NASDAQ:NOVT Novanta Q4 2023 Earnings Report $117.69 -2.32 (-1.93%) Closing price 04:00 PM EasternExtended Trading$119.22 +1.53 (+1.30%) As of 06:00 PM 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$0.63Consensus EPS $0.63Beat/MissMet ExpectationsOne Year Ago EPS$0.75Novanta Revenue ResultsActual Revenue$211.60 millionExpected Revenue$210.90 millionBeat/MissBeat by +$700.00 thousandYoY Revenue Growth-3.10%Novanta Announcement DetailsQuarterQ4 2023Date2/28/2024TimeBefore Market OpensConference Call DateWednesday, February 28, 2024Conference Call Time10:00AM ETUpcoming EarningsNovanta's Q2 2025 earnings is scheduled for Tuesday, May 6, 2025Conference Call ResourcesConference Call AudioConference Call TranscriptPress Release (8-K)Annual Report (10-K)Earnings HistoryCompany ProfilePowered by Novanta Q4 2023 Earnings Call TranscriptProvided by QuartrFebruary 28, 2024 ShareLink copied to clipboard.There are 7 speakers on the call. Operator00:00:00Good 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 Incorporated 2023 4th Quarter and Full Year Earnings Call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question and answer session. Operator00:00:31Please 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 100:00:42Thank you very much. Good morning, and welcome to Novanta's Q4 and full year 2023 earnings conference call. I am 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 100:01:10Please 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 100:01:46We 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 100:02:24I'm now pleased to introduce the Chair and Chief Executive Officer of Novanta, Matthijs Glastra. Speaker 200:02:30Thank you, Ray. Good morning, everybody, and thanks for joining our call. Novanta delivered solid performance in 2023 in the Q4 and for the full year. I'm very proud of how our teams delivered revenue and profit performance above our expectations in a dynamic market environment. For the full year of 2023, we achieved a record $882,000,000 in revenue, expanded adjusted gross margins by over 100 basis points to 47 percent and expanded adjusted EBITDA to $196,000,000 a 100 basis point improvement in EBITDA margins. Speaker 200:03:09Our sales grew 2 percent year over year on a reported basis and 1% on an organic basis. Excluding Microelectronics applications, our growth for the full year was up high single digits. For the Q4, we delivered $212,000,000 in revenue, which represents a decline of 3% on a reported basis and a decline of 4% on an organic basis. Excluding Microelectronics, our organic growth was down approximately 1%. Adjusted EBITDA was greater than $45,000,000 beating our expectations and prior guidance. Speaker 200:03:46Operating cash flow was very strong for the 2nd straight quarter at approximately $39,000,000 which represents more than 300% conversion to net income. This operating performance reflects excellent execution by our teams in a challenging market economic environment. In addition to all of this, in 2023, we signed an agreement to acquire Motion Solutions, which will enhance our portfolio and further expand our presence in the highly attractive medical and precision medicine space. We're happy to have completed the acquisition at the beginning of January 2024. The sticky Novanta business model with diversified exposure to long life cycle customer platforms in secular high growth markets has proven resilient under multiple geopolitical and market economic scenarios. Speaker 200:04:38Our proprietary technologies are well positioned in medical and advanced industrial applications with long term secular tailwinds such as robotics and automation, minimally invasive and robotic surgery and precision medicine. Medical applications made up 4% of our sales in 2023 versus single digit percentage of sales a decade ago, which we believe provides Novanta with greater resilience during fluctuating macroeconomic conditions. We feel there are strong customer relationships with the leading OEMs in these secular growth applications to strengthen diversification of our portfolio and our sticky business model allowing Avanta to drive robust performance through the economic cycles. In the Q4, the broader end market themes were that medical markets continue to be strong, life sciences and advanced industrial markets slowed down in line with the PMI indices and interest rate environment and microelectronics stabilized with signs it has now bottomed. In addition, in the Q4, the team made further progress in bringing down lead times to our customers, which are now broadly at pre pandemic levels. Speaker 200:05:46At the same time, some customers slowed ordering to better manage their year end inventory levels and cash flows. This dynamic resulted in a book to bill of 0 point 7, which was in line with our expectations and should represent the bottom of our bookings trajectory with sequential improvements expected from here. Speaking to the business environment more broadly, as we head into 2024, we are feeling confident in the diversity and breadth of our business portfolio to weather a dynamic environment. As we mentioned in our last earnings call, we continue to see a somewhat weaker demand environment in the first half of twenty twenty four, in line with the growth rates we experienced in the second half of twenty twenty three. We We expect the second half of twenty twenty four to be characterized by stabilizing interest rate environment with accelerating Novanta momentum on the back of new product launches. Speaker 200:06:40We are excited about and confident in the record amount of new product launches we're planning on in 2024. Going into more detail, for the full year of 2023, sales to medical markets made up approximately 54% of total Novanta sales and grew 13% versus the prior year, driven by strong double digit growth in minimally invasive surgery, surgical robotics, patient monitoring, in vitro diagnostics and DNA sequencing applications. In the Q4, sales to medical markets remained steady and roughly flat versus the prior year, again making up approximately 54% of total Novanta sales. During the quarter, we saw stable levels of shipments to many of our surgical OEM customers. We also saw some decline in our shipments to our life sciences customers driven by the deferral of end user orders due to a higher interest rate environment. Speaker 200:07:35Turning to Advanced Industrial Markets. For the full year of 2023, sales to Advanced Industrial Markets, excluding microelectronic applications, were up 1% year over year. As a reminder, Novanta plays in advanced industrial applications with mid to high single digit long term growth, driven by secular trends such as Industry 4.0, Robotics and Automation and Precision Manufacturing. Our advanced industrial sales in the 4th quarter were down 1% year over year and made approximately 38% of total Naventha sales. The sales decline was in line with our expectations due to the rapid rise in interest rates and continued weakness in China as well as other geopolitical disruptions. Speaker 200:08:17While these trends are expected to continue in the first half of twenty twenty four, customers are using the slowdown to catch up on next generation innovations. Finally, in our microelectronics markets, which represented just 7% of sales in the 4th quarter, the performance was roughly the same as we said in our last call. For the full year of 2023, the overall drop in the microelectronics market was a 700 basis point headwind on total Movanta sales growth, which was larger than we originally anticipated. To repeat from before, excluding Market Electronics, Movanta revenue growth for the full year was up high single digit year over year. As we look out into 2024 2025, we remain excited that the composition of this end market exposure will shift to more secular growing and less cyclical applications such as next generation lithography. Speaker 200:09:10This application is expected to see a strong tailwind the rest of this decade as a result of global demand for artificial intelligence, electrification and high performance computing. We also expect the momentum in this market to sequentially improve with improving fab utilization and normalizing inventory levels. Across all our end markets, we continue to stay focused on gaining content and share with intelligent subsystems into multiple higher growth application areas. We are confidently leaning in with a record amount of new product launches in 2024, up 50% versus 2023 with more scheduled for 2025, all of which will lead to $50,000,000 of new revenue in 2025 with strong growth in the next several years following that. As a reminder, our new product pipeline is geared towards intelligent subsystems and strategic growth applications such as minimally invasive surgery, robotic surgery, next generation lithography, precision manufacturing applications and precision motion solutions for robotics and automation applications. Speaker 200:10:18Now let me touch on some of Mavento's strategic growth metrics. For our design wins in the Q4, we saw growth of strong double digits versus prior year. We saw excellent design win activity in multiple businesses, particularly with our advanced industrial customers, which bodes well for future growth in those end markets. Although our full year design wins were still modestly down year over year, this was partially driven by the large wins in minimally invasive surgery in 2022. Excluding those large platform wins from prior year, Novanta had double digit design growth in 2023. Speaker 200:10:53Our vitality index in the 4th quarter was still at about mid teens percentage of sales. This was in line with our expectations. We expect our vitality index to rebound to above 20% in late 24, driven by our pipeline of new product launches. We remain very excited by our momentum in customer wins and our strongest new product lineup in a decade. Based on this, we reiterate with confidence Novanta long term growth framework of consistent mid to high single digit organic growth through the business cycles. Speaker 200:11:25Next, I'd like to give you a brief update on Novanta's acquisition activities. As already mentioned, we were very pleased to announce that we completed the acquisition of Motion Solutions in January. As a reminder, Motion Solutions offers customized and high precision motion subsystems and components to market leading OEMs centered on medical and life sciences applications. They are a market leading business and their team shares our passion for customers, innovation and solving complex technical challenges. The integration of Motion Solutions is on schedule and we are seeing a high level of engagement with our team. Speaker 200:12:01We are impressed with the strong and sticky customer relationships creates the potential to develop new and unique intelligent subsystems, creates the potential to develop new and unique intelligent subsystems using our combined technology offerings. These joint product development activities have already gotten started and although we are very early on, our teams are already working seamlessly together both on the new solutions as well as cross selling each other's technology to our complementary customer bases. We will be including Motion Solutions as part of the Medical Solutions segment for reporting purposes because of the close alignment with the customer base in this segment. The financial outlook for Motion Solutions looks promising in line with our expectations and it will be factored into the 2024 guidance with Robert, which Robert will share later in this call. Even with the Motion Solutions transaction, acquisitions remain Novanta's top priority for capital allocation. Speaker 200:13:05We have a strong pipeline of potential targets. Our balance sheet is strong and can handle additional transactions. So you should expect us to continue to be active in the marketplace in 2024. Now I'd like to share a few comments on how we continue to evolve our culture of Novanta Corp and Novanta Way. We believe that the Novanta Way has been a differentiator in attracting, retaining and developing developing for talent. Speaker 200:13:26It's ultimately our talent and our culture that will make the difference. We continue to see below market labor attrition rates, both among our leadership ranks as well as across all our company employees. We're focusing on a few factors to retain our employees, competitive paying, great company culture and career development and progression. We continue to focus on improving our employee engagement scores, and we have invested heavily into leadership development initiatives and employee training on the Novanta Growth System. Sustainability also remains an important topic for Novanta. Speaker 200:13:59We've made steady progress on our long term journey, reducing our environmental footprint. And in a few weeks, we will be publishing our 2023 sustainability report, where we will share details on our goals and our accomplishments. One of the most critical aspects of our company culture is embedding the Novanta Growth System or NGS to drive excellence into the many ways we work together. In 2023, we've accelerated deployment of the Novanta Growth System deeper into the organization, completing a few dozen kaizen events, launching many structured problem solving actions, deploying rigorous daily management routines, using eightytwenty portfolio management and utilizing project management planning activities at all levels of the organization to fundamentally improve our operating results. We trained hundreds of Novanta employees on using the NGS tools from leaders to frontline employees. Speaker 200:14:59These efforts have had a dramatic impact on our operations, including throughput and yield improvement in our factories, improving our supply chain and planning processes to enhance delivery performance to our customers, accelerating material and labor productivity, reducing cycle time of back office processes and improving time to market over our new product launches. NGS is truly becoming a fundamental part of Novanta's identity and it's helping unite our employees by giving us a common language and a common way of collaborating, which is increasing teamwork and successful problem solving. We are very excited to continue to evolve NGS as we head into 2024. Summary, Novanta delivered solid operating performance in 2023 while navigating a dynamic macroeconomic environment. We achieved record sales, strong margin expansion, delivered on our profit commitments and improved cash flows. Speaker 200:15:53We've made great progress in deploying the Novanta Growth Systems and had continued success at further establishing a thriving company culture. And we enhanced our portfolio with the Motion Solutions acquisition, which further expands our presence in highly attractive medical and precision medicine end markets. As we look to 2024, we have 3 priorities. 