NOVT - Earnings call transcript Q4 2018

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Operator

Hello, and good morning. My name is Chad, and I will be your conference operator today. At this time, I would like to welcome everyone to the Novanta Inc. 2018 Fourth Quarter and Full Year Earnings Call. [Operator Instructions]. is event this note, being recorded. Please now Mr. would like to to over conference the turn I Corporate Leader. Nash, Ray Finance Please go ahead, sir.

Ray Nash

I XXXX Thank Financial you Fourth Conference Finance Year Novanta's our Novanta. call Chief With Executive welcome and Nash, me Call. Leader Earnings on of very much. our Quarter Officer, Buckley. Good and Matthijs Officer, morning, and am Robert Corporate Ray is today's to Chief Full Glastra;

obtain release not www.novanta.com. have of a from issued section today, Relations received call. may call Please is at press you If being and our of you our on webcast after copy archived website it this website the Investor the live earnings our be shortly will note,

this only statements could from these our after forward-looking differ cause statements to represent statements We made any this of some for time release materially that make known earnings as forward-looking today our factors questions, may in remarks our update even should to views our Before estimates of SEC our in responses involve earlier our We of Any expectations. assumptions that if forward-looking in on time. in current These include issued outlined statements everyone today, future views begin, we need and in harbor and any any forward-looking future, to we've other comments press we statements. and unknown disclaim not filings. risks remind as inherent representing the change, so our also may to today results those rely prepared that safe both forward-looking you of and as our obligation call. the with

is measures. the call. To after are of non-GAAP the as be an financial Officer to on call, earnings measures measures non-GAAP not earnings that pleased measures Relations certain website provide non-GAAP introduce measures now reconciled of press A release, our attachment am to GAAP Investor we call will in Matthijs the directly this we financial reconciliations promptly this to I GAAP referring Executive we Novanta, the our most to extent Glastra. the press this that use Chief During to available release. reconciliation comparable such during of will financial section

Matthijs Glastra

our you, Novanta, thanks call. promises Thank financial see everybody, Good going to morning, of and metrics a an profit joining our what start and both delivering we on our brief in results Ray. with in and I'm was record most for year and revenue XXXX. XXXX shareholders. for to excellent expect XXXX to overview delivering

million growth Our in representing XX% company organic delivered $XXX.X year-over-year full revenue year-over-year X% growth. revenue year revenue, and reported

was grew book-to-bill and X% our XXXX. year X.XX, full versus organic Our bookings

million, is adjusted up Our EBITDA which $XXX.X last XX% year. was versus

last XX% $X.XX year. Our was was adjusted which $X.XX, share up from earnings per

In with addition, year. performance outstanding last growing flow from cash XX% which to operating we cash delivered million, up $XX.X flow was

Our flow year income free for XXX%. was XXXX the cash to of net over GAAP full

structurally macro applications for large a macro growing. over a good feel trend the penetrate material vision drivers, in our high-growth revenue excellent are invasive and see medical markets half and in on We automation metrology, and precision care our X.X, surgery, variety efforts robotic applications positioning capabilities about motion to back advanced DNA to innovations new we such of Industry our sequencing, remain and in processing success of to about minimally Particularly, positions in precision our of We growth secular and continue around trends markets businesses and introduce medicine excited and customers. as health our productivity. momentum We a of surgery, and with photonic need that robotics. of the see converging

full revenue the year-over-year. over XX% product grew year for New

above launched for XX% in index, from revenue vitality the is year, XX% moved of full new products in to of sales which last XXXX. sales years, from Our the up X

China revenue our of year year team, Our feel more by we our see sustained and initial performance. increased we and versus and All our by wins design the XX%, system, full nearly increased full than implementing Novanta by results all, performance operating year. growth XX% in growth from fantastic last driving

our Looking markets good to ahead we our to continue with technologies. about penetrating medical end our and robust suite positions, further XXXX, these from half we growth feel space With leadership revenues see of this in markets. coming strong with of end

market fluid. Despite the a On and we small, year United while good a experiencing is to overall environment bit the moderate about market global applications remains the is of growth revenue pullback. economic And and exposure growth Kingdom, in spending, side, and Europe microelectronics industrial dynamics. feel portfolio diversified Industrial we due this China, see commitments full secular geopolitical there. backdrop, some our macroeconomic with long-term softness particularly our

touch Let briefly me on inflation. tariffs and

through of of of productivity to address mitigation steps seeing the we're and while quarter. businesses, improvement spend, of tariff second delivering both. completing a of do proud end company's Our our by our contributions team, to through these the our the the track effects effects. of job program, continuous inflation tariffs tremendous on most net the the to And material We operations solid continues effects execution remain I'm by on the

