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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Q & A
Operator
Operator

(Operator Instructions)

The first question comes from Lee Jagoda with CJS.

Analyst
Lee M. Jagoda

So starting with WOM. Looks like performance was great despite the tough comps which you pointed out. You talked about some of the headwinds, but what are the things that are driving the strength within WOM?

Executive
Matthijs Glastra

So yes, particularly, the consumable business is very strong. So yes, that was explaining the much stronger quarter at WOM than we expected. Of course, it had some tempering effect on our gross margin percentages, as Robert explained. But overall, we couldn't be more pleased with how the WOM team executed this quarter.

Analyst
Lee M. Jagoda

And then looking at the comments on the tariffs, you call out the $4 million profit impact in the first half of '19. Does that incorporate not only the announced tariffs but the potential for increased tariffs come Jan 1 or what is that in general imply?

Executive
Robert J. Buckley

Yes, so it does. It sort of our -- like on a worst-case scenario at this point. We've been able to mitigate a lot of the impact. Tariffs are -- they are impacting us now in the back half. They will impact us at the beginning of 2019 as they step up again from 10% to somewhere closer to 25%. So we did factor that into our mitigation plans and will work all the way through that by the time we get to the second half.

Analyst
Lee M. Jagoda

So that $4 million is the unmitigated amount?

Executive
Matthijs Glastra

Portion of it, that's correct.

Executive
Robert J. Buckley

Yes, and we'll continue to work that. I mean, honestly, this is a fluid situation, and so our teams are now working as if this is a permanent new norm that we need to deal with. And so we've really, kind of, stepped it up from an aggressiveness perspective, meeting biweekly to make sure that we're taking the right actions, making the right communications to our customers and we're moving the supply chain efforts where we need to.

Analyst
Lee M. Jagoda

And one more just, kind of, bookkeeping question. In the release, it says Laser Quantum was -- you completed the acquisition of Laser Quantum in Q3. Did -- was the noncontrolling interest for the full amount this quarter or was it a partial amount?

Executive
Robert J. Buckley

We completed it on the very last day or something like that, last couple of days of the quarter.

Analyst
Lee M. Jagoda

Okay, so that's the full amount?

Executive
Robert J. Buckley

The accounting is all, kind of, messed up around there because of the way that put call option had to be treated and so then we had to write down the various aspects of it and write-off and there was some gains. So it's a little complicated, but it was all, kind of, done in the last -- at the end of the quarter.

Analyst
Lee M. Jagoda

If I can just sneak one more in. R&D expense as a percent of sales. I missed that in your guidance.

Executive
Robert J. Buckley

I gave a guidance around total operating expenses. We're still ramping up R&D. So I do expect that to kind of, get to