Q3 2020 Novanta Inc Earnings Call
Good morning, My name is Andrea and I will be your conference operator today at <unk>.
This time I would like to welcome everyone to the Novanta incorporated 2023rd quarter earnings call.
All lines have been placed on mute to prevent any background noise.
After the speakers remarks, there will be a question and answer session to ask a question you May Press Star then one on your Touchtone phone to.
To withdraw your question. Please press Star then too.
Please note this event is being recorded.
I'd now like to turn the conference over to Ray Nash Corporate Finance leader for Novanta. Please go ahead.
Thank you very much good morning, and welcome to Novanta third quarter 2020 earnings Conference call I'm Ray National Corporate Finance leader of Novanta with me on today's call is our Chief Executive Officer, <unk> interim 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 Dot Novanta Dot 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'd 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 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.
He 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 Chief Executive Officer of Novanta Matteis Costra.
Thank you Ray good morning, everybody and thanks for joining our call before we start our normal quarterly results review I would like to thank all novanta employees for how they continue to step up in this challenging environment. We're very pleased and humbled was the engagement the resiliency of our teams through dependent make it was great to see.
That's an event the spirit is alive and at our culture has been a strong foundation to help watered this crisis.
Now, let's move on to our normal quarterly results review, we are pleased with Inventus performance in the third quarter of 2020, our teams continued to execute very well in the face of challenging circumstances and delivered above our expectations for revenue profit and cash flow.
Our company delivered approximately $143 million in revenue, representing a 7% year over year revenue decline.
Reported basis, and a 9% decline on an organic basis.
We were especially pleased with how our teams continue to manage profit decrementals.
Adjusted EBITDA was $30 million or 21% of sales in the third quarter.
Spending 100 basis points first is 2019.
Our teams delivered record free cash flow performance in the third quarter and nearly $40 million up over eight times year over year at a ratio of over 475% of GAAP net income.
Reflecting their rigorous management of our operations and working capital.
Well no event that was not immune to the impact of the pandemic. These results show that event that is well positioned to weather to COVID-19 pandemic and the resulting in economic weakness our balance sheet is strong our innovation engine is strong our teams are secure and safe.
And our portfolio's resilience as a result of our diversification across approximately 45 different applications with exposure to long term secular trends in robotics, and automation health care productivity and precision medicine.
The benefits of our portfolio diversification continues to show in our results. That's the trough in the third quarter was less deep than expected and we now expect to fourth quarter, <unk> revenues and bookings to be up sequentially versus the third quarter.
From an end market perspective, many of the trends, we called that out in the second quarter played out as expected in the third quarter.
Elective medical procedures and diagnostic test volumes recovered to about 90% to 95% pre covert levels.
The steady improvement since the second quarter.
Approximately 70% of the research labs, partially reopened.
As a reminder, medical capital equipment purchases are trailing elective medical procedures and event that's trading our OEM customers performance by about 90 days.
As a result, and as expected our medical and industrial business was so low double digit declines in the third quarter, our microelectronic business was up over 50% year over year, driven by he will be five g. and cloud infrastructure equipment.
We also continued to experience double digit year over year growth with our smoke evacuation medical consumables, our medical barcode solutions for ice you patient monitoring and diagnostic test equipment and in China, we saw year over year growth accelerate to 46%.
In the third quarter, our book to Bill was about 0.9, and our year to date book to Bill.
It's a 0.95, we are seeing bookings momentum improve in September and October and our fourth quarter backlog supports the sequential revenue improvement versus the third quarter.
Robert will discuss in more detail our expectations for the for the fourth quarter later on in this call.
Well the third quarter results were better than previously thought and we remain confident about our long term strategic positioning we remain cautious about her immediate outlook given the uncertainty in the market and particularly given the recent pandemic researchers in Europe and the U.S.
In managing through the pandemic route we remain focused on what we can control, which are the four guiding principles. We've laid out in previous calls first our primary goal at Nov continues to be the safety and well being over employees their families and the communities in which we operate globally. The majority of our Nonproduction I. Please continue to work from home.
And they have some to use them over engineers on production personnel working on site remains low we.
We have further expanded our safety measures with accelerated Dustin testing a technology enabled dismissing him tracing methods as well as improve air quality in circulation and our buildings.
