Lara Mahoney:

Thank you. Good morning. This is Lara Mahoney, Vice President of Investor Relations and Corporate Communications. I'm here with Sundaram Nagarajan, our President and CEO; and Stephen Shamrock, Chief Accounting Officer. We welcome you to our conference call today, Tuesday, May 21st to report Nordson's fiscal 2024 second quarter 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. There will be a telephone replay of the conference call available until Tuesday, May 28th, 2024. During this conference call, we will make references to non-GAAP financial metrics. We've provided a reconciliation of these metrics to the most comparable GAAP metrics 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. 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 second quarter highlights. He will then turn the call over to Steve to review sales and earnings performance for the total Company and the three business segments. Steve will also discuss the balance sheet and cash flow. Naga will then share a high level commentary about our end-markets and provide an update on the fiscal 2024 full year and third quarter guidance. We will then be happy to take your questions. With that, I'll turn the call over to Naga.

Stephen Shamrock:

Thank you, Naga, and good morning to everyone. On Slide number 6, you'll see second quarter fiscal 2024 sales were $651 million, a slight increase to the prior year's second quarter sales of $650 million. This was driven by a favorable 5% benefit from the ARAG acquisition, partially offset by an organic sales decrease of 4% and an unfavorable foreign exchange impact of 1%. As Naga referenced, strength in our Industrial Coating Systems and Fluid Solutions product lines were offset by an ongoing weakness in our electronics product lines. Gross profit performance was strong in the second quarter. We delivered gross profit margins in excess of 56%, an approximately 200 basis point improvement over the prior year. Deploying our NBS Next Growth Framework, we are focusing on top products, driving a favorable product mix and product simplification efforts to improve manufacturing efficiency. We also remain disciplined on managing our cost structure and taking actions where necessary. EBITDA, adjusted for special items in both periods, totaled $203 million or 31% of sales, which was consistent with the prior year. Improved gross margins were offset by higher selling and administrative costs, attributable primarily to the addition of ARAG. Looking at non-operating expenses, net interest expense increased $9 million, associated with higher debt levels and increased interest rates. Other expenses net decreased $1 million, primarily related to lower foreign exchange losses compared to the prior year. Tax expense was $31 million for an effective tax rate of 21% in the quarter, which is in line with the prior year rate and our guidance range for 2024. Net income in the quarter totaled $118 million or $2.05 per share. Adjusted earnings per share, excluding $2 million of nonrecurring cost reduction actions and amortization of acquisition-related intangibles of $19 million totaled $2.34 per share, a 4% decrease from the prior year adjusted earnings per share amount of $2.45. The decrease in earnings was driven primarily by higher interest expense due to the ARAG acquisition. Now let's turn to Slide 7 through 9 to review the second quarter 2024 segment performance. Industrial Precision Solutions sales of $367 million increased 9% compared to the prior year second quarter, driven by the ARAG acquisition, as well as increased sales in our industrial coating systems and packaging product lines. Organic sales increased 2% over the prior year second quarter, continuing to build upon a record fiscal 2023 for the segment, partially offset by an unfavorable foreign exchange impact of 1%. This segment has now delivered organic growth in 12 of the last 14 quarters. EBITDA was $132 million in the second quarter or 36% of sales, an increase of 11% compared to the prior year EBITDA of $119 million. The increase in EBITDA was driven primarily by the ARAG acquisition, plus organic sales growth and gross margin improvement in the base business. It's also worth highlighting that this quarter marks 13 out of 14 consecutive quarters of EBITDA growth. On Slide 8, you'll see Medical and Fluid Solutions sales of $169 million increased 2% compared to the prior year second quarter, driven by modest growth in fluid and medical interventional solutions product lines. This was partially offset by lower sales in our medical fluid components product lines versus last year. Despite the year-over-year decrease, we did see a modest increase in the medical fluid component sales sequentially. Second quarter EBITDA was $63 million or 37% of sales, which was flat to the prior year EBITDA of $63 million, which excluded $1.5 million of special items for cost reduction actions. This segment has now delivered EBITDA margins greater than 35% in 13 of the last 14 quarters. Turning to Slide 9, you'll see Advanced Technology Solutions sales were $115 million, a 22% decrease compared to the prior year second quarter. The decrease in sales was driven by continued weakness across the segment, primarily related to products serving electronics end-markets. Second quarter EBITDA was $24 million or 21% of sales, which trailed the prior year second quarter EBITDA of $32 million, which excluded special items of $2 million related to cost reduction actions in both periods. While the reduction in EBITDA was tied to the overall decrease in volume, favorable mix and cost reduction actions contributed to 22% decremental margins. This is well ahead of our decremental target of approximately 55%. Finally, turning to the balance sheet and cash flow on Slide 10. At the end of the second quarter, we had cash of $125 million and net debt was $1.4 billion, resulting in a leverage ratio of 1.7 times based on the trailing 12 months EBITDA. We continue to have significant available borrowing capacity to pursue organic and inorganic growth opportunities. Free cash flow was $108 million or a 92% conversion rate on net income. We strategically deployed this strong cash flow in the quarter. We repaid $100 million of revolver debt and paid $39 million in dividends during the quarter. For modeling purposes for the full fiscal year, assume an estimated effective tax rate of 20% to 22%, capital expenditures of approximately $40 million to $50 million, and net interest expense of $74 million to $77 million. In summary, we delivered another strong financial performance in the second quarter in line with our expectations. We'll now move to Slide 11, and I'll turn the call back to Naga.

Operator:

[Operator Instructions] Your first question comes from the line of Mike Halloran with Baird. Please go ahead.

Sundaram Nagarajan:

Good morning.

Michael Halloran:

So a couple of questions here. Naga, maybe you could just talk to what's assumed in guidance as you work through the year from an end-market recovery? I certainly understand the electronics piece and the ag piece. You look at the implied fourth quarter ramp, it's still probably a little above seasonality. So wondering if you still have some of those systems and projects hitting in the fourth quarter or if that's been pushed to next year? And thoughts about any sustainability of the packaging piece and how you think the biopharma is going to recover? So basically just maybe lay out how you think the end-markets track as we work through the remainder of the year and what's assumed in guidance?

Michael Halloran:

So thanks for that. Following up on that then, are you assuming any sort of pickup in some of those stressed markets or any sort of backlog let out in any of those stressed markets in the fourth quarter? In other words, just trying to understand how derisked some of those stressed points are in the guidance as we work through the rest of the year?

Michael Halloran:

So in other words, the sequentials from here are relatively stable versus a normal sequential pattern in your mind in those markets?

Stephen Shamrock:

Mike.

Stephen Shamrock:

No, I was going to say, Mike, that I think you're spot on there, because if you also look at sequential growth, we had 11% growth last year from Q3 to Q4, and our midpoint basically implies around 8% growth this year. So Q4 is usually seasonally our strongest quarter. So I think that aligns with how we're thinking about it.

Operator:

Your next question comes from the line of Saree Boroditsky with Jefferies. Please go ahead.

Sundaram Nagarajan:

In general, this market is expected to be down this year. And we expect this turnaround sometime in '25, but we're not really giving any guidance on '25. So difficult to tell you exactly when that will happen. But our guidance does not imply any pickup in ag, agriculture markets this year.

Stephen Shamrock:

Yeah. No. So what I would tell you and that really kind of ties back to our, what I would call, very strong Q2 performance, right? Basically, from a sales standpoint with Q2, we came in really where we expected from a sales standpoint. We came in with $651 million of sales in Q2. And that was -- when we gave the guidance for Q2, we assumed currency neutral. So if you add back about a $5 million unfavorable impact of FX, we basically came in spot on near the midpoint of our guidance. And we actually were at the high end of our guidance in Q2 because of the gross margin performance that you referenced there. And the way I would think about that is we really had a strong performance in margins for a number of factors in Q2, right? We had a very strong mix, I would tell you in Q2, whether it was parts versus sales that was very strong. We had good customer mix and even mix within product lines. And also had, we referenced in our earlier comments, manufacturing efficiencies and cost controls. How I would think about gross margins going forward? I think I mentioned this on a previous call, we're not focused on gross margin expansion. Our long-term focus is really to maintain the gross margins that we have. So I do think what you saw in Q2 was a mix than normal. So that's how I would think about that going forward. I wouldn't expect as favorable of a mix in the balance of the year.

Operator:

Your next question comes from the line of Matt Summerville with D.A. Davidson. Please go ahead.

Sundaram Nagarajan:

Yeah, you're right, Matt, in that, our expectations that this business would have been less muted because of the precision ag exposure, certainly did not play out the way our expectations were. But look, what is really important to remember is, we still like the technology. We like the people we have added to the organization. Certainly a very interesting end-market. If you look at expectations of some of the OEMs, the precision ag itself is down or expected to be down 20%, 25%. So even if you think about our expectations where precision AG was going to continue to grow through the cycle, that has not worked out the way it is. In terms of inventory destocking, remember, 40% of this business is aftermarket parts. And those aftermarket parts go through distribution. They're not direct sale. So they don't go through the OEM, they go through a distributor, and there is some level of inventory destocking that is going on in ARAG.

Sundaram Nagarajan:

Yes. Both the businesses continue to strengthen in the trends that we mentioned in our first quarter. So we're continuing -- we remain convinced, both those are very good leading indicators. And the reason, I'll tell you is those are two separate indicators. For example, the one we talked about was the UV lamp businesses, a niche product line in one of our businesses. That is in the front end of the semiconductor process where we sell to large machine builders. That continues to strengthen, the forecasts have actually increased. That lines up with what you see front end semiconductors growing nicely. So you see that. But you also see on finished electronic products, you're continuing to see greater usage of existing lines. So this is the consumables from EFD. Those continue to strengthen. So both those are still strong. I think what it is not getting translated is that you would immediately see a system business pickup. And that's the translation that is getting delayed. We're not concerned that this is -- this doesn't indicate that the cycle is going to turn. It is more an uncertainty in this CapEx spend in electronics that we are seeing. So it is more related to the CapEx investment rather than does the cycle has not turned or not. So hopefully, that helps you.

Sundaram Nagarajan:

Yeah.

Christopher Glynn:

Yeah. Thanks. Good morning.

Stephen Shamrock:

Good morning.

Sundaram Nagarajan:

Okay. All right. I think if you -- let's just first start with EPS and T&I. EPS systems continued to be -- in the quarter continued to be lower in line with the ATS levels, right? So down 20% or so. And in the T&I business, I'll remind you that last year, we had some significant growth in those business. So what we are facing on our X-ray business is a tough comp. Among the other T&I business on our optical business, we have our sensors that go into the front end of the market, which is called a wafer sense product line, that is continuing to grow nicely. It is a small part of the business, but it is growing nicely. The acoustic test and inspection part of the business is also growing, which is more on the front end and on some new memory applications. The optical side, the parts are fine, the systems are behind. So we fundamentally still believe the test and inspection business will be lower declines when compared to our dispense business. What you've got mixed in there is some tough comps in our X-ray business. In all of these cases, the teams are doing an incredible job, doing three things. One, they are certainly strengthening their delivery and quality performances. They're moving manufacturing closer to our customers. So we've got a new manufacturing and distribution location coming up in India to support our electronic customers who are shifting focus into India. Third, we have very exciting new products that are being released by our test and inspection business. Our new MXI Liner products are well received in the marketplace. We've got a new updated software for our AXI business that is hitting the market. And in our dispense business, you certainly see our vantage product as well as new coating product lines, again, all hitting the market. So we're using this time to really position the business for growth.

Sundaram Nagarajan:

Yeah, our coatings business is doing an incredible market demand and really delivering on the growth opportunities. So we're very happy about the performance there. If you think about our adhesive business in general, 12 out of 13 quarters or 12 out of 14 quarters, we have been growing. So pretty strong growth. Our expectation is still, as we finish the year, we would be flat to slightly up. So that is in a good spot. Particularly our packaging part of our business is doing incredibly well. If you think about our plastics business, again, you've had record growth in those businesses for the last two years. And this year, they would face some tough comp and so that will be slightly lower. We don't talk about sales by individual divisions, but generally speaking, what I will tell you is our plastic business is slightly lower -- slightly lower than their record last two years, right? So hopefully, that gives you enough color around the different businesses.

Sundaram Nagarajan:

And one last thing I would add in our adhesive business, certainly, parts are significantly up when compared to our system businesses. This is some of the -- this is one of the reasons when we talk -- when Steve talks about sales mix, certainly, this was very helpful.

Sundaram Nagarajan:

Yes, recurring revenue growth.

Christopher Dankert:

Hi. Good morning. Thanks for taking the question. I guess just return to ARAG for a moment. Given that agriculture markets kind of come off peak here, is there any risk around the expected synergies for that deal? And maybe just how do we think about the cost structure of that business in the context of the current slowdown here?

Christopher Dankert:

I think that was just kind of my -- the crux of my question. When you brought it on board, there was no really expectation of a slowdown. There was no cost side to the economics there, I guess, has that. It doesn't sound like that has changed. It sounds like we're just going to kind of manage through here. We're not contemplating any sort of adjustment to the decrementals on that business?

Christopher Dankert:

Got it. Got it. Perfect. Thank you so much for the color there. And I think just for my follow-up, on the electronics side of the business, particularly on the electronics processing within ATS, the shorthand, at least for me, has always kind of been that's the handset cycle. Is there anything else that's kind of weighing down that business right now beyond handsets or is that still kind of the main driver there?

Christopher Dankert:

Got it. Yeah, well, thanks so much for the color, Naga.

Operator:

Your next question comes from the line of Walter Liptak with Seaport Research. Please go ahead.

Sundaram Nagarajan:

Yes. If you look at some of the market reports that are out there, pretty much across the world, the market cycle seems to be in that down 20% to 25%, and that is North America, that is Europe, that is South America and even precision ag, which was typically a growth engine.

Sundaram Nagarajan:

Yeah. I think that is some amount of destocking, but that is also -- we are -- I tell you our knowledge of agriculture when compared to our knowledge of electronics or industrial non-durable is sort of -- obviously, we've been in this business for a short period of time, so our knowledge is not as deep as we would have in other end-markets, but our understanding is that there is some amount of destocking, but there is certainly some hesitancy in investing in large implements even. And so that is what you're seeing is that reduction in OEM. And this is unique, because as we looked at this business and evaluated it, one of the things we were -- we did a lot of work around is to understand the relationship between cycle and this business's performance. And this seems a little bit unique when compared to their prior performance. So we're still figuring it out, but I will tell you that it is impacting us more than we had expected. And it is impacting us and that's what our current situation is. And we still like the products. We still like the people. We're still working on continuing to integrate the business, which is going really well. And I think that's kind of where we are at with ARAG.

Sundaram Nagarajan:

Yeah, we don't -- by now, right, look, based on our expectations in the first quarter, we had expected that this would follow quickly or thereafter. That has not happened. So our guidance doesn't imply a significant pickup in electronic market for the rest of the year. And as we approach 2025, we will be in a better place to provide you more color as to when it might actually pick up. But I think what is important to remember is that we have derisked our outlook for electronics for the rest of the year.

Operator:

Your next question comes from the line of Andrew Buscaglia with BNP Paribas. Please go ahead.

Sundaram Nagarajan:

Hello.

Sundaram Nagarajan:

Yeah. I think it's a great question, Andrew. What I will tell you is that none of the projects we are working on with our customers that somebody come to us and said, look, this is all off the table, it is canceled. That is not the case. We continue to work with our customers on projects and opportunities as they bring on new technologies for AI, as they bring on more technologies for much smaller, much more complicated chips than we had. So that work, the project work continues, but what it is not translated is from that project work into system orders, it is not translated yet, nor have people completely canceled projects either, right? So we are sort of in this middle time, call it uncertainty, and I can only talk to you about what we're seeing in terms of customer sort of actions rather than what is the broader trend here. There seems to be a reluctance in translating work that they're doing into systems sales or systems orders, right? We continue to do well on our parts, but there seems to be some reluctance, and not exactly understand the core reasons as to why our customers have reluctance, but there is reluctance.

Sundaram Nagarajan:

Yeah, we're not seeing significantly different behavior from geography, geography. We still -- we work with all of the major semiconductor manufacturers. There are -- it's not like -- obviously, we continue to sequentially grow. Sequentially, we have better order entry. So it is not like we're continuing to decline or we're not -- we're just flat in the bottom. We're starting to come out. It is just not as fast as we had hoped. I think that is probably what you need to take away is that our reduction in guidance is mainly because we had a far steeper implied ramp in our second half. That's not happening. And that is not happening because the orders we are getting are not at the same rate as we had hoped. It is at a little flatter rate than we had hoped for. And we don't see a whole lot of difference in regions. Clearly, when compared to last year, activity in Asia has picked up that we can tell you, right? Certainly, Southeast Asia is better than China for us, and that's just for us. Certainly, our automotive, electronics customers in Mexico are significantly better for us. Europe is okay. So that's -- broadly that's how we think about the ATS business.

Sundaram Nagarajan:

Thank you.

Jeffrey Hammond:

Hey, good morning, everyone.

Jeffrey Hammond:

Hey, so just if we step back and think about capital allocation, I think you guys have kind of been on the wrong side of cycle timing around CyberOptics and ARAG now. And I'm just wondering how you think about cyclicality and timing as you kind of look at deals going forward?

Jeffrey Hammond:

Okay. Appreciate the color there, Naga.

Jeffrey Hammond:

Just on decremental margins in the second half, I mean, you guys have done a pretty good job with NBS Next kind of limiting the decrementals, but I think at least in our model initially, we have pretty severe decrementals. So just maybe how you're thinking about decrementals and holding the line?

Stephen Shamrock:

Yeah, no, no, I was just going to say, Jeff, what I'd also focus on too is just our EBITDA margins as well, right? I mean, we -- I think we've been very successful in terms of generating strong EBITDA margins. I mean, even Q2 is the fifth quarter in a row where we had EBITDA margins, 31% or higher. And the last three years, we've delivered 30% or more EBITDA margins. And I think we're obviously well on our way to do that again here in 2024.

Jeffrey Hammond:

Okay, great. I'll leave it there. Thanks.

Operator:

I will now turn the call back over to Naga for closing remarks. Please go ahead.

Operator:

Ladies and gentlemen, that concludes today's call. Thank you all for joining and you may now disconnect.

