Nordson Q1 2024 Earnings Report

Nordson EPS Results

• Actual EPS: $2.21
• Consensus EPS: $2.03
• Beat/Miss: Beat by +$0.18
• One Year Ago EPS: $1.95

Nordson Revenue Results

• Actual Revenue: $633.20 million
• Expected Revenue: $630.77 million
• Beat/Miss: Beat by +$2.43 million
• YoY Revenue Growth: +3.70%

Nordson Announcement Details

• Quarter: Q1 2024
• Date: 2/21/2024
• Time: After Market Closes
• Conference Call Date: Thursday, February 22, 2024
• Conference Call Time: 8:30AM ET

Nordson (NASDAQ:NDSN) designs, manufactures and markets precision dispensing equipment and systems that apply adhesives, coatings, sealants and polymers in a broad range of industrial and medical applications. The company’s portfolio spans fluid systems, curing and surface preparation technologies, vacuum and thermal management products, and advanced test and inspection solutions. Nordson’s offerings serve critical manufacturing processes by delivering exacting dispensing accuracy and process control to ensure consistent product performance and high production throughput.

Nordson operates through multiple segments that cater to diverse markets including electronics, packaging, medical, energy, automotive and general industrial sectors. Its industrial precision solutions are used for automated adhesive application and coating operations, while its medical division develops devices and components for minimally invasive procedures, drug delivery systems and diagnostic applications. Test and inspection equipment rounds out the portfolio by providing nondestructive evaluation and quality assurance across high‐volume manufacturing lines.

Headquartered in Westlake, Ohio, Nordson maintains a global footprint with sales, engineering and manufacturing facilities across North America, Europe, Asia and Latin America. This wide geographic presence enables the company to support multinational customers and respond quickly to evolving regional market needs. Nordson’s ongoing investment in research and development helps drive continuous innovation in application technology and process automation.

Founded in 1954, Nordson has grown through a combination of organic expansion and strategic acquisitions that have extended its technology offerings and geographic reach. Under the leadership of President and Chief Executive Officer Jeffrey M. Jones, the company continues to focus on operational excellence, customer collaboration and sustainable product solutions that address the exacting demands of modern manufacturing environments.

Nordson Q1 2024 Earnings Call Transcript

Key Takeaways

• Strong Q1 results beat guidance with $633 M sales, adjusted EPS of $2.21 and a record free cash flow of $165 M (150% of net income).
• Advanced Technology Solutions sales fell 18% due to sustained electronics dispersion weakness, though cost actions limited margin decline with 32% decremental operating margins.
• Medical & Fluid Solutions grew 3%, driven by double-digit medical interventional growth, while Industrial Coatings & Polymer Processing delivered steady performance offsetting electronics headwinds.
• ARAG acquisition integration is on track, contributing ~5% revenue growth and boosting EBITDA margin in the precision agriculture end market.
• Full-year 2024 guidance refined to 4–7% revenue growth and 2–7% EPS growth; Q2 forecasts $645–670 M sales and $2.20–2.35 adjusted EPS, reflecting delayed semiconductor recovery and Chinese New Year impacts.

Presentation

[Operator]

Good morning. My name is Krista, and I'll be your conference operator today. At this time, I would like to welcome everyone to the Nordson First Quarter Fiscal Year 2024 conference call. All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question-and-answer session. If you would like to ask a question during that time, simply press star followed by the number one on your telephone keypad. If you'd like to withdraw your question, again, press star one. Thank you. I would now like to turn the conference over to Lara Mahoney. Lara, you may begin.

[Lara Mahoney, VP of Investor Relations and Corporate Communications at Nordson]

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 CFO. We welcome you to our conference call today, Thursday, February 22nd, 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 29th, 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.

[Lara Mahoney, VP of Investor Relations and Corporate Communications at Nordson]

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. Steve 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.

[Lara Mahoney, VP of Investor Relations and Corporate Communications at Nordson]

With that, I'll turn to slide 4 and hand the call over to Naga.

