Novanta (US:NOVT)2021-08-10 21:52Financial Data and Key Metrics Changes - Novanta reported approximately $168 million in revenue for Q2 2021, representing a 16% year-over-year growth on a reported basis and 11% on an organic basis, marking the highest single-quarter sales in the company's history [8][9] - Adjusted EBITDA was $37 million, up 20% year-over-year, with an EBITDA margin of 22%, an increase of 80 basis points year-over-year [8][27] - Adjusted diluted earnings per share was $0.62, reflecting a 29% increase compared to 2020 [9][28] - Free cash flow performance was strong at $23 million, representing 200% of GAAP net income [9] Business Line Data and Key Metrics Changes - The photonics segment saw a revenue increase of 30% year-over-year, with bookings up 148% year-over-year and a book-to-bill ratio of 1.46 [21] - The precision motion segment also experienced 30% year-over-year revenue growth, with bookings nearly doubling year-over-year and a book-to-bill ratio of 1.6 [22] - The vision segment, primarily serving medical end markets, experienced a revenue decline of 2% year-over-year, but bookings grew 23% year-over-year with a book-to-bill of 1.15 [23][24] Market Data and Key Metrics Changes - Sales to advanced industrial applications accounted for 48% of total sales, with a year-over-year growth of 24% [10] - Sales to medical applications grew 9% year-over-year, although there was a slight sequential decline [10][11] - Strongest growth was observed in China, with sales increasing by 35% year-over-year, while sales in Europe grew double digits and sales in the United States grew 9% year-over-year [11] Company Strategy and Development Direction - The company announced two upcoming acquisitions, SEM for $115 million and ATI for $172 million, which are expected to enhance Novanta's strategic positioning in high-growth markets [14][16][17] - The vitality index, which measures revenue from new products launched in the last four years, remained healthy at above 25% of sales [12] - The company continues to invest in innovation, with a target of 25 new product launches for the full year, focusing on industrial and surgical robotics, minimally invasive surgery, and industry 4.0 [12][13] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in the long-term strategic positioning within medical and industrial applications, citing strong demand and a robust innovation pipeline [15][36] - The primary challenge remains supply chain disruptions, particularly related to electronic material shortages and logistics [29][30] - Despite these challenges, the company expects to raise its financial outlook for the third quarter and the remainder of the year [29][34] Other Important Information - Adjusted gross profit was $76.9 million, resulting in a 46% adjusted gross margin, an increase of over 340 basis points year-over-year [25] - R&D expenses were nearly $17 million, representing about 10% of sales, reflecting significant investment in innovation [26] - The company ended Q2 with gross debt of $196 million and a gross leverage ratio of 1.5x [28] Q&A Session Summary Question: Sustainability of precision motion margins - Management indicated that while there was a mix benefit in Q2, margins with a "5" in front of them are somewhat sustainable for the second half of the year [39] Question: Vision segment performance and recovery - Management attributed the decline in the vision segment to surgical market demand fluctuations, expecting a delayed impact on results [40][41] Question: Bookings strength and backlog conversion - Management noted that shipments have not filled customer stock, indicating that demand remains robust despite supply chain challenges [45][46] Question: Photonics segment order mix - The order mix in the photonics segment was balanced between industrial and medical applications, with strong performance in DNA sequencing and laser-based procedures [47] Question: Gross margin challenges and future outlook - Management confirmed that the guidance for gross margins remains around 46%, with expectations for continued expansion in the future [55]