Medicine and manufacturing technology provider Novanta (NASDAQ:NOVT) met Wall Street’s revenue expectations in Q1 CY2025, with sales up 1.1% year on year to $233.4 million. On the other hand, next quarter’s revenue guidance of $235 million was less impressive, coming in 2.4% below analysts’ estimates. Its non-GAAP profit of $0.74 per share was 9.9% above analysts’ consensus estimates.
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Novanta (NOVT) Q1 CY2025 Highlights:
- Revenue: $233.4 million vs analyst estimates of $233.3 million (1.1% year-on-year growth, in line)
- Adjusted EPS: $0.74 vs analyst estimates of $0.67 (9.9% beat)
- Adjusted EBITDA: $49.98 million vs analyst estimates of $50.21 million (21.4% margin, in line)
- Revenue Guidance for Q2 CY2025 is $235 million at the midpoint, below analyst estimates of $240.7 million
- Adjusted EPS guidance for Q2 CY2025 is $0.73 at the midpoint, below analyst estimates of $0.75
- EBITDA guidance for Q2 CY2025 is $52.5 million at the midpoint, in line with analyst expectations
- Operating Margin: 12.8%, in line with the same quarter last year
- Free Cash Flow Margin: 11.7%, similar to the same quarter last year
- Market Capitalization: $4.72 billion
StockStory’s Take
Novanta’s first quarter results reflected steady execution in the face of ongoing global trade volatility. Management emphasized that the company’s diversified exposure to medical, life sciences, and advanced industrial markets helped deliver growth in sales and non-GAAP profit. CEO Matthijs Glastra highlighted that patient procedure growth and hospital spending supported high single-digit growth in Novanta’s Advanced Surgery business, while new product launches in robotics and automation contributed to design win momentum. Glastra noted, “Our diversified business model and focus on innovation positioned us well to navigate the current environment.”
Looking ahead, Novanta’s guidance factored in uncertainty related to escalating tariffs and reciprocal trade measures. Management described the external environment as one of the most volatile since the early days of the pandemic, with trade disruptions and U.S. government funding cuts driving customer investment hesitancy, particularly in life sciences and industrial end markets. CFO Robert Buckley stated, “We are proactively executing a multipronged tariff mitigation plan and accelerating our regional manufacturing strategy, but ongoing volatility limits long-term visibility. As a result, we are only issuing quarterly revenue guidance until trends stabilize.”
Key Insights from Management’s Remarks
Novanta’s management outlined several operational and strategic factors that shaped first quarter performance and set the stage for the coming year.
- Health Care Market Growth: Novanta’s Advanced Surgery business saw strong demand, driven by patient volume growth and hospital investments in minimally invasive and robotic surgery equipment. Management credited new product launches for their rapid adoption in surgical applications, helping offset weakness in other medical segments.
- Trade and Tariff Disruptions: Executives described heightened global trade uncertainty, including newly imposed and reciprocal tariffs, as a key challenge. Management said these actions increased annual manufacturing costs by about $20 million. The company has responded by shifting supply chains, negotiating duty exceptions, and implementing surcharges to customers.
- Strategic Acquisition: Novanta closed the acquisition of Keonn, a Spanish RFID hardware and AI-enhanced software provider. Management said Keonn’s technology expands Novanta’s capabilities in real-time inventory solutions for retail and healthcare, and accelerates its push into intelligent, software-driven subsystems. While short-term financial impact is limited, leadership expects material revenue contributions from Keonn beginning in 2026.
- Product Innovation and Design Wins: New product sales grew at a double-digit rate, with the “vitality index” (the share of revenue from recently launched products) just below 20%. Notably, recent launches in motion control and sensing for warehouse automation, robotics, and humanoid applications helped drive double-digit growth in design wins within the Automation Enabling Technologies segment.
- Cost Containment and Supply Chain Resilience: Management announced $20 million in annualized cost savings initiatives, including accelerating regional manufacturing and consolidating production. Leaders said these efforts will offset lost profitability from deferred U.S.-to-China shipments and improve supply chain resilience against future trade disruptions.
Drivers of Future Performance
Management’s outlook for the next quarter and the remainder of the year centers on navigating trade disruptions, accelerating new product ramps, and executing on cost containment, with ongoing uncertainty in certain end markets.
- Tariff Mitigation and Regionalization: Novanta is expediting its regional manufacturing strategy—producing more goods in China for China and in Europe for European customers—to limit tariff exposure and avoid supply chain bottlenecks. Management expects these changes to reduce risk over time, though full benefits will materialize in 2026.
- New Product Launches and Market Adoption: The company’s guidance relies on continued momentum from recent launches in surgical robotics, smoke evacuation systems, and automation solutions. Management believes that new product ramps, particularly in medical devices, will drive growth even as life sciences and industrial demand remains subdued.
- Macroeconomic and Funding Headwinds: Ongoing uncertainty around trade policies and U.S. government funding for life sciences research, especially via National Institutes of Health (NIH) grants, pose risks to demand in certain segments. Management is prioritizing less capital-sensitive markets to help offset these headwinds.
Top Analyst Questions
- Lee Jagoda (CJS Securities): Asked about the revenue and profitability impact of the Keonn acquisition. CFO Robert Buckley stated Keonn should be slightly accretive to EPS in the first year, with a more meaningful revenue contribution expected in 2026.
- Brian Drab (William Blair): Inquired whether new product launches might face deferrals given current market volatility. CEO Matthijs Glastra responded that most new product revenue is in the medical device segment, which remains strong, and customer adoption has been positive so far.
- Brian Drab (William Blair): Sought clarity on the company’s exposure to NIH funding cuts. Buckley explained that the precision medicine business unit is most affected but quantifying the exact impact is difficult due to the complexity of customer end markets.
- Rob Mason (Baird): Questioned the timeline and capital requirements for implementing regional manufacturing. Glastra and Buckley indicated the strategy is already underway, is capital-light, and will accelerate through 2025, with full benefits expected by early 2026.
- Rob Mason (Baird): Asked about growth prospects in semiconductor and EUV (extreme ultraviolet) markets. Glastra said green shoots are visible, especially in next-generation machines, and that demand remains positive despite broader industry caution.
Catalysts in Upcoming Quarters
In the coming quarters, the StockStory team will monitor (1) progress in shifting supply chains and manufacturing to regional models, particularly the pace of in-China and in-Europe production for local markets; (2) the ramp and market adoption of recently launched products in advanced surgery, robotics, and automation; and (3) signs of stabilization or improvement in customer capital spending within life sciences and industrial segments. The impact and integration of the Keonn acquisition will also be a key area of focus as Novanta expands its software-driven solutions.
Novanta currently trades at a forward EV-to-EBITDA ratio of 26×. At this valuation, is it a buy or sell post earnings? The answer lies in our free research report.
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