Good morning. My name is Virgil, and I will be your conference operator today. At this time, I would like to welcome everyone to the Novanta 2017 Q1 Earnings Call. [Operator Instructions] Thank you. Timothy Spinella, Treasurer of Novanta, you may begin your conference.

Thank you very much. Good afternoon and welcome to Novanta's first quarter 2017 earnings conference call. I'm Timothy Spinella, Treasurer of Novanta. With me on today's call is our Chief Executive Officer, Matthijs Glastra and Chief Financial Officer, Robert Buckley. Robert has temporarily lost his voice but will be available for questions. If you’ve not received a copy of our press release issued today, you may obtain it from our Investor Relations section of our website at www.novanta.com. Please note this call is being webcast live and will be archived on our website. Before we begin, we will need to remind everyone of the Safe Harbor forward-looking statements that we've outlined in our earnings press release issued earlier this morning, and also those in our SEC filings. We may make some comments today both in our prepared remarks and our responses to questions that may include forward-looking statements. These involve inherent assumptions with known and unknown risks and other factors that could cause our future results to differ materially from our current expectations. Any forward-looking statements made today represent our views only as of today. We disclaim any obligation to update forward-looking statements in the future even if our estimates change. So, you should not rely on any of today's forward-looking statements as representing our views as of any date after today. During this call, we will be referring to certain non-GAAP financial measures. A reconciliation of such non-GAAP financial measures to the most directly comparable GAAP measures is available as an attachment to our earnings press release. To the extent that we use non-GAAP financial measures during this call that are not reconciled to GAAP measures in the earnings press release, we will provide reconciliations promptly on the Investor Relations section of our website. I’m now pleased to introduce the Chief Executive Officer of Novanta, Matthijs Glastra.

Thank you, Tim. Good morning, everybody and welcome to our call. We are off to a very strong start in 2017 with record revenue and EBITDA performance leading both our revenue and profit guidance in the first quarter. Our company delivered 21% reported and more than 10% organic revenue growth with strong profitability. Our revenue was $109 million, operating income was $10 million and our adjusted EBITDA was $20 million which is up 48% year-over-year. We expanded our EBITDA margins year-over-year by 340 basis points to 18.4% of sales. Our GAAP earnings per share was $0.98 and our adjusted earnings per share was $0.31 which was up 72% from $0.18 in the first quarter of 2016. We believe that the strength of our team, our robust business model of providing proprietary mission critical functionality in diversified end markets and our increasing exposure to the medical markets are serving us well. In the quarter we saw broad based growth momentum across the company with all three operating segments demonstrating double-digit year-over-year reported revenue growth. Bookings performance was solid with a book-to-bill of 1.11 for the quarter. You will hear more financial details on the quarter in the outlook for the second quarter later in this call but a strong first quarter results give us high confidence in our full year 2017 outlook. As mentioned in the previous earnings call, we closed two exciting acquisitions in the beginning of 2017. We acquired ThingMagic a provider of ultrahigh frequency RFID models and readers and we increased our stake in Laser Quantum from 41% to approximately 76%. As you will recall, Laser Quantum is a provider of optical light engines solid-state continuous wait and ten-to-second lasers. These acquisitions further our strategy to increase our presence in medical markets. Including these acquisitions our revenue in…

[Operator Instructions] Your first question comes from the line of Lee Jagoda from CJS Securities. Please go ahead.

Good morning, guys. So starting with the organic growth in the quarter and the organic growth implied in your guidance. Can you talk about how much new products and the new product pipeline is contributing to the organic growth?

Yes, we are not splitting out the details Lee in terms of the percentage of sales but it was a pretty significant impact. So, and we have commented in the quarter where we see impacts in growth percentages. So yes, we will continue to comment on that in that matter.

And you made the comment earlier that you expected new product performance to benefit the back half I think more than it will in the first half. And you know your organic growth guidance for Q2 is pretty strong obviously Q1 benefitted from the easy comp, but to the extent new products are going to be more beneficial in the back half, is that to say that organic growth is likely to accelerate in the back half as well?

Well I made remarkably was primarily in our precision motions segment with the Veratus product where we've launched that product, we are seeing good bookings for it and we’re ramping the product as we speak. So we see a more significant contribution of that product in the precision motions segment in the second half regardless of what the remark is about.

Got it, understood. So then just switching gears to the Laser Quantum business, I guess given the trends in DNA sequencing and the growth that you expect this year, why did the prior owners of Laser Quantum decide to sell now and was there a piece - was there a right of first refusal written into the Laser Quantum agreement and then just as a follow-up to that, on any future transactions you have a right of first refusal to buy the rest.