Lara Mahoney:

Thank you. Good morning. This is Lara Mahoney, Vice President of Investor Relations and Corporate Communications. I'm here with Sundaram Nagarajan, our President and CEO, and Stephen Shamrock, Vice President, Corporate Controller and Interim Chief Financial Officer. We welcome you to our conference call today, Thursday, February 22 to report Nordson's Fiscal 2024 first quarter 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. There will be a telephone replay of the conference call available until Thursday, February 29, 2024. During this conference call, we will make references to non-GAAP financial metrics. We've provided a reconciliation of these metrics to the most comparable GAAP metric in the press release issued yesterday. 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 first quarter highlights. He will then turn the call over to Steve to review sales and earnings performance for the total company and the three business segments. He will also discuss the balance sheet and cash flow. Naga will then share a high level commentary about our enterprise performance. He will conclude with an update on the fiscal 2024 full year and second quarter guidance. We will then be happy to take your questions. With that, I'll turn to slide 4 and hand the call over to Naga.

Stephen Shamrock :

Thank you, Naga. And good morning to everyone. On slide number 5, you'll see first quarter fiscal 2024 sales were $633 million, an increase of 4% compared to the prior year's first quarter sales of $610 million. This was driven by a favorable 5% benefit from the ARAG acquisition, partially offset by an organic decrease of 2%. Consistent with prior quarters, the organic sales decrease was primarily volume, partially offset by price as we continue to pass through year-over-year cost inflation. As Naga referenced, strength in our industrial and medical product lines were offset by ongoing weakness in our electronics product lines. Gross profit excluding non-recurring inventory step up amortization in both periods totaled $351 million for the first quarter of fiscal 2024 compared to $333 million in the prior year first quarter. This improvement in adjusted gross margin of approximately 100 basis points reflect the combination of factors. With our NBS Next growth framework, we are focusing on top products driving a favorable product mix. During the quarter, we also had higher parts sales and improved factory efficiencies, which helped drive the year-over-year improvements. As we execute the Ascend strategy and build scale through strategic acquisitions, EBITDA is increasingly important as a key profitability metric. EBITDA, adjusted for acquisition related items in both periods, totaled $197 million or 31% of sales, a 9% increase over the prior year EBITDA of $181 million, driven by improved gross margins and cost controls as well as contribution from the ARAG acquisition. Looking at non-operating expenses, net interest expense increased $10 million associated with higher debt levels and increased interest rates. Other net expenses decreased $3 million, primarily related to lower foreign exchange losses compared to the prior year. Tax expense was $29 million for an effective tax rate of 21% in the quarter, which is in line with the prior year rate and our guidance range for 2024. Net income in the quarter totaled $110 million or $1.90 per share. Adjusted earnings per share, excluding non-recurring acquisition costs and amortization of acquisition-related intangibles of $23 million, totaled $2.21 per share, a 3% increase from the prior year adjusted earnings per share amount of $2.14. This improvement continues to demonstrate the benefits of our successful execution of the Ascend strategy. Now let's turn to slide 6 through 8 to review the first quarter 2024 segment performance. Industrial Precision Solutions sales of $355 million increased 14% compared to the prior year first quarter, driven by the ARAG acquisition, as well as increased sales in our industrial coatings, polymer processing and non-wovens businesses. Organic sales increased 2% over the prior year first quarter, continuing to build upon a record fiscal 2023 for this segment. EBITDA, excluding ARAG acquisition related costs, was $126 million in the first quarter or 36% of sales, an increase of 16% compared to the prior year EBITDA of $109 million. The increase in EBITDA was driven primarily by the ARAG acquisition, plus the organic sales growth of the base business. It's worth highlighting that this quarter marks 12 out of 13 consecutive quarters of EBITDA growth and 11 of 13 quarters of organic year-over-year sales growth. On slide 7, you'll see Medical and Fluid Solutions sales of $160 million increase 3% compared to the prior year's first quarter, driven by another quarter of double-digit growth in our medical interventional solutions product line, offsetting softness in our medical fluid components and fluid solutions product line. During the quarter, we started to anniversary the weakness of last year's biopharma destocking, which was a significant headwind for this segment in fiscal 2023. First quarter EBITDA was $60 million or 37% of sales, which is an increase of $7 million compared to the prior year EBITDA of $53 million or 34% of sales. The 300 basis point improvement in EBITDA margin over the first quarter of 2023 is due primarily to a combination of factory efficiency gains and cost actions, coupled with leveraging the organic growth in medical interventional solutions. Turning to slide 8, you'll see Advanced Technology Solutions sales were $119 million, an 18% decrease compared to the prior year first quarter. The decrease in sales was driven by weakness across the segment, primarily electronics dispense products serving semiconductor end markets. First quarter EBITDA was $22 million or 19% of sales, which trailed the prior year first quarter EBITDA of $31 million, excluding acquisition related costs. While the reduction in EBITDA was tied to the overall decrease in volume, favorable mix and cost reduction actions contributed to 32% decremental margins on adjusted operating profits. This is ahead of our decremental target of approximately 55%. Finally, turning to the balance sheet and cash flow on slide 9. At the end of the first quarter, we had cash of $136 million and net debt was $1.5 billion, resulting in a leverage ratio of 1.8 times based on the trailing 12 months EBITDA. We continue to have significant available borrowing capacity to pursue organic and inorganic growth opportunities. I also want to highlight our strong cash flow performance. Free cash flow was $165 million, a first quarter record and $51 million improvement from the prior year. As a percentage of that income, free cash flow was 150% in the quarter. We strategically deployed the strong cash flow in the quarter. We repaid $107 million of debt, paid $39 million in dividends, and spent $3 million on share repurchases under our 10b5-1 plan, buying back approximately 15,000 shares of company stock at an average price of $212 per share. For modeling purposes for the full fiscal year, assume an estimated effective tax rate of 20% to 22%, capital expenditures of approximately $40 million to $50 million, and net interest expense of $74 million to $78 million. I want to thank the Nordson team for all of their efforts in delivering another strong quarter. We will now turn to slide 10 and I'll turn the call back to Naga.

Operator:

[Operator Instructions]. Your first question comes from the line of Matt Summerville from D.A. Davidson.

 Sundaram Nagarajan:

A couple of things. What we will tell you is the demand or shipments for ATS in the quarter was as expected, weaker as we had expected. But the order entry has not picked up, as we had hoped. The inflection in order entry is sort of the precursor to having shipments in the following quarters. So that is really what has happened in our thinking, is that this cycle inflects maybe a quarter later than what we had hoped. But a couple of other things I will add to this that is really important to keep in mind. First and foremost, in the back half of the year, clearly comps get much easier for the business. Second thing I would also note, we have backlog, which have expected customer shipments, customer designated shipments in the second half. And then the third thing I would note for you is that we are beginning to see in a very small way in some niche businesses where we supply UV lamps to some front end semiconductor manufacturing customers. Order entry is very nicely up when compared to last year. It is a small part of the business, but it's a good early indicator. In a same way, if you think about our electronic adhesives packaging businesses where we sell the barrels, we also see some pickup in business there, order entry and shipment. So a couple of early indicators. And finally, what I will tell you is that our opportunity pipeline for projects with conversations with customers still remain robust. Nothing really has been shelved or put away. So order entry has not turned yet. That is probably the takeaway you can have. But we have enough evidence in the business to feel strongly about how second half plays out for this business. So maybe I'll stop there.

 Sundaram Nagarajan:

In terms of the test and inspection, we have had some very robust growth in the last – the cycle and, past, our dispense business. So, what you're really seeing is some strong comparisons that are difficult to keep up with. What I would tell you and what has been our experience is that the test and inspection business cyclicality is much more muted when compared to our dispense business. That is a distinct difference. But, yes, it does go through a cycle and comps are also in its way.

Allison Poliniak-Cusic:

In terms of growth here, there's obviously some headwinds still in that segment. Could you maybe talk to any structural challenges, if there are any, with that business in terms of maybe even competitive dynamics that would limit it to that kind of returning to that high single digit growth? Or nothing in the way, it's just sort of cyclical and you'd expect to achieve that at some point going forward? Just any thoughts there?

Allison Poliniak-Cusic:

And then IPS, I think you talked about weather patterns starting to normalize there. Anything that, I would say, is sort of a red flag or does it seem pretty consistent in terms of what you're seeing in terms of demand for products in that business as well?

Operator:

Your next question comes from the line of Saree Boroditsky from Jefferies.

 Sundaram Nagarajan:

If you look at our backlog, as we have noted in our release as well as in our conversations, $750 million, it is higher than where we normally would run for this size of a business. A historic normalized level will be about $600 million to $650 million, something like that. Order entry in most of the businesses have returned to normal order patterns. What we mean by that is we don't have any anxiety in the customer order patterns, right? So, if you go back even four quarters ago, you still had people – might be still concerned about supply chain constraints, and that doesn't exist anymore. So I would say vast majority of our businesses, order entry has gotten to its historical levels, and the organic growth are based on those order entry rates.

Saree Boroditsky:

So, you know the impact of the Chinese New Year in the second quarter, I believe in the past you've talked about it being a $15 million to $20 million impact. So would that still be the right way to think about the shift for this year?

Operator:

Your next question comes from the line of Mike Halloran from Baird.

Stephen Shamrock:

I'll start with that from that perspective. If you look at the second quarter guide there, right, what I would tell you is what, you're what you're not seeing, again, is the weakness in electronics end market that's also weighing down the second quarter as well in the ATS segment. So, from that perspective, if I think about the second half, as Naga referenced earlier, the comps should get easier for sure from an ATS perspective, particularly with the expected pickup in the fourth quarter. So I think that's what gives us confidence there if we talk about seasonality and how that works from quarter to quarter, at least with respect to ATS.

 Sundaram Nagarajan:

Mike, that was on ARAG, right? On ARAG, I'll make couple of broad comments. Hopefully, I will answer the questions because I had little trouble hearing you completely. So if I don't answer all of your questions, please do follow up. Integration is going very well. Great technology, great team, contributed to sales and the EBITDA margins. The differentiation of their product categories and the resulting gross margins all confirmed during our ownership of the business here. So, pretty excited about the business, how that is integrating. All is well from that point of view. We also expect that ARAG to contribute 5%. There is no change there. A couple of things to remember about this business. Approximately 45% of the revenue is aftermarket parts in this business, right? So many of these parts are short life replacement cycle businesses, like nozzles that need to undergo more periodic replacement. If you think about it, they sell mostly critical, low class components for their customers, which drive efficiency and reduce usage of material, costly fluids like fertilizers and chemicals. And then the next point to remember about this business is we're not tied to people selling tractors. We're tied to folks that manufacture implements, implements that are used to spray, implements that are used to plant. And so, from that perspective, even when you defer a large CapEx spend, you definitely try to update and continuously able to have better implements, so that you can deliver on productivity and efficiency for an individual farmer or a farm organization. We expect the business to be accretive on EBITDA to Nordson and slightly accretive to EPS when you exclude amortization. So, hopefully, that gave you a broad overview of that.

 Sundaram Nagarajan:

In terms of demand trends, is that what you're talking about, Mike?

 Sundaram Nagarajan:

Europe is – the market is down. It does impact us a little bit, but not to the same extent as an implement – a big tractor manufacturer or an implement manufacturer since we are selling components. So it does have an impact, but not to the same extent, as you've heard in the Street around 15%, 20%. That's not what we're seeing in the business.

Andrew Buscaglia:

Just wanted to confirm in that backlog, as it relates to ATS, can you see what's coming in Q4 through those orders from UV lights and electronics packaging or is it something else? I'm just trying to confirm your confidence that that converts?

Andrew Buscaglia:

Naga, your margins have been great. A strong quarter. Ascend has really been successful. It's in the third year now. And I'm wondering how much more is left in the tank as it pertains to pricing and things like cost savings?

Operator:

Your next question comes from the line of Jeff Hammond from KeyBanc Capital Markets.

Stephen Shamrock:

Jeff, I would tell you that most of that impact is concentrated in the IPS segment and to a lesser degree in ATS.

 Sundaram Nagarajan:

I think the way to think about it is, rather than giving you an exact timing, let me tell you what we fundamentally believe about this business. You're right, the destocking has come to a place where it is pretty much at the bottom of the cycle at a lower demand level, for sure. And that's what we're seeing in our businesses. As we talk to our customers in general what we are talking about is for specific components they buy from us, what is their current inventory level. That is a better indicator of their future orders. And we are at that point where people are ordering – their ordering pattern has changed. That is one thing that we see in this. In the past, like other medical device manufacturing space is by – most of our biopharma customers will place blanket orders. That has changed. We no longer get blanket orders. Instead we get more regular book and ship kind of business. So that has changed. So, we're still working through this. But the more interesting part is we have some pretty nice growth in patient care. We have some pretty good growth in surgical applications, and so that's where we're beginning to see some pretty good order entry and pretty good shipment. Nothing about biopharma has fundamentally changed. Single use plastics, transition from stainless steel to plastic, increased amount of biopharmaceuticals, all long term trends still intact, still favorable for the business. I'd love to be able to tell you when exactly this inflects. I just don't know.

Operator:

Our strong operating performance reflects the strength of our diversified end markets, close to the customer model, differentiated precision technology products and rigorous implementation of NBS Next growth framework. Again, I want to thank Nordson's employees for their commitment, which makes these results possible. And continued deployment of the Ascend strategy positions us well for long term growth. Thank you for your time and attention on today's call. Have a great day.

Lara Mahoney:

Thank you. Good morning. This is Lara Mahoney, Vice President of Investor Relations and Corporate Communications. We welcome you to our conference call today, Thursday, December 14, 2023, to report Nordson's fiscal year 2023 fourth quarter and full year results. I'm here with Sundaram Nagarajan, our President and CEO; Joseph Kelly, Executive Vice President; and Stephen Shamrock, Interim Chief Financial Officer. While Joe recently took a new role as Executive Vice President, Industrial Precision Solutions segment, he was CFO for the entirety of fiscal 2023 and will represent that viewpoint in today's call. 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/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 21, 2023. During this conference call, references to non-GAAP financial metrics will be made. A complete reconciliation of these metrics to the most comparable GAAP metric has been provided 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. 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 Slide 3, Naga will discuss fourth quarter and full year highlights. He will then turn the call over to Joe to review sales and earnings performance for the total company and the three business segments. Joe also will 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 2024 first quarter and full year guidance. We will then be happy to take your questions. With that, I'll turn to Slide 4 and hand the call over to Naga.

Joseph Kelley:

Thank you, Naga, and good morning to everyone. On Slide number 5, you'll see fourth quarter 2023 sales were $719 million, an increase of 5% compared to the prior year's fourth quarter sales of $684 million. The increase included 7% growth from acquisitions of ARAG and CyberOptics and favorable currency translation of 1%, offset by an organic sales decrease of 3%. The organic sales decrease was primarily volume offset by price as we continue to pass through year-over-year cost inflation. In line with our expectations, the volume decline was concentrated in the electronics, dispense, and our biopharma businesses. This pressure was largely offset by double-digit growth in medical interventional solutions, industrial coatings, and polymer processing product lines compared to the prior year. Gross profit, excluding the non-recurring amortization of acquired inventory, totaled $389 million or 54% of sales, a 7% increase over the prior year fourth quarter of $363 million or 53% of sales. The gross profit dollar increase was driven by sales growth, and the gross margin expansion of 100 basis points was driven primarily by improvement in factory efficiency. SG&A in the fourth quarter increased to $199 million versus $186 million in the prior year fourth quarter. Excluding $6 million in non-recurring transaction fees related to the ARAG acquisition, SG&A increased 4% over the prior year, representing 27% of sales, consistent with the prior year. Adjusted operating profit, excluding $11 million in non-recurring acquisition costs and step-up inventory amortization was $196 million in the quarter, a 10% increase from the prior year. We generated very strong incremental operating profit margins of 51% on the 5% sales growth, which can be attributed to our team's continued dedication to executing the NBS Next growth framework and their related ability to rapidly respond to changing market conditions. EBITDA for the fourth quarter increased 12% over the prior year to a record $227 million, or 32% of sales, which is 200 basis points above our long-term profitability target, as we articulated in our Ascend strategy. This compares to $202 million or 30% of sales in the prior year fourth quarter. As we continue to execute the Ascend strategy and scale through acquisitions, EBITDA will be a key metric for profitability and cash flow generation. Looking at non-operating income and expense, I am happy to report that in September, we successfully accessed the public bond market with our inaugural issuance of investment grade rated debt. We raised $850 million in five and 10 year bonds to repay the short term borrowings used to finance the ARAG acquisition with the balance of the funds coming from our revolver. Interest expense in the quarter totaled $26 million, an increase of $21 million over the prior year quarter. $7 million of the increase is non-recurring financing costs associated with the repayment of the short-term borrowings. The remaining $14 million increase is a result of higher debt levels and increased interest rates. Other net income decreased $3 million due to significant currency fluctuations that generated a $4 million currency exchange gain in the prior year that did not repeat in the current year. Tax expense was $33 million for an effective tax rate of 20% in the quarter, slightly below the full year and within our guidance range. Net income totaled $128 million or $2.22 per share. Adjusted earnings per share excluding non-recurring acquisition related expenses totaled $2.46 per share, a 1% increase over the prior year. This improvement despite the increase in interest expense is reflective of consistent application of the NBS Next growth framework, which leads to steady, profitable growth with attractive incremental margins. Turning to Slide number 6, I'll now share a few comments on our full year results. Sales for the fiscal year 2023 were a record $2.6 billion, an increase of 2% compared to the prior year's previous record sales results. This increase was driven 4% from the CyberOptics and ARAG acquisitions, offset by an organic decrease of 1% and an unfavorable currency impact of 1%. Adjusted operating profit was $707 million, or 27% of sales, which was comparable to the prior year. On a constant currency basis, adjusted operating profit grew year-over-year 1%. EBITDA for the full year increased 1% to a record $819 million, or 31% of sales. This marks the third consecutive year of the Ascend strategy delivering EBITDA growth. Adjusted diluted earnings per share were $9.03, a 4% decrease from the prior year. The decrease in adjusted earnings is primarily a result of higher adjusted interest expense of $30 million associated with both the CyberOptics and the ARAG acquisitions and higher borrowing rates. Overall, the company's performance remains strong and in line or ahead of targets established as part of the Ascend strategy. Now, let's turn to Slide 7 through 9 to review the fourth quarter 2023 segment performance. Industrial Precision Solutions sales of $405 million increased 14% compared to the prior year fourth quarter. Organic growth in the quarter was 4%, with the ARAG acquisition adding 7%, and a favorable currency impact of 2%. It is noteworthy that the 4% organic growth is over a very strong fourth quarter of 2022 and represents an all-time quarterly sales record for the segment, excluding ARAG. Robust demand in the polymer processing, industrial coatings, and packaging product lines combined with the execution of the Ascend strategy drove this quarter's results. Geographically, growth was strong in the Americas and Asia Pacific regions. EBITDA for the quarter was $148 million, or 37% of sales, which is an increase of 26% compared to the prior year EBITDA of $118 million. This growth was driven primarily by leveraging organic sales growth at incremental margins well in excess of our target, plus the benefit of the ARAG acquisition. Medical and Fluid Solutions sales of $169 million decreased 7% compared to the prior year's fourth quarter. This change was primarily driven by a decrease in organic sales volume of 8%, offset by a modest 1% currency benefit. The volume declines were the result of continued softness in medical fluid components related to the biopharma end markets, as well as the fluid solutions product lines, offset by double-digit growth in our medical interventional solutions product lines. Fourth quarter EBITDA was $62 million or 37% of sales, which is a decrease of 4% compared to the prior year EBITDA of $64 million. EBITDA margins continue to be negatively impacted by the sales mix changes within the medical product lines, but improved factory efficiency within the fluid solutions division enabled profit margin expansion. Turning to Slide 9, you'll see Advanced Technology Solutions sales of $145 million decreased 1% compared to the prior year's fourth quarter. This change included a decrease in organic sales volume of 16%, offset by the CyberOptics acquisition, which contributed 15%, the highest quarterly sales to date under Nordson ownership. The organic sales decline was primarily driven by continued softness in our electronics dispensed product lines that served the cyclical semiconductor end market and by way of reference, had a difficult comparison as the prior year fourth quarter had 28% organic growth. Based on customer conversations and historic trends, we continue to expect demand in the semiconductor market to anniversary in the second quarter of fiscal 2024 and begin to recover in the back half of calendar ‘24. Fourth quarter EBITDA was $35 million or 24% of sales, a decrease of $5 million from the prior year fourth quarter. Noteworthy, however, for this segment is the increased profitability level in the down part of the cycle when you compare the 24% EBITDA margin to the 14% EBITDA margin in fiscal 2020. Finally, turning to the balance sheet and cash flow on Slide 10. We had another very strong cash flow quarter, generating $153 million in free cash flow at a cash conversion rate of 120% on net income. For the full year 2023, Nordson generated a record free cash flow of $607 million at a cash conversion rate of 124%. With our record free cash flow, we were able to repay approximately $425 million of debt and return capital to our shareholders. Dividend payments were $39 million in the quarter, reflective of the 5% increase in the annual dividend. In addition, we purchased $10 million of shares at an average price of $216 per share. Through our strategic capital deployment, we ended the year with a strong balance sheet. Our cash balance was $116 million, and net debt was $1.6 billion, resulting in a leverage ratio of 2 times based on the trailing 12 months EBITDA, well within our targeted range. For modeling purposes, in fiscal ‘24, assume an estimated effective tax rate of 20% to 22%, capital expenditures of approximately $40 million to $50 million, and interest expense of approximately $75 million to $80 million. In summary, our segments effectively responded to dynamic conditions throughout fiscal 2023 by using the data-driven NBS Next growth framework. This led to segment financial performance exceeding our targeted incremental and decremental profit targets. We are also seeing nice contributions from our recent acquisitions, which is indicative of the strength of our capital deployment strategy and the differentiation we are adding to our precision technology portfolio. I want to congratulate the team on achieving record sales and EBITDA as well as the record cash flow performance this year. I'll now turn the call back to Naga.

