Q1 2022 Novanta Inc Earnings Call
Good morning, My name is <unk>.
I will be your conference operator today.
At this time I would like to welcome everyone to the noble.
Corporation 2022 first quarter earnings call.
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After the Speakers' remarks, there will be a question and answer session.
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So that's part of your question. Please press Star then two.
Please note this event is being recorded.
I would now like to turn the conference over to Ray Nash Corporate Finance leader from UBS. Please go ahead.
Thank you very much good morning, and welcome to <unk> first quarter 2022 earnings Conference call I Am Ray Nash corporate Finance leader of Nevada with me on today's call is our chair and Chief Executive Officer, Mathias Gloucester, and our Chief Financial Officer, Robert Buckley.
If you have not received a copy of our earnings press release issued today you may obtain it from the Investor Relations section of our website at Www Dot know Vantiv dotcom.
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 that 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 website after this call.
I am now pleased to introduce the chair and Chief Executive Officer of Nevada, The tightest cluster.
Thank you Ray good morning, everybody and thanks for joining our call Nova delivered another outstanding quarter to start off 2022, we hit new all time highs for revenue and adjusted EBITDA and saw double digit growth in bookings adjusted EBITDA and adjusted EPS.
For the first time ever we delivered over $200 million in quarterly sales and ended the quarter with another record level of backlog of $586 million.
We continue to see very robust demand from our customers in the medical and advanced industrial markets we serve.
No ventas portfolio is well positioned to benefit from medical and advanced industrial applications that have long term secular tailwind such as robotics and automation health care productivity and precision medicine.
We continue to invest to strengthen our competitive advantage of manufacturing capacity to capitalize on the stewards.
In the first quarter, our company delivered $204 million in revenue, representing 26% year over year revenue growth on a reported basis and 7% growth on an organic basis and up 3% on a sequential basis.
In addition, our operating performance in the first quarter was excellent with adjusted EBITDA of $44 million up 33% year over year and adjusted diluted earnings per share of 73 cents up.
Up 26% versus prior year.
We saw strong demand and healthy orders in many of our applications and across all our segments with each segment, having solid book to bill in the quarter and the first quarter. Our overall book to Bill was one point 12 with year over year bookings growth of 11% versus the first quarter of 2021.
We are extremely pleased with and proud of our teams drove these exceptional operating performance using the Nevada gross system tools didn't incredibly uncertain and unpredictable environment.
Let me take a moment to give an update about the global macroeconomic dynamics, we're seeing.
First our thoughts are with the people of Ukraine, and we hope to see a peaceful resolution quickly.
From a business perspective November has stopped all sales and shipments into Russia. The large majority of which is in our surgical display product category for the full year of 2022, this will amount to roughly $5 million of revenue so very minor.
The bigger consideration is the potential market economic implications of the complex conflict and the lingering effects of the pandemic, including inflation in product supply challenges Rob.
Robert will talk to this in more detail in a few minutes, but suffice to say given the excellent financial results. It's clear that the team did an outstanding job in what continues to be a very difficult environment.
Although the market economic environment is fairly disruptive our differentiated products and our strong customer partnerships enabled us to maintain margins. Despite the increased uncertainty in the last month or two we remain confident in November 2022 outlook and the overall resiliency over company and we now have a bias.
Towards the upper end over our full year guidance range.
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 53% of total sales in the first quarter and in the first quarter, our sales to advanced industrial markets saw 7% growth sequentially as well as 47% grow.
With year over year, including acquisitions, and 10% growth year over year, excluding acquisitions.
We continued to experience higher demand in automation and robotics markets and specifically warehouse automation electric vehicle production and increased adoption of automation, enabling technologies.
We believe that the penetration of robotics and automation applications is still relatively low with adoption increasing due to multiple drivers such as increased productivity onshore onshoring and labor shortages.
We also continue to see Mercury electronics investments in cloud based infrastructure and higher demand from E. U V based applications.
Turning to our medical end market for the first quarter of 2022 sales to medical applications for 47% over November total sales and grew 8% versus the first quarter of 2021 and roughly flat sequentially. During the quarter, we saw very strong orders and shipments to many of her medical OEM customers with.
<unk> strengths in surgical robotics in DNA sequencing.
Both of which saw another quarter with greater than a 50% growth in sales year over year.
We believe that the market penetration of surgical robotics and high throughput DNA sequencing is still relatively low and we see strong adoption for both applications.
