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spk01: Ladies and gentlemen, thank you for standing by and welcome to the Northland Corporation's first quarter fiscal year 2021 conference call. At this time, all participants are in a listen-only mode. After the speaker's remarks, there will be a question and answer session. If you would like to ask a question during that time, please press star 1 on your telephone keypad. I would now like to hand the conference over to Lara Mahoney. Thank you. Please go ahead.
spk04: Thank you. Good morning. This is Laura Mahoney, Vice President of Investor Relations and Corporate Communications. I'm here with Sundaram Nagarajan, our President and CEO, and Joseph Kelly, Executive Vice President and CFO. We welcome you to our conference call today, Tuesday, February 23, 2021, to report Norton's fiscal 2021 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 forward slash 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, March 2nd. 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 was provided in the press release issued yesterday. Before we begin, please refer to slide two 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 Norton'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 three, Naga will discuss first 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 also will talk about the balance sheet and cash flow. Naga will conclude with high-level commentary about our enterprise performance, as well as our fiscal 2021 full-year guidance. We will then be happy to take your questions. With that, I'll turn to slide four and hand the call over to Naga.
spk06: Good morning, everyone. Thank you for joining Knotson's fiscal 2021 first quarter conference call. Knotson was well positioned as we entered fiscal 2021. Our COVID-19 safety measures and protocols have ensured we continue to operate safely in this environment. This has allowed us to be agile and responsive to the needs of our customers who serve a very diverse set of end markets, including consumer non-durable, medical, electronics, and general industrial. During 2020, we remained invested in what makes Norton strong, the direct sales model and our innovative precision technology portfolios. Additionally, we were successful in advancing several aspects of our long-term growth strategy. Using the NBS Next growth framework, our employees have been investing their resources in our best opportunities for profitable growth. While this remains a dynamic macroeconomic environment, our team has delivered a very solid first quarter on both the top and bottom lines. It is noteworthy that our first quarter sales and profits are about both fiscal 20 and fiscal 2019 comparisons. In particular, our industrial precision solutions team delivered strong year-over-year growth benefiting from improvements in consumer non-durable and industrial end markets. They also achieved profit margin expansion as volume leverage, improved sales mix, and manufacturing efficiency gains all combined within the quarter. In the advanced technology solution segment, our test and inspection product lines continue to grow. Advancements in technology are causing electronics customers to shift from sampling to 100% inspection, and we are benefiting from this trend. And our medical fluid components product line delivered double-digit organic growth, largely driven by biopharmaceutical applications such as tamper-proof packaging for vaccine delivery. As the first quarter progressed, we were encouraged by the order entry momentum that we are starting to see in the product line serving the broader medical and electronics end markets. We're particularly pleased to see the profit margin expansion ATS delivered on modest growth as the strategic actions taken throughout 2020 to right-size the cost structure of several businesses within this segment delivered the desired results. I'll speak more about the business in a few moments. But first, I'll turn the call over to Joe to provide a more detailed perspective on our financial results for the quarter. Thank you, Naga, and good morning to everyone. On slide number five, you see first quarter 2021 sales were $527 million, an increase of 6% over prior year's first quarter sales of $495 million. The increase was primarily related to organic volume and favorable currency, with additional benefits from the Floortec and VivaMoss acquisitions. The organic growth was driven by strength in consumer non-durable and industrial end markets, plus particular strength in the Asia region. Gross profit totaled $290 million, or 55% of sales, in the quarter, compared to $263 million, or 53% of sales, in the prior year. This 190 basis point increase in gross margin was driven by the combination of volume leverage, improved sales mix, and benefits from structural cost reduction measures taken in fiscal 2020. It is noteworthy that 55% is the highest quarterly gross margin since the third quarter of fiscal 2018. Operating profit in the quarter was $109 million or 21% of sales, a 39% increase from the prior year adjusted operating profit of $78 million. It is here in the operating profit growth rate that you see additional benefits from the fiscal 2020 cost reduction efforts. as SG&A decreased 4% from the prior year first quarter level