Novanta Announces Financial Results for the Fourth Quarter and Full Year 2020

admin March 1, 2021

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Full Year 2020 GAAP Revenue of $591 million
Full Year 2020 GAAP Net Income of $45 million
Full Year 2020 GAAP Diluted Earnings Per Share of $1.25
Full Year 2020 Adjusted Earnings Per Share of $1.95
Full Year 2020 Adjusted EBITDA of $121 million

BEDFORD, Mass.–(BUSINESS WIRE)–Novanta Inc. (Nasdaq: NOVT) (“Novanta” or the “Company”), a trusted technology partner to medical and advanced technology equipment manufacturers, today reported financial results for the fourth quarter and full year 2020.

Financial Highlights	Three Months Ended December 31,				Year Ended December 31,
(In millions, except per share amounts)	2020		2019		2020		2019
GAAP
Revenue	$	147.5	$	159.7	$	590.6	$	626.1
Operating Income	$	17.1	$	13.0	$	55.9	$	55.3
Net Income	$	12.7	$	9.2	$	44.5	$	40.8
Diluted EPS	$	0.35	$	0.26	$	1.25	$	1.15
Non-GAAP*
Adjusted Operating Income	$	22.0	$	25.4	$	85.3	$	99.6
Adjusted Diluted EPS	$	0.53	$	0.55	$	1.95	$	2.14
Adjusted EBITDA	$	32.4	$	30.5	$	121.0	$	120.7

*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 very pleased with the company’s performance in 2020, despite the challenges caused by the COVID-19 pandemic,” said Matthijs Glastra, Chief Executive Officer of Novanta. “The fourth quarter played out as expected; revenue increased sequentially, and our customer orders were up 26% sequentially, giving us a 1.09 book-to-bill. We also expanded our Adjusted EBITDA Margins and once again had record cash flows. This performance gives us significant confidence as we enter the new year, and we are excited to continue to execute on our strategy as a company.”

Fourth Quarter

During the fourth quarter of 2020, Novanta generated GAAP revenue of $147.5 million, a decrease of $12.2 million, or 7.6%, versus the fourth quarter of 2019. There was no acquisition impact on revenue in the fourth quarter of 2020 from our acquisition activities. Changes in foreign currency exchange rates year over year favorably impacted our revenue by $4.0 million, or 2.5%, during the fourth quarter of 2020. 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 10.1% for the fourth quarter of 2020 (see “Organic Revenue Growth” in the non-GAAP reconciliation below).

In the fourth quarter of 2020, GAAP operating income was $17.1 million, compared to $13.0 million in the fourth quarter of 2019. GAAP net income was $12.7 million in the fourth quarter of 2020, compared to $9.2 million in the fourth quarter of 2019. GAAP diluted earnings per share (“EPS”) was $0.35 in the fourth quarter of 2020, compared to $0.26 in the fourth quarter of 2019.

Adjusted Diluted EPS was $0.53 in the fourth quarter of 2020, compared to $0.55 in the fourth quarter of 2019. The Company ended the fourth quarter of 2020 with 35.8 million diluted weighted average shares outstanding. Adjusted EBITDA was $32.4 million in the fourth quarter of 2020, compared to $30.5 million in the fourth quarter of 2019.

Operating cash flow for the fourth quarter of 2020 was $46.6 million, compared to $35.4 million for the fourth quarter of 2019.

Full Year

For the full year 2020, Novanta generated GAAP revenue of $590.6 million, a decrease of $35.5 million, or 5.7%, versus the full year 2019. The Company’s acquisition activities resulted in an increase in revenue of $8.4 million, or 1.3%. Changes in foreign currency exchange rates year over year favorably impacted our revenue by $3.7 million, or 0.6%, in 2020. 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 7.6% for the full year 2020 (see “Organic Revenue Growth” in the non-GAAP reconciliation below).

For the full year 2020, GAAP operating income was $55.9 million, compared to $55.3 million for 2019. GAAP net income was $44.5 million for the full year 2020, compared to $40.8 million for 2019. GAAP diluted EPS was $1.25 for the full year 2020, compared to $1.15 for 2019.

Adjusted Diluted EPS was $1.95 for the full year 2020, compared to $2.14 for 2019. The diluted weighted average shares outstanding for the full year 2020 was 35.7 million. Adjusted EBITDA was $121.0 million for the full year 2020, compared to $120.7 million for 2019.

Operating cash flow for the full year 2020 was $140.2 million. The Company completed 2020 with approximately $200.4 million of total debt and $125.1 million of total cash. Net Debt, as defined in the non-GAAP reconciliation below, was $79.8 million.

