Q1 2021 Novanta Inc Earnings Call
Okay.
Good morning.
Everyone. My name is Jamie and I will be your conference operator today.
At this time I would like to welcome everyone to the novae into Incorporated's first quarter 2021 earnings conference 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. The.
The ask a question the new press the Star and then one using a touch tone telephone.
All of your questions you May press star and two.
Please also note today's event is being recorded.
At this time I'd like to turn the conference call over to Ray Nash Corporate Finance leader for Nevada, Sir. Please go ahead.
Thank you very much and good morning, and welcome to Novartis first quarter 2021 earnings conference call I'm Ray Nash corporate Finance leader of Nevada with me on today's call is our Chief Executive Officer, Matthias <unk>, and our Chief Financial Officer, Robert Buckley.
Do you have not received the copy of our earnings press release issued today you may obtain it from the Investor Relations section of our website at Www Dot and advance of 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've outlined on our earnings press release issued earlier today and also of those in our SEC filings. We may make some comments today, both on our prepared remarks, and and our responses to questions that may include forward looking statements. These involve inherent assumptions with known and unknown risks and other fab.
And 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 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 and the earnings press release, we will provide reconciliations promptly.
On the Investor Relations section of our website after this call and.
And now pleased to introduce the Chief Executive Officer of Nevada, Matthias Gloucester.
Thank you Ray good morning, everybody and thanks for joining our call November the delivered outstanding results and the first quarter of 2021, and our teams executed very well and we delivered above our expectations for revenue profit and cash flow.
We delivered all time highs for revenue and bookings and excellent operating performance with adjusted EBITDA growth of 18% and free cash flow growth of 30% year over year.
Our company delivered approximately $163 million and revenue representing 5% year over year revenue growth on a reported basis and 1% growth on an organic basis versus a strong first quarter of 2020.
This is the highest ever single quarter sales for November and which comes on the strength of rebounding markets and exceptional execution by our teams as I will speak to momentarily.
We are extremely pleased with how our teams drove exceptional operating performance using the Nova at the gross system tools.
And the first quarter, we expanded adjusted the EBITDA margins by 200 basis points year over year, two and adjusted EBITDA of $33 million or 20% of sales.
Adjusted diluted earnings per share was 58 cents, which is up 14% versus 2020.
And our teams delivered strong free cash flow performance in the first quarter of 2012.
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$20 million up 30% year over year at a ratio of over 175% of GAAP net income.
Oh, and all very strong results.
We saw record bookings momentum and the first quarter with sequential bookings growth of 28% for us as the fourth quarter of last year and year over year bookings growth of 25% versus the first quarter of 2020.
We saw bookings strength across all our businesses with every unit, having positive book to bill and the quarter and the first quarter. Our overall book to Bill was one point to seven.
So very healthy momentum and many of our advance industrial applications and also across multiple regions and.
As we indicated and our last earnings call the industrial and electronics markets are leading a very strong recovery for November.
Now, let's turn to what we're seeing and our markets and the first quarter of 2021 55 per cent of an event. That's total sales went into medical applications for overall sales to medical applications declined 1% versus the strong first quarter of 2020 and as a consequence of the continued deferral of elective surgical procedures.
During the quarter hospitals continued to have their focus on dealing with the winter surge and COVID-19 cases, and consequently capital investments have not yet returned to growth.
Looking forward to the remainder of the remainder of 2021 overall large medical Oems are increasing their demand as surgical procedure volumes are beginning to show momentum and multiple application areas are now positioning for a strong market rebound.
Key applications, such as the DNA sequencing integrated operating room technologies and lab diagnostics are showing strong sequential growth.
We're seeing good order growth and surgical robotics, and we are expecting our mis business to pick up steam as well and the second half.
All of this is lending to our viewed and medical sales should return to growth as we progress further into the year barring any further setbacks and the global recovery from the virus.
Yeah.
November sales to advance industrial applications for 45 per cent of total sales and the first quarter in the quarter. Our sales continued to rebound across multiple application areas with sequential growth of 12% and year over year growth of 12 per cent.
We also continued to experience higher demand specific to microelectronics and investments in five key high speed networking and cloud based infrastructure as well as higher demand for <unk> based applications.
We expect the increased microwave electronics demand that we saw in 2020 to be sustained throughout 2021.
From a regional perspective, our China sales grew over 40% year over year in the quarter with Europe, returning to mid single digit growth.
