Q1 2024 Novanta Inc Earnings Call
Good morning, My name is Gary and I will be your conference operator today at this time I would like to welcome everyone know Vance Incorporated's first quarter 'twenty 'twenty four earnings call.
Gary: Good morning, my name is Gary, and I will be your conference operator today. At this time, I would like to welcome everyone to Novanta Incorporated's first quarter 2024 earnings call. All lines have been placed on mute to prevent any background noise.
Gary: All lines have been placed on mute to prevent any background noise.
Gary: After the Speakers' remarks, there will be a question and answer session.
Gary: To ask a question you May press Star then one on your telephone keypad to withdraw your question. Please press Star then two.
Gary: Please note this event is being recorded.
Gary: 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 telephone keypad. 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.
Gary: I would now like to turn the conference over to Ray Nash Corporate Finance leader for Nevada. Please go ahead.
Gary: Thank you very much good morning, and welcome to the Vantiv first quarter 'twenty 'twenty four earnings conference call I'm Ray Nash corporate finance leader for an advance up with me on today's call is our chair and Chief Executive Officer, Matthias <unk>, and our Chief Financial Officer, Robert Buckley.
Ray Nash: Thank you very much. Good morning, and welcome to Novanta's first quarter 2024 earnings conference call. I'm 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've not received a copy of our earnings press release issued today, you may obtain it from the investor relations section of our website at www.novanta.com. Please note this call is being webcast live and will be archived on our website shortly after the call.
Ray Nash: If you've not received a copy of our earnings press release issued today you may obtain it from the Investor Relations section of our website at Www Dot <unk> Dot com.
Ray Nash: Please note this call is being webcast live and will be archived on our website shortly after the call before.
Ray Nash: 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 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.
Ray Nash: 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 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.
Ray Nash: 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: 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. So you should not rely on any of these forward-looking statements as representing our views at any time after this call. During this call, we will be referring to certain non-GAAP financial measures. A reconciliation of such non-GAAP financial measures to the most directly comparable GAAP measures is available as an attachment to our earnings press release.
Ray Nash: 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.
Ray Nash: 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.
Ray Nash: 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.
Matthijs Glastra: I'm now pleased to introduce the chair and Chief Executive Officer of Nevada Matteis classroom.
Matthijs Glastra: Thank you, Ray. Good morning, everybody, and thanks for joining us on our call. Novanta delivered great operating performance in the first quarter of 2024. I'm very pleased with how our teams delivered revenue, profit, and cash flow performance above our expectations in a dynamic market environment. For the first quarter, we delivered $231 million in revenue, which beat our previous guidance and represents reported growth of plus 5% and a decline of 4% on an organic basis.
Matthijs Glastra: Good morning, everybody and thanks for joining our call no Vincent delivered great operating performance in the first quarter of 'twenty 'twenty four I'm very pleased with how our teams delivered revenue profit and cash flow performance above our expectations in a dynamic market environment.
Matthijs Glastra: For the first quarter, we delivered $231 million in revenue, which beat our previous guidance.
Matthijs Glastra: And represents reported growth of plus 5% and a decline of 4% alone organic basis.
Matthijs Glastra: Adjusted gross margins were at 46%, which was slightly up year-over-year as our core businesses expanded margins by nearly 200 basis points year-over-year, which more than offset the dilutive effect of the Motion Solutions Acquisition. And to add, that was $50 million, beating our expectations and prior guidance. Operating cash flow was very strong for the third straight quarter at approximately $33 million, which represents more than 200% growth year over year.
Matthijs Glastra: Adjusted gross margins were at 46%, which was slightly up year over year as our core businesses expanded margins by nearly 200 basis points year over year, which more than offset the dilutive effect of the motion solutions acquisition.
Matthijs Glastra: Adjusted EBITDA was $50 million, beating our expectations and prior guidance.
Matthijs Glastra: Operating cash flow was very strong for the third straight quarter at approximately $33 million, which represents more than 200% growth year over year.
Matthijs Glastra: This operating performance reflects excellent execution by our teams in a challenging macroeconomic environment. The Sticky Novanta business model, with diversified exposure to long-life-cycle customer platforms in secular high-growth markets, has proven resilient under multiple geopolitical and macroeconomic scenarios. Our proprietary technologies are well-positioned in medical and advanced industrial applications with long-term secular tailwinds, such as robotics and automation, minimally invasive and robotic surgery, and precision medicine. In the first quarter, the broader end market themes were consistent with what we saw at the end of 2023, namely that medical technology markets continue to be robust, whereas life sciences and advanced industrial markets remain subdued due to the interest rate and regional economic challenges. Microelectronics remains stable at a lower level, with some early signs of green shoots gradually appearing.
Matthijs Glastra: This operating performance reflects excellent execution by our teams in a challenging macroeconomic environment.
Matthijs Glastra: Just thinking about the business model with diversified exposure to long lifecycle customer platforms and secular high growth markets has proven resilient under multiple geopolitical and macroeconomic scenarios. Our proprietary technologies are well positioned in medical and advanced industrial applications with long term secular tailwind such as robotics and other.
Matthijs Glastra: <unk> minimally invasive and robotic surgery and precision medicine.
Matthijs Glastra: In the first quarter the broader end market fees were consistent with what we saw at the end of 2023, namely that medical technology markets continued to be robust, whereas life Sciences and advanced industrial markets remain subdued due to the interest rate and regional economic challenges.
Matthijs Glastra: Microelectronics remained stable at a lower level with some early signs of green shoots gradually appearing.
Matthijs Glastra: As a result of this, our view of customer demand for the full year is consistent with what we said in our last earnings call. However, we continue to see a weaker demand environment in the first half of 2024. However, in the second half of the year, we continue to expect accelerating momentum for Novanta on the back of our new product launch. Therefore, we're staying focused on what we can control, which is reflected in our top three priorities for 2024, launch a record set of new products which ramp in the back half of the year.
Matthijs Glastra: As a result of this our view of customer demand for the full year is consistent with what we said in our last earnings call. We continue to see a weaker demand environment in the first half of 'twenty 'twenty four.
Matthijs Glastra: However in the second half of the year, we continued to expect accelerating momentum for November on the back of our new product launches. Therefore, we're staying focused on what we can control, which is reflected in our top three priorities for 2024.
Matthijs Glastra: First lounge.
Matthijs Glastra: As long as you're a record set of new products, which ramp in the back half of the year second expand margins and cash flow using the Nevada gross system and third continuing to acquire additional companies that fit our strategy at attractive returns.
Matthijs Glastra: Second, expand margins and cash flow using the Novanta Growth System. And third, continue to acquire additional companies that fit our strategy and offer attractive returns. Turning back to the first quarter, we saw strong sequential improvement in our bookings activity, with bookings growing more than 20% sequentially, excluding the sequential impact of the motion solutions acquisition. Our total book to build was $0.87, which is also an incremental improvement versus last quarter.
Matthijs Glastra: Turning back to the first quarter, we saw strong sequential improvement in our bookings activity with bookings growing more than 20% sequentially, excluding the sequential impact of the motion solutions acquisition.