of $188 million. EBITDA for the quarter was $135 million, or 26% of sales, which is 26% higher than the prior year EBITDA of $107 million. Looking at non-operating expense, Net interest expense decreased $3 million, or 28%, from the prior year levels, associated with reduced debt levels and a lower effective borrowing rate. Other expenses increased $2 million, largely driven by currency translation losses associated with the weakening of the U.S. dollar. Tax expense in the quarter totaled $20 million, or an effective tax rate of 21% in the quarter. Net income in the quarter increased year over year 49% to $78 million or $1.32 per share. This significant growth is reflective of a 6% increase in sales as well as benefits from cost control measures and efficiencies driven by the NBS Next Growth Framework. Additionally, the first quarter of 2020 included a pre-pandemic cost structure, and therefore profitability was lower. Now let's turn to slide six and seven to review the first quarter 2021 segment performance. Industrial precision solution sales of $288 million increased 9% compared to the prior year first quarter. The organic volume increase of 6% was driven by strong demand and flexible packaging and nonwoven product lines, as well as industrial and markets. A strengthening euro and RMB also contributed to 3% in currency benefits during the quarter. Operating profit in the segment was $83 million, or 29% of sales, compared to $57 million of adjusted operating profit in the prior year period. This 47% profit growth was driven by sales volume leverage favorable sales mix, improved manufacturing efficiency, and lower year-over-year SG&A, including reduced travel expense. Advanced technology solution sales of $238 million increased approximately 3 percent compared to the prior year first quarter. This change included an increase of approximately 2% related to acquisitions, as well as currency gains of 2%. These benefits were offset by a decrease in organic sales volume of 1%. The lower organic sales volume was a mixture of increased demand for testing inspection, medical fluid component, and fluid dispense product lines, offset by continued softness in the medical interventional solutions and certain electronic dispense applications. It is particularly encouraging to see the return to growth in our fluid dispense product lines serving industrial and automotive end markets. First quarter 2021 operating profit for the segment was $47 million. or 20% of sales. This increase of 450 basis points over prior year adjusted operating margin of $35 million or 15% of sales was driven by favorable sales mix and the realization of benefits from cost control measures taken in fiscal 2020. Finally, turning to the balance sheet and cash flow on page 8. We again end the quarter with a very strong balance sheet and significant available borrowing capacity. Cash totaled $226 million, and net debt was $794 million, ending the quarter with a 1.3 times leverage ratio based on trailing 12 months EBITDA. Free cash flow in the quarter was strong at $135 million, a 32% increase above the prior year free cash flow, for a conversion rate on net income of 175%. Higher net income and working capital liquidation contributed favorably to the free cash flow in the quarter. I'll now turn the call back to Naga. Thank you, Joe. Let's turn to slide nine. First, I want to thank the team for delivering a very strong first quarter. Over the past two months, Joe and I have been actively engaged in business reviews and virtual facility tours around the world. I'm very excited about the energy within our divisions and the steady deployment of the NBS Next Growth Framework whether that is in how teams are organizing data to fuel decision-making or the prioritization of best products in the manufacturing processes. We're also seeing the strategic analysis of product lines to identify the best growth opportunities and filling the sales funnel with these targeted accounts. One tangible result from the strategic discipline element of NBS Next was seen on February 1st, 2021, as we successfully closed the divest share of our screws and barrels product line. Our decision to divest this product line was based on critical insights gained from the NBS Next data-driven segmentation approach. While this business is a respected leader in the plastics industry, It did not fit Norton's profitable growth objectives. By divesting this business, we will focus our resources on growing more profitable product lines that will deliver on our long-term objectives. We believe our remaining PPS division has the right degree of differentiation and related technical competitive advantages to deliver over time Nordstrom-like growth and returns. I would like to take a moment to recognize recent changes to our Board of Directors. At the end of November, we welcomed Dr. John DeFord, the Executive Vice President and Chief Technology Officer of Becton Dickinson and Company, and Jennifer Parmentier, Vice President and President of the Motion Systems Group of Parker Hannifin to our Board of Directors. John's technical and regulatory experience in the medical device and market will enrich the strategic perspective of our board as we continue to grow in this attractive market. Jenny brings strong