Novanta Announces Financial Results for the First Quarter 2021

Rhea-AI Summary

Novanta reported Q1 2021 revenues of $162.6 million, a 4.6% increase year-over-year. Operating income declined to $11.1 million from $13.3 million, with net income at $11.3 million compared to $11.9 million in Q1 2020. Adjusted diluted EPS rose to $0.58 from $0.51. The company noted a 28% increase in bookings sequentially and 25% year-over-year, driven by strong demand in advanced industrial sectors. Guidance for Q2 forecasts revenue of $162 million to $165 million and for the full year expects revenue between $645 million to $655 million.

Positive

• Bookings increased by 28% sequentially and 25% year-over-year.
• Adjusted EBITDA rose to $32.7 million, up from $27.6 million in Q1 2020.
• Adjusted diluted EPS improved to $0.58 from $0.51 year-over-year.
• Operating cash flow increased to $23.3 million from $17.8 million.

Negative

• GAAP operating income declined to $11.1 million from $13.3 million in Q1 2020.
• GAAP diluted EPS decreased to $0.32 from $0.34 year-over-year.
• Pandemic-related disruptions and material shortages impacting supply chain are expected to continue.

Novanta Inc. (Nasdaq: NOVT) (the “Company”), a trusted technology partner to medical and advanced technology equipment manufacturers, today reported financial results for the first quarter 2021.

Financial Highlights	Three Months Ended
(In millions, except per share amounts)	April 2,				April 3,
	2021				2020
GAAP
Revenue	$	162.6			$	155.5
Operating Income	$	11.1			$	13.3
Consolidated Net Income	$	11.3			$	11.9
Diluted EPS	$	0.32			$	0.34
Non-GAAP*
Adjusted Operating Income	$	22.8			$	21.3
Adjusted Diluted EPS	$	0.58			$	0.51
Adjusted EBITDA	$	32.7			$	27.6
*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 strong First Quarter results, with sales, bookings, profit, and cash flow all exceeding our expectations,” said Matthijs Glastra, Chief Executive Officer of Novanta. “Demand accelerated across multiple application areas, particularly in the advanced industrial sector, demonstrated in our record sales and bookings performance, with bookings increasing 28% sequentially and 25% year over year. Our innovation programs are on track and making good progress, and we launched five new products in the quarter. We also saw record growth in design wins as we continue to partner with our customers on new opportunities. We feel very good that Novanta is well-positioned for continued success as the global economy returns to growth.”

First Quarter

During the first quarter of 2021, Novanta generated GAAP revenue of $162.6 million, an increase of $7.1 million, or 4.6%, versus the first quarter of 2020. There was no acquisition impact on revenue in the first quarter of 2021 from our acquisition activities. Changes in foreign currency exchange rates year over year favorably impacted our revenue by $5.4 million, or 3.5%, during the first quarter of 2021. 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 1.1% for the first quarter of 2021 (see “Organic Revenue Growth” in the non-GAAP reconciliations below).

In the first quarter of 2021, GAAP operating income was $11.1 million, compared to $13.3 million in the first quarter of 2020. GAAP consolidated net income was $11.3 million in the first quarter of 2021, compared to $11.9 million in the first quarter of 2020. GAAP diluted earnings per share (“EPS”) was $0.32 in the first quarter of 2021, compared to $0.34 in the first quarter of 2020.

Adjusted Diluted EPS was $0.58 in the first quarter of 2021, compared to $0.51 in the first quarter of 2020. The Company ended the first quarter of 2021 with 35.8 million diluted weighted average shares outstanding. Adjusted EBITDA was $32.7 million in the first quarter of 2021, compared to $27.6 million in the first quarter of 2020.

Operating cash flow for the first quarter of 2021 was $23.3 million, compared to $17.8 million in the first quarter of 2020. The Company completed the first quarter of 2021 with approximately $191.4 million of total debt and $113.6 million of total cash. Net Debt, as defined in the non-GAAP reconciliation below, was $82.0 million.

Financial Guidance

“With our performance in the First Quarter, and the strong broad based demand signals from our customers, we expect to see continued growth in the Second Quarter and for the Full Year,” said Matthijs Glastra. “While we expect strong demand for the year, we are seeing an uptick in pandemic related disruptions and electronic material shortages impacting our supply chain and that of our customers, which we expect to continue over the course of 2021. However, our design win and customer order activities are expected to remain robust; with long-term prospects in our medical and advanced industrial end-markets remaining very positive.”

