Q4 2024 Nordson Corp Earnings Call
Thank you for standing by and welcome to the Norton Corporation 4th quarter fiscal year 2024 conference call. All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question and answer session. If you'd 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, again, press the star one. Thank you. I'd now like to turn the call over to Laura Mahoney, vice president of investor relations and corporate communication. You may be.
Operator: Thank you for standing by and welcome to the Nordson Corporation fourth quarter fiscal year 2024 conference call. All lines have been placed on mute to prevent any background noise.
Operator: After the speaker's remarks, there will be a question and answer session. If you'd 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 again, press the star one. Thank you.
Lara Mahoney: I'd now like to turn the call over to Lara Mahoney, Vice President of Investor Relations and Corporate Communication. You may begin.
Thank you. Good morning. This is Laura Mahoney, vice president of Investor relations and corporate communication.
Lara Mahoney: Thank you.
Lara Mahoney: Good morning. This is Lara Mahoney, Vice President of Investor Relations and Corporate Communications. We welcome you to our conference call today, Thursday, December 12, 2024 to report Nordson's fiscal year 2024 fourth quarter and full year results. I'm here with Sundaram Nagarajan, our President and CEO, and Dan Hopgood, Executive Vice President and Chief Financial Officer. You can find both our press release as well as our webcast slide presentation that we will refer to during today's call on our website at nordson.com forward slash invest. This conference call is being broadcast live on our investor website and will be available there for 14 days.
We welcome you to our conference call today, Thursday, December 12th, 2024 to report Nordense's fiscal year 2024, 4th quarter and full year results.
I'm here with syndrome Nagarajan, our president and CEO and Dan Hopgood, executive vice president and chief financial officer.
You can find both our press release as well as our webcast slide presentation that we will refer to during today's call on our website at Nordson.com/sh investors.
This conference call is being broadcast live on our investor website and will be available there for 14 days.
There will be a telephone replay of the conference call available until December 19, 2024.
Lara Mahoney: There will be a telephone replay of the conference call available until December 19, 2024. During this conference call, references to non-GAAP financial metrics will be made. Complete reconciliation of these metrics to the most comparable gap metric has been provided in the press release issued yesterday.
During this conference call, references to non-GAAP financial metrics will be made.
A complete reconciliation of these metrics to the most comparable gap metric has been provided in the press release issued yesterday.
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 expectations. These statements may involve a number of risks. Ascertainties, and other factors, as discussed in the company's filings with the Securities and Exchange Commission, that could cause actual results to differ.
Before we begin, please refer to slide 2 of our presentation where we note that certain statements regarding our future performance that are made during this call.
Maybe forward looking based upon Norton's current expectations.
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 differ.
Moving to today's agenda on flight 3.
Lara Mahoney: Moving to today's agenda on slide three. Naga will discuss fourth quarter and full year highlights. He will then turn the call over to Dan to review sales and earnings performance for the total company and the 3D business segment. Dan also will talk about the year end balance sheet and cash Naga will conclude with high-level commentary about our enterprise performance, including an update on the Ascend strategy, as well as our fiscal 2025 full year and first quarter guide.
Naga will discuss 4th quarter and full year highlights.
He will then turn the call over to Dan to review sales and earnings performance for the total company and the 3 business segments.
Then also we'll talk about the year end balance sheet and cash flow.
Naga will conclude with high level commentary about our enterprise performance including an update on the ascend strategy as well as our fiscal 2025 full year and 1st quarter guidance.
We will then be happy to take your questions.
Lara Mahoney: We will then be happy to take your questions.
With that, I'll turn to slide 4 and hand the call over to Naga.
Lara Mahoney: With that, I'll turn to slide four and hand the call over to Naga.
Good morning, everyone. Thank you for joining Norton Fiscal 2024, 4th quarter and full year conference call.
Sundaram Nagarajan: Good morning, everyone. Thank you for joining Nordson's FISCO 2024 fourth quarter and full year conference call. At Fiscal 2024, we continue to make progress on our Ascent Strategy. delivering record sales of $2.7 billion. and record EBITDA dollars of $849 million or 32% of sales. This is a testament to our employees who have, in the last four years, Deployed and delivered results with NBS Next, our growth framework, despite dynamic global macro conditions, end market changes, supply chain disruptions, and more. The core elements of our business model have enabled us to deliver profitable growth throughout these challenges.
In fiscal 2024.
We continue to make progress on our strategy.
Delivering record sales of $2.7 billion.
And record even dollars of $849 million or 32% of sales.
This is a testament to our employees.
who have in the last 4 years.
Deployed and delivered results with MBS next, our growth framework.
Despite
Dynamic global macro conditions.
And market changes, supply chain disruptions and more.
The core elements of our business model have enabled us to deliver profitable growth throughout these challenges.
This includes
Sundaram Nagarajan: This includes a steadfast focus on our customers. Commitment to innovation, diversified geographic and end market exposures, and a high level of recurring revenue through aftermarket parts and consumables. Since launching the Ascent strategy in 2021, we've added new capabilities to our business model, including the MDS Next growth framework and a division-led structure, which have empowered our teams to respond rapidly to changing market conditions.
A steadfast focus on our customers.
Commitment to innovation.
Diversified geographic and in market exposures.
And a high level of recurring revenue through aftermarket parts and consumables.
Since launching the Escent strategy in 2021.
We've added new capabilities to our business model, including the NBS next growth framework.
And a division led structure.
Which have empowered our teams to respond rapidly to changing market conditions.
I will speak more to the enterprise performance in a few moments.
Sundaram Nagarajan: I will speak more to the enterprise performance in a few moments. But I'll now turn the call over to Dan to provide more detailed perspective on our financial results for the quarter and fiscal year 2024.
But I'll now turn the call over to Dan to provide more detailed perspective on our financial results for the quarter and fiscal year 2024.
Thank you, Naga and good morning to everyone.
Daniel Hopgood: Thank you, Naga, and good morning to everyone.
I'll start on slide 5, which summarizes our overall results for the 4th quarter.
Daniel Hopgood: I'll start on slide five, which summarizes our overall results for the fourth quarter. You'll see fourth quarter 2024 sales were $744 million, up 4% compared to the prior year's fourth quarter sales of $719 million. The increase included 6% growth from acquisition. primarily from the recent atrium. but also the final weeks of contribution from the AIRAG acquisition that we completed in the prior. Currency translation was favorable by 1% and organic sales were down 3% compared to the fourth quarter of the prior year. The organic sales decrease was driven by challenging year-over-year comparisons. in our Industrial Precision Solutions segment.
You'll see 4th quarter 2024 sales for 744 million, up 4% compared to the prior year's 4th quarter sales of 719 million.
The increase included 6% growth from acquisitions.
Primarily from the recent Atrion acquisition.
But also the final weeks of contribution from the ERA acquisition that we completed in the prior year.
Currency translation was favorable by 1%.
And organic sales were down 3% compared to the fourth quarter of the prior year.
The organic sales decrease was driven by challenging year over year comparisons.
In our industrial precision solution segment.
And year over year declines in selected product categories.
Daniel Hopgood: and year-over-year declines in selected product categories within our medical and fluid solution. These were partially offset by a return to growth in our advanced technology solution. and I'll cover a bit more on each of our.
Within our medical and fluid solution segment.
These were partially offset by a return to growth in our advanced technology solution segment.
And I'll cover a bit more on each of our segments at the moment.
Adjust the operating profit which excludes $26 million in non-recurring costs related to the Atrion acquisition and one time restructuring costs during the quarter.
Daniel Hopgood: Adjusted Operating Profit, which excludes $26 million in non-recurring costs related to the Atrion acquisition and one-time restructuring costs during the course. $205 million, up 30 bases. prior year on a percentage. This was driven by growth margin improvements of about 110 base Reflecting Factory Efficiency Gains and a Higher Mix of Parts. Selling General and Administrative Expenses as a Percentage of Sales increased about 80 basis points year-over-year. Reflecting the addition of Atrion and continued investment in front-end growth. All in, this represents a 35% incremental operating margin for the. which is on the high end of our target.
With $205 million up to 30 basis points from the prior year on a percentage of sales base.
This was driven by gross margin improvements of about 110 basis points.
Reflecting factory efficiency gains and a higher mix of parts revenue.
Selling general and administrative expenses.
As a percentage of sales.
Increased about 80 basis points year over year.
Reflecting the addition of Atrion and continued investment in front-end growth initiatives.
All in this represents a 35% incremental operating margin for the company.
Which is on the high end of our targeted performance.
Ibiza for the 4th quarter increased 6% over the prior year to a record $241 million or 32% of sales.
Daniel Hopgood: EBITDA for the fourth quarter increased 6% over the prior year to a record $241 million, or 32%. This is 200 basis points above our long-term profitability. as articulated in our assembly. This also compares to $227 million, also at 32% of sales, in the prior year for the That translates into a 56% incremental EBITDA on our 4% overall sales growth for the quarter.
This is 200 basis points above our long term profitability target.
As articulated in RN strategy.
It's also compares to 227 million, also at 32% of sales in the prior year 4th quarter.
That translates into a 56% incremental Ebita on our 4% overall sales growth for the quarter.
A really strong quarter of both operational execution.
Daniel Hopgood: A really strong quarter of both operational and and the Initial Integration of the H-RAM.
And the initial integration of the HRN acquisition.
Looking at non-operating income and expenses in the quarter.
Daniel Hopgood: Looking at non-operating income and expenses in the quarter. Interest expense in the quarter increased nominally to $27 million. This modest increase is driven by higher net debt levels due to acquisitions compared to the prior year. As a reminder, in September, we accessed the public debt markets, raising $600 million in five-year notes priced at $4.5 billion. in order to finance the Atrion The balance of the purchase price was funded with our revolver, which we expect to pay down. Other expenses on a net basis increased $5 million a year. primarily due to currency fluctuations and some reduction in pension income.
Interest expense in the quarter increased nominally to $27 million.
This modest increase is driven by higher net debt levels due to acquisitions compared to the prior year.
As a reminder in September we access the public debt markets, raising $600 million in 5 year notes right at 4.5%.
In order to finance the Adrian acquisition.
The balance of the purchase price was funded with our revolver, which we expect to pay down in the near term.
Other expense on a net basis increased $5 million year over year.
Primarily due to currency fluctuations and some reduction in pension income.
Year over year.
Tax expense was $26 million for the quarter and effective tax rate of 17%.
