Novanta Inc. Q1 2023 Earnings Call
Good morning, My name is Gabrielle.
Operator.
At this time I would like to welcome everyone.
Incorporated's 2023 first quarter earnings call.
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After the Speakers' remarks, there will be a question and answer session.
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I would now like to turn the conference over to Ray Nash Corporate Finance leader for Nova. Please go ahead.
Thank you very much good morning, and welcome to Novartis first quarter 2023 earnings Conference call I'm Ray Nash corporate Finance leader of know Panther with me on today's call as our chair and Chief Executive Officer, Mathias Bostra, and our Chief Financial Officer, Robert Buckley.
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 Vance the dotcom. Please.
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, we use non-GAAP financial measures. During this call that are not reconciled to GAAP measures in the earnings press release, we will provide reconciliations promptly on the Investor Relations section of our website.
After this call.
I'm now pleased to introduce the chair and Chief Executive Officer of Nevada, The tightest cluster.
Thank you Ray good morning, everybody and thanks for joining our call November started at 2023 with a strong first quarter in the quarter, we delivered $219 million in revenue, representing 7% year over year revenue growth on a reported basis.
8% growth on an organic basis.
Our adjusted EBITDA was $47 million and adjusted diluted diluted earnings per share was <unk> 74.
These results were better than our expectations and guidance and reflects excellent operating performance by our teams in an evolving macroeconomic environment.
We feel the strong performance in the first quarter, which is on track to achieve our full year outlook and will help drive a more balanced performance in the first half of the year.
No that's a business model with diversified exposure to high growth medical and invest and advanced industrial markets have proven resilient under multiple geopolitical and macroeconomic scenarios, our proprietary products and technologies are well positioned in medical and advanced industrial applications with long term secular to it.
Such as robotics, and automation health care productivity and precision medicine.
Do you feel that the strength of our portfolio and business model combined with our winning growth strategy focus on where we play and how we win drives our performance no matter the environment.
Now, let's turn to what we're seeing in our markets and our customer activity. We continued to see strong ongoing demand from our customers in many application areas, we made great progress, reducing our past due backlog to customers by more than 25% sequentially.
Maintaining a near record backlog of $604 million nearly flat with the prior quarter.
Our book to Bill in the first quarter was 49 six in line with our expectations at two of our three segments had book to Bill greater than one times in the quarter.
As we discussed in our last earnings call. We continued to reduce our lead times for our products back to historical averages and customer expectations.
And yet we continued to see strong demand from customers represented by our strong backlogs, giving us further confidence in our outlook.
In the first quarter sales to medical markets were very robust growing 22% versus the prior year, making up approximately 54% of total <unk> sales.
During the quarter, we saw very strong orders and shipments to many of her medical OEM customers with noteworthy strengths in minimally invasive surgery equipment and consumables in.
The in vitro diagnostics and patient monitoring equipment DNA sequencing in ophthalmology.
These categories all saw strong double digit growth in sales year over year. These applications are seeing structure grows based on underlying secular growth drivers such as patient surgical procedure growth rates and advancements in biopharma technologies, including advancements in next generation DNA sequencing technologies.
As we discussed in our fourth quarter earnings call. We continue to expect to see these growth drivers for the remainder of 2023 and in 2024.
Turning to the advanced industrial markets, our sales in the quarter, excluding microelectronics applications were up one plus 1% year over year and made up approximately 38% of total Nevada cells.
The slower growth was in line with our expectations and as a result of a tighter industrial capital spending or macro environment, but as you can see in macro indicators like the PMI indices, yet we continue to see resilient sales performance many of our industrial end markets, including multiple automation and robotics applications as well as <unk>.
<unk> manufacturing applications, driven by continued underlying demand for factory automation.
Battery and electric vehicle production.
Increased overall adoption of automation and enabling technologies offset by more GDP sensitive applications.
Engraving laser cutting.
Overall, our industrial exposure is steadily are geared towards the secular markets mentioned above.
The dynamics in just our microelectronics markets, which represented less than 9% of sales largely remained unchanged from our last call.
We continued to see double digit declines year over year from the cyclical downturn in this market.
