Nordson Corporation

My name is Savannah and I will be your conference operator. At this time, I would like to welcome everyone to the Northland Corporation first quarter and fiscal year 2022 conference call. All lines have been placed on mute to prevent any background noise. And after the speaker's remarks, there will be a question and answer session. If you would like to ask a question during this time, please press star one on your telephone keypad. I would now like to turn the conference over to Laura Mahoney. Please go ahead.

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, Wednesday, February 23, 2022, to report Nordson's fiscal 2022 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.norton.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 Wednesday, March 2. During this conference call, references to non-GAAP financial metrics will be made. A reconciliation of these metrics to the most comparable GAAP metric was provided in the press release issued yesterday. Before we begin, please refer to slide 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 Nordson's current expectations. These statements may involve a number of risks, uncertainties, and other factors as discussed in the company's filings with the Securities and Exchange Commission that could cause actual results to differ. Moving to today's agenda on slide 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 will also discuss the cash flow and balance sheet. Naga will conclude with high-level commentary about our enterprise performance as well as our updated fiscal 2022 second quarter and 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.

Good morning, everyone. Thank you for joining Nordstrom's fiscal 2022 first quarter conference call. As we expected, the demand environment that we experienced in the second half of fiscal 2021 flowed into the first quarter. Our teams did an outstanding job delivering for our customers. In the quarter, we delivered double-digit sales growth across most end markets in midst of supply chain constraints and labor shortages. I'm very thankful for our employees who are staying safe, managing dynamic market conditions, deploying the NBS Next growth framework, and ensuring we meet the needs of our customers. I'll speak more about the business in a few moments, but first, I'll turn the call over to Joe to provide detailed perspective on our financial results for the quarter.

