Q4 2021 Novanta Inc Earnings Call
Good morning, My name is Keith and I'll be your conference operator today at this time I would like to welcome everyone to Nevada, Incorporated's, 2021 fourth quarter and full year 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.
I'll ask a question you May Press Star then one on your house charter phone to withdraw your question. Please press Star then two please note. This event is being recorded.
Now I'll turn the call over to Ray Nash corporate Finance leader for Nevada. Please go ahead.
Thank you very much good morning, and welcome to Novartis fourth quarter and full year 2021 earnings conference call I'm Ray Nash corporate Finance leader of Nevada with me on today's call is our chairperson and Chief Executive Officer entire squad Strep, and our Chief Financial Officer, Robert Buckley.
If you've 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 <unk> 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 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 in 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 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 web.
Right. After this call.
I'm now pleased to introduce the chairperson and Chief Executive Officer of Novatel Matthias cluster.
Thank you Ray good morning, everybody and thanks for joining US no FEMSA delivered another record quarter and a record full year of 2021.
We hit new all time highs for revenue and bookings with strong operating performance for both the fourth quarter and the full year of 2021.
We exited 2021 at a $800 million revenue run rate with a record backlog of $569 million and close to $1 billion full year bookings.
This is a great indicator of the structural long term demand drivers in the medical and advanced industrial markets we serve.
It also sets us up with excellent visibility to customer demand and sales growth in 2022.
In the fourth quarter, our company delivered $199 million in revenue, representing 35% year over year revenue growth on a reported basis and 14% growth on an organic basis eclipsing. The March set last quarter for the full year of 2021 November .
Sales of $707 million, which is up 20% year over year on a reported basis and 10% on an organic basis.
In addition, we had another quarter of excellent operating performance with adjusted EBITDA of $43 million in the fourth quarter.
Up 31% year over year for the full year, adjusted EBITDA was $153 million, which is up 26% year over year.
Our adjusted diluted earnings per share in the fourth quarter was <unk> 67.
Which is up 26% versus prior year and for the full year adjusted EPS was $2 62.
Which is up 34% versus 2020.
We are extremely pleased with and proud of how our teams drove exceptional operating performance using the Nevada gross system tools, despite widely reported supply chain challenges, which I'll speak to in a moment.
We saw another quarter of record breaking bookings in the fourth quarter with sequential bookings growth of 32% versus our already very strong third fourth third quarter and year over year bookings growth of 92% versus the fourth quarter of 2020.
Excluding the impact over acquisitions bookings was still up 67% year over year in the fourth quarter, we saw strong demand across all our segments with each segment, having very strong book to bill in the quarter.
In the fourth quarter, our overall book to Bill was $1 55, we saw very healthy orders in many of our advanced industrial applications as well as most medical applications.
As mentioned before for the full year of 2021, we sold nearly $1 billion of bookings into full year book to Bill was an impressive $1 39.
Yeah.
Before moving onto other operating results, let me take a moment to give an update about the global macroeconomic dynamics and how they are impacting event there.
First of all the war between Russia, and the Ukraine has obviously increased uncertainty and our thoughts are with the Ukrainian people. While these events are very tragic and hopefully peaceful solution will be found very soon <unk>.
Iraq, No event economic exposure with Russia, and Ukraine is negligible.
Second the widely reported supply chain shortages and other disruptions that we commented on last quarter have continued and in some cases have gotten worse worse during the fourth quarter.
This continued to challenge our ability to meet our custom.
Customer demand within our promise lead times. In addition, we are now seeing cost inflation in both raw materials as well as labor costs, which are being widely reported on in the market.
Robert will comment on these dynamics in more detail in a few moments.
However, I am extremely proud off and impressed by the agility greater and extraordinary efforts of all of our team members throughout the organization will keep stepping up due to manage these pressures and who go above and beyond to keep our customers happy while protecting our profitability.
Now, let's turn to what we're seeing in our markets, where we see ongoing strength in multiple application areas November sales to advanced industrial markets were 51% of total sales in the fourth quarter. This reflects a full quarter of the ATI acquisition.
With a majority of its business exposed to exciting high growth industrial robotics and automation applications, such as electric vehicle production warehousing automation, and then overall accelerated pace and robotics penetration.
In the fourth quarter, our sales to advanced industrial markets saw 21% growth sequentially in.
55% growth year over year, we also continue to experience higher demand specific to market electronic investments in <unk>.
High speed networking and cloud based infrastructure higher demand from EU based applications as well as increased penetration and investments into industry Ford Aldo and.
Factory automation markets, requiring novellus, enabling technologies.
We expect to increase microelectronics can factory for hotel demand to be sustained well into 2022.
For the full year of 2021 sales to advance industrial applications were 48% of total sales and grew by 30% versus 2020.
Turning to our medical end market for the full year of 2021 sales to medical applications were 52% of total sales and grew by 12% year over year in the fourth quarter of 2021 sales to medical applications were 49% of November total sales and grew 19% versus the fourth quarter of 2020 at <unk>.
4% sequentially.
During the quarter, we saw very strong orders and shipments to many of our medical Oems with particular strength in surgical robotics in DNA sequencing.