Consistent with the last quarter, the largest decline manifested in our technology offerings for the PCB a via hole drilling equipment market.
The overall drop in the microelectronics market remains a 200 to 300 basis point headwind on total them off at the sales growth for the full year.
Yet these micro that despite these microelectronics headwinds of November diversified end market exposure shows the strength of our strategy.
Enabling the business to grow strongly in the first quarter and still be on track to deliver solid full year outlook.
From a regional perspective in the first quarter sales to North America grew 26% year over year and sales in Europe declined by 1%.
Which reflects macro economic slowdown this region is working through and his connections with the China market.
Sales in China, which represents about 8% of total sales declined 34% year here, which was predominantly caused by the decline in macro microelectronics revenue.
Right now our China exposure is heavily weighted towards these microelectronics applications, but with our ongoing design win activity and focus on high growth end markets, we expect to better diversify and grow our presence in attractive end markets in the China marketplace in the coming years.
Now, let me touch on some of them event, our strategic growth metrics for the first quarter. Our vitality index was about mid teens percentages of sales.
Which is down versus the prior year, but in line with our expectations. As a reminder, we track new products into vitality index for the first four years after their production much.
Starting in 2023, several top products such as our first generation smoke evacuation products reached.
Breached reached this four year cutoff milestone.
So we're no longer tracking them in the index, although they continued to contribute significantly to our overall sales growth.
We expect our vitality index to stay at roughly this mid teens level for most of 2023, representing a bit of a transition year old this metric will.
Well, we do expect as indexed to rebound in 'twenty 'twenty four is we lounge or ramp up multiple new product platforms.
The investments we've made in our Thompson optics for assembly or new Manchester optical subsystem manufacturing facility and our new Czech Republic Medical consumables manufacturing facility are all being done to support districts your growth.
As such we're also continuing to invest heavily in R&D in order to solidify the on time launch of these platforms. While we've seen some delays in new product launches as a consequence of shifting resources to deal with a marker of electronic parts shortages over the last two years, we feel confident these milestones will be achieved.
Moving onto design wins for the first quarter, we experienced the expected year over year decline, which is mainly tiny timing related we had a tough year over year comparison from a large design wins achieved in the first quarter of 2022 and.
And mainly in our minimally invasive surgery business associated with our second generation smoke evacuation Insufflator <unk>.
In this business, we won large new product platforms in 'twenty, 'twenty, one and 2022.
With both existing and new customers, which we expect will contribute significantly to our revenue growth in 2025 and beyond.
Despite this tough comparison in the first quarter from a percentage growth perspective, we feel good about the absolute wins in dollar terms and we expect to return to growth in design wins year over year as the year progresses.
Next I'd like to give you a brief update on the Ventas acquisition integration activities, our integration of M. P. H medical devices continue continues to progress well decide is ramping up its capabilities to produce an event us own proprietary medical consumable products.
We successfully implemented a new ERP at the side in the quarter and began ramping production activity support their support product qualifications with our customers.
And finally, we're changing the names of our three reportable segments Photonics vision and precision motion.
We're changing the names of these reportable segments to better reflect our strat strategic focus.
And focus on applications.
Names also better aligned with our customers' focus in how our customers see these businesses.
Photonics segment will change its name to precision medicine, and manufacturing, which more closely fits with the segments focus on laboratory analytical equipment and technologies Inc.
Including advancements in next generation DNA sequencing technologies and on precision manufacturing technologies, including sophisticated laser based optical subsystems for three D printing printing UV micro machining and E mail at the manufacturing.
The precision motion segment will change its name to robotics, and automation, which more closely fits with the segments focus on industrial and medical robotics technologies robotic arm technologies and laboratory automation Subsys systems.
And finally division segment will change its name to medical solutions, which better fits the segments focus on medical components subsystems and systems, including smoke evacuation Insufflator and a scopic pumps integrated operating room technologies machine vision technologies and advance.
RFID detection technologies, all custom made for the rigors of an FDA registered medical environment.
As a reminder, this segment does not represent all of November those medical end market exposure.
In summary, we had a very solid first quarter with excellent sales growth driven by strong demand in medical end markets. We also delivered very healthy operating performance and profit growth, which is based on our great progress in deploying the <unk> system and continued success at further establishing a thriving company culture.
