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NOVANTA INC (NOVT)·Q3 2025 Earnings Summary

Executive Summary

  • Q3 2025 delivered revenue and adjusted EPS beats: revenue $247.8M vs Street ~$245.9M*, adjusted EPS $0.87 vs Street ~$0.817*; adjusted EBITDA $58.1M, roughly in line with Street ~$58.2M* .
  • Organic revenue declined 3.8% YoY, but Advanced Surgery grew 17% YoY; bookings rose 17% YoY (book-to-bill 1.03x), and adjusted gross margin expanded to 46.5% .
  • FY25 guidance narrowed: revenue $975–$979M (prior $970–$985M), adjusted EBITDA $222–$225M (prior $225–$230M), adjusted EPS $3.24–$3.30 (prior $3.22–$3.36). Q4 guide implies 6–8% reported growth, ~3% organic growth and double-digit adjusted EPS growth; management said guidance is in line with Street .
  • Catalysts: continued strength/new design wins in insufflators, a $50M warehouse automation contract ramping from 2026, and a new $200M buyback authorization (total repurchases ~$$14M in Q3) .

What Went Well and What Went Wrong

  • What Went Well

    • Advanced Surgery revenue up 17% YoY on new product launches and strong procedure growth; Medical Solutions segment up 5.9% YoY .
    • Bookings +17% YoY; book-to-bill 1.03x; adjusted gross margin 46.5% (+30 bps YoY, +40 bps seq.); CFO said tariff cost impact to gross margins “fully mitigated” .
    • New product revenue nearly +60% YoY; vitality index at 23% company-wide; segment vitality: AET “high-teens,” Medical Solutions “nearly 30%” .

  • What Went Wrong

    • Organic revenue declined 3.8% YoY; GAAP operating income down 32.9% YoY on higher SG&A, restructuring/acquisition costs, and ERP design costs .
    • Operating cash flow fell to $8.5M (vs $23.0M last year) on inventory purchases to accelerate regional manufacturing, timing of tax payments, and restructuring/acquisition payouts; free cash flow $4.2M .
    • Precision Medicine declined 4% YoY (though grew 3% seq.), headwinds from life science funding/tariff dynamics persisted; AET revenue down 2.6% YoY .

Financial Results

MetricQ3 2024Q2 2025Q3 2025Q3 2025 Consensus*
Revenue ($M)$244.4 $241.0 $247.8 $245.9*
GAAP Diluted EPS ($)$0.53 $0.12 $0.30 N/A
Adjusted EPS ($)$0.85 $0.76 $0.87 $0.817*
GAAP Gross Margin (%)44.7% 44.3% 44.8% N/A
Adjusted Gross Margin (%)46.2% 46.1% 46.5% N/A
GAAP Operating Income ($M)$32.6 $14.9 $21.8 N/A
Adjusted EBITDA ($M)$57.0 $52.2 $58.1 $58.2*
Adjusted EBITDA Margin (%)23.3% 21.6% 23.4% N/A
GAAP Net Income ($M)$19.2 $4.5 $10.7 N/A
Operating Cash Flow ($M)$23.0 $15.1 $8.5 N/A
  • Values marked with * are from S&P Global.

Segment Revenue ($M) and Mix

SegmentQ3 2024Q2 2025Q3 2025
Automation Enabling Technologies (AET)$128.7 $121.7 $125.3
Medical Solutions$115.7 $119.4 $122.5
Total$244.4 $241.0 $247.8

KPIs and Balance Sheet

KPIQ3 2024Q2 2025Q3 2025
Book-to-Bill (x)N/A1.02 1.03
Bookings Growth YoY (%)N/A+10% +17%
New Product Revenue Growth YoY (%)N/A+50%+ ~+60%
Vitality Index (%)N/A21% 23%
Operating Cash Flow ($M)$23.0 $15.1 $8.5
Free Cash Flow ($M)$19.5 $11.7 $4.2
Net Debt ($M)$305.2 (FY24) $355.2 $367.8
Net Leverage (x)N/A~1.7x ~1.7x

Guidance Changes

MetricPeriodPrevious Guidance (as of Q2)Current Guidance (Q3)Change
GAAP Revenue ($M)Q4 2025N/A$253–$257 New
Adjusted EBITDA ($M)Q4 2025N/A$62–$65 New
Adjusted EPS ($)Q4 2025N/A$0.87–$0.93 New
GAAP Revenue ($M)FY 2025$970–$985 $975–$979 Narrowed/maintained near mid
Adjusted EBITDA ($M)FY 2025$225–$230 $222–$225 Lowered
Adjusted EPS ($)FY 2025$3.22–$3.36 $3.24–$3.30 Tightened

Management also guided to mid-single-digit organic revenue growth in FY 2026 .