Matthijs Glastra: Our total book to Bill was 0.87, which is also an incremental improvement versus last quarter.
Matthijs Glastra: We see this as a sign of bookings of market stabilization with some end market is already showing early signs of improvement.
Matthijs Glastra: We see this as a sign of bookings and market stabilization with some end markets already showing early signs of improvement. Going into more detail, for the first quarter of 2024, sales to medical markets made up approximately 55% of total Novanta sales and grew 9% versus the prior year on a reported basis, but declined low single digits on an organic basis. We saw strong double-digit growth in multiple application areas. However, this market-based growth was offset by a few factors.
Matthijs Glastra: Going into more detail for the first quarter in 2024.
Matthijs Glastra: The medical market is made up of approximately 55% of total <unk> sales and grew 9% versus the prior year on a reported basis, but declined low single digits on an organic basis, we saw strong double digit growth in multiple application areas. However is market based growth was offset by a few factors.
Matthijs Glastra: First, as we discussed before, we see some timing-related impacts from some of our medical customers managing current inventory levels in the first half to help build up demand for their product launches in the second. In addition, we are proactively winding down some older non-strategic product categories, such as surgical displays, to reallocate resources to create additional capacity and support for the significant ramp-up of next-generation medical insufflators. The accelerated exit of these non-core products, in close collaboration with our customers, will be a one to two point headwind on overall Novanta sales in the second quarter and will also have an impact for the rest of the year, but significantly de-risks the new product ramps in the second half.
Matthijs Glastra: First as we discussed before we see some timing related impacts from some of our medical customers managing current inventory levels in the first half.
Matthijs Glastra: To help build up demand for their product launches in the second half.
Matthijs Glastra: In addition, we are proactively winding down some older non strategic product categories, such as surgical displays.
Matthijs Glastra: To relocate our resources to create additional capacity and support for the significant ramp over next generation medical Windsor fighters.
Matthijs Glastra: The accelerated exit of these noncore products in close collaboration with our customers will be a one to two point headwind on overall move into sales in the second quarter and.
Matthijs Glastra: We will also have an impact for the rest of the year, but significantly de risks the new product ramps in the second half.
Matthijs Glastra: Turning to the advanced industrial markets, for the first quarter, sales to advanced industrial markets, excluding microelectronics applications, were up 3% year-over-year on a reported basis and down 1% on an organic basis, and made up approximately 37% of total Novanta sales. Dismuted sales performance across this end market was in line with our expectations due to the interest rate environment and regional economic challenges.
Matthijs Glastra: Turning to the advanced industrial markets for the first quarter since the advanced industrial markets. Excluding microelectronics applications were up 3% year over year on a reported basis and down 1% on an organic basis.
Matthijs Glastra: It made up approximately 37% of total momentous feels dizzy muted as soon as performance across this end market was in line with our expectations due to the interest rate environment and regional economic challenges.
Matthijs Glastra: While these trends are expected to continue in the near term, customers are using the slowdown to catch up on next-generation innovation. As a reminder, Novanta plays in advanced industrial applications with long-term, mid- to high-single-digit growth driven by secular trends such as Industry 4.0, robotics and automation, and precision manufacturing. Finally, speaking to our microelectronics applications, these represented just 8% of sales in the first quarter.
Matthijs Glastra: While these trends are expected to continue in the near term customers are using this slow down to catch up on next generation innovations.
Matthijs Glastra: As a reminder November plays in advance industrial applications with long term mid to high single digit growth driven by secular trends such as industry photo robotics and automation and precision manufacturing.
Matthijs Glastra: Finally speaking to our microelectronics applications. These represented just 8% of sales in the first quarter as.
Matthijs Glastra: Sales were roughly consistent sequentially, and there was a negligible impact on year-over-year sales growth. Across all our end markets, we continue to stay focused on gaining content and share with intelligent subsystems into multiple high-growth application areas. 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 and precision manufacturing applications, and advanced motion solutions for robotics and automation applications.
Matthijs Glastra: As soon as were roughly consistent sequentially and there was a negligible impact on year over year sales growth.
Matthijs Glastra: Of course or end markets. We continue to stay focused on gaining com had been share with intelligent subsystems into multiple high growth application areas are new.
Matthijs Glastra: Product pipeline is geared towards intelligent subsystems and strategic growth applications, such as minimally invasive surgery robotic surgery next generation lithography precision medicine, and precision manufacturing applications and advanced motion solutions for robotics and automation applications.
Matthijs Glastra: We are confidently leaning in with a record number of new product launches in 2024, up 50% versus 2023, with more scheduled for 2025. This positions us to deliver greater than $50 million of incremental revenue in 2025 with strong growth in the next several years following that. Now, let me touch on some of Novanta's growth, strategic growth. We remain excited by our momentum in customer wins and our strongest new product lineup in a decade, which should help to continue to deliver attractive long-term organic growth for Novanta in 2025 and beyond.
Matthijs Glastra: We are confidently leaning in with the record amount of new product launches in 2024 up 50% versus 2023 with more scheduled for 2025.
Matthijs Glastra: This positions us to deliver greater than $50 million of incremental revenue in 2025 with strong growth in the next several years following that.
Matthijs Glastra: Now, let me touch on some of the events with growth strategic growth metrics.
Matthijs Glastra: We remain excited by our momentum in customer wins, and our strongest new product lineup in a decade.
Matthijs Glastra: We should help to continue to deliver attractive long term organic growth for an event in 2025 and beyond.
Matthijs Glastra: For our design wins, we saw double-digit growth versus the prior year. We saw excellent design win activity in multiple businesses, particularly with our customers in medical and markets, as well as robotics and automation and markets. For our Vitality Index, which is sales from new products, launched in the past four years, in the first quarter, we're still at about a mid-teens percentage of sales.
Matthijs Glastra: Our design wins, we saw double digit growth versus the prior year, we saw excellent design win activity in multiple businesses, particularly with our customers and medical end markets as well as robotics and automation at markets. Our vitality index, which is soo from new products launched in the past four years in the first quarter, we're still at about mid teens percentage of sales.
Matthijs Glastra: This was in line with our expectations as stated before we expect our vitality index to rebound to above 20% in late 2024, driven by our pipeline of new product launches.
Matthijs Glastra: This was in line with our expectations. As stated before, we expect our Vitality Index to rebound to above 20% in late 2024, driven by our pipeline of new product launches. I want to highlight five new product platforms we have recently launched, which will begin ramping in the second half of 2024. First, new versions of our Versia laser scanner platform, providing higher throughput and yield and better integration into solar, additive manufacturing, and EV battery processing applications. Second, our ultra-compact servo-drive Everest S that provides world-leading power density for surgical robotics, humanoid robots, and warehouse automation. Next, our second generation smoke evacuation insufflator.
Matthijs Glastra: Fourth, our RFID-M7E reader, allowing easy integration in medical and advanced industrial applications. And fifth, our SANO four-stroke sensor, specifically designed for robotic surgery applications. We're mostly on track for the remaining product launches in 2024, with some launches depending on customer timing. Moving on, I'm pleased to see continued momentum with how our teams are using the Novanta Growth System in their daily work to drive execution of our priorities. We recently held one of our annual President Kaizen Weeks, where we had more than a dozen concurrent Kaizen events happening at once, with close to 100 of our leaders and team members participating.
