Q3 2024 Nordson Corp Earnings Call

August 22, 2024

thank you for standing by and welcome to the norson corporation third quarter fiscal year two thousand and twenty four conference call iallll ' have been a placed on you to prevent any background noise

Unknown Executive: This is a fiscal year 2024 conference call.

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Unknown Executive: After the speaker's remarks, there will be a question and answer session. If you would like to ask a question during this time, simply press star, followed by the number one on your telephone keypad.

ln mahoney: after the speaker'sremarks there will be a question and answer session if you would like to ask a question during this time simply press star followed by the number one on your telephone key path if you would like to withdraw your question simply to star one again thank you i'd now like to turn the call over to ln mahoney please begin

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Andrew Baskaglia: Good morning, guys.

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Ed: This is Ed on for Andrew.

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Laura Mahoney: thank you good morning this is laura hononey vice presidents of investor relations and corporate communications

Speaker Change: i'm here with sooneram naaggarha our president and ceo and dan hotgood executive ved president and chief financial officer

Speaker Change: we welcome you to our conference call today thursday august twenty second to report nords and fiscal twenty twenty four third quarter resullt

Speaker Change: you can find both our press release as well as our webcast lide presentation that we will refer to during today's call on our website at w dot nordson dot com forward slash investors

Speaker Change: this conference call is the broadcast live on our investor website and will be available there for thirty days there will be a telephone replay of the conference call available until thursday august twenty ninth two thousand and twenty four

Speaker Change: during this conference call we will make references to non-gaap financial metrics we've provided a reconciliation of these metrics to the most comparable gaap metric in the press release issued yesterday

Speaker Change: before we begin please refer to slide two of our presentation where we note that certain statements regarding our future performance that are made during this call maybe forward -looking based upon nor's current expectations

Speaker Change: these statements may involve a number of risks uncertainties and other factors as discussed in the company's filings with the securities and exchange commission that could cause actual results to materially differ

nowi: moving to today's agenda on slide three nowi will discuss third quarter highlights as well as yesterday's closse of our atreon medical acquisition

nowi: he will then turn the call over to dan to review sales and earnings performance for the total companyies and the three business segments

Jan: jan will also discuss the balance sheet and cash flow nathen will share a high level commentary about our end markets and provide an update on the fiscal two thousand and twenty four fuol year guidance

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Speaker Change: we will then be happy to take your questions

Unknown Executive: I'd now like to turn the call over to Lara Mahoney.

Ed: Thanks for taking my questions.

Dan Hotgood: with that i'll turn the call over toinagga

Unknown Executive: After the speakers remarks, there will be a question and answer session.

Unknown Executive: After the speakers remarks, there will be a question and answer session. If you would like to ask a question during this time, simply press star followed by the number one on your telephone keypad. If you would like to withdraw your question, simply press star one again. Thank you.

Unknown Executive: If you would like to ask a question during this time, simply press star followed by the number one on your telephone keypad. If you would like to withdraw your question, simply press star one again.

Speaker Change: good morning everyone

Nortson: thank you for joining nortsonsince fiscal two thousand and twenty four third quarter conference call before i begin i'm pleased with the closure of the ari medical acquisition as we announcedingin a press release issued yesterday morning

Unknown Executive: Thank you.

Laura Mahoney: I'd now like to turn the call over to Laura Mahoney, please begin. Thank you. Good morning. This is Laura Mahoney, Vice President of Investor Relations and Corporate Communication. I'm here with Sundaram Nagarajan, our President and CEO and Dan Hopgood, Executive Vice President and Chief Financial Officer. We welcome you to our conference call today, Thursday, August 22nd, to report Nordson fiscal 2024 third quarter result. You can find both our press release, as well as our webcast slide presentation that we will refer to during today's conference.

Lara Mahoney: Please begin.

Ed: In the prepared remarks, you mentioned the mix of cash and debt to finance the deal, which puts it about 2 to 2.5 times leverage, closing 2024.

Lara Mahoney: I'd now like to turn the call over to Laura Mahoney, please begin.

Speaker Change: i would like to welcome our new colleagues from atrian into the northand family

Speaker Change: atrian' products will expand our current portfolio in medical fluid components

Lara Mahoney: Thank you.

Speaker Change: and interventional solutions by adding a category leader in the infusion fluid delivery and mash cardiovascular therapy products

Lara Mahoney: Thank you.

Speaker Change: atrian expands nors and fluid components addressable market by more than fifty percent by adding products and solutions for infusion therapies and drug delivery

Laura Mahoney: This call on our website at www.nordson.com forward slash investors. This conference call is the broadcast live on our investor website and will be available there for 30 days. There will be a telephone replay of the conference call available until Thursday, August 29th, 2024. During this conference call, we will make references to non gap financial metrics. We've provided a reconciliation of these metrics to the most comparable gap metric in the press release issued yesterday.

Ed: With a strong free cash flow profile and leverage manageable, can you refresh us on how you're thinking about M&A and more specifically, what remains in the pipeline?

Ed: Thanks.

Speaker Change: this also extends our current offering

Speaker Change: to top medical device customers

Speaker Change: and broadens not since exposure to higher growth medical end markets

Speaker Change: with significant single useield consumables with recurring revenue streams

Speaker Change: going forward atrionan will be part of our medical and fluid solutions segment

Lara Mahoney: Good morning.

Ed: Let me start first and then Dan will sort of take over for a couple of other comments around capital deployment.

Laura Mahoney: Before we begin, please refer to slide two of our presentation where we note that certain statements regarding our future performance that are made during this call may be forward looking based upon Nordson's current expectation. These statements may involve a number of risks, uncertainties, and other factors as discussed in a company's filings with the Securities and Exchange Commission that could cause actual results to materially differ.

Speaker Change: now let's shift to our third quarter earnings results on slide five

Lara Mahoney: This is Lara Mahoney, Vice President of Investor Relations and Corporate Communications.

Ed: Look, our commitment to organic growth and having a balanced acquisition, that growth remains the same.

Speaker Change: i

Speaker Change: at the outset i would like to recognize the dedicated norortson team who have leveraged the nbs next growth framework to deliver strong operating results

Lara Mahoney: I'm here with Sundaram Nagarajan, our President and CEO, and Dan Hopgood, Executive Vice President and Chief Financial Officer.

Ed: There is no change there.

Ed: Our strategic and financial criteria for acquisitions remain the same. We feel strongly about how we have been able to be disciplined around the strategic criteria for what acquisitions we're adding to the portfolio and pretty disciplined around the financial rigor on what we need to do with a particular acquisition that will allow us to deliver the returns we target.

Speaker Change: sance of six hundred and sixty two million dollars were in line without expectations

Speaker Change: driven by ip segment which delivered strong organic growth of four percent

Sundaram Nagarajan: Moving to today's agenda on slide three, Nagar will discuss third quarter highlights, as well as yesterday's close of our atrium medical acquisition.

Speaker Change: in addition to increase sales from our aric acquisition

Speaker Change: this growth was partially offset by continued softness in electronics

Daniel Hopgood: He will then turn the call over to Dan to review sales and earnings performance for the total company and the three business segments.

Speaker Change: compared to prior year as well as lower demand impacting our medical businesses

Daniel Hopgood: Dan will also discuss the balance sheet and cash flow.

Sundaram Nagarajan: Nagar then will share a high level commentary about our end markets and provide an update on the fiscal 2024 full year guidance. We will then be happy to take your questions.

Speaker Change: in addition our focus on top customers and differentiated products improved consolidated product mix

Speaker Change: this strategic focus and a commitment to managing cost led to improvements in gross margins

Sundaram Nagarajan: With that, I'll turn the call over to Naga.

Lara Mahoney: Good morning.

Sundaram Nagarajan: Good morning, everyone. Thank you for joining Nordson fiscal 2024 third quarter conference call. Before I begin, I'm pleased with the closure of the atrium medical acquisition as we announce in a press release issued yesterday morning. I would like to welcome a new colleagues from atrium into the Nordson family. Atrium products will expand our current portfolio in medical fluid components and interventional solutions by adding a category leader in infusion fluid delivery and niche cardiovascular therapy products.

Lara Mahoney: This is Laura Mahoney, Vice President of Investor Relations and Corporate Communication.

Speaker Change: and top quortile ebitda margin of over thirty one percent

Lara Mahoney: I'm here with Sundaram Nagarajan, our President and CEO and Dan Hopgood, Executive Vice President and Chief Financial Officer.

Speaker Change: in the quarter we delivered adjusted earnings per share of two dollars and forty- one cents which is up eight cents from the midpoint of our guidance

Speaker Change: finally i like to highlight our third quarter free cash flow of one hundred and forty three million dollars which was one twenty two percent of meina

Speaker Change: we continue to generate strong cash flow

Speaker Change: and execute a balanced capital deployment strategy with thirty-nine million dollars in dividend paid

Sundaram Nagarajan: Etrean expands Nordson's fluid components addressable market by more than 50% by adding products and solutions for infusion therapies and drug delivery. This also extends our current offering to tap medical device customers and broadens Nordson's exposure to higher growth medical and markets with significant single use consumables with recurring revenue streams. Going forward, Etrean will be part of our medical and fluid solutions segment.

Speaker Change: twenty-five million dollars in share repurchases and forty million in debt reduction during the quarter

Lara Mahoney: This conference call is being broadcast live on our investor website and will be available there for 30 days.

Ed: So, our pipeline remains this, you know, remains pretty healthy, and, you know, we are open, to many different types of deals, and you've seen that over the past year, and we continue to work the pipeline.

Dan Hotgood: i'll speak more about the enterprise performance in few moments but first i'll turn the call over to dan to provide a detailed perspective on our financial results for the quarter

Lara Mahoney: There will be a telephone replay of the conference call available until Thursday, August 29th, 2024.

Ed: Let me have Dan talk to you a little bit about leverage and capital deployment.

Lara Mahoney: During this conference call, we will make references to non-GAAP financial metrics. We've provided a reconciliation of these metrics to the most comparable GAAP metric in the press release issued yesterday.

Dan Hotgood: thank you naga and good morning to everyone

Dan Hotgood: on side number six you' the third quarter of fiscal two thousand and twenty four sales were six hundred sixty two million two percent from prior year third quarter sales of six hundred forty nine million

Lara Mahoney: These statements may involve a number of risks, uncertainties, and other factors as discussed in the company's filings with the Securities and Exchange Commission that could cause actual results to materially differ.

Lara Mahoney: We welcome you to our conference call today, Thursday, August 22nd, to report Nordson fiscal 2024 third quarter result.

Sundaram Nagarajan: Now, let's shift to our third quarter earnings results on slide five. At the outset, I would like to recognize the dedicated Nordson team who have leveraged the NBS next growth framework to deliver strong operating results. Sales of $662 million were in line with our expectations driven by IPF segment which delivered strong organic growth of 4% in addition to increased sales from our error acquisition.

Dan Hotgood: and in line with the midpoint of our quarterly guidance

Dan Hotgood: this was driven by a four percent increase from the arag acquisition partially offset by an overall organic sale decrease of one percent and unfavorable currency translation of one percent

Lara Mahoney: You can find both our press release, as well as our webcast slide presentation that we will refer to during today's conference.

Lara Mahoney: Moving to today's agenda on slide three, Naga will discuss third quarter highlights as well as yesterday's close of our Atrion Medical Acquisition.

Ed: Yeah, maybe just to add a couple of points, you know, our stated target's been two to, two-and-a-half times leverage long-term, you know, and obviously, with just completing the acquisition for Atrium, we'll be at the higher end of that, but that will be temporary, and maybe the best example to give you is, you know, we saw a similar thing happen last year when we acquired ARAG, and then, you know, as of the end of this quarter, we're back down to 1.6 times leverage, so we've got, obviously, plenty of capacity, and with our cash flow profile, as you point out, we can quickly de-lever, and, you know, as Naga mentioned, we have an active pipeline, and, you know, when the right deal comes along, we'll be ready to move forward.

nowg: as nowg mentioned we saw growth in our ipps segment organic sales during the quarter in particular our packaging and nonwoilv's divisions

Lara Mahoney: This call on our website at www.nordson.com forward slash investors.

nowg: which were offset by softness in certain electronics and medical product lines

Ed: Great to hear.

nowg: gross profit during the quarter remains strong at fifty six percent of sales

Ed: And then, Dan, back to you for this one.

Sundaram Nagarajan: This growth was partially offset by continued softness in electronics compared to prior year, as well as lower demand impacting our medical businesses. In addition, our focus on top customers and differentiated products improved consolidated products mix. This strategic focus and a commitment to managing costs led to improvements in growth margins and top portal EBITDA margin of over 31%. In the quarter, we delivered adjusted earnings per share of $2.41 which is up 8 cents from the midpoint of our guidance.

nowg: deploying our nb next growth framework we're focusing on top products driving a favorable product mix

nowg: while also continuing to improve our manufacturingr ineffefficiency

Ed: You've been CFO for about a quarter now.

nowg: ebitda adjusted for special items in both period total two hundred and eight million for the quarter or thirty-one point five percent of sales

Ed: You come to a company which is a great progress in margin expansion.

nowg: lightly below the prior year by about fifty bas is points

Ed: From your initial assessments, what areas are you seeing in the business as opportunities, for further improvement from here?

nowg: which was driven by higher-selling and administrative cost

Ed: Yeah, I appreciate the question.

Ed: Yeah, I guess I'll say this, and, you know, Naga and I spend a lot of time on our best, opportunity as a company is continuing to grow organically, which is our major focus, right?

Ed: Our margins are very healthy. Our cash flow is very healthy.

nowg: including the first year impact of the ari acquisition

nowg: looking at nonoperating expenses

nowg: net interest expense increased approximately six million associated with higher debt levels tiedes to the arag acquisition

nowg: other income on in that basis decreased by two million dollars primarily reflecting certain foreign exchange transactional variations compared to the prior year

Sundaram Nagarajan: Finally, I'd like to highlight a third quarter free cash flow of $143 million which was 122% of medical. We continue to generate strong cash flow and execute a balanced capital deployment strategy with $39 million in dividend spade, $25 million in share repurchases and $40 million in debt reduction during the quarter.

nowg: tax expense for the quarter was thirty-two million or an effective rate of about twenty-one point five percent

nowg: which is in line with the prior year rate and our guidance range for two thousand and twenty four

nowg: net income in the quarter to of one hundred and seventeen million dollars or two dollars and four cents per share

nowg: excluding eight million dollars of nonrecurring costs related to the atreon acquisition

nowg: and selected restructuring charges

Daniel Hopgood: I'll speak more about the enterprise performance in few moments, but first, I'll turn the call over to Dan to provide a detailed perspective on our financial results for the quarter. Thank you, Naga, and good morning to everyone. On slide number six, the third quarter fiscal 2024 sales were $662 million, up 2% from prior year third quarter sales of $649 million, and in line with the midpoint of our quarterly guidance. This was driven by a 4% increase from the air ag acquisition partially offset by an overall organic sales decrease of 1% and unfavorable currency translation of 1%.

nowg: as well as nineteen million dollars in amortization of acquisition-related intangibles

nowg: adjusted earnings per share for the quarter totalof two dollars and forty one cents

nowg: eight cents above the midpoint of our quarterly guidance

nowg: but the six percent decrease from the prior year adjusted earnings per share of two dollars and fifty five cents

Lara Mahoney: This conference call is the broadcast live on our investor website and will be available there for 30 days.

Ed: You know, squeezing margins is not the best use of our time.

Ed: Our time is better spent figuring out how to continue to grow the company organically, and inorganically.

Lara Mahoney: There will be a telephone replay of the conference call available until Thursday, August 29th, 2024.

nowg: the decrease in year-over-year earnings reflects the slightly lower operating margins and increased interest expense i just walks through

Lara Mahoney: He will then turn the call over to Dan to review sales and earnings performance for the total company and the three business segments.

Ed: Very helpful, thanks.

nowg: now let's turn to slide seven nine to review the third quarter two thousand and twenty-four segment performance

Lara Mahoney: Dan will also discuss the balance sheet and cash flow.

Walter Liptak: Your next question comes from the line of Walter Liptak from Seaport Research Partners.

nowg: industrial precision solution sales of three hundred seventy-one million dollars increased ten percent compared to the prior year' third quarter

Lara Mahoney: Naga then will share a high-level commentary about our end markets and provide an update on the fiscal 2024 full-year guidance.

Walter Liptak: Your line is open.

Lara Mahoney: We will then be happy to take your questions.

Walter Liptak: Hey, good morning, guys.

nowg: the arag acquisition contributed seven percent sales growth while organic sales were up four percent year-over-year partially offset by unfavorable currency translation of one percent

Daniel Hopgood: As Nagar mentioned, we saw growth in our IPS segment organic sales during the quarter, in particular our packaging and non-wovene divisions, which were offset by softness and certain electronics and medical product lines. Gross profit during the quarter remains strong at 56% of sales. Deploying our NBS next growth framework, we're focusing on top products, driving a favorable product mix, while also continuing to improve our manufacturing efficiency. EBITDA adjusted for special items in both periods total 208 million for the quarter or 31.5% of sales, lightly below the prior year by about 50 basis points, which was driven by higher selling and administrative costs, including the first year impact of the air ag acquisition.

Walter Liptak: Good morning.

Lara Mahoney: With that, I'll turn the call over to Naga.

nowg: organic sales improved across most of our product lines with particular strength and packaging and nonwoven

Sundaram Nagarajan: Good morning, everyone.

nowg: it's importantance to note that these results continue to build upon record fiscal two thousand and twenty three revenue for the i p s segment

Sundaram Nagarajan: Thank you for joining Nordson's fiscal 2024 third quarter conference call.

Walter Liptak: I wanted to ask kind of a follow-on to the IPS segment question and, you know, get some, color around the stable sort of low single-digit outlook for IPS.

Sundaram Nagarajan: Before I begin, I'm pleased with the closure of the Atrion Medical Acquisition as we announced in a press release issued yesterday morning.

Walter Liptak: And, you know, I guess what I'm trying to get to is that, you know, we have seen, you, know, other similar industrial companies, you know, kind of pauses in their, you know, small goods businesses, especially longer, you know, term, you know, kind of project businesses.