As we look forward to the rest of the year, we expect 2020 and want to be of strong growth year for an event that we will be reinstating full year guidance and given our confidence and our 2021 outlook and.
And this guidance, we are including effects of material on part shortages as an event that is not immune to these.
And some areas, we see the challenges and risks increasing despite the incredible work from our supply chain manufacturing and commercial teams.
Despite these challenges we expect the very strong year and expect high single digit to low double digit growth 40 year and Robert will share the details on this later.
Now, let me touch on some of them event of strategic growth metrics.
And our vitality index, which is the revenue from new products launched and the last for years continues to be healthy at about at above 25% of of sales for the first quarter. We have stayed the course on our innovation investments true depend Emmick and this decision is starting to bear fruit.
And the first quarter of 2021, we launched five new products and we are well on our way towards 25 launches for the full year.
Which is double the number of launches into 2020.
With multiple new products into queue for the remainder of the year with focus on the industrial and surgical robotics minimally invasive surgery precision medicine, and diagnostics and the industry photo though.
Let me touch on two of these lunches, one product and our precision motion segment, as Ara, which expands our product portfolio of ultra small precise and easy to install optical encoders for industrial and surgical robotic applications.
In other example, within our Photonics segment as Maria of come back to the laser beam steering scan it and intelligent subsystem.
The opening new application areas for us with and marking and coding converting and the other high volume material processing applications.
We are excited about all of these products and see a healthy uptick and technical evaluation as requested by existing and new customers.
The design wins in the first quarter more than doubled versus the prior year with multiple wins and most of our businesses and some large significant wins and several target applications and our minimally invasive surgery business.
Expect to continue the momentum with our design wins. However, the magnitude of the growth this quarter will be more normalized during the remainder of the year.
Moving onto other updates the deployment of the and event. The gross system continues to develop nicely. The results of the and event. The gross system are already appearing in our financial result, as evidenced by the gross margin expansion of over 150 basis points reduced the inventory and strong cash flow and the first quarter of 2021.
We are very pleased with how our teams have lead them to adopt has come on the way of working and we see excellent opportunities during the rest of 2021 and beyond to continue to transform our operations and customer engagement using the November gross system.
We also continue to work and making the event and employer of choice.
And the marketplace. The continued to offer strong incentives and competitive compensation for our teams, including another a broad base of equity grants made in April of 2021, which is similar to the all employee Grand we made last year. During the pandemic. In addition, we are actively engaged it further and sitting throughout the organization that know vent the way.
Which is our common company culture.
We believe this come and culture will drive significant and employee engagement and help maintain low employee turnover and despite the obvious challenges caused by it and pandemic.
In addition to this November the published its first ever environmental sustainability, and corporate and corporate governance or ESG report and the first quarter, which includes multiple topics, including diversity equity and inclusion or DNI.
Of our workforce and environmental protection and product quality and safety.
And no van died as our vision to build a culture that is welcoming for a broad representation of background for everybody feels respected included and feel they can succeed.
We strongly feel we need to do our part and being a responsible corporate citizen and a few of the first reported is a good first step and explaining what we're doing now and what our priorities are for the future.
Finally, we continue to be active and the M&A market acquisitions are the primary focus of our capital deployment and provided the targets fit our stringent financial returns and strategic criteria.
We continue to work on and very active pipeline of opportunities and we feel good about the progress, we're making and this area.
In summary of our first quarter played out better than expected the expected with record for sales and bookings and excellent operating results. We feel good about our long term strategic positioning and both medical and industrial applications with.
But the long term secular trends and robotics, and automation and health care productivity and precision medicine.
And we are confident and our outlook for the year, the strong sequential and year over year growth and feel good about entering this recovery with a strong innovation pipeline and balance sheet.
So with that I will turn the call over to Robert to provide more details on our financial performance. Robert Thank you for <unk> and good morning, everyone I'll start by giving some details about the performance of our operating segments, starting with our Photonics segment for the first quarter of 2021, our revenue was up 6% year over year and up 16% sequentially.
And from the fourth quarter.
The strong performance reflects the rebound and advance industrial applications, which is giving us confidence and our positive outlook for this segment for the remainder of 2021.
Throughout the first quarter and now also into April and May we are seeing significant booking activity from our customers, indicating further growth and the applications of which we serve.
Bookings and the first quarter were up 29% year over year and were up 12% sequentially. The book to Bill was an impressive 121 and the first quarter.
