Q3 2025 Novanta Inc Earnings Call
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's third quarter 2025 earnings call.
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After the speaker's remarks, there will be a question-and-answer session.
to ask a question, you may press star then 1 on your touchtone phone,
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I would now like to turn the conference over to Ray Nash Corporate Finance leader for Novant. Please go ahead.
Thank you very much. Good morning and welcome to novantas third quarter 2025 earnings conference call. This is Ray Nash, Corporate Finance leader for novanta with me on today's call is our chair and chief executive officer Matias gaastra and our Chief Financial Officer. Robert Buckley if you've 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.nova.com please note, this call is being webcast live and will be archived on our website shortly after the call.
Before we begin, 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 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, Matias claustra.
Thank you, Ray, good morning, everybody. And thanks for joining our call.
Noventa delivered above expectations for the third quarter, beating our outlook for sales, margins and adjusted eps.
We continue to see solid sequential momentum in the business with a 3%. Increase in Revenue driven by investments in our commercial engine and innovation.
Surpassing guidance. Which represents reported Revenue growth of plus 1% and organic Revenue. Declines of 4%.
New product Revenue grew by nearly 60% year-over-year. Customer bookings, grew 17% year-over-year and 4%, sequentially, reflecting and improving Outlook.
We also saw significant design win activity up. 50% year to date.
Adjusted gross margins over the delivered at 46.5% and adjusted ibida. Margins, was up above was above 23%.
I'm very proud of our team's ability to successfully execute in a fluid market, economic, and trade environment.
With a strength of our third quarter results, and the sequential Improvement. We're seeing in bookings and revenue across all of our businesses. We're confident that we've turned the corner, and we'll return to positive, organic growth, and double digit profit growth in the fourth quarter.
And with our strong momentum of our growth platforms, recent customer design wins and new product. Launches, we believe this sets us up well to deliver mid single digit organic growth for the full year of 2026.
Our long-term growth strategy remains focused on winning in markets with long-term secular Tailwinds, such as AI driven, Robotics and automation Advanced minimally, invasive and robotic surgery, digital manufacturing and precision medicine.
Noventa, holds, strong technology leadership positions in these areas which are still early in their adoption.
We built trusted long-term collaborative Partnerships with the world's leading OEM customers in these applications by solving their most complex needs with our proprietary Technology Solutions.
Securing up to 10 years of exclusive and sticky design in platforms.
While our products typically represent no more than 10% of our customers. Bill of materials, they enable differentiation and innovation in their systems for their customers improving clinical outcome. Throughput yield cost per procedure or part, or never before possible performance.
Over the past decade, we have extended our proven business model into high growth Healthcare markets, medical consumables and intelligent subsystems featuring Advanced embedded software.
Today, medical markets account for 53% of noventas year to date Revenue intelligence, subsystems contribute nearly 30% and medical consumables represent about 15% of sales, the latter growing at a high teens rate
Looking forward, our strategic Direction, focuses on continuing to expand our business, mix and Technology leadership.
In medical Technologies, consumables and embedded software.
by strengthening our portfolio in these areas where positioning events to deliver sustainable mid to high single digit organic Revenue growth
with less cyclicality ensuring resilience and consistent performance, regardless of Market fluctuations,
We have prioritized commercial and Innovation Investments accordingly with a specific focus on our growth platforms of insulators and pumps.
Robotic surgery, Technologies intelligence physical AI solutions for connected care Warehouse automation humanoids and precision Robotics and also intelligent subsystems for laser beam steering and precision medicine applications.
We've launched 20 new products here today in these areas and believe these growth platforms, offer an additional 4 billion dollars in Market opportunity for noventa by 2030.
We are also investing in regionalized manufacturing or deploying the November growth system and a new Erp system while reducing our manufacturing footprint to build a strong foundation for growth and resilience.
In parallel to these organic Investments, we are advancing our robust acquisition pipeline to expand our portfolio towards the same areas of medical Technologies, consumables and embedded software.
This will have a compounding effect on the sustainability of our growth and the resilience of our business model.
