Q3 2026 Nordson Corp Earnings Call

August 20, 2026

Operator: Hello, everyone. Thank you for joining us, and welcome to the Nordson Corporation Q3 fiscal year 2026 conference call. After today's prepared remarks, we will host a question and answer session. If you would like to ask a question, please press star one to raise your hand. To withdraw your question, press star one again. I will now hand the conference over to Matt Matejka of Nordson. Matt, please go ahead.

Speaker #1: Hello everyone, thank you for joining us, and welcome to the Nordson Corp Q3 FY 2026 conference call. After today's prepared remarks, we will host a Q&A session.

Speaker #1: If you would like to ask a question, please press *1 to raise your hand. To withdraw your question, press *1 again. I will now hand the conference over to Matt Matejka of Nordson.

Speaker #1: Matt, please go ahead.

Speaker #2: Thank you. Good morning. This is Matt Matejka, Senior Director of Investor Relations. I'm here with Sundaram Nagarajan, our President and Chief Executive Officer, and Daniel Hopgood, Executive Vice President and Chief Financial Officer.

Matt Matejka: Thank you. Good morning. This is Matt Matejka, Senior Director of Investor Relations. I am here with Sundaram Nagarajan, our President and Chief Executive Officer, and Dan Hopgood, Executive Vice President and Chief Financial Officer. We welcome you to our conference call today, Thursday, 20 August, to report Nordson's fiscal 2026 Q3 results. 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 www.nordson.com/investors. This conference call is being broadcast live on our investor website and will be available there for 30 days. During this conference call, we will make references to non-GAAP financial metrics. We have provided a reconciliation of these metrics to the most comparable GAAP metric in the press release issued yesterday.

Speaker #2: We welcome you to our conference call today, Thursday, August 20, to report Nordson's fiscal 2026 Q3 results. You can find both our press release as well as our webcast slide presentation, which we will refer to during today's call, on our website at www.nordson.com/investors.

Speaker #2: This conference call is being broadcast live on our investor website and will be available there for 30 days. During this conference call, we will make references to non-GAAP financial metrics.

Speaker #2: We’ve provided a reconciliation of these metrics to the most comparable GAAP metric in the press release issued yesterday. 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 may be forward-looking, based upon Nordson’s current expectations.

Matt Matejka: 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 may be forward-looking based upon Nordson'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 materially differ. Moving to today's agenda on slide 3, Naga will discuss Q3 highlights. He will then turn the call over to Dan to review sales and earnings performance for the total company and the three business segments. Dan will also discuss the balance sheet and cash flow. Naga will then share a high-level commentary about our enterprise performance and provide an update on the fiscal 2026 full-year guidance. We will then be happy to take your questions.

Speaker #2: These statements may involve a number of risks, uncertainties, and other factors as discussed in the company's filings with the Securities and Exchange Commission that could cause actual results to materially differ.

Speaker #2: Moving to today's agenda on slide 3, Naga will discuss Q3 highlights. He will then turn the call over to Dan to review sales and earnings performance for the total company and the three business segments.

Speaker #2: Dan will also discuss the balance sheet and cash flow. Naga will then share a high-level commentary about our enterprise performance and provide an update on the fiscal 2026 full-year guidance.

Speaker #2: We will then be happy to take your questions. With that, I'll turn to slide 4 and turn the call over to Nagarajan.

Matt Matejka: With that, I will turn to slide 4 and turn the call over to Naga.

Speaker #3: Good morning, everyone. Thank you for joining Nordson's fiscal 2026 Q3 conference call. Before we begin, I would like to welcome Matt Matejka to our call in his new role as Senior Director, Investor Relations.

Sundaram Nagarajan: Good morning, everyone. Thank you for joining Nordson's fiscal 2026 Q3 conference call. Before we begin, I would like to welcome Matt Matejka to our call in his new role of Senior Director, Investor Relations. As we announced in a previous press release, Matt has assumed investor relations responsibilities from Lara Mahoney, who has taken on a new role within Nordson. Matt joined Nordson in 2023 and brings over 10 years of experience in financial leadership roles. Most recently serving as finance director for our Industrial Coating Solutions division. Moving on to the financial results, I am pleased to share that the momentum driving our strong H1 continued throughout Q3. For the first nine months of fiscal 2026, Nordson has grown revenue by 9% and adjusted earnings per share by 18% year over year, with strong backlog giving us confidence in the rest of the year.

Speaker #3: As we announced in a previous press release, Matt has assumed investor relations responsibilities from Lara Mahoney, who has taken on a new role within Nordson.

Speaker #3: Matt joined Nordson in 2023 and brings over 10 years of experience in financial leadership roles, most recently serving as Finance Director for our Industrial Coding Solutions division.

Speaker #3: Moving on to the financial results, I am pleased to share that the strong momentum driving our first half continued throughout the third quarter. For the first nine months of fiscal 2026, Nordson has grown revenue by 9% and adjusted earnings per share by 18% year over year, with strong backlog giving us confidence in the rest of the year.

Speaker #3: As our growth end markets continue to inflect, we are winning due to our unique competitive advantages and the successful execution of our ASCEND strategy.

Sundaram Nagarajan: As our growth end markets continue to inflect, we are winning due to our unique competitive advantages and the successful execution of our ASCEND strategy. We are well-positioned to continue compounding profitable growth. During Q3, all three segments, again, contributed to our organic growth performance, surpassing the high end of our sales and earnings guidance. We achieved record sales of $818 million. This is a 10% increase over the prior year, which is inclusive of 12% overall organic growth. Order entry momentum continued to accelerate, driving backlog up 35% compared to the prior year. Backlog growth was broad-based with all segments contributing, but particular strength coming from our advanced technology and medical segments. Solid execution and volume leverage drove record profit performance for the quarter, delivering EBITDA of $262 million, which was an all-time record and 32% of sales.

Speaker #3: We are well-positioned to continue compounding profitable growth. During the third quarter, all three segments again contributed to our organic growth performance, surpassing the high end of our sales and earnings guidance.

Speaker #3: We achieved record sales of $818 million—this is a 10% increase over the prior year—which includes 12% overall organic growth. Order entry momentum continued to accelerate, driving backlog up 35% compared to the prior year.

Speaker #3: Backlog growth was broad-based, with all segments contributing, but with particular strength coming from our Advanced Technology and Medical segments. Solid execution and volume leverage drove record profit performance for the quarter, delivering EBITDA of $262 million, which was an all-time record and 32% of sales.

Speaker #3: Adjusted earnings per share of $3.25 was also an all-time record for the business. This was an increase of 19% compared to the prior year. I would also like to highlight our free cash flow of $237 million. Our free cash flow conversion of well over 100% of net income continues to be a strength, enabling a healthy mix of shareholder returns and reinvestment in growth.

Sundaram Nagarajan: Adjusted earnings per share of $3.25 was also an all-time record for the business. This was an increase of 19% compared to prior year. I would also like to highlight our free cash flow of $237 million. Our free cash flow conversion of well over 100% of net income continues to be a strength, enabling a healthy mix of shareholder returns and reinvestment in growth. Our balance sheet continues to be in a strong position, giving us plenty of flexibility for future acquisitions that meet our strategic and financial criteria. I'll talk more about enterprise performance in a few moments, but first, I'll turn the call over to Dan to provide detailed perspective on our financial results for the quarter.

Speaker #3: Our balance sheet continues to be in a strong position, giving us plenty of flexibility for future acquisitions that meet our strategic and financial criteria.

Speaker #3: I'll talk more about enterprise performance in a few moments, but first, I'll turn the call over to Dan to provide detailed perspective on our financial results for the quarter.

Speaker #4: Thank you, Naga, and good morning, everyone. On slide number 5, you’ll see we achieved record-level sales of $818 million in the third quarter, up 10% from prior year Q3 sales of $742 million.

Dan Hopgood: Thank you, Naga, and good morning, everyone. On slide number 5, you'll see we achieved record level sales of $818 million in Q3, up 10% from prior year Q3 sales of $742 million. Q3 2026 sales included an organic increase of 12%, driven by growth in all three of our segments. Currency translation was effectively neutral for the period. Strong organic sales performance was slightly offset by the net impact of the medical contract manufacturing divestiture completed in Q4 of last year, and the small contribution from the CapstanAG acquisition that was completed during Q2 of this year. Adjusted operating profit increased 13% year over year to a record $226 million, or 28% of sales, driven by increased leverage on the strong organic sales growth across the segments.