And the innovation pipeline of our Photonics segment is having good success, so far with multiple new product launches underway.
These launches will help us gain share and adjacent high growth application areas, such as via hole drilling for <unk> mobile devices and laser additive manufacturing battery processing for electric vehicles find material processing and micro machining and for industrial and medical applications and high speed automation and processing of sustained.
Packaging notice of the converting applications.
New product revenue stayed strong at greater than 20% of sales and the first quarter and total NPI sales were up 19% year over year.
Design wins were up 30% year over year and the quarter.
And finally sales to customers and China grew and boy I have more than 50%.
As we continue to see strong momentum and our photonics products and the China market.
Turning to our precision motion segment. This segment saw a 16% year over year revenue growth and the fourth quarter of 2021 with.
With bookings growing 46% versus the prior year sequentially.
Sequentially sales were up 8% and bookings were up 26%.
The book to Bill ratio of precision motion with 136.
The first quarter continued to show sustained strong demand for microelectronics applications, including investments and <unk> <unk> and cloud based infrastructure.
These trends continued to remain robust as we look out for the rest of 2021 in.
In addition, we saw further strength and the robotics and automation space, both with existing customers and new product introductions the.
And the medical portion of this business is also showing signs of a rebound as bookings from our surgical robotic customers are starting to come back.
Within the precision motion segment of the first quarter, new product revenue grew by more than 20 per cent.
And now make up strong double digit percentage of total sales for the segment.
Design win activity in the segment was excellent and more than doubled in the quarter versus the prior year.
And finally, the segment experienced another strong quarter of more than 50% growth year over year from its customers and China.
Turning to the vision segment. This segment predominantly serves the medical end market and saw revenue declined 2% year over year versus a very strong first quarter of 2020.
But.
Sequential revenue growth was up 6% as we've mentioned previously our large medical Oems are working past the temporary pause and demand growth corresponding to the rise and COVID-19 hospitalization rates the persistent for most of the first quarter.
And the resulting deferral of surgical elective medical procedures.
We continue to expect demand to remain paws and the first half with a second half recovery happening as the world economies continue to rebound and most importantly, elective surgical procedures rebound.
Despite the near term pause and sales bookings and the vision segment grew 46% sequentially and 12% year over year on.
On the book to Bill and the quarter with one point to seven.
The vitality in the index and this segment remained above 30% of sales with new products being a key driver for the resilience, we have been seeing and this business.
The design win activity was especially good in the quarter more than triple the amount of activity from the prior year at the minimum invasive surgery business closed on some significant wins with several large medical OEM customers.
This is a huge accomplishment and further solidifies the exciting growth prospects of this segment over the next several years as we start to see these design wins and flow into our sales figures.
Finally, we're very pleased with our detection and analysis business, which continued solid performance and the first quarter.
This business unit, primarily serves the diagnostic testing and patient monitoring applications with RFID Barcoding and machine vision technologies.
This business continues to benefit from the rapid uptake and PCR and molecular testing as well as patient monitoring equipment purchases tied to the pandemic.
I will now move on from our segments to discuss other operating results for the overall company.
We delivered of $163 million and revenue and the first quarter of 2021 and increase of 5% year over year on a reported basis and an increase of 1% on on an organic basis.
And the tie as already mentioned this for US represents our highest ever single quarter of sales as a company and we were extremely pleased with this result, which beat our own expectations and our previously issued guidance.
Turning to other operating results, our first quarter non-GAAP adjusted gross profit was $73 million or 45% of sales compared to $67 million or 43, 3% and the first quarter of 2021.
And the first quarter adjusted gross margins increased 170 basis points year over year and were up 70 basis points sequentially.
The strong result was in line with our expectations and comes as a result of the ongoing work from our operating teams that drive the Nevada, the gross system deeper into our day to day works and.
In addition, this performance was realized despite the continued pressure from high operating costs and our factories that were caused by the pandemic.
We are assuming the grateful for our teams who continue to successfully operate our facilities during the pandemic and we feel we can keep managing these incremental costs and challenges while still driving additional gross margin expansion during the rest of 2021.
Moving on to operating expenses first quarter R&D expenses were nearly $19 million of roughly 11% of sales compared to $15 million of 10% of sales and the first quarter of 2020.
We continue to have confidence and our innovation pipeline and therefore, we will continue to invest into the economic climate.
We are already seeing the benefits of these investments as evidenced in our product launches and our strong design win activity. So far this year and our view has not changed that we have significantly.