We continue to work on multiple acquisition opportunities. While maintaining our discipline and leverage and cash returns.
Now, let me provide an update on the customer and market dynamics. We're seeing our sales and minimally invasive, robotic surgery, markers, remain exceptionally, strong with High Teens, double digit growth. In our Advanced Surgery, business driven by new product launches.
share gains at surgical robotics,
Robust patient. Procedure growth rates and Hospital spending
Portfolio, boosting intelligence, subsystem sales, and driving recurring consumables income.
Our latest insufflator Innovations said industry standards improve patient, safety and address new Smoky evacuation requirements. While optimizing Surgical workflows.
thanks to our recent product, launches in these in this area, noventa is on track to achieve million dollars in incremental, new product Revenue in 2025,
In the third quarter, we refer further extended our Market leadership position.
By securing yet another major new design win with a large OEM for future generation in flares reinforcing our position. As a trusted partner in this field.
This ongoing customer adoption and Innovation momentum strengthens. Our outlook for 2026 and our Outlook that the Advanced Surgery business Revenue will nearly double to 400 million dollars by 2030.
Moving on our Robotics and automation applications continue to see strong demand as evidenced by the sequential Revenue growth in the third quarter growth in this business is driven by demand for our products that support physical AI applications such as browser automation Precision, Robotics and humanoids.
Robots surpass, humans and speed and accuracy, when analyzing complex data, but they often struggle to effectively navigate the physical world.
The event has unique capabilities that enable the perception or reaction of precision robotics in this physical world and to do so safely.
We are excited about a recent design wins in the warehouse automation space, our momentum and surgical Robotics and the ongoing development with multiple humanoid and Warehouse automation players.
We believe these physical AI applications are an important growth platform for an event representing an incremental, 1 billion dollars of addressable Market by 2030.
Turning to our Advanced industrial markets. We saw continued Improvement in the quarter as our customers are now back to normalize order patterns.
This resulted in sequential growth in our position manufacturing business and another quarter of double digit, growth of customer, bookings position us. Well for further sequential Revenue growth in the fourth quarter.
In this third quarter, we also saw a sequential increase in sales to China as our Chinese customers have grown confident in the progress of our in region for region manufacturing plants.
Design wins in the Precision manufacturing business. Also continued their strong Pace showing year-to-date growth of over 60%.
We're starting to see customer wins in attractive areas such as additive manufacturing driven by both Aerospace and Investments and reassuring in application. Supporting AI Investments, like Advanced packaging and unisex compute.
With our intelligent light engine and scan system.
This growth platform represents an incremental foreign million dollars of addressable Market opportunity for an event about 2030 as customers. Continue to digitize and automate their manufacturing lines with ever higher demands for throughput and productivity at ever smaller form factor, Tighter tolerances and quality levels.
Next in advanced semiconductor applications were which represent roughly 10% of our Revenue. We saw some early signs of an upcycle
with waiver Fab equipment, growth expected to achieve mid single digit, next year. Our short cycle sales remained, strong with the back of new construction for data centers and other AI related infrastructure.
finally, speaking to life science equipment markets, which is mainly served by our Precision medicine business,
We were pleased to see the business show and other quarter of sequential Revenue growth in the third quarter. While we continue to work our way through consistent yet challenging end market dynamics.
We've invested in intelligent RFID Solutions through the key on acquisition and we have added Advanced machine vision technology offerings to our to our portfolio. Through our new commercial partnership.
These steps are helping to support the sequential momentum. We're seeing and expect to see going forward.
We continue to believe in the long-term opportunities in the life science equipment market and are seeing investments in early disease detection, as a Big Driver of productivity in the healthcare industry.
To conclude I'm proud of our team's third quarter performance. We exceeded our expectations for sales margin and adjusted DPS.
our solid momentum in our growth platforms, design wins and new product, launches position as well, for a return to positive organic growth, in the fourth quarter of 2025,
And permitting of digital organic growth in 2026.