Our second guiding principles to maintaining business continuity. So we can support our customers we take great pride knowing that our mission critical technology use our embed it into diagnostic an anti body test equipment detecting COVID-19 and into I see you a patient monitoring quit equipment used to help in the fight against the pandemic in hospitals.
Our customers or suppliers are getting better at operating during the pandemic and upset.
We continue to see rapidly changing demand and supply patterns aggressive.
Aggressive deployment off the November gross system is helping to respond with agility and helped to minimize profit decrementals and to deliver record free cash flows in the third quarter.
Our third guiding principles to ensure a bright future EM and emerge out of this crisis stronger with the right innovation studio right customers in our target growth markets.
We continue to believe that our long term secular growth drivers are even more relevant both spend dynamic with particular focus on industrial I'm surgical robotics minimally invasive surgery precision medicine and industry forward. Although we have stayed the course on our innovation investments so while some customers or MPR programs have showed some delays as a result.
<unk> 19, our main MPCI programs continues to be very active with multiple new products launching over the next 12 to 18 months.
In the third quarter, we lost a few new products one of them Mobileye is a compact laser beam scanning subsystem design for coding pharma and food and beverage packages as well as high growth Micromachining applications, driven by overall miniaturization and precision trends.
We're also excited about another new product you will try encoder and compact conductive encoder for position detection in surgical robots and industrial automation.
Which we launched three months ahead of schedule a fantastic performance over engineering teams during this pandemic.
Our vitality index, which is revenue from new products launching before in the last four years continues to be healthy at over 25% of sales versus mid single digit percentage, there's a few years ago.
Design wins continued to show positive growth on a year to date basis, Although we saw a pause in the third quarter as some customers have temporarily delayed new platforms. We.
We see this as a temporary situation when we fully expect the fourth quarter designs to bounce back.
Finally, our fourth guiding principles deliver core of those and continue to build a healthy company culture. In this environment. Our version of a healthy performance cultural scoping event, the way, which institutionalizes one.
How we work together and cohesive innovation teams to how we behave and interact through our five core values and finally, three how we execute through to Novanta grow system.
The November grow system is developing rapidly with a core goal of enabling higher performance of Novanta teams in all of our sites worldwide over the last six months, we have deployed them trained over 2000 over and police on key work productivity tools, such as eight the problem solving project management MPCI product.
Execution Daily management value stream mapping price management, an 80 20, a powerful analytic tool designed to reduce business complexity and enable stronger focus on serving our most important customers.
Our vision is doing to transfer novanta into learning culture anchored in continuous improvement applied to all areas of our business, including but not limited to structurally improving customer satisfaction gross margins inventory management and the efficiency of our manufacturing sites.
Now, let me briefly turn to our operating segments, starting with the vision segment. This segment predominantly serves the medical market and saw a revenue decline of 8% year over year. The book to Bill in our vision segment for the third quarter both 0.92.
Partially driven.
Partially driven due to customer order timing.
Well our customers report that elective.
Procedures in diagnostic test volumes have recovered to 90% to 95% of pre covert levels medical equipment or medical capital investments are training to procedure and test a recovery the volatility business into segment remained above 30% of sales with new products being a key driver of the resilience we've seen in this segment over.
At a previous several quarters during the downturn.
Within Division segment, we continue to see solid sales in our Walmart business unit on the back of the smoke evacuation Technology review, we reported on for the last few quarters in the third quarter, our warm the consumables product offerings for yet another quarter of double digit growth driven by smoke evacuation inflator technology.
Smoke evacuation continues to be in high demand in today's climate, where medical staff around the world demand a safe covert free working environment during apparel laparoscopic procedures.
In addition, we continue to invest and stay on track in the R&D pipeline of wall focused on initial flight or a bump technology in multiple minimally invasive and robotic OEM platforms. These.
These platforms are expected to launch in the next two to three years as they make their way through the regulatory process.
We're also very pleased with our detection and analysis business, which continued to some fantastic profit performance in the third quarter driven by success in implementing the Novanta grow system.
This business unit, primarily so that serves the diagnostic testing and patient monitoring markets with RF I'd barcode of machine vision technologies. This.
