Novanta Inc. (NOVT) Earnings

Management highlights

### Core 2026 Strategic Priorities - **Organic growth acceleration**: All four business units delivered positive organic growth in Q2 2026, with 9% total organic sales growth (10% reported growth) overall. New product revenue grew over 50% in the quarter and over 60% year-to-date, lifting the company-wide vitality index to 29% of sales from 21% a year prior. Total bookings are up 18% year-to-date, backlog is up 11%, and year-to-date book-to-bill is above 1.0. Strong demand tailwinds are seen in precision robotics, physical AI, semiconductors, and minimally invasive robotic surgery. - **Acquisition execution**: Closed the transformative, largest-ever acquisition of Riverpoint Medical at the end of July 2026. Riverpoint doubles Novanta's recurring medical consumable revenue to ~$300 million annualized, raises consumable revenue contribution from 15% to 25% of total revenue, and increases overall medical market exposure to 60% of total revenue. The acquisition is expected to be immediately accretive to revenue growth, gross margins, EBITDA margins, EPS, and long-term organic growth rates. Integration is already underway. - **Manufacturing footprint restructuring**: Completed two factory moves/closures in Q2 2026, and is accelerating the restructuring strategy by adding two additional factory closures scheduled for the end of Q1 2027. The goal of the program is to regionalize manufacturing (establishing in-region-for-region production capability), reduce company complexity and asset intensity, lower cost structure, decrease sensitivity to trade disruptions, and sustainably expand gross and profit margins. The company is also doubling capacity at its China factory to meet two years of committed demand for its air bearing spindles business, with expansion partially funded by customers. ### Overall Q2 2026 Financial Performance - 16% adjusted EBITDA growth year-over-year, reaching $60.7 million for a 23% adjusted EBITDA margin (up 120 basis points year-over-year) - 47% adjusted gross margin, a 100 basis point improvement year-over-year - 17% adjusted EPS growth, reaching $0.89 per diluted share - Operating cash flow of $65 million in Q2, with year-to-date operating cash flow at $117 million, exceeding full-year 2025 operating cash flow - Ended Q2 with $719 million in cash, negative net debt of $480 million, and a net leverage ratio of negative 2x

Guidance

- Full year 2026 GAAP revenue guidance is raised to $1.13 billion to $1.14 billion, which includes the Riverpoint Medical acquisition and represents over 15% total reported year-over-year growth, with organic growth up to 7%. - Full year 2026 adjusted EBITDA guidance is $273 million to $278 million, representing 24% to 26% year-over-year growth, including ~$25 million of adjusted EBITDA from Riverpoint Medical. Adjusted diluted EPS guidance is $3.68 to $3.74, representing 12% to 14% year-over-year growth. - Full year 2026 adjusted gross margin is expected to be ~47%, with full-year operating expenses expected to be 27% to 28% of sales. - Q3 2026 GAAP revenue is expected to be $300 million to $304 million, representing 7% to 9% year-over-year organic growth and 21% to 23% total reported growth, including Riverpoint. The AET segment is expected to grow 12% to 14% year-over-year, while the Medical segment is expected to grow 32% to 35% reported (2% to 4% organic) year-over-year. - Q3 2026 adjusted gross margin is expected to be ~48%, with adjusted EBITDA expected to be $74 million to $77 million (27% to 33% year-over-year growth), and adjusted diluted EPS expected to be $0.95 to $1.00 (10% to 15% year-over-year growth). - Management expects core business gross margins to improve 100 basis points to ~48% in 2027, with overall gross margin expansion supported by both the Riverpoint acquisition and restructuring execution.

Segment performance

1. Medical Solutions Segment: Revenue grew 8.6% year-over-year. Within the segment: advanced surgery grew 12% year-over-year, while precision medicine grew 5% year-over-year. Adjusted gross margins for the full segment were approximately 41%, down 290 basis points year-over-year and 230 basis points sequentially. The segment's vitality index (share of sales from new products) was above 30%, with new product sales growing nearly 50% year-over-year. Revenue contribution to total company sales was 51% pre-Riverpoint acquisition, and will rise to 60% annualized post-acquisition. 2. Automation Enabling Technology (AET) Segment: Revenue grew 12% year-over-year. Within the segment: precision manufacturing grew 9% year-over-year, and robotics and automation grew 13.5% year-over-year. Adjusted gross margins for the full segment were approximately 53%, up 470 basis points sequentially and 450 basis points year-over-year. The segment's vitality index was 24%, up 700 basis points year-over-year, with new product revenue growing over 60% year-over-year and customer design wins growing over 25% year-over-year. Combined exposure to gen AI technologies across the segment makes up approximately 17% of total company revenue, with these AI-related applications growing 25% year-over-year. Revenue contribution to total company sales was 49% pre-Riverpoint acquisition.

Risks & headwinds

- Manufacturing restructuring and site closures carry execution risk: temporary cost increases during the transition period can pressure near-term gross margins, and successful completion of transfers and closures is required to achieve projected long-term margin improvements. - Life science/precision medicine exposure faces near-term headwinds: portions of the market are commoditizing and declining, and the business is not expected to return to sustained growth until 2027. - Tariff and trade-related costs remain an ongoing headwind: the company is primarily impacted by Section 232 and 301 tariffs, and current surcharging practices do not fully absorb new tariff increases, with customers bearing the majority of IEPA tariff costs. - Forward-looking statements inherently carry risk, and actual future results may differ materially from expectations due to known and unknown factors, including macroeconomic complexity and supply chain volatility. - Riverpoint Medical, as a former private company, has no prior experience reporting quarterly results as part of a public company, creating uncertainty around near-term quarterly performance that led management to build conservatism into guidance.

Analyst Q&A

• Q: What are the core drivers of the organic growth and EBITDA guidance increase excluding the Riverpoint acquisition? /

  A: The majority of the upgrade to the base business outlook comes from the Automation Enabling Technology (AET) segment. AET has reduced asset intensity through completed site closures, which has improved its profitability beyond prior expectations. Excluding Riverpoint, the base business delivered a $0.02 per share improvement in Q2, with an additional $0.06 per share accretion from Riverpoint expected in the back half of 2026.

• Q: Can you share details on the first significant humanoid servo drive order, including its size and impact on margins? /

  A: This order is for deployment in customer training and development facilities, representing a step beyond prototyping and the next phase of commercial development before full market launch. While order volumes are larger than prior prototype orders and bookings are growing faster than expected from a small base, the order did not have a material impact on Q2 AET segment gross margins. The order also reflects customer recognition of Novanta's unique proprietary IP for safe humanoid operation.

• Q: What is your visibility into continued 25% growth of your gen AI and semiconductor-related businesses in 2007? /

  A: Novanta's gen AI/semiconductor exposure covers a broad set of high-growth applications including lithography, advanced node semiconductor manufacturing, GPU production, and metrology. The overall direction of travel remains positive, aligned with public wafer fab market growth outlooks, and the air bearing spindle business already has two full years of committed backlog. It is still too early to provide specific numerical guidance for 2027 at this time.

• Q: What is Riverpoint Medical's expected revenue contribution in the second half of 2026, and is its current run rate higher than the previously stated $150 million annual revenue? /

  A: Riverpoint is expected to contribute approximately $60 million to $65 million of total revenue in the second half of 2026, with roughly $35 million of revenue expected in Q3 (a partial quarter post-close). Management has built conservatism into guidance given Riverpoint's lack of prior public company quarterly reporting experience, so full-year 2026 results could come in slightly above the current projected range. Riverpoint's EBITDA contribution for the second half is expected to be $25 million, consistent with the company's prior margin outlook.