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

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