NASDAQ:NOVT Novanta Q3 2024 Earnings Report $117.69 -2.32 (-1.93%) Closing price 05/6/2025 04:00 PM EasternExtended Trading$121.55 +3.86 (+3.28%) As of 04:34 AM Eastern Extended trading is trading that happens on electronic markets outside of regular trading hours. This is a fair market value extended hours price provided by Polygon.io. Learn more. Earnings HistoryForecast Novanta EPS ResultsActual EPS$0.85Consensus EPS $0.85Beat/MissMet ExpectationsOne Year Ago EPS$0.85Novanta Revenue ResultsActual Revenue$244.40 millionExpected Revenue$242.33 millionBeat/MissBeat by +$2.07 millionYoY Revenue Growth+10.30%Novanta Announcement DetailsQuarterQ3 2024Date11/5/2024TimeBefore Market OpensConference Call DateTuesday, November 5, 2024Conference Call Time10:00AM ETConference Call ResourcesConference Call AudioConference Call TranscriptPress Release (8-K)Quarterly Report (10-Q)Earnings HistoryCompany ProfilePowered by Novanta Q3 2024 Earnings Call TranscriptProvided by QuartrNovember 5, 2024 ShareLink copied to clipboard.There are 7 speakers on the call. Operator00:00:00Good morning. My name is Gary, and I will be your conference operator today. At this time, I would like to welcome everyone to Novanta Incorporated's Third Quarter 2024 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. Operator00:00:29Please note, this event is being recorded. I would now like to turn the conference over to Ray Nash, Corporate Finance Leader for Novanta. Please go ahead. Speaker 100:00:41Thank you very much. Good morning, and welcome to Novanta's Q3 2024 earnings conference call. This is Ray Nash, Corporate Finance Leader for Novanta. With me on today's call is our Chair and Chief Executive Officer, Matthijs Glastra and our Chief Financial Officer, Robert Buckley. If you have not received a copy of our earnings press release issued today, you may obtain it from the Investor Relations section of our website at www.novanta.com. Speaker 100:01:04Please note this call is being webcast live and will be archived on our website shortly after the call. Before we begin, we need to remind everyone of the Safe Harbor for forward looking statements that we've outlined in our earnings press release issued earlier today and also those in our SEC filings. We may make some comments today both in our prepared remarks and in our responses to questions that may include forward looking statements. These involve inherent assumptions with known and unknown risks and other factors that could cause our future results to differ materially from our current expectations. Any forward looking statements made today represent our views only as of this time. Speaker 100:01:36We disclaim any obligation to update forward looking statements in the future even if our estimates change. So you should not rely on any of these forward looking statements as representing our views as of any time after this call. During this call, we will be referring to certain non GAAP financial measures. A reconciliation of such non GAAP financial measures to the most directly comparable GAAP measures is available as an attachment to our earnings press release. To the extent that we use non GAAP financial measures during this call that are not reconciled to GAAP measures in the earnings press release, we will provide reconciliations promptly on the Investor Relations section of our website after this call. Speaker 100:02:10I'm now pleased to introduce the Chair and Chief Executive Officer of Novanta, Matthijs Claustra. Speaker 200:02:16Thank you, Ray. Good morning, everybody, and thanks for joining our call on this Election Day. Novanta delivered strong 3rd quarter results at the top end of our guidance range. The quarter showed continued sequential improvement in our growth rate, driven by the building momentum of our new products and the strength of our diversified business model. This operating performance reflects solid execution by our teams in a difficult macroeconomic environment. Speaker 200:02:44For the Q3, we delivered $244,000,000 in revenue, which represents reported growth of 10% and flat growth on an organic basis. Adjusted gross margins were 46% as our core businesses expanded margins by roughly 70 basis points year over year, helping offset the dilutive effect of the Motion Solutions acquisition. Adjusted EBITDA was $57,000,000 growing year as major OEM customers are confirming the 2025 new product launches. Speaker 300:03:14Looking beyond the Q3, we Speaker 200:03:15continue to remain excited and are reconfirming the $50,000,000 incremental new product revenue for 2025. We are on track to complete our planned product launches for 2024, up more than 50% versus 2023 with more scheduled for 2025. We're also encouraged that Novanta will be returning to organic growth in the Q4 of 2024, albeit at a lower growth rate than previously expected. We remain bullish on the mid and long term secular growth trends in precision medicine, minimally evasive and robotic surgery and robotics and automation markets where Novanta has a strong technology position with leading OEMs. At the same time, short term timing of our customers' new product launches and overall industry investments in life science and bioprocessing equipment markets are choppier than we and our customers expected just a couple of months ago. Speaker 200:04:24While clearly macroeconomic and geopolitical factors are clouding our customers' confidence, ultimately our 4th quarter revenue guidance is best explained by 3 factors. 1st, 4th quarter DNA sequencing product shipments were rescheduled into 2025 due to customer specific challenges. 2nd, we are seeing new product launch timing shifts, specifically one semiconductor lithography customer and 1 surgical robotic customer have rescheduled their ramp up of shipments into 2025. Both product launches will drive substantial growth for Novanta in 2025, and we have received the first batch of orders supporting this. And finally, we're broadly seeing OEM customers in life sciences markets defer shipments because of weak capital equipment market demand from their customers. Speaker 200:05:18However, there is a clear indication capital spending will improve in Life Science in mid-twenty 25 as our customers are seeing an uptick in demand for consumables and services spending with their end user customers, which is a traditional leading indicator of equipment demand. Robert will go into more details on each of these items when he covers guidance. While we are adjusting to these short term timing changes for the Q4 of 2024, it's important to emphasize that these issues are related to customer timing and not fundamental business weaknesses. We reconfirm our optimism for strong business growth in 2025 based on, 1st, our new product outlook for 2025, which remains intact even with these near term changes in customer timing. We and our customers are reconfirming the $50,000,000 incremental new product revenue for 2025. Speaker 200:06:15Our customers are excited to be launching their innovations in the marketplace with mission critical content provided by Novanta. So new product growth remains a very strong driver for overall company growth next year and the years thereafter. Next, from an end market perspective, in the short term, we appear to be at the bottom of the cycle for industrial, microelectronics and life science capital equipment markets. This makes us optimistic for an improving environment in 2025. We are already seeing early positive signs in some of our shorter cycle businesses such as microelectronics, which is already confirming this view of an improving environment. Speaker 200:06:54This gives us confidence in the mid- and long term growth drivers of our end markets, and we expect organic growth to continue to improve in 2025. Based on these dynamics and customer demand signals, the second half of twenty twenty five revenue is clearly expected to demonstrate strong double digit organic growth under a number of scenarios, and we expect a much stronger full year organic growth on the back of these trends. Because of this, we continue to invest with confidence in our business to remain on track with all our new product launches while maintaining the needed capacity to ramp with our customers in 2025. Here's a brief update on the broader themes we see in our end markets. First, medical device technology markets continue to be very robust and appear likely to stay strong all this year and throughout 2025. Speaker 200:07:46Next, Life Science and Industrial Capital spending markets continue to remain muted due to the persistent interest rate impact and increased uncertainty around geopolitical and macroeconomics events. We're not expecting a broad based market recovery until 2025. However, there are some near term bright spots such as in certain robotics and automation applications. Finally, microelectronics end markets are showing early signs of a rebound with some early product categories already gaining traction in 2024 as evidenced in our Q3 results. A stronger and broader recovery in this end market is likely to happen in 2025. Speaker 200:08:29Going into more detail, for the Q3 of 2024, sales to medical markets made up approximately 54% of total Novanta sales and grew mid single digit versus the prior year on a reported basis, but were down year over year on an organic basis. We saw growth in multiple applications, particularly in minimally invasive surgery. However, this was offset by the softness in DNA sequencing, other precision medicine and life science tools and continued headwind from discontinuing our surgical displays products. We expect the surgical display headwind to fully disappear in early 2025. We continue to be very bullish on the long term secular growth trends in minimally invasive surgery, robotic surgery and precision medicine markets, which we believe all have a long runway in the adoption cycle as they drive foundational productivity improvements for the healthcare system. Speaker 200:09:25Turning to our advanced industrial markets, which make up the remaining 46% of total Novanta 3rd quarter sales. For the quarter, sales growth in these markets, excluding our microelectronics macro electronics applications were up low single digits versus the prior year on a reported basis and roughly flat on an organic basis. The subdued sales performance across this end market was in line with our expectations. While these trends are expected to continue in the Q4 of 2024, a recovery later in 2025 remains likely. We remain confident in our long term exposure to these end markets. Speaker 200:10:05Novanta is positioned in many attractive applications, which are driven by secular growth trends such as Industry 4.0, applications, which are driven by secular growth trends such as Industry 4.0, Robotics and Automation and Precision Manufacturing. Finally, speaking to our microelectronics applications, our business experienced strong double digit growth in the Q3, both year over year and sequentially. This growth rate is partially driven by the easy comparisons to the Q3 of 2023, which was when sales to this end market hit their bottom. For now, this improvement is mainly from shorter cycle products and does not yet reflect a broader recovery of this market. But as mentioned, our new product launch in next generation lithography systems will be a