Matthijs Glastra: I want to highlight five new product platforms, we have recently launched which will begin ramping in the second half of 2024.
Matthijs Glastra: A new version so far versus your laser scanner platform, providing higher throughput and yield and better integration and solar additive manufacturing and EV battery processing applications second our ultra compact Sherwood drive Everest S.
Matthijs Glastra: That provides rogue leading power density for surgical robotics, human Lloyds robots and warehouse automation.
Matthijs Glastra: Next our second generation smoke evacuation insufflator.
Matthijs Glastra: Fourth our RFID M 70, reader, allowing easy integration and medical and advanced industrial applications and fifth or say no for stork sensor.
Matthijs Glastra: Specifically designed for robotic surgery applications were mostly on track for the remaining product launches in 'twenty 'twenty four with some launches dependent on customer timing.
Matthijs Glastra: Moving on I'm pleased to see continued momentum with how our teams are using to November gross system in their daily work to drive execution of our priorities.
Matthijs Glastra: We recently held one of our annual President guys and weeks, where we had more than a dozen concurrent causing events happening at once.
Matthijs Glastra: With close to 100 over leaders and team members participating.
Matthijs Glastra: All the events were focused on our core priorities I mentioned before, including our readiness for our upcoming new product launches, improvements to our commercial excellence tools, the factory efficiency initiative, and improved customer delivery performance. NGS is truly becoming a foundational part of our operations and culture. Finally, I'd like to give you a brief update on Novanta's acquisition activities. The integration of motion solutions is on schedule.
Matthijs Glastra: All the events were focused on our core priorities I mentioned before including our readiness for our upcoming new product launches improvements to our commercial excellence tools factory efficiency initiative.
Matthijs Glastra: And improved customer delivery performance.
Matthijs Glastra: N G S is truly becoming a foundational part of our operations and culture.
Matthijs Glastra: Finally, I'd like to give you a brief update on event those acquisition activities. The integration of motion solutions is on schedule.
Matthijs Glastra: I visited the Motion Solutions team recently, and I continue to be impressed by the quality and engagement of the team, their customer intimacy, and their innovation focus. The Motion Solutions business is an excellent cultural fit with the Novanta family, as we all share a passion for solving demanding problems for OEM customers in the growing precision medicine space. We're pleased with how well the teams in the medical solutions space are working well together, and the thesis for the transaction is, in fact, progressing well. In addition, acquisitions continue to remain Novanta's top priority for capital allocation.
Matthijs Glastra: I visited the motion solutions team recently on a continued to be impressed by.
Matthijs Glastra: By the quality and engagement of the team their customer intimacy and our innovation focus the motion solutions business is an excellent cultural fit with the November family.
Matthijs Glastra: As we all share a passion for solving demanding promise for our OEM customers into growing precision medicine space. We're pleased with how well the teams in a medical solution space are working well together and its thesis 40 transaction is intact and progressing well.
Matthijs Glastra: In addition acquisitions continue to remain no ventas top priority for capital allocation, we have a strong pipeline of potential targets. Our balance sheet is strong positioning us well to execute additional transactions and therefore, 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, positioning us well to execute additional transactions. And therefore, you should expect us to continue to be active in the marketplace in 2024. In summary, in the first quarter of 2024, Novanta achieved great operating results in an uncertain macroeconomic environment. We beat expectations for sales, margins, EBITDA, and cash flow. We are on track with our product launches, which will begin to ramp later in the year, and the integration of motion solutions is progressing nicely. Overall, another strong quarter for the company. With that, I will turn the call over to Robert to provide more details on the operations and financial performance. Robert, thank you.
Robert: In summary in the first quarter of 2024 November achieved great operating results in an uncertain macroeconomic environment, we beat expectations for sales margins EBITDA and cash flows.
Robert: We are on track with our product launches, which will begin to ramp later in the year and the integration of motion solutions is progressing nicely overall, another strong quarter for the company.
Matthijs Glastra: With that I will turn the call over to Robert to provide more details on the operations and financial performance. Robert Thank you <unk> and good morning, everyone. Our first quarter 'twenty 'twenty four and non-GAAP adjusted gross profit was 107 million or 46% adjusted gross margin compared to $101 million or 46% adjusted growth.
Robert J. Buckley: Thank you, Matthijs, and good morning, everyone. Our first quarter 2024 non-GAAP adjusted gross profit was $107 million, or a 46% adjusted gross margin, compared to $101 million, or a 46% adjusted gross margin, in the first quarter of 2023. For the quarter, adjusted gross margins were up 35 basis points year-over-year. Excluding the impact of the Motion Solutions acquisition, our adjusted gross margins were up roughly 200 basis points. Our growth margin expansion continues to be largely driven by the deployment and successful adoption of the Novanta growth system productivity tools in our factories and in our operations. For the first quarter, R&D expenses were roughly $23 million, or 10% of sales.
Robert J. Buckley: Margin in the first quarter of 2023 for the quarter adjusted gross margins were up 35 basis points year over year, excluding the impact of the motion solutions acquisition. Our adjusted gross margins were up roughly 200 basis points of gross margin expansion continues to be largely driven by the deployment and successful adoption.
Robert J. Buckley: Of the romantic Ro system productivity tools in our factories and in our operating teams.
Robert J. Buckley: For the first quarter R&D expenses were roughly $23 million or 10% of sales SG&A expenses were approximately 44 million or 19% of sales adjust.
Robert J. Buckley: SG&A expenses were approximately $44 million, or 19% of sales. Adjusted EBITDA was approximately $50 million in the first quarter of 2024, or a 22% adjusted EBITDA margin, compared to $47 million in the prior year. On the tax front, our non-GAAP tax rate for the first quarter was 16%. Our tax rate is typically lower in the first quarter but remains on track to our estimate of 18% for the full year. Our non-gap adjusted earnings per share was $0.74 compared to $0.74 last year.
Robert J. Buckley: Adjusted EBITDA was approximately $50 million in the first quarter of 2024 or 22% adjusted EBITDA margin compared to 47 million in the prior year on the tax fraud, and our non-GAAP tax rate for the first quarter was 16% our tax rate is typically lower in the first quarter, but remains on track.
Robert J. Buckley: To our estimate of 18% for the full year or.
Robert J. Buckley: Our non-GAAP adjusted earnings per share was <unk> 74 cents compared to 74 cents last year.
Robert J. Buckley: Our EPS growth remains muted due to both higher interest rates and higher debt balances from the Motion Solutions acquisition. First quarter operating cash flow was approximately 33 million compared to 10 million in the first quarter of 2023, an increase of greater than 200% year over year. We were pleased with the improvement in cash flow and expect to continue this momentum by rigorously managing our working capital and driving strong operating profits. We ended the first quarter with gross debt of $517 million, with a gross leverage ratio of 2.6 times, and our debt was $424 million.
