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 2022 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 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 second quarter 2022 earnings conference call. I am Ray Nash, Corporate Finance Leader of Novanta. With me on today's call is our Chair and Chief Executive Officer, Matthias Glostra, 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 Chair and Chief Executive Officer of Novanta, Matthias Glostra.

Thank you, Ray. Good morning, everybody, and thanks for joining our call. Novanta achieved impressive results in the second quarter of 2022. We delivered another quarter of terrific financial performance with double-digit growth in revenue, bookings, adjusted EBITDA, and adjusted EPS. And we ended the quarter with another record level of backlog. We continue to see very robust demands from our customers in the medical and advanced industrial markets we serve. Noventa's portfolio is well positioned in medical and advanced industry applications with long-term secular tailwinds such as robotics and automation, healthcare productivity, and precision medicine. We continue to invest for growth in a disciplined manner to strengthen our commercial teams, our innovation pipeline, and manufacturing capacity to capitalize on these tailwinds. In the second quarter, the company delivered $215 million in revenue, representing 29% year-over-year revenue growth on a reported basis and 13% growth on an organic basis and up 5% on a sequential basis. In addition, our operating profit in the second quarter was fantastic, with adjusted EBITDA of $45 million, up 22% year-over-year, and adjusted diluted earnings per share of 78 cents, up 26% versus prior year. We saw strong demand and healthy orders across all our segments and in many of our applications, with each segment having solid book to bill in the quarter. In the second quarter, our overall book to bill was 1.34, with year-over-year bookings growth of 25% versus the second quarter of 2021. We ended the quarter with a record backlog of $653 million, up 11% sequentially as demand continued to be gated by supply constraints. The excellent year-to-date financial performance gives us confidence to raise our financial guidance for the full year, which Robert will cover in detail in a few minutes. We're doing this in the face of significant amount of uncertainty and macroeconomic and supply chain challenges. We feel that where we play and how we win is an important part of our success. We build and grow quality businesses with proprietary IP in attractive secular growth markets with vibrant culture and great people. And I just want to say how proud I am of our teams around the world and how extremely pleased we are with the team's exceptional operating performance using the Noventa growth system tools in this uncertain environment. Now let's turn to what we're seeing in our markets, where we see ongoing strength in multiple application areas. In the second quarter, our sales to advanced industrial markets saw 42 percent growth year-over-year and 5 percent growth sequentially. We continue to experience higher demand in automation and robotics markets, and specifically factory automation, battery and electric vehicle production, EUV, and increased adoption of automation-enabling technologies. We believe that the penetration of robotic and automation applications is still relatively low, with adoption increasing due to multiple drivers, such as increased productivity, higher robot utility, onshoring, and labor shortages. Turning to our medical end market, for the second quarter of 2022, sales through medical applications grew 16% versus the second quarter of 2021, and 6% growth sequentially. During the quarter, we saw very strong orders and shipments to many of our medical OEM customers with particular strength in surgical robotics, DNA sequencing, and medical consumables for minimally invasive surgery, all of which saw strong double-digit growth in sales year over year. We believe that the penetration rate of these technologies is still low with an attractive long-term growth trajectory and with Novanta content steadily increasing. It was also encouraging to see the strength in medical consumables, which supports a broader improvement in elective surgical procedures. We expect that medical sales and minimally invasive surgery procedures will continue to rebound gradually throughout 2022 as hospitals are battling staff shortages. Our longer-term outlook on the minimally invasive surgery market remains bullish, particularly with our playbook of expanding share with our unique product offering of integrated smoke evacuation insufflaters. From a regional perspective, we saw strong demand across all our major geographies in the second quarter. We saw 27% year-over-year revenue growth in China, helped by our ATI acquisition, which saw strong electric vehicle production and robotic demand. Our China revenue excluding acquisitions was roughly flat year-over-year, which was remarkable given significant COVID disruptions and lockdowns in China and continued supply constraints. Our backlog in demand in China is very strong, help our increased exposure to electric vehicle production, micro-machining, and electric vehicle battery production. Moving on to other regions, sales in Europe grew 20% and sales in the United States grew 46% year-over-year. Now, let me touch on some of Noventa's strategic growth metrics. As a reminder, right now, these metrics exclude any impact from our ATI and IMS acquisitions. For the second quarter, our Vitality Index, which is revenue from new products launched in the last four years, continues to be healthy at above 25% of sales, with year-over-year MPI revenues up low double digits versus last year. Despite some modest delays in some of our programs, which we've spoken to previously, we see other programs that are progressing nicely, And our new product pipeline for 2022 and beyond remains very healthy. We continue to invest in R&D with discipline in order to capture the many mid- and long-term opportunities with differentiated offerings in high-growth markets. Moving on, in the second quarter, design wins for the overall company increased more than 20% versus the prior year, We saw strong design wins in the majority of our businesses, and we are excited about the platforms we're winning in attractive high-growth applications such as surgical robotics, laser additive manufacturing, micromachining, EUV, and electric vehicle battery welding. Before wrapping up, I'd like to give you a brief update on Aventa's acquisition and integration activities. Our ATI and IMS businesses saw strong performance for sales and bookings in the second quarter. We continue to be very pleased with their contribution and strategic fit to Aventa, and are very pleased to see the way their teams are collaborating with our other businesses and elevating the capabilities of the entire organization. As for the rest of our M&A pipeline, acquisitions continue to be the primary focus of an eventless capital deployment, and we continue to work on a very active pipeline of opportunities. So in summary, despite the significant short-term supply chain challenges and the uncertainty of the macroeconomic environment, we feel excellent about our second According to results, we continue to see strength in the second half of the year. We believe Novanta's long-term strategic positioning is extremely strong. We continue to broaden our exposure to medical and industrial applications that have long-term secular growth trends, such as robotics and automation, healthcare productivity, and precision medicine. So with that, I'll turn the call over to Robert to provide more details on our operations and financial performance. Robert?