The operator introduces the Nordson Corporation Third Quarter Fiscal Year 2024 Conference Call and reminds participants that all lines are on mute. After the speakers' remarks, there will be a question-and-answer session. Lara Mahoney, Vice President of Investor Relations and Corporate Communications, introduces the presenters and directs participants to where they can find the press release and webcast slide presentation. She also mentions that the call is being broadcast live and will be available for replay. She notes that non-GAAP financial metrics will be referenced and provides a disclaimer about forward-looking statements. The agenda for the call is also outlined.

During the third quarter earnings call, Dan will discuss sales and earnings performance for the total company and three business segments, as well as the balance sheet and cash flow. Naga will provide an update on the end market and fiscal 2024 guidance. The Atrion Medical acquisition was closed and will expand Nordson's portfolio and addressable market. The company's strong operating results were driven by the NBS Next growth framework, with sales in line with expectations due to growth in the IPS segment and acquisitions, offset by softness in electronics and lower demand in medical businesses.

The company's focus on top customers and differentiated products led to improvements in gross margins and top quartile EBITDA margin. Adjusted earnings per share were higher than expected and the company generated strong cash flow. The third quarter sales were in line with guidance, with growth from the ARAG acquisition and certain divisions offsetting softness in others. Gross profit remained strong at 56% of sales, and the company is using its NBS Next growth framework to improve product mix and manufacturing efficiency.

In the third quarter of 2024, the company's EBITDA adjusted for special items was $208 million, slightly below the previous year due to higher selling and administrative costs and increased net interest expense. Net income for the quarter was $117 million, excluding non-recurring costs and amortization of acquisition-related intangibles. Adjusted earnings per share were $2.41, a 6% decrease from the prior year. The Industrial Precision Solution segment saw a 10% increase in sales, with 7% contributed by the ARAG acquisition and 4% from organic growth. This segment has delivered organic growth in 13 of the last 15 quarters.

In the third quarter, the EBITDA for the IPS segment increased by 10% to $135 million, driven by the ARAG acquisition and strong organic sales growth. This marks the 14th out of 15 consecutive quarters of EBITDA growth for the segment. Medical and Fluid Solutions sales decreased by 2%, with lower demand in medical interventional solutions and fluid components product lines. EBITDA for this segment was $62 million, a 9% decrease from the previous year. Advanced Technology Solutions sales decreased by 11%, primarily due to a 10% decline in organic volume. Despite these challenges, the segment has consistently delivered EBITDA margins above 35% in 14 of the last 15 quarters.

In the third quarter, segment sales increased over 8% sequentially and there was a modest improvement in order intake. EBITDA was $26 million, lower than the previous year due to a decrease in volume, but favorable mix and cost reduction actions helped achieve a 41% decremental. The company's balance sheet remains strong with cash on hand of $165 million and net debt of $1.3 billion, resulting in a leverage ratio of 1.6 times. After the acquisition of Atrion, net debt will rise to $2.2 billion and the leverage ratio will increase to approximately 2.5 times. The company plans to refinance the term loan and has over 50% availability on its revolver. Free cash flow generation was $143 million during the quarter.

In the third quarter, Nordson reduced debt, paid dividends, and repurchased shares while also investing in growth. They announced their 61st year of increasing annual dividends and had a solid quarter. The company is well positioned to close out the year. The Industrial Precision Solutions segment saw steady performance in industrial and consumer non-durable markets, with nonwovens picking up. The Medical and Fluid Solutions segment is facing caution from medical device customers in inventory purchases.

The company is seeing lower demand in certain product lines outside of biopharma but remains confident in the long-term growth drivers in this market. Near term, they expect softness in medical product lines due to challenging year-over-year comparisons. However, their ATS segment is expected to benefit from increasing demand for advanced chips and is beginning to see an increase in order entry. The company has approximately $650 million in backlog and expects the ATS segment to return to growth in 2025.

The company is maintaining its previously issued revenue guidance for fiscal year 2024, with the addition of Atrion expected to increase base sales by $30 million in the fourth quarter. Adjusted earnings per share are expected to be in the range of $9.45 to $9.65, with a neutral impact from foreign exchange rates. The company's core strengths, such as a diversified portfolio and commitment to innovation, allow it to perform well in varying economic conditions. The company will provide an update on its long-term growth plans and capital deployment strategy at an upcoming Investor Day. The first question from the call focused on the decline in margins at Atrion since 2022.

Sundaram Nagarajan discusses the decline in margins for the business due to supply chain issues, but believes they can return to Nordson-like margins. He also mentions growth in the test and inspection products, specifically in the optical and acoustic product lines, driven by new products, cyclicality, and their use in the semiconductor manufacturing process. This business continues to have strong year-on-year growth. Matt Summerville from D.A. Davidson asks a question.

