Novanta Inc. Q2 FY2025 earnings call

• Novanta delivered solid second quarter results, with revenue at $241 million, 2% reported growth and 2% organic decline, surpassing guidance. New product revenue grew over 50% YOY. - Strong performance in Advanced Surgery and Robotics Automation businesses, with Advanced Surgery seeing double-digit growth due to patient procedure growth and new product launches. Robotics and Automation had strong demand, with sales to physical AI applications expected to double in 2026 and again in 2027. - Significant design win activity, growing over 150% YOY. Kion integration is on track and performing better than initial expectations. - Portfolio evolution into healthcare (now ~55% of business), recurring consumables (~15% of sales), and intelligent subsystems with embedded software (~30% of sales).

In the second quarter, Novanta's Automation Enabling Technologies segment saw 4% year-over-year revenue growth, driven by the Robotics and Automation business unit which was up nearly 16% year-over-year. Book-to-bill was 1.05, and bookings were up 8% year-over-year and 17% sequentially. The Medical Solutions segment had revenue roughly flat year-over-year. Advanced Surgery within this segment grew 17% year-over-year. Precision Medicine within Medical Solutions experienced a 13% year-over-year decline but grew 10% sequentially. Medical market sales represented 54% of total Novanta sales, while advanced industrial markets were 46%. New product sales in the Medical Solutions segment grew by over 30% year-over-year. Industrial capital equipment sales declined year-over-year but bookings were rising. Semiconductor applications were mixed, and life science equipment saw a decline but was shifting to new technologies like RFID and machine vision.

• Full year 2025 GAAP revenue expected to be $970 million to $985 million, representing 2%-4% growth. Adjusted gross margin expected to be ~46%. - Adjusted EBITDA expected to be $225 million to $230 million, ~23% margin. - Third quarter 2025 GAAP revenue expected in the range of $244 million to $247 million, flat to up 1% YOY and 1%-2% sequentially. - Automation Enabling Technologies segment expected to be flat to low single-digit decline YOY in third quarter, but grow sequentially 1%-2%. Medical Solutions segment expected mid-single-digit growth YOY and ~3% sequential growth. - Adjusted EPS for full year 2025 expected ~$3.22 to $3.36, 5%-9% growth. Third quarter adjusted EPS expected $0.78 to $0.85.

• Fluid global trade environment with uncertainties in tariffs, affecting customer purchase orders from U.S. factories to China. - Uncertainty in trade agreements between U.S. and China impacting end market demand and customer confidence in placing orders. - Continued impact of trade disruptions on certain segments like industrial capital equipment and life science equipment.

Q: Lee Jagoda of CJS Securities asked about breaking down revenue guidance, organic growth, and drivers of organic growth in 2026.

A: Robert J. Buckley said organic growth likely down 1% to up 1% full year. Matthijs Glastra mentioned drivers include advanced surgery product ramps, physical AI applications like warehouse automation and humanoids, strong design wins, and growth in additive manufacturing and advanced material processing.

Q: Brian Drab of William Blair asked about China, tariffs, and the $35 million at risk.

A: Robert J. Buckley said $35 million is factored into guidance, with no recovery assumed yet due to uncertainty in tariff unfolding. Matthijs Glastra added that local growth in China for China is occurring and design win activities with Chinese customers accelerated.

Q: Rob Mason of Baird asked about Novanta's offering into warehouse automation and semiconductor applications.

A: Matthijs Glastra explained the offering includes force torque sensing, servo drives, encoders in a subsystem package for warehouse automation. On semiconductors, they are designed in on a sole-source basis with doubled content and backward compatibility, waiting for market dynamics to allow ramp-up to expected volumes.