Thank you, Naga, and good morning to everyone. On slide number five, you'll see first quarter 2022 sales were $609 million, an increase of 16% compared to the prior year's first quarter sales of $527 million. The increase was primarily related to 16% organic volume growth and 4% from the NDC acquisition offset by headwinds from currencies and the screws and barrels product line divestiture. This double-digit organic sales increase was driven by solid growth in most product lines, with particularly strong demand in electronics, industrial, and medical end markets. Geographically, all regions delivered organic growth in the quarter. Gross profit for the first quarter of fiscal 2022 totaled $340 million. Excluding the amortization of acquired inventory step-up, gross profit totaled $342 million, or 56% of sales. In the quarter, compared to $290 million, or 55% of sales in the prior year first quarter. This 100 basis point increase in gross margin was driven by improved sales mix from the divested screw and barrels product line, sales volume leverage, and process enhancements from our NDS Next growth framework. On a year-over-year basis, inflation pressures contributed to a negative price-cost mismatch unfavorably impacting margins by 100 basis points, as price realization is delayed given the extensive backlog entering the year. This impact will continue to lessen as we move into the second quarter and the back half of 2022. On a sequential basis, comparing Q1 2022 to Q4 2021, gross margins improved approximately 100 basis points as several of the non-recurring items experienced in Q4 2021 did not repeat as forecasted. We continue to take appropriate pricing actions in fiscal year 2022 to respond to inflationary pressures. Our organization agility and a disciplined approach to cost control coupled with consistent deployment of the Ascend strategy is allowing us to successfully navigate these challenges and continue to deliver profitable growth. Operating profit in the quarter was $156 million. Adjusting for the purchase price accounting related to inventory amortization, operating profit was $157 million, or 26% of sales, a 44% increase from the prior year. Double digit organic growth, favorable sales mix, and continued cost control measures contributed to incremental operating profit margins of 59% in the quarter. EBITDA for the first quarter was $183 million, or 30% of sales. Looking at non-operating expenses, Net interest expense decreased $1 million, or 21%, from the prior year driven by reduced debt levels. Other net expense decreased $6 million from the prior year first quarter. $3 million of the decrease is attributable to fluctuations in currency gains and losses, as the prior year first quarter included a $2.8 million currency loss. The remainder of the decrease primarily relates to reduced pension expense attributable to the increased funding in the prior year. Tax expense was $32 million for an effective tax rate of 21% in the quarter, which is in line with our prior year rate and the forecasted full year rate for 2022. Net income in the quarter totaled $120 million, or $2.05 per share. Adjusted earnings per share, excluding inventory amortization, totaled $2.07 per share, a 57% increase from the prior year. This improvement is reflective of the strong double-digit year-over-year increase in sales and, more importantly, consistent application of the nbs next growth framework which leads to steady profitable growth with attractive incremental margins now let's turn to slide six and seven to review the first quarter 2022 segment performance industrial precision solution sales of $324 million increased 12% compared to the prior year first quarter. Organic volume growth in the quarter was 12%, plus another 8% from the NDC acquisition. This was offset by the divestiture impact and unfavorable currency of 3%. Different than previously communicated, The NVC acquisition is now being managed within the IPS segment rather than advanced technology solutions. As we've integrated this business over the past three months, it's become clear that NVC has greater alignment with our IPS end markets and sales channels. We believe this is an optimal fit to harness future growth. IPS's strong 12% organic growth delivered in the quarter was driven by robust demand for industrial coating product lines, plus steady growth in the consumer non-durable end markets for hot melt adhesive dispensing drove this quarter's results. From a geographic perspective, growth was strongest in Asia and Europe. Operating profit for the quarter was $104 million, or 32% of sales, which is an increase of 24% compared to the prior year operating profit of $83 million. Excluding the acquisition and the divested product line for comparability purposes, operating profit grew 15% over the prior year. for an organic-only incremental profit margin of 51 percent. Moving now to advanced technology solutions. Sales of $285 million increased 20 percent compared to the prior year first quarter. This change included an increase in organic sales volume of 21 percent, offset by a 1 percent unfavorable currency impact. Growth was across all major product lines, but particularly strong in product lines serving electronics and markets, which grew approximately 40% over the prior year. Medical product lines were also strong, growing double digits, and product lines serving broader industrial markets grew in the high single digits. All geographies contributed to this quarter's growth, with particular strength in the international regions. First quarter operating profit was $76 million or 27% of sales. The 62% increase over the prior year operating profit of $47 million was driven by sales volume leverage and the realization of benefits and cost control measures taken in fiscal 2020 and early 2021. This segment has now been performing at the mid-20s in terms of profitability for the last four consecutive quarters. Deployment of our NBS Next Growth Framework continues to be a key element in the success of this segment delivering profitable growth. Finally, turning to the cash flow and balance sheet on slide eight. Free cash flow in the quarter was $106 million, or a conversion rate on net income of 88%. As strategic investments are being made in inventory to address portions of the current supply chain constraints. During the first quarter, we acquired NDC for $172 million. and paid $30 million in dividends and spent $35 million on share repurchases. Through our disciplined approach to capital deployment and strong operating profit growth, we ended the quarter with a healthy balance sheet and abundant borrowing capacity. Cash totaled $171 million and net debt was $637 million. resulting in a 0.8 times leverage ratio based on the trailing 12-month EBITDA. During the second quarter of fiscal 2022, we anticipate successfully annuitizing a portion of our pension liability associated with retirees in payment status. This will have no impact on cash flow in the year as our domestic pension plan is well-funded. but will likely trigger a non-cash, non-operating charge, depending on the terms of the final annuitization transaction. For modeling purposes in fiscal 2022, assume an effective tax rate of 21% and capital expenditures of $40 to $45 million. I will now turn the call back to Naga.

