Novanta Announces Financial Results for the Second Quarter of 2016

- Second Quarter 2016 GAAP Revenue of $97.7 million

- Second Quarter 2016 GAAP Net Income of $4.9 million

- Second Quarter 2016 GAAP Earnings Per Share of $0.14

- Second Quarter 2016 Adjusted Earnings Per Share of $0.27

- Second Quarter 2016 Adjusted EBITDA of $17.3 million

BEDFORD, Mass., Aug. 2, 2016 /CNW/ -- Novanta Inc. (NASDAQ: NOVT) (the "Company", "we", "our", "Novanta"), a global leader and supplier of laser, precision motion, and vision technologies to original equipment manufacturers in the medical and advanced industrial markets, today reported financial results for the second quarter of 2016.

Financial Highlights

Three Months Ended


(In millions, except per share amounts)

July 1,



July 3,



2016



2015


GAAP








Revenue

$

97.7



$

96.5


Operating income from continuing operations

$

7.6



$

10.3


Consolidated net income

$

4.9



$

19.5


Diluted EPS from continuing operations

$

0.14



$

0.56


Non-GAAP*








Adjusted Revenue

$

97.7



$

96.5


Adjusted operating income from continuing operations

$

14.3



$

13.8


Adjusted EPS

$

0.27



$

0.20


Adjusted EBITDA

$

17.3



$

16.3



*Reconciliations of GAAP to non-GAAP financial measures, as well as definitions for the non-GAAP financial measures in this press release and the reasons for their use, are presented below.

 

Second Quarter of 2016

"We delivered strong operating results in the second quarter, exceeding our own expectations across the board.  We continue to deliver innovative technology to OEM customers and capture design wins in attractive growth applications.  We delivered substantial profit improvement from the first quarter despite sluggish capital spending markets in some of our industrial end markets. We continue to drive our commercial growth and productivity engines to further improve operating results and position ourselves for sustainable growth," said John Roush, Chief Executive Officer. 

During the second quarter of 2016, Novanta generated GAAP revenue of $97.7 million, an increase of 1.3% from $96.5 million in the second quarter of 2015. 

In the second quarter of 2016, GAAP operating income from continuing operations was $7.6 million, compared to $10.3 million in the second quarter of 2015.  Adjusted operating income from continuing operations was $14.3 million in the second quarter of 2016, compared to $13.8 million in the second quarter of 2015.     

GAAP Diluted EPS from continuing operations was $0.14 in the second quarter of 2016, compared to $0.56 in the second quarter of 2015.  The second quarter of 2015 included a $19.6 million pre-tax gain from the sale of JK Lasers. Adjusted EPS was $0.27 in the second quarter of 2016, compared to $0.20 in the second quarter of 2015.  The Company ended the second quarter of 2016 with 34.9 million weighted average diluted common shares outstanding.  GAAP consolidated net income was $4.9 million in the second quarter of 2016, compared to $19.5 million in the second quarter of 2015.  Adjusted EBITDA was $17.3 million in the second quarter of 2016, compared to $16.3 million in the second quarter of 2015. 

As of July 1, 2016, cash and cash equivalents were $60.5 million. The Company completed the second quarter of 2016 with approximately $86.5 million of total debt, and $29.5 million of Net Debt, as defined in the non-GAAP reconciliation below.  Operating cash flow from continuing operations for the second quarter of 2016 was $15.5 million, compared with $8.5 million in the second quarter of 2015. 

Financial Outlook

For the third quarter of 2016, the Company expects GAAP revenue of approximately $97 million to $98 million and Adjusted EBITDA of approximately $17 million to $18 million.  Additionally, the Company expects Adjusted EPS to be in the range of $0.26 to $0.29.  This compares to Adjusted EPS of $0.24 in the third quarter of 2015. 

"We are pleased with the second quarter operating results, which gives us further confidence that we are well positioned to deliver on our full year financial commitments and advance our strategic objectives.  In addition, our strong first half operating cash flows combined with our recently amended and restated credit agreement give us a strong capital position to pursue our acquisition strategy," said Robert Buckley, Chief Financial Officer.

