Earnings Call Transcript
NOVANTA INC (NOVT)
Earnings Call Transcript - NOVT Q2 2021
Operator, Operator
Good morning. My name is Andrea, and I will be your conference operator today. At this time, I would like to welcome everyone to the Novanta Inc. 2021 Second Quarter Earnings Call. All lines have been placed on mute to prevent any background noise. Please note this event is being recorded. I would now like to turn the conference over to Ray Nash, Corporate Finance Leader for Novanta. Please go ahead.
Ray Nash, Corporate Finance Leader
Thank you very much. Good morning, and welcome to Novanta's second quarter 2021 earnings conference call. I am Ray Nash, Corporate Finance Leader of Novanta. With me on today's call is our Chairperson and Chief Executive Officer, Matthijs Glastra; and our Chief Financial Officer, Robert Buckley. If you have not received a copy of our earnings press release issued today, you may obtain it from the 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 shortly after the call. Before we begin, we need to remind everyone of the safe harbor for forward-looking statements that we've outlined in our earnings press release issued earlier today and also those in our SEC filings. We may make some comments today both in our prepared remarks and in 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 this time. 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 these forward-looking statements as representing our views as of any time after this call. 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 after this call. I am now pleased to introduce the Chairperson and Chief Executive Officer of Novanta, Matthijs Glastra.
Matthijs Glastra, CEO
Thank you, Ray, and good morning, everybody, and thanks for joining our call. Novanta delivered fantastic results in the second quarter of 2021. We delivered above our expectations for revenue, profit, and cash flow. We delivered new all-time highs for revenue and bookings and excellent operating performance with adjusted EBITDA growth of 20% year-over-year. And on top of all of this, we were very excited to announce two upcoming acquisitions in the past month, both of which will be a great strategic fit for Novanta, and together, will contribute significantly to Novanta's long-term growth and our presence in attractive high-growth application areas. These two transactions are both expected to close in the third quarter and we will speak to them in more detail in a few minutes. Speaking in more detail to our second quarter results, our company delivered approximately $168 million in revenue, representing 16% year-over-year revenue growth on a reported basis and 11% on an organic basis. This is the highest ever single quarter sales for Novanta, which comes on the strength of rebounding markets and exceptional execution by our teams. We are also pleased to show healthy reported revenue growth of 8% versus the second quarter of 2019; a sign that we are emerging stronger out of this pandemic. In addition, in the second quarter, we had excellent operating performance with adjusted EBITDA of $37 million, which is up 20% year-over-year. This represents an EBITDA margin of 22% of sales, which is also up 80 basis points year-over-year. We are extremely pleased and proud of how our teams drove exceptional operating performance using the Novanta growth system tools despite widely reported supply chain challenges. Adjusted diluted earnings per share was $0.62, which is up 29% versus 2020, and our teams delivered strong free cash flow performance in the second quarter of $23 million at a ratio of 200% of GAAP net income. So all-in-all, very strong results. We saw record bookings momentum in the second quarter with sequential bookings growth of 12% versus an already strong first quarter and year-over-year bookings growth of 77% versus the second quarter of 2020. We saw bookings strength across all our segments, with each segment having a positive book-to-bill in the quarter. In the second quarter, our overall book-to-bill was 1.37. We saw very healthy momentum in many of our advanced industrial applications as well as many medical applications and expect to be well above pre-pandemic revenue levels in the remainder of 2021. Now let's talk about what we're seeing in our markets, where industrial and microelectronics continue to lead the Novanta recovery. Novanta sales to advanced industrial applications were 48% of total sales in the second quarter, and our sales continue to rebound across multiple application areas with sequential growth of 9% and year-over-year growth of 24%. We also continue to experience high demand specific to microelectronics investments in 5G, high-speed networking, and cloud-based infrastructure as well as higher demand from EUV-based applications. We continue to expect the increased microelectronics demand to be sustained throughout 2021 and likely into 2022. The advanced industrial business also has an increased tailwind from