[Sundaram Nagarajan, President and CEO at Nordson]

Good morning, everyone. Thank you for joining Nordson's Fiscal 2024 First Quarter conference call. At the outset, I'd like to recognize the dedicated Nordson team who leveraged the NBS Next growth framework to deliver solid first quarter results. Sales of $633 million were near the top of our first quarter guidance range. This was driven by strong performance in our Medical Interventional, Industrial Coatings, and Polymer Processing product lines, which more than offset continued weakness in our electronics product lines. In addition, our focus on top customers and differentiated products improved product mix. This focus, in addition to simplifying and strategically adjusting costs, led to strong incremental margins resulting in adjusted earnings per share of $2.21. This exceeded our EPS guidance for the quarter. Finally, I'd like to highlight our first quarter free cash flow of $165 million, which was 150% of net income.

[Sundaram Nagarajan, President and CEO at Nordson]

This was a new first quarter record. I would also like to recognize the steady progress of our ARAG integration, which contributed to our sales and EBITDA margin performance in the quarter. We continue to be excited about the technology and precision agriculture end market as well as the engagement and energy of our new employees. I'll speak more about the enterprise performance in a few minutes, but first I'll turn the call over to Steve to provide detailed perspective on our financial results for the quarter.

[Stephen Shamrock, VP, Corporate Controller, and Interim CFO at Nordson]

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 reflects a combination of factors.

[Stephen Shamrock, VP, Corporate Controller, and Interim CFO at Nordson]

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 improvement. 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.

[Stephen Shamrock, VP, Corporate Controller, and Interim CFO at Nordson]

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 slides 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 Nonwovens businesses.

[Stephen Shamrock, VP, Corporate Controller, and Interim CFO at Nordson]

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 increased 3% compared to the prior year's first quarter, driven by another quarter of double-digit growth in our Medical Interventional Solutions product lines, offsetting softness in our Medical Fluid Components and Fluid Solutions product lines.

[Stephen Shamrock, VP, Corporate Controller, and Interim CFO at Nordson]

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.

[Stephen Shamrock, VP, Corporate Controller, and Interim CFO at Nordson]

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 1.8x 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.

[Stephen Shamrock, VP, Corporate Controller, and Interim CFO at Nordson]

Free cash flow was $165 million, a first quarter record, and $51 million improvement from the prior year. As a percentage of net income, free cash flow was 150% in the quarter. We strategically deployed this 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%-22%, capital expenditures of approximately $40 million-$50 million, and net interest expense of $74 million-$78 million. I want to thank the Nordson team for all of their efforts in delivering another strong quarter. We'll now turn to slide 10, and I'll turn the call back to Naga.

[Sundaram Nagarajan, President and CEO at Nordson]

Thanks, Steve. The Nordson team is getting off to a good start to the Fiscal 2024. As I traveled to our sites, I had the privilege of witnessing the impact of Ascend Strategy in building a stronger Nordson that is delivering robust operating performance. Nordson is sustaining market-leading positions in diversified end markets through our close-to-the-customer business model and differentiated precision technology. Now, NBS Next has become a new core strength and is manifested in how we operate our businesses. Using data, our teams have a crystal-clear view of the profitable growth opportunities in each division. Coupled with an entrepreneurial owner mindset, they are making choices on where they should prioritize growth as well as where they must simplify. For example, the Industrial Coatings team worked with a significant automotive customer on a new electric battery application.

[Sundaram Nagarajan, President and CEO at Nordson]

They worked closely with the customer and were able to meet its needs with a standard product. Our efforts to standardize top product configurations and eliminate complex customization drove agile execution, shortening lead times, and allowing them to be more responsive to the dynamic changes in customer needs. Our Medical Interventional Solutions team has identified its top products and implemented a visual demand-based manufacturing or Kanban-based manufacturing system for their products. This has led to significant improvement in their on-time delivery performance over the last six months. The team had a big win when one of our medical device customers placed a large order, and the team was able to respond quickly, serving dynamic changes in demand and delighting this top customer.

[Sundaram Nagarajan, President and CEO at Nordson]

As I mentioned at the beginning of the call, the decisions our teams are making to focus on top products serves our customers well, enhances our product mix, and improves our gross margins. In addition, their work on simplification resulted in strategic cost actions that contributed to our profitability in this quarter. It is exciting to see NBS Next becoming a competitive advantage for Nordson and how the steady deployment across Nordson is positively impacting our financial results. Our end markets are performing as expected at the start of our fiscal year. Industrial and consumer non-durable end markets are steady. The ARAG integration is going well, and the team contributed to our sales and EBITDA margin performance in the quarter. Our Medical Interventional Solutions product lines continue to grow double digits buoyed by trends in non-invasive surgeries and the aging population.

