NOVT - Earnings call transcript Q4 2020

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Operator

Good morning. My name is Andrea and I will be your conference operator today. At this time, I would like to welcome everyone to the Novanta Inc.’s Fourth Quarter and Full Year 2020 Earnings Call. [Operator Instructions] Please note this event is being recorded. I would now like to turn the conference over to Ray Nash, Corporate Finance leader for Novanta. ahead. go Please

Ray Nash

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

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

and Before we SEC filings. those may harbor outlined to unknown factors safe that if and in statements make this begin, the made estimates assumptions We disclaim we’ve our differ may current both responses, today, our some remarks need questions today we forward-looking in prepared our everyone that release in include to also change. We of forward-looking in forward-looking press with our statements Any remind These future statements obligation our cause only the forward-looking as expectations. in for views materially update from earnings and any comments to that to risks known earlier today statements. even involve results our time. could our inherent and future of other represent our issued

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

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

Matthijs Glastra

and call. joining our Ray. you, Good morning, everybody Thank thanks for

the to Before we start doing our employees like our I deliver customers. are would again review thank Novanta everything to for normal they to all company’s results, of

this doing It’s market, job creative in culture our strong is our being a how has pride all and or virus embedded Novanta been pandemic; variants. We Our spirit our a maintaining foundation help are antibody and on detect sequencing this teams diagnostic patient and to finding in help operations are great to great the I the a that while see monitoring environment, and teams monitor bring to hospitals keeping equipment, equipment that fight used in to to weather against the great ICU in crisis. R&D to innovations COVID-XX; DNA equipment, agile relentless take teams in and mission-critical detecting that helping test into are in ways into safe. our knowing focus alive technologies new admire

overall the review. to normal segments to my the specifics on more will will our on on move then let’s results financial and company, focus Now remarks our overall Robert results. I speak and

performance We XXXX. fourth of the with are in pleased quarter Novanta’s

expectations well challenging and flows. face in with very circumstances delivered and our executed teams the profit Our cash of above revenue record for

on decline an revenue, basis. decline a $XXX approximately million organic delivered representing X% XX% a and reported company on basis an Our year-over-year revenue

basis on a we full decline reported of $XXX year the and year-over-year in million decline which For of delivered on an X% basis. X% an a represents organic revenue, revenue XXXX,

XXX throughout Adjusted in basis fourth Novanta year of expanding the $XX how quarter, Growth sales exceptional We the teams are extremely tools. the System XXXX. XX% million pleased drove with was nearly performance our EBITDA or points using versus operating

our sales. EBITDA dollar XXXX, basis which basis, year on or adjusted expanding yet was lower on XXXX $XXX XXX full a points of was million flat the XX% versus sales, For

cash Our GAAP at income. free over performance the ratio teams over XXX% $XX delivered up a million, net record in of at flow of fourth XX% year-over-year quarter

bookings million, full reflection Our the ratio the the of fourth free our capital. was fourth of by working at year of quarter, XXX% momentum the cash XXXX and and of full GAAP X. our Motion for rigorous the and segments. XXXX was saw flow and book-to-bill our versus our operations bookings sequential was the management In performance is XXX% up company’s year is teams quarter, This growth income. versus full year X.XX, a XX% net $XXX quarter over of We by XXXX throughout ratio driven about Photonics improve a with terrific third Precision record of book-to-bill

are positive of another expect some trending call. and supports end momentum we later to this a regions. the across the and backlog also first to in detail fourth towards versus multiple improvement to revenue our end year-over-year year, February January very upper strong quarter We quarter Furthermore, first in more starting of guidance in guidance our revenue the discuss back we in Robert advanced expect building return growth of this has book-to-bill the demand will for our range. sequential of nice quarter, our in with performance continued XXXX. see and markets and some industrial in improvement This

markets to actually total year On of mid-single-digit as a consequence full a turn medical laboratories. high Considering declines instrumentation fourth these research quarter of and we’re Novanta’s are went well and deferral a year seeing end with clinical medical the pleased of the let’s as full of sales business. in procedures markets impact events, our basis, very macro significant resilience to markets. basis. on we versus experienced as for throughput what XXXX elective in deferrals the of into the of sales surgical Now, end our XX%