We are encouraged that DNA sequencing is starting to cross the chasm from research to clinical applications, which supports our long term growth thesis in this application.
In the first quarter of product sales into minimally invasive surgical equipment, they'll still subdued and impacted by increased cases off the old macro variables variant as well as the supply chain shortages.
We still expect that medical sales and minimally invasive surgery procedures will continue to gradually rebound throughout 2022 as hospitals learned more and more how to deal with the endemic.
Also here a minimally invasive surgery penetration has long term upside and particularly we expect continuous legislation requiring smoke evacuation in U S and international hospitals, right, Nevada has a unique technology offering through its integrated smoke evacuation insufflator solution.
From a regional perspective, we saw strong demand across all major geographies in the first quarter. Despite the various difficulties that I spoke to earlier, we see it we saw 19% year over year revenue growth in China helped by R. A T I acquisition, which saw strong electric vehicle production and robotic demand.
Our China revenue, excluding acquisitions declined 9% year over year, which was totally attributable to supply chain constraints and disruptions our backlog and the man in China's strong help our increased exposure to electric vehicle production micro machining and electric vehicle battery production.
Moving on to other regions sales in Europe grew 12% of sales in the U S grew 40% year over year.
Now, let me touch on some of <unk> strategic growth metrics as a reminder, right now these metrics exclude any impact from our ATI and IMS acquisitions for the first quarter, our vitality index, which is revenue from new products launched in the last four years continued to be healthy at about 25% of sales with year over year NPI revenues.
Up low single digits versus last year is high runner N P is rolled off.
And as we were supply chain constraint on newer products.
As mentioned in our last call in the near term we've had to reallocate some of our engineering resources to help mitigate some of the supply chain difficulties that I've spoken about despite the modest delays this is causing to some of our problem programs, we do not see any material in fact.
In effect on the long term growth trajectory of the company.
We continue to have a strong pipeline of new products in our lineup of 2022 product launches is very healthy move.
Moving on design wins for the overall company declined versus the prior year driven by tough comps from big wins in our minimally invasive surgery business last year as a reminder, our design wins more than doubled last year.
In the first quarter of 2022 design wins in the photonics and precision motion segments were up double digits, but were more than offset by the decline in the MS segment. This is just a matter of timing and we continue to be thrilled with our platforms, who are winning in attractive high growth applications, such as surgical robotics laser additive manufacturing micro machining.
E V and electric vehicle battery welding.
Next I'd like to give a brief update on event those acquisition and integration activities in the first quarter. We saw strong performance for sales or bookings 40, ATI and IMS businesses.
Very pleased with the contribution of strategic fit to Nevada as for our M&A pipeline acquisitions continue to be the primary focus or from event those capital deployment and will continue to work on a very active pipeline of opportunities in 2022.
I would also like to give an update on our organization and culture as always our excellent performance in the first quarter was made possible by the outstanding efforts over time within a committed November to employees, we continue to invest heavily in our company culture.
Colton event, the way, which we believe has been a differentiator in a tough labor market with strong hiring performance as well as low labor attrition rates, which are still at the 2000 2019 levels.
We also recently published our annual comprehensive 2021, ESG report, which captures our commitment to sustainability and diversity equity and inclusion.
Which we share new details about our current ESG programs and our future ESG goals.
A detailed yet easy to understand picture of our sustainability achievements implants can be found it found in a new section of our website full sustainability don't know Vantiv dot com.
Refer to more recently announced internally that we have organized our photonics and precision motion teams under a new leadership structure called automation, enabling technologies or a E T V.
We feel this new organizational structure opens the opportunity for wider scope of organic growth and acquisition opportunities in the life Sciences industry photo, though of robotics and automation space.
It will also provide an opportunity to serve a wider array of customers with multiple a T technologies and drive new technology and product solutions. Furthermore to simplified leadership structure around vision and a T enables a more uniform deployment of the <unk> culture, including November gross system, while building on and developing our.
A strong talent bench.
We are very pleased to announce that Chuck revert, who has joined us to lead the automation, enabling technology group as group President.
It comes from event after a 20 plus year successful career at Danaher, where he held various executive in leadership positions in high Tech industrial and in health care businesses.
In both hardware and software it's great to have Chuck on the team and in the short amount of time, Chuck has been with US He's made a strong impression and we can't wait to see as impact novato.