We believe Levant us long term strategic position in completion continues to be extremely strong and we're staying the course on executing our strategy and capital deployment model.
With that I will turn the call over to Robert to provide more details on our operations and financial performance Robert Thank.
Thank you <unk> and good morning, everyone. The first quarter non-GAAP adjusted gross profit was 101 million or 46% gross margin compared to 94 million or 46% gross margin in the first quarter of 2022.
For the quarter adjusted gross margins were up sequentially over 100 basis points and flat year over year. This outcome was better than our expectations and represents strong execution by our teams to achieve this result, this achievement puts us on a solid track to achieving a full year goal of expanding gross margins by 100 basis.
Points movie.
Moving on to operating expenses R&D expenses were roughly $23 million or approximately 10% of sales. The first quarter SG&A expenses were 41 billion or roughly 19% of sales.
Overall operating expenses as a percent of <unk>.
Sales were up sequentially in the quarter as a result of the impact of variable compensation programs and the seasonal payroll taxes as well as the increased R&D investments adjusted.
Adjusted EBITDA was approximately $47 million in the first quarter of 2023 or 21% adjusted EBITDA margin versus 44 million in the prior year on the tax front, our non-GAAP tax rate in the first quarter of 2023 was 12%. This differed from the statutory rate due to jurisdictional mix of income and the seasonal.
Impact of equity compensation windfall benefits.
Our non-GAAP adjusted earnings per share was <unk> 74 cents in the quarter compared to 73 cents in the first quarter of 2022.
While adjusted EBITDA grew in the high single digit range EPS was muted due solely to higher interest expense.
First quarter cash flow was approximately $7 million, which was up 28% versus the prior year as previously mentioned and communicated the first quarter typically is a lower cash flow due to the timing of incentive compensation payments equity compensation vesting events and the timing of seasonal tax payments, we expect cash flows to continue to improve.
Roof during the rest of the year as we gradually bring down our inventory to more historical levels and continue to drive strong profitability.
We ended the quarter with gross debt of 428 million and our gross leverage ratio was two three times. Our net debt was 345 billion, putting the company in a great position to fund further acquisitions now.
Now I'll turn it updated performance of our operating segments as Matthias mentioned, we did change the names of our reporting segments in the quarter, we renamed Photonics segment precision medicine, and the manufacturing our vision segment is now rent renamed to medical solutions and our precision motion segment is now renamed to robotics and automation.
I'll start by sharing details about precision medicine, and manufacturing segment $4 million photonics for the first quarter of 2023 revenue grew 11% year over year. This segment continues to experience very strong customer demand in the traditional medical applications and the planned uptick in next generation DNA.
Let's say the book to Bill in this segment was 1.06 in the quarter again, driven by strong demand in our medical markets and resilient demand for multiple industrial applications focus on productivity enhancing equipment and the manufacturing floor.
In the quarter bookings in this segment were up 28% and roughly flat year over year.
The strength in orders puts us in a strong position with good backlog coverage for the remainder of 2023.
Within precision medicine, and manufacturing new product revenue stayed strong at greater than 20% of sales in the first quarter. Our sales teams continue to win excellent new business in attractive high growth medical industrial applications, winning new content, winning new customers and winning new applications design wins in this segment were down year over year, but this was.
Really driven by timing, particularly around the new wins in our intelligent light engine sub system business branded as laser quantum's for.
For the full year, we expect solid design win growth year over year.
The precision medicine and manufacturing segment adjusted gross margin was 50% in the quarter, which was up nearly 400 basis points year over year.
This is a great outcome and reflects the efforts and successes. This team is having and deployed in over half the growth system deep into the organization and overcoming some of the operational supply chain challenges they experienced in the prior year.
Turning to our medical solutions segment, formerly known as vision. This segment saw reported revenue growth of 25% year over year with stronger which was stronger than expectations.
Growth in this segment continues to be driven by strength in elective surgical procedures and to continued success in our first generation smoke evacuation Insufflator technology.
As well as our Jade Act business, where the business continues to catch up from past due backlog after supply chain challenges of 2022.
