NOVANTA INC Q1 FY2025 earnings call

• Novanta achieved $233 million in revenue in Q1 2025, with organic growth of 2% and reported growth of 1%. Orders grew 3% year-over-year. Adjusted gross margins were 46%, adjusted EBITDA was $50 million, and operating cash flows were $32 million.
• Successfully closed a small strategic tuck-in acquisition in early April 2025, marking the first acquisition of the year. Focus on the Novanta Growth System in culture and operations.
• Medical market sales made up 55% of total sales, advanced industrial markets 45%. New product sales grew double-digit year-over-year, and vitality index climbed to just below 20% of total sales.
• Acquired Keonn, an integrated RFID solution provider, aligning with Novanta's strategy to expand into intelligent embedded software-based subsystems and solutions.

In the Automation Enabling Technologies segment, first quarter sales grew by 5% year-over-year, with a book-to-bill of 0.90 and bookings up 16% year-over-year. Adjusted gross margins were 49%. The Medical Solutions segment experienced a 3% year-over-year revenue decline, but the vitality index was nearly 25% of sales, showing strong double-digit growth in new product sales. Adjusted gross margin in the segment was 44% due to product mix.

• Reiterates full-year 2025 adjusted EBITDA guidance. For Q2 2025, expects GAAP revenue in the range of $230 million to $240 million, a year-over-year change of down 2% to up 2%.
• Automation Enabling Technologies segment expected to range from flat to low single-digit decline year-over-year. Medical Solutions segment expected to show low to mid-single-digit growth with new product ramps in Advanced Surgery. Impact of Keonn acquisition in Q2 hard to quantify but expected.
• Adjusted gross margin for Q2 expected to be approximately 45.5% to 46.5%. Adjusted EBITDA range for Q2 is $50 million to $55 million.

• Tariff impacts on supply chain, increasing material costs by approximately $20 million annually. Reciprocal tariffs from China on U.S. manufactured products shipped to China, impeding shipment to Chinese customers. Weakness in global capital spending due to tariff uncertainty causing companies to defer investments.

Q: Could you give a sense for the potential revenue contribution or trailing revenue number of the Keonn acquisition and its impact on EPS?

A: We would expect it to be slightly accretive to earnings per share in the first year. Impact on revenue is hard to predict due to project-based business of Keonn, but expected to be more material in 2026.

Q: Which customers and end markets are seeing deferrals, and how are new product launches faring?

A: Deferrals are significant in U.S.-based production to China and uncertainty causing investment deferrals in life sciences and industrial space. New product launches in advanced surgery market are buoyant, and in precision robotics and automation, there's strong pull with design wins. $50 million in new product revenue is on track with majority in medical device end market.

Q: Can you speak to CapEx around regionalization and manufacturing expansion?

A: There will be some CapEx, mostly related to light assembly and test equipment. Reprioritization of existing CapEx to enable regionalization, with acceleration of in-region, for-region manufacturing strategy already in flight.