Novanta Inc. (NASDAQ:NOVT) Q3 2018 Earnings Conference Call - Final Transcript

Nov 06, 2018 • 10:00 am ET

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Novanta Inc. (NASDAQ:NOVT) Q3 2018 Earnings Conference Call - Final Transcript

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Presentation
Executive
Matthijs Glastra

growth drivers. We see a converging trend and need for motion, vision and photonics capabilities in a large variety of applications on the back of trends in Industry 4.0, precision medicine and health care productivity. Particularly, we remain excited about our position in applications such as DNA sequencing, robotic surgery, metrology, advanced material processing and precision automation and robotics.

In the quarter, we did not observe slowdowns in our core markets and feel well positioned in applications with long-term growth dynamics. In fact, in the quarter, we continued to see broad-based growth momentum across the company and all regions, with seven of our eight businesses growing mid-single digits or higher. We also continue to have solid order book performance with an overall book-to-bill of 1.04, a core bookings growing 10% versus the third quarter of 2017. We saw broad-based growth in both the medical and advanced industrial market segments and applications. Sales to China were up 25% year-to-date, representing roughly 11% of total Novanta revenue. However, we're staying alert to potential secondary demand of factors as a result of the U.S. China trade dispute and a more uncertain investment climate. We continue to invest heavily in our innovation pipeline to launch new products and drive market share gains. In addition, we continue to invest in our commercial engine, driving cross-selling opportunities, geographical expansion and identifying new customer and application areas to serve. We are already seeing the fruits of our efforts on our strategic growth priorities.

New product revenue year-to-date grew more than 65% year-over-year. Our vitality index, which is revenue from new products, launched in the last four years, continues to be above 20% of sales. Our year-to-date design wins accelerated and increased by nearly 40% and as discussed previously, our year-to-date revenue from China increased by more than 25% versus last year. All of this gives us confidence in our ability to deliver annual organic growth of 5% to 7% on average. Finally, in the productivity side, I'm proud of the execution by the team, delivering solid contributions to our operations net of inflation. Let me take a moment to comment on the U.S. and China trade dispute. Based on the tariffs communicated to date, there are two categories of headwinds we are seeing. The first are tariffs imposed by United States from China purchased and imported product as part of our supply chain. The second are tariffs imposed by China on U.S. purchased and imported products. In both cases, there remains a very fluid situation that one we plan on assuming becomes the new norm.

As we articulated in the past, we are confident to ultimately mitigate the majority of the impacts. While these actions take time, cooperation from our vendors and customers and a significant effort on our part to properly and permanently address. As we look at the remainder of 2018, our guidance for the full year already factors in the impact to our profit and our sales from the tariffs imposed. As we look