Novanta Inc. (NOVT) Q2 2026 Earnings Report, Transcript and Summary

Good morning. My name is Andrea, and I will be your conference operator today. At this time, I would like to welcome everyone to Novanta Incorporated Second Quarter 2026 Earnings Call. [Operator Instructions] Please note this event is being recorded. I would now like to turn the conference over to Marcy Meditz, Corporate Finance Leader for Novanta. Please go ahead.

Thank you very much. Good morning, and welcome to Novanta's second quarter 2026 earnings conference call. This is Marcy Meditz, Corporate Finance Leader for Novanta. With me on today's call is our Chair and Chief Executive Officer, Matthijs Glastra; our Chief Financial Officer, Robert Buckley; and our Co-Chief Operating Officers, Chuck Ravetto and John Lesica. If you have not received a copy of our earnings press release issued last night, you may obtain it from the Investor Relations section of our website at www.novanta.com. Please note, this call is being webcast live and will be archived on our website shortly after the call. Before we begin, we need to remind everyone of the safe harbor for forward-looking statements that we've outlined in our earnings press release issued last night and also those in our SEC filings. We may make some comments today, both in our prepared remarks and in our responses to questions that may include forward-looking statements. These involve inherent assumptions with known and unknown risks and other factors that could cause our future results to differ materially from our current expectations. Any forward-looking statements made today represent our views only as of this time. We disclaim any obligation to update forward-looking statements in the future, even if our estimates change. So, you should not rely on any of these forward-looking statements as representing our views as of any time after this call. During this call, we will be referring to certain non-GAAP financial measures. A reconciliation of such non-GAAP financial measures to the most directly comparable GAAP measures is available as an attachment to our earnings press release. To the extent that we use non-GAAP financial measures during this call that are not reconciled to GAAP measures in the earnings press release, we will provide reconciliations promptly on the Investor Relations section of our website after this call. I'm now pleased to introduce the Chair and Chief Executive Officer of Novanta, Matthijs Glastra.