Canyon Hayes, filling in for Matt Summerville, asks about Nordson's implied guidance and how it compares to previous quarters. Daniel Hopgood explains that the company's thoughts on organic growth are in line with their underlying guidance and the year is playing out as expected. Canyon then asks about the impact of external factors on Nordson's business and how it may affect their outlook for 2025. Sundaram Nagarajan responds by highlighting the company's diversified portfolio and steady growth in their IPS segment.

The company expects their IPS segment to remain steady due to high recurring revenues and an increase in order entry for nonwovens. They also see some small wins in other end markets. The ATS segment is showing signs of improvement, but the company is being cautious. The Medical and Fluid Solutions segment is facing tough comparisons to last year and weak order entry due to cautious supply chain teams.

The speaker is optimistic about the long-term prospects of the business due to strong growth drivers such as an aging population and increased procedure volumes. They are actively engaged in project conversations with customers and are working on new product development. The recent acquisition of Atrion is expected to further expand the addressable market. However, there has been some normalization or destocking in the medical interventional segment, which has led to slower growth compared to the previous year. The speaker cannot predict when this trend will change, but procedure volumes remain high.

The speaker discusses in-sourcing in the medical device industry and its impact on the company. They mention regulations and approvals that make it difficult to predict when the industry will turn. They also mention their recent acquisition of Atrion and provide some broad information about its revenue and EBITDA margins. They expect to achieve synergies in two years.

The speaker discusses the potential for achieving synergies using NBS Next and predicts that the business will return to Nordson-like EBITDA margins in 2026. They also mention that the recent acquisition is in line with their expectations and they will provide more information on next year's guidance in the next quarter. In response to a question about conservative orders in the interventional side of the business, they explain that this is due to tough comps and a desire to carry less inventory, which may lead to destocking in the near-term. They also note that the business grew significantly last year, which is higher than its typical growth rate.

The company is experiencing a period of adjustment due to changes in the industry, but they believe that long-term growth is still possible. They are seeing some slowness in the market, possibly due to tough comparisons and cautious order patterns from medical device customers. The EFD business is doing well with encouraging order entries from electronics customers in Asia.

In this paragraph, the speaker is discussing the company's plans for M&A and their commitment to organic growth and disciplined financial criteria for acquisitions. They also mention their healthy pipeline and their target leverage of 2-2.5 times, with the ability to quickly delever due to their strong cash flow profile. The speaker also mentions their recent acquisition of Atrion and their readiness to make future deals.

The CFO of a company has been in the position for a quarter and believes that the best opportunity for the company is to focus on organic growth rather than squeezing margins. The company's margins and cash flow are healthy, and the CFO sees potential for growth both organically and through acquisitions. During a conference call, the CFO was asked about the stable low-single-digit outlook for the company's industrial goods business and provided some color on the geographic regions and growth areas. The CFO also mentioned that this is the fourth year of implementing NBS Next and that it has already been implemented in the IPS division and will be implemented in other divisions in the future.

The company operates in a diverse set of end market niches, and the teams are agile in shifting resources to different markets as demand changes. NBS Next helps them have clarity and steady performance. Some markets may experience growth while others may not, but overall the company is focused on growth by understanding their best customers and market opportunities.

The market conditions for Nordson are constantly changing, but the company's Ascend strategy, NBS Next growth framework, and division-led structure have helped them stay successful. The company's core strengths, such as diversified end markets and high-recurring revenues, have contributed to consistently high EBITDA margins. The US market has been the strongest, while Asia and China are recovering due to the electronics business. Europe is experiencing weaker organic growth, but parts revenues are still strong.

The speaker discusses the backlog of the company and how it has changed over time. They mention that historically, the backlog was around $400-450 million, but due to recent growth, the expectation for a normalized backlog is different. They also note that customer order patterns have changed, with faster delivery times becoming the norm. The current backlog of $640-650 million is still weighted towards system businesses, but regular businesses have returned to normal order entry and backlogs.

The company is experiencing a decrease in backlog, which is primarily due to a decline in the system business. The performance of the ARAG business has been strong, with Nordson-like EBITDA margins. The team is focused on new product development and maintaining relationships with key customers to prepare for the eventual recovery of the market. The integration of ARAG into the company has been successful, and the team is adapting to the company's operations and NBS Next. The current market conditions are challenging, but the company remains optimistic about the future.

Naga and Christopher Dankert discuss the company's focus on technology development and their upcoming Investor Day on October 3rd, 2024. The company's long-term profitable growth strategy remains strong. The call concludes with closing remarks from Naga.

This summary was generated with AI and may contain some inaccuracies.