Sundaram Nagarajan: I would like to welcome our new colleagues from Atrion into the Nordson family. Atrion's products will expand our current portfolio in medical fluid components and interventional solutions by adding a category leader in infusion fluid delivery and niche cardiovascular therapy products, products. ATRIAN expands Nordson's fluid components addressable market by more than 50% by adding products and solutions for infusion therapies and drug delivery.

Sundaram Nagarajan: This also extends our current offering to top medical device customers and broadens Nordson's exposure to higher growth medical end markets with significant single use consumables with recurring revenue streams.

nowg: which has now delivered organic growth in thirteen of the last fifteen quarters

Walter Liptak: So, I wonder if you can provide just some more color around, you know, geographic regions, China, Europe, you know, versus North America.

nowg: ebit a for the segment was one hundred thirty five million in the third quarter or thirty six percent of sales

Walter Liptak: And you called out some growth areas.

nowg: an increase of ten percent compared to the prior year ebit of one hundred twenty two million

Walter Liptak: And I wonder how much of, you know, the focus from NBS Next helps you to gain market share, in some of those growing markets as opposed to maybe some others that might be weaker?

nowg: the increase in ebitda was driven by the arag acquisition and strong contribution from our organic sales growth

Walter Liptak: Yeah.

nowg: also worth highlighting that this quarter marks fourteen out of fifteen consecutive quarters of ebitda growth for the ip segment

Daniel Hopgood: Looking at non-operating expenses, net interest expense increased approximately 6 million associated with higher debt levels tied to the air ag acquisition. Other income on a net basis decreased by $2 million, primarily reflecting certain foreign exchange transactional variations compared to the prior year. Tax expense for the quarter was 32 million or an effective rate of about 21.5%, which is in line with the prior year rate and our guidance range for 2024. Net income in the quarter totaled $117 million or $2.04 per share, excluding $8 million of non-recurring costs related to the HREAN acquisition and selected restructuring charges, as well as $19 million in amortization of acquisition related intangibles, adjusted earnings per share for the quarter totaled $2.41, 8 cents above the midpoint of our quarterly guidance, but the 6% decrease from the prior year adjusted earnings per share of $2.55. The decrease in year-over-year earnings reflects the slightly lower operating margins and increased interest expense at just walkthrough.

Sundaram Nagarajan: Going forward, ATRIAN will be part of our medical and fluid solutions segment.

Walter Liptak: Let's maybe give you some, you know, a little bit color into a couple of the divisions and, where we're thinking.

Walter Liptak: First and foremost, this is year four of NBS Next.

Speaker Change: turning to slide eight you'll see medical andinfluid solution sales of one hundred sixty seven million decreases two percent compared to the prior year's third quarter

Walter Liptak: Clearly, within our businesses, and IPS being one of those businesses where we first implemented, and a couple of other MFS businesses to be implemented next, what you find here is we operate in a diversified set of end market niches.

Sundaram Nagarajan: Now let's shift to our third quarter earnings results on slide five.

Speaker Change: driven by lower demand and our medical interventional solutions and fluid components product lines

Speaker Change: while the biofarm of portion of our fluid components product lines have stabilize

Speaker Change: other product applications for patient care and surgical applications

Speaker Change: are adjusting to more conservative customer order entry patterns

Lara Mahoney: During this conference call, we will make references to non gap financial metrics. We've provided a reconciliation of these metrics to the most comparable gap metric in the press release issued yesterday.

Speaker Change: this is despite solid underlying demand for patient procedures

Speaker Change: these decreases were also partially offset by improved sales and our fluid solutions product lines versus last year

Speaker Change: ebitda for medical influid solutions with sixty-two million for the quarter or thirty-seven percent of sales

Speaker Change: which was a nine percent reductions the prior year ebitda sixty eight million

Speaker Change: the decrease was driven by lower volume and unfavorable product mix during the quarter

Speaker Change: in spite of these recent growth t wins the segment has now delivered ebitda margins greater than thirty-five percent in fourteen of the last fifteen quarters

Sundaram Nagarajan: At the outset, I would like to recognize the dedicated Nordson team who have leveraged the, MBS Next growth framework to deliver strong operating results.

Sundaram Nagarajan: Sales of $662 million were in line with our expectations, driven by IPS segment, which delivered strong organic growth of 4%, in addition to increased sales from our ARAG acquisition.

Sundaram Nagarajan: This growth was partially offset by continued softness in electronics, compared to prior year, as well as lower demand impacting our medical businesses.

Sundaram Nagarajan: In addition, our focus on top customers and differentiated products improved consolidated, product mix. This strategic focus and a commitment to managing costs led to improvements in gross margins and top quartile EBITDA margin of over 31%.

Speaker Change: turning to slide nine if the advanced technology solution sales were one hundred and twenty four million and eleven percent decrease compared to the prior year third quarter

Sundaram Nagarajan: In the quarter, we delivered adjusted earnings per share of $2.41, which is up 8 cents from the midpoint of our guidance.

Daniel Hopgood: Now let's turn to slide 7-3-9 to review the third quarter of 2024 segment performance. Industrial precision solution sales of $371 million increased 10% compared to the prior year-third quarter. The air ag acquisition contributed 7% sales growth while organic sales were up 4% year-over-year, partially offset by unfavorable currency translation of 1%. Organic sales improved across most of our product lines with particular strengths in packaging and non-wovens.

Speaker Change: decreasees includes ten percent organic volume decline as well as unfavorable currency translation of one percent

Speaker Change: a decrease in sales was driven by electronics processing and xray and test product lines

Speaker Change: offset by growth and our optical sensors businesses

Speaker Change: while we expected weakness year -over year

Speaker Change: segment sales increase over eight percent sequentially versus q two and we continue to see modest improvement in order andintake as the semiconductor and electronic applications we serve continued to show signs of improvement

Daniel Hopgood: It's important to note that these results continue to build upon record fiscal 2023 revenue for the IPS thing. William Smith, which has now delivered organic growth in 13 of the last 15 quarters. Evita for the segment was 135 million in the third quarter, or 36% of sales, an increase of 10% compared to the prior year EBITDA of 122 million. The increase in EBITDA was driven by the ARAC acquisition and strong contribution from our organic sales growth.

Speaker Change: third quarter ebita was twenty six million or twenty one percent of salesbelow prior year third quarter ebitda of thirty three million

Speaker Change: which excluded special items of two million dollars related to cost reduction actions in the prior year

Speaker Change: while the reduction in ebitda was time to the overall decrease in volume

Speaker Change: favorable mix and cost reduction actions contributed to achieving a forty-one percent decreimental on the lower year-over-year sale

Daniel Hopgood: It's also worth highlighting that this quarter marks 14 out of 15 consecutive quarters of EBITDA growth for the IPS segment.

Speaker Change: this is well ahead of our decreental target of approximately fifty five percent

Sundaram Nagarajan: Finally, I'd like to highlight our third quarter free cash flow of $143 million, which was 122% of net income. We continue to generate strong cash flow and execute a balanced capital deployment strategy with $39 million in dividends paid, $25 million in share repurchases, and $40 million in debt reduction during the quarter.

Daniel Hopgood: Turning to slide 8, you'll see medical and fluid solution sales of 167 million decreased 2% compared to the prior year's third quarter, driven by lower demand in our medical interventional solutions and fluid components product lines. While the biopharm of portion of our fluid components product lines have stabilized, other product applications for patient care and surgical applications are adjusting to more conservative customer order entry patterns.

Sundaram Nagarajan: I'll speak more about the enterprise performance in a few moments.

Speaker Change: finally turning to the balance sheet and cash flow i slide ten

Speaker Change: atthe end of the third quarter we had cash on hand of one hundred and sixty five million and net debt was one point three billion

Speaker Change: resulting in a leverage ratio of about one point six times based on trail twelve months ibita

Sundaram Nagarajan: But first, I'll turn the call

Speaker Change: pro forma for the atreon acquisition that we just announced net debt will rise to about two point two billion and our leverage ratio will increase to approximately two and a half times in the near term which remains within our targeted range

Daniel Hopgood: This is despite solid underlying demand for patient procedures. These decreases were also partially offset by improved sales in our fluid solutions product lines versus last year. EBITDA for medical and fluid solutions was 62 million for the quarter, or 37% of sales, which was a 9% reduction to the prior year EBITDA of 68 million. The decrease was driven by lower volume and unfavorable product mix during the quarter.

Speaker Change: we funded the atrion acquisition with a five hundred million dollar term loan cash on hands

Speaker Change: and borrowings on our revolver

Speaker Change: we plan to refinance the term loan in the public bond markets and we'll continue to use cash from operations to repay our revolver borrowes over time

Speaker Change: after the acquisition we still have greater than fifty percent availability on our revolver and greater than six hundred million of liquidity available to the company including cash on hand

Daniel Hopgood: In spite of these recent growth headwinds, the segment has now delivered EBITDA margins greater than 35% in 14 of the last 15 quarters.

Speaker Change: i

Speaker Change: our free cash flow generation continues to be a strength at one hundred and forty three million during the quarter or one hundred and twenty-two percent conversion rate on net income

Daniel Hopgood: Turning to slide 9, you'll see advanced technology solution sales were 124 million, and 11% decrease compared to the prior year's third quarter. The decrease includes 10% organic volume decline, as well as unfavorable currency translation of 1%. The decrease in sales was driven by electronics processing and x-ray and test product lines, offset by growth in our optical sensors businesses.

na: as we continue to strategically deploy the strong cash flow as na mentioned earlier we reduced that by forty million in the quarter paid thirty-nine million in dividends and repurchasase twenty-five million and shares

na: all while continuing to fund capital and product development investments for growth

Dan Blaser: over to Dan to provide a detailed perspective on our financial results for the quarter.

na: notably last week we announced our sixty first year of increasing our annual dividends building upon our legacy of growing capital returns as we grow the company

Daniel Hopgood: While we expected weakness year over year, segment sales increased over 8% sequentially versus Q2, and we continue to see modest improvement in order intake as the third quarter EBITDA was 26 million, or 21% of sales, below prior year third quarter EBITDA of 33 million, which excluded special items of $2 million related to cost reduction actions in the prior year. While the reduction in EBITDA was tied to the overall decrease in volume, favorable mix and cost reduction actions contributed to achieving a 41% decremental on the lower year of year sales. This is well ahead of our decremental target of approximately 55%.

na: all in all we had a solid quarter and we're well positioned to close out the year

Speaker Change: with that let's turn to slide eleven and i'll turn the call back to na

Dan Blaser: Dan Blaser Thank you, Naga, and good morning to everyone.

na: thanks theni also want to congratulate the north and team for delivering strong operating performance under a challenging demand environment in select businesses

Dan Blaser: On slide number six, you'll see third quarter fiscal 2024 sales were $662 million, up 2% from prior year third quarter sales of $649 million. This was driven by a 4% increase from the AIRAG acquisition, partially offset by an, overall organic sales decrease of 1% and unfavorable currency translation of 1%.

Speaker Change: let's spend a few minutes talking about our end markets as we move into the fourth quarter of fiscal two ythousand and twenty-four

Dan Blaser: As Naga mentioned, we saw growth in our IPS segment organic sales during the quarter, in particular our packaging and non-woven divisions, which were offset by softness in certain electronics and medical product lines.

Dan Blaser: Gross profit during the quarter remained strong at 56% of sales.

Speaker Change: starting with our industrial position solions segment we continue to see steadiness in industrial and consumer nondurable end markets with nongo when starting to pick up in the third quarter

Dan Blaser: Deploying our NBS Next growth framework, we're focusing on top products, driving a favorable, product mix, while also continuing to improve our manufacturing efficiency.

Dan Blaser: EBITDA adjusted for special items in both periods totaled $208 million for the quarter, or 31.5% of sales, slightly below the prior year by about 50 basis points, which was driven by higher selling and administrative costs, including the first year impact of the AIRAG acquisition.

Dan Blaser: Looking at non-operating expenses, net interest expense increased approximately $6 million, associated with higher debt levels tied to the AIRAG acquisition.

Dan Blaser: Other income on a net basis decreased by $2 million, primarily reflecting certain foreign, exchange transactional variations compared to the prior year.

Dan Blaser: Our gross expense for the quarter was $32 million, or an effective rate of about 21.5%, which is in line with the prior year rate and our guidance range for 2024.

Dan Blaser: Net income in the quarter totaled $117 million, or $2.04 per share, excluding $8 million of, non-recurring costs related to the Atrion acquisition and selected restructuring charges, as well as $19 million in amortization of acquisition-related intangibles.

Speaker Change: after two years of record growth our full year guidance implies ipps excluding arag is about flat to modestly up versus prior year

Speaker Change: aragq sales appear to be normalizing at lower levels at this point in the agricultural cycle

Dan Blaser: Adjusted earnings per share for the quarter totaled $2.41, 8 cents above the midpoint, of our quarterly guidance, but a 6% decrease from the prior year adjusted earnings per share of $2.55. The decrease in year-over-year earnings reflects the slightly lower operating margins and increased, interest expense I just walked through.

Daniel Hopgood: Pro forma for the atrium acquisition that we just announced net debt will rise to about 2.2 billion and our leverage ratio will increase to approximately 2.5 times in the near term which remains within our targeted range. We funded the atrium acquisition with a 500 million dollar term loan cash on hand and borrowings on our revolver. We plan to refinance the term loan in the public bond markets and will continue to use cash from operations to repay our revolver borrowings over time. After the acquisition, we still have greater than 50% availability on our revolver and greater than 600 million of liquidity available to the company including cash on hand.

Speaker Change: in general we feel confident about the diversification of this segment its's mix of recurring revenue and customer intimate business model

Dan Blaser: Now let's turn to slide 7 through 9 to review the third quarter 2024 segment performance.

Walter Liptak: And in some of these cases, particularly in IPS, what you find is certain end markets have high demand or growing and having investments at a particular time.

Dan Blaser: Industrial precision solution sales of $371 million increased 10% compared to the prior, year third quarter. The AIRAG acquisition contributed 7% sales growth, while organic sales were up 4% year-over-year, partially offset by unfavorable currency translations of 1%.

Dan Blaser: Organic sales improved across most of our product lines with particular strength in, packaging and nonwovens.

Speaker Change: within our medical and fluid solutions segment

Speaker Change: medical device customer supply chain teams are being far more cautious of their inventory purchases after a very unique few years

Dan Blaser: It's important to note that these results continue to build upon record fiscal 2023, revenue for the IPS segment, which has now delivered organic growth in 13 of the last 15 quarters. EBITDA for the segment was $135 million in the third quarter, or 36% of sales, an increase of 10% compared to the prior year EBITDA of $122 million. The increase in EBITDA was driven by the AIRAG acquisition and strong contribution from our, organic sales growth. It's also worth highlighting that this quarter marks 14 out of 15 consecutive quarters of EBITDA growth for the IPS segment.

Speaker Change: while we are starting to see lower demand in the interventional solutions

Speaker Change: and certain fluid component product lines outside of bio arma

Daniel Hopgood: Our free cash flow generation continues to be a strength at 143 million during the quarter or 122% conversion rate on net income. As we continue to strategically deploy this strong cash flow as Naga mentioned earlier, we reduced that by 40 million in the quarter paid 39 million in dividends and repurchased 25 million in shares all while continuing to fund capital and product development investments for growth.

Speaker Change: we are confident in the long-term growth drivers in this end market including aging of the population rising chronic health conditions

Speaker Change: trends towarda non invasive surgical techniques and increase healthcare spending and procedure volumes

Speaker Change: we have a robust pipeline of longer-term customer project activity and we are comfortable with the future outlook of this business

Dan Blaser: Turning to slide eight, you'll see medical and fluid solution sales of $167 million decreased 2% compared to the prior year's third quarter, driven by lower demand in our medical interventional solutions and fluid components product lines. While the biopharma portion of our fluid components product lines have stabilized, other product applications for patient care and surgical applications are adjusting to more conservative customer order entry patterns.

Speaker Change: near term we expect softness in certain medical product lines

Daniel Hopgood: Notably last week we announced our 61st year of increasing our annual dividends building upon our legacy of growing capital returns as we grow the company. All in all, we had a solid quarter and were well positioned to close out the year.

Speaker Change: particularly in light of challenging year-over-year comparisons for medical interventional solutions product lines

Dan Blaser: This is despite solid underlying demand for patient procedures.

Dan Blaser: These decreases were also partially offset by improved sales in our fluid solutions product lines versus last year.

Dan Blaser: EBITDA for medical and fluid solutions was $62 million for the quarter, or 37% of sales, which was a 9% reduction to the prior year EBITDA of $68 million. The decrease was driven by lower volume and unfavorable product mix during the quarter. In spite of these recent growth headwinds, the segment has now delivered EBITDA margins greater, than 35% in 14 of the last 15 quarters.

Speaker Change: staying close to our customers we are working our way through what has being a won der ful kind demand environment over the past few years

Sundaram Nagarajan: With that, let's turn to slide 11 and I'll turn the call back to Naga. Thanks, Dan. I also want to congratulate the Northson team for delivering strong operating performance under a challenging demand environment in select business. Let's spend a few minutes talking about our end markets as we move into the fourth quarter of fiscal 2024. Starting with our industrial position solution segment, we continue to see steadiness in industrial and consumer non durable end markets with non-Govern starting to pick up in the third quarter.

Lara Mahoney: Before we begin, please refer to slide two of our presentation where we note that certain statements regarding our future performance that are made during this call may be forward looking based upon Nordson's current expectation.

Speaker Change: the eight s segment will benefit from increasing demand for advanced ships in support of a i automotive electronics onuring shifts act as well as the broader electronics capex spending cycle

Lara Mahoney: These statements may involve a number of risks, uncertainties, and other factors as discussed in a company's filings with the Securities and Exchange Commission that could cause actual results to materially differ.

Sundaram Nagarajan: After two years of record growth, our full-year guidance implies IPS, excluding AIRAG, is about flag to modestly up versus prior year. AIRAG sales appear to be normalizing at lower levels at this point in the agricultural cycle. In general, we feel confident about the diversification of this segment, its mix of recurring revenue and customer intimate business model. Within our medical and fluid solution segment Medical device customer supply chain teams are being far more cautious with their inventory purchases after a very unique few years.