Thank you, Marcy. Good morning, everybody, and thanks for joining our call. Novanta delivered an outstanding second quarter. We delivered strong results, 9% organic sales growth, 10% on a reported basis, 16% adjusted EBITDA growth, 47% adjusted gross margin, which was a 100 basis point improvement year-over-year, adjusted EPS growth of 17% and operating cash flow that year-to-date exceeds the operating cash flow we generated in all of 2025. All of our business units grew organically in the quarter. The combination of these strong results give us a terrific foundation to close our largest acquisition in history. With the close of Riverpoint Medical at the end of July, we're also raising our full year 2026 outlook, positioning Novanta to deliver more than 15% reported revenue growth year-over-year for the full year. Very proud of the performance in our accomplishments, putting us on a solid growth trajectory and a path to exceeding our strategic goals. For 2026, we remain focused and are executing well on our top 3 priorities. First, organic growth. Our innovation engine is now a very strong contributor. New product revenue grew by more than 50% in the quarter and is up over 60% year-to-date, lifting our vitality index to approximately 29% of sales from 21% a year ago. Bookings are up 18% year-to-date, and backlog is up 11%. While some timing of customer orders impacted our advanced surgery business in the first and second quarters, our year-to-date book-to-bill was well over 1.0. Organic growth is now accelerating with all 4 business units delivering on solid organic growth in the quarter. As we look out to the remainder of the year, we expect to see many of these trends to continue, with strong new product revenue, design wins and continued strength in precision robotics, physical AI, semiconductors, and minimally invasive and robotic surgery. Second, acquisitions. In June, we announced and just recently closed the acquisition of Riverpoint Medical, a milestone transformative acquisition, our largest to date and an extremely strong strategic and financial fit for Novanta. Riverpoint accelerates our shift into minimally invasive surgery markets with long-term secular growth dynamics. It roughly doubles our recurring medical consumable business to approximately $300 million from about 15% of revenue to roughly 25% annualized and expands our medical end market exposure to 60% of revenue. It is expected to be immediately accretive to revenue growth, gross margins, EBITDA margins and earnings per share as well as long-term organic growth rates. Integration is underway under the leadership of John Lesica. And the more time we spend with the Riverpoint team, the more impressed we are by the depth of their customer relationships, their innovation mindset, and their commitment to quality. We're excited to welcome them to Novanta. Now our third priority for 2026 is about completing our manufacturing foundation. In the second quarter, we completed the manufacturing moves and closure of 2 of our factories. The establishment of our regional [ lighthouse ] manufacturing centers of excellence is well underway, supported by 2 new MRP system implementations, the Novanta Growth System and world-class manufacturing teams. Given the strong progress and momentum being made to regionalize our manufacturing, reduce the company's complexity and asset intensity, and establish a lower cost structure, we decided to accelerate our strategy by announcing 2 additional factory closures by the end of the first quarter of 2027 as part of our current restructuring program. These manufacturing moves are also underway now on a solid track to ensure Novanta achieves better scale, stronger systems, deeper talent, and a full in-region for-region capability, which ultimately deepens our preferred supplier position with leading OEMs, dramatically reduces or eliminates our sensitivity to trade disruptions while sustainably expanding gross margin, profit margins, and cash flows. Stepping back, the first half performance validates our strategy. We win in end markets with durable secular tailwinds where our growth platforms represent a nearly $10 billion addressable market opportunity by 2030. We win in them by solving our OEMs customers' hardest problems with proprietary technology, which designs us in for the better part of the decade. And we deployed capital to compound that position, which this quarter meant Riverpoint. The macro remains complex, and we're watching it closely, but complexity and opportunity travel together and what is in front of us is accelerating demand, record new product momentum, the strongest team Novanta has ever had, and the balance sheet to keep acting. Chuck Ravetto and John Lesica are both with us today. They will walk you through their segment's new product launches, design wins, and customer momentum behind these results and more on the Riverpoint integration. John, over to you.

Thanks, Matthijs. In the second quarter, revenue in the Medical Solutions segment grew 8.6% year-over-year, better than we expected. This segment saw a book-to-bill of 0.79 in the second quarter and year-to-date had bookings growth of greater than 10% year-over-year. New product sales grew by nearly 50% year-over-year and the vitality index in this segment was above 30% of sales. Our advanced surgery business experienced 12% growth year-over-year, driven by both strong patient procedural growth rates and from our new product launches of our second-generation insufflators. Our second-generation insufflators have set the industry standard for patient safety, smoke evacuation, and surgical workflow optimization. In addition to our next-generation insufflators, we now have 2 customers with first-generation arthroscopic fluid management platforms. These first-generation systems will help us better identify the right combination of pump modalities to deliver to our customers and surgeons a tool that reduces the complexity of surgeries, enhances workflows to improve safety and productivity at a reduced cost to own and serve in a manner similar to what we achieved with our insufflator platform. The advanced surgery business remains on track for a strong full-year growth, supported by year-to-date bookings growth of greater than 8%, new product revenue growth of greater than 70% in the second quarter, and a vitality index near 30%. We continue to have strong momentum in insufflation, expansion of our fluid management solution in arthroscopy and a scaling medical consumables business. In our precision medicine business, sales grew by 5% year-over-year. The year-over-year growth in this business was driven by continued strong momentum from our Keonn acquisition as well as our core growth from our medical customers. Customer demand in sectors outside of life sciences are beginning to show momentum. Our life sciences exposure is still expected to be less than 10% of the company's overall revenue in 2026. While this business is not expected to return to sustained growth in 2026, we do see a path to growth materializing in 2027 based on how the market is recovering and the narrative from our customers. In addition, we've continued to invest in bringing Keonn's leading technology and AI-based software solutions to the healthcare market. Earlier this year, we established a strategic partnership with a direct-to-hospital provider to start prototyping solutions for that environment. While this is a multiyear investment initiative, the progress and momentum we're seeing with Keonn's core business is a testament of the value proposition we believe we can offer. Overall, Medical Solutions segment adjusted gross margins were approximately 41%, which is down 290 basis points year-over-year and down 230 basis points sequentially, primarily due to a higher mix of precision medicine products with lower margins and temporary cost increases incurred as part of our operational transformation as we accelerate site rationalization across the segment. Some of these costs were temporarily higher in the second quarter, and we expect gross margins to sequentially expand materially in the third quarter. Finally, I'm also pleased to share that we closed the acquisition of Riverpoint Medical, a milestone we're genuinely excited about. Riverpoint brings innovative fiber-based sutures and implantables that strengthen our position in high-growth sports medicine, cardiovascular and orthopedic applications, expanding the value we can deliver to our medical OEM customers. Just as important, we're thrilled to welcome over 600 talented Riverpoint colleagues to the Novanta team whose expertise will be instrumental in driving this next chapter of growth. Chuck will now cover the Automation Enabling Technologies segment.