1st, launch and ramp a record set of new products. 2nd, expand our margins and cash flow using NGS and 3rd, continue to acquire additional companies that fit our strategy at attractive returns. Speaker 200:16:30With that, Speaker 300:16:30I will turn the call over to Robert to provide more details on our operations and financial performance. Robert? Thank you, Matthijs, and good morning, everybody. Non GAAP adjusted gross profit was $100,000,000 or 47 percent adjusted gross margin compared to $98,000,000 or 45 percent of the gross margin in the Q4 of 2022. For the quarter, adjusted gross margins were up 2 20 basis points year over year. Speaker 300:16:55For the full year of 2023, non GAAP adjusted gross profit was $413,000,000 or 47 percent adjusted gross margin compared to $392,000,000 or 46 percent gross margin in the prior year. 2023 adjusted gross margins were up 100 and 20 basis points year over year, which exceeded our goal. This represent a fantastic outcome for our teams, especially considering the slight drop in volumes in half of the year. Our success with gross margin expansion in the year was largely driven by the deployment and adoption of the Novanta Growth System productivity tools in our factories and in our operating teams. Moving on to operating expenses. Speaker 300:17:36For the Q4, R and D expenses were roughly $23,000,000 or approximately 11 percent of sales. For the full year, R and D expenses were roughly $92,000,000 or approximately 10% of sales. 4th quarter SG and A expenses were slightly below $42,000,000 or roughly 20% of sales. For the full year, SG and A expenses were 100 and $64,000,000 or roughly 19 percent of sales. Adjusted EBITDA was approximately $45,000,000 in the 4th quarter or a 21% EBITDA margin versus $46,000,000 in the prior year. Speaker 300:18:13For the full year of 2023, adjusted EBITDA was approximately 190 $6,000,000 or a 22 percent adjusted EBITDA margin versus $184,000,000 in the prior year. EBITDA margins expanded by roughly 100 basis points year over year. On the tax front, our non GAAP tax rate for the 4th quarter was 21%. This differed from the statutory rate due to jurisdictional mix of income. For the full year of 2023, our non GAAP tax rate was just above 16%, which was flat with the prior year. Speaker 300:18:45Our non GAAP adjusted earnings per share was 0 point 6 $3 in the 4th $3 Speaker 400:18:50in the 4th quarter compared to $0.75 in Speaker 300:18:50the Q4 of 2022. For the full year of 2023, our non GAAP adjusted earnings per share was $3.02 compared to 3 point $7 in the full year of 2022. Our EPS performance in 2023 was obviously impacted by the significant increase in interest rates on our debt impacting interest expense. 4th quarter operating cash flow was approximately $39,000,000 or for the full year operating cash flow was approximately $120,000,000 compared to $91,000,000 in the prior year, representing an increase of 32% year over year. We are pleased with the improvement in cash flows in the second half of the year, and we expect to carry this momentum into 2024 as we continue to rigorously manage our net working capital and drive operating profits. Speaker 300:19:35We ended the year with gross debt of $358,000,000 with a gross leverage ratio of approximately 1.8 times. Our net debt was $253,000,000 positioning the company well to fund further acquisitions. Turning to backlog and bookings, we ended the year with a backlog of $473,000,000 which was still above pre pandemic coverage levels, but is close to our expectation of backlog coverage on a go forward basis. Our book to bill in the Q4 was 0.70, which was largely in line with our expectations. This low book to bill reflects both the continued reduction of lead times by our customers back to historical levels as well as some impact from customers reducing inventory levels to maximize their cash positions at year end and to a lesser extent to deal with the lower visibility macroeconomic dynamics. Speaker 300:20:26I'll now turn to an update of the performance of the operating segments. First, I'll speak to the Precision and Manufacturing segment. 4th quarter sales declined 5% year over year, which was slightly more than our prior guidance. The book to bill in this segment was 0.50 for the Q4, driven by end market demand deferrals in life science and advanced industrial applications and deferrals in purchases by our customers to maximize the year end cash flows, which are the dynamics we previously just discussed. We have confidence these were temporary dynamics as over the last 2 months, we've already experienced a sequential improvement in order activity. Speaker 300:21:05Therefore, we believe our order volume hit its bottom and expect it to rebound as we progress into the New Year. Despite the weaker Q4, for the full year of 2023, this segment demonstrated strong financial performance overall. The segment delivered 3% year over year revenue growth and adjusted gross margin expansion of over 200 basis points. The book to bill for the full year was 0.78, which mainly reflects the continued normalization of lead times as customer adjusted their backlog coverage closer to pre pandemic levels as well as the previously discussed softening of demand from life science and advanced industrial markets. With precision medicine and manufacturing, new product revenue stayed strong at greater than 20% of sales in the 4th quarter, which is the same for the full year. Speaker 300:21:51Design wins in this segment were up strong double digits year over year in the Q4 and the segments achieved design win growth for the full year based on the strength of the Q4 results. We're excited about the progress being made with multiple large strategic customers, which gives us the confidence we see growth in this segment returning later in the second half of twenty twenty four. Turning to Robotics and Automation segment. This segment experienced a revenue decline of 10% year over year in the quarter. This was in line with our expectations in prior guidance. Speaker 300:22:23The decline was mainly driven by the impact of weaknesses in the sales through advanced industrial end markets, largely caused by industrial robotics dynamics and microelectronic weaknesses that we reported in the last quarter. The headwinds related to microelectronics have showed signs of stabilizing and some green shoots of growth started to materialize, particularly in China. While these end market dynamics 2024. The overall book to bill ratio in this segment for the quarter was 0.93, which is a sequential improvement and is indicative of a more stable demand environment across the segment and its end markets. Our ATI business saw a book to bill greater than 1 in the 4th quarter, which further strengthens our confidence in a sequentially improving industrial robotic market in 2024. Speaker 300:23:17For the full year of 2023, Robotics and Automation segments saw sales decline 11% year over year, mainly driven by the headwind from sales to microelectronics. Book to bill for the full year was 0.83. Despite the challenges this segment faced, it still successfully expanded gross margins over 50 basis points for the full year, which was an impressive outcome. New product revenue was roughly 10% of sales for the segment in the quarter and for the full year. Design wins in this segment more than doubled year over year and full year design wins grew strong double digits. Speaker 300:23:55The design win strength further solidifies our confidence in 2024 and beyond. Finally, in Medical Solutions, this segment experienced reported revenue growth of 5% year over year, which was in line with our expectations. Growth in this segment continues to be driven by strength in elective surgical procedures as well as our JADAC business line where the business continues to perform well, thanks to broader strength in hospital spending. The Medical Solutions segment saw a book to bill of 0.70 in the 4th quarter. The weaker bookings mainly reflect the normalization of lead times and softening of demand from some life science end markets. Speaker 300:24:31However, we also saw some timing related impacts from some of our medical customers managing the year end inventory levels and from reducing orders on legacy product platforms as they ready their ramps for their 2024 new product launches in the second half. For the full year, this segment saw excellent growth, growing 17% year over year. The book to bill for the full year was 0.92. This reflects the resilient strength of demand at medical end markets. We are pleased to see this segment deliver strong adjusted gross margins with margins increasing 200 basis points for the full year. Speaker 300:25:10This is driven by the dedicated efforts of our operating teams who are having success at deploying the Novanta Growth tools deeper into their business operations. The vitality index in this segment remained at mid teens percent of sales level in line with our expectations. As we mentioned before, we expect this metric to significantly rebound later in 2024 as we launch multiple new products with our customers in the second half of twenty twenty four. Overall, our segments performed as we expected in the quarter and they were able to handle a variety of obstacles caused by a shifting macroeconomic environment. It's a testament to the strength of the talent in our businesses and the flexibility to adapt to a rapidly changing set of challenges. Speaker 300:25:50We are proud of our team's performance. Now turning to guidance. In our medical end markets, we expect to see different dynamics between our exposure to surgical equipment versus life science and precision medicine equipment. For surgical equipment, we are expecting a strong year of growth. In the first half of the year, our legacy products will trend down, muting growth as both customers phase them out in anticipation of new product launches and as we proactively phase out less attractive products to create capacity for the new product launches in the second half. Speaker 300:26:22However, these new launches are expected to lead to low double digit growth in the second half, allowing us to finish the year strong and positioning us well to sustain this growth into 2025 and beyond. For life science and precision medicine equipment, we expect continued temporary weakness in the first half due largely to the interest rate environment pressuring capital spending in this industry, which will result in low single digit declines in sales. However, in the second half, these applications should return to growth as both product launches kick in and interest rates normalize, allowing the broader biopharma equipment market to stabilize and gradually improve. We expect these dynamics will lead to overall growth rising to low single digit levels in the second half. In total, for the full year, we expect our medical markets to see growth with strong growth weighted in the second half. Speaker 300:27:13In our advanced industrial end markets, we again see 2 different dynamics split between microelectronics versus all other applications. In microelectronics, which represent approximately 7% of sales now, we are seeing some early signs of improvement in the marketplace. We expect this end market to have flat growth in the first half of the year, but it's expected to return to low double digit growth in the back half of the year. This is caused by both incremental improvements in the end market and the impact of new product launches mainly in next generation lithography. For the remainder of our advanced industrial exposures, these applications are more sensitive to the interest rate and macroeconomic dynamic and therefore expect to see low