Operator:

[Operator Instructions] And our first question comes from the line of Allison Poliniak with Wells Fargo. Please go ahead.

Sundaram Nagarajan:

Good morning, Allison.

Sundaram Nagarajan:

Yeah. Allison, as we launched the Ascend strategy, our target was to have 50% of our growth come from organic and 50% from acquisitions. And we also set the stage for our organic growth obviously comes at a higher incremental margins when compared to our acquisitions. So as we move forward, we fundamentally believe this 31% is a sustainable level at which we are operating. Depending on the mix of organic and acquisition, this is a sustainable level that we are able to maintain.

Sundaram Nagarajan:

Yeah. We start to -- by the end of the first quarter, we start to anniversary the decline in biopharma due to destocking. Longer term, we fundamentally believe that this is a great marketplace for Nordson and will return to the high single digit number. In the interim though, we are taking a conservative and definitely a realistic view of saying the recovery is going to be slower.

Sundaram Nagarajan:

Absolutely not. Right? If you think about this, one of the key areas of focus for us is the use of single-use plastics, which essentially go to replace the stainless steel nectars and stainless steel full lines. And that transition is still in its early stages. So we fundamentally believe that there is nothing here that is impaired. It's a matter of timing and it's certainly a matter of recovery certainly you know so long-term no issues We expect we'll probably get to high single-digits.

Sundaram Nagarajan:

Thank you.

Operator:

Your next question's from the line of Mike Halloran with Baird. Please go ahead.

Sundaram Nagarajan:

Good morning, Mike.

Mike Halloran:

Just want to help me understand a couple of questions on guidance here. First, what's the organic assumption embedded in the growth rate? And I know you gave the FX side already but maybe just some help on what you're assuming for organic growth?

Stephen Shamrock:

Yeah, this is Steve. So for the full year guidance, as Naga pointed out, we're forecasting growth of 6%. And ARAG is at 5%. So that would imply organic growth of about 1% because we would say based on current rates, we're FX neutral. So that's how we're thinking about the overall growth rate of 6%.

Sundaram Nagarajan:

What I would tell you is the two things that you already acknowledged, which is really historical trends. Certainly, we have a direct sales model and our teams are spending a lot of time with our customers understanding what their requirements are and when they would show up. If you were to point to anything, you would say the pipeline of opportunities continue to be -- to point towards that timeline of recovery.

Sundaram Nagarajan:

Yeah, sure, Mike. IPS has been running at or above our long-term growth rates here now for two, three years now. And what our expectation is that we don't see anything in the order entry that gives us a pause. Good backlog and good order entry that we expect to sustain growth in the coming years. A significant contribution on IPS growth for the coming year would be through the ARAG acquisition.

Sundaram Nagarajan:

Sure.

Jeff Hammond:

Hey, good morning everyone.

Joseph Kelley:

Morning, Jeff.

Sundaram Nagarajan:

Yeah. We just talked about IPS. IPS today at or above our long-term growth rates continue to sustain modest growth in the year coming up. ATS is going to be flattish in that, what I would tell you is that first half we're going to be continuing down, second half continue to improve. And so that will be flattish to slight growth. MFS though, we have medical interventional components continuing to be pretty strong growth for us. Our bio-pharma business, anniversarying itself and not being a drag, and then improvement in our fluid solutions towards the back half of the year. Overall, our expectation is that MFS returns to a pretty nice growth next year -- modest growth for that segment.

Sundaram Nagarajan:

Yeah, let me start it and then Joe in his new role can certainly give you some color on ARAG as well. What we see -- remember 45% of our ARAG’s revenues are recurring revenue. And they're typically products or short life replacement cycles. So mostly nozzles and things like that. So we will benefit from that and that is not going to see the pressure you're going to see. The other thing what I would tell you is that ARAG’s components, much like Nordson, is critical low-cost component for the customers and also components that drive efficiency, reduce waste. And so typically what our expectation is that the -- that we're going to see limited impact from that. And so let me maybe have Joe talk about where we finished the year for ARAG in Nordson fiscal year and then talk a little bit about our expectation for next year.

Jeff Hammond:

Okay. And then just a housekeeping. Amortization in ‘24, is it $20 million a quarter, $80 million? Is that kind of the right run rate or how should we think about that?

Jeff Hammond:

Okay, thanks so much.

Matt Summerville:

Thanks. I was hoping maybe you gave a little bit more granular detail on expectations for MFS. I was hoping you could kind of talk through the same thing for IPS, how you're thinking about rigid, flexible packaging, non-wovens, product assembly, coatings, as we move into ‘24.

Matt Summerville:

Yeah, I appreciate the detail there. Maybe just over to ATS, two quick things. Are you actually seeing an inflection in CyberOptics business pointing out the fact that you had the strongest quarter for that business since the acquisition? And then if you can comment a little further on how you're thinking about test and inspection for ’24.

Matt Summerville:

Thank you.

Christopher Glynn:

Thanks. Good morning. I was just curious about the ATS foreground, spend another moment on that. You said your team is very engaged talking to customers, so that sounds like everyone is on the same page in terms of expecting a recovery. Are you just seeing like materialization of pre-RFP activity? Is there, like, improving breadth month to month? Just curious how the cadence is there.

Christopher Glynn:

Yep, yep, I understand the timing. Thanks for that. And then a quick one on MFS, the kind of non-medical fluid solutions portion. I think you talked about some significant manufacturing and productivity benefits there from cost actions and NBS Next. Curious how that industrial fluid solutions business, I think it's short cycle oriented. How's that -- a little more detail on how that's behaving, please?

Christopher Glynn:

Thank you. Thanks, Naga.

Operator:

Your next question is from the line of Walt Liptak with Seaport Research. Please go ahead.

Sundaram Nagarajan:

Good morning, Walt.

Sundaram Nagarajan:

Steve, this is something that you want to touch on?

Walt Liptak:

Okay, great. And I wonder if we could talk a little bit about the ag markets and just the -- regionally, ARAG is pretty international in Europe and South America. I wonder if you could talk a little bit, give us some insight on how those markets are trending and we probably have a better view on the US, but -- so maybe the second part of the question is, you guys are looking at kind of a new opportunity in the US for market share. Can you grow the US part of the business next year?

Joseph Kelley:

Yeah, Walt. You think about just the level set on ARAG, their precision dispensing fluid components that are predominantly components sold to implement manufacturers, spray manufacturers. And when you look, it's again, predominantly a European business, a very broad footprint throughout Europe through their distribution model and selling to implement manufacturers. And so that market again is, I would tell you, the main driver of our forecast when you think about the ARAG business and the growth that we're forecasting for 2024. The US and other geographies outside of Europe and South America where ARAG has a strong footprint represents opportunity. And when you think about Nordson and our broad geographic footprint, our ability to, I would say, realize some of those opportunities, I think is enhanced as opposed to a standalone ARAG business. And so when you think about that, we're starting to see in the integration, some of these opportunities start to fill in in the pipeline. And so again, we're optimistic that long term, we can make this a global division within Nordson with a broad geographic footprint.

Joseph Kelley:

Yes. So, just to level set, the IPS segment is coming off now, I would say, two very strong years. If you look back at ‘22, they delivered a 7% organic growth. In ‘23, it grew 3% organically. So as we head into ‘24, we're looking to really maintain that from the level where we are. What drove it, if you go back to ‘22, was a lot of the large systems in the liquid coatings. And then in ‘23, it turned, there was heavy automotive, actually growth in automotive on the coating side. And then on the plastic processing side and the recycling. That was strong in the back half of ‘22 and continued to be strong in ‘23. And so those large systems businesses within IPS, they do carry a nice backlog into 2024. That being said, the remaining portion of the IPS business backlog there has moderated. So, when you see the backlog come down to $800 million, I would tell you that's the elevated backlog moderating back to historical terms for the remainder of that business. That being said, the order entry there remains steady and is supportive of our forecast. So, you're familiar with the business, particularly on the packaging side. When systems come down due to investment, parts typically help offset that in terms of growth of parts. And so it's really a nice mix. And I would tell you, we've benefited from automotive liquid coatings and then the polymer processing last couple years on the system side. But the remaining broad-based [industry] (ph) remains steady.

Sundaram Nagarajan:

Right, I mean one thing that I would add Walt is really, in general the company is a recession resilient company and a portfolio that helps us get through uncertain economic environments or downturns in specific end markets, right? That's what you saw happen in ‘23. As we think about ‘24, really what were our expectation is [IPSA] (ph) study, ATS is flattish to slight growth, and MFS returns to pretty modest growth. And that's kind of how I would think about it. And a pretty strong EBITDA margin in last year, and we'll continue to expect to see the same next year.

Andrew Buscaglia:

Hey, good morning, guys.

Joseph Kelley:

Good morning.

Stephen Shamrock:

Yeah. So what I would tell you, Andrew, is from a general guidance perspective, I mean, at the low end of our sales guidance, we're talking about 4% basically from that perspective. So obviously, there -- what would get us towards the lower end there is obviously, if there is the recovery on the ATS side, for example, is slower than what we would expect if FX rates go against us, those types of things. And I think we talked earlier, I think Naga mentioned it as well, just from a comp standpoint, with some of the businesses that we were talking about, right, whether it was fluid solutions or on the electronic side within ATS.

Sundaram Nagarajan:

Sorry, go ahead, Steve.

Andrew Buscaglia:

Okay.

Andrew Buscaglia:

Yeah, okay. And in ATS, margins kind of move around quite a bit historically, so it's hard to gauge a pattern. But is the main driver here for ATS long-term volumes just picking back up, or are there cost-saving potential in that segment to get those up closer to a corporate average margin?

Joseph Kelley:

And the comment, down the full year, we're quite pleased with what we've done to improve the profitability of that business. And here we are at the low point in the cycle and we're delivering this [24%, 23%] (ph) EBITDA margins and so we're well positioned to participate in the recovery but that doesn't mean you should expect it to get to Nordson's the other segments levels of profitability.

Stephen Shamrock:

The only, I was going to say, maybe the only other point I would add there too is we've done a nice job in that segment as well, Andrew, just in terms of our decremental margins being very favorable to our targets, right? So we're really managing the costs appropriately based on volume, so.

Operator:

And at this time, there appear to be no further questions. I will turn the call back over to Naga for any closing remarks.

Operator:

This does conclude the Nordson Corporation fourth quarter and fiscal year 2023 conference call. We thank you for your participation. You may now disconnect.

Lara Mahoney:

Thank you. Good morning. This is Lara Mahoney, Vice President of Investor Relations and Corporate Communications. I'm here with Sundaram Nagarajan, our President and CEO; and Joseph Kelley, Executive Vice President and CFO. We welcome you to our conference call today, Tuesday, August 22 to report Nordson's fiscal 2023 third quarter 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 14 days. There will be a telephone replay of the conference call available until Tuesday, August 29, 2023. During this conference call, references to non-GAAP financial metrics will be made. A reconciliation of these metrics to the most comparable GAAP metric was provided 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. 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 Slide 3, Naga will discuss third quarter highlights. He will then turn the call over to Joe to review sales and earnings performance for the total company and the three business segments. Joe will also discuss the balance sheet and cash flow. Naga will then share a high-level commentary about our enterprise performance. He will conclude with an update on the fiscal 2023 full-year and fourth quarter guidance. We will then be happy to take your questions. With that, I'll turn to Slide 4 and hand the call over to Naga.

Joseph Kelley:

Thank you, Naga, and good morning to everyone. On Slide number 5, you'll see third quarter fiscal 2023 sales were $649 million, a decrease of 2% compared to the prior year's third quarter sales of $662 million. This was driven by an organic decrease of 5%, partially offset by the favorable benefit of the CyberOptics acquisition. During the quarter, sales were negatively impacted by the end-market pressures that Naga referenced. Gross profit for the third quarter of fiscal 2023 totaled $360 million. Excluding severance cost, gross profit totaled $362 million or 56% of sales, which is comparable to the prior year third quarter. SG&A in the third quarter was elevated to a $189 million above the $181 million we have been averaging for the last six quarters. Third quarter SG&A was impacted by notable non-recurring items that I'd like to highlight. Our teams advanced two separate $1 billion global acquisition targets through the comprehensive due diligence process all the way to the final stages. As a result of these two significant and strategic projects, we incurred $7 million in non-recurring cost from third-party service providers. We ultimately chose to move forward only with ARAG, which included an additional $1 million for the fairness opinion. In total, we incurred $8 million in non-recurring cost for acquisition-related activity in the third quarter. Operating profit, excluding these non-recurring items, was $181 million in the quarter or 28% of sales, 4% below the prior year adjusted operating profit of $188 million. Despite the lower sales volume, we held on to decremental margins on adjusted operating profit of 56%, reflective of our cost controls and improved pricing, which can be attributed to our team's dedication to the NBS Next framework. As we execute the Ascend strategy and scale through strategic acquisitions, EBITDA remains the key profitability metric. EBITDA for the third quarter was $208 million or 32% of sales, which is above our long-term profitability target, however, $5 million or 2% below the prior year EBITDA of $213 million. The decrease was primarily driven by lower sales volume in the quarter. Looking at non-operating expenses, interest expense increased $6 million associated with higher borrowings and increase interest rates. Other net expense decreased $2 million related to a combination of changes in pension and deferred compensation plans, as well as foreign exchange gains and losses. Tax expense was $34 million for an effective tax rate of 21% in the quarter, which is in line with the prior year third quarter rate and the forecasted full-year rate for 2023. Net income in the quarter totaled $128 million or $2.22 per share. Adjusted earnings per share excluding non-recurring acquisition and severance cost totaled $2.35 per share, a 6% decrease from the prior year adjusted earnings. The decrease was primarily driven by higher interest expense and lower operating profit. Now let's turn to Slide 6 through 8 to review the third quarter 2023 segment performance. Industrial Precision Solutions sales of $338 million decreased 1% compared to the prior year third quarter, driven by softness in our product assembly and nonwovens product lines in Asia. This was partially offset by continued strength in polymer processing product lines and growth in the Americas and Europe. Year-to-date, the IPS segments has delivered 3% organic sales growth following two consecutive years of double-digit growth. EBITDA for the quarter was $122 million or 36% of sales, which is a decrease of 3% compared to the prior year EBITDA of $126 million. The biggest driver of the decrease is lower sales volume and unfavorable sales mix due to the higher sales volume and polymer processing product lines. EBITDA in the current quarter has improved compared to the prior two quarters of the current year and year-to-date is $4 million higher than the prior year. On Slide 7, you'll see Medical and Fluid Solutions sales of $171 million decreased 4% compared to the prior year's third quarter. The decrease was driven by continued softness in the medical fluid components division related to destocking in single-use plastic components for biopharma applications and fluid solutions product lines specifically for electronics assembly primarily in Asia Pacific. This pressure was partially offset by double-digit growth in our medical interventional solutions product lines. Third quarter EBITDA was $68 million or 40% of sales, which is a decrease of $8 million compared to the prior year EBITDA of $76 million. EBITDA continued to be impacted by meaningful sales mix changes within medical product lines. It is noteworthy that the segment EBITDA margin sequentially improved 200 basis points over the second quarter of 2023 and back to the profitability levels this segment delivered in 2021 and 2022. Turning to Slide 8, you'll see Advanced Technology Solutions sales were $140 million, a 3% decrease compared to the prior year third quarter. During the quarter, the CyberOptics acquisition contributed 11% growth. Organic sales volume was down 13%. The organic decrease was driven by electronics dispense product line, serving the semiconductor end markets, predominantly in Asia Pacific, slightly offset by continued growth in test and inspection products. The cyclical downturn of demand in the semiconductor market will anniversary in the second quarter of fiscal 2024, which aligns with the historic downcycles lasting approximately four to five quarters. Structural cost reduction actions were taken during the third quarter of fiscal 2023 to address the volume decrease in electronics dispense products. For example, they've chosen to outsource their fabrication shop to focus on more value-added precision dispense technology, resulting in a $2 million of non-recurring severance cost. Third quarter EBITDA was $33 million or 24% of sales, which was an improvement compared to the prior year third quarter EBITDA of $30 million. The improvement in EBITDA during the quarter was driven by favorable sales mix and continued realization of cost savings actions. Despite the double-digit organic sales volume decrease, this segment is delivering quarterly profitability only 100 basis points below 2022 levels. Finally, turning to the balance sheet and cash flow on Slide 9. We had a very strong cash flow quarter, generating $181 million in free cash flow, bringing our year-to-date cash conversion rate on net income to 126%. Cash ended the quarter at $143 million and net debt was $695 million, resulting in a 0.9 times leverage ratio based on the trailing 12 months EBITDA. We continue to have significant available borrowing capacity to pursue organic and inorganic growth opportunities such as our upcoming acquisition of ARAG. We expect to close the ARAG acquisition by the end of August and exit the year with a net debt to EBITDA leverage ratio of approximately 2 times. During the third quarter, we repaid $111 million of debt, paid $37 million in dividends and spent $23 million on repurchasing approximately 107,000 shares of company stock at an average price of $217 per share. Our Board approved a 5% increase in our annual dividend, effective in the fourth quarter of fiscal 2023. This marks the 60th consecutive year the company has increased its dividend, an impressive accomplishment only enabled by maintaining a truly differentiated precision technology portfolio and serving diverse end markets. For modeling purposes, in fiscal 2023, assume an estimated effective tax rate of 20% to 22% and capital expenditures of approximately $35 million to $40 million, as several of our investment timelines have pushed out. With our upcoming acquisition of ARAG, I want to provide you with some assumptions for modeling purposes. For revenue, assume approximately $20 million to $30 million in fiscal '23. EBITDA margins are expected in the high-30% range. We expect ARAG to be slightly dilutive to GAAP EPS in Q4 2023 due to increased amortization of acquisition-related intangibles and interest expense associated with the acquisition. Excluding acquisition costs and related intangible amortization, EPS should be neutral for the fourth quarter. Due to the expeditious nature of the close, the acquisition will initially be financed with a short-term loan and revolver borrowings. We anticipate following up with a bond issuance in the public markets later this year, and we are currently working through the ratings process. Based on current market conditions, assume a weighted average interest rate of approximately 5.5% for total Nordson debt in 2024. We will now turn to Slide 10, and I'll turn the call back to Naga.

