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 first quarter 2025 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 telephone keypad. To withdraw your question, please press star then two. Please note, this event is being recorded. I would now like to send 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 first quarter 2025 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 Blaster, 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.novanhurst.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 Klostra.

Thank you, Ray. Good morning, everybody, and thanks for joining our call. Noventa achieved a successful first quarter of 2025, hitting our expectations for sales and profit, continuing our organic growth path, and delivering strong cash flow performance, all while effectively navigating a challenging environment. In the first quarter, we delivered $233 million in revenue, which represents organic growth of 2% and reported growth of 1%. Our orders grew 3% year-over-year. Adjusted gross margins were 46% in line with expectations and adjusted EBITDA was $50 million. We generated over above $32 million of operating cash flows in the quarter, continuing our streak of delivering strong operating cash flow conversion of above 120% of net income for the eighth consecutive quarter. These strong results reflect the strength of Noventa's business, culture, and team. I am especially proud of our team's resilience and disciplined execution in this volatile environment, while deeply embedding the Noventa growth system in our culture. In addition to our strong financial performance, I'm pleased to announce the successful closure of a small strategic token acquisition at the start of April, marking our first acquisition of 2025. we continue to work on a large pipeline of additional acquisition opportunities, which remains a top priority for Noventa this year. Before I dive into the market environment, I want to emphasize that Noventa's diversified business model with more than 3,000 customers with exposure to high-growth medical lifestyles in advanced industrial markets has consistently demonstrated resilience across various geopolitical and macroeconomic scenarios. Our strategies focus on winning in markets with long-term secular fill-in, such as precision robotics and automation, advanced minimally invasive and robotic surgery, and precision medicine. Many applications within these markets are still in the early stages of their adoption cycles, offering significant long-term growth potential. We forge deep and long-term partnerships with leading OEM customers in these markets, addressing their most challenging problems with our innovative proprietary solutions and technologies. Our asset-like business model drives high cash flow conversion and growth, which we reinvest in the business and acquisitions, creating long-term, sustainable, and consistent cash flow growth and shareholder value. In short, we see that our winning growth strategy, focused on where we play and how we win, and our deployment of an event-to-growth system is what drives our performance no matter the environment. With that said, let me make a few comments on the market environment and how event-to-growth is responding to the dynamics we see. Our social healthcare markets continue to thrive with strong patient procedure growth and hospital spending driving high single-digit growth in our advanced surgery business. We expect to grow faster than the healthcare market in 2025 from new product launches within surgical robotics and minimally invasive surgery applications. These products are quickly adopted because they enhance patient safety, improve surgical throughput, and help meet new regulatory requirements. We are reconfirming $50 million of incremental new product revenue for 2025, predominantly driven by our next-generation smoke evacuation program, interplayers, and next-generation endoscopic pumps. In addition to strong new product launches within our medical devices markets, we're also seeing strong demand for new product launches supporting so-called physical AI applications, such as warehouse automation, precision robotics, humanoids, RFID, and EUV lithography solutions, and other technologies that support a nearshoring of manufacturing. we're confidently pushing forward with our investments in innovation and commercial excellence in these markets. Despite this backdrop of strong secular growth drivers, in the near term, it's fair to say that the macroeconomic environment we're dealing with today is one of the most uncertain and volatile that we've seen since the early days of the COVID pandemic. Since our last fall, trade war uncertainty and tit-for-tat retaliatory responses romantically escalated. Besides the timing of tariffs, their resolution or retaliatory responses are largely unknown at this point. This will certainly drive reluctance by our customers' customers to make capital investments, which results in poor visibility for our OEM customers, particularly in industrial and life sciences markets. November has responded well to similar situations in the past and is even better prepared today. Over the past few years, we have enhanced the scalability and resilience of our operations as a supply chain, reduced reliance on Chinese imports, and strengthened our In China for China strategy, including local fees for flight chains and $50 million in locally manufactured product revenues. This has laid a foundation that we can use to accelerate further manufacturing network optimization. In recent quarters, we also strengthened our organization and leadership. For example, our new co-chief operating officer roles allow us to respond to these situations in a more cohesive, nimble, and rapid way. In the first quarter, we onboarded a new global ad of supply chain with deep expertise in our markets, technologies, and an event-to-growth system. Additionally, we welcome the new global hand of the November growth system who brings with him best-in-class experiences and training from then and are afforded. So while the trade and pair of changes in place right now have currently increased our manufacturing costs by approximately $20 million annually, we expect to mitigate this impact through a multi-pronged strategy that allows us to still maintain our full year 2025 EBITDA guidance, we issued in February of this year. Robert