The <unk> business is also seeing solid demand in new science life science equipment applications.
Medical solutions segment saw a book to Bill of 1.03 in the first quarter with bookings up 7% sequentially and 12% year over year further, indicating the building demand we see in this end market.
<unk> in the indexed in this segment reduced versus prior year as Matthias mentioned this is largely driven by first generation smoke evacuation insufflator products, reaching its four year milestone and so we are no longer tracking it as part of our official vitality index. As a result, this segment had a vitality index in the mid teens in the first.
Quarter, which was in line with our expectations. We expect this metric to stay at this level for 2023, but increase thereafter, as we launch multiple new second generation smoke evacuation Insufflator, <unk>, which will start to have a significant impact on our sales in the coming years.
Design win activity in this segment also declined in the first quarter of your year solely from very difficult comparisons from the record breaking design win progress in 2022 from our second generation smoke evacuation products.
Finally, turning to robotics and automation segment, formerly known as precision motion. This segment experienced a revenue decline of 9% year over year in the quarter. This was in line with our expectations and prior guidance. This decline continues to be driven by steep year over year decline in microelectronics applications particular in the PCB via hole.
Drilling applications, which declined nearly 70%.
Excluding this decline the remainder of the segment grew single digits in the quarter.
This decline in PCB, a drilling is causing our sales growth headwind for overall, Nevada of approximately 200 to 300 basis points of the full year.
The overall book to Bill ratio in this segment was approximately 0.8 again driven by the microelectronics decline in exposure Micra electronics experienced a negligible level of bookings in the quarter.
New product revenue was roughly 10% of sales for this segment in the quarter. This ratio is lower than prior year because it now includes product sales from our a T I business lines, which had minimum new products in this revenue.
And therefore, it is having a dampening effect on the overall segment ratio. However, as we mentioned in the fourth quarter. We are working hard are ramping the new product development in this business and we expect to launch multiple new products in this business in the second half of this year.
Adjusted gross margins for the segment came in at 47 5 billion with 40, 47, 5%, which was down year over year and down sequentially.
This is again being driven by the sharp downturn in factory output caused by the decline in the microelectronics market, we expect margins to recover in this segment as the year progresses, both as we manage our cost structure and other productivity gains gained further traction now turning to guidance.
As Matthias mentioned, we expect to see order behavior from our customers returning to historical patterns as our product lead times dropped.
Our prior lead times had been as high as 12 months or more and we are seeing them come down to a quarter of that level in many cases, which is closer to our historical lead times.
We do not see this having any impact on our sales growth outlook for the quarter or for the full year.
On the strength of our backlog is a reflection of our innovations and the applications, which we participate with strong demand signals still represented in the larger application areas.
From an end market perspective, we see similar dynamics in the second quarter as we did in the first quarter, we expect demand in our medical end markets to remain very strong and we see solid growth coming from our medical capital equipment and medical consumable sales.
In our advanced industrial end market, we expect our traditional industrial end markets to stay resilient in the second quarter, but with the continued moderation that we saw in the first quarter in line with the overall macroeconomic and industrial spending environment.
We continue to expect our continued disciplined focus on secular growth applications and new product introductions to allow our business to experience growth in weather and more uncertain macroeconomic environment.
And our microelectronics that market, we expect continued double digit declines in the PCB via hole drilling applications year over year and also some declines in the semiconductor wafer fab equipment as.
As mentioned before this end application will continue to be a revenue headwind for Nevada in the second quarter in a similar magnitude as we experienced in the first quarter.
So starting with revenue guidance for the second quarter of 2023, we stand here today with GAAP revenue in the range of 222 million to $225 million, which represents revenue growth in the mid single digit territory on a year over year basis.
The impact of the microelectronics headwinds our revenue growth in the second quarter would be low double digit.
On a segment level in the second quarter, we expect precision medicine and manufacturing segment to grow revenue in the 6% to 8% range on a year over year basis.
Customer demand remains resilient in this segment with continued growth in multiple medical and industrial applications, including DNA sequencing ophthalmology and micro machining.
Our robotics and automation segment is expected to be flat sequentially and down approximately 10% year over year.
