NOVT - Earnings call transcript Q4 2019

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Operator

Good morning. My name is Eileen and I will be your conference operator today. At this time, I would like to welcome everyone to the Novanta Incorporated's 2019 Fourth Quarter and Full Year Earnings Call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question-and-answer session. this being note Please Instructions] event recorded. is [Operator

the to Novanta. Ray would go like Corporate over turn to for I Nash, conference Finance ahead. Please Leader

Ray Nash

welcome and Thank Officer, Novanta's Ray Matthijs Chief Chief on Nash, of our conference morning today's much. Leader you am Financial and Glastra; Finance Buckley. With very call. I and fourth year full Officer, Executive Novanta. quarter Corporate XXXX call earnings Good our to Robert me is

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

to Safe our both earlier issued filings. our responses include we to of we've We everyone questions some that statements that may may begin, in Harbor today and forward-looking and in we our statements. in press forward-looking the outlined make SEC prepared our also remarks those Before need in earnings for today release remind comments

with today assumptions only of to our if known to obligation differ in this future, expectations. estimates We statements from the unknown statements other factors risks inherent even views our that future could materially involve These current forward-looking disclaim any Any results represent and our cause made our and time. as update forward-looking change.

forward-looking our not statements So, as representing any any these as this you should call. time rely of on of views, after

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

to introduce pleased of Matthijs Officer Glastra. now the Novanta, I'm Executive Chief

Matthijs Glastra

nearly very Good end the and for quarter everybody XXXX up in Ray. performed X% growth year-over-year decline of basis over well basis. in and nearly top and representing call. Novanta company the delivered on exceeding revenue million and guidance you, thanks The fourth the quarter. third both on Thank million an revenue morning revenue adjusted a $X revenue $XXX EPS versus joining reported sequentially X% organic our with

For a year-over-year $XX the Adjusted X%. year EBITDA represents and we approximately million X% the Adjusted fourth in of in $X.XX for the of $X.XX and full of year. growth $XXX quarter which million was the was XXXX, reported EPS full million and quarter on full revenue delivered growth in fourth for basis reported organic year. the XXX

for been recession team Our which industrial capital the in well very executed has spending past in few quarters. market an

demand in fourth versus In fourth exactly especially X.XX across was our up ratios we saw solid each X% was back of from quarter, the quarter by execution commercial some the our book-to-bill the third strong of quarter and segments the bookings the customers. on of showing year-over-year, up medical book-to-bill sequentially X.X for board and Our X% with and full the year. strong positive

capabilities applications proprietary remain set revenue with in driven trends. than favorable industry laser markets our are of is secular positioning of growing. vision structurally on and by medicine productivity motion, in and with market medical half X.X, the diverse precision that Novanta's over a faster We healthcare growing focused photonics

material surgery, cycles our sequencing, business robotics. We commercial DNA and automation capabilities minimally such investing enhance precision technology advanced are and potential and surgery, growth to long-term proprietary position, applications growth, innovation and robotic strongly and sustainable through secular in processing, invasive as

to innovations momentum we In efforts our excellent our and to new in introduce saw customers. success XXXX,

we made view On it's the we've growth back highlighted been pipeline the significant our innovation as in applications the ever earlier. opportunities strongest innovation of with the investments

XXXX in sales in investments we of R&D raising back from X% our XXXX innovations of to market the are to XXXX. result, to end XX% a and As in bring of these sales

product year full grew XX% the of revenue For XXXX, year-over-year. new

from of Our launched over opportunities. for XX% four vitality as index, in our wins ago. on sales single which strong at XX% is new XXXX executed last of a was few and years mid teams year full the design revenue Design years, win XX% the products the funnel versus percentages in grew digit

of by in in XXXX, many proud openings seeing with the and opportunities market despite are back I'm strong pipeline. gain customer of on all, commercial platforms performance the circumstances. our share innovation to All We the very strong teams our R&D

subsystems, An important to content. sell more increased closed which three content strategy Change acquisitions, XXXX, our of ARGES, is deployment our element segments. these we accelerates Each in one X software Med in of an acquisitions our of strategy form intelligent M&A. In operating in Ingenia, include each significantly the our customers and capital to

other targeting specifically markets are additive robotic who play sell high growth to to surgery We areas. as growth surgery, subsystems invasive high and these in such minimally manufacturing, customers

And capability and channels. synergies sales engineering Novanta applying via technology see acquired these The by we've these the capabilities sales we acquisitions is tremendous. through strong

accelerate with our products to with As very a be investments, R&D innovation will through towards look it of multiple and the in acquisitions at market right own we these the now, our in XXXX. pipeline end way XXXX we hitting meaningful able combined

remain expect fit above revenue the For of of on intelligent our M&A And year increase is an from returns. percentage we disciplined of over XX% sales. perspective, time. subsystems From to and full steadily coming strategic the this XXXX, we very pipeline

we and accelerates delivers returns. that quickly sheet if attractive arises move we strong balance our will feel opportunity and strategy an is Our

in our in touch markets on macroeconomic overall we're seeing me what Let climate. the

medical is invasive of be but surgery. saw digit for momentum pleased Our momentum medical And continued the our full in robotic minimally and are our particularly based, to markets year businesses very We double growth XXXX. broad in we robust. with

of to I would point that digit double areas. medical our these decline our medical DNA in achieving Representing to sequencing. our continue digit approximately serve macroeconomic expect continue XX% like in despite that to in as innovations an a XXXX driven in we're also Novanta is we year uncertain markets full by gaining share engine out business business we in to in climate. revenue, these and growth growth a expect double momentum

In the spending quarter stabilizing climate, a industrial level. at weak saw continued capital fourth we a but

we XX% We will and not on and also the in approximately be back affected. XXXX semiconductor saw China be to of of infrastructure our way Obviously, unique in the quarter back fourth bounce five Novanta changed revenue of key the this markets. growth has coronavirus versus will the

detail capacity. slowly our based expected are epidemic perhaps all the let half suppliers still customers more the uncertain. health quarter and first we're explain of epidemic safe to XXX Robert first employees back remains the clearly this, are the I situation Despite production implications are Chinese and is in pleased results Chinese in to health that and and running at like but first online nature. of our our in coming that to our very Chinese therefore our impact that will say and Suzhou are foremost, financials, I would XX% The operation effects temporary that

on heavily our In we environment, can focus customers what his control. we and

strengthen businesses are significant beyond innovation and in fast confidence available our to These emerging if have should invest and driver only continue to to and and/or solidify in the and and pipeline long-term even opportunities XXXX our us we capture to decisively. new We growth act opportunities opportunities. customer

areas The our held across feel operating the by recently growth growth with units rigorously us and system, through of business we applying tools our the Novanta operating into gross cultural will goals drive growth enormously site We Novanta company a margin for addition, deep working off and focus of in on especially In is and of day growth market, to common processes a fabric the common that a XXXX, system this performance. customer inventory set institutionalizing of applied system vigorously speed it two company. expansion meeting leaders accelerate satisfaction, of optimization. achieving assist which sustained way and in Novanta and

segment the the the market. applications it vitro medical in and devices. phenomenal execution the surgery, segment other Vision throw segment, a serves me this include Vision excellent let segments. operating medical in with Starting by to Large as diagnostics, team performance invasive our minimally reminder with predominantly had Now, XXXX

The the the full our grew XX% product full at delivered for product excellent Vision new and products revenue at year year segment our total year-over-year by driven year Vision versus was in revenue XXXX, and segment book-to-bill at In was of new XXXX new Growth for full For maintained sales. the XX% customers. the of X.XX. over new revenue launches about product growth. segment, XX% Vision

launch through mentioned momentum we the The medical progress Vision as market as momentum saw we market product serves previously well to solid we expect as segment as new predominantly and which XXXX. continue

segment, it did our business MIS as Vision well in throughout year. full again extremely XXXX the the the quarter performed of Within fourth

We to technology nice see back unit earlier. smoke one reported momentum in business evacuation on we our the the of continue on

be of further roughly We size R&D as innovation segments a depth investments up strength as market in robotic business. And this relationship and of well business stepping result, estimate with to couldn't we customer in are We and surgery. $XXX adjacent such I share and adjacencies be pleased as gain more the expand unit expect endoscopy, into the these million. MIS arthroscopy the our as

the customers, believe brought business stickiness unit integrated margin as to trajectory our differentiated but customers gains We're has X at segment, attractive acquisition to strong significant expanded our our product product only with of also raise for a also attractive to we OR Med an more new XXXX in a Novanta not which increased portfolio, profile. with lineup NDS it pleased acquisition a exposure Change our OEM solution by helped with software This for XXXX. more

In which in addition, transfer of profitability production its In San the the the scale efficiency component years XXXX. Jose fourth improve quarter, NDS MIS manufacturing we will XXXX to improve continue for and significantly full into substantially from our and center, completed business beyond. the units

new grade product solid RFID of Finally, Analysis & product unit medical vision our around and machine to continued launches business show Detection momentum offerings.

double XXXX, margin the this new and the unit. saw For year its vision machine five and strong We're pleased we and full gross revenue. with business growth RFID introduced in digit also products expansion

