- Revenue: $236 million, representing 3% reported growth and a 5% decline on an organic basis.
- Adjusted Gross Margin: 47%, with core businesses expanding margins by over 100 basis points year over year.
- Adjusted EBITDA: $51 million, exceeding expectations and prior guidance.
- Operating Cash Flow: Approximately $41 million, a 57% year-over-year growth.
- Medical Market Sales: 58% of total sales, with 13% reported growth and 2% organic growth.
- Advanced Industrial Market Sales: Down 11% year over year on a reported basis and 15% on an organic basis, making up 34% of total sales.
- Microelectronics Sales: 8% of total sales, with modest year-over-year growth.
- R&D Expenses: $24 million, approximately 10% of sales.
- SG&A Expenses: $45 million, approximately 19% of sales.
- Non-GAAP Adjusted EPS: $0.73, compared to $0.80 in the second quarter of 2023.
- Gross Debt: $485 million, with a gross leverage ratio of approximately 2.4 times.
- Net Debt: $387 million.
- Bookings Growth: 12% sequentially, with a book-to-bill ratio of 0.95.
- Full-Year Revenue Guidance: Expected to be at the bottom of the previously communicated range of $975 million.
- Third-Quarter Revenue Guidance: $241 million to $244 million, representing 1% to 2% organic growth year over year.
- Adjusted EBITDA Guidance for Q3: $56 million to $58 million.
- Full-Year Adjusted EBITDA Guidance: $215 million to $222 million.
- Full-Year Adjusted EPS Guidance: $3.20 to $3.35.
Release Date: August 06, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Novanta Inc (NOVT, Financial) delivered $236 million in revenue for Q2 2024, surpassing previous guidance.
- Adjusted EBITDA was $51 million, exceeding expectations and prior guidance.
- Operating cash flow was strong at approximately $41 million, representing a 57% year-over-year growth.
- The company launched a record number of new products in 2024, with more scheduled for 2025.
- Bookings grew 12% sequentially, with a book-to-bill ratio of 0.95, indicating strong future demand.
Negative Points
- Organic revenue declined by 5% year-over-year despite overall revenue growth.
- Life sciences markets, including precision medicine applications, are experiencing prolonged weakness in capital equipment demand.
- Industrial capital spending remains muted, particularly in Europe and China, due to economic challenges.
- Adjusted gross margins were flat year-over-year, impacted by the Motion Solutions acquisition.
- Non-GAAP adjusted earnings per share decreased to $0.73 from $0.80 in the same quarter last year.
Q & A Highlights
Q: Can you give us more context around what gives you the confidence that things are turning in the life sciences bioprocessing space?
A: Our customers' customers are starting to order consumable parts, indicating improving activity. Although the capital part of the market is not yet improving, we see incremental improvements on the non-capital side, which we believe is a leading indicator for the capital side. We expect an improving outlook in 2025, driven by new product introductions and expanding the Motion Solutions business.
Q: Gross margins were ahead of expectations. Are there specific drivers of that improvement, and should we temper our expectations for margin expansion next year?
A: The business is on track to drive robust internal gross margins despite the dilutive impact of Motion Solutions. The Novanta Growth system is driving productivity improvements, material cost reductions, and price capture. We expect to continue improving gross margins, eventually reaching 50%.
Q: Can you clarify the $50 million incremental opportunity from new products in 2025?
A: The $50 million is the total revenue from new products, incremental to Novanta's current offerings. This includes, but is not limited to, the minimally invasive surgery product line. The larger impact will be in 2025 due to further ramping and the full-year effect of these new products.
Q: How much visibility do you have to double-digit organic revenue growth persisting into 2025?
A: Given the expected double-digit growth in Q4 2024, we feel confident about achieving at least 10% growth in 2025. We will continue to monitor the life science tool market, industrial recovery, and geopolitical factors.
Q: What are the major pieces driving the sequential increase in revenue in Q4 2024 versus Q3 2024?
A: The sequential uptick is driven by new product introductions, strong medical device demand, and continued strength in robotics and automation. The largest segment of new products is in medical solutions, supported by hospital capital spending and new product launches.
Q: Can you pull apart the sequential acceleration in robotics and automation bookings?
A: The growth is driven by solid medical demand, decent performance in microelectronics, and an uptick in smaller robotics markets. Offsets include declines in automotive, EV, and battery sectors. However, new products in these spaces are contributing to overall growth.
Q: What portion of robotics and automation is industrial versus medical?
A: We have not provided a specific breakout before. We will get back with a consistent manner to address this question.
Q: What are the other tools you are looking to acquire to bolster your position in the life sciences bioprocessing space?
A: We are focusing on structurally managing our business through cycles, introducing new products, gaining new customer slots, and expanding the Motion Solutions business. We are positive about the medium-term outlook for this space.
Q: Are you seeing any risk to new product launches or timing related to macroeconomic factors?
A: While some customers are impacted by the macro environment, the average timing of new product launches is tracking as expected. The diversification of our product launches helps mitigate risks, and we are reconfirming our targets.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