Thank you, Joe. Let's turn to slide nine. Again, thank you to the Nordstrom team for delivering this outstanding performance. I spent a lot of time in our facilities this quarter, and I am impressed with our caliber of talent and the dedication of our employees to meet commitments for our customers, despite the constraints of the supply chain and labor availability. During my trips, Our divisions demonstrated how the ongoing deployment of the NDS Next Growth Framework is helping them identify best products and customers and then prioritize capacity to meet the demand of these customers. For example, our medical fluid components division, which had over 40% sales growth, driven by its focus on biopharma applications has dedicated injection molding machines to more efficiently meet the needs of their best medical device customers joe and i also visited our electronics processing solutions division in california where we saw the new vantage product in action The Vantage is our first fully integrated vehicle handling system designed for the semiconductor industry. At a time when the demand for semiconductors is growing at an incredible pace, we are meeting the needs of our customers with a product that advances automation, reduces cost, and accelerates productivity for our customers. Before I turn to guidance, I'd like to share an organizational update. I'm pleased to share with you that Jeff Penbrook, Executive Vice President and Segment Leader for Advanced Technology Solutions, will be assuming the Segment Leadership role for Industrial Position Solutions effective March 1st. Jeff began his career in our industrial coatings and adhesives businesses. So he enters this role with a strong understanding and appreciation of excellent position of the IPS divisions and leaders in their end markets. He will build upon that by empowering and accelerating the progress of our NBS Next growth framework in IPS. I will assume leadership of our ATS segment while we evaluate long-term plan. We are fortunate to have strong division leaders throughout the company, and I look forward to working more closely with them. Now let's turn to our updated fiscal 2022 outlook on slides 10 and 11. Order entry remained strong throughout the first quarter with a favorable book-to-bill ratio growing backlog to over $900 million. This growth in backlog is related to the ongoing extended shipment request from our large customer orders from electronics, industrial and medical end markets. In this strong demand environment, we expect supply chain and labor availability to remain as constraints into the second half of this year. Based on these factors, We expect fiscal 2022 second quarter sales growth to be in the range of 6 to 10% as compared to fiscal 2021 second quarter. With adjusted earnings per delivered share in the range of $2.20 to $2.30. This guidance means that our teams will deliver the fourth consecutive quarter of around or above $600 million in revenue despite our capacity constraints. This is a great credit to our winning teams and their commitment to our customers. Based on the strong performance of the first quarter, We are focusing our full year 2022 guidance on the high end of the range that we provided in December. We now expect full year revenue growth in the range of 7 to 10% and adjusted earnings per diluted share growth in the range of 14 to 18% over fiscal 2021. This growth is over a record fiscal 2021. Our financial results and expectations for growth reflect our differentiated position technologies, customer-centric model, and diversified end markets. Additionally, our leadership team is advancing the implementation of the Ascend strategy which is establishing NDS Next as our growth framework, an entrepreneurial organization, and a deep, diverse team to drive sustainable, profitable growth. As always, I want to thank our customers, shareholders, and the Norton team for your continued support. With that, we will pause and take your questions.

At this time, I would like to remind everyone, in order to ask a question, press star, followed by the number one on your telephone keypad. Your first question comes from the line of Allison Poliniak with Wells Fargo. Your line is open.

Hi, good morning. I just want to go back to the comments around sort of that price-cost spread. You know, is there any color you can give us in terms of how you think that cadence is at sequentially improve where it becomes more favorable in the back half for you, just trying to understand the context of that.

Yes, thank you, Allison. Excuse me. So, yes, when you think about our price increases and the realization in Q1, given the strong backlog, it didn't have a huge impact in terms of the top line in Q1. That will improve. So if you think about a 100 basis point negative in Q1, I think that'll probably cut in half as you go into Q2, and then it should be neutral by the time you get into the back half.

Great. And then, you know, with the supply chains, labor shortages, just, you know, I know you said you built some inventory, you know, to kind of help smooth that to some extent. I guess, you know, one, you know, within the backlog, do you see, are you able to look at that from a long-term perspective and is that getting better for you? Is it easing somewhat underneath those? I know it's still constrained, but are you getting a little bit more visibility on that sort of the labor and supply challenges that are currently out there?

Alison, let me take that. If you think about our supply chain constraints, these are not across all of our businesses. I think you want to, those are in particular businesses, many of them related to electronic components. In some businesses, there are some casting issues, but we do see those supply chain issues continue to, you know, get better as we progress along the year. In terms of labor shortages, I would tell you we certainly had an issue related to the Omicron variant here in the first quarter. That certainly has improved. But in general, think about it. We're going to, you know, our forecast is that we're going to shift pretty close to $630, $640 million in the second quarter. And that is now, you know, four quarters worth of four quarters of over $600 million in revenue, right? So the constraints are at an elevated level is probably the way I would put it.

No, that's fair. And just one last question for me. Just in the backlog piece of it, you know, I know your customers are probably facing similar issues. Are you getting any push-outs of some of that acceptance of those projects or, you know, has it been manageable?

Yeah, no, it has been manageable. What What they have pretty much, many of our customers are planning for it, and hence what you're beginning to see, as we have indicated in the past, that our orders are being, request shipment dates are extending out more than we normally see. I think people are ordering ahead of time, anticipating not only problems with their own supply chain, but edging their bets with us as well.

Great, thanks. I'll pass it along.

Your next question comes from the line of Mike Halloran with Paired. Your line is open.