Thank you for tires, our third quarter, 2025 non-gaap adjusted gross profit was 115 million or 46.5%, adjusted gross margin compared to 113 million or 46.2%, adjusted gross margin in 2024. Adjusted gross margins were up, 30 basis points to year-over-year and up, 40 basis. Points sequentially was was better than our expectations. Notwithstanding The increased cost of terrorists.
As we stand here today, the cost of terrorists in our supply chain and the impact on Gross margins has now been fully mitigated.
For the third quarter R&D expenses were 24 million and approximately 10% of sales as CNA expenses. Excluding certain adjustments, were 44 million or 18% of sales, non-gaap adjustments, included restructuring costs Erp, design costs, and legal costs related to the Insurance Recovery claim.
Adjusted ibida was 58 million and a third quarter or 23% adjusted. EBA margin, demonstrating growth of 2%, year-over-year and 11% sequential.
On the tax front are non-gaap tax rate for the third quarter with 24% versus 21% in the prior year. Our tax rate increased year-over-year mainly due to changes in jurisdictional mix of pre-tax income.
Our non-gaap adjusted earnings per. Share was 87 cents. In the quarter up 2% versus the prior year and up 14% sequentially.
Operating cash flows in the third quarter was 8 million compared to 23 million in the prior year, this was below our expectations, but is driven by temporary factors. After successfully settling on a German tax audit, we paid more than 5 million in the prior period. Cash tax payments in the quarter and this amount is up to 15 million year-over-year.
On a year-to-date basis. In addition, we've incurred enough roughly 15 million of restructuring and acquisition related costs year to date.
With a significant portion paying out of the third quarter and finally we had higher than expected inventory purchases to accelerate the ramp of manufacturing in our regional manufacturing centers. We believe these decisions better position, the company in the fourth quarter and the full year 2026 to be more resilient and deliver stronger cash flows. And we expect to recover back toward normal levels of greater than 100% conversion is net income.
We added a third quarter with gross debt of 457 million with a gross leverage, ratio of 2.2 times and a net debt of 368 million. Giving us a net leverage ratio of approximately 1.7 times in the quarter, we purchased 14 million worth of companies stock opportunistically and nearly 20 million of shares have been repurchased here today.
As we've recently announced the board of directors has authorized an additional 200 million of capacity, in our share buyback programme while Acquisitions. Remain our top Capital, allocation priority, we will repurchase shares whenever the value of the stock gives us a cash return greater than our internal Investments or acquisition Investments.
Now, I'll share some additional performance metrics and details of our operating segments.
Event of bookings, increase 17% year-over-year and 4% sequentially with a book to Bill of 1.03 indicating a stronger, backlog, and positive outlook. New product sales, grew nearly 60% year-over-year, raising the Vitality index to 23%
Designed when activity remains. Strong with companywide design wins up, 20% year-over-year with more than 50%, higher on a year-to-date basis.
In the third quarter, automation enabling technology segment, Revenue declined, 3% year-over-year in line with expectations. The book to bill in this segment was 0.96. However, bookings were up, 15% year-over-year
A Precision manufacturing business, which serves the industrial equipment, markets, uh, year-over-year Revenue decline of 7% in the quarter. However, this business saw sequential growth. A 3% and double-digit growth in both bookings and design wins demonstrating building, momentum.
In a Robotics and automation business Revenue was roughly flat year-over-year and grew 3% sequentially. This was also in line with our expectations. We continue to see solid Outlook in this business with resiliency and demand for advanced robotic applications and strengthen short Cycles, semiconductor applications tied to Data Center investment supporting AI
fully offset the cost of terrorists and temporary redundancies in overhead costs as we execute on our regional manufacturing plans,
New product revenue for the segment, nearly doubled year-over-year and customer design. Wins grew 30% on the back of both of our Innovation and stronger commercial. Executions by our teams. In addition, the Vitality index was in the High, Teens percent of sales up, double from where it was last year.
Moving to the medical solution. Segments, Revenue segment was up 6% year-over-year. This segment saw booked the bill of 1.1 in the third quarter and bookings were up 19% year-over-year and up 14% sequentially on the back of record new product launches.