So in summary, despite the ongoing significant short term challenges, we feel very good with her about her first quarter results and we feel positive about our momentum heading into further into the year.
We continue to strengthen our team and the leadership bench and we believe an event as long term strategic positioning is extremely strong.
We continue to broaden our exposure to medical and application and industrial applications that have long term secular 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.
Thank you <unk> and good morning, everyone first quarter non-GAAP adjusted gross profit was $93 8 million or 46% adjusted gross margin compared to $73 1 million or 45% adjusted gross margin in the first quarter of 2021 for.
For the quarter adjusted gross margins increased approximately 90 basis points year over year and increased nearly 150 basis points sequentially, considering the environment around inflation and supply chain shortages, we feel really good about this outcome, while we continue to experience supply chain shortages and inflationary pressures, most notably with semiconductor.
Parts were also seeing solid productivity from the deployment of the Nevada gross system and we're seeing the benefits of our pricing initiatives.
Despite numerous challenges affecting our manufacturing performance in the first quarter. Our manufacturing teams did an incredible job at mitigating these impacts and continue to drive overall productivity improvements in our factories.
In addition, we also successfully passed along some of the inflationary pressures to our customers, helping us to deliver a solid first quarter outcome.
Moving on to first quarter R&D expenses were up $29 million of roughly 10% of sales first quarter SG&A expenses were $39 4 million or 19, 3% of sales the sequential increases in operating expenses were in line with prior guidance were the result of the seasonal impact of variable compensation.
<unk> programs and their associated payroll taxes as well as the planned R&D investments adjust.
Adjusted EBITDA was approximately $44 million in the first quarter of 2022 or 21% EBITDA margin.
Our adjusted EBITDA performance beat our expectations and previously issued guidance on the tax front, our non-GAAP tax rate for the first quarter of 2022 with 14%. This differed from the statutory rate driven mainly by jurisdictional mix of income.
non-GAAP adjusted EPS was <unk> 73 cents in the quarter compared to 58 cents in the first quarter of 2021 an increase of 26% year over year.
The increase in adjusted EPS was achieved despite higher financing costs and a much higher tax rate.
First quarter operating cash flow was approximately $11 million, which was in line with our expectations cash flow declined year over year, driven by higher variable compensation payments as 2021 had no cash bonus payments being made and an increase in working capital.
Notably, notably driven by higher inventory purchases to help mitigate some of the supply chain disruptions. This is a temporary impact on the inventory levels to normalize later in the year.
Finally, we ended the year with a gross debt of $423 million and our gross leverage ratio of two six times, our net debt was $324 million.
I'll now turn to an update about the performance of our operating segments.
First I'll start with the precision motion segment. This segment experienced a 118% year over year revenue growth in the quarter reported growth was heavily impacted by the ATI and IMS acquisitions in the first quarter. These businesses contributed approximately $33 million in sales, which was in line with our expectations.
These businesses continue to perform very well the integration is proceeding as scheduled and they continue to offer very exciting near term and long term growth opportunities for Nevada exclude.
Excluding the acquisitions precision motion still grew an impressive 28% year over year.
Total bookings grew 19% year over year and the overall book to Bill ratio. In this segment was 1.0 to six in the quarter excluding.
Excluding the impact of ATI and <unk> precision motions, new product revenue grew 75% year over year and was over 20% of total sales in the segment and design wins for the full year were up double digits bite.
Versus the prior year.
Adjusted gross margins for the segment came in at 50 set 50% in line with expectations and up nearly 300 basis points year over year. The segment continues to show a very strong impact from deploying the Nevada gross system to structurally improve margins.
Turning to our vision segment. This segment predominantly serves the medical end market and experienced a revenue decline of 8% year over year, which was slightly better than our expectations. As we said in our last call. The volume of elective surgical procedures was impacted by the spike in Covid infections in the first couple months of 2022, which resulted in the.
Clines that our minimum invasive surgery business line.
In addition, our <unk> business experienced significant part shortages associated with a single fortune 100 vendor.
This vendor is aggressively working on qualifying a second sources and should see shipments stabilized by the third quarter. We expect both these dynamics to continue to improve as the year progresses, but the minimum invasive surgery business recovering faster.
The vision segment saw a healthy book to Bill of 1.15, and the vitality index of this segment remained around 30% of sales design win activity in the segment declined year over year as the segment with phase with very difficult comparable in the prior year as 2021 saw a record.
