Novanta (NOVT) - 2025 Q2 - Quarterly Results

Executive Summary & Financial Highlights Novanta's Q2 2025 achieved GAAP revenue growth but declining net income, with non-GAAP metrics improving from strong bookings and strategic growth Press Release Header Novanta Inc. announced its second quarter 2025 financial results on August 5, 2025 - Novanta Inc. (Nasdaq: NOVT) announced its second quarter 2025 financial results on August 5, 2025[1][2] Q2 2025 Financial Highlights Novanta's Q2 2025 GAAP revenue grew 2.2% to $241 million, but net income and diluted EPS fell, while adjusted diluted EPS and EBITDA rose Q2 2025 Financial Highlights | Financial Highlight (Q2 2025) | GAAP (Millions USD) | Non-GAAP (Millions USD) | | :---------------------------- | :------------------ | :---------------------- | | Revenue | $241.0 | | | Operating Income | $14.9 | $40.7 (Adjusted) | | Net Income | $4.5 | | | Diluted EPS | $0.12 | $0.76 (Adjusted) | | Adjusted EBITDA | | $52.2 | - GAAP revenue increased by 2.2% or $5.2 million year-over-year to $241.0 million[4] CEO Commentary & Business Outlook CEO Matthijs Glastra reported solid Q2 performance with 10% bookings growth and a 1.02 book-to-bill ratio, driven by advanced surgical and robotics - Novanta's bookings grew by 10%, with an overall book-to-bill ratio of 1.02, indicating strengthening prospects[4] - Mid-double-digit revenue growth in advanced surgical and robotics & automation businesses highlights the company's strategic focus on high-growth markets[4] - The company is on track to achieve its $50 million new product sales target for the year, securing significant design wins in medical devices and warehouse robotics[4] Detailed Financial Results This section details Novanta's Q2 2025 GAAP and non-GAAP financial performance, including income statements, balance sheets, and cash flow Second Quarter 2025 GAAP Results Q2 2025 GAAP revenue grew 2.2% to $241 million, but operating income, net income, and diluted EPS declined, with organic revenue growth at (2.1)% GAAP Financials (Q2 2025 vs Q2 2024) | GAAP Financials (Q2 2025 vs Q2 2024) | Q2 2025 (Millions USD) | Q2 2024 (Millions USD) | YoY Change (%) | | :----------------------------------- | :--------------------- | :--------------------- | :------------- | | Revenue | $241.0 | $235.9 | +2.2% | | Operating Income | $14.9 | $25.7 | -42.0% | | Net Income | $4.5 | $13.8 | -67.4% | | Diluted EPS | $0.12 | $0.38 | -68.4% | - Organic revenue growth, excluding acquisitions and foreign currency exchange rate changes, was (2.1)%[6] - Acquisitions contributed a net increase of $5.3 million (2.3%) to revenue, while foreign currency exchange rate changes had a favorable impact of $4.8 million (2.0%)[4] Second Quarter 2025 Non-GAAP Results Q2 2025 adjusted diluted EPS increased to $0.76 and adjusted EBITDA rose to $52.2 million, indicating growth in non-GAAP profitability Non-GAAP Financials (Q2 2025 vs Q2 2024) | Non-GAAP Financials (Q2 2025 vs Q2 2024) | Q2 2025 (Millions USD) | Q2 2024 (Millions USD) | YoY Change (%) | | :--------------------------------------- | :--------------------- | :--------------------- | :------------- | | Adjusted Diluted EPS | $0.76 | $0.73 | +4.1% | | Adjusted EBITDA | $52.2 | $51.1 | +2.2% | Cash Flow Performance Q2 2025 operating cash flow significantly decreased to $15.1 million, driven by tax payment timing and increased inventory purchases Cash Flow (Millions USD) | Cash Flow (Millions USD) | Q2 2025 | Q2 2024 | YoY Change (%) | | :----------------------- | :------ | :------ | :------------- | | Operating Cash Flow | $15.1 | $41.1 | -63.3% | - The year-over-year decrease in operating cash flow was driven by the timing of tax payments and increased inventory purchases to mitigate global trade dynamic risks and support recent acquisitions[9] Condensed Consolidated Statements of Operations Q2 2025 net income decreased to $4.5 million from $13.8 million, driven by increased restructuring, acquisition costs, and foreign exchange losses Statements of Operations (Thousands USD) | Statement of Operations (Thousands USD) | Three Months Ended June 27, 2025 | Three Months Ended June 28, 2024 | | :-------------------------------------- | :------------------------------- | :------------------------------- | | Revenue | $241,049 | $235,864 | | Cost of revenue | $134,303 | $132,175 | | Gross profit | $106,746 | $103,689 | | Total operating expenses | $91,835 | $77,974 | | Operating income | $14,911 | $25,715 | | Net Income | $4,497 | $13,755 | | Diluted EPS | $0.12 | $0.38 | - Restructuring, acquisition, and related costs significantly increased from $2,543 thousand in Q2 2024 to $12,572 thousand in Q2 2025[27] - Net