Q4 2023 Novanta Inc Earnings Call

Good morning, My name is Andrea and I will be your conference operator today.

Operator: Good morning, my name is Andrea, and I will be your conference operator today. At this time, I would like to welcome everyone to Novanta Incorporated's 2023 fourth quarter and full year earnings call. All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question and answer session. To ask a question, you may press star, then 1 on your touchtone phone.

At this time I would like to welcome everyone to the Nevada incorporated 2023 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.

To ask a question you May Press Star then one on your Touchtone phone.

Operator: To withdraw your question, please press star then 2. Please note this event is being recorded. I would now like to turn the conference over to Ray Nash, Corporate Finance Leader for Novanta. Please go ahead.

To withdraw 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 for Nova. Please go ahead.

Thank you very much good morning, and welcome to Novartis fourth quarter and full year 2023 earnings Conference call I Am Ray Nash corporate finance leader for an event.

Ray Nash: Thank you very much. Good morning, and welcome to Novanta's fourth quarter and full year 2023 earnings conference call. I am Ray Nash, Corporate Finance Leader for Novanta. With me on today's call is our Chair and Chief Executive Officer, Matthijs Glastra, 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.novanta.com. Please note that 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 outlined in our earnings press release issued earlier today and also those in our SEC filings.

With me on today's call as 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 no banter dotcom.

Note. This call is being webcast live and will be archived on our website shortly after the call.

Before we begin I 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 our responses to questions that may include forward looking statements.

Ray Nash: 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, and we disclaim any obligation to update such forward-looking statements in the future, even if our estimates change.

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.

Ray Nash: 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 Gap 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'm now pleased to introduce the Chairman and Chief Executive Officer of Novanta, Matthijs Glastra. Thank you, Ray. Good morning, everybody.

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'm now pleased to introduce the chair and Chief Executive Officer of Nevada, Matthias Gloucester.

Thank you Ray good morning, everybody and thanks for joining our call November delivered solid performance in 2023 in the fourth quarter and for the full year I'm very proud of how our teams delivered revenue and profit performance above our expectations in a dynamic market environment.

Matthijs Glastra: And thanks for joining our call. Noventa delivered solid performance in 2023 in the fourth quarter and for the full year. I'm very proud of how our teams delivered revenue and profit performance above our expectations in a dynamic market environment. For the full year of 2023, we achieved a record $882 million in revenue, expanded adjusted gross margins by over 100 basis points to 47%, and expanded adjusted EBITDA to $196 million, a 100 basis point improvement in EBITDA margins. Our sales grew 2% year over year on a reported basis and 1% on an organic basis, excluding microelectronics applications. Our growth for the full year was up by a single day.

For the full year of 2023, we achieved a record $882 million in revenue expanded adjusted gross margins by over 100 basis points to 47%.

And expanded adjusted EBITDA to $196 million 800 basis point improvement in EBITDA margins.

Our sales grew 2% year over year on a reported basis and 1% on an organic basis.

Excluding microelectronics applications our growth for the full year was up high single digits.

For the fourth quarter, we delivered $212 million in revenue, which represents a decline of 3% on a reported basis and a decline of 4% on an organic basis, excluding microelectronics, our organic growth was down approximately 1%.

Matthijs Glastra: For the fourth quarter, we delivered $212 million in revenue, which represents a decline of 3% on a reported basis and a decline of 4% on an organic basis. Excluding microelectronics, our organic growth was down approximately 1%, adjusted EBITDA was greater than $45 million, beating our expectations and prior guidance. Operating cash flow was very strong for the second straight quarter at approximately $39 million, which represents more than 300% conversion This operating performance reflects excellent execution by our teams in a challenging market economic environment. In addition to all of this, in 2023, we signed an agreement to acquire motion solutions, which will enhance our portfolio and further expand our presence in the highly attractive medical and precision medicine space. We're happy to have completed the acquisition at the beginning of January 2024.

That EBITDA was greater than $45 million, beating our expectations and prior guidance operating.

Operating cash flow was very strong for the second straight quarter at approximately $39 million, which represents more than 300% conversion through net income.

This operating performance reflects excellent execution by our teams in a challenging macro economic environment.

In addition to all of this in 2023 we signed an agreement to acquire motion solutions, which will enhance our portfolio and further expand our presence in the highly attractive medical and precision medicine space. We're happy to have completed the acquisition at the beginning of generate 2024.

The stickiness Panther business model with diversified exposure to long lifecycle customer platforms and secular high growth markets.

Matthijs Glastra: The Thicky Novanta business model, with diversified exposure to long-life cycle customer platforms in secular, high-growth markets, has proven resilient under multiple geopolitical and market economic scenarios. Our proprietary technologies are well positioned in medical and advanced industrial applications with long-term secular tailwinds such as robotics and automation.

As proven resilient under multiple geopolitical and economic scenarios are.

Our proprietary technologies are well position in medical and advance industrial applications with long term secular tailwind such as robotics and automation.

Minimally invasive and robotic surgery and precision medicine.

Medical applications made up 64% of our sales in 2023 versus single digit percentage of sales a decade ago, which we believe provides no gunther with greater resilience during fluctuating macroeconomic conditions.

Matthijs Glastra: Medical applications made up 54% of our sales in 2023 versus a single-digit percentage of sales a decade ago, which we believe provides Novanta with greater resilience during fluctuating macroeconomic conditions. We feel that our strong customer relationships with the leading OEMs in these secular growth applications strengthen the diversification of our portfolio and our sticky business model allow Novanta to drive robust performance through the economic cycle. In the fourth quarter, the broader end market themes were that medical markets continue to be strong, life sciences and advanced industrial markets slowed down in line with the PMI indices and the interest rate environment, and microelectronics stabilized. However, with science, it has now bottomed out.

We feel that our strong customer relationships with the leading Oems in these secular growth applications to strengthen diversification of our portfolio and our sticky business model will allow new vantiv to drive robust performance through the economic cycles.

In the fourth quarter, the border and market themes worried at medical markets continue to be strong life Sciences, and advanced industrial markets slowed down in line with the PMI indices and interest rate environment and microelectronics stabilized with signs it has now bottomed.

In addition in the fourth quarter. The team made further progress in bringing down lead times to our customers, which are now broadly at pre pandemic levels.

Matthijs Glastra: In addition, in the fourth quarter, the team made further progress in bringing down lead times to our customers, which are now broadly at pre-pandemic levels. At the same time, some customers slowed ordering to better manage their year-end inventory levels and cash flows. This dynamic resulted in a book-to-bill of 0.7, which was in line with our expectations and should represent the bottom of our bookings trajectory with sequential improvements expected from here. Speaking to the business environment more broadly, as we head into 2024, we are feeling confident in the diversity and breadth of our business portfolio to weather a dynamic environment. As we mentioned in our last earnings goal, we continue to see a somewhat weaker demand environment in the first half of 2024, in line with the growth rates we experienced in the second half of 2023.

At the same time, some customers slowed ordering to better manage their year end inventory levels and cash flows.

This dynamic resulted in a book to Bill with a 0.7, which was in line with our expectations and should represent the bottom of our bookings trajectory with sequential improvement expected from here.

Speaking to the business environment more broadly as we head into 2024, we are feeling confident in the diversity and breadth of our business portfolio to weather a dynamic environment.

As we mentioned in our last earnings call. We continued to see somewhat weaker demand environment in the first half of 2024 in line with the growth rates, we experienced in the second half of 2023.

Matthijs Glastra: We expect the second half of 2024 to be characterized by a stabilizing interest rate environment with accelerating Novanta momentum on the back of new product launches. We are excited about and confident in the record number of new product launches we're planning for in 2024. Going into more detail, for the full year of 2023, sales to medical markets made up approximately 54% of total Novanta sales and grew 13% versus the prior year, driven by strong double-digit growth in minimally invasive surgery, surgical robotics, patient monitoring, in vitro diagnostics, and DNA sequencing applications. In the fourth quarter, sales to medical markets remained steady and roughly flat versus the prior year, again making up approximately 54% of total During the quarter, we saw stable levels of shipments to many of our surgical OEM customers. However, we also saw some decline in our shipments to our life sciences customers, driven by the deferral of end-user orders due to a higher interest rate environment.

We expect the second half of 'twenty, Jamie for to be characterized by stabilizing interest rate environment with accelerating Nov anti momentum on the back of new product launches.

We are excited about and confident in the record amount of new product launches, we're planning on in 2024.

Going into more detail for the full year of 2023 sales to medical markets made up approximately 54% of total November sales and grew 13% versus the prior year driven by strong double digit growth in minimally invasive surgery surgical robotics patient monitoring in vitro diagnostics and DNA.

Sequencing applications.

In the fourth quarter sales to medical markets remained steady and roughly flat versus the prior year again, making up approximately 54% of total November sales.

During the quarter, we saw stable levels will shipments to many of our surgical OEM customers. We also saw some decline in our shipments to our life sciences customers driven by the deferral of end user orders due to a higher interest rate environment.

Turning to advanced industrial markets for the full year of 2023.

Matthijs Glastra: Turning to advanced industrial markets, for the full year of 2023, sales to advanced industrial markets, excluding micro electronic applications, were up 1% year over year. As a reminder, Novanta plays in advanced industrial applications with mid to high single-digit long-term growth driven by secular trends such as Industry 4.0, robotics and automation, and precision manufacturing. Advanced industrial sales in the fourth quarter were down 1% year over year and made approximately 38% of total Novanta sales. The Silver Glide was in line with our expectations due to the rapid rise in interest rates and continued weakness in China as well as other geopolitical disruptions.

Sales to advanced industrial markets, excluding Margaret electronic applications were up 1% year over year. As a reminder November plays in advanced industrial applications with mid to high single digit long term growth.

Or even by secular trends, such as industry corridor, though robotics and automation of precision manufacturing.

Our advanced industrial sales in the fourth quarter were down 1% year over year and made approximately.

