© 2024 Alpha Spread Limited. All Rights Reserved.
www.alphaspread.com is not operated by a broker, a dealer, or a registered investment adviser. Under no circumstances does any information posted on www.alphaspread.com represent a recommendation to buy or sell a security. The information on this site, and in its related newsletters, is not intended to be, nor does it constitute, investment advice or recommendations. The information on this site is in no way guaranteed for completeness, accuracy or in any other way. In no event shall Alpha Spread Limited be liable to any member, guest or third party for any damages of any kind arising out of the use of any content or other material published or available on www.alphaspread.com, or relating to the use of, or inability to use, www.alphaspread.com or any content, including, without limitation, any investment losses, lost profits, lost opportunity, special, incidental, indirect, consequential or punitive damages. Past performance is a poor indicator of future performance.
You don't have any saved screeners yet
Intrinsic Value is all-important and is the only logical way to evaluate the relative attractiveness of investments and businesses.
Good morning, my name is Debbie, and I will be your conference operator today. At this time, I would like to welcome everyone to the Novanta, Inc. 2018 First Quarter Earnings Call. [Operator Instructions] Please note this event is being recorded. I would now like to turn the conference over to Mr. Ray Nash, Corporate Finance Leader. Please go ahead.
Thank you very much. Good morning, and welcome to Novanta's First Quarter 2018 Earnings Conference Call. I am Ray Nash, Corporate Finance Leader of Novanta. With me on today's call is our Chief Executive Officer, Matthijs Glastra; and our Chief Financial Officer, Robert Buckley. If you've 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 live 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 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 Chief Executive Officer of Novanta, Matthijs Glastra.
Thank you, Ray. Good morning, everybody, and thanks for joining our call. Novanta continued its strong 2017 momentum and delivered another great quarter, beating both our revenue and profit guidance. Our company delivered $147 million in revenue, representing 35% year-over-year reported revenue growth and 9% year-over-year organic revenue growth. This is our 6th consecutive quarter of high single-digit or double-digit organic growth. Our adjusted EBITDA was $28.4 million, which is up 41% versus last year. We expanded our EBITDA margins year-over-year by 80 basis points to 19.3% of sales. Our adjusted earnings per share was $0.47, which was up 52% from $0.31 in the first quarter of 2017. In addition, we delivered solid cash flows with operating cash flow growing by 60% year-over-year to $20.4 million in the first quarter. At Novanta, our mission is to deliver innovation that matters providing mission-critical functionality to our OEM customers, while improving end-user productivity, enhancing people's lives. We believe that the strength of our team and our robust business model and diversified applications with a balanced exposure to medical and advanced industrial markets are serving us well. In the quarter, we continue to see broad-based growth momentum across the company with all 3 operating segments, demonstrating double-digit year-over-year reported review growth. We also had a very strong order book performance with an overall book-to-bill of 1.14, with all our businesses showing a positive book-to-bill performance. As we've reported in previous calls, we are experiencing broad-based strengths within a majority of our end markets, including life science, minimally-invasive surgery and advanced industrial. Key growth applications where we deliver innovation that matters are DNA sequencing, robotic surgery, endoscopy, advanced laser material processing and precision automation. We continue to make good progress on our strategic growth priorities driving long-term organic growth through commercial excellence and innovation. The highlight this quarter was our new product revenue, which doubles year-over-year. Our vitality index, which is revenue from new products launched in the last 4 years is now on solid double-digit territory. Our revenue in the first quarter from China increased by more than 35% versus last year and a number of design wins grew double-digits. We believe these indicators support our medium-term organic growth guidance of 5% to 7% on average. You will hear more details on the quarter in the outlook for the year, from Robert, but the first quarter results give us confidence in the full year 2018 outlook. We also continue to execute on disciplined acquisitions that deepen our presence and competitive differentiation in secular growth markets. Just a few days ago, we announced a very nice tuck-in acquisition, Zettlex as part of our Precision Motion business, Celera Motion. We see a growing demand for Precision Motion technology in robotics, precision automation and key medical markets, and we're excited to add a complementary technology to our Precision Motion offerings with the Zettlex acquisition. Zettlex based in Cambridge England is a supplier of inductive encoders that can provide absolute and accurate positioning even in extreme operating environments. And although the Zettlex business is still relatively small, it is seeing strong demand for their compact, accurate, lightweight and robust position sensors. Adding Zettlex to our portfolio expands Celera Motion's addressable