Of which so greater than 50% growth in sales year over year. Despite this improved strength in the fourth quarter. The overall market for minimally invasive surgical procedures, however will still subdued and impact by increased impacted by increased cases of the homochrome variant with patient backlog is high and we expect that medical sales and minimally invasive.
Surgery procedures, who continued to rebound gradually in 2022 as the impact of the overcome varian starts to subside and hospital capex for elective procedures start to return to pre pandemic levels.
From a regional perspective, we saw strong demand across all major geographies in the fourth quarter. We continued to see very strong growth from China, where sales grew 32% year over year helped by our increased exposure to electric vehicle and EV battery production.
Sales in Europe grew 22% and as soon as in the United States grew 45% year over year for the full year sales to China were up 35% as Susan Europe , and the United States were also very strong double digit growth.
Now let me touch on some of November strategic growth metrics for now these metrics exclude any impact from our ATI and IMS acquisitions, we plan to start including ATI in IMS in these metrics starting sometime in 2022 as we establish the appropriate tracking and reporting with those teams for.
For the full year of 2021, our design wins were more than double the prior year, which is a huge accomplishment for our sales teams design wins in the fourth quarter were up double digits versus the prior year with multiple major wins in most of our businesses.
We saw even more wins in our minimally invasive surgery business, we already had a huge year with multiple major customer wins.
We also saw strong design wins are in laser beam steering and precision motion businesses in high growth application areas, such as surgical robotics laser additive manufacturing micro machining and electric vehicle battery welding.
Our vitality index, which is revenue from new products launched in the last four years continues to be healthy at above 25% of sales for both the fourth quarter and for the full year with new product sales growing double digit year over year.
We continue to invest in our innovation pipeline with terrific results for the full year, we launched 19, new products nearly matching our record high for the number of new products launch in a single year.
Impressive that we managed to achieve this number of product launches despite having to reallocate part of our engineering resources to help mitigate some of the supply chain difficulties that I've spoken about.
Yet as mentioned in our last call. We are seeing some delays in the launch timeline of some of our <unk> and some of our customer platforms. However at this stage, we do not see any material impact on the long term growth trajectory of the company as a result of these delays.
We are adding supply chain and engineering resources to mitigate these challenges and in the process. We are building foundational capability that will benefit us long term.
We continue to have a strong pipeline of new products in our lineup of 22 2022 product launches is very healthy.
Next I'd like to give a brief update on the ATI and IMS acquisitions, both businesses were with us for the full fourth quarter and we have made significant progress integrating both businesses with the rest of Nevada.
We continue to be very impressed by the performance and the engagement of the ATI and IMS teams under their strong pool for the November growth system tools.
These are both fantastic businesses, which are excellent strategic additions to an event that expanding our positions in high growth markets. Both businesses are progressing very well with a strong market tailwind in robotics and automation demand and we saw strong performance for sales and bookings for these businesses in the fourth quarter.
Acquisitions continue to be the primary focus of November is capital deployment and we continue to work on an active pipeline of opportunities in 2022.
Finally, none of our performance would be possible without our teams of talented and committed no hint of teammates we continued to double down and invest in our culture corporate event, the OE, which institutionalizes, how we work together in cohesive diversion inclusive teams, how we behave and interact through our five core values and how we act.
Q3 to an event the grow systems.
Where everybody feels respective include respected included an engaged around our strategic priorities.
We believe that the Nevada way has been a differentiator in a tough labor market to attract retain and develop core tenants and in 2022, we will increase our investments in our culture, our people and of development and growth of our tablet.
We are staying laser focused on executing our long term vision and strategy, which includes strengthening our corporate responsible responsibility efforts.
And note that our vision is to deliver innovations that matter to our customers and enhance people's lives. We are committed to creating a brighter future through environmental sustainability initiatives building, a diversion and equitable and inclusive workforce and maintaining a robust governance system. We are developing action plans to achieve net zero.
Emission by 2050, and we will publish our 2021 ESG report later this months.
It will be in line with the two leading global standards, SaaS B and T Cfd.
So in summary, 2021 was a landmark year for November we achieve never before seen levels of sales bookings in profit. Despite some significant disruptions in our supply chain and factory operations.
Despite the ongoing short term challenges, we feel very good as we enter 2022 with record levels of backlog and continued strong demand from our customers. We believe <unk> long term strategic positioning is as good as it has ever been.
We continue to broaden our exposure to medical and advanced industrial applications that have long term secular growth trends, such as robotics, and automation health care productivity and precision medicine.
So with that I will turn the call over to Robert to provide more details on our operations and financial performance Robert.
You <unk> and good morning, everyone, our fourth quarter non-GAAP adjusted gross profit was $88 3 million or 44% adjusted gross margin compared to $65 4 million or 44% adjusted gross margin in the fourth quarter of 2020 for.
For the full year, our non-GAAP adjusted gross profit was $319 million or 45% adjusted gross margin.
Impaired to $256 million or 43% in 2020.
For the full year adjusted gross margins increased approximately 170 basis points year over year.
This strong result came as a result of the diligent efforts of our operating teams who drove the Nevada gross system deeper into our day to day activities fall, allowing the factories to drive productivity and better leverage their costs sequentially.