segments. Now turn our let operating me to

in fourth XX% XXXX, segment and of for XXXX. growth us growth year-over-year grew growth. fourth quarter bookings revenue with the Precision quarter, versus Motion year-over-year XX% revenue In XX% was Our engine a fantastic the

surgery. functionality position precise growth our in robotics, like in automation, such to dynamics markets continue control and multiple and as precision structural with motion dynamic We metrology robotic

more could extremely well, and business, industrial And this of the feel term. excited acquisition team not this progress not this as quality could year the well. the so the we technology Zettlex as with technology applications what out, pleased its will we robotic of us about integration. existing robotic is for and our first to with The transaction of a was expand long premise Our penetrate medical could that technology wedge perform serve we use and after the the of it base are into to ownership, continues applications proving do

by market year, our than full design innovations bring versus year Motion order Motion and new some we and to book-to-bill was more new Within segment, The are XX% more grew and as Precision fourth teams. timing revenue our product robotics expanding the full last market in grew wins X.XX due year softness. and medical our XX%, the X.XX commercial quarter to the for than Precision microelectronics

processing our of the segment. full performance, business performance experienced X by material X to micromachining. solid driven Turning year units advanced the of and manufacturing, laser-additive mid-single-digit Photonics

double by nearly XX% full see in Design execution last year. continued increased full digits China For revenue was new We're year, up Photonics to the the wins our last in product was and the to Cambridge over versus pleased Cambridge revenue versus year XX%. Technology growth from winning due strong Technology year, fastest, and robust We're up win highest-performing business enabling applications. steering with in customers year and proprietary most delivered solutions, technology, business, revenue which accurate solutions. our with full the application-specific the customer- packaged with multiple beam across growth momentum our to broad or for

which our In growth with business, performance delivered of quarter. the organic addition, also pleased the we're solid very in Synrad

launch to digit revenue year-over-year. in we indicated we Laser repeat event declined half of prior in Quantum DNA product market face fourth is double in of the sequencing expect customer the calls, XXXX. Finally, the quarter a after continues a Quantum This before challenging business new Laser last year-over-year first an comparisons to as our year. in

As related market a unrelated is is lumpiness growth. DNA end this dynamics reminder, sales in customer launch in to temporary to which sequencing,

path securely in positioned business. are therefore we now fact, the on feel market In this we and and space platforms multiyear in a growth multigenerational foresee

As segment a essentially revenue the the result our flat in dynamics, was Laser year-over-year. fourth of Quantum quarter Photonics

a of the of about X. X% Photonics solid with For full book-to-bill showed the year, growth segment

X Turning short; Detection Invasive includes Vision Surgery MIS technologies to businesses, or our segment, Analysis. which and & Minimally for

revenue delivered growth, the our results year, year by business. full driven of segment WOM the from Vision full For year-over-year XX%

We more are discussed XXXX, revenue year despite versus full which WOM new have business, our Invasive doubled Surgery comps segment, solid Vision calls. at the In related tough for with we prior turned in especially than to Vision we market which as growth and product market momentum, launch the pleased segment our expect book-to-bill in across-the-board. continue with the solid last was as we medical in momentum predominantly as product well mentioned, the and which solid in XXXX. The segment bookings to Minimally new year, previously see Vision X.XX serves

medical Our performed in quarter WOM's commercial comps by we the business the fourth the second This in both some the and to high a lines. despite team. WOM than for is XXXX as product the better execution despite well as that WOM offerings expected demand exited product of we tough of the fact testament half XXXX

such eighth its Image products our of in growth, pleased Video new operating core NDS driven the XK Management line new very VIMA, market. delivered Acquisition the year-over-year consecutive our quarter. with momentum we're or the displays, addition, as quarter wireless In by products room which and NDS addresses integrated revenue fourth product, product of continued and

business revenue growth year contributor and the profit XXXX. addition, profitability full its substantially was In our and a to improved net in

in portfolio business continues the of the purchasing a Detection small medical-grade broadened of XXXX, solid show In technologies. machine After of momentum and on our team around business, engineering hiring property and new better machine business. launches intellectual product XXXX, this to saw offerings. its after year medical-grade vision offerings and Finally, & Analysis business product vision technologies full with Worcester-based decline product focused the of a the we RFID

achieved We we year going the that growth XXXX. we ourselves with growth are Overall, the and how positioned and and in of for beyond. expect strongly we return full business sustainable XXXX to XXXX organic growth the pleased into for to profitability very

disciplined results operating year growth. quarter growth We're sustainable my Despite would across medical climate, as combined teams for well driven solid a fourth outlook XXXX. Novanta's and section, long-term performed to our a and solid year In the system I approach model. up around M&A, markets, positioned the M&A. like to success, and well wrapping our macroeconomic sustainable XXXX we're achieve by industrial in the our for confident foundation employees comment with fantastic another leadership of providing by Novanta profitable position make outstanding diversified is growth full the and to delivered of about Our