Thanks, John. In the second quarter, the Automation Enabling Technologies segment revenue grew by 12% year-over-year, better than expected. The book-to-bill in this segment was 1.1 and bookings were up 18% year-over-year. Our precision manufacturing business, which mainly serves the industrial equipment market, saw year-over-year revenue growth of 9%, continuing momentum we discussed last quarter. The long-term growth driver here continues to be the automation and digitization of manufacturing lines with ever-increasing demands for throughput, productivity, smaller form factors, and tighter tolerances. Our intelligent laser beam steering subsystems offer unique proprietary capabilities to meet those needs across a broadening set of high-precision applications such as laser additive manufacturing, probe card production for AI GPU chips as well as advanced packaging and light engines for lithography. For example, in laser additive manufacturing, Novanta subsystems enable the rapid production of complex designs with dramatically reduced material waste through our low drift and fastest throughput technology. We remain excited about the durability of these multiyear tailwinds for Novanta. In our robotics and automation business, revenue was up 13.5% year-over-year. We continue to see a healthy outlook in this business with solid demand for advanced robotic applications and increasing strength in semiconductor applications benefiting from the investment in artificial intelligence. The growth is supported by multiple Gen AI-driven tailwinds, new product advancements for precision robotics, humanoids and warehouse automation, continued momentum in advanced packaging and substrate production for AI GPU chips and the front-end semiconductor wafer fab equipment market. In the quarter, we have seen our first significant orders of our servo drives to support the deployment of hundreds of humanoids in customers' testing and learning facilities to start their journey of learning how to operate humanoids in a factory and in a human-occupied environment. This is a significant and positive step forward on a long development path for these robotic systems to be commercially deployed. We are working closely with our OEM customers and other partners such as NVIDIA to continue to evolve the technology to ensure safe operations of these systems at reduced energy consumption and costs. Finally, our robotics and automation and precision manufacturing businesses carry the largest share of our exposure to Gen AI technologies and infrastructure, which we estimate at approximately 17% of total company revenue in the second quarter. Collectively, these applications grew approximately 25% year-over-year, and we expect this growth rate to continue as we progress through the second half. The overall Automation Enabling Technologies segment adjusted gross margins were approximately 53%, which is up 470 basis points sequentially and 450 basis points year-over-year. While we continue to incur factory redundancy costs, logistics and other supply chain inflationary costs as well as tariff and trade-related costs, our teams worked hard on deploying the tools from the Novanta Growth System to drive stronger productivity gains, to update pricing and surcharging schedules, to recover duty drawback and credits, and drove a stronger mix of higher-margin innovative products to deliver on their commitments. It was a strong accomplishment for which I'm very proud of the team. New product revenue for this segment grew over 60% year-over-year in the quarter, and customer design wins grew over 25% on the back of both our innovation and stronger commercial execution by our teams. In addition, the vitality index was 24%, which is an improvement of 700 basis points versus last year's performance. With that, I'll turn the call over to Robert to provide more details on our operations and financial performance. Robert?

