Good afternoon. My name is Raji Gunasekera. I'm an associate on the healthcare team at J.P. Morgan. I'm pleased to introduce the CEO of Novanta, Matthijs Glastra, with me here today. Thank you. Thank you. Good afternoon, everybody. It's great to be at the J.P. Morgan Healthcare Conference again. I will start with providing an overview and a presentation of Novanta and our strategy in high-growth markets. Robert Buckley, who's here with me, our CFO, will join me for a Q&A session. Before I get into the meat of the presentation, just wanted to turn your attention into our safe harbor statement. I will be making some forward-looking statements as well as refer to non-GAAP financial measures, and you can see the details of the reconciliation of our GAAP to non-GAAP financial measures on our website. Moving on to slide three, the Novanta overview at a glance. We're about a $850 million revenue company, technology provider of what we call mission-critical functionality to healthcare OEMs and advanced industrial OEMs. We're sole source providers of that mission-critical functionality, working with the leaders in the industry in exciting areas such as robotic surgery, high-throughput DNA sequencing, as well as minimally invasive surgery. Over 50% of our business is in healthcare markets. That's up from about 5% eight years ago. We're addressing a market of about $6 billion, growing nicely mid to high single digits. You see we have a nice profit. We're typically working with industry leaders in this space. You will see us working under the hood, working with those leaders on mission-critical technologies, that really differentiate our OEM customers in their field. We work with about 3,500 customers worldwide. We're headquarters just outside of Boston, with over 3,000 employees. Our operating model consists of three pillars. First, the differentiated OEM business model. All our businesses have at its heart, at its core, differentiated IP. We have over 450 patents, 600 engineers, and we work very closely with the engineers of our customers to come up with unique solutions so that we just customize for our OEM customers. We come up with those solutions in platforms of our customers that are lasting, you know, often 10 years. Our customers are medical healthcare equipment OEMs, as well as industrial equipment OEMs. For our size, we're fairly diversified. We address over 40 different applications, and no single customer is larger than 10% of our revenue. As a result, in the last, let's say, three-four years, when you saw many macro shocks, our portfolio has been extremely resilient because of our diversification strategy, which is by design. We solve these really high value problems through differentiation. Typically, our bill of materials Our solutions are less than 10% of the bill of materials in our customers, so we have good pricing power. The second pillar is focus on cash returns. We have an asset-light business model that produces nice cash flows, operating cash flow of about 100% of GAAP net income. We allocate our capital based on organic growth in return on invested capital, both on internal investments, so the expense side of the business, R&D, marketing and sales, as well as for acquisitions. We deployed over $750 million in acquisition capital over the last 8-9 years, where we have used the return on invested capital metric of 10% in year two for tuck-ins and 10% in year four for larger platform acquisitions. The last pillar is our high-performance collaboration culture, which we call the Novanta Way. At its core, our company consists of multiple autonomous business units, which we feel drives an owner mindset, entrepreneurial spirit, customer focus, agility, speed, which particularly with changing market dynamics, are very useful. Across these business units, we apply, of course, our common culture, the Novanta Way, and a important aspect of that culture is the Novanta Growth System. That is our lean business system focused on driving both productivity as well as effectiveness of our, of our growth engine. At Novanta, we spent a lot of time moving on slide five now, on where we play and how we win. We have been very deliberate in choosing our end markets, because as you imagine, our business model is one of long-term investment. We often have to invest years ahead before our customers are introducing their platforms. We of course, wanna do that in markets and with customers that are growing and customers that are winning. We have aligned our portfolio with high growth markets such as robotic surgery, minimally invasive surgery, high-throughput DNA sequencing, advanced diagnostics, aligned with long-term healthcare trends. We all feel that these secular growth markets, particularly robotic surgery, DNA sequencing, are in the early innings of what is gonna be a very nice long-term growth trajectory. We win through innovation. As I mentioned earlier, our starting point, we're not a contract manufacturer. Our starting point is our own proprietary IP. Industry leaders come to us for the unique solutions that we provide, that they cannot find elsewhere. We have over 450 patents, you know, spend 10% of revenue in R&D. In our medical business, actually, that percentage is higher. More and more, we see increasing content with our OEM customers, where we move from components to intelligent subsystems with more and more embedded software content. About 30% of our business is now in those intelligent subsystems, and we're investing to further increase that, which is both a growth engine as well as a margin enhancer. The way we're structured is in three reporting segments, as you can see here, fairly equally distributed from a revenue perspective. Like I mentioned, you see here the different business units with their own brand names, with their own general managers and their own teams. Across these groups, we might have either a common sales force or common manufacturing sites to drive synergies across the portfolio, as well as, of course, we have shared services like