Can you quantify the significant servo drive orders for humanoids and discuss their impact on the segment's gross margins?

The orders represent the first move beyond prototyping into training/development centers, indicating the next phase of development. While bookings are rapidly improving from a small base, it's not a significant driver of current gross margins. The volumes for these training robots are larger than prototypes. “What we saw here, right, in the last quarter is the first move maybe beyond prototyping, right, into training centers or development centers is really the next phase of this. So the design is getting closer to completion, but there's a long path on the training cycle.”

How should the core gross margin trend over the medium term, considering repositioning activities and the potential timing of headwinds turning into tailwinds?

The company expects gross margins to move from 47% in Q2 to 48% in H2 and maintain into 2027, with another 100 bps improvement in 2027. This includes Riverpoint's benefit and core business improvements from site closures and pricing actions, despite ongoing tariff and inflationary headwinds. “We delivered a 47% gross margin in the second quarter. We're looking at something closer to 48% in the back half of the year. And I would expect that to maintain into 2027. So we're looking at another 100 basis points of improvement in 2027.”

What is the visibility for the Gen AI data center business into 2027, given the strong growth in the second half of 2026?

The Gen AI bucket (17% of revenue, 25% YoY growth) includes diverse applications like lithography, advanced semi equipment, and GPU drilling. The air bearing spindles business is booked for two years. The positive trend is expected to continue, but it's too early to provide 2027 numbers. “As a reminder, this bucket is a broad range of applications, including lithography indeed other, let's say, high-end advanced node front-end semiconductor equipment, metrology equipment, manufacturing technologies that help with micromachining of elements of the supply chain and value chain as well as the GPU drilling that we talked about with our air spindle business.”

NOVT

Novanta (NOVT) Q2 FY26 earnings call: guidance and Q&A

Earnings call· Jun 2026 (Q2 FY26)· Information Technology· Aug 6, 2026

Source: earnings call transcript

Executive summary

Novanta Q2 FY26 — Strong Organic Growth and Transformative Acquisition

Novanta delivered strong Q2 FY26 results, marked by robust organic growth and the successful closure of the transformative Riverpoint Medical acquisition, which significantly expands its medical consumable business and end-market exposure. The company is also accelerating manufacturing optimization efforts, including additional factory closures, to drive future margin expansion and operational efficiency. AI-driven demand continues to be a key growth driver.

Highlights

Achieved 9% organic sales growth in the quarter.
Adjusted gross margin improved by 100 basis points year-over-year to 47%.
Adjusted EPS grew 17% year-over-year to $0.89.
Year-to-date operating cash flow of $117 million already exceeds the full year 2025 total.
New product revenue grew over 50% in the quarter, lifting the vitality index to 29% of sales.

Concerns

Advanced surgery business experienced impacts from timing of customer orders in Q1 and Q2.
Medical Solutions segment adjusted gross margins were down 290 basis points year-over-year and 230 basis points sequentially to 41% due to product mix and temporary operational costs.
The precision medicine business is not expected to return to sustained growth in 2026, with a decline anticipated in Q3.