This business continued with counter cyclical growth in some product lines in the third quarter driven by the rapid uptake in PCR and molecular testing on patient monitoring equipment, which is being somewhat offset with a decline of noncovered 19 related diagnostic tests.
Turning to our precision motion segment. This segment saw 9% growth in revenue in the third quarter of 2020.
Bookings growing 13% year to date versus 2019 and book to Bill for 0.8 wanting to quarter driven by timing of bookings with our customers into Fiveg and cloud based infrastructure end markets.
In the third quarter, we continue to see very strong demand in these markets as well as upon them as ground vehicles, which was partially offset by a reduction in industrial and robotic surgery.
There's a lot to add.
Excellent top line performance for this segment has helped offset some of the challenges elsewhere. Much of this growth is coming from our OEM customers based in China with China, the fuel surcharge on a more than doubling year over year in the quarter in this segment.
We continue to like this the long term secular trends in the precision motion segment serve serving markets such as precision automation robotics and robotic surgery markets.
As it relates to the surgical robotics, Mark as we will continue to expand our content in our position with the largest players in the coming years as new platforms come to market in the short term recovery of Big capital spending hospitals are expected to take some time.
But the surgical robotics marks remains an attractive long term growth opportunity for the company.
Within the precision motion segment in the third quarter, new product revenue more than doubled.
And now make up.
Strong double digit percentage of total sales in the quarter.
Turning to the performance of our Photonics segment for the third quarter of 2020, our revenue was down 50, 15%, which was in line with our expectations.
Over three segments. The photonics team continues to fuel the most impactful economic down turn caused by the pandemic depressed industrial capital spending is driving a decline in sales of our beam delivery and laser products further into deferred demand in medical market is also driving lower sales, particularly in the ophthalmology segment.
And production skills sequencers into diagnostic and research space as doctors offices and lapse were either closed during the third quarter or operating below capacity.
Effectively stalling many capital investment decisions.
The photonics segment in the third quarter, So book bookings grow double digits sequentially with momentum expanding into October the photonics book to Bill in the third quarter. Both 0.91, new product revenue stayed strong at greater than 20% of sales in the third quarter and sales to China also grew nearly 40% year over year in the third quarter.
We continue to feel very confident in a robust innovation pipeline of our photonics segment. As a result, we continue to invest into that happens here and we anticipate introducing multiple new product platforms over the next year, which are expected to help us gain share in adjacent high growth application areas excel.
Examples of markets, we expect to grow share in our via hole drilling for Fiveg mobile devices laser additive manufacturing battery processing for electric vehicles fine hole drilling for industrial medical applications in high speed automation and processing all for example, sustainable packaging.
To wrap up I'm very proud of the performance of resilience and agility of our teams in an uncertain environment. The team managed profit decrementals and cash flow extremely well, while staying focused on innovation and supporting our customers strategically novanta is overall positioning is favorable and our portfolio was.
William to whether to COVID-19 pandemic close to 90 or 60% of our revenue year to date comes from medical markets, which are robust and structurally growing long term.
Our balance sheet is strong as is our innovation pipeline and finally, our focus on portfolio diversification allows us to increase our exposure to long term secular trends and robotics and automation healthcare productivity in precision medicine, which are becoming more relevant both pandemic.
While also giving us the resilience to weather the economic environment cost Biden pandemic.
You can also expect us to lean in on acquisition opportunities, which is the primary focus of our capital deployment provided they fit our stringent financial returns our strategic criteria.
We are very actively engaged in pursuing M&A opportunities even within the constraints imposed by the pandemic.
So with that I will turn the call over to Robert to provide more details on our financial performance. Robert Thank you Matthias and good morning, everyone. We delivered a 142.9 million in revenue in the third quarter of 2020, a decrease of 7% year over year on a reported basis, a 9% decline on an organic basis as the tie us already.
He covered despite the year over year decline, we were pleased with our sales performance in the third quarter, beating our own expectations and our previously issued guidance.
To give some additional detail on our sales 54% of Novanta total sales and medical end markets in the third quarter. This was despite experiencing low double digit declines year over year as a consequence of the deferral of elective surgical procedures and the deferral of high throughput instrumentation preclinical and reach.
Search based laboratories.
On a year to date basis sales to medical end markets with approximately 56% of total sales.