In for and in for cloud heading Motion see the microelectronics fourth the we XX%, providing positive bookings Motion markets. full to where Our declined Precision XXXX. improved a improving of end in given momentum not markets indicator the semiconductors surgery growth and fourth leading could did revenue quarter semiconductor uptick The segment infrastructure. of by in the book-to-bill X.XX robotic in the also XG X% and into sequentially the first based demand with declines quarter, XXXX recovery year in industrial offset XX% microelectronics, signs Precision

robotics automation, and and We with surgery markets like dynamic in structural markets. serving position growth robotic our precision technology control such dynamics precise motion as

to As product portfolio in double added the in motion a markets, continue and control markets, relates up it albeit acquisition, based to opportunities solutions technology opened a with both our position the has and see small we more path medical largest to to of players. be validated, than The base. the our our to which surgical robotic grow new Ingenia robotics and growth on consequentially is industrial to in company from revenue XXXX software

segment, innovations our the Precision bring are XXXX, to as new Motion XX% year expanding new versus grew more wins for Within design grew product teams. and of and last XX% full revenue year than market our commercial the we

spending last this do DNA quarters. expect about long-term competitive with widely growth and is while business. we the We in dynamics contribute Turning a XXXX double the we the sequencing expected we full in decline and in prospects revenue down X% have the for of year Laser deteriorating communicated for of segments, correlated And long-term few to the and multi-year Photonics demand discussed our had due experienced previously position. capital to Quantum by nor to we position the driven performance in was not growth as in DNA market Quantum year XXXX, in industrial XXXX leadership lumpiness which revenue excited to as XXXX a digit full believe sequencing, Laser temporary climate. remain our the not our

impacted macroeconomic deteriorating in the just we The segment discussed. full capital industrial the year that was performance by also of Photonics spending headwinds markets

many act effect However, have downturn. in during counter the market share the our and and been our to challenges this customers teams extremely resilient worked have gain with of

acquisition the in saw segment quarter X.XX. grew fourth with is it it continued their bookings delivery. sequentially in and XX% pipeline the X%, best And of has has book-to-bill the The over ARGES The beam innovation wins Photonics ever momentum our by recent in been. Design in by accelerated year-over-year segment improve our Photonics quarter. fourth

product new are help laser in electric in expected Target segments. six to gain advanced vehicle XXXX which application us amount additive high adjacent applications welding, platforms anticipating And battery in of XXXX are introduced The end in the online. on which an revenue begin XXXX market micromachining, $XXX we new growth do these share more We material products introducing product material some new about but and back is to are impact opportunity which of double come to we these manufacturing, XXXX. see all converting include of of the expect be additional launches and as overall million. sales will beyond,

the and agility Novanta, To other resilience very opportunity proud of and other accountable teams our with we for believe face the markets performance are each healthy to the wrap positioning of of company deliver. we the and end each being our and with and means culture adversity. profitable are is uncertain up, a in that This in conflict advantage medical trusting At good constructive company environment. very holding performance, competitive pleased our ultimate the an of

Our healthy how the a interacts five version which and through through values, Novanta how execute institutionalizes trusting behave we performance together to of in and we growth we system. our cohesive culture how and Novanta teams, work way core is

the is feel We near challenges Novanta positioned economy. very broader despite the in well term

Our Transcript innovation as are Earnings QX introductions pipelines Inc. product bookings Title: on design recovering ever Results new high; be momentum and are and Matthijs strong CEO XXXX Glastra been. (NOVT) they as Call continues - Novanta have to

Symbol: NOVT

Call Start: XX:XX

XX:XX End: Call

Novanta Inc. (NOVT)

Call QX Conference Earnings XXXX

XXXX XX:XX ET XX, AM February

Company Participants

Leader Finance Corporate Nash - Ray

Officer Matthijs Executive Glastra Chief -

Robert - Officer Financial Chief Buckley

Conference Call Participants

Jagoda Lee CJS - Securities

Robert Eastman Baird Richard - W.

- Drab William Brian Blair

Operator

XXXX I event Earnings Good time, will operator a At After Quarter Full lines and and be your Incorporated's morning. Eileen Fourth to name any this be My noise. the All being will today. Call. mute speakers' would Instructions] placed welcome [Operator been everyone this like is recorded. the conference prevent session. Please remarks, have is Year I to there background on question-and-answer to note Novanta

I over would Leader conference ahead. Nash, Please Ray Novanta. the Corporate go Finance like to to turn for

Ray Nash

Novanta's and full of Thank you call. me call fourth quarter to on year Chief very Ray much. Good Robert Buckley. Corporate Chief Finance Officer, is welcome am Executive Nash, I Leader conference Novanta. our today's morning Officer, Glastra; and our XXXX With earnings and Financial Matthijs

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

press statements Before we begin, our our we we've remarks our in need questions to remind everyone forward-looking of filings. the comments today Safe in may outlined include Harbor that earnings some for both make that and may those prepared and statements. today issued SEC We to earlier in forward-looking release responses also in our

time. Any even to future, disclaim only We and assumptions with cause inherent current and our other estimates statements this our the unknown made involve from could factors of if risks change. to update our expectations. in future These our forward-looking results known that obligation views forward-looking as represent materially differ today statements any

should not statements of any forward-looking as on our you views, call. of time rely after as these So, representing this any

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

Officer Matthijs pleased Glastra. now to the introduce Novanta, Executive of I'm Chief

Matthijs Glastra

$XXX $X the representing X% up performed third end nearly EPS morning with a and in quarter basis. guidance basis very in revenue X% fourth Ray. well sequentially The million revenue you, versus joining our revenue top organic growth Good both quarter. thanks nearly delivered on decline revenue on an company the for call. XXXX adjusted the exceeding of million year-over-year reported everybody Novanta and and Thank and over

and Adjusted of reported growth million for we quarter full and was in $X.XX million organic X% of $XX on the revenue quarter in fourth $XXX X%. For the the for approximately EPS Adjusted XXX reported XXXX, growth million a which year. basis year full in and fourth year-over-year was delivered the $X.XX year. EBITDA the of full represents

an market Our team spending executed which recession very past well capital has the for quarters. industrial in been in few

showing up third Our in strong from saw by we the was bookings the our the solid medical on quarter especially X.XX and book-to-bill some the execution board fourth In of ratios across up full quarter and of book-to-bill with versus each customers. was demand the X% exactly year. back the quarter, segments fourth and our X.X X% commercial for sequentially year-over-year, of strong positive

over that remain the precision and growing. photonics proprietary We industry applications favorable productivity our Novanta's growing than trends. positioning are capabilities faster driven medical markets in and is a with X.X, healthcare half focused with on by medicine diverse secular of laser structurally set of revenue vision market in motion,

We and cycles are sustainable and innovation advanced proprietary investing capabilities and secular through our in technology DNA strongly growth automation sequencing, long-term business robotic invasive minimally robotics. potential surgery, and precision surgery, growth, position, enhance commercial and processing, such material applications to as

XXXX, innovations new efforts to to customers. momentum in we introduce success excellent our In and our saw

as earlier. the the of the made back strongest been growth we with applications view opportunities innovation innovation the On we've it's investments our highlighted pipeline in significant ever

sales XXXX As in innovations raising of these XXXX end XXXX. R&D to we market to of and a XX% in our bring are to in investments X% of result, from sales back the

year XX% new full year-over-year. revenue grew of the product For XXXX,

in at few XX% years was wins digit for which the design our opportunities. vitality and full of four year as Design products sales from revenue teams XX% the index, over ago. new executed of the is in a on single grew strong funnel XX% versus mid win years, XXXX last Our percentages launched

back We are pipeline. opportunities innovation the R&D All strong many all, I'm despite gain the platforms XXXX, in circumstances. of market with our customer in to performance on the our and strong seeing commercial openings teams of by share proud very

include Each our content. sell strategy operating intelligent An is to one closed which an XXXX, customers of acquisitions our Med important form significantly increased capital strategy deployment in Change in software element our these ARGES, X M&A. to In segments. content Ingenia, each our and more of we acquisitions, accelerates three the subsystems, in of

We are additive growth these invasive manufacturing, robotic as high play customers to such growth specifically and targeting areas. minimally to surgery, sell who markets high in subsystems surgery other

capability acquired we engineering the we've and technology strong synergies The Novanta sales capabilities these acquisitions via see tremendous. And channels. these is through by sales applying

it our look with these in with the multiple in innovation products way we very accelerate our market be of XXXX. right and a at combined now, XXXX hitting the able we As acquisitions meaningful to R&D investments, through own will end pipeline towards

of XXXX, And year on remain For M&A sales. steadily the above pipeline returns. perspective, percentage very increase expect coming fit of time. subsystems strategic our we of over from an From is the XX% disciplined and full we revenue to intelligent this

quickly strong move is an we accelerates opportunity sheet delivers balance and if Our our we strategy will attractive arises returns. that feel and

on seeing in we're the climate. touch overall macroeconomic me our what Let markets in

with our robotic surgery. the we year We continued of be and but minimally saw in broad in Our XXXX. full medical for And are our growth is very markets to particularly digit pleased momentum invasive momentum robust. medical businesses double based,

continue engine continue that our gaining decline climate. we're these we to by an macroeconomic to our in momentum these DNA a digit full I digit approximately that would innovations double in a is point uncertain revenue, XX% our year we growth in of serve sequencing. out despite areas. in business to markets XXXX achieving expect share expect medical to Novanta as in growth and also Representing like in business medical double driven

capital In but quarter industrial we a the level. fourth saw spending continued at stabilizing a climate, weak

the the of versus revenue unique in five on way Novanta to will key be fourth growth Obviously, will this in of we the affected. back of We changed coronavirus back approximately saw and our XXXX semiconductor quarter also not China be bounce the infrastructure markets. has and XX%

our in our our our epidemic remains half and to back epidemic health that but The would slowly to are are XX% coming this, pleased explain production the more online I foremost, are based the suppliers is the safe Despite detail situation and will Chinese Suzhou and I still quarter capacity. health let and impact Chinese our effects very that and implications nature. of therefore employees first Chinese that all temporary Robert the financials, running of customers first operation uncertain. expected clearly XXX that to say first perhaps at in like in results we're are

