NOVANTA INC Q3 FY2024 earnings call

Management Statement and Operational Highlights

• Financial Results: Third quarter revenue was $244 million, 10% reported growth, 0% organic growth. Adjusted gross margins were 46%, adjusted EBITDA was $57 million, growing 9% year-over-year. Bookings grew 13% year-over-year.
• New Product Launches: On track to complete more than 50% more planned product launches in 2024 compared to 2023, with more scheduled for 2025. Reconfirmed $50 million incremental new product revenue for 2025.
• Market Trends: Medical device technology markets remain robust. Life science and industrial capital spending markets are muted but showing early signs of recovery in some short-cycle businesses like microelectronics. Microelectronics experienced strong double-digit growth in the third quarter.
• Acquisitions: Integration of Motion Solutions remains on track. Pipeline of potential acquisition targets has doubled, with multiple active conversations ongoing.

Segment Performance

• Precision Medicine and Manufacturing: Third quarter sales declined by 15%, book-to-bill was 0.73. Adjusted gross margins were down due to lower factory utilization. This segment contributed a significant portion to total sales but saw weakness in precision medicine markets.
• Robotics and Automation: Revenue increased 20% year-over-year, bookings grew 25%, book-to-bill was 0.83. Adjusted gross margins increased 120 basis points due to better factory efficiency on increased volumes. This segment contributed approximately 46% of total sales.
• Medical Solutions: Reported revenue growth 24% year-over-year but declined 1% organically. Book-to-bill was 1.04, bookings up 50%. Contributed approximately 54% of total sales, with strength in minimally invasive surgery offsetting softness in precision medicine.

Guidance

• Q4 2024 Revenue: Expected to be in the range of $237 million to $242 million, with organic growth in the low single digits. DNA sequencing shipments rescheduled to 2025, and some new product launches deferred to 2025.
• 2025 Outlook: Expecting up to 10% organic revenue growth. Adjusted gross margin for Q4 2024 expected to be approximately 46%, full year 2024 adjusted gross margin around 46%. Adjusted EBITDA for Q4 2024 expected in the range of $50 million to $52 million, full year 2024 around $208 million to $210 million. EPS for Q4 2024 expected in the range of $0.70 to $0.74, full year 2024 around $3.02 to $3.06.
• Cash Flows: Expecting cash flow to return to year-over-year growth in Q4 2024 and double-digit growth for the full year 2024.

Risks

• Macroeconomic and Geopolitical Factors: Clouding customer confidence, leading to deferrals in capital spending by customers in life science and advanced industrial applications.
• Timing Shifts in New Product Launches: Some new product launches, including DNA sequencing, DUV/EUV lithography, and robotic systems, rescheduled to 2025 due to customer-specific challenges.
• Market Uncertainty: Weakness in life science and bioprocessing markets impacting certain segments like Precision Medicine and Manufacturing.

Question and Answer

Q: Lee Jagoda asks about the $25 million delta in Q4 revenue guidance between macro and specific customer launches.

A: Matthijs Glastra states it's a mix of customer-specific and market challenges, primarily involving DNA sequencing, DUV/EUV lithography, and robotic surgery, with DNA sequencing being the biggest single impact.

Q: Brian Drab inquires about EPS decline in Q4 2024.

A: Robert Buckley explains it's due to a higher tax rate from jurisdictional mix and a sequential uptick in operating expenses.

Q: Rob Mason asks about Motion Solutions revenue expectations.

A: Robert Buckley confirms Motion Solutions revenue is still expected to be around $80 million, down from the prior $90 million.

Q: Brian Drab asks about the EUV/DUV new product.

A: Matthijs Glastra states it's a new type of technology not previously supplied, deferred due to launch timing rather than business weakness.

Q: Rob Mason inquires about Precision Medicine and Manufacturing gross margin.

A: Robert Buckley explains it's due to lower volumes in an optics facility and fixed costs, but capacity is maintained to prepare for future growth.