Speaker #4: The third quarter 2026 sales included an organic increase of 12%, driven by growth in all three of our segments. Currency translation was effectively neutral for the period.

Speaker #4: Strong organic sales performance was slightly offset by the net impact of the medical contract manufacturing divestiture completed in the fourth quarter of last year, and the small contribution from the Capstan acquisition that was completed during the second quarter of this year.

Speaker #4: Adjusted operating profit increased 13% year over year to a record $226 million, or 28% of sales, driven by increased leverage on the strong organic sales growth across the segments.

Speaker #4: EBITDA was up 10% year over year to $262 million, also a new company record. EBITDA margin as a percent of sales was 32%, in line with the prior year.

Dan Hopgood: EBITDA was up 10% year over year to $262 million, also a new company record. EBITDA margin as a percent of sales was 32%, in line with the prior year. Incremental EBITDA contribution in the quarter was just shy of 32%. We are quite pleased with these operating results, which reflect our focus on maximizing growth potential while protecting our best-in-class margins and effectively managing near-term inflationary pressures tied to the broader market and geopolitical factors. In addition, we continue to reinvest and innovate to maintain our strong value proposition for many years to come. Looking at non-operating income and expenses, net interest expense during the quarter was $20 million, a decrease of over $5 million versus the prior year, which is really driven by two key factors. One, our strong cash generation through the first nine months has allowed us to significantly delever our balance sheet.

Speaker #4: Incremental EBITDA contribution in the quarter was just shy of 32%. We're quite pleased with these operating results, which reflect our focus on maximizing growth potential while protecting our best-in-class margins and effectively managing near-term inflationary pressures tied to the broader market and geopolitical factors.

Speaker #4: In addition, we continue to reinvest and innovate to maintain our strong value proposition for many years to come. Looking at non-operating income and expenses, net interest expense during the quarter was $20 million, a decrease of over $5 million versus the prior year.

Speaker #4: This is really driven by two key factors: one, our strong cash generation through the first nine months has allowed us to significantly delever our balance sheet; in addition, our average borrowing cost has improved year over year due to lower market rates on our variable debt, including the benefits from the recently announced commercial paper program that was launched during the quarter.

Dan Hopgood: In addition, our average borrowing cost has improved year over year due to lower market rates on our variable debt, including the benefits from the recently announced commercial paper program that was launched during the quarter. Other expenses on a GAAP basis increased $14 million year over year, with the primary driver being a $15 million non-cash mark-to-market charge for minority investments. These non-cash valuation adjustments are subject to market volatility, and on a year to date basis, the impact is actually negligible. Excluding this non-cash charge, other expenses net decreased by a nominal $1 million year over year. Our tax expense on a US GAAP basis was $33 million for an effective tax rate of 17.8%, inclusive of the impact of the non-cash loss I just mentioned and acquisition-related amortization and costs.

Speaker #4: Other expenses on a GAAP basis increased $14 million year over year, with the primary driver being a $15 million non-cash mark-to-market charge for minority investments.

Speaker #4: These non-cash valuation adjustments are subject to market volatility, and on a year-to-date basis, the impact is actually negligible. Excluding this non-cash charge, other expenses, net, decreased by a nominal $1 million year over year.

Speaker #4: Our tax expense on a U.S. GAAP basis was $33 million, for an effective tax rate of 17.8%, inclusive of the impact of the non-cash loss I just mentioned and acquisition-related amortization and costs.

Speaker #4: On an adjusted basis, our effective tax rate was 18.3%, in line with the prior quarter run rate. For the full year, we expect our tax rate to be near 18%, which is also reflective of our ongoing rate expectations.

Dan Hopgood: On an adjusted basis, our effective tax rate was 18.3%, in line with the prior quarter run rate. For the full year, we expect our tax rate to be near 18%, which is also reflective of our ongoing rate expectations. GAAP net income in the quarter totaled $153 million, or $2.73 per share. Excluding acquisition-related amortization and costs and the non-cash loss, adjusted earnings per share totaled a record $3.25 per share, 10 cents above the high end of our guidance range, and a 19% increase from prior year adjusted earnings per share of $2.73. To wrap up our consolidated summary, the improvement in year over year earnings and record Q3 results reflect strong sales growth across our portfolio, which I will cover a bit more in a moment. It also reflects strong delivery execution driven through our ASCEND strategy and NBS Next framework.

Speaker #4: GAAP net income in the quarter totaled $153 million, or $2.73 per share. Excluding acquisition-related amortization and costs, and the non-cash loss, adjusted earnings per share totaled a record $3.25 per share, $0.10 above the high end of our guidance range, and a 19% increase from prior year adjusted earnings per share of $2.73.

Speaker #4: To wrap up our consolidated summary, the improvement in year-over-year earnings and record Q3 results reflect strong sales growth across our portfolio, which I'll cover a bit more in a moment.

Speaker #4: It also reflects strong delivery execution driven through our Ascend strategy and NBS Next framework. Our differentiated products, market position, and commercial and operational execution have allowed us to grow our adjusted earnings per share 18% year over year through the first nine months of the year, with strong momentum heading into the fourth quarter.

Dan Hopgood: Our differentiated products, market position in commercial and operational execution have allowed us to grow our adjusted earnings per share 18% year over year through the first nine months of the year, with strong momentum heading into the Q4. Now let us turn to slides 6 through 8 to review the Q3 2026 segment performance. Industrial Precision Solutions sales were $367 million, an increase of 5% compared to the prior year Q3. Organic sales increased 3% compared to the prior year, with a favorable currency impact of 1% and an acquisition contribution of roughly 1%. Organic growth was driven by packaging and industrial coatings application demand and continued recovery in our plastics processing demand. Broadly speaking, aftermarket demand remains stable across our IPS portfolio, while systems demand for broader industrial and agricultural markets remain stable but with limited growth.

Speaker #4: Now, let's turn to slides 6 through 8 to review the third quarter 2026 segment performance. Industrial Precision Solutions sales were $367 million, an increase of 5% compared to the prior year's third quarter.

Speaker #4: Organic sales increased 3% compared to the prior year, with a favorable currency impact of 1% and an acquisition contribution of roughly 1%. Organic growth was driven by packaging and industrial coatings application demand, as well as continued recovery in our plastics processing demand.

Speaker #4: Broadly speaking, aftermarket demand remained stable across our IPS portfolio, while systems demand for broader industrial and agricultural markets remained stable but with limited growth.

Speaker #4: EBITDA was $130 million in the quarter, or 35% of sales, which is in line with the third quarter of last year as we continue to invest in innovation while mitigating selected near-term inflationary pressures.

Dan Hopgood: EBITDA was $130 million in the quarter, or 35% of sales, which is in line with Q3 of last year as we continue to invest in innovation while mitigating selected near-term inflationary pressures. Turning to slide seven, you will see medical and fluid solution sales of $231 million, a quarterly record. Total sales increased 5% compared to Q3 of last year, while organic sales increased closer to 11% in the quarter, driven by contributions from both our engineered fluid solutions and medical product lines. Divested sales from the medical contract manufacturing business had a negative impact of approximately 6% compared to the prior year. Medical component demand has normalized, and we are now seeing stable, ongoing growth in many of our product lines. While we are also seeing broad-based demand for fluid solution systems applications in medical and electronics markets.

Speaker #4: Turning to slide 7, you'll see medical and fluid solution sales of $231 million, a quarterly record. Total sales increased 5% compared to the third quarter of last year, while organic sales...

Speaker #4: Increased closer to 11% in the quarter, driven by contributions from both our Engineered Fluid Solutions and Medical product lines. Divested sales from the medical contract manufacturing business had a negative impact of approximately 6% compared to the prior year.

Speaker #4: Medical component demand has normalized, and we're now seeing stable, ongoing growth in many of our product lines. We're also seeing broad-based demand for fluid solution systems applications in the medical and electronics markets.

Speaker #4: EBITDA for Medical and Fluid Solutions was a record $88 million, or 38% of sales, which is an increase of 6% from prior year EBITDA of $83 million.