test with integrated medical smoke evacuation equipment. strength business clinical We as consumables pockets of collection continue data in integrated to see this and such downturn, our products for during our

medical and procedures, rise in elective cases in XXXX, temporary in pause multiple have Corresponding OEMs signals regions a along shown the positions improvement large We XXXX the with recovery key elective towards are of COVID Looking forward overall, sequential deferral initial their of levels in signs expect platforms. of associated second medical in procedures half to seeing sales fourth some of for inventory the to sequential these across demand that driving in the of short-term. are and for see to into to pre-COVID with full the solid improvement applications of market do and quarter in COVID strong Novanta sequencing our quarter, operate in total on markets advanced earlier. how were momentum bookings learning variances labs to areas. end rebound sales pandemic DNA started some XX% the of fourth near-term a during year. the sales momentum. commented to markets sequencing industrial our was multiple consistent This the very I Sequentially, the as

experience higher specific EUV-based continued investments in to well XG, cloud-based also higher and We demand demand applications. microelectronics from high-speed networking as to as infrastructure

microelectronics We to heading that demand be in XXXX sustained we expect into saw the increased XXXX.

at percentages of and both from the to ago. Our vitality be the revenue healthy for fourth just XX% products years, X full versus last index, quarter which sales is mid-single-digit launched year in few continues above a the years new

NPI our in significant expect XXXX growth XXXX. versus sales total in we forward, Looking

year. launches double will of that XX for record which launching a products of single in XXXX approximately We number and Novanta be new XXXX, is a in

past said throughout downturn year, As our caused we stayed the investments have by innovation pandemic. we’ve despite on the course the a

surgical minimally to particular continue drivers secular robotics, focus are industrial and on We long-term relevant invasive post-pandemic believe and medicine our diagnostics precision with that growth and even X.X. more Industry surgery,

customers or excited most be about are some happening a to be track, year. will the programs of NPI we of result NPI and seen very as delays new programs launches extremely While this have on experienced and our continue we active that COVID,

our in as We partner Precision surgical we This fourth success this the us most motion fourth also prior launched bring new the proposition and wins in saw grew encouraging customers wins platforms is control versus with future to with most new it our our expectations, multiple was with compact, to quarter strengthening line XXXX, our applications. of Design Motion another to NPI value in significant sign industrial market. X of businesses. products and robotics over recent the innovations In further growth quarter high-precision and quarter. group, continue in in XX% for our the in year of

of We see Novanta during over The with win to in activity Growth System in design worldwide. performance with And XXXX, our teams the expect momentum conducted all rapidly trainings. Novanta of continued quarter of individual our we higher X,XXX the enabling XXXX. developing core goal sites is first

improvement cash speak very to the And more fourth Novanta margin, including, to, quarter inventory inventory margin to and how but culture, into Our are to reduced in structurally learning Robert with our strong of customers, customer and pleased in but In financial financial to to satisfaction, and beyond it our in improving operations to Novanta adopt leaned appearing excellent customer System System. continue our The vision engagement means we short, gross opportunities common of Growth in way working. of using gross business these growth XXXX. for the transform anchored our efficiency on our Novanta our this all and our the as is limited not employees our will and evidenced by in areas, of flow, the specifics have and are continuous XXXX management Growth improvement teams transform see shareholders. applied results, already a results sites. manufacturing benefits results we

We choice making of marketplace. continue also employer an at in Novanta to work the

equity a as way saw difficult plan our This and the XXXX, and support engagement our grant employees the incentivize employee previous and one employees. leaders in than Board even economic will grant we onetime issued despite be turnover way spoken to approved during we extremely significant smaller results, positive coupled bonus had to As a them have and be similar during Directors of work keep employees. remote has an situations. to as gave downturn. as grant employee engaged continue a and equity more will and low XXXX, This we the a traditional and a calls, circumstances record to XXXX motivate motivated In overall our our in with of a package to

our strongly working environmental, corporate governance, part a do our to significant and this, or we citizen. make addition strides in need to responsible in is hard sustainability being we Novanta In to ESG, as feel corporate