Considering the significant impact that these macro events, we are actually very pleased with the resilience of our business. We continue to see pockets of strength during the downturn such as our medical consumable business with integrated smoke evacuation and our integrated data collection product for clinical test equipment.
Novanta sale through advanced industrial markets, 46% of total sales in the third quarter and the third quarter, we experienced higher demand specific to investments in Fiveg high speed networking and cloud based infrastructure as well as higher demand from E. U V based applications.
This application area was up more than 50% year over year, we did see in the third quarter broad base declines across the breadth of our industrial end markets, which were down low double digits year over year.
This was consistent with our expectations and what our industrial OEM customers are seeing those same end markets the industrial capital spending environment and the overall economic climate continues to face high levels of uncertainty due to the recent resurgence of the virus in many countries, but while the outlook remains uncertain there are pockets of growth and recovery.
Overall, we are proud of the application and end market diversification, we've created over the years with our portfolio of technologies, which has clearly proven its resilience and one of the worst economic downturns in history.
In addition on a geographical basis, our third quarter sales to China.
Plus 46% year over year.
Despite the continued disruption caused by the pandemic, whereas sales to the us and Europe were down 7% year over year, reflecting the impact of the pandemic in those countries as.
As a reminder, location or sales are based on where the product is shipped to which can be different than the real end user demand. Nonetheless, we feel these figures represent general directional trend.
Turning to operating results, our third quarter GAAP gross profit was 54 million or 41% of sales compared to $64 million or 42% in the third quarter of 2019 on a non-GAAP basis third quarter. Adjusted gross profit was 62 million or 43.3% of sales compared to 67 million or 43.7% in the third.
Third quarter 2019 despite.
Despite better sequential performance, our adjusted gross margins were under pressure from higher operational costs in our factories that were caused directly by the pandemic to maintain a safe working environment. We continued to incur significant temporary cost the pressure our gross margins in the range of 200 basis points in.
In addition, with the resurgence of the virus heading into the winter months, we are implementing new screening and tracing tools as well as new testing.
Protocols.
Without a doubt the winter is going to be a challenge in terms of managing a resurgence of the virus, but our teams are really developed a strong arguments for managing through these risks and disruptions and while we are implementing tools and processes. The presumed the virus is here to stay and the elevated cost level. We also feel we can manage through these costs going forward.
While driving growth margin expansion.
With all these challenges we want to reiterate that we're extremely proud of the performance of our committed teams were safely and successfully operating our facilities. The fact that our growth margin was as good as it was is a testament to how much our teams have stepped up to the challenges brought on by this pandemic and it's also a testament to the potential to novanta growth system to bring structural.
Changes to the way we operate there's a long way to go but we are optimistic after seeing these results moving on to operating expenses third quarter, R&D expenses were $15 million or 11% of sales compared to 14 million or 9% in the third quarter of 2019, the sequential increase in R&D spend was largely due to the timing.
Around cost cutting measures with that said, we continue to have confidence in our innovation pipeline and therefore continued to invest into the economic climate as we stated in prior calls we view the current pandemic as an opportunity to take market share and capture significant customer opportunities. The third quarter marked a significant increase in launch new ERP.
Products were Novanta these new products give us the confidence we were going to finish 2020 with a very strong dollar growth and design wins.
Third quarter, SGN, a expenses was $27 million or 19% of sales compared to $28 million or 18% of sales in the third quarter of 2019, we.
We continue to see excellent execution and keeping tight controls on our spending and we're very pleased with the flexibility our business teams have demonstrated in responding to the current market conditions.
Moving on to other financial results GAAP, our GAAP operating income was $12 million in the third quarter of 2020 compared to $13 million in 2019.
Non-GAAP operating income in the third quarter, with 20 million or 14% of sales compared to 26 million or 17% of the prior year.
Adjusted EBITDA was $30 million in the third quarter were 21% EBITDA margin compared to 31 million in the third quarter 2019, or 20% EBITDA margin.
On the tax front, our GAAP tax rate was 18% in the third quarter 2020 different from the Canadian statutory rate of 29% driven largely by jurisdictional mix of income on a non-GAAP basis, our tax rate for the third quarter 2020 with 17%. This differed from the statutory rate driven by a jurisdiction.
The mix of income.