Our move organization we returns disciplined our at of and pipeline to several see are forward strategic right. when also remain But returns evaluating fit only is we financial and and and grow. around hard continue the working financial want to transactions, opportunities cultivating

X.Xx Our giving net leverage the us X.Xx, is the leverages finishing to act. need we with balance very flexibility year and sheet growth of strong, of

turn that, with financial to to Robert? will I So the our on provide performance. Robert more details over call

Robert Buckley

quarter We basis. increase an you, Matthijs, fourth Thank good delivered and revenue in a of morning, $XXX.X in reported on million XXXX, of everyone. the X%

million in an in increase resulted of acquisitions revenue Our $X.X or X.X%.

over was X% revenue rates our currency Foreign or X.X%. by Consequently, year-over-year. growth adversely exchange million impacted $X.X organic

delivered XX%. XX% full we the revenue, $XX.X on an XXXX reported basis, of GAAP positive a a year-over-year. of quarter year profit fourth XX% XXXX. in sales and For This increase was of million was XXXX, or of million $XXX.X gross Fourth million the X% $XX.X or quarter growth to compared in organic

was adjusted GAAP million factor gross and line, for the $XXX million average. million profit year million which remains our sales quarter gross below million XX% or the our to Full of be $XXX impacting negatively year was gross compared XXXX. margins in of gross to the compared XX% compared or was continues profit $XX far expectations. or XXXX a in For gross XXXX, full from consumable million margins adjusted basis, quarter full in to $XXX.X medical XX% mix fourth that say adverse below came $XX company's XXXX fair $XXX.X our On in in of The our of growth adjusted effects this product XXXX. to XX% XX% It's or or profit XXXX. the sales performance adjusted the sales to sales, largest strong or year non-GAAP fourth XX% of

challenges supply issues However, quality we inventory. to poor chain are cost in Cambridge Both were experiencing purchased Technology Celera disappointing segments. quarter previously with also our and the of in related business quality Motion

resolving of in fourth the anticipate XX.X% it quarter the XX.X% XXXX. is expenses frustrating, in for quarter of versus Total sales $XX million and or of inherently we or XXXX R&D SG&A fourth temporary were and once and in sales all of XXXX. $XX something While million

XX.X% operating in of whereas productivity acquisitions, XXXX. sales million non-GAAP increase income $XX For $XXX XX.X% along The year to our GAAP income and sales $XXX R&D driven by of programs. full XXXX, were or in in XXXX year XX.X% of $XX.X XXXX, quarter partially million these of operating was $XX sales. million million or the spending $XX.X million the sales compared expenses million commercial XX.X% our full was or was investments versus or engine compared in fourth in year in with prior of to

GAAP non-GAAP $XX For XXXX, $XX.X to XXXX $XX.X of to of of or sales the million the was full operating sales quarter XXXX. XX.X% the in compared million XXXX. compared XX% income fourth in was $XX.X was year to income $XX compared million million in as quarter operating in $XXX.X million fourth million 'XX, whereas of Adjusted EBITDA or

EBITDA full the For at quarter was million million expense in prior million of $X.X the Interest or sales. $XXX.X year. XXXX, was year compares year. the $X.X in to XX% XX.X% in adjusted up This million year-over-year the prior $XXX versus

our XXXX. senior million in versus full facility $X.X The For average million X.X% on interest was weighted the year was in rate credit interest 'XX. expense XXXX, $X.X

year planning. tax for favorable we was income the rate basis, XXXX. and largely for tax more the of statutory XX%, anticipated of of consequence mix and from jurisdictional a was U.K.-based by from XX.X% GAAP differed non-GAAP our than more Canadian our rate a was This year tax front, full XX.X%. U.S.- higher tax benefits It full the income. favorable On as driven of the XXXX rate On

Our of in X earnings of fourth per GAAP in fourth quarter of the 'XX. were share quarter $X.XX per earnings compared diluted to diluted the share XXXX

year year. EPS share basis, $X.XX full versus XXXX. For were adjusted earnings 'XX, $X.XX the was in quarter $X.XX the prior to $X.XX On in in non-GAAP compared a GAAP per

million at share $X.XX shares U.S. outstanding weighted mainly For We favorable million was prior the operating strong per tax to XX.X in the $X.XX driven was year-over-year diluted in year XX% ended adjusted from compared year-over-year from changes results, and laws XXXX. XXXX, earnings The adjusted year per average earnings XX.X versus XXXX. acquisitions. the with full up in increase share year by

year $XX.X For our $XX.X operating versus XXXX, XXXX, in million was an flow of the full increase cash million XX%.