Daniel Hopgood: Tax expense was $26 million. Our fourth quarter tax rate reflects changes in our mix of earnings. Due to acquisitions and other structural It reflects a full-year effective tax rate of approximately $25,000. This improved mix is expected to continue going forward, and you'll see this reflected in our 2025 guidance that NAGA will cover. gap net income totaled $122 million or $2.12 per diluted share. While adjusted earnings per share, excluding non-recurring acquisition and restructuring related expenses. totaled $2.78. 3% increase over the prior year. Adjusted Earnings Per Share were 19 cents above the midpoint of our guidance for the quarter, reflecting equal contribution.
Our 4th quarter tax rate reflects changes in our mix of earnings.
Due to acquisitions and other structural changes.
It reflects a full year effective tax rate of approximately 20%.
This improved mix is expected to continue going forward and you'll see this reflected in our 2025 guidance that Naga will cover a bit later.
Yep, net income total of 122 million or $2.12 for diluted share.
While adjusted earnings per share, excluding non-recurring acquisition and restructuring related expenses.
Total $2.78 per share.
A 3% increase over the prior year.
Adjusted earnings per share were 19 cents above the midpoint of our guidance for the quarter.
Reflecting equal contributions from strong operating performance during the quarter.
Daniel Hopgood: Strong operating performance during the quarter and the favorable tax rates.
And the favorable tax rate differential that I just mentioned.
Now let's turn to slide 6 through 8 to review our 4th quarter segment performance.
Daniel Hopgood: Now let's turn to slides six through eight to review our fourth quarter segment. Industrial precision solution sales of $392 million decreased 3% compared to the prior year for Organically, IPF decreased 5% with the AIRAG Acquisition. Currency, providing a favorable impact. You'll recall that IPS delivered record sales in the fourth quarter of fiscal 2020. driven by record sales and industrial coatings product line. and Elevated Deliveries in our Polymer Processing. These create tough year-over-year comparisons for the segment and are driving the overall organic decline in the IPS segment for the court. For the full year, IPS organic sales were flat with the prior EBITDA for the quarter was $143 million or 37% of sales.
Industrial precision solution sales of 392 million decreased 3% compared to the prior year 4th quarter.
Organically IPF decreased 5% in the quarter.
With the Ara acquisition adding 1% in currency providing a favorable impact of another 1%.
You'll recall that IPS delivered record sales in the 4th quarter of fiscal 2023.
Driven by record sales and industrial coating product lines.
And elevated deliveries in our polymer processing products.
These create tough year over year comparisons for the segment and are driving the overall organic decline in the IPS segment for the quarter.
For the full year
IPS organic sales were flat with the prior year.
Ibisa for the quarter was $143 million or 37% of sales.
Reflecting consistent operational performance on slightly lower sales.
Daniel Hopgood: Reflecting Consistent Operational Performance on Slightly Low Turning to slide seven. Medical and Fluid Solution Sales of $200 million, increased 19% compared to the prior year's 4,000. This increase was primarily driven by the atrion and a minor current. offset by a decrease in organic sales volume of 3% or $5 million. The organic volume decline reflects the softness and medical interventional solutions product. partially offset by modest improvement in our fluid components and fluid dispense product. Fourth quarter EBITDA with $72 million or 36% of sales. which is an increase of 17% compared to the prior year EBITDA of $62 million or $37 million.
Turning the slide 7.
Medical and fluid solution sales of $200 million.
Increased 19% compared to the prior year's 4th quarter.
This increase was primarily driven by the Atrion acquisition and a minor currency benefit.
offset by a decrease in organic sales volume of 3% or $5 million.
The organic volume decline reflects the softness and medical interventional solutions product lines.
Partially offset by modest improvement in our fluid components and fluid dispense product lines.
4th quarter Ebiha was $72 million or 36% of sales.
Which is an increase of 17% compared to the prior year Ebita of 62 million.
37% of sales.
Daniel Hopgood: Ibiza margins were slightly lower than the prior year due to the inclusion of the acquired You'll recall that we expect Atrion's EBITDA margins to improve over time as we continue to integrate the Implement, or NBSNext.
If it's on margins were slightly lower than the prior year due to the inclusion of the acquired Adrian business.
You'll recall that we expect Atrion Ebi the margins to improve over time.
As we continue to integrate the business.
And implement our NBS next growth framework.
Daniel Hopgood: Turning to slide 8. You'll see advanced technology solution sales of $152 million. increased 5% compared to the prior year. This change included an increase in organic sales volume of 4% as well as a small current Growth in the quarter was driven by improvement in selected test and inspection product lines. as well as Matt. and our electronic. The sales in ATS reflect continued sequential improvement from the third quarter and a return to nominal year-over-year growth in this segment for the first time since the first quarter of fiscal 2000. We've seen electronics and semiconductor end markets continue to show signs of stability.
Going to slide 8.
You'll see advanced technology solution sales of 152 million.
Increased 5% compared to the prior year's 4th quarter.
This change included an increase in organic sales volume of 4%.
As well as a small currency benefit.
Growth in the quarter was driven by improvement and selected test and inspection product lines.
As well as modest improvement within our electronics dispense product line.
Our sales and ATS reflect continued sequential improvement from the 3rd quarter.
And a return to nominal year over year growth in this segment for the first time since the first quarter of fiscal 2023.
We've seen electronics and semiconductor and markets continue to show signs of stable improvement.
Daniel Hopgood: Fourth quarter EBITDA was $41 million or $27 An increase of $6 million from the prior year fourth quarter EBITDA of $35 million, or $24 We're really pleased with the segment's EBITDA. particularly in a down cycle. 27% EBITDA margin performance represents a significant step up from historical It's a testament to the team's efforts to improve the structure of the base. and it positions us well when the electronics. Turn to More Meaningful Growth.
4th quarter Ibita was $41 million or 27% of sales.
An increase of 6 million from the prior year 4th quarter even uh of 35 million or 24% of sales.
We're really pleased with the segments even that performance, particularly in a down cycle.
As the 27% ebi the margin performance represents a significant step up from historical performance.
It's a testament to the team's efforts to improve the structure of the base business.
And it positions us well when the electronics market.
Return to more meaningful growth.
Now turning to slide 9, I'll share a few comments on our full year results.
Daniel Hopgood: Now turning to slide nine, I'll share a few comments on our full year. 2024 full year sales were a record $2.7 billion, an increase of 2% compared to the prior year's previous record. This was driven by a 5% impact from acquisition. Offset by an organic decrease of 3%. On a full year basis, the organic sales decrease is essentially all driven by our advanced technology solutions. Although we did see orders and sales continue to improve in our ATS product lines as we exited 2000. The industrial precision solutions, medical and fluid solution segments were essentially flat. on a combined.
2024 full year sales were a record 2.7 billion, an increase of 2% compared to the prior years.
previous record sales results.
This was driven by a 5% impact from acquisitions.
Offset by an organic decrease of 3%.
On a full year basis, the organic sales decrease is essentially all driven by our advanced technology solution segment.
Although we did see orders and sales continue to improve in our ATS product lines as we exited 2024.
The industrial precision solutions, medical and fluid solution segments.
We're essentially flat organically on a combined basis.
With industrial up slightly and medical down slightly for the year.
Daniel Hopgood: with Industrial up slightly. Adjust an operating profit with $713 million or 27% of sales. which was comparable to the prior year. EBITDA for the full year increased 4% to a record $849 million, or 32% This represents a full-year incremental EBITDA margin of 49%, and it marks the fourth consecutive year of the Ascend Strategy delivering solid EBITDA. Gap diluted earnings per share were $8.11 for the year. Unadjusted diluted earnings per share were $9.73. A 1% decrease from the prior year. reflecting the higher interest costs associated with the AIRAG and ATRIA.
Adjust an operating profit with $713 million or 27% of sales.
Ebi down for the full year increased 4% to a record 849 million or 32% of sales.
This represents a full year incremental even to margin of 49%.
And it marks the 4th consecutive year of the ascend strategy delivering solid Eva do growth.
Gap diluted earnings per share were $8.11 for the year.
And adjust the diluted earnings per share were $9.73.
A 1% decrease from the prior year.
Reflecting the higher interest cost associated with the airag and Atrion acquisitions.
On balance we're pleased with how we finished the year despite some near term weakness in certain end markets.
Daniel Hopgood: On balance, we're pleased with how we finished the year despite some year-term weakness in certain And we remain confident in our five-year targets established at our October 2024.
And we remain confident in our 5 year targets established at our October 2024 investor day.
Finally turning to the balance sheet and cash flow on slide 10.
Daniel Hopgood: Finally, turning to the balance sheet and cash flow on slide We had another strong cast. Generating $492 million in free cash. at a conversion rate of 105%. While still strong, cash flow conversion was down from 2000. and this was due to higher capital investment. both of which we expect to normalize going forward.
We had another strong cash flow year, generating 492 million in free cash flow.
At a conversion rate of 105% on that income.
While still strong, cash flow conversion was down from 2023.
And this was due to higher capital investments.
And additional use of working capital, both of which we expect to normalize going forward.
While our debt balance increased in the quarter due to the Atrion acquisition.
Daniel Hopgood: While our debt balance increased in the quarter due to the Atrion acquisition, we continued to deploy cash During the quarter, we increased our annual dividend by 15%. marking our 61st year of consecutive. on a full year basis, excluding the impact of the atrionic. We repaid approximately $315 million of debt. paid out $161 million in dividends. and re-purchased $28 million of shares on the open. Through our strategic capital deployment, we ended the year with a strong The cash balance is $116 million and net debt at $2.1 billion. Resulting in a leverage ratio of 2.5 times based on trailing 12.
We continue to deploy cash efficiently.
During the quarter we increased our annual dividends by 15%.
Marking our 61st year of consecutive annual increases.
On a full year basis excluding the impact of the Atrion acquisition.
We repaid approximately $315 million of debt.
out $161 million in dividends.
And repurchased $28 million of shares on the open market.
Through our strategic capital deployment we ended the year with a strong balance sheet.
With cash balances of $116 million in net debt at $2.1 billion.
Resulting in a leverage ratio of 2.5 times based on trailing 12 months you done.
This is within our targeted long term range.
Daniel Hopgood: This is within our targeted long-term range and also in line with our.
And also in line with our expectations for the year.
So in closing just to summarize, our 4th quarter sales were in line with our previous guidance.
Daniel Hopgood: So in closing, just to summarize, our fourth quarter sales were in line with our previous guide. and we came in better from an overall profit. We're very pleased to see our advanced technology segment continue to show science. Positive Improvement and Demand, and our IPS and MFS segments continue to deliver strong operational Despite some near-term demand weakness in selected products. Unclosed fiscal 2024 with a strong balance. federally reinvested. Transitioning Ourselves Well for a Dynamic 2000.