We positioning. long-term topics, environmental we the will protection, also and than slightly will and ESG very publishing better our in quality out in fourth expected, and inclusion and confident workforce. equity report about our summary, played safety coming our strategic weeks, diversity, product include which quarter be remain our first including multiple In

exposure with sequential exciting show trends sheet positioned balance These that precision experiencing strong and and productivity to with a health is in secular an medicine. care are crisis from long-term results and automation, this robotics pipeline. recovery very We and Novanta are emerging innovation well

You opportunities, can also focus expect provided acquisition the stringent fit and they us our returns which to is on our strategic criteria. financial capital in lean deployment, of primary

We M&A very the engaged pandemic. constraints are the by actively opportunities even pursuing within in imposed

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

Robert Buckley

and in serves and the medical giving Thank with the details good our our quarter. you, in quarter decline in year-over-year starting I’ll morning revenue This book-to-bill X.XX. the was Vision start Vision end segments, The market segment some a by predominantly everyone. operating saw segment. of Matthijs fourth X% the on segment

medical a Our procedures. anticipate pause is and demand of corresponding in large will pressure temporary first rates medical COVID to the elective hospitalization OEMs half year. but the the of we this put rise on impact, deferral resulting this Clearly, temporary this experienced of a

However, this above have of a index being been we products new driver vitality XX% sales in remained business segment the key of of unit. this the seeing resilience with

in customers technology solid to medical Within today’s our long-term remain associated continue the on this in evacuation about their world a climate growth we during environment demanding product medical next-generation particularly laparoscopic to multitude continued a smoke platform platforms. progress the offering. the high segment, procedures. excited Smoke work opportunity, Vision to staff work we continues with be COVID-free around offering consumables and with evacuation safe, the see We from continue very see demand of as sales as and with this from

with fantastic tied business well performance This purchases We with continued the rapid testing serves and monitoring in the fourth technologies. markets very vision the monitoring This RFID, molecular and as business are patient barcoding the & which from patient testing also our machine pleased Detection diagnostic unit PCR benefited uptake to pandemic. in quarter. business, Analysis as predominantly equipment

XG up XX% our sequentially of to book-to-bill XX% The saw experience segment, markets, X.XX trends Turning quarter the year-over-year investments segment XXXX. demand particularly near-term growing in in Motion the growth quarter microelectronics we to as continue infrastructure. to a versus Precision enter revenue third for robust this with of X% These and and bookings the fourth XXXX, fourth in remain cloud-based quarter in quarter. infrastructure continues a strong

began product introductions. automation we strength space, in with new customers robotics addition, both and see our In to and existing

the portion signs pressure, While near-term we business medical under are of returning of in remains this growth XXXX. seeing

segment its confidence the customers recovery year-over-year Finally, us sustained in from the more experienced XX% giving China, pandemic. from growth than the in

Within Precision for fourth the product double-digit than the segment doubled sales more Motion now comprises percentage quarter, revenue segment. in and the new of a total

positive January Bookings customers. X.XX, multitude up fourth quarter low us Book-to-bill year-over-year. in the X% applications, performance and of of Turning fourth the Photonics impressive sequentially. in were down for the the this single-digit industrial of positive have signals from expectations, fourth up a the quarter a seen our sequentially was rebound February, in segment quarter in significant XXXX. with quarter but in XX% Throughout a fourth to recovery an revenue into XXXX, outlook and up XX%, segment of in the giving we were now our sequential line was in our and reflecting confidence

We our feel pipeline very continue robust in in confident the segment. to innovation Photonics

in for XG in share – electronic material As anticipate we invest of areas. sustainable to we adjacent gain we fine to automation industrial continue known mobile high-speed manufacturing, and medical introducing and and converting material laser are the share battery high-growth markets. in additive processing product material processing and into XXXX, multiple packaging, are a for via-hole Examples vehicles, platforms new result, headwinds, applications which markets and microelectronics help expect expected processing to application grow for drilling of as devices, us

than products XX% also up quarter, for NPI being of New and up at sales sales track mid the But we double most for year-over-year year-over-year. product new in single-digit segment in we Design on XXXX, the were despite the launches is total were XX% strong in were the to down Sales single revenue up year mid-single-digit stayed greater XXXX. which to wins sales in overall the quarter. digits had a fourth double and are number year-over-year. segment of X record in importantly, a this launching China

in decline a reported basis Turning of the to operating quarter the of in on XXXX, basis. results, X% fourth million we organic year-over-year $XXX.X revenue an a decrease XX% on delivered and

of X% we year-over-year are revenue, our an and a own for and quarter guidance. the XXXX, sales $XXX.X delivered in the the in year, year decline, fourth is our beating year-over-year which the pleased For expectations full on basis. million down on X% reported full our issued we with and Despite previously basis performance organic