The year over year declines driven by the downturn in the microelectronics market. Excluding the microelectronics declined this segment will be growing for demand in industrial robots medical robot electric vehicles and battery production applications.
Finally, our medical solutions segment is expected to demonstrate revenue growth in the 18% to 22% range in the second quarter and is expected to be up sequentially as well.
All end markets continue to be very strong driven by return of elective surgical procedures globally.
Moving on to overall Nevada's adjusted gross margin, we expect gross margin in the second quarter to be approximately 46% to 46, 5%, which is up sequentially and will continue to demonstrate good expansion year over year.
The precision medicine and manufacturing segment gross margin is expected to be flat sequentially, whereas the robotics and automation segment is expected to be up sequentially.
The medical solutions segment is expected to see gross margins slightly down sequentially due to a higher mix of medical consumable sales.
We believe our team's efforts to use the robot the growth system will help us sustain and expand gross margins as we progress deeper into the year.
Turning to R&D and SG&A expenses, they are expected to be approximately 65 million to $66 million.
The increase in cost year over year and sequentially is driven by labor cost increases tied to our annual cycle further investments in innovation, particularly investments in our medical solutions segment tied to the aforementioned development of our second generation smoke evacuation insufflator products.
Further investments in our commercial engine.
Depreciation expense, which was about $4 million in the first quarter will be about the same in the second quarter stock compensation expense, which was over $6 billion in the first quarter of the roughly similar in the second quarter.
For adjusted EBITDA for.
For the second quarter of 2023, we expect the range of 47 million to $49 million.
Interest expense, which was over $6 million in the first quarter is expected to be about $7 million in the second quarter of 2023, driven by the continued rise in interest rates, we continue to focus on paying down the debt to mitigate the impact of rising rates.
We expect our non-GAAP tax rate to be around 18% for the second quarter. The sequential rise in the tax rate from 12% to 18% is driven by our expectations around jurisdictional mix of income as well as timing caused by our first quarter equity compensation windfall benefits.
It should be noted that the tax rates across a variety of geographical regions of increase and hence we're working to minimize the impact of Nevada.
But clearly rates would be a little higher than 2022.
Diluted weighted average shares outstanding will be approximately 36 million shares.
Our adjusted Diluting earnings per share, we expect a range of 70 to 74 in the second quarter and we expect cash flows to improve sequentially due in part to the seasonal effects mentioned previously and from our continued efforts to bring down our inventory levels were.
We are also continuing to invest in manufacturing facility expansion projects, such as our new Taunton optics facility, our new Manchester optical subsystem manufacturing facility and our new Czech Republic Medical consumables manufacturing facility. These investments are all critical to support our growth outlook for the next.
Several years.
As always this guidance does not assume any significant changes to foreign exchange rates.
In summary, Novartis performance in the first quarter of 2023 with excellence.
We beat our own expectations and the guidance for sales growth for margins and for profit performance.
We saw tremendous growth in our medical end markets, which more than offset a known headwind in microelectronics. This.
This dynamic is yet another testament of the balanced the resiliency of this business portfolio. Our teams continued to deliver great results, helping the company worked through a difficult operating environment, while still winning new customer platforms and progressing our innovation pipeline and we continue to see great success at attracting and retaining top talent.
Despite a more uncertain macroeconomic environment the higher interest rate environment. We believe we're on track to achieving our outlook for the full year of 2023, and we see our growth remaining strong well past this year on the back of exciting new product launches starting later this year.
We remain very grateful to the outstanding performance of our employees and their tireless efforts to help us be successful in this dynamic environment, we look forward to continuing to deliver on our commitments to our employees our customers and our shareholders. This concludes the prepared remarks, we'll now open the call for questions.
We will now begin the question and answer session.
I 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.
To withdraw your question. Please press Star then two.
And our first question will come from Lee.
P. J F Securities. Please go ahead.
Hi, Good morning Lee.
So just starting with the microelectronics business.
Can you talk about how much of the current run rate today is tied to UV lithography and how we should think about the growth there and then sort.
Secondarily, just comment on the west wind business.
Is this a similar situation to the situation we were in probably 810 years ago, where the Westwood business went down close to zero just because capacity in this space wasn't getting utilized in his capacity.