And we came in better from an overall profit conversion standpoint.
We're very pleased to see our advanced technology segment continue to show signs.
A positive improvement and demands.
And our IPS and MFS segments continue to deliver strong operational performance.
Despite some near term demand weakness and selected product lines.
We closed fiscal 2024 with a strong balance sheet.
And we've steadily reinvested in the business, positioning ourselves well for a dynamic 2025.
I'm out turn the call back to now.
Sundaram Nagarajan: I'll now turn the call back to.
Thank you, Dan.
As I reflect on the past 4 years since we launched our strategy.
Sundaram Nagarajan: Thank you, Dan. As I reflect on the past four years since we launched our Ascent strategy, we started from a position of strength with many competitive advantages. Leadership position in diversified niche and market. High Recurring Parts Revenues A direct-to-customer model and differentiated products built on deep knowledge of our customers' demanding applications. In the past four years, we have added two new advantages to expand our competitive mode. The first is a renewed emphasis on our growth bias portfolio that has positioned us to accelerate profitable growth. Over time, we have strategically increased our mix of recurring revenue, and we have expanded into the high growth end markets of medical and electronic.
We started from a position of strength with many competitive advantages.
Leadership position in diversified niche and markets.
High recurring parts revenues.
A direct to customer model.
And differentiated products built on deep knowledge of our customers demanding applications.
In the past 4 years,
We've added two new advantages to expand our competitive mode.
The first is a renew.
emphasis on our growth bias portfolio.
That has position us to accelerate profitable growth.
Over time, we have strategically increased our mix of recurring revenue.
And we have expanded into the high growth and markets of medical and electronics.
This makes
Has been strategically driven through organic and acquisitive means.
Sundaram Nagarajan: This mix has been strategically driven through organic and acquisitive means. In the short term, end market cycles and unique micro conditions have slowed organic growth in these segments. This increases the importance of balancing organic growth with aquaculture. Our recent Atrion Medical Acquisition is a great example of this strategy. This acquisition expands our fluid components addressable market by more than 50% by adding products and solutions for infusion therapies and drug delivery. It also expands our current offering to top medical device customers and broadens Nordson's exposure to significant single-use consumables with recurring revenue streams. Adrian was a solid contributor to our fourth quarter revenue, and it'll be a growth driver in fiscal 2025 and beyond.
In the short term, and market cycles and you need microconditions have slowed organic growth in these segments.
This increases
The importance of balancing organic growth with acquisitions.
A recent Atrian medical acquisition is a great example of this strategy.
This acquisition expands our fluid components, addressable market.
By more than 50%,
But adding products and solutions.
For infusion therapies and drug delivery.
It also expands our current offering.
To top medical device customers.
And broadens not since exposure to significant single-use consumables with recurring revenue streams.
Adrian was a solid contributor to our 4th quarter revenue, and it'll be a good driver in fiscal 2025 and beyond.
The second advantage that we have added to Norson is the NBS next.
Sundaram Nagarajan: The second advantage that we have added to Nordson is the NBS Next growth framework. It drives profitable growth and creates value in our acquisition. I'm very pleased with the implementation of MBS Next, which is becoming a competitive advantage. Throughout 2024, I've traveled to many of Nordson's sites, including Europe, China and India in October and November. It is clear to me that the NBS Next growth framework is now how we run our business. You can see it evidence in the fourth quarter results of our ATS segment. As Dan noted, ATS achieved 27% EBITDA margins, while still in the downside of the electronic cycle due to its strategic reposition.
growth framework.
It drives profitable growth and creates value in our acquisitions.
I'm very pleased with the implementation of MBS Next.
Which is becoming a competitive advantage.
Throughout 2024, I traveled to many of Northern sites, including Europe, China, and India in October and November.
It is clear to me that the NBS next growth framework is now how we run our businesses.
You can see it in the 4th quarter results of our ATS segment.
As Dan noted.
ATS achieved 27% IA margins.
While still in the downside of the electronic cycle due to its strategic repositioning.
They'll be very well positioned to respond to customers when the market turns.
Sundaram Nagarajan: They'll be very well positioned to respond to customers when the market At our investor day in October, we shared several examples of how NBS Next has driven improved performance in on-time delivery and product quality, allowing the Nordson's divisions to protect and grow market share. I encourage you to listen to the Investor Day webcast recording, which is available in our investor website. As we work towards our new financial performance target, NBS Next and the Ascent Strategy have ample runway to enable the Nordson team to be successful in the next five years. Also at our investor day, we announced our 2025 to 2029 performance target.
And our investor day in October we shared several examples of how NBS next has driven improved performance in on-time delivery and product quality.
Allowing the noense divisions to protect and grow market share.
I encourage you to listen to the investor day webcast recording, which is available in our investor website.
As we work towards our new financial performance targets.
MBS next.
And the ascent strategy have ample runway.
To enable the Northson team to be successful in the next 5 years.
Also at our investor day, we announced our 2025 to 2029 performance targets.
In 2029, when we look back on our financial results.
Sundaram Nagarajan: In 2029, when we look back on our financial results, we expect to leverage the ASCEND strategy to deliver average annual growth of 6 to 8 percent in revenue, balance between organic and acquisitive growth, and 10 to 12 percent in adjusted EPS growth. As this is an average annual growth target for that period, growth can be higher in some years and lower in others. We are entering 2025 prudently with conservative expectations for many of our end markets. We also recognize the level of change in the global micro environment. which could cause our customers to be judicious in their spending in the near term.
We expect to leverage the strategy to deliver.
Average annual growth of 6 to 8% in revenue.
Balance between organic and acquisitive growth.
And
10 to 12% in adjusted EPS growth.
As this is an average annual growth target.
For that period,
Growth can be higher in some years and lower in others.
We are entering 2025 prudently with conservative expectations for many of our end markets.
We also recognize the level of change in the global microenvironment.
Which could cause our customers to be judicious in their spending in the near term.
In our industrial position solution segment.
Sundaram Nagarajan: in our Industrial Precision Solutions segment. Although our current order entry trends are encouraging, We are expecting large capital investments to be muted in the Neutron based on customer conversations and reduced backlog level. for our large system businesses, particularly polymer processing product lines. Reduced investment in areas such as recycling will be significant headwinds after two record sales years. Additionally, although European agriculture and market seems to have stabilized, we are cautiously awaiting meaningful growth. Within our medical and fluid solutions segment, medical device customer supply chain teams are being far more cautious. with their Inventory Purchase Pattern. We currently see this impact in weakness within our interventional solutions product line, which is approximately 47% of this segment's sale.
Although our current order entry trends are encouraging.
We're expecting large capital investments to be muted in the neutron based on customer conversations and reduce backlogged levels.
For a large system businesses.
Particularly parliament processing product lines.
Reduced investment in areas such as recycling,
Will be significant headwinds after two record sales.
Additionally, although European agriculture and markets seems to have stabilized. We are cautiously awaiting meaningful growth.
Within our medical and fluid solution segment.
Medical device customer supply chain teams are being far more cautious.
With their inventory purchase patterns.
We currently see this impact in weakness within our interventional solutions product line, which is approximately 47% of this segment's sales.
Long term project pipelines remain solid, and we continue to stay close to our customers.
Sundaram Nagarajan: Long-term project pipelines remain solid, and we continue to stay close to our customers and ensure we understand their post-COVID supply chain product needs. Modest growth from our fluid components and fluid dispense product lines will somewhat offset this pressure, but we expect MFS growth to largely come from the Atrian acquisition in fiscal 2025. Positively, we expect to see continued steady improvement in sales from our electronics customers. That said, we do not expect that a significant ramp in capital spending is imminent as customer purchasing patterns have been wary compared to prior electronic cycles. particularly in semiconductor applications.
And then sure we understand that post-COVID supply chain product needs.
Modest growth.
From a fluid components.
And fluid dispense product lines.
Well, somewhat offset this pressure, but we expect MFS growth to largely come from the Adrian acquisition in fiscal 2025.
Positively, we expect to see continued steady improvement in sales from our electronics customers.
That said,
We do not expect that a significant ramp in capital spending is imminent.
As customer purchasing patterns have been varied.
Compared to prior electronic cycles.
Particularly in semiconductor applications.
We remain close to our customers.
Sundaram Nagarajan: We remain close to our customers, particularly with geopolitical issues in play.
Particularly with geopolitical issues in play.
Now turning to the financial outlook on slide 14.
Sundaram Nagarajan: Now turning to the financial outlook on slide 14. We enter fiscal 2025 with approximately 580 million in backlog. The sequential backlog reduction is reflective of a pace return to more normalized levels. Based on the combination of order entry, backlog. Current Foreign Exchange Rates and Anticipated End Market Expectations. We anticipate. delivering sales in the range of 2% to 7% above fiscal 2024 sales. Full year 2025 adjusted earnings are forecasted to be in the range of neutral to 8% growth per diluted share. for modeling purposes. in fiscal 2025. Assume an estimated effective tax rate of 19 to 21%.
We enter fiscal 2025 with approximately
580 million in backlog.
The sequential backlog reduction is reflective of a pace return to more normalized levels.
Based on the combination of order entry backlog.
Current foreign exchange rates and anticipated.
And market expectations.
We anticipate delivering sales in the range of 2% to 7% above fiscal 2024 sales.
Full year 2025, adjusted earnings are forecasted to be in the range of neutral to 8% growth per diluted share.
For modeling purposes.
In fiscal 2025. Assume and estimated effective tax rate of 19 to 21%.
Capital expenditures of approximately 50 to 60 million and interest expense of approximately 90 to 100 million.
Sundaram Nagarajan: Capital expenditures of approximately $50 to $60 million and interest expense of approximately $90 to $100 million. This full year guidance assumes a negative 1.5% impact from foreign exchange rates. No significant recovery in RAMP. in Electronics or Agriculture and Markets. and the Atrion Acquisition contributing approximately 6% growth at the midpoint of guide. If we see improvements in our end markets, we will adjust. Based on seasonality, we expect our fiscal first quarter to start modestly. As you will see on slide 15, first quarter fiscal 2025 sales are forecasted in the range of $615 to $655 million. and adjusted earnings in the range of $1.95 to $2.15 per diluted share.
This full year guidance assumes a negative 1.5% impact from foreign exchange rates.
No significant recovery in RAM.
In electronics or agricultural and markets.
And the Adrian acquisition contributing a approximately 6% growth at the midpoint.
Of guidance.
If we see improvements in our end markets, we will adjust.