Dan Hopgood: EBITDA for medical and fluid solutions was a record $88 million, or 38% of sales, which is an increase of 6% from prior year EBITDA of $83 million. The segment delivered strong year-over-year incrementals during the quarter, and EBITDA margins improved about 100 basis points sequentially on the higher sales. Turning to slide eight, you will see Advanced Technology Solution sales were an all-time quarterly record of $220 million, a 28% increase compared to the prior year's Q3. Organically, sales increased 31%, with growth coming across both the electronics dispense and test and inspection product lines, reflecting the continued strength in semiconductor and broadening electronics and market demand. Q3 EBITDA was also an all-time quarterly record of $66 million, driving a record EBITDA margin of 30% of sales. EBITDA increased 58% compared to the prior year Q3 EBITDA of $42 million, or 24% of sales.

Speaker #4: The segment delivered strong year-over-year incrementals during the quarter, and EBITDA margins improved about 100 basis points sequentially on the higher sales. Turning to slide 8, you’ll see Advanced Technology Solutions sales were an all-time quarterly record of $220 million, a 28% increase compared to the prior year’s third quarter.

Speaker #4: Organically, sales increased 31%, with growth coming across both the Electronics Dispense and Test and Inspection product lines, reflecting the continued strength in semiconductor and broad needle electronics end-market demand.

Speaker #4: Third-quarter EBITDA was also an all-time quarterly record of $66 million, driving a record EBITDA margin of 30% of sales. EBITDA increased 58% compared to the prior year third-quarter EBITDA of $42 million, or 24% of sales.

Speaker #4: The improvement in EBITDA margin reflects the record sales volumes and strong operational leverage, driven by improvements we've made in our operations over the last several years.

Dan Hopgood: The improvement in EBITDA margin reflects the record sales volumes and strong operational leverage driven by improvements we have made in our operations over the last several years. Finally, turning to the balance sheet and cash flow on slide nine. At the end of Q3, we had cash on hand of $113 million, and net debt was approximately $1.6 billion. We have continued to delever with our leverage ratio decreasing further to 1.7 times, which is made possible by our strong earnings and cash flow generation. This provides us with significant firepower to strategically deploy capital, including returning cash to shareholders, reinvesting for growth, and acquiring strategic assets. Our free cash flow generation during the quarter was $237 million, resulting in a 144% conversion rate on net income, excluding the non-cash loss that I mentioned a moment ago.

Speaker #4: Finally, turning to the balance sheet and cash flow on slide 9. At the end of the third quarter, we had cash on hand of $113 million, and net debt was approximately $1.6 billion.

Speaker #4: We've continued to delever, with our leverage ratio decreasing further to 1.7 times, which has been made possible by our strong earnings and cash flow generation.

Speaker #4: This provides us with significant firepower to strategically deploy capital, including returning cash to shareholders, reinvesting for growth, and acquiring strategic assets. Our free cash flow generation during the quarter was $237 million, resulting in a 144% conversion rate on net income, excluding the non-cash loss that I mentioned a moment ago.

Speaker #4: This is up from 113% through the first half of this year, and the third quarter represents the fifth consecutive quarter of delivering well over 100% conversion.

Dan Hopgood: This is up from 113% through the H1 of this year, and Q3 represents the fifth consecutive quarter of delivering well over 100% conversion. As noted on slide 10, our capital allocation continues to be balanced and is driving value, fueled by our strong cash flow generation. Year-to-date, in addition to our acquisition of CapstanAG announced last quarter, we have invested $40 million in capital projects to support current and future organic growth opportunities. Through nine months, we have also returned capital to shareholders with $137 million in dividends paid and $159 million of shares repurchased. We have been able to do all of this while reducing our net debt and reducing our leverage ratio, positioning us well to pursue strategic growth opportunities. To summarize and close, we delivered another quarter of fantastic record results. Each of our segments delivered record Q3 sales and strong organic growth.

Speaker #4: As noted on slide 10, our capital allocation continues to be balanced and is driving value fueled by our strong cash flow generation. Year to date, in addition to our acquisition of Capstan AG announced last quarter, we've invested $40 million in capital projects to support current and future organic growth opportunities.

Speaker #4: Through nine months, we've also returned capital to shareholders, with $137 million in dividends paid and $159 million of shares repurchased. We've been able to do all of this while reducing our net debt and lowering our leverage ratio.

Speaker #4: Positioning us well to pursue strategic growth opportunities. So to summarize and close, we delivered another quarter of fantastic, record results. Each of our segments delivered record third quarter sales and strong organic growth.

Speaker #4: And in the case of MFS and ATS, we achieved all-time record quarterly sales. EBITDA margins remained strong, and cash conversion continues to be a strength, reflecting solid earnings quality and disciplined working capital management.

Dan Hopgood: And in the case of MFS and ATS, all-time record quarterly sales. EBITDA margins remain strong and cash conversion is a continuing strength, reflecting solid earnings quality and disciplined working capital management. This provides us all the flexibility needed to strategically deploy capital to sustainably grow and return value to shareholders. Our teams once again delivered on their commitments for the quarter and continued to grow our backlog, which puts us in a great position heading into the Q4. As Naga will address next, our portfolio position and NBS Next framework support continued growth into the future, positioning us well to continue delivering for our stakeholders. With that, let's turn to slide 11, and I'll turn the call back to Naga.

Speaker #4: This provides us with all the flexibility needed to strategically deploy capital to sustainably grow and return value to shareholders. Our teams once again delivered on their commitments for the quarter and continued to grow our backlog, which puts us in a great position heading into the fourth quarter.

Speaker #4: As Naga will address next, our portfolio position and NBS Next framework support continued growth into the future, positioning us well to continue delivering for our stakeholders.

Speaker #4: With that, let's turn to slide 11, and I'll turn the call back to Naga.

Speaker #2: Thanks, Dan. It's been a very strong nine months fiscally for NORDSON. As our end markets continue to inflect, the execution of our Ascend strategy positions us well to deliver for our customers.

Sundaram Nagarajan: Thanks, Dan. It's been very strong fiscal 9 months for Nordson. As our end markets continue to inflect, the execution of our ASCEND strategy positions us well to deliver for our customers. As we look at slide 11, I want to take a moment to remind our investors about Nordson's competitive advantages, which have positioned us to reliably compound profitable growth. From the very beginning, Nordson built a business model based on three key strategic themes: differentiated products, close to customer relationships, and diversified niche end markets. Our founders started this company through the purchase of patented technology, understanding the importance of differentiation. Our legacy was then built through close customer relationships where we solved problems together and advanced technology roadmaps. Over the past 70 years, Nordson's innovation has led to market leadership in precision technologies, speed, and efficiency in diverse niche end markets.

Speaker #2: As we look at Slide 11, I want to take a moment to remind our investors about Nordson's competitive advantages, which have positioned us to reliably compound profitable growth.

Speaker #2: From the very beginning, Nordson built a business model based on three key strategic themes: differentiated products, close customer relationships, and diversified niche end markets.

Speaker #2: Our founders started this company through the purchase of patented technology, understanding the importance of differentiation. Our legacy was then built through close customer relationships, where we solved problems together and advanced technology roadmaps.

Speaker #2: Over the past 70 years, Nordson's innovation has led to market leadership in precision technologies, speed, and efficiency in diverse niche end markets. We have built upon these core strengths with the addition of the NBS Next growth framework, which is how we run the company.

Sundaram Nagarajan: We have built upon these core strengths with the addition of the NBS Next growth framework, which is how we run the company. Our decentralized divisions use this framework to focus on the best market growth opportunities, top products, and customers to deliver above-market organic growth. We have also been very intentional in building a growth-biased portfolio of precision technologies with reduced cyclicality over time. Some of you may recognize slide 12 from our 2024 Investor Day. Approximately 60% of this portfolio generates recurring revenue, including aftermarket parts, consumables, and services. Importantly, more than 50% of our portfolio is now in growth end markets, including semiconductor, electronics, and medical, with the remaining exposures in more stable GDP+ end markets. Our portfolio positioning gives me confidence in our growth aspirations for the remainder of the year and beyond. Turning now to our outlook on slide 13.

Speaker #2: Our decentralized divisions use this framework to focus on the best market growth opportunities, top products, and customers to deliver above-market organic growth. We have also been very intentional in building a growth-biased portfolio of precision technologies with reduced cyclicality over time.