Robert J. Buckley: Our EPS growth remains muted due to both higher interest rates and higher debt balances for the motion solutions acquisitions.
Robert J. Buckley: First quarter operating cash flow was approximately 33 million compared to 10 million in the first quarter of 2023, an increase of greater than 200% year over year.
Robert J. Buckley: We were pleased with the improvement in cash flow and expect to continue this momentum by rigorously managing our working capital and driving strong operating profits.
Robert J. Buckley: Ended the first quarter with gross debt of 517 million with a gross leverage ratio of two six times and our net debt was $424 million.
Robert J. Buckley: I'll now turn to an update on the performance of our operating system. In the medicine and manufacturing segment, first quarter sales declined 6% year-over-year, in line with prior guidance. We booked a bill in this segment for $0.72, which is up sequentially but still down year-over-year. Just the growth margins in this segment were down slightly year-over-year, but up sequentially on a hundred and forty basis. New product revenues were approximately mid-teens percent of sales in line with the company average. The design wins in this segment were down year over year, driven by the timing of commercial activities, which we expect to recover in the second half of the year.
Speaker Change: Now I will turn to an update of the performance of our operating segments.
Robert J. Buckley: This is a medicine and manufacturing segment first quarter sales declined 6% year over year in line with prior guidance book to Bill in this segment was 0.72, which is up sequentially, but still down year over year.
Robert J. Buckley: Adjusted gross margins in this segment were down slightly year over year.
Robert J. Buckley: Sequentially of 140 basis points, new product revenues were approximately mid teens percent of sales in line with the company average.
Robert J. Buckley: Design wins in this segment were down year over year, driven by the timing of commercial activities, which we expect to recover in the second half of the year.
Robert J. Buckley: The Robotics and automation segment experienced a revenue decline of 12% year-over-year in the quarter, in line with our expectations and prior guidance. The overall book to bill ratio in this segment was 0.99, a strong sequential improvement and is indicative of a more stable demand environment across the business and its end market. Bookings grew 10% year-over-year and 80% sequentially. Adjusted gross margins increased nearly 300 basis points, largely in line with the fourth quarter.
Robert J. Buckley: Robotics and automation segment experienced a revenue decline of 12% year over year in the quarter in line with our expectations and prior guidance.
Robert J. Buckley: The overall book to Bill ratio in this segment was 0.99.
Robert J. Buckley: A strong sequential improvement and is indicative of a more stable demand environment across the business and its end markets bookings.
Robert J. Buckley: Bookings grew 10% year over year and 8% sequentially.
Robert J. Buckley: Adjusted gross margins increased nearly 300 basis points largely in line with the fourth quarter.
Robert J. Buckley: The product revenue was roughly 10% of sales; design wins in this segment more than doubled year over year. In our medical solutions segment, we had reported growth of 32% year-over-year and 5% organic growth. Both figures were better than our expectations. The segment saw a book-to-bill of.88.
Robert J. Buckley: New product revenue was roughly 10% of sales does.
Robert J. Buckley: Design wins in this segment more than doubled year over year.
Robert J. Buckley: Our medical solutions segment.
Robert J. Buckley: I had reported growth of 32% year over year, and 5% organic growth both figures were better than our expectations.
Robert J. Buckley: Segment saw a book to Bill a 0.88.
Robert J. Buckley: 29% growth in booking sequentially. Adjusted growth margins experienced a 70 basis point year-over-year improvement, excluding motion solutions. The margin expansion of the segment was nearly 400 bases per second. The Vitality Index in this segment remained in the mid-teens percent of sales level, in line with our expectations. We expect this metric to continue to accelerate in 2024 as we ramp our new product. Design wins more than triple year over year.
Robert J. Buckley: 29% growth in bookings sequentially.
Robert J. Buckley: Adjusted gross margins experienced a 70 basis point year over year improvement.
Robert J. Buckley: Excluding motion solutions the margin expansion in this segment was nearly 400 basis points.
Robert J. Buckley: The vitality index in this segment remained at mid teens percent of sales level in line with our expectations.
Robert J. Buckley: This metric to continue to accelerate in 2024, as we ramp our new products.
Robert J. Buckley: Design wins more than tripled year over year.
Robert J. Buckley: Overall, our businesses performed as or better than we expected, and they were able to handle a variety of challenges caused by the shifting macroeconomic environment. It's a testament to the strength of our culture and our businesses and the company's strategy of diversification of technologies, applications, and customers to deliver consistent, predictable, sustainable growth.
Robert J. Buckley: Overall, our businesses performed at or better than we'd expected and we were able to handle a variety of challenges caused by the shifting macroeconomic environment.
Robert J. Buckley: Testament to the strength of our ultra and our businesses and the company's strategy of diversification of technologies applications and customers to deliver consistent predictable sustainable growth.
Speaker Change: Turning now to guidance.
Robert J. Buckley: In our end markets, we see the same dynamics materializing in the second quarter as we experienced in the first quarter. Hence, our guidance reflects a second quarter that largely mirrors our first quarter results, which is in line with the guidance we provided back in February. In medical technology and markets, we expect to see continued strength in surgical equipment and hospital spending in general. Patient procedural growth continues to be robust across geographical markets, and capital equipment purchases by healthcare systems remain strong.
Robert J. Buckley: In our end markets, we see the same dynamics materializing in the second quarter as we experienced in the first quarter and hence our guidance reflects a second quarter that largely mirrors, our first quarter results, which is in line with the guidance we provided back in February.
Robert J. Buckley: And medical technology end markets, we expect to see continued strength in surgical equipment and hospital spending in general agent procedural growth continues to be robust across geographical markets and capital equipment purchases by the health care systems remain strong.
Robert J. Buckley: Coupled with a strong pipeline of innovation, largely scheduled to begin ramping in the second half of 2024, we feel very good about our exposure here and the long-term prospects of this business. As a consequence, we're taking the opportunity to accelerate the exit of some non-strategic product lines, like our surgical displays business, to create the resource capacity and focus we need to execute for our customers and shareholders. While the exit of these non-core product lines is likely a 200 basis point headwind on total nomadic growth in the second quarter and a 10 million headwind on the full year, it positions us well to ensure a successful ramp of new products in 2024 for our customers and to meet the accelerating demand.
Robert J. Buckley: Coupled with strong pipeline of innovation largely scheduled to begin ramping in the second half of 'twenty 'twenty four we feel very good about our exposure here in the long term prospects of this business.
Robert J. Buckley: As a consequence, we're taking the opportunity to accelerate the exit of some non strategic product lines like our surgical displays business.
Robert J. Buckley: To create the resource capacity and focus we need to execute for our customers and shareholders.
Robert J. Buckley: The exit of these noncore product lines is likely a 200 basis point headwind on total Nevada to growth in the second quarter, and a 10 million headwind on the full year it positioned us well to ensure a successful ramp for our new products in 2024 for our customers and to meet the accelerating demand.
Robert J. Buckley: Turning to the precision medicine space, both in the life science and bioprocessing markets, customers continue to see a more stable environment with some signs of strengthening as we get into the second half. I will remain cautiously optimistic that spending patterns will improve, but it's too early to make any predictions at this time.