Novanta provides earnings guidance on a non-GAAP basis and does not provide earnings guidance on a GAAP basis.  A reconciliation of the Company's forward-looking adjusted EBITDA and adjusted diluted earnings per share 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 adjustments that could be made for significant discrete income tax expenses (benefits); divestiture and acquisition-related expenses, gains and losses from sale of real estate assets; costs related to product line closures; future changes in the fair value of contingent considerations; 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 our 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, August 2, 2016 at 5:00 p.m. ET to discuss these results. John A. Roush, Chief Executive Officer, Matthijs Glastra, Chief Operating Officer, and Robert Buckley, Chief Financial Officer, will host the conference call.

To access the call, please dial (877) 482-5124 prior to the scheduled conference call time.  The conference ID number is 19313633.

A playback of this conference call will be available beginning 8:00 p.m. ET, Tuesday, August 2, 2016. The playback phone number is (855) 859-2056 or (404) 537-3406 and the code number is 19313633. The playback will remain available until 11:00 p.m. ET, Tuesday, August 23, 2016.

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.

Use of Non-GAAP Financial Measures

The non-GAAP financial measures used in this press release are Organic Revenue, Adjusted Revenue, Adjusted Gross Profit, Adjusted Gross Profit Margin, Adjusted Operating Income from Continuing Operations, Adjusted Operating Margin, Adjusted Income from Continuing Operations before Income Taxes, Adjusted Income from Continuing Operations, net of tax, Adjusted Diluted EPS from Continuing Operations, Adjusted EBITDA, and Net Debt.

The Company believes that the non-GAAP financial measures provide useful and supplementary information to investors regarding the Company's operating performance. 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 is 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 is used to determine bonus payments for senior management and employees.  Accordingly, the Company believes that this non-GAAP measure provides 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 delivering sustainable growth; our strong capital position enabling us to pursue our acquisition strategy; anticipated financial performance; business prospects; market conditions; second quarter operating results giving us further confidence that we are well positioned to deliver on our full year commitments and furthering our strategic objectives; 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; changes in interest rates, credit ratings or foreign currency exchange rates; risk associated with our operations in foreign countries; our failure to comply with local import and export regulations in the jurisdictions in which we operate; negative effect on global economic conditions, financial markets and our business as a result of the potential United Kingdom's withdrawal from the European Union; our reliance on third party distribution channels; 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 make divestitures that provide business benefits; 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; production difficulties and product delivery delays or disruptions; our compliance, or our failure to comply, with various federal, state and foreign regulations; changes in governmental regulation of our businesses or products; effects of conflict minerals regulations; 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; changes in tax laws, and fluctuations in our effective tax rates; being subject to U.S. federal income taxation even though we are a non-U.S. corporation; 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; volatility in the market price for our common shares; our ability to access cash and other assets of our subsidiaries; the influence over our business of certain significant shareholders; provisions of our articles of incorporation may delay or prevent a change in control; our significant existing indebtedness may limit our ability to engage in certain activities; 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, 2015, 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 update any 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 advanced industrial and healthcare OEMs a competitive advantage. We combine deep expertise at the intersection of photonics and 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. We deliver highly engineered laser, vision and precision motion solutions to customers around the world. 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 Inc. Investor Relations at (781) 266-5137 or InvestorRelations@Novanta.com.

Novanta Inc.  
Investor Relations Contact:
Robert J. Buckley
(781) 266-5137

 

 

NOVANTA INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

 (In thousands of U.S. dollars or shares, except per share amounts)

(Unaudited)



Three Months Ended



July 1,



July 3,



2016



2015


Revenue

$

97,734



$

96,494


Cost of revenue


56,238




55,149


Gross profit


41,496




41,345


Operating expenses:








Research and development and engineering


8,016




7,840


Selling, general and administrative


20,198




20,922


Amortization of purchased intangible assets


1,979




1,852


Restructuring, acquisition and divestiture related costs


3,705




416


Total operating expenses


33,898




31,030


Operating income from continuing operations


7,598




10,315


Interest income (expense), net


(1,205)




(1,375)


Foreign exchange transaction gains (losses), net


707




(3,153)


Other income (expense), net


270




20,034


Income from continuing operations before income taxes


7,370




25,821


Income tax provision


2,499




6,310


Income from continuing operations


4,871




19,511


Loss from discontinued operations, net of tax





(13)