operational, industrial, and M&A experience to the board, which will be important as we continue to deploy our NBS Next Growth Framework. John and Jenny's appointments follow the retirements of Joe Keithley, Randy Carson, and Lee Banks. I would like to thank Joe, Randy, and Lee for their many insights and contributions throughout their time on the board. Our board now stands at nine directors, 56% of whom are diverse. The average tenure is now seven years. I would also like to remind you of our upcoming Virtual Investor Day, the morning of March 30th. We will share more about the ongoing deployment of NBS Next as well as our long-term strategic priorities and financial goals. We will also use this time to give investors a better understanding of our strong competitive advantage, differentiated product portfolio, and diversified end markets and growth drivers. Please visit our website to register. Now for the outlook on slide 10. As we exit the fiscal first quarter, backlog was approximately $495 million, an increase of 7% compared to the same period a year ago. Trailing 12-week order entry is above prior year levels across the majority of our product lines and geographic regions. These very positive indicators suggest continued year over year sales growth, despite the diverse share of the screw and barrel product line. For full year fiscal 2021, we expect sales growth to be approximately 4 to 6% over fiscal year 2020, excluding the 3% headwind from the revenue of the divested Stools and Barrels product line in the prior year, our forecasted full-year sales growth would be approximately 7% to 9%. Our forecasted sales growth, combined with strategic actions taken around efficiency and cost, is forecasted to deliver earnings in the range of $6.30 to $6.70 per diluted share. The midpoint of this guidance reflects 19% earnings growth compared to prior year. While it remains a dynamic environment and business conditions are changing frequently As the world responds to the challenges of COVID-19 virus and its variants, we are confident in the diversity of our end markets and the strength of our backlog. Nordsten is well positioned to deliver on the needs of our customers. As always, I want to thank our customers, employees, and shareholders for your continued support. With that, we will pause and take your questions.
spk01: At this time, we'd like to take any questions you may have. To ask a question, please press star 1 on your telephone keypad. Your first question is from Terry Borjewski with Jefferies. Your line is open.
spk03: Hi, thanks for taking my questions. So sales guidance, I guess, implies around 5% growth for the remainder of the year, which is slightly below one quarter despite having some easier comparables. So could you just talk about if there's anything that you're seeing in the market that makes you more cautious on improving growth rates?
spk06: Joe, you want to take that? Yes. So when you think about our sales guidance for the remainder of the year, you have to consider that we have the divestiture of the screw and barrel business. So excluding the divestiture of the screw and barrel business, it's just a 7% to 9% growth rate when you look at our guidance. Now, I will remind you, you know, that is comparable to our Q1 growth rate, excluding the screw and barrel business, which was over 7%. And entering the Q2, our backlog is approximately 500 million, which is approximately 7% above when we entered Q2 last year. Now, a little bit further color, we mentioned Q1 was strong, particularly in Asia. When you look at the timing of Chinese New Year, it's important to understand that Chinese New Year fell into Q1 in the prior year, whereas this year it falls into Q2. So that'll be a little bit of a headwind in Q2. When you look at our guidance, the range from an incremental margin standpoint, it would suggest that the remainder of fiscal 21 would be in the incremental margins from the mid-40s to about 55%. That is a lower incremental margin than the 97% that we delivered in Q1. But when you think about it, going forward in 21, there's a couple issues that make the comparisons more challenging. One is You know, we started taking cost out in 2020, you know, throughout the year. And so from a cost structure standpoint, the Q1 was a much easier comparison than Q2 and Q3 as we took those actions throughout the year last year. The other issue I would tell you is incentive comp, which naturally behaves variable. And last year, particularly in Q2, the incentive comp, our SG&A included a reversal of the long-term incentive comp that had been accrued. So that'll be a particular headwind in Q1, I'm sorry, in Q2 to the incremental margins. And then the other thing is as volumes continue to recover, uh travel expense uh should come back as we continue to be invested in our direct sales model and so that'll near closer to historical levels so these headwinds i would tell you going forward uh is what has the incremental margins dropping uh from the 97 you just saw in q1 down to about the mid 40s to 55 is what the guidance would suggest And so these headwinds are being offset clearly by the divestiture of the screw and barrel business, which will improve margins, and the continued benefits as we deploy MBS next throughout the organization.