HR, IT, finance across these organizations. Corporate purchasing, which proved out to be a very good thing during the shortages, as well as the Novanta Growth System, which we drive across our businesses to improve the performance, the process excellence, and customer satisfaction, by, yeah, driving process rigor. Let's dive into three particular examples that we, you know, that hopefully provide some color on what Novanta is doing. Novanta is a leading supplier, working with all the industry leaders in endoscopic surgery, so that's laparoscopy as well as arthroscopy. You know, when you look at an endoscopic cart, you will find multiple Novanta technologies under the hood. I'm gonna focus on one particular one where we are the category leader. That is smoke evacuation integrated with an insufflator. when one performs a laparoscopy procedure, one needs to insufflate the abdomen or the belly of the patients to create an imaging cavity for the surgeon to see. Novanta is the category leader in that space. Recently, there is more and more need to evacuate smoke that is generated by energy-based devices while operating. That smoke is not good for multiple reasons. One is that it's toxic, and hospital staff inhaling that smoke, yeah, of course, that's not healthy. Therefore, there is legislation being passed in multiple countries as well as states in the U.S. to make sure that hospitals allow or are mandated to use smoke evacuation technologies. The second reason why smoke is not productive is that it clouds the view of the surgeon, and therefore evacuating that smoke quicker and more effectively reduces time spent in the OR. Now, there are different ways on how to evacuate smoke. There are standalone options or standalone solutions. Basically, consider it a separate, very sophisticated vacuum cleaner, basically cleaning out the smoke. The issue with that, though, is that you have another device, the insufflator, pumping CO2 gas into the belly, so you got competing forces in the abdomen of the patient, which creates an unstable situation, which surgeons don't like. The second, let's say, issue is that you will have to engage with a separate piece of capital as well as tube sets. Integrating basically smoke evacuation in existing real estate, like an insufflator, is there anyway, is more cost effective and also has better clinical benefits. Which is the reason why a lot of OEMs have come to us with the request to introduce with them the next generation smoke evacuation integrated with insufflation. There's currently one leading OEM in the market, but in the next few years, multiple other OEMs will launch this technology as well. We're very excited about that. We also see a second growth driver in this business of basically convergence of robotic surgery with endoscopy. We see robotic surgery in soft tissue needing this smoke evacuation technology as well. The third growth driver in this business is that we can use the competence of gas pressure and gas management into liquid management, which is basically sophisticated pumps for arthroscopy, which is a business that we have fairly low market share in and that we've won some business in recently as well. The combination of which will create about a $50 million revenue opportunity by 2025 through these three drivers, which is kind of an intermediate calibration point, because after that, the consumable business, that's also part of this business will start to kick in. Very exciting growth opportunity, for the company in an attractive space where we, over time, will see more mandates on smoke evacuation. Even there, we think that's early stages, from a mandate perspective. A good example of where Novanta has proprietary technology, long-term relationships with multiple industry leaders in the business, which will drive long-term, organic growth. The second, example is, you know, besides smoke evacuation insufflation that is gonna be used in robotic surgery, we have multiple other technologies that are being used in robotic surgery. A lot of it related to sensing and precision motion. You see here a sketch of the multiple locations in which, our technology plays, both on the surgical console as well as on the robot itself. Our claim to fame is basically that we have the most accurate, precise, position sensing. When you wanna move, which of course is mission-critical in robotic surgery, you need to know where you are. You know, through sensing, then you need to know where you're going through very precise, low latent, motion drives. Of course, you need to set the motion, including haptic feedback. Novanta has all these capabilities in-house and can work with both hard tissue and soft tissue OEMs, by the way, which we are all supplying. We work with all the well-known names here, depending on their needs to supply them with different combinations of competencies. Now, robotic surgery, as you know, is still fairly early innings, less than 10% penetrated. We feel that by increasing both our content as well as presence in multiple platforms, we're really set up well for long-term growth in this area with multiple technologies. Last example is our intelligence solutions for advanced diagnostics. That's a broad field where we provide multiple technologies, again, working with multiple industry leaders. I will highlight a few examples and a few trends. First and foremost, we're the leading provider, the sole provider of a sophisticated light laser engine subsystem for high-throughput DNA sequencing, where obviously we're very excited to be part of a recent new product cycle where we see a tremendous demand, you know, not only from the research, but on the clinical side. Also there, high-throughput DNA sequencing is fairly early innings in terms of penetration. Less than 1% or 2% of the world's DNA has been sequenced. We're again, part of the core engine under the hood of that equipment. Another key trend is laboratory automation, where of course, more and more samples will have to be produced with fewer people. Here, we're, you