Hey, good morning, everyone. Good morning, Mike. So just want to follow up on that last comment there, Naga. So when you think about the backlog, when do you think it gets to more normalized levels? Or when you think about your guidance, do you get to more normalized levels by year end and You know, obviously the customer patterns are shifting a little bit in how they're managing their orders. I'm guessing at some point that goes back to normal, and that will be in conjunction with supply chain normalizing. But any thoughts you have on how you're thinking about that and what's embedded in guidance would be great.

Yeah.

Let me have Joe take the part on guidance, and maybe I'll start us off with, in general, what we are seeing is still supply chain normalizes. this thing is going to keep going back and forth a little bit. And I think our expectations on supply chain easing is probably more towards the second half, maybe end of the year. And that's really what we think. Unless that changes faster, I think our guidance sort of takes into account that assumption. Joe, you want to add any more to that?

Yeah. I mean, when you think about the backlog, Mike, it is different than what I tell you, these large systems businesses. know 75 of our backlog today is tied to these businesses which have large system orders and those orders are booking out until 2023 in many of those businesses when you look at our what i'll call our normal book and ship type businesses which includes parts and consumables as opposed to large systems I should say parts and systems. That, I would tell you, that order entry, and we look at that in the background, that kind of supports our guidance as we look out and see the growth rate in Q2 and the back half. the backlog is inflated to a high level because of those large systems businesses, which are booking way out into now 2023. So the composition of the backlog has changed. And when we look at the normal book and ship business, it does support our growth guidance for the back half.

So, Joe, it sounds like you're saying that from a backlog perspective, there's no I'm calling excess backlog ketchup embedded in the forward guidance. It's just kind of how you're slotting out some of those larger systems projects and, you know, kind of a normal cadence on the non-systems businesses. Is that fair? That is fair. Okay. And then on the capital allocation side, how are you thinking about capital usage at this point? And I suppose two things. One, interests in buybacks at this point, and then secondarily, what does the M&A funnel look like from an actionability perspective?

Maybe I'll take the acquisition first, Mike, and then Joe can cover the rest of the pieces that you have interest in. On the acquisition piece, we remain active. The pipeline is healthy, but we remain disciplined. I think that's really important for us is that, you know, we are focused on scaling our medical business, focused on expanding our TNI capability, certainly add any other adjacent position technologies if the right thing comes along. So lots of activity, healthy pipeline, but remain disciplined. So we want to remain strategically disciplined and financially disciplined. And so over the long haul, You know, we are confident we will deliver on the $500 million in acquisitions that we committed to at our investor day. Joe, you want to?

Yeah, and the remaining capital allocation in terms of dividends and share buybacks, You know, we increased our dividend last year, trying to target a yield closer to 1%. And on the share buyback, you know, over a longer period, we tried to offset dilution. And so just systematically buying back in the marketplace to offset dilution, given the run of the stock price, we were unsuccessful in doing that last year. And so we're working on that this year. We did buy back under the 10B51, 140,000 shares approximately here at Q1. But I will tell you, Mike, our strategy there has not changed.

It's simply the offset dilution. Great. Appreciate it. Thanks for the time.

Your next question is from the line of Jeffrey Hammond with KeyBank Capital Markets. Your line is open.

Hey, guys. This is Mitchell Moore for Jeff. Just quickly, on the NDC technologies acquisition issue, I know you guys touched on it a bit in the prepared remarks, but I was just wondering if you could elaborate a bit on the decision to include NDC technologies in IPS and maybe what specific opportunities you saw that maybe weren't apparent when you first acquired NDC. Thanks.

Yeah. I think as we spend a little bit more, you know, first and foremost, the NDC acquisition is coming along very nicely. you know, three months into our portfolio, really like the team, really like the product technologies, like the customer exposure and end market exposures they have. And so, you know, really spending more deeper dive into the businesses and really thinking through what are the best growth opportunities for the business and what are the end markets that they are most excited about, you get – You get some view of it during diligence, but it is a pretty accelerated process. So after spending more time with it, we fundamentally believe, you know, think about the film exclusion business that they have. They have gauges for that. Or think about the food and consumer type end markets where they have IR technologies to measure the quality of the food. We felt that this end market exposure lines very well with our packaging businesses, and hence the growth opportunities and the ability to cover the customer. You know, in many ways, sometimes if you go to a, let's say, a consumer goods manufacturing line, what we end up finding is that at the back end, when the food is packaged, you find our adhesive hot melt adhesive systems. In the front end, when you're looking or measuring the freshness or the quality of the food that's getting manufactured, you definitely find a lot of NBC. So this exposure on consumer industries, we felt that there is a great alignment between both these sales channels, and hence we decided to move that business into IPF.