[Sundaram Nagarajan, President and CEO at Nordson]

We have now anniversaried the negative impact of biopharma destocking that was a headwind in Fiscal 2023. We're seeing modest pickup in order entry within the fluid components product lines, which we are monitoring closely. Our guidance does not expect any significant pickup in biopharma growth short term. Our product lines exposed to the semiconductor electronics cycle experienced a weaker demand as expected in the first quarter. We remain very positive about the growth opportunities driving the next electronics cycle, including AI, automotive electronics, onshoring, CHIPS Act, and more. While we fully expected to see benefits of those opportunities in the second half of calendar 2024, we now realize it may be closer to the end of the year. As the year progresses, we plan to provide investors with better visibility to what we are seeing in the market.

[Sundaram Nagarajan, President and CEO at Nordson]

Through all of this, our ATS leaders have done a very good job of implementing the NBS Next growth framework and positioning themselves for future growth. This includes positioning operations closer to the customer, focusing on differentiated product innovation, and making strategic cost adjustments. ATS' ability to outperform their decremental targets in the quarter is a testament to this work. Turning now to our outlook on slide 11. We enter the second quarter with approximately $750 million in backlog. This backlog remains concentrated in our systems businesses, while customer order entry patterns have returned to historical norms in the rest of the businesses. Based on current visibility and order entry trends, we are narrowing our previously issued full-year revenue growth to 4%-7% over record Fiscal 2023. Full-year Fiscal 2024 earnings are forecasted to be in the range of 2%-7% growth per diluted share.

[Sundaram Nagarajan, President and CEO at Nordson]

This full-year guidance continues to assume a neutral impact from FX rates and the ARAG acquisition contributing approximately 5% growth at the midpoint of guidance. While we have raised the low end of our guidance, the lower midpoint of the range now assumes recovery of the semiconductor electronics end markets begins in the fourth quarter of Fiscal 2024. For the second quarter of Fiscal 2024, sales are forecasted to be in the range of $645 million-$670 million, with adjusted earnings in the range of $2.20-$2.35 per diluted share. Second quarter guidance considers weaker electronics end markets and the impact of the Chinese New Year shutdown. Before we open our call for questions, I wanted to recognize two new additions to our board of directors.

[Sundaram Nagarajan, President and CEO at Nordson]

In January, we welcomed Chris Mapes, Executive Chairman and recently retired President and CEO of Lincoln Electric Holdings, as well as Director at A.O. Smith and The Timken Company. Chris brings a wealth of global operations, M&A, and industrial experience to our board. Throughout his career, Chris has demonstrated a track record of operating performance improvement and shareholder value creation. Earlier this week, we announced the appointment of Annette Clayton to our Board, effective April 1st. Annette is the Chairwoman and former President and CEO of Schneider Electric North America. Her career grew from production floor experience at General Motors to global operations and supply chain leadership at Dell Technologies to her leadership at Schneider, which focused on digital automation and energy management. In addition to her global operations and technology industry experience, Annette has direct familiarity with Nordson's differentiated products and value propositions.

[Sundaram Nagarajan, President and CEO at Nordson]

Both Chris and Annette will bring unique insight and value to our board of directors. We look forward to benefiting from their counsel as Nordson continues to grow and scale through the Ascend Strategy. As always, I want to thank our customers, shareholders, and the Nordson team for your continued support. With that, we will pause and take your questions.

[Operator]

As a reminder, if you would like to ask a question, please press star followed by the number one on your telephone keypad. Your first question comes from the line of Matt Summerville from D.A. Davidson. Please go ahead.

[Matt Summerville, Managing Director and Senior Research Analyst at D.A. Davidson]

Thanks. A couple of questions. First, on the ATS business, what sort of transpired in the last since the last call that has kind of prompted you to push out, Naga, if you will, a quarter or so? The inflection that you've been talking about in electronics and semiconductor, and similarly, what gives you confidence that we're going to see something materialize this year?