Operator:

Thank you. [Operator Instructions] One moment for your first question. Your first question comes from the line of Jeff Hammond of KeyBanc Capital Markets. Your line is open.

Sundaram Nagarajan:

Good morning, Jeff.

Jeff Hammond:

So, just really want to unpack the guidance change. I mean, I hear kind of Asia Pac and electronics kind of weaker and then the ARAG impact. So maybe just unpack kind of what drives the lower-end. And it seemed like the revenue was lighter in 3Q, but 4Q seems kind of in line, but maybe just a little more help on the moving pieces. Thanks.

Sundaram Nagarajan:

Yeah. From an end-market perspective, if you think about the three segments, IPS, we feel pretty good about where we are at in comparison to our long-term, as well as sequentially. We expect this system to continue to be at or above our long-term growth rate. So that's what is embedded in the growth. Suddenly, electronics and biopharma continuing at the levels they are today, we don't expect them to recover here in the fourth quarter. They certainly are our expectation, and we'll talk a little bit more about it later. In that electronics, we expect sometime in middle of calendar 2024 is when we expect that to turn and biopharma sometime in the first quarter of 2024 is when we anniversary, but the growth on biopharma is going to be, as I indicated in my initial comments, that is going to be -- we're going to be cautious here as to when that fully recovers to its high single-digits kind of growth rate. But nothing in biopharma long-term secular trends have been impacted. So we fully expect we will get to it. It is just a matter of how long it takes for us to get back to it. And then if you think about our medical IS business, that is growing double-digits. We fully expect that in the fourth quarter, we continue to do so. Our polymer processing businesses are doing incredibly well, and they are expected to do well in the next quarter. And we've got a couple of system businesses that are -- that have strong backlog we expect to do well as well.

Joseph Kelley:

Yeah. So let me take a stab at that, Jeff. First of all, on the purchase accounting, we'll hold off and I'll give some clear guidance on that when we do our full-year 2024. And so, right now, the guide with the amortization just is really looking at historical trends for acquisitions of this nature and a percentage of the purchase price, but we will firm that up, when we issue the 2024 guide for Nordson, which will include purchase accounting assumptions on ARAG. On the interest expense, given the current market conditions, depending on where the bonds will price later this year, our estimate currently is that total Nordson interest expense will be roughly 5% to 5.5% based on current market conditions. And that's for our weighted basket of debt.

Joseph Kelley:

If you look from a year-to-date standpoint, we're slightly below 5% in terms of our weighted average interest cost.

Joseph Kelley:

Thanks, Jeff.

Allison Poliniak:

Hi. Good morning.

Joseph Kelley:

Good morning.

Sundaram Nagarajan:

Yeah. If you think about China itself, right, a majority of our electronic businesses -- if you look at our electronic business divisions, more than 75% of their revenues is in Asia, right? And significant part of that is in China. So if you think about our China, Asia Pac impact, what you find is the majority of the China impact is due to electronics. And so, that is more cyclical and we fully expect that it follows the cyclicality. What we -- what we do see is our major global customers. So if you think about our China exposure, our China exposure is following large international global customers to China. And we do have some mid-tier Chinese customers that we serve, but across the segments, mostly it is global customers. What we find with most of our global customers, there is some amount of rebalancing of supply chain going on, but we don't see anybody making significant moves out of China. It seems from our work with our customers in other regions, be it in North America or be it in Europe or in other parts of Asia, we do see customers building, let's say, additional capacity or new capacity in different regions other than China. So that's why you begin to see in our regional numbers a nice growth in Americas and a nice growth in Europe and a decline in Asia Pac. Asia Pac, in some ways, a big part of it is China. Japan in general is doing really well for us. It's a smaller business, but it is doing well. So, from what we can see, the majority of the decline that we see today is cyclical related to electronics. We do see some large system misses which are and could be up and down given in any quarter. So, we don't see anything structurally changing, but we do see investments happening in other places, if that makes sense.

Sundaram Nagarajan:

Yeah. I'll give you some color and Joe can help me with some additional detail, but the way to think about is our backlog is so historically high. And that historically high backlog is driven by couple of system businesses and our medical interventional business, where we get longer-term orders, which kind of go into our backlog, right? So if you think about majority, about 60%, 70% of our business, we fundamentally believe our backlogs have normalized to the pre-pandemic levels. So, you can think about supply chain normalizing in 60%, 70% of the businesses, these elevated targets mainly related to large system businesses, be it our polymer processing business or our ICS business and our medical IS business, which is sort of our -- where customers give us blanket orders. Joe, would you add anything more to that?

Allison Poliniak:

Great. Thank you.

Matt Summerville:

Yeah, thanks. Couple of questions. If we kind of think about fiscal '24 at a high level with the electronics piece seemingly turning in the second half, does that -- is that going to line up or coincide with a continued strength in T&I, or is there a little bit of give and take here? And I basically has the same question for the medical side of the business. As biopharma begins to reaccelerate, does medical interventional begin to rollover or decelerate? And I guess at the end of the day, I'm trying to conclude whether or not we can see a thinking, if you will, of organic growth between all four of those different pieces of the business, such that we see pretty good things out of Nordson towards the latter part of next year.

Joseph Kelley:

Yeah. I would just say, Matt, when you think about it, the electronics, the EPS division is down like roughly 20%. When you study the T&I, given the diversity of that end-market, those applications, while it may go through ups and downs and it's been growing the last several years, I wouldn't anticipate a scenario -- we don't see a scenario where that's down 20%, offsetting some recovery in EPS. And similarly, I would tell you, if you go to the medical mix -- in our -- the destocking going on there in the biopharma is quite unique, where it's down 30%, 40%, whereas the medical interventional solution, yes, it's growing nice double-digits now, but if you go back during the pandemic, the COVID, that was only down in the, I would say, 10%, maybe 15%. So, it just doesn't have the magnitude of the swings that we're seeing in the current down-cycle. So, I wouldn't anticipate that to offset the recovery in those in '24.

Matt Summerville:

Got it.

Matt Summerville:

Got it. That's helpful. And then, just as a follow-up, can you maybe talk about -- it sounded like you were running two concurrent $1 billion M&A processes over the last few months. Maybe talk about what made you kind of halt or walk away from the other deal and why ARAG maybe won out over the other potential candidate?

Matt Summerville:

Thanks, Naga.

Sundaram Nagarajan:

Yeah. One thing I would add, as we were talking about the end markets, Matt, in your question, the end-market challenges and the upsides and we talk about the two acquisitions. I would kind of step back and think about this quarter. And if you think about this quarter, what Nordson's team really did was have an operational excellence that kind of came through in the results. It really showed there were some challenges on the topline, but the team did an incredible job. And that showed during the bottom line, right? And one to look at it and say that's operational excellence and you could simply walk away. But from my vantage point, what really shines through is the work we've been doing inside the company around Ascend strategy and the competitive advantage we are building. And this competitive advantage of Ascend strategy really what it is, is you've got strong winning teams with an incredible owner mindset that are executing the NBS Next growth framework and delivering results, right? That's the competitive advantage we are building and that shows up in three different ways. One, it shows up in divisions where end-market conditions are challenged, the team really takes an owner mindset and figures out what kind of cost actions we need to take and deliver decremental margins that we've talked about in the 55%. Then you have a set of divisions that have strong market opportunities and really fully participating in that growth through incredible customer service and delivering really strong incremental margins, right? And then on the third side, the company not sitting idle, certainly looking at what are the growth opportunities through acquisitions. And so, the team really -- the three different themes and end of the day, that's what we're talking about here. That's in my mind is what is coming through in our results in the quarter.

Christopher Glynn:

Thanks. Good morning, Naga and Joe, Lara. I was curious about the polymer markets, if there is any sort of interesting structural dynamics, what you're seeing in terms of a typical timing around a recap cycle or market penetration momentum? Just curious for a higher-level view of that market.

Joseph Kelley:

Chris, I would add when you think about that polymer processing you go back in time and remember the divestiture of the Xaloy business. The divestiture of that product line, I would tell you, resulted in upgrading the quality and the degree of differentiation of the product lines that remained in that polymer processing division. And so, I think that's what you see also fallen through some of these numbers.

Sundaram Nagarajan:

So maybe help me. So you want to take the D&A question first, and then I can maybe make a comment around the inventory piece.

Christopher Glynn:

Thank you.

Christopher Glynn:

Great. Thanks for the extra color.

Unidentified Participant:

Hey. Good morning, everybody. This is [indiscernible] for Mike. Hoping you could provide a little bit more color on the order entry comment. It looks like orders were down sequentially. You talked about pressure in China in the Asia Pacific region. And then obviously, some of the -- some of the businesses are bouncing along the bottom. Can you maybe talk about some of the puts and takes that kind of got you to study? It just sounded like maybe the commentary was skewed a little bit more on to the negative side. And if you could just provide a little bit of color around order entry so far through August, if you said, that would be great.

Unidentified Participant:

Got it. That's super helpful. And then following up on the question differentiating between T&I and the dispense side within the electronics business. Naga, you mentioned that the amplitude of the cycles is different between T&I. But can you maybe talk about the length? I know, for instance, we kind of refer to a typical four to five quarter slowdown in dispense. When the paper comes for the T&I business, is it typical to think of the length of the cycle and slowdown in similar terms, or should we be thinking about them differently as well?

Unidentified Participant:

Understood. All right. Thank you. I'll pass it on.

Sundaram Nagarajan:

Our strong operating performance reflects the strength of our differentiated precision technology, customer-centric model and diversified end-markets. Again, I want to thank Nordson employees for their commitment, which makes these results possible. The continued deployment of Ascend strategy will position us well for long-term growth. Thank you for your time and attention on today's call. Have a great day.

Lara Mahoney:

Thank you. Good morning. This is Lara Mahoney, Vice President of Investor Relations and Corporate Communications. I'm here with Sundaram Nagarajan, our President and CEO; and Joseph Kelley, Executive Vice President and CFO. We welcome you to our conference call today, Tuesday, May 23, to report Nordson's fiscal 2023 second quarter 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 Web site at www.nordson.com/investors. This conference call is being broadcast live on our investor Web site and will be available there for 14 days. There will be a telephone replay of the conference call available until Tuesday, May 30, 2023. During this conference call, references to non-GAAP financial metrics will be made. A reconciliation of these metrics to the most comparable GAAP metric was provided 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. 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 Slide 3, Naga will discuss second quarter highlights. He will then turn the call over to Joe to review sales and earnings performance for the total company and the three business segments. Joe will also discuss the balance sheet and cash flow. Naga will then share a high-level commentary about our earnings performance. He will conclude with an update on the fiscal 2023 full year and third quarter guidance. We will then be happy to take your questions. With that, I'll turn to Slide 4 and hand the call over to Naga.

Joe Kelley:

Thank you, Naga, and good morning to everyone. On Slide 5, you will see second quarter fiscal 2023 sales were $650 million, an increase of 2% compared to the prior year's second quarter sales of $635 million. The increase was driven by organic growth of 1% and a 3% benefit from the CyberOptics acquisition offset by unfavorable currency impact of 2%. During the quarter, sales were strong in Asia Pacific with 7% growth, partially reflecting the timing difference related to the Chinese New Year. Gross profit for the second quarter of fiscal 2023 totaled $352 million. Excluding severance costs, gross profit totaled $354 million, or 55% of sales, comparable to first quarter 2023 profitability as the team continues to actively manage the price cost dynamic and these inflationary periods. When compared to the prior year, adjusted gross margins are down 180 basis points resulting from sales mix changes and factory inefficiencies at sites dealing with reduced volumes. Operating profit totaled $173 million in the quarter. During the quarter, we recorded one-time severance costs totaling $3 million. Adjusted operating profit, excluding these non-recurring items, was $176 million in the quarter, or 27% of sales, 4% below the prior year adjusted operating profit of $184 million. EBITDA for the second quarter was $203 million, or 31% of sales, which is in line with our long-term target profitability level; however, $6 million below the prior year EBITDA of $209 million. The decrease was primarily driven by a $4 million currency translation headwind plus unfavorable sales mix, offset by the CyberOptics acquisition growth. Looking at non-operating expenses, interest expense increased $5 million associated with higher borrowings and increased interest rates. Other net expense decreased $38 million, primarily related to the prior year non-recurring, non-cash pension annuitization charge of $41 million. Tax expense was 34 million for an effective tax rate of 21% in the quarter, which is in line with the prior year second quarter rate and the forecasted full year rate for 2023. Net income in the quarter totaled $128 million, or $2.21 per share. Adjusted earnings per share, excluding non-recurring severance costs, totaled $2.26 per share, a 7% decrease from the prior year adjusted earnings. The decrease is primarily driven by lower operating profit and higher interest expense. Now let's turn to Slide 6 through 8 to review the second quarter 2023 segment performance. Industrial Precision Solutions sales of $336 million increased 6% compared to the prior year second quarter, driven by strong organic growth of 9%, partially offset by unfavorable currency impacts of 2%. The organic growth was driven by robust demand in the polymer processing product lines as well as products sold into consumer non-durable end markets across most regions. Operating profit for the quarter was $112 million, or 33% of sales, which is an increase of 9% compared to the prior year adjusted operating profit of $102 million despite some unfavorable currency translation impacts. As mentioned last quarter, IPS remains our most globally diverse segment, and therefore most exposed to currency translation changes and the timing difference with the Chinese New Year. Looking on a constant currency basis and year-to-date, this segment has delivered 5% organic growth and incremental margins of 60% ahead of our targeted 40% to 45% incremental margins. This segment's continued strong performance demonstrates the power of the NBS Next growth framework. On Slide 7, you'll see Medical and Fluid Solutions sales of $167 million, decreased 3% compared to the prior year's second quarter. This change included a decrease in organic sales of 2% and a 1% decrease related to unfavorable currency impacts. Strong demand for medical interventional solutions product lines, primarily in the Americas, was more than offset by softness in the medical fluid components serving biopharma applications and fluid solutions product lines in Europe and Asia. These factors drove a net 2% organic sales decrease. During the second quarter, we took targeted cost actions in businesses responding to volume pressure that resulted in $1 million of non-recurring severance costs. Second quarter adjusted operating profit was $49 million, or 30% of sales, which is a decrease of $9 million compared to the prior year operating profit of $58 million. The decrease in operating profit was driven by the meaningful sales mix changes within the medical product lines and related factory inefficiencies due to reduced volumes. It is noteworthy that the segment profitability sequentially improved 400 basis points over the first quarter of 2023 and is again running more in line with the profitability levels of the prior two years. Turning to Slide 8, you'll see Advanced Technology Solutions sales were $148 million, a 1% increase compared to the prior year second quarter. During the quarter, the CyberOptics acquisition contributed 12% growth. Organic sales volumes were down 10% and unfavorable currency impact during the quarter was 2%. The organic decrease was driven by electronics dispense products serving the semiconductor end markets in the Americas and Asia, slightly offset by continued growth in the test and inspection product lines. Cost reduction actions during the second quarter of fiscal 2023 to address the significant decrease in electronics dispense product lines were structural in nature and resulted in $2 million of non-recurring severance costs. The second quarter adjusted operating profit was $28 million, or 19% of sales, which was below the prior year second quarter operating profit of $40 million. The decrease in adjusted operating profit was driven by the organic sales decrease, partially offset by the profitable acquisition growth. Finally, turning to the balance sheet and cash flow on Slide 9. Our second quarter balance sheet includes cash of $129 million and net debt was $820 million, resulting in a one-time leverage ratio based on the trailing 12 months EBITDA. We continue to have significant available borrowing capacity to pursue organic and inorganic growth opportunities. Free cash flow in the quarter was $159 million, bringing the year-to-date cash conversion rate on net income to 118% as working capital efficiency improved during the current quarter. During the second quarter, we made $37 million in dividend payments and spent 47 million on repurchasing approximately 221,000 shares of company stock at an average price of $212 per share. For modeling purposes, in fiscal 2023, assume an estimated effective tax rate of 20% to 22% and capital expenditures of approximately $45 million to $50 million. We'll now turn to Slide 10, and I'll turn the call back to Naga.

Operator:

Thank you. [Operator Instructions]. Our first question comes from Jeff Hammond from KeyBanc Capital Markets. Please go ahead. Your line is open.