38% of total novato sales as soon as the Guy was in line with our expectations due to the rapid rise in interest rates and continued weakness in China as well as other geopolitical disruptions.

While these trends are expected to continue in the first half of 2024 customers are using to slowdown to catch up on next generation innovations.

Matthijs Glastra: While these trends are expected to continue in the first half of 2024, customers are using the slowdown to catch up on next-generation innovation. Finally, in our microelectronics markets, which represented just 7% of sales in the fourth quarter, the performance was roughly the same as we said in our last call. For the full year of 2023, the overall drop in the microelectronics market was a 700 basis point headwind on total Novanta sales growth, which was larger than we originally anticipated. To repeat from before, excluding market electronics, Novanta revenue growth for the full year was up by a single digit year over year. As we look out into 2024 and 2025, we remain excited that the composition of this end-market exposure will shift This application is expected to see a strong tailwind for the rest of this decade as a result of global demand for artificial intelligence, electrification, and high-performance computing.

Finally in our microelectronics markets, which represented just 7% of sales in the fourth quarter. The performance was roughly the same as we said on our last call for.

For the full year of 2023, the overall drop in new markets like Phoenix market was a 700 basis point headwind on total move into sales growth, which was larger than we originally anticipated.

To repeat from before excluding Mark to Medtronic November revenue growth for the full year was up high single digit year over year.

As we look out into 'twenty 'twenty, four and 'twenty 'twenty five we remain excited that the composition of these end market exposure will shift to more secular growing and less cyclical applications such as next generation lithography.

This application is expected to see a strong tailwind the rest of this decade as a result of global demand for artificial intelligence electrification and high performance computing.

Matthijs Glastra: We also expect the momentum in this market to sequentially improve with improving FAP utilization and normalizing inventory levels. Across all our end markets, we continue to stay focused on gaining confidence and share with intelligent subsystems into multiple high-growth application areas. We are confidently leaning in with a record number of new product launches in 2024, up 50% versus 2023, with more scheduled for 2025, all of which will lead to $50 million of new revenue in 2025, with strong growth in the next several years following that. As a reminder, the new product pipeline is geared towards intelligent subsystems and strategic growth applications such as minimally invasive surgery, robotic surgery, next-generation lithography, precision manufacturing applications, and precision motion solutions for robotics and automation applications.

We also expect the momentum in this market to sequentially improve with improving factory utilization and normalizing inventory levels.

Of course or end markets. We continue to stay focused on gaining comps have been share with intelligent subsystems into multiple high growth application areas.

We are confidently leaning in with a record amount of new product launches in 2024 up 50% versus 'twenty to 'twenty three with more scheduled for 2025.

All of which will lead to $50 million of new revenue in 2025 with strong growth in the next several years following that.

As a reminder, our new product pipeline is geared towards intelligent subsystems in strategic growth applications, such as minimally invasive surgery robotic surgery next generation lithography precision medicine manufacturing applications.

Precision motion solutions for robotics and automation applications.

Matthijs Glastra: Now, let me touch on some of Novanta's strategic growth metrics. For our design wins in the fourth quarter, we saw growth of strong double digits versus the prior year. We saw excellent design activity in multiple businesses, particularly with our advanced industrial customers, which bodes well for future growth in those end markets. Although our full year design wins were still modestly down year over year, this was partially driven by the large wins in minimally invasive surgery in 2022, excluding those large platform wins from the prior year.

Now, let me touch on some of momentous strategic growth metrics for our design wins in the fourth quarter, we sold rose strong double digits versus prior year.

We saw excellent design win activity in multiple businesses, particularly with our advanced industrial customers, which bodes well for future growth in those end markets.

Although our full year design wins were still modestly down year over year. This was partially driven by the large wins in minimally invasive surgery in 2022, excluding those large platform wins from prior year.

Matthijs Glastra: Noventa had double-digit design growth in 2020. Our fatality index in the fourth quarter was still at about mid-teens percentage of sales. This was in line with our expectations.

November had double digit design grows in 2023.

Our vitality index in the fourth quarter, we're still at about mid teens percentage of sales. This was in line with our expectations. We expect over the next the rebound to above 20% of late late 'twenty 'twenty four driven by our pipeline of new product launches.

Matthijs Glastra: We expect our fatality index to rebound to above 20% in late 2024, driven by our pipeline of new product launches. We remain very excited by our momentum in customer wins and our strongest new product lineup in a decade. Based on this, we reiterate with confidence Noventa's long-term growth framework of consistent mid- to high-single-digit organic growth across the business. Next, I'd like to give you a brief update on Novanta's acquisition activities. As we mentioned earlier, we were very pleased to announce that we completed the acquisition of Motion Solutions in January. As a reminder, Motion Solutions offers customized and high-precision motion subsystems and components to market-leading OEMs, centered on medical and life sciences applications.

We remain very excited by our momentum in customer wins in our strongest new product line up in a decade based on this we reiterate with confidence November our long term growth framework of consistent mid to high single digit organic growth through the business cycles.

Next I'd like to give you a brief update on event those acquisition activities as already mentioned, we were very pleased to announce that we completed the acquisition of motion solutions and generate as a reminder, motion solutions offers customized and high precision motion subsystems and components the market, leading Oems centered on medical and life science.

As applications.

Matthijs Glastra: They are a market-leading business, and their team shares our passion for customers, innovation, and solving complex technical challenges. The integration of motion solutions is on schedule, and we're seeing a high level of engagement with the team. We're impressed with the strong and sticky customer relationships they have with their OEM customers who are leaders in precision medicine and medical markets. By combining motion solutions with Novanta, it creates the potential to develop new and unique intelligent subsystems using our combined technology offerings. These joint product development activities have already got started.

They are a market leading business and their team shares our passion for customers innovation and solving complex technical challenges.

The integration of motion solutions is on schedule and we are seeing a high level of engagement with our team. We were impressed with the strong and sticky customer relationships. They have with their OEM customers were leaders in precision medicine and medical markets Michael.

By combining motion solutions with November it creates the potential to develop new and unique intelligent subsystems using our combined technology offerings.

This joint product development activities have already gotten started and although we are very early on our teams are already working seamlessly together both on the new solutions as well as cross selling each other's technology through our complementary customer bases.

Matthijs Glastra: And although we are very early on, our teams are already working seamlessly together, both on the new solutions as well as cross-selling each other's technology to our complementary customer base. We will be including motion solutions as part of the medical solutions segment for reporting purposes because of the close alignment with the customer base in this sector. The financial outlook for motion solutions looks promising, in line with our expectations, and it will be factored into the 2024 guidance with Robert, which Robert will share later in this call. Even with the motion solutions transaction, acquisitions remain Novanta's top priority for capital allocation.

We will be including motion solutions as part of the medical solutions segment for reporting purposes, because of the close alignment with our customer base in this segment.

The financial outlook for motion solutions looks promising in line with our expectations and it will be factor into the 'twenty 'twenty four guidance with Robert which Robert will share later it was call.

Even with the motion solutions transaction acquisitions remain November desktop priority for capital allocation, we have a strong pipeline of potential targets. Our balance sheet is strong and can handle additional transactions. So you should expect us to continue to be active in the marketplace in 2024.

Matthijs Glastra: We have a strong pipeline of potential targets, and our balance sheet is strong and can handle additional transactions. So you should expect us to continue to be active in the marketplace in 2024. Now I'd like to share a few comments on how we continue to evolve our culture at Novanta, called the Novanta Way. We believe that the Novanta Way has been a differentiator in attracting, retaining, and developing core talent. It's ultimately our content and our culture that will make the difference.

Now I'd like to share a few comments on how we continue to evolve our culture of November Coke in November the way. We believe that there are no went away has been a differentiator in attracting retaining and developing for talent.

It's ultimately a ton of it in a culture that will make the difference we continue to see below market labor attrition rates, both among our leadership ranks as walls across all our company athletes.

Matthijs Glastra: We continue to see below-market labor attrition rates, both among our leadership ranks as well as across all our company employees. We're focusing on a few factors to retain our employees, competitive pay, a great company culture, and career development and progression. We continue to focus on improving our employee engagement scores, and we have invested heavily in leadership development initiatives and employee training at the Novanta Growth Center. Sustainability also remains an important topic for Novanta.

We're focusing on a few factors to retain our employees competitive Bay, a great company culture and career development and progression.

We continue to focus on improving our employee engagement scores and we've invested heavily into leadership development initiatives and employee training on the November gross system.

Sustainability also remains an important topic for an event that we've made steady progress on our long term journey, reducing our environmental footprint and in a few weeks, we will be publishing our 'twenty to meet three sustainability report, where we will share details on our goals and our accomplishments.

Matthijs Glastra: We've made steady progress on our long-term journey, reducing our environmental footprint. And in a few weeks, we will be publishing our 2023 sustainability report, where we will share details on our goals and our accomplishments. One of the most critical aspects of a company culture is embedding the Noventa Growth System, or NGS, to drive excellence into the many ways we work together. In 2023, we've accelerated the deployment of the NGS deeper into the organization. Completing a few dozen Kaizen events, launching many structured problem-solving activities, deploying rigorous daily management routines using 80-20 portfolio management, and utilizing project management planning activities at all levels of the organization to fundamentally improve our operating results. We trained hundreds of Novanta employees on using the NGS tools, from leaders to front-line employees.

One of the most critical aspects of our company culture is embedding, though the November gross system or N. G. S to drive excellence into the many ways. We worked together in 2023, we've accelerated deployment after November gross system deeper into the organization.

Completing a few dozen kaizen events launching many structured problem solving actions deploying rigorous daily management routines using 80 20 portfolio marriage management.

And utilizing project management planning activity activities at all levels of the organization to fend them fundamentally improve our operating results.

We trained hundreds of November employees on using the N G S tools from leaders to frontline employees.