XXXX. XX.X% was Turning of to of our $XX operating XX.X% fourth quarter to million gross non-GAAP or our profit million quarter sales results, adjusted compared or the $XX fourth in

year-over-year. or margins XXXX. XX.X% In points the basis $XXX sales full XXXX, quarter, the gross or For sequentially result to $XXX This and profit increased work. sales year of into points adjusted significant XXX of comes of the Growth million a fourth gross encouraging to Novanta result operating XX XX.X% and was of million adjusted our strong deeper work compared drive was System in basis teams the day-to-day our as

the continue the we from are while our the and margins. safe came a in of presume operating incur costs the and costs risks and also continued managing that we can of strong have extremely margin In XXXX. expansion proud these pandemic. we stay gross is to are these in during to environment, our factories our that spite costs of facilities pressure were working by we driving and temporary tools teams acumen cost that these while In performance addition, despite in feel And this high difficulty here a at pandemic, processes developed implementing maintain and forward going caused disruptions. pressure virus operating through our elevated incremental costs manage levels, the significant To gross we

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

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

We innovation climate. the in we and have continue continue invest to confidence our to into therefore, pipeline, economic

pandemic take said view customer to opportunity earlier, As Matthijs market we the and an as capture significant current share platforms.

$XX Our in and trajectory. XX% or growth new $XX we million of XXXX quarter product or product meaningfully were Novanta’s to SG&A will XXXX. sales is strong, of feel expenses new contribute the of compared sales overall pipeline our XX% launches fourth in million quarter Fourth to

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

very have demonstrated in the the flexibility pleased market responding are our with We conditions. to business current teams

million in on to results, the $XX was of compared other XXXX. XXXX fourth quarter income operating GAAP Moving financial to million in $XX

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

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

despite proud a We economic very our of from achieving employees EBITDA organic culture. the flat drop as commitment our and and this X% headwinds of see and revenue pandemic significant of the environment. the year-over-year testament in are We the huge

our driven the jurisdictional from a higher basis, with rate Canadian quarter tax of to full tax The of income On by It statutory was from XX%. related the X%. rate XX% tax and in rate spending. credits front, R&D was GAAP fourth of credits in non-GAAP GAAP This full tax was tax and along X% mix On in XX%, higher the driven by rate differed jurisdictional of the year mainly XXXX. quarter was income, the tax mix year largely spending. R&D was fourth

was in was fourth the earnings of earnings $X.XX share of to XXXX share, $X.XX per On per quarter XXXX. the GAAP year. basis, of in in $X.XX Our quarter year. diluted the diluted and fourth compared full the fourth for the $X.XX year for for earnings share This full adjusted of $X.XX and $X.XX XXXX full and non-GAAP quarter per a the

in earnings share XXXX is expense the cash the clearly by year-over-year. up down the expense from flow year primarily This was ended compensation in took million to XXX% flow working was to operating higher the the Stock-based Full fourth strongest variety $XX flow to a free actions in adjusted capital full operating last with We for year-over-year highlight, than stock $XX.X more compared XXXX, free compensation equity cash of the employee were year generation year. in preserve response $X or year per cash Our pandemic. the Fourth $XXX from flow strong of quarter million in $XXX result for a grant. cash million. XX% continued all $XX improvement and of million which net Novanta’s fourth the years. profit, debt we representing million, driven of gross quarter cash a XX was year-over-year. quarter million increase was was

was X.Xx. gross ratio leverage Our

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

caused at markets from weakness downturn near-term The the we a capital in strength the quarter, by hospitalization medical that by by cases. look we spending caused us rates rebound the the guidance, pandemic. elective will seeing good COVID medical sector drop are help from signals caused beginning first in the high to to now the overcome markets Turning industrial the are as short-term procedures in industrial

by of While up shoots be the clearly demand around pandemic. to this half and to shaping business is as temporary in disruptions are green our seeing in our supply caused recovering expected demand opportunities. near-term environment. largely material will continues XXXX, confidence a impact impact, some largest logistics our a of we shortages The first expected, the it’s we With electronic single and challenge build chain

around represent While a memory to we topics, build continue continues muscle these to near-term it challenge.

