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 the Novanta Incorporated's fourth quarter and full year 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 fourth quarter and full year 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 Glastra.

Thank you, Ray. Good morning, everybody, and thanks for joining our call. Noventa achieved solid financial results in 2024, effectively navigating a challenging environment. In the fourth quarter, we returned to organic growth as expected. We beat expectations for profit, and we achieved our best quarterly cash flow ever. For the full year of 2024, we had strong operating performance despite the choppy market demand, demonstrating strong core gross margin expansion, adjusted EBITDA growth, and record cash flow generation. We launched 50 new products and received initial orders from our customers supporting our new product revenue ramp in 2025. Overall, I'm incredibly proud of our team's resilience in managing through this volatile environment to deliver these results. The Noventa business model with diversified exposure to high growth medical life science and advanced industrial markets has proven resilient under multiple geopolitical and market economic scenarios. Our proprietary products and technologies are well-positioned in medical and advanced industry applications with long-term secular children, such as precision manufacturing, robotics and automation, advanced surgery, and precision medicine. We feel that our winning growth strategy focused on where we play and how we win, combined with the strength of our portfolio and our deployment of the Noventa growth system, is what drives our performance no matter the environment. For the fourth quarter, we achieved $238 million in revenue, which was plus 3% organic growth year-over-year and plus 13% reported revenue growth. Our reported revenue would have been $2 million higher if exchange rates had stayed consistent with our fourth quarter guidance. Bookings grew 54% year-over-year and 5% sequentially, driven by major OEM customers confirming their 2,025 new product launches. Adjusted gross margins were 47% with core businesses, which exclude the motion solutions acquisition, expanding margins by 125 basis points. Adjusted EBITDA grew 15% to $52 million, and operating cash flow hit a record $62 million, up 58%. For the full year of 2024, we delivered $949 million in revenue, with plus 8% reported revenue growth and a 2% organic decline. Adjusted gross margins were 47%, with our core businesses expanding margins by roughly 120 basis points year-over-year, and adjusted EBITDA grew 7% to $210 million. Operating cash flow reached a record $159 million, up 32%. Looking ahead to 2025, we remain optimistic despite market uncertainties. Our sales to healthcare markets continue to thrive, with strong patient procedure growth and hospital spending driving high single-digit growth in our medical business. In addition, we expect to grow faster than the healthcare market in 2025 from new product launches, allowing us to control our own destiny better. We are reconfirming $50 million of incremental new product revenue for 2025, mostly driven by new insufflators and pumps for hospitals and surgery centers, as well as surgical and warehouse automation robotics. We are confident in the long-term growth outlook in our end markets, and we feel we have a strong technology position in segments with secular growth. In the short term, it's fair to say that there's an increasing amount of change and uncertainty. We do see signs of growth slowly returning to all of our end markets, as evident in certain robotics and automation applications in the fourth quarter, as well as some short-cycle semiconductor applications. At the same time, the geopolitical disruptions and market economic uncertainty that we saw throughout 2024 are now being compounded by disruptions from trade war uncertainty, including tit-for-tat retaliatory responses, as well as uncertainty around government funding, such as from the U.S. National Institute of Health. All these factors create a more uncertain environment in 2025 for capital spending in industrial, semiconductor, bioprocessing, and life sciences. Our teams are ready, stronger, and more resilient than ever to face these uncertainties. For example, our tariff and supply chain playbooks are in place, and thanks to the deeply embedded Noventa growth system, you can expect us to deliver strong operating performance no matter the environment. All of this leads us to be confident in the fundamentals of our business and upbeat about a better year in 2025. At the same time, given the increase in uncertainty and volatility right now versus at the time of our last call, We will be prudent with our initial financial guidance for this year. Robert will cover guidance details in his section. I'll return to 2024 to give more detail on our results for the year. For 2024, medical market sales made up 55% of total Noventa sales, growing high single digits on a reported basis. We saw strong growth in multiple application areas, particularly in minimally invasive surgery and robotics for surgery. This was offset by weakness in DNA sequencing that had went from discontinuing our surgical display products and general softness in life sciences applications. Advanced industrial markets made up 45% of total sales, growing low double digits on a reported basis. Despite the challenges we've seen in this space, we remain confident in our long-term exposure to secondly growing niches in this end market. Noventa is well-positioned in many attractive applications and trends, such as Industry 4.0, GenAI, and on-shoring and near-shoring, which is driving robotics and automation investments, particularly due to labor costs and shortages. Now, let me touch on some of Noventa's strategic growth metrics. We saw solid design activity, with overall design growing by over 40% in the fourth quarter. We launched 50 major new products in 2024, with over 50% more planned for 2025 as our innovation pipeline is starting to gain steam. Our vitality index was mid-teens percentage of sales expected to climb in 2025 as we ramp new products. Some of our new product launch highlights from the past year are we launched multiple new next-generation smoke evacuation insufflators with leading medical device OEMs. These intelligent subsystems are at different phases of their launches, some