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 2021 Second Quarter 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 touchtone 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 second quarter 2021 earnings conference call. I am Ray Nash, corporate finance leader of Novanta. With me on today's call is our chairperson 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. 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. 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. 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. I am now pleased to introduce the chairperson and chief executive officer of Novanta, Matthijs Glastra.

Thank you, Ray, and good morning, everybody, and thanks for joining our call. Novanta delivered fantastic results in the second quarter of 2021. We delivered above our expectations for revenue, profit, and cash flow. We delivered new all-time highs for revenue and bookings and excellent operating performance with adjusted EBITDA growth of 20% year-over-year. And on top of all of this, we were very excited to announce two upcoming acquisitions in the past month, both of which will be a great strategic fit for Noventa and together will contribute significantly to Noventa's long-term growth and our presence in attractive high-growth application areas. These two transactions are both expected to close in the third quarter and we will speak to them in more detail in a few minutes. Speaking in more detail to our second quarter results, our company delivered approximately $168 million in revenue representing 16% year-over-year revenue growth on a reported basis and 11% on an organic basis. This is the highest ever single quarter sales for Noventa which comes on the strength of rebounding markets and exceptional execution by our teams. We are also pleased to show healthy reported revenue growth of 8% versus the second quarter of 2019, a sign we are emerging stronger out of this pandemic. In addition, in the second quarter, we had excellent operating performance with adjusted EBITDA of $37 million, which is up 20% year-over-year. This represents an EBITDA margin of 22% of sales, which is also up 80 basis points year-over-year. We are extremely pleased with and proud of how our teams drove exceptional operating performance using the Noventa Growth System tools, despite widely reported supply chain challenges. Just the diluted earnings per share was $0.62, which is up 29% versus 2020. And our teams delivered strong free cash flow performance in the second quarter of $23 million at a ratio of 200% of gap net income. So all in all, very strong results. We saw record bookings momentum in the second quarter with sequential bookings growth of 12% versus an already strong first quarter of and year-over-year bookings growth of 77% versus second quarter of 2020. We saw booking strength across all our segments with each segment having positive book to bill in the quarter. In the second quarter, our overall book to bill was 1.37. We saw very healthy momentum in many of our advanced industrial applications as well as many medical applications and expect to be well above pre-pandemic revenue levels in the remainder of 2021. Now, let's turn what we're seeing in our markets, where industrial and microelectronics continue to lead the Noventa recovery. Noventa sales to advanced industrial applications were 48% of total sales in the second quarter, and our sales continue to rebound across multiple application areas with sequential growth of 9% and year-over-year growth of 24%. We also continue to experience high demand specific to microelectronics investments in 5G high-speed networking and cloud-based infrastructure, as well as higher demand from EUV-based applications. We continue to expect the increased microelectronics demand to be sustained throughout 2021 and likely into 2022. The advanced industrial business also have an increased tailwind from new products, which I will talk to you in a second. In the second quarter of 2021, 52% of Noventa's total sales went into medical applications. Overall, sales to medical applications grew 9% versus the second quarter of 2020, but slightly down sequentially. During the quarter, we did see a healthy rebound in orders and shipments to many of our medical OEM customers as hospitals slowly started to return to making capital investments. However, we're still seeing a slow recovery in some surgical applications with capital spending continuing to experience delays, particularly in light of the Delta variant resurgence in multiple parts of the world. Despite this delay, however, the majority of large medical OEMs are increasing their demand and multiple application areas are now starting a strong market rebound. DNA sequencing, for example, is catching up to pre-pandemic levels with a healthy outlook for the full year. Also, surgical robotics and lab diagnostics have shown strong year-over-year and sequential growth, but good outlooks. All this supports our view that medical sales should continue to grow as we progress further into the year, barring any further setbacks in the global recovery from the virus. From a regional perspective, we saw growth across All geographies in the quarter. Our strongest growth continued to come from China, where sales grew 35% year-over-year, and sales in Europe grew double digits, and sales in the United States grew 9% year-over-year. Now let me touch on some of Noventa's strategic growth metrics. 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 the second quarter. We continue to invest in our innovation pipeline with terrific results. Year-to-date, we launch eight new products and we are on track for 25 launches for the full year with multiple new products in the queue for the second half of 2021 with focus on industrial and surgical robotics, minimally invasive surgery, Precision Motion, and Diagnostics and Industry 4.0. We are very excited about all of these products and see a healthy uptick in technical evaluations requested by existing and new customers. Let me highlight one of the products launched in the second quarter, which is called Evo 4K. This product serves our medical OEM customers, and this is a software-based 4K medical-grade video recording system. It takes live video from surgical cameras and then records and converts images and videos into usable digital formats for secure use by the hospital This product furthers our strategy to deliver more embedded software-based functionality in an increasingly digital operating room environment Design wins in the second quarter were up over 50% versus the prior year, with multiple wins in most of our businesses, continuing the significant momentum we built in the first quarter. We expect to see continued success with our design wins during the remainder of the year. Moving on to other updates, the deployment of the Noventa growth system continues to produce favorable financial results, as evidenced by the growth margin expansion of over 300 basis points and Strong Cash Flow in the second quarter of 2021. We are very pleased with how our teams are adopting this common way of working and we see excellent opportunities during the rest of 2021 and beyond to continue to transform our operations and customer engagements using the Noventa growth system. We also continue to build and invest in our inclusive and diverse Noventa rate culture with the appointment of and Anna Fane as our Vice President Leadership Development and Diversity, Equity and Inclusion, or DE&I. In partnership with myself and the Noventa leadership team, Anna will help build a diverse talent pipeline and embed DE&I deeper into our culture, our systems and processes so everyone, regardless of their background, can succeed at Noventa. Finally, we continue to be active in the M&A market. We recently announced two acquisitions, the Schneider Electric Motion, or SEM, and ATI. Both SEM and ATI are fantastic businesses, which will be excellent strategic additions to Noventa, expanding our positions in high-growth markets. As of now, we expect both transactions to close in the third quarter. and Robert will give you more details on both businesses in just a few moments. So in summary, our second quarter was stellar with record sales and bookings and excellent operating performance. We feel good about our long-term strategic positioning in both medical and industrial applications with long-term secular growth fence in robotics and automation, healthcare productivity and precision medicine. And we're confident in our outlook for the year, a strong year-over-year growth, and we feel good about our momentum with a strong innovation pipeline and balance sheet. So with that, I'll turn it over to Robert to provide more details on our operations and financial performance. Robert?