Sequentially, our gross margins declined slightly as a consequence of disruptions with our logistics vendors, which required us to deploy short term costly mitigating actions to ensure our factories were not disrupted and to a lesser extent the gross margin dilution from the <unk> acquisition.
Managing the supply chain difficulties and Delever.
Delivering on our customer demand remains so delivering on our customer demand remains our top priority as a company and as a leadership team. We are seeing rapid inflation on electronic parts largely caused by significant global shortages, but we also continued to see disruptions on our suppliers and our suppliers' suppliers around their own electronic part shortages.
Labor shortages and Covid related outbreaks.
Overall, our manufacturing teams are doing incredible job at mitigating these impacts.
Due to the magnitude of the challenge we're working aggressively on sharing some of these costs with our customers in the form of price increases.
We have announced meaningful price increases across all our business units, which followed this practice of sharing in the inflationary pressures. We expect the price increases will be phased in but it's important to say the receptivity and understanding for our customers. So far is very high the.
The net result of the cost mitigation and pricing actions. We are taking are factored into our guidance for 2022, which I'll speak to in a few minutes.
I also wanted to give a brief update on the top in the U K facility, which we spoke about our last call during the fourth quarter. The facility remain operational and we began to plan move into our new facility. We are already seeing the benefits of this new facility as it begins to come online in.
In fact, we recently decided to accelerate the remainder of the move which will be very beneficial to our customers and our cost structure.
This will result in a temporary reduction in capacity in the first quarter as well as continued redundant cost structures from running two factories in that quarter. However, this is the right thing to do to structurally improve our capacity and delivery capabilities sooner in 2022.
We're truly excited about how this factory can help us deliver to our customers once fully online and producing our products.
Moving on fourth quarter, R&D expenses were $19 4 million or roughly 10% of sales for.
For the full year R&D expenses were $72 5 million or 10% of sales fourth quarter SG&A expenses were $35 million or 17, 6% of sales for the full year SG&A expenses were $129 million or 18, 3% of sales.
The sequential increases in operating expenses were in line with prior guidance and were the result of the ATI and IMS acquisitions.
Adjusted EBITDA was approximately $43 million in the fourth quarter of 2021 or 21% EBITDA margin for the full year adjusted EBITDA was approximately $153 million or 22% EBITDA margin or adjusted EBITDA performance beat our expectations and our previously issued guidance.
Mainly driven by higher sales volume flowing through to profit.
On the tax front, our non-GAAP tax rate for the fourth quarter of 2021 was 22% that's different from the statutory rate driven mainly by jurisdictional mix of income and the ATI acquisition. This tax rate was higher sequentially due to minimum equity compensation windfall benefits and the effects of the financing of the ATI acquisition.
<unk> for the full year, our non-GAAP tax rate was 14%.
non-GAAP adjusted earnings per share was <unk> 67 in the quarter compared to 53 for the fourth quarter of 2020, an increase of 26% year over year.
For the full year adjusted EPS was $2 62, compared to $1 95 in 2020, an increase of 34% year over year.
The favorable results for our adjusted EPS were driven by strong profit from the higher sales somewhat offset by higher financing costs and a slightly higher tax rate.
Fourth quarter operating cash flow was nearly $28 million, which was in line with our expectations and represents a ratio of greater than 60% to our adjusted EBITDA for the full year operating cash flow was $94 million.
Finally, we ended the year with gross debt of $439 million and our gross leverage ratio was two nine times, our net debt was $321 million.
I'll now turn to an update about the performance of the operating segments I'll first start with precision motion segment. This segment experienced a 129% year over year revenue growth and approximately 35% sequential growth in the quarter.
<unk> was heavily impacted by the ATI and IMS acquisitions.
In the fourth quarter. These businesses contributed approximately $32 million of sales, which exceeded our internal guidance.
We really could not have been more excited about the performance of these businesses and their talented teams in the future growth opportunities they were offering.
Excluding the acquisitions.
<unk> motion grew an impressive 33% year over year and bookings grew more than 80% year over year.
The overall book to Bill ratio in this segment was 143 in the quarter.
Excluding the impact of ATI in IMS, the precision motion new product revenue nearly doubled and was over 30% of total sales for the segment design wins for the full year were up 51% gross margins for the segment came in line with expectations and dropped slightly sequentially due to the effects of the ATI acquisition.
Combined with strong margin and profit performance, it's fair to say the precision motion segment had an absolutely fantastic year and we're very proud of the performance of this team.
Turning to the vision segment. This segment predominantly serves the medical end market and experienced revenue growth of 3% year over year in line with expectations for the business given the difficult comparisons to prior year.
While the volume of elective surgical procedures was impacted by the spike in Covid infections in the fourth quarter and the first couple of months of 2022, all signs now point to an improving environment with surgical procedures rebounding in.
In the second quarter of 2022.
Spite this division segment saw bookings grow 57% year over year and a book to Bill of one four.
The vitality index in this segment remained above 30% of sales the new products being a key driver of the resilience we have been seeing in this business.
<unk> activity was again very impressive in the quarter more than double the amount of activity from the prior year as the business close on a few more significant wins with several large medical OEM customers.
For the full year 2021 design win growth was more than double prior year, a huge accomplishment for this team.
As we said before the long term growth prospects of this segment is stronger than ever and despite the near term temporary challenges caused by supply chain difficulties in the deferral of elective procedures. We see this segment as a key driver of Nevada.
