Novanta Inc.

Good morning. My name is Andrea and I will be your conference operator today. At this time, I would like to welcome everyone to the Novanta Incorporated's fourth quarter and full year 2020 earnings call. All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question and answer session. To ask a question, you may press star then one on your touch tone phone. To withdraw your question, please press star then two. 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.

Thank you very much. Good morning and welcome to Novanta's fourth quarter and full year 2020 earnings conference call. I am Ray Nash, Corporate Finance Leader of Novanta. With me on today's call is our 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. Please 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. Thank you. Thank you. 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. I'm now pleased to introduce the Chief Executive Officer of Novanta, Matthijs Glastra.

Thank you, Ray. Good morning, everybody, and thanks for joining our call. Before we start our normal review of the company's results, I would like to thank all Novanta employees again for everything they're doing to deliver to our customers. Our operations teams are doing a great job in being agile in this environment, and I admire how our R&D teams are finding creative ways to bring innovations to market, all while maintaining a relentless focus on keeping our teams safe. It's great to see that the Noventa spirit is alive and that our culture has been a strong foundation to help weather this crisis. We take great pride in knowing that our mission-critical technologies are embedded into diagnostic and antibody test equipment detecting COVID-19, into ICU and patient monitoring equipment used in hospitals to help in the fight against the pandemic, or in DNA sequencing equipment helping to detect and monitor new virus variants. Now let's move on to our normal results review. I will focus my remarks on the overall company and Robert will speak to more specifics on the segments and then our overall financial results. We are pleased with November's performance in the fourth quarter of 2020. Our teams executed very well in the face of challenging circumstances and delivered above our expectations for revenue and profit with record cash flows. Our company delivered approximately 140 and many more. We are extremely pleased with how our teams drove exceptional operating performance throughout the year using the Noventa Growth System tools. Adjusted EBITDA was $32 million, or 22% of sales in the fourth quarter, expanding nearly 300 basis points versus 2019. For the full year 2020, our adjusted EBITDA was $121 million, or 20% of sales, which was flat versus 2019 on a dollar basis, yet expanding 100 basis points on lower sales. Our teams delivered record free cash flow performance in the fourth quarter at over $43 million, up 32% year over year at a ratio of over 340% of gap net income. Our free cash flow for the full year of 2020 was $130 million, up 147% versus 2019 at a ratio of over 290% of full year gap net income. This is record performance and is a terrific reflection of the rigorous management by our teams of the company's operations and working capital. We saw bookings momentum improve throughout the fourth quarter with sequential bookings growth of 26% versus the third quarter driven by our photonics and precision motion segments. In the fourth quarter, our book-to-bill was 1.09 and our full-year 2020 book-to-bill ratio was about 1. We are starting to see some very nice momentum building in some of our advanced industrial end markets and also across multiple regions. This improvement in demand has continued in January and February of this year, and we expect another positive book-to-bill in the first quarter of 2021. Furthermore, our backlog supports a strong sequential revenue improvement versus the fourth quarter, and we expect to return back to year-over-year revenue growth with performance trending towards the upper end of our guidance range. Robert will discuss our guidance for the first quarter in more detail later in this call. Now let's turn to what we're seeing in our markets. 56% of Noventa's total sales went into medical end markets in the fourth quarter as well as on a full year basis. On a full year basis, sales to medical end markets experienced mid-single digit declines versus 2019 as a consequence of the deferral of elective surgical procedures and deferrals of high throughput instrumentation for clinical and research laboratories. Considering the significant impact of these macro events, we are actually very pleased with the resilience of our business. We continue to see pockets of strength during this downturn, such as in our medical consumables business with integrated smoke evacuation and our integrated data collection products for clinical test equipment. Looking forward to 2021, overall large medical OEMs have shown a temporary pause in the recovery of their demand signals in the short term. Corresponding to the rise in COVID cases in multiple regions, the associated deferral of elective medical procedures along with solid inventory positions for some key platforms. We do expect to see sequential improvement of elective procedures towards pre-COVID levels in the second half of 2021 and are seeing initial signs of sequential improvement in our DNA sequencing and market as labs are learning how to operate during a pandemic and sequencing of COVID variants is