Guidance & targets

Category	Target	Timeline	Confidence
Full-year 2026 GAAP Revenue	$1.13B-$1.14B high materiality	FY26	High
Full-year 2026 Reported Revenue Growth	>15% high materiality	FY26	High
Full-year 2026 Organic Growth	Up to 7% high materiality	FY26	High
Full-year 2026 Adjusted EBITDA	$273M-$278M high materiality	FY26	High
Full-year 2026 Adjusted Diluted EPS	$3.68-$3.74 high materiality	FY26	High
Full-year 2026 Adjusted EBITDA from Riverpoint Medical	~$25M medium materiality	FY26	High
Full-year 2026 Adjusted Gross Margins	~47% medium materiality	FY26	High
Full-year 2026 Operating Expenses	~27-28% of sales medium materiality	FY26	High
Full-year 2026 Depreciation Expense	>$19M low materiality	FY26	High
Full-year 2026 Stock Compensation Expense	>$37M low materiality	FY26	High
Full-year 2026 Non-GAAP Tax Rate	>21% low materiality	FY26	High
Q3 2026 GAAP Revenue	$300M-$304M high materiality	Q3 · FY26	High
Q3 2026 Automation Enabling Technologies Segment Growth	12-14% medium materiality	Q3 · FY26	High
Q3 2026 Medical Solutions Segment Reported Growth	32-35% medium materiality	Q3 · FY26	High
Q3 2026 Medical Solutions Segment Organic Growth	2-4% medium materiality	Q3 · FY26	High
Q3 2026 Advanced Surgery Business Growth	~10% low materiality	Q3 · FY26	High
Q3 2026 Adjusted Gross Margins	~48% medium materiality	Q3 · FY26	High
Q3 2026 Operating Expenses	$80M-$82M medium materiality	Q3 · FY26	High
Q3 2026 Depreciation Expense	~$6M low materiality	Q3 · FY26	High
Q3 2026 Stock Compensation Expense	~$9M low materiality	Q3 · FY26	High
Q3 2026 Adjusted EBITDA	$74M-$77M high materiality	Q3 · FY26	High
Q3 2026 Interest Expense (net)	~$9M low materiality	Q3 · FY26	High
Q3 2026 Non-GAAP Tax Rate	~22% low materiality	Q3 · FY26	High
Q3 2026 Diluted Weighted Average Shares Outstanding	~43M low materiality	Q3 · FY26	High
Q3 2026 Adjusted Diluted EPS	$0.95-$1.00 high materiality	Q3 · FY26	High
Q4 2026 Diluted Weighted Average Shares Outstanding	~43M low materiality	Q4 · FY26	High
Precision Medicine Business Return to Growth	Path to growth materializing medium materiality	Late 2027 · FY27	Medium
Gross Leverage Ratio	2.7x medium materiality	Q3 · FY26	High
Net Debt Leverage Ratio	10-30 bps lower than gross medium materiality	Q3 · FY26	High

Segment performance

Segment	Revenue	YoY	QoQ	Margin
Medical Solutions Revenue grew better than expected. Advanced surgery business experienced 12% growth YoY, driven by strong patient procedural growth rates and new product launches of second-generation insufflators. Precision medicine business grew 5% YoY, driven by Keonn acquisition and core medical customers. Adjusted gross margins were down 290 bps YoY and 230 bps sequentially, primarily due to a higher mix of precision medicine products with lower margins and temporary cost increases from operational transformation. Gross margins expected to sequentially expand materially in Q3. Book-to-bill: 0.79Bookings growth YTD: >10% YoYNew product sales growth: nearly 50% YoYVitality index: >30% of sales	—	8.6%	—	41%
Automation Enabling Technologies Revenue grew better than expected. Precision manufacturing business saw 9% YoY revenue growth, driven by automation and digitization of manufacturing lines, including laser additive manufacturing, probe card production for AI GPU chips, and advanced packaging. Robotics and automation business was up 13.5% YoY, with solid demand for advanced robotic applications and increasing strength in semiconductor applications benefiting from AI investments. Adjusted gross margins were up 470 bps sequentially and 450 bps YoY, driven by productivity gains, pricing, duty drawback recovery, and a stronger mix of higher-margin innovative products. Book-to-bill: 1.1Bookings growth: 18% YoYNew product revenue growth: >60% YoYCustomer design wins growth: >25%Vitality index: 24%	—	12%	—	53%

NOVT operating KPIs by quarter

NOVT operating KPIs stated on its earnings calls, by fiscal quarter
KPI	Dec 2025 Q4 FY25	Mar 2026 Q1 FY26	This call Jun 2026 Q2 FY26	Change vs prior quarter
Book-to-bill	1.11 ratio Bookings surged 25% year-over-year and 12% sequentially with a book-to-bill of 1.11. Source: earnings call transcript	1.1 ratio Bookings grew 37% year-over-year with a book-to-bill of 1.10 on continued new product momentum and strong commercial execution. Source: earnings call transcript	—	-0.9%
Vitality Index	24% New product sales in the fourth quarter grew over 80% year-over-year, raising the Vitality Index to 24% of sales. Source: earnings call transcript	27% In addition, new product sales grew over 50% year-over-year, raising the Vitality Index to 27% of sales. Source: earnings call transcript	~29% New product revenue grew by more than 50% in the quarter and is up over 60% year-to-date, lifting our vitality index to approximately 29% of sales from 21% a year ago. Source: earnings call transcript	—
Book-to-bill Automation Enabling Technologies	1.16 ratio The book-to-bill in this segment was 1.16 and bookings were up 33% year-over-year. Source: earnings call transcript	1.15 ratio The book-to-bill in this segment was 1.15 and bookings were up 35% year-over-year. Source: earnings call transcript	1.1 ratio The book-to-bill in this segment was 1.1 and bookings were up 18% year-over-year. Source: earnings call transcript	-4.3%
Book-to-bill Medical Solutions	1.07 ratio This segment saw a book-to-bill of 1.07 in the fourth quarter and bookings were up 17% year-over-year. Source: earnings call transcript	1.04 ratio This segment saw a book-to-bill of 1.04 in the quarter and bookings were up 40% year-over-year. Source: earnings call transcript	0.79 ratio This segment saw a book-to-bill of 0.79 in the second quarter and year-to-date had bookings growth of greater than 10% year-over-year. Source: earnings call transcript	-24%
Vitality Index Medical Solutions	<28% New product sales in the fourth quarter grew by nearly 80% year-over-year and the Vitality Index in this segment was nearly 28% of sales. Source: earnings call transcript	—	30%+ New product sales grew by nearly 50% year-over-year and the vitality index in this segment was above 30% of sales. Source: earnings call transcript	—

