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 2021 Third Quarter Earnings Call. All lines have been placed on mute to prevent any background noise. After the speaker's prepared remarks, there will be a question and answer session. To ask a question, you may press star then 1 on your touchtone phone. To withdraw your question, please press star then 2. 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 third quarter 2021 earnings conference call. I'm Ray Nash, Corporate Finance Leader of Novanta. With me on today's call is our Chairperson and Chief Executive Officer, Matthias 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'm now pleased to introduce the chairperson and chief executive officer of Novanta, Matthias Glostra.

Thank you, Ray. Good morning, everybody, and thanks for joining our call. Noventa delivered another exceptional quarter. In the third quarter of 2021, we delivered above our expectations for revenue, bookings, and profit. We again hit new all-time highs for revenue and bookings with excellent operating performance. And in addition, we were very pleased to close the ATI acquisition and the newly rebranded IMS acquisition in the quarter both of which exceeded our expectations for the third quarter. Those two businesses are a great strategic fit for Novanta, and we are excited to have their teams and product offerings as part of the Novanta family. Speaking in more detail to our third quarter results, our company delivered approximately $178 million in revenue, representing 24% year-over-year revenue growth on a reported basis and 15% growth on an organic basis. This is the highest ever single quarter sales for Noventa due to exceptional execution by our teams and the contribution of our new acquisitions in a difficult environment. In addition, in the third quarter, we had an excellent operating performance with adjusted EBITDA of $40 million, which is up 34% year over year. This represents an EBITDA margin of nearly 23% of sales, which is up 160 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, which I speak to in a moment. Adjusted dilutive earnings per share was 75 cents, which is up 79% versus 2020. So all in all, very strong results. We saw another quarter of record-breaking bookings in the third quarter, with sequential bookings growth of 2% versus a very strong second quarter, and year-over-year bookings growth of 84% versus the third quarter of 2020. We saw strong demand across all our segments, with each segment having a positive book-to-bill in the quarter. In the third quarter, our overall book-to-bill was 1.32. We saw very healthy orders in many of our advanced industrial applications, as well as most medical applications. Before moving on to other operating results, let me take a moment to talk about the global supply chain dynamics and how they're impacting Noventa. The shortages and other disruptions that we commented on last quarter have increased in magnitude and impact during the third quarter and have challenged our ability to meet customer demand within promised lead times. In addition, we saw a major factory disruption at one of our manufacturing sites during the third quarter, which Robert will comment on in more detail in a few moments. However, despite these challenges, our teams delivered record results, and I could not be more proud of and impressed by the tireless and committed efforts of all of our team members throughout the organization who have again stepped up to deal with these supply issues and to fight hard to keep our customers happy. Now let's turn to what we're seeing in our markets, where continued strength in industrial and microelectronics is now joined by strong performance in medical. In the third quarter of 2021, 53% of an event of total sales went into medical applications. Overall sales to medical applications grew 21% versus the third quarter of 2020 and grew 7% sequentially. During the quarter, we saw a very healthy pickup in orders and shipments to many of our medical OEM customers with particular strength in surgical robotics and DNA sequencing, both of which nearly doubled in sales year of Despite this strength, we see minimally invasive surgical procedures still at approximately 90% of pre-pandemic levels due to the effects of the Delta variant, particularly in the US. We expect that medical sales and minimally invasive surgery procedures to continue to grow as we finish the year, barring any further setbacks in the global recovery from the virus. Novanta sales to advanced industrial applications were 47% of total sales in the third quarter, and our sales continue to rebound across multiple applications areas, with sequential growth of 5% and year-over-year growth of 28%. Within this area, we're seeing excellent growth in industrial automation and robotic applications, which saw 23% growth year-over-year. We also continued to experience higher demand specific to microelectronics investments in 5G and high-speed networking and cloud-based infrastructure, as well as higher demand from EUV-based applications. We expect the increased microelectronics demand to be sustained through the end of 2021 and well into 2022. From a regional perspective, we saw strong demand across all major geographies in the quarter, We continue to see very strong growth from China where sales grew 28% year over year. Sales in Europe grew 20% and sales in the United States grew 27% year over year. Now let me touch on some of Noventa's strategic growth metrics. Design wins in the third quarter were double the prior year with multiple design wins in most of our businesses. We saw another major win in our minimally invasive surgery business this time expanding our addressable market into arthroscopy pumps, which is in line with the growth strategy we've spoken to the past few years. We continue to have more customer project demand than forecasted in this area. We are adding R&D resources to help execute these opportunities and expect the impact of these wins and investments to start to impact our sales over the next two to three years. We also saw strong design means in our photonics and precision motion businesses in high growth application areas such as surgical products, laser additive manufacturing, micro machining, and electric vehicle battery welding. 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 third quarter, with new product sales growing over 30% year over year. We continue to invest in our innovation pipeline with terrific results. And for our MPI launches, year to date, we've launched 11 new products. And let me highlight one of the products launched in the third quarter, which is called Encoder Core. This product comes from our precision motion segment. It is a new variety of an inductive encoder, which is a type of a high-precision position sensor. The Encoder Core is very lightweight and compact, specifically designed to be easy to install and activate inside the OEM system. This new product will be very beneficial for applications such as surgical and industrial robotics, and is well suited for robotic systems of the future, which are required to be more compact, but also way less. As for our previously stated ambition to launch 25 products this year, we now expect we will fall short of this goal, with five of the launches shifting into the first half of 2022. This change in timing is driven by supply chain shortages and related delays at our customers. However, we do not see any material effect on the long-term growth trajectory of the company as a result of these delays. Next, I'd like to give a brief update on the ATI and IMS acquisitions. As previously announced, these transactions closed at the end of August and we are actively working through the integration of both businesses. We could not be more pleased about the high level of engagement of the ATI and IMS teams. These are both fantastic businesses which are an excellent strategic addition to Novanta, expanding our positions in high-growth markets. The businesses are progressing very well with strong post-pandemic tailwinds in robotics and automation demand. As a reminder, ATI develops, manufactures, and sells robotic changing systems, force torque sensors, and collision sensors for the industrial, collaborative, and medical robotic application space. Their focus on robotic applications has positioned them to win in the marketplace with strong long-term secular tailwinds driven by continued penetration of new automation and robotics technologies. They offer proprietary intellectual property and unmatched expertise in their target applications, giving Noventa a significant foothold to allow us to expand content with our existing customers while also serving new customers and applications. As one example of their recent success, the ATI team is winning multiple electric vehicle production lines this year and was recently informed that their four-stroke sensor has been endorsed as a preferred technology solution by FANUC, a leading robotic OEM. And even after these two excellent transactions, acquisitions continue to be the primary focus of Noventa's capital deployment, and we continue to work on an active pipeline of opportunities. So in summary, our third quarter was exciting and challenging with record sales and booking, excellent operating results despite some significant disruptions in our supply chain and factory operations. Despite the short-term challenges, we feel very good about the rest of the year and again are raising our guidance for the year. We also continue to feel good about our long-term strategic positioning in both medical and industrial applications with long-term secular trends in robotics and automation, healthcare productivity, and precision medicine. So with that, I will turn the call over to Robert to provide more details on our operations and financial performance. Robert?