For the second quarter of 2021, the Company expects GAAP revenue of approximately $162 million to $165 million. The Company expects Adjusted EBITDA to be in the range of $32 million to $34 million, and Adjusted Diluted EPS to be in the range of $0.49 to $0.53. The Company’s guidance assumes no significant changes in foreign exchange rates.

For the full year 2021, the Company expects GAAP revenue of approximately $645 million to $655 million. The Company expects Adjusted EBITDA to be in the range of $127 million to $134 million, and Adjusted Diluted EPS to be in the range of $2.04 to $2.19. 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 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 and related expenses; acquisition and related expenses; impact of purchase price allocations for recently completed acquisitions; gains and losses from sale of real estate assets; costs related to product line closures; 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, May 11, 2021 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 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, July 05, 2021.

Use of Non-GAAP Financial Measures

The non-GAAP financial measures used in this press release are Organic Revenue Growth, Adjusted Gross Profit, Adjusted Gross Profit Margin, Adjusted Operating Income and Operating Margin, Adjusted Income before Income Taxes, Adjusted Income Tax Provision/(Benefit) and Effective Tax Rate, Adjusted Consolidated Net Income, Adjusted Diluted EPS, Adjusted EBITDA, Adjusted EBITDA Margin, Free Cash Flow, Free Cash Flow as a Percentage of Consolidated Net Income, and Net Debt.

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

The Company’s Adjusted EBITDA, 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 second quarter and full year 2021; statements regarding the COVID-19 pandemic; expectations for our market position as the global economy returns to growth; expectations regarding our design win and customer order activities and long-term prospects 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 and level of business activities; risks associated with the COVID-19 pandemic and other events outside our control; 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; 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 compliance, or failure to comply, with environmental regulations; our failure to implement new information technology systems and software successfully; our failure to realize the full value of our intangible assets; our exposure to the credit risk of some of our customers and in weakened markets; our reliance on third party distribution channels; being subject to U.S. federal income taxation even though we are a non-U.S. corporation; changes in tax laws, and fluctuations in our effective tax rates; any need for additional capital to adequately respond to business challenges or opportunities and repay or refinance our existing indebtedness, which may not be available on acceptable terms or at all; our existing indebtedness limiting our ability to engage in certain activities; volatility in the market price for our common shares; and our failure to maintain appropriate internal controls in the future.

Other important risk factors that could affect the outcome of the events set forth in these statements and that could affect the Company’s operating results and financial condition are discussed in Item 1A of our Annual Report on Form 10-K for the fiscal year ended December 31, 2020, as updated by our future filings with the Securities and Exchange Commission (“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
	April 2,				April 3,
	2021				2020
Revenue	$	162,584			$	155,468
Cost of revenue		93,844				91,023
Gross profit		68,740				64,445
Operating expenses:
Research and development and engineering		18,682				15,334
Selling, general and administrative		31,653				30,755
Amortization of purchased intangible assets		3,575				3,445
Restructuring, acquisition, and related costs		3,731				1,661
Total operating expenses		57,641				51,195
Operating income		11,099				13,250
Interest income (expense), net		(1,408	)			(1,678	)
Foreign exchange transaction gains (losses), net		(257	)			254
Other income (expense), net		(70	)			83
Income before income taxes		9,364				11,909
Income tax provision (benefit)		(1,946	)			(38	)
Consolidated net income	$	11,310			$	11,947
Earnings per common share:
Basic	$	0.32			$	0.34
Diluted	$	0.32			$	0.34
Weighted average common shares outstanding—basic		35,279				35,152
Weighted average common shares outstanding—diluted		35,789				35,561

NOVANTA INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands of U.S. dollars)
(Unaudited)

	April 2,				December 31,
	2021				2020
ASSETS
Current Assets
Cash and cash equivalents	$	113,562			$	125,054
Accounts receivable, net		90,060				75,054
Inventories		89,944				92,737
Prepaid expenses and other current assets		15,551				11,328
Total current assets		309,117				304,173
Property, plant and equipment, net		77,535				78,676
Operating lease assets		31,642				34,444
Intangible assets, net		139,354				148,521
Goodwill		281,614				285,980
Other assets		12,992				13,385
Total assets	$	852,254			$	865,179
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current Liabilities
Current portion of long-term debt	$	5,273			$	5,508
Accounts payable		51,952				42,966
Accrued expenses and other current liabilities		60,152				65,755
Total current liabilities		117,377				114,229
Long-term debt		186,145				194,927
Operating lease liabilities		30,934				32,802
Other long-term liabilities		41,675				46,412
Total liabilities		376,131				388,370
Stockholders’ Equity:
Total stockholders’ equity		476,123				476,809
Total liabilities and stockholders’ equity	$	852,254			$	865,179