Sundaram Nagarajan:

Good morning, Jeff.

Jeff Hammond:

I just want to focus on the biopharma piece. I know you talked about inventory destocking. I think you had thought maybe by 2Q it'd be wrapping up, but it sounds like it is lingering. So just trying to get a better sense of your visibility for that business to kind of either hit easier comps or re-inflect positive?

Jeff Hammond:

Okay, great. And then can you give us a little more color on where you saw the systems pull forward in terms of segment or business detail? And then just a little more color on your level of visibility for that strong fourth quarter ramp? Thanks.

Sundaram Nagarajan:

Let me add something to that color is that we feel really strong about the systems businesses, as Joe indicated. It is also a strong testament of NBS Next growth framework in action. What you find here is that the businesses are truly focused on our best products and have the agility and flexibility to respond to customer demand in a market leading way, so we feel really, really strongly about it. And we also feel good about our medical intervention of business, which is showing some pretty strong strength. I would say those two things drive our optimism for the fourth quarter.

Operator:

Our next question comes from Saree Boroditsky from Jefferies. Please go ahead. Your line is open.

Sundaram Nagarajan:

Good morning.

Saree Boroditsky:

So I guess first, the weakness in ATS obviously it's been well telegraphed. But there's also a lot of government funding going towards semis. You mentioned a little bit about the CHIPS Act. So when would you start to see that benefit? And then how long do we think about this down cycle given that?

Saree Boroditsky:

That's helpful. Then thinking with ATS, margins there have been rather volatile. I know some of this is mix related. But what is normalized mix? And how do we think about margins here into 2024 and over the long term?

Saree Boroditsky:

And as you think about 2024, is there anything like mix related that we think about benefitting or is it really a question of volume at this point?

Saree Boroditsky:

Great. Thanks for taking my questions.

Chris Dankert:

Hi. Good morning, guys. Thanks for taking the question. As I look at the guide for fiscal third quarter here, the reason for the comp below seasonal sales expectation, is it just the timing of backlog, is it that semis are actually getting weaker? Just can you kind of give us a little more color around how to think about that third quarter sales guide?

Chris Dankert:

Got it. That's very, very helpful. And then maybe just kind of a housekeeping thing here. Could you quickly remind us about the mix within that MFS segment in the interventional versus life sciences versus EFD, I think there's a little bit of confusion there?

Sundaram Nagarajan:

Let me add some little bit more color to the fluid components business. Of those 100 million, not all of it is biopharma. A portion of it is biopharma. But you also have other medical fluid connector applications in that business. And so what you find is biopharma is the one that is sort of normalizing. But you have other connectors that have been pretty stable. But the biopharma normalization was fairly significant to show up at the division level. And as I indicated in one of my answers, we expect that this normalizes by the end of the year.

Operator:

Our next question comes from Matt Summerville from D.A. Davidson. Please go ahead. Your line is open.

Joe Kelley:

Yes. There's two components also to that earnings guide. One is interest expense is clearly up on a year-over-year basis in the quarter. On the full year, it's going to be up about 20 million. So that contributes. And then also last year, there was some FX hedged gains in the quarter, which benefited, which are not forecasted to repeat. And so those are below the OP, which I would tell you are having an impact on the year-over-year earnings guide.

Matt Summerville:

Got it. That's helpful. And maybe just spend a minute, Naga, talking about any sort of evolution in your M&A funnel backlog relative to coming out of last quarter, how you're thinking about actionability, et cetera, therein?

Matt Summerville:

Got it. Thank you.

Mike Halloran:

Hi. Good morning, everyone.

Joe Kelley:

Good morning.

Joe Kelley:

Yes. I guess let me take the first part on the backlog question, Mike. I would tell you, if you look at 65% of our business, that backlog is getting close to historical pre-COVID levels. If you say pre-COVID levels, we ran this business at about 80% to 90% of quarterly sales in backlog heading into any given quarter. For 65% of our business, we're at about one quarter worth in the backlog. So it's almost at historical levels. The piece that hasn't reverted and I don't know that it is going to revert to historical practices is about 35% of our businesses, which is the large systems business, the coatings business, the plastics business, and the medical interventional solution business. There where we continue to have backlog at an elevated level, orders continue to be strong and it's about 2.5 quarters worth of backlog that we're running in those businesses. And so we're not seeing that portion of our business revert to historical norms, while the remainder is.

Joe Kelley:

Sorry. Could you repeat the second part of the question please?

Joe Kelley:

Yes. So if you look at our assumption on order entry, we do feel that it has stabilized at the level we saw that stabilization throughout Q2. And so we continue to -- the guide assumes that we remain at these levels. And then what you have within the quarters is the timing of the systems deliveries. And so that's what drives the quarterly fluctuations.

Sundaram Nagarajan:

The biopharma is part of MFS, I would say, normalizes by the end of the year, right? And so going into next year, we are back to the 7%, 8% year-on-year growth. That's our expectation for our medical and fluid component business. And as you think about ATS, that's going to be a little bit in the middle of 2024. So our fluid components comes in first, our APS business comes in next. And some of this is normalization of comps too.

Sundaram Nagarajan:

Okay. Joe, do you want to take --

Sundaram Nagarajan:

And then --

Sundaram Nagarajan:

Sorry, Mike. So for the portion that has the electronics and construction exposure in Asia, you are right. We got to think about it like the ATS.

Joe Kelley:

Yes. The cost actions in the quarter were 3.5 million roughly to respond very focused actions within the MFS segment and the ATS segment to adjust our cost structure. I will tell you some of those, Mike, were structural not just the [indiscernible] piece. But we did take some structural cost reduction actions, particularly in ATS that will help benefit that segment as profitability recovers back to historical level let's just say in '24. And so the savings generated within the quarter -- within the year will offset the 3.5 million.

Sundaram Nagarajan:

Mike, I know you didn't ask this question. But one thing I would remind all of us is that, yes, the business is adjusting to the market demand. And I think that was the right thing for us to do. But I keep in front of mind for all of you that we stay invested in our customer-centric business model, in our product innovation, in NBS Next deployment. So this is really important of making sure the company is well positioned as we adjust for the short-term headwinds, is well positioned for long-term continued growth. More than 80% of the business is growing. And so we want to make sure we stay invested in innovation, stay invested in our customer experience. So that we do well in those parts, but also even in the parts where we have some short-term headwinds, we are invested in innovation.

Sundaram Nagarajan:

That's okay.

Allison Poliniak:

Hi. Good morning.

Joe Kelley:

Good morning, Al.

Sundaram Nagarajan:

Micron is somebody that we work with in our optical business. We are focused more on the long term, because as Micron expects its capacity in other places, we are certainly going to benefit. As you have seen, they have made some pretty strong projections on where they're investing here in North America. So as I think about this, we're going to benefit from alternate investments they make in capacity. So as you, Nordson benefits when people add new lines, expand capacity or make alternative investments. So I feel like, yes, that might have a pressure on their questions on what their investment. But I think long term, the way you want to think about this is this is another reason why they would want to expand their capability. Yes, there may be some impact on their volumes in China. But we're not -- our business is not impacted by volume of chips manufactured. In a lot of ways, we are very close -- our customer-centric business model allows us to stay in touch with our customers in a very close way, and allows us to understand where they're headed and what we're doing. So this is pretty new news. This is probably we thinking about how does it impact us in the long term?

Sundaram Nagarajan:

Yes, I think there are a couple of things that I'd like to point to. First, I'll point to that each of our businesses have been thinking about our NBS Next growth framework and have been using what we call internally strategic discipline. Strategic discipline really is about understanding the best growth opportunities and doubling down on those best growth opportunities. So what you begin to see here is a concerted effort by all of our divisions to be focused on the best growth opportunities. Definitely, they benefit from some macro secular trends that we are pretty excited about, first in terms of onshoring or reshoring or [indiscernible], whatever you want to call it, what you find is our customers beginning to add capacity moving away from Asia and investing more closer to home, we suddenly benefit from it. So that is an important one. The other thing that we're benefiting from in this business is that there are a number of emerging electric vehicle applications that are -- electric vehicle as well as battery manufacturing continues to evolve. So I wouldn't say this is fully solidified yet. But these new applications certainly help us and help the company play in some new applications we have not had opportunities, but strategic discipline kind of brings all of that into focus for the business, allows them to invest there. So those would be the two things that I would point to. Certainly execution inside the business in terms of our factory dedication to our best products is certainly also playing out. So in the businesses we have realistically implemented NBS Next, you're starting to see a significantly better customer service that is market leading. So I would point to those three things as sort of where we see how NBS Next is helping our teams deliver on growth opportunities.

Operator:

Our next question comes from Walt Liptak from Seaport. Please go ahead. Your line is open.

Sundaram Nagarajan:

Good morning, Walt.

Sundaram Nagarajan:

Yes. Within the business, we have got like four targeted KPIs that we measure, which sort of gives us a view of how we are doing in terms of deploying NBS Next and we call it leadership level performance. So we have leadership level performance on customer growth is one of the key metrics for the business within the company. And what you're beginning to see is where businesses that are not impacted by significant macro trends, that metric is trending towards where we would like to be, right, and it differs from business to business. So I can't give you a specific number. But what I will tell you is business by business, the teams are identifying what is leadership level performance and we are beginning to see some nice progress in businesses on customer growth, certainly on new product innovation. And there are a couple of other metrics around customer service levels that we are very excited about. So number of internal metrics that allows us to track the effectiveness of the strategy deployment and execution that is leading to some pretty strong customer experience that we believe translates into growth and profitable growth for the company.

Joe Kelley:

Yes. Walt, this is Joe. I would tell you that the price realization for Nordson broadly improved in Q2, and so I would estimate that approximately 4% of that 9% for IPS segment would be attributed to price and 4% would be volume.

Joe Kelley:

Sorry, go ahead.

Joe Kelley:

No, I would tell you that NBS Next expressing itself on the price cost, we got to the point where I would tell you that that is no longer a headwind. If you'll recall the last two quarters that's been pressuring our gross margins. And so here, that is price cost balanced for Nordson is no longer pressuring the gross margins as we have realized the price increase to offset inflation and maintain our margins. So what you'll see there in the 6% incremental margin for IPS is largely consistent with what we've seen over the past couple of years. And I would tell you, there's a host of issues there, but it's the benefit of NBS Next and being broadly implemented throughout those divisions.

Joe Kelley:

I would like to make one other comment, I think it's back to Matt's question around the Q3 guide. I spoke to what was assumed in the guide below operating profit. But when you look at the operating profit line and the gross margin line, our gross margins were at roughly 54.5% here in Q2 consistent with Q1. That being said, the drivers of that were a little bit different than Q1. The price realization is no longer a headwind. But what you see in Q2, the margins are pressured by the lower volumes that we've talked about on those two particular businesses. And then offsetting that is the growth but the growth is coming with a less favorable sales mix as it's becoming and coming in product lines such as plastic processing and others who are delivering double digit growth. So the profitability when you think about Q2 going into Q3, profitability from gross margin and OP margin should be comparable because the mix is comparable.

Sundaram Nagarajan:

Our performance reflects the strength of our differentiated precision technology, customer-centric model, and diversified end markets. Again, I want to thank Nordson's employees for their commitment which makes these results possible. The continued deployment of NBS Next in the Ascend strategy will position us well for long-term growth. We look forward to the opportunity to talk with you at upcoming investor events. Joe, Lara and Stephen Lovass, our MFS segment leader, will be at the Deutsche Bank Industrial conference on June 8 in New York. Joe, Lara and Jeff Pembroke, our IPS segment leader, will be at the Wells Fargo Industrial conference on June 13 in Chicago. And Joe, Lara and our segment leader of ATS, Srini Subramanian, will be participating in a Virtual Roadshow with Loop Capital on June 14. Thank you for your time and attention on today's call. Have a great day.

Lara Mahoney:

Thank you. Good morning. This is Lara Mahoney, Vice President of Investor Relations and Corporate Communications. I'm here with Sundaram Nagarajan, our President and CEO; and Joseph Kelley, Executive Vice President and CFO. We welcome you to our conference call today, Tuesday, February 21, to report Nordson's fiscal 2023 first quarter 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 14 days. There will be a telephone replay of the conference call available until Tuesday, February 28, 2023. During this conference call, references to non-GAAP financial metrics will be made. A reconciliation of these metrics to the most comparable GAAP metric was provided 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. These statements may involve a number of risks, uncertainties and other factors as discussed in the company's filings with Securities and Exchange Commission that could cause actual results to differ. Moving to today's agenda on Slide 3, Naga will discuss the first quarter highlights. He will then turn the call over to Joe review sales and earnings performance for the total company and the three business segments. Joe will also discuss the balance sheet and cash flow. Naga will then share a high-level commentary about our earnings performance. He will conclude with an update on the fiscal 2023 full year and second quarter guidance. We will then be happy to take your questions. With that, I'll turn to Slide 4 and hand the call over to Naga.

Joe Kelley:

Thank you, Naga, and good morning to everyone. On Slide number 5, you'll see first quarter fiscal 2023 sales were $610 million comparable to the prior year's first quarter sales of $609 million. The increase was primarily related to 1% organic growth plus the CyberOptics acquisition, offset by unfavorable currency impact of 4%. The organic growth, as Naga referenced, was driven by strong demand in Europe and the Americas, offset by weakness in Asia Pacific, primarily China. Gross profit for the first quarter of fiscal 2023 totaled $329 million. Excluding the amortization of acquired inventory step-up, gross profit totaled $333 million or 55% of sales, a 3% or 150 basis point decrease compared to the $342 million or 56% of sales in the prior year first quarter. The team continues to actively manage the price/cost dynamic in these inflationary periods in addition to unfavorable currency impacts. Similar to the fourth quarter of 2022, the impact of passing along the significant year-over-year cost inflation while slightly positive in gross profit dollars squeeze margins approximately 100 basis points. Additionally, the sales mix in the quarter was slightly unfavorable, with biopharma, fluid dispense and product assembly in Asia being down offset by growth in plastics processing and medical interventional solutions. On a sequential basis, comparing first quarter to fourth quarter 2022, adjusted gross margins improved approximately 150 basis points. Operating profit totaled $144 million in the quarter. During the quarter, we reported onetime transaction fees, inventory step-up and other nonrecurring items associated with the CyberOptics acquisition totaling $10 million. Adjusted operating profit excluding these nonrecurring items, was $155 million in the quarter or 25% of sales, 2% below the prior year adjusted operating profit of $157 million. Foreign currency translation negatively impacted operating profit 6%, offset by 4% constant currency operating profit growth. EBITDA for the first quarter was $181 million or 30% of sales, which is in line with our long-term target profitability level and comparable to the prior year first quarter. Looking at nonoperating expenses, interest expense increased $5 million associated with higher borrowings and interest rates. Other net expense increased $4 million related to higher foreign exchange losses and increased hedge costs, partially offset by lower nonoperating pension costs. Tax expense was $27 million for an effective tax rate of 20.5% in the quarter, which is in line with the prior year first quarter rate and the forecasted full year rate for 2023. Net income in the quarter totaled $104 million or $1.81 per share. Adjusted earnings share, excluding nonrecurring acquisition cost, totaled $1.95 per share, a 6% decrease from the prior year. The decrease is primarily driven by unfavorable currency changes. Now let's turn to Slide 6 through 8 to review the first quarter 2023 segment performance. Industrial Precision Solutions sales of $312 million decreased 4% compared to the prior year first quarter due to unfavorable currency impacts of 5%. The organic growth of 1% was driven by steady demand across most product lines and regions, offset by softness in Asia Pacific particularly product assembly China due to the timing of Chinese New Year and labor shortages from the spread of COVID-19. Operating profit in quarter was $102 million or 33% of sales, which is a decrease of 1% compared to the prior year adjusted operating profit of $104 million. Unfavorable currency negatively impacted operating profit year-over-year, 6%. IPS remains our most globally diverse segment and therefore, most exposed to currency translation changes. Looking on a constant currency basis and organic only, this segment now has delivered quarterly sales and operating profit growth, 8 out of the last 9 quarters, highlighting the strength of business, the team and the execution of the Ascend strategy. Medical and Fluid Solutions sales of $154 million decreased 3% compared to the prior year's first quarter. This change included a decrease in organic sales of 1% and a 2% decrease related to unfavorable currency impacts. The 1% organic decrease was driven by significant softness in the medical Fluid components serving the biopharma market and Fluid Solutions product lines in China, offset by strong demand for Medical Interventional Solutions product lines, primarily in the Americas and Europe. First quarter operating profit was $39 million or 26% of sales, which is a decrease $10 million compared to the prior year operating profit of $49 million. The decrease in operating profit was driven by meaningful sales mix changes within the medical product lines and related individual factory inefficiency due to reduced volumes. Turning to Slide 8. You'll see Advanced Technology Solutions sales were $145 million, a 14% increase compared to the prior year first quarter. Organic sales growth in the quarter was 5% plus another 14% from the CyberOptics acquisition. This was offset by an unfavorable currency impact of 4%. The organic growth was particularly strong in the Americas region and was driven by the Test and Inspection acoustic product line, which continues to benefit from new product innovation. First quarter adjusted operating profit, excluding the inventory step-up and acquisition transaction expenses was $27 million or 19% of sales, which was comparable to the prior year first quarter operating profit. Organic operating profit growth of 3% plus the acquisition benefit was offset by a 5% unfavorable currency impact. Finally, turning to the balance sheet and cash flow on Slide 9. Our first quarter balance sheet includes cash of $122 million and net debt was $894 million, resulting in a 1.1x leverage ratio based on the trailing 12 months EBITDA. We continue to have significant available borrowing capacity to pursue organic and inorganic opportunities inclusive of the borrowing that we incurred to fund the CyberOptics acquisition in November. Free cash flow in the quarter was $114 million, or a conversion rate of net income of 109%, an $8 million improvement over the prior year first quarter free cash flow. Dividend payments were $37 million, reflective of the 27% increase in the annual dividend approved last year. During the quarter, we did not repurchase any shares under our 10b5-1 plan. For modeling purposes, in fiscal 2023, assume an estimated effective tax rate of 20% to 22%, and capital expenditures of approximately $50 million to $55 million. We will now turn to Slide 10, and I will turn the call back to Naga.

Operator:

[Operator Instructions] And we will take our first question from Mike Halloran with Baird. Your line is open.

Sundaram Nagarajan:

Good morning.

Mike Halloran:

So Naga, obviously, a lot of moving pieces here. Maybe help understand the change in 2Q and call it, a little bit more stability in how you're thinking about the back half of the year here. It seems like the outsized 2Q that we were -- you were talking about in the last quarter has been pushed in the back half. So maybe talk a little bit about the backlog, why you think it's sustainable risk in cancellations, what kind of seasonality you're assuming front half versus back half versus a normal year? And just any of the puts and takes to help understand those moving pieces a little bit better?