Gets utilized again.
We should expect that business to come back and at some point.
Yeah, I mean on the last question, Yeah, you're right I mean, I think there is a tremendous capacity build as a result of the microelectronics boom in and so we'll have to work through that capital.
Elevation.
Let's say trough for a little while and that's why we don't expect that that business to come back this year in the microelectronics stay down for the year.
On your first question.
Basically in our last call we added an outlier.
Outlined was more of a forward look.
Few that in lets say two years from now we expect actually the makeup of microelectronics to fundamentally change.
More geared towards <unk>, rather than the exposure to the west wind business.
Yeah. So I think we saw in the fourth quarter earnings call that we would probably decline to somewhere around 7% of revenue. So overall microelectronics exposure to somewhere close to 8% to 7% of total revenue and the majority of that would be in the EU the deep UV application area.
So as it goes gets to the end of the year than we're actually in a territory, where we have a secular growing piece of microelectronics.
Okay. That's helpful and then just on the Czech facility.
I think it sounds like you're making some good good progress on the qualification of the new products.
But just looking at that facility I think when you bought it there was some product lines in there that you were trying to get out of there and wind down can you give us an update on the progress there and whether that's been a margin headwind or tailwind as a result of the actions you've taken.
Yes, it's a great question, we'll probably yes, the effort is to slowly.
Slowly wind that business down.
There is a margin headwind in margins are significantly lower than anything we saw the company.
It's I would equate it as overall cash neutral because we are some significant qualification costs.
And then cash outlays associated with bringing our own production up there and so.
We're attempting to time that so that as we ramp that business down its covering the cost of our qualification efforts.
That will largely be behind us by the end of the first half.
And then the second half the qualification steps remaining for a production facility rely on the sterilization process.
And getting through the final stages, there with an expected rapid production start in the fourth quarter.
With real volume on a material level starting to come out next year that we've implemented SAP in the Si we've actually started testing some production runs with significant training we've had equipment moved into the facility and so overall, we feel we are well on track to ramping up production and medical consumables on our second generation.
Smoke evacuation products in 2024, and the impact that we're seeing or headwinds on the gross margins associated with the old M. P. H business will largely be gone by the end of the first half.
Got it that's helpful I'll hop back in queue. Thanks.
Thanks Blake.
The next question comes from Brian Drab.
William Blair. Please go ahead.
Hi, Thanks for taking my questions.
First on the new product launches.
The way that you've been communicating some of the.
You know opportunities related to new product launches.
2025.
$50 million in revenue opportunity.
And I'm wondering if some of the launches that you're talking about coming later this year and in 2024 or.
Opportunities you've had visibility to for some time now or are there some new ones and how do those fit into the context of this 2025 opportunity for $50 million annual revenue that you've been talking about.
Yes, I mean, these comments are consistent with that level of $50 million in 2025, so in.
And of course, we are ramping also our other new product launches, but those are consistent with our you know what we've been communicating in our overall growth algorithm right. So we do feel the second half really starts to Mark a.
Yeah, a momentum building up to the levels that you that you mentioned in 2025 and that's why we made those comments. So one thing Brian I would mention is when you think about why we guided a 2025 number is that in 2024 number is that with a lot of these products launching at the end of this year.
It means 2024 volumes are going to be harder to predict.
With a with a high degree of accuracy, because there are different cycles of Oems coming online at different times throughout the year and different qualifications that they need to engage in with their with the hospital environment in the medical practitioners.
And so as a consequence, we can get very accurate with 2025 and 2024 it would be a larger range look funny. So we're being a little bit more cautious on 2024, but all of those launches are consistent with that and I would say that the continued investment in manufacturing facilities in Manchester and taught in the M P H business or some.
<unk> of that confidence that we wouldn't be outweighing.
Much of an investment in those facilities. If we didnt believe the growth was on track and materializing in the pace of which we thought it would materialize.
Got it okay. So this is not a situation, though where.
I guess at the extreme end of the spectrum would be like a bunch of new product platforms launching at the end of 'twenty four contributing revenue of $50 million in 2025, it's more of a.
It's ramping somewhat in 2020 for hitting that run rate.