Sundaram Nagarajan: Moving to today's agenda on slide three, Nagar will discuss third quarter highlights, as well as yesterday's close of our atrium medical acquisition.

Speaker Change: we are beginning to experience a sequential and year-over-year increase in order enttory in the testin inspection applications

Speaker Change: for example we're pleased with the momentum in our artptacle cyberptics

Daniel Hopgood: He will then turn the call over to Dan to review sales and earnings performance for the total company and the three business segments.

Speaker Change: and acoustic test and instruction of product lines

Speaker Change: our exary product lines which experienced double-digit growth in fiscal two thousand and twenty-three continue to deal with challenging comparisons in the fourth quarter

Daniel Hopgood: Dan will also discuss the balance sheet and cash flow.

Speaker Change: electronics dispen product line applications are largely in the back end of manufacturing of advanced semiconductedships

Sundaram Nagarajan: Nagar then will share a high level commentary about our end markets and provide an update on the fiscal 2024 full year guidance.

Speaker Change: demand for these products occur

Speaker Change: later in the cycle

Lara Mahoney: We will then be happy to take your questions.

Sundaram Nagarajan: While we are starting to see lower demand in the interventional solutions and certain fluid component product lines outside of biopharma, we are confident in the long-term growth drivers in this end market, including aging of the population, rising chronic health conditions, trends toward non-invasive surgical techniques, and increased healthcare spending and procedure volumes. We have a robust pipeline of longer-term customer project activity, and we are comfortable with a future outlook of this business.

Speaker Change: given the sequential improvement in revenues and orderent we expect the at segment to return to growth in two thousand and twenty-five

Dan Blaser: Turning to slide nine, you'll see advanced technology solution sales were $124 million, an 11% decrease compared to the prior year third quarter. The decrease includes 10% organic volume decline, as well as unfavorable currency translation of 1%. The decrease in sales was driven by electronics processing and x-ray and test product lines, offset by growth in our optical sensors businesses.

Walter Liptak: But over, you know, six quarters or 12 quarters, what you find is another end market application, getting more demand and becoming more important for the growth of the business.

Speaker Change: turning now to our outlook on slide twelve

Speaker Change: we enteer the fourth quarter but approximately six hundred and fifty million dollars in backlog

Sundaram Nagarajan: With that, I'll turn the call over to Naga.

Dan Blaser: While we expected weakness year over year, segment sales increased over 8% sequentially versus Q2, and we continue to see modest improvement in order intake as the semiconductor and electronic applications we serve continue to show signs of improvement.

Speaker Change: this backlog remains concentrated in our systems businesses while customer order-entry patterns have returned to historical norms in the rest of the businesses

Dan Blaser: Third quarter EBITDA was $26 million, or 21% of sales, below prior year third quarter EBITDA of $33 million, which excluded special items of $2 million related to cost reduction actions in the prior year. While the reduction in EBITDA was tied to the overall decrease in volume, favorable mix and cost reduction actions contributed to achieving a 41% decremental on the lower year over year sales.

Dan Blaser: This is well ahead of our decremental target of approximately 55%.

Walter Liptak: So for each of our division leaders, understanding each of these end markets, end market niches, and being agile and entrepreneurial in shifting resources from one end market to another to another is a great way for us to continue to participate in markets that are growing and de-resource for a period of time markets that are not growing.

Speaker Change: based on current visibility in autoentry trends

Speaker Change: we are holding are previously issued full year base business revenue guidance in the range of flat up to two percent over record fiscal two thousand and twenty three

Dan Blaser: Finally, turning to the balance sheet and cash flow on slide 10.

Sundaram Nagarajan: Good morning, everyone.

Dan Blaser: At the end of the third quarter, we had cash on hand of $165 million, and net debt was $1.3 billion, resulting in a leverage ratio of about 1.6 times based on trailing 12-month EBITDA. Pro forma for the Atrion acquisition that we just announced, net debt will rise to about $2.2 billion, and our leverage ratio will increase to approximately 2.5 times in the near term, which remains within our targeted range. We funded the Atrion acquisition with a $500 million term loan, cash on hand, and borrowings on our revolver.

Sundaram Nagarajan: Near-term, we expect softness in certain medical product lines, particularly in light of challenging near-over-year comparisons for medical interventional solutions product lines. Staying close to our customers, we are working our way through what has been a one-of-a-kind demand environment over the past few years. The ATS segment will benefit from increasing demand for advanced ships in support of AI or motor electronics, ensuring shifts act as well as the broader electronics gap-expanding cycle. We are beginning to experience a sequential and year-over-year increase in order entry in the testing inspection applications.

Speaker Change: the addedition of atrian will then increase our base sales by approximately thirty million dollars in the fiscal fourth quarter

Speaker Change: full year first cal twenty twenty four adjusted earnings per diluted share are expected to be in the range of nine dollars and forty five cents

Speaker Change: to nine dollars and sixty-five cents per diluted share or fiscal two thousand and twenty-four

Speaker Change: this is unchanged at the midpoint despite the inclusion of the slightly dilutive impact of atrion in the fourth quarter

Speaker Change: this fullyll of guidance assumes a neutral impact from foreign exchange rates

Speaker Change: investors should keep in mind that the anniversary the acquisitive growth impact of arag in the fiscal fourth quarter

Sundaram Nagarajan: For example, we are pleased with the momentum in our optical cyber optics and acoustic test and inspection of product lines. Our exterior product lines, which experienced double-digit growth in fiscal 2023, continue to deal with challenging comparisons in the fourth quarter. Electronics' disment product line applications are largely in the back end of manufacturing of advanced semiconductorships. Demand for these products occur later in the cycle.

Walter Liptak: So it is a dynamic set of end market niches that the teams are operating in. NBS Next allows them to be able to have clarity around those applications and be able to shift one to another.

Speaker Change: even as we face challenging demand conditions in certain end markets

Speaker Change: non since core strengds remain a diversified portfolio

Speaker Change: close to the customer business model

Speaker Change: high level of recurring revenue

Speaker Change: n b s next grou framework

Speaker Change: and a commitment to the innovation

Speaker Change: these core strenths enabable nortson to deliver

Speaker Change: high-quality operating performance under varying economic conditions

Sundaram Nagarajan: Given the sequential improvement in revenues and order entry, we expect the ATS segment to return to growth in 2025.

Speaker Change: we're looking forward to sharing an update on our long-term growth plans

Speaker Change: including our capital deployment strategy at our upcoming investor day in new york on october third

Sundaram Nagarajan: Turning now to our outlook on slide 12. We enter the fourth quarter with approximately $650 million in backlog. This backlog remains concentrated in our systems businesses while customer order entry patterns have returned to historical norms in the rest of the businesses.

Speaker Change: we hope to see you there and we encourage you to use the qr code in the webcast presentation to register

Dan Blaser: We plan to refinance the term loan in the public bond markets, and will continue to use cash from operations to repay our revolver borrowings over time. After the acquisition, we still have greater than 50% availability on our revolver, and greater than $600 million of liquidity available to the company, including cash on hand.

Walter Liptak: So that is, you know, that certainly helps us, that allows us to have this steady performance, which you see on the outside.

Speaker Change: as always i want to thank our customers shareholders and the notes and team for your continued support

Sundaram Nagarajan: Based on current visibility in order entry trends. Lawrence. We are holding our previously issued for your base business revenue guidance in the range of flat up to 2% over record fiscal 2023. The addition of Aetrian will then increase our base sales by approximately $30 million in the fiscal fourth quarter. Full year fiscal 2024 adjusted earnings per deluded share are expected to be in the range of $9.45 to $9.65 per deluded share or fiscal 2024. This is unchanged at the midpoint, despite the inclusion of the slightly deluded impact of Aetrian in the fourth quarter. This fully of guidance assumes a neutral impact from foreign exchange rates.

Speaker Change: with that we will pause and take your questions

Dan Blaser: Our free cash flow generation continues to be a strength at $143 million during the quarter, or 122% conversion rate on net income.

Walter Liptak: But within the company, within the divisions, you do see some, you know, some markets doing well, others, you know, not doing so well.

Dan Blaser: Notably, last week, we announced our 61st year of increasing our annual dividends, building upon our legacy of growing capital returns as we grow the company.

Walter Liptak: So that's one sort of dynamic that we've, you know, that's important to recognize.

Speaker Change: thank you we will now begin the question and answer session if you'd like to ask a question please press start one in your telephone key ad to raise your hand and join the queue your first question comes from the line of sy bird it's from jeffreies your line is open

Walter Liptak: The second is, you know, certainly there are certain end markets like plastic processing, for example.

Dan Blaser: All in all, we had a solid quarter, and we're well-positioned to close out the year.

Dan Blaser: With that, let's turn to slide 11, and I'll turn the call back to Naga.

Sundaram Nagarajan: Thank you for joining Nordson fiscal 2024 third quarter conference call. Before I begin, I'm pleased with the closure of the atrium medical acquisition as we announce in a press release issued yesterday morning.

Sundaram Nagarajan: Thanks, Dan.

Sundaram Nagarajan: I also want to congratulate the Knudsen team for delivering strong operating performance under a challenging demand environment in select businesses.

Sundaram Nagarajan: Let's spend a few minutes talking about our end markets as we move into the fourth quarter of fiscal 2024. Starting with our industrial position solution segment, we continue to see steadiness in industrial and consumer non-durable end markets, with non-gold winds starting to pick up in the third quarter.

Sundaram Nagarajan: After two years of record growth, our full-year guidance implies IPS, excluding AIRAG, is about flat to modestly up versus prior year.

Walter Liptak: You know, we've had an incredible run for the last, you know, two, maybe two and a half years.

Sundaram Nagarajan: AIRAG sales appear to be normalizing at lower levels at this point in the agricultural cycle.

sy bird: ithink is very

Speaker Change: with the business has gone through supply chain issues and certainly have

Walter Liptak: And, you know, might you expect some modest pullback on those?

Speaker Change: how to go through sumions and so the margins have degrated pro them in the last couple of years as you can see in a public information

Sundaram Nagarajan: In general, we feel confident about the diversification of this segment, its mix of recurring revenue and customer intimate business model.

Speaker Change: we fundamentally believe if you look at past track record of this business very the dmargins are in line with norand like margins and so we're fully confident that we would be able to

Sundaram Nagarajan: Investors should keep in mind that the anniversary, the acquisitive growth impact of AERAG in the fiscal fourth quarter. Even as we face challenging demand conditions in certain end markets, Nordson's core strengths remain a diversified portfolio close to the customer business model, high level of recurring revenue, NBS Next, Growth Framework, and a commitment to innovation. These core strengths enable Nordson to deliver high quality operating performance under varying economic conditions.

Speaker Change: return the business back to those saying margins

Speaker Change: over what time

Speaker Change: appreciate that and then you noted that you saw year over year growth in some of the testand inspection products on order basis could just quantify this and then provide some additional color what's driving this improvement and how you see that expanding two thousandand twenty five thank you yeah

Speaker Change: thank you sry we see some pretty strong momentum in our optical and acoustic product lineines so optical is our cyberoptics business

Speaker Change: what you find there is a lot of these applications are in the front end of the semiconductor manufacturingbecause

Speaker Change: but also this is the business in terms of cyclicality was the first one to experience a downturn early last year

Sundaram Nagarajan: We are looking forward to sharing an update on our long-term growth plans, including our capital deployment strategy at our upcoming investor day in New York on October 3rd. We hope to see you there and we encourage you to use the QR code in the webcast presentation to register. As always, I want to thank our customers, shareholders, and the Nordson team for your continued support.

Speaker Change: right so so you have the cycle helping us but in addition you'd have some exciting new products like our bay for sense that is used in the semiconductor processing manufacturing steps and so

Speaker Change: you know you have a combination of new products cycle and where our products are used in the semiconductor manufact

Speaker Change: manufacturing process so the momentum is pretty good this business continues to have a pretty nice year-on-year growth from last year so we're pretty excited about what we see in this business

Unknown Executive: With that, we will pause and take your questions. Thank you.

Unknown Executive: We will now begin the question and answer session. If you would like to ask a question, please press star one in your telephone keypad to raise your hand and join the queue.

Speaker Change: appreciate the questions thank you

Speaker Change: your next question comes from a line of matt suomerville from da gibson your line ageis open

Saree Boroditsky: Your first question comes from the line of say rebroaded from Jeffries. Your line is open. Hi, good morning.

Walter Liptak: Yes, that is a possibility.

Walter Liptak: But overall, you know, we are very pleased with how our teams are using NBS Next.

Speaker Change: goodmorning you've got canyon hayes on from sum azil today

Sundaram Nagarajan: I would like to welcome a new colleagues from atrium into the Nordson family. Atrium products will expand our current portfolio in medical fluid components and interventional solutions by adding a category leader in infusion fluid delivery and niche cardiovascular therapy products.

Sundaram Nagarajan: I want to focus a little bit on the acquisition. The margins at HRUN have come on rather significantly, for instance, 2022. Could you just talk about the right margin profile for this business and the steps you're taking to get the margins to Nordson levels? Thank you very much. The business has gone through supply chain issues and certainly have had to go through some issues, and so the margins have degraded for them in the last couple of years, as you can see in the public information.

matt suomerville: so i just wanted to start with a quick review on

Sundaram Nagarajan: Etrean expands Nordson's fluid components addressable market by more than 50% by adding products and solutions for infusion therapies and drug delivery.

matt suomerville: implied guidance in the fourth quarter and i was curious so your thoughts might have progressed relative to the prior quarter on ip eighte s and m fthat organic growth

Sundaram Nagarajan: This also extends our current offering to tap medical device customers and broadens Nordson's exposure to higher growth medical and markets with significant single use consumables with recurring revenue streams.

Sundaram Nagarajan: Going forward, Etrean will be part of our medical and fluid solutions segment.

Sundaram Nagarajan: Now, let's shift to our third quarter earnings results on slide five.

Speaker Change: thanks so that could

Speaker Change: you got know you

Speaker Change: i get as far as our thought you know if you look at our underlying guidance

Sundaram Nagarajan: At the outset, I would like to recognize the dedicated Nordson team who have leveraged the NBS next growth framework to deliver strong operating results.

Sundaram Nagarajan: We fundamentally believe if you look at past track record of this business, there either the margins are in line with Nordson-like margins, and so we're fully confident that we would be able to return the business back to those same margins over time.

Speaker Change: wepretty much we're holding the base business and so i would say our acthoughts or things are playingin the years playing out about it expected for the fourth quarter but maybe give me a little bit more color behind your question

Speaker Change: iapologizei thinki might have cut out there but i think i got what i needed is there okay

Sundaram Nagarajan: Sales of $662 million were in line with our expectations driven by IPF segment which delivered strong organic growth of 4% in addition to increased sales from our error acquisition.

Sundaram Nagarajan: Appreciate that, and then you noted that you saw year-of-year growth in some of the test and inspection products on order basis could just quantify this and then provide some additional color and much drive in this improvement and how you see that expanding into 2025. Thank you. Yeah, thank you, Saree. You know, we see some pretty strong momentum in our optical and acoustic product lines, so optical is our cyber optics business. What you find there is a lot of these applications are in the front end of the semiconductor manufacturing business, but also this is the business in terms of cyclicality with the first one to experience a downturn early last year.

Speaker Change: across the across the broader industrial space we've seen project activity get pushed out a little bit as a function of rate macro geopolitical election concerns

Speaker Change: as you curious we to get a little bit of color on how or how that is not affecting ord and i we should think about how that implies into the two thousand and twenty-five

Sundaram Nagarajan: This growth was partially offset by continued softness in electronics compared to prior year, as well as lower demand impacting our medical businesses.

Sundaram Nagarajan: In addition, our focus on top customers and differentiated products improved consolidated products mix. This strategic focus and a commitment to managing costs led to improvements in growth margins and top portal EBITDA margin of over 31%.

Sundaram Nagarajan: In the quarter, we delivered adjusted earnings per share of $2.41 which is up 8 cents from the midpoint of our guidance.

Speaker Change: to

Speaker Change: yeah you know obviously we're not talking about two thousand and twenty five so want to make sure you know we will have a chance to talk about it in couple of months from now

Speaker Change: but as we think about end market conditions within the company as it stands today

Speaker Change: it's good to remind ourselves norortson has a very diversified portfolio diversified in end markets diversified in geography diversified

Sundaram Nagarajan: Right, so you have the cycle help in us, but in addition, you have some exciting new products like our way for sense that is used in the semiconductor processing manufacturing steps. And so, you know, you have a combination of new products, a cycle, and where our products are used in the semiconductor manufacturing process. So the momentum is pretty good. This business, you know, continues to have a pretty nice year-on-year growth from last year, so we're pretty excited about what we see in this business. I appreciate the questions. Thank you.

Speaker Change: in systems and

Speaker Change: consumables are recurring revenues right so so that's important piece of a puzle here so if you think about segment by segment what we see here in is is

Speaker Change: a business nonarag without our ag business

Speaker Change: think of that as a slight growth to flattish after two record years thirteen orde fifteen quarters yet on year organ growth

Speaker Change: so that's i think that's an important context to remember

Daniel Hopgood: Thank you, Naga, and good morning to everyone.

Speaker Change: the z order entry to be pretty steady and so our expectation is this part of our business remains steady

Daniel Hopgood: On slide number six, the third quarter fiscal 2024 sales were $662 million, up 2% from prior year third quarter sales of $649 million, and in line with the midpoint of our quarterly guidance. This was driven by a 4% increase from the air ag acquisition partially offset by an overall organic sales decrease of 1% and unfavorable currency translation of 1%.

Matt Somerville: Your next question comes from a line of Matt Somerville from DA Davidson. Your line is open.

Sundaram Nagarajan: Good morning. You've got Canyon Hayes on from Matt Somerville today. So I just wanted to start with a quick review on the implied guidance in the fourth quarter, and I was curious how your thoughts might have progressed relative to the prior quarter on IPS, ETS, and MFS organic growth. So, all right, thanks for the quick review. I get as far as our thoughts, you know, if you look at our underlying guidance, we pretty much were holding the base business, and so I would say our thoughts or things are playing. The years playing out about as expected for the fourth quarter, but maybe you can give me a little bit more color behind your question.