expenditures $X.X our XXXX. of growth and XXXX, capital year For were ratio $XX.X the to We the million of debt compared full gross million, with full year ended million leverage in XXXX X.XXx. was $XXX

debt XXXX was of of as million or Xx. net Our end $XXX.X roughly the

Our acquisition balance strong is capacity. ample sheet with

to In and continue remaining focused cultivate very acquisition and is cash addition, while healthy, evaluate long-term attractive target pipeline disciplined we our on returns and growth and targets driving markets. potential our in

the processes beyond. costs to restructuring a expertise manufacturing X over investing and further last and us we first systems in years, our margin quarter upgrading operating for reduce position in after the and announced Finally, action expansion our in gross and XXXX

we While the benefit strengthen seen in further believe points will our per the of drive the XXXX, next expansion to years. gross for margin this year bulk ability few of basis will be XXX

Turning to guidance.

the year guidance. full issued previously of the XXXX, For reaffirms company its

expect revenue approximately $XXX We million. to GAAP million of $XXX

X% This X% in of quarter million XXXX, expect X% the year-over-year. of For growth GAAP the growth $XXX range X% revenue range to $XXX first to million. we of of the to and reported represents in organic

because product weaker be dynamics to expected is revenue DNA launch XXXX in by than in of a of Quantum, the in decline the Laser market. customer sequencing quarter impacted first a The of full year

business growth in after it this XXXX return comparisons. laps year-over-year the half second expect We difficult to the to of

XXXX, is be of expenses For million, the taxes as largely R&D between XX% XXXX, amortization over and higher due first and around full XXXX. to around Full to year depreciation expected sales and for expected be expected are expenses in $XX be is the expected basis of spending. full a quarter higher to payroll will to margins the expense year. expense to Operating million. are compared points of higher $XX and XXX be Total gross year sales R&D percent expand XX% SG&A to

be adjusted and $XXX interest XXXX, range to year to EBITDA million. debt announced. XXXX first The of In Full any borrowings incremental $X in or of full absent already range implemented significant factors fund additional expect expect year expected XX% acquisitions. for million the or impact million, guidance paydown $XXX to in of the tariff to be $XX to to to million be of continue million any the is adjusted tariffs we sales. of around We expense around costs the quarter in $XX EBITDA

We per earnings quarter expect Consequently, adjusted tax specifically first is in XXXX And we of This and Central adjusted in share income shares $X.XX. Diluted $X.XX of be XX.X share to around expect XXXX as year outstanding income of mix weighted XXXX, $X.XX per earnings to in range rate approximately range we the full slightly expect we of will non-GAAP million. to Asia. be of in to to see from favorable $X.XX. less XX%. the expect more be Europe up average jurisdictional full XXXX year slightly

our exchange assume any not rate always, changes. foreign does guidance from significant As impacts

Finally, growth further at of million anticipate similar the business our prior XXXX, as level to facility in $XX a improvements, consequence expenditures our and of capital maintaining $XX million we to year.

very we our further XXXX, As very head a of into top driver growth. We we optimistic. strong line markets, which be are significant will medical see

our now not will we investments leading-edge end benefit are is which continue customers slowing to our products, in innovations continue the our introduce and as markets. down opportunity We believe to to

We our we delivered prepared strong performance commitments delivering and our the the customers up XXXX, our XXXX. for now organization and are has questions. remarks. We'll This to they our our proud look have forward truly concludes open of the employees, shareholders and made call to in in progress the

Operator

Instructions]. [Operator

come CJS Lee will question Securities. with Jagoda first The from

Lee Jagoda

how the unfolding be you year? and of the go kind costs in background should we that some supply guess, and some the steps on about Can idea there as all first, I chain poor and throughout to the XXXX. we So you've increased fix should us once a fix and give for Robert, you quality mentioned it think taken remedy

Robert Buckley

back year and really seeing the time impact buying of issues. the to lot Yes, XXXX of us lot some some well, a the the first a of of in some to inventory fix off, issues half fix a consequence we're that of buy the was of of

I And what we're not we're has been something frustrating. disappointing quality finding The think down that that's its so and really It's poor purchases through we in so organization. us the identifiable thing, have that's an made. come right? of, been the amount say, And been building products, way as the levels let's is inventory those bleeding in that's

XXXX. for that capital can our in see You performance working net

supply new the we're on And so those that level, We've chunk supply on elevated on our supply chain from organization some more buying we have a as progress allocated to so to that, the and improving commodity focus And making. also really efficiencies additional as of focused a well executive now from perspective supply we large start resources as an lead going we've of vendors, We've kind qualified around additional chain. quality buy added that our of into some the that's chain. resources a senior and overall chain. the to person very robustness that driving operational both

Lee Jagoda

to And through run Or to it of see a gradual kind XXXX, we by of should fix? rolling expect more everything kind then, out we is as of look midyear?