In on heavily his we environment, and what we can customers focus control. our

are only and we confidence the opportunities have driver our customer growth pipeline invest significant in capture to strengthen our available solidify and and to in These long-term innovation if beyond and emerging to to continue even We act XXXX decisively. should new businesses and/or us and opportunities. opportunities fast

vigorously units we focus addition, company across the enormously it and that business inventory the held in especially will achieving applying two of growth cultural areas day and satisfaction, system applied growth common Novanta system, to a which a margin customer optimization. in into of of expansion working recently meeting market, off this growth set way leaders The our of growth performance. with deep for assist In speed processes on of fabric operating company. is We XXXX, system through common Novanta and Novanta feel the gross site us a our by and drive and rigorously accelerate operating sustained institutionalizing goals tools

medical execution Starting Large me Vision medical in minimally surgery, to segments. excellent predominantly Now, performance diagnostics, the as with XXXX market. the the team throw had in a segment, other serves it and phenomenal include segment Vision the reminder vitro let invasive this by applications with segment devices. our operating

for segment, Vision segment product growth. at new XXXX new excellent revenue year new was about full revenue in of Vision delivered product products XX% maintained year revenue The driven segment and our XXXX, and full XX% book-to-bill full year the the at grew Growth versus X.XX. year-over-year over sales. of the new total For the at product was for In Vision our launches by customers. XX%

saw predominantly we segment previously and progress through to expect solid Vision as momentum which launch as momentum well we XXXX. market as The serves continue mentioned new as the product market medical we

of MIS the as extremely Within Vision business full our again it in the XXXX year. quarter throughout segment, did well performed fourth the

continue see We nice we momentum the to the one unit our in on technology on reported evacuation smoke business earlier. of back

couldn't robotic and as adjacencies MIS this We size a be and of in as the innovation depth pleased I these surgery. And customer unit share estimate the as roughly into business. with our and are business We strength further $XXX more gain be expect stepping relationship to of well market we in endoscopy, R&D expand adjacent as arthroscopy investments the segments million. result, up such

expanded solution XXXX. We're NDS has attractive unit integrated our in acquisition attractive raise margin a customers, Change helped also gains significant but strong as more OR it new software which also stickiness our our differentiated trajectory profile. at to more customers by an not acquisition the our business product brought Novanta X of portfolio, lineup to segment, for to with pleased with Med for a only This believe with increased OEM a we exposure product XXXX

scale completed the fourth San In XXXX years Jose significantly manufacturing center, which its beyond. NDS efficiency our MIS we in substantially for continue to improve and transfer quarter, of profitability In units the will and XXXX. from the the addition, production business into improve full component

new launches Analysis our product to of medical around momentum grade machine business vision Finally, RFID product show continued solid offerings. unit & and Detection

growth in also year business For unit. products RFID the the new margin and we machine double digit gross strong expansion pleased five with full its XXXX, this revenue. and and We're introduced saw vision

with improving markets for of declines X% the given Our improved based the uptick fourth growth semiconductor in In where in in bookings offset a the providing the Precision could and signs robotic The revenue and of in book-to-bill Motion the XXXX microelectronics sequentially X.XX XX% did declined to quarter, first recovery Precision by into demand not quarter see indicator momentum XX%, XXXX. semiconductors fourth Motion and positive infrastructure. cloud markets. surgery industrial year microelectronics, full XG we leading segment the for end heading also in

dynamic technology in growth and dynamics robotics structural our and precision automation, precise surgery as like motion control such markets. markets We robotic position serving with

robotic with has to the new company growth markets, both to and which on continue solutions As be and validated, to and a than robotics surgical motion the control opportunities of in portfolio it software technology relates acquisition, the medical to opened albeit Ingenia based to largest our added we small a our players. see grow to product our position path in in consequentially from industrial up double base. markets, XXXX is revenue The more

expanding XX% Precision and innovations we design the than last product grew XXXX, and our Motion wins year versus segment, for new teams. the of year XX% are more full Within commercial revenue grew our as bring new to market

we the nor correlated few not expect lumpiness sequencing with believe is this multi-year contribute and discussed And last DNA XXXX, as about down of long-term prospects the full to the year spending capital experienced decline we remain quarters. in do in business. industrial climate. due which our position a widely to sequencing, in temporary have revenue the We driven we previously performance while not the full expected the revenue dynamics in our segments, growth Quantum year the of to in Laser we was deteriorating growth communicated for DNA and excited for had X% XXXX Quantum by our competitive as Turning a XXXX leadership and double long-term market digit to XXXX Photonics demand Laser in position.

capital headwinds markets the year full discussed. performance in also industrial The by of spending deteriorating that the Photonics segment we macroeconomic was impacted just

of worked have effect been and resilient the challenges our during the teams customers market this act extremely and have share However, our to downturn. counter many with gain in

acquisition in of with it accelerated fourth been. best fourth Design book-to-bill ARGES our ever The beam and grew bookings in Photonics the by improve by our X%, momentum has And in over continued their innovation is it Photonics XX% the year-over-year segment the in X.XX. saw has sequentially segment The quarter wins quarter. pipeline delivery. recent

which new gain We product opportunity of introduced are XXXX adjacent an platforms growth be The help are launches which amount on expected but see back some micromachining, in these double market to high products in revenue impact to to the as manufacturing, do advanced and which product overall XXXX beyond, six of additive applications we sales material are more about welding, XXXX the us these include expect introducing vehicle in battery of will And XXXX. Target new of in laser segments. end we application $XXX anticipating is material converting all million. electric new come share begin and additional online.

is and our healthy we advantage being with other with To the performance, are very a and company to agility an the uncertain proud constructive our our and each At conflict performance up, end markets face and of we profitable competitive adversity. opportunity very the believe wrap holding the environment. culture each positioning teams medical good Novanta, for company and means of that are of of accountable in pleased resilience in ultimate This the trusting deliver. other

behave through and five and Novanta of how to in trusting we cohesive and growth version healthy which through our institutionalizes way culture execute system. core values, together interacts the how a we performance Novanta Our teams, is how we work

near We term feel despite broader the the very is well in positioned Novanta challenges economy.

wavering remain a of medical long-term solid diversified technology as proprietary on be position combined ever expand been. sustainable, as new conviction innovation leadership to product and continues M&A markets to in to Therefore, we approach design foundation markets, innovation positions. strong our our and momentum continues profitable introductions expanding medical for and strategy are focused with disciplined to that not recovering investments are pipelines provide have to across our advanced Novanta's growing are our growth. Our industrial they high, bookings

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

Robert Buckley

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

was million year X% growth increase reported full on For in X% revenue, XXXX, XXX a and basis delivered organic an we positive of year-over-year.

with new revenue pleased and The Europe weak, our our business, the spending to growth our industrial the better expected in which remain organization's economic represents quarter. the by sales. and China deliver the ability was While in on XX% in growth capital driven growth than for commitments higher revenue, product and strong are of financial now environment we climate medical

of in were Overall, contribution experienced our and economic This XX% the sequencing was we managed not roughly with with sales seeing full fourth meaningful year. through resilience despite the fourth mid strength environment up year. how and a we're the and for DNA pleased medical portfolio. quarter, full the quarter teens the in and the Our decline market from

our to profit, XXXX. was to of quarter of or fourth XX sales quarter the XX% fourth gross compared margin sales million million Turning XX GAAP of XX% or in

XX% was XX% or gross GAAP XXXX. in full the XXXX million or compared sales of of million year XXX XXX profit For to sales of

adjusted Full XXXX. gross fourth XX of On was year of a of million non or of basis quarter XX% in XXXX was million to fourth to compared sales or quarter or in GAAP nearly sales million profit sales adjusted XXX XX% profit XXXX. XX% compared or million XX XX% of gross XXX of the sales

medical year mix was full adjusted significant our during largely year. margin by in gross lack growth For compared effects flat our roughly gross to was The which drove lines XXXX, unfavorable impacted expansion of XXXX. consumables of product the the margin

as our into faced Jose, as a creating caused unit shifted The we we temporary facilities NDS XXXX. facility to forward California closed San Jose manufacturing tailwind business production is by facility. headwinds manufacturing We from Germany for also our now move cost healthy San redundant

Moving X.X% compared of in quarter XX sales the expenses or on million of fourth X.X% or of to to quarter fourth sales were XXXX. R&D operating expenses, XX million

expenses compared or sales of to XX of For X% million R&D million XX inXXXX. sales were the X% or XXXX, year of full

and product beyond. seen activity The drive significant our As with revenue XXXX to our our progress provides view pipeline. and and current capture we to new in our our engine take growth market innovation the share opportunity climate design win in economic making growth are in and opportunities

quarter expenses XX million or XX% were the of XX sales of XXXX. XX% quarter Fourth sales of or compared in million to fourth SG&A

full compared million or of XXXX. of were expenses in to For of SG&A XXXX, sales year the XXX XX% XX% sales

to million fourth XX in in XXXX XXXX. was operating income GAAP quarter million XX the compared

operating XXXX, XX million year For in XXXX. XX compared income was of to the full GAAP million

was sales, XX% year. the fourth million XX of million the of Non-GAAP XX in income sales prior quarter XX% in operating or or compared to

the non-GAAP in XXX XX% compared of XXX XXXX. year For or XXXX, of was sales income full or million operating sales XX% million

million XX.X was EBITDA compared of to quarter XX.X Adjusted XXXX in XXXX. the quarter the fourth of million in fourth

the year. For adjusted to prior was million million the compared full XXX EBITDA XXXX, year in XXX.X

million in in million quarter versus X.X prior expense was the the X.X year. Interest

senior facility XXXX, The full was million rate compared X.X For to year the X.X expense average the quarter. for interest weighted our of X.X% credit of was XXXX. million fourth interest

from by GAAP On the credits was of front, statutory XX%, XX% year deferred favorable driven of tax XXXX and the income. largely and our rate tax mix full jurisdictional the Canadian tax for of rate

UK, On favorable basis, of United the credits XX%, non-GAAP and rate tax was which favorable and a tax driven mix our by States more jurisdictional was the in income.