spk03: Thanks. That's a lot of great color. And then more of a high-level question. There's been a lot of semiconductor capacity announcements out there. Could you just talk about how you could benefit from this expansion activity? And if you've seen any of this flow through your order right now. Thank you.
spk06: Yeah, Sari, that's a great question. As we have talked about semiconductor devices and the opportunities for Norton, this is an area of particular strength for the company. Clearly, we see advantages for us in the testing inspection as well as our dispense business. What you find is there are two things going on here. With semiconductor device demand increases, you're going to get capacity additions. Those capacity additions will take the form of both dispense product lines as well as testing inspection product lines. But in the shorter term, you're going to find more testing inspection because our customers, you know, it takes a little bit of time to bring on new capacity. But what they are really spending a lot of time is using testing inspection to improve yields that will, you know, help them meet some of the accelerating demand. So very excited about this. This is a great opportunity for the company, well-positioned to win here. So if you have any additional questions, I'll be happy to answer them.
spk03: I guess one more then. You know, you talked about renewed growth in the auto end market. Can you just talk about what you're seeing in that space and then how Norton can benefit from increasing capex and facilities for EVs? And thank you.
spk06: Yes. On the EV side, you know, clearly where, you know, this is an emerging market for us and an emerging opportunity. Where we find the greatest opportunities are in the battery manufacturing. So if you think about batteries, they're put together many different ways. One of the ways is, you know, you're combining multiple cells. So we have a lot of opportunity in manufacturing. manufacturing of the battery. That is one way. The second is that you could think about a tester inspection. A tester inspection business definitely benefits from power electronic components like IGBTs, which, you know, are increased in demand, becoming more complex, and hence, you know, we have an opportunity here both to benefit in battery as well as in electronic components.
spk03: That's great color. Thanks for taking my questions today. Thank you.
spk01: Your next question is from Matt Somerville with the Davidson. Your line is open.
spk05: Thanks. A couple questions. Um, you know, maybe just back to test inspection. Naga, if you were to use a baseball analogy in terms of how much in line testing is being performed and how much runway is in front of that business, what meaning would you say we're in with what you're seeing in T and I right now?
spk06: TNI, 100% inspection is early innings. So you see that a lot in auto electronics. You're beginning to see some of that in semiconductor, but clearly early innings.
spk05: And then just maybe one on corporate expense. In the fiscal first quarter, I think it was some $8 million above the prior year. That seemed unusually high. Can you talk about what drove that variance and what sort of quarterly run rate we should be utilizing going forward? Thank you. Hey, Joe, you want to take that?
spk06: Yes. The increase – When you look year over year, as I mentioned in some of my comments, it's from incentive comp. And so while that was a tailwind last year, it's a headwind this year. And so from a year-over-year standpoint, that's what you see driving some of the corporate expense increase. When you think about it from a full-year run rate, historically that fluctuates between $50 million on an annualized basis and call it $65 million depending on performance. on it. Thank you.
spk01: Your next question is from Allison. Your line is open.
spk02: Hi, guys. Good morning. Just going back to the semi-challenges that are happening right now, I know you talked specifically to that market, but are you hearing or any sort of project delays related to maybe your other electronics and market? You know, auto comes to mind just given some of the plant closures that have been happening lately. Any color there?
spk06: Yeah, sure, Allison. No, we've not really heard a lot in terms of – if you remember, we are more involved in setting up the line in platform launches. We're not really in the direct production line, which is sort of where you're seeing some of the delays. So, no, we do not anticipate any delays, have not noticed any. But what we are seeing is pickup in expectations from specifically auto electronic customers who are looking to ramp up capacity by increasing yield. And so you see that in just inspection growth.
spk02: Got it. That's helpful. And then just looking at leverage, you know, obviously a very, you know, healthy range for you. As we're sort of hopefully getting out of this COVID, the COVID challenges, you know, any thoughts or changes to how what you would view as an optimal leverage range for Northam going forward here?
spk06: Yeah. You know, we ended the quarter at approximately 1.3 times leverage. We continue to be very comfortable at leverage ratios higher than that. And, you know, when you think about two to three times leverage, we would be comfortable. We have the capacity to go up based on our current debt structure to 3.75 times. But as we look at it and look at the opportunities, We do continue to prioritize M&A and would be looking to take that leverage ratio up closer to the two to two and a half range to support that.