Speaker Change: there area couple of things that d want to add a little bit more color to

Speaker Change: our ipps segment

Speaker Change: our reoccurring levenue was pretty high here

Speaker Change: it is north the fifty percent and you expect when folks are sort of differring capex spend they are going to increase their recurring revenues

Speaker Change: so so that's one piece of it the other piece of it is you have a couple of our businesses like the non woans where we see some pretty good order entry pick up and so that is certainly helping this business

Daniel Hopgood: Deploying our NBS next growth framework, we're focusing on top products, driving a favorable product mix, while also continuing to improve our manufacturing efficiency.

Daniel Hopgood: EBITDA adjusted for special items in both periods total 208 million for the quarter or 31.5% of sales, lightly below the prior year by about 50 basis points, which was driven by higher selling and administrative costs, including the first year impact of the air ag acquisition.

Speaker Change: one thing to remember is that

Speaker Change: you do have other

Daniel Hopgood: Looking at non-operating expenses, net interest expense increased approximately 6 million associated with higher debt levels tied to the air ag acquisition.

Speaker Change: sort a large capex spends around

Speaker Change: big trends looking like

Speaker Change: electric batter vehicles still still activity although they our market is down you have automotive electronics fabric bonding recapitalization of our base resurey

Sundaram Nagarajan: I apologize. I think I'm out of cut-out there, but I think I got what I needed there. Across the broader industrial space, we've seen project activity get pushed out a little bit as a function of rates, macro, geopolitical, you know, election concerns. I'd be curious if we could get a little bit of color on how or how is that is not affecting Nordson and how we can think about how that implies into the 2025.

Speaker Change: e-commerce packaging so a number of

Speaker Change: trends that are helping us to make

Speaker Change: small winds so these are not big homeruns like we like to call them these are singles and doubles

Speaker Change: but that's what this segment is about it is about working on end market applications and winning those application by a comapplication so a steady outlook for ipps

Sundaram Nagarajan: Yeah, you know, obviously we're not talking about 2025, so we want to make sure, you know, we will have a chance to talk about it in a couple of months from now. But as we think about end market conditions within the company as it stands today, you know, it's good to remind ourselves, Nordson has a very diversified portfolio diversified in end markets diversified in geography diversified. In systems and consumables are recurring revenues, right, so that's an important piece of the puzzle here.

Speaker Change: help by recording reanies

Speaker Change: on a t s we do see auto entry starting to pick up you know we are being cautious here this is a end market that has been that has been cyclical but we are modestly seeing autoentry pick up

Daniel Hopgood: Other income on a net basis decreased by $2 million, primarily reflecting certain foreign exchange transactional variations compared to the prior year.

Speaker Change: we saw a sequential revenue growth in this segment when compared to last quarter and so that is going back and we talked a little bit about optical and acoustic product lines in the last answer

Daniel Hopgood: Tax expense for the quarter was 32 million or an effective rate of about 21.5%, which is in line with the prior year rate and our guidance range for 2024. Net income in the quarter totaled $117 million or $2.04 per share, excluding $8 million of non-recurring costs related to the HREAN acquisition and selected restructuring charges, as well as $19 million in amortization of acquisition related intangibles, adjusted earnings per share for the quarter totaled $2.41, 8 cents above the midpoint of our quarterly guidance, but the 6% decrease from the prior year adjusted earnings per share of $2.55.

Sundaram Nagarajan: So, if you think about segment by segment, what we see here in IPS is a business non-airag without our ag business. Think of that as a slight growth to fly dish after two record years, 13 out of 15 quarters, yet on yet organic growth. So, I think that's an important context to remember. We see order entry to be pretty steady, and so our expectation is this part of our business domain study.

Speaker Change: our medical influid solions segment what you see is a tough comparison

Speaker Change: when compared to last year where this business grew significantly and what you also find is that

Sundaram Nagarajan: Within our medical and fluid solutions segment, Medical device customer supply chain teams are being far more cautious with their inventory purchases after a very unique few years.

Speaker Change: customers particularly supply chain teams of medical device customers have to very unique years of pandemic supply chain being very cautious about their inventory levels so we do see weakness in the orenttory in this segment

Speaker Change: long term

Speaker Change: we are excited about this

Sundaram Nagarajan: There are a couple of things that if you want to add a little bit more color to our IPS segment are recurring revenue is pretty high here, right, it is north of 50% and you expect when folks are sort of differing cap expand, they are going to increase their recurring revenues. So, that's one piece of it. The other piece of it is you have a couple of our businesses like the nonwoons where we see some pretty good order entry pickup and so that is certainly helping this business.

Speaker Change: this is a business with very strong growth drivers aging population as i talked about in my opening remarks aging population

Walter Liptak: Because we constantly talk within the company, the best opportunity for Nordstrom, for our businesses is growth.

Walter Liptak: And understanding your best customers, understanding your best market opportunities, deploying your differentiated products to those, that's the ticket to win.

Speaker Change: increase health chronic conditions increased procedure volumes all of that feels

Sundaram Nagarajan: We have a robust pipeline of longer-term customer project activity, and we are comfortable with the future outlook of this business.

Walter Liptak: And so really, you know, these market conditions are dynamic and different.

Walter Liptak: But I fundamentally believe our effective ascent strategy with NBS Next and owner mindset, you know, a division led structure that allows our teams to be entrepreneurial, certainly helps, same, diversified end markets, systems and high recurring revenues, you know, close to the customer model, playing with differentiated products, all of these core strengths is what makes Nordson successful.

Walter Liptak: Now, I am incredibly proud of our team, because at varying economic demand conditions, our team consistently over the last three years have delivered 30 plus percent EBITDA margins.

Speaker Change: makes us confident about this and we continue to have

Walter Liptak: And, you know, that is not same for everybody, you know, in some cases, we've had, to adjust costs, in some cases, we had to invest ahead of the curve.

Speaker Change: long-term project conversations with our customers

Speaker Change: and that is very active and healthy we also have new product aboutp mentand work that we are continuing to work on and here and finally you know atrian is an exciting adds to this segment

Speaker Change: and we expect that atrion' products increases the addressable market for this segment nicely

Sundaram Nagarajan: One thing to remember is that you do have other sort of large cap expense around big trends looking like electric battery vehicles still still activity, although the overall market is down, you have automotive electronics, fabric bonding, recapitalization of our base, reshore, e-commerce packaging. So, so number of trends that are helping us to make small wins. So, these are not big home runs like we like to call them. These are single cent doubles, but that's what this segment is about.

Walter Liptak: I think that that kind of goes to speak to our ascent strategy and NBS next growth framework.

Speaker Change: i

jeffrey hammon: your next question comes from a line of jeffrey hammon from keybank capital markets your line is open

Walter Liptak: Okay, great.

Walter Liptak: Yeah, no doubt the margin improvement has been there.

Sundaram Nagarajan: Near term, we expect softness in certain medical product lines, particularly in light of challenging year-over-year comparisons for medical interventional solutions product lines.

Speaker Change: hi good morning guess the morning morning

jeffrey hammon: so i want to start with this this kind of medical interventional i guess it's normalization or destocck and it seems like that's kind of a newer dynamic and i'm just wondering how long do you think that persists

Sundaram Nagarajan: Staying close to our customers, we are working our way through what has been a one-of-a-kind demand environment over the past few years.

Sundaram Nagarajan: The ATS segment will benefit from increasing demand for advanced chips in support of AI, automotive electronics, on-shoring, CHIPS Act, as well as the broader electronics capex spending cycle.

Sundaram Nagarajan: We are beginning to experience a sequential and year-over-year increase in order entry in the test and inspection applications. For example, we're pleased with the momentum in our optical, cyber optics, and acoustic test and inspection product lines.

Sundaram Nagarajan: It is about working on end market applications and willing those application by application. So a steady outlook for IPS helped by recurring revenues. On ATS, we do see auto entry starting to pick up, you know, we are being cautious here. This is an end market that has been that has been cyclical, but we are modestly seeing auto entry pickup. We saw a sequential revenue growth in this segment when compared to last quarter.

jeffrey hammon: before inventories are kind of or supply cha in back to normal

Speaker Change: yeah you know as we talked about you know there are two things going on here a in our bioarma business that is stabilized that are started to come back

Sundaram Nagarajan: Our X-ray product lines, which experienced double-digit growth in fiscal 2023, continue to deal with challenging comparisons in the fourth quarter.

Sundaram Nagarajan: Electronics dispense product line applications are largely in the back end of manufacturing of advanced semiconductor chips.

Speaker Change: in terms of our interventional business last year these businesses where up fifteen sixteen percent and so you have you' dealing with some tough comps certainly supply chain is something that

Sundaram Nagarajan: Demand for these products occur later in the cycle.

Sundaram Nagarajan: And so, so that is coming back and we talked a little bit about optical and acoustic product lines in the last end. Sir, our medical and fluid solution segment, you know, what you see is a tough comparison, when compared to last year, where this business grew significantly, and what you also find is that customers, particularly supply chain teams of medical device customers after very unique years of pandemic supply chain, being very cautious about their inventory levels.

Speaker Change: we find our customers to be a lot more cautious today than they were a year ago

Daniel Hopgood: The decrease in year-over-year earnings reflects the slightly lower operating margins and increased interest expense at just walkthrough.

Sundaram Nagarajan: Given the sequential improvement in revenues and order entry, we expect the ATS segment to return to growth in 2025.

Sundaram Nagarajan: Turning now to our outlook on slide 12, we enter the fourth quarter with approximately $650 million in backlog.

Speaker Change: growth iri was remained the same so it is kind of tough to call when these changes

Speaker Change: butthe procedure volumes are up so there is nothing going on there

Speaker Change: we see some insourcing but look these projects and products when they are given to a company

Speaker Change: that is

Speaker Change: regulations that are approvals atd approvals and all of these things that are associated with winning a project it is very difficult for these business tendto be lot more sticky letsput that way and so if you think about this

Daniel Hopgood: Now let's turn to slide 7-3-9 to review the third quarter of 2024 segment performance.

Sundaram Nagarajan: So we do see weakness in the order entry in this segment. Long term, we are excited about this business. This is a business with very strong growth drivers, aging population, as I talked about in my opening remarks, aging population increase health chronic conditions, increase procedure volumes, all of that fuels, makes us confident about this, and we continue to have long term project conversations with our customers, and that is very active and healthy.

Daniel Hopgood: Industrial precision solution sales of $371 million increased 10% compared to the prior year-third quarter. The air ag acquisition contributed 7% sales growth while organic sales were up 4% year-over-year, partially offset by unfavorable currency translation of 1%.

Sundaram Nagarajan: This backlog remains concentrated in our systems businesses, while customer order entry patterns have returned to historical norms in the rest of the businesses.

Daniel Hopgood: Organic sales improved across most of our product lines with particular strengths in packaging and non-wovens.

Sundaram Nagarajan: Based on current visibility and order entry trends, We are holding our previously issued full-year base business revenue guidance in the range of flat up to 2% over record fiscal 2023. The addition of Atrion will then increase our base sales by approximately $30 million, in the fiscal fourth quarter.

Sundaram Nagarajan: Full-year fiscal 2024 adjusted earnings per diluted share are expected to be in the range, of $9.45 to $9.65 per diluted share or fiscal 2024. This is unchanged at the midpoint despite the inclusion of the slightly dilutive impact, of Atrion in the fourth quarter. This full-year guidance assumes a neutral impact from foreign exchange rates.

Sundaram Nagarajan: Investors should keep in mind that the anniversary, the acquisitive growth impact of AIRAG in, the fiscal fourth quarter.

Sundaram Nagarajan: Even as we face challenging demand conditions in certain end markets, Nordson's core strengths, remain a diversified portfolio, close to the customer business model, high level of recurring revenue, NBS Next growth framework, and a commitment to innovation. These core strengths enable Nordson to deliver high-quality operating performance under varying, economic conditions.

Sundaram Nagarajan: We're looking forward to sharing an update on our long-term growth plans, including our, capital deployment strategy, at our upcoming Investor Day in New York on October 3rd.

Sundaram Nagarajan: We hope to see you there, and we encourage you to use the QR code in the webcast presentation, to register.

Sundaram Nagarajan: As always, I want to thank our customers, shareholders, and the Nordson team for your, continued support.

Unknown Executive: With that, we will pause and take your questions.

Unknown Executive: Thank you.

Speaker Change: it is tough to call this

Speaker Change: when it is going to turn

Speaker Change: we have strong these are small set our customers this is not a broad thousands of customers these are a handful of medical device customers that we have strong relationships with and we are in touch with them we understand what things are

Daniel Hopgood: It's important to note that these results continue to build upon record fiscal 2023 revenue for the IPS thing.

Sundaram Nagarajan: We also have new product development work that we are continuing to work on in here. And finally, you know, Adrienne is an exciting ad to this segment, and you know, we expect that Adrienne's products increases the addressable market for this segment nicely.

Speaker Change: so

Speaker Change: you know i'm trying to paint the picture for you of the overall environment but not giving you an exact answer i recognize that

Daniel Hopgood: William Smith, which has now delivered organic growth in 13 of the last 15 quarters.

Speaker Change: no letthat's lookokgood

Speaker Change: and then each really i just wanted to unpacked unpacked the deal impacts it seems like know they did one hundred and sixty nine million in twenty-three they were seeing a high single fisure growth you we only have kind of a stuff quarter in the fourth quarter but just

Daniel Hopgood: Evita for the segment was 135 million in the third quarter, or 36% of sales, an increase of 10% compared to the prior year EBITDA of 122 million.

Sundaram Nagarajan: Your next question comes from a line of Jeffrey Hammond from Keybank Capital Markets. Your line is open. Hi, good morning, guys. Good morning. So I want to start with this kind of medical interventional, I guess it's normalization or destocking. It seems like that's kind of a newer dynamic. And I'm just wondering how long you think that persists before inventories are kind of, you know, or supply chains are back to normal. Yeah.

Speaker Change: what's kind of the next twelve months run rate of revenue we should think about you know where do we snap lines on ebit even eeven ebitda margins

Daniel Hopgood: The increase in EBITDA was driven by the ARAC acquisition and strong contribution from our organic sales growth.

Speaker Change: yeshow should we think about incremental interest to amor addbackac da etcecter just a little more color there

Speaker Change: so let me get paid some broad pictures and then dan can take you through a little bit more detail

Speaker Change: right broadly you want to think about this as a mid-single digit es

Daniel Hopgood: It's also worth highlighting that this quarter marks 14 out of 15 consecutive quarters of EBITDA growth for the IPS segment.

Sundaram Nagarajan: You know, as we talked about, you know, there are two things going on here. A, you know, buy a form of business that is stabilized, that is starting to come back. In terms of our interventional business, last year these businesses were up 15, 16%. And so you have your dealing with some tough coms. Certainly supply chain is something that, you know, we find our customers to be a lot more cautious today than they were a year ago.

Dan Hotgood: that's what this business is

Speaker Change: we also want to think in terms of ebitda margin performances it is below their historical performance mainly because of supply chain issues and some operational issues that they have had

Daniel Hopgood: EBITDA for medical and fluid solutions was 62 million for the quarter, or 37% of sales, which was a 9% reduction to the prior year EBITDA of 68 million. The decrease was driven by lower volume and unfavorable product mix during the quarter. In spite of these recent growth headwinds, the segment has now delivered EBITDA margins greater than 35% in 14 of the last 15 quarters.

Speaker Change: we d fully expect that our model recognizes and these synergies we have signed up for are are based on the facts that we resolve many of these and over a p of two years

Speaker Change: right over the period of time we said we would achieve these synergies or a period of two years we've seen a good path to achieving these synergies using nbs knights

Sundaram Nagarajan: Growth drivers remain the same. So it is kind of tough to call when this changes, but the procedure volumes are up. So there is nothing going on there. We see some in sourcing, but look, these projects and products, when they are given to a company, there is regulations that are approvals, FDA approvals and all of these things that are associated with winning a project. It is very difficult for these businesses tend to be a lot more sticky, let's put it that way.

Daniel Hopgood: This is well ahead of our decremental target of approximately 55%.

Speaker Change: i want to say somewhere in twenty- six this business gets back to north and like you become margins which is what this business historical performance was

Speaker Change: so let me give with that sort of high level then if we want to add a little bit more color to the questions your hasast

Speaker Change: yes i guess what id say a there's no surprise based on their second quarter results versus what we expected to see in the business i think it's right in line with our modeling

Sundaram Nagarajan: And so, if you think about this, It is tough to call this when this is going to turn. You know, we have strong, these are small set of customers. This is not a broad, you know, thousands of customers. These are a handful of medical device customers that we have strong relationships with and we are in touch with them. We understand what things are. So, you know, I'm trying to paint the picture for you of the old, all environment, but not giving you an exact answer. I've recognized that.

Speaker Change: i think you know i would say itas far asa specific guidance for next year

Speaker Change: give us a quarter we've we've all in the business for a day we know what we know which is largely public information that you have access to as well but again nothing that we've seen surprises us and in fact we're very comfortable with the model that we had to the acquisition

Speaker Change: we'll give a little more color on that as we as we giveget color to next year next quarter

Unknown Executive: We will now begin the question-and-answer session.

Speaker Change: i

Speaker Change: okay preci it

Speaker Change: yeah

Unknown Executive: If you would like to ask a question, please press star 1 on your telephone keypad to raise, your hand and join the queue.

Speaker Change: your next question comes from line of my callllerant from beared your line is open

Serhii Boroditsky: Your first question comes from the line of Serhii Boroditsky from Jefferies.

Walter Liptak: And it's good to see you getting, some, you're able to shift around to these different markets.

Sundaram Nagarajan: No, that's okay. Um, and then each, I just want to kind of unpack, unpack the deal impacts. It seems like, you know, they did 169 million in 23. They were saying, I single, there's your growth. You know, we only have kind of a stuff quarter and a fourth quarter, but just, you know, what, what's kind of the next 12 months run rate of revenue. We should think about, you know, where do we snap lines on even even even even margins.