Okay, great. That's very helpful. And just on medical, I think you guys called out biopharma as particularly positive. I just wanted to dig in on that a bit. I was just wondering how elective surgeries have trended, you know, given the recent spike in COVID and, you know, maybe if more people have been delaying surgeries and whether you feel that's led to some pent-up demand here that you might be able to capitalize on.

Yeah, you know, what we find elective surgeries are continuing to recover. If you remember in this particular search, the hospital capacity was not that strained as it was during Delta. So we continue to see elective surgeries come back up. So we see our interventional component businesses continuing to do fairly well. But if you think about the biopharma business, which is slightly different in that we sell a lot of components to people who manufacture biopharmaceuticals. And that business is, you know, very strong for us. It's not only just vaccine production, but it is also gene and cell therapies that are varied. And in addition, you also have by pharmaceuticals expanding capacity to make sure that there are more regional availability of vaccines and therapies.

Okay, great. I'll pass it along. Thanks.

Your next question is from the line of Matt Somerville with GA Davidson. Your line is open.

Thanks. Just with respect to Looking at the business geographically, volume in the U.S. and Japan only up modestly year on year. Maybe just talk a little about that. Is that more comparison related? Is there something, anything to read into with respect to what you're seeing there geographically?

You know, if you think about the geographies, what we find is that, you know, you're certainly right that we saw a significant strength in Europe and Asia. Those were particularly high points for us. Japan is still recovering. You know, Japan got hit hard with COVID. I think America is more around comms, you know. So if you think about it, you know, America has came out fast. first for us, and so regionally we don't see anything significant other than I would say we had a broad-based growth in the quarter, and that's our expectation, with particular strength in Asia and Europe.

With respect to the HTS business, if I think about this kind of multi-year capacitization cycle, that we have begun to see and will see as it pertains to the semiconductor industry. When would you expect Nordson to see peak benefit from that capacity cycle there?

Yeah. I mean, the capacity cycle continues to change and remain dynamic, but I would tell you we are seeing significant activity, and that's what you see in the APS business, is The growth in APS was primarily driven by electronics and by pharma. But what you're seeing is some pretty robust demand right now. Is that the peak? You know, Matt, it would be very difficult for me to sort of gauge that. This is an, as you noted, it's an extended cycle, more extended than we have seen before. Is this the peak? I don't know. But are we working with our customers right now? Yes. There is a lot of activity in our solution. So think about Vantage, which is the wafer handling system with our dispense systems. This is one of the best products that is helping our customers accelerate their units per hour with great quality. So that is going well for us. At the same time, we also have XM8000, which is our test inspection that goes into semiconductor vapor inspection. That is doing incredibly well. So if I look at both those businesses, I tell you the market activity and the demand is pretty strong. I don't know whether I would characterize it as if it's peak right now or peak for another few years. I don't know. That is difficult to guess. But, you know, as you know, we have a direct sale model that allows us and gives us visibility to what our customer activities are much more than, you know, others in the industry will go through distribution.

Got it. Thanks, Naga. Thank you, Matt. Your next question comes from Andrew Biskelia with Brandberg. Your line is open.

Hey, good morning guys. Good morning. Good morning. Um, I wanted to ask, you know, so you're, you know, that, um, commentary just around blockchain, um, maybe easing somewhat or not getting much worse. And that the commentary is definitely a bit mixed with this during season across companies. What is, I guess, what are exactly, are you seeing where you can, where you feel like things are, you know, maybe, um, yeah, easing up a bit.

Yeah.

If you take a couple of different pieces of it, it is not getting worse. I can definitely tell you that. Is it getting better? In some parts, it's getting better. Freight is not as much of an issue as it was before. It is getting better. Electronics components, most of it is fine, but there are a few areas that still... It's not so much you don't get what you're looking for, you just don't get as much as you want, is maybe the way to describe the supply chain issue. It's not like, oh, I don't have that component. It's like, I don't have, you know, if I have X, you know, I couldn't give you 2X, right? So that's sort of what we're dealing with right now. It's not, you know, early in the cycle, we were looking for substitutions, things like that, but now it is more about How much more can we get? And that is really what is governing our capacity to, you know, work the backlog down.