Growth over the next few years once we finally put behind the short term disruptions caused by the pandemic.
Finally, turning to the Photonics segment in the fourth quarter of 2021, our revenue was up 12% year over year.
The business continues to experience unprecedented customer demand and their advanced industrial applications and in DNA sequencing.
Bookings were up 69% year over year. The book to Bill was one nine in the fourth quarter.
In addition, new product revenue stayed strong at greater than 25% of sales in the fourth quarter and total MPI sales were up 22%, 22% year over year.
Design wins for the full year were up 40% year over year, driven by excellent platform wins in applications, such as laser additive manufacturing E mobility battery welding via hole drilling and micro machining.
Despite the strong year over year performance of the Photonics segment have disappointed adjusted gross margin performance, which was down sequentially and year over year.
In the quarter, we certainly saw the impact of the logistics disruptions I mentioned earlier, which result, which require temporary increases in cost in order to ensure our factories were not disrupted.
We also saw the impact of redundant cost of the Taunton U K facility hitting this segment.
Although adjusted gross margins were impacted in the fourth quarter for the full year of 2021. This segment saw a 150 basis points of expansion in margins versus 2020, which reflects the strong structural improvements the teams that we've been making we expect this segment to continue to expand margins in the full year 2022.
As price increases come into effect as the team continues to aggressively drive ngls into their operation and afterwards.
We complete our relocation of the new toll manufacturing facility.
While we expect the first quarter of 2022 gross margins to be roughly flat sequentially, we expect margins to start ramping back up in the second quarter.
Now turning to guidance. If we look at 2022, we continue to see strong demand from our customers capital spending and advanced industrial markets remains robust.
As demand in key medical applications, such as surgical robotics, and DNA sequencing is expected to maintain their solid performance.
Not only does this establish a strong base of customer demand for the company, but we also see further demand tailwind looking more likely from a recovery in elective surgical procedures post the omni crowd wave.
It gives us confidence we have plenty of customer demand levers in 2022 to deal with the challenges.
Consequently, we expect 2022 to be characterized as a year with strong customer demand, but also year with supply chain disruptions and electronic material shortages shortages will remain our number one focus.
The topic is a complex challenge, but we continue to be amazed at the <unk> production teams ability to find solutions to the steady state of difficulties.
Because of their strength and our confidence in them, we're issuing full year and first quarter guidance. It is fair to say that our leverage and our revenue range is driven almost entirely by scenarios of supply chain disruptions and shortages and not by our expectations around customer demand, which we believe will remain strong.
So starting with the revenue guidance for the first quarter of 2022, we stand here today, we expect GAAP revenue in the range of $192 million and $200 million.
For the full year 2022, we expect GAAP revenue in the range of 825 million to $845 million.
We are expecting to see revenue growth of.
Of 18% to 23% year over year in the first quarter. This range revenue range takes into account demand for our products, which remains strong as well as supply chain logistics disruptions that we see them today and known disruptions with our customers' production processes from their own challenges.
<unk>.
We expect revenue growth to improve as the year progresses.
As the efforts of our supply chain mitigation initiatives continued to gain momentum and as our new <unk> facility comes online.
We also expect continued strength with bookings that we anticipate book to build a normalized versus the higher ratios. We saw in 2021 and as we start shipping more of our past due orders.
On a segment level in the first quarter, we expect more modest low single digit growth in photonics, which is well below the level of demand our customers expect and is directly caused by the supply chain shortages. The growth in this segment will accelerate as the new ton facility comes online in the second quarter and as the mitigation actions.
Around material shortages gain momentum. Therefore, we expect this segment to see low teens growth for the full year.
The precision motion segment will continue to see significant growth driven both by continued strength in the core businesses as well as the impact of the acquisitions as a consequence in the first quarter, we expect sales to be more than double the prior year on a dollar basis.
For the full year, we expect reported growth will also be strong and organic growth to be in the mid to high single digits building off the strong organic growth in 2021.
Finally for our vision segment in the first quarter, we expect to see a 10% decline in revenue on a year over year basis, driven solely by part shortages of two large vendors who themselves are experiencing the effects of electronic chip shortages.
These vendors are fortune 500 companies and expect the first quarter to be the most challenging.
But these vendors are also have visibility into an improving year as their new suppliers come online.
In addition, while we believe a rebound in growth in the minimum invasive surgery markets may occur as elective surgical procedures recovery.
Following the omni Kron wave, we decided not to include this rebound and our guidance range for now.
This is largely because we cannot predict how the virus will behave <unk>.
Despite this for now we expect the vision segment to demonstrate mid single digit growth starting in the second half of 2022.
And we expect adjusted gross margins for the vision to be relatively flat for the full year. However, we do expect to see gross margin expansion in the second half of the year.
Moving on to overall the Ventas adjusted gross margins, we expect gross margins in the first quarter to be roughly flat sequentially at approximately 44, 5%. The first quarter gross margins will continue to be impacted by the disruption and cost inflation that we've already spoken to but we expect the impact of these headwinds to be temporary.
In particular because of the aggressive actions, we have taken to mitigate the issues and from increasing pricing on our products.