further driver of growth in 2025. Speaker 200:10:50Now let me touch on some of Novanta's strategic growth metrics. For our design wins, we saw solid design win activity in multiple businesses in both industrial and medical end markets. Overall design wins grew by greater than 20% in the Q3 versus prior year, excluding large wins in minimally invasive surgery recorded in 2023. For new product metrics, we continue to confidently lean in to complete our planned product launches for 2024, up more than 50% versus 2023 with more scheduled for 2025. As discussed earlier, despite the delays in our customers' ramp up timing, we remain well positioned to deliver our goal of 50 $1,000,000 of revenue in 2025 from new product launches, which are incremental to Novanta's current product offerings. Speaker 200:11:39Our vitality index in the 3rd quarter was still at about mid teens percent of sales, but showed sequential improvement as we continue to see the early impact of new product launches in secular growth markets such as minimally invasive surgery, robotic surgery, warehouse automation, humanoid and field robots where Novanta is gaining share. Finally, I'd like to give a brief update on Novanta's acquisition activities. The integration of Motion Solutions remains on track. Our teams are fully integrated and we continue to be excited with their innovation capabilities and the depth of their customer relationships. Although the softness in the life science end markets continue to have a near term impact on Motion Solutions product sales, the thesis for the transaction is progressing nicely and we are excited to see this business realize its growth potentials as the markets eventually recover. Speaker 200:12:34Beyond Motion Solutions, new acquisitions continue to remain Novanta's top priority for capital allocation. We have doubled our pipeline of potential targets, which adds up to more than $20,000,000,000 in potential revenue and have multiple active conversations in parallel. Our balance sheet is strong, position us well to execute additional transactions. Therefore, you should expect us to lean into close transactions the remainder of 2024 2025. In summary, in the Q3 of 2024, Novanta delivered strong results. Speaker 200:13:07We hit the high end of our guidance range and had sequential improvement in our organic growth. Our new product launches continue to build momentum, helping us deliver solid performance this year and setting us up for better than market growth in secular end markets next year. These results would not have been possible without the dedicated efforts of our team using the Novanta Growth System execution model to overcome significant challenges and deliver on their promises in this environment. We remain steadfast in our focus on our top three priorities. 1, launching and ramping a record set of new products 2, expanding margins and cash flows through the Novanta Growth system and 3, acquiring additional companies that align with our strategy and offer attractive returns. Speaker 400:13:54With that, I will turn the call over to Robert to provide more details on our operations and financial performance. Robert? Thank you, Matthias, and good morning. Our Q3 2024 non GAAP adjusted gross profit was $113,000,000 or 46% adjusted gross margin compared to $105,000,000 or 47% adjusted gross margin. Adjusted gross margins were down year over year. Speaker 400:14:20However, excluding the impact of Motion Solutions acquisitions, our adjusted gross margins were up roughly 70 basis points. Our gross margin performance was lower than expected in the quarter as a result of unplanned decline in sales volume in our Precision Medicine and Manufacturing segment. This brought down overall company margins versus expectations. Despite the decline in sales volume in this segment, we have chosen to maintain our current level of factory capacity and costs in anticipation of sales rebounding in 2025. Therefore, we expect this unfavorable margin impact to continue into the 4th quarter, but ultimately be rebounded as sales volumes improve next year. Speaker 400:15:03For the Q3, R and D expenses were roughly $23,000,000 or approximately 10% of sales and 3rd quarter SG and A expenses were approximately $44,000,000 or 18 percent of sales. SG and A expenses were sequentially lower in the quarter due to adjustments in incentive compensation based on the revised full year outlook. Adjusted EBITDA was approximately 57,000,000 dollars in the Q3 of 2024 or 23 percent adjusted EBITDA margin versus $52,000,000 in the prior year. On the tax front, our non GAAP tax rate in the Q3 was 21%. Our tax rate for the full year now appears likely to end at around 19 percent. Speaker 400:15:40Our non GAAP adjusted earnings per share was $0.85 in the 3rd quarter, flat versus the prior year. Our EPS growth remains muted due to the higher interest rate on higher debt balance. 3rd quarter operating cash flow was approximately $23,000,000 Our cash flow performance for the quarter was impacted by the timing of monthly revenue shipments with more product getting shipped in the last month versus normal, resulting in a higher than normal increase in accounts receivable. This is a temporary timing impact that is expected to correct in the Q4. Year to date, we are still seeing very strong cash flow performance with operating cash up 20%, and we expect to finish the year with very strong cash flows. Speaker 400:16:25We ended the 3rd quarter with a gross debt balance of $460,000,000 and a gross leverage ratio of approximately 2.3 times. Our net debt was 368,000,000 dollars We remain on track to reducing gross leverage to 2 or below and net debt closer to 1.5 by year end. For the Q3, Novanta's book to bill was 0.89. Weakness caused by customers deferring purchases in life science and advanced industrial applications was partially offset by booking strength in our minimally invasive surgery business line, which had a book to bill of nearly 1.4 in the quarter as our OEM customers have started to place larger orders for their product launches in 2025. Turning to the operating segments. Speaker 400:17:11Precision Medicine and Manufacturing 3rd quarter sales declined by 15 percent, which was weaker than our prior expectations due to softness in the precision medicine markets. The book to bill in this segment was 0.73, which reflects the revised outlook for our DNA sequencing applications as we see our customers pushing out demand into 2025 affecting near term bookings. Adjusted gross margins in this segment were down year over year driven by lower factory utilization, which I commented on. Design wins in this segment were up 30% year over year driven by good execution of our sales team to win new sockets in upcoming customer platforms. New product revenue was approximately mid teens percent of sales in line with expectations. Speaker 400:17:56Our Robotics and Automation segment experienced a revenue increase of 20% year over year in the quarter and bookings grew 25% year over year. Our outlook for the second half of twenty twenty four is playing out largely as expected with end markets improving versus the first half of the year, both in the U. S. Robotics market and the microelectronics applications. The book to bill was 0.83, in line with expectations and we expect sales to continue to gradually further improve into 2025. Speaker 400:18:30Adjusted gross margins increased 120 basis points year over year driven by better factory efficiency on increased volumes. New product revenue in this segment grew strong double digit and was roughly 12% of total sales for the segment. Design wins in this segment were up strong double digit in the quarter year to date. Finally, Medical Solutions experienced reported revenue growth of 24% year over year and declined on an organic basis 1%. This was slightly better than expected as strong sales from our new product launches and most fully offset the near term impact of discontinuing our surgical displays products. Speaker 400:19:09The segment saw book to bill of 1.04 and bookings were up 50% year over year. As I already mentioned, our minimum invasive surgery business line had a book to bill of nearly 1.4 as we started to see customers placing large orders for new product launches. This strong result was partly offset by continued market weakness in the precision medicine business line, which saw a book to bill below 1. The weakness in Precision Medicine continues to come from weaker than anticipated capital spending environment in life sciences, multiomics and bioprocessing markets. Vitality Index in this segment increased to high teens percent of sales, which is in line with expectations as we start to ramp our new products. Speaker 400:19:55Design wins in this segment are down year over year driven by large wins in minimum evasive surgery business in the Q3 of 20 23, but excluding those larger platform wins in the prior year, design win growth in this segment is strong double digit year to date. Adjusted gross margins in this segment increased roughly 60 basis points year over year. Excluding the Motion Solutions acquisition, the margin expansion in this segment was over 4 40 basis points. Now turning to guidance. With organic growth continues to sequentially improve, returning to low single digit in the Q4, the stronger ramp in demand that we expected in the Q4 is being deferred into 2025. Speaker 400:20:37To get into a bit more detail, first, in our DNA sequencing products, nearly all shipments originally expected to ship in the Q4 were rescheduled by our customer to the first half of twenty twenty five due to customer specific challenges. However, we expect this issue to be resolved in early 2025 and resume shipments at a normal rate in the Q1. The long term prospects of this application and our products continue to remain strong and even accelerating. Next, we expect the launch of a new product within DUV and EUV lithography applications. However, while our new product is designed in now, unfortunately due to end market conditions, our customer deferred the ramp into the second half of twenty twenty five. Speaker 400:21:25Similar to my prior comment, the long term prospects of this application and our position in it continue to remain strong and accelerating as EUV lithography is in the early adoption and remains a critical enabler of and smaller, more powerful and efficient electronic devices. 