On August 5, Novanta Inc. (NASDAQ:NOVT) reported second quarter results showing something rarer than strong revenue growth: profit growth that beat it by a wide margin. Revenue rose 10.3% year over year to $265.8 million, but net income nearly tripled and cash from operations quadrupled. That kind of gap between the top and bottom line tends to draw attention, and this quarter’s numbers make the case for why.
Profits Are Sprinting Past Sales3
Novanta’s organic revenue growth hit 9.3% in the quarter, its strongest pace since the first quarter of 2023, even after stripping out the 1.0% currency tailwind baked into the headline number. Adjusted gross margin came in at 47%, and Adjusted EBITDA climbed 16.4% to $60.7 million. GAAP net income jumped from $4.5 million a year ago to $12.5 million, while operating cash flow went from $15.1 million to $64.9 million, and year-to-date cash flow more than doubled to $116.5 million.
The company also closed its acquisition of Riverpoint Medical, a deal that roughly doubles Novanta’s recurring medical consumables business to about 25% of annualized sales and pushes total medical end market exposure to around 60% of revenue. Management is leaning on that momentum for what comes next: third quarter guidance calls for GAAP revenue of $300 million to $304 million, growth of more than 21%, with full-year Adjusted EBITDA guided to grow more than 24%.
The Gap Between Two Bottom Lines
The headline numbers hide a wide split between what Novanta reports under GAAP and what it reports after adjustments. GAAP operating income was $18.1 million against Adjusted Operating Income of $47.5 million, and GAAP diluted EPS of $0.30 sat far below Adjusted Diluted EPS of $0.89. That is a large collection of items being added back each quarter, from acquisition costs to purchase price allocation effects to contingent consideration changes.
Novanta itself says it cannot reconcile its forward Adjusted EBITDA, Adjusted Diluted EPS, or leverage guidance to GAAP figures, citing the difficulty of forecasting acquisition-related expenses, restructuring costs, foreign exchange swings, tax items, and impairment charges in advance. The third quarter’s projected growth rate of more than 21% also now bakes in the newly closed Riverpoint contribution, and the full year outlook explicitly assumes no significant change in currency rates, a dependency that already added a full point to this quarter’s reported growth.
What The Market Is Pricing In
Hedge fund ownership of Novanta rose from 33 funds to 37 between the two most recent quarters, a modest pickup in institutional interest. Short sellers have not backed off, though, with 14.58% of the float sold short, a level that points to real organized skepticism. Meanwhile, the stock trades at a forward P/E of just 8.39, as of September 3, a multiple that looks low next to a company guiding to double-digit EBITDA growth. That combination suggests that the market has not fully bought into the acceleration yet.
A Story Still Being Written
Novanta’s second quarter gave investors a business growing organically at its fastest clip in three years while converting far more of that growth into cash than it did a year ago. Yet the market’s pricing tells a more cautious story, with a single-digit forward earnings multiple and heavy short interest sitting alongside the improving fundamentals. For the growth case to hold, the Riverpoint integration and the back half guidance need to land without the currency and adjustment risks the company flagged.
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