Novanta’s Earnings Call Contradictions: Gross Margin Trajectory and R&D Run Rate Signals Diverge

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Date of Call: Aug 6, 2026

Financials Results

• Revenue: $1,130M-$1,140M for FY2026, >15% reported growth; Q3 $300M-$304M, 21%-23% reported growth
• EPS: $0.89 per diluted share, up 17% YOY; Q3 guidance $0.95-$1.00, 10%-15% YOY growth
• Gross Margin: 47% adjusted, up 100 bps YOY and 150 bps sequentially
• Operating Margin: 23% adjusted EBITDA margin, up 120 bps YOY

Guidance:

• FY2026 revenue raised to $1,130M-$1,140M, >15% reported growth, organic growth up to 7%.
• FY2026 adjusted EBITDA expected $273M-$278M, 24%-26% YOY growth.
• FY2026 adjusted diluted EPS expected $3.68-$3.74, 12%-14% YOY growth.
• Q3 2026 revenue expected $300M-$304M, 7%-9% organic growth, 21%-23% reported growth.
• Q3 2026 adjusted gross margin expected ~48%, up sequentially.
• Q3 2026 adjusted EBITDA expected $74M-$77M, 27%-33% YOY growth, ~25% margin.

Business Commentary:

Strong Financial Performance:

• Novanta reported 9% organic sales growth and 16% adjusted EBITDA growth for the second quarter, with an adjusted gross margin of 47%, a 100 basis point improvement year-over-year.
• The growth was driven by robust performance across all business units and significant contributions from new product revenue, which grew by over 50%.

Medical Segment Expansion:

• Revenue in the medical solutions segment grew by 8.6% year-over-year, with a notable contribution from the advanced surgery business, which experienced 12% growth.
• The growth was supported by strong patient procedural growth rates and new product launches, including second-generation insufflaters, enhancing patient safety and surgical workflow optimization.

Automation and Robotics Growth:

• The automation-enabling technology segment saw a 12% year-over-year revenue increase, with the robotics and automation business growing by 13.5%.
• This increase was driven by a healthy outlook in advanced robotic applications and increasing strength in semiconductor applications due to investments in artificial intelligence.

Impact of Riverpoint Medical Acquisition:

• The acquisition of Riverpoint Medical is expected to be immediately accretive, contributing significantly to Novanta's revenue and profit metrics.
• It expands Novanta's recurring medical consumable business and increases its exposure in the medical market, aligning with its strategic shift into minimally invasive surgery markets.

Manufacturing Optimization:

• Novanta completed the closure of two manufacturing sites and announced two additional closures to further optimize its manufacturing footprint by the end of Q1 2027.
• These actions are part of a strategy to regionalize manufacturing, reduce complexity, and establish a lower-cost structure, enhancing Novanta's preferred supplier position with OEMs.

Sentiment Analysis:

Overall Tone: Positive

• CEO stated 'Novanta delivered an outstanding second quarter' with 'strong results' and 'strongest organic growth and cash flow in more than three years.' Management raised full-year outlook, cited 'accelerating customer demand,' and expressed confidence in 'record year in cash flow generation' and strategic position.

Q&A:

• Question from Lee Jagoda (CJS Security): Looking at the guidance, how should we think about the biggest drivers in the change in organic growth and the EBITDA increase excluding the Riverpoint transaction?
  Response: The increase is mostly from the Automation-Enabling Technology (AET) segment due to site closures and improved profitability, not from Riverpoint.

• Question from Lee Jagoda (CJS Security): Can you quantify the first significant humanoid servo drive order? Was it a material order or multi-year contract? Did it impact gross margins?
  Response: It was the first significant order for training/development centers, not a major driver of margin, but indicates progress in the long development path for commercial deployment.

• Question from Lee Jagoda (CJS Security): How should we think about core gross margin outlook with Riverpoint over the medium term and potential headwinds?
  Response: Expect 48% gross margin in 2H 2026 and into 2027 (+100 bps YOY), driven by Riverpoint and core site closures, despite some tariff headwinds.

• Question from Quinn Fredrickson (Baird): What is visibility for GenAI data center exposure in 2027?
  Response: Direction of travel remains positive with 25% growth in H1, but too early to provide specific 2027 numbers.

• Question from Quinn Fredrickson (Baird): Can you expand on advanced surgery bookings and timing element? Should bookings strengthen in the back half?
  Response: Bookings (four-quarter rolling average) are above 1.0 and expected to remain above 1.0 in H2, indicating good momentum.