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

For the was in of per year. prior full year share earnings to $X.XX the compared $X.XX diluted 'XX,

non earnings share the GAAP prior $X.XX quarter flat a On versus per in adjusted year. basis the was

year. the For in $X.XX shares XXXX, of EPS million to was the XX.X outstanding. average weighted we XXXX adjusted full And with prior $X.XX ended compared diluted year

discussed driven capital. as networking flow Fourth line cash we of in XX.X in expectations it was our result call, was last million compared XX.X mostly fourth quarter This timing million by our with fourth, quarter to operating XXXX. the was of at

area of for driven an This also the which quarters full was the we year in to of full XX.X cash in XXXX discussed uptick performance, For in year flow prior focus XXXX. XXXX. in million operating us in part XX.X by inventory with compared

our X.X with of times, rolling XXXX pro was debt leverage ended million ratio We XXX by EBITDA. gross forma gross gross and divided debt XX months as defined

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

very continue a acquisition medical healthy particularly our to markets. pipeline end around We build

highly to to will flow around cash accelerate expect us disciplined continue be maximizing should financial You returns transactions goals. and our future ensuring

XXXX are win around and Turning of into a design our business activity in returning medical saw some to investments. particularly business. industrial which of Prior around exciting and health products and XG aspects early new year building, seeing China, we momentum infrastructure stabilizing epidemic, full capital around signs our spending public growth originated we're ongoing market where there of of the lot particularly the

is sold expected However, as sales impact on have of total just temporarily to a of our first is disrupt the clear This business company's our stand quarter. our here coronavirus which over represent we today epidemic China, going temporary and to directly product delay in to the it's XX% sales.

we We to based to factories. specifically our due to global demand impact for non-China see also product impact on to some China own the chain, our And it China dependencies on expect do market. feed customers supply expect finally, source from their our

The there to of customers non-China smaller stage still us are our uncertain effects our Chinese of business monitoring our spreading chain. operations expected early expectations as to effects is of and something of this consequences estimate of The impact the regarding currently of our supply currently But coronavirus epidemic. represents is if our China based the views current further our for timing carefully and virus outbreak we the supply based chain be sales and at too on of resumption and and today, is outside are our to on this mitigate. The impact. any customers attempting to the

the XXXX. we are in is guidance, are full not Regardless, end. situation and success quarter January. first well to anticipated weakness remain in updating fundamentally we in be recovered Consequently, growth positioned and and in of temporarily before guidance. year the believe A is It not our seeing we only overall this for strong worsening which issued year be our the expectation that financial we that disruption will currently significant we our

quarter reported in the time. the of and This year-over-year quarter caused on million expected million we the decline directly revenue million basis. This by XXX XX disruption The digits the of is impact XXX weakness low in expect to an range range range single XXXX, outbreak in in mid at of of being to revenue XX sales on in to million. correlated the this first GAAP the first coronavirus a represents to

points decline to expected The of are higher of is fourth margins gross largest sales. facility roughly contributor XXX from close basis of manufacturing and slightly this a quarter quarter margin San Jose mix better First the of the our XXXX.

largely pipeline about XX in representing million we're XX% XX the mentioned excited to the expect therefore drop As to but our and million R&D in before, sales, due revenue. innovation very of over quarter, investments of

consequence uptick seasonality million, XX of to to The variable of SG&A the close around expected will to and payroll climb first of of in compensation intangibles in be quarter greater Depreciation X million spending taxes. amortization than million. around a while X.X higher is is million. the is X.X accruals expense

around First X.X will quarter stock based expense compensation be million.

the range quarter on which we a investing adjusted decrease is This percent should basis. headwinds. the the EBITDA teens XXXX reflection first as sales lower expect XX of XX in are to The we into to of million, be margin EBITDA volumes temporary million in mid of be a

the We expect during to remainder of year. quarter be able this in first to margin recover profit the from the lower

versus the strategies arbitrage X rate a favorable in and lower interest for our million facility to expected for consequence the around borrowing million new is we're expense more trading X.X as XXXX, year a be euro credit both rate. terms interest where Interest implementing, under been some us borrowing full we've of at

see the XX% of We of non-GAAP approximately XX% to rate expect the about year full XXXX and quarter. to tax for XX% first for

earnings diluted be of XXXX $X.XX. expect to $X.XX range around we in we and the XX.X will per quarter to million per be Finally, of expect earnings adjusted share therefore first share

the the and Demand caused coronavirus confident ability disruptions through feel temporary in the outbreak. strength of we our by Overall portfolio. is

a continuing growth end various products Our markets, which medical and tremendous demand business multiple across our is trajectory resilience. is strong with portfolio giving

seen. product and are as Our new as activity very introductions our is strong ever design win we've robust

great in of commitment is Novanta impact feel sustained sustainment example growth to recently drive around and of the expansion short-term institutionalizing gross inventory this margin growth we inventory. in addition, company our about around incentive the the In reductions. across margin compensation company's reductions we aligned the and structure An and system improvements

on deliver positioned that we're our financial to confident are XXXX goals. epidemic, well health the we Despite

excited our customers of our of their our commitment and about forward commitments We look are our and continue this shareholders. very to us our to deliver We performance weather and environment. employees helping our difficult proud remain to the employees, for on future

our remarks. prepared the concludes This open We'll up for now questions. call

Operator

question session. Our now with question-and-answer will from Securities. Lee comes Jagoda first [Operator CJS begin the Instructions] We

Lee Jagoda

Good morning.

Matthijs Glastra

Lee. Hey

Robert Buckley

Lee. Hey

Lee Jagoda

R&D markets So opportunities the the causing accelerate that you and maybe products can start your this in some year? new the detail all with terms and us end around of spend give we product to you're applications seeing are

Matthijs Glastra

my Yeah. that let's our arthroscopy one minimally on invasive endoscopy as we but and tremendous mean, Good see commented in morning see minimally Lee. by remarks, surgery opportunity most I've end we surgery invasive I markets. in one. prepared go in opportunity business. I surgery that commented of as our robotic within well

a a So are entire Then accelerating of in million I segment, around introductions, market, that that's Photonics our other multi-year Photonics we that serving. I segment. beam see market opportunity that also currently expansion that's over we that's delivery, combination particularly we're in but opportunities $XXX and commented segment, not parts commented product in our a and adjacent that roughly portfolio product that

product XXXX in XXXX doubling the to six from those products will three and the six, basically in latter be And will introduced of in we're is. impact part introductions more that have So material XXXX.

opening surgery, engagements these to of And in next, in the say Photonics seeing active right slots, as we're on innovations kind now. XX back extremely to as of they're win invasive that's And and well months. minimally up the basically XX both customer in

of last entire segment. subsystems, automation rejuvenate comment the maybe well added our to we're we've so particularly we very and that motion control addition, targeted to one and have that's be back our robotic They've accelerate we around excited about is capabilities In commented across on that on helped the on they that as particularly see to see industrial acquisitions, that in year I've precision other as thing innovation pipeline, intelligent really our really portfolio. –

So I think of all, in all pretty set based broad opportunities. it's a

new is combination share I I both by the forgot as manufacturing, into additive end micromachining markets gain which converting building well well that which realized is with on laser as the as as on mention both on say just comment maybe other of based the production side medical a textile rapidly to Photonic to driven of markets, I applications. type based think automation of market, laser growing we trend feel converting applications, technologies, let's back our where we can of capabilities advanced the is aerospace

us, battery for relevant an finally, electric vehicle emerging but obviously is And very opportunity Yeah. welding.

as we precise, demand the sophisticated those throughput are, latest let's well role typical very into technologies acquisitions trends that our production made for investments into obvious of in markets. substantial more part those as needed yeah, about are the with say get edition more to both technologies. So a the increases our are down we've past, that cost as And innovation in playing we're play excited reasons, our favor and market, up a with and per more

Lee Jagoda

focusing growing just adoption order in magnitude then in on that XX% driven something the smoke evacuation of of been the think And by specifically, the the range already has great. in business one That's business stuff. I

Matthijs Glastra

Yeah.

Lee Jagoda

the level well years, does that over opportunities, XX% new growth do as longer? next just of rate, it size With level several the further from the call adoption there as it we market from accelerate the that, or how stay

Matthijs Glastra

that additional course, market I mean, an can not business fantastic seeing of beyond think but should capabilities $XXX well markets. of deep adjacent Yeah, it's relationships new also But a a possible. into of give very XXX% and we're that that market. innovation you have I Lee, question. view it specified mean, has that great I thought giving originally customer expansion we not we're potential expand pipeline, what of we that was of capturing magnitude a million order point opportunity you

the management So also and example only it's market. well control, not management it gas arthroscopy into, around very their call capability plays that and fluid is and around and, control for

trend. fast of relationships very new So then strong and technology. as medical capabilities those the a are not customer markets targeting into you already those new off basically introducing capabilities, moving that's multi-year And then building markets, know, and repackaging taking from kind

multi-year. sustained answer, expect you maybe is can growth short in this business foreseeable future, the So and a this it in

Lee Jagoda

have for Okay. queue. the on then one hop goals you're this on willing I'll for Do forecast touch year? capital and And and any you share just then to just working for maybe that CapEx Robert in back reduction XXXX

Robert Buckley

wanted on with of so hard our we've have to progress I internal been find amount goals, the it when the we Yeah, to able what come like this that demonstrate around stuff to out achieve. always are goals not

a So year, inventory specific the is what reduction. we've to lot around get decided we more are do this –

discipline we So around type reviewed inventory to we've use a as corporate we've manner part deployed that monthly Novanta solving and of deployed of really some growth that kind a that attacking system tools a effort resources gets the and very methodical we've of that to in basis. attacking used on additional this problem techniques

done the level because from process and And then managed been incentives, basis. a and portion extra comp historically the is had payable just overall we've inventory inventories it to at capital the through accounts get to side, a that year of able specific we've reality control incentive add higher paid we've excellent we've job then that on more tie this over an disciplines networking decided and to to very and

of we as individual our XXXX. key units the down. get managing business time now that to into their a inventory element bringing compensation So really and That's structure

our into cash So it going of driver XXXX. is the flow

in to the rates back as were get a to cash conversion we is percent normalized of our hope where my EBITDA. as flow So XXXX of

that at that's to biggest my reduction, have. lever back that we be inventory that that look you and desire the through there would get If

up we new was capabilities, that depending I UK. expecting We've in $XX somewhere magnitude out so talked a XXXX, year, about of to past. CapEx a is fit one 'XX exited see from impact repeat we're the some but million, That of sizable double, in that's $XX million have frankly, don't the to Now of come more scalability seeing off we that that most us us add We fit perspective, there whatnot. around million tooling our that little that our get some it. in $XX in part as have, close in – But of a upon won't production in XXXX. into the facilities, that that to probably to investments that close going give order bit is we're facility we $X investment in that's and spent capability timing, making of on facility nice This the because somewhere in pretty thereafter. for something the temporarily little the and bit to is million a out do of think ticking some had bit little has it operations CapEx the out XXXX, because then growth competitors, and we're a a in a

Lee Jagoda

much. very thanks Great,

Matthijs Glastra

Yeah, thanks Lee.