foreign currency transaction losses increased from $264 thousand in Q2 2024 to $2,744 thousand in Q2 2025[27] Condensed Consolidated Balance Sheets As of June 27, 2025, total assets increased to $1,511,069 thousand, driven by higher receivables, inventory, intangibles, and goodwill from recent acquisitions Balance Sheets (Thousands USD) | Balance Sheet (Thousands USD) | June 27, 2025 | December 31, 2024 | | :---------------------------- | :------------ | :---------------- | | Total current assets | $462,100 | $433,648 | | Total assets | $1,511,069 | $1,388,511 | | Total current liabilities | $181,938 | $167,791 | | Total liabilities | $709,623 | $642,813 | | Total stockholders' equity | $801,446 | $745,698 | - Goodwill increased from $584,098 thousand to $649,093 thousand, and net intangible assets from $185,844 thousand to $203,630 thousand, indicating significant acquisition activity[29] Condensed Consolidated Statements of Cash Flows Net cash from operating activities decreased to $15.1 million, investing activities increased due to acquisitions, and financing activities saw a net inflow from borrowings Cash Flow Activities (Thousands USD) | Cash Flow Activities (Thousands USD) | Three Months Ended June 27, 2025 | Three Months Ended June 28, 2024 | | :----------------------------------- | :------------------------------- | :------------------------------- | | Net cash provided by operating activities | $15,072 | $41,095 | | Net cash used in investing activities | $(66,561) | $(4,937) | | Net cash provided by (used in) financing activities | $54,832 | $(32,023) | | Cash and cash equivalents, end of period | $109,912 | $98,468 | - Cash paid for business acquisitions (net of working capital adjustments) was $63,173 thousand in Q2 2025, compared to zero in Q2 2024[31] - Borrowings under the revolving credit facility amounted to $72,805 thousand in Q2 2025[31] Financial Guidance This section outlines Novanta's financial projections for full year 2025 and Q3 2025, including GAAP revenue, adjusted EBITDA, and adjusted diluted EPS Full Year 2025 Guidance Novanta projects full-year 2025 GAAP revenue of $970-$985 million, adjusted EBITDA of $225-$230 million, and adjusted diluted EPS of $3.22-$3.36 Full Year 2025 Guidance | Full Year 2025 Guidance | Range (Millions USD, except EPS) | | :---------------------- | :------------------------------- | | GAAP Revenue | $970 - $985 | | Adjusted EBITDA | $225 - $230 | | Adjusted Diluted EPS | $3.22 - $3.36 | Third Quarter 2025 Guidance Novanta anticipates Q3 2025 GAAP revenue of $244-$247 million, adjusted EBITDA of $57-$60 million, and adjusted diluted EPS of $0.78-$0.85 Third Quarter 2025 Guidance | Third Quarter 2025 Guidance | Range (Millions USD, except EPS) | | :-------------------------- | :------------------------------- | | GAAP Revenue | $244 - $247 | | Adjusted EBITDA | $57 - $60 | | Adjusted Diluted EPS | $0.78 - $0.85 | Non-GAAP Guidance Disclaimer Novanta provides non-GAAP profitability guidance without GAAP reconciliation due to inherent difficulties in forecasting and quantifying certain significant adjustments - The company provides non-GAAP profitability guidance (excluding GAAP revenue) without reconciliation to GAAP financial measures due to inherent difficulties in forecasting and quantifying certain necessary amounts[13] - These difficult-to-quantify amounts include acquisition and related expenses, acquisition accounting impact, fair value changes of future contingent consideration, future restructuring charges, foreign exchange gains and losses, and significant discrete income tax expenses (benefits)[13] Segment Performance & Non-GAAP Reconciliations This section details Novanta's Q2 2025 segment performance, covering revenue, adjusted gross profit, operating income, EBITDA, organic revenue growth, net debt, and free cash flow Revenue by Reportable Segment In Q2 2025, Automation Enabling Technologies revenue increased to $121.672 million, while Medical Solutions revenue remained relatively flat Revenue by Segment (Thousands USD) | Revenue by Segment (Thousands USD) | Q2 2025 | Q2 2024 | YoY Change (%) | | :--------------------------------- | :--------- | :--------- | :------------- | | Automation Enabling Technologies | $121,672 | $116,729 | +4.2% | | Medical Solutions | $119,377 | $119,135 | +0.2% | | Total | $241,049 | $235,864 | +2.2% | Adjusted Gross Profit and Margin by Segment Q2 2025 saw Automation Enabling Technologies' adjusted gross profit and margin grow; Medical Solutions' slightly decreased due to prior-year inventory charges Adjusted Gross Profit and Margin (Thousands USD) | Adjusted Gross Profit & Margin (Thousands USD) | Q2 2025 (Adj. GP) | Q2 