Novanta Inc.

Good morning. My name is Gary, and I will be your conference operator today. At this time, I would like to welcome everyone to Novanta Incorporated's third quarter 2024 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 third quarter 2024 earnings conference call. This is Ray Nash, Corporate Finance Leader for 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'm 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 on this election day. Noventa delivered strong third quarter results at the top end of our guidance range. The quarter showed continued sequential improvement in our growth rate, driven by the building momentum of our new products and the strength of our diversified business model. This operating performance reflects solid execution by our teams in a difficult macroeconomic environment. For the third quarter, we delivered $244 million in revenue, which represents reported growth of 10% and flat growth on an organic basis. Adjusted growth margins were 46%, as our core businesses expanded margins by roughly 70 basis points year over year, helping offset the dilutive effect of the motion solutions acquisitions. Adjusted EBITDA was $57 million, growing 9% year over year. Our bookings grew 13% year over year as major OEM customers are confirming the 2025 new product launches. Looking beyond the third quarter, we continue to remain excited and are reconfirming the $50 million incremental new product revenue for 2025. We are on track to complete our planned product launches for 2024 up more than 50 percent versus 2023, with more scheduled for 2025. We're also encouraged that Noventa will be returning to organic growth in the fourth quarter of 2024, albeit at a lower growth rate than previously expected. We remain bullish on the mid- and long-term secular growth trends in precision medicine, minimally invasive and robotic surgery, and robotics and automation markets, where Noventa has a strong technology position with leading OEMs. At the same time, short-term timing of our customers' new product launches and overall industry investments in life science and bioprocessing equipment markets are choppier than we and our customers expected just a couple of months ago. While clearly, macroeconomic and geopolitical factors are clouding our customers' confidence, ultimately, our fourth quarter revenue guidance is best explained by three factors. First, fourth-quarter DNA sequencing product shipments were rescheduled into 2025 due to customer-specific challenges. Second, we are seeing new product launch timing shifts. Specifically, one semiconductor lithography customer and one surgical robotic customer have rescheduled their ramp-up of shipments into 2025. Both product launches will drive substantial growth for Noventa in 2025, and we have received the first batch of orders supporting this. And finally, we're broadly seeing OEM customers in life sciences markets defer shipments because of weak capital equipment market demand from their customers. However, there is a clear indication capital spending will improve in life science in mid-2025, as our customers are seeing an uptake in demand for consumables and services spending with their end-user customers, which is a traditional leading indicator of equipment demand. Robert will go into more details on each of these items when he covers guidance. While we are adjusting to these short-term timing changes for the fourth quarter of 2024, it's important to emphasize that these issues are related to customer timing and not fundamental business weaknesses. We reconfirm our optimism for strong business growth in 2025 based on, first, our new product outlook for 2025, which remains intact even with these near-term changes in customer timing. We and our customers are reconfirming the $50 million incremental new product revenue for 2025. Our customers are excited to be launching their innovations in the marketplace with mission-critical content provided by Novanta. So new product growth remains a very strong driver for overall company growth next year and the years thereafter. Next, from an end market perspective, in the short term, we appear to be at the bottom of the cycle for industrial, microelectronics, and life science capital equipment markets. This makes us optimistic for an improving environment in 2025. We are already seeing early positive signs in some of our shorter cycle businesses, such as microelectronics, which is already confirming this view of an improving environment. This gives us confidence in the mid- and long-term growth drivers of our end markets, and we expect organic growth to continue to improve in 2025. Based on these dynamics and customer demand signals, the second half of 2025 revenue is clearly expected to demonstrate strong double-digit organic growth under a number of scenarios, and we expect a much stronger full-year organic growth on the back of these trends. Because of this, we continue to invest with confidence in our business to remain on track with all our new product launches while maintaining the needed capacity to ramp with our customers in 2025. Here's a brief update on the broader themes we see in our end markets. First, medical device technology markets continue to be very robust and appear likely to stay strong all this year and throughout 2025. Next, Life science and industrial capital spending markets continue to remain muted due to the persistent interest rate impact and increased uncertainty around geopolitical and market economics events. We're not expecting a broad-based market recovery until 2025. However, there are some near-term