new products, which I will talk to in a second. In the second quarter of 2021, 52% of Novanta's total sales went into medical applications. Overall, sales to medical applications grew 9% versus the second quarter of 2020, but slightly down sequentially. During the quarter, we did see a healthy rebound in orders and shipments to many of our medical OEM customers as hospitals slowly start to return to making capital investments. However, we're still seeing a slow recovery in some surgical applications, with capital spending continuing to experience delays, particularly in light of the delta variant resurgence in multiple parts of the world. Despite this delay, however, the majority of large medical OEMs are increasing their demand and multiple application areas are now starting a strong market rebound. DNA sequencing, for example, is catching up to pre-pandemic levels with a healthy outlook for the full year. Also, robotic surgical robotics and lab diagnostics are showing strong year-over-year and sequential growth with good outlooks. All of this supports our view that medical sales should continue to grow as we progress further into the year, barring any further setbacks in the global recovery from the virus. From a regional perspective, we saw growth across all geographies in the quarter. Our strongest growth continued to come from China, where sales grew 35% year-over-year, and sales in Europe grew double digits, while sales in the United States grew 9% year-over-year. Now let me touch on some of Novanta's strategic growth metrics. Our vitality index, which is revenue from new products launched in the last four years, continues to be healthy at above 25% of sales for the second quarter. We continue to invest in our innovation pipeline with terrific results. Year-to-date, we launched eight new products, and we are on track for 25 launches for the full year with multiple new products in the queue for the second half of 2021, with focus on industrial and surgical robotics, minimally invasive surgery, precision motion, and diagnostics in industry 4.0. We are very excited about all of these products and see a healthy uptick in technical evaluations requested by existing and new customers. Let me highlight one of the products launched in the second quarter, which is called Evo4K. This product serves our medical OEM customers, and it's a software-based 4K medical-grade video recording system. It takes live video from surgical cameras and then records and converts images and videos into usable digital formats for secure use by the hospital. This product furthers our strategy to deliver more embedded software-based functionality in an increasingly digital operating room environment. Design wins in the second quarter were up over 50% versus the prior year, with multiple wins in most of our businesses, continuing the significant momentum we built in the first quarter. We expect to see continued success with our design wins during the remainder of the year. Moving on to other updates. The deployment of the Novanta growth system continues to produce favorable financial results as evidenced by the gross margin expansion of over 300 basis points and strong cash flow in the second quarter of 2021. We are very pleased with how our teams are adopting this common way of working, and we see excellent opportunities during the rest of 2021 and beyond to continue to transform our operations and customer engagements using the Novanta growth system. We also continue to build and invest in our inclusive and diverse Novanta Way culture with the appointment of Anna Fain as our Vice President, Leadership Development and Diversity, Equity and Inclusion, or DE&I. In partnership with myself and the Novanta leadership team, Anna will help build a diverse talent pipeline and embed DE&I deeper into our culture, our systems, and processes so that everyone, regardless of their background, can succeed at Novanta. Finally, we continue to be active in the M&A market. We recently announced two acquisitions, Schneider Electric Motion or SEM and ATI. Both SEM and ATI are fantastic businesses, which will be excellent strategic additions to Novanta, expanding our positions in high-growth markets. As of now, we expect both transactions to close in the third quarter, and Robert will give you more details on both businesses in just a few moments. So in summary, our second quarter was stellar, with record sales and bookings and excellent operating performance. We feel good about our long-term strategic positioning of both medical and industrial applications with long-term secular growth events in robotics and automation, healthcare productivity, and precision medicine. We’re confident in our outlook for the year, a strong year-over-year growth, and we feel good about our momentum with a strong innovation pipeline and balance sheet. So with that, I will turn the call over to Robert to provide more details on our operations and financial performance.