• Question from Quinn Fredrickson (Baird): How should we think about R&D run rate organically and what Riverpoint might add?
  Response: Full-year R&D expected ~$100M, or 8.5%-8.7% of sales, down from previous ~10% as new products scale.

• Question from Brian Drab (William Blair): What is Riverpoint's revenue impact for H2, specifically Q3 assumptions? Is it contributing well over $30M?
  Response: Riverpoint revenue in Q3 expected ~$35M; full Q3 would be ~$50M, with H2 total ~$60M-$65M. Margin ~40% EBITDA, adding ~$0.06 to EPS in back half.

Contradiction Point 1

Gross Margin Trajectory

Inconsistent guidance on future gross margin improvement pace.

Lee Jagoda (CJS Security) - Lee Jagoda (CJS Security)

2026Q2: The company delivered a 47% gross margin in Q2 and expects it to reach ~48% in the back half of 2026 and maintain that into 2027, representing a 100 basis point improvement. - [Robert Buckley](CFO)

How should we assess the core gross margin trajectory and Riverpoint's impact over the medium term, factoring in repositioning headwinds? - Lee Jagoda (CJS Securities)

2026Q2: Gross margin is expected to be ~48% in the back half of 2026 and maintain into 2027, with a 100 basis point improvement anticipated in 2027. - [Robert Buckley](CFO)

Contradiction Point 2

R&D Run Rate Expectations

Contradiction on whether R&D as a percentage of sales is increasing or decreasing.

Quinn Fredrickson (Baird) - Quinn Fredrickson (Baird)

2026Q2: R&D as a percentage of sales has decreased from ~10% to ~9% as new products ramp and organic growth accelerates, which was the intended strategy. - [Matthias Glostrup](CEO)

Can you explain the year-over-year decrease in R&D expenses, the appropriate run rate, and how Riverpoint may impact these metrics? - Quinn Fredrickson (Baird)

2026Q2: Full-year R&D is expected to be around $100 million, or ~8.5-8.7% of sales, which is a step-up from the prior run rate due to Riverpoint's inclusion. - [Robert Buckley](CFO)

Contradiction Point 3

GenAI/semiconductor growth rate expectations

Contradictory statements on year-over-year growth rates for the GenAI infrastructure bucket.

Quinn Fredrickson (Baird) - Quinn Fredrickson (Baird)

2026Q2: The GenAI/data center bucket ... grew 25% year-over-year in Q2. - [Matthias Glostrup](CEO)

What is the expected growth rate and visibility for your Generative AI and data center business in 2027? - Lee Jagoda (CJS Securities)

2026Q1: Collectively, these applications grew about 20% year-over-year in Q1, with growth expected to accelerate throughout the year. - [Matthijs Glastra](CEO)

Contradiction Point 4

Characterization of growth drivers in the industrial/semiconductor segment

Contradiction on whether growth is driven by a collective of niche technologies or if specific applications like GPU drilling are singled out as major contributors.

Quinn Fredrickson (Baird) - Quinn Fredrickson (Baird)

2026Q2: It is not a single application but a collective of niche technologies that collectively drive growth. - [Matthijs Glastra](CEO)

Could you rank-order industrial opportunities like EUV, DUV, warehouse automation, metal 3D printing, GPU drilling, and humanoids by their expected contribution to 2026 revenue growth, specifically identifying which will drive the highest incremental dollar growth this year compared to 2025? - Brian Drab (William Blair)

2026Q1: GPU drilling is part of this growth but does not materially change the segment’s overall contribution. - [Robert Buckley](CFO)

Contradiction Point 5

Characterization of Robotics & Automation Demand Growth

Contradiction between broad-based structural momentum and a specific, early-stage market order.

What were the key financial highlights from CJS Security's earnings call featuring Lee Jagoda? - Lee Jagoda (CJS Security)

2026Q2: The order is related to the next phase of humanoid development, moving from prototyping to training centers. It indicates stronger demand and bookings growth in this early-stage market. - [Chuck Rivetto](Co-COO), [Matthias Glostrup](CEO)

Can you quantify the significant order related to servo drives for humanoids and clarify if it was material and impacted the strong gross margins in the segment? - Lee Jagoda (CJS Securities, Inc.)

2025Q4: The momentum in precision robotics is broad-based and structural. - [Matthijs Glastra](CEO), [Robert Buckley](CFO)

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