And if and it near term opportunities to take market share and win customer platforms.
First quarter, SG&A expenses were $32 million and 19% of sales compared to $31 million and 20% of sales and the in the first quarter of 2020.
Our SG&A expenses were better as a percentage of sales. Despite the return of incentive compensation plans in 2021, which had been canceled in 2020.
Moving on to other financial results GAAP operating income was $11 million and the first quarter of 2021 compared to $13 million and 2020, non-GAAP operating income and the first quarter was $23 million of 14% of sales compared to $21 million of 14% of sales and the prior year.
Adjusted EBITDA was $32 7 million and the first quarter of 2021, or 20% EBITDA margin compared to 27 6 million and the first quarter of 2020 or an 18% EBITDA margin on.
Our adjusted EBITDA performance beat our expectations and our previously issued guidance, mainly driven by the stronger sales performance flowing through the profit.
On the tax front, our GAAP tax rate was negative and the first quarter of 2021 of different from the Canadian statutory rate of 29% driven mainly by jurisdictional mix of income along with a significant windfall benefit from the equity compensation, which correlates to the vesting of the February of 2021.
Of the all employee equity grant we issued in 2020.
On the non-GAAP basis, our tax rate and the first quarter was 3% for this differed from the statutory rate again, driven largely by the jurisdictional mix of income and the windfall benefit from the vesting of the equity compensation.
The effect of the windfall benefit will be muted as the year progresses.
Our GAAP diluted earnings per share was 32, and the first quarter of 2021 compared to 34 and the first quarter of 2020 on a non-GAAP basis adjusted earnings per share was <unk> 58, and the quarter compared to 51.
And the first quarter of 2020 of.
The favorable result of our adjusted EPS was driven again by strong profit from higher sales and also of more favorable tax rate and we'd expect it.
First quarter operating cash flow was 23 million compared to $18 million and the first quarter of 2020 of 31% increase year over year. This good result was driven by strong profit and by sustained improvements and our networking capital, which is being driven by the deployment of the romance of gross system throughout the organization.
And finally, we ended the year with gross debt of 196 million and.
And our gross leverage ratio of one six times, our net debt was $82 million as of the end of the first quarter of 2021.
Turning now to guidance as.
And as we look at the second quarter, we continued to see strong demand from the and Vance advanced industrial sector with capital spending continuing a strong recovery for.
And for medical applications. So far we are seeing similar dynamics and the first quarter with moderate of demand, but we are growing more confident that we will see a solid recovery in this sector and the back half of the year.
With this promising demand profile, it's very clear that the limiting factor and the near term what would be sort of supply chain disruptions caused by electronic material shortages, which are now being widely reported on the.
The effects of supply chain disruptions and both with the advent of supply chain and the supply chain of our customers, which we are part of.
When it comes to our supply chain, our teams have been extremely diligent and addressing any potential material shortages or delays and the first quarter, we were largely successful and containing any issues and finding ways to mitigate any risk we saw.
As we've continued into the second quarter, we have seen some of these dynamic and more complicated frequent and uncertain, which is making it more challenging the mitigate this.
And this is and we expect that the remain for the remainder of 2021, our single largest challenge across the company.
That being said, it's clearly a temporary situation.
And despite the situation, we feel we have much better visibility to not only the second quarter, but the rest of the year and so we're now be re instituting our full year guide for Novartis results. In addition to our guidance for the second quarter.
Starting with the second quarter of 2021, as we stand here today, we expect GAAP revenue and the range of 162 million two of $165 million, we are expecting to see strong year over year improvement and revenue the.
And the range of itself is governed by the material availability as well as possible disruptions with our customers' production processes from their own supply chain challenges. It is not driven by demand, which has continued to remain very robust.
On a segment level, we expect strong growth and photonics and precision motion segments, whereas vision will continue to experience moderation and demand one more quarter.
Moving on to adjusted gross margins, we expect gross margins and the second quarter to be up 200 basis points versus prior year and roughly flat sequentially.
This improvement will continue to come from our ongoing productivity programs and cost leverage from higher volumes.
R&D expenses and the second quarter will be approximately 18 million to $19 million, which is similar to the first quarter.
SG&A expenses for the second quarter will be approximately $31 million of $32 million also similar to the first quarter.
Depreciation expense was about $3 3 million and the first quarter of 2021 will be similar and the second quarter and amortization expense, which was $6 6 billion and the first quarter will be similar and the second quarter.