Our GAAP diluted earnings per share was 23 cents in the third quarter 2020 compared to diluted earnings per share 25 cents in the third quarter of 2019 on a non-GAAP basis adjusted earnings per share was 42 cents in the quarter compared to 52 cents in the prior year.
Our adjusted earnings per share was down year over year, primarily from the higher stock compensation expense for the all employee equity grant.
Stock based compensation expense was $7 million in third quarter.
Third quarter operating cash flow was $42 million compared to $7 million in the third quarter of 2019.
This result was driven by strong profit continue invest improvements in net working capital and a variety of actions we took to preserve cash in response to the pandemic.
We ended the third quarter with growth that of $198 million and our gross leverage ratio of 1.7 times. Our net debt was 91 million as of the end of the third quarter roughly 0.8 times.
We are very pleased with our cash flow and financial position in the third quarter based on these results. We believe that our 107 million of cash on hand, and nearly $400 million of available borrowing capacity under our revolving credit facility as well as the anticipated cash flows from operating activities will.
More than sufficient to meet our cash needs for the duration of the economic downturn and most importantly position us well for acquisitions.
Turning now to guidance as we look at the fourth quarter, we are seeing some signs of stabilizing environment. However, given the resurgence of the Cove and 19 virus in Europe, and the US we need to be mindful of the risks. This places on our business. While our teams have built up incredible acumen for dealing with this challenging climate we.
Need to remain cautious.
For the fourth quarter 2020, as we stand here today, we expect GAAP revenue in the range of $144 million to a $149 million as we discussed in prior earnings releases, we do believe that the third quarter represents the low point for us and sales based on what we know today.
So in the fourth quarter overall, we are expecting to see a sequential improvement in revenue and this will be driven largely by sequential improvement in revenue or protonix business.
While sequential improvements in vision and precision motion would be more mute.
Our global elective surgical procedures have largely returned the resurgence of the virus is the reason to remain cautious. In addition, the medical capital equipment segment will generally lag any rebound in elective surgical procedures at half will build the need to cash flows and breathing room from the worth of the pandemic as.
As we look at the industrial markets remain cautiously optimistic around the capital spending environment given the recent uptick in global purchasing managers' indices across China, the United States and Europe similar to medical capital spending. The question is not one of if but rather when spending increases.
Yes, certainly we do expect a very strong fourth quarter in design win dollar growth as a handful customers continue to invest in innovation and as we continue to invest in innovation, while delays in spending during a pandemic are inevitable, we continue to see our customers investing and getting significant mindshare to application area.
Such as medical Robotics, industrial robotics, minimally invasive surgery technologies integrated operating room technologies and laser based material processing to name a few.
Thus, we continue to be excited about the market applications in which we serve and the diversity of our portfolio and we continue to expect to emerge from this pandemic stronger than we were going into the crisis.
Moving on to other guidance adjusted gross margins are expected to improve sequentially.
Roughly 100 basis points into the fourth quarter driven by continued progress in the Novanta growth system productivity program strong cost controls and better volume.
R&D and SDMA expenses for the fourth quarter of 2020, we increased sequentially on a dollar basis predominantly driven by less pandemic related cost containment actions and from the uptick in selling expenses to the higher revenue.
Moving on to the remainder of our guidance depreciation expense, which was about $3 million in the third quarter will be similar in the fourth quarter.
Amortization expense, which was $6 million in the third quarter will be similar to the fourth quarter.
Stock compensation expense, which was about $7 million in the third quarter will be similar in the fourth quarter.
Interest expense, which was about $1.7 million in third quarter 2020 is expected to be slightly less than the fourth quarter due to lower debt balances and favorable movements in interest rates.
For adjusted EBITDA, We expect a range of $30 million to 32 million, we expect our full year tax rate to be around 15% absent changes in jurisdictional mix of income however, due to the resurgence of the Corona virus and any resulting economic lockdown jurisdictional income could change more significant later than anticipated and.
Currently we are not currently providing earnings per share guidance.
Finally, we expect our cash flow for the full year 2021, and a ratio close to adjusted EBITDA. This is driven by strong year over year performance as well as continued strength in the fourth quarter.