market and provides an in-house source for mechatronic solutions to look Celera Motion customers. We believe that we can help to accelerate Zettlex's growth through the global Novanta customer relationships and sales channels. Zettlex has approximately 40 employees and won the Queen's Award for innovation in 2017 and for International Trade in 2018. Zettlex was founded by Darren Kreit and Mark Howard, who have agreed to remain with the business. We are excited to team up with Darren and Mark and their talented team to jointly expand our mutual businesses. Now let me turn to our operating segments. Our Precision Motion segment continued to be a strong growth engine for us with 14% year-over-year revenue growth and a very strong order book with book-to-bill of 1.31 in the quarter. As we discussed before, we're excited about the Precision Motion space and are increasing investments organically and through acquisitions in this business. We discussed before that our precise and dynamic motion control functionality plays very well into multiple markets with structural growth dynamics such as precision automation, robotics, autonomous vehicles and robotic surgery markets. We expect the Zettlex acquisition to have a meaningful impact on the long-term growth trajectory of the Celera Motion business. And within the Precision Motion segment, new product revenue more than doubled, and our China revenue grew more than 45% versus last year, as we are bringing new innovations to market and are expanding our commercial teams. We are also encouraged with the sequential increase of 120 basis points of gross margin in this segment as the teams are steadily working through the supply-chain issues we reported on earlier. Turning to our Photonics segment, which delivered revenue growth in the quarter of 22% year-over-year. Bookings performance was again strong across the board, resulting into a book-to-bill performance of 1.08. Growth was primarily driven by DNA sequencing and beam delivery as well as by commercial execution in an improving industrial climate. New product revenue was up more than 50% versus last year. Applications with strong performance were laser additive manufacturing, marking and coding, converting, via hole drilling, DNA sequencing and micromachining. Now we're very pleased to see the continued growth and operations execution in our Cambridge Technology business which, again, delivered record bookings with broad momentum across multiple applications. We continue to see strong demand for our Scan Head products and we are seeing particularly strong demand for our market-leading Lightning II Scan Head. As we discussed before, this is an intelligent subsystem, ideally suited for applications such as laser additive manufacturing, via hole drilling and micromachining. Laser Quantum had another great quarter, achieving very significant growth year-over-year in the quarter, driven by increased volume growth and Novanta content in the growing DNA sequencing market. Laser Quantum was acquired in January of last year and therefore, contributed to our organic growth performance in the first quarter. And as we reported in previous calls, following last year's ramp in a new-generation of DNA sequencing machines, we believe that going forward, the growth in this business will normalize to market growth rates. Finally, we're pleased with the productivity, operations and mix execution of the Photonics segment, which led to an increase of 280 basis points in adjusted gross margin in the first quarter versus the prior year. Turning to our Vision segment, which includes 2 businesses, Minimally Invasive Surgical Technologies, or MIS for short and Detection & Analysis. The MIS group includes NDS and WOM and is focused on endoscopy and robotic surgery applications. The Detection & Analysis group includes our JADAK business and is focused on reducing medical errors, improving workflow and patient outcomes in applications such as minimally invasive surgery, patient monitoring, life sciences and clinical lab equipment. In the first quarter, our Vision segment delivered 72% year-over-year revenue growth, primarily driven by our WOM acquisition. New product revenue in the first quarter more than doubled versus last year and the book-to-bill in our Vision segment was 1.11, with solid bookings in both businesses. Our WOM business delivered ahead of our expectations, driven by customer delivery timing. As a result, we expect the second quarter for WOM to be down sequentially. Also as a reminder, WOM will be included in our organic growth performance in the second half of 2018, and as we have discussed, in the last few earnings calls, organic growth comps for WOM will be tough in the second half of 2018 due to the pull-in effects into the second half of 2017 as a result of EU regulatory changes. But we remain very positive on WOM's innovation pipeline and long-term growth prospects. WOM recently launched 2 new insufflator products, which are seeing good momentum with endoscopy OEMs. We're also seeing strong expansion of their consumable business, which have lower margin. We expect these margins to improve somewhat in 2018, but stay well below company average until we open a new low-cost disposable factory in 2020. We're pleased with the continued momentum over NDS endoscopic displays product line. In the quarter, NDS delivered our fifth consecutive quarter of year-over-year organic revenue growth, driven by new products such as 4K displays and wireless products. We expect the business to be a net contributor to our revenue and profit growth in 2018.