3rd, one of our customer launching a robotic system with a new integrated smoke evacuation insufflator rescheduled shipments into early 2025 after updating FDA filings to make enhancements to their overall system. This product has broad market acceptance and is expected to see stronger than expected demand, which is expected to materialize in our results in 2025. And finally, our customers in the overall life science and bioprocessing market broadly continue to see deferrals in capital spending by their customers, despite the uptick in consumables and service spending by their customers. Based on this activity, demand for capital equipment is clearly returning, but is most likely recovering in early 2020 5. Speaker 400:22:36Unfortunately, this implies that the 4th quarter revenue will be weaker from this dynamic compounded by customers' desires to manage their inventory balances down in the 4th quarter. The net impact of all these customer and market changes has led us to revise our sales outlook in the 4th quarter by approximately $25,000,000 Despite this rescheduling of revenue into 2025, we do expect to demonstrate sequentially increasing organic growth in the Q4 versus the Q3. We continue to be optimistic about an improving environment in 2025 and are very confident that our new products will drive better than market growth with more attractive secular growing end markets. Based on these dynamics as well as customer demand signals, second half twenty twenty five revenue is clearly expected to be strong double digit growth under a number of scenarios, which leads us to expect up to 10% organic growth for the full year of 2025. For the Q4 of 2024, we expect GAAP revenue in the range of 230 $7,000,000 to $242,000,000 which represents reported revenue growth of 12% to 14% and organic revenue growth between 2% and 4% on a year over year basis. Speaker 400:23:56This revenue range is a bit wider than normal given the near term macroeconomic and geopolitical uncertainty and how that continues to impact the life science and industrial capital spending markets and our OEMs customers' behavior, particularly as it comes to managing year end inventory levels. For the full year of 2024, we now expect GAAP revenues to be in the range of $948,000,000 $953,000,000 This represents reported revenue growth of approximately 8%. Revenue from current year acquisitions is expected to be slightly above $80,000,000 On a segment level in the 4th quarter, we expect precision medicine and manufacturing revenue to decline double digit percent year over year impacted by the push out in demand in the DNA sequencing applications. Our robotic and automation segment continues to expect to grow greater than 20% in the Q4 as end markets continue to improve and also from easier year over year comparisons. This growth comes from an improvement in demand in robotic applications as well as an improvement in microelectronics applications. Speaker 400:25:02And our Medical Solutions segment is expected to show approximately 30% year over year reported revenue growth in the 4th quarter. On an organic basis, we expect mid single digit growth year over year. While this growth outlook is solid, it's less than we previously expected from the before mentioned rescheduling of a surgical robotic customer. Moving on to adjusted gross margin in the 4th quarter, we expect to be approximately 46 percent. This outlook includes the impact of lower factory utilization and we maintain as we maintain the capacity of our factories to help us be ready for the growth that our customers are seeing in their end markets as the demand environment improves in 2025. Speaker 400:25:48In the segments, we expect gross margins to be roughly flat compared to gross margins that we delivered in the Q3. For the full year of 2024, we now expect adjusted gross margins to be approximately 46%. For the full year, excluding dilutive impact of the Motion Solutions acquisition, we expect to deliver approximately 100 basis point of margin expansion in our core business. We expect R and D and SG and A expenses in the 4th quarter to approximately $70,000,000 to $71,000,000 This represents a sequential increase in Q3 due to timing of R and D project spend and also incentive compensation adjustments. For the full year, these expenses will be approximately $271,000,000 to 2 72,000,000 dollars Depreciation expense, which is roughly $4,000,000 in the 3rd quarter, will be similar in the 4th quarter and stock compensation expense, which was approximately $6,000,000 in the 3rd quarter, should be approximately $7,000,000 in the 4th quarter. Speaker 400:26:42For adjusted EBITDA in the Q4, we expect the range of $50,000,000 to $52,000,000 which represents double digit growth year over year. For the full year 2024, the adjusted EBITDA, we now expect a range of $208,000,000 to 210,000,000 dollars Interest expense, which was $8,000,000 in the 3rd quarter is expected to be slightly above $7,000,000 in the 4th quarter. We expect our non GAAP tax rate to be around 20% in the 4th quarter and approximately 19% for the full year. Adjusted earnings per share will be in a range of $0.70 to $0.74 in the 4th quarter and $3.02 $3.06 for the full year. Finally, we expect cash flow to return to year over year growth in the Q4 and we expect to demonstrate double digit growth for cash flows for the full year of 2024. Speaker 400:27:30We continue to use the Novanta Growth system to help improve our net working capital levels as evident in the strong improvement in inventory levels in the Q3. These efforts have allowed us to substantially pay down our debt balance so far this year. As always, this guidance does not assume any significant changes to foreign exchange rates nor does it include any anticipated acquisitions at this time. In summary, we remain optimistic about our long term prospects and we continue to work diligently to support our customers with their successful launch of multiple new product platforms. The long term secular growth outlook of our end markets remains intact and we feel well positioned to grow and gain share as the market recovers in 2025. Speaker 400:28:12The fundamentals of the business is strong and we're impressed with the team's adoption of the Novanta Growth System operating model, which is giving us the ability to consistently execute and deliver on our promises as evident in the strong results in the Q3, which were delivered at the high end of the guidance despite our challenging marketplace. In addition, we also continue to work to compound our cash flows through a combination of organic growth and deployment of capital towards acquisitions. As Matthijs mentioned, our acquisition pipeline has more than doubled in revenue and number of potential targets. But we also remain disciplined on the cash on cash returns, which means being disciplined about pricing. We remain focused on controlling what we can control and in executing with excellence, no matter the business environment. Speaker 400:28:58This concludes the prepared remarks. We'll now open the call up for questions. Operator00:29:03We will now begin the question and answer session. The first question is from Lee Jagoda with CJS Securities. Please go ahead. Speaker 500:29:27Hi, good morning. Speaker 200:29:29Good morning, Lee. Speaker 500:29:30So I guess just starting with the Q4 revenue guidance and that $25,000,000 or so delta relative to our expectations. Can you speak to how much of that delta is the macro and then how much of that delta is specific customer launches into 2025? And then I've got a follow-up. Speaker 200:29:53Yes. Good morning, Lee. So yes, as you can imagine, giving detailed specifics is a bit sensitive as it pertains specific customers. But if you read through the guidance per segment, you can actually calculate the impacts. It's fair to say that it's a mix of customer specific and market challenges. Speaker 200:30:12Yes, for customer specific, it's really primarily DNA sequencing, DUV, EUV lithography and robotic surgery. And of these DNA sequencing was the biggest single impact, which we expect to rebound in 2025. And the biggest end market deferral is in life sciences tools. So hopefully that's helpful. Speaker 500:30:36Yes. And then I guess the follow-up is on last quarter's call, I think there was a lot of talk around sort of a 10% -ish growth rate for 2025. And sitting here today, we're talking about deferring an additional $25,000,000 into 2025, yet the guidance is only up to 10% growth in 2025. So is there something else moving or are you just building in more conservatism for the macro or how should we think about this? Speaker 400:31:09Yes. So nothing else is moving. We're not losing any market share anywhere. Those product launches are still scheduled to be launched in 2025 as we talked about. And as you're the DNA sequencing side will start to normalize into the Q1 already. Speaker 400:31:26We are being cautious. Obviously, there's a very contentious election happening today and there continues to be a lot of uncertainty around the geopolitical as well as macroeconomic environment. And our customers are kind of unwilling to have deeper discussions around that until this cycles through. So we are planning on the 4th quarter being what it is. But if the environment improves from macro and geopolitical perspectives, then our business should improve because we're not losing any market share and we're effectively pre riding off of our customers' growth expectations. Speaker 500:32:03Got it. Just one more for me and I'll hop back in queue. It sounds like or some of your comments sort of pointed to a faster growth inflection in the back half of twenty twenty five versus the front half as we look out to next year. What's your visibility look like into your Q1 deliveries? And relative to your Q4 organic growth, how should we think about organic growth in Q1? Speaker 400:32:29Yes. So I would just say organic growth should continue to sequentially improve and stay positive, right? So we're not going to get into like the specific ramp at this time because we'll have detailed discussions with our customers in December after the election cycles, and a couple of other situations kind of unfold. But I would just say that the reason why the back half is definitely stronger is obviously there's some easier comparisons, but then we have new product launches happening more en masse. We talked a little bit about EUV, DUV being scheduled for the back half of the year. Speaker 400:33:03We're starting to get the purchase orders on that. And so we're starting to feel more and more confident about what that looks like. It is possible. There's a bigger shift into the first half, but we don't want to get into that as we at this page. We'll look to have another discussion around that in January. Speaker 500:33:22Got it. Appreciate it. Thanks very much. Speaker 200:33:25Thanks, Mike. Operator00:33:26Excuse me. The next question is from Brian Drab with William Blair. Please go ahead. Speaker 600:33:32Hi, good morning. Thanks for taking the questions. Speaker 200:33:34Good morning, Brian. Speaker 600:33:36Good morning. Just a simple question first and I might have missed the information that would explain this, but so revenue is down in the guidance just slightly sequentially in the 4th quarter. And just I'm wondering in addition to any impact from slight negative operating leverage, I guess, in that slight sequential decline, why would EPS be down more materially in the 4th quarter? What's happening there? Speaker 400:34:06Well, you got an increase in tax rate than we higher than we had anticipated as we get a jurisdictional mix. So effectively, you got more medical sales happening. They're happening out in our German operations at higher tax rate. So that's one piece of it. And then you have a sequential uptick in your operating expenses as well that I kind of guided on. Speaker 400:34:28That is some expenses kind of ramping up for changes of compensation as well as project timing. Speaker 600:34:38Okay. All right. Thank you. And then you mentioned an EUV, DUV, I think I caught that you said our new product is designed in. Can you just talk about Correct. Speaker 600:34:52Can you talk about what type of technology you