driving some near-term momentum. Noventa sales to advanced industrial markets were 44% of total sales in the fourth quarter and for the full year. Sequentially, in the fourth quarter, our sales into these markets started to rebound across multiple applications areas. This was consistent with a very strong bookings momentum that I commented on earlier. We also continue to experience higher demand specific to microelectronics investments in 5G, high-speed networking, and cloud-based infrastructure, as well as higher demand from EUV-based applications. We expect the increased microelectronics demand that we saw in 2020 to be sustained heading into 2021. Our Vitality Index, which is revenue from new products launched in the last four years, continues to be healthy at above 25% of sales for both the fourth quarter and the full year versus mid-single-digit percentages just a few years ago. Looking forward, we expect significant growth in our total MPI sales in 2021 versus 2020. We will be launching approximately 25 new products in 2021, which is double that of 2020, and a record number of launches for Novanta in a single year. As we have said throughout the past year, we've stayed the course on our innovation investments despite the downturn caused by the pandemic. We continue to believe that our long-term secular growth drivers are even more relevant post-pandemic, with particular focus on industrial and surgical robotics, Minimally Invasive Surgery, Precision Medicine and Diagnostics, and Industry 4.0. While we've seen some customers or MPI programs experience delays as a result of COVID, most of our MPI programs continue to be very active and on track. We are extremely excited about the new launches that will be happening this year. We also saw significant MPI success in this most recent quarter. In the fourth quarter of 2020, We launched four new products in our precision motion group, further strengthening our value proposition for compact, high precision motion control in industrial and surgical robotics applications. Design wins in the fourth quarter grew over 50% versus the prior year, with multiple wins in most of our businesses. This was in line with our expectations, and it is another encouraging sign of future growth as our customers continue to partner with us to bring new innovations and platforms to the market. We expect to see continued momentum with our design wind activity during the first quarter of 2021. The Noventa growth system is developing rapidly with a core goal of enabling higher performance of Noventa teams in all our sites worldwide. And in 2020, we conducted over 3,700 individual trainings. Our vision is to transform Novanta into a learning culture anchored in continuous improvement applied to all business areas, including but not limited to structurally improving customer satisfaction, gross margin, inventory management, and the efficiency of our manufacturing sites. In short, it means growth and benefits for our customers, our employees, and our shareholders. The results of the Noventa Growth System are already appearing in our financial results, as evidenced by our strong cash flow, reduced inventory, and gross margin improvement in the fourth quarter of 2020. Robert will speak to more specifics of these financial results, but we are very pleased with how our teams have leaned in to adopt this common way of working, and we see excellent opportunities in 2021 and beyond to continue to transform our operations and customer engagement using the Noventa Growth System. We also continue to work at making Noventa an employer of choice in the marketplace. As we've spoken of in previous calls, during 2020, we gave a one-time equity grant to our employees as a way to keep them motivated and engaged during the economic downturn. This had extremely positive results, and we saw significant employee engagement and a record low employee turnover, even despite the difficult circumstances and remote work situations. In 2021, our board of directors has improved a similar equity grant as a way to continue to support and motivate our employees. This grant will be smaller than the one issued in 2020 and will be coupled with a more traditional bonus plan as an overall package to incentivize our leaders and employees. In addition to this, Noventa is working hard to make significant strides in environmental sustainability and corporate governance, or ESG, as we strongly feel we need to do our part in being a responsible corporate citizen. We will be publishing our first ESG report in the coming weeks, which will include multiple topics, including environmental protection, product quality and safety, and also diversity, equity, and inclusion in our workforce. In summary, our fourth quarter played out slightly better than expected, and we remain very confident about our long-term strategic positioning. We are experiencing sequential recovery and are emerging from this crisis with a strong balance sheet and an exciting innovation pipeline. These results show that Noventa is very well positioned with exposure to long-term secular trends in robotics and automation, healthcare productivity, and precision medicine. You can also expect us to lean in on acquisition opportunities, which is the primary focus of our We are very actively engaged in pursuing M&A opportunities, even within the constraints imposed by the pandemic. So with that, I will turn the call over to Robert to provide more details on our financial performance. Robert?