Based on seasonality,
We expect our fiscal 1st quarter to start modestly.
As you will see on slide 15.
First quarter fiscal 2025 sales are forecasted in the range.
Of 615 to 655 million.
And adjusted earnings in the range of $1.95 to $2.15 per diluted share.
Even in uncertain times our team delivers operational excellence and strong cash flow due to our strong competitive advantages.
Sundaram Nagarajan: Even in uncertain times, our team delivers operational excellence and strong cash flow due to our strong competitive advantage. As a growth compounder, we will continue to reinvest in the business while returning cash to our shareholders. Again, I want to thank our employees, customers, and shareholders for your continued support.
As a growth compounder, we will continue to reinvest in the business.
While returning cash.
To our shareholders. Again, I wanna thank our employees, customers, and shareholders for your continued support.
We will now open the phone lines for questions.
Operator: We will now open the phone lines for questions. Thank you. We will now begin the question and answer session.
Thank you. 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. If you would like to withdraw your questions, simply press star one again.
Operator: If you would like to ask a question, please press star 1 in your telephone keypad to raise your hand and join the queue. If you would like to withdraw your question, simply press star 1 again.
Your first question comes from the line of Mike Halloran from Baird. Your line is open.
Michael Halloran: Your first question comes from the line of Mike Halloran from Baird. Your line is open.
Hey, good morning everyone.
Michael Halloran: Hey, good morning, everyone. Morning. I appreciate all the thoughts at the end there on the outlook and the conservatism in the first quarter and some of the variable order patterns, but, you know, maybe you could frame up how you're thinking about growth as it works through the year.
Morning.
Uh
Appreci all the the the thoughts at the end there on on the outlook and and and the conservatism in in the first quarter and some of the variable order patterns, but
You know, maybe you could frame up how you're thinking about growth as it works through the year, um, it doesn't sound like you're embedding any fundamental improvement is the guidance as seeing relatively normal seasonality and, and maybe just give some thoughts on on what your customers are saying or how you see these in markets caddencing as we work through the year.
Sundaram Nagarajan: It doesn't sound like you're embedding any fundamental improvement. Is the guidance assuming relatively normal seasonality and maybe just give some thoughts on what your customers are saying or how you see these end markets cadencing as we work through the year?
Um
Mike, thank you for the question. We'll do it this way. Let me first give you what we're seeing in the markets.
Sundaram Nagarajan: Mike, thank you for the question. We'll do it this way. Let me first give you what we're seeing in the end market. And then Dan can walk you through the guidance and how we're thinking, you know, how we've built the outlook. Right, so let's start with that.
And then then can walk you through the guidance and how we're thinking, you know, how we built the outlook.
Right, so let's start with uh all right, we'll start with IPS, you know, in IPS, what I would tell you is the, our consumer non-durable in markets seems to have a steady outlook.
Sundaram Nagarajan: All right, we'll start with IPS, you know, in IPS, what I would tell you is the our consumer non durable end markets seems to have a steady outlook. And, you know, there are parts that are really good. And then there are parts that are steady. Further, our Recurring revenue in this business is fairly high, as you know, and this is this has grown last year, we expect it to contribute nicely in the year.
And you know, there are parts that are really good and then there are parts that are steady.
Um
Further, are
Recurring revenue in this business is fairly high, as you know, and this is, this has grown last year. We expected to contribute nicely in the year.
Um
On the headwinds, what I would what I would share with you is that we are expecting large capital investments to be muted in the near term, you know, based on customer conversations and reduced backlog, particularly in the parliament processing uh product line. We've seen reduced investments, you know, after record to sales record years of 2 years of sales. And uh reduce investment in recycling and also
Sundaram Nagarajan: On the headwinds, what I would share with you is that We are expecting large capital investments to be muted in the near term, you know, based on customer conversations and reduced backlog, particularly in the polymer processing product line. We have seen reduced investments, you know, after record two sales, record years of two years of sale. and reduce investment in recycling and also some push start investments in virgin polymer in Asia.
Some, uh, pushart investments in Virgin polymer in Asia.
They're also seeing slowness in automotive with our ICS business.
Sundaram Nagarajan: We're also seeing slowness in automotive with our ICS business. Our Agricultural Precision Ag Business in Europe. You know, things have stabilized, and we're cautiously awaiting the return there.
Um, our agricultural position Act business in Europe.
You know, things have stabilized, uh, and we're cautiously awaiting the return there. So that's the puts and takes in IPS.
Sundaram Nagarajan: So that's the puts and takes in IPS. If you look at MFS, you know, we do see modest growth in our fluid components business, which is sort of, you know, there is some exposure in bioformer, we're seeing order entry modestly pick up their fluid dispense business. is also doing fairly steady. So these two businesses will offset the pressure we're seeing in our medical interventional business. In our medical interventional product category, what we're finding out is that the OEM supply chain teams are far more conservative and cautious about their inventory purchases. And hence, we're seeing weakness in this product line.
Uh, if you look at MFS, um, you know, we do see modest growth in our fluid components business, which is sort of, uh, you know, there is some exposure in bioformma. We're seeing order entry modestly pick up there. Uh, fluid dispense business.
is also doing fairly steady, so these two businesses will offset the pressure we're seeing in our medical interventional business. In our medical interventional product category, what we're finding out is that the OEM supply chain teams are far more conservative and cautious about their inventory purchases and hence we're seeing um weakness in this product line and, and remind you this is about 47% of the segment's revenue.
Sundaram Nagarajan: And to remind you, this is about 47% of the segment's revenues.
Uh, long term project pipelines look pretty strong for this product category, um, in addition, Adrian, uh, you know, addressable market increase, uh, for our businesses is a very positive development and the growth in this segment would primarily come from Atrian uh acquisition.
Sundaram Nagarajan: Long-term project pipelines look pretty strong for this product category. In addition, Atrion, you know, addressable market increase for our businesses is a very positive development, and the growth in this segment would primarily come from Atrion acquisition. The ATS business segment, what you find there is steady improvement and positive order entry to sustain the kind of growth rates you saw in the fourth quarter. We don't, our assumptions are there is not a significant ramp in capital spending. Mainly, we see the order patterns. in this recovery far more choppier than we have seen in the past. We remain close to our customers.
The ATS business, uh, segment, what you find there is steady improvement and positive order entry to sustain the kind of growth rates you saw in the 4th quarter. We don't our assumptions are there is not a significant ramp in capital spending, uh, mainly we see the order patterns.
In this recovery far more choppier than we have seen in the past. Uh, we remain close to our customers. There is a number of geopolitical issues that are at play here and that impacts this business. So that gives you sort of a broad overview of what we are experiencing in the end market, um, and maybe, uh, let me have uh Dan walking through how that plays into our outlook.
Sundaram Nagarajan: There is a number of geopolitical issues that are at play here and that impact this business.
Sundaram Nagarajan: So that gives you sort of a broad overview of what we are experiencing in the end markets.
Daniel Hopgood: And maybe let me have Dan walk you through how that plays into it.
Yeah, thanks, and, and the only thing that I might add just on the market overview is just and maybe this is more of a reminder, you know, on our, on our ag business while we've seen um certainly our our book and bill and order rates stabilized. We, we still have one quarter of tough comparables.
Daniel Hopgood: Yeah, thanks. And the only thing that I might add just on the market overview is just and maybe this is more of a reminder, you know, on our on our ag business, while we've seen, certainly our book and bill and order rates stabilize, we still have one quarter of tough comparable In Q1 in that business, as you recall, Q1 of last year, we were working off a large backlog in our ag business. So we've seen the underlying business, as Naga said, is in a very good, stable place, but we've got one more tough Comparable in Q1 in the Ag business due to the backlog workoff last year.
In Q1 in that business as you recall Q1 of last year we were working off a large backlog.
In our ag business so we've seen the the underlying business is not said is in a very good stable place, but we've got one more tough.
Comparable in Q1 and the ag business due to the backlog work off last year.
Um
But so that said, Mike, just to give you some color, you know, if you think of the overall market outlook and, and basically think of, you know, flat organic growth for the year. What I would tell you is the sales profile if you look at our Q1 guidance in the full year it's pretty much right in line with the seasonality that we would typically see in the business.
Daniel Hopgood: So that said, Mike, just to give you some color, you know, if you think of the overall market outlook and basically think of, you know, flat organic growth for the year, what I would tell you is the sales profile, if you look at our Q1 guidance in the full year, it's pretty much right in line with the seasonality that we would typically see in the business. Q1 is always our lowest quarter. Typically around 23% of our annual sales, if you look at history, excluding acquisitions. And so I think you'll see that play out in our guidance.
Well, you know, Q1 is always our lowest quarter.
Um, typically around 23% of our annual sales if you look at history, excluding acquisitions and so I think you'll see that play out in our guidance. The only anomaly that we see this year, um, and it's not a big contributing factor, but it is a factor is the timing of Chinese New Year actually hits our first quarter this year, whereas it's hit our 2nd quarter the last couple of years, so if anything that just means Q1 will be slightly weaker than normal because we lose that product that production.
Daniel Hopgood: The only anomaly that we see this year, and it's not a big contributing factor, but it is a factor, is the timing of Chinese New Year actually hits our first quarter this year, whereas it's hit our second quarter the last couple of years. So if anything, that just means Q1 will be slightly weaker than normal because we lose that production in Q1 that would typically hit us in Q2. But other than that, it's pretty much right in line with our seasonality that we've seen historically.
in Q1 that would typically hit us in Q2, but other than that, it's pretty much right in line with our seasonality that we've seen historically.
OK, that, that was really helpful, thanks for that follow up, um, on the electronic side in the 4th quarter, um.
Michael Halloran: Okay, that was really helpful. Thanks for that follow up on the electronic side in the fourth quarter. Was there anything unusual? I mean, was there just kind of a flush that happened? Because I know we've had some delays that have materialized.
Was there anything unusual? I mean, was there just kind of a flush that happened because I know we've had some delays that have materialized.
Was it just, uh, you know, an element of finally getting some of those projects pushed through, um, would you consider that the right run rate and then related, what are you seeing that gives you confidence that there's some modest improvements coming on the electronic side. I know the capital piece you're cautious on but any kind of more subtext and and where that improvement's coming from on the electronic side even if it is modest.
Michael Halloran: Was there just, you know, an element of finally getting some of those projects pushed through? would you consider that the right run rate? And then related, what are you seeing that gives you confidence that there's some modest improvement coming on the electronic side?
Michael Halloran: I know, the capital piece you're cautious on, but any kind of more subtext on where that improvements coming from on the electronic side, even if it is modest?