Joe Kelley:

Yes. Maybe if I could reconcile those comments to your questions around the guidance and the change in the guidance. So if you think about our revenue guidance at the midpoint, we brought it down by about $65 million from the prior guidance. The majority of that decrease is what Naga referenced and what we're seeing in a change in orders around the semiconductor and back-end electronics market. The remainder is the delay in the timing of the biopharma recovery and I would tell you also a little bit of the softness that we saw here in Q1 in China. From a timing perspective on the guidance, Mike, your question there, the timing is adjusted, not just for the order entry, but it's also given customer the pushouts of their delivery dates. And we're seeing that in electronic end markets. These are large system orders where we have prepayments from the customers. But we're seeing it in electronics, a little bit in the industrial coatings and in the plastics end markets where they're pushing out Q2 delivery dates into the back half. And again, we have prepayments on these, and so there's limited risk of cancellation. And then as it relates to your comments, as we think about the guidance in the back half versus Q2, when you think about the back half, first of all, last year's back half was very, very strong. As you know, for Nordson, a record Q3, followed by record Q4. And so the guidance, when you look at the back half, FX is going to become favorable on a year-over-year basis if we maintain the current exchange rates. So that would be would be favorable about 2%, acquisitions about 3%. And so it basically implies at the midpoint, the organic would be down about 2% in the back half based on comments Naga just made.

Sundaram Nagarajan:

Let me just comment on the order rates and, Joe, you can pick up on the margin for the segment. Order rates, what we are seeing is the customer order patterns have stabilized and might there be some green shoots in terms of a recovery of order rates from these customers. Long term, 7% to 8%, high single digits is how you want to think about this business. I'd love tell you that I know exactly when this is going to come back. From what we can see is we feel good about the stability in the orders and a slight pickup in orders that we're beginning to see if you push me to give an exact date, it's going to be difficult. But definitely, this is a recovery that has already begun is probably the best way to put it.

Mike Halloran:

Great. Really helpful. Thank you so much.

Allison Poliniak:

Hi, good morning.

Allison Poliniak:

Just turning to IPS, it seems pretty stable. Asia Pacific was a headwind this quarter. Do we assume that headwind starts to mitigate here for Asia Pacific where that growth may be is a slight improvement from quarter-to-quarter. Just trying to think through that between 2Q and 3Q? Thanks.

Allison Poliniak:

Got it, thanks. And then Naga, you had talked about NBS Next in the innovation side. How are you thinking about that investment this year? Are you starting to tighten the lens a bit more? Are we looking for an increase there as you look to position the company coming out of this, just any thoughts there?

Allison Poliniak:

Great, thank you.

Matt Summerville:

Thanks. Is there any way that you guys can sort of parse out and try and quantify what the China-related impact was as it, pertain to COVID and the associated labor shortages? How much may be pushed at the end of the quarter due to the New Year - and do you think all of that gets recaptured in Q2 or is that also now become part of this just push out into the latter half of year? And then I have a quick follow-up.

Matt Summerville:

Got it. And then maybe can you just comment on CyberOptics and what you're sort of expecting, if I recollect annualized revenues around the time you announced the acquisition were a little more than $100 million. You look at the contribution in Q1, clearly, nowhere near that run rate. So can you talk about maybe what you're seeing in that business and what a reasonable kind of year one, revenue in accretion outlook might be for that business? Thank you.

Joe Kelley:

Yes, so I mean, as we highlighted in the first quarter, $17 million of sales. I can tell you - as a favorable - contributed favorably to our operating profit. And from an EBITDA standpoint, it's running in the mid-teens. And so, when you think about our forecast going forward, we have that contributing on the full year, approximately 3% to our year-over-year sales growth and to be contributing to operating profit growth on an adjusted basis.

Sundaram Nagarajan:

Yep.

Saree Boroditsky:

Thanks for taking my question. Just kind of sticking on the electronics for a second, there's been some concern, I think, from investors on this space for a while. So was the softening in semi orders a surprise to you? And how have conversations with customers changed?

Saree Boroditsky:

Yes, thanks for that. And then you talked about, obviously, the push out of systems in the second half in industrial coatings. Could you provide more color on why these systems are being pushed out? And then generally, does your guidance assume any additional push outs across the segments and into 2024?

Joe Kelley:

Yes. And Saree, if I could add to your question around timing in 2023, 2024, -- it's -- when you look at these large systems businesses in the industrial coating space and the test inspection space and the plastic space, those businesses, combined with our Medical Interventional Solutions, those are the businesses that comprise over 70% of our backlog. And so there are orders already on the books going out into 2024 for those divisions. And so when you think about our backlog and our confidence, it's not so much just '23, but it actually goes into '24 for that subset of the Nordson businesses. And so that means that, that supports, I'd say, less than half of our revenue. And so greater than half of our revenue is supported by only 30% of our backlog -- And so it's that portion of the business where our backlog only price is less than one quarter of sales. And so there is where we're more subject to changing order patterns and we need book and ship business in the quarter for that portion of the business.

Saree Boroditsky:

Great. Thanks for taking my questions.

Walter Liptak:

Hi, thanks. Good morning. I wanted to ask about the Industrial Precision segment. And just see if I can get a little bit more color on orders in the Americas and in Europe. And specifically about what's going well. I think you called out automotive, industrial and packaging. And I wonder if you could just talk about the last 45 days there and just the tone of the business, how you're feeling about it.

Walter Liptak:

Okay. Good. Yes. So just to be clear, there was the steadiness that you were speaking of that was signed throughout the quarter and not just on average, but including in that 45-day period where other parts of the business soften.

Walter Liptak:

Okay. Great. Great. And then just as a follow-up in IPS, how are you feeling about price cost? It sounds like you were a little bit positive this quarter, how are you feeling about the rest of the year?

Walter Liptak:

Okay. That sounds great. Thank you.

Jeff Hammond:

Hi, good morning.

Jeff Hammond:

So you guys gave a lot of great color on kind of where the softness is. But I'm just wondering if you can kind of maybe parse out the split between -- it seems like IPS, no change. And then maybe the split between medical and ATS in terms of like the cut? Is it 50-50? Is it heavier one way or the other?

Jeff Hammond:

Okay. That's really helpful then. And then just -- what are you hearing in terms of how long this medical destocking will take? And kind of what have you built in there?

Jeff Hammond:

That's great. And just --

Jeff Hammond:

Okay. That's great. Just last one on CyberOptics. I don't know if there was seasonality, I don't recall it from their filings is, is the 1Q kind of revenue contribution run rate the right way to think about the go forward? Or is there some seasonal step up? Or -- and maybe just -- I don't know, it seems like that business is softer. Is that business going to be down year-on-year?

Sundaram Nagarajan:

Yes. On a year-on-year basis, yes, they would be lighter, but it's not I wouldn't take our first quarter and run with that.

Joe Kelley:

Thank you.

Operator:

And there are no further questions at this time. So I will now turn the call back to Naga for additional and closing remarks.

Operator:

And ladies and gentlemen, this concludes today's conference call. We thank you for your participation. You may now disconnect.

Lara Mahoney:

Thank you, good morning. This is Lara Mahoney, Vice President of Investor Relations and Corporate Communications. I’m here with Sundaram Nagarajan, our President and CEO, and Joseph Kelley, Executive Vice President and CFO. We welcome you to our conference call today, Thursday, December 15, 2022 to report Nordson’s fiscal year 2022 fourth quarter and full year 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 14 days. There will be a telephone replay of the conference call available until December 29, 2022. During this conference call, references to non-GAAP financial metrics will be made. A complete reconciliation of these metrics to the most comparable GAAP metrics has been provided 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. 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 Slide 3, Naga will discuss fourth quarter and full year highlights. He will then turn the call over to Joe to review sales and earnings performance for the total company and the three business segments. Joe also will talk about the year-end balance sheet and cash flow. Naga will conclude with a high level commentary about our enterprise performance, including an update on the Ascend strategy as well as our fiscal 2023 first quarter and full year guidance. We will then be happy to take your questions. With that, I’ll turn to Slide 4 and hand the call over to Naga.

Joe Kelley:

Thank you Naga, and good morning to everyone. On Slide No. 5, you’ll see fourth quarter 2022 sales were $684 million, an increase of 14% compared to fourth quarter sales of $599 million. The increase was primarily related to 18% organic growth plus the NDC acquisition, offset by unfavorable currency impacts of 8%. The 18% organic sales increase was driven by solid 14% volume growth and approximately 4% in pricing as we passed through cost inflation. The growth was in all geographies and most product lines with particularly strong demand in polymer processing, electronics and medical, and headwinds resulted from the U.S. dollar strengthening against the euro, the British pound, the Japanese yen, and the Chinese yuan during the fourth quarter. Early here in fiscal 2023, some of this increased pressure has subsided, moving back closer to the third quarter levels when the year-over-year currency impact on sales was unfavorable 5%. Gross profits increased 10% over the prior year to $363 million or 53% of sales compared to $331 million or 55% of sales in the prior year fourth quarter. The double-digit growth in profit dollars was driven by the strong sales growth while the year-over-year margin decrease of 200 basis points was influenced by several factors. Most significant was the passing through of cost inflation which, while relatively neutral from a gross profit dollar perspective, diluted the margins approximately 140 basis points. Additionally, the significant strengthening of the U.S. dollar pressures the margins of our businesses that have U.S. dollar-denominated manufacturing costs and sell denominated in euros or other foreign currencies. These two factors contributed to the 200 basis point decline in margin percent while delivering a significant 17% constant currency growth in gross profit dollars. Operating profit was $178 million in the quarter or 26% of sales, as 17% increase from the prior year. Strong double-digit organic sales growth at attractive incremental margins more than offset the 10% unfavorable year-over-year currency impact on operating profit. Consolidated Nordson organic incremental operating profit margin inclusive of the currency changes was 43% in the quarter. EBITDA for the fourth quarter was $202 million or 30% of sales. Looking at non-operating expenses, other net expenses decreased $12 million year-over-year, relatively evenly split between lower non-operating pension costs and increased foreign currency exchange gains. The lower non-operating pension costs are sustainable heading into 2023 while the currency exchange gains resulted from the significant currency fluctuations in the quarter and are not likely to repeat. Tax expense was $36 million for an effective tax rate of 20% in the quarter, slightly below the full year and forecasted rate of 21%. Net income in the quarter totaled $141 million or $2.44 per share, representing a 28% increase from the prior year earnings. This improvement is reflective of the 14% year-over-year increase in sales and, more importantly, consistent application of the NBS Next growth framework which leads to steady profitable growth with attractive incremental margins. Turning to Slide 6, I will now share a few comments on our full year results. Sales for fiscal year 2022 were a record $2.6 billion, an increase of 10% compared to the prior year’s record sales result. This change in sales included an organic increase of 11%, a 3% increase primarily from the NDC acquisition. This growth was partially offset by unfavorable currency impacts of 4%. Also a company record, adjusted operating profit was $707 million or 27% of sales, which reflects a 15% increase over the prior year, or on a constant currency basis growth of 21%. Organic incremental operating profit margins on the year were 55%, which is above the targeted range of 40% to 45%. Adjusted diluted earnings per share were $9.43, a 22% increase from the prior year, and EBITDA for the full year increased to $807 million or 31% of sales. Now let’s turn to Slides 7 through 9 to review the fourth quarter 2022 segment performance. Industrial precision solution sales of $356 million increased 13% compared to the prior year fourth quarter. Organic growth in the quarter was 16% and the NDC acquisition added 7%. This growth was offset by an unfavorable currency impact of 10%. Robust demand in the polymer processing product line plus steady growth in industrial coating products and packaging product lines in the food and beverage industry, as well as the industrial end markets, drove this quarter’s results. All major geographies contributed to the quarter’s growth. Operating profit for the quarter was $110 million or 31% of sales, which is an increase of 8% compared to the prior year operating profit of $103 million. This growth was driven primarily by leveraging organic sales growth at incremental margins of 43% plus the benefit of the NDC acquisition. Medical and fluid solution sales of $181 million increased 11% compared to the prior year’s fourth quarter. This change included an increase in organic sales volume of 15% and a 4% decrease related to unfavorable currency impacts. Growth was across all product lines with robust growth in the biopharma fluid component product line. All geographies contributed to this quarter’s growth with particular strength in the Americas. Fourth quarter operating profit was $52 million or 29% of sales, which is an increase of 2% compared to the prior year operating profit of $51 million. This growth was driven by sales volume leverage offset by manufacturing inefficiencies following the third quarter factory consolidation within the fluid dispense division. These challenges should be temporary in nature as the consolidated factory ramps to targeted production levels and efficiency. Turning to Slide 9, we will see advanced technology solution sales of $147 million increased 21% compared to the prior year’s fourth quarter. This change included an increase in organic sales of 28% offset by a 7% decrease related to unfavorable currency impacts. This segment had double digit growth in both the test and inspection and electronics dispense product lines, serving predominantly the semiconductor and electronics end markets. All geographies contributed to this quarter’s growth. Fourth quarter operating profit increased $21 million or 131% from the prior year to $38 million or 26% of sales in the quarter. The growth was driven by sales volume leverage and realization of benefits from cost control measures taken in the prior year. Deployment of our NBS Next growth framework continues to be a key element in the success of this segment delivering profitable growth. Finally turning to the balance sheet and cash flow on Slide 10, through our disciplined approach to capital deployment, we ended the quarter with a strong balance sheet and abundant borrowing capacity. Cash totaled $163 million and net debt was $574 million, resulting in a 0.7 times leverage based on a trailing 12 months EBITDA. Free cash flow in the quarter was $161 million, which brings the full year 2022 free cash flow total to $462 million or a conversion rate on net income of 90%. This conversion rate was below the normal target of 100% because of strategic investments being made in inventory throughout the year to address supply chain constraints and support the backlog. Dividend payments were $37 million in the quarter, reflective of the 27% increase in the annual dividend that our board approved during the quarter. Also, with the ongoing market volatility, we again capitalized on the opportunistic repurchase of shares within the quarter, bringing the year-to-date total spent in share repurchases to over $260 million at an average repurchase price of $219 per share. For modeling purposes, in fiscal 2023 assume an estimated effective tax rate of 20% to 22% and capital expenditures of approximately $50 million to $55 million, with minimal cash pension contributions given the pension annuitization that took place earlier this year. In summary, fourth quarter 2022 was a very strong finish to a record fiscal 2022 performance. All three segments contributed both sales growth and operating profit growth in the quarter. Consolidated revenue growth of 14% despite an 8% currency headwind and delivering 43% incremental margins on the organic growth evidences our NBS Next growth framework delivering results. This makes for the second consecutive year of delivering record annual sales and earnings. I’ll now turn the call back to Naga.

Operator:

[Operator instructions] Your first question is from the line of Matt Summerville with DA Davidson. Please go ahead.

Sundaram Nagarajan:

Yes, thank you Matt. A couple of things. Let’s go by our major end markets. If you think about ATS, the backlog is pretty strong going into Q1 and first half. For the full year, we expect single digit organic growth for the year. Both T&I--you know, both our test and inspection and our dispense business are expected to grow in the year. If you look at our industrial business, or IPS, end markets remain solid. A couple of our system businesses are expected to deliver and are expected to grow double digits, while our consumer non-durables are expected to sustain their current record levels. If you think about MFS, our forecast is again this segment is also expected to grow in single digits. What you see is our interventional components, the medical fluid components, if you think about the interventional side, which is our balloons and catheters, this business is returning back to pre-COVID levels of high single digit growth. Our fluid components, which is approximately 20% of this business, had a great two years of double-digit growth, and what we understand, and we watch this end market with some caution as some of our customers have built up some excess inventory, but important to remember this is 20% of our MFS segment. Hopefully that gives you some color, and this is what is embedded in our guidance for the quarter and the year.

Matt Summerville:

I appreciate--sure?

Matt Summerville:

Understood. Maybe if you can just comment a little bit more on M&A, and even CyberOptics - you know, what are you incorporating into the guide as it relates to EPS accretion from CyberOptics, and what are you seeing looking forward in terms of actionability within your current M&A pipeline? Thank you.

Sundaram Nagarajan:

Joe, let me take the question around our acquisition pipeline. Maybe just as a reminder, Matt, we have clear strategic and financial criteria when we look at acquisition ideas and when we consummate deals, and just as a reminder, the strategic criteria really are we’re looking for differentiated position technologies, we are looking for businesses that serve markets with high growth rates, certainly looking for businesses that have a customer-centric business model. On the financial side, we certainly look for businesses that have attractive growth rates and with Nordson-like gross margins, EBITDA margins around 20% with a clear path with expansion opportunities and an ROIC that is ahead of our cost of capital in five to seven years. That’s really sort of our--that’s what informs what deals we pursue and what we consummate finally. Our focus still remains on scaling our medical and test and inspection platforms. We certainly will look at adjacent position technologies if they meet our strategic and financial criteria. Having provided you that background, our pipeline is pretty healthy. We are pursuing a number of different opportunities. Certainly we’ll act on them thoughtfully based on our strategic and financial criteria - that’s really important to remember. We are confident in our ability to deliver on $500 million of acquisitions, which is an important part of us reaching the $3 billion target we set for ourselves in 2021. Again, another reminder, we have acquired about $210 million worth of acquisitions towards that $500 million already, right - we did NDC, CyberOptics and Fluortek, and all of that gives us about $210 million. One other thing I would comment, through what we have done thus far, we have now been opened to many types of deals - for example, CyberOptics was a public company deal, NDC was a carve-out from a public company in Europe, so we feel good about our pipeline. We will remain strategically and financially diligent and disciplined.

Operator:

Your next question is from the line of Mike Halloran with Baird. Please go ahead.

Sundaram Nagarajan:

Good morning.

Mike Halloran:

Maybe help me understand some of the comments you had about the seasonality through the year. Obviously the first answer to Matt’s question was very helpful as far as how you’re thinking about the various moving pieces and orders trends; but Naga, you highlighted that the guidance assumes uncertainty around what the second half looked like, so maybe you could talk a little bit about what the seasonal assumptions look like, how the front half compares and the back half compared to what normal seasonality looks like, and what’s behind the uncertainty that you’ve got embedded in the back half. I’m not saying it’s not prudent, I just want to make sure I understand where you guys are coming from.

Mike Halloran:

No, that was great. To paraphrase quickly, first quarter you’ve got some headwinds, second quarter you feel really good about the delivery schedule you see based on the backlog, but maybe some expectations for orders to be somewhat soft, you’re just not sure what the environment look like, so the back half then, you’ve got maybe below normal seasonality 2Q to 3Q and we’ll just see how it plays out as we get closer to that date. Is that a fair, very quick interpretation?