Speaker #2: Some of you may recognize slide 12 from our 2024 Investor Day. Approximately 60% of this portfolio generates recurring revenue, including aftermarket parts, consumables, and services.

Speaker #2: Importantly, more than 50% of our portfolio is now in growth end markets, including semiconductor, electronics, and medical, with the remaining exposures in more stable, GDP-plus end markets.

Speaker #2: Our portfolio positioning gives me confidence in our growth aspirations for the remainder of the year and beyond. Turning now to our outlook on slide 13.

Speaker #2: We entered the fourth quarter with backlog up 35% year over year. Based on the momentum in our end markets, as evidenced by our backlog and order entry, we are increasing our full-year expected revenue to be in the range of $3 billion and $35 million to $3 billion and $75 million, and adjusted earnings to be in the range of $11.80 to $12.00 per diluted share, putting us on the high end of our previously communicated average growth algorithm.

Sundaram Nagarajan: We entered the Q4 with backlog up 35% year over year. Based on the momentum in our end markets, as evidenced by our backlog and order entry, we are increasing our full-year guidance. Sales are now expected to be in the range of USD 3 billion and 35 million to USD 3 billion and 75 million, and adjusted earnings to be in the range of $11.80 to $12 per diluted share, putting us on the high end of our previously communicated average growth algorithm. Our updated guidance reflects sustained order strength and our ability to deliver results through NBS Next. We also assume FX rates hold at current levels, which implies a neutral impact on the Q4. As always, I want to thank our customers and shareholders for your continued support. In particular, I want to thank Nordson employees who are passionate about meeting the needs of our customers.

Speaker #2: Our updated guidance reflects sustained order strength and our ability to deliver results through NBS Next. We also assume FX rates hold at current levels, which implies a neutral impact on the fourth quarter.

Speaker #2: As always, I want to thank our customers and shareholders for your continued support. In particular, I want to thank Nordson employees for being passionate about meeting the needs of our customers.

Speaker #2: Our focus on innovation and operational excellence continues to position us well to serve our customers. With that, we will pause and take your questions.

Sundaram Nagarajan: Our focus on innovation and operational excellence continue to position us well to serve our customers. With that, we will pause and take your questions.

Speaker #3: We will now begin the question and answer session. If you would like to ask a question, please press star one to raise your hand.

Operator: We will now begin the question and answer session. If you would like to ask a question, please press star one to raise your hand. To withdraw your question, press star one again. We ask that you pick up your handset when asking a question to allow for optimum sound quality. If you are muted locally, please remember to unmute your device. Please stand by while we compile the Q&A roster. Your first question is from Michael Halloran from Baird. Your line is now open. Please go ahead.

Speaker #3: To withdraw your question, press star one again. We ask that you pick up your handset when asking a question to allow for optimum sound quality.

Speaker #3: If you are muted locally, please remember to unmute your device. Please stand by while we compile the Q&A roster. Your first question is from Mike Halloran from Baird.

Speaker #3: Your line is now open. Please go ahead.

Speaker #4: So, a couple of questions here. Could you just put the backlog in context for us? Obviously, quite strong backlog growth. Have you seen any elongation in lead times?

Michael Halloran: A couple questions here. Could you just put the backlog in context for us? Obviously quite strong backlog growth. Have you seen any elongation in lead times? What kind of visibility does it give you in the next year? Anything from a historical perspective that you think is worth bearing in mind here as we think about the magnitude of that gain?

Mike Halloran: A couple questions here. Could you just put the backlog in context for us? Obviously quite strong backlog growth. Have you seen any elongation in lead times? What kind of visibility does it give you in the next year? Anything from a historical perspective that you think is worth bearing in mind here as we think about the magnitude of that gain?

Speaker #4: What kind of visibility does it give you in the next year? And is there anything from a historical perspective that you think is worth bearing in mind here as we think about the magnitude of that gain?

Speaker #5: Sure. Morning, Mike. This is Dan, and I appreciate the question. A couple of things. Number one, I'll highlight again, as we mentioned, the backlog growth that we're seeing is broad-based.

Dan Hopgood: Sure. Morning, Mike. This is Dan. I appreciate the question. A couple of things. Number one, I will highlight again, as we mentioned, the backlog growth that we are seeing is broad-based. All three of our segments are showing higher backlog year over year. I would say in general, no real departure from what I would call normal order patterns. Again, just to recap some things that we have said in the past and are still true today, our backlog, generally speaking, turns over in about six months. The majority of our backlog shifts within about six months. Clearly, as at the end of Q3, we are taking orders into 2027 at this point, but no elongation in lead times. Our lead times have actually been reduced over the years. If anything, I would say we are able to deliver faster than we have in the past.

Speaker #5: All three of our segments are showing higher backlog year over year. But I would say, in general, there’s no real departure from what I would call normal order patterns.

Speaker #5: Again, just to recap some things that we've said in the past and are still true today: our backlog, generally speaking, turns over in about six months.

Speaker #5: The majority of our backlog ships within about six months. So clearly, as of the end of the third quarter, we're taking orders into 2027 at this point.

Speaker #5: But no elongation in lead times—our lead times have actually been reduced over the years. So, if anything, I would say we're able to deliver faster than we have in the past.

Speaker #5: But no real change in order patterns. I would say normal, recurring order patterns at this point. Our backlog is normal, with a turnover of roughly six months.

Dan Hopgood: But no real change in order patterns. I would say normal recurring order patterns. At this point, our backlog is normal turnover of roughly 6 months. 80% or so of our backlog is going to turn over with a few long lead time items with some of our larger systems, which is very typical.

Speaker #5: About 80% of our backlog is going to turn over, with a few long lead time items related to some of our larger systems, which is very typical.

Speaker #4: Yeah. Maybe add a little bit of color there, Mike, around lead time. In general, with our Ascend strategy and NBS Next over these periods of time, if you think about our lead times, they've generally reduced.

Sundaram Nagarajan: Yeah. Maybe add a little bit color there, Mike, around lead time. In general, with our ASCEND strategy and NBS Next over these periods of time, if you think about our lead times, they've generally reduced. Routinely, we have the opportunity to gain share because we are able to have shorter lead time than the rest of the team in the marketplace. Our on-time delivery has significantly improved across the company and in just about every division. We have gone, over this period of time, routinely, we will ship 80% to 95% in most of our businesses. So, a good strength for us to be able to deliver when the customer wants it. I think that is probably critical because some of these lead times are also dictated by the customer's need in relationship with the other things that they're putting together in a line.

Speaker #4: And routinely, we had the opportunity to gain share because we are able to have shorter lead times than the rest of the teams in the marketplace.

Speaker #4: Our on-time delivery has significantly improved across the company and in just about every division. Over this period of time, routinely, we will ship 80% to 95% in most of our businesses.

Speaker #4: So, a good strength for us is to be able to deliver when the customer wants it. I think that is probably critical because some of these lead times are also dictated by the customer's needs in relation to the other things that they're putting together in a line.

Michael Halloran: No, thanks for that. Then, second question, just maybe give some more context on what you're seeing in the ATS segment, specifically within the T&I and dispensing. Maybe just break out the two dynamics you're seeing there and any nuance you think is relevant versus what you're seeing in the market today.

Mike Halloran: No, thanks for that. Then, second question, just maybe give some more context on what you're seeing in the ATS segment, specifically within the T&I and dispensing. Maybe just break out the two dynamics you're seeing there and any nuance you think is relevant versus what you're seeing in the market today.

Speaker #5: Thanks for that. And then, second question, just maybe give some more context on what you're seeing in the ATS segment, specifically within the T&I and dispensing.

Speaker #5: Maybe just break out the two dynamics you're seeing there, and any nuance you think is relevant versus what you're seeing in the market today.

Speaker #4: Yeah, broad-based growth in the quarter, with both our Dispense business and T&I business. Clearly, the Dispense business is typically ahead of the curve in terms of the growth cycle, and that's what we saw.