Financial Outlook

“We are encouraged by the increase in demand we are seeing across a number of applications, particularly in our advanced industrial markets. We expect to launch a record number of new products in 2021, double the number released in 2020, and we believe these will contribute to our growth trajectory this year,” said Matthijs Glastra.

For the first quarter of 2021, the Company expects GAAP revenue of approximately $155 million to $157 million. The Company expects Adjusted EBITDA to be in the range of $27 million to $29 million and Adjusted Diluted EPS to be in the range of $0.35 to $0.39.

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 Monday, March 01, 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 on the Investor Relations section of the Company’s website at www.novanta.com. The replay will remain available until Monday, April 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 Net Income, Adjusted Diluted EPS, Adjusted EBITDA, Adjusted EBITDA Margin, Free Cash Flow, Free Cash Flow as a Percentage of 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 first quarter 2021; expectations regarding market conditions; statements regarding the COVID-19 pandemic; expectations regarding product launches; 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 [email protected].

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,
	2020			2019			2020			2019
Revenue	$	147,498		$	159,702		$	590,623		$	626,099
Cost of revenue		85,233			93,742			346,106			364,014
Gross profit		62,265			65,960			244,517			262,085
Operating expenses:
Research and development and engineering		15,991			14,769			60,996			55,965
Selling, general and administrative		27,402			29,430			109,853			118,407
Amortization of purchased intangible assets		3,582			4,117			13,970			15,857
Restructuring and acquisition related costs		(1,781	)		4,661			3,810			16,574
Total operating expenses		45,194			52,977			188,629			206,803
Operating income		17,071			12,983			55,888			55,282
Interest income (expense), net		(1,487	)		(2,136	)		(6,564	)		(8,493	)
Foreign exchange transaction gains (losses), net		(778	)		(1,235	)		(942	)		(780	)
Other income (expense), net		(26	)		(57	)		21			(243	)
Income before income taxes		14,780			9,555			48,403			45,766
Income tax provision		2,124			338			3,882			4,993
Net income	$	12,656		$	9,217		$	44,521		$	40,773

Earnings per common share:
Basic	$	0.36		$	0.26		$	1.27		$	1.16
Diluted	$	0.35		$	0.26		$	1.25		$	1.15

Weighted average common shares outstanding—basic		35,145			35,079			35,144			35,030
Weighted average common shares outstanding—diluted		35,787			35,611			35,654			35,546

NOVANTA INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(In thousands of U.S. dollars)

(Unaudited)

	December 31,		December 31,
	2020		2019
ASSETS
Current Assets
Cash and cash equivalents	$	125,054	$	78,944
Accounts receivable, net		75,054		91,078
Inventories		92,737		116,618
Prepaid expenses and other current assets		11,328		17,872
Total current assets		304,173		304,512
Property, plant and equipment, net		78,676		77,556
Operating lease assets		34,444		35,180
Intangible assets, net		148,521		166,175
Goodwill		285,980		274,710
Other assets		13,385		11,603
Total assets	$	865,179	$	869,736
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current Liabilities
Current portion of long-term debt	$	5,508	$	5,031
Accounts payable		42,966		52,585
Accrued expenses and other current liabilities		65,755		77,230
Total current liabilities		114,229		134,846
Long-term debt		194,927		215,334
Operating lease liabilities		32,802		34,108
Other long-term liabilities		46,412		68,276
Total liabilities		388,370		452,564
Stockholders’ Equity:
Total stockholders’ equity		476,809		417,172
Total liabilities and stockholders’ equity	$	865,179	$	869,736

NOVANTA INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands of U.S. dollars)

(Unaudited)