know, this is an area well-known. Other industries have gone through similar automation trends on the industrial side. We see it as now moving into the advanced diagnostic side. You see benefits of being playing in multiple end markets here. We're bringing multiple motion and sensing technologies to bear on the laboratory automation. The last is the detection and analysis part of the business where we have both machine vision, barcode, and RFID technologies to help to detect, let's say, the types of samples that need to go through the advanced diagnostic machine. You can imagine that when we have conversations with OEMs, we can have multiple technology conversations depending on their needs. Hopefully, those are, you know, three good examples to give you an idea of the type of things that Novanta is doing. You know, when you wrap it up, it ultimately, our strategy results into a double-digit growth over a decade, both on the bottom and the top line. We're very excited about this performance. Of course, we are very confident and are committed to continue this performance going forward, where the financial algorithm is basically mid to high single-digit organic growth, augmented by acquisitions, resulting into double-digit reported growth, expanding our gross margins by 100 basis points per year for the next few years to about 50%, and continue to drive strong free cash flow, which we then can reinvest into the business as well as acquisitions. Last but not least, I would like to draw your attention on our ESG environmental sustainability and governance framework. I mean, you can read the targets and the goals here by yourself. Maybe it's good to point out is that our business is a very low carbon footprint business. Basically, the majority of our Scope 1 and Scope 2, you know, let's say, exposure is primarily the energy and the heating of our buildings. We're an asset-light, you know, low CapEx business. That's one thing. We're of course committed to ultimately drive our exposure further down. The second piece that is important is on the S side, is that for an engineering company, we are, we have a truly embedded diversity, equity, and inclusion effort that has been going on for multiple years that we feel sets us apart and differentiates us from other engineering companies and really is a part of the fabric which we call the Novanta Way. It will help us actually create, you know, a better culture, but also it helps us find, you know, talent in all parts of the world, in all places. Of course, you know, we will produce our next ESG report in, I think, March or April of this year, to the 2022 report, you know, according to standards that you can expect from us with SASB and TCFD. In summary, Novanta, a mission-critical technology provider towards healthcare OEMs, advanced industrial OEMs, and exciting end markets such as robotic surgery, high-throughput DNA sequencing, minimally invasive surgery, where we have unique technology leadership working with the leaders in the business, in the industry that you would know, providing unique solutions that are sticky, and sole source towards these industry leaders, driving a sustained long-term organic and reported growth profile that we're very excited about. With that, I would like to turn it over to questions. I'd like to invite Robert here as well. You can apply the remote there. Sorry. Thank you, Matthijs. We'll now open the room for any questions, please. Any questions? Okay. I can get us started with some easy ones, hopefully. Can you explain the competitive environment for your smoke evacuation technology and why you feel so confident about it? I covered it a little bit, but I can maybe go into a little bit more depth. We feel we have a unique advantage. I mean, I explained that there is a need for smoke evacuation, both for a clinical as well as a safety perspective, that there is more and more legal mandates towards hospitals and states and countries that mandate hospitals to use smoke evacuation technologies. There's different options, and they're not necessarily bad. We feel that, you know, our solution of using a proprietary smoke evacuation functionality included in what is already there, so the insufflator, is a more cost effective because you're using existing equipment and real estate that is already there. Secondly, there's a clinical benefit of creating a, basically a more stable abdomen, you know, during surgery, which, you know, is what surgeons need and would prefer. That is based on voice of customer input from key opinion leaders and our OEMs are telling us as well, which is why they're pulling for this technology. The third is that there is more optimized workflow. By having everything integrated, you don't need to kind of worry about pushing multiple buttons of multiple, you know, non-integrated pieces of equipment. That's why we're excited about it. We're unique. It's based on proprietary IP that others don't have. Thank you. Can you explain what sort of visibility do you have into customer demand plans, and also new product development plans? Generally, we're tied into our OEM's engineering organization, so it's an engineer-to-engineer relationship. Think of us as part of the supply chain of the OEMs themselves. We, the way the relationship works with our customers is that they're placing orders on us with our lead times, but they're giving us a rolling 12-month forecast. We have very good visibility over the next 12 months. From a new product introduction perspective, we're generally seeing what they're working on over the next three to four years. We know the next platforms that are being developed and the types of technologies that they're expected to incorporate in those. We can make investment decisions around our own technologies as well as our facilities in order to ramp the expected outcomes of those plans. It's not uncommon for us, and we're doing this right now in the smoke evacuation. We've been investing for the last four years. We've now won the vast majority of platforms