single digit decline in the first half of the year. Speaker 300:27:58However, in the second half of the year, we expect to see gradual improvement in demand as interest rates normalize, new products and platforms ramp and 2025 demand starts to appear in the order books, resulting in growth in the low to mid single digit range. In total, our advanced industrial markets should be roughly flat for the full year, but showing solid growth in the Q4. To start in the guidance for the full year of 2024. For revenue guidance, we now expect GAAP revenue in the range of $975,000,000 to $1,000,000,000 This would represent low single digit organic growth for the full year. On the segment level, we expect Precision Medicine and Manufacturing segment revenue to grow low single digit percent on a year over year basis. Speaker 300:28:44Our Robotics and Automation segment revenue is expected to grow low single digit percent year over year. And finally, our Medical Solutions segment, which now includes the Motion Solutions acquisition. We expect strong double digit reported growth, driven largely by the addition of Motion Solutions and low single digit organic growth. Moving on to Novanta's adjusted gross margin, we expect gross margin for the full year to be approximately 46% to 47%, which is roughly flat year over year. Covanta's core gross margins, excluding the Motion Solutions acquisitions, will be up 100 basis points from the prior year. Speaker 300:29:25As we mentioned before, the Motion Solution business will be dilutive in the 1st year or 2 as we shift their business into higher gross margin products and solutions. In the segments, both the Precision Medicine and Manufacturing segment and the Robotics and Automation segment should see healthy margin expansion for the full year in the range of 100 to 150 basis points as both these segments continue to execute on margin expansion plans using the Novanta Growth System tools. The Medical Solutions segment is expected to have gross margins down 50 to 100 basis points versus the prior year, where strong margin expansion in Novanta's core business is offset by the dilutive impact of Motion Solutions. Turning to R and D and SG and A expenses, they are expected to be approximately $280,000,000 to $290,000,000 for the full year. The increase in cost year over year is largely driven by the addition of motion solutions as well as labor cost increases and further investments in our innovative pipeline and some further investments in our commercial engine. Speaker 300:30:28Depreciation expense should be approximately $16,000,000 for the full year compensation expense should be approximately $29,000,000 for the full year. For adjusted EBITDA for the full year of 2024, we expect a range $215,000,000 to $225,000,000 Interest expense, which was nearly $26,000,000 in the full year of 2023, is expected to be roughly $31,000,000 for the full year of 2024. The higher interest rate expense year over year is driven by the additional borrowing on the Motion Solutions transaction. We expect our non GAAP tax rate to be around 18% for the full year of 2024. The guidance includes our current view of the impact of OECD Pillar 2 global minimum tax rates. Speaker 300:31:14Our current view is that Novanta has some exposure here, which has been factored in, but the United States and China have not yet enacted the rules yet. Due to the uncertainty of whether in which countries will enact the rules, the timing of individual country legislation actions and the underlying complexity of the rules, the impact on us is not reasonably estimatable at this time. Diluted weighted average shares outstanding will be approximately 36,000,000 shares. For the full year of 2024, adjusted earnings per share is now expected to be $3.10 $3.35 For the Q1 of 2024, revenue guidance we expect GAAP revenue in the range of 225 $1,000,000 to $230,000,000 which represents organic revenue declines between 6% 4% on a year over year basis. We believe the Q1 represents the bottom for Novanta's revenue on an organic basis due to both end market demand weaknesses and legacy products phasing out in advance of new product launches in the second half. Speaker 300:32:16On a segment level in the Q1, we expect Precision Medicine revenue to decline mid single digit on a year over year basis. Our Robotics and Automation segment revenue is expected to decline low double digit percent and our Medical Solutions segment is expected to demonstrate year over year double digit reported revenue growth in the first quarter, driven largely by the addition of Motion Solutions. And organically, we expect this segment to be roughly flat year over year. Moving on to adjusted gross margin, we expect to be approximately 45.5% to 46% in the Q1, which is roughly flat year over year. In the segments, gross margins are expected to be flat to up sequentially in precision medicine and manufacturing and robotics and automation. Speaker 300:33:05The Medical Solutions segment is expected to have a sequential decline in gross margins in the Q1 due to the dilutive impact of Motion Solutions. For R and D and SG and A expenses, we expect to be approximately $69,000,000 to $70,000,000 Depreciation expense will be approximately $4,000,000 in the Q1. Stock compensation expense will be approximately 8,000,000 dollars For adjusted EBITDA, we expect a range of $45,000,000 to $48,000,000 Interest expense is expected to be roughly $9,000,000 and we expect our non GAAP tax rate to be around 18%. For adjusted diluted earnings per share, we expect a range of $0.55 to $0.60 Following the close of the Motion Solutions acquisition, we expect gross debt at the end of the Q1 to be roughly $500,000,000 giving us gross leverage ratio of approximately 2.5x. From a net debt perspective, we expect to be around 2x. Speaker 300:34:05Presuming no further acquisitions, our gross debt is expected to return to year end 2023 levels by year end 2024. Finally, we expect cash flows to continue to improve in 2024 following the momentum of the second half of twenty twenty three as we continue to rigorously manage our inventory and overall working capital levels. We expect Q1 cash flow to be somewhat lower than the remainder of the year due to the timing of incentive compensation payments, equity compensation vesting events, timing of seasonal tax payments and the timing of certain capital expenditures related to completion of our Manchester, UK facility. However, we expect cash flow to strengthen as the year progressing, putting us on a great position to accelerate our acquisition strategy. As always, this guidance does not assume significant changes to foreign exchange rates. Speaker 300:34:56To wrap up guidance, we are excited about the prospect of delivering $1,000,000,000 in sales in 20 20 4. We continue to feel strongly that we are in the right end markets with attractive exposure to secular growth applications and the right strategy for long term growth. In summary, Novanta's performance in the Q4 and full year 2023 was solid and reflected excellent execution by our teams. Our teams delivered revenue and profit performance above our expectations in a dynamic operating environment. This performance is yet another testament to tenacity of our teams to achieve great results no matter the business environment. Speaker 300:35:38Looking towards 20 2024, we are confident in our ability to navigate the short term market based challenges and deliver on an ambitious plan for the year, including on executing new product launches happening in the second half of the year. We continue to see long term growth prospects remaining strong and even accelerating on the back of exciting new product launches and our exposure to high growth end markets to both medical and advanced industrial applications. We look forward growing Novanta to a $1,000,000,000 company and beyond, and we feel we have the right playbook to continue to deliver predictable consistent long term growth and a shareholder value. We remain very confident in our outstanding performance of our employees and their efforts to help us be successful in a dynamic environment. And we remain grateful to our customers' confidence and faith in our ability to deliver to them the innovations they need to be successful. Speaker 300:36:34We look forward to continue to deliver on our commitments to our employees, our customers and our shareholders. This concludes the prepared remarks. We'll now open the call up for questions. Operator00:37:04Our first question will come from Lee Jagoda of CJS Securities. Please go ahead. Speaker 200:37:11Hi, good morning. Good morning, Lee. Speaker 400:37:15So starting with the first half guidance, Robert, can you parse out how much of that guidance relates to the general macro in microelectronics and advanced industrial versus the piece that where customers are basically pausing in anticipation of the new products later in the year? Speaker 300:37:38Yes, I would say less pause, more phasing out legacy products. So effectively ramp down any product that's going to be replaced with a new product to ensure you have a more successful launch on the new product launches. So I would say for overall Novanta, roughly half of it is related to that and half of it is the macroeconomic environment. Speaker 400:38:02Got you. And then looking at your full year revenue guidance, obviously, second half weighted. Can you talk to the range of that guidance? And how much of the lower high end of that range is based on the macro getting better and how much is based on the timing of the product launches at your customers? Speaker 300:38:27Yes. So we're not relying on a, I would say, an improving macroeconomic environment to get to $1,000,000,000 The $1,000,000,000 represent the things that we can control. So obviously there'll be there's more stabilization in the market and you'll see sequentially improving environment. But we're not banking on a very we're not betting on a very large improvement in the macroeconomic environment in the second half in order to hit the top end of the range. The bottom end of the range represents a deterioration in the macroeconomic environment. Speaker 300:39:00So the way we see it today is we're sort of trending towards that $1,000,000,000 If things worsen for geopolitical reasons or some other shoe drops on a macroeconomic perspective, then that's where we see ourselves trending to the lower end of the range. There's nothing that we see today that would necessarily deliver that, but we want to be prudent in the guidance for the full year. Speaker 400:39:24All right. That's fair enough. One more and I'll hop back in queue. Obviously, World of Medicine is driving a lot of the growth coming in late 'twenty four and into 'twenty five. Can you talk to some of your customers product roadmaps as you look out to 2025 and maybe speak to any other significant products or specific drivers of growth beyond the world of medicine that we should start to think about? Speaker 200:39:53Yes, Lee, this is Matthijs. Yes, so I spoke about that the amount of products that we're launching this year is 50% larger than last year. And so that's a record demand of new product launches and they're pretty broad based. So it's not all world of medicine, right? So we've spoken a lot about, I think, the smoke evacuation side, of course, that we think is going to be a standard of care for the next decade, as well as the pump side of that business that we're getting into and we're getting successful design wins. Speaker 200:40:29But beyond that, I've talked before, but let me repeat that we're gaining content in the deep UV, EUV, lithography side of the business. That is an exciting application for us. We expect that to, yes, show some first revenue later in the year and then strong momentum in 2025. We see a lot of intelligent subsystem momentum in precision medicine and spatial biology and multiomics on the back of our Moza or Motion Solutions acquisition. What we're seeing is Motion Solutions has a lot of great customer base in the segments that we were eyeing and they already know the people there. Speaker 200:41:14So we can accelerate our strategy there that way and vice versa, we can help motion solutions to accelerating customers that we are in and they are not. Then we see beam delivery subsystems for advanced micro machining, electric vehicle battery welding, converting. We've spoken about this as well in the past. And these products are launching as we speak or are being launched at the second half of the year in 2025. I mean, you see an overall trend of more precision, more accuracy at super high throughput. Speaker 200:41:52And yes, we have leading technology there. So whenever you see applications that will drive next generation manufacturing technologies to achieve these accuracies, yes, like 3 d printing, like electric vehicles, battery welding, like, let's say, precise medical manufacturing, right, at submicron level, chances are we're in those machines. And there's a trend more towards intelligent subsystems that we're excited about. And then we got the whole robotics and automation space, of course, on the back of our ATI acquisition, but also on the back of our own, let's say, original core business where we see both the sensing, the forced torque sensing as well as the positioning and