Consolidated net income

$

4,871



$

19,498










Earnings per common share from continuing operations:








Basic

$

0.14



$

0.56


Diluted

$

0.14



$

0.56


Loss per common share from discontinued operations:








Basic

$



$

(0.00)


Diluted

$



$

(0.00)


Earnings per common share:








Basic

$

0.14



$

0.56


Diluted

$

0.14



$

0.56










Weighted average common shares outstanding—basic


34,734




34,630


Weighted average common shares outstanding—diluted


34,887




35,029


 

 


NOVANTA INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(In thousands of U.S. dollars)

(Unaudited)



July 1,



December 31,



2016



2015


ASSETS








Current Assets








Cash and cash equivalents

$

60,497



$

59,959


Accounts receivable, net


57,587




57,188


Inventories


59,981




59,566


Other current assets


9,423




8,499


Total current assets


187,488




185,212


Property, plant and equipment, net


37,647




40,550


Intangible assets, net


64,020




66,269


Goodwill


108,253




103,456


Other assets


16,477




20,558


Total assets

$

413,885



$

416,045


LIABILITIES AND STOCKHOLDERS' EQUITY








Current Liabilities








Current portion of long-term debt

$

7,371



$

7,385


Accounts payable


25,879




24,401


Accrued expenses and other current liabilities


30,556




25,167


Total current liabilities


63,806




56,953


Long-term debt


79,164




88,426


Other long-term liabilities


21,326




25,965


Total liabilities


164,296




171,344


Stockholders' Equity:








Total stockholders' equity


249,589




244,701


Total liabilities and stockholders' equity

$

413,885



$

416,045


 

 

 NOVANTA INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands of U.S. dollars)

(Unaudited)



Three Months Ended



July 1,



July 3,



2016



2015


Cash flows from operating activities:








Consolidated net income

$

4,871



$

19,498


Less: Loss from discontinued operations, net of tax





13


Income from continuing operations


4,871




19,511


Adjustments to reconcile income from continuing operations to

   net cash provided by operating activities of continuing operations:








Depreciation and amortization


4,924




4,623


Share-based compensation


1,055




936


Deferred income taxes


(536)




275


Earnings from equity investment


(268)




(394)


Gain on disposal of business





(19,638)


Earn-out adjustment


1,427





Other


885




417


Changes in assets and liabilities which (used)/provided cash, excluding

   effects from businesses purchased or classified as discontinued operations:








Accounts receivable


1,726




(147)


Inventories


1,912




134


Other operating assets and liabilities


(503)




2,809


Net cash provided by operating activities of continuing operations


15,493




8,526


Net cash used in operating activities of discontinued operations





(13)


Net cash provided by operating activities


15,493




8,513


Cash flows from investing activities:








Purchases of property, plant and equipment


(2,946)




(1,187)


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


(9,374)




804


Proceeds from the sale of business, net of transaction costs





30,623


Proceeds from the sale of property, plant and equipment


42




93


Net cash provided by (used in) investing activities of continuing operations


(12,278)




30,333


Net cash provided by investing activities of discontinued operations






Net cash provided by (used in) investing activities


(12,278)




30,333


Cash flows from financing activities:








Repayments of long-term debt and revolving credit facility


(5,625)




(6,875)


Payments for debt issuance costs


(1,987)





Purchase of common stock


(1,349)





Other financing activities


(527)




(218)


Net cash used in financing activities of continuing operations


(9,488)




(7,093)


Net cash used in financing activities of discontinued operations






Net cash used in financing activities


(9,488)




(7,093)


Effect of exchange rates on cash and cash equivalents


(1,122)




1,756


Increase (decrease) in cash and cash equivalents


(7,395)




33,509


Cash and cash equivalents, beginning of period


67,892




47,542


Cash and cash equivalents, end of period

$

60,497



$

81,051


 

 


Reconciliation of GAAP to Non-GAAP Financial Measures

(In thousands of U.S. dollars)

(Unaudited)


Adjusted Revenue by Segment (Non-GAAP):



Three Months Ended



July 1,



July 3,



2016



2015


Laser Products








Revenue (GAAP)

$

46,124



$

42,190


JK Lasers divestiture





(53)


Acquisition fair value adjustments






Adjusted Revenue (Non-GAAP)

$

46,124



$

42,137










Vision Technologies








Revenue (GAAP)

$

28,305



$

31,216


Acquisition fair value adjustments


8




39


Adjusted Revenue (Non-GAAP)

$

28,313



$

31,255










Precision Motion








Revenue (GAAP)

$

23,305



$

23,088


Acquisition fair value adjustments






Adjusted Revenue (Non-GAAP)

$

23,305



$

23,088










Novanta Inc.