Consistent with our previous earnings calls, our Detection & Analysis business saw organic revenue declines, driven by old legacy product lines and regulatory changes in diabetes care. We continue to stay on track with working through these headwinds by the second half of the year when we expect this business to return to growth. We also see great design-win activities and double-digit growth revenue momentum in RFID. As discussed before, RFID demand in healthcare is increasing as there is a growing need to identify, track and connect devices, medications and patients for optimal workflow and patient safety. In wrapping up my section, we're very pleased with the organic revenue growth and profitability that we achieved in the first quarter as well as our Zettlex acquisition. We're confident about our 2018 outlook, as Novanta's leadership positions across key medical and industrial markets combined with our disciplined approach to M&A is providing a solid foundation for sustainable, profitable growth. So with that, I will turn the call over to Robert to provide more details on our financial performance. Robert?
Thank you, Matthijs, and good morning. We delivered $147 million in revenue in the first quarter of 2018, an increase of 35% on a reported basis. The net effect of our acquisitions resulted in increased revenue of $24.6 million or 22.6% and foreign currency exchange rates favorably impacted our revenue by $3.6 million or 3.3%. Consequently, organic growth was 9% year-over-year. Reported and organic growth in the quarter came in higher than expected based on stronger growth in our WOM and Laser Quantum businesses, both are newly acquired business units. The higher volumes compared to our original estimates in these business units was largely associated with customer timing, as certain orders received and shipped in the quarter were originally anticipated in later quarters in 2018. We expect this rebalancing of sale to result in a more linear year for the overall company. First quarter 2018 GAAP gross profit was $62.2 million or 42.3% of sales. This compared to $46.1 million or 42.3% of sales in the first quarter of 2017. On a non-GAAP basis, first quarter 2018 adjusted gross profit was $64.6 million or 44% of sales compared to $48.8 million or 44.8% in the first quarter of 2017. Adjusted gross margins came in at expectations, which was down slightly from the prior year as a consequence of lower margins in the Vision segment. The Vision segment margins were driven by higher medical consumable sales and higher production costs associated with the launch of a new medical consumable product within the WOM business. As mentioned previously, the first quarter will represent the low point in gross margins for the overall Novanta for the year, and we expect to see gradual improvements in gross margins and continue to anticipate nearly 100 basis points improvement in gross margins for the full year 2018 versus 2017, driven largely by improvements in our Photonics and Precision Motion segments. Moving on, R&D expenses for the first quarter of 2018 was $12 million or 8.2% of sales versus $9.2 million or 8.5% of sales in the prior year. R&D came in lower than expected as a consequence of delivering higher-than-expected sales in the quarter and also due to delays in hiring. We have since made strong progress on the hiring side within the quarter and expect R&D to ramp over the next 2 quarters. SG&A expenses for the first quarter were $29.2 million or 19.9% of sales, this compared to $22.9 million or 21% of sales for the prior year. The majority of SG&A expenses increased in terms of total dollars due to acquisitions. GAAP operating income was $17.2 million in the first quarter of 2018 compared to $10.3 million in the prior year, whereas non-GAAP operating income was $23.4 million or 15.9% of sales compared to $16.7 million or 15.3% of sales in the prior year. Adjusted EBITDA was up 41% year-over-year at $28.4 million or 19.3% of sales in the first quarter of 2018. This compared to $20.1 million or 18.5% of sales in the prior year. Interest expense in the quarter was $2.4 million versus $1.3 million in the prior year, weighted average interest rate of our senior credit facility was 3.5% in the first quarter of 2018, this compared to the weighted average interest rate of 3.1% in the fourth quarter of 2017. The increase in weighted average interest rate was driven by increased borrowing rates on our credit facility. On the tax front, our GAAP tax rate was 11% for the first quarter of 2018. It differed from the Canadian statutory rate of 29%, driven largely by a jurisdictional mix of income, discrete tax benefits as well as changes in the U.S. tax laws. On a non-GAAP basis, our tax rate for the first quarter was 14.3%, which was driven by both