Novanta Inc.

Good morning. My name is Keith, and I will be your conference operator today. At this time, I would like to welcome everyone to Novanta Incorporated's 2021 Fourth Quarter and Full Year 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 1 on your touchtone phone. To answer your question, please press star, then 2. Please note, this event is being recorded. I now turn the call 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 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, 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, Matthias Glostra.

Thank you, Ray. Good morning, everybody, and thanks for joining us. Noventa delivered another record quarter and a record full year of 2021. We hit new all-time highs for revenue and bookings with strong operating performance for both the fourth quarter and the full year of 2021. We exited 2021 at a $800 million revenue run rate with a record backlog of $569 million and close to $1 billion full-year bookings. This is a great indicator of the structural long-term demand drivers in the medical and advanced industrial markets we serve. It also sets us up with excellent visibility to customer demand and sales growth in 2022. In the fourth quarter, our company delivered $199 million in revenue, representing 35% year-over-year revenue growth on a reported basis and 14% growth on an organic basis, eclipsing the mark set last quarter. For the full year of 2021, Noventa had sales of $707 million, which is up 20% year-over-year on a reported basis and 10% on an organic basis. In addition, we had another quarter of excellent operating performance with adjusted EBITDA of $43 million in the fourth quarter, up 31% year-over-year. For the full year, adjusted EBITDA was $153 million, which is up 26% year over year. Our adjusted diluted earnings per share in the fourth quarter was 67 cents, which is up 26% versus prior year. And for the full year, adjusted EPS was $2.62, which is up 34% versus 2020. 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'll speak to in a moment. We saw another quarter of record-breaking bookings in the fourth quarter, with sequential bookings growth of 32% versus an already very strong third quarter, and year-over-year bookings growth of 92% versus the fourth quarter of 2020. Excluding the impact of our acquisitions, bookings were still up, 67% year-over-year in the fourth quarter. We saw strong demand across all our segments, with each segment having very strong book-to-bill in the quarter. In the fourth quarter, our overall book-to-bill was 1.55. We saw very healthy orders in many of our advanced industrial applications, as well as most medical applications. As mentioned before, for the full year of 2021, we saw nearly $1 billion of bookings, and the full-year book-to-bill was an impressive Before moving on to other operating results, let me take a moment to give an update about the global macroeconomic dynamics and how they're impacting Novanta. First of all, the war between Russia and the Ukraine has obviously increased uncertainty, and our thoughts are with the Ukrainian people. While these events are very tragic, and hopefully a peaceful solution will be found very soon, the direct Novanta economic exposure with Russia and the Ukraine is negligible. Second, the widely reported supply chain shortages and other disruptions that we commented on last quarter have continued, and in some cases have gotten worse during the fourth quarter. This continues to challenge our ability to meet customer demand within our promised lead times. In addition, we are now seeing cost inflation in both raw materials as well as labor costs, which are being widely reported on in the market. Robert will comment on these dynamics in more detail in a few moments. However, I'm extremely proud of and impressed by the agility, grit, and extraordinary efforts of all of our team members throughout the organization who keep stepping up to manage these pressures and who go above and beyond to keep our customers happy while protecting our profitability. Now, let's turn to what we're seeing in our markets, where we see ongoing strength in multiple application areas. Noventa sales to advanced industrial markets were 51% of total sales in the fourth quarter. This reflects a full quarter of the ATI acquisition, with the majority of its business exposed to exciting high-growth industrial robotics and automation applications, such as electric vehicle production, warehouse automation, and an overall accelerated pace in robotics penetration. In the fourth quarter, our sales to advanced industrial markets saw 21% growth sequentially, and 55% growth year-over-year. We also continue to experience higher demand specific to microelectronic investments in 5G, high-speed networking, and cloud-based infrastructure, higher demand from EUV-based applications, as well as increased penetration and investments into Industry 4.0 and factory automation markets requiring Noventa's enabling technologies. We expect the increased microelectronics and factory 4.0 demand to be sustained well into 2022. For the full year of 2021, sales to advanced industrial applications were 48% of total sales and grew by 30% versus 2020. Turning to our medical end market, for the full year of 2021, sales to medical applications were 52% of total sales and grew by 12% year over year. In the fourth quarter, of 2021, sales to medical applications were 49% of Noventa's total sales and grew 19% versus the fourth quarter of 2020 and 4% sequentially. During the quarter, we saw very strong orders and shipments to many of our medical OEMs with particular strength in surgical robotics and DNA sequencing, both of which saw greater than 50% growth in sales year over year. Despite this improved strength