Level of design win activity in the first quarter with significant customers, which we discussed in prior earnings call. This is largely a matter of timing and we continue to see this segment is one of the largest drivers of demand growth over the next few years as these new customer wins ramp up into production.
Finally, turning to the Photonics segment in the first quarter of 2021, our revenue was up 7% year over year.
Although this is a respectful level of growth is far below the level of customer demand. It was inhibited by both our ton production move in the semiconductor part shortages.
Both of these dynamics should gradually improve as the year progresses, particularly because our new Taunton factories started full production this month.
And because our supply chain teams made strategic inventory purchases to reduce the effects of the supply chain disruptions.
We're fortunate that this segment continues to experience very strong customer demand in the advanced industrial applications and in DNA sequencing. The book to Bill in this segment was 1.16 in the first quarter and.
In addition, new product revenue stayed strong at greater than 25% of sales in the first quarter and total NPI sales were up 14% year over year design wins in the first quarter were up 48% year over year, driven by excellent platform wins and applications as laser additive manufacturing micro <unk>.
Xining and EU V lithography.
The Photonics segment, adjusted gross margins with more than 46%, which was down year over year as expected, but was up sequentially from the fourth quarter of 2021.
Turning now to the second quarter outlook, we expect macroeconomic environment to mirrors, the first quarter for the most part while the COVID-19, Lockdowns in China clearly are worse in the second quarter, our guidance range factors in this risk.
So starting with the revenue guidance for the second quarter of 2022 as we stand here today, we expect GAAP revenue in the range of $205 million.
$213 million the lower end of the range reflects a worsening China environment caused by their zero COVID-19, Lockdown policy, regardless, we are expecting to see revenue growth of 22% to 27% year over year in the second quarter.
On a segment level in the second quarter, we expect 10% to 12% growth in photonics customer demand remains very high in this segment and now that our new tartan factories, producing materials, we expect to deliver strong revenue growth precision motions segment will continue to have significant growth driven by both the continued strength of the core biz.
As well as the impact of acquisitions as a consequence, the second quarter, we expect sales to grow 75% to 85% versus the prior year.
Finally, our vision segment in the second quarter, we expect the business to be relatively flat year over year.
This result is caused solely by the parts shortages from a single vendor and our <unk> business as I mentioned before this vendors a fortune 100 company and they have significantly advanced our efforts to mitigate their shortages and are quickly, adding additional capacity to their production. We expect deliveries from this vendor to continue to ramp as the year progresses.
Moving on to overall, Nevada as adjusted gross margins, we expect gross margins in the second quarter to be in the range of 45% to 46% the.
<unk> quarter gross margin is expected to see similar dynamics as we experienced in the first quarter. In addition, thanks to strong efforts and success convincing our customers the share and the inflationary pressures and the continued progress deploying NGF, we're able to mitigate the majority of negative effects from supply chain pressures and from the from the production.
Move of our manufacturing facility.
R&D and SG&A expenses, which were $60 million in the first quarter are expected to be approximately 60 million to $63 million in the second quarter, which is higher than the prior year, mainly as a consequence of recent acquisitions as well as further ramp up of project spend and key NPI programs and the higher variable compensation.
Depreciation expense was $3 million in the first quarter, which should be similar in the second quarter stock compensation expense, which was nearly $7 million in the first quarter is expected to be approximately $5 million in the second quarter.
And EBITDA for the second quarter of 2022, we expect a range of $42 million to $44 million interest expense, which was $3 million in the first quarter will be similar in the second quarter, we expect non-GAAP tax rate to be around 16% for the second quarter of 2022 absent significant changes in jurisdictional mix.
Income or other variability in any of our eligible tax benefits.
Diluted weighted average shares outstanding will be approximately 36 million shares and adjusted diluted earnings per share, we expect a range of 69 to.
<unk> 73 for the second quarter.
Finally, we expect the operating cash flows to improve sequentially in the second quarter versus the first quarter nearly doubling the first quarter cash flow.
As always the guidance does not assume any significant changes to foreign exchange rates overall, the strength of our performance in the first quarter, along with a favorable outlook in the second quarter positions us well to deliver full year results towards the upper end of our previously communicated guidance range for the full year.
Of 2022.
To recap the first quarter of 2022 had excellent results we nearly doubled.