current for to from we Given dynamics, all feel the are guidance full guide year we but another quarter. we sufficient have going providing visibility quarter, to refrain these

revenue $XXX For we we the as of here million of XXXX, the to in first stand range quarter GAAP $XXX million. today, expect

by experience in these Similarly to discussed Vision and a a call, in in medical stabilization. strength improvement year-over-year see expecting diagnostic and end Motion in segments. segments in commentary, will the procedures, our growth Photonics of Precision and see downturn we to segment be growth. market from As showing will earlier signs strong microelectronics industrial are This largely our is this our we robust revenue. we short-term sequential revenue capital sequential expect weakness continued in will Whereas which spending, vitro already elective driven

a reintroduction by the we cost System cost compensation XXXX, incentive expect structures be is productivity of to Moving part dampened basis from Growth points in strong volumes on remain Novanta higher gross XXX and ongoing which will in upwards controls progress by and taxes. to gross delivering continued compensation nearly volumes. adjusted from the margins, fourth quarter. committed productivity and somewhat margins of programs caused in gross payroll margin in expense, the in to driven versus program, expansion part uptick improvement by leverage of The from We flat sequentially seasonal be higher better

expenses our planned in also we incentive first seasonal again, quarter and the the the in reintroduction execution expect payroll projects. climb structures compensation second increased in starting NPI project of So gross to compensation well R&D taxes increase as the uptick which, and expense, $XX support as will reflects of spending million is This year-over-year $XX quarter. margins million. to approximately to sequentially be sequentially

by in sequentially a be the in million driven dollar for compensation to of next across which, uptick at related higher our have reintroduction products seasonal new R&D ensure from expenses quarters slightly successfully selling the revenue. $XX of few is SG&A in launched the first payroll We expenses expect the segments. uptick incentive we and will on expense, a higher expenses a basis, XXXX variety approximately to again, increasing level compensation million, and quarter predominantly the higher stay taxes the from $XX to to of

to will in our quarter of which first fourth expense, similar Amortization of XXXX, million which Moving remainder be was depreciation was on the about the the quarter. guidance, $X.X expense, in $X.X quarter. the be million the which fourth about in expense, fourth $X the similar similar quarter, in in first Stock quarter, in be first quarter. compensation will will million was the

In addition, of as a levels will result for full of year was $XX the our new equity be XXXX. compensation from than to the it stock higher grants a to closer down to in historically, expense step million XXXX, the XXXX continue something

of For in fourth the EBITDA, expect is a in Interest XXXX, was expense, the first quarter. million. quarter $XX million about to expected of range $X.X adjusted we which similar $XX be to million

of We first tax our our the income non-GAAP significant changes average other eligible tax first be weighted for approximately quarter Diluted expect shares jurisdictional rate variability mix be and million. quarter benefits. of around in to will outstanding XX XX%, absent

in diluted first adjusted we $X.XX per For the expect to quarter. share, range $X.XX of a earnings

well the from realized. expect of in the the the half the in to our what in to first and building pandemic a higher see shortages is revenue of This as Ultimately, driven to be in and global parts material year of working The rebound will view lower taxes quarter. temporary of we demand throughout encouraging by inventory will expected subside the is effects we that few quarters. the capital to is cash caused half affect first derisk were of is needs flows from by buildup starting us last cash had second the that we Finally, inventory quarter beginning The as to higher the but higher net the saw XXXX than year. the around the very occur. by electronic occurring primarily of it’s pandemic be first

both that the sales tremendous times, delivery customers the our us, and customers number product bring are We as with we’re during with shown innovation partnership as these our with difficult of a our partnering current well XXXX. of giving where growth, pipeline, do expansion have details look thankful We record to with economic to solid innovations forward earnings full show gross this expect to around in sheet to to margin to quarter our release. in strengthen. organic We balance continue our first market year more and

our performance customers proud employees, commitment their difficult This deliver the excited And We’ll for future remain look very our are helping a remarks. importantly, our concludes weather environment. the about now commitments to to We most on us to with prepared our continuing of employees, shareholders. we the and our to and questions. our call forward open