bright spots, such as in certain robotics and automation applications. Finally, microelectronics end markets are showing early signs of a rebound, with some early cycle product categories already gaining traction in 2024, as evidenced in our third quarter results. A stronger and broader recovery in this end market is likely to happen in 2025. Going into more detail, for the third quarter of 2024, sales to medical markets made up approximately 54% of total Noventa sales and grew mid-single-digit versus the prior year on a reported basis, but were down year-over-year on an organic basis. We saw growth in multiple applications, particularly minimally invasive surgery. However, this was offset by the softness in DNA sequencing, other precision medicine and life science tools, and continued headwind from discontinuing our surgical displays products. We expect the surgical display headwind to fully disappear in early 2025. We continue to be very bullish on the long-term secular growth trends in minimally invasive surgery, robotic surgery, and precision medicine markets, which we believe all have a long runway in the adoption cycle as they drive foundational productivity improvements for the healthcare system. Turning to our advanced industrial markets, which make up the remaining 46% of total Noventa third quarter sales. For the quarter, sales growth in these markets, excluding our microelectronics applications, were up low single digits versus the prior year on a reported basis and roughly flat on an organic basis. The subdued sales performance across this end market was in line with our expectations. While these trends are expected to continue in the fourth quarter of 2024, a recovery later in 2025 remains likely. We remain confident in our long-term exposure to these end markets. Noventa is positioned in many attractive applications, which are driven by secular growth trends such as Industry 4.0, robotics and automation, and precision manufacturing. Finally, speaking to our microelectronics applications, our business experienced strong double-digit growth in the third quarter, both year-over-year and sequentially. This growth rate is partially driven by the easy comparisons to the third quarter of 2023, which was when sales through this end market hit their bottom. For now, this improvement is mainly from shorter cycle products and does not yet reflect a broader recovery of this market. But as mentioned, our new product launch in next-generation lithography systems will be a further driver of growth in 2025. Now, let me touch on some of Noventa's strategic growth metrics. For our design wins, we saw solid design win activity in multiple businesses in both industrial and medical end markets. Overall design wins grew by greater than 20% in the third quarter versus prior year, excluding large wins in minimally evasive surgery recorded in 2023. For new product metrics, we continue to confidently lean in to complete our planned product launches for 2024, up more than 50% versus 2023, with more scheduled for 2025. As discussed earlier, despite the delays in our customers' ramp-up timing, we remain well-positioned. to deliver our goal of $50 million of revenue in 2025 from new product launches, which are incremental to Noventa's current product offerings. Our fatality index in the third quarter was still at about mid-teens percent of sales, but showed sequential improvement as we continue to see the early impact of new product launches in secular growth markets, such as minimally invasive surgery, robotic surgery, warehouse automation, humanoid and field robots, where Noventa is gaining share. Finally, I'd like to give a brief update on Noventa's acquisition activities. The integration of Motion Solutions remains on track. Our teams are fully integrated, and we continue to be excited with their innovation capabilities and the depth of their customer relationships. Although the softness in the life science and markets continue to have a near-term impact on Motion Solutions product sales, the thesis for the transaction is progressing nicely, And we are excited to see this business realize its growth potentials as the markets eventually recover. Beyond motion solutions, new acquisitions continue to remain Novanta's top priority for capital allocation. We have doubled our pipeline of potential targets, which adds up to more than $20 billion in potential revenue and have multiple active conversations in parallel. Our balance sheet is strong, positioned as well to execute additional transactions. Therefore, you should expect us to lean into closed transactions the remainder of 2024 and 2025. In summary, in the third quarter of 2024, Noventa delivered strong results. We hit the high end of our guidance range and had sequential improvement in our organic growth. Our new product launches continue to build momentum, helping us deliver solid performance this year and setting us up for better-than-market growth in secular ad markets next year. These results would not have been possible without the dedicated efforts of our team using the Noventa growth system execution model to overcome significant challenges and deliver on their promises in this environment. We remain steadfast in our focus on our top three priorities. One, launching and ramping a record set of new products. Two, expanding margins and cash flows through the Noventa growth system. And three, acquiring additional companies that align with our strategy and offer attractive returns. With that, I will turn the call over to Robert to provide more details on our operations and financial performance. Robert?