Okay. Yeah. And you said freight, you know, on the margin a bit better in terms of pricing.

Yeah. Yeah.

Interesting.

It's not significantly gone up any further.

Sorry. Yeah. The other thing. Our supply base has had some labor constraint issues in select cases, and so that should hopefully moderate if the COVID situation improves.

Okay. Okay, and just one other question on, you know, your ATS margins were a lot stronger than I was expecting. I might have missed this, but how much was mix a factor there? And then I guess just generally what's driving that and the sustainability of margins there?

Yeah, so in ATS, I mean, running that 53% gross margins is relatively in line with where we've been running for, I would say, the last three quarters. And what you see there is the benefit of the volume leverage with 21% organic growth. And then also recall we did do some, you know, actions, I would say, at the end of 20 to take some cost out of some of those businesses and right-size the cost structure. And so we've been running at that level, I would tell you, since Q2 roughly of last year. And so it's a combination of volume leverage and some of the cost controls. Okay.

So I guess, Nick, you're not calling that a major –

Well, yeah, I would tell you mixed is favorable, particularly if you look at our medical business. We had some favorable mixed benefits there within ATS. Okay.

Okay. Thanks, Jim. Again, if you would like to ask a question, press star followed by the number one on your telephone keypad. Your next question is from Walt Liptak with Seaport. Your line is open.

Hey, good morning, guys.

Good morning.

Morning. I don't want to beat a dead horse on the price-cost thing, but, you know, the companies that we follow, I think you guys were doing the best up until this quarter on price-cost. And so just so I understand the situation that you ran into this quarter, it sounds like Omicron may have impacted some of your suppliers, and so, you know, there might have been delays there. And maybe you got hit a little bit with, you know, absenteeism related to Omicron, but that seems to be going away. Is that the way that we should read that 100 basis points have been from price-cost? Yeah, I guess, Walt, I would read it as we implemented our price increases. at year end and to respond to the inflation pressures that we were seeing. You combine that with our strong backlog, which was up, if you think we ended the year, it was up almost 90% over the prior year. And so the price realization of those price increases just take time to take effect. And so a lot of what we were shipping in Q1 was still priced at the old price point. So the price realization wasn't as beneficial in Q1 as it will be in Q2, and it will be more beneficial, I will tell you then, in the back half of 2022. So I would tell you it's a combination of the backlog as opposed to the Omicron issue. But I will say, I mean, yeah, but despite that, Walt, I mean, 56.1% gross margin, in the quarter. If you recall, since the divestiture, the screw-and-barrel business, we've been running now at 55 to 57 range, depending on mix in any given month. So I would tell you we were able to largely offset the negative price-cost headwind with favorable mix and some volume leverage in the quarter. Okay, great.

Okay, so just to be clear, the price-cost for 100 BIPs, that didn't have anything to do with supply chain.

Was there a headwind to the supply chain issues, the constraints you're talking about, or was it just people working harder? The headwind on the supply chain constraints speaks to our top-line growth rate and the revenue we were able to deliver as opposed to the gross margin percentage. Okay. How much do you think that you were unable to ship this quarter because of that? Yeah, it's hard to put a number on it. And I wouldn't tell you that it got pushed from Q1 into Q2 because I think these issues are going to continue into Q2 as it relates to supply chain challenges. But you could estimate that to be, you know, I don't know, 10 to 20 million dollars. okay all right thanks thanks for that um yeah and then you pointed out the the other thing i mean you know if you had that 100 bps of price cost the operating leverage was still uh you know pretty incredible so you're saying that that's largely volume mix or is this nbs next that's you know really coming through largely volume mixing getting q1 we have the benefit of the screw and barrel product line divestiture So that in and of itself from a favorable mix standpoint was about 120 basis points.