were supplying for that application and what the new product is? Is it in a different is it a different type of technology or just more of the same technology? Any comment? Speaker 200:35:09Yes. I mean, it's of course, we this is Matthijs, Brian. Good morning. Yes, so what we have commented on in the past is that we are supplying a new type of technology that we did not supply before. We so that's the incremental part that is being deferred. Speaker 200:35:30And I think it's pretty widely reported kind of how that particular player is seeing the world lately. And so it's basically consistent with that view. Again, the customer is excited because we are solving a particular problem that is very valuable to them. We're designed in and this is really about launch timing and nothing else. Speaker 600:36:02Okay. And then just one more for now, I guess, on Motion Solutions. I think on the Q2, we talked about lowering the expectation for Motion Solutions revenue for the year by $10,000,000 right? And just wondering, did you comment today on whether that's changed to some of the softness that you're seeing in the Q4 related Motion Solutions? Or should we still think about that as down $10,000,000 from just like it was last quarter? Speaker 400:36:35No, it's still the same. So you're absolutely right. It's and I kind of got into about $80,000,000 is the expectation. So it used to be $90,000,000 and it went down to $80,000,000 Speaker 600:36:46Okay. All right. Thanks. Speaker 200:36:48But clearly impacted by the same market dynamics in life sciences tools, right? Speaker 600:36:55Understood. Okay. Thank you very much. Speaker 200:36:59All right. Thanks, Brian. Operator00:37:01The next question is from Rob Mason with Baird. Please go ahead. Speaker 300:37:05Hi, good morning. I don't want to belabor the point here, but just want to be clear. So around the revenue that shifted out of the 4th quarter related to new product launches and into 25, we had been talking about $50,000,000 of incremental revenue there and still $50,000,000 So I guess just to confirm, was there anything that you're now assuming on the new product launch side that slips from $25,000,000 into $26,000,000 Speaker 400:37:35No, not from a new product at all. No, those things are so if you think about how we laundry list them a little bit, so the EUV, DUV, we talked about that launching slipping out of 2024 into 2025. It has gone into the back half of the year. We're designed in and we're starting to see the trajectory around that. As it comes to the next generation insiplator in the surgical player, that shifted into early 2020 5 as they finalized their 510 on their system and then begin normalizing shipments again for us. Speaker 400:38:20And then lastly, there's the on the DNA sequencing side, we see orders coming back into the Q1. The ramp of that is a little less uncertain, does the timing, and so we've been more conservative there. So what I think what we have done is we've taken the life science industry and we've said, all right, in that area of the marketplace until customers start giving us firm orders and commitments around that, we're going to anticipate that's a little bit later than we originally planned, but eventually is coming back. And you can see that as Matthias talked about is the leading indicator is their consumable and service spend in their factories. So our customers' customers are seeing significant upticks their consumables and services, which is indicating the capacity is being utilized and their customers are starting to spend money. Speaker 400:39:12And that's generally you will have capital spending follow that in somewhere in the range of 6 to 9 months. And so that's what we're carefully monitoring at this point. Speaker 200:39:22Yes. And maybe another way said, Rob, so while, let's say, DUV has shifted into the second half, the overall number is staying the same because other parts are doing slightly better. And we've also, I think, be very consistent that the start of that rent timing is tricky, right? And we actually never formally guided a 2024 number because of the dynamics that were actually certainly is today see playing out. So the 25% is just a full year ramp and that's why we maintain confidence there. Speaker 200:40:02So nothing really has changed other than the Q4 timing of the start of that ramp. Speaker 300:40:09I see. Okay. Just in the Precision Manufacturing and Medicine segment, the I can understand where sales mix may have had an impact here, but the decremental in gross margin, at least sequentially, was really high, like almost 100%. So I was just curious if there's anything else going on there. And is that gross margin recovery back to maybe where it was in the first half, is that entirely dependent on DNA sequencing? Speaker 400:40:44So it partially would be help there's 2 factors, obviously DNA sequencing coming down. And then the second is, we do have a facility that is largely fixed cost. And so when volume in that facility drops below a certain level, then yes, it does kind of bleed through dollar for dollar. That facility manufactures optics for a lot of our products and so it was below normal volumes in that quarter. If we were to take out the costs associated with that, we would effectively impair our ability to ramp the business in early 2025. Speaker 400:41:19We'd have to push out that even further. And so what we decided to do is leave that cost structure in place knowing demand is coming back in. And so that results in a higher decremental than we anticipated because we weren't anticipating the drop off in volumes in that factory supplying optics for both our DNA sequencing products as well as some industrial products. Speaker 300:41:45Makes sense. Okay. Just last question, just Matthijs, I mean you talked about bottoming in the industrial areas as well as microelectronics. It sounds like orders cut maybe support the microelectronics commentary. Just why are you thinking we're at a bottom on the advanced industrial side? Speaker 200:42:08Well, I mean, you look at multiple indicators, right? It's a combination of customer conversation as well as the kind of short cycle business, right, returning. So within our industrial, we actually have one other short cycle business that is starting to turn. So that is kind of a leading indicator for us, right. So typically microelectronics is the first to go down, followed by the short cycle industrial business followed by the longer cycle industrial business. Speaker 200:42:39And so the return is the, of course, the inverse of that. So we see microelectronics turn the short cycle version of it. We see the short cycle version of the industrial starting to turn. But it's too early to say, of course, what the exact timing of the longer cycle return is. But it gives us optimism that we're seeing the first signs of that bottoming out, right? Speaker 200:43:04Otherwise, the short cycle businesses would have stayed stable or further decline, and that's not happening. I see. Speaker 300:43:11Okay, helpful. Thank you. Speaker 200:43:14All right. Operator00:43:16The next question is a follow-up from Brian Drab with William Blair. Please go ahead. Speaker 600:43:22Well, I guess, I think my question was just answered. Hey, yes, I think my question was just answered. My question was maybe slightly different. Just as you're looking at that guidance for 2025 and the revenue expectation that you're saying up to 10% organic revenue growth. I'm wondering what is embedded in terms of your expectation for the industrial backdrop? Speaker 600:43:52Obviously, like 22 months or something of ISM below 50. Just wondering, is there an expectation for improved industrial environment globally there or more of the same? Speaker 400:44:07We do have a little bit more subdued there. So what we do have is, as Matthijs just talked about, is the short cycle business is starting to see the uptick in bookings, is starting to see the uptick in growth. So we presume that that kind of carries forward. The longer cycle, we presume is more of a subdued environment. And so to a degree that that recovers faster, it would have a more favorable impact on our outlook. Speaker 400:44:32But it's again why today, it's a very unusual day to be reporting earnings. There's a lot of things obviously going on. And so we're trying to be a little cautious at this stage till we clear the year. And I think our customers are demonstrating the same behavior. A lot of them are trying to manage inventory down and not overextend themselves in the Q4 and get better positioned for a more positive 2025. Speaker 600:44:57Okay. Thanks very much. Speaker 200:45:00Thanks, Brian. This concludes Operator00:45:02our question and answer session. I would like to turn the conference back over to Mr. Matthijs Glastrow for any closing remarks. Speaker 200:45:10Thank you, operator. So to recap, Novanta had strong operating performance in the Q3. We achieved the high end of our guidance for sales and profit and we made good progress on our top priorities. Despite near term macroeconomic dynamics, Noventor remains well positioned in the medical and advanced industrial end markets with diversified exposure to long term secular macro trends in robotics and automation, precision medicine, minimally invasive surgery and Industry 4.0. Looking ahead, while the macroeconomic and geopolitical climate are weighing on capital equipment purchases in 2024, we believe we are in a strong position to deliver on a recovering investment climate in industrial, microelectronics, life science and multiomics markets. Speaker 200:45:54Continue to see accelerating momentum for Novanta on the back of our new product launches as we work through the Q4 and into 2025. We will continue to focus on additional design wins in high growth applications as well as doubling down on the Novanta growth system to continue to drive strong cash flows and gross margin expansion. In closing, as always, I would like to thank our customers, our employees and our shareholders for their ongoing support. I continue to be especially grateful for the dedicated efforts of all our Novanta employees who work so diligently every day, taking on new challenges and striving to make the company a great place to work. We appreciate your interest in the company and your participation in today's call. Speaker 200:46:34Look forward to joining all of you in several months on our Q4 and full year 2024 earnings call. Thank you very much. This call is now adjourned. Operator00:46:43The conference is now concluded. Thank you for attending today's presentation. You may now disconnect.Read morePowered by Conference Call Audio Live Call not available Earnings Conference CallNovanta Q3 202400:00 / 00:00Speed:1x1.25x1.5x2x Earnings DocumentsPress Release(8-K)Quarterly report(10-Q) Novanta Earnings HeadlinesNovanta Inc (NOVT) Q1 2025 Earnings Call Highlights: Strategic Acquisitions and Resilient ...May 7 at 4:00 AM | finance.yahoo.comNovanta Reports Steady Q1 2025 Financial PerformanceMay 7 at 12:36 AM | tipranks.comMost traders are panicking. We’re cashing inMost traders are panicking right now. Bitcoin’s dropping. Altcoins are bleeding. The stock market’s a mess. The news is screaming fear. But while most traders watch their portfolios tank…May 7, 2025 | Crypto Swap Profits (Ad)Novanta Shares Fall After Co. Plans Cost Cuts to Offset TariffsMay 6 at 5:58 PM | marketwatch.comNovanta projects $50M new product revenue growth for 2025 amid trade challengesMay 6 at 5:58 PM | msn.comNovanta’s (NASDAQ:NOVT) Q1 Earnings Results: Revenue In Line With Expectations But Stock Drops 12.3%May 6 at 5:58 PM | msn.comSee More Novanta Headlines Get Earnings Announcements in your inboxWant to stay updated on the latest earnings announcements and upcoming reports for companies like Novanta? Sign up for Earnings360's daily newsletter to receive timely earnings updates on Novanta and other key companies, straight to your email. Email Address About NovantaNovanta (NASDAQ:NOVT), Inc. engages in the provision of core technology solutions to healthcare and advanced industrial original equipment manufacturers. It operates through the following segments: Photonics, Vision, and Precision Motion. The Photonics segment designs, manufactures, and markets photonics-based solutions, including laser scanning and laser beam delivery, CO2 laser, continuous wave and ultrafast laser, and optical light engine products. The Vision segment offers a range of medical grade technologies, including medical insufflators, pumps and related disposables, surgical displays and operating room integration technologies, optical data collection and machine vision technologies, radio frequency identification technologies, thermal printers, spectrometry technologies, and embedded touch screen solutions. The Precision Motion segment includes optical encoders, precision motor and motion control technology, air bearing spindles, and precision machined components to customers. 