favorable jurisdictional mix of income, windfall tax benefit from stock-based compensation awards and a more favorable effective rate for the U.S. Tax Cuts and Jobs Act. When looking at the full year, we expect to see the tax normalize at around 22% as the effects of the discrete items were muted due to further jurisdictional mix changes. Our GAAP diluted earnings per share was $0.18 in the quarter compared to diluted earnings per share of $0.98 in the first quarter of 2017. The GAAP diluted EPS was negatively impacted by $0.16 solely from a further step up in the redemption value of our noncontrolling interest in Laser Quantum. This step up did not impact net income, was non-taxable but does represent a future cash outlay associated with buying the remaining 24% of Laser Quantum in 2020. On a non-GAAP basis, adjusted earnings per share was $0.47 in the quarter, up from $0.31 in the prior year. The increase in adjusted earnings per share year-over-year was driven by strong operating results from our Photonics and Precision Motion operating segments and from acquisitions. We ended the quarter with $35.4 million weighted average shares outstanding compared to $35.1 million in the first quarter of 2017. Our operating cash flow was $20.4 million in the quarter versus $12.8 million in the first quarter of 2017, this was driven by higher profitability improvements in shipment linearity in the quarter and capital expenditures were approximately $2.9 million in the quarter, up from $1.8 million in the first quarter of 2017. We ended the first quarter of 2018 with gross debt of $236.1 million and $111.1 million of cash. Our leverage ratio was 2.06, defined as gross debt divided by rolling 12 months pro forma EBITDA, whereas our net debt was $125 million as of the end of the first quarter. Turning to guidance for the full year of 2018. We're updating the guidance we provided to you at the end of February of this year. We now expect GAAP revenue of approximately $590 million to $605 million, which represents approximately 13% to 16% reported growth and 5% to 7% organic compared to 2017. The increase in revenue includes the benefit of the Zettlex acquisition, which we closed last week. With the acquisition of Zettlex, we expect interest expense of around $10 million, representing both the higher debt balance and the higher interest rate. We also expect minority interest, which principally is Laser Quantum to be between $3.5 million and $3.6 million for the full year. We now expect full year 2018 adjusted EBITDA to be in the range of $119 million to $125 million or around 20% of sales. With a more favorable non-GAAP tax rate of approximately 22% to 23% for the full year, we now expect full year 2018 adjusted earnings per share to be in the range of $1.93 to $2.02. Finally, free cash flow defined as operating cash flow minus capital expenditure is expected to be in the range of $65 million to $70 million for the full year 2018. Free cash flow will trend through the year on a similar percent of non-GAAP net income as reported in the first quarter. Turning to the second quarter of 2018, we expect GAAP revenue in the range of $146 million to $149 million. This represents reported growth in the range of 22% to 25% and organic growth in the range of 6% to 8%. Adjusted gross margins are expected to be around 45% to 45.5%. R&D expenses for the second quarter of 2018 will increase to almost 9% of sales, demonstrating the progress we're making on our recruiting efforts, and SG&A expenses in the second quarter to be nearly similar to that of the first quarter. Depreciation, amortization expense, which was around $9 million in the first quarter of 2018 will be similar in the second quarter, and minority expense, which is associated with Laser Quantum will be around $900,000 in the first quarter of 2018, and expected to be around the same in the second quarter. Interest expense is expected to be approximately $2.5 million for the second quarter, representing both the acquisition of Zettlex and the higher borrowing rate. For taxes, we expect to see a second quarter non-tax rate of approximately 21% to 23%. For adjusted EBITDA, we expect a range of $29 million to $31 million. And finally, we expect adjusted EPS to be in the range of $0.47 to $0.50 compared to $0.41 in the second quarter of 2017. Diluted weighted average interest shares outstanding should be around the same as it was in the first quarter. As always, our guidance does not assume any significant impact from foreign exchange rate changes. We are proud of the progress our organization has made and the strong start to the year. We look forward to delivering on our commitments to our employees, our customers and our shareholders. This concludes the prepared remarks. We'll now open the call up for questions.