In 2020, correct. That's right that's correct that's right. Okay. Okay. So it takes the risk out of the numbers a little bit right. If you think about it from that perspective.
Yeah Okay.
And roughly I mean can you talk a little bit.
More detail about how many opportunities.
Talking about I mean is there one that accounts for more of that 50 than others.
Granularity give us in terms of the number of opportunities.
Yeah, I think we've been consistent in our in our earnings remarks on this but let me, let me kind of rephrase it in or summarize it so.
In our minimally invasive surgery.
The area, we are we've won magically.
You know many second generation Insufflator businesses, both for endoscopy as well as for robotic surgery.
Our markets and in addition, we've won.
Endoscopic pump business, so all with multiple Oems. So that's where the majority of that 50 million is that and then in addition.
We see based on the R&D investments that we've made in other areas.
Such as our beam steering in laser beam steering business.
For example, our precision firmly known precision motion business robotic automation segment, you'll see a ramp in new products happening as well in both robotics and automation.
Animation as well as precision manufacturing show electric vehicle.
For example, micro machining EOG.
Laser additive manufacturing dozer applications that we're primarily targeting.
With sub systems, and so you see that percentage of off the business, increasing as well with the launching of new products in those areas. So multiple applications, we've talked about and where we're gearing our MPI towards.
Okay. Thanks, and then just lastly for now.
How are you handling pricing lately in this environment and.
Can you talk at all about how much you expect price to contribute to revenue growth maybe in an and.
Our <unk> margin expansion in 2023.
Yeah, I won't get into specifics, we have been very consistent with our customers on the narrative that you know effectively the increase in price is helping to offset the inflationary pressures that we're seeing and it's the sharing arrangement that way right.
So I think we've been that's the message that we signal to our customers. That's the message we've been externally and I think that's reflective of the actual.
Actual efforts that we've engaged in now it's fair to say.
That there's a bifurcation happening in 2023 were.
The material costs or capital goods are actually seeing some ability to take costs down.
Microelectronics, maybe a bit of an exception to that in certain areas.
But yet then services and third party services and utilities.
Other types of ancillary services that we pay to support the manufacturing efforts are still in an inflationary environment and so we expect inflation in 2023 to be a headwind we expect price.
To be a lever to offset that at least help offset that and we feel like ultimately at the end of the day. Our goal is to expand gross margins 100 basis points, a lot of that will come through helping us launching some new products and driving the growth system into our facilities that we feel good about that.
<unk> delivered a solid gross margin in the first quarter will deliver a solid gross margin in the second quarter and we'll continue that March throughout the course of the year that drive that 100 basis points.
Got it okay. Thank you very much.
The next question comes from Rob Mason of Baird. Please go ahead.
Yes, good morning.
You had mentioned that you made some good progress reducing your past dues on the backlog I'm just curious what what percent of your backlog now is.
In the past due category.
Yeah, I don't think we are we've disclosed that but you know.
The fact that we've reduced past due backlog by 25% sequentially. We feel is very meaningful and then maybe more importantly, the lead times to our customers have come down I think Robert does in his prepared remarks from in some cases over a year to now less than 12 weeks or sometimes.
Ziv in less than six weeks, so you'll see a dramatic reduction in lead times as a result of.
Really strong efforts from our operations teams.
And so yeah, we feel we feel good about basically catching up on the demand that our customers are expecting us to deliver so that's really I think the takeaway is that we're starting to catch up substantially the lead times are coming down.
And to kind of pre.
The pandemic historical averages while by the way our backlog as a percentage of look forward revenue for the next let's say 12 months look forward is still at that record territory of mid to high sixties percentages versus historical levels of let's say mid 30 percentages.
Right. So so so you still have that at the historically very high backlog, but but but yeah.
Passenger you are coming down rapidly and lead times coming down rapidly.
What.
Matthias would you expect that backlog percentage eventually on next 12 months revenue to work towards that historical level or is there anything structurally different in the way that you.
Customers are going to order or that you would view your backlog.
You know it.
It's a little hard to say, but we expect yeah. I mean this is the mid Sixty's US is unusually high right. So we expect.
That to come down I mean, our customers when we have lead times of six weeks there.