NOVANTA INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands of U.S. dollars)
(Unaudited)

	Three Months Ended
	April 2,				April 3,
	2021				2020
Cash flows from operating activities:
Consolidated net income	$	11,310			$	11,947
Adjustments to reconcile consolidated net income to net cash provided by operating activities:
Depreciation and amortization		9,849				9,330
Share-based compensation		6,644				3,199
Deferred income taxes		(968	)			(621	)
Other		1,549				1,357
Changes in assets and liabilities which (used)/provided cash, excluding effects from business acquisitions:
Accounts receivable		(15,828	)			343
Inventories		675				1,919
Other operating assets and liabilities		10,037				(9,719	)
Net cash provided by operating activities		23,268				17,755
Cash flows from investing activities:
Payment of business acquisition purchase price held in escrow		—				(150	)
Purchases of property, plant and equipment		(3,268	)			(2,319	)
Payment of contingent consideration related to acquisition of technology assets		(2,200	)			(2,632	)
Net cash used in investing activities		(5,468	)			(5,101	)
Cash flows from financing activities:
Repayments under term loan and revolving credit facilities		(1,345	)			(1,250	)
Payments of debt issuance costs		—				(1,280	)
Payments of withholding taxes from share-based awards		(18,272	)			(7,825	)
Repurchases of common shares		—				(5,500	)
Payment of contingent consideration related to an acquisition		(435	)			—
Purchase of building under finance lease		(8,743	)			—
Other financing activities		(140	)			(190	)
Net cash provided by (used in) financing activities		(28,935	)			(16,045	)
Effect of exchange rates on cash and cash equivalents		(357	)			(1,852	)
Increase (decrease) in cash and cash equivalents		(11,492	)			(5,243	)
Cash and cash equivalents, beginning of period		125,054				78,944
Cash and cash equivalents, end of period	$	113,562			$	73,701

NOVANTA INC.
Revenue by Reportable Segment
(In thousands of U.S. dollars)
(Unaudited)

	Three Months Ended
	April 2,				April 3,
	2021				2020
Revenue
Photonics	$	58,493			$	55,140
Vision		67,636				69,008
Precision Motion		36,455				31,320
Total	$	162,584			$	155,468

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
	April 2,				April 3,
	2021				2020
Photonics
Gross Profit (GAAP)	$	28,109			$	24,661
Gross Profit Margin (GAAP)		48.1	%			44.7	%
Amortization of intangible assets		779				754
Acquisition fair value adjustments		—				188
Adjusted Gross Profit (Non-GAAP)	$	28,888			$	25,603
Adjusted Gross Profit Margin (Non-GAAP)		49.4	%			46.4	%
Vision
Gross Profit (GAAP)	$	26,926			$	26,575
Gross Profit Margin (GAAP)		39.8	%			38.5	%
Amortization of intangible assets		1,519				1,574
Acquisition fair value adjustments		—				—
Adjusted Gross Profit (Non-GAAP)	$	28,445			$	28,149
Adjusted Gross Profit Margin (Non-GAAP)		42.1	%			40.8	%
Precision Motion
Gross Profit (GAAP)	$	16,077			$	13,908
Gross Profit Margin (GAAP)		44.1	%			44.4	%
Amortization of intangible assets		679				406
Acquisition fair value adjustments		—				—
Adjusted Gross Profit (Non-GAAP)	$	16,756			$	14,314
Adjusted Gross Profit Margin (Non-GAAP)		46.0	%			45.7	%
Unallocated Corporate and Shared Services
Gross Profit (GAAP)	$	(2,372	)		$	(699	)
Amortization of intangible assets		—				—
Acquisition fair value adjustments		—				—
Employee COVID-19 testing costs		1,409				—
Adjusted Gross Profit (Non-GAAP)	$	(963	)		$	(699	)
Novanta Inc.
Gross Profit (GAAP)	$	68,740			$	64,445
Gross Profit Margin (GAAP)		42.3	%			41.5	%
Amortization of intangible assets		2,977				2,734
Acquisition fair value adjustments		—				188
Employee COVID-19 testing costs		1,409				—
Adjusted Gross Profit (Non-GAAP)	$	73,126			$	67,367
Adjusted Gross Profit Margin (Non-GAAP)		45.0	%			43.3	%