[Operator Instructions] Our first question comes from Lee Jagoda with CJS Securities.
So starting with the full year guidance, what if any impact other than a little bit higher interest expense, does Zettlex play into your updated guidance?
So we did not disclose the specific contribution we expect Zettlex to make to sales or EBITDA of the company, largely because the impact is not material. But our raising guidance does factor this in. Yes, and as we mentioned, Lee, we're very excited about the Zettlex acquisition, its technology is not only very complementary to our own, but also it helps us better address the industrial robotics market. And then Zettlex's inductive encoder technology operates better than our optical encoder technology in extreme and contaminated environments. And therefore, in addition, its attractive price point helps us to address a wider addressable market, particularly in industrial robotics. And today the business sells through surgical robotics, which also helps drive additional content in those markets as well. So we're very excited about it, but in terms of contribution, it's factored into our full year guidance.
Okay. And assuming you're not going to give us more insight on the revenue or the margin structure of the business, is there anything around any customer concentration, end market concentration, and then whether these products are growing faster or slower than your legacy encoder business, would be helpful?
Yes. I mean, we don't feel there is any meaningful customer concentration. We see a tremendous opportunity actually to help the Zettlex business and team to expand into either regionally or other applications that the Celera Motion serves today. So we see big expansion potential. And it's -- from a small base, it's a fast-growth business. So -- and those rates are faster than I think our encoder product line, but it's from a small base. Yes.
A lot of small numbers.
Got it. And then one more and I'll hop back in the queue. As it relates to Laser Quantum, obviously, you've continually written up your ownership there just based on the growth trajectory. Does that have any impact on the non-GAAP tax rate that you've been reporting? And then just as a follow-up on the non-GAAP tax rate, is that basically a proxy for the cash tax rate?
In the quarter, no. I would say, the full year guidance of around 22% is probably a pretty good proxy on the cash rate, somewhere around that 22%, 23%. The quarter, no. There are some discrete items artificially depressing that a little bit more so than would expect for the full year. In relation to the income generated by Laser Quantum benefiting the overall tax rate, absolutely. The jurisdictional mix of income kind of comments relate to, not only the U.S., but our operations in the U.K. The U.K. has had a lower effective rate than the U.S. and so income generated would, obviously, be beneficial to us.
The next question comes from Richard Eastman with Baird.
Yes. Could I just ask, Matthijs, maybe you could provide a little bit of color around the JADAK business, I think we've been consistent about that business returning to growth in the second half of '18, given some of the diabetes care headwinds that have impacted the business. The question maybe would be around the visibility you have on the growth, is that in the second half? Is that supported by wins? And is it also maybe a shift in JADAK's technology uptake, meaning, more RFID verse Vision? Or just maybe a little color around those metrics?
Yes. Good question, Rick. Yes, I think the major effect is that we will lap the full year of a decline, right? So in the second half, you'll see that, basically, we've worked through that decline. And with the rest of the business growing, basically, that's the majority of the effect. Now we did comment that RFID as a category is growing faster double-digit, it's still a relatively small base. So we're excited about that. We don't see necessarily a technology shift, but it's fair to say that RFID as a category has grown faster, yes. So I think that that's the dynamic we continue to see. And so therefore, yes, I mean, from a second half growth perspective, those are the main, I think, drivers, Rick, that I would comment on.