Robert Buckley, CFO
Thank you, Matthijs, and good morning, everyone. Before walking through our operating results, I'll share some more details on the two acquisitions Matthias just mentioned. First, we've agreed to acquire SEM for $115 million in cash. SEM is a leader in innovative motion control solutions, specifically around brushless motor technologies, integrated motor drives, and electronic control. The addition of SEM's technology will expand our precision motion control portfolio, furthering our ability to serve customers with unique high-performance solutions. SEM develops key solutions for applications demanding highly precise controlled movement in areas, including medical instrumentation, lab automation, robotics, and other advanced manufacturing applications. SEM is expected to help our expansion into automation robotic applications through advanced motion control solutions. The business has approximately 60 employees and is headquartered in Marlborough, Connecticut. Next, we've also agreed to acquire ATI for $172 million upfront, along with additional contingent cash payout structured as an earn-out. We held a separate call on the ATI acquisition, but I'll repeat a few highlights from this exciting acquisition. ATI is a leading supplier of intelligent end-of-arm technology solutions to original equipment manufacturers in the robotics space. As a leader in the robotics space, they have more than $70 million in revenue in a high single-digit growth industry. Their focus on robotic applications has positioned them to win in a marketplace with strong long-term secular tailwinds driven by continued penetration of automation and robotics in both advanced industrial and medical markets. ATI develops, manufactures, and sells robotic changing systems, storage sensors, and collision sensors for industrial collaborative and medical robotic applications. These products enable OEMs and end users to increase safety, versatility, and productivity of the robotic systems. Applications include electric vehicles, robotic surgery, and collaborative robots. ATI really is a fantastic business with a strong fit with Novanta. They offer proprietary intellectual property in these attractive and growing robotic applications, giving Novanta a significant foothold to expand content with our customers while also serving new customers and applications. ATI was founded in 1989 and has grown to over 350 employees, including 100 engineers and a long-tenured technical workforce with deep expertise and know-how in the robotics space. We are very excited to have both SEM and ATI join the Novanta family. We are currently in a customary waiting period on both transactions, which includes regulatory review. After they close, both of these transactions will become part of the precision motion segment, offering some of the most sophisticated technology solutions available in the precise motion and robotics space. We look forward to working with SEM and ATI teams with their talent, expertise, and unique capabilities. Even after these two excellent transactions, acquisitions will continue to be a primary focus of excess capital deployment. We continue to work on a very active pipeline of opportunities, and we feel good about the progress we are making in this area. I'll now turn to give our normal update about the performance of our operating segments. Starting with our photonics segment. For the second quarter of 2021, our revenue was up 30% year-over-year and up 7% sequentially. This strong performance reflects the continued rebound in advanced industrial applications and DNA sequencing. Bookings were up 148% year-over-year, giving us confidence in the business outlook for the remainder of the year. The book-to-bill was 1.46 in the second quarter. New product revenues stayed strong at greater than 25% of sales in the second quarter, and total NPI sales were up 76% year-over-year. Design wins were up over 60% year-over-year. And finally, the sales to customers in China grew more than 50% in the second quarter as we continue to see strong momentum in our photonics products in the China market. Turning to the precision motion segment. This segment saw 30% year-over-year revenue growth and 14% sequential growth in the second quarter of 2021, with bookings nearly doubling year-over-year, giving us a book-to-bill ratio of 1.6 in the quarter. Within the precision motion segment in the second quarter, new product revenues grew by over 40% and was over 20% of total sales for the segment. Design win activity in this segment was up 30% on a year-to-date basis versus the prior year. And finally, the segment saw another quarter of more than 30% growth year-over-year from its customers in China. Finally, turning to the vision segment, this segment predominantly serves the medical end markets and saw a revenue decline of 2% year-over-year, in line with expectations for the business given the difficult comparisons to the prior year. While revenue growth continues to be delayed due to deferred hospital spending caused by COVID hospitalization rates, our customers continue to see surgical procedure growth recover to pre-pandemic levels in the United States, China, and the European healthcare markets. The continued progress with surgical procedure growth points to a second half of 2021 recovery in the business. With that being said, the pandemic is not behind us and additional COVID infection