the intelligence that drives all gaining momentum in robotic surgery, but also warehouse automation and general industrial robotics markets, right. So it's basically we are enabling a sense of touch and motion control in these applications with unique proprietary technology. Speaker 200:42:58So in other words, the list is long. The impact is a bit more consolidated in the WOM business for sure, but you see a large breadth of new products and applications. And therefore, that's why we feel confident and are excited about that breadth and that potential. Speaker 400:43:18That's great color. Thanks very much. I'll hop back in queue. Sure. Operator00:43:24The next question comes from Brian Drab of William Blair. Please go ahead. Speaker 500:43:30Hi, good morning. Thanks for taking my questions. Speaker 200:43:33Good morning, Brian. Good Speaker 500:43:35morning. You ran through a lot of numbers really quickly in terms of the guidance. So sorry if I missed this, but can you aggregate all the dynamics that are occurring in the second half and tell us what you expect for overall company revenue growth in the second half? Speaker 300:43:53I think if you do the range, if you base it off of what I gave in guidance for the Q1 and then look at the full year, let's say, you're trending up towards like $1,000,000,000 for the full year, you'll probably see growth return to our long term growth averages in the Q3 and then in the Q4 getting to double digit type growth, as the new products really kick in a number of different areas, including in the medical solutions being the magnitude of that. Well, that somewhat signals the first half of the year being down organically with it being down more in the Q1 and really less in the Q2. So that's the dynamics. And I would say that the first half performance is more complicated than the second half. The second half performance is really just the stabilization of the market driven by new product introductions driving growth above, let's say, macroeconomic conditions. Speaker 300:44:51In the first half of the year, you have some customers pulling back on any sort of legacy products to make their launches more successful in the back half of the year. And so that's a you got inherent weakness in the life science space, continued weakness in the industrial space, strength on the medical side being somewhat offset by the fact that they are scaling or phasing out those legacy products. But the overall year, we feel pretty good about. So as I said before to the last caller, we're trending right now closer to that $1,000,000,000 level based upon the economic conditions. We're not banking on the economic conditions improving in order to get there. Speaker 300:45:32We're really just assuming that the current stabilized market environment that we're operating in will continue on and our new products will accelerate our growth in the second half. Speaker 500:45:43Great. And you made this comment, I think, pertaining to one specific segment, but you said that if we can get to low double digit growth in the second half, expect to be able to sustain that as you enter 2025. I think that was for one segment. That wasn't for the company overall or does that kind of comment probably pertain to the company overall as well? Speaker 300:46:08Yes, I think it gives us the greater most of that was in relation to the medical solutions area because you have a larger above average ramp in new products effectively. We've talked about this before. Within the MIS space, we have won a multitude of new customers for our next generation, 2nd generation smoke evacuation products. And so that's all that result in that double digit growth in the 4th quarter and then that continued momentum goes into 2025 because of those new product launches. That's a dynamic that Batya has talked about around that $50,000,000 of incremental new product revenue being driven from that. Speaker 300:46:52There's an element of that also benefiting our precision medicine and manufacturing segment. So there should be a little bit stronger growth in 2025 as well. I didn't want to kind of get into that as much. There's some other dynamics in play that are a little bit more complicated to forecast at this point. But clearly, ramping up in next generation lithography and the continued strength and recovery that we expect from next generation DNA sequencing will help that segment drive strong growth as we exit 2024. Speaker 500:47:26Okay. And my last question for now, I'm going to push this line of questioning just a little bit further, but how important is the consumables revenue stream that's going to follow or should follow the introduction of these the new insufflator, some of these platform wins. Consumables has been a relatively small part of the business, but does that get bigger following these intros? Speaker 300:47:54Yes, it absolutely does. So I don't want to get into like how big it is because that will be the question you asked next, but the it effectively will double as well. And so the medical consumables, the great attractiveness around that is that it's a consumable, it's not tied to capital cycles, it will be very tied to surgical procedure rates. Surgical procedure rates are around 6% on a global basis. And so you drive this very steady annuity of around 6% in the medical field tied to our proprietary 2nd generation smoke evacuators and allows us to drive a real sustainable cash flow streams. Speaker 300:48:37Now even though we've talked about it before, we've ramped and completed our Czech Republic manufacturing facility. We are pushing volumes through that now. It is complete and qualified So confident that we will begin to in source that, that will drive the higher gross margin expansion in that segment for the next few years. It also allows us to really drive a higher EBITDA margin because the medical consumables don't have the operating expenses. They're they lever off of the capital equipment sales. Speaker 300:49:09And then think of them as being it's reoccurring. As soon as we get the system in place, we have that annuity stream lasting up to 10 years off of those systems. Speaker 200:49:21Yes. That's great color, Robert. Would just say underneath, right, Brian, it's about winning capital equipment swaps, right? So you can kind of drive the installed base or rather the customers can drive. So we've won new slots that we never had before. Speaker 200:49:37And then we've won slots that where we didn't have prior the consumable revenue stream. So in other words, the percentage of business where we've won basically touch rates with consumables has increased with those design wins. Secondly, there is a trend towards more, I would say, sophisticated consumables, which means higher ASPs, right. We're solving more and more complex problems to make sure that more and more, I would say, indications can be served with our consumables. And then 3rd, we're entering into pumps, which in a way is kind of a greenfield opportunity for us where we didn't have a position to begin with. Speaker 200:50:22So all these things together, you can kind of see where we win more installed base that will drive more consumables. So we have higher ASPs that will then drive, of course, additional growth. And over time, I think in this business, you can expect that consumable business to be larger, yes, than our capital equipment business. Speaker 500:50:45Perfect. Okay. Thanks very much. Speaker 200:50:49Thank you. Operator00:50:51The next question comes from Rob Mason of Baird. Please go ahead. Speaker 600:50:57Hi, good morning. I wanted to circle back to just try to get clarification. Robert, within the within your full guidance revenue guidance for the year, low single digit core growth you said. So I'm assuming around $85,000,000 $90,000,000 from Motion Solutions. What is the headwind from some of the product ramp down that's dialed into that low single digit core growth rate? Speaker 300:51:23Yes. If I won't give an exact number, but if you take the first half growth rates, I would say half of it is related to half of the decline is related to the macroeconomic environment and half of the decline is related to the product ramp downs of legacy products and just management of those legacy products by our customers. So if you take that in a full year organic, kind of that low single digit, you'd probably be closer to something in the mid single digit territory for the full year. So that gives you a little bit of that scaling, right? And it's mostly a first half dynamic versus second half dynamic, which is where it's kind of predominantly related to the Medical Solutions side of the segments. Speaker 600:52:17Okay. And if, appreciate the commentary, just around medical overall high level between the surgical exposure versus life sciences patient monitoring. How does that exposure break down? Or what percent is surgical versus life science patient monitoring? Speaker 300:52:37I think it's a question that we are delinquent on answering. You've asked us that a few times. We do have to get some information out on that. I apologize for not completing that by year end. It's fair to say, overall kind of Medical Solutions is roughly half of it is tied to more of a pure, a pure minimum evasive surgical business and then the other half of it ties to more of that mix of life science precision medicine and some stuff going into patient monitoring equipment and drug dispensing equipment. Speaker 300:53:17So it's roughly fifty-fifty in the Medical Solution segment overall. Speaker 600:53:22Okay. Okay. And just maybe last question. Matthijs, you had noted ATI seen some improvement in their bookings in the robotics space. Could you just maybe isolate on where they were seeing some of those improvements? Speaker 600:53:39Is China part of that improvement? Or what's the perspective how China factors into advanced industrial and the outlook as well? Speaker 200:53:49Yes. I mean, China, we're seeing some modest improvement, but think it's fair to say we're not banking on an improvement there for the full year, right? Because, yes, I would say that's probably the region where we have least visibility and where it's, yes, toughest to say when that will turn. Now having said that, we do feel that globally and particularly in the U. S, inventories have worked their way down or are working their way down. Speaker 200:54:23And therefore, we think towards sequentially basically in the year that will improve and drive the momentum. So I would say regionally, probably U. S. The strongest, Europe bottoming and then China remains to be seen, although we see some green shoots there as well, albeit from a low level, yes? And we're not in our guide assuming a massive recovery or so. Speaker 600:54:53Okay, very good. Thank you. Speaker 200:54:56Thanks, Rob. Operator00:54:58This concludes our question and answer session. I would like to turn the conference back over to Mr. Matthijs Guastra for any closing remarks. Speaker 200:55:08Thank you, operator. So to recap, Novanta delivered solid performance in 2023 in the 4th quarter and for the full year. Our teams delivered revenue and profit performance above our expectations in a dynamic operating environment. We achieved record revenue, excellent gross margin expansion and solid profit and cash flow performance. And this came despite challenging headwinds in the end markets we serve. Speaker 200:55:33And we secured the Motion Solutions acquisition, which will be an attractive growth platform for us in 2024 and beyond. So Novanta remains well positioned in the medical and advanced industrial end markets with diversified exposure to long term macro trends in robotics and automation precision medicine, minimally invasive surgery and industry 4.0. And in 2024, we're excited for the large product launches starting later this year and we will continue to focus on additional design wins and high growth applications as well as doubling down on the Novanta growth system 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. And I continue to be especially grateful for all the dedicated efforts of all our employees who work so diligently every day and taking on new challenges and striving to make the company a great place to work. Speaker 200:56:32We appreciate your interest in the company and your participation in today's call. I look forward to joining all of you in several months in our first quarter and 2024 earnings call. Thank you very much. This call is now adjourned. Operator00:56:47The conference has now concluded. Thank you for attending today's presentation and you may now disconnect.Read morePowered by Conference Call Audio Live Call not available Earnings Conference CallNovanta Q4 202300:00 / 00:00Speed:1x1.25x1.5x2x Earnings DocumentsPress Release(8-K)Annual report(10-K) Novanta Earnings HeadlinesNovanta 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.com3..2..1.. AI 2.0 ignition (don’t sleep on this)I just put together an urgent new presentation that you need to see right away. In short: I believe we are mere days away from a critical announcement from a key tech leader… One that will officially ignite “AI 2.0” – and potentially send a whole new class of stocks soaring. May 6, 2025 | Timothy Sykes (Ad)Novanta’s (NASDAQ:NOVT) Q1 Earnings Results: Revenue In Line With Expectations But Stock Drops 12.3%May 6 at 5:58 PM | msn.comNovanta Inc. (NOVT) Q1 2025 Earnings Call TranscriptMay 6 at 5:02 PM | seekingalpha.comNovanta Announces Financial Results for the First Quarter 2025May 6 at 7:00 AM | businesswire.