NOVANTA INC Q4 FY2024 earnings call

• Novanta achieved solid financial results in 2024, with strong operating performance, core gross margin expansion, adjusted EBITDA growth, and record cash flow generation. In Q4, it returned to organic growth, beat profit expectations, and had best quarterly cash flow ever.
• Launched 50 new products in 2024 with over 50% more planned for 2025. Design win activity grew over 40% in Q4.
• Reorganized with two co-COOs leading Automation Enabling Technologies and Medical Solutions segments. John Lassiter joined as co-COO for Medical Solutions.
• Focus on Novanta Way culture to attract, retain, and develop talent, with investments in leadership development and employee training.
• Utilized Novanta growth system (NGS) in 2024 to enhance performance across factory teams, commercial organization, R&D, and product management, with plans to continue using it in 2025.

For the Automation Enabling Technologies segment, fourth quarter sales grew 9% year over year, while full year sales declined 2%. The book-to-bill in the fourth quarter was 0.89 and 0.87 for the full year. Adjusted gross margins in the fourth quarter were 51%, up nearly 350 basis points year over year, and 49% for the full year, up 70 basis points year over year. Design wins in this segment were up high single digits year over year in Q4, and new product revenues grew strong double digits year over year in Q4. For the Medical Solutions segment, Q4 reported revenue grew 17% year over year but declined 4% organically. Full year reported sales grew 20% but had a 2% organic decline. The book-to-bill in Q4 was 1.05 and 0.98 for the full year. Adjusted gross margin in Q4 decreased roughly 500 basis points year over year, and for the full year, it declined 160 basis points but increased 130 basis points excluding the Motion Solutions acquisition. Medical Solutions segment had nearly tripled design wins year over year in Q4.

• Full-year 2025 GAAP revenue expected ~$1 billion (5% growth). Adjusted gross margin expected 100 basis points expansion to ~47.5%. Adjusted EBITDA $225M-$235M. Adjusted diluted EPS $3.35-$3.55. Non-GAAP tax rate ~22%-23%.
• First quarter 2025 GAAP revenue in range of $232M-$236M (flat to +2% growth). Automation enabling technologies segment expected low to mid-single-digit growth. Medical solutions segment expected flat to low single-digit growth. Adjusted gross margin ~46%-46.5%. Adjusted EBITDA $48M-$51M. Interest expense ~$6M, non-GAAP tax rate 22%. Adjusted diluted EPS $0.63-$0.71.

• Geopolitical disruptions and trade war uncertainty, including tit-for-tat retaliatory responses.
• Uncertainty around government funding such as from the US National Institute of Health.
• Customer order volatility due to evolving policy decisions and associated retaliatory trade actions.
• Prolonged economic weakness in Europe and China, and demand pressures with US Federal spending cuts.

Q: Lee Jagoda asked about DNA sequencing product lines, issues faced, and recovery, as well as future organic growth.

A: Matthijs Glastra said DNA sequencing shipments normalized but funding cuts and trade policies caused headwinds. He expects innovation and new products to drive accelerating organic growth in 2026 and beyond.

Q: Brian Drab asked about EUV/DUV subsystem product, timing of revenue, and humanoids.

A: Matthijs Glastra said the EUV/DUV product is ramping, first half of 2025, with contribution growing in coming years. On humanoids, it's a growing category with precision robotics, and Novanta is positioned in it.

Q: Rob Mason asked about cadencing of $50 million incremental revenue, early green shoots in precision manufacturing, and M&A comfort level.

A: Matthijs Glastra said revenue from $50 million is gradually increasing throughout 2025. Robert Buckley said early green shoots in precision manufacturing are sustained. On M&A, they're disciplined on price, with multiple active conversations and supportive M&A environment.

Q: Brian Drab followed up on robotic surgery sales pause and diversification.

A: Robert Buckley said shipments into robotic surgery are resolved, and they're working with multiple customers in the robotic surgery space, optimistic about diversification as customers' commercial success unfolds.