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    NOVT
    Earnings call· Jun 2026(Q2 FY26)

    NOVANTA Q2 FY26 earnings call NOVT

    Aug 6, 2026 Source

    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

    5

    • 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

    3

    • 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

    29
    CategoryTargetConfidence
    Full-year 2026 GAAP Revenue
    $1.13B-$1.14B
    high materiality
    High
    Full-year 2026 Reported Revenue Growth
    >15%
    high materiality
    High
    Full-year 2026 Organic Growth
    Up to 7%
    high materiality
    High
    Full-year 2026 Adjusted EBITDA
    $273M-$278M
    high materiality
    High
    Full-year 2026 Adjusted Diluted EPS
    $3.68-$3.74
    high materiality
    High
    Full-year 2026 Adjusted EBITDA from Riverpoint Medical
    ~$25M
    medium materiality
    High
    Full-year 2026 Adjusted Gross Margins
    ~47%
    medium materiality
    High
    Full-year 2026 Operating Expenses
    ~27-28% of sales
    medium materiality
    High
    Full-year 2026 Depreciation Expense
    >$19M
    low materiality
    High
    Full-year 2026 Stock Compensation Expense
    >$37M
    low materiality
    High
    Full-year 2026 Non-GAAP Tax Rate
    >21%
    low materiality
    High
    Q3 2026 GAAP Revenue
    $300M-$304M
    high materiality
    High
    Q3 2026 Automation Enabling Technologies Segment Growth
    12-14%
    medium materiality
    High
    Q3 2026 Medical Solutions Segment Reported Growth
    32-35%
    medium materiality
    High
    Q3 2026 Medical Solutions Segment Organic Growth
    2-4%
    medium materiality
    High
    Q3 2026 Advanced Surgery Business Growth
    ~10%
    low materiality
    High
    Q3 2026 Adjusted Gross Margins
    ~48%
    medium materiality
    High
    Q3 2026 Operating Expenses
    $80M-$82M
    medium materiality
    High
    Q3 2026 Depreciation Expense
    ~$6M
    low materiality
    High
    Q3 2026 Stock Compensation Expense
    ~$9M
    low materiality
    High
    Q3 2026 Adjusted EBITDA
    $74M-$77M
    high materiality
    High
    Q3 2026 Interest Expense (net)
    ~$9M
    low materiality
    High
    Q3 2026 Non-GAAP Tax Rate
    ~22%
    low materiality
    High
    Q3 2026 Diluted Weighted Average Shares Outstanding
    ~43M
    low materiality
    High
    Q3 2026 Adjusted Diluted EPS
    $0.95-$1.00
    high materiality
    High
    Q4 2026 Diluted Weighted Average Shares Outstanding
    ~43M
    low materiality
    High
    Precision Medicine Business Return to Growth
    Path to growth materializing
    medium materiality
    Medium
    Gross Leverage Ratio
    2.7x
    medium materiality
    High
    Net Debt Leverage Ratio
    10-30 bps lower than gross
    medium materiality
    High

    Segment performance

    2
    SegmentRevenueYoYQoQMargin
    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%

    Operational metrics

    29
    Non-GAAP adjusted gross profit
    $125Mvs $111M in Q2 FY25
    Q2 FY26

    Achieved 47% adjusted gross margin, compared to 46% in Q2 FY25.

    Adjusted gross margin
    47%up 100 bps YoY, up 150 bps QoQ
    Q2 FY26

    Company-wide.

    R&D expenses
    $24Mdown 150 bps YoY as % of sales
    Q2 FY26

    Compared to 10.5% of sales in the prior year.

    SG&A expenses
    $60M
    Q2 FY26

    Sequential increases due to higher variable compensation tied to stronger financial performance and outlook.

    SG&A expenses (MRP system and nonrecurring costs)
    $5.6M
    Q2 FY26

    Costs related to the design and implementation phase of new factory MRP system and some nonrecurring costs.

    Adjusted EBITDA
    $60.7Mup >16% YoY
    Q2 FY26

    Achieved a nearly 23% adjusted EBITDA margin, up 120 bps versus the prior year.

    Non-GAAP tax rate
    21%flat YoY
    Q2 FY26

    Flat to the second quarter of 2025.

    Non-GAAP adjusted EPS
    $0.89up 17% YoY
    Q2 FY26

    Compared to $0.76 in the prior year.

    Diluted shares outstanding
    41.164M
    Q2 FY26

    Minor impact from the $300 million equity raise to support Riverpoint Medical acquisition.