rates remain a concern we are carefully monitoring. Despite the near-term pause in sales growth, the vision segment saw bookings grow 23% year-over-year and a book-to-bill of 1.15. The vitality index in this segment remained at about 30% of sales, with new products being a key driver of the resilience we've been seeing in the business. Design win activity was especially good in the quarter, more than double the amount of activity from the prior year, and the business closed on some significant wins with several large medical OEM customers. This is a huge accomplishment and further solidifies the exciting growth prospects of this segment over the next several years. I'll now turn back to the overall company results. Our second quarter non-GAAP adjusted gross profit was $76.9 million or a 46% adjusted gross margin compared to $61.4 million or 42% adjusted gross margin in the second quarter of 2020. In the second quarter, adjusted gross margins increased more than 340 basis points year-over-year and up 90 basis points sequentially. This strong result was in line with our expectations and comes as a result of ongoing work from our operating teams to drive the Novanta growth system deeper into our day-to-day work, allowing the factories to better leverage their cost and drive supply chain efficiencies despite the significant challenges. Novanta continues to experience significant supply chain disruptions manifesting primarily around electronic material shortages and logistics disruptions. As we discussed in the first quarter earnings call, we expect supply chain disruptions and shortages will continue to remain our number one challenge in 2021. In the second quarter, we were extremely proud of our manufacturing team's execution and ability to mitigate these challenges. Second-quarter R&D expenses were nearly $17 million or roughly 10% of sales. As demonstrated in Novanta's 150% growth in design wins year-to-date, our investments in innovation are making significant progress. Second quarter SG&A expenses were $31 million or 18.6% of sales. SG&A expenses were down slightly in the second quarter of 2021 on a sequential basis as a consequence of lower compensation-related taxes. Adjusted EBITDA was $37 million in the second quarter of 2021 or a 22% EBITDA margin. Our adjusted EBITDA performance beat our expectations and our previously issued guidance, mainly driven by strong gross margin and higher sales volume flowing through to profit. On the tax front, our non-GAAP tax rate for the second quarter of 2021 was 18.2%. This differed from the statutory rate, driven largely by jurisdictional mix of income. On a non-GAAP basis, adjusted earnings per share were $0.62 in the quarter compared to $0.48 in the second quarter of 2020. The favorable result for our adjusted EPS were driven by strong profit and higher sales. Second quarter operating cash flow was nearly $29 million. This good result was driven by strong profit and by sustained improvements in our net working capital. Finally, we ended the second quarter with gross debt of $196 million, and our gross leverage ratio was 1.5x. Our net debt was $62 million. Turning now to guidance. As we look at the third quarter, we continue to see strong demand from the advanced industrial sector with capital spending continuing a strong recovery. With the bookings and backlog progress, it remains very clear that our number one challenge in 2021 remains supply chain disruptions caused by electronic material shortages and third-party logistics constraints. Thus far, our manufacturing teams have been successful in mitigating the majority of these shortages. But we continue to see some of these dynamics get more complicated and difficult to mitigate in the short term, at least when it comes to meeting our customers' expectations. We are using all of our resources and tools to limit the impact and expect this challenge to remain through year-end. However, it is clearly a temporary situation, and despite this, we feel we have solid visibility to not only raise our third-quarter financial outlook but also the rest of the year. Starting with the third quarter of 2021. As we stand here today, we expect GAAP revenue in the range of $165 million to $170 million. We're expecting to see year-over-year 15% to 20% revenue growth and continued bookings progress. The revenue range itself is governed by material availability of our factories, third-party logistics disruptions, and possible disruptions with our customer production processes through their own supply chain challenges. It is not driven by demand, which is continuing to remain very robust. In addition, the range also factors in some part shortages we believe are unlikely to be mitigated before quarter end. On a segment level, we expect continued growth in both photonics and the precision motion segment comparable to the second quarter, whereas we expect our vision segment will be largely flat on a year-over-year basis and a sequential basis. While we expect bookings and backlog to continue to build in this segment, the electronic material shortages are concentrated in this segment, causing us to under-deliver to customers' demand in the third quarter. Moving on to adjusted gross margins. We expect gross margins in the third quarter to continue to hold at nearly 46% gross margin, despite the significant supply chain disruptions. While we continue to see some areas of higher