2025 (Adj. GP Margin) | Q2 2024 (Adj. GP) | Q2 2024 (Adj. GP Margin) | | :--------------------------------------------- | :---------------- | :----------------------- | :---------------- | :----------------------- | | Automation Enabling Technologies | $59,536 | 48.9% | $56,561 | 48.5% | | Medical Solutions | $52,469 | 44.0% | $53,949 | 45.3% | | Novanta Inc. (Total) | $111,031 | 46.1% | $109,867 | 46.6% | - Medical Solutions' Q2 2024 adjusted gross profit included $2,493 thousand in inventory charges related to a product line closure, which significantly impacted its gross margin comparison[33] Adjusted Operating Income and Adjusted Diluted EPS Novanta's Q2 2025 adjusted operating income was $40,656 thousand and diluted EPS was $0.76, adjusted for intangible amortization, restructuring, and acquisition costs Adjusted Operating Income and Diluted EPS (Thousands USD, except EPS) | Adjusted Operating Income & Diluted EPS (Thousands USD, except EPS) | Q2 2025 | Q2 2024 | | :---------------------------------------------------------------- | :--------- | :--------- | | Adjusted Operating Income | $40,656 | $41,343 | | Adjusted Operating Margin | 16.9% | 17.5% | | Adjusted Diluted EPS | $0.76 | $0.73 | - Key non-GAAP adjustments for Q2 2025 included $11,091 thousand for intangible asset amortization, $10,221 thousand for restructuring costs, and $2,351 thousand for acquisition and related costs[35] Adjusted EBITDA Q2 2025 adjusted EBITDA slightly increased to $52,163 thousand, with the adjusted EBITDA margin remaining stable at 21.6% Adjusted EBITDA (Thousands USD) | Adjusted EBITDA (Thousands USD) | Q2 2025 | Q2 2024 | YoY Change (%) | | :------------------------------ | :--------- | :--------- | :------------- | | Adjusted EBITDA | $52,163 | $51,103 | +2.1% | | Adjusted EBITDA Margin | 21.6% | 21.7% | -0.1 pp | - Significant adjustments to net income for Q2 2025 adjusted EBITDA calculation included $15,581 thousand for depreciation and amortization, $7,498 thousand for share-based compensation expense, and $12,091 thousand for restructuring, acquisition, and related costs[39] Organic Revenue Growth Novanta reported 2.2% GAAP revenue growth in Q2 2025, but organic revenue growth was (2.1)% after adjusting for acquisitions and favorable foreign exchange Revenue Growth Components (Q2 2025) | Revenue Growth Components (Q2 2025) | Percentage | | :---------------------------------- | :--------- | | Reported Revenue Growth (GAAP) | 2.2% | | Less: Change attributable to acquisitions | 2.3% | | Plus: Change due to foreign currency | (2.0)% | | Organic Revenue Growth (Non-GAAP) | (2.1)% | Net Debt As of June 27, 2025, net debt increased to $355,166 thousand, reflecting higher total debt and a slight decrease in cash and cash equivalents Net Debt (Thousands USD) | Net Debt (Thousands USD) | June 27, 2025 | December 31, 2024 | | :----------------------- | :------------ | :---------------- | | Total Debt (GAAP) | $459,240 | $416,640 | | Cash and cash equivalents | $(109,912) | $(113,989) | | Net Debt (Non-GAAP) | $355,166 | $305,170 | Free Cash Flow Q2 2025 free cash flow significantly decreased to $11,684 thousand, primarily due to reduced net cash provided by operating activities Free Cash Flow (Thousands USD) | Free Cash Flow (Thousands USD) | Q2 2025 | Q2 2024 | YoY Change (%) | | :----------------------------- | :--------- | :--------- | :------------- | | Net Cash Provided by Operating Activities (GAAP) | $15,072 | $41,095 | -63.3% | | Purchases of property, plant and equipment | $(3,388) | $(4,937) | +31.4% | | Free Cash Flow (Non-GAAP) | $11,684 | $36,158 | -67.7% | Non-GAAP Financial Measures Explanation This section defines Novanta's non-GAAP financial measures, explaining their rationale and utility for investors and management Overview and Rationale Novanta uses non-GAAP financial measures to provide investors with supplementary information for evaluating operating performance, benchmarking, and assessing long-term trends - Non-GAAP financial measures provide investors with useful supplemental information regarding the company's operating performance, particularly in the context of significant changes from strategic execution such as acquisitions, divestitures, and restructuring[17] - Management uses these non-GAAP measures to assess operating performance, report financial results to the board of directors, benchmark against historical performance and peers, and evaluate investment opportunities[18] - Non-GAAP financial measures should not be considered as substitutes for, or superior to, financial performance measures prepared in accordance with GAAP, but rather are intended to supplement GAAP financial