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 April 2, 2021
	Operating Income				Operating Margin			Income before Income Taxes				Income Tax Provision / (Benefit)				Effective Tax Rate			Consolidated Net Income				Diluted EPS
GAAP results	$	11,099			6.8	%		$	9,364			$	(1,946	)		-20.8	%		$	11,310			$	0.32
Non-GAAP Adjustments:
Amortization of intangible assets		6,552			4.0	%			6,552
Restructuring costs		1,546			1.0	%			1,546
Acquisition and related costs		2,185			1.3	%			2,185
Employee COVID-19 testing costs		1,409			0.9	%			1,409
Foreign exchange transaction (gains) losses, net									257
Tax effect on non-GAAP adjustments													2,424
Non-GAAP tax adjustments													120
Total non-GAAP adjustments		11,692			7.2	%			11,949				2,544							9,405				0.26
Adjusted results (Non-GAAP)	$	22,791			14.0	%		$	21,313			$	598			2.8	%		$	20,715			$	0.58
Weighted average shares outstanding - Diluted																								35,789

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 April 3, 2020
	Operating Income				Operating Margin			Income before Income Taxes				Income Tax Provision / (Benefit)				Effective Tax Rate			Consolidated Net Income				Diluted EPS
GAAP results	$	13,250			8.5	%		$	11,909			$	(38	)		-0.3	%		$	11,947			$	0.34
Non-GAAP Adjustments:
Amortization of intangible assets		6,179			4.0	%			6,179
Restructuring costs		655			0.4	%			655
Acquisition and related costs		1,006			0.7	%			1,006
Acquisition fair value adjustments		188			0.1	%			188
Foreign exchange transaction (gains) losses, net									(254	)
Tax effect on non-GAAP adjustments													1,484
Non-GAAP tax adjustments													32
Total non-GAAP adjustments		8,028			5.2	%			7,774				1,516							6,258				0.17
Adjusted results (Non-GAAP)	$	21,278			13.7	%		$	19,683			$	1,478			7.5	%		$	18,205			$	0.51
Weighted average shares outstanding - Diluted																								35,561

NOVANTA INC.
Reconciliation of GAAP to Non-GAAP Financial Measures
(In thousands of U.S. dollars)
(Unaudited)

Adjusted EBITDA (Non-GAAP):

	Three Months Ended
	April 2,				April 3,
	2021				2020
Consolidated Net Income (GAAP)	$	11,310			$	11,947
Consolidated Net Income Margin		7.0	%			7.7	%
Interest (income) expense, net		1,408				1,678
Income tax provision		(1,946	)			(38	)
Depreciation and amortization		9,849				9,330
Share-based compensation		6,644				3,199
Restructuring, acquisition, and related costs		3,731				1,661
Acquisition fair value adjustments		—				188
Employee COVID-19 testing costs		1,409				—
Other, net		327				(337	)
Adjusted EBITDA (Non-GAAP)	$	32,732			$	27,628
Adjusted EBITDA Margin (Non-GAAP)		20.1	%			17.8	%

Organic Revenue Growth (Non-GAAP):

	Three Months Ended April 2, 2021
	Compared to
	Three Months Ended April 3, 2020
Reported Revenue Growth/(Decline) (GAAP)		4.6	%
Less: Change attributable to acquisitions		(—	)%
Plus: Change due to foreign currency		(3.5	)%
Organic Revenue Growth/(Decline) (Non-GAAP)		1.1	%

Net Debt (Non-GAAP):

	April 2,				December 31,
	2021				2020
Total Debt (GAAP)	$	191,418			$	200,435
Plus: Deferred financing costs		4,130				4,405
Gross Debt		195,548				204,840
Less: Cash and cash equivalents		(113,562	)			(125,054	)
Net Debt (Non-GAAP)	$	81,986			$	79,786

Free Cash Flow (Non-GAAP):

	Three Months Ended
	April 2,				April 3,
	2021				2020
Cash Provided by Operating Activities (GAAP)	$	23,268			$	17,755
Less: Purchases of property, plant and equipment		(3,268	)			(2,319	)
Plus: Proceeds from sale of property, plant and equipment		—				—
Free Cash Flow (Non-GAAP)	$	20,000			$	15,436
Consolidated Net Income (GAAP)	$	11,310			$	11,947
Cash Provided by Operating Activities as a Percentage of Consolidated Net Income		205.7	%			148.6	%
Free Cash Flow as a Percentage of Consolidated Net Income		176.8	%			129.2	%

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 current pandemic and are expected to have a significant impact on our 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 excluded restructuring, acquisition, and related costs due to the significant changes that have occurred outside of the Company’s day-to-day business for the reasons described above in the introductory paragraphs of the “Use of Non-GAAP Financial Measures.”