Mike Halloran:

Thanks for that. Then the second and related piece is on the medical piece, you mentioned the inefficiencies. Could you maybe just help bucket out what kind of an impact that was in the quarter and then when you think the timing of that could get back towards what you think the more normal run rate for margins are in that segment?

Mike Halloran:

Great. Really appreciate the color, that was helpful. Thanks everyone.

Operator:

Your next question is from the line of Allison Poliniak with Wells Fargo. Please go ahead.

Sundaram Nagarajan:

Yes, if you think about our Q4 contribution and the full year contribution, it was fairly broad-based, all our business lines across all the three segments, and the same can be said for our geographies, so historic two years [indiscernible] organic growth going into [indiscernible]. As Joe said, we have good backlog, and we talked about by those different end markets, so in general we feel very strongly about first half, we have good visibility. I think second half, the best way I would tell you is our assumptions are it is a flat kind of organic growth, is really what we are assuming. Remember, this is flat on historic revenues in second half of 2022.

Joe Kelley:

Yes Allison, I would tell you Q4, particularly on the systems side, came in stronger than anticipated, and so there was a portion of that which you could contribute to timing, perhaps getting pulled into Q4 as opposed to Q1, so that does contribute a little bit to our guidance in Q1.

Operator:

Your next question is from the line of Jeff Hammond from Keybanc Capital Markets. Please go ahead.

Sundaram Nagarajan:

Good morning.

Sundaram Nagarajan:

Yes, I think the way to think about this, our test and inspection business continues to have strong momentum coming into the year, and as we can see it, we feel good about our test and inspection business. We do see some moderation or book to bill that is unfavorable in our dispense side of the business, which has a portion of it is consumer-related, not all of it, because there is still semiconductor. But overall, we feel good that both these product lines will grow in the year and ATS as a segment would have single digit growth in the year, so feel good about that. First half, really good visibility, second half is a flattish kind of assumption. In terms of China regulation, Jeff, is one of the questions you asked, we don’t see any significant impact that we know of today, so we don’t really see that. I know you had another piece there, Jeff, that I may have missed, if I didn’t answer all of yours.

Joe Kelley:

Yes Jeff, maybe I’ll take the interest expense first. I would think about that going from roughly $20 million to $40 million based on the interest rate movements and our average powering balances ’22 to ’23. As it relates to our guide in terms of the sales range, again I just would go back and share that we have pretty good visibility into Q1 and Q2, and so the first half, the organic growth for the first half is 4% to 5%. You can think about acquisitions as a 4% favorable, and then FX is 4% to 5% unfavorable in the first half. When we go to the back half, it’s really relatively flat - organic sales 4%, acquisition, and then FX starts to moderate and is maybe flat to negative 1%. Then as it relates to the range, I would tell you that--you know, appreciate roughly 50% systems and 50% parts and consumables, and we have pretty good visibility on the systems side. The parts and consumables again is a shorter book and ship time frame, and so we’re just looking at our order entry and monitoring that and being--you know, putting a range particularly on the back half, and so as you see our Q1 guidance is relatively tight and, to your point on the earnings, the interest expense will be a headwind to earnings in Q1 particularly.

Operator:

Your next question is from the line of Connor Lynagh with Morgan Stanley. Please go ahead.

Joe Kelley:

Yes, so if you think about it, our price, we exited Q4 with roughly 4% realization in price, so as you can appreciate, that impact grew throughout 2022 as we realized inflation and then we took pricing actions to pass that inflation through. As a reminder, our stated strategy was to pass through the inflation, not the inflation plus 55% gross margins, and we were effective on that. It had a diluted impact on the percentage but we were effective. To your point, we’re carrying into Q1, so part of the first half growth, organic growth of 4% to 5%, you can probably think about that as roughly split - half would be pricing given the timing of price realization last year, and half of that would be volume. Then as you can appreciate, as you get then to the back half of next year, the pricing impact on a year-over-year basis will be less simply because we had realized more throughout the year as we experienced the inflation. All that said, we clearly remain in a dynamic environment and responsive. As the cost pressures and inflation change throughout the year, we will be responsive, and again we’re targeting and we’ve been successful in maintaining incremental operating profit margins of 40% to 45% on the organic growth - we delivered that in Q3 at 43, we delivered that for the full year at 55%, which was actually ahead of our target, so that’s how we think about it and, to your point, we’ll continue to manage that.

Connor Lynagh:

Yes, understood. Thank you for the context there. Just thinking through the guidance range, maybe just a little bit of a clarifying point, are you--when you think about the high end versus the low end, are there certain end markets that you are risking higher or lower? You made the comment earlier about the systems versus components, but can you just sort of clarify if there is specific markets that you’re particularly watching in driving that wide range or is it just the broad economic uncertainty?

Connor Lynagh:

It does, thank you very much.

Christopher Glynn:

Thanks, good morning guys.

Joe Kelley:

Good morning.

Sundaram Nagarajan:

Yes, I think that is a business--if you remember, a number of years, a few years ago, we had exited our [indiscernible] barrels business but we kept some parts of the business that we really liked which had some long term trends, and so--and certainly we’ve had to address a number of cost structure issues in that business over the period of time. I have a great leadership team that’s taken us through that and has positioned the business to go after the best growth opportunities there, and so all that work has resulted in a pretty nice growth rate. Again, this is a business that we liked. There were parts of the business we liked and there were parts we did not like, but I think we’re in a place where this is a good business and it is growing nicely for us. I wouldn’t say this is our biggest strategic part of the company [indiscernible] medical growth and test and inspection growth, but it is a solid part of our portfolio. We really appreciate what the team has done in this part of the business to really reposition the business, and now it is growing.

Sundaram Nagarajan:

I would say a couple of things. There is certainly this whole trend around recycling, it’s a trend that is certainly benefiting this business. What we also see is in some parts of the business, there is some specialty film that is used in EV battery manufacturing that they have a pretty good customer base. Again, these are all small opportunities, Chris. I don’t want to make it to be significant, but it really has pretty nice momentum in these two areas and the team is doing--and there is some bio plastic materials also that the team is working on, so. Again, singles and doubles is the way you want to think about [indiscernible]. I think the bigger takeaway should be the company is, you know, with some incredible leadership from our teams, reposition [indiscernible] better place and growing.

Sundaram Nagarajan:

Yes, that business is--you know, it’s actually one of our most diversified applications. Quite frankly, [indiscernible] fluid dispensing applications to electronics dispensing applications to life sciences. That business wins with applications, so it’s pretty diversified. [Indiscernible] GDP kind of growth is what it typically does, maybe a little bit more if the electronics cycle is going strong for them. It’s a good business but a growing part of it is also life sciences.

Operator:

This does conclude the Q&A session of today’s call. I will now turn the call back over to Naga for any closing comments.

Operator:

This concludes the Nordson Corporation fourth quarter and fiscal year 2022 conference call. Thank you all for joining. You may now disconnect.

Lara Mahoney:

Thank you, good morning. This is Lara Mahoney, Vice President of Investor Relations and Corporate Communications. I’m here with Sundaram Nagarajan, our President and CEO, and Joseph Kelley, Executive Vice President and CFO. We welcome you to our conference call today, Tuesday, August 23 to report Nordson’s fiscal 2022 third quarter 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 14 days. There will be a telephone replay of the conference call available until August 30, 2022. During this conference call, references to non-GAAP financial metrics will be made. A reconciliation of these metrics to the most comparable GAAP metrics was provided 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. 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 Slide 3, Naga will discuss third quarter highlights. He will then turn the call over to Joe to review sales and earnings performance for the total company and the two business segments. Joe will also discuss the balance sheet and cash flow. Naga will then share a high level commentary about our enterprise performance, including an overview of the CyberOptics acquisition announcement. He will conclude with a review of the fiscal 2022 full year guidance. We will then be happy to take your questions. With that, I’ll turn to Slide 4 and hand the call over to Naga.

Joseph Kelley:

Thank you, Naga, and good morning to everyone. On Slide #5, you’ll see third quarter fiscal 2022 sales were a record $662 million, an increase of 2% compared to the prior year’s third quarter sales of $647 million. The increase was primarily related to 4% organic volume growth plus the NDC acquisition, offset by unfavorable currency impacts of 5%. On a constant currency basis, our sales increased 7% compared to prior year third quarter, which was the previous quarterly sales record. The organic growth was broad-based across most end markets and geographies except for Asia Pacific, which was impacted by the Shanghai, China COVID lockdowns for the first month and a half of this fiscal third quarter, as expected. We are very thankful for the outstanding efforts of our China employees as their return in full force helped to offset a significant portion of the lockdown impact and contributed to the record sales quarter. Gross profit for the third quarter of fiscal 2022 totaled $366 million or 55% of sales, a slight increase compared to the $365 million or 57% of sales in the prior year third quarter. Excluding one-time restructuring costs, adjusted gross profit totaled $368 million or 56% of sales. The team continues to actively manage the price-cost dynamic in these inflationary periods in addition to unfavorable currency impacts. Operating profit totaled $185 million in the quarter. During the quarter, we recorded one-time restructuring costs associated with a facility consolidation in the EFB division of the ATS segment and the closure of our Russian operations. Adjusted operating profit, excluding these non-recurring items, was $188 million in the quarter or 28% of sales compared to the strong prior year third quarter operating profit of $188 million. Organic sales volume leverage contributed to the operating profit result and was offset by unfavorable currency impact and inflationary pressures. EBITDA for the third quarter was $213 million or 32% of sales, which is ahead of our long-term target of 30%. Looking at non-operating expenses, other net expenses decreased $3 million primarily driven by lower non-operating pension costs and foreign currency exchange gains. Tax expense was $39 million for an effective tax rate of 21% in the quarter, which is in line with our prior year third quarter rate and the forecasted full year rate for 2022. Net income in the quarter totaled $142 million or $2.45 per share. Adjusted earnings per share, excluding severance and facility closure costs, totaled $2.49 per share, a 3% increase from the prior year. This improvement is reflective of the year-over-year increase in sales and, more importantly, the consistent application of the NBS Next growth framework which leads to steady, profitable growth. Now let’s turn to Slides 6 and 7 to review the third quarter 2022 segment performance. Industrial precision solution sales of $341 million decreased 1% compared to the prior year third quarter, but grew 5% on a constant currency basis, with the NDC acquisition providing a 7% sales increase which was offset by an organic volume decrease of 1%. The unfavorable currency impact on this segment was 7%. The organic 1% decrease needs to be properly interpreted as IPS’ third quarter 2021 was a very strong quarter, 10% above the quarterly average in fiscal 2021 as it was inclusive of several large system orders which customers pulled forward. Also, the IPS segment’s China operations are headquartered in Shanghai and therefore the segment was disproportionately impacted by the COVID lockdowns in May and June of this year. The organic growth, excluding these factors, was driven by robust demand for packaging and product assembly product lines in the food and beverage industry and industrial end markets in most geographies. Operating profit for the quarter was $120 million or 35% of sales, which is a decrease of 3% compared to the prior year operating profit of $124 million. Unfavorable currency negatively impacted operating profit despite comparable sales to the prior year record third quarter. Moving now to advanced technology solutions, sales were $321 million, a 7% increase compared to the prior year third quarter and sequentially beat the second quarter 2022 quarterly revenue record for this segment. The record quarterly sales included an increase in organic sales volume of 10% offset by unfavorable currency impacts. Growth was across all major product lines but particularly strong in the electronics dispense and biopharma fluid component product lines. All geographies contributed to this quarter’s growth with particular strength in the international regions. Third quarter fiscal 2022 results for ATS included $2.5 million of non-recurring facility closure expenses associated with the consolidation of manufacturing operations within the EFD division. This consolidation will enable improved operating efficiency and customer service levels to support the growth of this division once complete. Third quarter adjusted operating profit excluding the consolidation expense was $89 million or 28% of sales, an increase of 10% over the prior year operating profit of $81 million. The profit growth was driven by sales volume leverage offset partially by currency and inflationary pressures. This segment continues to deliver impressive sales growth at very attractive 40%-plus incremental operating profit margins. Deployment of our NBS Next growth framework continues to be a key element in the success of this segment delivering profitable growth. Finally turning to the balance sheet and cash flow on Slide 8, our third quarter balance sheet includes cash of $129 million and net debt was $675 million, resulting in a 0.9 times leverage ratio based on the trailing 12-months EBITDA. We continue to have significant available borrowing capacity to pursue organic and inorganic growth opportunities, such as the CyberOptics acquisition announced on August 8. Free cash flow in the quarter was $111 million or a conversion rate on net income of 78% as strategic investments are being made in inventory to address portions of the current supply chain constraints and increase capacity to address the growing backlog. Dividend payments were $29 million in the quarter and our board approved a 27% increase in the annual dividend effective in the fourth quarter of fiscal 2022. This marks the 59th consecutive year the company has increased its dividend. The significant increase of 27% reflects the strength of our financial results, which are driven by our continued progress in executing the Ascend strategy combined with the desire to maintain targeted payout and yield ratios. The annual dividend yield now will be slightly over 1% at current market prices. Also, with the ongoing market volatility, we again capitalized on the opportunistic repurchase of shares. Year to date, we have spent over $230 million on share repurchases averaging a price of $219 per share. For modeling purposes in fiscal 2022, assume an estimated effective tax rate of 21% and capital expenditures of approximately $50 million. I will now turn the call back to Naga.

Operator:

[Operator instructions] Your first question comes from the line of Allison Poliniak from Wells Fargo. Your line is open.

Sundaram Nagarajan:

Allison, we missed the earlier part of the question. If you don’t mind, could you repeat it? Maybe I missed it.

Sundaram Nagarajan:

Sure. In general, as we indicated and our results show, it was a very broad-based demand environment that we are experiencing today, and points of strength, as we indicated, electronics, medical. We also saw some really good strength and solid order entry, as well as revenue profiles in our industrial businesses, and our consumer-facing businesses in North America were particularly strong as well. As you think about orders, our comps are beginning to get difficult, right? If anything, that’s probably what you would see, but in general very solid in electronics, very solid in medical, pretty good strength in industrial, so.

Allison Poliniak:

Got it. And then the new segment structure that you put out there, I just recall ATS kind of before that push into medical was extremely volatile. How should we think of that volatility in ATS today? Is that test and inspection balancing some of that volatility that you’ve historically seen there?

Allison Poliniak:

Understood. Thank you.

Connor Lynagh:

Yes, thank you. I was wondering if we could dive in on the CyberOptics acquisition a little bit more. Could you maybe discuss the competitive positioning of the company, sort of why you found it to be an attractive target? And then the second portion of this, if you could just detail some of the cost synergies. It seems like that was a meaningful portion of the deal.

Joseph Kelley:

Yes. Thank you, Naga. Yes, so when you think about the $6 million of cost synergies, I would tell you there’s two main buckets. One is greater than 50% of those cost synergies are simply eliminating the public company costs. As you’re aware, CyberOptics is a public company, and so there’s some cost synergies there that are north of 50% of the total. The other one I would tell you is, when you look at Nordson’s global sales infrastructure, there’s opportunity there to leverage our physical infrastructure around the world to more efficiently support their existing sales force and start to leverage their presence in other geographies, and that’s the remainder I would tell you of the $6 million cost synergies.

Connor Lynagh:

Makes sense, thank you. I was wondering, just broadly speaking within this value chain, are there any other areas that you see as particularly high growth, particularly compelling for further capital allocation?

Connor Lynagh:

All right, thanks very much. I’ll turn it back.

Christopher Glynn:

Thank you, good morning. Congrats on the deal. Was curious on the longer cycle side of the business, you mentioned industrial markets along with electronics and medical, but in the industrial markets with the long lead time, large orders, I’m curious if you could kind of differentiate among your industrial end markets, where you’re seeing those long lead time, larger orders land.

Christopher Glynn:

Great, thanks. Just wanted to touch on the short cycle industrial space - you know, how you’re seeing the continuity there, particularly on some of the consumables, the OEM content that you sell.

Christopher Glynn:

Thanks for all the color.

Christopher Glynn:

Got you, thanks Joe.

Jeff Hammond:

Hey, good morning everyone.

Joseph Kelley:

Good morning.

Sundaram Nagarajan:

Yes, so let me take the electronics question first and then we’ll talk about that. In terms of electronics, what you’re beginning to find is that based on what we see with our customers, our sales model, which is a direct sales model so we have direct interactions with our--customers don’t have distributors in between, the order entry still looks pretty solid and still continues to be robust for our teams, both in the dispense side of the business as well as in test and inspection. The thing to remember is something that has changed about electronics and digital businesses is that now electronics is just not limited to consumer goods, right? Electronics is much broader, a bigger part--a significantly bigger part of how people conduct business. Think about the explosion in cloud, think about number of different technologies now have become a common part of doing business, be it a Zoom call or a Teams call. All of this has digital infrastructure behind it that needs to continue to be supported, so. Our teams find that our electronics businesses and the need for electronics in this digital economy is much more broader than it ever has been, and so that might be part of the explanation why we continue to see strength in electronics for a longer period than before - that is one, and the second is the complexity of these devices, semiconductors, there is a lot of work going on to ensure throughput and quality of these devices, and hence we see our test and inspection businesses benefit from this trend about--you know, not quite 100% but pretty darn close to more in line examination and inspection than offline sampling, so you see that benefit. From an electronics business, from what we can see, what we have visibility to do, and we do have a lot of visibility because of our direct sales model, we feel really good about where the business is at today. In terms of our customers and order pattern changing, we have not seen it normalize yet, that people are coming back now. In the past, we used to have backlog for a quarter ahead, but now we have several quarters in front of us, right, and I think unless--at least, this is just my personal perspective, as we resolve supply chain issues and people feel more confident about our supply chain, not just Nordson’s supply chain but global supply chain, this is not going to change, so until we have that, it is going to be this long dated orders is just people feeling I need to get my orders in line so that my project, which is going to come online in a year from now, doesn’t get delayed. You know, I wish I could give you a more clear answer, but that’s what we’re seeing. We continue to see our customers keep the same pattern that we have seen in the last four to six quarters, that still are reflected in this large backlog we have, and I have not seen it normalize yet.

Joseph Kelley:

Yes, shortly after filing our 10-Q, we’re going to issue a press release which will give you all the historical information financially for the new segments, going back quarterly 2019, ’20 and ’21, so [indiscernible] will be in that release.

Joseph Kelley:

Yes, I would just take and think about the [indiscernible] average in corporate expense on a quarterly basis is the run rate. That’s how I would think about that.

Joseph Kelley:

Thanks.

Saree Boroditsky:

Thanks, good morning. Just building on the last question on the new reporting structure, can you just talk through how you are thinking about the independent long term growth outlook for the medical and fluids business and then ATS, and then how should we think about incremental margins on the separate businesses?