costs, we also continue to be impressed with our manufacturing team's ability to find new productivity programs to mitigate these cost pressures through the application of the Novanta growth system. R&D expenses will increase from the second quarter to approximately $18 million in the third quarter as a consequence of normal fluctuations in project spending on our NPI programs. SG&A expenses for the third quarter would be approximately $31 million, similar on a percent of sales to the second quarter. Depreciation and amortization expense will be aligned with the second quarter levels of slightly more than $3 million, and stock compensation expense will remain at roughly $5 million in the third quarter of 2021. For adjusted EBITDA, we expect a range of $35 million to $37 million. Interest expense, which is about $1.5 million in the second quarter, will be similar in the third quarter of 2021, absent any impact from borrowings associated with the Schneider and ATI acquisitions. We expect our non-GAAP tax rate to be around 19%, absent significant changes in jurisdictional mix of income or other variability of our eligible tax benefits. Diluted weighted average shares outstanding will be approximately 36 million shares. The adjusted diluted earnings per share we expect a range of $0.55 to $0.60 in the third quarter. Finally, we expect free cash flow to be lower in the third quarter than in the past few quarters. One factor impacting this is an $8 million cash payment we will be making in the third quarter to finalize an earn-out on an acquisition from several years ago. The earn-out payment is considered compensation under U.S. GAAP as it was conditional on employee retention and thus classified under operating cash flow. In addition, we expect CapEx to increase to approximately $9 million in the third quarter as a result of finishing our new Taunton U.K. manufacturing facility in our photonics segment. This third quarter guidance does not include the impact of the closing of the SEM and ATI acquisitions. While we continue to expect these acquisitions to close at the end of the third quarter, we cannot include them in our guidance at this time. Turning to the full year of 2021. We are raising our guidance based on the continued strong demand environment and despite the significant challenges associated with global supply chains. We now expect full year revenue of approximately $660 million to $670 million. Once again, this revenue guidance excludes the expected revenue contributions from the SEM and ATI acquisitions. Therefore, we anticipate updating guidance again after these acquisitions have officially closed before the end of the third quarter. Gross margins for the full year are expected to be between 45.5% and 46%, representing 200 basis points improvement over 2020. Overall, R&D and SG&A expenses for the full year are expected to be between $195 million and $200 million, roughly 30% of sales. We expect adjusted EBITDA to be in the range of $140 million and $143 million. And finally, based on a non-GAAP tax rate of 15% to 16% for the full year, we expect adjusted diluted earnings per share to be in the range of $2.30 and $2.40. All of these financials will be updated again following the close of the SEM and ATI acquisitions later this quarter. In conclusion, we continue to be extremely pleased with the quality of our businesses, the quality engagement of our teams and the strong demand environment. While we expect to face our challenges around supply chain disruptions and even rising COVID cases, we believe these are temporary challenges, and the company is well positioned to emerge stronger. We remain very proud of the performance of our employees and their tireless efforts to help us be successful in a very challenging environment. And most importantly, we remain excited about our future and look forward to continuing to deliver on our commitments to our employees, our customers, and our shareholders.
Operator, Operator
And our first question comes from Lee Jagoda of CJS Securities.
Lee Jagoda, Analyst
So just starting with precision motion and the margins there. Can you talk about the sustainability of the margins there just because I think it may be the highest gross margin you've ever had in that segment?
Matthijs Glastra, CEO
Yes. There's a little bit of mix benefit happening in the second quarter. But I do think something with a 5 in front of it is somewhat sustainable as we get to the second half of the year.
Lee Jagoda, Analyst
Got it. And then on the vision side, I know you mentioned there was headwinds and medical kind of is slower to recover. That being said, it took a pretty material step down versus Q1. And historically, other than last year, which was clearly COVID-related, you don't have that seasonal step down in Q2 versus Q1. Is it just short-term demand fluctuations or is there some seasonality because of some acquisitions you've made in the past that are causing the Q1 to Q2 step down? And how should we think about that going forward?
Matthijs Glastra, CEO
All of it is related to the current demand in the surgical end market. We discussed this in the first quarter, but everything ties back to our position in the surgical supply chain. Although surgical procedures are increasing, we are experiencing a slight delay in seeing that reflected in our results. This effect is more likely to become evident in the second half of the year.