[Sundaram Nagarajan, President and CEO at Nordson]

Yeah. Thank you, Matt. In a couple of things. What we would tell you is the demand or shipments for ATS in the quarter was as expected, weaker as we had expected. The order entry has not picked up as we had hoped. The inflection in order entry, which is sort of the precursor to having shipments in the following quarters. That is really what has happened in our thinking, is that this cycle inflects maybe a quarter later than what we had hoped. 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.

[Sundaram Nagarajan, President and CEO at Nordson]

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 the 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. A couple of early indicators. Finally, what I will tell you is that our opportunity pipeline for projects with conversations with customers still remains robust. Nothing really has been shelved or put away. So order entry has not turned yet. That is probably the takeaway you could have.

[Sundaram Nagarajan, President and CEO at Nordson]

We have enough evidence in the business to feel strongly about how second half plays out for this business. Maybe I'll stop there and.

[Matt Summerville, Managing Director and Senior Research Analyst at D.A. Davidson]

Yeah. Yes. No. Thanks for the call, Naga. Just as a follow-up, sticking with ATS, it sounded like in your prepared remarks that you saw maybe a fairly broad weakness across the segment, maybe implying that the test and inspection investment cycle you've been seeing the last 18 months or so is starting to roll over. Is that the proper conclusion to be drawing here? Thank you.

[Sundaram Nagarajan, President and CEO at Nordson]

Yeah. In terms of the test and inspection, we have had some very robust growth in the last cycle and past our dispense business. 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. Yes, it does go through a cycle, and comps are also in its way.

[Matt Summerville, Managing Director and Senior Research Analyst at D.A. Davidson]

Thanks, Naga.

[Sundaram Nagarajan, President and CEO at Nordson]

Thank you.

[Stephen Shamrock, VP, Corporate Controller, and Interim CFO at Nordson]

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

[Allison Poliniak-Cusic, Senior Equity Analyst and Managing Director at Wells Fargo]

Hi. Good morning.

[Sundaram Nagarajan, President and CEO at Nordson]

Good morning.

[Allison Poliniak-Cusic, Senior Equity Analyst and Managing Director at Wells Fargo]

I just want to turn to MFS. I guess we had a little turn to 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 expect to achieve that at some point going forward. Just any thoughts there?

[Sundaram Nagarajan, President and CEO at Nordson]

Yeah. MFS has returned to growth. To your question about do we see any structural changes in our own position or the landscape, the answer is no. If you look at our Medical Interventional business, it is growing double digits, continues to grow double digits. We expect this business to continue to grow high-single digits. What you have in MFS is these Medical Fluid Components, which had the biopharma exposure last year, was a significant decline, right? That significant decline essentially put MFS in a negative growth last year. That is an anniversary, right? What we are beginning to see is a modest pickup in order entry in this business, not from biopharma but from other end markets this business serves. We serve patient care, we serve surgical applications, and we see pretty good order entry there.

[Sundaram Nagarajan, President and CEO at Nordson]

That is what you're seeing in terms of over time, what you're going to find is have MFS return to high single digits. You have the fluid solutions business in there as well, which has a broad, diversified exposure beyond medical. That business is also tied a little bit to electronics, and we're beginning to see some pickup there.

[Allison Poliniak-Cusic, Senior Equity Analyst and Managing Director at Wells Fargo]

Got it. Then IPS, I think you talked about order 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?

[Sundaram Nagarajan, President and CEO at Nordson]

IPS, steady. Order entry is steady, pretty good. Look, we've been growing in this business for 11 out of 13 quarters. I mean, pretty remarkable growth. Order entry is normalized. What we mean is that order entry patterns are similar to pre-COVID. That's what we mean by that. What we also see is that you have strong backlog in big system business like our Industrial Coatings product line and our Polymer Processing product line that will essentially help us get through this year. Then it is good to remember ARAG is in this segment, and it's going to contribute 5% to our organic growth this year. We feel really good about IPS.