Operator

Instructions] [Operator Jagoda Our CJS will first question come ahead. Securities. go of Please from Lee

Lee Jagoda

Hi, morning. good

Matthijs Glastra

Lee. morning, Good

Lee Jagoda

and the organic growth And new months XXXX given organic But in aside, revenue obviously, the these of products? and of that this So we XXXX of historically what COVID to just don’t organic starting will the shouldn’t given hit cadence that putting it’s versus with that for, year sort XX growth? XXXX. introductions new terms in in a the those core how next new product additions been usually to and impact catch-up of products year, should of of COVID think about in after launch, XX these ramp kind your it, call accelerate terms growth

Matthijs Glastra

OR Yes. Thanks, are motion it’s to approximately bringing I integrated we’ve opportunities across vision, steering, Lee. market. we’re Yes, the excited some with X And we’re machine as lined significant in control, very up. that these And beam different nicely products spread launches our technologies. XX segments for mentioned, products

starting launches specifically repeat contribute feel the of remarks beyond. while we’re these that will to going quantify I’ll to in of prepared so the company we our the not what XXXX amount And sales, XXXX overall and trajectory in we said

smaller to typically so capital year you mind ramp the in product with the then life the is market X any keep to see And production. of like launch equipment, cycle gradually it’s as important start normal that and OEMs said, of that up

year So will that we you’re – contribution and sales right follow right? in often in that similar a X from that more pattern. beyond, year is expect this our NPI seen perspective, So the launches and larger

our agree while yes, not these the will indeed we’re more stage specific growth, at we opportunity this to amount. in going outer – to visible So but years. significant on the become contribute the that, be That’s launches with

Lee Jagoda

of Okay. I’ll the ask new if One that speak a terms you and has the more on to shifted differential some. you towards new the the of But products margin versus portfolio maybe and that to others subsystems product of years. sort the talk that’s maybe in to product component hop are in subsystem and the let between last geared coming, couple guys percentage sell. And can – you the subsystems back of components? how towards And percentage over would products could speak

Matthijs Glastra

Yes. Yes.

So heading it that that’s say, on revenue XX% that commented of is pandemic, COVID say, let’s call the – way, up was XXXX. in and into, originating we our subsystems, on intelligent we from let’s pre-COVID, so commented versus what X%,

to geared is So increased into that exposure also on. our And but of we’ve get chunk intelligent but steering, we’ve towards to I’m specifics gradually of going yes, intelligent is not commented particularly subsystems. NPI, the large beam things exact subsystems, percentages there terms a in around the other

opportunity dollars gross in where the we’re accretive – in we So said our of expect be we’ve that that intelligent you’re I because that, also is gearing there. see a past those investment And strategically, Lee, chunk think large to correct subsystems. we the margins we

Lee Jagoda

one more because answer. that lied have I based on I And

of or from XX% revenue if a long-term were intelligent subsystems XXXX? for at in would X% versus Just pre-COVID target today you XX% you percentage have

Matthijs Glastra

for it we substantially will – Yes. given not sure. have than higher Also our number, be to target there, is but that be XX% a

Robert Buckley

we of more into intelligent that part But I the would new and marketplace multitude say, into more levers Lee, and get XX% migrate ultimate to more can have pull. path we we that also as us margins. of gross the the to migrate a – target helps of it’s subsystems products

Lee Jagoda

Sure. much. very That makes sense. Thanks

Matthijs Glastra

Thanks, Lee. Alright.