    Gross debt
    $239M
    Q2 FY26 end

    Company-wide.

    Gross leverage ratio
    1x
    Q2 FY26 end

    Company-wide.

    Cash balance
    $719M
    Q2 FY26 end

    Company-wide.

    Net debt
    -$480M
    Q2 FY26 end

    Company-wide.

    Net leverage ratio
    -2x
    Q2 FY26 end

    Company-wide.

    Medical end markets sales
    51%
    Q2 FY26

    As a percentage of total company sales.

    Advanced industrial markets sales
    49%
    Q2 FY26

    As a percentage of total company sales.

    New product revenue growth
    >50%YoY
    Q2 FY26

    Company-wide.

    New product revenue growth YTD
    >60%YoY
    YTD FY26

    Company-wide.

    Vitality index
    29%from 21% a year ago
    Q2 FY26

    Company-wide.

    Bookings growth YTD
    18%YoY
    YTD FY26

    Company-wide.

    Backlog growth
    11%
    Q2 FY26

    Company-wide.

    Book-to-bill YTD
    >1.0
    YTD FY26

    Company-wide.

    Recurring medical consumable business
    ~$300Mdoubles from prior level
    Annualized post-Riverpoint

    Roughly doubles from prior level, representing ~25% of annualized revenue post-Riverpoint acquisition.

    Medical end market exposure
    60%
    Post-Riverpoint

    Expanded post-Riverpoint acquisition.

    Gen AI technologies and infrastructure revenue
    ~17%
    Q2 FY26

    Represents exposure in robotics and automation and precision manufacturing businesses.

    Gen AI technologies and infrastructure growth
    ~25%YoY
    Q2 FY26

    Expected to continue through H2 FY26.

    Life sciences exposure
    <10%
    FY26

    Expected for the full year 2026.

    Gross debt
    >$800M
    Q3 FY26 end

    Reflecting Riverpoint Medical financing.

    Diluted weighted average shares outstanding
    ~43M
    Q3 FY26

    Incorporates $300 million fund raise as part of Riverpoint Medical acquisition.

    Industry KPIs

    9
    MetricValueDetails
    M a contributionImmediately accretive
    Orders book to billWell over 1.0
    Segment revenue growthMedical Solutions: 8.6% YoY; Automation Enabling Technologies: 12% YoY%
    Design wins product cycle ramps>25%%
    Order visibility backlog policy2 years
    Recurring software services mix~25%%
    Capacity expansion internal sourcingDoubling capacity
    End market revenue mix organic growth51% Medical, 49% Advanced Industrial%
    Operating margin incremental leverage23%%

    Orderbook & backlog

    9
    BacklogUp 11%Q2 FY26

    Company-wide.

    BookingsUp 18%YTD FY26

    YoY

    Company-wide.

    Book-to-billWell over 1.0YTD FY26

    Company-wide.

    Medical Solutions Book-to-bill0.79Q2 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-bill1.1Q2 FY26

    Segment-specific.

    Automation Enabling Technologies Bookings Growth18%Q2 FY26

    YoY

    Segment-specific.

    Air Bearing Spindles Committed Demand2 yearsQ2 FY26

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

    Product announcements

    5
    ProductTypeDetails
    Second-generation insufflatorslaunch
    First-generation arthroscopic fluid management platformslaunch
    Keonn's leading technology and AI-based software solutionsexpansion
    Intelligent laser beam steering subsystemsupdate
    Servo drives for humanoid robotslaunch

    Deals & partnerships

    2
    Riverpoint MedicalAcquisition 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 providerStrategic 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

    3
    Manufacturing Site Closures (Initial Phase)completed

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

    Additional Manufacturing Site Closuresunderway
    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 Doublingunderway
    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

    8
    Macroeconomic complexityOngoing

    Unquantified

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

    Timing of customer ordersQ1 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 marginsQ2 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 transformationQ2 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 medicineQ3 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 costsOngoing

    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 integrationH2 FY26

    Unquantified

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

    Cash flow conversion step downQ3 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

    5

    Medical Solutions Gross Margin

    Q3 FY26
    Current41%
    TargetSequentially 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.

    Q&A highlights

    6

    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 read5 chapters

    Detailed Narrative

    01

    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.

    02

    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.

    03

    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.

    04

    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.

    05

    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.

    AI-generated summary of the company’s earnings call. Not investment advice.