Saree Boroditsky:

Great, thank you, and then you mentioned a facility closure in the quarter, I think in ATS. Would you expect to see a margin benefit from this closure, and could you quantify that for us?

Saree Boroditsky:

Great, and if I could just squeeze one more in, I think your earnings guidance still has kind of a wide range for the fourth quarter. Could you just talk through the assumptions at the bottom and top end of the range, and what would you need to see to hit the higher or lower end? Thank you.

Saree Boroditsky:

Great, I really appreciate the color. Thanks guys.

Pez:

Hey, good morning everybody. This is Pez [ph] on for Mike.

Pez:

Wanted to dig into the backlog a little bit. Just wanted to clarify - I believe you said backlog was up sequentially based on the commentary, and then also mentioned continuing to see the extended shipment dates. Previously they were booking several quarters out. Is that extending, is that shortening, is it about the same? Then also, could you maybe discuss the composition of backlog, maybe how that’s changed quarter-over-quarter?

Pez:

Then could you maybe discuss how that’s changed your visibility going into F2023? Obviously backlog is elevated versus prior years going into--sorry, calendar 2023, obviously backlog is elevated going into next year relative to prior years. Does that give you a little bit more comfort in the strength for the--excuse me, the sales conversion in the front half of next year, and does that give you a little bit more visibility on the front half?

Pez:

Great, thank you. That’s all helpful color. I’ll pass it on.

Operator:

Again if you would like to ask a question, press star and then the number one on your telephone keypad. Your next question comes from the line of Chris Dankert with Loop Capital. Your line is open.

Sundaram Nagarajan:

You know, if you just think about just the TAM for CyberOptics itself, it’s about $1.3 billion. There are two things very unique about CyberOptics. The 3D inspection is something that Nordson does not have, right? We have a small optical business, but really we buy CyberOptics MRS sensor to make 3D inspection happen for us, so really we’re already a customer of CyberOptics so we understand the capabilities of CyberOptics’ technology. Wafer-level inspection is a great opportunity, but in some of the wafer-level opportunity for CyberOptics really, they sell the critical component, which is the MRS sensor, to their customers who build the broader system, right, so it kind of resembles some of our other businesses where we sell the critical component into a major machine that one of CyberOptics’ customers markets, right, so that’s an example of it. Our interest in this business is that CyberOptics also sells 3D inspection systems in the back end. It is not just exclusively to the front end, right? The reason we highlight front end is that because we already do back end and middle end, we don’t do the front end, that’s really what we were trying to do, so it is not about that we want to move exclusively into front end or greater opportunities in front end, it is just and what we do in the back end, right, so that’s sort of how I think about it. The other exciting technology that CyberOptics brings to Nordson is very different, which is their WaferSense technology, which is an online monitoring of manufacturing systems in wafer production. That is completely new for us, and I think that again puts us in a place where it’s a small device but performs a very critical function, adds a lot of value, so two exciting technologies we bring with the company, continue to expand our test and inspection portfolio, and all rooted in this secular trend of things becoming smaller, things becoming more complex, and hence test and inspection becoming more in line, more 100% rather than sampling, so a good secular trend for us and adding more capability. You know, optical is--one more thing on optical inspection is that optical inspection is viewed as something that doesn’t impact the component it’s inspecting, so you think about our X-ray inspection, it impacts not the first time but after the tenth time, it would impact the component it is inspecting, but optical inspection, that does not happen, so inherently optical inspection continues to grow as an inspection method and we wanted to make sure that we have a presence in that space.

Joseph Kelley:

Yes, I would tell you if you look at our guidance for Q4 and what we just delivered in Q3, different than last year in the back half when you saw lumpiness in terms of our Q3 performance versus our Q4. It’s really starting to, I would say, level out. You also saw that in our strong Q1 compared to historically lighter Q1s if you go back several years, so from a lumpiness, I would tell you it’s started to level out as opposed to increase. There’s one other point I’d like to make as a little bit of follow-up on Saree’s question on our Q4 guidance and properly interpreting our Q3 results. When you look at Q3 profitability by segment, there were changes in inventory valuation related to switching from LIFO method to FIFO method and obsoleting older product lines. The net impact of the adjustment was immaterial to the consolidated Nordson results in the quarter, but when looking specifically at the segment profitability in Q3 2022, these adjustments favorably impacted IPS and unfavorably impacted ATS by about 100 basis points, so when thinking about our Q3 performance and forecasting into Q4, I think that’s important to understand despite the fact it was immaterial to the consolidated Nordson.

Operator:

Your next question comes from the line of Matt Summerville with DA Davidson. Your line is open.

Joseph Kelley:

Yes, maybe Naga, I’ll take the price versus cost - again, it was favorable in terms of we were successful in passing through the cost increase in terms of pricing, but it was negative impact from a margin standpoint because it’s not like remaining cost increase plus 56% on top of it, it was simply favorable from a pass through standpoint.

Matt Summerville:

Got it, thank you guys.

Sundaram Nagarajan:

Our continued performance reflects the strength of our differentiated precision technology, customer-centric model, and diversified end markets. Again, I want to thank Nordson’s employees for their perseverance and commitment which makes these results possible. The continued deployment of NBS Next and the Ascend strategy will ensure we remain well positioned in this dynamic environment. Thank you for your time and attention on today’s call. Have a great day.

Lara Mahoney:

Thank you, good morning. This is Lara Mahoney, Vice President of Investor Relations and Corporate Communications. I’m here with Sundaram Nagarajan, our President and CEO and Joseph Kelley, Executive Vice President and CFO. We welcome you to our conference call today, Tuesday, May 24 to report Nordson’s fiscal 2022 second quarter results. You can see both the 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 14 days. There will be a telephone replay of the conference call available until Tuesday, May 31, 2022. During this conference call, references to non-GAAP financial metrics will be made. A reconciliation of these metrics to the most comparable GAAP metrics was provided 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. 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 Slide 3, Naga will discuss second quarter highlights. He will then turn the call over to Joe to review sales and earnings performance for the total company and the two business segments. Joe will also discuss the balance sheet and cash flow. Naga will conclude with a high level commentary about our enterprise performance as well as our updated fiscal 2022 full year and third quarter guidance. We will then be happy to take your questions. With that, I’ll turn to Slide 4 and hand the call over to Naga.

Joseph Kelley:

Thank you Naga and good morning to everyone. On Slide No. 5, you’ll see second quarter fiscal 2022 sales were $635 million, an increase of 8% compared to the prior year’s second quarter sales of $590 million. The increase was primarily related to 7% organic volume growth and 4% from the NDC acquisition offset by currency headwinds, particularly the weakening of the euro. The organic growth was broad-based across most end markets and geographies except for Japan and China. China COVID-related lockdowns negatively impacted second quarter sales by approximately $20 million as our Shanghai facility was unable to ship products for five weeks and many of our customers and freight forwarders were unable to receive or ship products. We clearly view this impact to be temporary and it is beginning to resolve itself as the lockdown restrictions start to ease. Gross profit for the second quarter of fiscal 2022 totaled $358 million or 56% of sales, a 6% increase compared to the $338 million or 57% of sales in the prior year second quarter. The team continues to actively manage the price-cost dynamic in these inflationary periods and benefited from improved price realization compared sequentially to the first quarter of fiscal 2022. Looking at the year-over-year margin decrease of 100 basis points, this resulted largely from a change in sales mix at the segment level as ATS delivered double-digit organic growth compared to the low single digit organic growth of IPS, plus the systems sales growth exceeded parts growth. Operating profit was $184 million in the quarter or 29% of sales, an 11% increase from the prior year. Sales volume leverage and controlled spending contributed to the incremental operating profit margins of 38% in the quarter. Organic-only incremental operating profit margins were 70%, well ahead of our long term target of 40% to 45%. The NBS Next growth framework is clearly delivering tangible results. The strategic discipline element of the framework, which is a date-based view of the best opportunities in terms of customers, products and end markets, etc., this is driving improved sales mix within many of our divisions, resulting in strong growth and favorable incremental profit. EBITDA for the second quarter was $209 million or 33% of sales, well ahead of our long term target of 30%. Looking at non-operating expenses, the increase in other net expenses of $36 million includes the $41 million one-time non-cash pension settlement charge. As we referenced in the first quarter call, we successfully annuitized the portion of our U.S. defined benefit pension liability associated with retirees in payment status during the second quarter. This transaction settled an estimated $178 million pension liability in exchange for plan assets totaling only 96% of the projected liability, leaving the remaining pension liability over 100% funded. This transaction not only removes significant risk from the company for the long term but also reduced our future pension cash funding obligations. The remaining $5 million year-over-year benefit included in other net expenses primarily reflects foreign currency exchange gains and ongoing non-operating pension benefits associated with plan assumptions and a reduction in amortization of actuarial losses. Tax expense was $30 million for an effective tax rate of 21% in the quarter, which is slightly higher than the prior year’s second quarter but in line with our forecasted full year rate for 2022. Net income in the quarter totaled $110 million or $1.88 per share. Adjusted earnings per share excluding the non-cash pension annuitization charge totaled $2.43 per share, a 15% increase from the prior year. This improvement is reflective of the year-over-year increase in sales and more importantly the consistent application of the NBS Next growth framework, which leads to steady profitable growth with attractive incremental margins. Now let’s turn to Slide 6 and 7 to review the second quarter 2022 segment performance. Industrial precision solution sales of $316 million, an increase of 6% compared to the prior year second quarter. Organic volume growth in the quarter was 3% plus another 7% from the NDC acquisition. This was offset by unfavorable currency of 4%. IPS’ organic growth was driven by robust demand for polymer processing product lines plus steady broad-based growth in consumer non-durable end markets for hot melt adhesives dispensing in all geographies except China. COVID-related lockdowns in Shanghai negatively impacted this segment’s second quarter sales by approximately $15 million. Operating profit for the quarter was $102 million or 32% of sales, which is a decrease of 2% compared to the prior year operating profit of $104 million. Favorable sales volume leverage in the quarter was offset by unfavorable mix compared to the prior year second quarter as the majority of the growth was from polymer processing systems and the NDC acquisition. Moving now to advanced technologies and solutions, sales were $319 million, a 10% increase compared to the prior year second quarter, which is a new quarterly record for this segment. This change included an increase in organic sales volume of 11% offset by unfavorable currency impacts. Growth was across most major product lines but particularly strong in the electronics dispense, test and inspection, and biopharma fluid component product lines. All geographies with the exception of China contributed to this quarter’s growth with particular strength in the international regions. Second quarter operating profit was $98 million or 31% of sales. The 29% increase over the prior year operating profit of $77 million was driven by sales volume leverage and the realization of benefits from cost control measures taken in fiscal 2020 and early 2021. This segment continues to deliver impressive sales growth at very attractive incremental margins and the 31% operating profit in the quarter reflects a new record level performance for ATS. Deployment of our NBS Next growth framework continues to be a key element in the success of this segment delivering profitable growth. Finally turning to the balance sheet and cash flow on Slide 8, through our disciplined approach to capital deployment and strong operating profit growth, we ended the quarter with a healthy balance sheet and abundant borrowing capacity. Cash totaled $121 million and net debt was $670 million, resulting in 0.9 times leverage ratio based on the trailing 12 months EBITDA. Free cash flow in the quarter was $84 million or a conversion rate on net income of 77% as strategic investments are being made in inventory to address portions of the current supply chain constraints and support the growing backlog. During the second quarter, we paid $30 million in dividends and spent $105 million on repurchasing approximately 470,000 shares of company stock through our 10b5-1 repurchase plan. For modeling purposes in fiscal 2022, assume an estimated effective tax rate of 21% and capital expenditures of approximately $45 million. I will now turn the call back to Naga.

Operator:

[Operator instructions] Our first question today is from Matt Summerville with DA Davidson. Your line is open.

Joseph Kelley:

Yes Matt, thank you for the question. As it relates to our forecast and our guidance for Q3 and the lockdowns in the Shanghai region of China, we anticipate those to start to subside. We’ve had no shipments for five weeks in Q2 and so we’re starting to--things are starting to open up there, we’re starting to get people back in the factory, we’re starting to be able to ship. We’re not yet at 100% but we anticipate being 100% roughly by mid-June, so that is what’s included in our assumption.

Joseph Kelley:

Yes, so when you think about ATS, any given quarter there’s a handful of mix that will impact any results, so I don’t want to take one given quarter and say, annualize it. But I encourage us to look at the trend in ATS, and what you see going on over the last several quarters is consistently improving the profitability of that segment. It’s kind of like the driver there, Matt, is the comment that I said in the script in terms of NBS Next, is that segment not only does the cost control, which you referenced, but from a gross margin and a profitability standpoint and the strong incrementals is really coming from improving mix within each of the divisions in that segment, so if you think about NBS next and strategic discipline, which is a database framework to say, what are my best growth opportunities, as those individual divisions are focusing on those best growth opportunities, they generally are the higher margin opportunities, and so as we outgrow in those high margin product lines, regions, end markets, it’s improving the mix within those divisions. That’s what’s contributing to those favorable incremental margins in ATS, and we’re quite proud of that trend. I don’t know that I can say, hey, Q2 is now the ongoing run rate, but directionally that’s what you’ll continue to see.

Joseph Kelley:

Thank you.

Jeff Hammond:

Hey, good morning everyone.

Jeff Hammond:

Can you just talk about the durability of the growth you’re seeing in electronics and test and inspection? We’ve heard kind of a line of tough comps and the consumer starting to slow here around mobility, PCs, etc., and just wanted to get what you’re seeing on a go-forward basis.

Jeff Hammond:

Okay, great. That’s helpful. Then I just wanted to come back on this dynamic around the timing of the backlog and customers saying they want things a little bit later, because it seems like most of my other industrial companies have big backlogs and it’s more a function of we can’t get stuff out the door, and we’re--you know, the order rates are just outpacing what we can deliver. Yours just seems a little bit different, and I just wanted to understand why it shakes out that way.

Jeff Hammond:

Okay, thanks so much.

Allison Poliniak:

Hi, good morning. Just wanted to stick on that backlog theme. I know there’s certainly an extended backlog here. Is there a way to better understand the extent of that extension, meaning is it two weeks extended, is it a month, a quarter? Just any color there, and then just any thoughts on risk of cancellation in that backlog or double ordering, which I know is a concern of folks. Just any thoughts there, thanks.

Joseph Kelley:

Yes Naga, so Allison, we also track not just cancellations and are looking out for that, but also our customer prepayments, and as the majority of the backlog is comprised of systems and medical orders, as Naga mentioned, those systems orders come with customer prepayments, and those are up now north of $90 million, and so proportional to our systems backlog, the prepayments have also grown. We view the systems backlog piece as very solid as it relates to future shipments, and the visibility is out now several quarters whereas our traditional, I’ll call it non-systems heavy business, parts business, we see a modest uptick in the backlog but that is much more book-and-ship within a couple weeks, so that one is not out nearly as far.

Joseph Kelley:

Yes Allison, when you look at our performance going Q1 to Q2, actually our price realization was a little bit better than what we had anticipated going into Q2. It’s forecasted to continue to improve here in Q3 again as we work through the re-pricing and the long backlog, so it was favorable in dollar terms in Q2 and was forecasted to slightly improve as we head into Q3, so we feel pretty good about that. I will tell you it’s a very dynamic situation with all the different cost components and the inflationary pressures.

Operator:

Again if you’d like to ask a question, that’s star, one on your telephone keypad. Our next question is from Chris Dankert with Loop Capital. Your line is open.

Joseph Kelley:

You bet, Chris. Yes, let me comment, if I could, just on the quarterly split of our guidance here in the back half. If you think about our guidance, midpoint the back half is going to be up roughly 6% over the prior year. I will remind you in the prior year, Q3 was our strongest quarter and there was about $25 million worth of sales that we were able to get out in the electronics space in Q3 that was pulled forward based on a customer request from Q4 scheduled delivery into Q3. Q3 was strong, Q4 was sequentially softer last year, and so what you see this year is--you know, I would tell you 6% growth over the second half, but you’re right, it implies the fourth quarter is going to be stronger than the third quarter, so what you see there is heavy, again, visibility on the systems side and so a high degree of confidence on the system forecasting, and also as I mentioned in the first question, the China lockdown, and as that starts to moderate here and still impacts us a little bit in Q3, that will be a challenging Q3. So Q4 stronger than Q3, I wouldn’t get carried away with the quarter year-over-year growth rates and think about it more as 6% growth in the back half, and if you think about that broken down, I would tell you FX is about a 3.5% to 4% headwind, acquisitions is about a 3% to 4% tailwind, and so it’s really roughly 6% to 7% organic growth is what we’re forecasting in the second half, and good visibility on the systems side. Your question about supply chain constraints, and look, it is a dynamic environment, it requires us to get the material and be able to ship it, but we’ve been quite successful, I think, in delivering growth over the past five quarters, averaging greater than double digit organic growth, so I’m optimistic that we will be able to deliver that here in Q4.

Chris Dankert:

Got it, thank you both. That’s incredibly helpful color. Then not to pin you down, but I’m going to try and pin you down a bit here. Circling back to the ATS margin question, I guess in the past, mid-20s was kind of the EBIT margin target there. Is it fair to say that, hey, we’ve at least moved into a high 20s target cross-cycle here, or am I kind of overstepping on that?

Sundaram Nagarajan:

Hey Chris, sorry to interrupt you, but before we take and put it down, I wanted to add a little bit of color there just to make sure. We have materially improved the cost position, structure position in this business, so we feel really good about those gains. The only caution I would have for you--you know, two things. One is, as Joe mentioned, this is one quarter, and second I’d also say that we have--you know, we’re doing really well on the electronics business, which as you know has--the amplitude of the cycle has muted because of the diversification work we’ve done, but it is still a cycle, so we’re in a good part of the cycle, we have taken cost out, we’ve materially improved the position of the business well, we have mix help in there, so there are a number of contributing factors, so my caution would be let’s give it a couple of quarters here before we lock in a run rate.

Joseph Kelley:

Yes, quite simply there’s a lot of things going on there, and one of them also is the top line growth. I mean, this is a record sales quarter for this segment, and so as you think about driving that growth, you get that natural leverage as well, and so it’s not just the profitability, it’s also the growth that that’s delivering - I mean, 11% organic growth in the quarter despite all these challenges.

Joseph Kelley:

Well you see on the capex side in this business, we are making investments to expand capacity where needed to support this growth, particularly in the electronics space and then the medical space, which we’ve highlighted as the high growth areas. You see we spend--you know, although it’s a small number percentage speaking, but it is an increase, and $24 million on capex year-to-date, and so we continue to add capacity where needed, although it continues to be capital-light.