Robert Buckley

mix the Yes, were I and of we've first to quarter, delivered. those that's see little really a gross of kind margins gross of double-digit you'll what think consequence similar into the And as looks a that weaker, quarter fourth decline we're kind improvement effects and really the margins. drop, second, as big third the the start get Laser to in our Quantum business. in seeing But you with

So tick XXXX, in second in starting quarter. from of really up will it the where kind it was

Lee Jagoda

one for And more me. then Sure.

gave happened But timing first should tariff eventual and be. the us million your what we going last of in then. that has happen if gross you how Obviously, on potential terms had they that quarter? last knows who outcome as back in the think $X kind about you to to million sort things out guidance drawn new shifted call, will were of half in Just $X impact to the a of -- margin relation

Robert Buckley

back more currently, of half level. the would quarter Yes, the It's at seen and say, at us impacting us I fourth we've that levels not so year. it's impacting the that in

now right there are $X So we're to it, quantifying million it's but near nowhere hitting without tariffs getting our P&L the anticipating.

year in internally other does, There's that the delivering kind part, for as greater of of opportunity some we're that of right the with really is So provides degree, things some on but results. some in a provide confidence it issues just Novanta. in offsetting the for upside, lot direction us going our most for seeing full

that in levers we're I think mitigated a mindful that. things to clouds we're lot that we seeing, need be a and and some trying we're of those be seeing. opportunities lot lot There's do a to general there's benefits enough of economy, the of to of just we feel have potential

Operator

Baird. Our next Richard from with be Eastman question will

Richard Eastman

ask I'll the you margin maybe commentary around point a summary profit gross that gave.

a and points 'XX? year, be we 'XX basis do or Is XXX XXX basis expect 'XX adjusted track. In and improvement of suggest did of should an kind statement that other you'd back points You and margin around expect a on gross in words, 'XX? we

Robert Buckley

and stated Yes, the that I in script. specifically

-- about we when expect XXX gross in sure the it, we and improvement guess, we're taking maintain read I it then in in points actions margin basis that transcribed. forward. make to But that enough going 'XX, momentum yes, so gets You'll

Richard Eastman

kind version Photonics first anticipates I a of around there point introducing the the comp Because of sequencing about new of the that you your of a believe first there primary 'XX? And that in newer quarter made, in that the and segment, introduction in NovaSeq Robert, product. quarter Okay. tough your -- point product you the customer have is

Matthijs Glastra

kind launch customers, get listen, going on pattern this spectacular Yes, on yes. that on, declines. calls need of But this of to basically going headwind was of through kind translate a in itself double-digit been That's We're lap and previous the right? temporary XXXX I to clear will we've middle think 'XX had of and we you that mean, Rick. a dynamics not 'XX, bit then as of a in a into holding is specifics how

growth, core it was the basically right? headwind. growing had nicely but this Photonics actually, of temporary kind were Whereas very you businesses at other you If look our flat,

right, anything, year, you bigger, actually of our of quarter sequencing So that in if DNA So Actually, will and projected big half business. microelectronics, that an just a the not right? in the course, relatively softness some first to first component we the in in our want but look if that's of of at minor growth see the subside temporary -- market-related, is right? not in second subside of if comps but It's as headwind second It's effect that half. the temporary execution-related. not half, it's will

Robert Buckley

And made I another that just script. accentuate want to point Matthijs in his

we about in I good our very position think that space. feel

And something platform we trajectory so space, that has that feel area, multiyear that is that a it. got to growth

that's feel good. we So something that

Matthijs Glastra

still of because is Yes, will rolled penetration And very, therefore, right? out and leadership in will infancy, sequencing throughput grow, So the applications, as we platforms position business use solid this get high our more continue its these to there. to grow. the DNA a have very

lumpiness. all temporary are of these So kind

a issue. be because it to -- we it, transparent but long-term not explain We like and about to have it's want it

Richard Eastman

a business, growth still core a Precision line the Understood. would few you revenue, to the... three these is your segments and Vision maybe the side and of core that Motion and Photonics, roughly for made X% medical kind of is the Precision around But your take growth. the business me mean, the Photonics be Precision And be at against which X% forecast, script, question in X% I some side. seeing in more when guide got up Motion Matthijs, think kind half mostly for the industrial leader pockets this pieces? in comments half industrial. presume -- I Motion softness. you earlier to X% is is it'd Vision, 'XX the I the do strikes than When we how of what of of guide of

Matthijs Glastra

markets see you a so so saying we the by good I medical actually strong. that question. what -- a very accelerating very yes, and our side, see medical started is growth -- I solid growth mean, that actually, are on Yes,

medical-focused predominantly being will in Vision contributor a XXXX. significant So be growth to