We saw double digit growth in sales bookings adjusted EBITDA and adjusted earnings per share the company's seeing strong demand across its applications and markets and we hit a new record high for order backlog. Our teams continued to impress with new innovations as well as their ability to help the company manage.
As true difficult supply chain challenges and now COVID-19 Lockdowns.
We also continue to see below market labor attrition rates and we're seeing great success at attracting top talent.
And we continue to deliver strong financial results. Despite some fairly significant challenges with global supply chains semiconductor shortages inflation.
COVID-19, Lockdowns war in the Ukraine, and the general macro macroeconomic uncertainty.
All of this we remain very excited about our ability to serve our customers in the medical and advanced industrial end markets and are excited about our continued innovation partnerships with our customers.
I'm very proud of the performance of our employees and their tireless efforts to help us be successful in a very challenging environment. We look forward to continuing to deliver on our commitments to our employees our customers and most importantly, our shareholders. This concludes our prepared remarks, we now open the call up for questions.
We will now begin the question and answer session.
To ask a question you May Press Star then one on your Touchtone phone.
If youre using a speakerphone please pick up your handset before pressing Mckinney.
To withdraw your question. Please press Star then two.
And at this time, we will pause momentarily to assemble the roster.
And our first question will come from Lee Jagoda.
P. J F Securities. Please go ahead.
Hi, good morning.
Good morning Liam.
So just starting with the medical segment.
I think you'd mentioned surgical robotics in DNA sequencing were both up more than 50% in the quarter and I know you cited the J DAC issue in terms of one of the headwinds can you talk to the things that may be declining and whether that decline is just a function of demand or if theres any supply change at all or excuse me a function of supplier if there's any demand change at all.
Yes, so highly so I commented that there is multiple drivers right. So you rightly.
Our floating debt, we're very excited about the surgical robotics in the DNA sequencing demand, which is up 50%.
Then the minimally invasive heart surgery part of our business.
Let's say the.
Demand and supply chain.
Demand was pretty was good but it was still relatively subdued.
Versus I think previous levels, but we see it starting to recover and rebound.
The remaining part of the year as hospitals learn how to do it.
Work better in Indian Demick sit.
The situations. So it's basically electric procedures coming back online and I think multiple players commented on that in their prepared remarks.
I see.
Probably the biggest headwind was basically that Jade X supply chain shortage right. So that's really where we're mostly gated.
And Robert I think in his prepared remarks.
It covered that extensively we expect the supplier to two congratulating approval in that situation as well why would you want to add anything else.
I mean, it definitely Lee in the first quarter, Miss and <unk> both declined.
That will change as we get into the second quarter were only J Mac is declining.
So I think and then that is of course temporary into second quarter, we had probably there.
Toughest comparable until supply really starts coming in the third quarter.
The company that supplies us it's been public about that.
Got it and then in terms of I guess, you've you sort of reiterated that full year guidance and we're looking at the top end is the best way to think about it given that demand continues to outstrip supply that we should expect a book to bills to continue to run above one through the balance of the year.
Which I would think sets you up for an acceleration of growth in 2023.
Yeah.
So tough question to answer I would say, that's where things are currently trending you don't know how things will unfold as the year progresses I mean, it's fair to say we're covered for the year already in terms of backlog and so we feel very good that's all noncancelable backlog we.
We feel good in what we can deliver and that's why we are biasing towards the upper end of the range does it position us stronger I don't want to get into 2023 with all the dynamics happening.
When last time, we spoke to you.
And between that period of time, there was a war started in the Ukraine right. So I think we have to just be mindful that the environment is constantly changing.
Well I'll just sneak one more in line what others.
In terms of the.
Understanding that the backlogs are noncancelable are we thinking that.
Customers are still ordering to current levels of demand or are they kind of over ordering or ordering ahead, a little bit here.
Well, let me put it this way we don't feel of our customers are actually putting our products on the shelf I mean, they are putting very very hard in for the majority of our customers when we deliver.
Basically on on their own their demands.
The products basically get included in there and their systems and they got moved immediately to the end market. So that's what we're seeing right now we don't see any channel inventory buildup or something.
Okay.
Helpful. Thank you.
The next question comes from Rob Mason of Baird. Please go ahead.
Yes, good morning, gentlemen.
My question was my question was around the second quarter guidance around gross margins, which implies basically flat to down sequentially and I'm just wondering.
Where you would isolate or direct us to look.