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There are 7 speakers on the call. Operator00:00:00Good morning. My name is Gary, and I will be your conference operator today. At this time, I would like to welcome everyone to Novanta Incorporated's Third Quarter 2024 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. Operator00:00:29Please note, this event is being recorded. I would now like to turn the conference over to Ray Nash, Corporate Finance Leader for Novanta. Please go ahead. Speaker 100:00:41Thank you very much. Good morning, and welcome to Novanta's Q3 2024 earnings conference call. This is Ray Nash, Corporate Finance Leader for Novanta. With me on today's call is our Chair and Chief Executive Officer, Matthijs Glastra and our Chief Financial Officer, Robert Buckley. If you have not received a copy of our earnings press release issued today, you may obtain it from the Investor Relations section of our website at www.novanta.com. Speaker 100:01:04Please note this call is being webcast live and will be archived on our website shortly after the call. Before we begin, we need to remind everyone of the Safe Harbor for forward looking statements that we've outlined in our earnings press release issued earlier today and also those in our SEC filings. We may make some comments today both in our prepared remarks and in our responses to questions that may include forward looking statements. These involve inherent assumptions with known and unknown risks and other factors that could cause our future results to differ materially from our current expectations. Any forward looking statements made today represent our views only as of this time. Speaker 100:01:36We disclaim any obligation to update forward looking statements in the future even if our estimates change. So you should not rely on any of these forward looking statements as representing our views as of any time after this call. During this call, we will be referring to certain non GAAP financial measures. A reconciliation of such non GAAP financial measures to the most directly comparable GAAP measures is available as an attachment to our earnings press release. To the extent that we use non GAAP financial measures during this call that are not reconciled to GAAP measures in the earnings press release, we will provide reconciliations promptly on the Investor Relations section of our website after this call. Speaker 100:02:10I'm now pleased to introduce the Chair and Chief Executive Officer of Novanta, Matthijs Claustra. Speaker 200:02:16Thank you, Ray. Good morning, everybody, and thanks for joining our call on this Election Day. Novanta delivered strong 3rd quarter results at the top end of our guidance range. The quarter showed continued sequential improvement in our growth rate, driven by the building momentum of our new products and the strength of our diversified business model. This operating performance reflects solid execution by our teams in a difficult macroeconomic environment. Speaker 200:02:44For the Q3, we delivered $244,000,000 in revenue, which represents reported growth of 10% and flat growth on an organic basis. Adjusted gross margins were 46% as our core businesses expanded margins by roughly 70 basis points year over year, helping offset the dilutive effect of the Motion Solutions acquisition. Adjusted EBITDA was $57,000,000 growing year as major OEM customers are confirming the 2025 new product launches. Speaker 300:03:14Looking beyond the Q3, we Speaker 200:03:15continue to remain excited and are reconfirming the $50,000,000 incremental new product revenue for 2025. We are on track to complete our planned product launches for 2024, up more than 50% versus 2023 with more scheduled for 2025. We're also encouraged that Novanta will be returning to organic growth in the Q4 of 2024, albeit at a lower growth rate than previously expected. We remain bullish on the mid and long term secular growth trends in precision medicine, minimally evasive and robotic surgery and robotics and automation markets where Novanta has a strong technology position with leading OEMs. At the same time, short term timing of our customers' new product launches and overall industry investments in life science and bioprocessing equipment markets are choppier than we and our customers expected just a couple of months ago. Speaker 200:04:24While clearly macroeconomic and geopolitical factors are clouding our customers' confidence, ultimately our 4th quarter revenue guidance is best explained by 3 factors. 1st, 4th quarter DNA sequencing product shipments were rescheduled into 2025 due to customer specific challenges. 2nd, we are seeing new product launch timing shifts, specifically one semiconductor lithography customer and 1 surgical robotic customer have rescheduled their ramp up of shipments into 2025. Both product launches will drive substantial growth for Novanta in 2025, and we have received the first batch of orders supporting this. And finally, we're broadly seeing OEM customers in life sciences markets defer shipments because of weak capital equipment market demand from their customers. Speaker 200:05:18However, there is a clear indication capital spending will improve in Life Science in mid-twenty 25 as our customers are seeing an uptick in demand for consumables and services spending with their end user customers, which is a traditional leading indicator of equipment demand. Robert will go into more details on each of these items when he covers guidance. While we are adjusting to these short term timing changes for the Q4 of 2024, it's important to emphasize that these issues are related to customer timing and not fundamental business weaknesses. We reconfirm our optimism for strong business growth in 2025 based on, 1st, our new product outlook for 2025, which remains intact even with these near term changes in customer timing. We and our customers are reconfirming the $50,000,000 incremental new product revenue for 2025. Speaker 200:06:15Our customers are excited to be launching their innovations in the marketplace with mission critical content provided by Novanta. So new product growth remains a very strong driver for overall company growth next year and the years thereafter. Next, from an end market perspective, in the short term, we appear to be at the bottom of the cycle for industrial, microelectronics and life science capital equipment markets. This makes us optimistic for an improving environment in 2025. We are already seeing early positive signs in some of our shorter cycle businesses such as microelectronics, which is already confirming this view of an improving environment. Speaker 200:06:54This gives us confidence in the mid- and long term growth drivers of our end markets, and we expect organic growth to continue to improve in 2025. Based on these dynamics and customer demand signals, the second half of twenty twenty five revenue is clearly expected to demonstrate strong double digit organic growth under a number of scenarios, and we expect a much stronger full year organic growth on the back of these trends. Because of this, we continue to invest with confidence in our business to remain on track with all our new product launches while maintaining the needed capacity to ramp with our customers in 2025. Here's a brief update on the broader themes we see in our end markets. First, medical device technology markets continue to be very robust and appear likely to stay strong all this year and throughout 2025. Speaker 200:07:46Next, Life Science and Industrial Capital spending markets continue to remain muted due to the persistent interest rate impact and increased uncertainty around geopolitical and macroeconomics events. We're not expecting a broad based market recovery until 2025. However, there are some near term bright spots such as in certain robotics and automation applications. Finally, microelectronics end markets are showing early signs of a rebound with some early product categories already gaining traction in 2024 as evidenced in our Q3 results. A stronger and broader recovery in this end market is likely to happen in 2025. Speaker 200:08:29Going into more detail, for the Q3 of 2024, sales to medical markets made up approximately 54% of total Novanta sales and grew mid single digit versus the prior year on a reported basis, but were down year over year on an organic basis. We saw growth in multiple applications, particularly in minimally invasive surgery. However, this was offset by the softness in DNA sequencing, other precision medicine and life science tools and continued headwind from discontinuing our surgical displays products. We expect the surgical display headwind to fully disappear in early 2025. We continue to be very bullish on the long term secular growth trends in minimally invasive surgery, robotic surgery and precision medicine markets, which we believe all have a long runway in the adoption cycle as they drive foundational productivity improvements for the healthcare system. Speaker 200:09:25Turning to our advanced industrial markets, which make up the remaining 46% of total Novanta 3rd quarter sales. For the quarter, sales growth in these markets, excluding our microelectronics macro electronics applications were up low single digits versus the prior year on a reported basis and roughly flat on an organic basis. The subdued sales performance across this end market was in line with our expectations. While these trends are expected to continue in the Q4 of 2024, a recovery later in 2025 remains likely. We remain confident in our long term exposure to these end markets. Speaker 200:10:05Novanta is positioned in many attractive applications, which are driven