Stock compensation expense, which is about $6 6 million and the first quarter will be closer to $5 million and the second quarter.
For adjusted EBITDA, we expect the range of $32 million to $34 million.
Interest expense, which was about $1 4 million and the first quarter of 2021 and is expected to be similar and the second quarter.
We expect our second quarter non-GAAP tax rate to be around 19% absent significant changes and jurisdictional mix of income or other variability and any of our eligible tax benefits.
This is the step up and the first quarter due to the timing of the windfall benefit from stock compensation, mainly impacting the first quarter.
Diluted weighted average shares outstanding for the second quarter will be approximately 36 million shares.
For adjusted diluted earnings per share, we expect the range of 49 to 53 and the second quarter.
Turning now to full year, 2000, and 'twenty one guidance.
As we stand here today, we expect GAAP revenue and the range of 645 million to $655 million.
It is fair to say that the current level of customer demand and demand. We are seeing is at or above the upper end of our range.
But as we've mentioned our range includes the risks we are currently seeing and our supply chain at this time.
Moving on to adjusted gross margin for the full year 2021, we remain committed to delivering upwards of 150 basis points of gross margin expansion in 2021.
Driven by continued progress and our Nevada gross system productivity programs and strong cost controls and better volume.
R&D expenses for the full year 2021 will be approximately 11% of sales. This level of spending reflects the continued investment we are making to execute on our new product launches for this year as well as continuing to pursue new design wins with our key customers.
SG&A expenses for the full year 2021 will be approximately 19% of sales, which is roughly flat to the prior year.
Depreciation expense will be roughly $13 million for the full year 2021, and amortization expense will be roughly $26 million.
Stock compensation expense to be roughly $21 million for the full year of 2021. This is slightly below 2020 levels, but higher than it was historically, which comes as a result of the new equity grant in 2021, which meant highest mentioned in his remarks.
For adjusted EBITDA, and we expect the range of 127 million to $134 million for the full year of 2021.
Similar to sales the upper end of the range is where profit should be if we mitigate the cost around the supply chain disruptions.
Interest expense will be approximately $6 million for the full year, and we expect our non-GAAP tax rate to be around 15% absent significant changes and the jurisdictional mix of income and other variability of any of our eligible tax benefit.
Diluted weighted average shares outstanding to be around $36 million.
Shares for the full year.
And adjusted diluted earnings per share, we expect and the range of $2 <unk> and $2 19.
For the full year of 2021.
We expect capital expenditures to be around 20 million during 2021.
As always our guidance for both the second quarter and the full year do not assume any significant impacts from foreign exchange changes.
In conclusion, we are extremely pleased with the result from the first quarter, especially the record levels of sales and bookings we are confident that the full year 2020, one will show strong organic growth.
Gross margin expansion and a record number of new product launches.
We remain very proud of the performance of our employees and their tireless efforts to help us be successful and a challenging environment.
And most importantly, we remain excited about our future and look forward to continuing to deliver on our commitments to our employees our customers and our shareholders. This concludes the prepared remarks, we'll now open the call up for questions.
Ladies and gentlemen, we will now begin the question and answer session.
The asked the question you May press Star and then one using a touchtone telephone.
If you are using and speaker phone and we do ask you. Please pick up the handset before pressing the keys.
So the draw your question you May press Star and two.
Once again that of Star and then one to ask a question.
Yeah.
The first question today comes from Lee Jagoda from CJS Securities. Please go ahead with your question.
Hey, good morning, guys. How are you on.
Hey, good morning and me.
So I guess it sounds like within your guidance for the year, you're basically saying that demand is outstripping supply with with the with the headwind being the supply chain and and some of the shortages youre seeing.
In certain products.
And if it werent for the headwind of supply chain and you were actually able to produce to demand how does that change the or how would that change the revenue guidance given the top and now is implying roughly 10 or 11% year over year gross for the full year.
Yeah, So I would say it obviously.
We gave in our prepared remarks is that the upper end of the range is where we're seeing demand currently and in fact, if the bookings continued at the state will probably exceed that number from just the pure demand profile perspective.
So it would say that not only as of our supply chain, but the supply chain of our customers is really kind of governing the growth right now.
Okay, and then just the same kind of question around margins, you're you're saying and think you said 150 or 200 basis points of 150.