Thank you, Chuck. As you just heard, all of our business lines experienced organic revenue growth in the quarter. As we look out to the rest of the year, we continue to see sustained and accelerating customer demand supporting our organic growth outlook. Our sales in the medical end markets represented 51% of total company sales, while sales in the advanced industrial markets were 49%. Our second quarter 2026 non-GAAP adjusted gross profit was $125 million, 47% adjusted gross margin compared to $111 million or 46% adjusted gross margin in the second quarter of 2025. Adjusted gross margins were up 100 basis points year-over-year and 150 basis points sequentially. The details of this improvement were just discussed by John and Chuck. Moving on. R&D expenses were $24 million or approximately 9% of sales, which was down 150 basis points versus the prior year. Second quarter SG&A expenses were $60 million or approximately 22.6% of sales. SG&A expenses included $5.6 million or 2.1% of sales in costs related to the design and implementation phase of our new factory MRP system and some nonrecurring costs. The sequential increases in SG&A expenses in the quarter was a result of the higher variable compensation tied to stronger financial performance and outlook. Adjusted EBITDA was $60.7 million, demonstrating more than 16% growth year-over-year and achieving a nearly 23% adjusted EBITDA margin, which is up 120 basis points versus the prior year. On the tax front, our non-GAAP tax rate for the second quarter was 21%, flat to the second quarter of 2025. Our non-GAAP adjusted earnings per share was $0.89 in the second quarter, up 17% versus the prior year. Diluted shares outstanding in the quarter were 41.164 (sic ) [ 41,164 ] million. The recent $300 million equity raise to support the Riverpoint Medical acquisition had a minor impact on shares outstanding in the quarter. Operating cash flow for the second quarter was $65 million compared to $15 million in the prior year. Year-to-date operating cash flow was $117 million, which is already exceeding the operating cash flows we delivered for the full year of 2025. We are particularly proud of the teams for delivering this outcome despite a handful of manufacturing production moves underway and investments in safety stock to insulate ourselves from supply tightness, including electronic components and rare earth [ materials ]. We ended the second quarter with gross debt of $239 million and a gross leverage ratio of 1x. Our second quarter cash balance was $719 million, and so our net debt was negative $480 million, giving us a net leverage ratio of negative 2x. Now turning to guidance. Novanta's core businesses are trending in line with or above expectations with continued momentum building in a handful of areas. And we just closed our largest acquisition in the history of this company, Riverpoint Medical. Acquiring a business that is growing revenue, profit and cash flows faster than Novanta on the back of Novanta's strongest organic revenue growth and cash flow growth in more than 3 years, confidently positions Novanta on a really exciting path and outlook. As a consequence, for the full year 2026, we now expect GAAP revenue to be approximately $1,130 billion to $1,140 billion, which not only raises our organic growth outlook, but incorporates the Riverpoint Medical acquisition in our outlook. This represents reported growth greater than 15% on the full year basis and organic growth of up to 7%. For the rest of the full year guidance, we expect adjusted EBITDA to be between $273 million and $278 million, which represents year-over-year growth of 24% to 26% and adjusted diluted earnings per share to be in the range of $3.68 and $3.74, representing year-over-year growth in the range of 12% to 14%. Our updated range for EBITDA includes around $25 million of adjusted EBITDA for the Riverpoint Medical business, which represents an ended July close as well as some conservatism given the nature of the transition from private company to public company. Because of the strength we are seeing in our financial outlook and the progress and momentum our manufacturing teams have demonstrated, we are also taking the opportunity to accelerate 2 additional manufacturing transfers and site closures as part of our current restructuring program to position us for even stronger 2027. We announced the closure of these 2 additional manufacturing facilities already, both of which are on track for full production moves and transfers by the end of the first quarter of 2027. In addition, we also started the doubling of capacity of our China factory to support the growth of our air bearing spindles business. This business now has committed demand for the next 2 years, putting us in a confident position to expand capacity, which is also partially funded by customers. The expansion plan is something our teams have a track record of completing without disruptions and while meeting the growth needs of our customers, giving us confidence in the ability to execute this program as well. Not only do we continue to have high confidence in Novanta's growth and outlook, which is supported by committed backlog, accelerating customer optimism, and solid execution of new product introductions, but we're also thrilled to welcome Novanta Riverpoint Medical to the company at a time it is accelerating its own financial outlook. Turning now to the third quarter of 2026. We expect GAAP revenue to be approximately $300 million to $304 million, which represents year-over-year organic growth of 7% to 9% and reported revenue growth of 21% to 23%. This revenue outlook incorporates Riverpoint Medical. Looking at growth in