Walter Liptak: Okay, yeah, I guess maybe just to just to see if we can get some geographic thoughts, you know, how you're seeing, you know, some of the Asian markets or Europe, I wonder if we can get any comments there.

Serhii Boroditsky: Your line is open.

Daniel Hopgood: Finally, turning to the balance sheet and cash flow on slide 10, at the end of the third quarter we had cash on hand of 165 million and net debt was 1.3 billion resulting in a leverage ratio of about 1.6 times based on trailing 12 months EBITDA. Pro forma for the atrium acquisition that we just announced net debt will rise to about 2.2 billion and our leverage ratio will increase to approximately 2.5 times in the near term which remains within our targeted range. We funded the atrium acquisition with a 500 million dollar term loan cash on hand and borrowings on our revolver.

peasanton: good morning everyone this is peasanton for mike

Speaker Change: i want to go back to the conservative order comment from the interventional side of the business

Daniel Hopgood: We plan to refinance the term loan in the public bond markets and will continue to use cash from operations to repay our revolver borrowings over time. After the acquisition, we still have greater than 50% availability on our revolver and greater than 600 million of liquidity available to the company including cash on hand.

Speaker Change: to be clear as this incremental to the tough com so we're expecting in the back half of this calendar year you know is this this simply a cost to carry inventory discussion and then you know consequently we be expecting destocking in the near term and a more normal cadence as customers kind of get to that new desired

Daniel Hopgood: Notably last week we announced our 61st year of increasing our annual dividends building upon our legacy of growing capital returns as we grow the company.

Sundaram Nagarajan: All in all, we had a solid quarter and were well positioned to close out the year.

Sundaram Nagarajan: With that, let's turn to slide 11 and I'll turn the call back to Naga.

Sundaram Nagarajan: How should we think about incremental interest, the hammer add back DNA, etc. Just a little more color there. So, let me get a good paint some broad pages and then Dan can take you through a little bit more detail. Right broadly, you want to think about this as a mid single digit company. That's what this business is. You also want to think in terms of EBITDA margin performances. It is below their historical performance mainly because of supply chain issues and some operational issues that they have had.

Speaker Change: level of regventories that we should be thinking about that

Sundaram Nagarajan: Thanks, Dan.

Speaker Change: yeah what i would tell you is that is what we are experiencing right now

Sundaram Nagarajan: I also want to congratulate the Northson team for delivering strong operating performance under a challenging demand environment in select business.

Walter Liptak: You know, if you if you think about different regions, still the US based markets have been, you know, have been the best and have been the strongest.

Speaker Change: if you think about last year this business grow in the teens

Sundaram Nagarajan: Let's spend a few minutes talking about our end markets as we move into the fourth quarter of fiscal 2024.

Speaker Change: typically this business goes anywhere from sixtyto eight percent so growing at six you know midteens that's pretty high right and so what you what we are experienced todaying the orders is really in some adjustment to that

Sundaram Nagarajan: Starting with our industrial position solution segment, we continue to see steadiness in industrial and consumer non durable end markets with non-Govern starting to pick up in the third quarter.

Speaker Change: if you look at procedure volumes look at our project activity look at our product development work

Sundaram Nagarajan: We fully expect and our model recognizes and these synergies we have signed up for are based on the fact that we resolve many of these and over a few years. Right over the period of time we said we would achieve these synergies or a period of two years. We see a good path to achieving these synergies using NBS. I want to say somewhere in 26, this business gets back to Northson like EBITDA margins, which is what this business historical performance was.

Speaker Change: we do see some amounous slowness right so i want to be clear about what we're talking about you know it is tough comes but it also we see slowwnness

Speaker Change: and when as you think about when do we get out of this certainly there are some amount of

Speaker Change: device manufacture thinking about their inventory levels in adjusting them to reasonable levels could that be an impact from interest rates it's difficult for me to guess any of that

Sundaram Nagarajan: So, let me give with that sort of high level, Dan, if you want to add a little bit more color to the questions you have asked. Yeah, and I guess what I'd say is, you know, A, there's no surprise based on their second quarter result versus, you know, what we expected to see in the business. I think it's right in line with our modeling. I think, you know, I would say as far as specific guidance for next year.

Speaker Change: but i i would say we do see a conservative cautious order pattern from our medical dervice customers

Speaker Change: understood that that's 's helpful agga and then maybe if we could stay m that that's a little bit i think i may have missed earlier on the call could you could you help the on flu component side and then on yet the

Sundaram Nagarajan: You know, give us a quarter. We've we've owned the business for a day. We know what we know, which is largely public information that you have access to as well. But again, nothing that we've seen surprises us. And in fact, we're very comfortable with the model that we had to the acquisition. We'll give a little more color on that as we as we give color to next year, next quarter. Okay, appreciate it. Yeah.

Walter Liptak: If you near term look at our businesses in in Asia specific, particularly, they are benefiting from what we see in our electronic business, our electronic businesses are coming back.

Speaker Change: yeah you be had alittle bit in the turns

Speaker Change: sure ifd is doing well autoenttories are returning we do see i think we

Speaker Change: commented may be couple ofquarters ago that this was one of those businesses where we're seeing early indicators of electronics customers starting to order more

Speaker Change: this business is the order entry in this business is pretty encouraging

Michael Halloran: Your next question comes from a line of Mike Hollerin from Baird. Your line is open.

Sundaram Nagarajan: After two years of record growth, our full-year guidance implies IPS, excluding AIRAG, is about flag to modestly up versus prior year.

Speaker Change: and a lot of the work that they're doing in asia based electronic customers is pret ty encouraging

Sundaram Nagarajan: AIRAG sales appear to be normalizing at lower levels at this point in the agricultural cycle.

Michael Halloran: A good morning, everyone. This is Peasant from Mike. I want to go back to the conservative order comment from the interventional side of the business. To be clear, is this incremental to the tough comp that you're expecting in the back half of this calendar year? You know, is this is this simply a cost to carry inventory discussion? And then, you know, consequently, should we be expecting destocking in the near term and more normal cadence as customers kind of gets that new desired level of inventory is that that how we should be thinking about that.

Sundaram Nagarajan: In general, we feel confident about the diversification of this segment, its mix of recurring revenue and customer intimate business model.

Speaker Change: this od thank i'll passad on

Speaker Change: again if you'd like to ask a question press star one your telephone kead your next question comes from line of andrew essteadglla up from v np parabbus your line is open

Serhii Boroditsky: Hi.

Serhii Boroditsky: Good morning.

Andrew Essteadglla: morning guys this is at on for andrew thank ction to my questions

Speaker Change: and precompared marks he mentioned the mix of ashion at to finance the deal which puts at about two to an ap times leverage closing two thousand and twenty four with a strong free cash flow profile leverage management refres on how you're thinkingabout in a and more specifically what remains inthe pipeline

Michael Halloran: Yeah, what I would tell you is, that is what we are experiencing right now. You know, if you think about last year, this business grew in the teens, typically this business grows anywhere from six to eight percent. So growing at six, you know, mid teens, that's pretty high. Right. And so what we are experiencing today in the orders is really in some adjustment to that. If you look at procedure volumes, look at our project activity, look at our product development work, we fundamentally believe that the long term pieces of growth in this business is intact.

Serhii Boroditsky: I want to focus a little bit on the acquisitions.

Serhii Boroditsky: The margins at Atrion have come down rather significantly since 2022.

Speaker Change: let me start first and then danwe'will sort to take over for a cple of other comments are on catital deployment look our our commitment to organic growth and having a balanced acquisition that growth remains the same but

Serhii Boroditsky: Could you just talk about the right margin profile for this business and the steps you're, taking to get the margins to Nordson levels?

Sundaram Nagarajan: Thank you, Serhii.

Speaker Change: so change there

Sundaram Nagarajan: You know, the business has gone through supply chain issues and certainly have had to go, through some issues. And so the margins have degraded for them in the last couple of years, as you can see, in their public information.

Sundaram Nagarajan: We fundamentally believe, if you look at past track record of this business, that either, their margins are in line with Nordson-like margins. And so we're fully confident that we would be able to return the business back to those, same margins over time.

Speaker Change: our strategic and financial criteria for acquisition remain the same we feel

Serhii Boroditsky: I appreciate that.

Speaker Change: we feel strongly about

Michael Halloran: You know, certainly, it's difficult to time. We see certain amount of, we do see some amount of slowness, right. So I want to be clear about what we're talking about. You know, it is tough comes, but it will also we see slowness. And when, as you think about when do we get out of this, you know, certainly there are some amount of device manufacturers thinking about their inventory levels and adjusting them to the reasonable levels. Could that be an impact from interest rates. It's difficult for me to guess any of that. But I would, but I would say we do see a conservative cautious order pattern from our medical device customers.

Speaker Change: how we have been able to be disciplinedended around the strategic criteria for what acquisions ' adding to the portfolio

Michael Halloran: Understood, that's, that's helpful.

Speaker Change: in pretty disciplined on the financial rigor on what we need to do with a particular acquisition that will allow us to deliver the returns re target

Speaker Change: so

Speaker Change: our pipeline remains this remains pretty healthy and we are open to many different types of deals and you've seen that over the past years and we continue to work the pipeline let me have b talked to a little bit about leverage and capital

Sundaram Nagarajan: Within our medical and fluid solution segment Medical device customer supply chain teams are being far more cautious with their inventory purchases after a very unique few years.

Speaker Change: and maybe maybe just to add a couple of pointsyou know our stated targets been two to two and a half times leverage long term

Sundaram Nagarajan: We have a robust pipeline of longer-term customer project activity, and we are comfortable with a future outlook of this business.

Sundaram Nagarajan: And then maybe if we could stay on MFS a little bit, I think I may have missed it earlier on the call. Could you, could you help you have a smooth component side. And then on the FD. Yeah, you helped me out a little bit on the terms there. Sure. EFD is doing well. Order entries are returning. We do see. I think we commented maybe a couple of quarters ago that this was one of those businesses.

Speaker Change: and obviously with just completing the acquisition for atri will be at the er end of that but that will be temporary and maybe the best example to give you as we saw a similar thing happened last year when we acquired arrg

Speaker Change: and then as of the end of this quarter we're backed on to one point six times leverage so

Speaker Change: we've got obviously plenty of capacity and with our cash flow profile as you point out out we can quickly delever and as not mention we have been active pipeline and when the right deal comes along will be 'will be ready to move forward

Sundaram Nagarajan: Staying close to our customers, we are working our way through what has been a one-of-a-kind demand environment over the past few years.

Sundaram Nagarajan: We're seeing early indicators of electronics customers starting to order more. This business is the order entry in this business is pretty encouraging. And, and a lot of the work that they're doing in Asia based electronic customers is pretty encouraging.

Sundaram Nagarajan: The ATS segment will benefit from increasing demand for advanced ships in support of AI or motor electronics, ensuring shifts act as well as the broader electronics gap-expanding cycle.

Serhii Boroditsky: And then you noted that you saw year-over-year growth in some of the test and inspection, products on an order basis.

Sundaram Nagarajan: We are beginning to experience a sequential and year-over-year increase in order entry in the testing inspection applications.

Serhii Boroditsky: Could you just quantify this and then provide some additional color on what's driving this, improvement and how you see that expanding into 2025?

Speaker Change: great to here and then stand back to youfor this one you being c f fo for about a quarter now you come to a company is that great progress in margin expansion from your initial assessments what areas are youseeingin the business as opportunities for further improment ared

Sundaram Nagarajan: For example, we are pleased with the momentum in our optical cyber optics and acoustic test and inspection of product lines.

Michael Halloran: I'll pass it on.

Serhii Boroditsky: Thank you.

Sundaram Nagarajan: Our exterior product lines, which experienced double-digit growth in fiscal 2023, continue to deal with challenging comparisons in the fourth quarter.

Unknown Executive: Again, if you'd like to ask a question, press star one on your telephone keypad.

Sundaram Nagarajan: Yeah.

Sundaram Nagarajan: Electronics' disment product line applications are largely in the back end of manufacturing of advanced semiconductorships. Demand for these products occur later in the cycle.

Andrew Buscaglia: Your next question comes from line of Andrew Viscaglia from BNP Parabost. Your line is open. Good morning, guys. This is Ed on for Andrew. Thanks for taking my questions. In the prepared marks, you mentioned the mix of cash and at to find the deal, which puts it about two to an half times leverage closing 2024. But the strong free cash low profile leverage manager will hear fresh us and how you're thinking about M&A and more specifically what remains in the pipeline.

Speaker Change: it may appreciate the question i guess i'll say this and you know now again i spend a lot of time on our the best opportunity as the company is continuing to grow organically which is our major focus

Sundaram Nagarajan: Thanks, Harry.

Sundaram Nagarajan: Given the sequential improvement in revenues and order entry, we expect the ATS segment to return to growth in 2025.

Sundaram Nagarajan: You know, we see some pretty strong momentum in our optical and acoustic product lines.

Sundaram Nagarajan: Turning now to our outlook on slide 12.

Sundaram Nagarajan: We enter the fourth quarter with approximately $650 million in backlog. This backlog remains concentrated in our systems businesses while customer order entry patterns have returned to historical norms in the rest of the businesses. Based on current visibility in order entry trends.

Speaker Change: margins are are very healthy or cash flow is very healthy squeezing margins is not the best use of our time our time is better spent fbigigure not how to continue to grow the company organically and organically

Sundaram Nagarajan: Lawrence.

Sundaram Nagarajan: Let me start first and then Dan will sort of take over for a couple of other comments that are on capital deployment. Look, our our commitment to organic growth and having a balanced acquisition, let growth remains the same, but it's not changed there. Our strategic and financial criteria for acquisition remain the same. We feel we feel strongly about how we have been able to be disciplined around the strategic criteria for what acquisitions were adding to the portfolio and pretty disciplined around the financial rigor on what we need to do with a particular acquisition that allow us to deliver the returns we target. So, our pipeline remains pretty healthy and we are open to many different types of deals and you've seen that over the past year and we continue to work the pipeline.

Speaker Change: helpful bice

walter loack: your next question comes from a line of walter loack from seport research parters the line is open

Sundaram Nagarajan: We are holding our previously issued for your base business revenue guidance in the range of flat up to 2% over record fiscal 2023. The addition of Aetrian will then increase our base sales by approximately $30 million in the fiscal fourth quarter.

Sundaram Nagarajan: So optical is our cyber optics business.

Sundaram Nagarajan: What you find there is a lot of these applications are in the front end of the semiconductor, manufacturing business.

Sundaram Nagarajan: But also, this is the business in terms of cyclicality was the first one to experience, a downturn early last year, right?

Sundaram Nagarajan: So you have the cycle helping us, but in addition, you have some exciting new products, like our wafer sense that is used in the semiconductor processing manufacturing steps. And so, you know, you have a combination of new products, a cycle, and where our products, are used in the semiconductor manufacturing process.

Sundaram Nagarajan: So the momentum is pretty good. This business, you know, continues to have a pretty nice year-on-year growth from last, year.

walter loack: good morning guys ong a good quarter right when to ask kind of a follow on to the

Sundaram Nagarajan: So we're pretty excited about what we see in this business.

Serhii Boroditsky: Appreciate the questions.

Sundaram Nagarajan: Full year fiscal 2024 adjusted earnings per deluded share are expected to be in the range of $9.45 to $9.65 per deluded share or fiscal 2024. This is unchanged at the midpoint, despite the inclusion of the slightly deluded impact of Aetrian in the fourth quarter. This fully of guidance assumes a neutral impact from foreign exchange rates.

walter loack: that ips segment question and you get some color around the stable sort of low single digit outlook for ipps

Speaker Change: and iguess what 're trying to get to is that we have seen other similar industrial companies kind of pauses

Speaker Change: in their industrial goods businesses especially longer term kind of project businesses so derinter you can provides just a more color around

Speaker Change: geographic regions china europe versus north america and you pu out some growth areas

Daniel Hopgood: Let me have Dan talk to you a little bit about leverage and capital deployment. Yeah, maybe just to add a couple of points, you know, our stated targets been two to two and a half times leverage long term. And obviously with just completing the acquisition for HREM, we'll be at the higher end of that, but that will be temporary and maybe the best example to give you is we saw a similar thing happen last year when we acquired ARAG and then as of the end of this quarter, we're back down to 1.6 times leverage.

Speaker Change: and i wonder how much of the focus of n bs next helps you to gain market share in some of those growing markets as opposed to maybe some others that might be weaker

Speaker Change: yes let's maybe give you some a little bit color intoa couple of the divisions and where we're thinking

Sundaram Nagarajan: Investors should keep in mind that the anniversary, the acquisitive growth impact of AERAG in the fiscal fourth quarter.

Serhii Boroditsky: Thank you.

Speaker Change: first and foremost you know this is year four of nbs next

Speaker Change: clearly within our businesses and ipas being one of those businesses which were where we first implemented and couple of other mfs businesses to be implement our next

Sundaram Nagarajan: Even as we face challenging demand conditions in certain end markets, Nordson's core strengths remain a diversified portfolio close to the customer business model, high level of recurring revenue, NBS Next, Growth Framework, and a commitment to innovation. These core strengths enable Nordson to deliver high quality operating performance under varying economic conditions.

Daniel Hopgood: So we've got obviously plenty of capacity and with our cash flow profile as you point out, we can quickly de-leather. And as Naga mentioned, we have been active pipeline and when the right deal comes along, we'll be ready to move forward.

Speaker Change: what you find here is we operate in a diversified set of end market nes

Sundaram Nagarajan: We are looking forward to sharing an update on our long-term growth plans, including our capital deployment strategy at our upcoming investor day in New York on October 3rd.

Speaker Change: and in some of these cases particularly in ip what you find is certain end markets are have high demand or growing and having investments at a particular time

Sundaram Nagarajan: We hope to see you there and we encourage you to use the QR code in the webcast presentation to register.

Daniel Hopgood: Great to hear. And then Dan back to you for this one. You've been CFL for about a quarter now. You come to a company which is a great progress in margin expansion. From your initial assessments, what areas are you seeing in the business and opportunities for further improvements in there? Yeah, I appreciate the question. Yeah, I guess I'll say this and Naga and I spend a lot of time on our best opportunity as a company is continuing to grow organically, which is our major focus.

