Novanta (US:NOVT)2020-11-11 04:26Financial Data and Key Metrics Changes - Novanta reported approximately $143 million in revenue for Q3 2020, representing a 7% year-over-year decline on a reported basis and a 9% decline on an organic basis [7][31] - Adjusted EBITDA was $30 million, or 21% of sales, expanding 100 basis points compared to 2019 [8] - Free cash flow performance reached nearly $40 million, up over eight times year-over-year, reflecting strong management of operations and working capital [9][43] - GAAP diluted earnings per share was $0.03, down from $0.25 in Q3 2019, while adjusted earnings per share was $0.42 compared to $0.52 in the prior year [42] Business Line Data and Key Metrics Changes - The Vision segment saw an 8% year-over-year revenue decline, with a book-to-bill ratio of 0.92 [21] - The Precision Motion segment experienced a 9% revenue growth, driven by demand in 5G and cloud-based infrastructure [24] - The Photonics segment's revenue was down 15%, consistent with expectations, but bookings grew double digits sequentially [26][27] Market Data and Key Metrics Changes - Elective medical procedures and diagnostic test volumes recovered to about 90% to 95% of pre-COVID levels [11] - Sales to China increased by 46% year-over-year, while sales to the U.S. and Europe were down 7% [35] - The medical end markets accounted for 54% of total sales in Q3 2020, despite low double-digit declines [31] Company Strategy and Development Direction - Novanta's long-term growth drivers include industrial and surgical robotics, minimally invasive surgery, precision medicine, and Industry 4.0 [16][30] - The company is focused on innovation investments and has launched new products, including MOVIA and Ultra IncOder, to capture market opportunities [17][18] - The company is actively pursuing acquisition opportunities that fit its financial returns and strategic criteria [30] Management's Comments on Operating Environment and Future Outlook - Management expressed cautious optimism about the immediate outlook due to uncertainty in the market and the resurgence of COVID-19 [13][44] - The company expects sequential revenue improvement in Q4 2020, driven largely by the Photonics segment [44] - Management emphasized the importance of maintaining employee safety and business continuity during the pandemic [14][15] Other Important Information - The vitality index, which measures revenue from new products launched in the last four years, remains healthy at over 25% of sales [18] - The company has implemented rigorous cost management measures to navigate the pandemic's challenges [39][40] Q&A Session Summary Question: Can you talk about customer relationships and cost-sharing due to COVID? - Management noted that there has been recognition of higher costs incurred, leading to some sharing of costs with customers to mitigate overall impact [50][52] Question: What is the market potential for new products? - Management indicated a market opportunity of about $100 million for Photonics and a similar range for minimally invasive surgery [55] Question: Will new product revenue impact Q4 and H1 2021? - Management expects more pronounced contributions from new products in 2021 and 2022, with some delays in customer launches [59][60] Question: What is the outlook for the Precision Motion segment? - Management highlighted a 9% growth in Q3 but noted that capital investments in surgical robotics are expected to be delayed until late 2021 [65][66]