Sundaram Nagarajan: Yeah. Broad-based growth in the quarter with both our dispense business and T&I business. Clearly, the dispense business is typically ahead of the curve in terms of growth cycle, and that's what we saw. In the quarter, certainly our T&I businesses continue to grow nicely. Good inflection point both for our X-ray and optical businesses. If you remember, these technologies are critical in ensuring semiconductor packaging. We are also seeing growth reflected in our EFD business, which is part of our MFS segment. So, feel good about order entry, pipeline activity, customer conversations for both dispense and test and inspection. A lot of this demand allows us to not only be quite confident about what we're going to deliver in Q4, but well into next year.

Speaker #4: In the quarter, certainly our T&I businesses continue to grow nicely. Good inflection point, both for our X-ray and optical businesses. If you remember, these technologies are critical in ensuring semiconductor packaging.

Speaker #4: We are also seeing growth reflected in our EFD business, which is part of our MFS segment. So, we feel good about order entry, pipeline activity, and customer conversations for both dispense and test and inspection.

Speaker #4: A lot of this demand allows us to not only be quite confident about what we're going to deliver in Q4, but well into next year.

Speaker #5: Thank you. Appreciate it, Naga. Thanks, Dan.

Michael Halloran: Thank you. Appreciate it, Nagar. Thanks, Dan.

Mike Halloran: Thank you. Appreciate it, Nagar. Thanks, Dan.

Speaker #4: Yeah.

Sundaram Nagarajan: Yep.

Dan Hopgood: Yep. Thank you.

Speaker #5: Yeah. Thank you.

Speaker #3: Your next question is from Jeff Hammond with KeyBanc Capital Markets Incorporated. Your line is now open. Please go ahead.

Operator: Your next question is from Jeff Hammond with KeyBanc Capital Markets Inc.. Your line is now open. Please go ahead.

Speaker #6: Hey, good morning, everyone.

Jeff Hammond: Hey, good morning, everyone.

Speaker #5: Morning, Jeff.

Sundaram Nagarajan: Morning, Jeff.

Dan Hopgood: Morning, Jeff.

Speaker #6: Good morning. So maybe just to stay on whether it's backlog or orders or the guide. I mean, it seems like the stark beat in the quarter is ATS.

Dan Hopgood: Morning.

Sundaram Nagarajan: Morning.

Jeff Hammond: So maybe just to stay on, whether it is backlog or orders or the guide. It seems like the stark beat in the quarter is ATS. I am just trying to understand. Maybe you can unpack the $0.35 raise between the businesses. It does not seem like maybe the other two segments are moving that much, which goes back to your comment that you are seeing broad-based growth. I am just trying to understand this backlog and the order growth, how differentiated the ATS is versus the other two segments.

Speaker #6: So I'm just trying to—maybe you can unpack the $0.35 raise between the businesses. I mean, it doesn't seem like maybe the other two segments are moving that much, which goes back to your comment that you're seeing broad-based growth.

Speaker #6: I'm just trying to understand this backlog and the order growth. How differentiated the ATS is versus the other two segments?

Speaker #5: Yeah, I guess maybe just to give a little color on it—yeah, I would say, broadly speaking, IPS is as expected as we think about heading into the quarter, how we finished, and our outlook.

Dan Hopgood: Yeah, I guess maybe just to give a little color on it. I would say broadly speaking, IPS is as expected, as we think about heading into the quarter and then how we finished in our outlook. I would say, the upside that we are seeing, certainly in Q3, but even in our outlook for Q4 is certainly ATS a big driver, but I would say medical is the other area that we are seeing acceleration. Maybe just to go back to our pre-Q3 commentary, we said, "Look, if order momentum sustained," I think we said we felt comfortable we would probably be on the higher end of our guidance. I would say in both medical and ATS, order momentum not only sustains, but actually accelerated in some areas. So I would say it is those two segments driving the increased outlook for the year.

Speaker #5: I would say the upside that we're seeing, certainly in the third quarter but even in our outlook for Q4, is certainly ATS is a big driver. But I would say medical is the other area where we're seeing acceleration. Maybe just to go back to our pre-Q3 commentary, we said, "Look, if order momentum sustained"—I think we said we felt comfortable we'd probably be on the higher end of our guidance.

Speaker #5: I would say in both Medical and ATS, order momentum not only sustained but actually accelerated in some areas. And so, I would say it's those two segments driving the increased outlook for the year.

Speaker #5: But again, I think on the IPS side, no surprise—I think just kind of steady state with IPS.

Dan Hopgood: But again, I think on the IPS side, no surprise. I think just kind of steady state with IPS.

Speaker #4: Right. Jeff, if you would sort of compare against long-term targets for these growth rates of these businesses, just to put it in context. Clearly, ATS was significantly higher than our long-term, and we are at the peak of the cycle and we're starting to really have legs to this cycle, even more than we are.

Sundaram Nagarajan: Right. Jeff, if you would sort of compare against long-term targets for these growth rates of these businesses to put it in context. Clearly, ATS was significantly higher than our long-term, and we are at the peak of the cycle, and we are starting to really have legs to this cycle even more than we are. So we are on the upside of the cycle, and hence you see some very elevated growth rates. IPS, for example, it is 50% of the company. We are at our long-term goal of growing 3% in the quarter. For the first 9 months, again, growing over 3%. Okay, that number is not big when compared to the 37% in ATS, but 3% for this business is pretty darn good. If you think about MFS, that is even a better story, where our long-term expectations are 6%, 7% kind of percentage growth rates.

Speaker #4: So we're on the upside of the cycle, and hence you see some very elevated growth rates. But IPS, for example, is 50% of the company.

Speaker #4: We're at our long-term goal of growing 3% in the quarter, and for the first nine months, again, growing over 3%. Okay. That number is not big when compared to the 30-some percent in ATS, but 3% for this business is pretty darn good.

Speaker #4: And if you think about MFS, that's an even better story, where our long-term expectations are six to seven percent growth rates. And in the quarter, they were 11%.

Sundaram Nagarajan: In the quarter, they were 11%. Clearly, there is some benefit from the EFD business that has some electronic exposure. Even if you take that out, I would say medical businesses are trending towards where our long-term targets are, and we really feel good about where we are headed into next quarter and the following year.

Speaker #4: And clearly, there is some benefit from the EFD business that has some electronic exposure, but even if you take that out, I would say medical businesses are trending toward where our long-term targets are. We really feel good about where we're headed into next quarter and the following year.

Speaker #6: Okay, great. And then just on IPS, I think for all year, the margins are obviously very good but down year-on-year, and I think you mentioned price/cost dynamics.

Jeff Hammond: Okay, great. Then, just on IPS, I think for all year, the margins, obviously very good, but down year-on-year, and I think you mentioned price cost dynamics. Just talk about the margin dynamic. I think you have mentioned kind of prioritizing growth and balancing that with margins. So just speak to IPS margins, and then just while we are on it, any thoughts on did you have any IEEPA refunds? Are those to come? Will you exclude those kind of thing? Thanks.

Speaker #6: Just talk about the margin dynamic, and I think you've mentioned kind of prioritizing growth and balancing that with margins. So, just speak to IPS margins.

Speaker #6: And then just while we're on it, any thoughts on—did you have any IEPA refunds? Are those to come? Will you exclude those kinds of things?

Speaker #5: Yeah, no, both great questions. So let me start with Jeff and maybe reiterate margin expectations. I mean, really, no fundamental change in margin expectations.

Dan Hopgood: Yeah. No, it is both great questions. So let me start with just, Jeff, maybe reiterate margin expectations. Really, no fundamental change in margin expectations. Our target incrementals are 35% to 40%. That is consistent across all three of our segments. I will say that, these are long-term targets, right? So in any given year, we may do better or worse, given different dynamics that are going on in the market. I would say, given the current market dynamics, our focus is really maximizing growth potential and maintaining margin performance, which is already very strong, certainly within the IPS business. So I think if you look at our margins of 35% in the quarter, it is in line with where we have been. We are holding serve while maximizing our growth potential. If we think in the current market dynamics, that is the right playbook for IPS.

Speaker #5: Our target incrementals are 35 to 40 percent. That's consistent across all three of our segments. But I will say that, I mean, these are long-term targets, right?

Speaker #5: And so, in any given year, we may do better or worse, given different dynamics that are going on in the market. I would say, given the current market dynamics, our focus is really on maximizing growth potential and maintaining margin performance, which is already very strong.

Speaker #5: Certainly within the IPS business. And so I think if you look at our margins of 35% in the quarter, it's in line with where we've been.