Matthijs Glastra: These efforts have had a dramatic impact on our operations, including throughput and unit improvement in our factories, improving our supply chain and planning processes to enhance delivery performance to our customers, accelerating material and labor productivity, reducing cycle time of back office processes, and improving time to market over a new product line. NGS is truly becoming a fundamental part of Novanta's identity, and it's helping unite our employees by giving us a common language and a common way of collaborating, which is increasing teamwork and successful problem solving. We are very excited to continue to evolve NGS as we head into 2024. In summary, Novanta delivered solid operating performance in 2023 while navigating a dynamic macroeconomic environment. We achieved record sales, strong margin expansion, delivered on our profit commitments, and improved cash flow. We've made great progress in deploying the Novanta growth systems and have had continued success in further establishing a thriving company culture. And we enhanced our portfolio with the Motion Solutions acquisition, which further expands our presence in highly attractive medical and precision medicine end markets. As we look to 2024, we have three priorities.

These efforts have had a dramatic break from our operations, including throughput and yield improvement in our factories, improving our supply chain and planning processes to enhance delivery performance to our customers.

Accelerating material and labor productivity, reducing cycle time of back office processes, and improving time to market over of new product launches.

And yes, it's truly becoming a fundamental part of November those ended identity and it's helping unite our employees by giving us a common language and common way of collaborating which is increasing teamwork successful problem solving.

We are very excited to continue to evolve and he is as we head into 2024.

In summary, <unk> delivered solid operating performance in 'twenty three three while navigating a dynamic macroeconomic environment, we achieved record sales strong margin expansion to deliver on our profit commitments and improved cash flows.

We've made great progress in deploying at an event the gross systems and and had continued success at that.

Establishing a thriving company culture, and we enhanced our portfolio with the motion solutions acquisition, which further expands our presence in highly attractive medical in precision medicine and markets.

As we look to 'twenty 'twenty four week, we have three priorities first lounger ramp a record set of new products second expand our margins and cash flow using mgs and third continuing to acquire additional companies that fit our strategy at attractive returns.

Matthijs Glastra: First, launch and ramp a record set of new products. Second, expand our margins and cash flow using MGS. And third, continue to acquire additional companies that fit our strategy at an attractive return. With that, I will turn the call over to Robert to provide more details on our operations and financial performance.

With that I will turn the call over to Robert to provide more details on our operations or financial performance. Robert Thank you Matthias and good morning, everybody our fourth quarter non-GAAP adjusted gross profit was $100 million or 47% adjusted gross margin compared to 98 million or 45% of the gross adjusted gross margin in the fourth quarter of 2022.

Robert J. Buckley: Thank you, Matthijs, and good morning, everybody. Our fourth-quarter non-GAAP adjusted gross profit was $100 million, or 47% adjusted gross margin, compared to $98 million, or 45% adjusted gross margin, in the fourth quarter of 2022. For the quarter, adjusted gross margins were up 220 basis points year over year. For the full year of 2023, non-gap adjusted gross profit was 413 million, or 47% adjusted gross margin, compared to 392 million or 46% adjusted gross margin in the prior year. 2023 adjusted gross margins were up 120 basis points year over year, which exceeded our goal. This represents a fantastic outcome for our teams, especially considering the flight drop in volumes in the second half of the year. Our success with growth margin expansion in the year was largely driven by the deployment and adoption of the Novanta growth system productivity tools in our factories and in our operating teams. Moving on to operating expenses, for the fourth quarter, R&D expenses were roughly $23 million, or approximately 11% of sales. For the full year, R&D expenses were roughly $92 million, or approximately 10% of sales. Fourth quarter SG&A expenses were slightly below $42 million, or roughly 20% of sales.

For the quarter adjusted gross margins were up 220 basis points year over year for the full year of 2023 non-GAAP adjusted gross profit was $413 million or a 47% adjusted gross margin compared to 392 million or 46% gross margin in the prior year 2023.

Adjusted gross margins were up 120 basis points year over year, which exceeded our goal.

This represent a fantastic outcome for our teams, especially considering the slight drop in volumes in the second half of the year. Our success with gross margin expansion in the year was largely driven by the deployment and adoption of the Nevada to grow system productivity tools in our factories and in our operating teams.

Moving on to operating expenses for the fourth quarter R&D expenses were roughly $23 million or approximately 11% of sales for the full year R&D expenses were roughly $92 million or approximately 10% of sales.

Fourth quarter, SG&A expenses were slightly below $42 million or roughly 20% of sales for the full year SG&A expenses were $164 million or roughly 19% of sales.

Robert J. Buckley: For the full year, SG&A expenses were $164 million, or roughly 19% of sales; adjusted EBITDA was approximately 45 million in the fourth quarter, or a 21% adjusted EBITDA margin versus 46 million in the prior year. For the full year of 2023, adjusted EBITDA was approximately 196 million, or a 22% adjusted EBITDA margin versus 184 million in the prior year. EBITDA margins expanded by roughly 100 basis points year-over-year. On the tax front, our non-GAAP tax rate for the fourth quarter was 21 percent. This differed from the statutory rate due to the jurisdictional mix of income.

Adjusted EBITDA was approximately $45 million in the fourth quarter or 21% adjusted EBITDA margin versus $46 million in the prior year for the full year of 2023, adjusted EBITDA was approximately $196 million or 22% adjusted EBITDA margin versus $184 million in the prior year.

EBITDA margins expanded by roughly 100 basis points year over year.

On the tax for our non-GAAP tax rate for the fourth quarter was 21%. This differed from the statutory rate due to jurisdictional mix of income for the full year of 2023, our non-GAAP tax rate was just above 16%, which was flat with the prior year.

Robert J. Buckley: For the full year of 2023, our non-GAAP tax rate was just above 16 percent, which was flat with the prior year. Our non-GAAP adjusted earnings per share was $0.63 in the fourth quarter compared to $0.75 in the fourth quarter of 2022. For the full year of 2023, our non-gap adjusted earnings per share was $3.02 compared to $3.07 for the full year of 2022. Our EPS performance in 2023 was obviously impacted by the significant increase in interest rates on our debt-impacting interest expense. Fourth quarter operating cash flow was approximately $39 million, or for the full year, operating cash flow was approximately $120 million, compared to $91 million in the prior year, representing an increase of 32% year-over-year. We are pleased with the improvement in cash flows in the second half of the year, and we expect to carry this momentum into 2024, as we continue to rigorously manage our networking capital and drive operating profits. We ended the year with gross debt of $358 million and a gross leverage ratio of approximately 1.8 times.

Our non-GAAP adjusted earnings per share was <unk> 63 in the fourth quarter compared to 75 for the fourth quarter of 2022 for the full year of 2023, our non-GAAP adjusted earnings per share was $3 <unk> compared to $3.07 in the full year of 2022, our EPS performance in 2023 was obviously impacted by the significant increase in <unk>.

Interest rates on our debt impacting interest expense.

Fourth quarter operating cash flow was approximately $39 million or for the full year operating cash flow was approximately $120 million compared to 91 million in the prior year, representing an increase of 32% year over year. We are pleased with the improvement in cash flows in the second half of the year and we expect to carry this momentum into 2024 as we.

We continue to rigorously manage our net working capital and drive operating profits.

We ended the year with gross debt of $358 million with a gross leverage ratio of approximately one eight times, our net debt was $253 million positioning the company well to fund further acquisitions.

Turning to backlog and bookings we ended the year with a backlog of 473 million, which was still above pre pandemic coverage levels, but as close to our expectation that backlog coverage on a go forward basis.

Robert J. Buckley: Our net debt was $253 million, positioning the company well to fund further acquisitions. Turning to backlog and bookings, we ended the year with a backlog of 473 million, which was still above pre-pandemic coverage levels but is close to our expectation of backlog coverage on a go-forward basis. Our book, The Bill, in the fourth quarter was 0.70, which was largely in line with our expectation. This low book to bill reflects both the continued reduction of lead times by our customers back to historical levels, as well as some impact from customers reducing inventory levels to maximize their cash positions at year-end, and to a lesser extent, to deal with the lower visibility macroeconomic dynamic. I'll now turn to an update on the performance of the operating sector.

Our book to Bill in the fourth quarter was 0.70, which was largely in line with our expectations. This low book to Bill reflects both the continued reduction of lead times by our customers back to historical level as well some impact from customers, reducing inventory levels to maximize their casper <unk> cash position at year end and do.

A lesser extent to deal with the lower visibility macroeconomic dynamics.

I'll now turn to an update of the performance of the operating segments.

First I'll speak to the precision medicine, and manufacturing segment fourth quarter sales declined 5% year over year, which was slightly more than our prior guidance. The book to Bill in this segment was 0.50 for the fourth quarter driven by end market demand deferrals in life science, and advanced industrial applications, and deferrals and purchases by our customers.

Robert J. Buckley: First, I'll speak to the precision medicine and manufacturing segment. Fourth quarter sales declined 5% year over year, which was slightly more than our prior guidance. The book to bill in this segment was $0.50 for the fourth quarter, driven by end market demand deferrals, life science and advanced industrial applications, and deferrals and purchases by our customers to maximize year-end cash flows, which are the dynamics we previously discussed. We have confidence these were temporary dynamics, as over the last two months, we've already experienced a sequential improvement in order activity. Therefore, we believe our order volume has hit its bottom and expect it to rebound as we progress into the new year.

Somebody is the euro cash flows which are the dynamics, we previously discussed.

We are confident these were temporary dynamics as over the last two months, we have already experienced a sequential improvement in order activity.

Therefore, we believe our order volume hit its bottom and expect it to rebound as we progress into the new year.

Despite the weaker fourth quarter for the full year of 2023. This segment demonstrated strong financial performance overall.

Segment delivered 3% year over year revenue growth and adjusted gross margin expansion of over 200 basis points. The book to Bill for the full year with 0.78, which mainly reflects the continued normalization of lead times as customers adjusted their backlog coverage closer to pre pandemic levels as well as the previously discussed softening of demand from life science in the past.