Yeah, um, you know, look,
Sundaram Nagarajan: Yeah, you know, look. There are a couple of things that I will point to. First and foremost, we certainly are seeing strong, continued conversations with our customers around projects and things that are coming our way. So that's number one. Second, what we're beginning to see is those conversations beginning to translate into order entry. And that order entry is allowing us to deliver the kind of growth we did in the fourth quarter, probably the first time in a long, long We are seeing parts revenue in that business also be pretty steady for us.
There are a couple of things that I would point to. First and foremost, we certainly are seeing strong continued conversations with our customers that are on projects and things that are coming our way. So that's number 1. 2nd, what we're beginning to see is those conversations beginning to translate into order entry, and that order entry is allowing us to deliver the kind of growth we did in the 4th quarter, probably the 1st time in a long, long time.
Um,
We are seeing uh parts revenue in that business also be pretty steady for us, um, you know, the caution and conservatism is that
Sundaram Nagarajan: You know, the caution in conservatism is that We're not seeing significant capital spend. And so essentially, we're trying to be conservative here in trying to call this as the significant uptick. But the positive order trends in the business gives us confidence that this would be a pretty, you know, modest growth period for ATS in 2020.
We're not seeing significant capital spending, so essentially we are trying to be conservative here in trying to call this as the significant uptick, but
The positive order trends in the business gives us confidence that this would be a pretty
You know, modest growth period for ATS in 2025.
And, and then just the 4th quarter piece anything in the 4th quarter that that you thought was an anomaly or is that?
Michael Halloran: and then just the fourth quarter piece anything in the fourth quarter that that you felt was an anomaly or is that relatively normal? But pretty normal, you know, pretty normal.
Relatively normal.
Uh, pretty normal.
You know,
Yeah
Yeah.
Yeah, I really appreciate that.
Michael Halloran: Thanks, everyone. I really appreciate that.
Yeah.
Your next question comes from a line of savory Boroditsky from Jeffreys. Your line is open.
Saree Boroditsky: Your next question comes from the line of Saree Boroditsky from Jeffreys, your line is open. Hi, thanks for taking the questions. A couple of small items. You cited the backlog including Atron at $580 million, but could you just help us understand the backlog excess acquisition?
Hi, thanks for taking the question, um, a couple of small items you said the backlog including eachron at 580 million, but could you just help us understand the backlogis acquisition.
Yeah, I, yeah, I think that Danny want to take that, please. Yeah, but it's so, uh, so the Atrion added about $35 million to the backlog, so you know we'd be in the 550 range.
Daniel Hopgood: Yeah, I think that, Dan, you want to take that, please? Yeah. So the atrium added about $35 million to the backlog. So, you know, we'd be in the 550 range.
Uh, exclude.
states that
Sundaram Nagarajan: Okay, you know, Saree, if I would add one more thing to your backlog question, I know you didn't ask this, but what I would give you some color around the backlog is, remember, the companies Recurring revenue continues to expand. Today, it is, you know, north of 55%, more like 57%. And a significant portion of that is book and ship. So you got to, you know, put that into context when you're thinking about the backlog reduction.
Very, if I would add one more thing to your backlog question. I know you, you, you didn't ask this, but what I would, uh, give you some color around the backlog is remember that companies
Uh, recurring revenue continues to expand. Uh, today, it is, you know, north of 55%, more like 57% and a, a significant portion of that.
His book and ship. So you, you gotta, you know, put that into context while you're thinking about the backlog reduction as well.
Appreciate that um you mentioned the impact of the Chinese New Year on 1Q. I believe you've had historically put this at a 15 to 20 million sales impact, so would that be similar this year and does this just get pushed to the 2nd quarter.
Saree Boroditsky: I appreciate that. You mentioned the impact of the Chinese New Year on 1Q. I believe you've historically put this at a 15 to 20 million sales impact. So would that be similar this year? And does this just get pushed to the second quarter? Yeah, I think I think typically been in the, call it in the 10 to 20 range.
Yeah, I think, I think.
Typically been and uh call it in the 10 to 20 range, I think yeah that's still.
Daniel Hopgood: that's so. Appropriate. And yeah, it's just timing between Q1 and Q2.
and yeah it's the timing between Q1 and Q2.
Thanks and just lastly for me, you know you've talked a lot about entering this year with conservative estimates, you know what would get you to the higher end of your full year guidance or maybe how do you think about potential upside to guidance in a more positive scenario.
Saree Boroditsky: Thanks.
Saree Boroditsky: And just lastly for me, you know, you've talked a lot about entering this year with conservative estimates, you know, what would get you to the higher end of your full year of guidance? Or maybe how do you think about potential upside to guidance in a more positive scenario?
You want me to take that now? I, I can, I can base but no it's a great question and, and you know, look, I think if from the the hopefully you get some color with you know we're we're not trying to call recoveries.
Daniel Hopgood: You want me to take that Nagarajan? I can. Yeah, please. No, it's a great question. And yeah, look, I think it's from the very, hopefully you get some color with, you know, we're not trying to call recoveries.
Key markets.
Daniel Hopgood: Key Mark. and what I. Look at the upper end of our guidance, it would anticipate stronger recovery in some of these end markets. As you think of Precision Ag, as you think of our ATS and technology businesses. And so I think that's, if I were to look at the upper end, it would be, you know, a stronger recovery in the semiconductor and electronics markets. It would be some strong recovery in some of the general industrial and other markets, you know, versus kind of the status quo that we're seeing right now. Appreciate that.
And what I
Look at the upper end of our guidance that would anticipate stronger recovery in some of these markets.
If you think of Precision A as you think of our ATS, uh, and technology businesses.
And so I, I think that's if I were to look at the upper ends, it would be, you know, a stronger recovery in the semiconductor and electronics markets.
It would be some strong recovery.
Uh, and some of the general industrial and other markets, um, you know, versus kind of the status quo that we're seeing right now.
Appreciate that thank you so much.
Christopher Glynn: Thank you so much. Your next question comes from a line of Christopher Glynn from Oppenheimer. Your line is open.
Your next question comes from a line of Christopher Glenn from Oppenheimer. Your line is open.
Uh, yeah, thanks, um, now I think early in the call you talked about uh factory efficiency gains and, uh, did you say you have infecting efficiency gains just looking for a little more color on uh you're calling that out early in the call today.
Christopher Glynn: Yeah, thanks. Naga, I think early in the call you talked about factory efficiency gains, and did you say you have inflecting efficiency gains? Just looking for a little more color on your calling that out early in the call today. Yeah, I, you know, look, this is as we continue to deploy NBS Next and begin to see the impact of NBS Next in our businesses, you and you're also beginning to see product mix being helpful, where when you have higher volume products, we are certainly making them a lot more efficiently than before. So it's a combination of a couple of different things.
Yeah, I, you know, look, this is, as we continue to deploy NBS snacks and begin to see the impact of NBS next in our businesses, you, and you're also beginning to see product mix being helpful where when you have higher volume products we are certainly making them a lot more efficiently than before. So, it's a combination, a couple of different things. It is the choice of products, but it is also efficient.
Sundaram Nagarajan: It is the choice of products, but it is also efficiency of making them in a better way. Our on-time delivery has significantly improved in all of our businesses. You know, that certainly helps us with efficiency.
of making them in a better way, uh, on-time delivery has significantly improved in all of our businesses, you know, that certainly helps us with efficiency. So, number of different factors, but pretty pleased with the progress we're making.
Sundaram Nagarajan: So number of different factors, but pretty pleased with the progress we are making.
Great, thanks. And um,
Daniel Hopgood: Great, thanks.
With uh Atrion looks like the the revenue trends are solid and growing if we pro rate to a full quarter, um, you know, or or ebi the margins back in that high twenties range and then curious what the DNA is, uh, now that you've owned it and probably the accounting settled out.
Daniel Hopgood: And with Atrion, what looks like the revenue trends are solid and growing if we prorate to a full quarter, you know, are EBITDA margins back in that high 20s range?
Daniel Hopgood: And then curious what the DNA is, now that you've owned it, and probably the accounting settled out.
Yeah, let me maybe give you just some broad color and then uh Dan can sort of take some of the uh more financial questions. Uh, they're very pleased. We're very pleased with the immigration, um, we're excited for our Atrian employees who have joined and are a big part of our story, uh, in the coming year.
Daniel Hopgood: Let me maybe give you just some broad color and then Dan can sort of take some of the more financial questions.
Sundaram Nagarajan: We're very pleased. We're very pleased with the integration. We're excited for our atrium employees who have joined and are a big part of our story in the coming year. You know, integration going well, revenue is progressing as we expected, we're making progress around the synergies that we had, operating synergies that we had included in our model. All of that is coming out the way we think.
You know, integration going well, revenue is progressing as we expected. Uh, we're making progress around the synergies that we had, uh, operating plan uh synergies that we have included in our model all of that is coming out the way we think, uh, maybe let, uh, Dan, if you can provide some, some of those data points that Chris is looking for, that'd be great.
Daniel Hopgood: Maybe let Dan, if you can provide some of those data points that Chris was looking for, that would be great.
Yeah, and if you think of uh number one appreciate the question and, and yeah, the, the acquisition is, is off to a really good start in performing certainly uh in line or or even slightly ahead of early expectations, right? It's early.
Daniel Hopgood: Yeah, and if you think of, number one, appreciate the question. And yeah, the acquisition is off to a really good start and performing certainly in line or even slightly ahead of early expectations, right? It's early. But from an EPSA standpoint, yes, they are absolutely, you know, we're very comfortable in that upper 20% range right now. And we also still feel very comfortable with our path towards more Nordson-like markets.
Um, but from an E standpoint, yes, they are absolutely, you know, we're, we're, we're very comfortable in that upper 20% range right now and we also still feel very comfortable with our path towards, uh, more north than like, uh, margins in the.
Two year integration period.
Daniel Hopgood: in the two year integration period. From a DNA standpoint, it's their DNA is a little bit higher than ours, particularly when you factor in acquisition accounting. And so they'd be a little bit north of us from a percent standpoint on DNA, but not not materially. And then yeah, keep it on the upper And I think we're pretty comfortable. And I'd say two months, three, three months in now, even more comfortable with our path towards, you know, sustained margin improvement going forward.
Um, from a DNA standpoint, it's they're, they're DNA is a little bit higher than ours, particularly when you factor in um acquisition accounting.
Um, and so they'd be a little bit north of us from uh a percent uh standpoint on DNA but not, not materially.
Um, and then, yeah, keep it in the upper.