Earnings Call Themes & Trends

TopicPrevious Mentions (Q1 & Q2)Current Period (Q3)Trend
Advanced Surgery momentumDouble-digit growth; smoke evacuation insufflator launches; on track for $50M incremental new products in 2025 +17% YoY growth; another major insufflator design win; $50M incremental new products confirmed Strengthening
Physical AI (warehouse automation, humanoids)Announced $50M 3-year warehouse automation contract; humanoids in early design engagements Strong demand; design wins; $1B addressable by 2030; revenue begins 2026 and ramps 2027–2028 Building momentum
Tariff/supply chain mitigation$20M annualized cost savings plan; regionalization; China-for-China; duplicate lines in Europe Gross margin tariff impact “fully mitigated”; regional manufacturing phase 1 largely by Q1’26; seq. China sales +11%, bookings +17% Improving/resilient
Precision MedicineQ1 decline tied to NIH cuts; pivot to RFID/machine vision via Keonn partnership -4% YoY, +3% seq.; expected sequential improvement; software-centric expansion via Keonn Stabilizing
Semiconductor exposureEarly upcycle signs; EUV/DUV content ramps later WFE mid-single-digit growth expected next year; short-cycle demand tied to AI data centers Gradual recovery
Capital allocationIncreased credit facility (~$1B); share repurchase opportunistic $14M repurchased in Q3; $200M new buyback authorization while prioritizing M&A More flexible

Management Commentary

  • CEO: “We exceeded our expectations for sales, margin, and adjusted EPS… achieved a book-to-bill of 1.03x and saw 17% bookings growth year-over-year” .
  • CEO: “We’re confident… will return to positive organic growth and double-digit profit growth in the fourth quarter… deliver mid-single-digit organic growth for the full year of 2026” .
  • CFO: “Adjusted gross margins… better than our expectations… the cost of tariffs in our supply chain… has now been fully mitigated” .
  • CFO: “Operating cash flows… below our expectations but driven by temporary factors… we expect to recover back to our normal levels of greater than 100% conversion to net income” .
  • CEO on physical AI: “Warehouse automation market is starting to get deployed right now… we said… $1 billion market opportunity by 2030” .

Q&A Highlights

  • Warehouse automation contract: deployment starts 2026, ramps through 2027–2028; content includes force-torque sensors, encoders, servo drives; accuracy/safety at small form factors differentiates Novanta .
  • Regional manufacturing footprint: expected ~100 bps incremental margin expansion as hubs scale; phase 1 largely complete by end of Q1’26 .
  • 2026 growth composition: strongest in Advanced Surgery and Robotics & Automation; Precision Manufacturing improves; Precision Medicine conservative baseline .
  • DNA sequencing/EUV: no growth assumed in DNA sequencing; EUV ramps later in 2026 and into 2027 .
  • China tariffs “trapped revenue” update: recovery as regional manufacturing progresses; seq. China revenue +11%, bookings +17% .

Estimates Context

  • Q3 2025: Revenue beat ($247.8M vs ~$245.9M*), adjusted EPS beat ($0.87 vs ~$0.817*), adjusted EBITDA ~in line ($58.1M vs ~$58.2M*) .
  • FY 2025 Street: revenue ~$977.9M*, adjusted EPS ~$3.26*; company guided $975–$979M and $3.24–$3.30, “in line with current Wall Street consensus” .
  • Q4 2025 Street: revenue ~$255.6M*, EPS ~$0.89*; company guided revenue $253–$257, adjusted EPS $0.87–$0.93 .
  • Values marked with * are from S&P Global.

Key Takeaways for Investors

  • Near-term (Q4) setup: return to positive organic growth with mid-to-high single-digit reported revenue growth and double-digit adjusted EPS growth; Street broadly aligned .
  • Advanced Surgery remains an anchor growth engine in Medical Solutions; continued new design wins and consumables mix support margin expansion .
  • Physical AI platform (warehouse automation/humanoids) is a medium-term growth vector with signed $50M program and broader design-win momentum; revenue ramps from 2026 .
  • Tariff impacts to gross margins are mitigated; regional manufacturing consolidation should add ~100 bps margin and reduce volatility by 2026 .
  • Precision Medicine stabilizing via RFID/machine vision and Keonn acquisition; expect sequential improvement, but Street should model conservatively .
  • Cash flow conversion dipped on timing/inventory but expected to normalize; leverage moderate (~1.7x net), with $200M buyback capacity alongside M&A priority .
  • Watch for execution on guidance and cadence of AI/robotics and surgery product ramps; narrative centered on new product vitality (23%) and design-win pipeline that underpins 2026 baseline .