[Sundaram Nagarajan, President and CEO at Nordson]

The way to think about it, if I were to summarize the two questions, one from Matt and from you, I would tell you IPS, steady, ARAG contributing 5% to the growth, MFS return to growth, pretty nice growth. Then ATS, we are expecting that we will start to recover in the fourth quarter of this year. If you put all of that together, that is sort of what we have in terms of at the midpoint, about 5% revenue growth in the top line.

[Allison Poliniak-Cusic, Senior Equity Analyst and Managing Director at Wells Fargo]

Great. Thanks so much.

[Sundaram Nagarajan, President and CEO at Nordson]

Thank you.

[Operator]

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

[Saree Boroditsky, SVP of Multi-Industrials Sector at Jefferies]

Hi. Good morning.

[Matt Summerville, Managing Director and Senior Research Analyst at D.A. Davidson]

Good morning, Saree.

[Stephen Shamrock, VP, Corporate Controller, and Interim CFO at Nordson]

Good morning.

[Saree Boroditsky, SVP of Multi-Industrials Sector at Jefferies]

I believe book-to-bill was below one again this quarter. When would you expect this to turn positive, and how do you think about backlog levels as you exit this year?

[Sundaram Nagarajan, President and CEO at Nordson]

Yeah. 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-$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? 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 growths are based on those order entry rates.

[Stephen Shamrock, VP, Corporate Controller, and Interim CFO at Nordson]

Yeah. Maybe another data point I'd add too, Saree, as well, just to Naga's comments. I mean, if you think about the backlog, we consumed about $200 million last year for the full year as we transitioned more to a normalized environment. Q1, we consumed about $50 million. We're still on that, I'll say, normalized pace, so.

[Saree Boroditsky, SVP of Multi-Industrials Sector at Jefferies]

Okay. Thanks for the color. You noted 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-$20 million impact. Would that still be the right way to think about the shift for this year? Thanks.

[Stephen Shamrock, VP, Corporate Controller, and Interim CFO at Nordson]

Yeah. No, Saree, what I would tell you, I think about the second quarter and the guidance we gave, and the timing of the Chinese New Year, I'd say, is roughly about a $10 million-$15 million impact. That's what we're seeing. If you really think about that right, the guidance that we gave for the second quarter here at the midpoint, we've got sales growth of 1%, which would imply negative organic growth of 4% because, again, we're still expecting ARAG to contribute 5% and FX to be neutral. If you think about that, that's about half of that negative organic growth is coming from the Chinese New Year, so. Obviously, we had the opposite effect in Q1 as well, right? Even on a quarter-to-quarter basis, the organic growth rates in Q2 are not as bad on the surface as they look based on that.

[Saree Boroditsky, SVP of Multi-Industrials Sector at Jefferies]

I appreciate the color. Thank you.

[Operator]

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

[Michael Halloran, Associate Director of Research and Senior Analyst at Baird]

Hey. Good morning, everyone.

[Sundaram Nagarajan, President and CEO at Nordson]

Good morning.

[Stephen Shamrock, VP, Corporate Controller, and Interim CFO at Nordson]

Good morning.

[Michael Halloran, Associate Director of Research and Senior Analyst at Baird]

Just want to follow up on that last comment there. Maybe you could talk about the seasonalities you think of the year here, right? I think this is the first year that I can see in my numbers that wasn't up sequentially, at least double digits, if not handsomely in the double-digit level. I get the Chinese New Year impact. I get that you're shifting the semiconductor recovery to the back half of the year, just making sure there's nothing else going on that's unusual in the second quarter. Then when you get to the back half of the year, can you help that cadence thing and maybe help us out relative to normal seasonality?

[Michael Halloran, Associate Director of Research and Senior Analyst at Baird]

In other words, are you shifting that significant kind of sequential uptick into the third quarter, or is this more steady in the third quarter versus 2Q and then a more sizable uptick in the fourth quarter?

[Stephen Shamrock, VP, Corporate Controller, and Interim CFO at Nordson]

Yeah, Mike. I'll start with that from that perspective. I mean, if you look at the second quarter guide there, right, what I would tell you is what you're not seeing, again, is the weakness in the electronics end market, right, that's also weighing down the second quarter as well in the ATS segment, right? 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. 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.