And, and I think we're, we're pretty comfortable and I'd say 2 months, 33 months in now even more comfortable with our path towards, uh, you know, sustained margin improvement going forward.
Great, uh thank you for that caller. If I could get a quick one on ATS, the implementation of MBS next growth framework helps mix leverage we just talked about that, um, I'm curious if the revenue run rate today, which was very healthy in the quarter, uh, includes anything you kinda uh attrited or um
Daniel Hopgood: Great. Thank you for that, Collar.
Sundaram Nagarajan: If I could get a quick one on ATS, the implementation of NBS Next growth framework, helps mix, leverage, we just talked about that. I'm curious if the revenue run rate today, which was very healthy in the quarter, includes any things you've kind of attrited or, you know, minimized in the holistic NBS Next process? So let me take a couple of things that the team has done an incredible job of strategically repositioning this business during the downturn. And that is why you see the margin even at the beginning of a cycle. You can begin to see a 27 percent EBITDA.
You, you know, minimized in the, uh, holistic NBS next process.
So let me, let me take a couple of things that the team has done, uh, an incredible job of strategically repositioning this business, uh, during the downturn, and that is why you see the margin.
Sundaram Nagarajan: So well positioned that way. A couple of additional points that I would make that our growth framework, this is allowed the team now to reposition the business. We have a new manufacturing and distribution location in India that the team has been working on. That is positioned as really well to address the needs of some of our customers who are trying to have a China plus one manufacturing strategy. So we are well positioned there. The growth from that location will will begin to impact in 2025. The second thing that I would tell you, the team has also used this time period to really invest in new products and innovation that will position us in the growth sides of the applications that our customers have.
in India that the team has been working on that is position does really well to uh address the needs of some of our customers who are uh trying to have a China plus one, manufacturing strategy. So we are well positioned there. The growth from that location, uh, will, will begin to impact in 2025. Uh, the second thing that I would tell you, the team has also used this time period to really invest in new products and
Innovation that the position us in the growth sides of the applications that our customers have and we're pretty excited about a couple of new products, uh, one or two of them have won some very good industry recognition. And so, uh, you know, number of our strategy beginning to make an impact in our team strategically using this time, uh, to, to really, uh, position us for growth.
Sundaram Nagarajan: And we are pretty excited about a couple of new products. One or two of them have won some very good industry recognition. And so, you know, a number of our strategy beginning to make an impact and our team strategically using this time to to really position us for growth.
Thanks guys
Matt Summerville: Thanks, guys. Your next question comes from a line of Matt Summerville from DA Davidson. Your line is open.
Your next question comes from a line of Matt Somerville from DA Davidson. Your line is open.
Yeah, thanks, um, can you maybe talk about the monthly order cadence you experienced and fiscal first quarter what you're seeing thus far in fiscal Q1 and any discernible trends you'd call out pre or post the election with respect to order patterns and then I will follow up.
Matt Summerville: Yeah, thanks. Can you maybe talk about the monthly order cadence you experienced in fiscal first quarter, what you're seeing thus far in fiscal Q1, and any discernible trends you'd call out pre or post the election with respect to order patterns, and then I will follow. Yeah, again, I would say if you look at our guidance, it's largely reflective of what we're seeing in the near term, you know, on the ATS side, you know, before we said we had 4% organic growth in Q4. And, and I think our, our order patterns would tell us that that looks pretty sustainable.
Yeah, I, again, I, I would say if you look at our guidance, it's largely reflective of what we're seeing in the near term, yeah, on the ATS side, you know, before we said we had 4% organic growth in Q4 and, and I think our.
Our order patterns would tell us that that looks pretty sustainable, um, you know, we're not seeing a big uptick from there but certainly we're seeing ongoing support for that, you know, return to nominal growth.
Daniel Hopgood: You know, we're not seeing a big uptick from there, but certainly we're seeing ongoing support for that, you know, return to nominal growth. Similar story in our other segments, I would say, you know, our order patterns, you know, a support the guidance that we've given and I think the one difference year over year that we're coming into now is, you know, we we have kind of worked back to a normalized backlog. So yeah, that's certainly a factor year over year.
Um, similar story in our other segments, I would say, you know, our, our order patterns, um, you know, a support you know the guidance that we've given and, and, um.
I think the one difference year over year that we're coming into now is, you know, we, we have kind of worked back to a normalized backlog so um yeah that's certainly a factor year over year. I, I would say that, uh, you know, we haven't seen any discernible shift post-election. I think it's a bit early.
Daniel Hopgood: I would say that, you know, we haven't seen any discernible shift post-election. I think it's a bit early. I think, you know, if I were to summarize what we're hearing, I think there's still some uncertainty. I think, you know, frankly, some of our customers are trying to wait and see a little bit to see how things are going to play out here. And frankly, I think that's some of the uncertainty that we're seeing in our near term outlook. I think that'll settle down certainly as things play out, but I think it's still pretty early innings and people are still trying to figure out.
I think, you know, if I were to summarize what we're hearing.
I think there's still some uncertainty, I think, you know, frankly, some of our customers are trying to wait and see a little bit to see how things are gonna play out here.
And frankly, I think that some of the uncertainty that we're seeing in our near term outlook, um, I think that'll settle down certainly as.
Things play out, but I think it's still pretty early innings and people are still trying to figure out.
Um
You know
What decisions they should make and what the implications are going to be. I, I think I don't know if you wanna add anything further, but that's kind of what we're here.
Sundaram Nagarajan: You know what decisions they should make and what the implications are going to be. I think I don't know if you want to add anything further, but that's kind of what we're hearing.
So what I would add is, you know, it, it's certainly an uncertain macro environment, you know, you, you see the same things we do, um, and I think that uncertain market environment is really playing into our conservative approach to what we're taking to the outlook, uh, look, this could be, um,
Sundaram Nagarajan: So what I would add is, you know, it's certainly an uncertain macro environment. You see the same things we do. And I think that uncertain market environment is really playing into our conservative approach to what we're taking to the hour. Look, this could be, it could be significantly better or it could be more challenging than we expect. But in general, we feel like we have taken the appropriate steps to be conservative based on what we see today and based on what we know today.
It could be significantly better or it could be more challenging than we expect, but in general we feel like, um, we've taken the appropriate steps to be conservative based on what we see today and based on what we know today, but I'll just remind you a couple of things, you know, the company has a very strong operating model.
Sundaram Nagarajan: But I'll just remind you a couple of things. You know, the company has a very strong operating model. You know, we have a direct to customer model. You have differentiated products. High Recurring Revenue, Diversified End Market. And NBS Next as a growth framework is beginning to be how we run the company. So if you combine those strengths, and if you look at the operating excellence, the track record this team has had, you know, if you take all of 24, and if you look at the EBITDA margin conversion, the incremental margin, That's well north of where we had guided in our investor day.
Um, you know, we have a direct to customer model.
You have differentiated products, high recurring revenue.
Diversified and markets.
And NBS next as a growth framework is beginning to be how we run the company. So if you combine those trends, and if you look at the operating excellence, the track record this team has had, you know, if you take all of 24. And if you look at the Ibitamargin conversion, incremental margins.
It's well north of where we had guided in our investor day. So, you know, so if you combine our competitive strengths, you combine our ability to operate under any different sets of conditions, you know, it gives us confidence that, you know,
Sundaram Nagarajan: So, you know, so if you combine our competitive strengths, you combine our ability to operate under any different sets of conditions, you know, gives us confidence that, you know, The environment will be the environment. But Nordson will figure out a way to operate it and do fairly well. And, you know, deliver cash and deliver, you know, strong EBITDA margins.
The environment will be the environment.
But Norton will figure out a way to operate it and and do fairly well. And, you know, deliver cash and delivered, uh, you know, strong up, uh, EBA margins.
Thanks. So, just as a follow up based on Dan's commentary, it sounds like you at least expect modest organic growth in ATS in fiscal 25 if I understood him correctly. Can you maybe just flush out then what you're kind of baseline expectation is for organic at the segment level for IPS and MFS. Thank you.
Matt Summerville: Thanks. Just as a follow up, based on Dan's commentary, it sounds like you at least expect modest organic growth in ATS in fiscal 25, if I understood him correctly.
Daniel Hopgood: Can you maybe just flesh out then what your kind of baseline expectation is for organic at the segment level for ITS and MFS? Yeah, we typically don't appreciate the question. Yeah, I think we typically don't give specific guidance on each of the segments. You know, but I would say, if you look at Q4, It's maybe a good precursor for what you'd expect going forward, right? Our IPS business is pretty stable. And even in the medical, you know, we've got some pluses and minuses, but, you know. Generally, you know, they're they're they're kind of holding holding serve, I'll call it and given some of the uncertainty in the minimally invasive space.
Yeah, we typically don't appreciate the question, um, yeah, I, I think we, we typically don't give specific guidance on each of the segments, um, you know, but I would say.
If you look at Q4, um.
Yeah, it, it's maybe a good precursor for what you'd expect going forward, right? Our, our IPS business is, is, is pretty stable.
Um, and even in the medical, you know, we've got some pluses and minuses, but you know.
Generally, you know, they're, they're, they're kind of holding, holding serve I'll call it.
Uh, and, and given some of the uncertainty and the minimally invasive space and so um.
Yeah, if, if you look at it overall maybe that's the best way to answer your question if you peel back our guidance, it is, it's essentially zero growth organically year over year.
Daniel Hopgood: And so. Yeah, if you look at it overall, maybe that's the best way to answer your question. If you peel back our guidance, it's essentially zero growth organically year over year, with the growth coming from the atrion acquisition, and then a slight offset from FX based on current FX ranges. And if you factor in, let's call it, you know, low single digit growth or ongoing growth in ATS, you know, that kind of tells you what the answer is for the other segments. Got it.
With the growth coming from the Atrion acquisition and then a slight offset from FX based on current FX ranges and.
You know, if you factor in.
Um, let's call it, you know, low single digit growth or ongoing growth in ATS, you know, that kind of tells you what the answer is for the other segments.
Got it, thank you.
Your next question comes from a line of Jeff Hammond from KeyBank Capital Markets. Your line is open.
Jeffrey Hammond: Your next question comes from the line of Jeff Hammond from KeyBank Capital Markets. Your line is open.
Hi, good morning everyone.
Good morning, Jeff, um, so just on, on backlog I know backlog, you know, got elevated during COVID and people kind of, you know, stretch out, you know, made more orders and, and, you know, given the lead time issues, but just wondering, you know, if you think this backlog normalization is largely done and what businesses, you know, would have seen the most.
Jeffrey Hammond: Hi, good morning, everyone. Good morning, Jeff. Um, so just on on backlog, I know backlog, you know, got elevated during COVID.