Operator

Baird. go question next of Eastman Robert from The comes ahead. Richard W. Please

Richard Eastman

and questions. for morning Yes, good the thanks

there move dissect the just as margin and business, you Just a question to a the that versus could a opportunity standpoint we around speak Vision quick maybe gross a mix the in maybe bit cost standpoint from forward? little just

Robert Buckley

gross not lower the segment in margins were why You really? the mean or

Richard Eastman

I opportunity we a kind about Is that’s the procedures incremental in pick that – maybe Or I’m to start margin gross standpoint. Yes, benefit a the to What’s set versus yes, the straightforward be just Vision more to here volume driven gross of margin? mix about thinking just going elective guess up. from question. see I’m significantly talk volume as driven? But

Robert Buckley

Yes.

additional the less and So leverage expansion actions margin some uptick well from we’re of say in that that volume will cost more the our majority as in gross consumables from of I this would segment be a taking production. driving as the occurs that

half elective the be think the first I that of expansion those little the is kind be in gross weaker say a will in So year. it’s fair perspective, combination – From things really drive procedures the margin this of they stronger year to of XXXX. the the second bit of in volume a half will

And on so our that expansion. wouldn’t necessarily bank we for margin gross

Richard Eastman

I kind out speak be I first to going revenue ‘XX Vision in Photonics I but one business type – there get Matthijs, to with, if the gross because the presume, growth look if momentum of more Yes. you’re some mid-single-digit the about a about not second ‘XX. you rebounding fair of margin ‘XX and certainly revenue know growth of some Precision segments, you’re Yes. and half again, think of rates momentum the – Vision in and of strongly? here, going Or expect here Motion any of plus at half, amount a there. to in specifically Vision the would headwinds I kind the to between think But leverage – guide. And –

Matthijs Glastra

But also Well, you at comps some markets, tougher there yes? side then – suggest, potentially course, consumable year, to right? is the and the at diagnostic in the Rick, So the and you side, of of multiple play, a have in you second the half then the have that’s a recovery course, be medical of going positive. as positive is Yes. – the things equipment

that think in and we’re that comment. So further highlighting, the half, how kind support in hopefully from then that products drivers have, in new second of as that, – some on second will acceleration we well half. yes the the momentum play segment, to out that top But you’re agree the exactly overall probably we I with. not of overall prepared And yes,

of waters in So Robert’s in bit choppy kind second definitely, to half. and a yes, point, markets half first a medical of the stronger

Richard Eastman

Okay.

enough. some balance around when my for OpEx does first bigger here reasonably the represent question. options, quarter the load the the in Or or quarter the a you when straight-lined kind the being smaller Robert, expense of issues last first is of expense Fair Okay. of there And in just there the year? think operating loading we number quarter, first than... just the incentive number, comp there,

Robert Buckley

Yes.

I of as The bigger little be of first perspective. that it. the out – a But and preceding the some will as mostly That’s should as it bit the tied you the in second well quarter the to that way are loading comp a quarter, that’s bit little not get probably would think say would incentive into the down taxes quarters, generally paid than about schemes. mostly SG&A tick we

Richard Eastman

Okay.

thank Great, enough. Fair Okay. you.

Matthijs Glastra

Thanks, Alright. Rich.

Operator

comes Drab go ahead. The Blair. next William question from Please Brian of

Matthijs Glastra

Hey, Brian.

Brian Drab

morning. It’s good Brian Drab. Hey,

implies quarter in guidance Is year-over-year nice first maybe but right? I Motion – year-over-year and for indicates rate first you guess did segments and Can that sequentially? and sequential improvement. maybe that all don’t improve And should a pretty the down say, still The a quarter. strong growth you know slightly Vision if a obviously Photonics in Precision X I year-over-year

Robert Buckley

certainly that get would Precision didn’t we trend continue and said we was Well, Photonics What to specific. Motion upwards.

there obviously, – case that, trend without of Photonics, of to too quarter. want it kind of Precision some to if first result can it In On on as Vision a comp. a a a to itself better year-over-year, challenges. the into be but growth is some the The segment be have line you basis, sequential reality top well. going will where actually don’t it’s growth will tough the Motion get could is, up, I it’s the in is trend on going in the see little specific, bit You’ll that year-over-year basis, demonstrate year-over-year

Brian Drab

Right.

Okay.