New product sales in the quarter grew by over 40% year-over-year and the Vitality index in this segment was nearly 30% of sales.
Our Advanced Surgery business experience, 17% growth year-over-year driven by both strong patient, procedural growth rates in the Health Care on a global basis and from the launch of our second generation insulators, which have received overwhelming Market, acceptance and adoption.
These growth Dynamics are expected to continue into the fourth quarter and well into 2026 and Beyond.
In our Precision medicine business which serves the life science and multiomics markets, sales declined 4% year-over-year for grew sequentially by 3%.
This business is expected to continue to improve sequentially in subsequent quarters. As we work through some of the challenging and market dynamics,
The Medical Solutions segment. Advanced growth margins, adjusted, gross margins were approximately 45% in the quarter better than expected which represented margin expansion of 70 basis points, year-over-year and 130 basis points sequentially. This solid margin expansion comes from both Factory productivity initiatives and from improving scale from our in-house medical consumables manufacturing facility.
Finally, our efforts to mitigate the cost of terrorists on our supply chain and the impact on Gross margins were successful and are now offsetting any incremental costs.
In addition, our regional manufacturing initiative is on track and is being well received by customers. As a reminder. This initiative helps our customers avoid the increased cost of terrorists by manufacturing their demand in the regions of which they sell their products.
The 11% sequential Revenue growth in China, along with 17% growth in bookings, 60% growth in new product sales, 20% growth in design, wins all demonstrate the progress. We have made here not only for Novant but for our customers.
Overall across all regions, we see gradual Improvement and investment settlement in the Capital Equipment demand as oems and end users. Adjusted trade policy Dynamics.
As the market momentum continues to build, we are prudently managing the company's profitability, including following through on our cost reduction plans, which we announced earlier this year.
these plans are on track and we are seeing some savings this year with full savings run rating into 2026.
Now, turning the guidance.
Novada is committed to delivering sequential revenue and profit growth driven by our Innovation Pipeline and our strong customer demand. In our end markets, we are seeing improving momentum as evidenced by our revenue and bookings growth by the strong design win activity, and our successful new product launches as such we now, expect, fourth quarter 2025, gaap Revenue to be in the range of 253 million to 257 million. Which represents year-over-year organic Revenue growth from 3%.
The reported Revenue growth of 6 to 8%.
This guidance in the fourth quarter is in line with the current Wall Street consensus and we're confident in this Outlook.
As a result, for the full year 2025, we now expect GAAP revenue to be approximately $975 million to $979 million, which represents roughly flat organic growth for the full year and 3% reported revenue growth.
At the segment level in the fourth quarter, we expect automation. They willing Technologies to grow 1% year-over-year and up. 3% sequentially.
Our Medical Solutions segment is expected to demonstrate up to 15% reported growth in the fourth quarter, which includes up to 11% organic growth year-over-year.
And sequential growth of 4%.
This growth will come from continued strength and Advanced Surgery at growth rates comparable to the third quarter and the from a sequentially improving Precision medicine business.
In both the fourth quarter and the full year, excluding the cost of our regional manufacturing initiative, we should be on track to achieving our goal of 100 basis points of gross margin expansion this year.
We expect R&D and sgna expenses in the fourth quarter to be approximately 69 million to 70 million, and for the full year to be 276 million to 277 million.
This represents roughly 28% of sales. This guiding excludes expected costs associated with the design and planning phase of the standard Erp system, which will be deployed over the next few years.
And further supports our footprint consolidation and Regional manufacturing initiative.
Depreciation expense, which was approximately 4 million in third quarter, it would be similar in the fourth quarter and will be approximately 16 million in the full year.
Stock compensation expense, which was below 7 million and third quarter due to 1 time adjustments to certain long-term Equity grants.
Will be approximately 11 million in the fourth quarter and so the full year would be roughly 33 million.