Operator

Our Eastman comes Robert Richard next from W. Baird. with question

Richard Eastman

Yes. Good morning.

Matthijs Glastra

Good morning Rick.

Richard Eastman

that quarter margin quick you Hey, really had in would up clarification, sequentially bps? just be the mentioned gross XXX first a down Robert or the

Robert Buckley

Up basis points. a XXX

Richard Eastman

Okay.

perfect. Okay,

Robert Buckley

a That's good clarifying question.

Richard Eastman

in just And that. 'XX some I you Matthias OpEx big numbers better the I'm of said which sales It 'XX. question, tossed of the thinking probably cover then question Yeah, – was had there. up with maybe you the of be as out XX% industrial that we a here, into business, picture roll portion to think a

growth potentially let's stabilization industrial you grow momentum, in there? But can we some You XG semi but made some in perhaps growth driven. kind some of quarter around that of base pretty for feel delivering return modest the here, fourth feel ignore quarter, the XX% market, – maybe XXXX? potentially reference first of a you to do just how the off some the about comfortable to businesses Do momentum the

Matthijs Glastra

the it's remark fourth made I right. Rick. Yeah, mean, think Yeah. I that prior a good listen, question, the was to quarter around I coronavirus

with lot in basically up is – air, because quite with the be So let the me coronavirus, it a clear frankly. that

look on based XG cloud in you fourth So, and if the back of at infrastructure at bouncing XX% microelectronics markets right. general, the quarter, saw and China back we infrastructure

are So quite players have different and frankly. don't I been any than other we seeing think what

well. as consistent So so that what are with and that's I saw others seeing we think

then we the second economically there, half. idea would if that subdued moment. first was the original would kind have to expect let's half. down, to help look was little will actually as the with virus the from impact depends but some example, for coming if I suggest the length viewpoint that we of our anybody's product of a was in what – doing Europe Europe going to the say, of particularly the threats that at course in the and to we imminent rest the be and course the guide and the bit. but that original Germany that's regionally that mean, US prior markets coronavirus be It into new a first second yeah, and up that macro in that coronavirus is perspective, impact year industrial back half change, was of modest, in remain some And half and guess you I growth off scope hanging lackluster, was Germany view at on would nevertheless a the of that corona of well the of of introducing should return

Richard Eastman

Okay.

of want segment NDS XXXX closed, expected savings in million – the things now we've think San the business to there I then a I Jose question. And Okay. follow gross margin of just a just got with Vision got was In up there. X to integrated, reference – we've

XXX later is kind point right maybe pretty this plus much at of we've gross point? in layup year. here growth. And so a help the we Vision self point; I But internalization Vision, volume the got layup segment, this margin particular a in of this handed in basis benefits improvement the at, at got We've and some initiatives look consumables of got within when the

Robert Buckley

Yeah.

drive would mix more medical and that that pulled segment risk effect. trying closing all We be the easy, margin we in there. in the really in teams XXX the consumables real so feel the have the pretty of I right in only margin that the place place, actions some we of segment, expansion already the we manufacturing the – got So we of all significant create We're which in sort drive San is gross say sort perspective. from consequences obviously fairly that Vision should to Absent to negative to the already that actions points uptick basis are right levers about down feel to stuff have expansion some good drive expansion that. really the in done and Jose

Richard Eastman

we for a then, but. basis I little a the hurdle got know And the still here you're around Novanta? reasonably in Okay. comfortable adjusted bit points of feeling volumes, first gross quarter XXX overall, margin with

Robert Buckley

big would And of is really Yeah, so upon looking we're kind the I being based internally that recover and get can impact being business percent. issue. here and second flu a back half we so think the plus that I we that's then calm to quarter. say get with and first at starting to into Hopefully, XX down quarter as the more really second people temporary the of

Richard Eastman

thank Great, okay. you, Got you again.

Robert Buckley

Thanks Rick.

Operator

Drab with [Operator Instructions] Brian And our William Blair. next question from will come

Brian Drab

Hi, questions. the for good morning. Thanks taking

getting brought one in that the around with prospect last consumables, where the of that up first, and Just we production following on are question house?

Matthijs Glastra

so there. and tracking listen are we Yeah,

any pluses and and there some think multi-year there's with I is minuses. transformational program initiative like

I we've of these think and existing the strengthened drive that expected. higher to significantly the out the facilities able and than teams is volume teams are local pluses infrastructure we

So figure of of out therefore, existing actually little time the of footprint. us factory should to that productivity the our the better overhead products best out And and bit expected. leverage gives manufacturing a factory, the be own than

products with see I and we capacity properly bright and commented very our accordingly I adjust footprint important the our result, the as surgery commented As in strategies business the adjacent invasive in. we one opportunity it's as new more that and on well growth earlier, a minimally as coming markets,

the will answer out that more in of So and existing we will gradual a I gross And is can step the in margin expansion. happen down think gross drive the real margin and cost years. step get short setup and up few

yeah. around we sustainable in likely XXXX think put infrastructure – a when it's So more probably XXXX, XXXX there, when more we

will the we growth looks more lean we drive out than facility initially what really again system expected. of meantime, the it Novanta which aspects the use and existing all favorable in So the to

Brian Drab

maintenance second you make – maybe of are – sales demand play from their Thank and having the How's what destruction environment, to support just year pent seeing going them Okay, guide, drives then dynamic out push the you're if they up could got of quarter corona this and it. just of your you. just discuss then customers of demand than some about the first second to what the expected results in the and softer some to it? but just and full And given out? for you'll relatively up in that quarter soft from quarter and than guide can talked rather what and that you here

Robert Buckley

Yeah, tack with tie. in to so want a bit this little I a

that furlough variable be. at What them a through the okay, the actions. and sequential taking in if volume that. portion we cost given So would Take say, flow really I'll say, in it's just with not impact or of normally when drop impact. or adjust there's that the the our is look reduction look year-over-year XX% let's of This of heads of the structure you out, at a whatever the talk we I coronavirus magnitude to or the like that is might – the to would EPS deal cost the

a SG&A couple that because year-over-year but of XX% that R&D impacting very something the of variable the element quarters. comp going taken very, is then is guide at be is not And and and also the It's When other temporary. business is on up to we QX opportunity really see in We you in line. half. million, the increasing think about basis of the a last million inherent it haven't the action being forward the a going XX% look go structurally that's that a we

the kind that's So thought it. of process the walk in around

XXXX. little really about or bit as a that little things us what are the some some some of the And the they bit their talked quarter a – into he amount excitement, are half give win he people the China that of year bookings, design people little we willing pick talked the willing Matthijs that a little generation the up talked activity something to positive, up, a seeing about places did activity, ongoing. the that disappointing. even heads their but Matthijs only We to that were fourth and bit bit and still are next was in Germany their new one to uptick in significant product about talked then in growth our heads number – with a markets, a yeah, activity last drive where looking And we're quarter quoting And in and China of pick grow of the really introductions. now growth about is being their exit also the was platforms the at own where of in really like second

a there So despite that that in quoting are still coronavirus in we even the actively outbreak fact right is marketplace. China, now

Matthijs Glastra

on activity what different. ground, read customer Yeah. No, and I that so and in can the ironically, we what the add our terms you in is to very is feel in that particularly news of China

the So of our interest. lot strong see back we do a on capabilities of

all Now, of we're that these the year in segments second pulling leaders engaging innovations. mentioned across applications across the with to But board, are will that the for start in material course, the those and half I in have really that XXXX. impact more of

to the those XX to And in is take opportunity our let's months innovations XX it another, longer or might so sometimes say, customers, but bring now. right, then these medical, really case it with takes customers markets longer, or with to to work of months bring

some decade, see what noise And it forgoing next potential, we – is structural business look might that growth with gain the company for and with on call in puts position. short-term you mean I decisively and in yeah, and short-term remarks really high or that XX prepared you in so plus the growth opening leaders that feel acting beyond you in the do have dynamics slots multiple there in next if yeah, And a very fast. profit kind the months commented we're that markets we're good of the share we the the that, more long-term, could but see that

coronavirus, frankly. going the anybody's as focused be to our are focused scope today, guess anybody's doing quite customers. we're then we can how on going it's control, of to in of why the of length long that's on So our what In I mean, it's it terms the and guess, the it's views and take. stay meantime, we're

more, more faster and give are acting that's telling customers we're give Our us us where us on.

Brian Drab

about what, Got talking quarter to Robert, XX%, was be what – What to first XX%? just 'XX XX% first Hey, you're thank 'XX. clear, you. when the XX%, to it, quarter the comparing you're of

Robert Buckley

first the of 'XX, and coronavirus is is You're right, XX% R&D of then comp. if of XX% XXXX quarter the quarter XX% the take you – so the first is impact year-over-year, variable to and

Brian Drab

variable And because? over up is that year comp materially Yeah. year

Robert Buckley

We bonus all last didn't get a of paid for out year types purposes.

Brian Drab

okay. Got it,

Okay.

Robert Buckley

don't Yeah, works. if your goals, you right, comp thing your That's hit this how goes down.