spk02: Great. Thank you. I'll pass it along.
spk01: Your next question is from Chris Bankard with Longville Research. Your line is open.
spk06: Hey, good morning, guys. Good morning to you.
spk05: I guess, Joe, definitely appreciate the comments around incremental and how guidance moves forward from here. But I guess to dig in a little bit on IPS specifically, 1Q, typically the low watermark for IPS margin, 29% is quite impressive, I guess. Is that level of margin execution repeatable? Do we build from here for the rest of the year? Is flat good performance? If you could put that 29% margin number in context, that'd be really helpful.
spk06: Yeah. You know, part of what we see going on here is this acceleration of demand in Q1, I think, makes some of our normal seasonality a little bit in question. Perhaps this acceleration overrides the normal seasonality you would see throughout the year. But specifically related to that 29%, you know, they had a very, very favorable mix, particularly parts volumes were up. uh and and there was nice leverage going on it was in that business where we did take some cost out if you recall the cost action there in q4 which was delivering benefits here in q1 to the cost structure but when you think about that segment going forward the divestiture of the screw and barrel business uh will you know provide further margin improvements uh to that so when you think about it going forward the margins there should expand you know, off of this, what you referenced as a very high watermark here in Q1.
spk05: Got it. And not to press my luck too much here, but I guess, are you willing to break out what the impact of mix was on the quarter?
spk06: Yeah, we're not willing to, I mean, you referenced the 29% was a very high watermark. We haven't seen that since back in 2019. And so we're pleased with the profitability levels back there at this lower range. A lot of it is coming from the improvement in the mix within the business. So if you think about NBS Next, and as we focus on our most profitable opportunities really that has allowed us not just to take cost out but also to drive an improvement in the sales mix uh and so that's that's what you see in that 29 percent got it i got it chris one more that i would add is that if you think about the volume the volume leverage in this business is really good and so we had a pretty strong volume growth that helped us deliver some pretty nice incrementals So you've got an accelerated recovery that is helping us, and as you go into the out-quarters, that volume is going to come down a bit. But we're comfortable with the current margin rates, but I think it's important to remember the volume play here as well.
spk05: Yeah, thank you for that, Collin. I really appreciate it. And I guess one last one for me. What is the FX benefit assumed in guidance? Historically, FX swings can be fairly significant. Just any comment on FX and kind of what you're baking in here would be great.
spk06: Yeah, FX in the quarter proved to be more favorable than we had originally anticipated. And so for our forecast, we are assuming the current exchange rate is maintained throughout the remainder of the year. And so that benefit should continue. It starts to moderate a little bit on a year-over-year basis in Q4.
spk05: But that should still be, and not to pin you down, but about a 2% to 3% benefit for the full year at current rates, correct?
spk06: You are correct. Got it. Thanks so much. Yep.
spk01: Your next question is from Christopher Glenn with Oppenheimer. Your line is open.
spk06: Thank you. Good morning, guys. I was curious, a couple questions on IPS. Wondering if any markets or production processes that you serve are currently showing any nice shifts to adhesive-centric assembly from, you know, stitch or fasteners. Of course, a couple of things. First and foremost, the core adhesive business is pretty strong. One of the areas that we're beginning to see some really nice pickup is in electric vehicles and in battery manufacturing. It's an area that we continue to benefit from. Ongoing automation across a wide variety of applications is also beneficial to this business. Think about adhesive dispensing allowing our customers to automate their manufacturing processes. We see a lot of benefit there. Not any particular one end market or the other, but I would say a broad set of end markets. Clearly, you know, consumer electronics, interestingly enough, as you have some wearables and other new consumer opportunities. So if you think about our adhesive business, really it has grown mainly through new applications, a big lever, and that is pretty strong, and we continue to benefit from automation. So the two things I would tell you on a big driver would be battery, and number two, automation. Okay, thank you for that. And wondering, relative to the two segments within your organic outlook, do you see ATS kind of pulling up to where IPS started the year and kind of coupling the type of organic growth you expect for the balance of the year? Yeah. You know, what we really – let me give you some end market trend and then joke and add some color to how we're thinking about the actual growth rates. Yes. You know, what we expect is in the back half, you know, there are two things here. One is – If you know our medical business, you know, as COVID eases and as electrosurgery has come back, we certainly expect our medical business to get back to the high single-digit rates in this back half of the year. So that's one big driver for us. Second is, you know, you begin to see some very strong electronic orders in our business today that will show up in the second half as a growth driver for us. So those two will certainly help our APS business. You know, one thing is not... One thing we have not talked about is that, um, you know, our medical fluid component business, which is primarily driven by bio farm applications has a solid growth in the quarter. We expect that to continue that continued strength in the out quarters. It's a big, you know, it's a small business today, but we are very excited about this opportunity. This is really because of all of the single use components. Sounds great. Thanks. Just the last one, if I can sneak it in. The FX impact on the top line, does that still sort of drop through as a two to three times multiplier to the earnings impact? Yeah, so the FX to the bottom line, you know, our cost structure, you know, aligns, I would say, with our sales structure quite well. in terms of, you know, the FX, Euro-denominated and GBP-denominated costs as well as revenue. So that does flow through. There is a little bit of a margin expansion within our IPS business when you see the dollar weaken against the Euro and the GBP. Thanks for the call.
