Novanta Q1 2024 Earnings Call Transcript

Quartr
Provided by Quartr
May 7, 2024

There are 7 speakers on the call.

Operator

Good morning. My name is Gary, and I will be your conference operator today. At this time, I would like to welcome everyone to Novanta Incorporated's First Quarter 2024 Earnings Call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question and answer session.

Operator

Please 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 1

Thank you very much. Good morning, and welcome to Novanta's Q1 2024 Earnings Conference Call. I'm 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've 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 1

Please note this call is being webcast live and will be archived on our website shortly after the call. Before we begin, I need to remind everyone 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 1

We 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 1

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

Speaker 2

Thank you, Ray. Good morning, everybody, and thanks for joining our call. Novanta delivered great operating performance in the Q1 of 2024. I'm very pleased with how our teams delivered revenue, profit and cash flow performance above our expectations in a dynamic market environment. For the Q1, we delivered $231,000,000 in revenue, which beat our previous guidance and represents reported growth of plus 5 percent and a decline of 4% on an organic basis.

Speaker 2

Adjusted gross margins were at 46%, which was which more than offset the dilutive effect of the Motion Solutions acquisition. Adjusted EBITDA was $50,000,000 beating our expectations and prior guidance. Operating cash flow was very strong for the 3rd straight quarter at approximately $33,000,000 which represents more than 200% growth year over year. This operating performance reflects excellent execution by our teams in a challenging macroeconomic environment. The sticky Novanta business model with diversified exposure to long lifecycle customer platforms in secular high growth markets has proven resilient under multiple geopolitical and macroeconomic scenarios.

Speaker 2

Our proprietary technologies are well positioned in medical and advanced industry applications with long term secular tailwinds such as robotics and automation, minimally invasive and robotic surgery and precision medicine. In the Q1, the broader end market themes were consistent with what we saw at the end of 2023, namely that medical technology markets continue to be robust, whereas life sciences and advanced industrial markets remain subdued due to the interest rate and regional economic challenges. Microelectronics remained stable at a lower level with some early signs of green shoots gradually appearing. As a result of this, our view of customer demand for the full year is consistent with what we said in our last earnings call. We continue to see a weaker demand environment in the first half of twenty twenty four.

Speaker 2

However, in the second half of the year, we continue to expect accelerating momentum for Novanta on the back of our new product launches. Therefore, we're staying focused on what we can control, which is reflected in our top three priorities for 2024. 1st, launch a record set of new products, which ramp in the back half of the year. 2nd, expand margins and cash flow using the Novanta Growth system. And 3rd, continue to acquire additional companies that fit our strategy at attractive returns.

Speaker 2

Turning back to the Q1, we saw strong sequential improvement in our bookings activity with bookings growing more than 20% sequentially, excluding the sequential impact of the Motion Solutions We see this

Speaker 3

as a sign of bookings and market stabilization,

Speaker 2

which We see this as a sign of bookings and market stabilization with some end markets already showing early signs of improvement. Going into more detail for the Q1 in 2024, sales to medical markets made up approximately 55% total Novanta sales and grew 9% versus the prior year on a reported basis, but declined low single digits on an organic basis. We saw strong double digit growth in multiple application areas. However, this market based growth was offset by a few factors. First, as we discussed before, we see some timing related impacts from some of our medical customers managing current inventory levels in the first half to help build up demand for their product launches in the second half.

Speaker 2

In addition, we are proactively winding down some older non strategic product categories such as surgical displays to reallocate resources to create additional capacity and support for the significant ramp of our next generation medical insulators. The accelerated exit of these non core products in close collaboration with our customers will be a 1 to 2 point headwind on overall Movanta sales in the Q2 and will also have an impact for the rest of the year, but significantly derisks ramps in the second half. Turning to the advanced industrial markets. For the Q1 sales to advanced industrial markets excluding microelectronics applications were up 3% year over year on a reported basis and down 1% on an organic basis. It made up approximately 37% of total Novanta sales.

Speaker 2

This muted sales performance across this end market was in line with our expectations due to the interest rate environment and regional economic challenges. While these trends are expected to continue in the near term, customers are using the slowdown catch up on next generation innovations. As a reminder, Novanta plays in advanced industrial applications with long term mid to high single digit growth driven by secular trends such as Industry 4.0, Robotics and Automation and Precision Manufacturing. Finally, speaking to our microelectronics applications, these represented just 8% of sales in the Q1 and sales were roughly consistent sequentially and there was a negligible impact on year over year sales growth. Across all our end markets, we continue to stay focused on gaining content and share with intelligent subsystems into multiple high growth application areas.