Brian Drab

targets I up didn't through I'll Yeah, take why I've sure and through offline that how a on – the just year if year-over-year wasn't accrued it. It accruing that was year make markets. the out plays to got detail know it was

Just one more question for now.

of So at got that is sounds like some to And driven year XXXX. into introductions you've by be and – – looks be front be new of to it beginning later opportunities in start product least these pretty year this you challenging. then this incredible to the going the

like And there so given why the comparison, looks any of XXXX five rate reason momentum you expectation seven. XXXX average fairly is entering you're to growth on going above grow to wouldn't long-term easy in have and XXXX, this it

Robert Buckley

baseline what to here be but beyond, course, with going absolutely I mean, to our we because mean, be on the Yeah, shooting sitting yeah, know perfectly half we're not first mean, were I right. even for of I is listen, of commenting XXXX don't and guide frank, what that's we XXXX

introduction product should significant much particularly new XXXX impact have the a in more and and material So XXXX even.

a it's we to So impact business multi-year the feel.

years why driving and I as because yeah, innovation control investing two gains. taking – and we that's mean, more so And through our destiny next being growth the see by we're share of

Brian Drab

this and not I unless or any more it, that is for year, then the of likely more of making you're mid in terms in today missed – points the update end guidance lower or likely for not full comment year, any you're Okay, right. terms regarding range,

Robert Buckley

get and I risk But around bit that to a updates back a is maybe sort high get kind materializing of that. to we than there out in specific now put some range. broader I I knowing of that so want the We think didn't kind don't low probabilities any there range anticipated. little and was more of want risk all into on January

Matthijs Glastra

Yeah.

how develops see and this more specifics. Let's thing we get can then further with back

Brian Drab

Yeah, makes it sense.

much. Thank Okay. you very

Robert Buckley

Thank you, Rob.

Operator

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

Matthijs Glastra

you, Thank operator.

positioning a So spending environment. in a our quarter to performance fourth solid very We're of in performance businesses our summarize, our teams and pleased industrial proud in and delivered Novanta uncertain agility capital the XXXX performance the environment. a macro of with and of in medical weak

Our design win momentum continues to be high.

New ever pipelines as are strong Product introductions as they've and been. innovation

our And disciplined to solid medical sustainable, industrial long-term markets, across with providing for advanced foundation a diversified Novanta's is and profitable M&A growth. approach leadership combined position

the invasive is industry we're a health business and trends growth remain our medicine uncertain the investing long-term and outlook drivers with macro short-term on the in back headwinds minimally epidemic, surgery. precision in to focused into While X.X, and

This support joining appreciate are is We strong today's contribution committed much. of would of grateful your Novanta now to our our on I like forward for earnings ongoing quarter company in In that just closing, very of customers, our tremendous you call. and look employees execution call agility interest teams particularly much in their agility. to you and first thank the and employees our and and XXXX shareholders Thank in the for showing participation your and call. Very all months several adjourned. our dedication

Operator

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

disconnect. may You now

that innovation industrial solid growing Novanta's investments our wavering to on combined of advanced proprietary leadership not disciplined in sustainable, position our markets medical a M&A foundation continues remain focused are expanding long-term positions. provide markets, our approach Therefore, our conviction expand and to we across diversified for strategy growth. profitable medical with technology to to

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

Robert Buckley

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

X% of delivered was we on revenue, XXXX, basis year an in year-over-year. XXX full growth positive and organic increase X% million a For reported

revenue, our and Europe was growth business, are industrial our represents better to ability growth our weak, remain deliver in on product revenue spending environment we by climate in XX% medical financial China the than quarter. The in the the While and now new commitments sales. pleased the growth economic which and with capital driven expected organization's of strong higher for

quarter the despite portfolio. the fourth environment were decline full and and the we're managed mid-teens fourth with Overall, of full strength Our not a we sales pleased sequencing through medical XX% meaningful the year. up in was seeing how market our the for the and This from experienced resilience year. in contribution DNA quarter, roughly economic and with

XX% was fourth or in quarter million million sales of or quarter to our GAAP XX% Turning of fourth sales XX compared of to profit, margin XXXX. gross XX the

year full sales XX% of XXXX the in of profit of XXX XXX XX% was XXXX. or million million sales gross or For to compared GAAP

sales profit profit XX in compared of or of to to adjusted million of XX% GAAP of XX% in XXXX. XXX sales million XXX of sales million of year gross XX% Full XX XXXX XXXX. non fourth or was gross million a nearly quarter basis adjusted or or compared the On sales fourth quarter was XX%

of medical was impacted growth expansion margin the effects which For XXXX. the gross mix roughly was The of in year. year margin largely lack consumables gross full flat adjusted drove during unfavorable our by to compared product lines our XXXX, significant

also caused unit We business headwinds California production facility move for manufacturing facility. to The manufacturing our creating closed cost now as is Germany as XXXX. temporary Jose, NDS by San San we our a faced redundant from shifted forward facilities Jose we healthy tailwind into

fourth sales of quarter X.X% expenses in the quarter R&D XXXX. fourth were of million XX operating or sales to on or expenses, compared XX to Moving of X.X% million

expenses For XX million to the R&D XX or were full of or compared of year X% sales inXXXX. sales of X% XXXX, million

view win activity and seen in growth opportunities our are beyond. take growth current and design our revenue to product pipeline. opportunity the our engine As significant with market climate economic The innovation in and making share drive to in progress we capture and our provides our XXXX new

SG&A million or the XX% sales quarter XX expenses of compared quarter in XXXX. to or XX% XX of fourth sales million of Fourth were

SG&A million compared the sales expenses to or sales full XXXX, year of XXXX. in of XX% XXX of were XX% For

million in was income fourth compared XX operating to XXXX the GAAP million quarter XXXX. in XX

to compared GAAP was For the in XX XX full year XXXX. of million operating XXXX, million income

Non-GAAP XX% the of to the million or operating sales XX income sales, or XX% fourth prior year. in in quarter XX million compared of was

the XX% For sales year of XXXX. of was in million XX% income million XXXX, compared non-GAAP operating XXX or XXX full sales or

XX.X Adjusted EBITDA million XXXX. fourth XXXX XX.X fourth quarter million the was quarter of to of in compared the in

was million For adjusted the compared million XXX full the EBITDA year in XXXX, prior to year. XXX.X

Interest expense quarter the prior in million million year. was versus the in X.X X.X

XXXX. XXXX, For quarter. was the our the rate full was senior weighted year The X.X% fourth for X.X to million facility average expense interest million compared interest of of credit X.X

year XX%, jurisdictional of the GAAP rate of from XXXX favorable largely tax the our and credits by and was the front, Canadian XX% On income. deferred driven tax full of rate statutory mix for tax

income. jurisdictional the basis, our UK, was non-GAAP tax in a rate and the tax was more States favorable mix XX%, by and On driven which United credits favorable of

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

per earnings prior in diluted 'XX, to share $X.XX of year full the year. For the was compared $X.XX

flat On share a $X.XX adjusted versus the non earnings the quarter basis per GAAP in year. prior was

average XX.X the prior compared shares year. million EPS to year we diluted For And outstanding. full the ended with $X.XX $X.XX adjusted in of weighted was XXXX, XXXX

quarter XXXX. mostly XX.X capital. XX.X quarter million our by in our compared Fourth fourth was with the line This in operating fourth, networking result of call, expectations driven last we million timing to at flow it was cash was of as discussed

was operating XX.X prior us which quarters also For with in flow part area inventory the full full cash discussed focus in an year of XXXX. to driven year we in uptick compared XXXX. in XX.X of performance, for This million the XXXX by in

gross gross ratio with XXX defined rolling by X.X months debt of debt as divided was million times, EBITDA. gross XXXX ended forma and our pro We XX leverage

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

We end medical build a around pipeline continue to acquisition our markets. healthy particularly very

and continue us should to flow expect future maximizing goals. our to be ensuring accelerate around You returns cash disciplined transactions highly will financial

in some around particularly Prior we particularly of into business Turning activity seeing early business. saw medical which investments. we're exciting of full to aspects of around XG originated of the lot market year our industrial health and capital the growth signs epidemic, momentum infrastructure returning new where XXXX public spending ongoing win products stabilizing and are and design our a China, there building, around

is it's sales coronavirus and just we represent as the XX% However, the impact our a total sales. epidemic temporarily business product to delay which to our here This temporary China, directly expected today stand clear of sold is going to have over on disrupt in our company's quarter. first of

some expect impact to We finally, dependencies we impact to to for source specifically also demand our due chain, market. based China customers to from their own the on our on product do it expect feed China And factories. supply global see non-China our

and currently carefully are smaller impact. based this if China early customers our effects on spreading business resumption epidemic. our we is there expected regarding sales outbreak Chinese be our and of monitoring consequences for stage are uncertain the The further of estimate to to customers our of any as at is But still our on of too the operations chain something effects currently of today, is The our and and virus supply non-China The impact this the outside expectations of attempting us supply represent timing current mitigate. the and views chain. to our coronavirus of to based

guidance, we updating recovered XXXX. be year is will Regardless, for is financial significant fundamentally issued believe A guidance. temporarily quarter end. that that are only first year our success before anticipated be our full and remain to not and Consequently, well are the we and disruption strong in overall, which seeing situation not the we our expectation this in we currently It growth of in we in worsening January. weakness the positioned

disruption of million of million. the in we to mid-single correlated and million XXXX, GAAP of this the quarter is represents low weakness digits expected in sales expect the XXX This year-over-year range caused first in impact of quarter XX range decline first range being in at XXX revenue basis. an The the in on a to revenue outbreak time. XX by reported on coronavirus directly This the to the million to

margin roughly quarter basis is our from gross sales. Jose expected First XXX margins of to of manufacturing mix points this The are higher the San better quarter decline fourth contributor and of largest slightly of XXXX. the facility a close

before, but investments to mentioned largely representing innovation to we're sales, XX the R&D over the pipeline million therefore of drop expect our excited very XX% due about As million XX quarter, and of revenue. in in

uptick X million, close and of compensation climb than the be seasonality consequence in Depreciation in expected quarter to is of accruals is million. intangibles expense greater million. to of X.X XX million X.X amortization the around will a while first taxes. SG&A higher to is of variable The around payroll spending

stock quarter First million. expense based be compensation around X.X will

the lower The adjusted of the on into in headwinds. temporary volumes should a first margin be be range of to are in million, quarter mid-teens XX decrease percent XXXX EBITDA This expect basis. which million the we XX we is to a reflection investing EBITDA as sales of

in the remainder the this to be to expect able from lower the of first margin quarter recover during profit year. We

expense for at consequence and a a we're million year terms to under credit interest borrowing been rate X versus million XXXX, the for borrowing around be arbitrage of is rate. new Interest lower implementing, interest in trading we've facility us favorable more both expected strategies as X.X our the full where euro some

non-GAAP to rate XX% expect We and the XXXX about of XX% to of first for see the year for full approximately tax XX% quarter.