Ultimately our view has not changed since the last call that the economic consequences of the pandemic are temporarily and rebound of demand in both our medical and industrial end markets will occur although the trajectory of the recovery remains uncertain. We're thankful that during these difficult economic times, our customers have shown tremendous partners.
With us both with current sales and delivery of products as well as with our innovation pipeline, we are partnering with our customers to bring future innovations to market.
We remain very proud of the performance of our employees and their commitment to helping us weather the difficult environment and most importantly, we remain excited about our future and look forward to continue to deliver on our commitments to our employees our customers and our shareholders. This concludes our prepared remarks, we'll now open the call up for questions.
We will now begin the question and answer session to ask a question you May Press Star then one on your Touchtone phone.
If you are using a speakerphone please pick up your handset before pressing the keys.
To withdraw your question. Please press Star then too.
Our first question will come from Lee Jagoda of CJS Securities. Please go ahead.
Hi, good morning.
Hey, good morning Lee.
So just on the on the cost side, Robert can you talk about.
Yes, your customer relationships and how those relationships have evolved given everyone's incurring more cost because a co bid and are you able to get or have you seen relief either through.
Just straight price increases or surcharges.
Yes, I think we've had some of that we've been able to partner with them and there has been a recognition of the cost that we have been incurring is higher than what we would have normally planned for and so there has been some sharing of cost that have helped mitigate and help us contain the overall impact of the pandemic.
And I assume those customers aren't aren't tired of that yet and we should just kind of expect that to continue and until it doesnt, but hopefully we get through it before it doesn't.
Well I think it's fair to say that as long as those costs that are being incurred.
That a partnership around those costs should continue to exist.
Okay.
So then in terms of the costs that are still in the system more or I guess the.
Let's put it differently how about the costs that are not.
They were taken out ahead of time and you sort of had said there's these costs that are that are out and as volumes come back on we're going to put them back in can you talk about how much of that is still out of the system. That's yet to return versus the permanent stuff that got taken out.
Yeah.
And maybe some of the timing on when we should expect to see that come back in.
Yes. So if you look at the fourth quarter were going to increase our gross margins 100 basis points or more our operating expenses are also going to increase and that increase in operating expenses as a.
Termination of some of the pandemic related cost containment actions. So we're not investing in more things about hiring more beautiful. It's really just we're stopping in certain actions such as furloughed.
So it's fair to say the majority of our cost actions were temporarily.
And that was largely on the basis that we thought the pandemic is temporary we believe it has to be temporary and the implications to be temper.
But we are starting to look at some structural improvements to make into the business as we go into 2021 to ensure that if there are some.
Let's say a longer cycle around the recovery that we can contains actual temporary actions, we took and take some structural actions to reduce our costs further.
Sure and then just one more from me just the tightness in your prepared remarks, you mentioned a couple of new products, you don't give us a little bit of color around what they do is there any way for you to kind of size the market potential or opportunity around those products and when we should expect to see that potential start to kick in.
In terms of your numbers.
Yes, I think we we for Photonics, we commented that in the past that we see.
Now a market opportunity of about.
Now onto a million dollars upwards of that number and of course, we don't get a 100% of that but over time, we feel we can.
Yes eat into that adjacency for us. So so thats just to give you a perspective.
And.
You know Weve CLO date.
Also rough market size expansion opportunities.
For the minimally invasive surgery business, which was about a 100 $150 million as well our recall so so weve.
Given into passive given those high level numbers.
And yes, so those are things still.
Yes still representative.
Okay, great. Thanks very much.
Right.
Again, if you would like to ask a question. Please press Star then one.
And the next question will come from Brian Drab of William Blair. Please go ahead.
Hey, good morning, Thanks for taking my questions.
Hey, good morning, Brian.
Okay. So.
Continuing on the new product discussion.
So do you believe that you will start to see the impact.
New product revenue in the fourth quarter and.
No material contribution to revenue beginning in fourth quarter and in the first half of 21 to the point that that really has an impact on accelerating organic revenue growth.
Yes, so I think in the not yet into fourth quarter I think it's fair to say it will be more pronounced in 2021 and 2022 I mean, we've seen some delays with customers right.
Think about very complex systems that require hundreds maybe thousands engineers to introduce new platforms.
Yes, there's going to be.
Some delays and introducing dose those type of products.