Speaker #5: We're holding potential. And if we think in the current market dynamics, that's the right playbook for IPS. So, I think that's the simple way to think about it.

Dan Hopgood: I think that's the simple way to think about it. No fundamental change in the margin profile. No fundamental change in our long-term targets. There's plenty of room for margin enhancement in the future. We think the right playbook is to focus on growth and maintain our margin position today. Your second question on tariffs, I guess a couple of things just to comment on that. Maybe I'll remind everybody, tariffs in themselves have not had a material impact on Nordson. That said, I would tell you, of course, where we have potential, we are pursuing recoveries for selected tariffs like everybody else. But in the context of, A, tariffs not having a material impact overall, and the fact of those recoveries only being a portion and offsetting, let's just say, any ongoing tariff impact.

Speaker #5: There’s no fundamental change in the margin profile, and no fundamental change in our long-term targets. But there’s plenty of room for margin enhancement as we focus on growth and maintain our margin position today.

Speaker #5: Your second question on tariffs—I guess a couple of things just to comment on that. Maybe I'll remind everybody, tariffs themselves have never had a material impact on Nordson.

Speaker #5: That said, I would tell you, of course, where we have potential, we are pursuing recoveries—for selected tariffs, like everybody else. But in the context of, A, tariffs not having a material impact overall and the fact of those recoveries only being a portion and offsetting, let's just say, any ongoing tariff impact.

Speaker #5: In the context of our overall results, tariffs and tariff recoveries are really not a significant item to talk about. I think that's the short answer.

Dan Hopgood: In the context of our overall results, tariffs and tariff recoveries are really not a significant item to talk about. I think that's the short answer. That said, I would say we are seeing clearly through, let's call it the direct and indirect impact of tariffs as well as other geopolitical events. We are seeing general inflationary pressures that we are managing and mitigating our way through while maximizing our growth potential. It's not just tariffs, but I would say that has broader implications if you think about freight, if you think about selected commodities. So more of a general pressure that I would say tied to, but not directly related to tariffs.

Speaker #5: That said, I would say we are seeing—clearly, through, let's call it, the direct and indirect impact of tariffs as well as other geopolitical events—we are seeing general inflationary pressures that we are managing and mitigating our way through, while maximizing our growth potential.

Speaker #5: And that has—it's not just tariffs, but I would say that has broader implications if you think about freight, if you think about selected commodities.

Speaker #5: So, more of a general pressure that I would say is tied to, but not directly related to, tariffs.

Speaker #4: But put all of it together, still the company is delivering 32% EBITDA, with each of the segments delivering best-in-class margins. So we're managing through all of these different pressure points but continuing to stay focused on what is the best value creation opportunity for Nordson, which is really profitable growth.

Sundaram Nagarajan: Put all of it together, still the company delivering 32% EBITDA, each of the segments delivering best-in-class margins. So, we're managing through all of these different pressure points, but continuing to stay focused on what is the best value creation opportunity for Nordson, which is really profitable growth. That's what you're seeing play out in the first nine months of the year as well as in the quarter.

Speaker #4: And that's what you're seeing play out in the first nine months of the year, as well as in the quarter? Okay. Great, thanks.

Jeff Hammond: Okay, great. Thanks.

Speaker #1: Okay. Your next question is from Matt Somerville with DA Davidson. Your line is now open. Please go ahead.

Sundaram Nagarajan: Sure.

Operator: Your next question is from Matt Summerville with D.A. Davidson. Your line is now open. Please go ahead.

Speaker #6: Thanks. Just on the MFS segment, can you maybe give a little bit more granularity on what you're seeing between the EFD business versus the medical components versus interventional?

Matt Summerville: Thanks. Just on the MFS segment, can you maybe just give a little bit more granularity on what you're seeing between the EFD business versus medical components versus interventional, kind of just parse that out a bit around that 11% organic. Then specifically for that business, what's kind of implied in organic for Q4?

Speaker #6: Can you just parse that out a bit around that 11% organic, and then specifically for that business, what's kind of implied in organic for the fourth quarter?

Speaker #5: Yeah, so we don't typically give segment-level detail on our outlook, but let me just maybe address the first part of your question. I appreciate the question.

Dan Hopgood: Yeah. We don't typically give segment-level detail on our outlook, but let me just maybe address the first part of your question. I appreciate the question. I would say the 11% growth that we're seeing in the quarter is pretty broad-based. Certainly, as Naga commented, relative to EFD, one of the drivers is what I'll call electronics-based demand. We're seeing nice growth and ongoing demand in our order outlook for that space. But we are seeing pretty broad-based growth and order demand in the medical component space as well. That would include the interventional space, that would include some of our medical specialty products, our fluid components products. As well as even within EFD, a significant portion of EFD's business is actually tied to medical investments. So pretty broad-based.

Speaker #5: I would say the 11% growth that we're seeing in the quarter is pretty broad-based. And certainly, as Naga commented, relative to EFD, one of the drivers is what I'll call electronics-based demand.

Speaker #5: And we're seeing nice growth and ongoing demand in our order outlook for that space. But we are seeing pretty broad-based growth and order demand in the medical component space as well.

Speaker #5: That would include the interventional space. That would include some of our medical specialty products, our fluid components products, and so, as well as—even within EFD—a significant portion of EFD's business is actually tied to medical investments.

Speaker #5: So, pretty broad-based. I wouldn't say it's across-the-board growth yet in medical, but in all spaces, it's clear to us—based on actual performance in Q3, what's on our order board, and our pipeline—that we're working our way right back to, I would say, our ongoing, normal mid-single-digit-plus growth in our medical components business.

Dan Hopgood: I wouldn't say it's across the board growth yet in medical, but in all spaces, it's clear to us based on actual performance in Q3, what's on our order board and our pipeline. We're walking our way right back to, I would say, our ongoing normal mid-single digit plus growth in our medical components business. Some already there, some on their way there is the way I guess I would say it.

Speaker #5: Some are already there. Some are on their way there, is the way I guess I would say it.

Speaker #6: Thank you for that, caller. And then maybe, Naga, if you could just speak back to the ATS business—how you're thinking about cycle durability, how long this cycle extends, any early views you have on fiscal '27 growth in that business, just given you're obviously going to have some tougher comps versus this year.

Matt Summerville: Thank you for that color. Then maybe, Naga, if you could just speak back to the ATS business, how you are thinking about cycle durability, how long this cycle extends, any early views you have on fiscal 2027 growth in that business, just given you are obviously going to have some tougher compares versus this year, but really want to understand kind of how this cycle maybe feels versus prior.

Speaker #6: But I really want to understand how this cycle maybe feels versus prior cycles.

Speaker #4: Yeah. Clearly, based on what we see both in our businesses, where we are at in terms of pipeline activity with customers, order entry, backlog build-up, and revenue delivery, right?

Sundaram Nagarajan: Yeah. Clearly based on what we see both in our businesses, where we are at in terms of pipeline activity with customers, order entry, backlog buildup, and revenue delivery. If you think all four of those things together, and if you think about in terms of our dispense business, our test and inspection business, our exposure in EFD to electronics, all of them indicating that we still have room in this cycle. As we are headed to delivering what is looking like a very strong, probably an all-time record. As you know, in the quarter, we delivered an all-time record for this segment. We feel really good about where we are at and where we are going. To address your question, which is I am glad you asked this. Look, this quarter we delivered 30% organic growth in this segment, which is fantastic results.

Speaker #4: So, if you think about all four of those things together, and if you consider them in terms of our dispense business, our test and inspection business, our exposure in EFD to electronics, all of them indicate that we still have room in this cycle.

Speaker #4: Right? As we are headed toward delivering what is looking like a very strong, and probably an all-time record, as you know, in the quarter we delivered an all-time record for this segment.

Speaker #4: We feel really good about where we are at and where we are going. To address your question—which I’m glad you asked—

Speaker #4: Look, this quarter we delivered 30% organic growth in this segment, which is a fantastic result. But as we head into next year, our expectation is that we’re going to build off of this peak, and we’re going to grow at a rate that is more in line with our longer-term mid-single-digit number.