Robert J. Buckley: Turning to the precision medicine space, both in life science in bio processing markets customers continue to see more stable environment.
Robert J. Buckley: With some signs of strengthening as we get into the second half.
Robert J. Buckley: Although we remain cautiously optimistic that spending patterns will improve its too early to make any predictions at this time.
Robert J. Buckley: Turning to join advanced industrial end markets, we expect second quarter to mirror, our first quarter, we continued to see signs of gradually improving capital spending environment.
Robert J. Buckley: Turning to our advanced industrial end markets, we expect the second quarter to mirror the first quarter. We continue to see signs of a gradually improving capital spending environment. However, also our main focus on controlling our, and we see the best path forward is doubling down on new product launches. As Matthijs discussed before, we expect to launch new products in the second half in both precision manufacturing and robotics and automation business. Moving on, to the guidance for the second quarter.
Robert J. Buckley: We're also main focus on controlling our outcomes and we see the best path forward is doubling down on new product launches as Matthias have discussed before we expect to launch new products in the second half in both precision.
Robert J. Buckley: Manufacturing and robotics and automation businesses.
Robert J. Buckley: Moving on to the guidance for the second quarter.
Robert J. Buckley: For revenue guidance, we expect revenue in the range of $230 million to $235 million, which represents an organic revenue decline of 6% to 8% on a year-over-year basis and sequentially flat. While there are clearly more difficult year-over-year comparisons in the second quarter, we're also taking the opportunity to accelerate the end-of-life of a few product lines, including the surgical display business mentioned before. We feel the shift in engineering resources from supporting these legacy product lines to supporting our new product platform helps to de-risk those launches and ensure we excel at meeting our customers' expectations.
Robert J. Buckley: Revenue guidance, we expect GAAP revenue in the range of 230 million to $235 million, which represent organic revenue decline of 6% to 8% on a year over year basis.
Robert J. Buckley: Sequentially flat.
Robert J. Buckley: While there are clearly more difficult year over year comparisons in the second quarter. We're also taking the opportunity to accelerate at the end of life with a few product lines, including the surgical display business as mentioned before.
Robert J. Buckley: We feel this shift in engineering resources from supporting these legacy product lines to supporting our new product platforms helps to derisk those launches and ensure we excel at meeting our customers' expectations.
Robert J. Buckley: With these changes, we continue to see our second half new product launches on track and in a strengthening demand environment. At the segment level, in the second quarter, we expect precision medicine and manufacturing revenue to decline low double digit percent of sales year-over-year. Robotic and automation segment revenues are expected to decline high single digit percent of sales, year-over-year in the second quarter, representing a sequential uptick from the first quarter.
Robert J. Buckley: These changes we continue to see our second half new product launches on track and in a strengthening demand environment.
Robert J. Buckley: At the segment level in the second quarter, we expect precision medicine and manufacturing revenue declined low double digit percent of sales year over year.
Robert J. Buckley: Robotics and automation segment revenue is expected to decline high single digit percent of sales.
Robert J. Buckley: Year over year in the second quarter, representing a sequential uptick from the first quarter.
Robert J. Buckley: And finally, our medical solutions segment is expected to repeat its first quarter financial performance demonstrating year over year double digit reported revenue growth and a slight sequential uptick from the first quarter. Despite the discontinuing of legacy product lines.
Robert J. Buckley: And finally, our Medical Solutions segment is expected to repeat its first quarter financial performance, demonstrating year-over-year, double-digit reported revenue growth and a slight sequential uptick from the first quarter, despite the discontinuation of legacy products. Moving on to Adjusted Gross Margin, we expect it will also mirror the performance we demonstrated in the first quarter with a range of 46% to 46.3%. In the segments, gross margins will mirror the gross margins they delivered in the first. We expect R&D and SG&A expenses to be approximately $68 to $69 million.
Robert J. Buckley: Moving on to adjusted gross margin, we expect it will also mirror the performance we demonstrated in the first quarter with a range of 46% to 46, 3%.
Robert J. Buckley: In this segments gross margins will mirror the gross margins they delivered in the first quarter.
Robert J. Buckley: The R&D and SG&A expenses to be approximately 68 to 69 million depreciation expense, which was $3 5 million in the first quarter should be slightly below $4 million in the second quarter.
Robert J. Buckley: Depreciation expense, which was $3.5 million in the first quarter, should be slightly below $4 million in the second quarter. Stock compensation expense, which was $6 million in the first quarter, will be slightly below $7 million in the second quarter. For adjusted EBITDA, we expect a range of $48 to $50 million. Interest expense is expected to be nearly $8.5 million based on slightly higher interest rates.
Robert J. Buckley: Compensation expense, which was $6 million in the first quarter will be slightly below $7 million in the second quarter.
Robert J. Buckley: For adjusted EBITDA, we expect a range of $48 million to $50 million.
Robert J. Buckley: Interest expense is expected to be.
Robert J. Buckley: Nearly $8 5 million based on slightly higher interest rates, we expect our non-GAAP tax rate to be around 18% for the quarter and similar for the full year.
Robert J. Buckley: We expect our non-GAAP tax rate to be around 18% for the quarter and similar for the full year. For adjusted earnings per share, we expect a range of 68 cents to 74 cents. Finally, we expect cash flows to continue to be strong in the second quarter, following the continuing momentum from the first quarter, as we continue to rigorously manage our inventory and networking capital levels. Ignoring any further acquisitions, we plan to continue to use our cash flows to pay down existing debt and reduce our gross leverage, putting us in a strong position to execute the next sector. As always, this guidance does not assume any significant changes in foreign exchange rates.
Robert J. Buckley: For adjusted earnings per share, we expect a range of 68 to 74 cents.
Robert J. Buckley: Finally, we expect cash flows to continue to be strong in the second quarter. Following the continued momentum from the first quarter as we continue to rigorously manage our inventory and net working capital levels.
Robert J. Buckley: Ignoring any further acquisitions, we plan to continue to use our cash flows to pay down existing debt and reduce our gross leverage putting us in a strong position to execute the next acquisition.
Robert J. Buckley: As always this guidance does not assume any significant changes in foreign exchange rates.
Robert J. Buckley: While we're encouraged by the signs of an improving environment, it's still early to update our full-year guidance. We continue to expect that growth will return in the third quarter due to our new product launches and accelerate from there. Our conversations with our customers, particularly in our medical business, continue to give us confidence in the demand for these products, and we are taking steps to better position our resources and our teams to focus on ensuring a successful launch.
Robert J. Buckley: While wearing courage with the signs of an improving environment. It's still early to update our full year guidance. We continue to expect that growth will return to the third quarter due to our new product launches and accelerate from there are conversations with our customers, particularly around our medical business continues to give us confidence in the demand of these products.
Robert J. Buckley: And we are taking steps to better position, our resources and our teams to focus on ensuring a successful launches.