And expect let's so start contributor, that. So to the be we solid in a businesses all with there right?

comes -- XX% And so that's so Precision we right, year, tough a of spectacular then have hard I that. to course, at Motion, comps it's mean, and off continue growth.

is or modest there overall, and revenue, down, right? softness A soft So more of of there right? headwind, for is So headwind that us. than less microelectronics XX% right? bit market addition, in a say, search microelectronics in the But markets, some at I Precision that's Motion. company In a level, is our would

there. particular but we anticipate in think beauty diversification is down, of Motion We're to will there result our indicated, very or fighting of full to business. it, the that very, So firing here actually of that -- portfolio, numbers are story we're the tough words, it technology industrial, on is both cycles message the that's compensate. So we I the is might other But nicely that multiple second solid And there's in get multiple some Technology we're underlying help and right? markets like contributor And the Synrad are softness. make just rapidly, model us and microelectronics, pockets, we are Photonics And the the So this moderate as that that of within others will as call it's softer the will and if to in growing even Novanta's growth, that right? year, be that solid one our first see solid actually, you half, there the cylinder continued are be is half One X well kind launch overall as comps firing again. dynamics, right, segments headwind of certain a right? that Quantum be but right? be have might Precision other softness, there lift not to the as but those, Cambridge performance growth But tale Laser stories, to into going basically still we there still then in that power many moment, certain the want we as right, will a subside We're of or think part at right? a going is not a cylinders. other any of will contributor. then And for

So us some backdrops. company's I kind you very kind pretty macroeconomic these resilient of see in of of the think and nicely, compensating

Richard Eastman

just last it RFID put segment, example and the Understood. win there in RFID? you you In some Vision any specifically And it? -- where the business, JADAK, application give of Could Can and taken market. one having there, a some follow-up. you an and you X product Vision an now or examples give have referenced the could that commercialized wins you

Matthijs Glastra

such Yes, space, or a for vast to talking medical so big a example, it's the of I many picture you with connecting, you're right, basically, piece identifying applications. equipment, about -- in a But consumable in a way, right, space. mean,

sight need you wherever could to a and a read solution because there's that then read So machine the to RFID. of with obstructed, vision is consumable with line hard do it's that you better

data identifying the people type the So and emergency where terms quicker combination station. and it typically right? have not system, actually better can on of see patient monitoring shoot of there's in you of care identification a example patient point lot so data right, a of and the RFID get is time at or and Again, You settings, you happening and another barcode monitoring, in wins medication, the to is into the is.

to and patient, nowadays labels then for nurse the then scan then it's Sometimes, a have with it do much actually it's identify, are easier labels, barcoding. -- RFID a medication example, actually and actually, to those you

combine control application that So access we that in like. hospital. well that's And then as can a another you with actually

do So that. see we

these surgical of are consumables have of solutions I vision see Those point But vision out Yes, for and smarter want machine that applications as and thing that control, we as well, as kind vitro of well. momentum other other machine we're we applications. in are applications kind machine access core we portfolio diagnostics. many to better parts in kind an and expanding there's need kind vision as So of is into. applications like the well increased our do

Operator

Blair. Drab William Brian from comes question next The Instructions]. with [Operator

Brian Drab

hairs splitting we understand want of might This to just here. see should but there's the category I if fall something into that

margin, going in XXXX? for you and help guidance expense there reconcile of margin basis points here? that implied the operating XXXX basis hairs as a terms to something on percentage XXXX. that XXX from with comment up in Or XX gross me XX.X% can midpoint should splitting sales? And be points Is expand just I that'll EBITDA adjusted Your just am of

Robert Buckley

What Can saying the XX repeat? you're basis points. point is you

Brian Drab

did basis gets EBITDA I like this XX you XX.X% margin but it mean, XX.X% points. you year... to

Robert Buckley

your XXX kind are operating gross kind stands, -- offsetting it is of basis As then of margin where of expenses element what it. off the going points

Brian Drab

Yes, yes.

Robert Buckley

at X.X% you R&D spend. So QX were exiting

to expect We be X%. closer to

that So to in like compares to XXXX. overall full X% something year closer

of I quarter, So be consistent should level, portfolio sitting saying off. we X% for really been that to think just bit one above. the taking pretty it'll -- to material be And we've bit closer should a to that if And little close then ramp it's kind because year, percent with ramp element first the up full a there's little it's up. In X-ish time the of think spend. we kind -- of

Matthijs Glastra

by growth being, is want we XX% that the side, We the right, opportunity to that of the in you the markets products Yes. on reason searching hear see last from over more actually year. tremendous We reporting And Brian, capture. for windows us revenue see momentum. of the increasing benefit

actually there. And drive to confident our leadership capturing those very so continue innovation -- to where we need -- leadership to we're about maintain drive innovation

that. behind what's is that so -- we're So

Brian Drab

gross kind the to margin, quarter year. you year-over-year I've get heard down fair the but points XXX of year Got in sounds first it. And is putting that far the later the more everything basis up Is maybe to like that so for on full a than in XXX it gross assessment? margin here, together that