Sundaram Nagarajan: As always, I want to thank our customers, shareholders, and the Nordson team for your continued support.

Lara Mahoney: With that, we will pause and take your questions.

Lara Mahoney: Thank you.

Unknown Executive: We will now begin the question and answer session.

Speaker Change: but over six quarters or twelve quarters which you find this

Unknown Executive: If you would like to ask a question, please press star one in your telephone keypad to raise your hand and join the queue.

Saree Boroditsky: Your first question comes from the line of say rebroaded from Jeffries.

Daniel Hopgood: Our margins are very healthy. Our cash flow is very healthy. Squeezing margins is not the best use of our time. Our time is better spent, figuring out how to continue to grow the company organically and organically.

Speaker Change: another end market application

Speaker Change: getting more demand and becoming more important for the growth of the business so for each of our division leaders understanding each of these end markets and market niciches

Speaker Change: and being agile and entrepreneurial in shifting resources from one end market to another to another is a great way for us to continue to participate in markets that are growing

Daniel Hopgood: Very helpful, thanks.

Speaker Change: and deal resource for a period of time markets that are not dro right so it is a dynamicics set of end market niciches that the teams are operating in nbs nx allows them to be able to have clarity around those applications and be able to shift one one another

Saree Boroditsky: Your line is open.

Walter Liptak: Your next question comes from a line of Walter LePack from Seaport Research Partners. The line is open. Hey, good morning, guys. Good morning. One day I kind of follow on to the that IPS segment question and get some color around the stable sort of low single digit outlook for IPS. And I guess what I'm trying to get to is that we have seen other similar industrial companies, you know, kind of pauses in their, you know, industrial goods businesses, especially longer, you know, term, you know, kind of project businesses.

Saree Boroditsky: Hi, good morning.

Saree Boroditsky: I want to focus a little bit on the acquisition.

Saree Boroditsky: The margins at HRUN have come on rather significantly, for instance, 2022.

Speaker Change: so that is you know that certainddenly helps us that allows us to have the steady performance which you see on the outside but within the company within the divisions you do see some you know some markets doing well others you know not doing so well

Speaker Change: so that's one sort of dynamic that weyou' that's important to recognize

Speaker Change: the second is you know certaindenly there are certaind end markets like

Walter Liptak: I wonder if you can provide just some more color around, you know, geographic regions, China, Europe, you know, versus North America. And you called out some growth areas. And I wonder how much of, you know, the focus of from NBS next helps you to gain market share in some of those growing markets, as opposed to maybe some others that might be weaker. Yeah.

Speaker Change: plastic process and for example we've had an incredible run for the last two maybe two and a half years and might you expect a modest

Speaker Change: pull back on those yes that is possibility but

Speaker Change #100: overall we are very pleased with how our teams are using nbsnexts how because we constantly talk within the company the best opportunity for nororts and thought our businesses is growth

Sundaram Nagarajan: Let's maybe give you some, you know, a little bit of color into a couple of the divisions and where, where we're thinking. Thank you. You know, first and foremost, you know, this is year four of NBS next, you know, clearly within our businesses and IPS being one of those businesses which were very first implemented and couple of other MFS businesses to be implemented next. What you find here is we operate in a diversified set of N market niches and in some of these cases, you know, particularly in IPS, what you find is certain N markets are have high demand or growing and having investments at a particular time.

Sundaram Nagarajan: Could you just talk about the right margin profile for this business and the steps you're taking to get the margins to Nordson levels?

Speaker Change #100: and understanding your best customers understanding of best market opportunities deploying your differentiated products to those

Speaker Change #100: that's the ticket to win and so so really you know these market conditions are dynamic and different but i fundamentally believe

Saree Boroditsky: Thank you very much.

Sundaram Nagarajan: But over, you know, six quarters or 12 quarters, which you find is another N market application, getting more demand and becoming more important for the growth of the business. So for each of our division leaders, understanding each of these N markets, N market niches and being agile and entrepreneurial and shifting resources from one N market to another to another is a great way for us to continue to participate in markets that are growing.

Speaker Change #100: are effective essignse strategy with nbs next

Speaker Change #100: and on the mindset in our division led structure that allows our teams to be entrepreneurial certainly helps

Speaker Change #101: the pore strengof and companies still remains the same

Speaker Change #101: diversified end markets

Speaker Change #101: systems and high recurring revenues

Speaker Change #101: a close to the customer model

Speaker Change #101: playing with differentiated products all of these core strengths is what makes ns and successful now i am incredibly pror of our team because at veryary economic demand conditions

Speaker Change #101: our team consistently over the last three years of delivered thirty plus percent ebitda margins

Speaker Change #101: and you know that is not same for everybody you know in some cases we've had to adjust cost in some cases we are to invest ahead of theoccur i think that that kind of goes to speak to our esssense strategy in nb s next growth framework

Sundaram Nagarajan: And really so for a period of time markets that are not growing right so it is a dynamic set of N market niches that the teams are operating in. NBS next allows them to be able to have clarity around those applications and be able to shift one one to another. So that is, you know, that that certainly helps us that allows us to have the steady performance which you see on the outside, but within the company within the divisions, you do see some, you know, some markets doing well others, you know, not doing so well.

Speaker Change #102: okay great yeah i no doubt the margin improvement has been there and it it's good to see you getting some

Speaker Change #103: you're able to shift around to the different markets ok yeah guess maybe just just as just to ceive we get some geographic

Speaker Change #104: thoughts how you're seeing some of the asian markets or europe wonder from get any comment there

Sundaram Nagarajan: So that's one sort of dynamic that we've, you know, that's important to recognize the second is, you know, certainly there are certain N markets like plastic processing, for example, you know, we've had an incredible run for the last, you know, to maybe two and a half years and, you know, might you expect some modest pullback on those. Yes, that is possibility. But overall, you know, we are very pleased with how our teams are using NBS next.

Speaker Change #105: if if you think about deterrend regions still the u us base markets have been have been the best and having the strongest

Speaker Change #105: if you nearterm look at

Walter Liptak: And so you see our Asia packed markets are recovering nicely.

Speaker Change #106: our businesses in in asia specific particularly they are benefiting from what we see in our electronic businessers electronic businesses are coming back and so you see other asia packed

Walter Liptak: China is also doing well, but you also have some of our non woven customers, our OEM customers in China have been a source of strength for our businesses.

Sundaram Nagarajan: Because we constantly talk within the company, the best opportunity for Northson, for our businesses is growth. And understanding your best customers, understanding your best market opportunities, deploying your differentiated products to those, that's the ticket to win. And so, so really, you know, these market conditions are dynamic and different. But I fundamentally believe our effective ascent strategy with NBS next and own a mindset, you know, division that structure that allows our teams to be entrepreneurial, certainly helps.

Speaker Change #106: markets are recovering nicely china is also doing well but you also have some of our non-wobal customers are do w ian customers in china have been a source of strength for our businessesso europe

Walter Liptak: So Europe, you know, Europe is still still in, you know, our organic growth there is a little weaker than our own, you know, but you have OEM customers there, our parts revenues are pretty good, our system revenues a little bit, you also see in Europe is our ARAG impact is also, you know, it's because your ARAG is mostly a European business.

Speaker Change #106: europe is still stoin our organic growloth there is a little weaker than our own but

Speaker Change #107: you have oem customers there our part revenues are pretty good or system revenies a little bit you also see in europe is our arag impact is also you know because your era is mostly year european business

Walter Liptak: Okay, great.

Sundaram Nagarajan: The core strength of the company still remains. Singh, diversified and markets, systems and high recurring revenues, close to the customer model, playing with differentiated products. All of these core strengths is what makes Nordson successful. Now I am incredibly proud of our team because at varying economic demand conditions, our team consistently over the last three years have delivered 30 plus percent EBITDA margins. And, you know, that is not sane for everybody, you know, in some cases we've had to adjust costs in some cases we have to invest ahead of the curve.

Speaker Change #108: okay great appreciate the color

Matt Somerville: Your next question comes from the line of Matt Somerville from DA Davidson.

Walter Liptak: Appreciate the color.

Speaker Change #108: your next question comes from the line of chris daner from loopke capital markets your line is open

Matt Somerville: Your line is open.

Matt Somerville: Good morning.

Chris Dankert: Your next question comes from the line of Chris Dankert from Loop Capital

Speaker Change #109: anymorning says before i taken the questions

Chris Daner: morning i guess first i guess first off if we do kind of look at backlog a little bit more can you just maybe give us some comments on how a complexion there how the systems are kind of normalizing as a part of that mix

Sundaram Nagarajan: The business has gone through supply chain issues and certainly have had to go through some issues, and so the margins have degraded for them in the last couple of years, as you can see in the public information.

Speaker Change #111: would you agree this about one hundred million or sttle left of kind of elevated backlog versus not may just some commentary around how you see that piece business and how it's progressing

Canyon Haze: You've got Canyon Haze on for Matt Somerville today.

Chris Dankert: Markets.

Canyon Haze: So I just wanted to start with a quick review on implied guidance in the fourth quarter.

Chris Dankert: Your line is open.

Speaker Change #112: yeah you know if you think about our dialcloue you know it's important levels that where the business was historically

Canyon Haze: And I was curious how your thoughts might have progressed relative to the prior quarter, on IPS, ATS, and MFS organic growth.

Chris Dankert: Hey, morning, guys, thanks for taking the questions.

Speaker Change #112: and historically was around four hundred four hundred fifty million dollars of course in this incredible period of time

Canyon Haze: So, all right.

Sundaram Nagarajan: I think that that kind of goes to speak to our a sense strategy and NBS next road framework. Okay, great, yeah, no doubt the margin improvement has been there and it's good to see you getting some, you're able to shift around to these different markets.

Speaker Change #112: the business has grown

Canyon Haze: Thanks for the question.

Chris Dankert: Morning, I guess first, I guess first off, if we could kind of look at backlog a little bit more, can you just maybe give us some comments on how you see the complexion there, how the systems are kind of normalizing as a part of that mix?

Canyon Haze: Yeah.

Speaker Change #113: co the scale at which we would expect the normalized order historically normalized dialogue is different

Speaker Change #113: but the other thing that has also changed is customer or add are different

Sundaram Nagarajan: Okay, yeah, I guess maybe just to see if we can get some geographic thoughts, you know, how you're seeing, you know, some of the Asian markets are Europe, whenever you get any comments there. You know, if you think about different regions, still the US-based markets have been, you know, have been the best and have been the strongest. If you near-term look at our businesses in Asia-specific, particularly, they are benefiting from what we see in our electronic business, other electronic businesses are coming back.

Speaker Change #114: mean one example i would give you our medical businesses in the past we used to get large blanket orders that go into our backlog well that doesn't happen anymore

Speaker Change #114: or or our delivery performance are significantly improved and so you know we certainly have customers starting to have an expectation that we can ship thingss much faster than we have ever in our history

Chris Dankert: Would you agree there's about 100 million or so left of kind of elevated backlog versus normal, maybe just some some commentary around how you see that piece of the business and how it's progressing?

Speaker Change #114: so couple of different dynamics would we do see in our six hundred and forty six hundred and fifty million dollars backlog is

Chris Dankert: Yeah, you know, if you think about our backlog, you know, it's important to level set where the business was historically. And historically, it was around $400, $450 million. Of course, in this incredible period of time, the business has grown, so the scale at which, we would expect a normalized or historically normalized backlog is different, right?

Chris Dankert: But the other thing that has also changed is customer order patterns are different. One example I would give you in our medical businesses, in the past, we used to get large, blanket orders that go into our backlog.

Speaker Change #114: it is still weighted to our system businesses but if you think about our regular businesses which are bookand shiptype businesses they've all returned to normal orenttory normal backlogs

Sundaram Nagarajan: And so you see other Asia-packed markets are recovering nicely. China is also doing well, but you also have some of our non-world customers, our OEM customers in China, have been a source of strength for our businesses. So Europe, you know, Europe is still in, you know, our organic load there is a little weaker than our own, you know, but you have OEM customers there. Our parts of everything is a pretty good, our system of everything is a little bit. You also see in Europe is our air-ide impact. It's also, you know, it's because your air-ide gets mostly in European business.

Chris Dankert: Well, that doesn't happen anymore. Or our delivery performance has significantly improved, and so we certainly have customers, starting to have an expectation that we can ship things much faster than we have ever in our history. So, a couple of different dynamics.

Sundaram Nagarajan: Okay, great. Appreciate the color.

Chris Dankert: What we do see in our $640, $650 million backlog is it is still weighted to our system businesses, but if you think about our regular businesses, which are book and ship type businesses, they've all returned to normal order entry, normal backlogs, now for several quarters.

Chris Dankert: So, this is nothing new for us.

Speaker Change #114: out for several quarters so this is nothing new for us you know we continue to as our backlog comes down it is really our system business backlog coming down

Chris Dankert: We continue to, as our backlog comes down, it is really our system business backlog coming down.

Chris Dankert: Yeah, that's helpful, Carlos.

Agga: that that's helpful call thank you agga

Speaker Change #116: and then maybe just quickly on ara forgive me if i missedit i'viously you knowa littlebit more weakness in that end markket sales perspective but just curious how you're seeing the marin performance in that business how the team handling that the lower volumes any any other would be great

Chris Dankert: Thank you, Naga.

Chris Dankert: And then maybe just quickly on AIRAG, forgive me if I, missed it.

Speaker Change #117: yeah the margin performance has been really good you know the the company is performing at notes and like ebitdamergin levels

Chris Dankert: Again, obviously, a little bit more weakness in that end market from a sales perspective, but just curious how you're seeing the margin performance in that business how the team handling the lower volumes, any indicator would be great.

Saree Boroditsky: Appreciate that, and then you noted that you saw year-of-year growth in some of the test and inspection products on order basis could just quantify this and then provide some additional color and much drive in this improvement and how you see that expanding into 2025.

Chris Dankert: Your next question comes from a line of Chris Danker from Loop Capital Markets. Your line is open. Hey, morning guys, thanks for taking the questions. Morning. I guess first off, if we could kind of look at backlog a little bit more, can you just maybe give us some comments on how you could complexion there, how the systems are kind of normalizing as a part of that mix? Would you agree just about a hundred million or so left to kind of elevate it back, log versus normal? Let me just some commentary on how you see that piece of business and how it's progressing.

Saree Boroditsky: Thank you.

Speaker Change #118: and so we can be more pleased with the team i think we are focused on making sure we reinforce the things that we liked about the business

Chris Dankert: Yeah, the margin performance has been really good.

Saree Boroditsky: Yeah, thank you, Saree.

Chris Dankert: The company is performing, at Norton, like EBITDA margin levels.

Sundaram Nagarajan: You know, we see some pretty strong momentum in our optical and acoustic product lines, so optical is our cyber optics business.

Sundaram Nagarajan: What you find there is a lot of these applications are in the front end of the semiconductor manufacturing business, but also this is the business in terms of cyclicality with the first one to experience a downturn early last year.

Speaker Change #118: andwe'would like the technology in like the market presence in europe we liked

Speaker Change #118: the precion ag components that we are delivering to some of our largest customers so it is really important even in this downturn

Sundaram Nagarajan: So the momentum is pretty good. This business, you know, continues to have a pretty nice year-on-year growth from last year, so we're pretty excited about what we see in this business.

Speaker Change #118: staying focused on new product artments staying focused on customers that are going to generate the demand as the cycle comes back is where we are focused on

Saree Boroditsky: I appreciate the questions.

Sundaram Nagarajan: Yeah, you know, if you think about our backlog, you know, it's important to level set where the business was historic, and Historically was around $450 million. Of course, in this incredible period of time, the business has grown, the scale at which we would expect the normalized or historically normalized backlog is different. But the other thing that has also changed is customer oral patterns are different. One example I would give you in our medical businesses in the past, we used to get large blanket orders that go into our backlog.

Chris Dankert: And so, we couldn't be more pleased with the team.

Saree Boroditsky: Thank you.

Speaker Change #119: most of the integration is pretty much done we really like the team the team is doing wonderful they're getting to know n bs snacks that they're starting to have an enthusiasm on implementing it in their businesses

Matt Somerville: Your next question comes from a line of Matt Somerville from DA Davidson.

Speaker Change #119: and we as the company are learning to operate in italy right and it is it is a new geography for us but we've been in europe for long time we've been in europe for decades in germany and in uk

Matt Somerville: Your line is open.

Matt Somerville: Good morning.

Chris Dankert: I think we are focused on making sure we reinforce the things that we liked about the business. We liked the technology.

Chris Dankert: We liked the market presence in Europe.

Chris Dankert: We liked the precision, ag components that we are delivering to some of our largest customers.

Speaker Change #119: so this is adding a new country to our mix of businesses so overall integration going and well love the technology great people

Chris Dankert: So, it is really important, even in this downturn, staying focused on new product development, staying focused on customers that are going to generate the demand as this cycle comes back, is where we are focused on.

Matt Somerville: You've got Canyon Hayes on from Matt Somerville today.

Sundaram Nagarajan: Well, that doesn't happen anymore. Our delivery performance has significantly improved and so we certainly have customers starting to have an expectation that we can ship things much faster than we have ever in our history. So, a couple of different dynamics, what we do see in our $646 million backlog is it is still weighted to our system businesses. But if you think about our regular businesses, you know, which are book and ship type businesses, they've all returned to normal, order entry, normal backlogs out for several quarters. So, this is nothing new for us. You know, we continue to, as our backlog comes down, it is really our system business backlog coming down. Yeah, that that's helpful color.

Chris Dankert: You know, most of the integration is pretty much done.

Chris Dankert: We really like the team.

Chris Dankert: The team is doing, wonderful.

Matt Somerville: So I just wanted to start with a quick review on the implied guidance in the fourth quarter, and I was curious how your thoughts might have progressed relative to the prior quarter on IPS, ETS, and MFS organic growth.

Sundaram Nagarajan: Thank you, Naga.

Chris Dankert: They're getting to know NBS Next.

Chris Dankert: They're starting to have an enthusiasm on implementing it in their businesses.

Chris Dankert: And we, as a company, are learning to operate in Italy, right?

Speaker Change #119: they're integrating well into the company learning and b snnexts getting in our cadence of operations

Chris Dankert: And, you know, it is a new geography for us, but we've been in Europe for a long time.