by secular growth trends such as Industry 4.0, applications, which are driven by secular growth trends such as Industry 4.0, Robotics and Automation and Precision Manufacturing. Finally, speaking to our microelectronics applications, our business experienced strong double digit growth in the Q3, both year over year and sequentially. This growth rate is partially driven by the easy comparisons to the Q3 of 2023, which was when sales to this end market hit their bottom. For now, this improvement is mainly from shorter cycle products and does not yet reflect a broader recovery of this market. But as mentioned, our new product launch in next generation lithography systems will be a further driver of growth in 2025. Speaker 200:10:50Now let me touch on some of Novanta's strategic growth metrics. For our design wins, we saw solid design win activity in multiple businesses in both industrial and medical end markets. Overall design wins grew by greater than 20% in the Q3 versus prior year, excluding large wins in minimally invasive surgery recorded in 2023. For new product metrics, we continue to confidently lean in to complete our planned product launches for 2024, up more than 50% versus 2023 with more scheduled for 2025. As discussed earlier, despite the delays in our customers' ramp up timing, we remain well positioned to deliver our goal of 50 $1,000,000 of revenue in 2025 from new product launches, which are incremental to Novanta's current product offerings. Speaker 200:11:39Our vitality index in the 3rd quarter was still at about mid teens percent of sales, but showed sequential improvement as we continue to see the early impact of new product launches in secular growth markets such as minimally invasive surgery, robotic surgery, warehouse automation, humanoid and field robots where Novanta is gaining share. Finally, I'd like to give a brief update on Novanta's acquisition activities. The integration of Motion Solutions remains on track. Our teams are fully integrated and we continue to be excited with their innovation capabilities and the depth of their customer relationships. Although the softness in the life science end markets continue to have a near term impact on Motion Solutions product sales, the thesis for the transaction is progressing nicely and we are excited to see this business realize its growth potentials as the markets eventually recover. Speaker 200:12:34Beyond Motion Solutions, new acquisitions continue to remain Novanta's top priority for capital allocation. We have doubled our pipeline of potential targets, which adds up to more than $20,000,000,000 in potential revenue and have multiple active conversations in parallel. Our balance sheet is strong, position us well to execute additional transactions. Therefore, you should expect us to lean into close transactions the remainder of 2024 2025. In summary, in the Q3 of 2024, Novanta delivered strong results. Speaker 200:13:07We hit the high end of our guidance range and had sequential improvement in our organic growth. Our new product launches continue to build momentum, helping us deliver solid performance this year and setting us up for better than market growth in secular end markets next year. These results would not have been possible without the dedicated efforts of our team using the Novanta Growth System execution model to overcome significant challenges and deliver on their promises in this environment. We remain steadfast in our focus on our top three priorities. 1, launching and ramping a record set of new products 2, expanding margins and cash flows through the Novanta Growth system and 3, acquiring additional companies that align with our strategy and offer attractive returns. Speaker 400:13:54With that, I will turn the call over to Robert to provide more details on our operations and financial performance. Robert? Thank you, Matthias, and good morning. Our Q3 2024 non GAAP adjusted gross profit was $113,000,000 or 46% adjusted gross margin compared to $105,000,000 or 47% adjusted gross margin. Adjusted gross margins were down year over year. Speaker 400:14:20However, excluding the impact of Motion Solutions acquisitions, our adjusted gross margins were up roughly 70 basis points. Our gross margin performance was lower than expected in the quarter as a result of unplanned decline in sales volume in our Precision Medicine and Manufacturing segment. This brought down overall company margins versus expectations. Despite the decline in sales volume in this segment, we have chosen to maintain our current level of factory capacity and costs in anticipation of sales rebounding in 2025. Therefore, we expect this unfavorable margin impact to continue into the 4th quarter, but ultimately be rebounded as sales volumes improve next year. Speaker 400:15:03For the Q3, R and D expenses were roughly $23,000,000 or approximately 10% of sales and 3rd quarter SG and A expenses were approximately $44,000,000 or 18 percent of sales. SG and A expenses were sequentially lower in the quarter due to adjustments in incentive compensation based on the revised full year outlook. Adjusted EBITDA was approximately 57,000,000 dollars in the Q3 of 2024 or 23 percent adjusted EBITDA margin versus $52,000,000 in the prior year. On the tax front, our non GAAP tax rate in the Q3 was 21%. Our tax rate for the full year now appears likely to end at around 19 percent. Speaker 400:15:40Our non GAAP adjusted earnings per share was $0.85 in the 3rd quarter, flat versus the prior year. Our EPS growth remains muted due to the higher interest rate on higher debt balance. 3rd quarter operating cash flow was approximately $23,000,000 Our cash flow performance for the quarter was impacted by the timing of monthly revenue shipments with more product getting shipped in the last month versus normal, resulting in a higher than normal increase in accounts receivable. This is a temporary timing impact that is expected to correct in the Q4. Year to date, we are still seeing very strong cash flow performance with operating cash up 20%, and we expect to finish the year with very strong cash flows. Speaker 400:16:25We ended the 3rd quarter with a gross debt balance of $460,000,000 and a gross leverage ratio of approximately 2.3 times. Our net debt was 368,000,000 dollars We remain on track to reducing gross leverage to 2 or below and net debt closer to 1.5 by year end. For the Q3, Novanta's book to bill was 0.89. Weakness caused by customers deferring purchases in life science and advanced industrial applications was partially offset by booking strength in our minimally invasive surgery business line, which had a book to bill of nearly 1.4 in the quarter as our OEM customers have started to place larger orders for their product launches in 2025. Turning to the operating segments. Speaker 400:17:11Precision Medicine and Manufacturing 3rd quarter sales declined by 15 percent, which was weaker than our prior expectations due to softness in the precision medicine markets. The book to bill in this segment was 0.73, which reflects the revised outlook for our DNA sequencing applications as we see our customers pushing out demand into 2025 affecting near term bookings. Adjusted gross margins in this segment were down year over year driven by lower factory utilization, which I commented on. Design wins in this segment were up 30% year over year driven by good execution of our sales team to win new sockets in upcoming customer platforms. New product revenue was approximately mid teens percent of sales in line with expectations. Speaker 400:17:56Our Robotics and Automation segment experienced a revenue increase of 20% year over year in the quarter and bookings grew 25% year over year. Our outlook for the second half of twenty twenty four is playing out largely as expected with end markets improving versus the first half of the year, both in the U. S. Robotics market and the microelectronics applications. The book to bill was 0.83, in line with expectations and we expect sales to continue to gradually further improve into 2025. Speaker 400:18:30Adjusted gross margins increased 120 basis points year over year driven by better factory efficiency on increased volumes. New product revenue in this segment grew strong double digit and was roughly 12% of total sales for the segment. Design wins in this segment were up strong double digit in the quarter year to date. Finally, Medical Solutions experienced reported revenue growth of 24% year over year and declined on an organic basis 1%. This was slightly better than expected as strong sales from our new product launches and most fully offset the near term impact of discontinuing our surgical displays products. Speaker 400:19:09The segment saw book to bill of 1.04 and bookings were up 50% year over year. As I already mentioned, our minimum invasive surgery business line had a book to bill of nearly 1.4 as we started to see customers placing large orders for new product launches. This strong result was partly offset by continued market weakness in the precision medicine business line, which saw a book to bill below 1. The weakness in Precision Medicine continues to come from weaker than anticipated capital spending environment in life sciences, multiomics and bioprocessing markets. Vitality Index in this segment increased to high teens percent of sales, which is in line with expectations as we start to ramp our new products. Speaker 400:19:55Design wins in this segment are down year over year driven by large wins in minimum evasive surgery business in the Q3 of 20 23, but excluding those larger platform wins in the prior year, design win growth in this segment is strong double digit year to date. Adjusted gross margins in this segment increased roughly 60 basis points year over year. Excluding the Motion Solutions acquisition, the margin expansion in this segment was over 4 40 basis points. Now turning to guidance. With organic growth continues to sequentially improve, returning to low single digit in the Q4, the stronger ramp in demand that we expected in the Q4 is being deferred into 2025. Speaker 400:20:37To get into a bit more detail, first, in our DNA sequencing products, nearly all shipments originally expected to ship in the Q4 were rescheduled by our customer to the first half of twenty twenty five due to customer specific challenges. However, we expect this issue to be resolved in early 2025 and resume shipments at a normal rate in the Q1. The long term prospects of this application and our products continue to remain strong and even accelerating. Next, we expect the launch of a new product within DUV and EUV lithography applications. However, while our new product is designed in now, unfortunately due to end market conditions, our customer deferred the ramp into the second half of twenty twenty five. Speaker 400:21:25Similar to my prior comment, the long term prospects of this application and our position in it continue to remain strong and accelerating as EUV lithography is in the early adoption and remains a critical enabler of and smaller, more powerful and efficient electronic devices. 