So, first about the timing, well of course we should direct the question to let’s say to the founders, but we know them well and it was the right time for them as they are ramping the business in a pretty significant way as you kind of see here in our financial results and they felt that with the Novanta strength, we could actually help them with that ramp and add more credibility to the ramp, as well as further grow their business in other areas outside DNA sequencing. So for them itself good, for us itself great, with the timing for us is indeed very good. But they still own 25% in the business and therefore we are eager to fully and to see there - their business do very well.

And then on the right of first refusal, do you have the right by the rest when and if they are ready to sell?

Yes.

Okay. And then my last one, just regarding the India's profitability, can you give us a sense of the current revenue in that business and maybe the current gross margin run rate, understanding that probably not profitable yet, just so we can understand the drag that it might have had on gross margins in 2016 in Q1 and going forward in the next couple of quarters.

Yes, I mean the track in the past was more than it is today. I mean we're not splitting out the deep financials Lee, but it was a much larger business a few years ago and at that time it had a much bigger drag on our financial results than what it has today and what you see right now there are two effects, one is the business is much smaller and it turns back to growth. So it's now accretive to our business yet if less material. All right, so that's something - the key thing yet, we're of course very pleased with the fact that we finally see that business turning around and based on the pretty heavy investments that we've made. So we're pleased with that and that's why we made the remarks we make.

So assuming it's gross margin positive today, over time is this the time of business that should achieve corporate average margins, less than corporate average margins, more?

Yes, we think it, you know if corporate average EBITDA – EBITDA or gross margin – I mean gross margin should be similar. I think EBITDA margins probably will be lower than the 20%, all right. Going forward but nevertheless that's a much improved from a loss-making situation last year and the year before.

Right, okay. Great, thank you.

Your next question comes from the line of Jared Berlin from Thames Capital Management. Please go ahead.

Hi, thanks for the time. It seems like the recent acquisitions are off to a great start and looking at the balance sheet clearly there is additional capacity and I just wonder how you balance and make sure these acquisitions continue to execute well or fully integrated versus executing on incremental acquisitions over the coming quarters and years.

Yes, so first of all on the integration of acquisitions, both these acquisitions fit very well in our existing businesses and ThingMagic was fully integrated in our JADAK business literally within a week. They are physically relocated to our Bedford facility and the teams are working really well. So it's a fairly small business on a small team with very high caliber of people, so retention was key and we're proud to say that that is off to a great start and yet our joint businesses are grown very rapidly so people are excited to work together. So that one was - I would say classic tuck-in acquisition where with fairly straightforward to integration. Laser Quantum continues to be run by their founders. As mentioned earlier on the call, they still have about 25% stake or 24% in the company and they report into the Photonic segment and transition has been very smooth and the opportunity there is really about leveraging the Novanta sales channel for their products and I am pleased to say that that collaboration is going really well and particularly our Cambridge technology business has a vast set of customers that are very interesting quarter Laser Quantum business. So as far as kind of integration for those both businesses, we're very pleased and it's almost a non-event. People are focused on the business and are doing well. In terms of let's say acquisitions on the horizon, we made a remark that we are continuing to be very active as you say we have total capacity. Having said that, we're disciplined as we always have and so we're picky and the companies that fit as well are leaders in their respective markets to have a sustainable competitive advantage where they showed consistent financial performance, typically asset like in terms of operating structure and with strong management teams that are focused on long-term growth. So, as a set of pretty stringent criteria that we hear too and we would hear too, yet with those criteria we do see a very active pipeline and you expect us to be active in the remainder of the year.

Great, thank you very much.

There are no questions at this time. I will turn the call over to the presenters.

Thank you, Operator. So to summarize, it's a great time to be part of Novanta. We're off to a very strong start to the year. Our focus on accelerating profitable growth was evident in our strong financial results. The diversity and strength of our businesses have served as well and I’m proud of the execution by our team. We also believe that our strategic direction was an increasing exposure for medical markets positions us well for sustainable and profitable growth. As discussed before, we are now entering the growth phase in our transformation journey focused on multiple growth drivers. We have leading positions in growth markets, we're expanding our served markets through innovation and disciplined M&A with focus on expanding our medical presence, or achieving deeper market penetration globally through a stronger and larger sales force, all of this while maintaining our commitment to disciplined execution and our continuous improvement business system. In closing I would like to thank our customers, our employees and our shareholders for their ongoing support. We appreciate your interest in the company and your participation in today's call. I look forward to joining all of you in several months in our second quarter earnings call. Thank you very much. This call is now adjourned.

This concludes today's conference call. You may now disconnect.