Matthijs Glastra

the of segment. I’d supply Vision a but quarter Recall first secure pull-in particularly from that pull-forward bit there was the last just in the year, chain, of, – to quite in say,

comps tougher. are little these a So

Brian Drab

Yes. Right, right.

the from connecting ‘XX. we’re the though, like we’re for ‘XX, of but you is move not Okay. Yes. what and through as across though that dots it talking sequential because will balance reminder. move of guess, sounds as I there? through the probably guiding hesitate, you is I say then improvement Thanks correctly I Am just And here, expectation, about segments the you three kind

Robert Buckley

a business saying will perspective, think from company overall Well, we’re I get will the growth what – to the is better. continue

also gross So to growth as into the we and get will perform. I think second into the migrate organic continue start quarter, you’ll to margins profiles again,

is is the which momentum in we’ve I there clear lot that a with of positives of logistics we stay Growth The have a programs of shortages. there a full demand of the the Novanta disruptions and material caveat electronic one why the from is in to kind guide right think then some year now continue steer us System So lot there. is environment, that on of the

about. year or parts risks counter out safety in the more we I before we year that to a hard then are and say, of Now are we get of the get around those the – lie we comparison. confidence to are better disruptions full that sort plan up little a should might where with and pre-buying that first building half of and stock any just worried need that, But ourselves on go working potential understanding including

our perspective of with dealing we any and logistic just product it’s hand-to-hand right without around combat not customers a that the disruptions. have the buying the getting now. to more So right out It’s sort demand materials

Brian Drab

Right.

I same they is the Okay. with seeing would it M&A, and And that those market? a just given you the going had Xx pipeline are, like companies where I’m Xx execute that you they of Because wondering, still in opportunities in then your that the on? last just reasonable were to around market valuations question months have of pipeline are can where the imagine on probably just what’s with where the ago, XX some companies valuation valuations

Matthijs Glastra

feel of which listen, we see, mean, expectations actually potential. we we’re some Yes, you very in active market discussions, I overall, of opportunities, terms have Yes. valuation good a characterize that And can pipeline you’re course, maybe has as strong be high. of hot. in the we, cases, to right and

focused stay maybe wait. where it’s and so important pause you where really you disciplined in need want to to and And move and to

right, yes, are I efforts environment, necessarily face-to-face. corporation The other diligence in because cannot thing of and course, that not meet you easily straightforward would this say is,

creative keep keep cultivation to ways yes, are efforts, we these to that’s what in how we yes, year. I mind. using think, kinds all evaluating good keep last so conversations yes, we’re about versus But of listen, let’s we of to amount in Now and first it, are feel – but note progress overall, Brian, the on another the say, part is the, having of

meet our remains But capital us we So return you that so stay see can top It to can a very yes. disciplined – allocation expect intensity surplus, environment this you so So priority. also in increasing. it’s clearly right?

past. from, in approach with shared the you we different our I necessarily nothing think, So have

Brian Drab

Okay. Thanks much. very

Operator

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

Matthijs Glastra

Thanks, operator.

with downturn. year summarize, year say economic the an XXXX global significant it’s the So that to fair causing unprecedented pandemic a to was

We’re see to a rebounding to beginning performance. signs economies the Despite pleased to delivered this markets difficult solid return of Novanta macro growth. early of very and very the world environment,

proud our performance of We’re positioning with of I’m Novanta’s our agility portfolio. extremely strong. pleased teams. and performance sheet and of is our the balance

pipeline. We exciting have an innovation

beyond. in growth meaningfully trajectory our surgery invest of Industry long-term we you pipeline is record Our with believe portfolio we’ve as that trends launches automation, X.X. the and shared about robotics will minimally contribute XXXX, our and innovation to will And number such and very continue happening year excited before, be diversified invasive to are macro that product secular which this and we exposure with medicine, precision to in

the quarter in is our very interest in I’m joining They thank of call. during and for in strong call. company for So your their first on grateful our forward this several look of our appreciate contribution tremendous adjourned. earnings now ongoing participation XXXX you I to we of particularly Thank showing your would support. resilience you And times. to much, call I in teams like committed employees months today’s customers, and the agility and closing, difficult these Novanta and employees. are such shareholders all and our dedication our

Operator

you now and has now concluded. Thank conference for presentation attending may The disconnect. you today’s

Novanta (NOVT) 1 Mar 212020 Q4 Earnings call transcript