Sundaram Nagarajan: But as we head into next year though, our expectation is we are going to build off of this peak, and we are going to build at a rate that is more in line with our longer-term mid-single-digit number. But that is going to be of an all-time peak, is sort of what you want to think about. Everything we see in the business and what we follow for our customers, this demand looks pretty strong going into 2027. I would give you one point of clarification in terms of, just one proof point, I should say, for that comment. If you think about investments, chip manufacturing infrastructure investments in North America specifically, none of that has happened yet, right? Or at least not in the context of orders for Nordson yet. That is to come.

Speaker #4: But that is going to be at an all-time peak. It's sort of what you want to think about. And everything we see in the business, and what we follow for our customers, this demand looks pretty strong going into '27.

Speaker #4: And I'll give you one point of clarification, or just one proof point, I should say. For that comment, if you think about investments—chip manufacturing infrastructure investments—in North America specifically, none of that has happened yet.

Speaker #4: Right? Or at least not in the context of orders for NORDSON yet. That is to come. And so a lot of this demand that we are fulfilling today is a significant portion of it is in Asia.

Sundaram Nagarajan: A lot of this demand that we are fulfilling today, a significant portion of it is in Asia. As North American chip infrastructure gets built out, I think that is an opportunity for Nordson, and we are yet to see that.

Speaker #4: As North American chip infrastructure gets built out, I think that's an opportunity for Nordson, and we are yet to see that.

Speaker #6: Appreciate the comment. Thank you.

Matt Summerville: Appreciate the color. Thank you.

Speaker #1: Your next question is from Christopher Glynn with Oppenheimer & Co. Incorporated. Your line is now open. Please go ahead.

Sundaram Nagarajan: Yep.

Operator: Your next question is from Christopher Glynn with Oppenheimer & Co. Inc.. Your line is now open. Please go ahead.

Speaker #6: Yeah. Thanks. Good morning, everyone.

Christopher Glynn: Yeah, thanks. Good morning, everyone.

Speaker #4: And just wanted to ask about IPS. You talked about it being right in your zip code and expectation. Over the years, you had to have some step-out opportunities—cans, clothing, recycling come to mind.

Dan Hopgood: Good morning.

Christopher Glynn: And just wanted to ask about IPS. You have talked about it being right in your ZIP code and expectation. Over the years, you have had to have some step-out opportunities, cans, clothing, recycling come to mind. Wondering if there are any emerging applications, market adoption opportunities for polymers, coatings, or core adhesives that are popping up in the pipeline.

Speaker #4: Wondering if there are any emerging applications, market adoption opportunities for polymers, coatings, or core adhesives that are popping up in the pipeline. Yeah. I mean, look, if you think about our IPS business, it really thrives on finding applications.

Sundaram Nagarajan: Yeah. Look, if you think about our IPS business, it really thrives on finding applications or pivoting to end market niches where the growth is. We continue to build out new applications. I would not say anything that pops up. We are certainly watching the growth. If I were to take you back and give you some examples around battery or solar, we are in pretty early stages of thinking about how IPS segment applications will play both in defense as well as you think about a number of data center build-out applications where these are early stages. So for us, it is really you have to be careful in that we have multiple single applications in many different end markets, and they do not particularly. So for example, if you think about our powder coating examples, that business is doing incredibly well this year.

Speaker #4: Or pivoting to end-market niches where the growth is. And so we continue to build out new applications. I wouldn't say there's anything that pops up.

Speaker #4: We are certainly watching the growth. If I were to take you back and give you some examples around battery or solar, we are in pretty early stages of thinking about how IPS segment applications will play both in defense as well as, as you think about a number of data center build-out applications. These are early stages.

Speaker #4: So for us, you really have to be careful in that we have multiple single applications in many different end markets. And they don't particularly—so, for example, if you think about our powder coating examples, that business is doing incredibly well this year.

Speaker #4: That is because they have multiple different end-market applications that they're going after. But I wouldn't say we have something that we would highlight as we've highlighted in the past around fabric bonding or things like that.

Sundaram Nagarajan: That is because they have multiple different end market applications that they are going after. But I would not say we have something that we would highlight as we have highlighted in the past around fabric bonding or things like that.

Speaker #6: Okay, great. Thanks for the opportunity.

Christopher Glynn: Okay, great. Thanks.

Dan Hopgood: Lots of opportunity.

Christopher Glynn: Oh, sorry, Dan.

Speaker #4: And then sorry, Dan?

Christopher Glynn: Oh, sorry, Dan.

Speaker #5: I was just going to say, the context I would give you on it is, I think it was kind of what Naga's articulating—there's lots of opportunities.

Dan Hopgood: I was just going to say, the context I would give you on it is, I think this is kind of what Naga's articulating. There's lots of opportunities, but these tend, I'll use some baseball analogies. These tend to be more like singles, not home runs.

Speaker #5: But I'll use some baseball analogies. These tend to be more like singles, not home runs. Lots of singles—it's not like there's a big home run out there.

Sundaram Nagarajan: Yeah.

Dan Hopgood: Lots of singles. It's not like there's a big home run out there.

Speaker #4: But for the business to deliver a 3% growth, they have to do that, right? And so, I think it is underestimating the potential of this business when you have a significantly—what is going to be a $1 billion, $1.4 billion kind of business—that is growing at 3%.

Sundaram Nagarajan: But for the business to deliver a 3% growth, they have to do that, right? I think it is underestimating the potential of this business, when you have a significantly, what is going to be a billion forward kind of business that is growing at 3%. That is pretty strong for the company and not to be underestimated, the power of this business.

Speaker #4: That is pretty strong for the company, and not to be underestimated—the power of this business.

Speaker #6: Yep, agreed. The stability, in particular. And then the fourth quarter, I think, implies a pretty meaningful acceleration and sequential incrementals. I know you had that, and then some, last year—fourth quarter over third quarter.

Christopher Glynn: Yep. Agreed. The stability in particular. Then the Q4, I think, implies a pretty meaningful acceleration in sequential incrementals. I know you had that and then some last year, Q4 over Q3. But we are kind of in a year of managing inflation, as you have described in tail. So, yeah, just curious, kind of relative stability sequentially in the Q3. It looks like the Q4 has a fairly meaningful ramp without a particularly pronounced sequential volume lift.

Speaker #6: But we're kind of in a year of managing inflation, as you've described in detail. So yeah, just curious—relative stability sequentially in the third quarter. It looks like the fourth quarter has a fairly meaningful ramp without a particularly pronounced sequential volume lift.

Speaker #5: Yeah, no, I appreciate the observation. And certainly, I would say that's tied to normal operational improvements and enhancements that we are continually working on.

Dan Hopgood: Yeah, no, I appreciate the observation, and certainly, I would say that is tied to normal operational improvements and enhancements that we are continually working on. I think we have good line of sight to that, and I think that is also why when we look at our margins, we tend to look at it more as an average over time as opposed to on any given quarter. Certainly, I think there is a nice step up in our profitability. Some of that is tied to mix in our outlook but also tied to ongoing operational initiatives and the impact that that has on us going forward. That is a normal part of our NBS Next framework and our operational excellence focus.

Speaker #5: I think we have good line of sight to that. And I think that's also why, when we look at our margins, we tend to look at them more as an average over time as opposed to in any given quarter.

Speaker #5: And so, I think certainly, there's a nice step up in our profitability. Some of that is tied to mix and our outlook, but also tied to ongoing operational initiatives and the impact that that has on us going forward.

Speaker #5: And so that's a normal part of our NBS Next framework and our operational excellence focus. And I think, on a year-over-year basis, as an example, the incrementals are a little more challenging.

Dan Hopgood: I think on a year-over-year basis, as an example, the incrementals are a little more challenging, but largely that is because the Q4 of last year was a bit of an outlier from a profitability standpoint. So I would say we are on track with our average annual growth algorithm or margin expectations, and Q4 is reflective of that.

Speaker #5: But largely, that's because the fourth quarter of last year was a bit of an outlier from a profitability standpoint. So I would say we're on track with our average annual growth algorithm, and our margin expectations in Q4 are reflective of that.

Speaker #4: Right. I mean, the simpler way to think about Nordson going forward is: look, we want to maximize our best growth opportunities and deliver against the growth commitments that we have made, with best-in-class margins.