Lee Jagoda, Analyst
Got it. Just one more quick one. The vision gross margins, I assume that's just a greater mix of consumables given the lower OEM equipment sales?
Matthijs Glastra, CEO
That’s correct.
Rob Mason, Analyst
Yes, the bookings strength in the quarter and year-to-date has been outstanding. I understand the supply constraints as you consider your outlook, but how should we think about the backlog conversion? Are there any changes in your customers' order patterns? How much are they discounting, and are there more extended lead times compared to their overall end demand?
Robert Buckley, CFO
Yes. I would say that for the most part, we haven't shipped anything that has contributed to anyone's inventory. Everything we've shipped has been sent directly to our customers. While there may be some inventory building occurring, we haven't met that demand yet, which is reflected in the book-to-bill ratio. In fact, the book-to-bill ratio is significantly higher; we're not in a situation where we're surpassing their shipments, so they're not increasing their safety stock. We anticipate that around 10% of the bookings may relate to planning for safety stock because a few customers need to replenish, but this year, we do not expect to fulfill that due to supply chain shortages.
Matthijs Glastra, CEO
Yes, macro-wise, Rob, this is Matthijs. You can see that the markets we operate in are experiencing a rebound, particularly in advanced industrial sectors, which we are benefiting from. We are performing well above 2019 levels, and things are improving healthily. We also have additional support from new products in this area, so we feel positive about that. On the medical side, surgical robotics and DNA sequencing are returning to pre-pandemic levels and are outpacing those levels with a very strong outlook for the year and likely beyond 2021. We feel confident. Our teams are working diligently to meet the demand. As Robert mentioned, part of this may be customers wanting to secure their place in line. However, the majority of this demand is structural and sustained, as we can see.
Rob Mason, Analyst
And just to speak to photonics specifically a minute, that's where you probably had your greatest, at least year-over-year bookings growth. How did the mix of orders there look between the industrial side and the medical side where you do have more of a mix in that segment?
Robert Buckley, CFO
Yes. I would say largely balanced because the big chunk of the medical exposure there is either tied to the DNA sequencing market, which is doing fairly well right now or some laser-based eye procedures that are actually doing okay as well. So looking at the book-to-bill ratios of industrial and medical within that segment, they're actually pretty comparable to each other.
Rob Mason, Analyst
And maybe just one last question. It seemed like you felt that you did a very good job in the second quarter of managing some supply challenges in recognizing shipments, although it may become more difficult in the third quarter. I'm curious about whether there was a revenue or backlog in the second quarter that was related to the supply issues and what your expectations are for the third quarter in this regard.
Matthijs Glastra, CEO
In the third quarter, we have taken measures to address supply chain shortages that we believe we cannot resolve before the quarter ends. The range we provided reflects the risks associated with potential supply chain disruptions affecting us and our customers. Demand is currently exceeding the upper limit of our projections for the third quarter, but we have accounted for known material shortages that will prevent timely product shipments. Typically, we maintain a book-to-bill ratio of 1, meaning we consistently see more orders coming in than revenue generated. Some of the demand remains unfulfilled. While the demand situation is strong, the supply chain challenges limit our capacity to capitalize on it fully. However, we are performing at a high single-digit growth rate compared to 2019 levels in the latter half of the year, based on what we are able to deliver.
Rob Mason, Analyst
I see. And was there any under-delivering to speak of in the second quarter?
Matthijs Glastra, CEO
There was. There are certain situations where we did not get the parts in time to meet customers’ expectations. So that is happening a little bit in the second quarter. That’s already factored into the third quarter, but I don’t want to get into specifics around it.
Operator, Operator
And our next question will come from Brian Drab of William Blair.
Brian Drab, Analyst
I have another question about the gross margin, which was exceptional this quarter. Could you quantify the specific challenges related to the supply chain in terms of their impact on gross margin? Additionally, I would like to know if the third quarter might experience some challenges compared to the second quarter. Is this current level the lowest we can expect for gross margin, and do you anticipate it rising above 46% as we enter next year?