Adjusted Income before Income Taxes

The calculation of Adjusted Income before Income Taxes is displayed in the tables above. The calculation of Adjusted Income before Income Taxes excludes amortization of acquired intangible assets 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 also excluded foreign exchange transaction gains (losses) from the calculation of Adjusted Income before Income Taxes as the Company cannot fully influence the timing and amount of foreign exchange transaction gains (losses).

Non-GAAP Income Tax Provision/(Benefit) and Effective Tax Rate

The Non-GAAP Income Tax Provision/(Benefit) and Effective Tax Rate are calculated based on the Adjusted Income before Income Taxes by jurisdiction and the applicable tax rates currently in effect for the respective jurisdictions. In addition, the Company excluded significant discrete income tax expenses (benefits) related to releases of valuation allowances, benefits or expenses associated with the completion of tax audits, effects of changes in tax laws, effects of acquisition related tax planning actions on the Company’s effective tax rate, and the income tax effect of non-GAAP adjustments discussed above.

Adjusted Consolidated Net Income

The calculation of Adjusted Consolidated Net Income is displayed in the tables above. Because income before income taxes is included in determining Consolidated Net Income, the calculation of Adjusted Consolidated Net Income also excludes amortization of acquired intangible assets and inventory fair value adjustments related to business acquisitions, costs directly related to employee COVID-19 testing, restructuring, acquisition, and related costs, and foreign exchange transaction gains (losses). In addition, the Company excluded significant discrete income tax expenses (benefits) related to releases of valuation allowances, benefits or expenses associated with the completion of tax audits, effects of changes in tax laws, effects of acquisition related tax planning actions on the Company’s effective tax rate, and the income tax effect of non-GAAP adjustments discussed above.

Adjusted Diluted EPS

The calculation of Adjusted Diluted EPS is displayed in the tables above. Because Consolidated Net Income is used in the diluted EPS calculation, the calculation of Adjusted Diluted EPS excludes amortization of acquired intangible assets and inventory fair value adjustments related to business acquisitions, costs directly related to employee COVID-19 testing, restructuring, acquisition, and related costs, foreign exchange transaction gains (losses), significant discrete income tax expenses (benefits) related to releases of valuation allowances, benefits or expenses associated with the completion of tax audits, effects of changes in tax laws, effects of acquisition related tax planning actions on the Company’s effective tax rate, and the income tax effect of non-GAAP adjustments for the reasons described above for Adjusted Consolidated Net Income.

Adjusted EBITDA and Adjusted EBITDA Margin

The Company defines Adjusted EBITDA as the income before deducting interest (income) expense, income taxes, 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) and net periodic pension costs of the Company’s frozen U.K. defined benefit pension plan for the reasons described above in the introductory paragraphs of the “Use of Non-GAAP Financial Measures.”

Adjusted EBITDA Margin is defined as Adjusted EBITDA as a percentage of Revenue.

In evaluating Adjusted EBITDA and Adjusted EBITDA Margin, you should be aware that in the future the Company may incur expenses that are the same as, or similar to, some of the adjustments in this presentation.

Free Cash Flow and Free Cash Flow as a Percentage of Consolidated Net Income

The Company defines Free Cash Flow as cash provided by operating activities less cash paid for purchases of property, plant and equipment and plus cash proceeds from sale of property, plant and equipment. Free Cash Flow as a Percentage of Consolidated Net Income is defined as Free Cash Flow divided by Consolidated Net Income. Management believes these non-GAAP financial measures are important indicators of the Company’s liquidity as well as its ability to service its outstanding debt and to fund future growth.

Net Debt

The Company defines Net Debt as its total debt as reported on the consolidated balance sheet plus unamortized deferred financing costs and less its cash and cash equivalents as of the end of the period presented. Management uses Net Debt to monitor the Company’s outstanding debt obligations that could not be satisfied by its cash and cash equivalents on hand.

View source version on businesswire.com: https://www.businesswire.com/news/home/20210511005254/en/

FAQ

What were Novanta's Q1 2021 earnings results?

Novanta reported Q1 2021 revenues of $162.6 million with diluted EPS of $0.32.

What is Novanta's guidance for Q2 2021?

For Q2 2021, Novanta expects GAAP revenue of approximately $162 million to $165 million.

What challenges is Novanta facing in 2021?

Novanta is experiencing pandemic-related disruptions and electronic material shortages impacting their supply chain.

How did Novanta's adjusted EBITDA perform in Q1 2021?

Adjusted EBITDA increased to $32.7 million in Q1 2021, up from $27.6 million in Q1 2020.

What is Novanta's full year revenue guidance for 2021?

For the full year 2021, Novanta expects GAAP revenue of approximately $645 million to $655 million.