Sundaram Nagarajan: And people kind of, you know, stretched out, you know, made more orders and, you know, given the lead time issues, but just wondering, you know, if you think this backlog normalization is largely done, and what businesses, you know, would have seen the most kind of backlog normalization, you know, over the last year that would maybe set up a little bit of a tough comp. Yeah, let me start and then Dan can add additional. Mostly it is our system businesses, large system businesses. I think even a couple of quarters ago when we continued to talk about this, we continued to see a reduction in backlog from plastic processing, is one of the large system businesses and industrial coatings is the other business.
Kind of backlog normalization, you know, over the last year that would maybe set up a little bit of a tough comp.
Yeah, let, let me start and then, you know, Dan can uh add uh additional. Mostly, it is our system businesses, large system businesses. I think, you know, even a couple of quarters ago when we continued to talk about this, we continue to see a reduction in backlog from plastic processing is one of the large system businesses and industrial codings is the other business, and you know, to some extent we have a large system orders in, you know, one part of
Sundaram Nagarajan: And to some extent we have large system orders in one part of our adhesive business. So those would be where we have typically seen order normalization. And it has been ongoing for a year and you rightly point out.
at ease of business, so those would be where we have typically seen, uh, order normalization. And it has been ongoing for a year, and you, you rightly point out.
OK, and then on polymer processing is that.
Sundaram Nagarajan: Okay, then on polymer processing, is that You know, is that just a tough comp dynamic? Is that a Europe issue? I think I think there was a, you know, some some recycling activity or, or something else that's, you know, that's hitting that. Yeah, a couple of things there, you know, certainly tough comps, right? Two record years of sales. But you also have a reduction in investments in recycling in Europe, as well as reduction in investment in virgin polymer production in Asia, particularly. So this business has been a huge contributor of our growth in the last couple of years.
You know, is that just a tough comp dynamic? Is that a Europe issue? I think, I think there was a, you know, some, some recycling activity or or something else that's, you know, that's hitting that.
Yeah, a couple of things there, you know, certainly tough cops, right? To record years of sales.
But you also have
Uh, reduction in investments in recycling in Europe as well as reduction in investment, investment in Virgin polymer production in Asia, particularly China.
So this business has been a, a huge contributor of our growth in the last couple of years and now, you know, you have the cycle impacting them and, you know, they are, they're, they're going to be down this year.
Daniel Hopgood: And now, you know, you have the cycle impacting them and, you know, they're going to be down this year. Yeah, I think the other thing just to reiterate, backlog normalization, our percentage of, you know, call it book and bill business continues to increase. with our parts versus systems mix, some of that's acquisition, some of that's also, you know, what we've been doing organically. And so, you know, we're, we're approaching 60% overall, I think we're at 57% or right around there, as far as You know, parts and services, and so. As you're looking historically at the backlog, I think that's an important thing to consider as well.
Yeah, I think the other thing just to me reiterate.
Backlog normalization, you know, our, our, our percentage of, you know, call it book and build business continues to increase.
With our, our, you know, parts versus systems, uh, mixed up some of that's acquisition, some of that's also, you know, what we've been doing organically and so you know we're we're approaching 60% overall I think we're at 57% or or right around there plus that.
As far as
Uh, you know, parts and services and so.
That as you as you're looking historically at the backlog ver I think that's an important thing to to consider as well.
Yeah, and then interventional destock, what are your customers telling you in terms of where inventories are, you know, what's kind of built into the guide.
Daniel Hopgood: Yeah, and then internet interventional DSTOCK. What are your customers telling you in terms of where inventories are you know what's kind of built into the guide you know for for when that kind of you know runs its course Yeah, we're so as I said, if I were to put it in place, I would say, you know, it feels like we're kind of middle somewhere in the middle endings as far as working through these supply chain changes. We have some return to normalization, but we think that still has a little way to go to play out.
You know, for, for when that kind of, you know, runs its course.
Yeah, we're
So, so as I said, if I were to put it in place, I would say, you know, it feels like we're kind of middle somewhere in the middle innings as far as working through these supply chain changes.
Uh, in, in the interventional businesses, uh, that our product lines in particular, um, and so, you know, we, we have some return to normalization, um, but we think that still has a little way to go to play out, um.
Yeah, and that's kind of how we're thinking about the year and this works its way out in another quarter or two and then we kind of get back to normal from there.
Daniel Hopgood: And that's kind of how we're thinking about the year. This works its way out another quarter or two and then we kind of get back to normal from there. The only other thing I would point out on that.
The only other thing I would point out on that is.
Yeah, why we we've mentioned this in a couple of different conversations we, we remain very comfortable with the long term outlook and the prospects for growth in that business.
Sundaram Nagarajan: Yeah, why we we've mentioned this in a couple of different conversations, we remain very comfortable with the long term outlook and the prospects for growth in that And our pipeline is really what supports that. We still see plenty of project activity line of sight to returning to normal growth in our interventional solutions business. We've already seen some of our component medical components and other areas return to normal growth. So we're very comfortable with the long term prospects. It's really just Trying to pick the exact timing of how this plays out is, I think, what we're, you know, continuing to work through with our customers.
and our pipeline is really what supports that we still see plenty of project activity line of sight to returning to normal growth, uh, in our interventional solutions business we've already seen some of our component medical components in other areas return to normal growth, so we're, we're very comfortable with the long term prospects. It's really just.
Trying to pick the exact timing of how this plays out is I think what we're, you know, continuing to work through with our customers.
You know, one thing I would add to that is in our interventional business. This is an area again, using NBS Macs or growth framework portfolio approach to how we think about growth, um, over the past 12 to 18 months, we have been investing in additional capacity in new areas of growth where, uh, you know, there were modest positions for us, uh, prior to COVID, uh, post-COVID and in the last
Sundaram Nagarajan: You know, one thing I would add to that is, in our interventional business, this is an area, again, using NBS Next, our growth framework portfolio approach to how we think about growth. Over the past 12 to 18 months, we have been investing in additional capacity in new areas of growth where, you know, there were modest positions for us prior to COVID, post-COVID, and in the last 12 to 18 months, it's a new product category that we're investing in. And, you know, that will help us as we come out of this stocking situation.
12 to 18 months, it's a new product category that we're investing in and um, you know, that will help us as we come out of this, thesetalking situation.
Great, thanks.
Andrew Buscaglia: All right, thanks. Your next question comes from the line of Andrew Buscaglia from BNP, your line is open.
Your next question comes from a line of Andrew Bascalia from BNP. Your line is open.
Hey, good morning everyone.
Good morning, Andrew.
Andrew Buscaglia: Hey, good morning, everyone. Good morning, Andrew. So just, you know, just back to the full year outlook. So you're assuming, you know, no, let's call no or low, very low organic growth at the midpoint, but EPS at the midpoint still up.
Um, so, so just, um, you know, just back to the, the full year outlook, um.
So you're assuming, you know, no, let's call no or low, very low organic growth.
Um
At the midpoint, but EPS at the midpoint still up.
And I guess because my confusion is MFS.
Daniel Hopgood: And I guess my confusion is MFS. Probably margins are flat or down just given you have a dilute of some dilution with the acquisition. ATS probably up because of if it grows, you got costs, taking costs out. So I so you have to assume some decent margin expansion IPS, despite what you're what's implied to be probably a down. are flatter down, probably down organic growth here.
Probably margins.
are flatter down just giving you have a that that would have some dilution with the acquisition ATS probably up because of.
Um, if it grows and you got cost taking costs out.
So I, so you have to assume some decent margin expansion IPS despite what you're what's implied to be probably a down.
Or flatter down probably down organic growth here so how I guess are you, is there additional cost cutting coming or what?
Daniel Hopgood: So how I guess, are you is there additional cost cutting coming or what? How are you getting to such margin expansion, I guess, to get to the midpoint of that EPS?
How are you getting to such margin expansion, I guess to to get to the midpoint of that EPS.
Yeah, no, it, it, it's, it's a great question, and here's what I would tell you, I mean, if, if you look at um.
Daniel Hopgood: Yeah, no, it's a great question. And here's what I would say, I mean, if you look at Our sales guidance and kind of take a normal incremental. I would say keep in mind that part of our MBS Next is continuing to run the company better and we've also made some taking some actions in the form of restructuring to improve the cost base of the business going forward. And so, you know, you're going to get some additional performance from an incremental standpoint year over year from those actions. In addition, you know, keep in mind, we're starting the year with our debt at a high And as we de-lever throughout the year, which we typically continue to do, that will also create leverage as the year plays out.
Our our sales guidance and kind of take a normal incremental.
Um, I would say, keep in mind that um part of our MBS next is continuing to run the company better and we've also made some.
Taking some actions uh in the form of, uh, restructuring to improve the cost base of the business going forward and so you know you're gonna get some additional performance from an incremental standpoint year over year from those actions.
In addition, you know, keep in mind we're starting the year with our debt at a high point.
And as we delever throughout the which we've typically uh continue to do that will also create leverage as the year plays out.
Um, and then you factor in the last item which is uh a year over year improvement in our tax rate as we mentioned in the call, um, I think those three factors are are kind of what drives that conversion.
Daniel Hopgood: And then you factor in the last item, which is a year-over-year improvement in our tax rate, as we mentioned in the call. I think those three factors are kind of what drives that.
Yeah, OK
OK, and then, um, you know, MSS too, like, you know, just maybe touching on that, uh, the margins there.
Daniel Hopgood: Yeah, okay.
Daniel Hopgood: Okay, and then, you know, MFS to, you know, just maybe touch on that, the margins there. It seems like things are going well, as of as of now, but you know, we, we probably do see margins decline, or do we see that these costs, you know, the cost savings and that side of things taking hold this year or mid mid year to get to some margin expansion in the back half?
Um, it seems like things are going well as of, of, as of now, but um,
Yeah, we, we, we probably do see margins decline or, or do we see that, I don't know these costs, you know, the cost savings and that side of things taking hold.
Um, this year or mid mid year to get to some margin expansion in the back half.
You, you're talking specific to the MFS business to the MSS.
Daniel Hopgood: You're talking specific to the MFS, isn't it, to the MFS segment? Yeah, just them at that. Ah, okay.
Yeah, just MSS.
Ah, OK, OK, and you really, I think you're, you're asking about Adrian, I assume, right? Yeah, because it'll be, it seems to be diluted but not maybe not as much as we initially thought.