For adjusted ibida. In the fourth quarter, we expect a range of 62 million to 65 million which represents 18 to 24% growth year-over-year.
for the full year of 2025, we expect even out of the 22, 222 million to 225 million or approximately 23% IBA do margin
Interest expense, which was 6 million in third quarter. It would be similar in the fourth quarter, as expected to be roughly 24 million for the full year. 2025 excluding any material changes in debt? Balances,
we expect our non non-gaap tax rate to be around 22% in the fourth quarter and for the full year,
For the fourth quarter, expect diluted earnings per share to be in the range of 87 cents to 93 cents. Growing 14% to 22% year-over-year,
For the full year of 2025, we expect to adjusted diluted earnings per share to be 3 dollars in 24 cents and 3 dollars in 3030 cents.
Cash flow conversion in the fourth quarter, should improve versus the past few quarters. As we stabilize our inventory levels. As we move Beyond some of the large timing related payments made in the third quarter,
For the full year, we respect to achieve a goal of hitting cash conversion of greater than 100% of gaap. Net income.
Overall, our latest full year guidance is in line with current Wall Street consensus.
And looking ahead to 2026 based on our view of the sequentially improving demand environment. We expect to achieve a baseline of mid single digit organic growth for the full year.
of course in early 2026 we will give you another update with additional details but given the momentum we wanted to share our initial views now
And finally, with the strong, balance sheet and robust pipeline, we are well positioned to accelerate our acquisition strategy.
In summary, we remain confident in our long-term strategy and business model. We see growing momentum which will help us return to organic growth in the fourth quarter and maintain our organic growth trajectory into next year.
We are excited about our new customer wins the success of our new product launches and we continue to make strong progress in high growth markets, particularly in medical technology, markets and physical, AI robotic markets. We remain focused on executing with excellence in our strategy, and our top priorities, no matter what the market environment brings this concludes, our prepared remarks. We'll now open the call up for questions.
We will now begin the question and answer session.
to ask a question, you may press star then 1 on your touchtone phone,
If you are using a speakerphone, please pick up your handset before pressing any keys.
To withdraw your question. Please. Press star. Then 2
And our first question will come from Lee Jodha of CJs security. Please go ahead.
Hi, good morning.
Good morning, Lee.
Um, somebody's last quarter, you, you talked about, um, you know, some exciting contracts with a robotics, uh, retail customer. Can you give us any update there? Um, in terms of how that's trending, and where you see that relationship evolving with that customer over time?
Yeah, thanks Lee. Uh, so we last quarter we spoke about multiple designs. Uh, 1. I believe you're refering to is, is the warehouse automation a large e-commerce.
Excited about, uh, that win. And I think we're we're in very early stages still. Um, the deployment will start in 2026 and we'll we'll grow from there and we'll hit really Crescendo in 2728.
Um um, of course, the exact deployment is is driven by our customer, but um, that could have been more excited about it. So, so consistent with what I reported. Um, you know, in last quarter in in some of our booking numbers. You actually see already some bookings from that customer.
Got it. And then, um,
A lot of the calls were getting from investors, are are really focused around this nent humanoid opportunity C. Can you remind us the products that are most relevant on the humanoid Robotics and how we should think about?
The, the potential for revenue and the ability to scale over time.
Yeah, we sent the the combined physical AI, which is both, uh, robotics for warehouse Automation. And for humanoids is, is about a billion dollar market opportunity for an event about 2030. So that's how we sized it.
Um, and the deployment will is like, like you said, still very nent, um, and is expected to hit more, Crescendo in 2728, but, of course, the the design win activity is happening right now.
um, what what I said in my prepared remarks is that, um,
You know robots need help in um reacting to an operating and effectively in unstructured environments. So reacting to their environments like humans can and for that you need to perception of humans and you need these safety built in, in case something goes wrong. And so you noventas unique. Uh, capabilities are in creating a sense of touch and accommodation of touch. And reaction is what really um, and noventa brings including embedded safety.
so that a robot when it malfunctions can basically collapse safely and not on humans and you can imagine that that is a big thing in terms of the deployment and Adoption of these type of Technologies, we feel we're a leader
And enabling that perception and uh, safety.