will go into further details on our approach shortly. While addressing short-term tariff mitigation, we remain steadfast in our focus on our top three priorities for Noventa in 2025, as discussed in our last call. First, rent or plan new products and achieve the $50 million of growth from new products this year. Second, deliver strong profit margin and cash flow performance by driving the Noventa growth system deep into our culture and operations. This now includes implementing a sound response plan to counteract error headwinds and market demand disruptions. And third, acquire additional companies that fit our strategy and attractive returns and in a manner that evolves our portfolio to secular growing and resilient markets and business models. Now I'll return to the first quarter to give more details on our results and our strategic growth metrics. In the first quarter, medical market sales made up 55% of total and event sales, and event industrial markets made up 45% of total sales. Sales to both end markets grew low single digits year over year. Despite the short-term uncertainty in the industrial space, we remain confident in our long-term exposure to sexually growing issues in the Zen market. Noventa is positioned in many attractive applications and enabling technologies, supporting the so-called physical AI applications, in ensuring a near-suring of manufacturing, which is driving robotics and automation investments, particularly due to labor costs and labor shortages. Many of these applications and enabling technologies are still in the early stages of their adoption cycles, offering significant long-term growth potentials, of mid-to-high single-digit organic routes. In the first quarter, we saw a solid design win activity, particularly in our automation-enabling technology segment, where design wins grew by strong double digits as customers proceeded to work on next-generation platforms despite the market turbulence. Some examples of recent design wins include warehouse automation robotics, All right, by these solutions, advanced semiconductors, laser additive manufacturing, micromachining, and also humanoid robotics. Also in the first quarter, new product sales grew a strong double-digit year over year, and our vitality index climbed to just below 20% of total sales. With the anticipated ramp of new products, we expect these metrics to further improve over the course of the year. To highlight a few new product examples for you, first, all major customers have now launched their second-generation smoke evacuation inflator products with favorable market reception. The market reception, regulatory drivers, customer orders, and customer engagement of these products gives us confidence these new products ramps are on track despite the turnover in trade. Next, we're very excited about recent launches that further expand our lead at ultra-precise, high-density, and high-safety motion control and sensing product lines targeted at warehousing automation and humanoids, where Noventa has unique proprietary technologies. Examples include our Denali AdWords Safe Server Drives, which enable embedded safety of precision robots in warehousing automation and humanoids at industry-leading power densities. We're also excited by their next-gen Axion Vero four-store sensors with excellent noise immunity and high stiffness, providing robots with a sense of touch which is critical in these applications. The benefits are smarter planning and reacting, faster motion via quicker response times, compression of goods to fill bins more efficiently, and the ability to handle cluttered, unpredictable environments. In April, Noventa acquired Kion, an integrated RFID solution provider based in Barcelona, Spain. Kion combines proprietary RFID hardware with AI-enhanced cloud-based software to offer real-time inventory and asset management. As a long-term Noventa customer, Kion is a market leader in providing resource cores and warehouses with precise location data within a means of accuracy. inventory traceability, and predictive insights, improving revenue, customer experiences, and profitability with reduced stock apps. This acquisition aligns with Noventa's strategy to expand into intelligent, embedded software-based subsystems and solutions. Keele marks a first entry into AI-enhanced cloud-based software integrated with proprietary RFID hardware, and fills a crucial software integration gap for better penetration into the medical market, including hospitals. This technology aims to improve traceability, reduce costs, enhance patient outcomes, and improve staff and patient experiences. While medical customers have longer design cycles, we are excited about POV impact on retail customers and expect rapid market adoption, driving double-digit growth. Though the near-term impact on the event of sales and profit is small, we anticipate significant contributions to overall growth from 2026 onwards. Looking beyond this transaction for 2025, acquiring new technologies and businesses remain a top priority for our team. We continue to have a large and exciting pipeline of additional targets. Valuations are more attractive, and we believe that the near-term macroeconomic environment is an added catalyst to increase actionability. Our pharmacy is well-positioned for additional transactions while maintaining our historical discount plan on both cash returns and financial leverage. To conclude, I'm very pleased with our first quarter performance. We met sales and profit expectations, exceeded cash flow expectations, and effectively navigated disruptive market events. We are well-positioned and are leaning in to seize new growth opportunities in 2025 amid trade uncertainty and volatility. Our new product brands are on track for 2025, and we're confident in achieving our goal of $50 million of incremental new product sales. With revenue expected to grow further in the following years. Additionally, this environment presents opportunities for attractive new acquisitions, as demonstrated by the key on acquisitions. With a stronger management team, a solid business foundation in the right markets, and an intact company strategy, I remain confident in our resiliency and ability to navigate the near-term dynamics. With that, I'll turn the floor over to Robert to provide more details on our operations and financial performance. Robert?