our segments. In the third quarter, the Automation Enabling Technologies segment is expected to achieve 12% to 14% growth versus the prior year, which represents another sequential improvement building off of the first half, driven by continued momentum in AI-driven robotics and automation, digital and AI-driven manufacturing, and semi markets as described by Chuck earlier. Medical Solutions segment is expected to achieve 32% to 35% reported growth in the third quarter and a 2% to 4% organic growth. While our advanced surgery business is expected to continue to show approximately 10% growth on the strength of new product ramps and end market strength, our precision medicine business will decline in the quarter as expected and discussed in the prior earnings call. This decline is from our life science exposure, which is expected to be less than 10% of Novanta's total sales. Given the challenges over the last few years in this market, there are aspects of the life science market commoditizing and declining in the near term. As such, we're focused on high-growth life science applications where precision and performance matter, which we expect will enable us to return to growth in late 2027 in this business. For Novanta's adjusted gross margins, we expect the third quarter to come in at approximately 48%. The sequential improvement is attributed to Riverpoint Medical's accretion and the completion of 2 manufacturing site closures that occurred at the end of the second quarter. Gross margins for the full year 2026 are expected to be around 47%. For operating expenses in the third quarter, we expect approximately $80 million to $82 million. This represents roughly 26% to 27% of sales. The guidance excludes expected costs associated with our manufacturing MRP system. Full year operating expenses are expected to be around 27% to 28% of sales. Depreciation expense will be approximately $6 million, which incorporates Riverpoint Medical. Depreciation expense for the full year will be just over $19 million. Stock compensation expense, which was $9.3 million in the second quarter, is expected to be around $9 million in the third quarter. This higher stock compensation expense incorporates grants to Riverpoint Medical employees as both an incentive and retentive tool. Stock compensation expense in the full year will be just over $37 million. For adjusted EBITDA in the third quarter, we expect it to be seen between $74 million and $77 million, representing 27% to 33% increase year-over-year. And we expect to achieve approximately a 25% EBITDA margin, which is 150 basis points higher than the prior year and quarter. Interest expense, net of interest income will be approximately $9 million in the third quarter, incorporating a partial quarter financing from Riverpoint Medical. We expect our non-GAAP tax rate to be approximately 22% in the third quarter. The exact rate will depend mainly on jurisdictional mix of income and the impact of Riverpoint Medical acquisition on both profitability and the capital structure. The non-GAAP tax rate for the full year is expected to be just north of 21%. Diluted weighted average shares outstanding will be approximately 43 million shares in the third quarter, incorporating the $300 million fund raise as part of the Riverpoint Medical acquisition. As a reminder, the $300 million equity raise was registered on June 29 and remains fully tradable. Weighted average shares outstanding on a diluted basis in the fourth quarter is also expected to be around 43 million shares. For the third quarter, we expect adjusted diluted earnings per share to be in the range of $0.95 to $1, representing year-over-year growth in the range of 10% to 15% year-over-year. We expect cash flow conversion to step down in the third quarter, largely due to the dynamics of acquiring Riverpoint Medical, which was acquired on a cash free basis, but will continue to be strong overall. With more cash flow generated in the first half of this year than all of 2025, we're on track to a record year in cash flow generation in this company. Gross debt for the third quarter is expected to be just north of $800 million with gross pro forma leverage ratio of 2.7x, reflecting the Riverpoint Medical financing and Riverpoint plus Novanta's trailing 4 quarters of adjusted EBITDA. Net debt leverage is expected to be 10 to 30 basis points lower depending on cash flow dynamics in the quarter. In summary, we just delivered our strongest organic growth and cash flow growth in the last 3 years. We see this organic momentum maintaining in the second half. We also just closed the largest acquisition in the company's history, acquiring a business that enhances all of our critical growth, profit and cash flow metrics and goals. Our cash flows are at record levels. Our teams have demonstrated an incredible resolve and skill in navigating the ever-changing macroeconomic and geopolitical dynamics. In addition, the team successfully executed on 2 manufacturing moves while taking 2 additional manufacturing moves on and simultaneously upgrading our MRP environment while further strengthening the Novanta's infrastructure and overall operating foundation. Novanta is the strongest strategic and financial position in more than a decade with strong positions in high-growth end markets, exciting new customer wins, and continued momentum of new product launches. We see growing momentum and strong customer demand, which gives us confidence in our ability to achieve our new commitments in 2026, while putting in the foundation to maintaining and even accelerating our growth in 2027. This concludes the prepared remarks. We'll now open the call up for questions.