Robert J. Buckley: Despite the weaker fourth quarter, for the full year of 2023, this segment demonstrated strong financial performance overall. The segment delivered 3% year-over-year revenue growth and adjusted gross margin expansion of over 200 basis points. The book to bill for the full year was 0.78, which mainly reflects the continuing normalization of lead times as customers adjusted their backlog coverage closer to pre-pandemic levels, as well as the previously discussed softening of demand from life science and advanced industrial markets.

Industrial markets with precision medicine, and manufacturing new product revenue stayed strong at greater than 20% of sales in the fourth quarter, which is the same for the full year.

Design wins in this segment were up strong double digits year over year in the fourth quarter and the segments achieved design win growth for the full year based on the strength of the fourth quarter results.

We're excited about the progress being made with multiple large strategic customers, which gives us the confidence we see growth in this segment. Returning later in the second half of 2024.

Robert J. Buckley: With precision medicine and manufacturing, new product revenue stayed strong at greater than 20% of sales in the fourth quarter, which is the same for the full year. Design wins in this segment were up strong double digits year-over-year in the fourth quarter, and the segments achieved design win growth for the full year based on the strength of the fourth quarter results. We're excited about the progress being made with multiple large strategic customers, which gives us the confidence we see growth in this segment returning later in the second half of 2024. Starting the robotics and automation segment, this segment experienced a revenue decline of 10% year-over-year in the quarter. This was in line with our expectations and prior guidance. The decline was mainly driven by the impact of weaknesses in sales to advanced industrial land markets, largely caused by the industrial robotics dynamics and microelectronic weaknesses that we reported in the last quarter.

Turning to robotics and automation segment. This segment experienced a revenue decline of 10% year over year in the quarter.

This was in line with our expectations and prior guidance. The decline was mainly driven by the impact of weaknesses in the sales through advanced industrial end markets largely caused by industrial robotics dynamics and microelectronic weaknesses that we reported in the last quarter the headwinds related to microelectronics have showed signs of stabilizing and some green shoots of <unk>.

<unk> started to materialize, particularly in China.

These end market dynamics are expected to repeat in the first quarter, we are starting to see signs of markets sequentially, improving as we enter 2024.

The overall book to Bill ratio in this segment for the quarter was zero point 93, which is a sequential improvement and is indicative of a more stable demand environment across the segment and its end markets.

Our ATI business saw a book to bill greater than one in the fourth quarter, which further strengthens our confidence in our sequentially improving industrial robotic market in 2024.

Robert J. Buckley: The headwinds related to microelectronics have shown signs of stabilizing, and some green shoots of growth have started to materialize, particularly in China. While these end market dynamics are expected to repeat in the first quarter, we are starting to see signs of markets sequentially improving as we enter 2024. The overall book to bill ratio in this segment for the quarter was 0.93, which is a sequential improvement and is indicative of a more stable demand environment across the segment and its end market. Our ATI business saw a book to build greater than one in the fourth quarter, which further strengthens our confidence in a sequentially improving industrial robotic market in 2024. For the full year of 2023, robotics and automation segments saw sales decline 11% year over year, mainly driven by the headwind from sales to microelectronics, but the bill for the full year was 0.83. Despite the challenges this segment faced, it still successfully expanded gross margins over 50 basis points for the full year, which was an impressive outcome. New product revenue was roughly 10% of sales for the segment in the quarter and for the full year. Design wins in this segment more than doubled year-over-year, and full-year design wins grew by strong double digits.

For the full year of 2023 robotics and automation segment saw sales declined 11% year over year.

Mainly driven by the headwind from sales to Microelectronics book to Bill for the full year with 0.83.

Spite the challenges this segment face, it's still successfully expanded gross margins over 50 basis points for the full year, which was an impressive outcome.

New product revenue was roughly 10% of sales.

For the segment in the quarter and for the full year design wins in this segment more than doubled year over year and full year design wins grew strong double digits.

The design win strength further solidifies our confidence in 'twenty 'twenty four and beyond.

Finally, a medical solutions. This segment experienced reported revenue growth of 5% year over year, which was in line with our expectations growth. In this segment continues to be driven by strength in elective surgical procedures as well as R. J that business line, where the business continues to perform well thanks to broader strength in hospital spending.

The medical solutions segment saw a book to Bill of 0.70 in the fourth quarter. The weaker bookings mainly reflects the normalization of lead times and softening of demand from some life science end markets. However, we also saw some timing related impacts from some of our medical customers managing their year end inventory levels and from reducing orders on <unk>.

Robert J. Buckley: The design with strength further solidifies our confidence in 2024 and beyond. Finally, in Medical Solutions, this segment experienced revenue growth of 5% year-over-year, which was in line with our expectations. Growth in this segment continues to be driven by strength in elective surgical procedures, as well as our JDAC business line, where the business continues to perform well thanks to broader strength in hospital spending. The Medical Solutions segment saw a book to bill of 0.70 in the fourth quarter. The weaker bookings mainly reflect the normalization of lead times and softening of demand from some life science markets.

C product platforms as they ready their ramps for their 2024, new product launches in the second half.

For the full year. This segment saw excellent growth growing 17% year over year. The book to Bill for the full year with zero point 92. This reflects the resilient strength of demand in medical end markets.

We were pleased to see this segment delivered strong adjusted gross margins with margins, increasing 200 basis points for the full year. This.

This is driven by the dedicated efforts of our operating teams who are having success of deploying in Nevada to grow system tools deeper into their business operations.

The vitality index in the segment remained up mid teens percent of sales level in line with our expectations as we mentioned before we expect this metric to significantly rebound later in 2024, as we launched multiple new products with our customers in the second half of 2024.

Robert J. Buckley: However, we also saw some timing-related impacts from some of our medical customers managing the year-end inventory levels and from reducing orders on legacy product platforms as they ready their ramps for their 2024 new product launches in the second half. For the full year, this segment saw excellent growth, growing 17% year-over-year. The book-to-bill for the full year was 0.92.

Overall, our segments performed as we expected in the quarter and they were able to handle a variety of obstacles caused by a shifting macroeconomic environment. It's a testament to the strength of the talent in our businesses and the flexibility to adapt to a rapidly changing set of challenges. We are proud of our team's performance.

Robert J. Buckley: This reflects the resilient strength of demand for medical landmarks. We are pleased to see this segment deliver strong adjusted gross margins, with margins increasing 200 basis points for the full year. This is driven by the dedicated efforts of our operating teams who are having success deploying Novanta growth system tools deeper into their business operations. The vitality index in this segment remained at mid-teens percent of sales levels, in line with our expectations.

Now turning to guidance in our medical end markets, we expect to see different dynamics between our exposure at the surgical equipment versus life Sciences precision medicine equipment.

For surgical equipment, we are expecting a strong year of growth.

In the first half of the year, our legacy products would trend down muting growth as both customers phase them out in anticipation of new product launches and as we proactively phase out less attractive products to create capacity for the new product launches in the second half.

Robert J. Buckley: As we mentioned before, we expect this metric to significantly rebound later in 2024 as we launch multiple new products with our customers in the second half of 2024. Overall, our segments performed as we expected in the quarter, and they were able to handle a variety of obstacles caused by a shifting macroeconomic environment. It's a testament to the strength of the talent in our businesses and the flexibility to adapt to a rapidly changing set of challenges. We are proud of our team's performance.

However, these new launches are expected to lead to low double digit growth in the second half, allowing us to finish the year strong and positioning us well to sustain this growth into 2025 and beyond.

For life Science, and precision medicine equipment, we expect continued temporary weakness in the first half due largely to the interest rate environment pressuring capital spending in this industry, which will result in low single digit declines in sales.

Robert J. Buckley: Now turning to guidance. In our medical end markets, we expect to see different dynamics between our exposure to surgical equipment versus life science and precision medicine equipment. For surgical equipment, we are expecting a strong year of growth. However, in the first half of the year, our legacy products will trend down, muting growth as both customers phase them out in anticipation of new product launches and as we proactively phase out less attractive products to create capacity for new product launches in the second half. However, these new launches are expected to lead to low double-digit growth in the second half, allowing us to finish the year strong and positioning us well to sustain this growth into 2025 and beyond. For life science and precision medicine equipment, we expect continued temporary weakness in the first half due largely to the interest rate environment pressuring capital spending in this industry, which will result in low single-digit declines in sales.

In the second half these applications should return to growth as both product launches kick in and interest rates normalize, allowing the broader biopharma equipment market to stabilize and gradually improve we expect these dynamics will lead to overall growth rising to a low single digit levels in the second half.

In total for the full year, we expect our medical markets to see growth with strong growth weighted in the second half an.

In our advanced industrial end markets, we again see two different dynamics split between microelectronics versus all other applications.

And microelectronics, which represent approximately 7% of sales now we are seeing some early signs of improvement in the marketplace. We expect this end market to have flat growth in the first half of the year, but is expected to return to low double digit growth in the back half of the year.

This is caused by both incremental improvements in the end market and the impact of new product launches mainly in next generation lithography.

Robert J. Buckley: However, in the second half, these applications should return to growth as both product launches kick in and interest rates normalize, allowing the broader biopharma equipment market to stabilize and gradually improve. We expect these dynamics will lead to overall growth rising to low single-digit levels in the second half. In total, for the full year, we expect our medical markets to see growth, with strong growth weighted in the second half. In our advanced industrial land markets, we again see two different dynamics split between microelectronics versus all other applications in microelectronics, which represent approximately 7% of sales.

For the remainder of our advanced industrial exposures. These applications are more sensitive to interest rate and macroeconomic dynamics and therefore expect to see low single digit decline in the first half of the year. However in the second half of the year, we expect to see gradual improvement in demand as interest rates normalize new products and platforms ramp and 22.