Revenue (GAAP)

$

97,734



$

96,494


JK Lasers divestiture





(53)


Acquisition fair value adjustments


8




39


Adjusted Revenue (Non-GAAP)

$

97,742



$

96,480


 

 


Reconciliation of GAAP to Non-GAAP Financial Measures

(In thousands of U.S. dollars)

(Unaudited)


Adjusted Gross Profit by Segment (Non-GAAP):



Three Months Ended



July 1,



July 3,



2016



2015


Laser Products








Gross Profit (GAAP)

$

20,861



$

18,950


JK Lasers divestiture





50


Amortization of intangible assets


384




516


Acquisition fair value adjustments






Adjusted Gross Profit (Non-GAAP)

$

21,245



$

19,516


Gross Profit Margin (GAAP)


45.2

%



44.9

%

Adjusted Gross Profit Margin (Non-GAAP)


46.1

%



46.3

%









Vision Technologies








Gross Profit (GAAP)

$

10,524



$

12,158


Amortization of intangible assets


500




547


Acquisition fair value adjustments


51




39


Adjusted Gross Profit (Non-GAAP)

$

11,075



$

12,744


Gross Profit Margin (GAAP)


37.2

%



38.9

%

Adjusted Gross Profit Margin (Non-GAAP)


39.1

%



40.8

%









Precision Motion








Gross Profit (GAAP)

$

10,497



$

10,611


Amortization of intangible assets


102




111


Acquisition fair value adjustments






Adjusted Gross Profit (Non-GAAP)

$

10,599



$

10,722


Gross Profit Margin (GAAP)


45.0

%



46.0

%

Adjusted Gross Profit Margin (Non-GAAP)


45.5

%



46.4

%









Unallocated Corporate and Shared Services








Gross Profit (GAAP)

$

(386)



$

(374)


Amortization of intangible assets






Acquisition fair value adjustments






Adjusted Gross Profit (Non-GAAP)

$

(386)



$

(374)










Novanta Inc.








Gross Profit (GAAP)

$

41,496



$

41,345


JK Lasers divestiture





50


Amortization of intangible assets


986




1,174


Acquisition fair value adjustments


51




39


Adjusted Gross Profit (Non-GAAP)

$

42,533



$

42,608


Gross Profit Margin (GAAP)


42.5

%



42.8

%

Adjusted Gross Profit Margin (Non-GAAP)


43.5

%



44.2

%

 

 

Reconciliation of GAAP to Non-GAAP Financial Measures

(In thousands of U.S. dollars)

(Unaudited)


Adjusted Operating Income from Continuing Operations and Adjusted EPS (Non-GAAP):



Three Months Ended July 1, 2016



Operating Income from Continuing Operations



Operating Margin



Income from Continuing Operations before Income Taxes



Income Tax Provision (Benefits)



Income from Continuing Operations, Net of Tax



Diluted EPS from Continuing Operations


GAAP results

$

7,598




7.8

%


$

7,370



$

2,499



$

4,871



$

0.14


Non-GAAP Adjustments:
























Amortization of intangible assets


2,964




3.0

%



2,964













Restructuring, divestiture and other costs


1,972




2.0

%



1,972













Acquisition related costs


1,733




1.8

%



1,733













Acquisition fair value adjustments


51




0.1

%



51













Tax effect on non-GAAP adjustments











2,160










Non-GAAP tax adjustments











39










Total non-GAAP adjustments


6,720




6.9

%



6,720




2,199




4,521




0.13


























Adjusted results (Non-GAAP)

$

14,318




14.7

%


$

14,090



$

4,698



$

9,392



$

0.27


























Weighted average shares outstanding - Diluted






















34,887



























Three Months Ended July 3, 2015



Operating Income from Continuing Operations



Operating Margin



Income from Continuing Operations before Income Taxes



Income Tax Provision (Benefits)