Therefore, we expect to continue to expand margins for the full year gross margins for the full year of 2022 are expected to expand to approximately 46% for the year inclusive of the lower performance in the first quarter.
R&D expenses will increase for the full year to approximately 87 million to $89 million, which is higher than prior year, mainly as a consequence of having a full year of acquisitions as well as further ramp up our project spend in our key NPI programs.
SG&A SG&A expenses for the full year 2022 would be approximately $156 million to $157 million again, driven by full year of acquisitions depreciation expense for the full year of 2022 will be approximately $15 million slightly higher than 2021.
Stock compensation expense for the full year 2022 will be approximately 24 million also slightly up from 2021, as we deploy equity to our ATI and IMS acquired businesses as well as additional key talent in the company and to maintain the higher retention rates, we continue to experience.
Stock compensation expense will be slightly higher in the first quarter versus the rest of the year due to the timing of vesting of certain grants.
For adjusted EBITDA for the fully first quarter of 2022, we expect a range of 38 million to $41 million for the full year of 2022, we expect adjusted EBITDA to be in the range of $172 million and $182 million.
Interest expense for the full year 2022 will be in the range of 12 million to $15 million, which is higher than prior year as a result of the higher average debt balances from the acquisitions.
We expect our non-GAAP tax rate to be around 16% for the full year of 2022 absent significant changes in jurisdictional mix of income or other variability in any of our eligible tax benefits.
We do expect some variation of that tax rate from quarter to quarter.
Just on the timing of certain discrete tax benefits throughout the year and is similar to prior years.
Diluted weighted average shares outstanding will be approximately 36 million shares.
For adjusted diluted earnings per share, we expect a range of 60 to 66.
In the first quarter and a range of $2 85 to $3 for the full year of 2022.
Finally, we expect the operating cash flows in 2022 to improve as a ratio to adjusted EBITDA versus 2021, and we expect to have a solid cash flow growth year over year.
As always this guidance does not assume any significant changes to foreign exchange rates.
To recap 2021 was a record year for Nevada, we achieved a record level of sales adjusted EBITDA and adjusted earnings per share. We also experienced record booking levels design wins, new product revenues, we enter 'twenty two with the highest backlog the company has ever had and our teams are accomplished.
During all of this despite facing the most significant challenges the modern business environment has seen in recent history.
Given all of this we feel great about the company's position and our ability to sustain the progress. The company is seeing strong demand across its applications and its markets.
We are retaining our best talent and continue to attract the best talent. Our innovation engine remains the strongest it has ever been and our operations are maturing to handle the opportunities.
We remain very proud of the performance of our employees and their tireless efforts to help us be successful in a very challenging environment and most importantly, we remain excited about our future about how and where we are positioned in attractive secular growth markets about our continuing innovation partnerships with our customers and look forward to continuing to do.
A liver our commitments to our employees our customers our stakeholders. This concludes the prepared remarks, we'll now open up the call for questions.
Yes. Thank you we will now.
Ill begin the question and answer session.
To ask a question you May Press Star then one on your Touchtone phone.
If youre using a speakerphone please pick up your handset before pressing the keys.
Sorry your questions. Please press Star then two just how a pause momentarily to assemble the roster.
And the first question comes from Lee Jagoda with CJS Securities.
Hi, good morning.
Lee.
I'm sorry.
I think is the first time, you've ever given out a backlog number in your release.
And you know historically I don't really think about this business is a backlog business can you talk about how far the backlog stretches out and how that backlog compares to the levels we saw pre COVID-19 .
Okay.
So pre COVID-19 I will start with its more than double.
Any sort of level that we've had before it is unusual for us to have backlog and it gives you a little bit of perspective.
Do the supply chain disruptions that we're seeing the shortages and it's also why I gave a range, where I said, it's completely dictated by the supply chain and not by customer demand.
Clear that.
Even if we achieve the upper end of the range of that revenue forecast, we are still going to leave shipments on our docks, meaning that we still have some material shortages for the full year. So the demand environment is even stronger than the upper end of our revenue range for the full year.
Yes, so in summary, I mean, the reason for including it is that we have.
Yeah, we feel very good about our demand and our innovation and our design win structural long term growth profile right and so we wanted to support that with that with this backlog number.
Got it.
It's helpful. And then just one more for me related to the gross margins if I look at the 100 basis point increase.
Given in your guidance for 2022 are you able to.
Give a bridge of all the contributing factors holding back that gross margin that.
Should be transitory, obviously, some last quarter or two somebody last a year or more.
But just so we can get a sense for what gross margins could have been had it not been for some of these transitory issues.
Yeah, the way I kind of look at it without some of the logistics disruptions in the fourth quarter, we probably would have been above 45%.
So there were some temporary like logistics disruptions, we experienced I do expect that to continue into the first quarter, but then subside thereafter, as we positioned inventory in different localities in order to deal with that.
I think theres, obviously, the U K ton facility, we will have that cost structure in the fourth quarter, while that cost structure now going into the first quarter, but will eliminate that in the second quarter and so that will allow us second quarter data demonstrated a higher gross margin and probably get above that 45%.
Level again.
And then there was some supply chain shortages that we are seeing in the first quarter in the vision segment.