Speaker 2

Our new product pipeline is geared towards Intelligent subsystems in strategic growth applications such as minimally evasive surgery, robotic surgery, next generation lithography, precision medicine and precision manufacturing applications and advanced motion solutions for robotics and automation applications. We are confidently leaning in with a record amount of new product launches in 2024, up 50% versus 2023 with more scheduled for 2025. This positions us to deliver greater than $50,000,000 of incremental revenue in 2025 with strong growth in the next several years following that. Now let me touch on some of Novanta's growth strategic growth metrics. We remain excited by our momentum in customer wins and our strongest new product line up in a decade.

Speaker 2

We should help to continue to deliver attractive long term organic growth for Novanta in 2025 and beyond. For our design wins, we saw double digit growth versus the prior year. We saw excellent design win activity in multiple businesses, particularly with our customers in medical end markets as well as robotics and automation end markets. Our vitality index, which is sales from new products launched in the past 4 years in the Q1 was still at about mid teens percentage of sales. This was in line with our expectations.

Speaker 2

As stated before, we expect our vitality index to rebound to above 20% in late 2024 driven by our pipeline of new product launches. I want to highlight 5 new product platforms we have recently launched, which will begin ramping in the second half of twenty twenty four. First, new versions of our Versia laser scanner platform providing higher throughput and yield and better integration in solar, additive manufacturing and EV battery processing applications. 2nd, our ultra compact servo drive Everest S that provides world leading power density for surgical robotics, humanoid robots and warehouse automation. Next, our 2nd generation smoke evacuation insufflator.

Speaker 2

4th, our RFID M7E reader allowing easy integration in medical and advanced industrial applications. And 5th, our Sano Force Torque sensor specifically designed for robotic surgery applications. We're mostly on track for the remaining product lounges in 2024 with some lounges depending on customer timing. Moving on, I'm pleased to see continued momentum with how our teams are using the Novanta Growth system in their daily work to drive execution of our priorities. We recently held one of our annual President Kaizen Weeks, where we had more than a dozen concurrent Kaizen events happening at once with close to 100 of our leaders and team members participating.

Speaker 2

All the events were focused on our core priorities I before, including our readiness for our upcoming new product launches, improvements to our commercial excellence tools, factory efficiency initiative and improved customer delivery performance. NGS is truly becoming a foundational part of our operations and culture. Finally, I'd like to give you a brief update on Novanta's acquisition activities. The integration of Motion Solutions is on schedule. I visited the Motion Solutions team recently and I continue to be impressed by the quality and engagement of the team, their customer intimacy and their innovation focus.

Speaker 2

The Motion Solutions business is an excellent cultural fit with the Novanta family as we all share a passion for solving demanding problems for our OEM customers in the growing precision medicine space. We're pleased with how well the teams in the medical solution space are working well together and the thesis for the transaction is intact and progressing well. In addition, acquisitions continue to remain Novanta's top priority for capital allocation. We have a strong pipeline of potential targets. Our balance sheet is strong, positioning us well to execute additional transactions.

Speaker 2

And therefore, you should expect us to continue to be active in the marketplace in 2024. In summary, in the Q1 of 2024, Novanta achieved great operating results in an uncertain macroeconomic environment. We beat expectations for sales, margins, EBITDA and cash flows. We are on track with our product launches, which will begin to ramp later in the year and the integration of Motion Solutions is progressing nicely. Overall, another strong quarter for the company.

Speaker 2

With that, I will turn the

Speaker 4

call over to Robert to provide more details on the operations and financial performance. Robert? Thank you, Matthijs, and good morning, everyone. Our Q1 2024 non GAAP adjusted gross profit was $107,000,000 or 46% adjusted gross margin compared to $101,000,000 or 46 percent adjusted gross margin in the Q1 of 2023. For the quarter, adjusted gross margins were up 35 basis points year over year.

Speaker 4

Excluding the impact of the Motion Solutions acquisition, our adjusted gross margins were up roughly 200 basis points. Our gross margin expansion continued to be largely driven by the deployment and successful adoption of the Novanta Growth System productivity tools in our factories and in our operating teams. For the Q1, R and D expenses were roughly $23,000,000 or 10 percent of sales. SG and A expenses were approximately $44,000,000 or 19 percent of sales. Adjusted EBITDA was approximately $50,000,000 in the Q1 of 2024 or 22% adjusted EBITDA margin compared to $47,000,000 in the prior year.