Five demand start to appear in the order books, resulting in growth in the low to mid single digit range.

In total our advanced industrial markets should be roughly flat for the full year, but showing solid growth in the fourth quarter.

Let's start on the guidance for the full year 2024.

Robert J. Buckley: Now, we are seeing some early signs of improvement in the market. We expect the Fed market to have flat growth in the first half of the year, but it's expected to return to low double-digit growth in the second half of the year. This is caused by both incremental improvements in the ad market and the impact of new product launches, mainly in next-generation lithography. For the remainder of our advanced industrial exposures, these applications are more sensitive to the interest rate and macroeconomic dynamics, and therefore, we expect to see a low single-digit decline in the first half of the year.

For revenue guidance, we now expect GAAP revenue in the range of $975 million to 1 billion. This would represent low single digit organic growth for the full year.

On the segment level, we expect precision medicine, and manufacturing segment revenue to grow low single digit percent on a year over year basis, our robotics and automation segment revenues expected to grow low single digit percent year over year.

Finally, our medical solutions segment, which now includes the motion solutions acquisition.

Robert J. Buckley: However, in the second half of the year, we expect to see gradual improvement in demand as interest rates normalize, new products and platforms ramp up, and 2025 demand starts to appear in the order books, resulting in growth in the low to mid-single-digit range. In total, our advanced industrial markets should be roughly flat for the full year, but showing solid growth in the fourth quarter, to start the guidance for the full year of 2024. For revenue guidance, we now expect revenue in the range of $975 million to $1 billion. This would represent low single-digit organic growth for the full year.

We expect strong double digit reported growth driven largely by the addition of motion solutions and low single digit organic growth.

Moving onto do math as adjusted gross margin, we expect gross margin for the full year to be approximately 46% to 47%, which was roughly flat year over year.

Atlanta's core gross margins, excluding the motion solutions acquisitions will be up 100 basis points from the prior year.

As we mentioned before the motion solutions business will be dilutive in the first year or two as we ship their business into higher gross margin products and solutions.

Robert J. Buckley: On the segment level, we expect precision medicine and manufacturing segment revenue to grow at a low single-digit percent on a year-over-year basis. Robotics and automation segment revenue is expected to grow at a low single-digit percent year-over-year. And finally, our medical solutions segment, which now includes the motion solutions acquisition. We expect strong double-digit reported growth driven largely by the addition of motion solutions and low single-digit organic growth. Moving on to Novanta's adjusted gross margin, we expect gross margin for the full year to be approximately 46% to 47%, which is roughly flat year over year. Novanta's core gross margins, excluding the Motion Solutions acquisitions, will be up 100 basis points from the prior year.

In the segments, both the precision medicine manufacturing segment, and the robotics and automation segment should see healthy margin expansion for the full year in the range of 100 to 150 basis points. That's both these segments continue to execute our margin expansion plans using that prevent the gross system tools.

The medical solutions segment is expected to have gross margins down 50 to 100 basis points versus the prior year with strong margin expansion in Nevada. This core business is offset by the dilutive impact of motion solutions.

Turning to R&D and SG&A expenses, they are expected to be approximately 280 million to $290 million for the full year. The increase in costs year over year is largely driven by the addition of them motion solutions as well as labor cost increases and further investments in our innovative pipeline and some further investments.

Robert J. Buckley: As we mentioned before, the Motion Solutions business will be diluted in the first year or two as we shift their business into higher gross margin products and solutions. In this segment, both the Precision Medicine and Manufacturing segment and the Robotics and Automation segment should see healthy margin expansion for the full year in the range of 100 to 150 basis points as both these segments continue to execute on margin expansion plans using the Novanta Growth System tools. The medical solutions segment is expected to have gross margins down 50 to 100 basis points versus the prior year, as strong margin expansion in Novanta's core business is offset by the dilutive impact of motion solutions. R&D and SG&A expenses are expected to be approximately $280 million to $290 million for the full year. The increase in cost year-over-year is largely driven by the addition of motion solutions, as well as labor cost increases and further investments in our innovative pipeline, and some further investments in our commercial end. Depreciation expense should be approximately $16 million for the full year.

In our commercial engine.

Depreciation expense should be approximately $16 million for the full year and stock compensation expense should be approximately $29 million for the full year.

For adjusted EBITDA for the full year of 2024, we expect a range of $215 million to $225 million.

Interest expense, which was nearly $26 million in the full year of 2023 is expected to be roughly $31 million for the full year of 2020 for the higher interest rate expense year over year is driven by the additional borrowing on the motion solutions transaction.

We expect our non-GAAP tax rate to be around 18% for the full year of 2024.

The guidance includes our current view of the impact of O E. C. D pillar two global minimum tax rates.

Our current view is that the Vantiv has some exposure here, which has been factored in but the United States and China have not yet enacted the rules yet due to the uncertainty of whether and which countries womack the rules the timing of individual country legislation actions in the underlying complexity of the role the impact on us is not reasonably estimate able at this time.

Robert J. Buckley: And stock compensation expense should be approximately $29 million for the full year, whereas adjusted EBITDA for the full year of 2024 is expected to be a range of $215 million to $225. Interest expense, which was nearly $26 million in the full year of 2023, is expected to be roughly $31 million for the full year of 2024. The higher interest rate expense year-over-year is driven by the additional borrowing on the motion solutions transaction. We expect our non-GAAP tax rate to be around 18% for the full year of 2024. The guidance includes our current view of the impact of OECD Pillar 2 global minimum tax rates.

Diluted weighted average shares outstanding will be approximately 36 million shares.

For the full year of 2024 adjusted earnings per share is now expected to be $3 10 to $3 35.

For the first quarter of 2020 for.

Revenue guidance, we expect GAAP revenue in the range of 225 million to 230 million, which represent organic revenue declines between 6% and 4% on a year over year basis. We believe the first quarter represents a bottom for nomad does revenue on an organic basis due to both end market demand weaknesses and legacy <unk>.

Products phasing out in advance of new product launches in the second half.

On a segment level in the first quarter, we expect precision medicine and manufacturing revenue to decline mid single digits on a year over year basis, our robotics and automation segment revenue is expected to decline low double digit percent at our medical solutions segment is expected to demonstrate year over year double digit reported revenue growth in the first.

Robert J. Buckley: Our current view is that Novanta has some exposure here, which has been factored in, but the United States and China have not yet enacted the rules yet. Due to the uncertainty of whether and which countries will enact the rules, the timing of individual country legislative actions, and the underlying complexity of the rules, the impact on us is not reasonably estimatable at this time. Diluted weighted average shares outstanding will be approximately 36 million shares. For the full year 2024, adjusted earnings per share is now expected to be $3.10 and $3.35 for the first quarter of 2024. On revenue guidance, we expect revenue in the range of $225 million to $230 million, which represents organic revenue declines between 6% and 4% on a year-over-year basis. We believe the first quarter represents the bottom for Novanta's revenue on an organic basis due to both end market demand weaknesses and legacy products phasing out in advance of new product launches in the second half. On a segment level, we expect precision medicine and manufacturing revenue to decline mid-single digit on a year-over-year basis.

Order driven largely by the addition of motion solutions and organically. We expect this segment to be roughly flat year over year.

Moving onto adjusted gross margin, we expect to be approximately 45, 5% to 46% in the fourth in the first quarter.

Which is roughly flat year over year.

In this segments gross margins are expected to be flat to up sequentially in precision medicine, and manufacturing and robotics and automation. The medical solutions segment is expected to have a sequential decline in gross margins in the first quarter due to the dilutive impact of motion solutions for R&D and SG&A expenses, we expect.

To be approximately 69 million to $70 million.

Depreciation expense will be approximately $4 million in the first quarter.

Compensation expense will be approximately $8 million.

For adjusted EBITDA, We expect a range of 45 million to $48 million.

Interest expense is expected to roughly $9 million and we expect our non-GAAP tax rate to be around 18%.

Robert J. Buckley: Our Robotics and Automation segment revenue is expected to decline by low double-digit percent, and our Medical Solutions segment is expected to demonstrate year-over-year double-digit revenue growth in the first quarter, driven largely by the addition of motion solutions. And organically, we expect this segment to be roughly flat year-over-year. Moving on to Adjusted Growth Margin, we expect it to be approximately 45.5% to 46% in the first quarter, which is roughly flat year over year. In this segment, gross margins are expected to be flat to up sequentially in precision medicine and manufacturing and robotics and automation. The medical solutions segment is expected to have a sequential decline in gross margins in the first quarter due to the dilutive impact of motion solutions. For R&D and SG&A expenses, we expect to be approximately $69 million to $70 million. Depreciation expense will be approximately $4 million in the first quarter, and stock compensation expense will be approximately $8 million. For adjusted EBITDA, we expect a range of $45 million to $48 million. Interest expense is expected to be roughly $9 million, and we expect our non-GAAP tax rate to be around 18%.

For adjusted diluted earnings per share, we expect a range of 55 to 60 cents.

Following the close of the motion solutions acquisition, we expect gross debt at the end of the first quarter to be roughly 500 billion, giving us gross leverage ratio of approximately 2.5 times from a net debt perspective, we expect to be around two times.

Resuming no further acquisitions, our gross debt is expected to return to year end 2023 levels by year end 2020 for.

Finally, we expect cash flows to continue to improve in 'twenty 'twenty four following them and met them out of the second half of 2023, as we continue to rigorously manage our inventory and overall working capital levels.

We expect first quarter cash flow to be somewhat lower than the remainder of the year due to the timing of incentive compensation payments equity compensation vesting events timing of seasonal tax payments and the timing of certain capital expenditures related to the completion of our Manchester U K facility. However, we expect cash flow to strengthen as the year progressing.

Putting us on a great position to accelerate our acquisition strategy.

As always this guidance does not assume significant changes to foreign exchange rates.