[Michael Halloran, Associate Director of Research and Senior Analyst at Baird]

Okay. Then could you just talk about the trends within ARAG and what the expectation is there? Well, that's thinking kind of the impact you've already given that. I'm more thinking what are the underlying trends you're seeing? How does that compare on more of an organic basis and any context on that side?

[Sundaram Nagarajan, President and CEO at Nordson]

Mike, that was on ARAG, right? You were breaking.

[Michael Halloran, Associate Director of Research and Senior Analyst at Baird]

Yes, sir.

[Sundaram Nagarajan, President and CEO at Nordson]

Okay.

[Michael Halloran, Associate Director of Research and Senior Analyst at Baird]

Yes, sir.

[Sundaram Nagarajan, President and CEO at Nordson]

All right. Thank you. On ARAG, I'll make a couple of broad comments. Hopefully, I will answer the questions because I had little trouble hearing you completely. 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. 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? Many of these parts are short-life replacement cycle businesses like nozzles that need to undergo more periodic replacement.

[Sundaram Nagarajan, President and CEO at Nordson]

If you think about it, they sell mostly critical, low-cost components for their customers, which drive efficiency and reduce usage of material, costly fluids like fertilizers and chemicals, right? 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. From that perspective, even when you defer a large CapEx spend, you definitely try to update and continuously be 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.

[Michael Halloran, Associate Director of Research and Senior Analyst at Baird]

Yeah. No, the broad overview, all that makes sense. I think the question was a little bit more geared to just current trends and how you're seeing those trends materialize in the market?

[Sundaram Nagarajan, President and CEO at Nordson]

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

[Michael Halloran, Associate Director of Research and Senior Analyst at Baird]

Yes, sir, because I certainly understand the contribution you're expecting, the 5%. I certainly know the prepared remarks, and I understand the long-term component to it. I think just more the short-term dynamics, particularly because you're hearing of some slowdowns in Europe, and just curious how that's impacting you, knowing that you do have a sizable offer.

[Sundaram Nagarajan, President and CEO at Nordson]

Yeah. 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. 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.

[Michael Halloran, Associate Director of Research and Senior Analyst at Baird]

Appreciate it. Thank you.

[Sundaram Nagarajan, President and CEO at Nordson]

You're welcome.

[Operator]

As a reminder, if you would like to ask a question, please press star one on your telephone keypad. Your next question comes from the line of Andrew Buscaglia from BNP Paribas. Please go ahead.

[Andrew Buscaglia, Senior Analyst of U.S. Industrial Technology at BNP Paribas]

Hey. Good morning, guys.

[Sundaram Nagarajan, President and CEO at Nordson]

Good morning.

[Andrew Buscaglia, Senior Analyst of U.S. Industrial Technology at BNP Paribas]

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

[Sundaram Nagarajan, President and CEO at Nordson]

Yeah. Probably two interrelated items that you mentioned, Andrew. First, on the UV and the electronic packaging barrels, that's happening right now. They are smaller parts of the company, but they're very good early indicators because they serve. If you think about an electronic manufacturer or a finished device manufacturer, you're going to pick up the slack by increasing your manufacturing consumables, right? You're not buying new lines, but you're increasing the usage of your existing lines. You would normally see that in our consumable barrels packaging businesses. That's what you're seeing, and we're seeing it right now. On the UV lights, it's the same way. We sell to people who make equipment that goes in the front end of a semiconductor.

[Sundaram Nagarajan, President and CEO at Nordson]

Again, a small business, but a good early indicator that our customers, who essentially play in the front end of the market, and Nordson doesn't play much there. It's a new opportunity for us, but it is early for us. Those two are early indicators. That's what I meant by that. In terms of our backlog, in a couple of our test and inspection businesses, we have customer orders in place for shipments in third and fourth quarter. That is in our backlog. Those are system backlog that is in the business that gives us confidence for a portion of the third and the fourth quarter shipments, right? We do still expect order entry to pick up to fully deliver on the ATS expectations we have, so.