Speaker 4

On the tax front, our non GAAP tax rate for the Q1 was 16%. Our tax rate is typically lower in the Q1, but remains on track to our estimate of 18% for the full year. Our non GAAP adjusted earnings per share was $0.74 compared to $0.74 last year. Our EPS growth remains muted due to both higher interest rates and higher debt balances from the Motion Solutions acquisitions. 1st quarter operating cash flow was approximately $33,000,000 compared to $10,000,000 in the Q1 of 2023, an increase of greater than 200% year over year.

Speaker 4

We were pleased with the improvement in cash flow and expect to continue this momentum by rigorously managing our working capital and driving strong operating profits. We ended the Q1 with gross debt of 5 $17,000,000 with a gross leverage ratio of 2.6 times and our debt to debt was $424,000,000 dollars I'll now turn to an update on the performance of our operating segments. In the Nutrition and Medicine and Manufacturing segment, 1st quarter sales declined 6% year over year in line with prior guidance. Book to bill in this segment was 0.72, which is up sequentially but still down year over year. Adjusted gross margins in this segment were down slightly year over year, but up sequentially 140 basis points.

Speaker 4

New product revenues were approximately mid teens percent of sales, in line with company average. Design wins in this segment were down year over year driven by the timing of commercial activities, which we expect to recover in the second half of the year. Robotics and Automation segment experienced a revenue decline of 12% year over year in the quarter, in line with our expectations and prior guidance. The overall book to bill ratio in this segment was 0.99, a strong sequential improvement and is indicative of a more stable demand environment across the business and its end markets. Bookings grew 10% year over year and 80% sequentially.

Speaker 4

Adjusted gross margins increased nearly 300 basis points, largely in line with the 4th quarter. New product revenue was roughly 10% of sales. Design wins in this segment more than doubled year over year. From Medical Solutions segment, we had reported growth of 32% year over year and 5% organic growth. Both figures were better than our expectations.

Speaker 4

The segment saw book to bill of 0.88, 29% growth in bookings sequentially. Adjusted gross margins experienced a 70 basis point year over year improvement. Excluding Motion Solutions, the margin expansion of the segment was nearly 400 basis points. The vitality index in this segment remained in mid teens percent of sales level in line with our expectations. We expect this metric to continue to accelerate in 2024

Speaker 3

as we ramp our new products.

Speaker 4

Design wins more than tripled year over year. Overall, our businesses performed as or better than we expected and we were able to handle a variety of challenges caused by the shifting macroeconomic environment. The testament to the strength of our culture and our businesses and the company's strategy of diversification of technologies, applications and customers to deliver consistent predictable sustainable growth. Turning now to guidance. In our end markets, we see the same dynamics materializing in the Q2 as we experienced in the Q1.

Speaker 4

And hence, our guidance reflects a second quarter that largely mirrors our first quarter results, which is in line with the guidance we provided back in February. In medical technology end markets, we expect to see continued strength in surgical equipment and hospital spending in general. Patient procedural growth continues to be robust across geographical markets and capital equipment purchases by the healthcare systems remain strong. Coupled with strong pipeline of innovation, largely scheduled to begin ramping in the second half of twenty twenty four, we feel very good about our exposure here and the long term prospects of this business. As a consequence, we're taking the opportunity to accelerate the exit of some non strategic product lines like our surgical displays business to create the resource capacity and focus we need to execute for our customers and shareholders.

Speaker 4

While the exit of these non core product lines is likely a 200 basis point headwind on total Novanta growth in the Q2 and a $10,000,000 headwind on the full year, It positioned us well to ensure a successful ramp for our new products in 2024 for our customers and to meet the accelerating demand. Turning to the precision medicine space, both in life science and bioprocessing markets, customers continue to see more stable environment with some signs of strengthening as we get into the second half. While we remain cautiously optimistic that spending patterns will improve, it's too early to make any predictions at this time. Turning to our advanced industrial end markets, we expect 2nd quarter to mirror our Q1. We continue to see signs of gradually improving capital spending environment.