Operating figures the company stated on at least two of the calls shown, checked against each call's transcript. Click a figure to read the sentence. A dash means it was not stated that quarter.

Orderbook & backlog

Backlog Up 11% Q2 FY26

Company-wide.

Bookings Up 18% YTD FY26

YoY

Company-wide.

Book-to-bill Well over 1.0 YTD FY26

Company-wide.

Medical Solutions Book-to-bill 0.79 Q2 FY26

Segment-specific.

Medical Solutions Bookings Growth >10% YTD FY26

YoY

Segment-specific.

Advanced Surgery Bookings Growth >8% YTD FY26

YoY

Business-specific within Medical Solutions.

Automation Enabling Technologies Book-to-bill 1.1 Q2 FY26

Segment-specific.

Automation Enabling Technologies Bookings Growth 18% Q2 FY26

YoY

Segment-specific.

Air Bearing Spindles Committed Demand 2 years Q2 FY26

Committed demand for the next two years, supporting capacity expansion.

Product announcements

Product	Type	Timeline
Second-generation insufflators	launch	—
First-generation arthroscopic fluid management platforms	launch	—
Keonn's leading technology and AI-based software solutions	expansion	Multiyear investment initiative
Intelligent laser beam steering subsystems	update	—
Servo drives for humanoid robots	launch	—

Deals & partnerships

Riverpoint Medical Acquisition of a medical consumable business specializing in fiber-based sutures and implantables.

Largest acquisition in Novanta's history, strengthens position in high-growth sports medicine, cardiovascular, and orthopedic applications. Integration is underway under John Lesica's leadership. Welcomed over 600 Riverpoint colleagues.

Direct-to-hospital provider Strategic partnership to prototype solutions for the healthcare environment using Keonn's leading technology and AI-based software solutions. Multiyear investment initiative

Established earlier this year to bring Keonn's technology to the healthcare market.

Capital programs

Manufacturing Site Closures (Initial Phase) completed

Completed the manufacturing moves and closure of two factories in the second quarter.

Additional Manufacturing Site Closures underway

Start: Q2 FY26

Benefit:Lower cost structure, expanded gross margin, profit margins, and cash flows.

Announced two additional factory closures by the end of the first quarter of 2027 as part of the current restructuring program, accelerating strategy for better scale and lower cost structure.

China Factory Capacity Doubling underway

Funding: Partially funded by customers

Start: Q2 FY26

Benefit:Support growth of air bearing spindles business.

Started the doubling of capacity of the China factory to support the growth of the air bearing spindles business, which has committed demand for the next two years. Partially funded by customers.

Risks & headwinds

Macroeconomic complexity Ongoing

Unquantified

Mitigation:Watching closely, but complexity and opportunity travel together.

Timing of customer orders Q1 and Q2 FY26

Impacted bookings

Mitigation:Year-to-date book-to-bill remains well over 1.0; 4-quarter rolling average for advanced surgery bookings is above 1.0.

Product mix impact on gross margins Q2 FY26

Medical Solutions adjusted gross margins down 290 bps YoY and 230 bps sequentially to 41%

Mitigation:Expected gross margins to sequentially expand materially in Q3 due to completion of site rationalization and Riverpoint accretion.

