novt-ex991_29.htm

BEDFORD, Mass., May 7, 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.

Financial Highlights	Three Months Ended
(In millions, except per share amounts)	March 29,		March 30,
	2019		2018
GAAP
Revenue	$	157.2	$	147.0
Operating Income	$	14.4	$	17.2
Net Income Attributable to Novanta Inc.	$	12.3	$	11.9
Diluted EPS	$	0.35	$	0.18
Non-GAAP*
Adjusted Operating Income	$	22.8	$	23.4
Adjusted Diluted EPS	$	0.53	$	0.47
Adjusted EBITDA	$	28.2	$	28.4

*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.

"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.

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.

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.

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.

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.

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.

	Three Months Ended
	March 29,			March 30,
	2019			2018
Revenue	$	157,186		$	146,965
Cost of revenue		90,897			84,806
Gross profit		66,289			62,159
Operating expenses:
Research and development and engineering		13,997			11,989
Selling, general and administrative		31,847			29,220
Amortization of purchased intangible assets		3,998			3,698
Restructuring and acquisition related costs		2,054			25
Total operating expenses		51,896			44,932
Operating income		14,393			17,227
Interest income (expense), net		(2,044	)		(2,358	)
Foreign exchange transaction gains (losses), net		41			(407	)
Other income (expense), net		(68	)		(41	)
Income before income taxes		12,322			14,421
Income tax provision		69			1,584
Consolidated net income		12,253			12,837
Less: Net income attributable to noncontrolling interest		—			(926	)
Net income attributable to Novanta Inc.	$	12,253		$	11,911

Earnings per common share attributable to Novanta Inc.:
Basic	$	0.35		$	0.19
Diluted	$	0.35		$	0.18

Weighted average common shares outstanding—basic		34,958			34,887
Weighted average common shares outstanding—diluted		35,474			35,428

	March 29,		December 31,
	2019		2018
ASSETS
Current Assets
Cash and cash equivalents	$	74,074	$	82,043
Accounts receivable, net		89,437		83,955
Inventories		106,784		104,764
Prepaid expenses and other current assets		16,265		11,007
Total current assets		286,560		281,769
Property, plant and equipment, net		64,754		65,464
Operating lease assets		35,374		—
Intangible assets, net		136,629		142,920
Goodwill		217,625		217,662
Other assets		11,718		11,761
Total assets	$	752,660	$	719,576
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current Liabilities
Current portion of long-term debt	$	2,240	$	4,535
Accounts payable		50,554		50,733
Accrued expenses and other current liabilities		48,295		48,928
Total current liabilities		101,089		104,196
Long-term debt		198,203		202,843
Operating lease liabilities		31,808		—
Other long-term liabilities		41,859		44,282
Total liabilities		372,959		351,321
Stockholders’ Equity:
Total stockholders’ equity		379,701		368,255
Total liabilities and stockholders’ equity	$	752,660	$	719,576

	Three Months Ended
	March 29,			March 30,
	2019			2018
Cash flows from operating activities:
Consolidated net income	$	12,253		$	12,837
Adjustments to reconcile consolidated net income to net cash provided by operating activities:
Depreciation and amortization		9,074			9,067
Share-based compensation		2,727			2,044
Deferred income taxes		(24	)		235
Other		520			904
Changes in assets and liabilities which (used)/provided cash, excluding effects from business acquisitions:
Accounts receivable		(5,403	)		5,421
Inventories		(2,571	)		(7,423	)
Other operating assets and liabilities		(11,119	)		(2,676	)
Cash provided by operating activities		5,457			20,409
Cash flows from investing activities:
Purchases of property, plant and equipment		(2,429	)		(2,933	)
Other investing activities		24			52
Cash used in investing activities		(2,405	)		(2,881	)
Cash flows from financing activities:
Repayments of term loan and revolving credit facility		(4,600	)		(5,300	)
Other financing activities		(6,030	)		(3,020	)
Cash used in financing activities		(10,630	)		(8,320	)
Effect of exchange rates on cash and cash equivalents		(391	)		1,862
Increase (decrease) in cash and cash equivalents		(7,969	)		11,070
Cash and cash equivalents, beginning of period		82,043			100,057
Cash and cash equivalents, end of period	$	74,074		$	111,127

	Three Months Ended
	March 29,			March 30,
	2019			2018
Photonics
Gross Profit (GAAP)	$	27,314		$	29,555
Gross Profit Margin (GAAP)		46.1	%		47.8	%
Amortization of intangible assets		592			714
Adjusted Gross Profit (Non-GAAP)	$	27,906		$	30,269
Adjusted Gross Profit Margin (Non-GAAP)		47.1	%		49.0	%