Yes. And does, again, did the wins support kind of a second half growth rate that would be more -- just kind of more in keeping with the 5 to 7 core for the entire business? Or is that -- are we still going to be a little bit below that until we get some uptake in the RFID?
Yes, we didn't comment on specific -- the exact growth number in JADAK for obvious reasons, but I would say, yes, both -- the combination of that, we basically lapped the full year of decline, this one-off effect in diabetes care versus in addition to wins as well as the growth of the markets that we serve. The combination of those 3, we feel confident we'll return back to growth in that business in the second half.
The second, okay. And then can I ask, Robert, was the WOM business revenue just as a contribution in the quarter? Are we in the, call it, $21 million, $22 million range, just so I can get a sense of what the contribution is there?
I will say it stepped up from the run rate it was at in the back half of the year. So there was a -- and that was kind of the comment I made. There was a little bit of pull-in effect there with some customers wanting to get delivery of some product that they originally had scheduled in for later quarters. They had pulled that into the first quarter. And so there was a little bit of a step up as a consequence of that.
But what -- did the revenue step up from the fourth quarter to the first? Or it probably was a bit below the fourth quarter? Was it not?
It was not. It was more in line with the fourth quarter.
Okay. Okay. Fair enough. And then also just a quick question in the Photonics business. Given the overall growth rate here in the quarter, in Photonics, we had a little bit of kind of stubbed contribution from the Laser Quantum business and the step up there in the equity value. But can I ask, with Laser Quantum and the DNA sequencing, just trying to keep track a little bit of how unit volume shipments impacted last year for the primary customer there? How does that business look for the second, third and fourth quarter? Does the growth moderate? Do we even get the mid-single-digit growth out of Laser Quantum in the back 2/3 or 3/4 of the year?
Yes, so the first comment I'll make is that, in the first quarter there really wasn't a stubbed period effect because we closed it in the second week of January. And so there wasn't really a meaningful revenue contribution. The step up in revenue was really kind of cognizant of the fact that the ramp with our major customer happened in the second quarter, right? So the first quarter revenue was more where it was in the first quarter -- the fourth quarter of '16. So yes, it had -- this is the last quarter of that, where it's now lapped that product launch. As we get into later quarters, the growth rate will moderate. We'll still -- it will still be a decent growth rate for the organization, but it will definitely moderate, particularly in the back half of the year as it has some tough comparables.
Okay.
Now in terms of the question around its major customer. It tends to have like a 1 quarter delay in relation to -- because it's part of the supply chain. It's always shipping about a quarter in advance.
Okay, okay. Understood. And then maybe just the last question. Matthijs, you had mentioned design wins in the quarter were plus double-digits. Was that a reference to Novanta overall? And...
Yes. That was.
Yes. And could you just -- is there a 1 in front of the double-digits or 2 in front of the double-digits, which would be more accurate?
Yes, well, let's say, the high-teens, I would say, right? So yes. And so listen, we see decent momentum across the board, that's why we didn't sort of specify it.
Yes, that's fine. And was the high teens design wins? Were they concentrated in any of the -- either of the 3 businesses?
No, no, what I've said is, it's basically -- it's pretty much across the board. And with those things through, it's only one quarter of data, right. So what I would say, Rick is, is that as we progress through the year kind of a year-to-date number will be more meaningful to compare going forward. Yes, in the first quarter, it was -- there was nothing kind of material jumping out like there was one area of concern or remarkable contribution.
Understood.
And you can also see that in the bookings numbers, right? It was -- Rick, which often actually pretty much, I'm not saying tracks design wins, but there is a correlation there we feel. You see the bookings numbers were very strong across the board in all our businesses, right? So it's kind of -- it's a similar type of theme here.
[Operator Instructions] Our next question comes from Brian Drab with William Blair.
Could you give us any more granularity to surround the $0.07 increase in the EPS guide at the midpoint in terms of impacts from the tax rate, impacts from the interest expense and impacts from Zettlex or the organic growth in the overall business?