Income from Continuing Operations, Net of Tax



Diluted EPS from Continuing Operations


GAAP results

$

10,315




10.7

%


$

25,821



$

6,310



$

19,511



$

0.56


Non-GAAP Adjustments:
























Amortization of intangible assets


3,026




3.1

%



3,026













Restructuring, divestiture and other costs


891




0.9

%



891













Acquisition related costs


(475)




(0.4)

%



(475)













Acquisition fair value adjustments


39




0.0

%



39













Gain on JK Lasers sale








(19,641)













Unrealized foreign currency loss on JK Lasers sale








1,612













Tax effect on non-GAAP adjustments











(2,692)










Non-GAAP tax adjustments











671










Total non-GAAP adjustments


3,481




3.6

%



(14,548)




(2,021)




(12,527)




(0.36)


























Adjusted results (Non-GAAP)

$

13,796




14.3

%


$

11,273



$

4,289



$

6,984



$

0.20


























Weighted average shares outstanding - Diluted






















35,029


 

 

Reconciliation of GAAP to Non-GAAP Financial Measures

(In thousands of U.S. dollars)

(Unaudited)


Adjusted EBITDA (Non-GAAP):



Three Months Ended



July 1,



July 3,



2016



2015


Consolidated net income (GAAP)

$

4,871



$

19,498


Interest (income) expense, net


1,205




1,375


Income tax provision


2,499




6,310


Depreciation and amortization


4,924




4,623


Share-based compensation


1,055




936


Restructuring, acquisition, divestiture and other costs


3,705




416


Acquisition fair value adjustments


51




39


Loss from discontinued operations, net of tax





13


Other, net


(977)




(16,881)


Adjusted EBITDA (Non-GAAP)

$

17,333



$

16,329


 

 

Net Debt (Non-GAAP):



July 1, 2016



December 31, 2015


Total Debt (GAAP)

$

86,535



$

95,811


Plus: Deferred financing costs


3,465




1,689


Gross Debt


90,000




97,500


Less: Cash and cash equivalents


(60,497)




(59,959)


Net Debt (Non-GAAP)

$

29,503



$

37,541


 

 


Organic Revenue Decline (Non-GAAP):



Three Months Ended



July 1, 2016 Compared
to Three Months Ended
July 3, 2015


Reported growth (GAAP)


1.3

%

Less: Change attributable to acquisitions and divestitures


1.6

%

Plus: Change due to foreign currency


0.0

%

Organic decline (Non-GAAP)


(0.3)

%

Non-GAAP Measures

Adjusted Revenue

Adjusted Revenue excludes the JK Lasers business to only show the results of ongoing operations of the Company. As the JK Lasers business was sold in April 2015, we excluded JK Lasers revenue from Adjusted Revenue because divestiture activities can vary between reporting periods and between us and our peers, which we believe make comparisons of long-term performance trends difficult for management and investors, and could result in overstating or understating to our investors the performance of our operations. Additionally, we include estimated revenue from contracts acquired with business acquisitions that will not be fully recognized due to business combination rules. Because GAAP accounting rules require the elimination of this revenue, GAAP results alone do not fully capture all of our economic activities.  These non-GAAP adjustments are intended to reflect the full amount of such revenue.  

Organic Revenue

We define the term "organic revenue" as revenue excluding the impact from business acquisitions, divestitures, and the effect of foreign currency translation. We use the related term "organic revenue growth/(decline)" to refer to the measure of comparing current period organic revenue with reported revenue of the corresponding period in the prior year. We believe that this non-GAAP measure, when taken together with our GAAP financial measures, allows us and our investors to better measure our performance and evaluate long-term performance trends. Organic revenue growth/(decline) also provides for easier comparisons of our performance with prior and future periods and relative comparisons to our peers. We exclude the effect of foreign currency translation from these measures because foreign currency translation is subject to volatility and can obscure underlying trends. We exclude the effect of acquisitions and divestitures because these activities can vary dramatically between reporting periods and between us and our peers, which we believe makes comparisons of long-term performance trends difficult for management and investors, and could result in overstating or understating to our investors the performance of our operations.