Robert J. Buckley: To wrap up, we are proud of Nanta's performance in the first quarter, which reflected excellent execution by our teams. We delivered revenue, profit, and cash flow performance above our expectations in a challenging operating environment. This performance is yet another testament to the resiliency of our business portfolio and the tenacity of our teams to achieve great results. We are very grateful for the outstanding performance of our employees and their efforts to help us succeed in a dynamic environment.
Robert J. Buckley: To wrap up we are proud of that performance in the first quarter, which reflected excellent execution by our teams we delivered revenue profit and cash flow performance above our expectations in a challenging operating environment.
Robert J. Buckley: This performance is yet another testament to the resiliency of our business portfolio and the tenacity of our teams to achieve great results.
Robert J. Buckley: We remain very grateful for the outstanding performance of our employees and their efforts to help us succeed in a dynamic environment, we remain grateful for our customers' confidence in our ability to deliver to that and the innovation they need to be successful we.
Speaker Change: We look forward to delivering on our commitments to our employees our customers and our shareholders and this concludes the prepared remarks, we'll now open the call up for questions.
Robert J. Buckley: We remain grateful for our customers' confidence and our ability to deliver to them the innovation they need. We look forward to delivering on our commitments to our employees, our customers, and our shareholders. And this concludes the prepared remarks. We'll now open the call to questions. We will now begin.
Speaker Change: We will now begin the question and answer session.
Gary: We will now begin the question and answer session. To ask a question, you may press star then 1 on your telephone keypad. If you are using a speakerphone, please pick up your handset before pressing the keys. To withdraw your question, please press star then 2. Our first question today is from Lee Jagoda with CJS Securities. Please go ahead.
Lee M. Jagoda: To ask a question you May press Star then one on your telephone keypad.
Lee M. Jagoda: If youre using a speakerphone please pick up your handset before pressing the keys.
Speaker Change: To withdraw your question. Please press Star then two.
Gary: Our first question today is from Lee Jagoda with C. J S Securities. Please go ahead.
Lee M. Jagoda: Hi, good morning.
Lee M. Jagoda: Hey, good morning Lee.
Matthijs Glastra: Just on the products you're exiting, are you freeing up additional capacity, or are there other reasons why we're end-of-lifeing those products now?
Lee M. Jagoda: I'm just just on the product you're exiting are you freeing up additional capacity or is there. Other reasons why we're end of life ing those products now.
Lee M. Jagoda: Yeah, I would say, it's a not only does it increase capacity from a operating model perspective any of the manufacturing teams ability to execute on it but it also frees up capacity from an engineering support perspective, and so it really solidifies our ability to execute on those launches in the back half of the year and gives us the.
Matthijs Glastra: Yeah, I would say it not only increases capacity from an operating model perspective, meaning the manufacturing team's ability to execute on it, but it also frees up capacity from an engineering support perspective. And so it really solidifies our ability to execute on those launches in the back half of the year and gives us the utmost confidence that we can get those executed on time and meet the customer's expectations, particularly given the demand environment remains relatively strong on the medical side.
Matthijs Glastra: Outmost confidence that we can get those executed on time and meet the customer's expectations, particularly given the demand environment remains relatively strong on the medical side.
Speaker Change: Got it and I guess drilling down to the into the new product launches in the back half can you speak to like the variability that we should expect in the model and how much of that is within your control versus a reliance on your customers in terms of their launch dates.
Matthijs Glastra: Got it. And, I guess drilling down to the new product launches in the back half, can you speak to the variability that we should expect in the model? And how much of that is within your control versus a reliance on your customers in terms of their launch dates?
Speaker Change: Yeah, I mean listen I, what I said in my prepared remarks is that at.
Matthijs Glastra: Yeah, I mean, listen. What I said in my prepared remarks is that, overall, we feel we're on track with our product launches. Now, if you look and drill down on the individual product launches, there are some pluses and minuses. Some are being pulled in ahead of schedule. Some are, you know, a little bit late, but on average, we feel very good. And the delays are primarily linked to customer timing. But I would say overall, if you average it all out, we feel good about where we're ending up at the company level.
Matthijs Glastra: Let's say on the overall, we feel we're on track on our product launches now if you look and drill down on the individual product lines or is there some pluses and minuses. Some are being pulled in and are ahead of schedule. Some are you know a little bit delayed, but but on average we feel very good.
Matthijs Glastra: N D delays will primarily.
Matthijs Glastra: Linked to two customer timing a bit.
Matthijs Glastra: But I would say overall, if you average it all out we feel good about about where we're ending up at at the company level.
Speaker Change: And then Robert one more for me and I'll hop back in queue I think in the last call you were saying the top end of your revenue range sort of didn't.
Robert J. Buckley: And then Robert, one more for me, and I'll hop back in line. I think in the last call, you were saying the top end of your revenue range sort of didn't model any improvement, and it was sort of the status quo from a market demand standpoint. Can you update us on your expectations around the market environment and how you think about the high end of your full year guidance?
Robert J. Buckley: <unk> didn't model any improvement.
Robert J. Buckley: And it was sort of the status quo from a market demand standpoint can you update us on on your expectations around the market environment and how you think about the high end of your full year guidance.
Robert: Yeah, I would say.
Robert J. Buckley: Yeah, I would say the environment has not materially changed from when we last spoke to you back in February. I think there are some signs that remain optimistic, but there's a lot of noise out there. So I don't think we're ready to make any new predictions for the full year. But just to say that, you know, back when we gave you the guidance in February, things haven't materially changed.
Robert J. Buckley: The environment has not materially changed from when we last spoke to you back in February I think there are some signs that remain optimistic but there's a lot of there's a lot of noise out there. So I don't think we're ready to make any new predictions.
Robert J. Buckley: On the full year, but just to say that you know back from when we gave the guidance in February things Havent materially changed from there.
Speaker Change: Okay sounds great. Thanks.
Gary: Okay, sounds great. Thanks.
Gary: The next question is from Brian Drab with William Blair. Please go ahead.
Gary: The next question is from Brian Drab with William Blair. Please go ahead.
Brian Paul Drab: Hey, good morning, I first just wanted to ask are you know given we have a full quarter of most so in the numbers here.
Brian Paul Drab: Hey, good morning. I first just wanted to ask, given we have a full quarter of MOSO in the numbers here, you know, the OPEX came in a little bit below where we were modeling it, like 67 million. Is that kind of a somewhat steady-state number? How can you help us, you know, model OPEX going forward?
Brian Paul Drab: Opex came in a little bit below where we were modeling. It like 67 million is that kind of somewhat steady state number or how can you help us model opex going forward.
Brian Paul Drab: Yeah.
Robert J. Buckley: No, OPEX will tick up a little bit as you get into the second quarter. Part of that is mostly an R&D expense, so just spending a little bit more money to make sure those new product launches are being done on time and on schedule. I won't get into...
Brian Paul Drab: No Opex will tick up a little bit as you get into the into the second quarter.
Robert J. Buckley: You know part of that is just is mostly in the R&D expense.
Robert J. Buckley: So just spending a little bit more money to get make sure those new product launches or are being done on time and on schedule.
Robert J. Buckley: I gave some guidance around the second quarter. I think within the second quarter, you can see that, you know, things tick up a little bit from there. I think that will remain fairly steady as you get into the back half of the year.