Finally, million to first we in the per $X.XX. $X.XX be expect be diluted range quarter earnings and share of will to adjusted earnings therefore XXXX per share expect around of XX.X we

the our coronavirus is strength portfolio. Overall, and outbreak. of temporary we caused confident Demand disruptions in the ability feel through by the

end products across is giving strong continuing with a growth which demand Our trajectory medical markets, business is and multiple various resilience. our tremendous portfolio

very is seen. and as activity as new robust are win product design Our our ever introductions strong we've

Novanta recently drive of gross impact sustainment company commitment the and growth expansion about example our around in inventory. growth in and inventory reductions. the addition, system the improvements feel around aligned of this the company's sustained we incentive great institutionalizing In An we structure and is reductions to margin compensation across short-term margin

Despite positioned epidemic, XXXX confident are goals. financial our well we we're on the deliver health that to

forward environment. performance their employees to We our employees, and commitment the us to this shareholders. customers are We look our about of commitments to very future our of on continue and proud our weather difficult our helping for deliver our remain and excited

our concludes We'll This prepared open now remarks. up questions. call the for

Operator

the begin Securities. question with Jagoda Lee [Operator now question-and-answer from first Instructions] Our CJS will We session. comes

Q -Lee Jagoda

Good morning.

Matthijs Glastra

Hey Lee.

Robert Buckley

Lee. Hey

Q -Lee Jagoda

maybe us the R&D in applications that spend all around markets the opportunities can product you're give some start this with you So new we products to year? causing terms detail your are seeing end of and accelerate the and

Matthijs Glastra

Lee. that invasive opportunity I Good my see see in within but one business. we let's remarks, surgery by tremendous as end our in I've our markets. most opportunity well endoscopy prepared of surgery one. Yeah. we mean, and morning commented minimally commented in that I minimally on arthroscopy as robotic go invasive surgery

a in currently product multi-year a are that that's and of in Photonics opportunities we particularly our commented our opportunity see adjacent around segment, also Then that that portfolio serving. segment, beam introductions, other we combination delivery, I that's product $XXX but million parts not market roughly accelerating we're Photonics commented So that segment. entire in over that's I that market, a and expansion

will of XXXX the And the six that XXXX. and three six, will doubling So part more in we're have introduced product basically products from to in those is. be material XXXX introductions in impact latter

active as of And minimally in we're to slots, Photonics and to innovations back invasive that's XX these well up the customer now. extremely in as basically next, kind in XX engagements And seeing surgery, say right months. opening the both on they're of win

excited the segment. other that be to that as robotic in really last on precision on about control really our thing we're so pipeline, comment they motion particularly see one and year very added portfolio. we – helped addition, maybe our subsystems, innovation entire accelerate that of as we we've intelligent automation acquisitions, targeted well our In that's that across capabilities particularly around They've on see commented to is and the have to industrial back rejuvenate I've

pretty So in all, a opportunities. I based think all of set broad it's

laser market, just I to maybe medical to I on on as of driven capabilities of both on rapidly automation of both the think forgot which other is technologies, aerospace back new the trend say can the mention converting applications. growing I that share by markets, building Photonic let's is as end with realized we feel into type where we as a production is our side comment additive well the as gain well which textile markets of manufacturing, micromachining combination laser based based converting applications, advanced

but very vehicle welding. is emerging us, Yeah. an finally, And electric opportunity battery relevant obviously for

down into demand more production in typical well needed technologies with sophisticated as are reasons, throughput and those to favor cost our increases a So the market, for that more latest trends made yeah, with play of we're playing a get obvious role part let's up that precise, and per are substantial our into edition we as technologies. past, acquisitions both more And the we've very investments our innovation markets. say those in about as the are, excited

Q -Lee Jagoda

range business adoption great. business XX% then the magnitude has of the evacuation by driven specifically, in just growing in something in that the I been And stuff. on the already smoke That's think focusing one of order

Matthijs Glastra

Yeah.

Q -Lee Jagoda

adoption years, we level it growth further call the from as longer? accelerate just from stay next the the well size several opportunities, over does of With the market how as there do that new XX% it rate, or level that,

Matthijs Glastra

we possible. also mean, seeing Yeah, not of But XXX% innovation opportunity capturing fantastic you thought order we can should of additional new of specified deep it's business market. question. Lee, magnitude give not but potential adjacent that has think we're that you that I $XXX very that and I markets. an giving that view million capabilities course, customer point relationships have a was we're expansion expand into I of well beyond of a a great pipeline, mean, originally it market what

also example So capability management and only and arthroscopy it's and the management and, well not into, gas call it control, around that very their is fluid for plays control market. around

basically you capabilities technology. taking then a then those customer kind trend. capabilities, into are multi-year building very So and repackaging of not know, markets, relationships targeting medical strong moving the from as already And new and introducing markets those fast that's off new

you this in this the it business and multi-year. a expect short can answer, sustained is So growth in foreseeable maybe future,

Q -Lee Jagoda

year? just capital one then this for the have in to maybe any back just I'll you're working And hop on XXXX forecast you touch goals and Okay. then for CapEx share queue. Do for that Robert and on willing reduction

Robert Buckley

not are I amount find with what goals on Yeah, demonstrate our come goals, able that to it like we've been around always to so the internal out the stuff wanted progress of to achieve. this have when hard we

So specific – inventory the lot decided we've around do reduction. to is get we are year, a more what this

Novanta basis. So of of inventory we've a a corporate around to and methodical techniques gets and the of very we've attacking on we as manner type system reviewed growth deployed in tools effort a used that we've additional that to some resources problem that really use deployed discipline attacking this part monthly solving kind that

side, that it historically over to and excellent that overall decided done of tie job we've and the had managed we've this paid incentive add networking accounts the get more then from through just process been at to disciplines to we've the able And capital payable and level higher very is inventories basis. an inventory to extra on then control we've specific incentives, portion year because comp a a reality and

to business of as bringing their managing units inventory key down. element the So XXXX. our now structure compensation individual we get a time That's into really and that

is it of cash flow driver into XXXX. So our the going

our back hope my the we get conversion where in were a rates is as So of to XXXX EBITDA. cash percent to of normalized flow as

you look that to that's that we lever biggest reduction, at desire get have. there inventory be would back the my that and through If that

and and facilities, we're $XX had about from impact making a XXXX, Now little expecting won't We've of little in repeat off a of one around in part past. into $X that's thereafter. it investments in a in $XX because fit ticking tooling have that that get CapEx temporarily and close that XXXX. new whatnot. come facility year, million investment We This something a million $XX that's exited that of upon fit the was then seeing a competitors, some but capabilities, nice in frankly, to that facility somewhere to capability some that spent that we million is magnitude our of XXXX, a out on of growth it. little we think to the – depending somewhere as out to going a do us for talked the production pretty bit in bit probably million, there sizable 'XX perspective, some in the double, in scalability more see has timing, because the That is so is the order our I to But up we're don't most add in the we CapEx operations bit give out we're of UK. have, us that close

Q -Lee Jagoda

very thanks Great, much.

Matthijs Glastra

Lee. thanks Yeah,

Operator

with Our next Richard comes from question Eastman W. Baird. Robert

Q -Richard Eastman

Yes. Good morning.

Matthijs Glastra

Good morning Rick.

Q -Richard Eastman

a just quarter first in the gross the bps? Hey, that clarification, Robert down really would quick mentioned be up margin sequentially XXX you or had

Robert Buckley

points. Up basis a XXX

Q -Richard Eastman

Okay.

perfect. Okay,

Robert Buckley

That's a good clarifying question.

Q -Richard Eastman

that Yeah, I'm picture to question, big into 'XX in of numbers you probably cover thinking with of tossed portion – 'XX. Matthias the industrial business, which was It better that. up the then XX% out roll be just some maybe there. said you a OpEx we think a of And had sales I as here, the question

the here, of XX% XG But semi for around growth in businesses but delivering let's You potentially how stabilization ignore comfortable return can grow do the to you the Do of – about feel quarter, some potentially market, growth fourth XXXX? some there? base kind momentum, we modest the made the in reference driven. perhaps feel a you maybe some of that to pretty first some industrial quarter off momentum just

Matthijs Glastra

I that fourth a prior I made I to around quarter the think Yeah. Yeah, remark mean, coronavirus it's question, good Rick. right. the listen, was

with let be because in me basically is the that coronavirus, the So quite – frankly. air, with clear lot up it a

general, back saw in infrastructure and So, if based we the at you at bouncing fourth cloud on of infrastructure right. quarter, back microelectronics and the XX% look XG China markets

have been what So and than we are I players other frankly. don't seeing quite any different think

so seeing are what with that consistent and we that's well. think I saw as others So

course but idea look into you Europe hanging moment. would to And was coming Germany a the regionally particularly mean, I was of at threats that that for and lackluster, with US there, that of the will if and is corona coronavirus of rest example, we from at imminent Europe Germany a say, in I – the yeah, half. virus down, view first macro was the doing guess be little up actually was prior be would anybody's suggest that expect perspective, let's then second original would to half in kind what off was if modest, help nevertheless back coronavirus return and in first subdued in It original the change, that the the to viewpoint second introducing course markets a should industrial that's the that some our of impact bit. of the that length the the to we year that going of new impact we well and have economically depends half. guide but product scope on growth as and the remain of some of half the

Q -Richard Eastman

Okay.

to want margin now got Jose we've reference follow – closed, in was got just integrated, question. to I – segment a Vision things we've gross think business NDS just I then X the XXXX savings of there of million expected with In the And Okay. there. a San up

within benefits But at Vision, got got point the year. handed pretty this of is point; point? right initiatives consumables in margin volume growth. particular And gross improvement in segment, at, self-help this plus much maybe some in of a a basis so the when XXX the kind Vision later at layup here got layup and we the look this We've we've I internalization of

Robert Buckley

Yeah.

closing and mix in So really are from segment trying margin gross obviously that fairly we actions I feel pulled that points the expansion expansion all which about feel create we that in pretty would drive got significant say right we the that the Jose San place of the the We sort good teams the all that is Vision to more risk drive the levers that. segment, the margin XXX and medical easy, done – to some already to some effect. should of actions so already the in sort be basis consequences of real in really in have the perspective. have in drive to negative Absent right we place, down stuff consumables only uptick manufacturing expansion We're there.

