Good morning. My name is Krista and I will 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 speakers' remarks, there will be a question-and-answer session. [Operator Instructions] I would now like to turn the conference over to Lara Mahoney. Lara, you may begin.

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.

Good morning, everyone. Thank you for joining Nordson fiscal 2024 first quarter conference call. At the outset, I'd like to recognize the dedicated Nordson team who leverage 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. 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 few minutes, but, first, I'll turn the call over to Steve to provide detailed perspective on our financial results for the quarter.

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…

Thanks, Steve. The Nordson team is getting off to a good start to the fiscal 2024. As I travel 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. 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. 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,…

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

First, on the ATS business, what sort of transpired since the last call that has kind of prompted you to push out, Naga, if you will, third quarter, 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: 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.

Just as a follow-up, and sticking with ATS, it sounded like in your prepared remarks that you saw maybe fairly broad weakness across the segment. Maybe you're implying that the test and inspection investment cycle you've been seeing last 18 months or so is starting to roll over? Is that the proper conclusion to be drawing here?  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.

Your next question comes from the line of Allison Poliniak from Wells Fargo, please go ahead. Hi, good

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?  Sundaram Nagarajan: MFS has returned to growth. And 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. And we expect this business to continue to grow high single-digits. What you have in MFS is this medical fluid components which had the biopharma exposure, last year was a significant decline, right? And so, that significant decline essentially put MFS in a negative growth last year. But that is anniversaried. And so, 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. And so, 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. And you have the fluid solutions business in there as well, which has a broad diversified exposure beyond medical. And so, that business is also tied a little bit to electronics and we're beginning to see some pick-up there.

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?  Sundaram Nagarajan: IPS, steady. Order entry has steadied pretty good. But, look, we've been growing in this business for 11 out of 13 quarters. I mean, pretty remarkable growth. So, 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 process product line. That will essentially help us get through this year. And then it is good to remember ARAG is in this segment and is going to contribute 5% to our organic growth this year. So we feel really good about IPS. So the way to think about it – if I were to summarize the two questions, one from Matt and from you, I will tell you, IPS steady, RI contributing 5% to the growth, MFS return to growth, pretty nice growth. And then ATS, we are expecting that we will start to recover in the fourth quarter of this year. So 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.

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

I believe book-to-bill was below 1 again this quarter. So when would you expect this to turn positive? And how do you think about backlog levels as you exit this year?  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.

And maybe another data point I'd add to there as well, just to Naga's comments, 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. And in Q1, we consumed about $50 million. So, we're still on that, I'll say, normalized pace.

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?

What I would tell you, as 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 to $15 million impact. That's what we're seeing. And 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%. 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. Obviously, we had the opposite effect in Q1 as well, right? So even on a quarter-to-quarter basis, the organic growth rates in Q2 is not as bad on the surface as they look based on that.

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

Just want to follow up on that last comment there. Maybe you could talk about the seasonality as you think of the year here, right? I think this was 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. So 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. When you get to the back half of the year, can you help us with that cadence thing and maybe help us out relative to normal seasonality? In other words, are you shifting that significant kind of sequential uptick into the third quarter? Is this more steady in the third quarter versus 2Q and then a more sizable uptick in the fourth quarter?

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.

Can you just talk about the trends within ARAG and what's the expectations there? Just 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 in any context?  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.

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

Yes, sir. Because I certainly understand the contribution you're expecting, the 5%, certainly in the prepared remarks. I understand the long term component to it. I think just for the short term dynamics, particularly because [indiscernible] just curious how that's impacting you to knowing that you do have a sizable [Technical Difficulty].  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.

[Operator Instructions]. Your next question comes from the line of Andrew Buscaglia from BNP Paribas.

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?  Sundaram Nagarajan: 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 – so 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. And so, 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 light is the same way. We sell to people who make equipment that goes in the front end of the semiconductor, again, a small business, but a good early indicator that 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. So those two early indicators, that's what I meant by that. In terms of our backlog, in 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. So, those are system backlog that is in the business that gives us confidence for a portion of the third and the fourth quarter shipments. And we do still expect order entry to pick up to fully deliver on the ATS expectations we have.

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?  Sundaram Nagarajan: 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. So three years, in my opinion, is still early innings. So what you're trying to do – NBS Next is now becoming the way we run the company, operate the company. So you're just beginning to see the benefits of the strategy being effective. So 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. So there are 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. So 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. And IPS is a great example of that. These were some of the – a couple of the big divisions in IPS were the first places where we implemented the strategy and you can begin to see the performance on the organic growth side. So, our expectation is we're focused on growing the company organically, innovation, top customer growth. Clearly, we will have solid incrementals. Our expectation on organic growth is 40%. So by virtue of that, you're going to see some margin expansion, but that's not where we start.

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

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

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

Naga, just on biopharma, it sounds like the destocking is behind us. That's what we're hearing, I guess, from some of the people in that space, but 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: 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.

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

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.

This concludes today's conference call. Thank you for your participation and you may now disconnect.