Temporary cost increases from operational transformation Q2 FY26

Contributed to Medical Solutions gross margin decline

Mitigation:Costs were temporarily higher in Q2, expected to normalize as site rationalization completes.

Life sciences market challenges for precision medicine Q3 FY26, near term

Precision medicine business expected to decline in Q3

Mitigation:Focusing on high-growth life science applications; path to growth materializing in 2027.

Factory redundancy costs, logistics, supply chain inflationary costs, tariff and trade-related costs Ongoing

Unquantified, but acknowledged as headwinds

Mitigation:Teams deploying Novanta Growth System tools to drive productivity, update pricing, recover duty drawback, and drive higher-margin innovative products.

Conservatism in Riverpoint Medical integration H2 FY26

Unquantified

Mitigation:Being conservative in outlook given Riverpoint's transition from private to public company operations.

Cash flow conversion step down Q3 FY26

Unquantified

Mitigation:Largely due to dynamics of acquiring Riverpoint Medical on a cash-free basis; overall cash flow generation remains strong and on track for a record year.

What to watch in Q3 FY26

Medical Solutions Gross Margin

Q3 FY26

Current 41%

Target Sequentially expand materially

Why it matters

Indicates success of operational transformation and site rationalization efforts, impacting segment profitability.

Some of these costs were temporarily higher in the second quarter, and we expect gross margins to sequentially expand materially in the third quarter.

Find out whether NOVT delivers this. Inve re-checks your case every morning.

Q&A highlights

What are the main drivers for the updated organic growth and EBITDA guidance, specifically for the core business, excluding the Riverpoint transaction?

The improved outlook is primarily driven by the Automation Enabling Technologies (AET) segment, which has improved profitability due to site closures. The core business saw a $0.02 EPS improvement, with Riverpoint adding $0.06 in the back half.

“So I would say the AET business has done a little bit better in the outlook. So if you're asking like where in the segments, it's mostly coming from the AET area.”

asked by Lee Jagoda · answered by Robert Buckley

2 min read 5 chapters

Detailed narrative

Strategic Priorities & Performance

Novanta is executing well on its three 2026 priorities: organic growth, acquisitions, and manufacturing foundation. The innovation engine is a strong contributor, with new product revenue up over 50% in Q2 and 60% year-to-date, boosting the vitality index to 29% of sales from 21% a year ago.

Bookings are up 18% year-to-date, and the year-to-date book-to-bill was well over 1.0, indicating accelerating demand and strong customer momentum.

Riverpoint Medical Acquisition

The largest acquisition in company history, Riverpoint Medical, closed at the end of July. This transformative acquisition accelerates Novanta's shift into minimally invasive surgery markets with long-term secular growth dynamics. It roughly doubles the recurring medical consumable business to approximately $300 million annually, expanding medical end-market exposure to 60% of revenue.

Riverpoint is expected to be immediately accretive to revenue growth, gross margins, EBITDA margins, and earnings per share.

Manufacturing Optimization & Restructuring

The company completed the manufacturing moves and closure of two factories in Q2. Building on this progress, Novanta decided to accelerate its strategy by announcing two additional factory closures by the end of Q1 2027 as part of its current restructuring program.

These moves aim to regionalize manufacturing, reduce complexity and asset intensity, establish a lower cost structure, and sustainably expand gross margin, profit margins, and cash flows. Additionally, the China factory capacity is being doubled to support the growth of the air bearing spindles business, which has committed demand for the next two years.

AI-Driven Demand and Innovation

The robotics and automation and precision manufacturing businesses, which collectively represent approximately 17% of total company revenue, saw approximately 25% year-over-year growth driven by Gen AI technologies and infrastructure. This includes applications in probe card production for AI GPU chips, advanced packaging, and light engines for lithography.

The company also received its first significant orders for servo drives to support the deployment of hundreds of humanoids in customer testing and learning facilities, marking a positive step in the long development path for these robotic systems.

Medical Solutions Segment Performance

The Medical Solutions segment grew 8.6% year-over-year, exceeding expectations. This was driven by 12% growth in the advanced surgery business, supported by strong patient procedural growth and new product launches of second-generation insufflators. The precision medicine business grew 5% year-over-year, benefiting from the Keonn acquisition and core medical customers.

However, the precision medicine business is expected to decline in Q3 due to challenges in the life science market, with a return to growth projected for late 2027.

Summary of the company's earnings call; see how call summaries are prepared. Not investment advice.