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. The company was founded in 1968 and is headquartered in Bedford, MA.View Novanta ProfileRead more More Earnings Resources from MarketBeat Earnings Tools Today's Earnings Tomorrow's Earnings Next Week's Earnings Upcoming Earnings Calls Earnings Newsletter Earnings Call Transcripts Earnings Beats & Misses Corporate Guidance Earnings Screener Earnings By Country U.S. Earnings Reports Canadian Earnings Reports U.K. Earnings Reports Latest Articles Palantir Stock Drops Despite Stellar Earnings: What's Next?Is Eli Lilly a Buy After Weak Earnings and CVS-Novo Partnership?Is Reddit Stock a Buy, Sell, or Hold After Earnings Release?Warning or Opportunity After Super Micro Computer's EarningsAmazon Earnings: 2 Reasons to Love It, 1 Reason to Be CautiousRocket Lab Braces for Q1 Earnings Amid Soaring ExpectationsMeta Takes A Bow With Q1 Earnings - Watch For Tariff Impact in Q2 Upcoming Earnings ARM (5/7/2025)AppLovin (5/7/2025)Fortinet (5/7/2025)MercadoLibre (5/7/2025)Cencora (5/7/2025)Carvana (5/7/2025)Walt Disney (5/7/2025)Emerson Electric (5/7/2025)Johnson Controls International (5/7/2025)Lloyds Banking Group (5/7/2025) Get 30 Days of MarketBeat All Access for Free Sign up for MarketBeat All Access to gain access to MarketBeat's full suite of research tools. 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There are 7 speakers on the call. Operator00:00:00Good 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 Incorporated 2023 4th Quarter and Full Year Earnings Call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question and answer session. Operator00:00:31Please 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 100:00:42Thank you very much. Good morning, and welcome to Novanta's Q4 and full year 2023 earnings conference call. I am 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 100:01:10Please 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 100:01:46We 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 100:02:24I'm now pleased to introduce the Chair and Chief Executive Officer of Novanta, Matthijs Glastra. Speaker 200:02:30Thank you, Ray. Good morning, everybody, and thanks for joining our call. Novanta delivered solid performance in 2023 in the Q4 and for the full year. I'm very proud of how our teams delivered revenue and profit performance above our expectations in a dynamic market environment. For the full year of 2023, we achieved a record $882,000,000 in revenue, expanded adjusted gross margins by over 100 basis points to 47 percent and expanded adjusted EBITDA to $196,000,000 a 100 basis point improvement in EBITDA margins. Speaker 200:03:09Our sales grew 2 percent year over year on a reported basis and 1% on an organic basis. Excluding Microelectronics applications, our growth for the full year was up high single digits. For the Q4, we delivered $212,000,000 in revenue, which represents a decline of 3% on a reported basis and a decline of 4% on an organic basis. Excluding Microelectronics, our organic growth was down approximately 1%. Adjusted EBITDA was greater than $45,000,000 beating our expectations and prior guidance. Speaker 200:03:46Operating cash flow was very strong for the 2nd straight quarter at approximately $39,000,000 which represents more than 300% conversion to net income. This operating performance reflects excellent execution by our teams in a challenging market economic environment. In addition to all of this, in 2023, we signed an agreement to acquire Motion Solutions, which will enhance our portfolio and further expand our presence in the highly attractive medical and precision medicine space. We're happy to have completed the acquisition at the beginning of January 2024. The sticky Novanta business model with diversified exposure to long life cycle customer platforms in secular high growth markets has proven resilient under multiple geopolitical and market economic scenarios. Speaker 200:04:38Our proprietary technologies are well positioned in medical and advanced industrial applications with long term secular tailwinds such as robotics and automation, minimally invasive and robotic surgery and precision medicine. Medical applications made up 4% of our sales in 2023 versus single digit percentage of sales a decade ago, which we believe provides Novanta with greater resilience during fluctuating macroeconomic conditions. We feel there are strong customer relationships with the leading OEMs in these secular growth applications to strengthen diversification of our portfolio and our sticky business model allowing Avanta to drive robust performance through the economic cycles. In the Q4, the broader end market themes were that medical markets continue to be strong, life sciences and advanced industrial markets slowed down in line with the PMI indices and interest rate environment and microelectronics stabilized with signs it has now bottomed. In addition, in the Q4, the team made further progress in bringing down lead times to our customers, which are now broadly at pre pandemic levels. Speaker 200:05:46At the same time, some customers slowed ordering to better manage their year end inventory levels and cash flows. This dynamic resulted in a book to bill of 0 point 7, which was in line with our expectations and should represent the bottom of our bookings trajectory with sequential improvements expected from here. Speaking to the business environment more broadly, as we head into 2024, we are feeling confident in the diversity and breadth of our business portfolio to weather a dynamic environment. As we mentioned in our last earnings call, we continue to see a somewhat weaker demand environment in the first half of twenty twenty four, in line with the growth rates we experienced in the second half of twenty twenty three. We We expect the second half of twenty twenty four to be characterized by stabilizing interest rate environment with accelerating Novanta momentum on the back of new product launches. Speaker 200:06:40We are excited about and confident in the record amount of new product launches we're planning on in 2024. Going into more detail, for the full year of 2023, sales to medical markets made up approximately 54% of total Novanta sales and grew 13% versus the prior year, driven by strong double digit growth in minimally invasive surgery, surgical robotics, patient monitoring, in vitro diagnostics and DNA sequencing applications. In the Q4, sales to medical markets remained steady and roughly flat versus the prior year, again making up approximately 54% of total Novanta sales. During the quarter, we saw stable levels of shipments to many of our surgical OEM customers. We also saw some decline in our shipments to our life sciences customers driven by the deferral of end user orders due to a higher interest rate environment. Speaker 200:07:35Turning to Advanced Industrial Markets. For the full year of 2023, sales to Advanced Industrial Markets, excluding microelectronic applications, were up 1% year over year. As a reminder, Novanta plays in advanced industrial applications with mid to high single digit long term growth, driven by secular trends such as Industry 4.0, Robotics and Automation and Precision Manufacturing. Our advanced industrial sales in the 4th quarter were down 1% year over year and made approximately 38% of total Naventha sales. The sales decline was in line with our expectations due to the rapid rise in interest rates and continued weakness in China as well as other geopolitical disruptions. Speaker 200:08:17While these trends are expected to continue in the first half of twenty twenty four, customers are using the slowdown to catch up on next generation innovations. Finally, in our microelectronics markets, which represented just 7% of sales in the 4th quarter, the performance was roughly the same as we said in our last call. For the full year of 2023, the overall drop in the microelectronics market was a 700 basis point headwind on total Movanta sales growth, which was larger than we originally anticipated. To repeat from before, excluding Market Electronics, Movanta revenue growth for the full year was up high single digit year over year. As we look out into 2024 2025, we remain excited that the composition of this end market exposure will shift to more secular growing and less cyclical applications such as next generation lithography. Speaker 200:09:10This application is expected to see a strong tailwind the rest of this decade as a result of global demand for artificial intelligence, electrification and high performance computing. We also expect the momentum in this market to sequentially improve with improving fab utilization and normalizing inventory levels. Across all our end markets, we continue to stay focused on gaining content and share with intelligent subsystems into multiple higher growth application areas. We are confidently leaning in with a record amount of new product launches in 2024, up 50% versus 2023 with more scheduled for 2025, all of which will lead to $50,000,000 of new revenue in 2025 with strong growth in the next several years following that. As a reminder, our new product pipeline is geared towards intelligent subsystems and strategic growth applications such as minimally invasive surgery, robotic surgery, next generation lithography, precision manufacturing applications and precision motion solutions for robotics and automation applications. Speaker 200:10:18Now let me touch on some of Mavento's strategic growth metrics. For our design wins in the Q4, we saw growth of strong double digits versus prior year. We saw excellent design win activity in multiple businesses, particularly with our advanced industrial customers, which bodes well for future growth in those end markets. Although our full year design wins were still modestly down year over year, this was partially driven by the large wins in minimally invasive surgery in 2022. Excluding those large platform wins from prior year, Novanta had double digit design growth in 2023. Speaker 200:10:53Our vitality index in the 4th quarter was still at about mid teens percentage of sales. This was in line with our expectations. We expect our vitality index to rebound to above 20% in late 24, driven by our pipeline of new product launches. We remain very excited by our momentum in customer wins and our strongest new product lineup in a decade. Based on this, we reiterate with confidence Novanta long term growth framework of consistent mid to high single digit organic growth through the business cycles. Speaker 200:11:25Next, I'd like to give you a brief update on Novanta's acquisition activities. As already mentioned, we were very pleased to announce that we completed the acquisition of Motion Solutions in January. As a reminder, Motion Solutions offers customized and high precision motion subsystems and components to market leading OEMs centered on medical and life sciences applications. They are a market leading business and their team shares our passion for customers, innovation and solving complex technical challenges. The integration of Motion Solutions is on schedule and we are seeing a high level of engagement with our team. Speaker 200:12:01We are impressed with the strong and sticky customer relationships creates the potential to develop new and unique intelligent subsystems, creates the potential to develop new and unique intelligent subsystems using our combined technology offerings. These joint product development activities have already gotten started and although we are very early on, our teams are already working seamlessly together both on the new solutions as well as cross selling each other's technology to our complementary customer bases. We will be including Motion Solutions as part of the Medical Solutions segment for reporting purposes because of the close alignment with the customer base in this segment. The financial outlook for Motion Solutions looks promising in line with our expectations and it will be factored into the 2024 guidance with Robert, which Robert will share later in this call. Even with the Motion Solutions transaction, acquisitions remain Novanta's top priority for capital allocation. Speaker 200:13:05We have a strong pipeline of potential targets. Our balance sheet is strong and can handle additional transactions. So you should expect us to continue to be active in the marketplace in 2024. Now I'd like to share a few comments on how we continue to evolve our culture of Novanta Corp and Novanta Way. We believe that the Novanta Way has been a differentiator in attracting, retaining and developing developing for talent. Speaker 200:13:26It's ultimately our talent and our culture that will make the difference. We continue to see below market labor attrition rates, both among our leadership ranks as well as across all our company employees. We're focusing on a few factors to retain our employees, competitive paying, great company culture and career development and progression. We continue to focus on improving our employee engagement scores, and we have invested heavily into leadership development