We could potentially see some degradation in gross margin and I'm curious if any of the segments would be expected to improve sequentially also.
I mean effectively the gross margin guide is really.
As a mirror of the first quarter right. So all else being equal the dynamics in the segments and the dynamics for the total company.
Will mirror that of the first quarter in the second quarter right. So I think the variability in the guide is really driven by the COVID-19, Lockdowns in China, and the potential disruptions that might have.
We've been mitigating them to date, but.
But they keep rolling around and so I think we are prudent when it comes to adding a little contingency around that we added a little contingency around some worsening of supply chains from where things are looking in the first quarter I'm not sure things are materializing that way right now, but we're just want to get some prudent guidance out there.
It says that environment does exist and so theres a range as a consequence of that all else being equal should be relatively similar to the first quarter and the other thing I would say Rob is that yes, it's more timing than anything else. We're now gated by demand right and so is mortgage short term it is.
<unk>.
I think we were very specific in our view for the full year reiterating the upper end of the guide range. There. Despite taking some revenue out of Russia, and despite let's say that short term volatility that we see we're very confident about the full year's outlook.
Sure sure.
Respected China, how is that impacting your impacted you to date.
Is that more direct impact you own your own facilities ability to producing country or is it around getting supply into those facilities or other areas of your business, yeah, well on the first quarter. It was more of an impact of sales into China in the second quarter, it's more of an impact on our operations our Manny.
Factoring in China is an in China for China strategy, and so it's about the products, we produce there being sold to two customers in China and so you can scale it from that perspective.
We've had we've had workers sleeping and living in our facility in order to keep production up and running in our Suzhou factory.
So factoring in particular has been really good and mitigating the impacts been.
<unk> been very creative about getting product built and getting product out the door. We have a smaller manufacturing facility really small in the Beijing area they've struggled a lot more.
Thankfully not as material to us and so I think overall, we've done an excellent job at mitigating it.
Where we worry as lockdowns rolling across different regions, and how that might affect supply chains of materials that we need in the factories that we have in art in China itself.
So we're working our way through that right now I think we feel pretty good that we've been able to mitigate that to date and that we feel that we can still mitigated to date.
It just comes down to and if theres any more surprises to deal with.
Sure Okay.
Just last question, so obviously very tight supply environment.
Virtually every company is talking about doing redesigns on their products qualifying second sources.
Just to provide more flexibility around that historically <unk> been sole sourced on many of your design wins I'm curious if that dynamic is opening up are you seeing more opportunities as a result of that.
<unk>.
Second source opportunity and Conversely, I'm, just curious around your own sole source position, if that's evolving as well.
What youre seeing on that front.
Yeah, So listen the best offense and defense is innovation ready to just having the best product and innovation out there and having close collaboration with our customers I mean, everybody understands and by the way, we're not the only ones right gating gating supply so.
So and actually in a lot of cases, our customers are helping to find parts and we're working very collaboratively across the value chain. So.
I would say, we're feeling very good about the relationship we have with our customers are actually in many cases, we're expanding our exposure.
And winning designs I mean last year with double design wins so.
That's that keeps suggesting that you were winning share in this environment and that's on the back of having just great innovation, which is why we continue to invest in and in strengthening our competitive advantage and also our manufacturing capacity I mean, that's one thing that you'll see is we're putting quite a bit.
Expansion investments into multiple production facilities as we speak to make sure we can keep up with demand so.
So that's how I would answer it.
Are you seeing any opportunities, though to go back into operation.
Maybe pieces of business that didn't come your way where now.
Always.
Got it.
Needing a second source, okay, yeah always I mean, what we do see maybe let me answer it this way strategically that.
Multiple customers have come to us and said listen.
We don't want to deal with the complexity of the supply chain anymore of individual components.
<unk> intelligent subsystems can you guys help us.
Really manage that complexity for us so basically what you do see a trend towards higher levels of integration that customers are asking us to show that we can manage that complexity for them.
So that we definitely see and we're engaged in multiple exciting conversations around capabilities. Both in the medical side, but also on the advanced industrial side. So that we definitely see as a result of this environment.
Want to do more with us given our capabilities.
Very good thank you.
Alright.
The next question comes from Brian Drab with William Blair. Please go ahead.
Alright, Thank you very much.
First can you give me a sense for what the organic revenue growth is that's embedded in the guidance for second quarter and for the full year.