Daniel Hopgood: Really, I think you're asking about Atriana. Yeah, because it'll be, it seems to be diluted, but not even as much as we initially thought. Yeah, it's not, you know, as I said, they're, you know, I think in a good path in the upper 20% range on EBITDA below our current, but to your point, not significantly diluted. And, you know, our model factored in improvements in the first one to two years. and I think we're, you know, largely on track with that. And so I think you'll start to see some of that play out certainly next year or in 2025, but some of that will play out even into 2026 as well.
but to your point, not significantly diluted.
And you know, our, our model, um.
Factored in improvements in the 1st 1 to 2 years.
And I think we're, you know, largely on track with that, um.
And so I, you know, I think you'll start to see some of that play out.
Certainly next year or in 2025, but some of that will play out even into 2026 as well.
Mm
Yeah, OK.
You know, and what I would add is integration going well.
Daniel Hopgood: Yeah, okay.
Uh, we made, uh, adjustments in cost structures early and, but Dan, what Dan is indicating to you for you is that our model calls for us over the next year to two is when we, you know, uh, completely off, uh, you know, deliver on the synergies that we committed to, but we're off to a very good start, um, and, and margins in
Sundaram Nagarajan: You know, Andrew, what I would add is integration going well. We made adjustments in cost structures early. And, but Dan, what Dan is indicating to you for you is that our model calls for us over the next year to two is when we, you know, completely off, you know, deliver on the synergies that we committed to, but we're off to a very good start.
You know, MFS are cold and pretty nicely.
Sundaram Nagarajan: And margins in, you know, MFS are cold and pretty nice. Yeah, okay.
Yeah, OK
All right, thank you guys.
Yeah
Your next question comes from a line of Walt Liptak from Seaport. Your line is open.
Sundaram Nagarajan: All right. Thank you, guys.
Walt Liptak: Your next question comes from the line of Walt Liptak from Seaport. Your line is open.
Hi, thanks guys, good morning. morning to morning. I'm gonna try one, about, uh, you know, kind of orders and you know the comment that you made about, you know, not calling recoveries in the high end, you know, with some recovery.
Walt Liptak: Hi, thanks guys. Good morning.
Walt Liptak: Morning, I'm going to try one about, you know, kind of orders and, you know, the comment that you made about, you know, not calling recoveries in the high end, you know, with some recovery. So, you know, what we've seen from some other industrial companies that have exposure to, you know, kind of medical Semicon is that they get, you know, sort of blanket orders or early orders in the year. Like, at what point will we know that, you know, that there's not the recovery happening? Do you find it in the December quarter, the quarter that we're in, or is it in the first quarter?
So you know what we've seen from some other industrial companies that have exposure to, you know, kind of medical and.
Semicon is that
Uh, they get, you know, sort of blanket orders or early orders in the year like at, at what point will we know that, you know, that, that there's, there's not the recovery happening. Do you find it in the December quarter, the quarter that we're in, or is it in the first quarter and how important do you think, you know, for those larger systems, uh, are, you know, sort of early year orders that you, you, you know, deliver later on in the year.
Walt Liptak: And how important do you think, you know, for those larger systems are, you know, sort of early year orders that you, you know, deliver later on in the year?
Yeah, I, I maybe I'll, I'll take this, um great again maybe what I'll start with is I what we're seeing now.
Sundaram Nagarajan: Yeah, I think maybe I'll take this. Great.
You know, support our current outlook and I, I think the answer to your question is as Q1 and Q2 play out.
Sundaram Nagarajan: Again, maybe what I'll start with is what we're seeing now. supports our current outlook and I think the answer to your question is as Q1 and Q2 play out. I think we'll have, you know, a much better viewpoint on how the second half is going to play out.
I think we'll have, you know, a much better viewpoint on how the second half is gonna play out, um.
Yeah, it's interesting there there's a lot of discussions that are going on, but there's also a lot of hesitance.
Sundaram Nagarajan: Yeah, it's interesting. There's a lot of discussion. but there's also a lot of head. And so that's generally, you know, kind of back to the earlier comments, I think that's what we're generally seeing is just some uncertainty. and a lot of plans. But those plans, you know, today are translated into, I'll say guarded Investments. And that's kind of what we're seeing in the near term. And I think as Q1 and Q2 play out, we'll have a much better viewpoint. on what this looks like for the year.
Um, and so that's generally, you know, kind of back to the earlier comments. I think that's what we're generally seeing is just some uncertainty.
And a lot of plans but those plans, you know, today are translated into, I'll say guarded.
Investments, um, and that's kind of what we're seeing in the near term and I think as Q1 and Q2 play out, we'll have a much better viewpoint.
On, you know what this like looks like for the year.
OK great and
Hey to walk before, before he asked to follow on, let me just add, uh, one thing.
Walt Liptak: Okay, great, and...
Sundaram Nagarajan: Hey, Walt, before you ask the follow on, let me just add one thing. Look, this is based on what we know today. And should something change, like you're, you know, suggesting might be or asking, you know, we will adjust. And particularly in the IPS area where large system orders are, you know, is one of the areas of concern.
Look, this is based on what we know today.
And should something change, like you're, you know, suggesting might be or asking, uh, you know, we will adjust.
Um, and, and particularly in the IPS area where large system orders are, you know, is, is one of the areas of concern, but ATS though, the current order entry, the momentum that we see there, you know, clearly supports the kind of growth rate that we delivered in the 4th quarter.
Sundaram Nagarajan: But ATS, though, the current order entry, the momentum that we see there, you know, clearly supports the kind of growth rate that we delivered in the fourth quarter. Okay, great.
So.
OK, great, um.
OK, so the, the, the next question would be, you know, as we're talking about the hesitancy, um.
Sundaram Nagarajan: Okay, so the next question would be, you know, as we're talking about the hesitancy, You know, the interest rates, you know, have been coming down, right, the election is over. And then it are we talking about sort of the tariff issue? And that's causing the uncertainty in the headwinds? Is that is that what those comments are coming from? Or is it something Well, I, you know, nobody obviously is telling us or describing why they're hesitant or, or we are, you know, what we can presume, you know, certainly that may have some impact in their thinking.
You know, the interest rates, you know, have been coming down, right, the election is over and then it, are we talking about sort of the tariff issue, uh, and that's causing the uncertainty in the headwind. Is that, is that what those comments are coming from, or is it something else?
Well, I, you know, nobody obviously is telling us or describing why there're hesitant all, all we are, you know, what we can presume, you know, certainly that may have some impact in their thinking, uh, but
You know, while it will be difficult for us to tell you exactly why some of our customers are hesitant. All we can say is they're talking about projects, but there is a certain amount of hesitancy. You know, there, there is going to be change in EB battery, uh, investments, there's going to be changing in maybe solar, who knows, right? I mean, lots, the macro environment is different and certainly leads to some level of uncertainty.
Sundaram Nagarajan: But, you know, while it'll be difficult for us to tell you exactly why some of our customers are hesitant, all we can say is they're talking about projects, but there is certain amount of hesitancy. You know, there is going to be change in EV battery investments, there's going to be change in maybe solar, who knows, right? I mean, lots, the macro environment is different and certainly leads to some level of uncertainty. and that manifests itself as hesitancy in our customers. You know, the geopolitical environment is not all that great.
And that manifests itself as hesitancy in our customers. You know, the geopolitical environment is not all that great. It's not stable environment to be in right now, so.
Yes, absolutely. Um, so there may be a last one for me is, you know, uh, thanks for pointing out the ATS even down margins being, uh, really nice, um, on sort of the bottomish.
Sundaram Nagarajan: It's not stable environment to be in right now. Yes, absolutely.
Daniel Hopgood: So the maybe a last one for me is, you know, thanks for pointing out the ATS EBITDA margins being really nice on sort of the bottom. , Dan H.
Uh, part of the cycle we're um where do you think you can get the, you know, like in a normalized market, you know, a couple 23 years from now, where do you think ATS margins go or maybe another way to look at it what do you think the operating leverage will be as you know, the revenue, uh, improves.
Daniel Hopgood: , , , , , , , , , , , , , I think it's really important to remember our ATS business at 27% ABETI is probably a best-in-class among our peers. And it is an area where it requires a lot more investment in new products and technologies than any of our other businesses. We typically invest 14-15% of revenues in this area, and you have to stay ahead of the competition. But more importantly, to be able to fully support your customers' needs about investing in technology as they bring out new. So, you know, 27% EBITDA is a great place for us to be.
Yeah, I think it's really important to remember our ATS business at 27% is probably a best in class among our peers.
Right. And it is an area where it requires a lot more investment in new products and technologies than any of our other businesses we typically invest 14, 15% of revenues in this area, and you have to, to stay ahead of the competition, but more importantly, to be able to fully support your customer's needs about investing in technology as they bring out news. So, you know, 27% a that is a great place for us to be. We're looking to grow here. So any opportunity we can get to grow.
We want to continue to grow this business rather than expand margins. If you look at the total company, while you've seen this story for us, you know, we were in the 27, 26% deep down margin. We're now running in that 31, uh, 31, 32, uh, ZIP code. Look, you, you know, you're gonna be a lot more happier as we continue to grow the top line of the company at Strong incrementals rather than, you know, focused on I down margins.
Sundaram Nagarajan: We're looking to grow here. So, any opportunity we can get to grow, we want to continue to grow this business rather than expand margins. If you look at the total company, while you've seen this story for us, you know, we were in the 27-26% EBITDA margin. We're now running in that 31-32 zip code. Look, you know, you're going to be a lot more happier as we continue to grow the top line of the company at strong incrementals rather than, you know, focused on EBITDA margins.
And I'll take the same.
Common for the company and apply to ATS right? Really like 27%. We want to continue to grow the business.
Sundaram Nagarajan: And I take the same comment for the company and apply it to APS, right? Really like 27%, we want to continue to grow the business.
OK great thank you very much.
And we have reached the end of our question and answer session. I will now turn the call back over to Naga for some final closing remarks.
Sundaram Nagarajan: Okay, great. Thank you very much.
Sundaram Nagarajan: And we have reached the end of our question and answer session.
Sundaram Nagarajan: I will now turn the call back over to Naga for some final closing remarks. Thank you for your time and attention on today's call. We're making great progress on the Ascent Strategy. We are positioned really well as we enter fiscal 2025.
Thank you for your time and attention on today's call. Uh, we're making great progress on the ascent strategy. We have positioned really well as we enter fiscal 2025. I wish you a happy holiday season.
This concludes today's conference call. Thank you for your participation. You may now disconnect.
Sundaram Nagarajan: I wish you a happy holiday season.
Operator: This concludes today's conference call. Thank you for your participation.
Operator: You may now disconnect.