Robert J. Buckley: I won't get into I gave some guidance around the second quarter I think was in the second quarter. You can see that you know things tick up a little bit from there I think that will remain fairly steady state as you get into the back half of the year.
Robert J. Buckley: Okay.
Robert J. Buckley: Okay. Was there anything unusual in the first quarter, maybe related to the acquisition or integration or anything that would have hit OPEX that is not going to happen later?
Speaker Change: There anything unusual in the first quarter, maybe related to the acquisition or integration or any anything that.
Robert J. Buckley: Would've hit Opex that that.
Speaker Change: It is not going to later.
Robert J. Buckley: Yeah.
Robert J. Buckley: Well, OPEX was $67 million in the first quarter, and we're predicting, you know, let's say something closer to $69 million in the second quarter. There's nothing specific to the motion solutions. It really is an R&D investment, you know, difference that really is oriented toward those new product launches. Yeah.
Speaker Change: Well Opex was 67 million in the first quarter.
Robert J. Buckley: Dictating lets say something closer to $69 million in the second quarter.
Robert J. Buckley: There's nothing specific to the motions solutions business.
Robert J. Buckley: It really is that R&D investment and no difference.
Robert J. Buckley: It really is oriented towards those new product launches.
Robert J. Buckley: Yeah, understood. And related to the new products, I think you changed the language here today. Maybe you've said it this way in the past, but you said greater than $50 million, I believe, today. Is that a change in language around your expectation for some of these new products, platforms?
Robert J. Buckley: Yeah, understood and related to the new products.
Robert J. Buckley: I think he changed the language here today.
Robert J. Buckley: It maybe maybe you said it this way in the past, but he said greater than $50 million.
Robert J. Buckley: I believe today is that is that a change in language around your expectation for some of these new product platforms.
Speaker Change: Yeah, I mean, what we said is that the incremental revenue in 2025 ish is $50 million or more.
Matthijs Glastra: Yeah, I mean, what we said is that the incremental revenue in 2025 is $50 million or more, which is for Novanta overall, and which is net of, let's say, any cannibalization or, let's say, end of life effects, right, of other products retiring as a result of these new products.
Matthijs Glastra: And which is for November overall.
Matthijs Glastra: And which is net of let's say any cannibalization or.
Matthijs Glastra: Let's say end of life effects right.
Matthijs Glastra: Otter products retiring as a result of these new products.
Matthijs Glastra: So that's what we said, and that should, you know, signify our confidence in the momentum we have. And these are multiple product lines across multiple businesses with multiple customers. So we feel good about the diversification of risk, right? We're not betting on a single product with a single customer here. So it's pretty, pretty broad.
Matthijs Glastra: So that's why we set and that should you know signify a confidence in the.
Matthijs Glastra: The momentum we have and these are multiple product launches across multiple businesses.
Matthijs Glastra: With multiple customers. So we feel also good about the diversification of risk right. We're not betting on a single product with a single customer here, so it's pretty pretty broad.
Matthijs Glastra: Yeah.
Robert J. Buckley: Okay. And then, you know, Lee asked it already, I think, to some extent, but... You're formally not mentioning anything, really, about the full year guidance that you gave previously, but I guess, is the statement just, you know, we already gave guidance and we haven't seen the environment change that materially and just look at what we said before, or is there anything that's reduced visibility at all in the second half that has you?
Speaker Change: Okay and then.
Robert J. Buckley: Lee asked it already to some extent, but.
Robert J. Buckley: Your formerly not mentioning anything really about the full year guidance that you gave previously but I guess is the.
Robert J. Buckley: Is the statement just you know we already gave guidance and we haven't seen the environment change that materially in and just look at what we said before or is there any anything and that's reduced visibility.
Robert J. Buckley: All in the second half and that has seen communicating at this way today.
Robert J. Buckley: Thanks.
Robert J. Buckley: Yeah, I would say from a macro or or kind of industry-specific visibility, I don't think anything has materially changed from what we gave the guidance back in February. Right, so I don't, you know, as we look at the full year. It's still too early to say, you know, there are things that we would do to make adjustments for the full year. I think we'll get into the second quarter, and we'll have greater visibility in the back half of the year, particularly our ability to execute on those new product launches.
Robert J. Buckley: Yeah, I would say from a macro or or kind of industry specific you know kind of a visibility I don't think anything has materially changed from what we gave the guidance back in February.
Robert J. Buckley: Alright, So I don't you know as we look at the full year. You know there is still too early to say are there. There are things that we would do to make adjustments for the full year I think we'll get into the second quarter.
Robert J. Buckley: I have greater visibility into the back half of the year, particularly our ability to execute on those on those new product launches.
Robert J. Buckley: And there are some reasons to be optimistic. It's one of the reasons why we're, you know, exiting roughly $10 million of business early so that we can get pre-positioned for that and make sure that we have a more successful launch around those products. But nothing's changed. So, I would say, you know, look at what we said in February, and we would reiterate what we said in March.
Robert J. Buckley: And there are some reasons to be optimistic as one of the reasons why were you know exiting roughly $10 million of of business. Early so we can get pre positioned for that and make sure that we have a more successful launch around those products.
Robert J. Buckley: Nothing has changed so I would say you know look at what we said in February and we would reiterate what we said in February.
Speaker Change: Yeah understood.
Brian Paul Drab: Yeah, I understand. Thanks very much.
Robert J. Buckley: Very much.
Speaker Change: Thanks Ryan.
Gary: The next question is from Rob Mason with Baird. Please go ahead.
Brian Paul Drab: The next question is from Rob Mason with Baird. Please go ahead.
Robert W. Mason: Yes, good morning, Robert.
Robert W. Mason: Yes, good morning Matthijs and Robert. Good morning. One of the common refrains as we've gone through this earnings season from component suppliers, companies like yourself, has been that OEM inventory levels have been slower to come down maybe than expected, taking longer. I'm just curious how you're seeing the OEM inventory levels of your customers right now, your level of visibility into that, and what kind of pace you think they're on to get where they need to be to trigger more order activity.
Robert W. Mason: One of the comp.
Robert W. Mason: Common refrain just as we've gone through this earnings season from.
Robert W. Mason: Component suppliers companies like yourself has been that OEM inventory levels have been slow to slower to come down maybe than expected taking longer I'm. Just curious how you're seeing the you know the OEM inventory levels of your customers right now your level of visibility into that and you know what kind of pace you think they're wrong.
Robert W. Mason: To.
Robert W. Mason: You know get where they need to be to trigger more order activity.
Robert W. Mason: Yeah. So I mean, what are the things I'd start off was saying is that for our business specifically, our Oems typically don't hold a lot of inventory, we sell as part of their supply chain as a vendor into their supply chain.
Robert J. Buckley: Yeah, so one of the things I'd start off by saying is that for our business specifically, our OEMs typically don't hold a lot of inventory. We sell as part of their supply chain as a vendor into their supply chain. And the majority of business that we do with them is a just-in-time type of setup. So the inventory commentary that's coming out there where there might be too much inventory in the value stream is really associated with their customers.