[Operator Instructions] And our first question will come from Lee Jagoda of CJS Securities.

Congrats on getting Riverpoint across the starting line. So I guess, looking at the guidance, Robert, what do you -- how should we think about the biggest drivers in the change in organic growth and the EBITDA increase, excluding the Riverpoint transaction?

So I would say the AET business has done a little bit better in the outlook. So if you're asking like where in the segments, it's mostly coming from the AET area. We've raised the guidance. From an EPS perspective, you got a $0.06 fee in Q2 and then roughly a $0.02 improvement in the base business, and that was largely coming from the AET side as they've not only decreased their asset intensity by closing a number of sites, but have improved their profitability as a result of that. And then we picked up about $0.06 on the Riverpoint transaction in the back half of the year as well.

Great. And then earlier in the call, I think Chuck referenced a significant or your first significant order related to some servo drives on the humanoid side. Is there any way you can quantify that in terms of magnitude? Was it the first material order from a customer that was doing prototyping? Is there any multiyear contracts we should think about? And did that have a material impact on the really strong gross margins the segment had?

Lee, this is Chuck. Yes, thanks for the question. What we saw here, right, in the last quarter is the first move maybe beyond prototyping, right, into training centers or development centers is really the next phase of this. So the design is getting closer to completion, but there's a long path on the training cycle. So we started to see some bigger orders that are filling out the training development, which we think is the next phase before these robots get out into the real world. It's not a significant part of what drove the margin this quarter.

So we see bookings rapidly improving, but from a small base, Lee. And if anything, it's a little faster than we expected, but we stick with kind of previous remarks that this is still in very early stages, although we're very encouraged that we're now seeing a kind of a rapid transition towards training these robots. And then it's anybody's guess how long that will take. But of course, the volumes for these training robots is larger than the prototypes, and that's what we're starting to see in our bookings. And it's also a testament, I think, for the recognition that these OEMs recognize our leadership in enabling safe humanoids where we have unique proprietary IP.

Got it. And then I guess one more for Robert, if I can. Just understanding the Riverpoint acquisition is accretive to your gross margins. How should we think about the core gross margin algo ex-Riverpoint if you look out over the medium term? And maybe speak to some of the headwinds that we still have related to some repositioning activities and then the potential timing of those flipping from either headwinds to neutral and potentially tailwinds?