3rd, one of our customer launching a robotic system with a new integrated smoke evacuation insufflator rescheduled shipments into early 2025 after updating FDA filings to make enhancements to their overall system. This product has broad market acceptance and is expected to see stronger than expected demand, which is expected to materialize in our results in 2025. And finally, our customers in the overall life science and bioprocessing market broadly continue to see deferrals in capital spending by their customers, despite the uptick in consumables and service spending by their customers. Based on this activity, demand for capital equipment is clearly returning, but is most likely recovering in early 2020 5. Speaker 400:22:36Unfortunately, this implies that the 4th quarter revenue will be weaker from this dynamic compounded by customers' desires to manage their inventory balances down in the 4th quarter. The net impact of all these customer and market changes has led us to revise our sales outlook in the 4th quarter by approximately $25,000,000 Despite this rescheduling of revenue into 2025, we do expect to demonstrate sequentially increasing organic growth in the Q4 versus the Q3. We continue to be optimistic about an improving environment in 2025 and are very confident that our new products will drive better than market growth with more attractive secular growing end markets. Based on these dynamics as well as customer demand signals, second half twenty twenty five revenue is clearly expected to be strong double digit growth under a number of scenarios, which leads us to expect up to 10% organic growth for the full year of 2025. For the Q4 of 2024, we expect GAAP revenue in the range of 230 $7,000,000 to $242,000,000 which represents reported revenue growth of 12% to 14% and organic revenue growth between 2% and 4% on a year over year basis. Speaker 400:23:56This revenue range is a bit wider than normal given the near term macroeconomic and geopolitical uncertainty and how that continues to impact the life science and industrial capital spending markets and our OEMs customers' behavior, particularly as it comes to managing year end inventory levels. For the full year of 2024, we now expect GAAP revenues to be in the range of $948,000,000 $953,000,000 This represents reported revenue growth of approximately 8%. Revenue from current year acquisitions is expected to be slightly above $80,000,000 On a segment level in the 4th quarter, we expect precision medicine and manufacturing revenue to decline double digit percent year over year impacted by the push out in demand in the DNA sequencing applications. Our robotic and automation segment continues to expect to grow greater than 20% in the Q4 as end markets continue to improve and also from easier year over year comparisons. This growth comes from an improvement in demand in robotic applications as well as an improvement in microelectronics applications. Speaker 400:25:02And our Medical Solutions segment is expected to show approximately 30% year over year reported revenue growth in the 4th quarter. On an organic basis, we expect mid single digit growth year over year. While this growth outlook is solid, it's less than we previously expected from the before mentioned rescheduling of a surgical robotic customer. Moving on to adjusted gross margin in the 4th quarter, we expect to be approximately 46 percent. This outlook includes the impact of lower factory utilization and we maintain as we maintain the capacity of our factories to help us be ready for the growth that our customers are seeing in their end markets as the demand environment improves in 2025. Speaker 400:25:48In the segments, we expect gross margins to be roughly flat compared to gross margins that we delivered in the Q3. For the full year of 2024, we now expect adjusted gross margins to be approximately 46%. For the full year, excluding dilutive impact of the Motion Solutions acquisition, we expect to deliver approximately 100 basis point of margin expansion in our core business. We expect R and D and SG and A expenses in the 4th quarter to approximately $70,000,000 to $71,000,000 This represents a sequential increase in Q3 due to timing of R and D project spend and also incentive compensation adjustments. For the full year, these expenses will be approximately $271,000,000 to 2 72,000,000 dollars Depreciation expense, which is roughly $4,000,000 in the 3rd quarter, will be similar in the 4th quarter and stock compensation expense, which was approximately $6,000,000 in the 3rd quarter, should be approximately $7,000,000 in the 4th quarter. Speaker 400:26:42For adjusted EBITDA in the Q4, we expect the range of $50,000,000 to $52,000,000 which represents double digit growth year over year. For the full year 2024, the adjusted EBITDA, we now expect a range of $208,000,000 to 210,000,000 dollars Interest expense, which was $8,000,000 in the 3rd quarter is expected to be slightly above $7,000,000 in the 4th quarter. We expect our non GAAP tax rate to be around 20% in the 4th quarter and approximately 19% for the full year. Adjusted earnings per share will be in a range of $0.70 to $0.74 in the 4th quarter and $3.02 $3.06 for the full year. Finally, we expect cash flow to return to year over year growth in the Q4 and we expect to demonstrate double digit growth for cash flows for the full year of 2024. Speaker 400:27:30We continue to use the Novanta Growth system to help improve our net working capital levels as evident in the strong improvement in inventory levels in the Q3. These efforts have allowed us to substantially pay down our debt balance so far this year. As always, this guidance does not assume any significant changes to foreign exchange rates nor does it include any anticipated acquisitions at this time. In summary, we remain optimistic about our long term prospects and we continue to work diligently to support our customers with their successful launch of multiple new product platforms. The long term secular growth outlook of our end markets remains intact and we feel well positioned to grow and gain share as the market recovers in 2025. Speaker 400:28:12The fundamentals of the business is strong and we're impressed with the team's adoption of the Novanta Growth System operating model, which is giving us the ability to consistently execute and deliver on our promises as evident in the strong results in the Q3, which were delivered at the high end of the guidance despite our challenging marketplace. In addition, we also continue to work to compound our cash flows through a combination of organic growth and deployment of capital towards acquisitions. As Matthijs mentioned, our acquisition pipeline has more than doubled in revenue and number of potential targets. But we also remain disciplined on the cash on cash returns, which means being disciplined about pricing. We remain focused on controlling what we can control and in executing with excellence, no matter the business environment. Speaker 400:28:58This concludes the prepared remarks. We'll now open the call up for questions. Operator00:29:03We will now begin the question and answer session. The first question is from Lee Jagoda with CJS Securities. Please go ahead. Speaker 500:29:27Hi, good morning. Speaker 200:29:29Good morning, Lee. Speaker 500:29:30So I guess just starting with the Q4 revenue guidance and that $25,000,000 or so delta relative to our expectations. Can you speak to how much of that delta is the macro and then how much of that delta is specific customer launches into 2025? And then I've got a follow-up. Speaker 200:29:53Yes. Good morning, Lee. So yes, as you can imagine, giving detailed specifics is a bit sensitive as it pertains specific customers. But if you read through the guidance per segment, you can actually calculate the impacts. It's fair to say that it's a mix of customer specific and market challenges. Speaker 200:30:12Yes, for customer specific, it's really primarily DNA sequencing, DUV, EUV lithography and robotic surgery. And of these DNA sequencing was the biggest single impact, which we expect to rebound in 2025. And the biggest end market deferral is in life sciences tools. So hopefully that's helpful. Speaker 500:30:36Yes. And then I guess the follow-up is on last quarter's call, I think there was a lot of talk around sort of a 10% -ish growth rate for 2025. And sitting here today, we're talking about deferring an additional $25,000,000 into 2025, yet the guidance is only up to 10% growth in 2025. So is there something else moving or are you just building in more conservatism for the macro or how should we think about this? Speaker 400:31:09Yes. So nothing else is moving. We're not losing any market share anywhere. Those product launches are still scheduled to be launched in 2025 as we talked about. And as you're the DNA sequencing side will start to normalize into the Q1 already. Speaker 400:31:26We are being cautious. Obviously, there's a very contentious election happening today and there continues to be a lot of uncertainty around the geopolitical as well as macroeconomic environment. And our customers are kind of unwilling to have deeper discussions around that until this cycles through. So we are planning on the 4th quarter being what it is. But if the environment improves from macro and geopolitical perspectives, then our business should improve because we're not losing any market share and we're effectively pre riding off of our customers' growth expectations. Speaker 500:32:03Got it. Just one more for me and I'll hop back in queue. It sounds like or some of your comments sort of pointed to a faster growth inflection in the back half of twenty twenty five versus the front half as we look out to next year. What's your visibility look like into your Q1 deliveries? And relative to your Q4 organic growth, how should we think about organic growth in Q1? Speaker 400:32:29Yes. So I would just say organic growth should continue to sequentially improve and stay positive, right? So we're not going to get into like the specific ramp at this time because we'll have detailed discussions with our customers in December after the election cycles, and a couple of other situations kind of unfold. But I would just say that the reason why the back half is definitely stronger is obviously there's some easier comparisons, but then we have new product launches happening more en masse. We talked a little bit about EUV, DUV being scheduled for the back half of the year. Speaker 400:33:03We're starting to get the purchase orders on that. And so we're starting to feel more and more confident about what that looks like. It is possible. There's a bigger shift into the first half, but we don't want to get into that as we at this page. We'll look to have another discussion around that in January. Speaker 500:33:22Got it. Appreciate it. Thanks very much. Speaker 200:33:25Thanks, Mike. Operator00:33:26Excuse me. The next question is from Brian Drab with William Blair. Please go ahead. Speaker 600:33:32Hi, good morning. Thanks for taking the questions. Speaker 200:33:34Good morning, Brian. Speaker 600:33:36Good morning. Just a simple question first and I might have missed the information that would explain this, but so revenue is down in the guidance just slightly sequentially in the 4th quarter. And just I'm wondering in addition to any impact from slight negative operating leverage, I guess, in that slight sequential decline, why would EPS be down more materially in the 4th quarter? What's happening there? Speaker 400:34:06Well, you got an