And as well as that reaction speed. So the products are for store sensors but also included our our position sensors that are integrated in that into intelligent subsystems and Servo drives which basically intelligently and safely, react to all the signals that are there and yeah you need these competencies in typically all the joints of of a robot
Whether that's in the wrist or the ankles, uh, or sometimes in other joints, as well. And whereas automation is just another form, right? So we will talk about humanoids but you need some you need the same type of um let's say perception and reaction speed, of course, and Warehouse automation, where you need to surpass the human's ability.
To pick accurately, right? And for that, that's a pretty high bar. And for that, you need our technology. So hopefully that provides some more insight in there. I think the what we said last quarter and we what I still stand by is that there were as automation Market is is starting to get the point right now. You got large players with a lot of capital and a proven use case. So that is what we see happening first. We're super excited about it. Humanoids is a little bit more, I would say, speculative maybe. The use cases need to kind of get proven still, but it's
Speed at which this Market is developing, is, is unmatched.
And you can see the improvements happening. So, we're very encouraged by all the momentum there. Although, we're just in designing mode, we don't see much revenue of that of that application yet. Hopefully that's that helps, uh, providing some color. Yeah, that that's great. And if I could sneak 1 more in for Robert, and I'll hop back in the queue, um, just in terms of the, the regional manufacturing footprint, um, how far along are we. And, and once we're fully transitioned their, um, how do you view the potential margin uplift from either current levels or levels prior to the transition for, for like, for just this 1 item understanding. There's, you know, a lot of other moving Parts going on at 1 at once. No, no, no, no.
Uh, Regional hubs um, and centralized that scale into Regional, hubs while reducing our overall footprint and overall cost structure. Um, so it's roughly about 100 basis points of incremental margin expansion. Despite the fact that traditional Regional manufacturing initiative would result in duplication of manufacturing and duplication of cost structure. Uh, we have a unique situation where we can actually drive margin expansion by by doing that consolidation. And then, of course, once you're done with, with establishing that duplication of reduction in those regions, you're now making yourself, uh, resistant, uh, or resilient from any sort of future Dynamics around trade, um, which helps our customers ultimately, and our, in our situations, our customers, end up paying the tariffs on our products, uh, when they import those products into the various regions. And so by manufacturing them in in region or region, you're helping them reduce their cost structure which thereby manifests as higher demand.
Flows for us.
And and when do we think that gets completed?
Um the some of the initiatives we announced back in July will largely be completed by the end of the first quarter. Uh some are actually uh have already been completed. Um and so we are up and running in production and some of our facilities today you see a little bit more. So in China um and our UK facility has started uh started production already.
Um, I would say by the fourth quarter, we feel pretty good that, you know, the majority of it will be done. Um, but largely by the first quarter, we feel like by the end of the first quarter, we'll be completed.
With the first phase of it, there's additional steps we would take. But I would say the first phase of it, that is the majority of the effort, will be completed by the end of the first quarter.
Perfect. I'll hop back in queue. Thanks very much.
Thanks Lee.
The next question comes from Rob Mason of fair. Please go ahead.
Hi, good morning guys. Um, I wanted to uh, maybe probe uh, good morning. Uh, I wanted to probe um you know, the perspective on 2026 or um, around mid single digit um growth issue. As you look across your businesses, I think it's probably a safe assumption. Uh, you know, Advanced Surgery, um, curious maybe the most momentum into the year. Uh, I'm curious how you're thinking about robotics now from a year-over-year standpoint just for the year. Um, and whether you know, does it have like double digit growth potential?
Um and we should think about uh the Precision manufacturing Precision medicine. Just again if we kind of run out with a, a gradual sequential, maybe there's flat-ish or a little bit of growth. I'm just curious how the kind of growth Dynamics work, among your 4 main business units,
Yeah, yeah, it's fair to say that the, the 2 higher growth category businesses that we'll have in 2026 will be the Advanced Surgery business. And then the Robotics and automation business like those, those 2 businesses are trending in a nicer trajectory, um, I I think you'll see Precision manufacturing and continue to sequentially improve, that's what's happening. Now, it's gone from a, you know, a double digit decline to low single digit and, and they'll return to growth next year. So then the real wild card is just our Precision, uh, medicine business, the Dynamics there, um, are, you know, positive, uh, particularly as we as we start to get into 2026, but the but the volatility in that end Market raises, some questions, which is, you know, why we, uh, we established that guideline for 2026 as our kind of Baseline of what we're seeing today. Um, it is something that if there's 1 variable variable piece of our forecast, it's the Precision medicine. I think our forecast takes into all the potential dynamics that
We'd be confronted with, and so we see that as our baseline growth for next year.