Yes.
So for the <unk>.
Second quarter, it would be similar to that of the first quarter to be able to depending upon where the ranges.
Youre, probably looking at something closer to a REIT.
Repeat of seven 8%.
8%, maybe a little bit at the higher end and then 7%.
Yes, somewhere around that 7% to 8% range for the second quarter.
Back half of the year organically.
Should continue to hold at that if you take the guide range.
We'll hold it that for the back half of the year, we should deliver something closer to 8% for the full year as well.
And then really the only gating factor there is just the us.
As supply of parts.
But I think got it and then just pretty good right now bias at the top range.
Got it Okay, and then just to be clear about that with your comments on the high end of the range.
Does that apply to revenue specifically or is it or all of the above revenue EBITDA and EPS.
All of it.
Yes, so I think that reinforces that we feel good about expanding the gross margins still that 100 basis points. We finished off last year at 45% will be a 100 at least 100 basis points higher than that.
Okay and then.
Just one last topic to touch on here.
Think that did you say first of all that.
DNA sequencing and robotics revenues were both up more than 50% five zero.
That's great five zero okay. Okay.
Okay, and then just you know.
Follow up question on that then how do you expect that growth to.
Trend throughout the year can you give us any sense for.
Maybe even on a combined basis like roughly how much those business lines account for in terms of percentage of total revenue.
Yes, I mean, we're not going to guide on kind of an individual businesses, obviously, but I mean.
What what I think is important Brian is just still there will be up double digits for sure right.
I think what is strategically more important I would say in the long run is that penetration of both of these modalities is less than 10% actually closer to 5% of the market right and so.
And we see strong adoption rate of both modalities with Dean.
DNA sequencing.
I commented on that we're really moving from.
Let's say research to clinical applications, such as oncology testing right, which is a very strong amount of demand right now.
And then other fast developing areas the integration of genomic data into drug development and clinical trials and so youll see that modality moving rapidly into.
I think expansion mode, which is which is good. So we expect it to be a strong contributor for the year, but also yes.
Supports our growth thesis.
Longer term and the same is true for robotic surgery.
There is multiple other players are getting in.
That that do see it is as well and we see many different.
Aspects of the anatomy of the human body being covered by robotic surgery.
And that all forms of great opportunity for an event or two to put content into <unk> into those platforms and further increased our content where.
There is a demand for <unk>.
Precision motion for sensing and <unk>.
Feedback for them.
<unk> vision of enabling technologies like smoke evacuation is deflation.
And so on so you see increase in content of November in multiple platforms in robotic surgery that are adopting.
Sure.
Rapidly into the medical area. So ultra there. We're we're very positive about the long term growth thesis here.
And when you talk about the multiple other players.
You continue to be well positioned with which players throughout the industry that are developing that that's right. That's right. Yeah. We worked with the leaders in the business of course, we cannot comment.
Names, but we yes, we have strong partnerships with multiple people.
Okay.
Carl I think it usually ends with me so I'm going to feel okay, asking one more maybe but can you can you.
Just to elaborate a little.
Little bit on the comment you made on the.
Endemic.
Hospitals adjusting the operating within the endemic as it pertains to the smoke evacuation and the opportunity there I think I understand.
<unk>, but you still hybrid yeah, yeah, well there are two separate points right. So hospitals, okay I wasn't sure.
Yes, so hospitals getting used to any NAMIC, meaning that we expect as a result.
Elective surgical procedures to continue to rebound and be less affected by COVID-19 searches going forward, Yeah, I think thats a widely held consensus view in the medical device area and and so we share that view so.
Therefore, with the rebound of the surgical procedures of course, there will be pool for for our products. Yeah. So therefore, we commented that we expect and therefore that demand to.
A rebound.
Probably the second half of the year, starting already just coming quarter. Yeah. So that's right one remark okay. The auto remark was around smoke evacuation in particular that we see incur.
Increased or continued legislative efforts in the U S. But also outside the U S about requiring smoke evacuation and operating room because again.
If you are a hospital staff or staff, you will smoked equivalent of.
One pack of cigarettes, if you're inhaling to surgical plume or smoke that is caused by the energy based devices and that smoke.
Akshay.
And that smoked therefore, it needs to be evacuated and there is more and more laws being passed that it's mandatory for hospitals to evacuate that smoke we feel the best way to do that is by integrating that smoke evacuation through an already existing modality colt is deflation and which we are the market leader.