But I think in the big scheme of things, we materially don't feel that that changes the thesis a bit quite frankly, so there might be a little bit of a shift.
And now to the latter part of next year, but it will definitely be more pronounced around that time and.
Like I said, we continue to invest in those products the products that we have launched as a good.
Uptick and and the customers are now preparing their launches and the timing of those launches in some cases are a bit delayed but structurally they're not changing the growth potential of the company in the midterm.
And it's a little too early to comment on 2021, specifically.
Okay. Thanks, and you said that you're expecting sequential revenue improvement for the company overall does that apply to each of the three segments for the fourth quarter.
No I mentioned in my prepared remark that the photonics segment will be the larger uptick on a sequential basis.
Vision and precision motion will be largely muted.
Muted I would translate to about flat sequentially, but yes, okay.
It might be a little up.
It's the the bigger element as the photonics element within the segment will see the bigger anchors.
Okay.
Can you talk just my last question for the call here, but the precision motion segment.
Yes, there is some good data out of the semiconductor market.
I'm wondering if you can talk about your opportunity more broadly in the robotic surgery market and then there is clearly some recovery in industrial activity.
Can you talk about why maybe we're not seeing more of a rebound in the near term sequentially into the fourth quarter and precision motion.
Yes, well first and foremost the precision motion as a group is growing 9% in the quarter right. So there is nothing to sneeze at I would say so in this environment.
So but separately I think on the robotic surgery I think we we stated in the prepared remarks as well is that.
You see the procedure is returning to about 90% to 95% of normal on procedures, sometimes even growing.
But that doesn't mean that the capital investments from the hospitals are yet happening. So what we're seeing is that that's actually being delayed and it looks like.
Growth will not return and add the capital piece, all surgical robotics until the latter part of 2021.
Again.
The application has.
Multiple benefits, so hospitals do want that equipment, but they first need to get back there.
Senior volume so they can generate the cash should they can actually avoid a fourth spending of capital. So thats kind of what we're seeing on the robotic surgery side in the meantime dough.
We are gaining share in design wins in multiple platforms. So when that market rebounds were an extremely good position right. So that it's just a timing thing there.
And then on the what was the other question. Another question. So Mike has mentioned the semiconductor market.
Okay, one caveat on the on the medical robots.
The surgical base robot.
That tends to be true there are lower price robots being implemented.
Capital environment that we are seeing some growth, but those are relatively new entrance into the marketplace. We will take a little bit of time to build the proper traction to offset the overall growth that you see on the surgical side.
On the on the semiconductor we are seeing growth in elements of our portfolio. There. So we are seeing it in.
The investments being made into fiveg infrastructure in the cloud.
Storage, we are seeing it in ERP based applications.
We have not as you know we have not overly emphasize our applications within the semiconductor market place and so it's not an area that we would expect to see driving the overall growth of this company. It is an element of growth has been benefiting us in the third quarter. It will benefit us in the fourth quarter, but it won't be over size of the pie.
That will drive the overall growth of the company.
Right all understand thanks very much.
Alright.
Thank you.
This concludes our question and answer session I would like to turn the conference back over to Matthias squash for any closing remarks.
Thank you operator, so to wrap it up and to summarize into third quarter of 2022 event that delivered a solid performance in an uncertain macro environment, we're very pleased with our positioning and performance of our portfolio.
I'm proud of the performance and agility of our teams event does not immune to the impact of the pandemic, but we're well positioned to weather. The COVID-19 crisis. Our balance sheet is strong as is our innovation line up and our portfolio is diversified with exposure to long term secular trends are robotics, and automation healthcare productivity and precision medicine.
Despite an uncertain short term outlook with the health and pandemic.
We are investing into the headwinds and remain focused on the long term growth drivers in our business on the back of the macro trends in the industry forward, although precision medicine, a minimally invasive surgery.
In closing I would like to thank our customers our employees and our shareholders for their ongoing support I'm, particularly grateful for their dedication and strong contribution of our teams have committed event employees, they're showing tremendous agility and resilience during these times.
We appreciate your interest in the company and your participation in today's call I look forward to joining all of you in several months on our fourth quarter and full year 2020 earnings call. Thank you very much. This goal is now adjourned.
The conference has now concluded. Thank you for attending today's presentation you may now disconnect.