Sure. Um, how should we be thinking about again, for 2026? How should we be thinking about? Um, I guess the Reliance on new product launches that need to happen in 2026 versus
Those that occurred in 2025 that are, you know, would continue to scale and and gain volume.
Yeah, I mean Rob the way to think about it is basically current new product, current product, launches in this year continuing to build momentum. That is the majority uh, of the growth momentum, of course we will.
From the big launches of this year that not all of them are full year, so they will, they will compound in, you know, very nicely. So, that's why we also feel feel comfortable with, uh, with this guy day, you know? I I will say maybe just if you take a step back in in, you know, just look further out, right? We do feel that long-term growth algorithm of mid to high single digit. Organic growth is is really building midterm. And and based on the strength of the growth platforms we talked about
um you know or us getting share in customers and content right with intelligent subsystems as well as the medical consumables continue to drive double digits uh for the remainder of this decade, right? So those are kind of key drivers and we believe mid single digit. Next year is a good step up towards that. And and finally I would just say is that the the third growth markets uh that we've talked about are still early in their adoption, right? So about 15% of surgical procedures are performed robotically in approximately 40% minimally, invasively with further Runway penetration of physical, Ai and Robotics. We just talked about it still very early stages.
And precision medicine while challenged I would say short maybe even midterm.
Long term, you know, less than 5% of Diagnostics, use Precision medicine and multi techniques today.
With less than 1% of the rules population being sequenced, right? So, um, so you do see longer term and continued, very strong outlook for these markets. I just want to reiterate that
Sure, sure. Uh, just real quickly. If I last question up back in the queue as well, the, um, you know, we talked earlier in the year about, you know, I'll just call it trap Revenue around,
Nerf Dynamics. You know, it was China but it's it's it's really more of a, I guess, Global phenomenon. Maybe it was a a 30 million dollar number. Can you just give us an update on where that stands and you know, have we seen more of that Revenue come out in the second half? Or is how to think about maybe what carries over to 26?
Yeah, so I I do think that that provides, you know, the more we we solidify our manufacturing, uh, footprint. The the more that Revenue starts to recover you, you are starting to see that Dynamics improve. Um, so it's fair to say that some of the organic growth returning in the fourth quarter as a consequence of us establishing that Regional initiatives already in a couple in China. Specifically. And then a little bit into to Manchester in the UK. Um, but if you take a look overall, you just take a step back, you can look at the trajectory we had solid growth in China, on a year-over-year basis. Um,
We are seeing, you know, strong design wind activity in China. We're seeing strong new product Revenue in China. So, we're seeing nice progress and that's it is much more broad than we were anticipating. And so that those activities are suggesting, you know, a comfort with the new Regional structure. You see the same Dynamics happening across the company in Europe and in the US. And so, uh, despite the fact that the regional structure is not completed yet. Um, and so our customers are gaining confidence in the business and our initiative. Um, they're getting confidence that we're offsetting those costs or we're putting a structure in place to make ourselves immune to those on a go forward basis. Um, and that's evident in the roll out that you're seeing in a design win progress. The bookings for pro progress, the uptick in, in Revenue, in China and so forth.
That's great. Thank you.
Yep, thanks Rob.
The next question comes from Brian drab of William Blair, please go ahead.
Hi, good morning. I'm at a little bit of a disadvantage because I had another I had another earnings call to the exact same time. Um so I'm catching up but uh in that Outlook that you have for Mid single digits in 2026
Um, what what's the expectation for your your, uh, DNA, sequencing business? And for the, you know, euv and duv business are, are those growth businesses in 26?