[indiscernible] bottom of the range basically is just flowing the beat-in from the first quarter, right? I mean is the way to kind of think about it, and the top end of the range includes the higher revenue growth as well as the profit flow through as a consequence of that. The Zettlex acquisition itself is not a meaningful contributor overall. We did say that there were some timing differences in WOM and LQ resulting in the first quarter being a little bit higher. I think the reason why you see us just flowing that through the revenue is that Zettlex kind of offsets that back half of the year. So that's kind of overall, I think in terms of the guidance I've provided, the specifics around minority interest and specifics around interest expense, I can certainly repeat that, but interest expense would be around $10 million for the full year. It's been running at something closer to $9 million and that's really a consequence of the step up in the borrowing rate itself. There is a -- the tax rate delta is going from 25.5% that we guided in February down to 22% or 23%, and I feel pretty good about that as it currently states and that's really a benefit of a better jurisdictional mix of income that we're seeing. A little bit more in income in the U.S. and the U.K. than we anticipated initially as well as the discrete items helping us a little bit more so. Those weren't forecasted originally.
Okay. That's helpful. And then, I think Robert, you said the WOM business is down sequentially in the third quarter. Did I hear that correctly?
No. No, yes, when you -- the -- effectively what happened in the WOM business is that bookings or orders that customers wanted in the later quarters got pulled into the first quarter. And so it's -- in the first quarter of 2018, its revenue is very similar to, let's say, the fourth quarter of 2017. When it gets into the second quarter, it will step down a little bit on an absolute basis. It's still growing in the second quarter, but it's -- on an absolute basis, it will drop down a little bit.
Okay, so it steps down in the second quarter. And does that mean that -- would we model then, the Vision segment overall, then stepping down sequentially?
We haven't kind of gotten into kind of specifics around that. I would say that there is -- there's puts and takes there. Overall, I think that we are going to start seeing growth in the Vision segment in the back half of the year. It is -- it's obviously -- the JADAK business sees the lap, it's comparable to the second quarter. So without getting into specifics, it's probably a little kind of flattish with the first quarter, and then it begins to step up, thereafter.
Okay. And then just one last question, just -- because I'm looking at the model here, you did 9% organic revenue growth in the first quarter. The second quarter you're implying 7% or 8%. And then for the balance of the year, can you give me any help modeling the third and fourth quarters, it looks like -- is it both quarters kind of in the 3% or 4% range for organic? Or is 1 a little bit better growth than another before, I guess, and then will reaccelerate into 2019?
Yes, so in the back half of the year, Q3 and Q4, are going to have the largest -- the largest impact on it will be the WOM business, which will not be a contributor to our organic growth in the back half of the year. And that's because of that regulatory change that artificially benefited us in the second half of 2017. For the full year, I think the upper end of the range kind of factors in something closer to the high end of the organic growth range. And so you can probably do the math, I think the third quarter and fourth quarter will be very similar to each other. But the -- if you're forecasting at the higher end of the range from an absolute revenue basis, it's more likely going to be at the higher end of the range on an organic basis as well.
This concludes our question and answer session. I would like to turn the conference back over to Mr. Matthijs Glastra for any closing remarks.
Thank you, operator. So to summarize, the first quarter of 2018 was another great quarter. Our focus on accelerating profitable growth and the diversity and strength of our businesses was evident in our strong financial results. We're well on our way to execute on our 2020 strategic direction and our growth strategy is sound and focused on multiple growth drivers, focused on establishing leading market positions in growth markets, expansion of our served markets through innovation and disciplined M&A with focus on expanding our medical presence; deeper market penetration globally, through a stronger and larger commercial team, and all of this, while maintaining our commitment to disciplined execution and continuous improvement. In closing, I would like to thank our customers, our employees and our shareholders for their ongoing support. I'm particularly thankful for the strong contribution and execution of our teams of committed Novanta employees. It's a true pleasure and honor to lead this great company. 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 on our second quarter earnings call. Thank you very much. This call is now adjourned.
The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.