I think, Walt, also to remember, through all of these with multiple different constraints on the company and the teams, NBS Next is really allowing us to be able to kind of deliver on a customer commitment as well as being able to deliver the kind of incremental margins you're seeing in the business. Now consecutively, four or five quarters here, we are north of our committed 40% to 45% incremental margins. In the quarter, we delivered 59%. And so think of all the things that are going on in the business, on top of which we're able to deliver the kind of quarter we delivered. I think that is really

significant contribution from NPS. Yeah, absolutely. And maybe a last one for me on the Vantage product that you were talking about. So how is the commercialization of that product going? Do you sell it through your direct sales force or do you go through a distribution on it? And is it being bundled with other products and dispensing systems?

No, it is, you know, we really have very little distribution. So we are, you know, almost 100% direct, unless in a region where we don't have some, you know, sales coverage, then we may have distribution. But so mostly direct. No, it is not bundled with any other systems. We sell directly. The commercialization is going really well. I don't think, you know, we're getting governed more around the supply chain constraints that we talked about rather than the demand for the product.

Okay. All right, great. And, you know, the Vantage product, you know, I guess it helps you to penetrate some of your customers. Is it, you know, an incremental product? You know, is it a big increase to, you know, the penetration of a customer if they start purchasing the Vantage product?

It is incremental opportunity for applications that we are continuing to grow with those customers. So it is incremental in existing customers, you know. Think about our electronic business. We are part of our largest customer's product roadmap. So for us to continue to be a relevant player in this market, we need to continue to deliver innovations that allow our customers to achieve their product goals. And so Vantage is a great example of that, where our customers have specific product goals that are moving packaging upstream at the wafer level. This product does that for them.

Yeah, that's great. Okay, great. Thank you very much.

Your final question comes from the line of Connor Linna with Morgan Stanley. Your line is open.

Yeah, thanks. Naga, you made a comment in regards to M&A on needing to be financially disciplined. Would you say that over the last year that valuation has been an impediment to doing more? Not to imply you've been sitting on your hands. Obviously, you just did a deal. But has there been any sort of normalization in value expectations that you can see based on what's been happening in public markets? No. No.

You know, there is no normalization yet. But I think, you know, for us, you know, we start with strategy to make sure that we are focused on the end markets in the specific products on medical and test inspection. And those are not, you know, valuation in those markets are high. Yet, we've been able to find deals that we've been able to do in both those markets. mainly because we're very focused on what is the value that Norton brings to that particular business, and can we deliver a financial return, right? So I wouldn't say that we had a deal, we got passed up because of our valuation. That's not the case. It happens occasionally, but not in the recent time.

Got it. That's helpful. And then just just to sort of follow up a little bit more on the capital allocation. I mean, obviously, you know, as I alluded to, you've deployed capital recently. But is there is there a point at which it makes sense to just return more capital than you have been? Or do you think it's better to sort of build a war chest and wait for, you know, markets to be where it makes more sense?

Joe, you want to take a piece of that?

I tell you, our M&A pipeline is active and robust, and to Naga's point, I do believe that there are assets out there where Norton is the better owner and we can deploy capital like we did on the NBC acquisition to create shareholder value. And so, you know, we're sitting at a leverage ratio just under one times that the EBITDA. I think we could identify other opportunities to continue to deploy capital through M&A. We have this balanced approach where we are a dividend payer and we do do share buybacks to offset dilution. But when we look at it from a growth perspective, we think there is opportunity where we could deploy capital towards M&A and create true shareholder value. And so that continues to be our focus. And we just did a deal this quarter and deployed $172 million. And so we hope to be able to do more like that.

Yeah, I think kind of what I would add is our focus is growth. If you remember our investor day, our focus is profitable growth. And acquisition is an equal part of that growth. We're committed to acquiring around, you know, clearly see a pathway to acquiring over $500 million in revenue. We are in year two of our strategy. You know, we have acquired, I want to say, $125, $130 million in revenue so far. So, you know, we see a path to delivering on the goals we have for acquisition. Remain committed. That is, you know, organic growth being our number one priority, but this is a capital-like business. And so, you know, really, we don't turn down projects. I mean, in the quarter, we You know, we spent around $12 million, Joe, on capital projects towards organic growth. But acquisition is a big part of how, you know, on our capital deployment strategy that's not changed, and we'll continue to work that.

Yep, makes sense. Thank you.

Thank you.

There are no further questions at this time. I will now turn the call back over to Naga for closing remarks.

Thank you for your time and attention on today's call. Have a great day.

Ladies and gentlemen, thank you for your participation. This concludes today's conference call. You may now disconnect.