Robert J. Buckley: For adjusted diluted earnings per share, we expect a range of 55 cents to 60 cents. Following the close of the Motion Solutions Acquisition, we expect gross debt at the end of the first quarter to be roughly $500 million, giving us a gross leverage ratio of approximately 2.5 times. From a net debt perspective, we expect to be around two times. Resuming no further acquisitions, our gross debt is expected to return to year-end 2023 levels by year-end 2024. Finally, we expect cash flows to continue to improve in 2024 following the momentum of the second half of 2023, as we continue to rigorously manage our inventory and overall working capital level. We expect first quarter cash flow to be somewhat lower than the remainder of the year due to the timing of its set of compensation payments, equity compensation vesting events, timing of seasonal tax payments, and the timing of certain capital expenditures related to the completion of our Manchester, U.K., facility

To wrap up guidance, we are excited about the prospect of delivering $1 billion in sales in 2024, we continue to feel strongly that we're the right end markets with attractive exposure to the secular growth applications and the right strategy for long term growth.

In summary, Nevada's performance in the fourth quarter and full year 2023 was solid and reflected excellent execution by our teams our teams delivered revenue and profit performance above our expectations and that dynamic operating environment.

This performance is yet another testament to the diversification resiliency of our business portfolio and the tenacity of our teams to achieve great results no matter the business environment.

Looking towards two any 24, we are confident in our ability to navigate the short term market based challenges and deliver on an ambitious plan for the year, including on executing new product launches happening in the second half of the year.

We continue to see long term growth prospects remaining strong and even accelerating on the back of exciting new product launches and our exposure to high growth end markets, both medical and advanced industrial applications.

We look forward.

Robert J. Buckley: However, we expect cash flow to strengthen as the year progresses, putting us in a great position to accelerate our acquisition strategy. As always, this guidance does not assume significant changes to foreign exchange rates. To wrap up guidance, we are excited about the prospect of delivering a billion dollars in sales in 2024. We continue to feel strongly that we are in the right end markets with attractive exposure to secular growth applications and the right strategy for long-term growth. In summary, Novanta's performance in the fourth quarter and full year 2023 was solid and reflected excellent execution by our teams.

Growing no vantage to a $1 billion company and beyond and we feel we have the right playbook to continue to deliver predictable consistent long term growth and shareholder value.

We remain very confident in our outstanding performance of our employees and their efforts to help us be successful in a dynamic environment and we remain grateful to our customers confidence and faith in our ability to deliver to them. The innovation they need to be successful, we look forward to continuing to deliver on our commitments to our employees our customers and our shareholders. This <unk>.

Close the prepared remarks, we'll now open the call up for questions.

We will now begin the question and answer session.

Ask a question you May press Star then one on your Touchtone phone.

Robert J. Buckley: Our teams delivered revenue and profit performance above our expectations in a dynamic operating environment. This performance is yet another testament to the diversification resiliency of our business portfolio and the tenacity of our teams to achieve great results no matter the business environment. Looking towards 2024, we are confident in our ability to navigate the short-term market-based challenges and deliver on an ambitious plan for the year, including executing new product launches happening in the second half of the year. We continue to see long-term growth prospects remaining strong and even accelerating on the back of exciting new product launches and our exposure to high growth and markets in both medical and advanced industrial applications. We look forward to growing Novanta to a billion-dollar company and beyond, and we feel we have the right playbook to continue to deliver predictable, consistent, long-term growth and shareholder value. We remain very confident in the outstanding performance of our employees and their efforts to help us be successful in a dynamic environment.

If you are using a speakerphone please pick up your handset before pressing the keys.

To withdraw your question. Please press Star then two.

Our first question will come from Lee Jagoda CJS Securities. Please go ahead.

Hi, good morning.

Accordingly.

So starting with the first half guidance.

Robert can you parse out how much of that guidance relates to the general macro in microelectronics and advanced industrial versus the piece, there where customers are basically pausing in anticipation of the new products later in the year.

Yeah, I would say less parking more phasing out our legacy products, so effectively ramp down any product that's going to be replaced with a new product to ensure you have a more successful launch on the new product launches.

So I would say for overall, Nevada, roughly half of it is related to that and half of it is the macroeconomic environment.

Gotcha.

And then looking at your full year revenue guidance.

Operator: And we remain grateful for our customers' confidence and faith in our ability to deliver to them the innovations they need to be successful. 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 up for questions. We will now begin the question and answer session. To ask a question, you may press star, then 1 on your touchtone phone.

Obviously second half weighted can you talk to the range of that guidance and how much of the low or high end of that range is based on the macro getting better and how much is based on the timing of the product launches at your customers.

Yeah. So we're not relying on a I would say an improving macroeconomic environment to get to $1 billion.

Lee Jagoda: If you are using a speakerphone, please pick up your handset before pressing the key. To withdraw your question, please press star then 2. Our first question will come from Lee Jagoda of CJS Securities. Please go ahead.

The $1 billion would represent the things that we can control. So obviously there'll be there's more stabilization in the market and you'll see sequentially improving environment.

But we're not banking on a very or not betting on a very large improvement in the macroeconomic environment in the second half in order to hit the top of the range. The bottom end of the range represents a deterioration in the macroeconomic environment. So the way we see it today as were sort of trending towards that $1 billion, if things worsen for geopolitical reasons.

Robert J. Buckley: Correctly. So, starting with the first half, guidance. Robert, can you parse out how much of that guidance... This relates to the general macro in microelectronics and advanced industrial vs., the piece where customers are basically pausing in anticipation of the new products. Yeah, I would say let's pause more phasing out a legacy product and effectively ramp down any product that's going to be replaced with a new product to ensure you have a more successful launch on the new product launches. So I would say, for overall Novanta, roughly half of it is related to that.

Or some other shoe drops on a macroeconomic perspective, then that's where we see ourselves trading into the.

The lower end of the range Theres nothing that we see today that would necessarily deliver that but we wanted to be prudent in the guidance for the full year.

Right.

Fair enough, one more and I'll hop back in queue.

Robert J. Buckley: And half of it is the macroeconomic environment, gotcha. And then looking at your full year revenue guide. Obviously, the second half, Wade.

Obviously, you know world of Medicine is driving a lot of the growth coming in late 'twenty four and into 25 can you talk to some of your customers product Roadmaps.

Robert J. Buckley: Can you talk about the range of that guidance and how much of the lower high end of that range is based on the macro getting better, and how much is based on the timing of the product? Yeah, so we're not relying on an, I would say, improving macroeconomic environment to get to a billion dollars. The billion dollars represent the things that we can control. So obviously, there'll be more stabilization in the market, and you'll see a sequentially improving environment, but we're not banking on a very, or not betting on a very large improvement in the macroeconomic environment in the second half in order to hit the top of the range. The bottom end of the range represents a deterioration of the macroeconomic environment.

Look out to 'twenty 'twenty five in and maybe speak to any other significant products or specific drivers of growth beyond the world of medicine that we should start to think about.

Yes, Lee this is Sid this is <unk>.

Yeah. So I spoke about that the amount of products that we're launching this year is 50% larger than last year.

And so that's a record amount of new product launches and they're pretty broad base. So it's not all.

Madison right. So we spoken a lot about I think the smoke evacuation side of course that we think is going to be a standard of care for the next decade.

Robert J. Buckley: So the way we see it today is that we're sort of trending towards that billion dollars. If things worsen for geopolitical reasons or, you know, some other shoe drops on a macroeconomic perspective, then that's where we see ourselves trending to the lower end of the range. There's nothing that we see today that would necessarily deliver that, but we wanted to be prudent in the guidance for the full year. Fair enough. One more and I'll hop back in.

As well as the date the pump side of that business that we're getting into and we're getting successful design wins, but beyond that.

I've talked before but I, but let me repeat that.

We're gaining content and the deep UV UV lithography side of the business that is an exciting application for us.

We expect that to.

Matthijs Glastra: Obviously, you know, the world of medicine is driving a lot of the growth coming late 24 and into 25. Can you talk about some of your customers' product roadmaps as you look out to 2025 and maybe speak to any other significant product drivers, growth beyond the world of medicine that we should start to think about? Yeah, Lee. This is Matthijs.

Yes show.

You know some some first revenue later in the year and then with strong momentum in 2025.

We see a lot of intelligent subsystem momentum in precision medicine of spatial biology and multi omics.

Back over Moshe or motion solutions acquisition overseeing is moshe.

Motion solutions has a lot of.

Great a great customer base in the segments that we were eyeing and they already know the people. There. So we can accelerate our strategy there that way and vice versa. We can help motion solutions to accelerating customers that we are in and they are now.

Matthijs Glastra: Yeah, so I spoke about that the amount of products that we're launching this year is 50% larger than last year. And so that's a record number of new product launches, and they're pretty broad-based.

Matthijs Glastra: So it's not just the world of medicine, right? So we've spoken a lot about, I think, the smoke evacuation side, of course, that we think is going to be a standard of care for the next decade, as well as the pump side of that business that we're getting into, and we're getting successful design wins. But beyond that, I've talked about it before, but let me repeat that we're gaining content in the DPV EUV lithography side of the business. That is an exciting application for us. We expect that to show, you know, some first revenue later in the year and then strong momentum in 2025. We see a lot of intelligent subsystem momentum in precision medicine and spatial biology and multiomics on the back of MOSO's or Motion Solutions' acquisition.

That we see beam delivery sub systems for advanced micro machining electric vehicle battery and battery welding converting we spoken about this.

As well in the past and.

These products are launching as we speak are being launched in the second half of the year in 2025.

I mean, you see an overall trend of more precision more curiously at Super high throughput and yeah, we have leading technology. There. So whenever you see applications that will drive next generation manufacturing technologies to achieve these are curious he's like a three D pre.

I'm thinking of like electric vehicle battery welding like let's say precise medical manufacturing right at at a sub micron level chances are we worried those machines and there's a trend more towards intelligent subsystems that we're excited about it and then you know we got the whole robotics, you know to me.