currently in soft launch, and some now in full ramp as we head into 2025. We launched one new endoscopic pump with a fast-growing OEM. We have more next-generation pumps ready to hit the market with large OEM customers in 2025. We are investing to significantly expand our position here in the coming years, leveraging our insufflator competencies and playbooks. We also launched multiple new products specifically designed for advanced robotics applications, such as surgical robots, humanoids, and warehouse automation robots. These new products include ultra-compact servo drives, newly configured force torque sensors, and miniaturized encoders. We have already received large initial purchase orders for these new products in the third and fourth quarter of 2024, and additional orders in January and February of this year. So, our backlog is already filling up for the year. In addition, we received our first production order for a brand new DUV-EUV lithography intelligence subsystem product, which is set to launch later in 2025. With all these launches and more planned throughout 2025, we remain on track to deliver our goal of $50 million of incremental MPI revenue in 2025. Next, I'd like to give you a brief update on Aventa's acquisition activities. New acquisitions remain Aventa's top priority for capital allocation, aligned with our operating model of being a cash flow compounder. For 2025, closing new acquisition is our executive team's top priority. We have a large and exciting pipeline of potential targets and are managing multiple active conversations. In today's volatile marketplace, valuations are becoming more attractive. and our balance sheet is well positioned for sizable transactions. We aim to close multiple transactions in 2025 while at the same time maintaining discipline on price and returns. To better prepare for scaling Noventa organically and inorganically, we also made some significant organizational changes. As of January 2025, we have appointed two co-chiefs operating officers or co-COOs to the Noventa leadership team reporting directly to me. Each of these co-CEOs will lead an operating segment, either automation-enabling technologies, which will include the precision manufacturing and robotics and automation business units, or medical solutions, which will include the advanced surgery and precision medicine business units. In these roles, these leaders will be responsible for organic growth strategies and for creating a robust organization capability and capacity to receive new acquisitions. The Automation Enabling Technology segment will be led by Chuck Rivetto. In addition to this role, Chuck will also lead the Noventa Growth System, or NGS, across Noventa as we integrate it deeper into our culture and operations. We're also excited to welcome John Lessica to Noventa. John, as co-CEO, will be responsible for the Medical Solutions segment. This segment will focus on Noventa's growth strategy for the healthcare industry. with particular emphasis on surgical precision medicine and bioprocessing technology solutions. John brings extensive healthcare and life science markets experience from his 22-year career at Thermo Fisher Scientific, where he most recently led their $3.5 billion chromatography and mass spec division, serving biotech, academic, and pharma customers in the high-growth proteomics and multiomics space, as well as applied markets. His expertise will be invaluable as he leads our organic growth and acquisition strategy in the medical life science and bioprocessing markets. Finally, let me also give an update on building the culture of Noventa, which we call the Noventa Way. We believe the Noventa Way has been a differentiator in attracting, retaining, and developing core talent. We continue to focus on giving our employees a sense of belonging within the company and on improving our employee engagement scores. and we have invested heavily into leadership development initiatives and employee training. As we're entering the year, we have the strongest leadership team and bench since my tenure as CEO, a team that is ready and able to scale and further transform the company. One of the most critical aspects of our company culture is embedding the Novanta Growth System, known as NGS, to drive excellence into the many ways we work together. In 2024, we leveraged NGS to enhance performance across our factory teams, commercial organization, R&D, and product management. We hosted numerous Kaizen events and trained over 100 employees as NGS practitioners, driving continuous improvement. These efforts significantly boosted our operations by speeding up product launches, reducing lead times in inventory, improving gross margins on medical consumables, and expanding our commercial funnel with new OEM opportunities. In 2025, we'll continue using NGS to optimize operations. This week, during our annual President's Kaizen Week, we're hosting multiple events at major sites across the globe, engaging over 200 employees from all levels to achieve our 2025 goals and long-term strategies. NGS is integral to an eventless identity, fostering cross-functional teamwork and effective problem-solving. In summary, we're proud of the progress we made as an organization in 2024. Noventa achieved solid financial results in 2024 with strong operating performance, gross margin expansion, adjusted EBITDA growth, and record cash flow generation. In the fourth quarter, we returned to organic growth, we beat expectations for profit, and we achieved our best quarterly cash flow ever. Our new product ramps are on track for 2025 with plans to launch 50% more new products than 2024. We've reorganized the skill better organically and through acquisitions, strengthened our leadership bands and talent pool. We remain confident in our strategy, our business fundamentals, and the resilience of our portfolio and teams. As we look at 2025, Noventa's top three priorities will be, first, ramp all our plant new products and achieve the $50 million of growth from new products this year. Second, further expand our profit margins and cash flow by driving NGS deep into our culture and the way we work. And finally, acquire additional companies that fit our strategy and attractive returns to drive double-digit reported growth in the year. With that, I will turn the call over to Robert to provide more details on our operations and financial performance. Robert?