Speaker 4

However, we also remain focused on controlling our outcomes and we see the best path forward is doubling down on new product launches. As Matthias have discussed before, we expect to launch new products in the second half in both precision manufacturing and robotics and automation businesses. Moving on to the guidance for the Q2. For revenue guidance, we expect GAAP revenue in the range of $230,000,000 to $235,000,000 which represent organic revenue decline of 6% to 8% on a year over year basis and sequentially flat. While there are clearly more difficult year over year comparisons in the quarter, we're also taking the opportunity to accelerate the end of life of a few product lines, including the surgical display business mentioned before.

Speaker 4

We feel this shift in engineering resources from supporting these legacy product lines to supporting our new product platforms helps to de risk those launches and ensure we excel at meeting our customers' expectations. With these changes, we continue to see our second half new product launches on track and in a strengthening demand environment. On the segment level in the second quarter, we expect precision medicine and manufacturing revenue decline low double digit percent of sales year over year. Our robotic and automation segment revenue is expected to decline high single digit percent of sales year over year in the Q2, representing a sequential uptick from the Q1. And finally, our Medical Solutions segment is expected to repeat its Q1 financial performance, demonstrating year over year double digit reported revenue growth and a slight sequential uptick from the Q1 despite the discontinuing of legacy product lines.

Speaker 4

Moving on to adjusted gross margin, we expect it will also mirror the performance we demonstrated in the Q1 with a range of 46% to 46.3%. In this segment's gross margins will mirror the gross margins they delivered in the Q1. We expect R and D and SG and A expenses to be approximately 68 $8,000,000 to $69,000,000 Depreciation expense, which is $3,500,000 in the 1st quarter should be slightly below $4,000,000 in the Q2. Stock compensation expense, which was $6,000,000 in the Q1 will be slightly below $7,000,000 in the 2nd quarter. For adjusted EBITDA, we expect a range of $48,000,000 to $50,000,000 Interest expense is expected to be nearly $8,500,000 based on slightly higher interest rates.

Speaker 4

We expect our non GAAP tax rate to be around 18% for the quarter and similar for the full year. For adjusted earnings per share, we expect a range of $0.68 to 0 point 7 $4 Finally, we expect cash flows to continue to be strong in the 2nd quarter following the continued momentum from the Q1 as we continue to rigorously manage our inventory and net working capital levels. Ignoring any further acquisitions, we plan to continue to use our cash flows to pay down on existing debt and reduce our gross leverage, putting us in a strong position to execute the next acquisition. I know this guidance does not assume We continue to expect that growth will return to the 3rd quarter, We continue to expect that growth will return to the Q3 due to our new product launches and accelerate from there. Our conversations with our customers, particularly around our medical business, continues to give us confidence in the demand of these products.

Speaker 4

And we are taking steps to better position our resources and our teams to focus on ensuring successful launches. To wrap up, we are proud of Nanta's performance in the Q1, which reflected excellent execution by our teams. We delivered revenue, profit and cash flow performance above our expectations in a challenging operating environment. This performance was yet another testament to the resiliency of our business portfolio and the tenacity of our teams to achieve great results. We remain very grateful for the outstanding performance of our employees and their efforts to help us succeed in a dynamic environment.

Speaker 4

We remain grateful for our customers' confidence and our ability to deliver to them the innovations they need to be successful. We look forward to delivering on our commitments to our employees, our customers and our shareholders. And this concludes the prepared remarks. We'll now open the call up for questions.

Operator

Our first question today is from Lia Jagoda with CJS Securities. Please go ahead.

Speaker 2

Hi, good morning. Hey, good morning, Lee.

Speaker 5

Just on the products you're exiting, are you freeing up additional capacity or is there other reasons why we're end of lifing those products now?

Speaker 4

Yes, I would say it's not only does it increase capacity from a operating model perspective and in the manufacturing team's ability to execute on it, but it also frees up capacity from an engineering support perspective. And so it really solidifies our ability to execute on those launches in the back half of the year and gives us the utmost confidence that we can get those executed on time and meet the customers' expectations, particularly given the demand environment remains relatively strong on the medical side.

Speaker 5

Got it. And I guess drilling down into the new product launches in the back half, can you speak to like the variability that we should expect in the model? And how much of that is within your control versus a reliance on your customers in terms of their launch dates?