initiatives and employee training on the Novanta Growth System. Sustainability also remains an important topic for Novanta. Speaker 200:13:59We've made steady progress on our long term journey, reducing our environmental footprint. And in a few weeks, we will be publishing our 2023 sustainability report, where we will share details on our goals and our accomplishments. One of the most critical aspects of our company culture is embedding the Novanta Growth System or NGS to drive excellence into the many ways we work together. In 2023, we've accelerated deployment of the Novanta Growth System deeper into the organization, completing a few dozen kaizen events, launching many structured problem solving actions, deploying rigorous daily management routines, using eightytwenty portfolio management and utilizing project management planning activities at all levels of the organization to fundamentally improve our operating results. We trained hundreds of Novanta employees on using the NGS tools from leaders to frontline employees. Speaker 200:14:59These efforts have had a dramatic impact on our operations, including throughput and yield improvement in our factories, improving our supply chain and planning processes to enhance delivery performance to our customers, accelerating material and labor productivity, reducing cycle time of back office processes and improving time to market over our new product launches. NGS is truly becoming a fundamental part of Novanta's identity and it's helping unite our employees by giving us a common language and a common way of collaborating, which is increasing teamwork and successful problem solving. We are very excited to continue to evolve NGS as we head into 2024. Summary, Novanta delivered solid operating performance in 2023 while navigating a dynamic macroeconomic environment. We achieved record sales, strong margin expansion, delivered on our profit commitments and improved cash flows. Speaker 200:15:53We've made great progress in deploying the Novanta Growth Systems and had continued success at further establishing a thriving company culture. And we enhanced our portfolio with the Motion Solutions acquisition, which further expands our presence in highly attractive medical and precision medicine end markets. As we look to 2024, we have 3 priorities. 1st, launch and ramp a record set of new products. 2nd, expand our margins and cash flow using NGS and 3rd, continue to acquire additional companies that fit our strategy at attractive returns. Speaker 200:16:30With that, Speaker 300:16:30I will turn the call over to Robert to provide more details on our operations and financial performance. Robert? Thank you, Matthijs, and good morning, everybody. Non GAAP adjusted gross profit was $100,000,000 or 47 percent adjusted gross margin compared to $98,000,000 or 45 percent of the gross margin in the Q4 of 2022. For the quarter, adjusted gross margins were up 2 20 basis points year over year. Speaker 300:16:55For the full year of 2023, non GAAP adjusted gross profit was $413,000,000 or 47 percent adjusted gross margin compared to $392,000,000 or 46 percent gross margin in the prior year. 2023 adjusted gross margins were up 100 and 20 basis points year over year, which exceeded our goal. This represent a fantastic outcome for our teams, especially considering the slight drop in volumes in half of the year. Our success with gross margin expansion in the year was largely driven by the deployment and adoption of the Novanta Growth System productivity tools in our factories and in our operating teams. Moving on to operating expenses. Speaker 300:17:36For the Q4, R and D expenses were roughly $23,000,000 or approximately 11 percent of sales. For the full year, R and D expenses were roughly $92,000,000 or approximately 10% of sales. 4th quarter SG and A expenses were slightly below $42,000,000 or roughly 20% of sales. For the full year, SG and A expenses were 100 and $64,000,000 or roughly 19 percent of sales. Adjusted EBITDA was approximately $45,000,000 in the 4th quarter or a 21% EBITDA margin versus $46,000,000 in the prior year. Speaker 300:18:13For the full year of 2023, adjusted EBITDA was approximately 190 $6,000,000 or a 22 percent adjusted EBITDA margin versus $184,000,000 in the prior year. EBITDA margins expanded by roughly 100 basis points year over year. On the tax front, our non GAAP tax rate for the 4th quarter was 21%. This differed from the statutory rate due to jurisdictional mix of income. For the full year of 2023, our non GAAP tax rate was just above 16%, which was flat with the prior year. Speaker 300:18:45Our non GAAP adjusted earnings per share was 0 point 6 $3 in the 4th $3 Speaker 400:18:50in the 4th quarter compared to $0.75 in Speaker 300:18:50the Q4 of 2022. For the full year of 2023, our non GAAP adjusted earnings per share was $3.02 compared to 3 point $7 in the full year of 2022. Our EPS performance in 2023 was obviously impacted by the significant increase in interest rates on our debt impacting interest expense. 4th quarter operating cash flow was approximately $39,000,000 or for the full year operating cash flow was approximately $120,000,000 compared to $91,000,000 in the prior year, representing an increase of 32% year over year. We are pleased with the improvement in cash flows in the second half of the year, and we expect to carry this momentum into 2024 as we continue to rigorously manage our net working capital and drive operating profits. Speaker 300:19:35We ended the year with gross debt of $358,000,000 with a gross leverage ratio of approximately 1.8 times. Our net debt was $253,000,000 positioning the company well to fund further acquisitions. Turning to backlog and bookings, we ended the year with a backlog of $473,000,000 which was still above pre pandemic coverage levels, but is close to our expectation of backlog coverage on a go forward basis. Our book to bill in the Q4 was 0.70, which was largely in line with our expectations. This low book to bill reflects both the continued reduction of lead times by our customers back to historical levels as well as some impact from customers reducing inventory levels to maximize their cash positions at year end and to a lesser extent to deal with the lower visibility macroeconomic dynamics. Speaker 300:20:26I'll now turn to an update of the performance of the operating segments. First, I'll speak to the Precision and Manufacturing segment. 4th quarter sales declined 5% year over year, which was slightly more than our prior guidance. The book to bill in this segment was 0.50 for the Q4, driven by end market demand deferrals in life science and advanced industrial applications and deferrals in purchases by our customers to maximize the year end cash flows, which are the dynamics we previously just discussed. We have confidence these were temporary dynamics as over the last 2 months, we've already experienced a sequential improvement in order activity. Speaker 300:21:05Therefore, we believe our order volume hit its bottom and expect it to rebound as we progress into the New Year. Despite the weaker Q4, for the full year of 2023, this segment demonstrated strong financial performance overall. The segment delivered 3% year over year revenue growth and adjusted gross margin expansion of over 200 basis points. The book to bill for the full year was 0.78, which mainly reflects the continued normalization of lead times as customer adjusted their backlog coverage closer to pre pandemic levels as well as the previously discussed softening of demand from life science and advanced industrial markets. With precision medicine and manufacturing, new product revenue stayed strong at greater than 20% of sales in the 4th quarter, which is the same for the full year. Speaker 300:21:51Design wins in this segment were up strong double digits year over year in the Q4 and the segments achieved design win growth for the full year based on the strength of the Q4 results. We're excited about the progress being made with multiple large strategic customers, which gives us the confidence we see growth in this segment returning later in the second half of twenty twenty four. Turning to Robotics and Automation segment. This segment experienced a revenue decline of 10% year over year in the quarter. This was in line with our expectations in prior guidance. Speaker 300:22:23The decline was mainly driven by the impact of weaknesses in the sales through advanced industrial end markets, largely caused by industrial robotics dynamics and microelectronic weaknesses that we reported in the last quarter. The headwinds related to microelectronics have showed signs of stabilizing and some green shoots of growth started to materialize, particularly in China. While these end market dynamics 2024. The overall book to bill ratio in this segment for the quarter was 0.93, which is a sequential improvement and is indicative of a more stable demand environment across the segment and its end markets. Our ATI business saw a book to bill greater than 1 in the 4th quarter, which further strengthens our confidence in a sequentially improving industrial robotic market in 2024. Speaker 300:23:17For the full year of 2023, Robotics and Automation segments saw sales decline 11% year over year, mainly driven by the headwind from sales to microelectronics. Book to bill for the full year was 0.83. Despite the challenges this segment faced, it still successfully expanded gross margins over 50 basis points for the full year, which was an impressive outcome. New product revenue was roughly 10% of sales for the segment in the quarter and for the full year. Design wins in this segment more than doubled year over year and full year design wins grew strong double digits. Speaker 300:23:55The design win strength further solidifies our confidence in 2024 and beyond. Finally, in Medical Solutions, this segment experienced reported revenue growth of 5% year over year, which was in line with our expectations. Growth in this segment continues to be driven by strength in elective surgical procedures as well as our JADAC business line where the business continues to perform well, thanks to broader strength in hospital spending. The Medical Solutions segment saw a book to bill of 0.70 in the 4th quarter. The weaker bookings mainly reflect the normalization of lead times and softening of demand from some life science end markets. Speaker 300:24:31However, we also saw some timing related impacts from some of our medical customers managing the year end inventory levels and from reducing orders on legacy product platforms as they ready their ramps for their 2024 new product launches in the second half. For the full year, this segment saw excellent growth, growing 17% year over year. The book to bill for the full year was 0.92. This reflects the resilient strength of demand at medical end markets. We are pleased to see this segment deliver strong adjusted gross margins with margins increasing 200 basis points for the full year. Speaker 300:25:10This is driven by the dedicated efforts of our operating teams who are having success at deploying the Novanta Growth tools deeper into their business operations. The vitality index in this segment remained at mid teens percent of sales level in line with our expectations. As we mentioned before, we expect this metric to significantly rebound later in 2024 as we launch multiple new products with our customers in the second half of twenty twenty four. Overall, our segments performed as we expected in the quarter and they were able to handle a variety of obstacles caused by a shifting macroeconomic environment. It's a testament to the strength of the talent in our businesses and the flexibility to adapt to a rapidly changing set of challenges. Speaker 300:25:50We are proud of our team's performance. Now turning to guidance. In our medical end markets, we expect to see different dynamics between our exposure to surgical equipment versus life science and precision medicine equipment. For surgical equipment, we are expecting a strong year of growth. In the first half of the year, our legacy products will trend down, muting growth as both customers phase them out in anticipation of new product launches and as we proactively phase out less attractive products to create capacity for the new product launches in the second half. Speaker 300:26:22However, these new launches are expected to lead to low double digit growth in the second half, allowing us to finish the year strong and positioning us well to sustain this growth into 2025 and beyond. For life science and precision medicine equipment, we expect continued temporary weakness in the first half due largely to the interest rate environment pressuring capital spending in this industry, which will result in low single digit declines in sales. However, in the second half, these applications should return to growth as both product launches kick in and interest rates normalize, allowing the broader biopharma equipment market to stabilize and gradually improve. We expect these dynamics will lead to overall growth rising to low single digit levels in the second half. In total, for the full year, we expect our medical markets to see growth with strong growth weighted in the second half. Speaker 300:27:13In our advanced industrial end markets, we again see 