By integrating smoke evacuation.
With interface you can actually.
Basically guarantee.
Stable cavity of the of basically the patients who are not putting the patient in jeopardy, it's much better than the workflow, it's more it's higher productivity and it's going to be cheaper. So its cheaper better faster to do it in in the smoke evacuation in interface and way and therefore.
The penetration of the amount of hospitals that are that have smoke evacuation is still relatively low we see the legislative and and the let's say the functionality requirements pool.
And therefore, our long term we're also bullish on further growth in this area.
Perfect got it that's clear now thank you very much.
Okay Youre welcome.
The next question comes from Andrew Buscaglia of Fehrenbach. Please go ahead.
Hey, good morning, guys good morning.
Hum.
So I was hoping you could talk a little bit more about.
Maybe a comment on kind of some of these negative headlines we're seeing around the logistics industry and concerns around overcapacity.
I know, it's not huge for you, but like on that and you envision non medical vision businesses, you've got some exposure there and then maybe some other areas in your business.
I think it seemed okay now, but I just wonder what you're seeing and how you guys feel you can whether that risk.
Are you talking about as it pertains to just I understand the crux of your question as it pertains to companies like UBS, Fedex, one delivering materials to us or shipping out or neither did you are talking about them as a customer or end market.
As a customer and they've made.
They've.
Built in a big way too.
Keep up with all this demand we're seeing by now of concerns around it.
Demand wanes in the east.
So you kind of a slower capex cycle.
Yes.
So those are not customers of ours. So we don't we don't sell into any logistics end markets.
Not.
We just don't have any exposure there our products get embedded into.
The systems and <unk>.
Instrumentation that goes into either of the industrial markets, which we wouldn't count logistics in that.
Some semiconductor markets and then largely in the medical markets life Science medical.
So she is more on the factory automation side and Weyerhaeuser automation side right.
That require productivity enhancing technologies right to drive productivity in those factories.
In a factory not and are not in like an Amazon warehouse or something like that.
At least the manufacturing broadly okay.
I just thought I did.
Logistics exposure in machine vision.
RFID.
No.
I thought probably it would be knock on effects or something.
We don't have exposure there.
Our RFID our machine vision all goes into IBD.
Medical device application medical staff, yeah, so drug.
Things like that.
Okay and then.
I'm wondering if you're kind of working through these acquisitions the acquisitions now.
The market's definitely.
Taking a hit here I'm wondering how it affects either you. The psychology has had for making more acquisitions going forward or do you see it presenting a good opportunities to be acquisitive or is there something or is this volatility kind of make you want to shy away.
Near term.
Well listen I mean, the preferred way of acquisitions is in a proprietary manner, where we're cultivating long term relationships with potential sellers and founders of businesses.
So these are typically a result of multi year endeavors.
So it's not like you snap your finger and suddenly you're kind of wake up and find a company or something you. It's a very thoughtful long term process.
<unk> said that of course.
Increased uncertainty.
Provides opportunity right. So it's not a surprise that when Brexit was announced.
Within let's say, an 18 months period, we actually bought two UK based companies because it did in juice uncertainty at founders of businesses. So where are we said, we think that actually uncertainty creates opportunity now we cannot time the steep these events obviously.
But we're very active in.
Here when we have an acquisition to report.
Okay got it thank you.
Once again I'd like to ask a question. Please press Star then one.
Yeah.
Alright, well with that I think we.
I want to thank you operator.
So to summarize <unk> delivered strong results in the first quarter of 2022, we saw double digit growth for sales bookings in profit and a new record high backlog.
We achieved all of this while managing supply chain disruptions rising cost in a more in certain macro environment. We're excited to see the continued strength in the advanced industrial sector and also in our medical sector, but no event is well positioned in these sectors with diversified exposure to long term secular market trends in robotics and automation.
In precision motion minimally invasive surgery and industry photo, though in closing as always I would like to thank our customers our employees and our shareholders for their ongoing support of <unk>.
<unk> to be especially grateful for the dedicated efforts of all our employees who work. So hard every day to tackle each new challenge. We appreciate your interest in the company and your participation in today's call I look forward to joining all of you in several months on our second quarter 2022 earnings call. Thank you very much this call.
Is now adjourned.
Conference has now concluded. Thank you for attending today's presentation and you may now disconnect.
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Okay.
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