It's a solid question. Obviously, when you got a lot of balls up in the air, there's always some sort of risk associated with the improvement. We delivered a 47% gross margin in the second quarter. We're looking at something closer to 48% in the back half of the year. And I would expect that to maintain into 2027. So we're looking at another 100 basis points of improvement in 2027. Part of that is obviously the benefit of the Riverpoint Medical acquisition and part of that is the core part of the business. There will be further upside opportunities, but we have to execute on those site closures and make sure they're done effectively. So I would say there's conservatism in that outlook of taking it from a 47% gross margin in 2026 to a 48% gross margin in 2027. But we feel good that everything is on the right track. We've closed 2 sites successfully. We have 2 new sites that are underway. The teams have already made tremendous progress on that. It is fair to say that from a tariff perspective, we have been operating in a net negative position. I would expect surcharging not to completely absorb the new tariff increases. We're mostly impacted by Section 201 and -- sorry, Section 232 and 301 tariffs. Unfortunately, our customers bear the bulk of the IEEPA tariffs. So that's expected to continue to be a bit of a headwind. But Chuck and John have drove tremendous productivity improvements in their business. They've gotten some pricing actions, the site closures help. And so when you take a step back, despite all the headwinds that we're seeing, even the inflationary pressures, we're still expanding gross margins 100 basis points this year and 100 basis points next year.

Yes. So in summary, Lee, we're tracking what we said we would do as per the last quarter, right, improving on the core business and gross margin in the second half, and we're executing on that despite, I think, some of the noise that Robert is referring to, and teams are doing really well.

The next question comes from Quinn Fredrickson of Baird.

I wanted to ask about your Gen AI data center exposure. You said it was up 25% in the quarter and you expect it to accelerate through the back half year. What does your visibility of that business look like into 2027? I would imagine your semi microelectronics should still be pretty strong. You sound more positive on humanoids. So just any color there would be helpful.

Yes. As a reminder, this bucket is a broad range of applications, including lithography indeed other, let's say, high-end advanced node front-end semiconductor equipment, metrology equipment, manufacturing technologies that help with micromachining of elements of the supply chain and value chain as well as the GPU drilling that we talked about with our air spindle business. So all that combined is 70% of revenues, a broad set of applications growing 17 -- yes, growing at a 25% of revenue, and we expect that to continue. Based on wafer fab outlook market reports, I mean you see growth there. So the direction of travel continues to be positive. Robert commented on that our air bearing spindles business is booked for the next 2 years, at least we got strong backlog there. So yes, the direction of travel continues to be positive as customers are communicating that to us. But it's too early to put a number for '27 right now.

Can you also expand on your comments around advanced surgery bookings in the quarter? It sounded like there was a timing element. So if you could just clarify what drove that and whether we should anticipate bookings to strengthen in the back half?

Yes, Quinn, thanks for the question. So, first off, just let me say how proud I am of our medical team for both their growth that they drove as well as the innovation. As we think about that business and looking at bookings, we really look at it across 4-quarter rolling average. That gives us a really great sense of the health of that business. We have many customers that provide us annual POs, and you can imagine the size of them based on timing can swing things. So as we look at the 4-quarter rolling average, we're above 1. As we look at the back half of the year, again, we're going to be above 1. So we feel really good about the momentum in that business and the pace of bookings.

And then just last one for Robert would be on R&D. I think it stepped down a good amount year-over-year. Just wondering if you could unpack that and whether that's the right run rate to be thinking about organically. Also just any color on how to think about what Riverpoint might add?

Yes. So probably look at it with the combination of Riverpoint, you'll obviously have a little bit of a step-up with the inclusion of that business' P&L into our P&L. So you're probably somewhere north of around or something close to around $100 million of R&D for the full year. So about 8.5%, 8.7% of sales, somewhere in that range.

Remember, Quinn, in the past, we were running closer to 10%, right? And we said that once these new products would kick in, which they are at a rapid rate and organic growth starts to pick up, that actually the percentage would modestly scale down, and that's exactly what you see happening.

The next question comes from Brian Drab of William Blair.