Matthijs Glastra: What we're seeing is Motion Solutions has a lot of great customer base in the segments that we were eyeing, and they already know the people there, so we can accelerate our strategy there. That way, and vice versa, we can help Motion Solutions to accelerate in customers that we are in and they're not. Then we see beam delivery subsystems for advanced micromachining, electric vehicle battery welding, and converting.

<unk> space of course on the back of Rad Ti acquisition, but also on the back over own let's say original core business, where we see both the sensing the force sensing as well as the positioning and the intelligence that drives.

Matthijs Glastra: We've spoken about this as well in the past, and these products are being launched as we speak, will be launched in the second half of the year in 2025. I mean, you see an overall trend of more precision and more accuracy at super-high throughput. And yeah, we have leading technology there. So whenever you see applications that will drive next-generation manufacturing technologies to achieve these accuracies, like 3D printing, like electric vehicle battery welding, like, let's say, precise medical manufacturing, right, at the submicron level, chances are we're in those machines.

All gaining momentum in robotic surgery, but also weyerhaeuser automation and general industrial robotics markets right. So it's basically we are enabling and sense of touch and motion control in these applications with unique.

GAAP proprietary technologies. So in other words the list is long.

You know the impact is a bit more consolidated in the warm business for sure, but you see it.

A large breadth of new products and applications and therefore, that's why we feel confident and are excited about that breadth and depth potential.

Matthijs Glastra: And there's a trend more towards intelligent subsystems that we're excited about. And then we've got the whole robotics and automation space, of course, on the back of our ATI acquisition, but also on the back of our own, let's say, original core business, where we see both the sensing, the four-stroke sensing, as well as the positioning and the intelligence that drives, all gaining momentum in robotic surgery, but also warehouse automation and general industrial robotics markets, right? So basically, we are enabling a sense of touch and motion control in these applications with unique proprietary technology. So, in other words, the list is long.

No that's great color, thanks, very much I'll hop back in queue.

Sure.

The next question comes from Brian Drab of William Blair. Please go ahead.

Hi, good morning, Thanks for taking my questions.

Right.

Morning, you ran through a lot of numbers really quickly in terms of the guidance sorry, if I missed this but can you aggregate all the dynamics that are occurring in the second half.

And tell us what you expect for overall company revenue growth in the second half.

I think if you do the range you do the if you base it off of what I gave in guidance for the first quarter.

Matthijs Glastra: You know, the impact is a bit more consolidated in one business, for sure, but you see a large breadth of new products and applications. And therefore, that's why we feel confident and are excited about that breadth and that potential. That's a great color.

And then look at the full year and let's say you are trending up towards like $1 billion for the full year.

Youll, probably see growth returning to our long term growth averages in the third quarter, and then into the fourth quarter getting to double digit type growth.

Lee Jagoda: Thanks very much. I'll have, but the next question comes from Brian Drab of William Blair. Please go ahead.

As the new products really kick in in a number of different areas, including in the medical solutions being the the magnitude of that.

Brian Drab: Good morning. Thanks for taking my questions. Robert, good morning.

Or somewhat $6 for the first half of the year being down organically with with it being down more in the first quarter and really less in the second quarter.

Robert J. Buckley: You ran through a lot of numbers really quickly in terms of the guidance, so sorry if I missed this, but can you aggregate all the dynamics that are occurring in the second half and tell us what you expect for overall company revenue growth in the second half? I think if you do the range, if you base it off of what I gave in guidance for the first quarter and then look at the full year, let's say you're trending up towards like a billion dollars for the full year, you'll probably see growth return to our long-term growth averages in the third quarter and then in the fourth quarter, getting to double-digit type growth as the new products really kick in in a number of different So that's the dynamics, and I would say that the first half performance is more complicated than the second half.

So that's the dynamics, but I would say that the the first half performance is more complicated than the second half. The second half performance is really just the stabilization of the market driven by new product introductions driving growth above let's say the macroeconomic conditions in the first half of the year you have.

Some customers are.

Pulling back on any sort of legacy products that make their launches more successful in the back half of the year and.

And so that's a you've got inherent weakness in the life science space.

Weakness in the industrial space stripe on the medical side being somewhat offset by the fact that they are scaling our phasing out those legacy products.

Robert J. Buckley: The second half performance is really just the stabilization of the markets, driven by new product introductions, driving growth above, let's say, macroeconomic conditions. In the first half of the year, you have some customers pulling back on any sort of legacy products that make their launches more successful in the back half, and so that's an inherent weakness in the life science space, continued weakness in the industrial space, strength on the medical side being somewhat offset by the fact that they are scaling or phasing out those legacy products. But the overall year, we feel pretty good about it. So as I said before to the last caller, you know we're trending right now closer to that billion dollar level based upon economic conditions. We're not banking on the economy improving in order to get there.

But the overall year, we feel pretty good about so as I said before to the last caller.

We're trending right now closer to that 1 billion dollar level base.

Based upon the economic conditions, we're not banking on the economic conditions are improving in order to get there. We're really just assuming that the current stabilized market environment that we're operating and we will continue on our new products will accelerate our growth in the second half.

Alright, and and I you made this comment I think pertaining to one specific segment, but you said that you know if we can.

Get to low double digit growth in the second half.

Robert J. Buckley: We're really just assuming that the current stabilized market environment that we're operating in will continue and our new products will accelerate our growth in the summer. And you made this comment, I think, pertaining to one specific segment. But you said that, you know, if we can get to low double-digit growth in the second half, expect to be able to sustain that as you enter 2025. I think that was just for one segment.

We expect to be able to sustain that as you enter 2025 and I think that was for one segment that wasn't for the company overall or does that kind of comment.

Pertaining to the company overall as well.

Yeah, I think it gives us the greater most of that was a relation to the medical solutions area. Because you have a larger above average ramp of new products.

Effectively we've talked about this before within the <unk> space, we have a one off.

Robert J. Buckley: That wasn't about the company overall? Or does that kind of comment probably pertain to the company overall as well? Yeah, I think it gives us a greater sense of relation to the medical solutions area because you have a larger above average ramp in new products. Effectively, you know, we've talked about this before. Within the MIS space, we have a multitude of new customers for our next generation, second generation smoke evacuation products. And so that's all that resulted in that double digit growth in the fourth quarter. And then that stable that continuing momentum goes into 2025 because of those new product launches. That's a dynamic that Matthijs talked about around that 50 million dollars of incremental new product revenue being driven from that. There's an element of that also benefiting our precision medicine and manufacturing segment. You know, so there should be a little bit stronger growth in 2025 as well. I didn't want to kind of get into that as much.

A multitude of new customers.

For our next generation second generation spoke evacuation products and so that's all that resulted in that double digit growth in the fourth quarter and then in that stable that continued momentum goes into 2025 because of those new product launches. So that's a dynamic that the tide is talked about around that $50 million.

Incremental new product revenue being driven from that Theres, an element of that also benefiting our precision medicine and manufacturing segment. So there should be a little bit stronger growth in 2025, as well I I didn't want to kind of get into that as much. There's some other dynamics in play that are a little bit more comps.

Catered to forecast at this point, but you know clearly are ramping up in next generation lithography.

Robert J. Buckley: There are some other dynamics in play that are a little bit more complicated to forecast at this point. But, you know, clearly ramping up in next-generation lithography and the continued strength and recovery that we expect from next-generation DNA sequencing will help that segment drive strong growth as we exit 2024. Okay, and my last question for now. I'm going to push this line of questioning just a little bit further. How important are the consumables? revenue stream that's going to follow or should follow the introduction of these, you know, the new insufflator, some of these platform wins, the consumables, have been a relatively small part of the business, but does that get bigger following these introductions? Yeah, it absolutely does.

<unk> strength of recovery that we expect from next generation DNA sequencing will help that segment drive up strong growth as we exit 2024.

Okay and then my last question for now I'm going to push this line of questioning just a little bit further but.

How.

Important is the consumables.

Revenue stream, that's going to follow it should follow the introduction of.

These these you know the new Insufflator that some of these platform wins with consumables.

It's been a relatively small part of the business, but does that get bigger following these interests.

Yeah. It absolutely does so I don't want to get into like how big it is because that would be the question you asked nice, but it effectively will double as well and so the medical consumables that the great attractiveness around that is that its a consumable it's not tied to capital cycles. It will be very tight.

Robert J. Buckley: So, you know, I don't want to get into how big it is because that will be the question you ask next, but it effectively will double as well. And so the medical consumables, the great attractiveness around that is that it's a consumable. It's not tied to capital cycles.

To.

Surgical procedure rates surgical procedure rates.

Matthijs Glastra: It will be very tied to surgical procedure rates. Surgical procedure rates are around 6% on a global basis. And so you drive this very steady annuity of around 6% in the medical field tied to our proprietary second generation smoke evacuators. And it allows us to drive a real sustainable cash flow stream. Now, even though we've talked about it before, we've ramped up and completed our Czech Republic manufacturing facility, and we are pushing volumes through that now. It is complete and qualified, and we are so confident that we will begin to implement that. That will drive higher gross margin expansion in that segment for the next few years. It also allows us to really drive a higher EBITDA margin because the medical consumables don't have operating expenses. They lever off of capital equipment sales. And then think of it as being, you know, it's reoccurring as soon as we get the system in place. We have that annuity stream lasting up to 10 years off those systems, the ties. Yeah. No, that's great, Robert.

Are around 6% on a global basis, and so you drive this very steady annuity of around 6% in the medical field tied to our proprietary second generation.

Smoke evacuate or us and it allows us to drive a real sustainable cash flow streams now, even though we've talked about it before we've ramped and completed our Czech Republic manufacturing facility. We are pushing volume through that now it is complete and qualified and so confident that we will begin to insert.

That will drive the higher gross margin expansion in that segment for the next few years.