2 different dynamics split between microelectronics versus all other applications. In microelectronics, which represent approximately 7% of sales now, we are seeing some early signs of improvement in the marketplace. We expect this end market to have flat growth in the first half of the year, but it's expected to return to low double digit growth in the back half of the year. This is caused by both incremental improvements in the end market and the impact of new product launches mainly in next generation lithography. For the remainder of our advanced industrial exposures, these applications are more sensitive to the interest rate and macroeconomic dynamic and therefore expect to see low single digit decline in the first half of the year. Speaker 300:27:58However, in the second half of the year, we expect to see gradual improvement in demand as interest rates normalize, new products and platforms ramp and 2025 demand starts to appear in the order books, resulting in growth in the low to mid single digit range. In total, our advanced industrial markets should be roughly flat for the full year, but showing solid growth in the Q4. To start in the guidance for the full year of 2024. For revenue guidance, we now expect GAAP revenue in the range of $975,000,000 to $1,000,000,000 This would represent low single digit organic growth for the full year. On the segment level, we expect Precision Medicine and Manufacturing segment revenue to grow low single digit percent on a year over year basis. Speaker 300:28:44Our Robotics and Automation segment revenue is expected to grow low single digit percent year over year. And finally, our Medical Solutions segment, which now includes the Motion Solutions acquisition. We expect strong double digit reported growth, driven largely by the addition of Motion Solutions and low single digit organic growth. Moving on to Novanta's adjusted gross margin, we expect gross margin for the full year to be approximately 46% to 47%, which is roughly flat year over year. Covanta's core gross margins, excluding the Motion Solutions acquisitions, will be up 100 basis points from the prior year. Speaker 300:29:25As we mentioned before, the Motion Solution business will be dilutive in the 1st year or 2 as we shift their business into higher gross margin products and solutions. In the segments, both the Precision Medicine and Manufacturing segment and the Robotics and Automation segment should see healthy margin expansion for the full year in the range of 100 to 150 basis points as both these segments continue to execute on margin expansion plans using the Novanta Growth System tools. The Medical Solutions segment is expected to have gross margins down 50 to 100 basis points versus the prior year, where strong margin expansion in Novanta's core business is offset by the dilutive impact of Motion Solutions. Turning to R and D and SG and A expenses, they are expected to be approximately $280,000,000 to $290,000,000 for the full year. The increase in cost year over year is largely driven by the addition of motion solutions as well as labor cost increases and further investments in our innovative pipeline and some further investments in our commercial engine. Speaker 300:30:28Depreciation expense should be approximately $16,000,000 for the full year compensation expense should be approximately $29,000,000 for the full year. For adjusted EBITDA for the full year of 2024, we expect a range $215,000,000 to $225,000,000 Interest expense, which was nearly $26,000,000 in the full year of 2023, is expected to be roughly $31,000,000 for the full year of 2024. The higher interest rate expense year over year is driven by the additional borrowing on the Motion Solutions transaction. We expect our non GAAP tax rate to be around 18% for the full year of 2024. The guidance includes our current view of the impact of OECD Pillar 2 global minimum tax rates. Speaker 300:31:14Our current view is that Novanta has some exposure here, which has been factored in, but the United States and China have not yet enacted the rules yet. Due to the uncertainty of whether in which countries will enact the rules, the timing of individual country legislation actions and the underlying complexity of the rules, the impact on us is not reasonably estimatable at this time. Diluted weighted average shares outstanding will be approximately 36,000,000 shares. For the full year of 2024, adjusted earnings per share is now expected to be $3.10 $3.35 For the Q1 of 2024, revenue guidance we expect GAAP revenue in the range of 225 $1,000,000 to $230,000,000 which represents organic revenue declines between 6% 4% on a year over year basis. We believe the Q1 represents the bottom for Novanta's revenue on an organic basis due to both end market demand weaknesses and legacy products phasing out in advance of new product launches in the second half. Speaker 300:32:16On a segment level in the Q1, we expect Precision Medicine revenue to decline mid single digit on a year over year basis. Our Robotics and Automation segment revenue is expected to decline low double digit percent and our Medical Solutions segment is expected to demonstrate year over year double digit reported revenue growth in the first quarter, driven largely by the addition of Motion Solutions. And organically, we expect this segment to be roughly flat year over year. Moving on to adjusted gross margin, we expect to be approximately 45.5% to 46% in the Q1, which is roughly flat year over year. In the segments, gross margins are expected to be flat to up sequentially in precision medicine and manufacturing and robotics and automation. Speaker 300:33:05The Medical Solutions segment is expected to have a sequential decline in gross margins in the Q1 due to the dilutive impact of Motion Solutions. For R and D and SG and A expenses, we expect to be approximately $69,000,000 to $70,000,000 Depreciation expense will be approximately $4,000,000 in the Q1. Stock compensation expense will be approximately 8,000,000 dollars For adjusted EBITDA, we expect a range of $45,000,000 to $48,000,000 Interest expense is expected to be roughly $9,000,000 and we expect our non GAAP tax rate to be around 18%. For adjusted diluted earnings per share, we expect a range of $0.55 to $0.60 Following the close of the Motion Solutions acquisition, we expect gross debt at the end of the Q1 to be roughly $500,000,000 giving us gross leverage ratio of approximately 2.5x. From a net debt perspective, we expect to be around 2x. Speaker 300:34:05Presuming no further acquisitions, our gross debt is expected to return to year end 2023 levels by year end 2024. Finally, we expect cash flows to continue to improve in 2024 following the momentum of the second half of twenty twenty three as we continue to rigorously manage our inventory and overall working capital levels. We expect Q1 cash flow to be somewhat lower than the remainder of the year due to the timing of incentive compensation payments, equity compensation vesting events, timing of seasonal tax payments and the timing of certain capital expenditures related to completion of our Manchester, UK facility. However, we expect cash flow to strengthen as the year progressing, putting us on a great position to accelerate our acquisition strategy. As always, this guidance does not assume significant changes to foreign exchange rates. Speaker 300:34:56To wrap up guidance, we are excited about the prospect of delivering $1,000,000,000 in sales in 20 20 4. We continue to feel strongly that we are in the right end markets with attractive exposure to secular growth applications and the right strategy for long term growth. In summary, Novanta's performance in the Q4 and full year 2023 was solid and reflected excellent execution by our teams. Our teams delivered revenue and profit performance above our expectations in a dynamic operating environment. This performance is yet another testament to tenacity of our teams to achieve great results no matter the business environment. Speaker 300:35:38Looking towards 20 2024, we are confident in our ability to navigate the short term market based challenges and deliver on an ambitious plan for the year, including on executing new product launches happening in the second half of the year. We continue to see long term growth prospects remaining strong and even accelerating on the back of exciting new product launches and our exposure to high growth end markets to both medical and advanced industrial applications. We look forward growing Novanta to a $1,000,000,000 company and beyond, and we feel we have the right playbook to continue to deliver predictable consistent long term growth and a shareholder value. We remain very confident in our outstanding performance of our employees and their efforts to help us be successful in a dynamic environment. And we remain grateful to our customers' confidence and faith in our ability to deliver to them the innovations they need to be successful. Speaker 300:36:34We look forward to continue to deliver on our commitments to our employees, our customers and our shareholders. This concludes the prepared remarks. We'll now open the call up for questions. Operator00:37:04Our first question will come from Lee Jagoda of CJS Securities. Please go ahead. Speaker 200:37:11Hi, good morning. Good morning, Lee. Speaker 400:37:15So starting with the first half guidance, Robert, can you parse out how much of that guidance relates to the general macro in microelectronics and advanced industrial versus the piece that where customers are basically pausing in anticipation of the new products later in the year? Speaker 300:37:38Yes, I would say less pause, more phasing out legacy products. So effectively ramp down any product that's going to be replaced with a new product to ensure you have a more successful launch on the new product launches. So I would say for overall Novanta, roughly half of it is related to that and half of it is the macroeconomic environment. Speaker 400:38:02Got you. And then looking at your full year revenue guidance, obviously, second half weighted. Can you talk to the range of that guidance? And how much of the lower high end of that range is based on the macro getting better and how much is based on the timing of the product launches at your customers? Speaker 300:38:27Yes. So we're not relying on a, I would say, an improving macroeconomic environment to get to $1,000,000,000 The $1,000,000,000 represent the things that we can control. So obviously there'll be there's more stabilization in the market and you'll see sequentially improving environment. But we're not banking on a very we're not betting on a very large improvement in the macroeconomic environment in the second half in order to hit the top end of the range. The bottom end of the range represents a deterioration in the macroeconomic environment. Speaker 300:39:00So the way we see it today is we're sort of trending towards that $1,000,000,000 If things worsen for geopolitical reasons or some other shoe drops on a macroeconomic perspective, then that's where we see ourselves trending to the lower end of the range. There's nothing that we see today that would necessarily deliver that, but we want to be prudent in the guidance for the full year. Speaker 400:39:24All right. That's fair enough. One more and I'll hop back in queue. Obviously, World of Medicine is driving a lot of the growth coming in late 'twenty four and into 'twenty five. Can you talk to some of your customers product roadmaps as you look out to 2025 and maybe speak to any other significant products or specific drivers of growth beyond the world of medicine that we should start to think about? Speaker 200:39:53Yes, Lee, this is Matthijs. Yes, so I spoke about that the amount of products that we're launching this year is 50% larger than last year. And so that's a record demand of new product launches and they're pretty broad based. So it's not all world of medicine, right? So we've spoken a lot about, I think, the smoke evacuation side, of course, that we think is going to be a standard of care for the next decade, as well as the pump side of that business that we're getting into and we're getting successful design wins. Speaker 200:40:29But beyond that, I've talked before, but let me repeat that we're gaining content in the deep UV, EUV, lithography side of the business. That is an exciting application for us. We expect that to, yes, show some first revenue later in the year and then strong momentum in 2025. We see a lot of intelligent subsystem momentum in precision medicine and spatial biology and multiomics on the back of our Moza or Motion Solutions acquisition. What we're seeing is Motion Solutions has a lot of great customer base in the segments that we were eyeing and they already know the people there. Speaker 200:41:14So we can accelerate our strategy there that way and vice versa, we can help motion solutions to accelerating customers that we are in and they are not. Then we see beam delivery subsystems for advanced micro machining, electric vehicle battery welding, converting. We've spoken about this as well in the past. And these products are launching as we speak or are being launched at the second half of the year in 2025. I mean, you see an overall trend of more precision, more accuracy at super high throughput. Speaker 