Sundaram Nagarajan: Right. The way to think about Nordson going forward is, look, we want to maximize our best growth opportunities, deliver against our growth commitments that we have made with best-in-class margins. Right? I think that is how we believe we will create the best value for our shareholders. Continue to stay focused on organic growth improvement, maximizing all the end market opportunities that we have a right to play in.

Speaker #4: Right? And I think that is how we believe we will create the best value for our shareholders. And we continue to stay focused on organic growth improvement, maximizing all the end-market opportunities that has that where we have a right to play in.

Speaker #4: So.

Speaker #6: Okay, thanks. And last one for me, if I could sneak it in. The lower end on the tax rate—this has been a trend for a couple of years.

Christopher Glynn: Okay, thanks. Last one from me, if I could sneak it in. To the lower end on the tax rate, this has been a trend couple of years, so clearly doing excellent tax model, and you indicated stability into next year. How would you describe the longer-term tax rate opportunity from here in the context of the progress the last few years?

Speaker #6: So, clearly doing an excellent tax model. And you indicated stability into next year. How would you describe the longer-term tax rate opportunity from here, in the context of the progress over the last few years?

Speaker #5: Yeah. As I said in my opening comments, 18% is kind of reflective of our ongoing rate expectation. We think that's a good spot to be in.

Dan Hopgood: Yeah. As I said in my opening comments, 18% is kind of reflective of our ongoing rate expectation. We think that's a good spot to be in, and I think is reflective of our ongoing run rate. It's obviously something that we continue to look at and assess, but I would give you 18% as a good long-term expectation going forward. We think that's a good zip code to be in.

Speaker #5: And I think it's reflective of our ongoing run rate. It's obviously something that we continue to look at and assess. But I would give you 18% as a good long-term expectation going forward.

Speaker #5: We think that's a good ZIP code to be in.

Speaker #6: Thank you.

Christopher Glynn: Thank you.

Speaker #5: Yep.

Dan Hopgood: Yep.

Speaker #3: As a reminder, if you would like to ask a question for the Q&A session, please press star one to raise your hand. Your next question is from Andrew Bascalia from BNB Paradis.

Operator: As a reminder, if you would like to ask a question for the Q&A session, please press star one to raise your hand. Your next question is from Andrew Buscaglia from BNP Paribas. Your line is now open. Please go ahead.

Speaker #3: Your line is now open. Please go ahead.

Speaker #6: Good morning, everyone. This is an add-on for Andrew. Many of my questions were already asked, but I wanted to touch on M&A. You pointed out the 1.7x leverage.

[Analyst] (BNP Paribas): Morning, everyone. This is Ed on for Andrew. Many of my questions were already asked, but I wanted to touch on M&A. You pointed out the 1.7x leverage, and with sales firing on most cylinders, you're going to be driving some strong free cash as well. Just wondering if you could provide some color on the M&A pipeline, what you're seeing, and whether there may be some end markets which are more or less attractive from a valuation perspective or otherwise. Thanks.

Speaker #6: And with sales firing on most cylinders, you're going to be driving some strong free cash as well. So just wondering if you could provide some color on the M&A pipeline—what you're seeing, and whether there may be some end markets which are more or less attractive from a valuation perspective or otherwise.

Speaker #6: Thanks.

Sundaram Nagarajan: Yeah. Look, I would continue to remind us, M&A is an important part of Nordson's growth algorithm. This is an area that we continue to spend time on. We have a healthy number of opportunities. We are always pursuing them with our strategic and financial criteria in mind. Look, we have demonstrated that we would do various different sizes and types of deals. Most recently, we did a very small bolt-on acquisition with CapstanAG. The previous year, we had Atrion. So, we continue to stay focused on acquisitions. Because we have not announced anything significant doesn't mean we're not working on it. Oftentimes, things are not appropriate, either from a strategic criteria perspective, or there is not a financial return that we can do for the best way to deploy our cash. Just a reminder, our strategic criteria are attractive end market niches and applications, differentiated technologies.

Speaker #4: Yeah. Look, I would continue to remind us that M&A is an important part of Nordson's growth algorithm. This is an area that we continue to spend time on.

Speaker #4: We have a healthy number of opportunities. We are always pursuing them with our strategic and financial criteria in mind. Look, we have demonstrated that we would do various different sizes and types of deals.

Speaker #4: Most recently, we did a very small bolt-on acquisition with Capstan AG. The previous year, we had Atrian. So we continue to stay focused on acquisitions.

Speaker #4: Because we have not announced anything significant, it doesn't mean we're not working on it. Oftentimes, things are not appropriate either from a strategic criteria perspective or there is not a financial return that we can achieve for the best way to deploy our cash.

Speaker #4: Just as a reminder, our strategic criteria are attractive end-market niches and applications. Differentiated technologies, clearly adding to our growth-focus portfolio, is sort of the third strategic criterion.

Sundaram Nagarajan: Clearly adding to our growth focus portfolio is sort of three strategic criteria. On the financial returns, certainly we want to have growth that is above market with Nordson-like margins and returns that sufficiently exceeds our cost of capital. The areas we're spending a lot of time, and we've talked about it in the past, just as a reminder, we're spending a ton of time around our medical, continuing to expand our medical platform. And as with Capstan, you can see we will continue to add bolt-on assets to performing strong existing core franchises of the company. So we'll do both. We certainly look at test and inspection as well as the other area we are spending time on.

Speaker #4: On the financial returns, certainly, we want to have growth that is above market with Nordson-like margins, and returns that are sufficient, that is, exceed our cost of capital.

Speaker #4: The areas we're spending a lot of time on soon—we've talked about it in the past, just as a reminder—we're spending a ton of time around our medical, continuing to expand our medical platform.

Speaker #4: And as with Capstan, you can see we will continue to add bolt-on assets to strengthen strong existing core franchises of the company. So we'll do both.

Speaker #4: We certainly look at testing and inspection, as well as the other areas we're spending time on.

Dan Hopgood: The only thing I would add to that is, maybe I will just take you back to what we call our growth algorithm, which is, on average over time, half our growth organic, half our growth inorganic. We still think that's the right long-term formula. Certainly, as Naga said, we are continuing to actively work the M&A piece. I think as you think about it broadly, I think that's still the right way to think. Over time, half our growth coming from inorganic as well as the other half from organic.

Speaker #5: The only thing I’d add to that is maybe I’ll just take you back to what we call our growth algorithm, which is, on average over time, half our growth is organic and half our growth is inorganic.

Speaker #5: We still think that's the right long-term formula. And so, certainly, it's not a set—we're continuing to actively work the M&A piece. But I think, as you think about it broadly, that's still the right way to think.

Speaker #5: Over time, as well as the other half from organic.

Speaker #4: But we’ve got to stay disciplined, and that’s really what you’re seeing from the company—staying disciplined with the right kind of assets that fit both our strategic and financial criteria.

Sundaram Nagarajan: We got to stay disciplined. That's really what you're seeing from the company is staying disciplined with the right kind of assets that fits both strategic and financial criteria.

Speaker #6: Yeah, that's great color. That's it for me. Thanks for taking my question, guys.

[Analyst] (BNP Paribas): Yeah, that's great color. That's it for me. Thanks for taking my question, guys.

Speaker #5: Thank you.

Dan Hopgood: Thank you.

Speaker #3: There are no further questions at this time. I will now turn the call back to Naga for closing remarks.

Operator: There are no further questions at this time. I will now turn the call back to Naga for closing remarks.

Speaker #4: Thank you for your time and attention on today's call. Nordson is well-positioned as a diversified precision technology company. Our close-to-the-customer model, proprietary and niche technology, diversified geographic and end-market exposures, high level of recurring revenue, and strong balance sheet are among the many attributes that make us a quality growth compounder.

Sundaram Nagarajan: Thank you for your time and attention on today's call. Nordson is well-positioned as a diversified precision technology company. Our close to the customer model, proprietary and niche technology, diversified geographic and end market exposures, high level of recurring revenue, and strong balance sheet are among the many attributes that make us a quality growth compounder. Have a great day.

Speaker #4: Have a great day.

Speaker #3: This concludes today's call. Thank you so much for attending. You may now disconnect.

Operator: This concludes today's call. Thank you so much for attending. You may now disconnect.

Dan Hopgood: We're hanging up, right?

Speaker #6: Hang up, right?

Dan Hopgood: Oops. All right.