They really don't need to order for like a full year right. So.
So that is a and that was what historically used to be the case. So we used to be a book to bill business of about one one average and we expect that to come back to those levels on average over time, but in order before that happens and we first have to work that backlog down and.
And shipped to our customers. So I do expect it to come down to closer to historical levels, but maybe a little bit more elevated than that in the past. It it's hard to say, though I think if you look back at the fourth quarter I gave some rough guidance on that I will never be back to where the where we were when it was all made.
Quarters worth of backlog.
But we won't be at these levels, either so I think it'll bleed down to pass throughs will largely be behind us hopefully if everything executes as planned by the end of the second quarter.
Then you'll dealing with marginal levels at best of past due and therefore really what you are looking at is that there's a significant amount of.
Future demand that is still there's still being placed on us and people are getting ready for production ramps of new products in 2024 and beyond and so we will have an elevated level because of that there's a lot of new products coming online and so it will be above the historical levels.
Below maybe a little bit of what caused the pass through issue.
Let's see.
And you made some commentary around the <unk>.
Some of your second generation products coming out certainly.
Would assume I think you secured some new customers new Oems there, but do you think about.
The growth there is there is there are also new.
Weighted more towards new customers or.
Added content.
At a high level, it's a great question, that's a great. It's a.
Combination.
Well we won.
We believe they are second generation smoke evacuation Insufflator technology will become a standard of care, which means that it will be a standard in all minimal invasive surgical procedures on a go forward basis. It takes time to get real penetration in the global market for that.
So why do we think you know when we make the commentary around that why we believe that is largely because we won new customers. We've won new application areas.
And we've obviously replaced older technologies that we've had in place we've done a combination of things. The first generation smoke evacuation Insufflator was relatively limited and launch it.
It went ahead with a single large customer and I think on a go forward basis Youll see the breadth of that of our new offering being sold to a multitude of customers, including some that we've never served before.
Yep Yep.
Last question around the microelectronics business, if I understand you correctly.
It sounds like that business, probably trends out or you expect it to trend out kind of flattish revenue wise in dollars for the remainder of the year is that is that correct. Yes, yes, I think it's stabilized.
Yeah, Yeah, that's absolutely the math so yeah.
Bye have you effectively just keep it flat the percentages go down because you start to face easier comparisons once you get to the back half of the year, but the revenue itself is relatively flat and our forecast for the full year right now.
That doesn't mean like Theres some underlying dynamics there you got E V. D. B you you're growing and then you got other areas that are still seeing some weakness and backend semiconductor type of equipment.
And so there's a dynamic there, but as you exit 2023, you are now predominantly in our growth category.
And we expect that then to grow in 2024, as we penetrate with additional content and additional penetration into EV applications.
Got it got it thank you.
Thank you Rob.
Once again, if you would like to ask a question. Please press Star then one.
This will conclude our question and answer session I would like to turn the conference back over to Mr. Matthias Gloucester for any closing remarks.
Thank you operator, so to recap November had a very impressive.
First quarter 2023, we saw good sales growth. Despite the headwinds that we mentioned in microelectronics and beat our own expectations for margins and profit.
We've maintained a very robust level of backlog, while reducing our lead times in our past due backlog and we continue to see strong tail winds in our medical businesses, we're progressing our innovation pipeline.
We're excited for the large product launches happening later this year and next year.
Well, we feel we're on track with our full year.
2023 outlook.
<unk> remains well positioned in the medical and advanced industrial end markets with diversified exposure to long term secular market trends in robotics, and automation precision medicine, minimally invasive surgery and industry forward, although in 2023 and beyond we will continue to focus on new product development design wins in high growth applications.
Driving cash flows and institutionalizing an event the gross system.
In closing as always I would like to thank our customers and our employees and our shareholders for their ongoing support I continued to be especially grateful for their dedicated efforts of or an event. The teammates who work diligently every day to tackle new opportunities and manage through new challenges.
We appreciate your interest in the company and your participation in today's call and look forward to joining all of you in several months on our second quarter. Two 2023 earnings call. Thank you very much. This call is now adjourned.
The conference is now.
Concluded. Thank you for attending today's presentation and you may now disconnect.
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