The points plus of gross margin expansion and expected. This year, how much do you think that's being held back by supply chain issues and you know either inflation or just the inability to get supply.
The 150 basis point expansion is driven net of all of those things and so effectively what you're trying to get out is could you expand margins higher and the short answer is yes.
And that they would go up higher than that absent those effects.
Don't want to get into kind of specifics, but.
And it is certainly our ability to continue to expand above that level is currently there is just dealing with these changes were a little reluctant to go out and get over the end of our skis.
Yes.
That's fair enough of and I have one more and I'll hop back and do you just if I look at the bookings numbers.
Is any of that or can any of that be attributed to customers front end loading bookings because they're either scared that they can't get the supply or.
The over ordering and and if that's the case are you able to kind of lock them into terms that are more favorable to you just in case things get the later canceled along the way.
Yes Lee.
At least in our case, we don't see customers from the and loading we really see the industrial side coming off of pre.
Soft last two years right with the first the trade and trade Wars, and then and then COVID-19. So you really see economies really the opening back up and petition for particularly our and industrial customers.
And yeah.
And the demand and seeing net activity. So we don't see any channel.
Kind of buildup or anything.
And on the medical side.
I think it's fair to say that debt that orders are coming in but we do expect that order pattern to actually continue as well and the let's say the remainder of the year. So in short we don't really see.
And the kind of front end loading now.
When shortages continue.
We're taking a and.
A very critical look and we're very close to our customers. We know what inventory levels. They are sitting on.
And rest assured we will not let that.
And go out of control.
Okay fair enough. Thank you very much.
Yeah.
Our net.
Question comes from Richard Eastman from Robert W. Baird. Please go ahead with your question.
Yes.
Morning, and thanks, Thanks for the question.
Maybe a little bit of the conversation or discussion maybe just around the cadence of orders to revenue and the in the vision and business and is that.
How do you feel about that I think you referenced that maybe the second quarter.
And.
Might be you're still a bit softer year over year, but then we see growth and the back half of the year and is that just just speak to the cadence there.
Of orders for revenue recognition, if you would.
Yes, I mean listen the I think there we have seen in parts of our vision segment, we have seen a little bit more challenging.
And let's say areas for supply and so there is that impact some of the sequencing overall I think the orders do reflect and.
I think a positive outlook over our customers and also we've commented in the past that.
A single quarter or better and get sometimes be a little bit lumpy. So I would say the the dose three effects.
I think a day they feed into what Youre seeing in terms of timings of bookings vs versus revenue.
And so.
And if anything it gives us a good.
And let's say confidence of debt.
And we will.
The pickup and the second half of the year.
Okay got you and is there.
Is it was their growth and the consumables piece of.
Our vision for the equipment side is it still of the equipment side Thats down meaningfully.
Yeah, we didn't we didn't comment on that I would just say debt the remarks for the consumables follow I think the generic remarks that we made and we basically saw and our Mis segment overall is debt.
And yes, there is the lockdowns were pretty pretty hard right in.
In the latter part of last year.
And the FERC part of this year and I think only recently started to reopen and you can kind of see that.
And the remarks made by.
And let's say large medical Oems that only towards the latter part of the first quarter and starting to see.
Some some recovery.
And so basically towards the us we're trailing that by.
A good 90 to 120 days right and so.
So thats basically what youre, saying so you just.
But right now we do see them.
Order and starting to order more and therefore that feeds into our confidence for the second half the first half will still be a little bit.
The.
A little bit soft.
Okay, Yes fair enough and then.
And just maybe my last follow up question here around the China and regional growth. There I mean, you did speak to a 40% plus growth in China for.
Presumably that's led by the advanced industrial product lines.
Is there is there any.
Change on the medical side of reserve.
Quite small and China.
Yes, the medical is still fairly small for us and China.
And to be very honest, so so our Oems that we deal with.
Our mostly western Oems on the medical side and on having said that we do see Chinese Oems.
And starting to ramp and rest assured we are of course.
For the engaged there.
But that business for us is still fairly fairly small the majority of our China growth right now is for clinics and precision motion driven and it's about 50 50. So I think what is encouraging is that of course and last year the growth in China of US primarily precision motion driven on the back of <unk>.
The infrastructure and PCB demand at this year, it's more balanced with.
Our photonics business doing really a stellar job, there and gaining share and the.
Of course on the back of markets that are very buoyant as well so we like.
And.
And let's say our performance in China, and we are continuing to invest and local sales teams local manufacturing and.
