects to fund the share repurchases through cash on hand and future cash flow from operations.

Non-GAAP Guidance

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); 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 26, 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, April 6, 2020.

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 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, including our financial outlook for the first quarter and full year 2020; our estimates of the impact of COVID-19 on our revenues, and our expectations regarding business resumption from the epidemic; 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 events outside our control, such as health epidemics, including COVID-19; 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 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; our failure to accurately forecast component and raw material requirements leading to excess inventories or interruptions and delays in the delivery of our products to customers; 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; potential penalties for violating foreign, U.S. federal, and state healthcare laws and regulations; changes in governmental regulations affecting 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; 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, 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

December 31,

Year Ended

December 31,

 

2019

 

2018

2019

 

2018

Revenue

$

159,702

 

 

$

156,178

 

$

626,099

 

 

$

614,337

 

Cost of revenue

 

93,742

 

 

 

91,672

 

 

364,014

 

 

 

352,809

 

Gross profit

 

65,960

 

 

 

64,506

 

 

262,085

 

 

 

261,528

 

Operating expenses:

 

 

 

 

 

 

Research and development and engineering

 

14,769

 

 

 

13,280

 

 

55,965

 

 

 

51,024

 

Selling, general and administrative

 

29,430

 

 

 

28,302

 

 

118,407

 

 

 

115,900

 

Amortization of purchased intangible assets

 

4,117

 

 

 

4,012

 

 

15,857

 

 

 

15,550

 

Restructuring and acquisition related costs

 

4,661

 

 

 

3,236

 

 

16,574

 

 

 

8,041

 

Total operating expenses

 

52,977

 

 

 

48,830

 

 

206,803

 

 

 

190,515

 

Operating income

 

12,983

 

 

 

15,676

 

 

55,282

 

 

 

71,013

 

Interest income (expense), net

 

(2,136

)

 

 

(2,499

)

 

(8,493

)

 

 

(9,814

)

Foreign exchange transaction gains (losses), net

 

(1,235

)

 

 

311

 

 

(780

)

 

 

147

 

Other income (expense), net

 

(57

)

 

 

87

 

 

(243

)

 

 

(44

)

Income before income taxes

 

9,555

 

 

 

13,575

 

 

45,766

 

 

 

61,302

 

Income tax provision

 

338

 

 

 

1,931

 

 

4,993

 

 

 

10,207

 

Consolidated net income

 

9,217

 

 

 

11,644

 

 

40,773

 

 

 

51,095

 

Less: Net income attributable to noncontrolling interest

 

 

 

(1,986

)

Net income attributable to Novanta Inc.

$

9,217

 

 

$

11,644

 

$

40,773

 

 

$

49,109

 

 

 

 

 

 

 

 

Earnings per common share attributable to Novanta Inc.

 

 

 

 

 

 

Basic

$

0.26

 

 

$

0.33

 

$

1.16

 

 

$

1.46

 

Diluted

$

0.26

 

 

$

0.33

 

$

1.15

 

 

$

1.43

 

 

 

 

 

 

 

 

Weighted average common shares outstanding—basic

 

35,079

 

 

 

34,897

 

 

35,030

 

 

 

34,913

 

Weighted average common shares outstanding—diluted

35,611

 

 

35,485

35,546

35,473

 

 

NOVANTA INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(In thousands of U.S. dollars)

(Unaudited)

 

 

 

December 31,
2019

 

December 31,
2018

ASSETS

 

 

 

Current Assets

 

 

 

Cash and cash equivalents

$

78,944

 

$

82,043

Accounts receivable, net

 

91,078

 

 

83,955

Inventories

 

116,618

 

 

104,764

Prepaid expenses and other current assets

 

17,872

 

 

11,007

Total current assets

 

304,512

 

 

281,769

Property, plant and equipment, net

 

77,556

 

 

65,464

Operating lease assets

 

35,180

 

Intangible assets, net

 

166,175

 

 

142,920

Goodwill

 

274,710

 

 

217,662

Other assets

 

11,603

 

 

11,761

Total assets

$

869,736

 

$

719,576

LIABILITIES AND STOCKHOLDERS’ EQUITY

 

 

 

Current Liabilities

 

 

 