Speaker 2

Yes. I mean, listen, what I said in my prepared remarks is that, let's say, on the overall, we feel we're on track on our product launches. Now if you look and drill down on the individual product launches, there are some pluses and minuses, some are being pulled in and are ahead of schedule, some are a little bit delayed, but on average, we feel very good and the delays are primarily linked to customer timing. But I would say overall, if you average it all out, we feel good about where we're ending up at the company level.

Speaker 5

And then Robert, one more for me and I'll hop back in queue. I think in the last call you were saying the top end of your revenue range sort of didn't model any improvement and it was sort of the status quo from a market demand standpoint. Can you update us on your expectations around the market environment and how you think about the high end of your full year guidance?

Speaker 4

I would say, the environment has not materially changed from when we last spoke to you back in February. I think there are some signs that remain optimistic, but there's a lot of noise out there. So I don't think we're ready to make any new predictions on the full year, but just to say that back from when we gave the guidance in February, things haven't materially changed from there.

Speaker 3

Okay, sounds great. Thanks.

Operator

The next question is from Brian Drab with William Blair. Please go ahead.

Speaker 3

Hey, good morning. I first just wanted to ask, given we have a full quarter of MOSO in the numbers here, the OpEx came in a little bit below where we were modeling it like 67,000,000

Speaker 2

dollars Is that

Speaker 3

kind of a somewhat steady state number? Or how can you help us model OpEx going forward?

Speaker 4

No, OpEx will tick up a little bit as you get into the second quarter. Part of that is just is mostly in R and D expense. So just spending a little bit more money to make sure those new product launches are being done on time and on schedule. I won't get into I gave some guidance around the Q2. I think we're in the Q2.

Speaker 4

You can see that things tick up a little bit from there. I think that will remain fairly steady state as you get into the back half of the year.

Speaker 3

Okay. And was there anything unusual in the Q1 maybe related to the acquisition or integration or anything that would have hit OpEx that is not going to later?

Speaker 4

Well, OpEx was $67,000,000 in the Q1. We're predicting, let's say, something closer to $69,000,000 in the Q2. There's nothing specific to the Motion Solutions business. It really is an R and D investment difference that really is oriented towards new product launches.

Speaker 3

Yes, understood. And related to the new products, I think you changed the language here today. Maybe you said it this way in the past, but you said greater than $50,000,000 I believe today. Is that a change in language around your expectation for some of these new products platforms?

Speaker 2

Yes. I mean, what we said is that the incremental revenue in 2025 is $50,000,000 or more and which is for Novanta overall and which is net of, let's say, any cannibalization or let's say end of life effects, right, of other products retiring as a result of these new products. So that's what we said and that should signify a confidence in the momentum we have and these are multiple product lines with across multiple businesses with multiple customers. So we feel also good about the diversification of risk, right? We're not betting on a single product with a single customer here.

Speaker 2

So it's pretty broad.

Speaker 3

Okay. And then Lee asked it already to some extent, but you're formally not mentioning anything really about the full year guidance that you gave previously. But I guess is the statement just we already gave guidance and we haven't seen the environment change that materially and just look at what we said before? Or is there anything that's reduced visibility at all in the second half that has you communicating it

Speaker 2

this way today? Thanks. Yes.

Speaker 4

I would say from a macro or industry specific kind of visibility, I don't think anything has materially changed from what we gave the guidance back in February. And so I don't as we look at the full year, there it's still too early to say there are things that we would do to make adjustments for the full year. I think we'll get into the Q2 and we'll have greater visibility in the back half of the year, particularly our ability to execute on those new product launches.

Speaker 3

And there

Speaker 4

are some reasons to be optimistic. It's one of the reasons why we're exiting roughly $10,000,000 of business early, so we can get pre positioned for that and make sure that we have a more successful launch around those products. But nothing has changed. So I would say, look at what we said in February and we would reiterate what we said in February.

Speaker 3

Yes, understood. Thanks very much.

Speaker 2

Thanks, Ryan.

Operator

The next question is from Rob Mason with Baird. Please go ahead.

Speaker 6

Yes. Good morning, Matthijs and Robert. Good morning. One of the common refrains as we've gone through this earnings season from component suppliers, companies like yourself has been that OEM inventory levels have been slower to come down maybe than expected taking longer. I'm just curious how you're seeing the OEM inventory levels of your customers right now, your level of visibility into that and what kind of pace you think they're on get where they need to be to trigger more order activity?

