Novanta Announces Financial Results for the First Quarter 2019

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 2019.

*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.

First Quarter

“The company delivered excellent results in the first quarter, with
better than expected revenue growth and Adjusted EPS,” said Matthijs
Glastra, Chief Executive Officer of Novanta. “Revenue growth was 7%
driven by robust medical end-markets. Overall, we are pleased with our
performance in an uncertain macroeconomic and capital spending
environment.”

During the first quarter of 2019, Novanta generated GAAP revenue of
$157.2 million, an increase of $10.2 million, or 7.0%, versus the first
quarter of 2018. The Company’s acquisition activities resulted in an
increase in revenue of $3.8 million, or 2.6%, compared to the first
quarter of 2018. Changes in foreign currency exchange rates year over
year adversely impacted our revenue by $3.9 million, or 2.6%, during the
first 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 7.0% for the first quarter of 2019 (see “Organic
Revenue Growth” in the non-GAAP reconciliation below).

In the first quarter of 2019, GAAP operating income was $14.4 million,
compared to $17.2 million in the first quarter of 2018. GAAP net income
attributable to Novanta was $12.3 million in the first quarter of 2019,
compared to $11.9 million in the first quarter of 2018. GAAP diluted
earnings per share (“EPS”) was $0.35 in the first quarter of 2019,
compared to $0.18 in the first quarter of 2018.

Adjusted Diluted EPS was $0.53 in the first quarter of 2019, compared to
$0.47 in the first quarter of 2018. The Company ended the first quarter
of 2019 with 35.5 million weighted average shares outstanding. Adjusted
EBITDA was $28.2 million in the first quarter of 2019, compared to $28.4
million in the first quarter of 2018.

Operating cash flow for the first quarter of 2019 was $5.5 million.
Included in operating cash flow was a $4 million earn-out payment
associated with the acquisition of Zettlex and the impact from the
change in the Company’s employee incentive bonus plans from semi-annual
payments to annual payments. The Company completed the first quarter of
2019 with approximately $200.4 million of total debt and $74.1 million
of total cash. Net Debt, as defined in the non-GAAP reconciliation
below, was $128.3 million.

Financial Outlook

For the full year 2019, the Company is raising its expected Adjusted
Diluted EPS to be in the range of $2.36 to $2.42. The Company’s Adjusted
Diluted EPS guidance assumes no significant changes in foreign exchange
rates.

For the second quarter of 2019, the Company expects GAAP revenue of
approximately $153 million to $155 million, Adjusted EBITDA in the range
of $29.5 million to $30.5 million, and Adjusted Diluted EPS to be in the
range of $0.53 to $0.55. The Company’s Adjusted Diluted EPS and Adjusted
EBITDA 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 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) on proceeds from divestitures; 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 7, 2019 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, July 8, 2019.

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 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 second quarter and full year
2019; 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 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 impending 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; tax audits by tax
authorities; 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;
provisions of our corporate documents that may delay or prevent a change
in control; and our failure to maintain appropriate internal controls in
the future.

Other important risk factors that could affect the outcome of the
events set forth in these statements and that could affect the Company’s
operating results and financial condition are discussed in Item 1A of
our Annual Report on Form 10-K for the fiscal year ended December 31,
2018 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.

Non-GAAP 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 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 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 components of operating costs.

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 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 components of operating costs. The Company also
excluded restructuring and acquisition 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 restructuring
and acquisition related costs for the reasons described for Adjusted
Operating Income and Adjusted Operating Margin above.

Non-GAAP Income Tax Provision and Effective Tax Rate

The Non-GAAP Income Tax Provision 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 Net Income Attributable to Novanta Inc., Net of Tax

The calculation of Adjusted Net Income Attributable to Novanta Inc., Net
of Tax, is displayed in the tables above. Because pre-tax income is
included in determining net income attributable to Novanta Inc., net of
tax, the calculation of Adjusted Net Income Attributable to Novanta
Inc., Net of Tax, also excludes amortization of acquired intangible
assets, and restructuring and acquisition related costs. 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 Net Income Attributable to Novanta Inc., Net of Tax, is
used in the diluted EPS calculation, the calculation of Adjusted Diluted
EPS excludes amortization of acquired intangible assets, restructuring
and acquisition related costs, 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 Net
Income Attributable to Novanta Inc., Net of Tax. In addition, the
Company excluded the redeemable noncontrolling interest redemption value
adjustment as (1) the adjustment is unusual; (2) the amount is noncash;
(3) the amount does not represent a measure of earnings and is excluded
from the determination of net income attributable to Novanta Inc.; and
(4) the Company believes that investors may benefit from an
understanding of the Company’s operating results without giving effect
to this adjustment.

Adjusted EBITDA and Adjusted EBITDA Margin

The Company defines Adjusted EBITDA as the consolidated net income
before deducting interest (income) expense, income taxes, depreciation,
amortization, non-cash share-based compensation, restructuring and
acquisition related costs, other non-operating income (expense) items,
including foreign exchange 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 includes 100% of the results of the Company’s
consolidated subsidiaries and therefore does not exclude the Adjusted
EBITDA attributable to noncontrolling interests.

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 Net Income
Attributable to Novanta, Inc.

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 Net Income Attributable to Novanta, Inc. is
defined as Free Cash Flow divided by Net Income Attributable to Novanta,
Inc. Management believes these non-GAAP 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/20190507005369/en/