Robert Buckley

I'm a strong quarter not year-over-year, it full sure not is down a in the year. -- but it's

Brian Drab

quarter? basis Okay, okay. quantify way any the in is can that headwind terms somewhat impact fourth quality there of supplier And this cost you issue of the points in of

Robert Buckley

I fourth the in it say would expectations. the the our bulk myth was In quarter, of

it. it surprising. I go hindsight, not -- So may businesses to was simultaneously guess, both it in through happened be

you're the it. in, the you before. bleed it inventory that You're to bulk was But trying all through of purchased

down a dropped quality the being by kind associate the where was medical of issues. from already per that was QX I that. consumables. and impacted of that's that QX So mix our driven higher cost all by -- QX, was

Brian Drab

Okay.

was your WOM this I to margin gross your per estimate roughly so these you issue, mean, fair it basis quality? points mean, down. out. XXX I'm basis I cost this have too, parse issue the XXX down was on So to going is trying like gross sequentially. margin like points Is

Robert Buckley

but it. higher little A about that's yes, yes. yes, Yes,

Brian Drab

consumables headwind the the then think the said ongoing the affecting margin, And And a question? kind Where gross away? that you are challenge. is other of those when goes adjusting that, make how what's where opportunity WOM you of do fix And on is what business, for gross in margin you you that's WOM an you and consumables? sort issue

Robert Buckley

and and growth a So beyond. in the the I Vision MIS overall think segment driver is XXXX

So in 'XX. kind the gross really the big and I of that, But and segment driver's of in expand 'XX Precision margins Photonics think see you'll get Vision the outside Motion you segment. as then

kind We improve to that effect. do XXXX margin we actions getting real like But and are to like beyond business, 'XX. now meaningful expect really quarter, a at are of any start the in so of profile this changes taking

that more approach, we're on feel facility So our in-source first progress X kind we're think is NDS that trying one identifying the our on products elements third latter as the And of consolidating working production that. our of into we German way a as things production still doing and through capacity chain consumables supply low-cost then into manufacture well from of structure facility manufacturing leverage those putting by our that we're right we so it, side. medical the to the about both higher-volume that is cost but doing we're and we've good Phase of expanding that made We're the track. factories, there, and we're to the

Brian Drab

and when that in adjusted, got plus consolidated manufacturing is Phase the X points through you've margin? on -- you a for this XXX basis end, the get gross basis, that But is like opportunity this --

Robert Buckley

the out, So Precision of Motion. where XXX points year, think of come then think, basis overall? you're the because margin a segment. It's from Vision And Photonics of to Where the I difficult at is pipeline. get say really about expansion which that you gross expansion basis does is it cap it's of -- going thereafter, by kind to leading look acquisition XXX to next overall where going you're and as I years Novanta, points two is driven is

profile. changing constantly mix You're that

-- all overall, be constant, the assume you we believe, closer of this gross XX% company If should being to a kind margin.

So opportunity acquisitions but types upon of that that's that depending after, we're you overall the the going do. can change

Brian Drab

in to just to then end the And finer any on we've Can comments, listening sentence one your But to got Robert, where from at now market it. about see step-up, got for expecting very end the second lines you half you you're you put the sense comment color expect that? a I add call you're script, that that. can like and segments a point or think made a business to you second what me. like you later... which that XXXX. more last of optimistic the Okay, expect in your later that

Robert Buckley

mean don't second. first to or I imply

overall really the a underlying given issue is the I and business. because business the growth also to performing think has are our back QX so the that big that overall then Photonics I impact in in on And half well, seeing climate. in of then Quantum the extremely Laser returns segment the businesses and QX headwinds think year, going into that particularly we're the big

to headwind issue. so and So company on an will an and the on by indication QX time that medical, segment, robustly. I that really QX longer now of say that the in business no I growing that's very kind that lap that is think that overall that, has big got right it's and general, we get we

-- lot so that we're there's on. and of opportunities And seeing and embedded a that we're

that. we think exposure feel the consequence good of the overall I as So portfolio on a of our about stability

enabling So segments industrial, even too for though doing not we us continue microelectronics well and covering to that we see kind have to of of deliver. us things or like small

that lot we have a we internally, that going We're things -- louder, there's externally, levers a different right noise louder at can pull. more different of just we is positives also can being be level ahead about being this is getting lot a and too sort and So approach of we the mindful we And think ourselves. the on, lot to conservative prudent, of and stage. want so careful getting of that