	Three Months Ended December 31,						Year Ended December 31,
	2020			2019			2020			2019
Cash flows from operating activities:
Net income	$	12,656		$	9,217		$	44,521		$	40,773
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization		9,930			10,326			38,293			38,280
Share-based compensation		7,047			1,992			23,119			9,340
Deferred income taxes		(658	)		(1,156	)		(4,113	)		(4,332	)
Other non-cash items		(5,285	)		2,580			(1,120	)		6,628
Changes in assets and liabilities which provided/(used) cash, excluding effects from business acquisitions:
Accounts receivable		8,371			8,547			18,026			(3,600	)
Inventories		10,165			347			22,102			(7,397	)
Other operating assets and liabilities		4,327			3,552			(589	)		(16,444	)
Net cash provided by operating activities		46,553			35,405			140,239			63,248
Cash flows from investing activities:
Acquisition of businesses, net of cash acquired and working capital adjustments		—			—			—			(53,143	)
Purchases of property, plant and equipment		(3,360	)		(2,792	)		(10,524	)		(10,743	)
Other investing activities		—			—			(2,632	)		42
Net cash used in investing activities		(3,360	)		(2,792	)		(13,156	)		(63,844	)
Cash flows from financing activities:
Borrowings under revolving credit facilities		—			—			—			66,792
Repayments under term loan and revolving credit facilities		(1,374	)		(9,926	)		(35,391	)		(50,694	)
Repurchases of common shares		—			(3,316	)		(5,500	)		(10,000	)
Payments of deferred and escrowed purchase price related to acquisitions		(25,249	)		—			(31,021	)		–
Other financing activities		(539	)		(3,072	)		(12,445	)		(10,033	)
Net cash used in financing activities		(27,162	)		(16,314	)		(84,357	)		(3,935	)
Effect of exchange rates on cash and cash equivalents		2,393			1,240			3,384			1,432
Increase (decrease) in cash and cash equivalents		18,424			17,539			46,110			(3,099	)
Cash and cash equivalents, beginning of period		106,630			61,405			78,944			82,043
Cash and cash equivalents, end of period	$	125,054		$	78,944		$	125,054		$	78,944

NOVANTA INC.

Revenue by Reportable Segment

(In thousands of U.S. dollars)

(Unaudited)

	Three Months Ended December 31,				Year Ended December 31,
	2020		2019		2020		2019
Revenue
Photonics	$	50,276	$	58,376	$	199,613	$	230,457
Vision		63,603		69,653		261,650		271,407
Precision Motion		33,619		31,673		129,360		124,235
Total	$	147,498	$	159,702	$	590,623	$	626,099

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 December 31,						Year Ended December 31,
	2020			2019			2020			2019
Photonics
Gross Profit (GAAP)	$	23,335		$	25,934		$	89,060		$	105,845
Gross Profit Margin (GAAP)		46.4	%		44.4	%		44.6	%		45.9	%
Amortization of intangible assets		788			949			3,058			2,929
Acquisition fair value adjustments		—			562			188			935
Adjusted Gross Profit (Non-GAAP)	$	24,123		$	27,445		$	92,306		$	109,709
Adjusted Gross Profit Margin (Non-GAAP)		48.0	%		47.0	%		46.2	%		47.6	%

Vision
Gross Profit (GAAP)	$	24,591		$	27,122		$	100,267		$	105,228
Gross Profit Margin (GAAP)		38.7	%		38.9	%		38.3	%		38.8	%
Amortization of intangible assets		1,633			1,794			6,399			6,609
Acquisition fair value adjustments		—			—			—			240
Adjusted Gross Profit (Non-GAAP)	$	26,224		$	28,916		$	106,666		$	112,077
Adjusted Gross Profit Margin (Non-GAAP)		41.2	%		41.5	%		40.8	%		41.3	%

Precision Motion
Gross Profit (GAAP)	$	15,526		$	13,542		$	58,279		$	53,326
Gross Profit Margin (GAAP)		46.2	%		42.8	%		45.1	%		42.9	%
Amortization of intangible assets		432			291			1,666			1,050
Acquisition fair value adjustments		—			—			—			95
Adjusted Gross Profit (Non-GAAP)	$	15,958		$	13,833		$	59,945		$	54,471
Adjusted Gross Profit Margin (Non-GAAP)		47.5	%		43.7	%		46.3	%		43.8	%

Unallocated Corporate and Shared Services
Gross Profit (GAAP)	$	(1,187	)	$	(638	)	$	(3,089	)	$	(2,314	)
Amortization of intangible assets		—			—			—			—
Acquisition fair value adjustments		—			—			—			—
Employee COVID-19 testing costs		275			—			275			—
Adjusted Gross Profit (Non-GAAP)	$	(912	)	$	(638	)	$	(2,814	)	$	(2,314	)

Novanta Inc.
Gross Profit (GAAP)	$	62,265		$	65,960		$	244,517		$	262,085
Gross Profit Margin (GAAP)		42.2	%		41.3	%		41.4	%		41.9	%
Amortization of intangible assets		2,853			3,034			11,123			10,588
Acquisition fair value adjustments		—			562			188			1,270
Employee COVID-19 testing costs		275			—			275			—
Adjusted Gross Profit (Non-GAAP)	$	65,393		$	69,556		$	256,103		$	273,943
Adjusted Gross Profit Margin (Non-GAAP)		44.3	%		43.6	%		43.4	%		43.8	%