[Andrew Buscaglia, Senior Analyst of U.S. Industrial Technology at BNP Paribas]

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

[Sundaram Nagarajan, President and CEO at Nordson]

Yeah. Yeah. I think of Ascend and NBS Next as a growth framework rather than a cost play. In terms of where we are, look, when you sort of implement and deploy a growth framework across a company, think about this was all organically put together and built within the company. Three years, in my opinion, is still the early innings, right? What you're trying to do, NBS Next is now becoming the way we run the company, operate the company. You're just beginning to see the benefits of the strategy being effective. In terms of if you think about where are we at in terms of each of our divisions using it, I would say three or four divisions delivering what we call leadership-level performance. These are very specific metrics of quality, on-time delivery, new product vitality, customer growth, employee engagement.

[Sundaram Nagarajan, President and CEO at Nordson]

There are like five metrics within the company, I would say, and we call them leadership-level performance. We have about four of our divisions at leadership level in most of those metrics. We have six or seven very closely following. What you're beginning to see is the impact of NBS Next and the Ascend Strategy that is beginning to show up in our business. IPS is a great example of that, right? These were some of a couple of the big divisions in IPS were the first places where we implemented the strategy. You can begin to see the performance on the organic growth side. Our expectation is we are focused on growing the company organically, innovation, top customer growth. Clearly, we will have solid incrementals, right? Our expectation on organic growth is 40%.

[Sundaram Nagarajan, President and CEO at Nordson]

By virtue of that, you're going to see some margin expansion, but that's not where we start.

[Andrew Buscaglia, Senior Analyst of U.S. Industrial Technology at BNP Paribas]

Got it. Yeah. Very helpful. Thanks, Naga.

[Sundaram Nagarajan, President and CEO at Nordson]

You're welcome.

[Operator]

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

[Jeffrey Hammond, Managing Director and Equity Research Analyst at KeyBanc Capital Markets]

Hey. Good morning, everyone.

[Sundaram Nagarajan, President and CEO at Nordson]

Good morning, Jeff.

[Jeffrey Hammond, Managing Director and Equity Research Analyst at KeyBanc Capital Markets]

Hey. Back on this Chinese New Year, is that pretty broad across the segments, or is that going to be more focused in electronics?

[Andrew Buscaglia, Senior Analyst of U.S. Industrial Technology at BNP Paribas]

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

[Jeffrey Hammond, Managing Director and Equity Research Analyst at KeyBanc Capital Markets]

Okay. Then, Naga, just on biopharma, it sounds like the destocking is behind us. I mean, that's what we're hearing, I guess, from some of the people in that space. It doesn't sound like you're seeing any real order intake. As you talk to that customer base, what's kind of the visibility for that to start to inflect?

[Sundaram Nagarajan, President and CEO at Nordson]

Yeah. I think the way to think about it is rather than give 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. That's what we're seeing in our businesses. As we talk to our customers, in general, what we're 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. 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, most of our biopharma customers will place blanket orders. That has changed. We no longer get blanket orders.

[Sundaram Nagarajan, President and CEO at Nordson]

Instead, we get more regular book-and-ship kind of business. That has changed. We are still working through this. The more interesting part is we have some pretty nice growth in patient care. We have some pretty good growth in surgical applications. 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 transitioned 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.

[Jeffrey Hammond, Managing Director and Equity Research Analyst at KeyBanc Capital Markets]

Okay. Appreciate the color.

[Sundaram Nagarajan, President and CEO at Nordson]

Sure.

[Operator]

We have no further questions in our queue at this time. I will now turn the call back over to Naga for closing remarks.

[Sundaram Nagarajan, President and CEO at Nordson]

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. The 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.

Participants

Executives

• Lara Mahoney, VP of Investor Relations and Corporate Communications
• Stephen Shamrock, VP, Corporate Controller, and Interim CFO
• Sundaram Nagarajan, President and CEO

Analysts

• Allison Poliniak-Cusic, Senior Equity Analyst and Managing Director at Wells Fargo
• Andrew Buscaglia, Senior Analyst of U.S. Industrial Technology at BNP Paribas
• Jeffrey Hammond, Managing Director and Equity Research Analyst at KeyBanc Capital Markets
• Matt Summerville, Managing Director and Senior Research Analyst at D.A. Davidson
• Michael Halloran, Associate Director of Research and Senior Analyst at Baird
• Saree Boroditsky, SVP of Multi-Industrials Sector at Jefferies