Those will subside as we get through the second quarter and that will allow that that third quarter. The jump up and then of course the last one as price increases are now in effect across all business units and so that really positions us as they phase in over the course of the year to really drive that 100 basis points of margin expansion on the full year.
That really translates to is that youll see a higher gross margin in the fourth quarter. So we'll even run at a higher rate as a consequence.
Got it sounds good thank you.
Thanks, Mike.
Thank you and our next question comes from Rob Mason with Baird.
Yes.
Good morning, good morning, Thanks for taking the question.
Maybe I'll start just with the acquisitions they are performing really well it seems out of the gate.
Certainly was the case in the third quarter carried into the fourth so.
I didn't get an opportunity really to tease out.
What the contribution would be in 'twenty two.
But could you clarify that what's your expectations are for acquisition contribution and maybe FX as well when you're on the topic.
So we're not expecting with the FX rates.
We're forecasting obviously, we're not experts on FX forecasting, but the FX that we have in the guidance is the FX that we are currently at today.
And so if there's any sort of major shifts around that.
That could have implications.
To the at least the reported numbers.
Generally been able to naturally hedge the profitability impacts of that but there'll be an impact on the revenue side.
I would say that we haven't we haven't guided a specific by business unit for the two acquisitions.
They are performing.
Fairly well and we expect them to continue to stay fairly robust throughout 2022.
I'd be a little careful about run rating the numbers, but you can get kind of close using something directionally around that and taking into account that we didn't own the business completely in the third quarter the fourth quarter numbers are.
A pretty good indicator of where things are at probably for 2022. So maybe go from there.
Okay. Okay.
Because the book the orders.
Still the orders in the fourth quarter above.
That level of book to Bill of one in the act was over one in the acquisitions.
What was the what is the final purchase price now that we're on the other side of 'twenty one.
Yeah.
We have to work our way through that so there is some disclosure language in the 10-K that you could take a look at.
Around the actual earn out payment.
All calculations, we have it valued on a Monte Carlo basis.
I did my probably directly over to that take a look at the 10-K at this point okay.
Okay.
And then just maybe last question you touched on your.
Electronics microelectronics exposure.
Bookings again continued apparently.
Apparently to remain strong.
And you have good visibility I thought you said around factory four point O D.
A man in that space, continuing but just in totality.
Can you level set where that business stands in terms of.
Yeah overall percent of revenue.
And again, how youre thinking about it through.
Through the balance of the year and whether that visibility.
That you have in your backlog extends to to that piece of the business.
Yeah, I mean, historically the microelectronics exposure is between.
10% to 12% that order of magnitude so we.
<unk>.
Consider it to be in that range I think what I was speaking to was actually the majority of the advanced industrial business, which is the dominant piece of that roughly 50% of our of our business right and so we feel theres a multitude of applications that are all driven by long term secular growth drivers.
Whether it's weyerhaeuser automation, whether it's electric vehicle production whether it's.
<unk> that are driven by.
The accelerated pace of investments in automation and robotics that our structure as well as a requirement to change your production technologies that are often laser based on whereas you know we are at a leisure leader in steering laser beams. So all these we see yes.
Tremendous deal wins for the coming years.
So thats, so I would say that's a multi year.
Multi year cycle that we're very excited about and again microelectronic as poorly as we all know is maybe the most cyclical of that but we see for 2022 still the strong strong demand profile again around 10% to 12% of sales order of magnitude.
Got it okay, Okay I'll hop back in the queue. Thanks.
Thank you and the next question comes from Brian Drab with William Blair.
Hey, Brian .
Hey, good morning, Thanks for taking my questions.
You mentioned in the prepared remarks that you would have some revenue limitation I think in the first quarter associated with the facility move can you quantify that possibly.
It's two elements impacting the first quarter of one one is the facility move and that's really just impacting the cost structure.
More than anything else, so that results in a little bit higher cost.
Effectively shut down production for two weeks and then move everything over into the new facilities.
You have some stranded overhead cost you have to deal with for that period of time that doesn't get absorbed back.
The other issue.
Is tied to within the vision segment, we have a fortune 500 vendor that's unable to deliver enough product they brought a new vendor online.
That new vendor will deliver them has been delivering them when they are out now the components they need.
But their ability to turn around the product in time to get it to us in the first quarter is limited and so that's really kind of the hampering of.
Both the revenue number in the first quarter as well as an impact on the gross margin. So I would say absent those two things you're probably looking at a gross margin above 45%.
And so as we get into the second quarter, you know at least two of those things are resolved and that helps you tick up in the second quarter and then there is actually price increases that have now been announced across all our businesses as of January 1st and those are going to be phased in as we go through.
Final discussions with customers, but the receptivity from all the customers has been extremely positive.
Got it.
I understand that there is a gross margin impact but.
Isn't there also a revenue impact from Brian both of those things, we're cutting down the facility for a couple of weeks and you don't have product to ship on the second.
It's normally.
Low single digit million subs, so, let's say to $2 million order of magnitude maybe and then there is the more significant piece is is what Robert mentioned was the best.
<unk> Division segment. This this one supplier, which is which is a larger assay both of which are timing issues right now.
I mean, we're accelerating this move them the Taunton site to get into better shape quicker, but.