And even engineering the answer to kind of get more of a local for local presence.
And they're so so yes, you can expect us to lean into the local Chinese market.
Got you okay perfect. Thank you.
Absolutely.
And our next question comes from Brian Drab from William Blair. Please go ahead with your question.
Good morning, Martin and for taking my questions. Good morning, Brian.
Good morning in terms of.
Capacity utilization can you talk a little bit about where you're at and you.
You're achieving record level of resolves and forecasting to go.
And beyond that and I'm. Just wondering are you able to find the people you need as you and you had.
And that direction.
Yeah, So first and foremost.
Capacity utilization typically the tour and it's used when you have like and big Fabs and and that kind of so so bezeq and for US, it's materials and labor and the main gating item as we as we highlighted is actually the materials assets basically of our supply chains not able to follow what is a.
Yeah, and unprecedented rebound right.
That is across the board and then of course, having both at the same time and demand and the supply shock right because of the if you see some shocks and the supply side too. So that's really more gating other than anything else.
Of course, we are.
Very active and making sure that and.
And yes, we're getting the labor in that we need yes of course.
Note that the gross system helps there.
The leaning out our our production floor, so we get more out for for.
For area.
But I would say the main message here is that the supply chain is gating our growth more and more than anything else.
Okay, Thanks, and and then.
The precision motion.
Most margin was a little lower than I was modeling photonics was the little bugs.
And I know you made some comments around this I think some of it has to do with that.
The supply chain.
Can you just talk about why why that.
And it might be maybe it's just because I modeled and correctly and then what how do you see the gross margin for the segments progressing as the as he moved through the year.
Yeah, I mean, I know you didn't really kind of modeled correctly.
Do think of it.
It came in.
Little lower than we were expecting some of that was the expediting fees and some inefficiencies and our labor production as a consequence of some material shortages.
We did overall able to mitigate for that elsewhere and so it's not always the we're able to and mitigated per se in a specific business segment.
But we are able to work it out across the overall organization.
So I do think some of those things of temporary we have gotten some of the material and now of the deal with our second quarter and we should be able to hold a better gross margin profile as we get into the second quarter, but the short term and the first quarter was really tied to that.
This level and and photonics, the I think it was.
A little over 49%.
The margin in the quarter as debt.
Sustainable.
And that was a little better than I was expecting.
Yeah, and I hope so is the short answer I mean, and some of that is.
It's tied to the Ngls process, where we've really kind of leaned out of the production processes and got better efficiency around that I think that team has done a better job of mitigating their supply chain.
Disruptions and so they've been able to get the right sort of materials and advanced it took some of the warnings and the fourth quarter to heart.
And I and I also think that from a from a level loading perspective, they've been able to plan well ahead of time.
There is some expansion.
And going on there right now we are expanding our.
The optics facility and the UK.
Not expecting any major disruptions from that and in fact that should really kind of enable us to continue to expand that gross margin, but the short answer is that should hold for now.
Okay. Appreciate it thank you.
Yeah.
Once again, if he would like to ask a question. Please press star and one.
And in showing no additional questions and today's question and answer session I would like to turn the floor back over to Mr of Italian cluster for any closing remarks.
Thank you operator, so to summarize no ventas for firms in the first quarter of 2021 was excellent.
We had record sales and bookings and beat our own expectations for profit and cash flows our innovation programs are healthy and progressing and we launched five new products and the quarter and are on track for our ambitious plans to launch 25, new products throughout the year, which is double last years.
We saw tremendous growth and design wins and feel confident that we're succeeding and growing our presence and our target application areas. We're excited to see the rebound happening and the global economy and.
And particularly in the advanced industrial sector with the return to growth also on the horizon and the medical sector.
The event is well positioned in the sectors with diversified exposure to the long term secular macro trends and robotics and automation of precision medicine, minimally invasive surgery and industry for the low.
In closing I would like to thank our customers our employees and our shareholders for their ongoing support and I'm, particularly grateful for the dedication and strong contribution of our teams of.
Committed Nevada employees, who have rapidly pivoted.
And our again showing up and serving our customers during one of the strongest recoveries ever experienced.
We appreciate your interest and the company and your participation in today's call and look forward to joining all of you and several months on our second quarter 2021 earnings call. Thank you very much. This call is now the journey.
Ladies and gentlemen, with that we'll conclude today's conference. We thank you for attending you may now disconnect your lines.