Chris Dankert: So, overall, integration is going well.

Chris Dankert: We've been in Europe for decades, in Germany and in the UK.

Chris Dankert: Love the technology.

Chris Dankert: So, this is adding a new country, to our mix of businesses.

Chris Dankert: Great people.

Chris Dankert: They're integrating well into the company, learning NBS Next, getting in our cadence of operations.

Chris Dankert: So it's an exciting time.

Speaker Change #119: so it's an exciting time the market is not helping us but i think that is temporary in my opinion it will take time to come back but

Chris Dankert: You know, the market is not helping us, but I think that is temporary, in my opinion. You know, it'll take time to come back, but we are prepared, and we are focused on things that we need to be focused on, and not letting it distract us from a technology development perspective.

Chris Dankert: Understood.

Sundaram Nagarajan: So, all right, thanks for the quick review.

Speaker Change #119: but we are prepared and we are focused on things that we need to be focused on and not letting in letting to distracted from a technology development perspective

Chris Dankert: Thanks so much for the detail, Naga.

Sundaram Nagarajan: I get as far as our thoughts, you know, if you look at our underlying guidance, we pretty much were holding the base business, and so I would say our thoughts or things are playing.

Chris Dankert: Sure.

Speaker Change #120: understood thanks watch for the detail a

Canyon Haze: Yeah, could you – Go ahead.

Unknown Executive: That concludes our question and answer session.

Canyon Haze: I guess, as far as our thoughts, you know, if you look at our underlying guidance, we, pretty much – we're holding the base business.

Sundaram Nagarajan: I will now turn the call back over to Naga for closing remarks.

Canyon Haze: And so, I would say our thoughts are things are playing – the year is playing out about, as expected for the fourth quarter.

Speaker Change #120: sho

kno over: that concludes our question -and-answer session i will now turn the call back over to kno over a closing remarks

Canyon Haze: But maybe you can give me a little bit more color behind your question.

Sundaram Nagarajan: Thank you for your time and attention on today's call.

Canyon Haze: I apologize.

Canyon Haze: I think I might have cut out there.

Canyon Haze: But I think I got what I needed there.

Jeffrey Hammond: Growth drivers remain the same.

Sundaram Nagarajan: The long-term profitable growth strategy that fuels our total shareholder value remains strong.

Canyon Haze: Okay.

Jeffrey Hammond: So it is kind of tough to call when this changes, but the procedure volumes are up.

Speaker Change #122: thank you for your time and attention on today's call the long-term profitable growth strategy that fuels our total shareholder value remains strong

Canyon Haze: Across the broader industrial space, we've seen project activity get pushed out a little, bit as a function of rates, macro, geopolitical, election concerns.

Jeffrey Hammond: So there is nothing going on there.

Canyon Haze: I'd be curious if we could get a little bit of color on how that is not affecting Nordson and how we can think about how that implies into the 2025.

Jeffrey Hammond: We see some insourcing, but look, these projects and products, when they are given to a company, there is regulations that are approvals, FDA approvals, and all of these things that are associated with winning a project, it is very difficult for, these businesses tend to be a lot more sticky, let's put it that way.

Sundaram Nagarajan: The years playing out about as expected for the fourth quarter, but maybe you can give me a little bit more color behind your question.

Canyon Haze: Yeah.

Jeffrey Hammond: And so, if you think about this.

Canyon Haze: Obviously, we're not talking about 2025, so we want to make sure we will have a chance, to talk about it in a couple months from now.

Jeffrey Hammond: And it is tough to call this when this is going to turn.

Sundaram Nagarajan: I apologize.

Canyon Haze: But as we think about end market conditions within the company as it stands today, it's good to remind ourselves, Nordson has a very diversified portfolio, diversified in end markets, diversified in geography, diversified in systems and consumables or recurring revenues.

Jeffrey Hammond: You know, we have strong, these are small set of customers, this is not a broad, you, know, thousands of customers. These are a handful of medical device customers that we have strong relationships with and, we are in touch with them, we understand where things are.

Canyon Haze: That's an important piece of the puzzle here.

Jeffrey Hammond: So you know, I'm trying to paint a picture for you of the overall environment, but not, giving you an exact answer that I recognize that.

Pezan: Is that how we should be thinking about that?

Sundaram Nagarajan: We look forward to seeing you in person at our New York Investor Day on October 3rd, 2024.

Canyon Haze: If you think about segment by segment, what we see here in IPS is a business non-ARAG, without our ag business.

Jeffrey Hammond: Nope, that's okay.

Pezan: Yeah, what I would tell you is that is what we are experiencing right now.

Canyon Haze: Think of that as a slight growth to flattish after two record years, 13 out of 15 quarters, year-on-year organic growth. I think that's an important context to remember.

Jeffrey Hammond: And then each round, I just want to kind of unpack, unpack the deal impacts, it seems, like, you know, they did 169 million in 23, they were saying high single digit growth, you know, we only have kind of a stub quarter in the fourth quarter, but just, you know, what what's kind of the next 12 months run rate of revenue we should think about, you know, where do we snap lines on EBIT, EBIT, EBIT EBIT margins?

Pezan: You know, if you think about last year, this business grew in the teens.

Canyon Haze: We see order entry to be pretty steady, and so our expectation is this part of our business remains steady.

Jeffrey Hammond: How should we think about incremental interest, the AMRT, ADVAC, DNA, etc.

Pezan: Typically, this business goes anywhere from six to eight percent.

Canyon Haze: There are a couple of things that if you want to add a little bit more color to our IPS segment, our recurring revenue is pretty high here. It is north of 50%, and you expect when folks are sort of deferring capex spend, they are going to increase their recurring revenues.

Jeffrey Hammond: Just a little more color there.

Pezan: So growing at six, you know, mid-teens, that's pretty high, right?

Speaker Change #122: we look forward to seeing you in person at our new york investor day on october third two thousand and twenty-four have a great dayate

Canyon Haze: So that's one piece of it.

Jeffrey Hammond: So let me get paint some broad pictures, and then Dan can take you through a little bit, more detail.

Pezan: And so what we are experiencing today in the orders is really in some adjustment to that.

Canyon Haze: The other piece of it is you have a couple of our businesses like the non-wovens where we see some pretty good order entry pickup, and so that is certainly helping this business.

Jeffrey Hammond: Right broadly, you want to think about this as a mid single digit company.

Pezan: If you look at procedure volumes, look at our project activity, look at our product development work, we fundamentally believe that the long-term pieces of growth in this business is intact.

Sundaram Nagarajan: I think I'm out of cut-out there, but I think I got what I needed there.

Canyon Haze: One thing to remember is that you do have other sort of large capex spends around big trends looking like electric battery vehicles still activity, although the overall market is down.

Jeffrey Hammond: That's what this business is.

Pezan: You know, certainly it is difficult to time.

Canyon Haze: You have automotive electronics, fabric bonding, recapitalization of our base, reshoring, e-commerce packaging, so a number of trends that are helping us to make small wins.

Jeffrey Hammond: You also want to think in terms of EBITDA margin performances, it is below their historical, performance, mainly because of supply chain issues and some operational issues that they have had.

Pezan: We see certain amount of, we do see some amount of slowness, right?

Unknown Executive: Have a great day.

Sundaram Nagarajan: Across the broader industrial space, we've seen project activity get pushed out a little bit as a function of rates, macro, geopolitical, you know, election concerns.

Canyon Haze: These are not big home runs like we like to call them.

Jeffrey Hammond: We fully expect and our model recognizes and the synergies we have signed up for are based, on the fact that we resolve many of these and over a period of two years, right, over the period of time we have said we would achieve these synergies, over a period of two years, we see a good path to achieving these synergies using NBS next.

Pezan: So I want to be, clear about what we're talking about.

Sundaram Nagarajan: I'd be curious if we could get a little bit of color on how or how is that is not affecting Nordson and how we can think about how that implies into the 2025.

Sundaram Nagarajan: And then maybe just quickly on air. I forgive me if I missed it again. I'll see you know, a little bit more weakness in that and mark it from a sales perspective, but just curious how you're seeing the margin performance in that business, how the team handle and that the lower volumes, any anything that would be great. Yeah, the margin performance has been really good. You know, the company is performing at Northson, like David, at margin levels.

Canyon Haze: These are singles and doubles, but that's what this segment is about.

Jeffrey Hammond: I want to say somewhere in 26, this business gets back to noughts and light EBITDA margins, which is what this business historical performance was.

Pezan: You know, it is tough times, but also we see slowness.

Andrew Baskaglia: Your line is open.

Unknown Executive: This concludes today's conference call.

Canyon Haze: It is about working on end-market applications and winning those application by application, so a steady outlook for IPS helped by recurring revenues.

Jeffrey Hammond: So let me give with that sort of high level, Dan, if you want to add a little bit more, color to the questions you have asked.

Pezan: And when, as you think about when do we get out of this, you know, certainly there are some amount of, device manufacturers thinking about their inventory levels and adjusting them to reasonable levels.

Canyon Haze: On ATS, we do see order entry starting to pick up.

Jeffrey Hammond: Yeah, and I guess what I would say is, A, there is no surprise based on their second, quarter results versus what we expected to see in the business.

Pezan: Could that be an impact from interest rates?

Sundaram Nagarajan: Yeah, you know, obviously we're not talking about 2025, so we want to make sure, you know, we will have a chance to talk about it in a couple of months from now.

Canyon Haze: We are being cautious here.

Jeffrey Hammond: I think it is right in line with our modeling.

Pezan: It's difficult for me to guess any of that.

Sundaram Nagarajan: But as we think about end market conditions within the company as it stands today, you know, it's good to remind ourselves, Nordson has a very diversified portfolio diversified in end markets diversified in geography diversified.

Canyon Haze: This is an end market that has been cyclical, but we are modestly seeing order entry pickup.

Jeffrey Hammond: I think I would say as far as specific guidance for next year, give us a quarter.

Pezan: But I would say we do see a conservative cautious order pattern from our medical device customers.

Speaker Change #123: this concludes today's conference call thank you for your participation you may now disconnect

Canyon Haze: We saw a sequential revenue growth in this segment when compared to last quarter, and so that is coming back, and we talked a little bit about optical and acoustic product lines in the last hand.

Jeffrey Hammond: We have owned the business for a day.

Pezan: Understood.

Canyon Haze: Our medical and fluid solutions segment, you know, what you see is a tough comparison when, compared to last year where this business grew significantly.

Jeffrey Hammond: We know what we know, which is largely public information that you have access to as well.

Pezan: That's helpful, Naga.

Canyon Haze: And what you also find is that customers, particularly supply chain teams of medical, device customers, after very unique years of pandemic supply chain, being very cautious about their inventory levels.

Jeffrey Hammond: Again, nothing that we have seen surprises us, and, in fact, we are very comfortable, with the model that we had for the acquisition.

Pezan: And then maybe if we could stay on MFS a little bit.

Canyon Haze: So we do see weakness in the order entry in this segment.

Jeffrey Hammond: We will give a little more color on that as we give color to next year, next quarter.

Pezan: I think I may have missed it earlier on the call.

Canyon Haze: Long term, we are excited about this business.

Jeffrey Hammond: Okay.

Pezan: Could you help me on the fluid component side and then on EFD?

Canyon Haze: This is a business with very strong growth drivers, aging population, as I talked about, in my opening remarks, aging population, increased health, chronic conditions, increased procedure volumes.

Jeffrey Hammond: I appreciate it.

Pezan: Yeah.

Canyon Haze: All of that feels, makes us confident about this.

Jeffrey Hammond: Yeah.

Pezan: EFD, can you help me out a little bit on the terms there?

Canyon Haze: And we continue to have long term project conversations with our customers.

Mike Holleran: Your next question comes from the line of Mike Holleran from Baird.

Pezan: Sure.

Canyon Haze: And that is very active and healthy.

Mike Holleran: Your line is open.

Pezan: Sure.

Canyon Haze: We also have new product development work that we are continuing to work on in here.

Mike Holleran: Hey, good morning, everyone.

Pezan: EFD is doing well.

Canyon Haze: And finally, you know, Atrion is an exciting add to this segment.

Pezan: This is Pezan for Mike.

Pezan: Order entries are returning.

Canyon Haze: And you know, we expect that Atrion's products increases the addressable market for this, segment nicely.

Pezan: I want to go back to the conservative order comment from the interventional side of the, business.

Pezan: We do see, I think we commented maybe a couple of quarters ago that this was one of those businesses where we're seeing early indicators of electronics customers starting to order more. This business is, the order entry in this business is pretty encouraging.

Sundaram Nagarajan: In systems and consumables are recurring revenues, right, so that's an important piece of the puzzle here.

Jeffrey Hammond: Your next question comes from the line of Jeffrey Hammond from KeyBank Capital Markets.

Pezan: To be clear, is this incremental to the tough comps that we are expecting in the back half, of this calendar year?

Pezan: And a lot of the work that they're doing in Asia-based electronic customers is pretty encouraging.

Jeffrey Hammond: Your line is open.

Pezan: You know, is this simply a cost-to-carry inventory discussion, and then, you know, consequently, should we be expecting de-stocking in the near term and a more normal cadence as customers kind of get to that new desired level of inventory?

Pezan: Understood.

Jeffrey Hammond: Hi, good morning, guys.

Pezan: Thanks.

Jeffrey Hammond: Good morning.

Pezan: I'll pass it on.

Sundaram Nagarajan: So, if you think about segment by segment, what we see here in IPS is a business non-airag without our ag business.

Jeffrey Hammond: Morning.

Unknown Executive: Again, if you'd like to ask a question,

Jeffrey Hammond: So I want to start with this, this kind of medical interventional, I guess it's normalization, or destocking.

Unknown Executive: press star 1 on your telephone keypad.

Jeffrey Hammond: It seems like that's kind of a newer dynamic.

Unknown Executive: Your next question comes from the line of

Jeffrey Hammond: And I'm just wondering how long you think that persists before, you know, inventories, are kind of, you know, or supply chains are back to normal.

Andrew Baskaglia: Andrew Baskaglia from BNP Paribas.

Jeffrey Hammond: Yeah.

Jeffrey Hammond: You know, as we talked about, you know, there are two things going on here.

Jeffrey Hammond: A, in our biopharma business that is stabilized, that is starting to come back.

Sundaram Nagarajan: Think of that as a slight growth to fly dish after two record years, 13 out of 15 quarters, yet on yet organic growth.

Sundaram Nagarajan: And so we can be more pleased with the team. I think we are focused on making sure we reinforce the things that we liked about the business. We like the technology, we like the market presence in Europe. We liked, you know, the position, Ag components that we are delivering to some of our largest customers.

Jeffrey Hammond: In terms of our interventional business, last year, these businesses were up 15, 16%.

Jeffrey Hammond: And so you have, you're dealing with some tough comps.

Jeffrey Hammond: Certainly, supply chain is something that, you know, we find our customers to be a lot, more cautious today than they were a year ago.

Sundaram Nagarajan: So, I think that's an important context to remember.

Sundaram Nagarajan: We see order entry to be pretty steady, and so our expectation is this part of our business domain study.

Sundaram Nagarajan: So, that's one piece of it.

Sundaram Nagarajan: So it is really important, even in this downturn, staying focused on new product development, staying focused on customers that are going to generate the demand as the cycle comes back is where we are focused on. You know, most of the integration is pretty much done. We really like the team. The team is doing wonderful. They're getting to know and be a snack. They're starting to have an enthusiasm on implementing it in their businesses.

Sundaram Nagarajan: The other piece of it is you have a couple of our businesses like the nonwoons where we see some pretty good order entry pickup and so that is certainly helping this business.

Sundaram Nagarajan: And we as a company are learning to operate in Italy, right? And, you know, it is, it is a new geography for us. But we've been in Europe for a long time. We've been in Europe for decades in Germany and in UK. So this is adding a new country to our mix of businesses. So overall integration going well, love the technology, great people. They're integrating well into the company and learning and be a snack, getting in our cadence of operations.

Sundaram Nagarajan: So it's an exciting time, you know, the market is not helping us, but I think that is temporary in my opinion, you know, you'll take time to come back, but but we are prepared and we are focused on things that we need to be focused on and not letting in letting the distracted from a technology development perspective. Understood, thanks so much for the decalaga. Sure.

Sundaram Nagarajan: So, so number of trends that are helping us to make small wins.

Sundaram Nagarajan: So, these are not big home runs like we like to call them.

Sundaram Nagarajan: These are single cent doubles, but that's what this segment is about.

Sundaram Nagarajan: That concludes our question and answer session.

Sundaram Nagarajan: I will now turn the call back over to Nagar for closing remarks. Thank you for your time and attention on today's call. The long term profitable growth strategy that fuels our total shareholder value remains strong.

Sundaram Nagarajan: It is about working on end market applications and willing those application by application.

Sundaram Nagarajan: So a steady outlook for IPS helped by recurring revenues.

Sundaram Nagarajan: We look forward to seeing you in person at a New York investor day on October 3rd, 2024. Have a great day.

Sundaram Nagarajan: On ATS, we do see auto entry starting to pick up, you know, we are being cautious here.

Sundaram Nagarajan: This is an end market that has been that has been cyclical, but we are modestly seeing auto entry pickup. We saw a sequential revenue growth in this segment when compared to last quarter.

Unknown Executive: This concludes today's conference call. Thank you for your participation. You may now just get back.

Sundaram Nagarajan: And so, so that is coming back and we talked a little bit about optical and acoustic product lines in the last end.

Sundaram Nagarajan: Sir, our medical and fluid solution segment, you know, what you see is a tough comparison, when compared to last year, where this business grew significantly, and what you also find is that customers, particularly supply chain teams of medical device customers after very unique years of pandemic supply chain, being very cautious about their inventory levels.

Sundaram Nagarajan: So we do see weakness in the order entry in this segment.

Sundaram Nagarajan: Long term, we are excited about this business. This is a business with very strong growth drivers, aging population, as I talked about in my opening remarks, aging population increase health chronic conditions, increase procedure volumes, all of that fuels, makes us confident about this, and we continue to have long term project conversations with our customers, and that is very active and healthy.