Basically where regionally we stagger it again, if the the bottleneck equipment right now, we're just accelerating that move which has a short term indeed capacity revenue as well as training costs the impact, but those are all timing things, they're not structural rate and just get us to the right position.
Faster right. So that's kind of how you need to look at the first quarter, it's temporarily impact by dose by dose things, but they will improve throughout the year and again, we have just tremendous demand backlog situations. So it's really not a demand issue, it's really more the ability to short term supply issue.
Got it thank you and then.
You talked about the tailwind that you're seeing in the different advanced manufacturing markets.
And as you mentioned all the different industry four point on that.
In the.
I guess within photonics and.
Precision motion.
What are you seeing in the semiconductor end market now.
Capacity additions that are coming out.
This is a longer term.
Secular tailwind here or at least for the next few years that youre going to see and what's your exposure to semiconductor at this point I know, it's a lot lower than it used to be.
Yes.
I think Rob asked the similar question. So so I would lump it altogether in the microelectronics right.
10% to 12% so it's not substantially.
Substantially more than what it used to be in a matter of fact also as a result of our acquisitions our exposure towards let's say electric vehicle production for example, and Raj automation is much higher so I think we're diversifying that exposure, but nevertheless, we of course, we benefit from.
Yeah and increased.
Continued investment climate on the semiconductor side.
Who knows how long it will take.
We're also always a little bit cautious about that market because the development at all the capacity is coming online then.
Yes, it did that the market will turn now versus these other markets. We talk about we think there is a decade long.
Secular investment trend that will keep going because of fundamental underlying driver. So.
So that's kind of how we're looking at it we were pleased with the microelectronics momentum for this year for sure.
But we're even more excited about.
All the structural automation and robotics.
Related markets that.
Yes.
Our actually have a much larger exposure to the company and where we feel we're very well positioned both from being there as well as through increase innovation. So.
So thats, where we focus our expansion predominantly.
Okay.
Sometimes I get a little bit.
The microelectronics category, so broad and includes some of those things.
Can you quantify your pure semiconductor exposure.
Hey.
Is that around like 5% thereabouts.
Thereabouts.
Probably somewhat backward or yeah order order of magnitude yes.
Okay and the bulk of that's helpful. Thanks, again, and let's say if you look at let's say a large chunk is driven by five G.
Cloud based infrastructure.
In our high speed networking, even there no mobile phone devices all.
All of these also include microelectronics right. So I just wanted to be clear that some of these drivers are actually similar and which is why we're lumping them together.
Right right.
Got it thank you very much.
Yeah.
Thank you and once again. Please press Star then one if you would like to ask a question.
And the next question comes from Andrew Scalia with Aaron Berg.
Hey, guys.
Yeah.
Yeah good.
Thanks for taking my question.
So book to Bill you said was strong in each segment.
You had some interesting commentary around each segment.
With regard to the underlying demand I'm curious, which which can you go deeper into that comment.
<unk> provide more details about that I'm, just curious how they compare that across each of the business segments.
Yeah, I mean, I can give it.
A shot and I think Robert.
Characterized it well, but if you start with vision right.
Oh.
Demand drivers were.
We're a little bit subdued there because of minimally invasive surgery procedure short term, but long term, we feel very good about about the long term growth drivers in that business I think the prime we see orders coming in.
Nicely already.
In that segment that will further support that I would say, it's fair to say that probably most near term demand as well as structural demand. We see is in our robotic surgery DNA sequencing side on the on the motion precision motion side as well as well.
Weyerhaeuser automation electric vehicle production and in the Photonics side, we listed a whole slew of automation, enabling applications that are driven by again robotics and automation factory forward, although like laser additive manufacturing.
Electric vehicle battery production, a category called micro machining, which is really.
Being driven by a trend of miniaturization and making smaller.
Smaller features in smaller form factors using very precise laser based technology. So all these uneven via hole drilling as well.
<unk> bye.
Five G and.
Cloud based infrastructure and networking and investments. So those are kind of high level I think all those all those markets.
We feel have a structural tailwind that includes multiple years of expansion, which is what we're seeing and I think on top of that you know at leading indicator that we're providing is design wins and so we did comment on our excitement in the minimally invasive surgery segment at Welch.
Short term, maybe elective procedures demand is subdued.
There are two things that really excite us one is of course these procedures will rebound because there is a pretty big patient backlog, but even more fundamentally we've won some very big.
Customer platforms.
We've commented on in the past, we basically said there is three areas that we strategically will fundamentally increase this business bye bye bye a lot.
Is by a.
Increasing our market share in smoke evacuation is deflation. So we're basically the market leader in refers that further extended our market lead now waiting major designs there that will come online in the next few years secondly, expand smoke evacuation is deflation towards robotic surgery, which also.
<unk> become a line in the next two or three years.
Which is a new category for four inch inflation at least the integration piece and third is entering using our capability.
Is deflation, which is basically.
Manipulating shea to gas and air and pressure in a human cavity using that.
That expertise.
Two two.
To enter into pumps, which is kind of basically fluid management.
Entering into a new category, where we have low share in and.
And where we've just won a major design as well so your base case.
The three major growth factors on top of a market that will rebound.
And so in the next two or three years, we see a tremendous growth potential.