200:41:52And yes, we have leading technology there. So whenever you see applications that will drive next generation manufacturing technologies to achieve these accuracies, yes, like 3 d printing, like electric vehicles, battery welding, like, let's say, precise medical manufacturing, right, at submicron level, chances are we're in those machines. And there's a trend more towards intelligent subsystems that we're excited about. And then we got the whole robotics and automation space, of course, on the back of our ATI acquisition, but also on the back of our own, let's say, original core business where we see both the sensing, the forced torque sensing as well as the positioning and the intelligence that drives all gaining momentum in robotic surgery, but also warehouse automation and general industrial robotics markets, right. So it's basically we are enabling a sense of touch and motion control in these applications with unique proprietary technology. Speaker 200:42:58So in other words, the list is long. The impact is a bit more consolidated in the WOM business for sure, but you see a large breadth of new products and applications. And therefore, that's why we feel confident and are excited about that breadth and that potential. Speaker 400:43:18That's great color. Thanks very much. I'll hop back in queue. Sure. Operator00:43:24The next question comes from Brian Drab of William Blair. Please go ahead. Speaker 500:43:30Hi, good morning. Thanks for taking my questions. Speaker 200:43:33Good morning, Brian. Good Speaker 500:43:35morning. You ran through a lot of numbers really quickly in terms of the guidance. So sorry if I missed this, but can you aggregate all the dynamics that are occurring in the second half and tell us what you expect for overall company revenue growth in the second half? Speaker 300:43:53I think if you do the range, if you base it off of what I gave in guidance for the Q1 and then look at the full year, let's say, you're trending up towards like $1,000,000,000 for the full year, you'll probably see growth return to our long term growth averages in the Q3 and then in the Q4 getting to double digit type growth, as the new products really kick in a number of different areas, including in the medical solutions being the magnitude of that. Well, that somewhat signals the first half of the year being down organically with it being down more in the Q1 and really less in the Q2. So that's the dynamics. And I would say that the first half performance is more complicated than the second half. The second half performance is really just the stabilization of the market driven by new product introductions driving growth above, let's say, macroeconomic conditions. Speaker 300:44:51In the first half of the year, you have some customers pulling back on any sort of legacy products to make their launches more successful in the back half of the year. And so that's a you got inherent weakness in the life science space, continued weakness in the industrial space, strength on the medical side being somewhat offset by the fact that they are scaling or phasing out those legacy products. But the overall year, we feel pretty good about. So as I said before to the last caller, we're trending right now closer to that $1,000,000,000 level based upon the economic conditions. We're not banking on the economic conditions improving in order to get there. Speaker 300:45:32We're really just assuming that the current stabilized market environment that we're operating in will continue on and our new products will accelerate our growth in the second half. Speaker 500:45:43Great. And you made this comment, I think, pertaining to one specific segment, but you said that if we can get to low double digit growth in the second half, expect to be able to sustain that as you enter 2025. I think that was for one segment. That wasn't for the company overall or does that kind of comment probably pertain to the company overall as well? Speaker 300:46:08Yes, I think it gives us the greater most of that was in relation to the medical solutions area because you have a larger above average ramp in new products effectively. We've talked about this before. Within the MIS space, we have won a multitude of new customers for our next generation, 2nd generation smoke evacuation products. And so that's all that result in that double digit growth in the 4th quarter and then that continued momentum goes into 2025 because of those new product launches. That's a dynamic that Batya has talked about around that $50,000,000 of incremental new product revenue being driven from that. Speaker 300:46:52There's an element of that also benefiting our precision medicine and manufacturing segment. So there should be a little bit stronger growth in 2025 as well. I didn't want to kind of get into that as much. There's some other dynamics in play that are a little bit more complicated to forecast at this point. But clearly, ramping up in next generation lithography and the continued strength and recovery that we expect from next generation DNA sequencing will help that segment drive strong growth as we exit 2024. Speaker 500:47:26Okay. And my last question for now, I'm going to push this line of questioning just a little bit further, but how important is the consumables revenue stream that's going to follow or should follow the introduction of these the new insufflator, some of these platform wins. Consumables has been a relatively small part of the business, but does that get bigger following these intros? Speaker 300:47:54Yes, it absolutely does. So I don't want to get into like how big it is because that will be the question you asked next, but the it effectively will double as well. And so the medical consumables, the great attractiveness around that is that it's a consumable, it's not tied to capital cycles, it will be very tied to surgical procedure rates. Surgical procedure rates are around 6% on a global basis. And so you drive this very steady annuity of around 6% in the medical field tied to our proprietary 2nd generation smoke evacuators and allows us to drive a real sustainable cash flow streams. Speaker 300:48:37Now even though we've talked about it before, we've ramped and completed our Czech Republic manufacturing facility. We are pushing volumes through that now. It is complete and qualified So confident that we will begin to in source that, that will drive the higher gross margin expansion in that segment for the next few years. It also allows us to really drive a higher EBITDA margin because the medical consumables don't have the operating expenses. They're they lever off of the capital equipment sales. Speaker 300:49:09And then think of them as being it's reoccurring. As soon as we get the system in place, we have that annuity stream lasting up to 10 years off of those systems. Speaker 200:49:21Yes. That's great color, Robert. Would just say underneath, right, Brian, it's about winning capital equipment swaps, right? So you can kind of drive the installed base or rather the customers can drive. So we've won new slots that we never had before. Speaker 200:49:37And then we've won slots that where we didn't have prior the consumable revenue stream. So in other words, the percentage of business where we've won basically touch rates with consumables has increased with those design wins. Secondly, there is a trend towards more, I would say, sophisticated consumables, which means higher ASPs, right. We're solving more and more complex problems to make sure that more and more, I would say, indications can be served with our consumables. And then 3rd, we're entering into pumps, which in a way is kind of a greenfield opportunity for us where we didn't have a position to begin with. Speaker 200:50:22So all these things together, you can kind of see where we win more installed base that will drive more consumables. So we have higher ASPs that will then drive, of course, additional growth. And over time, I think in this business, you can expect that consumable business to be larger, yes, than our capital equipment business. Speaker 500:50:45Perfect. Okay. Thanks very much. Speaker 200:50:49Thank you. Operator00:50:51The next question comes from Rob Mason of Baird. Please go ahead. Speaker 600:50:57Hi, good morning. I wanted to circle back to just try to get clarification. Robert, within the within your full guidance revenue guidance for the year, low single digit core growth you said. So I'm assuming around $85,000,000 $90,000,000 from Motion Solutions. What is the headwind from some of the product ramp down that's dialed into that low single digit core growth rate? Speaker 300:51:23Yes. If I won't give an exact number, but if you take the first half growth rates, I would say half of it is related to half of the decline is related to the macroeconomic environment and half of the decline is related to the product ramp downs of legacy products and just management of those legacy products by our customers. So if you take that in a full year organic, kind of that low single digit, you'd probably be closer to something in the mid single digit territory for the full year. So that gives you a little bit of that scaling, right? And it's mostly a first half dynamic versus second half dynamic, which is where it's kind of predominantly related to the Medical Solutions side of the segments. Speaker 600:52:17Okay. And if, appreciate the commentary, just around medical overall high level between the surgical exposure versus life sciences patient monitoring. How does that exposure break down? Or what percent is surgical versus life science patient monitoring? Speaker 300:52:37I think it's a question that we are delinquent on answering. You've asked us that a few times. We do have to get some information out on that. I apologize for not completing that by year end. It's fair to say, overall kind of Medical Solutions is roughly half of it is tied to more of a pure, a pure minimum evasive surgical business and then the other half of it ties to more of that mix of life science precision medicine and some stuff going into patient monitoring equipment and drug dispensing equipment. Speaker 300:53:17So it's roughly fifty-fifty in the Medical Solution segment overall. Speaker 600:53:22Okay. Okay. And just maybe last question. Matthijs, you had noted ATI seen some improvement in their bookings in the robotics space. Could you just maybe isolate on where they were seeing some of those improvements? Speaker 600:53:39Is China part of that improvement? Or what's the perspective how China factors into advanced industrial and the outlook as well? Speaker 200:53:49Yes. I mean, China, we're seeing some modest improvement, but think it's fair to say we're not banking on an improvement there for the full year, right? Because, yes, I would say that's probably the region where we have least visibility and where it's, yes, toughest to say when that will turn. Now having said that, we do feel that globally and particularly in the U. S, inventories have worked their way down or are working their way down. Speaker 200:54:23And therefore, we think towards sequentially basically in the year that will improve and drive the momentum. So I would say regionally, probably U. S. The strongest, Europe bottoming and then China remains to be seen, although we see some green shoots there as well, albeit from a low level, yes? And we're not in our guide assuming a massive recovery or so. Speaker 600:54:53Okay, very good. Thank you. Speaker 200:54:56Thanks, Rob. Operator00:54:58This concludes our question and answer session. I would like to turn the conference back over to Mr. Matthijs Guastra for any closing remarks. Speaker 200:55:08Thank you, operator. So to recap, Novanta delivered solid performance in 2023 in the 4th quarter and for the full year. Our teams delivered revenue and profit performance above our expectations in a dynamic operating environment. We achieved record revenue, excellent gross margin expansion and solid profit and cash flow performance. And this came despite challenging headwinds in the end markets we serve. Speaker 200:55:33And we secured the Motion Solutions acquisition, which will be an attractive growth platform for us in 2024 and beyond. So Novanta remains well positioned in the medical and advanced industrial end markets with diversified exposure to long term macro trends in robotics and automation precision medicine, minimally invasive surgery and industry 4.0. And in 2024, we're excited for the large product launches starting later this year and we will continue to focus on additional design wins and high growth applications as well as doubling down on the Novanta growth system 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. And I continue to be especially grateful for all the dedicated efforts of all our employees who work so diligently every day and taking on new challenges and striving to make the company a great place to work. Speaker 200:56:32We appreciate your interest in the company and your participation in today's call. I look forward to joining all of you in several months in our first quarter and 2024 earnings call. Thank you very much. This call is now adjourned. Operator00:56:47The conference has now concluded. Thank you for attending today's presentation and you may now disconnect.Read morePowered by