Robert J. Buckley: And the majority of our business that we do with them is a just in time type of setup.
Robert J. Buckley: So the inventory commentary, that's coming out there where they might be too much inventory in the value stream is really associated with their customers.
Robert J. Buckley: Those are those are commentary that you see more prevalent obviously in the semiconductor markets, which is manifest in our numbers, and more prevalent on the industrial side of the business, specifically things tied around robotics. We have a more difficult time seeing through our customers to see how much inventory is out there in the chain. But I would just say, generally speaking, I don't think things have changed from when we gave the guidance back in February. That visibility has still been the same, Yeah
Robert J. Buckley: Those are those are commentary that you'd see more prevailing obviously in the semiconductor market, which is manifest in our numbers.
Robert J. Buckley: And where prevailing into the industrial side of the business, specifically things tied around the robotics industry.
Robert J. Buckley: We have a more difficult time seeing through our customers to see how much inventory is out there in the chain.
Robert J. Buckley: But I would just say generally speaking you know I don't think things have changed from when we gave the guidance back in February that visibility has still been the same and the trend lines has been very similar to what we were anticipating unfold as we got into this first half of the year now.
Matthijs Glastra: Yeah, yeah. And the thing that I would add, Rob, is that it's very end market dynamic dependent, as Robert clearly gave some color per end market. I would say medical device is very strong, right? So across the chain, not a lot of inventory, right? Industrial is different, right? So I would, I would add that color.
Speaker Change: Yeah, and the thing that I would add Rob is that its very end market dynamic dependent and so Robert clearly gave a few some color per end market I would say medical devices is very strong right. So across the chain not a lot of inventory right and.
Matthijs Glastra: Real is different right. So I would I would at that call. It.
Matthijs Glastra: Okay. I think you mentioned, as well, that you're starting to see some green shoots in the microelectronics business. I was just curious if you could elaborate on what you're seeing and maybe how that translates as you go through the year, given that we were kind of flattish sequentially in the first quarter.
Matthijs Glastra: Okay.
Matthijs Glastra: I think he mentioned as well you're starting to see some green shoots in the microelectronics business I was just curious if you could elaborate there on what youre seeing and maybe how that translates as you go through the year and given that we were kind of flattish sequentially in the first quarter.
Speaker Change: Yeah, I mean D D signs of very early I mean, we just see bookings normalization right an improvement there and and therefore as some customers not not everybody, but some customers.
Matthijs Glastra: Yeah, I mean, these signs are very early. I mean, we just see booking normalization, right, and an improvement there. And therefore, some customers, not everybody, but some customers, are gearing up for a better second half, but it is segment specific, and customer specific. So it's not an across the board issue. And that's why we said we see initial green shoots, right? It's not, it's not everywhere. But you see, basically, for some of our businesses, that the bottom has been achieved, and you see booking sequentially improving from here, which is what you saw in the robotics and automation segment, which is where the majority of our marketing exposure is.
Matthijs Glastra: Gearing up for a better second half, but it is it is segment specific customer specific so it's not an across the board and that's why we said we see initial green shoots right. It's not it's not everywhere, but you see basically for some of our businesses that are button has as you know is achieved then.
Matthijs Glastra: He bookings sequentially improving from here, which is what you saw in the robotics and automation segment, which were the majority of our market exposure is.
Robert J. Buckley: Just as a last question, I want to be clear, on the end of life of surgical displays or the exit from that, as you again continue to work with your customers on that, will there be any tale of that that carries over into 2025, or should we think that that incremental step down is complete by year end?
Matthijs Glastra: Just the last question just don't want to be clear on the end of life of surgical dysplasia or the exit from that.
Robert J. Buckley: As you can see again continued to work with your customers on that will there be any tail of that that that carries over into 2025 or will you should we think that that incremental step down is complete by year end.
Speaker Change: Yeah, most of it should be done by the second quarter. So you know I would say that whatever revenue we have in the back half of the year is immaterial to the total company.
Robert J. Buckley: Yeah, most of it should be done by the second quarter. So, you know, I would say that whatever revenue we have in the back half of the year is immaterial for the total company. So we're really stepping it down. We ship out what we can in the first quarter, we'll step it down hard. And then it's largely, it's no longer our numbers in the back half of the year.
Robert J. Buckley: So were really stepping down we ship out what we could in the first quarter will step it down hard and then it is largely it's no longer in our numbers in the back half of the year.
Robert J. Buckley: The purposes.
Speaker Change: Okay. Thanks Robert.
Robert W. Mason: Okay. Thanks, Robert.
Robert W. Mason: This concludes our question and answer session I would like to turn the conference back over to Mr. Matthias glass or for any closing remarks.
Gary: This concludes our question and answer session. I would like to turn the conference back over to Mr. Matthijs Glastra for any closing remarks.
Matthijs Glastra: Thank you operator, so to recap, Nevada had a strong start of the year, we beat expectations for sales margins profit and cash flows are making great progress on our top priorities.
Matthijs Glastra: Thank you, operator. So to recap, Novanta had a strong start to the year, we beat expectations for sales, margins, profit, and cash flows, and we're making great progress on our top priorities. This came despite some challenges and uncertainty in the end markets we serve. We also made great progress in integrating the motion solutions acquisitions, which will be an attractive growth platform for us. Novanta remains well positioned in the medical and advanced industrial land markets with diversified exposure to the long-term secular micro trends in robotics and automation, precision medicine, minimally invasive surgery, and industry 4.0.
Matthijs Glastra: This came despite some challenges and uncertainty in the end markets. We serve we also made great progress in integrating the motion solutions acquisitions.
Matthijs Glastra: Which will be an attractive growth platform for us.
Matthijs Glastra: <unk> remains well positioned in the medical and advanced industrial end markets with diversified exposure to the long term secular macro trends in robotics, and automation precision medicine, minimally invasive surgery and industry foretold out.
Matthijs Glastra: We're excited 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 Novanta growth system to drive strong cash flows and gross margin expansion. In closing, as always, I would like to thank our customers, our employees, and our shareholders for their ongoing support. I continue to be especially grateful for the dedicated efforts of all of our Novanta employees who work 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 on our second quarter 2024 initiative.
Matthijs Glastra: Excited 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 event the gross system to drive strong cash flows and gross margin expansion.
Operator: Thank you very much. This call is now adjourned. The conference is now concluded. Thank you for attending today's presentation. You may now go.
Matthijs Glastra: In closing as always I would like to thank our customers our employees and our shareholders for their ongoing support.
Operator: I continue to be especially grateful for the dedicated efforts of all of our November to employees, who work diligently every day.
Operator: On new challenges and striving to make the company a great place to work.
Operator: We appreciate your interest in the company and your participation in today's call I look forward to joining all of you in several months on our second quarter.
Operator: 2024 earnings call.
Operator: Thank you very much this call is now adjourned.
Operator: The conference is now concluded. Thank you for attending today's presentation. You may now disconnect.
Operator: The conference has now concluded. Thank you for attending today's presentation you may now disconnect.
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