Not only potentially that will happen in that in that business. So those are kind of across you'll see that and then the DNA sequencing side.
Of course, you see.
A few drivers there you see of course more COVID-19 .
Related surveillance.
Being put in place.
That's a nice little at or a bit more strategically on a long term we feel it is that modality go in clinical meaning being being it being used for daily tests for for you and me for all kinds of disease and therefore catching.
Early let's say.
Cancer or other related diseases, and when you catch things early.
You can actually cure them much better. So we think long term. This isn't modality that is still very underpenetrated and we will continue to grow as well.
So those are I think look at multiple multiple applications that we're super excited about.
Yeah.
Oh that sounds great.
So maybe maybe kind of switching to the other side like this a bike.
Challenges are supply chain challenges, what do you want to call.
I'm curious to get your it sounds a little bit.
Specifically call it out and went through each segment kind of like where you're seeing that I guess what's changed.
The most to you I guess in the last three months that.
Yes, you thought you'd be talking a little bit more cautious maybe around.
Issues that your customers are seeing.
Terms of their ability to.
Move things along.
Before they implement.
Let me change the mountain questions. Yeah, Let me comment on that I don't think I think well first of all the electronic <unk>.
<unk>, which are basically semiconductor chips and interconnects.
Are in short supply there is an enormous amount of new supply coming online.
And there is this a transitory nature of how that how that rolls back into the supply chain.
Right. So the fourth quarter and the first quarter are probably the fourth quarter was in the first quarter will be.
Probably the more more difficult quarters, the deal through that but I think as you get into the second third and fourth quarter things are actually begin to free up and.
And we will look a lot better from a from a supply perspective, we see that with with some of our largest vendors.
Some of vendors, we do business with are you know 2030 $40 billion in size.
And so they are putting capacity online and they're getting and they're solving for some of these issues to get us.
That continuity of supply, it's just there's a little gap effect that takes place, which you see in the first quarter.
So I wouldn't say, we're necessarily more negative on it than we were before we're just more cognizant that there is a big a transitory effect of it happening in the fourth quarter and happening in the first quarter. The fourth quarter, we would've been able to mitigate most of that but there was some logistics disruptions that occurred and then we're also trying to carry.
Our new manufacturing facility in Europe .
<unk>, so it's a little bit of a.
A few things happening at the same time, but the teams have worked really well to work their way through that so we feel very good about our ability to start expanding the margins.
Get back into the second third and fourth quarters and I think that's what you will see unfold as the year progresses, we don't have a demand problem right and I think that's what the commentary.
I think we've been trying to articulate.
Our demand far outstrips, even the guidance that we have out there and so we feel pretty good from that perspective.
So it's really just kind of boiling and hunkering down I'm working through these short term disruptions. So that we can get that supply and for us the big benefit as our customers partner with us on that effort. They partnered with us in the form of sharing some of the costs, but they also partner with us in helping solve these problems.
Right.
So it's temporary and time it related and it's not structural right. So that's.
That's kind of the key takeaway and we see improvement.
We continue to expand into the year.
Yes.
Maybe maybe things gradually improve but it sounds like youre really not embedding a hole.
A ton of improvement but.
To be prudent but I.
I think we're just being conservative right now we have.
Additional levers, we haven't forecasted elective surgical procedures to rebound significantly to drive additional demand.
That is more likely than not but given that theres been some disruptions with variance. It is not prudent for us to bake that into our forecast yet and I think being more conservative on the gross margin expansion is the right thing to do in this environment, but it's not something that obviously, our internal plans would demonstrate.
For example, you know deal with Chrome variance impact on hospital procedures was of course, I don't think anybody with it.
It predicted that right. So it was much larger in Oldham major medical Oems, we're kind of set back by that as well temporarily so again fundamentally this will resolve itself but.
So still a little too early to kind of.
If all science clear so so coal is a bit prudent in that area.
Yeah, Okay fair enough. Thank you guys.
Thank you sure. Thank you.
Thank you and this concludes our question and answer session.
To turn the conference over to MS highest loss draw for any closing remarks.
Thank you operator, so to summarize 2021 was a landmark year for an event that we had all time highs for sales bookings and profit we exited 2021 at $801 million revenue run rate with a record backlog close to $1 billion full year bookings, we closed two new acquisitions, which are performing very well with <unk>.
Strong engagement from their local teams.
We saw a record growth in design wins, and our innovation programs are healthier progressing despite some minor delays.
We achieved all of this despite some tremendous disruptions in global supply chain. We just talked about that all of which are our teams are finding hard to manage every day and we're excited to see the continued strength in recovery in the global economy and advanced industrial sector and also in the medical sector, Nevada is extremely well positioned in these sectors with diverse.
<unk> exposure to a long term secular macro trends in robotics, and automation precision medicine, minimally invasive surgery and industry photo in closing I would like to thank again, our customers our employees and our shareholders for their ongoing support and very grateful for the resilience and.
And strong contribution of our teams have committed to employees, who are working so hard to mitigate.
The shortages in the and the challenges we appreciate your interest in the company and your participation in today's call.
Look forward to joining all of you in several months on our first quarter 2022 earnings call. Thank you very much. This call is now adjourned. Thank you essentially the conference is now concluded. Thank you for attending today's presentation.
Your lines.