NOVANTA Q1 FY26 earnings call NOVT

Novanta is capitalizing on strong demand in AI infrastructure, semiconductors, advanced industrial, and medical markets, with new product innovations driving record bookings and design wins. The company estimates its exposure to GenAI data center boom applications at approximately 15% of total Q1 revenue, growing 20% year-over-year, with expectations for acceleration throughout the year. This exposure spans DUV and EUV lithography, advanced packaging, probe card production, precision robotics, GPU drilling, and metrology for advanced semiconductor wafer nodes.

The long-term strategy focuses on winning in high-growth end markets with durable secular tailwinds, including AI-driven Robotics & Automation, minimally invasive and robotic surgery, digital and AI-driven manufacturing, and Precision Medicine. These markets represent a $4 billion incremental opportunity by 2030. Novanta invests in growth platforms such as next-generation insufflators, robotic surgery technologies, intelligent physical AI solutions, and intelligent subsystems for laser beam steering.

The company is making steady progress on its regional manufacturing initiative, with two facility closures on track to be completed in the second quarter. This transformation aims to consolidate into fewer centers of manufacturing excellence, gaining better scale, stronger systems, deeper talent, and full in-region for-region capability. This initiative is expected to support a gross margin step-up in the second half of the year and sustainably expand both gross margins and profitability.

First quarter adjusted gross margins were impacted by a price/cost timing issue, primarily due to rapidly shifting geopolitical dynamics that led to higher freight, tariff costs (e.g., aluminum tariffs increasing from 25% to 50%), and material costs. These changes outpaced the company's immediate ability to surcharge customers and reprice orders. Management is actively implementing new surcharges, product price increases, and cost reduction actions, expecting these to fully take hold and drive stronger margin performance in the second half of the year.

While acquisitions remain the top capital allocation priority, Novanta opportunistically repurchased approximately $18 million worth of company stock in the first quarter. The company maintains a strong balance sheet with a negative net debt position of $139 million and a gross leverage ratio of 1.1x. Novanta has a deep and active pipeline of mid- to larger acquisition opportunities in medical technologies, medical consumables, embedded software, and adjacencies like bioprocessing, with plans to deploy meaningful capital this year.

Novanta's servo drives were selected to join the NVIDIA Halos AI Systems Inspection Lab, a recognition of its technology leadership in safety-validated AI-driven robotics. This certification within the NVIDIA ecosystem adds significant credibility for OEMs in humanoid and warehouse automation applications. While these applications are still in the prototype phase, the partnership is expected to drive more meaningful prototype orders and future adoption, with a more pronounced impact anticipated in 2027.