Novanta (NOVT) - 2023 Q1 - Earnings Call Transcript

Financial Data and Key Metrics Changes - Novanta reported $219 million in revenue for Q1 2023, reflecting a 7% year-over-year growth on a reported basis and 8% on an organic basis [7] - Adjusted EBITDA was$ 47 million, with an adjusted diluted earnings per share of $0.74, both exceeding expectations [7][27] - Non-GAAP adjusted gross profit was$ 101 million, maintaining a gross margin of 46%, consistent with the previous year [27] - Cash flow for the first quarter was approximately $7 million, up 28% year-over-year [29] Business Line Data and Key Metrics Changes - Medical markets sales grew 22% year-over-year, accounting for approximately 54% of total sales [11] - Advanced industrial markets, excluding microelectronics, saw a 1% year-over-year increase, representing about 38% of total sales [12] - Microelectronics, which constituted less than 9% of sales, experienced double-digit declines year-over-year [13] - The Precision Medicine and Manufacturing segment (formerly Photonics) grew 11% year-over-year [30] - Medical Solutions segment (formerly Vision) reported a 25% year-over-year growth [33] - Robotics and Automation segment (formerly Precision Motion) experienced a 9% year-over-year decline [36] Market Data and Key Metrics Changes - North America sales increased by 26% year-over-year, while Europe sales declined by 1% [14] - Sales in China, representing about 8% of total sales, fell 34% year-over-year, primarily due to microelectronics revenue decline [14] Company Strategy and Development Direction - The company emphasizes a diversified business model focused on high-growth medical and advanced industrial markets, leveraging long-term trends in robotics, automation, and precision medicine [8] - Investments in new manufacturing facilities and R&D are aimed at supporting future growth and product launches [16][49] - The company is transitioning its reporting segments to better align with strategic focus and customer needs [22][25] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in achieving the full-year outlook, citing strong demand in medical markets and a robust backlog [19][51] - The company anticipates continued challenges in the microelectronics sector but expects to stabilize and grow in other areas [41][84] - Management highlighted the importance of new product launches and design wins for future revenue growth [66][72] Other Important Information - The vitality index for new products was in the mid-teens percentage of sales, reflecting a transition year [15] - The company is working to reduce lead times for products back to historical averages, which have improved significantly [10][78] Q&A Session Summary Question: Microelectronics business and EUV lithography - Management indicated that microelectronics exposure is around 7% to 8% of total revenue, with a shift towards EUV applications expected in the future [58] Question: Update on the Czech facility - The company is winding down lower-margin product lines at the Czech facility, which has been a margin headwind but is expected to improve as new products ramp up [60][61] Question: Opportunities related to new product launches - Management confirmed that the$ 50 million revenue opportunity for 2025 is based on a combination of new product launches and existing customer relationships [65][72] Question: Pricing strategy in the current environment - The company is using price increases to offset inflationary pressures while aiming to expand gross margins by 100 basis points [73][74] Question: Backlog and past due backlog - Management reported a 25% sequential reduction in past due backlog and a significant decrease in lead times, indicating improved operational efficiency [77][78]