out there that we felt that we can address. We're looking at product launches starting in 2024, ramping in 2025 with $50 million in incremental revenue in 2025. We have very good visibility into that based on customer forecasts. Okay. In the same vein, can you sort of go over your long-term financial goals and also your long-term business plan goals? From a financial goal perspective, I think Matthijs talked a little bit about this. Think about it as mid-single-digit organic growth, achieving double-digit growth via acquisitions. We're driving the gross margin expansion of about 100 basis points a year, upwards of 50% gross margins to really drive the contribution, you know, from those incremental sales. That should flow down to the EBITDA margin, seeing a similar type of expansion on an annualized basis on EBITDA. Drives our free cash flows. The free cash flows that we use, the excess free cash flows to pay for acquisitions. We consider our acquisitions in really two categories, technology bolt-ons and then platform adjacencies. Very consistently every year, deploy the excess free cash flows towards those type of acquisition targets, which then compound the earnings growth of the overall company, and which is then driving the expansion that you see in the valuation. Thank you. Given what you know now, how do you see the 2023 macroeconomic environment impacting your company? You know, we talked a little bit about it in the last earnings call. I think we're looking at the medical side of the business actually holding in fairly well. It declined in 2021 and 2022. It's been slowly gaining strength in the third quarter. You know, we gave an expectation that we'll continue to build momentum around that. Based on new product introduction and customer visibility, we expect it to continue building momentum in 2023. Part of that is based on new product launches, some of that is based upon where we play. We play in areas that are tied to elective procedures, elective procedures have been recovering relatively nicely and at maybe and albeit a slower pace, but they've been recovering relatively nicely. Then obviously things like in vitro diagnostics or DNA sequencing have been ramping up pretty aggressively. We expect all those to do relatively well. Conversely, anything that we have in the industrial space will obviously slow down a little bit as a consequence of the pullback from a macroeconomic perspective. The PMIs have dropped below 50. The sentiment there is a little bit more negative in the short term, probably more positive in the long term, particularly in the robotic space. For us, in particular, we will see secular tailwinds in a couple key areas on industrial, so robotics being one of them. There are platforms around electric vehicles and batteries and solar cells that are large capital programs that are fully funded that are expected to continue to move forward regardless of the macroeconomic conditions. Yeah. Got it. Thank you. Yeah. We feel very good about the long-term secular growth trends in all these markets that Robert mentioned. Then in any given year, you will start to see some particular dynamics because of COVID, because of, you know, maybe industrial slowdown, because of trade wars. I think I just wanna point out that despite all those macro shocks, our portfolio has held in very, very nicely. So for example, we saw in the third quarter a slowdown on the semiconductor side, we still produced 20% organic growth, right? There's always, you see multiple cylinders moving, maybe one that might not be moving as nicely, but then others are compensating. So when medical is now coming back up, you see some slowdown on the industrial side, but it was reversed, let's say, a year and a half ago. On average, the portfolio produces nice, you know, organic, consistent organic growth results. Got it. Thank you. You touched on acquisitions and how that ties into your long-term business plan. Is that something your company's looking at in the short term despite the economic uncertainty? You want me to take it? Yeah. I would say yes. It's always part of the business model. It's always part of the strategy. We are heavily cash-focused in return on invested capital. You have to take into consideration that the WAC has changed, your borrowing cost has changed, and therefore, valuations would have to be adjusted as well. I don't think it changes the calculus around how we deploy our excess cash flows and the engagements that we've had towards a variety of different acquisition targets. It's been very. I think it's a very robust market out there, and it'll continue to get better as the year progresses. The other thing I'll say is uncertainty, and from a macroeconomic sense typically creates opportunities. I mean, we've deployed, like I said, over $750 million in capital on M&A. It's an integral part of our strategy. Over 15 acquisitions that if you can look at our financial results, have produced very positive cash returns over time, have further accelerated portfolio transformation towards these high growth markets that we provided, either produced more content through more comprehensive technology positions or getting into adjacent markets that we were not in, expose us more towards new high growth markets. It's an integral part of what we do. We are very disciplined in terms of where we play. It needs to fit our business model of proprietary IP with this long-term view in these secular growth markets. We're very patient in terms of cultivating potential targets on a proprietary basis. Yes, valuations have to, you know, adjust a little bit still. Like Robert said, with uncertainty comes also opportunity. We're gonna be patiently discussing and, you know, further observing and of course, you will hear once we make an acquisition. Thank you. I think that makes sense. Any more questions from the audience? None whatsoever. Okay. All right. Well, thank you very much. Appreciate you attending today, and thank you to the company as well. Thank you guys. Thank Thank you.