in the fourth quarter, the overall market for minimally invasive surgical procedures, however, was still subdued and impacted by increased cases of the Omicron variant. With patient backlogs high, we expect that medical sales and minimally invasive surgery procedures will continue to rebound gradually in 2022 as the impact of the Omicron variant starts to subside and hospital capex for elective procedures starts to return to pre-pandemic levels. From a regional perspective, we saw strong demand across all major geographies in the fourth quarter. We continue to see very strong growth from China, where sales grew 32% year over year, helped by our increased exposure to electric vehicle and EV battery production. Sales in Europe grew 22%, and sales in the United States grew 45% year over year. For the full year, sales to China were up 35%, and sales in Europe and the United States were also very strong double-digit growth. Now, let me touch on some of Noventa's strategic growth metrics. For now, these metrics exclude any impact from our ATI and IMS acquisitions. We plan to start including ATI and IMS in these metrics starting sometime in 2022 as we establish the proper tracking and reporting with those teams. For the full year of 2021, Our design wins were more than double the prior year, which is a huge accomplishment for our sales teams. Design wins in the fourth quarter were up double digits versus the prior year, with multiple major wins in most of our businesses. We saw even more wins in our minimally invasive surgery business, which already had a huge year with multiple major customer wins. We also saw strong design wins in our laser beam steering and precision motion businesses in high-growth application areas. such as surgical robotics, 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 both the fourth quarter and for the full year, with new product sales growing double digit year over year. We continue to invest in our innovation pipeline with terrific results. For the full year, we launched 19 new products, nearly matching our record high for the number of new products launched in a single year. It's impressive that we managed to achieve this number of product launches despite having to reallocate part of our engineering resources to help mitigate some of the supply chain difficulties that I've spoken about. Yet, as mentioned in our last call, we are seeing some delays in the launch timeline of some of our MPIs and some of our customer platforms. However, at this stage, we do not see any material impact on the long-term growth trajectory of the company as a result of these delays. We're adding supply chain and engineering resources to mitigate these challenges, and in the process, we're building foundational capability that will benefit us long-term. We continue to have a strong pipeline of new products, and the lineup of 2022 product launches is very healthy. Next, I'd like to give a brief update on the ATI and IMS acquisitions. Both businesses were with us for the full fourth quarter, and we have made significant progress integrating both businesses with the rest of Noventa. We continue to be very impressed by the performance and the engagement of the ATI and IMS teams and their strong pull for the Noventa growth system tools. These are both fantastic businesses, which are excellent strategic additions to Novanta, expanding our positions in high-growth markets. Both businesses are progressing very well with a strong market tailwind in robotics and automation demand, and we saw strong performance for sales and bookings for these businesses in the fourth quarter. Acquisitions continue to be the primary focus of Novanta's capital deployment, and we continue to work on an active pipeline of opportunities in 2022. Finally, none of our performance would be possible without our teams of talented and committed Noventa teammates. We continue to double down and invest in our culture called the Noventa way, which institutionalizes how we work together in cohesive, diverse, and inclusive teams, how we behave and interact through our five core values, and how we execute through the Noventa growth systems where everybody feels respected, included, and engaged around our strategic priorities. We believe that the Novanta way has been a differentiator in a tough labor market to attract, retain, and develop core talent. And in 2022, we will increase our investments in our culture, our people, and the development and growth of our talent. We are staying laser focused on executing our long-term vision and strategy, which includes strengthening our corporate responsibility efforts. At Novanta, our vision is to deliver innovations that matter to our customers and enhance people's lives. We are committed to creating a brighter future through environmental sustainability initiatives, building a diverse and equitable and inclusive workforce, and maintaining a robust governance system. We are developing action plans to achieve net zero emission by 2050, and we will publish our 2021 ESG report later this month, which will be in line with the two leading global standards, SASB and TCFD. So in summary, 2021 was a landmark year for Novanta. We achieved never-before-seen levels of sales, bookings, and profit, despite some significant disruptions in our supply chain and factory operations. Despite the ongoing short-term challenges, we feel very good as we enter 2022 with record levels of backlog and continued strong demand from our customers. We believe Novanta's long-term strategic positioning is as good as it has ever been. We continue to broaden our exposure to medical and advanced industrial applications that have long-term secular growth trends, such as 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?