Brian Drab

one after Okay, but I one. want more ask ask, queue Because another people to on great. got the Can I I've me? are important there don't question,

Robert Buckley

you surprised that can so go know, You'd be don't ahead. we

Brian Drab

every analysts to European just business mean, the exposure? you and -- I little make and enough just these the want be you -- companies. talk can a interested to get with to don't I've obviously in got questions been have transcript. of But of answers on your one I bit people yet, lot my respect is some sure about this would think your you've so only this of I a taking we

he You've that for got the revised Germany. GDP today German expects be head to of Central Bank saying the downward

roughly Germany. the on is cautious that revenue Europe said exposure somewhat end there? And end you is XX%. correct? market close you your is I to just your exposure talk in kind of Is your the XX% markets know So and What is you And can have? But you're through and the risk region. of what

Matthijs Glastra

they I that based the sell Yes. then world. mean, players are in then listen, Europe, players into we that are and sell to across

So it's numbers into Europe to cannot kind -- the deflect but -- revenue one-on-one numbers. GDP versus correlate I a don't want of it's question, you our

semiconductors, great. any doing so in you European for those very are if well. got, softening, the rapidly. all right? example, is overall, indicators growing Medical is we doing not climate segments you But types that, laser-additive Automotive, look see of said of course, manufacturing having Now

indicator. hard very it's a economic on So generic to comment

be mindful in components the different of to of growth markets. got really You the different

any not less so So We medical would don't XX%. not markets. I much. so included Microphotonics have is Microphotonics, in either these Automotive, in well. major doing exposure of that even than Automotive number, is say. much.

I so the question. from answer So -- Europe. that's -- kind and that's no of would different The how

to They this not -- the more if it's of a the industrial rest right? do to run medical industrial based then to bag. global bit be a anything, at much, of we're and world, U.S., -- China, looking basis of customers from per And which included are is -- us kind is a which very that European very, that have for mixed the not to so buoyant. the do right? certain global So telling a sell buoyant, OEM and/or with correlations surprisingly, very OEMs segment business. what Europe of in with kind So for there's also happen these We sell medical

We're actually softness we very our in it, that overall situation guidance, we've included we've carefully. seeing the indicated feel Brian. far, but we're watching where So

Brian Drab

your how European revenue up did say or quarter, fourth you Did Okay. down? in the

Matthijs Glastra

No, we're not splitting out. that

Robert Buckley

is that sales you are of out big to heading about bit, heading chunk and out One of misleading. break And you're sales manufacturing U.S. I little have Because factories. caution specific little from The a are in where you not at market, picture of get sales, disclosures OEM to our about products to of end to after that end regions. are geographical us markets. the our I So I little being at, things disclosures China more products if actually into the look their that because a China you Europe our end ultimately and ship developed XX-K, that's to a for Matthijs' a want up bit around think the centers, difficult more market into ultimately our as those perspective, at it's point, type telling sense is you a to which right? them trying think,

market, of we're laser-additive some is group that and seeing seeing select our we applications the are say in metrology-based industrial-based. will medical like which manufacturing portfolio, of industrial a the area that strengths end half strength We markets in general are or

risks microelectronics/automotive offsetting those of our and there, again out exposure about the things tiny. some So we feel good is very in

So benefit us. that's for another

Operator

concludes this Matthijs Glastra the question-and-answer over turn to gentlemen, session. any conference closing to back for like and Ladies remarks. our I would

Matthijs Glastra

Operator. Thank you,

XXXX another for was Novanta. summarize, to year So great

our financial on the resilience growth were profitable accelerating and focus in businesses evident of results. diversity and strong Our our

in relentless in markets. We businesses diversification around variety and current drivers, macroeconomic continue photonics growth health of therefore industrial in and growth profitable to the a capabilities sustainable medicine X.X, trends. backdrop. motion, care in converging vision We over the and precision the foundation macro long-term a our with feel about excited secular on large for good solid about growth applications play our remain variety the of revenue productivity in markets focus medical medical we across Novanta's and see providing us and applications, position leadership Industry our positions of for need to of continue positioning and we We is half have.

joining adjourned. interest of execution of in much. to on sound In several teams years is our thankful employees. this would quarter the our your all honor the employees and great is I of call. a participation articulated our strategy drivers look earnings our and like direction on we through we support. thank organically customers, for Novanta our company first now multiple I'm closing, X based XXXX our shareholders growth the to and Our contribution M&A, growth true particularly Thank are committed months today's in call I way and execute lead company. their strong and It's our for ongoing the appreciate This ago. you XXXX on in pleasure to We very well strategy to your forward you on long-term and call. and

Operator

presentation. The today's concluded. for sir. you attending now conference you, Thank Thank has

disconnect. may You now

Novanta (NOVT) 27 Feb 192018 Q4 Earnings call transcript