measures[19] Organic Revenue Growth Definition Organic revenue growth is defined as revenue excluding the impact of acquisitions, divestitures, product line discontinuations, and foreign currency translation - Organic revenue growth is defined as revenue excluding the impact of business acquisitions, divestitures, product line discontinuations, and foreign currency translation[44] - The company believes this non-GAAP measure helps better measure company performance and assess long-term performance trends, facilitating comparisons to prior and future periods and peers[44] Adjusted Gross Profit and Margin Definition Adjusted gross profit and margin exclude amortization of acquired intangible assets and inventory charges related to product line closures - Adjusted gross profit and margin calculations exclude amortization of acquired intangible assets and inventory charges related to product line closures[45] - The exclusion of these expenses aims to provide investors and management with clearer visibility into the underlying trends and performance of the business[45] Adjusted Operating Income and Margin Definition Adjusted operating income and margin exclude amortization of acquired intangibles, inventory charges, restructuring, acquisition, ERP implementation, and insurance claim costs - Adjusted operating income and margin calculations exclude amortization of acquired intangible assets, inventory charges related to product line closures, restructuring costs, acquisition and related costs, discrete costs for the planning and design phase of ERP system implementation, and insurance claim-related expenses[46] Adjusted Income Before Income Taxes Definition Adjusted income before income taxes excludes net foreign currency transaction gains/losses and debt refinancing write-offs from adjusted operating income - Adjusted income before income taxes calculations exclude amortization of acquired intangible assets, restructuring, acquisition and related costs, discrete costs for the planning and design phase of ERP system implementation, inventory charges related to product line closures, insurance claim-related expenses, net foreign currency transaction gains and losses, and write-offs of unamortized deferred financing costs related to debt refinancing[47] Non-GAAP Income Tax Provision/(Benefit) and Effective Tax Rate Definition Non-GAAP tax metrics are based on adjusted income before taxes, applicable rates, and non-GAAP adjustments' tax impact, excluding discrete tax expenses/benefits - Non-GAAP income tax provision/(benefit) and effective tax rate are calculated based on adjusted income before income taxes, applicable tax rates, and the income tax impact of non-GAAP adjustments[48] - Additionally, the company excludes significant discrete income tax expenses (benefits) related to valuation allowance releases, uncertain tax positions, tax audits, certain tax law changes, and acquisition-related tax planning actions[49] Adjusted Net Income Definition Adjusted net income incorporates all adjustments from adjusted income before taxes, discrete tax expenses/benefits, and non-GAAP adjustments' tax impact - Adjusted net income calculations exclude amortization of acquired intangible assets, restructuring, acquisition and related costs, discrete costs for the planning and design phase of ERP system implementation, inventory charges related to product line closures, insurance claim-related expenses, write-offs of debt refinancing costs, and net foreign currency transaction gains and losses[50] - Additionally, the company excludes significant discrete income tax expenses (benefits) related to valuation allowance releases, uncertain tax positions, tax audits or amended prior period filings, certain tax law changes, and acquisition-related tax planning actions, as well as the income tax impact of non-GAAP adjustments[50] Adjusted Diluted EPS Definition Adjusted diluted EPS excludes various non-GAAP adjustments from adjusted net income, including intangible amortization, restructuring, acquisition, ERP, inventory, insurance, foreign exchange, debt refinancing, and discrete tax costs - Adjusted diluted EPS excludes amortization of acquired intangible assets, restructuring, acquisition and related costs, discrete costs for the planning and design phase of ERP system implementation, inventory charges related to product line closures, insurance claim-related expenses, net foreign currency transaction gains and losses, costs related to debt refinancing, and specific discrete income tax expenses (benefits) and the income tax impact of non-GAAP adjustments[51] Adjusted EBITDA and EBITDA Margin Definition Adjusted EBITDA is income before