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 the JK Lasers business to only show the results of ongoing operations, as the JK Lasers business was sold in April 2015. Adjusted Gross Profit and Adjusted Gross Profit Margin also excludes the amortization of acquired intangible assets and revenue and inventory fair value adjustments from 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 components of operating expenses. In addition, the Company excluded inventory related charges associated with a product line closure as these costs occurred outside of the Company's day-to-day business as a result of the execution of the Company's strategy for the reasons described above in the introductory paragraphs of the "Use of Non-GAAP Financial Measures".

Adjusted Operating Income from Continuing Operations and Adjusted Operating Margin

The calculation of Adjusted Operating Income from Continuing Operations and Adjusted Operating Margin is displayed in the tables above. Adjusted Operating Income from Continuing Operations and Adjusted Operating Margin exclude the amortization of acquired intangible assets and revenue 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 components of operating expenses.  The Company also excluded restructuring, acquisition and divestiture related costs, and inventory related charges associated with a product line closure from Adjusted Operating Income from Continuing Operations and Adjusted Operating Margin due to the significant changes that have occurred outside of the Company's day-to-day business as a result of the execution of the Company's strategy for the reasons described above in the introductory paragraphs of the "Use of Non-GAAP Financial Measures".

Adjusted Income from Continuing Operations before Income Taxes

The calculation of Adjusted Income from Continuing Operations before Income Taxes is displayed in the tables above.  The calculation of Adjusted Income from Continuing Operations before Income Taxes excludes amortization of acquired intangible assets and revenue and inventory fair value adjustments related to business acquisitions, restructuring, acquisition and divestiture related costs, and inventory related charges associated with a product line closure for the reasons described for Adjusted Operating Income from Continuing Operations and Adjusted Operating Margin above.  In addition, the gain on sale of JK Lasers and the related unrealized foreign exchange loss on the U.S. dollar sales proceeds held by our U.K. subsidiary are excluded to only show the results of our ongoing operations, as the JK Lasers business was sold in April 2015.

Adjusted Income from Continuing Operations, Net of Tax

The calculation of Adjusted Income from Continuing Operations, net of tax, is displayed in the tables above.  Because pre-tax income is included in determining income from continuing operations, net of tax, the calculation of Adjusted Income from Continuing Operations, net of tax, also excludes amortization of acquired intangible assets and revenue and inventory fair value adjustments related to business acquisitions, restructuring, acquisition and divestiture related costs, inventory related charges associated with a product line closure, the gain on sale of JK Lasers and the related unrealized foreign exchange loss on the U.S. dollar sales proceeds held by our U.K. subsidiary for the reasons described for Adjusted Income from Continuing Operations before Income Taxes. 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 our effective tax rate, and the income tax effect of non-GAAP adjustments discussed above.

Adjusted Diluted EPS from Continuing Operations

The calculation of Adjusted Diluted EPS from Continuing Operations is displayed in the tables above.  Because income from continuing operations, net of tax is used in the diluted EPS calculation, the calculation of Adjusted Diluted EPS from Continuing Operations excludes amortization of acquired intangible assets and revenue and inventory fair value adjustments related to business acquisitions, restructuring, acquisition and divestiture related costs, inventory related charges associated with a product line closure, the gain on sale of JK Lasers and the related unrealized foreign exchange loss on the U.S. dollar sales proceeds held by our U.K. subsidiary, 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 our effective tax rate, tax benefit associated with a dividend from the Company's equity investment, and the income tax effect of non-GAAP adjustments for the reasons described above for Adjusted Income from Continuing Operations, net of tax. 

Adjusted EBITDA

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, acquisition and divestiture related costs, acquisition fair value adjustments, inventory related charges associated with product line closures, and other non-operating income (expense) items, including the gain on the sale of JK Lasers, foreign exchange gains (losses) and earnings from an equity-method investment for the reasons described above in the introductory paragraphs of the "Use of Non-GAAP Financial Measures.". 

In evaluating Adjusted EBITDA, 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.

Net Debt

The Company defines Net Debt as its total debt as reported on the consolidated balance sheet as of the end of the period plus unamortized deferred financing costs and less its cash and cash equivalents. 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.

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SOURCE Novanta Inc.


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