It also allows us to really drive a higher EBITDA margin because of the medical consumables don't have the operating expenses, they're there they lever off of the capital equipment sales.

And then think of them as being you know, it's it's reoccurring as soon as we get the system in place we have that annuity stream last thing up to 10 years off of those systems <unk> No no.

That's great color, Robert I would just say underneath right, Brian it's about winning capital equipment swaps right. So you can kind of drive the installed base or water to customers can drive. So we've won new slots that we never had before.

Robert J. Buckley: I would just say underneath, right, Brian, it's about winning capital equipment slots, right? So you can kind of drive the installation phase, or rather, the customers can drive it. So we've won new slots that we never had before, and then we've won slots where we didn't have prior consumable revenue streams. In other words, the percentage of business where we've won basically touch rates with consumables has increased with those designs. Secondly, there's a trend toward more, I would say, sophisticated consumables, which means higher ASPs, right? We're solving more and more complex problems to make sure that more and more, I would say, indications can be served with our consumables.

And then we've won slots that where we didn't have prior D. The consumable revenue stream. So in other words the percentage of business, where we've won basically attach rates with consumables has increased with those design wins.

Secondly, there.

There is a trend towards more I would say sophisticated consumables, which means higher asp's right, we're solving more and more complex problems to make sure that.

More and more I would say indications can be served with our consumables.

Matthijs Glastra: And then third, we're entering into pumps, which in a way is kind of a greenfield opportunity for us where we didn't have a position to begin with. So all of these things together, you can kind of see where we win more installed base, that will drive more consumables, and we have higher ASPs, and that will then drive, of course, additional growth. And over time, I think in this business, you can expect that consumable business to be larger than our capital equipment business. Okay. Thanks very much.

And third we're entering into pumps, which in a way as is.

Yeah kind of a greenfield opportunity for us where we didn't have a position to begin with so so all these things together you can kind of see where we win more installed base that will drive more consumables that we have higher asp's and that will then drive of course additional growth and overtime.

I think in this business you can expect that consumable that business to be larger yeah, Dan our capital equipment business.

Perfect. Okay. Thanks very much.

Brian Drab: Thank you. The next question comes from Rob Mason of Baird. Please go ahead.

Thank you.

The next question comes from Rob Mason of Baird. Please go ahead.

Hi, good morning.

Robert W. Mason: Hi, good morning. I wanted to circle back to just try to get clarification with Robert on your full guidance revenue guidance for the year. Low single-digit core growth, you said, so I'm assuming around $85-90 million from Motion Solutions. What is the headwind from some of the product ramp-down that's dialed into that low single-digit core growth? Yeah, I won't give an exact number, but if you take the first half growth rates, you know, I would say, you know, half of it is related to the macroeconomic environment, and half of the decline is related to the product ramp-downs of legacy products and just management of those legacy products by our customers. So, you know, if you took that in a full-year organic, you know, kind of that low single-digit, So that gives you a little bit of that scaling, right?

Wanted to circle back to just trying to get clarification, Robert within the within your full guidance revenue guidance for the year.

Low single digit core growth you said, so I'm, assuming around 80 590 million for them from motion solutions, what is the headwind from some of the product.

Ramped down our debts.

Dialed into that low single digit core growth rate.

Yeah.

I won't give an exact number but if you take the first half growth rates, you know I would say.

Half of it is related to after the decline is related to the macroeconomic environment and half of that decline is related to the product ramp downs of legacy products.

And just management of those legacy products by our customers. So if you take that in the full year organic you know kind of that low single digit you'd probably be closer to.

Being in the mid single digit territory for the full year. So that gives you a little bit of that scaling right and it's mostly a first half dynamic versus second half dynamic.

Robert J. Buckley: And it's mostly a first-half dynamic versus second-half dynamic, which is where the, you know, where it's kind of predominantly related to the medical solutions side of the thing. Okay. And if, um, appreciate the commentary, uh, just around the overall high level between, you know, the surgical exposure versus life sciences patient monitoring. How does that exposure break down?

Which is where the you know where it's kind of predominantly related to the medical solutions side of the segments.

Okay, and if I appreciate the commentary.

Just around medical overall high level between the surgical.

As you versus life Sciences patient.

How does that exposure breakdown or what percentage of surgical versus life science patient monitoring.

Robert J. Buckley: Or, what percent is surgical versus life science patient monitoring? You know, I think it's a question that we are delinquent on answering. You've asked us that a few times.

I think it's a question that we are delinquent on answering you've asked US a few times, we do have to get bad.

Robert J. Buckley: We do have to get that, get some information out on that. We, I apologize for not completing that by year end. It's fair to say, you know, the overall kind of medical solutions is, you know, roughly half of it is tied to more of a pure hospital, a pure minimum base of surgical business. And then the other half of it ties to more of that mix of life science, precision medicine, and some stuff going into, you know, patient monitoring equipment and drug dispensing.

Get some information out on that I apologize for not completing that by year end.

It's fair to say you know overall kind of medical solutions is roughly half of it is tied to more of a pure.

Hospitals are pure minimum invasive surgical business and then the other half of it ties more of that mix.

Of of life Science precision medicine, and some stuff going into you know patient monitoring equipment.

And drug dispensing equipment.

Robert J. Buckley: So it's roughly 50-50 in the medical solutions segment overall. OK. And just maybe last question, Matthijs, you had noted ATI had seen some improvement in their bookings in the robotic space. Could you just maybe isolate where they were seeing some of those improvements? Is China part of that improvement, or what's the perspective, you know, how China factors into advanced industrials in the outlook as well? Yeah, I mean, China. We're seeing some modest improvement, but I think it's fair to say we're not banking on an improvement there for the full year, right? Because, yeah, I would say that's probably the region where we have the least visibility and where it's, yeah, the toughest to say when that will occur.

So it's roughly 50 50 in the medical solutions segment overall.

Okay. Okay.

Maybe last question.

Natasha you had noted a T I had seen some improvement in their bookings.

In the robotics space could you just maybe.

Isolate on where they were seeing some of those improvements is China, you know part of that improvement or what's the perspective, you know how China factors into advanced industrial any outlook as well.

Yeah, I mean, China, we were seeing some modest improvement, but I think it's fair to say, we're not banking on an improvement there for the full year right because yeah I would say, that's probably the region, where we have least visibility and where it's tough to say.

When that will Turing now, having said that we do feel that globally and particularly in the U S.

Matthijs Glastra: Now, having said that, we do feel that globally, and particularly in the US, inventories have worked their way down or are working their way down. And therefore, we think that, yeah, sequentially, basically, throughout the year, that will improve and drive the momentum. So I would say regionally, probably the US the strongest. Europe, Guangdong, and then China remain to be seen, although we see some green shoots there as well, albeit from a low level, yeah?

Inventories have worked their way down or are working their way down.

And therefore, we think towards yeah sequentially basically in the year that will improve and drive the momentum. So I would say regionally probably use the strongest.

Europe Bottoming and then China.

<unk> remains remains to be seen although we see some green shoots there as well, albeit from a low level yeah.

Matthijs Glastra: And we're not in our guide, assuming a massive recovery or so, yeah? Okay. Very good. Thank you. Thanks, Rob.

And we're not in our guide.

Assuming a massive recovery or so yeah.

Okay very good thank you.

Thanks, Rob.

This concludes our question and answer session I would like to turn the conference back over to Mr. Matthias Squashed off for any closing remarks.

Matthijs Glastra: This concludes our question and answer session. I would like to turn the conference back over to Mr. Matthijs Glastra for any closing remarks. Thank you, operator.

Thank you operator, so to recap <unk> delivered solid performance in 2023 in the fourth quarter and for the full year, our teams delivered revenue and profit performance above our expectations and in dynamic operating environment.

Matthijs Glastra: So to recap, Novanta delivered solid performance in 2023 in the fourth quarter and for the full year. Our teams delivered revenue and profit performance above our expectations in a dynamic operating environment. We achieved record revenue, excellent gross margin expansion, and solid profit and cash flow performance. And this came despite some challenging headwinds in the end markets we served.

We achieved record revenue excellent gross margin expansion and solid profit and cash flow performance.

And this came despite some challenging headwinds in the end markets we serve.

Matthijs Glastra: And we secured the motion solutions acquisition, which will be an attractive growth platform for us in 2024 and beyond. Thus, Novanta remains well positioned in the medical and advanced industrial end markets with diversified exposure to long-term secular micro trends and robotics and automation, precision medicine, minimally invasive surgery, and industry 4.0. And in 2024, we're excited about the large product launches starting later this year, and we will continue to focus on additional design wins and high growth applications, as well as doubling down on the Novanta growth system to drive strong cash flows and gross margin expansion.

And we secured the motion solutions acquisition, which will be an attractive growth platform for us in 2024 and beyond so no event that remains well positioned in the medical and advanced industrial end markets with diversified exposure to long term secular macro trends of robotics and automation precision medicine, minimally invasive surgery and industry photo, though and in 2020.

We're excited for.

For the large product launches starting later this year and we will continue to focus on additional design wins in high growth applications as well as doubling down on the move into gross system to drive strong cash flows and gross margin expansion in.

Matthijs Glastra: In closing, as always, I would like to thank our customers, our employees, and our shareholders for their ongoing support. And I continue to be especially grateful for all the dedicated efforts of all our employees who work so diligently every day, taking on new challenges and striving to make the company a great place to work. 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 for our first quarter and 2024 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. BF-WATCH TV 2021

Closing as always I'd like to thank our customers are.

Our employees and our shareholders for their ongoing support and I continue to be especially grateful for all the dedicated efforts of all our employees who work so diligently every day.

And taking on new challenges and striving to make the company grow.

Great place to work we appreciate your interest in our company and your participation in today's call I look forward to joining all of you in several months in our first quarter and 22.

24 earnings call. Thank.

Thank you very much this call is now adjourned.

The conference has now concluded. Thank you for attending today's presentation and you may now disconnect.

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