Speaker 4

Yes. So I mean, one of the things I'd start off with saying is that for our business specifically, our OEMs typically don't hold a lot of inventory. We sell as part of their supply chain as a vendor into their supply chain and the majority of business that we do with them is a just in time type of setup. So the inventory commentary that's coming out there where there might be too much inventory in the value stream is really associated with their customers. Those are commentary that you see more prevalent obviously in the semiconductor markets, which is manifest in our numbers and more prevailing into the industrial side of the business, specifically things tied around the robotics industry.

Speaker 4

We have a more difficult time seeing through our customers to see how much inventory is out there in the chain. But I would just say, generally speaking, I don't think things have changed from when we gave the guidance back in February. That visibility has still been the same and the trend lines have been very similar to what we were anticipating unfold as we got into this first half of the year now.

Speaker 2

Yes. And the thing that I would add Rob is that it's very end market dynamic dependent. So Robert clearly gave a few some color per end market, I would say medical device is very strong, right. So across the chain, not a lot of inventory, right? Industrial is different, right?

Speaker 2

So I would add that color.

Speaker 3

Okay.

Speaker 6

I think you mentioned as well, you're starting to see some green shoots in the microelectronics business. I was just curious if you could elaborate there on, what you're seeing and maybe how that translates, as you go through the year given that we were kind of flattish sequentially in the Q1?

Speaker 2

Yes. I mean these signs are very early. I mean we just see bookings normalization, right, and improvement there. And therefore, as some customers, not everybody, but some customers gearing up for a better second half. But it is segment specific, customer specific, so it's not on across the board.

Speaker 2

And that's why we said we see initial green shoots, right? It's not everywhere, but you see basically for some of our businesses that a bottom has achieved and you see booking sequentially improving from here, which is what you saw in the robotics and automation segment, which where the majority of our micro exposure is.

Speaker 6

Okay. Just as a last question, just I want to be clear, on the end of life of surgical displays or the exit from that, as you again continue to work with your customers on that, will there be any tail

Speaker 3

of that that

Speaker 6

carries over into 2025? Or will you should we think that, that incremental step down is complete by year end?

Speaker 4

Yes. Most of it should be done by the Q2. So I would say that whatever revenue we have in the back half of the year is immaterial to the total company. So we're really stepping it down. We ship out what we could in the Q1.

Speaker 4

We'll step it down hard. And then it's largely it's no longer in our numbers in the back half of the year for all intents and purposes.

Speaker 3

Okay. Thanks, Robert.

Operator

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

Speaker 2

Thank you, operator. So to recap, Novanta had a strong start of the year. We beat expectations for sales, margins, profit and cash flows and are making great progress on our top priorities. This came despite some challenges and uncertainty in the end markets we serve. We also made great progress in integrating the medical and advanced industrial end markets with diversified exposure to the long term secular macro trends in robotics and automation, precision medicine, minimally invasive surgery and Industry 4.0.

Speaker 2

We're excited for the large product launches starting later this year and we will continue to focus on additional design wins in 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. I continue to be especially grateful for the dedicated efforts of all of our Novanta employees who work diligently every day, taking on new challenges and striving to make the company a great place to work. We appreciate your interest in the company and your participation in today's call. I look forward to joining all of you in several months on our Q2 2024 earnings call.

Speaker 2

Thank you very much. This call is now adjourned.

Operator

The conference is now concluded. Thank you

Powered by Quartr

Key Takeaways

  • Novanta delivered a strong Q1 with $231 million in revenue (+5% reported, –4% organic), $50 million of adjusted EBITDA, and $33 million of operating cash flow—beating prior guidance across all metrics.
  • Medical markets (55% of sales) grew 9% reported (low-single-digit organic decline) despite winding down non-strategic product lines, while advanced industrial (37% of sales) was muted and microelectronics (8%) showed early signs of stabilization.
  • The company expects a weaker first half followed by accelerating momentum in H2 2024 driven by a record new product launch pipeline—up 50% year-over-year—and targeting over $50 million of incremental revenue in 2025.
  • Adjusted gross margin expanded to 46% (+35 bps) largely through the Novanta Growth System, and Q1 non-GAAP EPS held at $0.74 despite higher interest costs; gross leverage was 2.6× at quarter end.
  • The integration of Motion Solutions is on schedule, operating cash flow grew over 200% year-over-year, and Novanta’s strong balance sheet supports continued acquisition activity as a capital allocation priority.
AI Generated. May Contain Errors.
Earnings Conference Call
Novanta Q1 2024
00:00 / 00:00