Vision
Gross Profit (GAAP)	$	25,973		$	19,721
Gross Profit Margin (GAAP)		39.4	%		35.1	%
Amortization of intangible assets		1,522			1,686
Adjusted Gross Profit (Non-GAAP)	$	27,495		$	21,407
Adjusted Gross Profit Margin (Non-GAAP)		41.7	%		38.1	%

Precision Motion
Gross Profit (GAAP)	$	13,521		$	13,260
Gross Profit Margin (GAAP)		42.2	%		45.8	%
Amortization of intangible assets		197			80
Adjusted Gross Profit (Non-GAAP)	$	13,718		$	13,340
Adjusted Gross Profit Margin (Non-GAAP)		42.8	%		46.1	%

Unallocated Corporate and Shared Services
Gross Profit (GAAP)	$	(519	)	$	(377	)
Amortization of intangible assets		—			—
Adjusted Gross Profit (Non-GAAP)	$	(519	)	$	(377	)

Novanta Inc.
Gross Profit (GAAP)	$	66,289		$	62,159
Gross Profit Margin (GAAP)		42.2	%		42.3	%
Amortization of intangible assets		2,311			2,480
Adjusted Gross Profit (Non-GAAP)	$	68,600		$	64,639
Adjusted Gross Profit Margin (Non-GAAP)		43.6	%		44.0	%

	Three Months Ended March 29, 2019
	Operating Income		Operating Margin			Income before Income Taxes		Income Tax Provision		Effective Tax Rate			Net Income Attributable to Novanta Inc., Net of Tax		Diluted EPS
GAAP results	$	14,393		9.2	%	$	12,322	$	69		0.6	%	$	12,253	$	0.35
Non-GAAP Adjustments:
Amortization of intangible assets		6,309		4.0	%		6,309
Restructuring costs		1,236		0.8	%		1,236
Acquisition related costs		818		0.5	%		818
Tax effect on non-GAAP adjustments									1,647
Non-GAAP tax adjustments									80
Total non-GAAP adjustments		8,363		5.3	%		8,363		1,727					6,636		0.18

Adjusted results (Non-GAAP)	$	22,756		14.5	%	$	20,685	$	1,796		8.7	%	$	18,889	$	0.53

Weighted average shares outstanding - Diluted																35,474

	Three Months Ended March 30, 2018
	Operating Income		Operating Margin			Income before Income Taxes		Income Tax Provision			Effective Tax Rate			Net Income Attributable to Novanta Inc., Net of Tax			Diluted EPS
GAAP results	$	17,227		11.7	%	$	14,421	$	1,584			11.0	%	$	11,911
Less: Redeemable noncontrolling interest redemption value adjustment															(5,399	)
Net income attributable to Novanta Inc. after adjustment for redeemable noncontrolling interest redemption value														$	6,512		$	0.18
Redeemable noncontrolling interest redemption value adjustment															5,399			0.16
Net income attributable to Novanta Inc.														$	11,911
Non-GAAP Adjustments:
Amortization of intangible assets		6,178		4.2	%		6,178
Acquisition related costs		25		0.0	%		25
Tax effect on non-GAAP adjustments									1,417
Non-GAAP tax adjustments									(43	)
Total non-GAAP adjustments		6,203		4.2	%		6,203		1,374						4,829			0.13

Adjusted results (Non-GAAP)	$	23,430		15.9	%	$	20,624	$	2,958			14.3	%	$	16,740		$	0.47

Weighted average shares outstanding - Diluted																		35,428

	Three Months Ended
	March 29,			March 30,
	2019			2018
Consolidated Net Income (GAAP)	$	12,253		$	12,837
Net Income Margin		7.8	%		8.7	%
Interest (income) expense, net		2,044			2,358
Income tax provision		69			1,584
Depreciation and amortization		9,074			9,067
Share-based compensation		2,727			2,044
Restructuring and acquisition related costs		2,054			25
Other, net		27			448
Adjusted EBITDA (Non-GAAP)	$	28,248		$	28,363
Adjusted EBITDA Margin (Non-GAAP)		18.0	%		19.3	%

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.

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.

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.”

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.

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.

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.

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.

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.

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.

	Three Months Ended March 29, 2019 Compared to Three Months Ended March 30, 2018
Reported Growth (GAAP)		7.0	%
Less: Change attributable to acquisitions		2.6	%
Plus: Change due to foreign currency		2.6	%
Organic Growth (Non-GAAP)		7.0	%

	March 29,			December 31,
	2019			2018
Total Debt (GAAP)	$	200,443		$	207,378
Plus: Deferred financing costs		1,962			2,205
Gross Debt		202,405			209,583
Less: Cash and cash equivalents		(74,074	)		(82,043	)
Net Debt (Non-GAAP)	$	128,331		$	127,540