Sundaram Nagarajan: We also have new product development work that we are continuing to work on in here.

Sundaram Nagarajan: And finally, you know, Adrienne is an exciting ad to this segment, and you know, we expect that Adrienne's products increases the addressable market for this segment nicely.

Jeffrey Hammond: Your next question comes from a line of Jeffrey Hammond from Keybank Capital Markets.

Jeffrey Hammond: Your line is open.

Jeffrey Hammond: Hi, good morning, guys.

Jeffrey Hammond: Good morning.

Jeffrey Hammond: So I want to start with this kind of medical interventional, I guess it's normalization or destocking.

Sundaram Nagarajan: It seems like that's kind of a newer dynamic.

Sundaram Nagarajan: And I'm just wondering how long you think that persists before inventories are kind of, you know, or supply chains are back to normal.

Sundaram Nagarajan: Yeah.

Sundaram Nagarajan: You know, as we talked about, you know, there are two things going on here.

Sundaram Nagarajan: A, you know, buy a form of business that is stabilized, that is starting to come back.

Sundaram Nagarajan: In terms of our interventional business, last year these businesses were up 15, 16%.

Sundaram Nagarajan: And so you have your dealing with some tough coms.

Sundaram Nagarajan: Certainly supply chain is something that, you know, we find our customers to be a lot more cautious today than they were a year ago.

Sundaram Nagarajan: Growth drivers remain the same.

Sundaram Nagarajan: So it is kind of tough to call when this changes, but the procedure volumes are up.

Sundaram Nagarajan: So there is nothing going on there.

Sundaram Nagarajan: We see some in sourcing, but look, these projects and products, when they are given to a company, there is regulations that are approvals, FDA approvals and all of these things that are associated with winning a project.

Sundaram Nagarajan: It is very difficult for these businesses tend to be a lot more sticky, let's put it that way.

Sundaram Nagarajan: And so, if you think about this, It is tough to call this when this is going to turn.

Sundaram Nagarajan: You know, we have strong, these are small set of customers.

Sundaram Nagarajan: This is not a broad, you know, thousands of customers.

Sundaram Nagarajan: These are a handful of medical device customers that we have strong relationships with and we are in touch with them.

Sundaram Nagarajan: We understand what things are.

Sundaram Nagarajan: So, you know, I'm trying to paint the picture for you of the old, all environment, but not giving you an exact answer.

Sundaram Nagarajan: I've recognized that.

Sundaram Nagarajan: No, that's okay.

Jeffrey Hammond: Um, and then each, I just want to kind of unpack, unpack the deal impacts.

Jeffrey Hammond: It seems like, you know, they did 169 million in 23.

Jeffrey Hammond: They were saying, I single, there's your growth.

Jeffrey Hammond: You know, we only have kind of a stuff quarter and a fourth quarter, but just, you know, what, what's kind of the next 12 months run rate of revenue.

Jeffrey Hammond: We should think about, you know, where do we snap lines on even even even even margins.

Jeffrey Hammond: How should we think about incremental interest, the hammer add back DNA, etc.

Sundaram Nagarajan: Just a little more color there.

Sundaram Nagarajan: So, let me get a good paint some broad pages and then Dan can take you through a little bit more detail.

Sundaram Nagarajan: Right broadly, you want to think about this as a mid single digit company.

Sundaram Nagarajan: That's what this business is.

Sundaram Nagarajan: You also want to think in terms of EBITDA margin performances. It is below their historical performance mainly because of supply chain issues and some operational issues that they have had.

Sundaram Nagarajan: We see a good path to achieving these synergies using NBS.

Sundaram Nagarajan: I want to say somewhere in 26, this business gets back to Northson like EBITDA margins, which is what this business historical performance was.

Daniel Hopgood: So, let me give with that sort of high level, Dan, if you want to add a little bit more color to the questions you have asked.

Daniel Hopgood: Yeah, and I guess what I'd say is, you know, A, there's no surprise based on their second quarter result versus, you know, what we expected to see in the business.

Daniel Hopgood: I think it's right in line with our modeling.

Daniel Hopgood: I think, you know, I would say as far as specific guidance for next year.

Daniel Hopgood: You know, give us a quarter.

Daniel Hopgood: We've we've owned the business for a day.

Daniel Hopgood: We know what we know, which is largely public information that you have access to as well.

Daniel Hopgood: But again, nothing that we've seen surprises us.

Daniel Hopgood: And in fact, we're very comfortable with the model that we had to the acquisition.

Daniel Hopgood: We'll give a little more color on that as we as we give color to next year, next quarter.

Daniel Hopgood: Okay, appreciate it.

Daniel Hopgood: Yeah.

Michael Halloran: Your next question comes from a line of Mike Hollerin from Baird.

Michael Halloran: Your line is open.

Michael Halloran: A good morning, everyone.

Michael Halloran: This is Peasant from Mike.

Michael Halloran: I want to go back to the conservative order comment from the interventional side of the business.

Michael Halloran: To be clear, is this incremental to the tough comp that you're expecting in the back half of this calendar year?

Michael Halloran: You know, is this is this simply a cost to carry inventory discussion?

Michael Halloran: And then, you know, consequently, should we be expecting destocking in the near term and more normal cadence as customers kind of gets that new desired level of inventory is that that how we should be thinking about that.

Sundaram Nagarajan: Yeah, what I would tell you is, that is what we are experiencing right now.

Sundaram Nagarajan: You know, if you think about last year, this business grew in the teens, typically this business grows anywhere from six to eight percent. So growing at six, you know, mid teens, that's pretty high.

Sundaram Nagarajan: Right.

Sundaram Nagarajan: And so what we are experiencing today in the orders is really in some adjustment to that.

Sundaram Nagarajan: If you look at procedure volumes, look at our project activity, look at our product development work, we fundamentally believe that the long term pieces of growth in this business is intact.

Sundaram Nagarajan: You know, certainly, it's difficult to time.

Sundaram Nagarajan: We see certain amount of, we do see some amount of slowness, right.

Sundaram Nagarajan: So I want to be clear about what we're talking about.

Sundaram Nagarajan: You know, it is tough comes, but it will also we see slowness.

Sundaram Nagarajan: And when, as you think about when do we get out of this, you know, certainly there are some amount of device manufacturers thinking about their inventory levels and adjusting them to the reasonable levels.

Sundaram Nagarajan: Could that be an impact from interest rates.

Sundaram Nagarajan: It's difficult for me to guess any of that.

Sundaram Nagarajan: But I would, but I would say we do see a conservative cautious order pattern from our medical device customers.

Sundaram Nagarajan: Understood, that's, that's helpful.

Michael Halloran: And then maybe if we could stay on MFS a little bit, I think I may have missed it earlier on the call.

Michael Halloran: Could you, could you help you have a smooth component side.

Michael Halloran: And then on the FD.

Michael Halloran: Yeah, you helped me out a little bit on the terms there.

Michael Halloran: Sure.

Sundaram Nagarajan: EFD is doing well.

Sundaram Nagarajan: Order entries are returning.

Sundaram Nagarajan: We do see.

Sundaram Nagarajan: I think we commented maybe a couple of quarters ago that this was one of those businesses.

Sundaram Nagarajan: We're seeing early indicators of electronics customers starting to order more.

Sundaram Nagarajan: This business is the order entry in this business is pretty encouraging.

Sundaram Nagarajan: And, and a lot of the work that they're doing in Asia based electronic customers is pretty encouraging.

Sundaram Nagarajan: I'll pass it on.

Unknown Executive: Again, if you'd like to ask a question, press star one on your telephone keypad.

Andrew Buscaglia: Your next question comes from line of Andrew Viscaglia from BNP Parabost.

Andrew Buscaglia: Your line is open.

Andrew Buscaglia: Good morning, guys.

Andrew Buscaglia: This is Ed on for Andrew.

Andrew Buscaglia: Thanks for taking my questions.

Sundaram Nagarajan: In the prepared marks, you mentioned the mix of cash and at to find the deal, which puts it about two to an half times leverage closing 2024.

Sundaram Nagarajan: But the strong free cash low profile leverage manager will hear fresh us and how you're thinking about M&A and more specifically what remains in the pipeline.

Sundaram Nagarajan: Let me start first and then Dan will sort of take over for a couple of other comments that are on capital deployment.

Sundaram Nagarajan: Look, our our commitment to organic growth and having a balanced acquisition, let growth remains the same, but it's not changed there. Our strategic and financial criteria for acquisition remain the same.

Sundaram Nagarajan: We feel we feel strongly about how we have been able to be disciplined around the strategic criteria for what acquisitions were adding to the portfolio and pretty disciplined around the financial rigor on what we need to do with a particular acquisition that allow us to deliver the returns we target.

Sundaram Nagarajan: So, our pipeline remains pretty healthy and we are open to many different types of deals and you've seen that over the past year and we continue to work the pipeline.

Daniel Hopgood: And obviously with just completing the acquisition for HREM, we'll be at the higher end of that, but that will be temporary and maybe the best example to give you is we saw a similar thing happen last year when we acquired ARAG and then as of the end of this quarter, we're back down to 1.6 times leverage.

Daniel Hopgood: So we've got obviously plenty of capacity and with our cash flow profile as you point out, we can quickly de-leather.

Daniel Hopgood: And as Naga mentioned, we have been active pipeline and when the right deal comes along, we'll be ready to move forward.

Daniel Hopgood: Great to hear.

Daniel Hopgood: And then Dan back to you for this one.

Daniel Hopgood: You've been CFL for about a quarter now.

Daniel Hopgood: You come to a company which is a great progress in margin expansion.

Daniel Hopgood: From your initial assessments, what areas are you seeing in the business and opportunities for further improvements in there?

Daniel Hopgood: Yeah, I appreciate the question.

Daniel Hopgood: Yeah, I guess I'll say this and Naga and I spend a lot of time on our best opportunity as a company is continuing to grow organically, which is our major focus.

Daniel Hopgood: Our margins are very healthy. Our cash flow is very healthy.

Daniel Hopgood: Squeezing margins is not the best use of our time.

Daniel Hopgood: Our time is better spent, figuring out how to continue to grow the company organically and organically.

Daniel Hopgood: Very helpful, thanks.

Walter Liptak: Your next question comes from a line of Walter LePack from Seaport Research Partners.

Walter Liptak: The line is open.

Walter Liptak: Hey, good morning, guys.

Walter Liptak: Good morning.

Walter Liptak: One day I kind of follow on to the that IPS segment question and get some color around the stable sort of low single digit outlook for IPS.

Walter Liptak: And I guess what I'm trying to get to is that we have seen other similar industrial companies, you know, kind of pauses in their, you know, industrial goods businesses, especially longer, you know, term, you know, kind of project businesses.

Walter Liptak: I wonder if you can provide just some more color around, you know, geographic regions, China, Europe, you know, versus North America.

Walter Liptak: And you called out some growth areas.

Walter Liptak: And I wonder how much of, you know, the focus of from NBS next helps you to gain market share in some of those growing markets, as opposed to maybe some others that might be weaker.

Walter Liptak: Yeah.

Sundaram Nagarajan: Let's maybe give you some, you know, a little bit of color into a couple of the divisions and where, where we're thinking.

Sundaram Nagarajan: Thank you.

Sundaram Nagarajan: You know, first and foremost, you know, this is year four of NBS next, you know, clearly within our businesses and IPS being one of those businesses which were very first implemented and couple of other MFS businesses to be implemented next.

Sundaram Nagarajan: What you find here is we operate in a diversified set of N market niches and in some of these cases, you know, particularly in IPS, what you find is certain N markets are have high demand or growing and having investments at a particular time.

Sundaram Nagarajan: So for each of our division leaders, understanding each of these N markets, N market niches and being agile and entrepreneurial and shifting resources from one N market to another to another is a great way for us to continue to participate in markets that are growing.

Sundaram Nagarajan: And really so for a period of time markets that are not growing right so it is a dynamic set of N market niches that the teams are operating in.

Sundaram Nagarajan: NBS next allows them to be able to have clarity around those applications and be able to shift one one to another.

Sundaram Nagarajan: So that is, you know, that that certainly helps us that allows us to have the steady performance which you see on the outside, but within the company within the divisions, you do see some, you know, some markets doing well others, you know, not doing so well.

Sundaram Nagarajan: Yes, that is possibility.

Sundaram Nagarajan: But overall, you know, we are very pleased with how our teams are using NBS next.

Sundaram Nagarajan: Because we constantly talk within the company, the best opportunity for Northson, for our businesses is growth.

Sundaram Nagarajan: And understanding your best customers, understanding your best market opportunities, deploying your differentiated products to those, that's the ticket to win.

Sundaram Nagarajan: And so, so really, you know, these market conditions are dynamic and different.

Sundaram Nagarajan: But I fundamentally believe our effective ascent strategy with NBS next and own a mindset, you know, division that structure that allows our teams to be entrepreneurial, certainly helps.

Sundaram Nagarajan: All of these core strengths is what makes Nordson successful.

Sundaram Nagarajan: Now I am incredibly proud of our team because at varying economic demand conditions, our team consistently over the last three years have delivered 30 plus percent EBITDA margins.

Sundaram Nagarajan: And, you know, that is not sane for everybody, you know, in some cases we've had to adjust costs in some cases we have to invest ahead of the curve.

Sundaram Nagarajan: I think that that kind of goes to speak to our a sense strategy and NBS next road framework.

Sundaram Nagarajan: Okay, great, yeah, no doubt the margin improvement has been there and it's good to see you getting some, you're able to shift around to these different markets.

Sundaram Nagarajan: You know, if you think about different regions, still the US-based markets have been, you know, have been the best and have been the strongest.

Sundaram Nagarajan: If you near-term look at our businesses in Asia-specific, particularly, they are benefiting from what we see in our electronic business, other electronic businesses are coming back.

Sundaram Nagarajan: And so you see other Asia-packed markets are recovering nicely.

Sundaram Nagarajan: China is also doing well, but you also have some of our non-world customers, our OEM customers in China, have been a source of strength for our businesses.

Sundaram Nagarajan: So Europe, you know, Europe is still in, you know, our organic load there is a little weaker than our own, you know, but you have OEM customers there.

Sundaram Nagarajan: Our parts of everything is a pretty good, our system of everything is a little bit.

Sundaram Nagarajan: You also see in Europe is our air-ide impact.

Sundaram Nagarajan: It's also, you know, it's because your air-ide gets mostly in European business.

Sundaram Nagarajan: Okay, great.

Sundaram Nagarajan: Appreciate the color.

Christopher Dankert: Your next question comes from a line of Chris Danker from Loop Capital Markets.

Christopher Dankert: Your line is open.

Christopher Dankert: Hey, morning guys, thanks for taking the questions.

Christopher Dankert: Morning.

Christopher Dankert: I guess first off, if we could kind of look at backlog a little bit more, can you just maybe give us some comments on how you could complexion there, how the systems are kind of normalizing as a part of that mix?

Christopher Dankert: Would you agree just about a hundred million or so left to kind of elevate it back, log versus normal?

Sundaram Nagarajan: Let me just some commentary on how you see that piece of business and how it's progressing.

Sundaram Nagarajan: But the other thing that has also changed is customer oral patterns are different.

Sundaram Nagarajan: One example I would give you in our medical businesses in the past, we used to get large blanket orders that go into our backlog.

Sundaram Nagarajan: So, a couple of different dynamics, what we do see in our $646 million backlog is it is still weighted to our system businesses.

Sundaram Nagarajan: But if you think about our regular businesses, you know, which are book and ship type businesses, they've all returned to normal, order entry, normal backlogs out for several quarters.

Sundaram Nagarajan: So, this is nothing new for us.

Sundaram Nagarajan: You know, we continue to, as our backlog comes down, it is really our system business backlog coming down.

Sundaram Nagarajan: Yeah, that that's helpful color.

Sundaram Nagarajan: Thank you, Naga.

Sundaram Nagarajan: And then maybe just quickly on air.

Sundaram Nagarajan: I forgive me if I missed it again.

Sundaram Nagarajan: I'll see you know, a little bit more weakness in that and mark it from a sales perspective, but just curious how you're seeing the margin performance in that business, how the team handle and that the lower volumes, any anything that would be great.

Sundaram Nagarajan: Yeah, the margin performance has been really good.

Sundaram Nagarajan: You know, the company is performing at Northson, like David, at margin levels.

Sundaram Nagarajan: And so we can be more pleased with the team.

Sundaram Nagarajan: I think we are focused on making sure we reinforce the things that we liked about the business. We like the technology, we like the market presence in Europe. We liked, you know, the position, Ag components that we are delivering to some of our largest customers.

Sundaram Nagarajan: You know, most of the integration is pretty much done.

Sundaram Nagarajan: We really like the team.

Sundaram Nagarajan: The team is doing wonderful.

Sundaram Nagarajan: They're getting to know and be a snack.

Sundaram Nagarajan: They're starting to have an enthusiasm on implementing it in their businesses.

Sundaram Nagarajan: And we as a company are learning to operate in Italy, right?

Sundaram Nagarajan: And, you know, it is, it is a new geography for us.

Sundaram Nagarajan: But we've been in Europe for a long time.

Sundaram Nagarajan: We've been in Europe for decades in Germany and in UK.

Sundaram Nagarajan: So this is adding a new country to our mix of businesses.

Sundaram Nagarajan: So overall integration going well, love the technology, great people.

Sundaram Nagarajan: They're integrating well into the company and learning and be a snack, getting in our cadence of operations.

Sundaram Nagarajan: Understood, thanks so much for the decalaga.

Sundaram Nagarajan: Sure.

Unknown Executive: That concludes our question and answer session.

Sundaram Nagarajan: I will now turn the call back over to Nagar for closing remarks.

Sundaram Nagarajan: Thank you for your time and attention on today's call.

Sundaram Nagarajan: The long term profitable growth strategy that fuels our total shareholder value remains strong.

Sundaram Nagarajan: We look forward to seeing you in person at a New York investor day on October 3rd, 2024.

Sundaram Nagarajan: Have a great day.

Unknown Executive: This concludes today's conference call.

Unknown Executive: Thank you for your participation.

Unknown Executive: You may now just get back.

Q3 2024 Nordson Corp Earnings Call

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