spk01: Again, if you'd like to ask a question, please press star 1 on your telephone keypad. Your next question is from Andrew Buscala with Bernberg. Your line is open.
spk06: Morning, guys. Good morning. Good morning. I just want to touch on ATS. So, you know, I thought we would see that turn to growth, you know, just given a difficult, you know, your overall guidance really for organic growth isn't quite that high if you exclude FX. It doesn't really seem to be assuming much of a snapback in ATS in the back half.
spk05: So I'm just trying to figure out, is this you just being conservative or the ATS segment hasn't quite grown what you say can grow two to three times GDP in three years now. So
spk06: Where can you give some investors some confidence that this growth is coming? Or is this conservatism? Yeah, so I guess when you think about the growth rate of 4% to 6% and going forward, it's important that excluding the divestiture, again, it's 7% to 9%. And so if you think about FX, that would suggest you know, three or sorry, four to 6% organic in that range. So just, so we're clearly, I guess, like the components. So that's what we're suggesting. And right. Well, yeah, go ahead. No, no, no, you go ahead. Yeah. And, you know, one of the things that I would add to you is that on the atheist side, you know, as COVID eases our medical business, you know, today is primarily flat because COVID declined, COVID related surgery declined. putting a damper on our component business, but offset by a very strong growth in biofarm. But as COVID eases in the back half, we do expect this business to get back to high single digits in the back half. So the ATS, what we're baked in is we're expecting medical to come back. We certainly, on the electronic side, it is important for you to remember that You know, broadly, not in place in high precision applications. You know, what we are really good at is testing inspection is growing nicely for us. So that is baked in to our outlook as we have forecasted it today. Customization continues to grow, and if you think about electronic dispense business, we are seeing some pretty nice order entry that is starting to grow in the second half. Maybe level set here on the electronics dispense side of our business. If you think about our electronics dispense business, what we're really good at is high-positioned, reliable dispense at very high speeds. That's what we're good at. And this has great application across a broad category of electronic end markets, not specifically one particular product category like a smart form or other things like that. What we are finding is that the demand is pretty high for this level of position, driven by all of this digital acceleration that you're seeing, driven by automotive electronics. And so what we really like here is is that we have a new team in place that is using NBS Next and looking at opportunities. Clearly, what we are seeing is that mobile phone manufacturing has matured. It has matured, and hence, these applications don't require the level of precision that is needed. And so we've got a new team re-looking at this opportunity. But more focused around semiconductor packages, more focused on the digital acceleration across a broad spectrum of end markets. And, you know, we're confident that this business gets back to mid-single digits growth, and you'll start to see some of that in the second half of the year. Go ahead.
spk00: Yeah.
spk06: you know, when you think about our growth rate organic of let's call it four to 6%, don't forget that in 2020, you know, our sales only dropped about three to 4%. So, you know, the drop off from 19 wasn't as significant as others. So therefore the bounce back opportunity is not as significant as others. Yeah, and I think, you know, You said you sound like China had a good, you know, as expected, it was pretty strong. But Q2, it's going to be a little dampened over there.