Robert Buckley, CFO
Let me address the second question first. The guidance for the second half of the year indicates a gross margin of about 46%. For the entire year, we expect it to be between 45.5% and 46%, which represents more than a 200 basis point improvement compared to 2020. We believe that for at least the next three quarters, this gross margin is sustainable. We are confident in our ability to achieve an additional 100 basis points of gross margin expansion each year. Looking into 2022, we anticipate that our businesses will continue to drive gross margin expansion. We see this potential through our productivity programs and the upcoming new product launches and product mix. Overall, we consider this a solid foundation for further progress. While it’s tempting to speculate on potential gains in the absence of certain costs, it’s important to focus on the impressive gross margin expansion compared to 2020, which reinforces our confidence in maintaining this momentum into 2021 and 2022.
Brian Drab, Analyst
Got it. Are you able to tell us which acquisition the earn-out was associated with?
Robert Buckley, CFO
The one that's hitting our operating cash flow in the third quarter is the Zettlex acquisition. So that's in the conductive coder business within the precision motion segment.
Brian Drab, Analyst
Got it. Speaking of Zettlex and the other acquisitions you've made with SEM and ATI, considering the strategy you've outlined for expanding the addressable market in each segment through subsystems and software, how many pieces of the puzzle are still missing for that expansion? What percentage of the total pieces have you added in the last couple of years?
Matthijs Glastra, CEO
My goodness, I don’t know about percentage of the pieces, but what I do know is, yes, if you look at where the industry and the market is going, obviously, there is a tremendous need for robotics and automation and robots that work side-by-side with humans and need to operate more almost like humans, so they need to touch, feel, move around, sense, and see like humans. And there’s a long way to go still before that is a reality, but we’re definitely making strong progress. So we want to be the enabling technology provider towards that trend. We think that the acquisitions we’ve just made are helping us tremendously. Both getting deeper in lab automation or in cobots, industrial robots for electric vehicle production, for example, but also deeper into robotic surgery, again, with the four-stroke sensing capability that enhances just the haptic feedback of the surgeon while operating. So these sensors and these feedback mechanisms as well as other sensing capabilities will be in continued focus for the company and you’ll see us making more moves down the line. We think the market – you’re probably watching this as we do, has grown tremendously. The explosion of e-commerce, you see mobile robotics, see more side-by-side improvement of safety that is really important and, of course, to be able to work together side-by-side robots. So all these things require sophisticated technology that we want to be part of. So it’s billions and billions of addressable market at some point, and we’re just scratching the surface. So yes. So we’re excited, and we see some follow-up opportunity with particularly the ATI acquisition.
Operator, Operator
This concludes our question-and-answer session. I would like to turn the conference back over to Matthijs Glastra for any closing remarks.
Matthijs Glastra, CEO
Thank you, operator. To summarize, Novanta’s performance in the second quarter of 2021 was excellent. We had all-time highs for sales and bookings, and we beat our own expectations for profit and cash flows. And our innovation programs are healthy and progressing after strong investments in the last few years and we saw another quarter of fantastic growth in design wins. We signed agreements for two acquisitions we talked about just now, which we believe align very well with Novanta's strategy and will open up more opportunities for us in attractive high-growth markets in the future. We’re excited to see the continued strength and recovery in the global economy, in the advanced industrial sector, and also in the medical sector. And Novanta is very well positioned in these sectors. We invested for it. And we have diversified exposure to long-term secular macro trends in robotics and automation, precision medicine, minimally invasive surgery, and industry 4.0. In closing, I would like to thank our customers, our employees, and our shareholders for their ongoing support. I’m very grateful for the dedication and strong contribution of our teams and of committed Novanta employees, particularly our supply chain and operations teams, who are working tirelessly to mitigate shortages successfully. 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 for the third quarter 2021 earnings call. Thank you very much. This call is now adjourned.
Operator, Operator
The conference has now concluded. Thank you for attending today's presentation, and you may now disconnect.