Current portion of long-term debt

$

5,031

 

$

4,535

Accounts payable

 

52,585

 

 

50,733

Accrued expenses and other current liabilities

 

77,230

 

 

48,928

Total current liabilities

 

134,846

 

 

104,196

Long-term debt

 

215,334

 

 

202,843

Operating lease liabilities

 

34,108

 

Other long-term liabilities

 

68,276

 

 

44,282

Total liabilities

 

452,564

 

 

351,321

Stockholders’ Equity:

 

 

 

Total stockholders’ equity

 

417,172

 

 

368,255

Total liabilities and stockholders’ equity

$

869,736

 

$

719,576

NOVANTA INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands of U.S. dollars)

(Unaudited)

 

 

Three Months Ended

December 31,

 

Year Ended

December 31,

 

2019

 

2018

 

2019

2018

Cash flows from operating activities:

 

 

 

 

 

 

Consolidated net income

$

9,217

 

 

$

11,644

 

 

$

40,773

 

$

51,095

 

Adjustments to reconcile consolidated net income to net cash provided by operating activities:

 

 

 

 

 

 

Depreciation and amortization

 

10,326

 

 

 

9,666

 

 

 

38,280

 

 

37,052

 

Share-based compensation

 

1,992

 

 

 

2,239

 

 

 

9,340

 

 

7,714

 

Deferred income taxes

 

(1,156

)

 

 

(2,767

)

 

 

(4,332

)

 

(6,076

)

Inventory acquisition fair value adjustment

 

562

 

 

 

 

1,270

 

Other non-cash items

 

2,018

 

 

 

519

 

 

 

5,358

 

 

2,794

 

Changes in assets and liabilities which provided/(used) cash, excluding effects from business acquisitions:

 

 

 

 

 

 

Accounts receivable

 

8,547

 

 

 

4,591

 

 

 

(3,600

)

 

(1,156

)

Inventories

 

347

 

 

 

(6,562

)

 

 

(7,397

)

 

(15,603

)

Other operating assets and liabilities

 

3,552

 

 

 

2,597

 

 

 

(16,444

)

 

13,827

 

Net cash provided by operating activities

 

35,405

 

 

 

21,927

 

 

 

63,248

 

 

89,647

 

Cash flows from investing activities:

 

 

 

 

 

 

Acquisition of businesses, net of cash acquired and working capital adjustments

 

 

 

(53,143

)

 

(29,600

)

Purchases of property, plant and equipment

 

(2,792

)

 

 

(3,013

)

 

 

(10,743

)

 

(14,658

)

Other investing activities

 

 

(320

)

 

 

42

 

 

(1,332

)

Net cash used in investing activities

 

(2,792

)

 

 

(3,333

)

 

 

(63,844

)

 

(45,590

)

Cash flows from financing activities:

 

 

 

 

 

 

Borrowings under revolving credit facility

 

 

 

66,792

 

 

55,253

 

Repayments under term loan and revolving credit facilities

 

(9,926

)

 

 

(45,589

)

 

 

(50,694

)

 

(74,648

)

Acquisition of noncontrolling interest

 

 

 

(30,800

)

Repurchases of common shares

 

(3,316

)

 

 

(2,085

)

 

 

(10,000

)

 

(5,850

)

Other financing activities

 

(3,072

)

 

 

(216

)

 

 

(10,033

)

 

(4,119

)

Net cash used in financing activities

 

(16,314

)

 

 

(47,890

)

 

 

(3,935

)

 

(60,164

)

Effect of exchange rates on cash and cash equivalents

 

1,240

 

 

 

(475

)

 

 

1,432

 

 

(1,907

)

Increase (decrease) in cash and cash equivalents

 

17,539

 

 

 

(29,771

)

 

 

(3,099

)

 

(18,014

)

Cash and cash equivalents, beginning of period

 

61,405

 

 

 

111,814

 

 

 

82,043

 

 

100,057

 

Cash and cash equivalents, end of period

$

78,944

 

 

$

82,043

 

 

$

78,944

 

$

82,043

 

Contacts

Novanta Inc.
Investor Relations Contact:

Robert J. Buckley

(781) 266-5137

Read full story here

error: Content is protected !!