Q -Richard Eastman

comfortable XXX the I overall, little a first got margin hurdle then, reasonably a for bit around you're with basis feeling here And volumes, the Okay. adjusted of points know but. gross in quarter still we Novanta?

Robert Buckley

that Yeah, get internally would temporary so second XX impact of people flu calm that get kind starting to the so and quarter to recover I at first is And big the the I half being looking the upon with based into really we here and really then and issue. percent. can more a that's of being plus Hopefully, as down back second we say quarter. we're business think

Q -Richard Eastman

thank again. Got Great, you, okay. you

Robert Buckley

Rick. Thanks

Operator

[Operator Drab come Instructions] question Brian will And Blair. from with William our next

Q -Brian Drab

for good Thanks the Hi, questions. morning. taking

following in question first, the brought of that up consumables, production Just house? are around with on getting that and prospect last one where the we

Matthijs Glastra

listen and are so there. Yeah, we tracking

there there's multi-year with and any some and pluses think transformational like minuses. program is I initiative

local the the significantly to we've think teams the out that teams volume infrastructure is these facilities strengthened than existing able expected. higher and and we are drive of I pluses

productivity bit overhead own time of and leverage gives than figure a to out us out that of products better the should be therefore, little footprint. factory, existing our expected. And best So factory the the manufacturing actually the of

it's we more capacity in commented very accordingly strategies I the and adjust our as the and a I in. bright as with commented we invasive and see on result, our growth as the business earlier, products properly opportunity minimally new footprint that important well one surgery markets, As coming adjacent

gross years. cost will real the think that and margin out get and expansion. in few up short down the the happen existing drive setup I gross more So answer is can margin we And in step of will step and a gradual

So we XXXX, we – around in when yeah. XXXX a when put more infrastructure it's more sustainable XXXX think probably there, likely

meantime, expected. lean favorable we So use initially the and really to will again all than what the looks aspects Novanta we in which the out drive existing facility growth system it the of more

Q -Brian Drab

this maybe than guide given expected destruction of guide, up just here of it? seeing from what demand and then And the quarter and than going in could you. results to they having their the you just are that dynamic How's soft the you're talked but just from rather full discuss if some of environment, play and first about you'll the quarter you to can that make of sales what pent relatively the them your push drives – Thank demand it. and got then and what second just second Okay, softer support customers maintenance and year out in out? corona – some to for up quarter

Robert Buckley

tie. a tack in Yeah, this so to with I a little want bit

in What or Take taking portion actions. cost with say, them volume in sequential the to variable if be. year-over-year the So heads magnitude XX% when we I that of like reduction really of to normally coronavirus drop structure a whatever at adjust is of of talk say, I'll look deal at EPS furlough the might let's we the the not there's that given – okay, the cost is the a just look that. would would out, our that you and impact. impact the or through the or This flow it's

the a And of increasing the comp about going It's you a line. guide go that the We quarters. and that's QX something R&D is is inherent a XX% variable temporary. element because that the we on other we haven't year-over-year taken really forward to basis very, the not action be business the think up at couple million it in the last of half. in a opportunity structurally of being very see XX% impacting also is and million, that going but then When SG&A is look

process the in walk the it. that's around So thought of kind

that talked things positive, was to also some generation amount quarter up, were up heads of bit win the little talked platforms as like about bookings, design us their give to talked And of that what bit he and some the China the people growth about are Germany seeing was bit being number the – – a second really the to with XXXX. are introductions. China something markets, willing activity a little Matthijs own activity uptick the drive one did a into in of next places but he bit at a even their talked growth little looking and we're quoting a excitement, Matthijs disappointing. activity, that pick quarter of some little the still and now heads then the in significant half that We And their people in are the where about fourth last really new is that in pick product where year their our ongoing. only And grow they really in about exit willing the or of we yeah, a

are China, still marketplace. fact a the despite outbreak in there So that right even we that quoting is coronavirus actively now in

Matthijs Glastra

No, what ironically, in particularly Yeah. read terms on the activity China so of ground, and news very feel in we and the add our you in to is that I that can what customer is different.

So back strong we on the lot a capabilities our see do of interest. of

pulling the XXXX. impact those Now, mentioned engaging that course, with all of year material that segments across these leaders and in the second half I will in that of more board, have start applications But we're really the in across to the are innovations. for

now. with it innovations opportunity say, customers, case those longer in but it months to with markets the really another, And take longer, might these XX XX or medical, months customers or bring of to to takes sometimes is then to work so our right, let's bring

– business that the that so decade, next position. in prepared there we're decisively growth mean you of yeah, in have and company feel see beyond that dynamics share noise profit potential, And the for we multiple more structural but it in you acting puts that fast. could with do leaders the short-term might commented and short-term we XX gain I or months with really some next the yeah, you the call forgoing And in opening good that long-term, and a very the see in we're growth plus if is what kind high on look that, slots markets remarks the

So as of anybody's control, we're terms on that's and going be focused then of views and how customers. going are why quite scope anybody's it's mean, of in it's the guess length long it's coronavirus, take. the focused on doing frankly. I today, can our we're In it the our what the guess, stay we to meantime, to

Our where more faster and customers acting us that's we're are give telling us on. us more, give

Q -Brian Drab

what you. quarter – to thank the it, just what, XX%? XX%, be 'XX Hey, clear, of Got you're to first XX%, Robert, when the was What XX% quarter you're to talking comparing first 'XX. about

Robert Buckley

of – XX% R&D is and to is first 'XX, so coronavirus you XX% comp. variable quarter take the You're first right, the of the and is if the then impact year-over-year, of XXXX quarter XX%

Q -Brian Drab

year comp because? that year materially Yeah. And over variable is up

Robert Buckley

We bonus didn't for get types out year paid a of last purposes. all

Q -Brian Drab

Got it, okay.

Okay.

Robert Buckley

right, your works. thing how don't goes That's this Yeah, hit down. goals, if you comp your

Q -Brian Drab

I'll accrued Yeah, year-over-year year I've up detail how it accruing plays make the got on I that that wasn't through a was just it. was didn't targets markets. out if why sure know through to the year take and It offline –

Just question for one more now.

sounds is be in XXXX. you this introductions product like the challenging. to least at opportunities of into pretty some and you've these later incredible then front to So of that got driven And – – be going start by be year year beginning to the new looks this it

rate XXXX on comparison, is have grow average you're why easy five above fairly this long-term XXXX expectation looks so going in XXXX, it wouldn't there given you of any growth the And to seven. entering reason momentum to like and

Robert Buckley

Yeah, know beyond, yeah, half is XXXX right. what to guide not shooting listen, baseline on but that's frank, of our be with course, absolutely we're perfectly and sitting going mean, don't what of I were to even we mean, because commenting the be here I we first I mean, XXXX for

So the even. have introduction much and XXXX a material new significant product in and should impact XXXX particularly more

to a business it's feel. impact multi-year we So the

years as being see destiny share through so by driving because we of – innovation next growth the I we're that's why more investing mean, gains. control yeah, and our And and taking two

Q -Brian Drab

comment making more Okay, for year, not or of regarding lower missed it, and you're likely update any full this is then in I or any unless mid more not year, the likely range, that terms the of end for today right. you're terms guidance – points in

Robert Buckley

put range. I We is there in specific now January a a knowing than the risk to out that was get of all risk to more broader didn't I anticipated. around low probabilities back want want maybe of on any little bit so kind there and into kind some don't that. that of high I think we But and materializing updates get sort range

Matthijs Glastra

Yeah.

specifics. Let's more further with develops and can we see this how get thing then back

Q -Brian Drab

sense. makes it Yeah,

Okay. you very Thank much.

Robert Buckley

you, Thank Rob.

Operator

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

Matthijs Glastra

Thank you, operator.

solid and performance So weak our proud environment. Novanta in in of capital agility uncertain medical businesses performance macro in of with in an very pleased the a summarize, quarter our a industrial We're delivered positioning our of and XXXX environment. performance the to fourth spending teams and

continues momentum win design Our to high. be

and as pipelines are Product introductions New strong been. as they've innovation ever

providing leadership markets, combined to solid profitable for disciplined long-term foundation approach sustainable, M&A a medical our position with Novanta's advanced and And is across industrial diversified growth.

a with epidemic, medicine headwinds health back uncertain is focused in outlook short-term the surgery. drivers into investing growth trends macro the precision invasive long-term remain on we're our While in minimally industry to X.X, and the business and and

execution quarter thank teams like of tremendous much our Thank of their employees I of our strong participation closing, to now appreciate Novanta in and particularly for customers, today's look In grateful our showing the our committed company shareholders first dedication to and your interest and that just and you agility and We Very very call. our support XXXX for ongoing joining contribution employees would is several much. adjourned. on call. in all This you the earnings your and months forward agility. in call are

Operator

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

now may You disconnect.

Novanta (NOVT) 26 Feb 202019 Q4 Earnings call transcript