Novanta (NOVT) Q2 Revenue Rises 2.2%

Key Points

• GAAP revenue was $241.0 million in Q2 2025, beating analyst estimates on a non-GAAP basis and rising 2.2% year-over-year on a GAAP basis.

• Adjusted earnings per share came in at $0.76, surpassing the $0.73 consensus Adjusted EPS and growing 4.1% year over year.

• Free cash flow (non-GAAP) dropped sharply to $11.7 million, down 67.7% year-over-year primarily due to the timing of tax payments and increased inventory purchases related to mitigating risks from global trade dynamics and recent acquisition activities.

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Novanta (NASDAQ:NOVT), a specialist in precision technologies for the medical and advanced industrial sectors, posted its financial results for Q2 2025 on August 5, 2025. The company exceeded expectations on both GAAP revenue and adjusted (non-GAAP) earnings per share, with GAAP revenue reaching $241.0 million (versus a $237.97 million estimate) and adjusted EPS (non-GAAP) of $0.76 (above the consensus of $0.73). However, free cash flow (non-GAAP) and net income (GAAP) declined significantly as the company absorbed the costs of acquisitions, restructuring initiatives, and trade disruptions. Overall, the period showed resilience in high-growth markets like advanced surgery and robotics, though underlying organic revenue contracted by 2.1% and operational volatility remained a concern.

Source: Analyst estimates provided by FactSet. Management expectations based on management's guidance, as provided in Q1 2025 earnings report.

Understanding Novanta's Business and Focus

Novanta designs and manufactures core technologies for medical devices and advanced industrial equipment. Its main product lines include motion control components, sensors, optical systems, and radio-frequency identification (RFID) hardware and software. These products are often sold to original equipment manufacturers (OEMs) that integrate Novanta’s technologies into surgical tools, diagnostic instruments, robotics, and automation machinery.

The company’s strategy includes expanding its medical sector presence, investing in new product development, executing strategic acquisitions, optimizing operational efficiency, and maintaining strong regulatory compliance across global markets. The medical segment accounted for approximately 55% of Novanta's revenue for the year ended December 31, 2024, making this area particularly critical. Success in this space depends on ongoing innovation, sound integration of acquired businesses, reliable supply chain operations, and continual adherence to regulatory standards for medical devices.

Quarter Highlights: Trends, Challenges, and Drivers

Several trends defined the period. GAAP revenue surpassed analyst expectations in Q2 2025, topping the prior-year period by 2.2% (GAAP). The Automation Enabling Technologies segment, which provides hardware and components for robotics, warehouse automation, and related applications, posted a 4.3% GAAP revenue increase compared to Q2 2024 (to $121.7 million) in Q2 2025. and recorded improved gross margins at 48.9% (non-GAAP).

The Medical Solutions segment, making up just under half of company revenue, grew slightly to $119.4 million (GAAP). Within this business, advanced surgery equipment saw strong double-digit gains, especially for next-generation devices like smoke evacuation and insufflator pumps. These products help hospitals improve patient safety and surgical efficiency. However, this momentum was offset by continued weakness in the precision medicine and life sciences markets, primarily caused by United States National Institutes of Health (NIH) funding cuts and the impact of new tariffs.

The period included significant acquisition activity. Novanta completed its purchase of Keonn, a Spain-based provider of RFID (radio-frequency identification) hardware and AI-powered inventory software, for approximately $66 million plus a contingent earn-out in April 2025. This acquisition expands Novanta's reach in both automation and medical applications, supplying technology that enables hospitals and warehouses to track assets with higher precision. Management anticipates Keonn will contribute slightly to earnings per share in the first year, with potentially larger impacts in 2026.

One-time and ongoing costs weighed on overall profitability. GAAP net income dropped 67.4% compared to Q2 2024 in Q2 2025 as Novanta absorbed $12.6 million in GAAP restructuring and acquisition expenses. These included expenses linked to regionalizing manufacturing to cope with tariff-related disruptions, as the company faced up to $35 million in deferred revenue from paused U.S.-China shipments for the remainder of 2025. Free cash flow (non-GAAP) came in at $11.7 million, well below the previous year, as inventory investments and working capital outflows increased. Management said it has implemented a $20 million annualized cost savings program for 2025 to offset these pressures, focusing on agile supply chain responses and manufacturing optimization.

Looking Ahead: Forward Guidance and Investor Watchpoints

Management provided forward-looking guidance for both the next quarter and the full fiscal year. It sees GAAP revenue in the range of $244 million to $247 million for Q3 2025, with adjusted EPS projected between $0.78 and $0.85. For FY2025, GAAP revenue is now expected between $970 million and $985 million, and adjusted EPS between $3.22 and $3.36. The company expects sequential improvement in revenue and profitability in the coming quarters, supported by ramping new product sales and further integration of recent acquisitions. Importantly, the guidance assumes stable foreign exchange rates and successful ongoing mitigation of trade and tariff impacts.

However, management noted that the business environment remains unpredictable, especially with ongoing macroeconomic shifts, trade policies, and regulatory changes affecting core segments. Investors should monitor organic revenue trends, cash flow performance, and the timeline for completing regional manufacturing strategies. Continued success in the medical sector and traction from new innovations will be central to Novanta’s ability to achieve its stated growth targets.

Revenue and net income presented using U.S. generally accepted accounting principles (GAAP) unless otherwise noted.

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