increase in tax rate than we higher than we had anticipated as we get a jurisdictional mix. So effectively, you got more medical sales happening. They're happening out in our German operations at higher tax rate. So that's one piece of it. And then you have a sequential uptick in your operating expenses as well that I kind of guided on. Speaker 400:34:28That is some expenses kind of ramping up for changes of compensation as well as project timing. Speaker 600:34:38Okay. All right. Thank you. And then you mentioned an EUV, DUV, I think I caught that you said our new product is designed in. Can you just talk about Correct. Speaker 600:34:52Can you talk about what type of technology you were supplying for that application and what the new product is? Is it in a different is it a different type of technology or just more of the same technology? Any comment? Speaker 200:35:09Yes. I mean, it's of course, we this is Matthijs, Brian. Good morning. Yes, so what we have commented on in the past is that we are supplying a new type of technology that we did not supply before. We so that's the incremental part that is being deferred. Speaker 200:35:30And I think it's pretty widely reported kind of how that particular player is seeing the world lately. And so it's basically consistent with that view. Again, the customer is excited because we are solving a particular problem that is very valuable to them. We're designed in and this is really about launch timing and nothing else. Speaker 600:36:02Okay. And then just one more for now, I guess, on Motion Solutions. I think on the Q2, we talked about lowering the expectation for Motion Solutions revenue for the year by $10,000,000 right? And just wondering, did you comment today on whether that's changed to some of the softness that you're seeing in the Q4 related Motion Solutions? Or should we still think about that as down $10,000,000 from just like it was last quarter? Speaker 400:36:35No, it's still the same. So you're absolutely right. It's and I kind of got into about $80,000,000 is the expectation. So it used to be $90,000,000 and it went down to $80,000,000 Speaker 600:36:46Okay. All right. Thanks. Speaker 200:36:48But clearly impacted by the same market dynamics in life sciences tools, right? Speaker 600:36:55Understood. Okay. Thank you very much. Speaker 200:36:59All right. Thanks, Brian. Operator00:37:01The next question is from Rob Mason with Baird. Please go ahead. Speaker 300:37:05Hi, good morning. I don't want to belabor the point here, but just want to be clear. So around the revenue that shifted out of the 4th quarter related to new product launches and into 25, we had been talking about $50,000,000 of incremental revenue there and still $50,000,000 So I guess just to confirm, was there anything that you're now assuming on the new product launch side that slips from $25,000,000 into $26,000,000 Speaker 400:37:35No, not from a new product at all. No, those things are so if you think about how we laundry list them a little bit, so the EUV, DUV, we talked about that launching slipping out of 2024 into 2025. It has gone into the back half of the year. We're designed in and we're starting to see the trajectory around that. As it comes to the next generation insiplator in the surgical player, that shifted into early 2020 5 as they finalized their 510 on their system and then begin normalizing shipments again for us. Speaker 400:38:20And then lastly, there's the on the DNA sequencing side, we see orders coming back into the Q1. The ramp of that is a little less uncertain, does the timing, and so we've been more conservative there. So what I think what we have done is we've taken the life science industry and we've said, all right, in that area of the marketplace until customers start giving us firm orders and commitments around that, we're going to anticipate that's a little bit later than we originally planned, but eventually is coming back. And you can see that as Matthias talked about is the leading indicator is their consumable and service spend in their factories. So our customers' customers are seeing significant upticks their consumables and services, which is indicating the capacity is being utilized and their customers are starting to spend money. Speaker 400:39:12And that's generally you will have capital spending follow that in somewhere in the range of 6 to 9 months. And so that's what we're carefully monitoring at this point. Speaker 200:39:22Yes. And maybe another way said, Rob, so while, let's say, DUV has shifted into the second half, the overall number is staying the same because other parts are doing slightly better. And we've also, I think, be very consistent that the start of that rent timing is tricky, right? And we actually never formally guided a 2024 number because of the dynamics that were actually certainly is today see playing out. So the 25% is just a full year ramp and that's why we maintain confidence there. Speaker 200:40:02So nothing really has changed other than the Q4 timing of the start of that ramp. Speaker 300:40:09I see. Okay. Just in the Precision Manufacturing and Medicine segment, the I can understand where sales mix may have had an impact here, but the decremental in gross margin, at least sequentially, was really high, like almost 100%. So I was just curious if there's anything else going on there. And is that gross margin recovery back to maybe where it was in the first half, is that entirely dependent on DNA sequencing? Speaker 400:40:44So it partially would be help there's 2 factors, obviously DNA sequencing coming down. And then the second is, we do have a facility that is largely fixed cost. And so when volume in that facility drops below a certain level, then yes, it does kind of bleed through dollar for dollar. That facility manufactures optics for a lot of our products and so it was below normal volumes in that quarter. If we were to take out the costs associated with that, we would effectively impair our ability to ramp the business in early 2025. Speaker 400:41:19We'd have to push out that even further. And so what we decided to do is leave that cost structure in place knowing demand is coming back in. And so that results in a higher decremental than we anticipated because we weren't anticipating the drop off in volumes in that factory supplying optics for both our DNA sequencing products as well as some industrial products. Speaker 300:41:45Makes sense. Okay. Just last question, just Matthijs, I mean you talked about bottoming in the industrial areas as well as microelectronics. It sounds like orders cut maybe support the microelectronics commentary. Just why are you thinking we're at a bottom on the advanced industrial side? Speaker 200:42:08Well, I mean, you look at multiple indicators, right? It's a combination of customer conversation as well as the kind of short cycle business, right, returning. So within our industrial, we actually have one other short cycle business that is starting to turn. So that is kind of a leading indicator for us, right. So typically microelectronics is the first to go down, followed by the short cycle industrial business followed by the longer cycle industrial business. Speaker 200:42:39And so the return is the, of course, the inverse of that. So we see microelectronics turn the short cycle version of it. We see the short cycle version of the industrial starting to turn. But it's too early to say, of course, what the exact timing of the longer cycle return is. But it gives us optimism that we're seeing the first signs of that bottoming out, right? Speaker 200:43:04Otherwise, the short cycle businesses would have stayed stable or further decline, and that's not happening. I see. Speaker 300:43:11Okay, helpful. Thank you. Speaker 200:43:14All right. Operator00:43:16The next question is a follow-up from Brian Drab with William Blair. Please go ahead. Speaker 600:43:22Well, I guess, I think my question was just answered. Hey, yes, I think my question was just answered. My question was maybe slightly different. Just as you're looking at that guidance for 2025 and the revenue expectation that you're saying up to 10% organic revenue growth. I'm wondering what is embedded in terms of your expectation for the industrial backdrop? Speaker 600:43:52Obviously, like 22 months or something of ISM below 50. Just wondering, is there an expectation for improved industrial environment globally there or more of the same? Speaker 400:44:07We do have a little bit more subdued there. So what we do have is, as Matthijs just talked about, is the short cycle business is starting to see the uptick in bookings, is starting to see the uptick in growth. So we presume that that kind of carries forward. The longer cycle, we presume is more of a subdued environment. And so to a degree that that recovers faster, it would have a more favorable impact on our outlook. Speaker 400:44:32But it's again why today, it's a very unusual day to be reporting earnings. There's a lot of things obviously going on. And so we're trying to be a little cautious at this stage till we clear the year. And I think our customers are demonstrating the same behavior. A lot of them are trying to manage inventory down and not overextend themselves in the Q4 and get better positioned for a more positive 2025. Speaker 600:44:57Okay. Thanks very much. Speaker 200:45:00Thanks, Brian. This concludes Operator00:45:02our question and answer session. I would like to turn the conference back over to Mr. Matthijs Glastrow for any closing remarks. Speaker 200:45:10Thank you, operator. So to recap, Novanta had strong operating performance in the Q3. We achieved the high end of our guidance for sales and profit and we made good progress on our top priorities. Despite near term macroeconomic dynamics, Noventor remains well positioned in the medical and advanced industrial end markets with diversified exposure to long term secular macro trends in robotics and automation, precision medicine, minimally invasive surgery and Industry 4.0. Looking ahead, while the macroeconomic and geopolitical climate are weighing on capital equipment purchases in 2024, we believe we are in a strong position to deliver on a recovering investment climate in industrial, microelectronics, life science and multiomics markets. Speaker 200:45:54Continue to see accelerating momentum for Novanta on the back of our new product launches as we work through the Q4 and into 2025. We will continue to focus on additional design wins in high growth applications as well as doubling down on the Novanta growth system to continue to drive strong cash flows and gross margin expansion. In closing, as always, I would like to thank our customers, our employees and our shareholders for their ongoing support. I continue to be especially grateful for the dedicated efforts of all our Novanta employees who work so diligently every day, taking on new challenges and striving to make the company a great place to work. We appreciate your interest in the company and your participation in today's call. Speaker 200:46:34Look forward to joining all of you in several months on our Q4 and full year 2024 earnings call. Thank you very much. This call is now adjourned. Operator00:46:43The conference is now concluded. Thank you for attending today's presentation. You may now disconnect.Read morePowered by