spk05: But, you know, I guess exiting the year in the second half, presumably all three regions, China, Europe and U.S.
spk06: You know, it sounds like those all have to be you're assuming those are all growing in tandem exiting 2021. you know, just, I guess, you know, based on easy comps and the pandemic lifting. Yeah.
spk05: Is there any other, like, regional, I guess, regional color you can provide, you know, that would?
spk06: No, Andrew, I think you kind of covered, if anything, what I would tell you is that Asia is strong today. Europe is flat organically. We do expect that to change. U.S. is starting to strengthen, but right now it was slightly low in the first quarter. But I wouldn't add anything more than what you've already captured there. Okay. All right. Thanks, guys.
spk01: Your final question is from Walter Littak with Seaport. Your line is open.
spk06: Hi. Good morning, guys. Good morning. Good morning. How are you? I wanted to ask about the NBS Next. Can you maybe elaborate a little bit about the cost savings that you got that benefited this quarter versus the benefits from NBS Next? Is it possible to differentiate one from the other? No, I mean, it's really not. Because when you say, you know, the cost savings that we referenced, I think at several points, you know, when you step back and think about our cost actions, it was all driven by the strategic discipline within our NBS Next Growth Framework. And so as we focus on the best growth opportunities, we stayed invested in those opportunities so that we could capitalize on that. And then where there weren't the best growth opportunities, You know, that is where we took action to the right size, I would say, our cost footprint, or in the example of the screw and barrel divestiture, you know, improve our profitability there. So at the heart of it, Walt, I would tell you the margin expansion, when we reference sales mix improvement within IPS, when we reference sales you know, benefiting from the cost structure reduction actions. All of that is rooted in the NBS Next strategic discipline growth framework. And so it's really, you know, when I look at it, when we look at the incremental margins of 97%, we say that's a lot of NBS Next delivering the benefit. Okay.
spk00: Okay.
spk06: Let me try it this way. is as you look at your sgna overall for uh the remainder of the year um you know is there like a dollar level or a percentage of sales that you can help us with so we can we can think about you know the the cost benefits uh and you know some of these costs coming back into uh into norton yeah so i guess let me just give a little color commentary specifically on costs You know, last year we had several actions that referenced, you know, incremental annualized cost savings. Some of them were $10 million. One was $5 million. Some of those started at different points throughout 2020. And so those are hitting at the full, I would say, benefit run rate here in Q1. So you see that. That should be maintained going forward. I will tell you also on the cost side, we're benefiting on a year-over-year basis of about $6 million for lower T&E expense, as Q1 last year did not have the pandemic cost structure of no travel. And so as that starts to come back, Going forward, you know, if there's a potential, you know, another $6 million, I don't think it'll all come back right away. But as you think about it from this run rate, it's about $6 million on the T&E that we benefited in Q1. So, you know, And the other thing I reference is that, you know, Q1 typically is our heavy SG&A quarter. If you look last year and the prior year for different employee benefit reasons. And so that trend, you know, should continue as we go forward throughout 2021. Okay. Okay. Thanks for that, Collar. And then maybe just the last one for me about Q1. You mentioned in the prepared remarks the vaccine packaging. I wonder if you could just talk a little bit more about that. Is there a revenue size? Were these orders that came in last year that shipped? Is there more orders that will benefit or come through as sales in the second quarter or second half? Sure. You know, this is a really strong growth driver for us and one that we have been working on for a number of years, Walt, and starting to show up in the marketplace right now. This is single-use plastic components which are used in the manufacture of BioPharm and, in this particular case, vaccines as well. And, you know, we saw some pretty strong growth in the quarter. We expect the growth to continue in the out-quarters and maybe even further out. And, you know, the biggest reason we are able to have a sort of a flat medical revenue when compared to our customers being down 15% is mainly because of this bioform growth driver. And so it is more of our single-use plastic components that are used in critical bioform manufacturing steps. Okay, got it. All right, thank you.
spk01: We have no further questions. I turn the call back to presenters for closing remarks.
spk06: Thank you for your time and attention on today's call. We look forward to talking to you further during our virtual investor day on March 30th. Have a great day. Thank you.
spk01: This concludes today's conference.
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