Can you talk a little bit about the impact of Riverpoint for the back half of the year? Maybe starting with specifically the third quarter, 7% to 9% organic revenue growth and your assumptions there for Riverpoint and maybe FX. But it seems to me, I don't know if I'm doing the math wrong, but that Riverpoint would be contributing well over $30 million in revenue in a partial quarter, and I'm getting to like -- significantly higher revenue run rate for Riverpoint than I would have thought. I'm probably doing the math wrong, but I don't know. Curious your thoughts on that.

It should be somewhere around $35 million of revenue in the third quarter. So that's about right.

Yes.

And then, let's say, maintaining for the fourth quarter. Obviously, that -- one thing we're just a little like -- they've never closed a quarter in their life, and they've never been part of a public company. So the dynamic of third quarter to fourth quarter, we're just being a little conservative. Obviously, we only got 5/12 of the revenue forecasted in the third quarter. So you could expect a little bit of a better fourth quarter. But at this point in time, we're just being relatively conservative because they've never closed the quarter before. So say, it's roughly $35 million in the third quarter, a pretty good range. That puts -- depending upon what your forecast is on organic growth, I think a lot of indications that we continue to maintain this organic growth that we've demonstrated in the second quarter as we go into the third quarter. So the delta between the reported growth guidance and the organic is purely the Riverpoint transaction, right? So no major -- I don't get into forecasting FX. If I did, I'd be in a different job. So we just try to keep things relatively stable.

No, I understand you don't forecast it. I'm trying to remember at the moment why I thought Riverpoint was -- I mean you said when you acquired them, it's running at about $150 million in revenue. But if you're going to -- $34 million in a partial quarter, then you're more like at a $200 million revenue run rate. And I'm just wondering, is there seasonality in the business? Or is that the run rate that we're at now with Riverpoint already?

Well, it's $35 million because you're basically taking partial quarter like...

Yes. I mean, I plugged -- yes, I plugged 5/12 into my calculator about 100 times last night.

Yes.

Yes. I know it's saying --

Yes. I would just say I'm being relatively conservative in the fourth quarter, right? So I do think it's possible. I mean, if you range it between the high and the low end, you're $30 million to $35 million of revenue in the third quarter with a $35 million in the fourth quarter. So, 35 times 4 still gets you below the $200 million.

Okay. So you're saying that it would be $15 million for a full third quarter in the fourth with a run rate it comes down for the quarter. You have a full quarter in the fourth quarter. You're saying that would be $35 million?

No, the half -- so the half is $60 million, $60 million to $65 million. Think of it that way.

Okay. And the margin that we're running at for Riverpoint, still around 40% EBITDA margin?

Oh, the EBITDA margin?

Yes.

It was $25 million. So say $65 million of revenue and $25 million of EBITDA. For the half. Which adds $0.06, right? And the $0.06 is because you got $20 million of interest expense, a little bit of stock compensation and then you tax affect it, right? So, $0.06, $25 million, $65 million.

Okay. I'll follow up more on that later. I guess -- I'll just leave the rest of the questions for later.

This concludes our question-and-answer session. I would like to turn the conference back over to Mr. Matthijs Glastra for any closing remarks.

Thank you, operator, and thank you, everyone, for your questions. So to wrap up, the second quarter delivered on what we said we would do. Organic growth of 9%, gross margins up 100 basis points, EBITDA and EPS growth in the mid- to high-teens, cash conversion above 100% and the largest acquisition in our history, closed and integrating. We're raising our full year outlook and the pace of bookings, new product revenue and design wins as our customers see the same trajectory we do. So Novanta's trajectory from here is up. In closing, as always, I would like to thank our customers, our shareholders, and especially, our dedicated employees for their ongoing support and effort. We appreciate your interest in the company and your participation in today's call, and I look forward to joining all of you soon at our third quarter 2026 earnings call.

The conference has now concluded. Thank you for attending today's presentation, and you may now disconnect.