interest, taxes, depreciation, amortization, share-based compensation, restructuring, acquisition, ERP, inventory, insurance, and other non-operating expenses; margin is its percentage of revenue - Adjusted EBITDA is defined as income before interest (income) expense, income tax provision (benefit), depreciation, amortization, non-cash share-based compensation expense, restructuring, acquisition and related costs, discrete costs for the planning and design phase of ERP system implementation, inventory charges related to product line closures, insurance claim-related expenses, and other non-operating (income) expense items[52] - Adjusted EBITDA margin is defined as adjusted EBITDA as a percentage of revenue[52] Free Cash Flow Definition Free cash flow is net cash from operating activities minus capital expenditures plus asset sales, indicating liquidity and ability to repay debt and fund growth - Free cash flow is defined as net cash provided by operating activities less cash expenditures for purchases of property, plant and equipment, plus cash proceeds from the sale of property, plant and equipment[54] - Management considers these non-GAAP financial measures important indicators of the company's liquidity and ability to repay outstanding debt and fund future growth[54] Net Debt Definition Net debt is total debt plus unamortized deferred financing costs, minus cash and cash equivalents, used to monitor outstanding debt not covered by available cash - Net debt is defined as total debt reported on the consolidated balance sheets plus unamortized deferred financing costs, less cash and cash equivalents at the end of the period[55] - Management uses net debt to monitor the company's outstanding debt that is not covered by cash and cash equivalents on hand[55] Corporate Information This section provides details on Novanta's Q2 2025 earnings conference call, safe harbor statements, and an overview of the company's business and strategic focus Conference Call Information Novanta held a conference call on August 5, 2025, at 10:00 AM ET to discuss Q2 results, with a webcast replay available until September 29, 2025 - The company held a conference call on Tuesday, August 5, 2025, at 10:00 AM ET to discuss results and provide a business update[14] - An audio webcast replay will be available approximately three hours after the call in the investor relations section of the company's website, www.novanta.com, through Monday, September 29, 2025[15] Safe Harbor and Forward-Looking Information This press release contains forward-looking statements regarding financial performance, market expectations, new product sales, and acquisition strategies, subject to risks detailed in the Form 10-K - Certain statements in this press release are "forward-looking statements" concerning expected financial performance and condition, anticipated new product sales, end market and market position expectations, macroeconomic expectations, competitive position, acquisition strategy, and other statements that are not historical facts[20] - These forward-looking statements involve risks and uncertainties that could cause actual results to differ materially from expectations, including economic and political conditions, fluctuations in product demand, innovation challenges, timing of customer orders, IT system disruptions, risks of international operations, increased tariffs, intellectual property infringement, failure to integrate acquisitions, loss of key personnel, product defects, supply chain disruptions, medical device regulations, data protection compliance, foreign currency exchange rate changes, reliance on OEM customers, and changes in tax laws[21][22] - Other important risk factors that could affect the outcome of these statements and the company's operating results and financial condition are discussed in Item 1A of the company's Annual Report on Form 10-K for the fiscal year ended December 31, 2024, and updated by subsequent filings with the Securities and Exchange Commission[23] About Novanta Novanta is a global leader in core technology solutions for medical, life sciences, and advanced industrial OEMs, specializing in precision medicine, manufacturing, robotics, and advanced surgical fields - Novanta is a global leader in core technology solutions for medical, life sciences, and advanced industrial original equipment manufacturers (OEMs)[24] - The company possesses deep proprietary expertise and capabilities across precision medicine, precision manufacturing, robotics & automation, and advanced surgical fields[24] - Novanta's growth is driven by its innovative team of experts, the Novanta Growth System, and a commitment to customer success[24]