Uh, no. We we uh let's start with DNA sequencing. We're we're actually not not counting on growth in that business actually at all in in as a matter of fact where we are redeploying our resources to other higher growth areas.
Um, so in the guide, we were not actually counting on growth. If anything,
Bit again. Uh, probably later in 26, and then 27 starts to build night nice momentum. So excited midterm will long will launch when the customer launches with us. So, so that I would say, in that case. So there's no, there's no, we're not factoring in any sort of, uh, individual customer taking off and to get to these numbers. This is a forecast that establishes a baseline based on the trajectory of the business as we exit the fourth quarter. Um, so nice continued progress and Robotics and automation. Nice, continued progress, and Advanced Surgery, uh, gradually recovering, and precision manufacturing and then the Precision medicine business, just being a little bit. Uh let's say we're being conservative at the stands until we can see some brighter uh brighter signs of of stabilizing and Market. Um so there's not we're not you don't have anything baked in that says okay there's 1 or 2 large platforms that are going to take off and that's going to drive the growth. This is a this is a baseline number that we feel pretty
good about
Okay. And
Okay. Thanks and then the the the warehouse automation opportunity that you uh announced on the second quarter call uh the 50 million um opportunity over 3 years. It can you um comment at all on how that might be recognized, the pace of that or Cadence of that over the the 3 years and is that business expected to be
um, at segment level margin
um,
Yeah, so 1, 1 thing, I'll say, is that we are seeing re we are seeing bookings. Now we are seeing Revenue, uh, materializing in 2026 and it will continue to ramp from from there. Um, it is a, you know, could be a fairly sizeable opportunity for us as besides before. Um so we feel good overall I don't want to get into its margin profile. Um, knowing these are public calls and all that and and the individual the company itself knowing exactly who it is. Um so I would I would steer clear of that. I would just say that the Robotics and automation uh business is is a healthy gross margin business. It's got the healthiest, gross margin business and its most differentiated in technology. It's most differentiated technology is uniquely calibrated to serve these marketplaces. So the 4 store sensors that send the our inductive encoders or Optical encoders are Servo Drive.
Are have all been calibrated and uniquely designed to serve this, physical AI space around mobile robotics, Warehouse automation, uh, humanoid based applications. We feel extremely strong about what we offer our competitive differentiation and, and the market acceptance around those Technologies, we make great progress and so
It's 1 of the healthiest margin businesses. We have, we don't see any reason why that environment that would change that Dynamic would change any time next year, or any time into the future at this point.
Okay. And delivering customer value right in that in the process, which is, which is, of course the most important.
Right. And see, I was just gonna ask 1 more quick 1. Um you I think everyone appreciates you reporting the percentage of sales related to consumables and given the momentum that you have in the insulated business in the, you know, nextg pump and some of the Winds there and and getting into robotic surgery with the insulator. Is that a is, is there any reason to not think that, that 15% kind of picks up modestly as we as we move forward into 26 and Beyond
Yeah, I mean, what we've commented on is that we see that category growing double digits for the remainder of the decade. So yes, it will. Uh, it will be a more pronounced uh piece so far portfolio. I mean, what we're excited about is that we really build a confidence here, right? At a, a close of 150 million dollars. This is really, you can see, there's also in the margin profile. We built skill and competence.
And and and Engineering capability. And so on the back of that, we think this is a great platform to grow and jump off into other applications whether it's organically or inorganically, right? So you can expect this to further expand.
You know, us into other areas, organically, and inorganically because of this, this strong beach hat that we've now established.
Right. Okay, I'll follow up more later. Thank you very much.
All right. Thanks bye.
this concludes
Like to turn the conference back over to Mr. Matias glora for any closing remarks.
Thank you, operator. And thank you everyone for your questions in closing. As always, I would like to thank our customers or shareholders and especially our dedicated employees for their ongoing support
We appreciate your interest in the company and your participation in today's call. I look forward to joining all of you soon and to the upcoming investor conferences over the coming weeks.
And early in 20266. Thank you very much. This call is now adjourned.
For attending today.