This conference call transcript was computer generated and almost certianly contains errors. This transcript is provided for information purposes only.EarningsCall, LLC makes no representation about the accuracy of the aforementioned transcript, and you are cautioned not to place undue reliance on the information provided by the transcript.
spk09: Good morning. My name is Chris, and I'll be your conference operator today. At this time, I'd like to welcome everyone to the Nordson Corporation's second quarter fiscal year 2022 conference call. All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question and answer session. If you'd like to ask a question during this time, simply press star, then the number one on your telephone keypad. To withdraw your question, please press star one again.
spk06: Thank you. Laura Mahoney. You may begin.
spk10: 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, May 24th, to report Nordson's fiscal 2022 second quarter results. You can see both the 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 at the conference call available until Tuesday, May 31st 2022. 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 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 second 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 balance sheet and cash flow. Naga will conclude with a high-level commentary about our enterprise performance, as well as our updated fiscal 2022 full year and third quarter 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.
spk04: Good morning, everyone. Thank you for joining Norton's fiscal 2022 second quarter conference call. Once again, the Norton team successfully navigated a dynamic macro environment and delivered strong sales and earnings growth despite continued supply chain constraints and inflationary pressures as well as newer challenges from the COVID-19 lockdowns in China and the increasing foreign currency headwinds. I'm very thankful for and proud of our employees who are staying safe and deploying the NBS Next growth framework to meet the strong broad-based demand from our customers. Our company culture is deeper than our financial results. And during the quarter, I was humbled to see our employees rise up to send care packages to our colleagues impacted by the COVID-related lockdowns in China, and also raise money for family and friends impacted by the situation in the Ukraine. This is the Norton Impact, and it is a very special part of who we are as a company. I'll speak more about the business in a few moments, but first I'll turn the call over to Joe to provide a detailed perspective on our financial results for the quarter.
spk05: Thank you, Naga, and good morning to everyone. On slide number five, you'll see second quarter fiscal 2022 sales were $635 million, an increase of 8%. compared to the prior year's second quarter sales of $590 million. The increase was primarily related to 7% organic volume growth and 4% from the NDC acquisition offset by currency headwinds, particularly the weakening of the euro. The organic growth was broad-based across most end markets, and geographies, except for Japan and China. China COVID-related lockdowns negatively impacted second quarter sales by approximately $20 million, as our Shanghai facility was unable to ship products for five weeks, and many of our customers and freight forwarders were unable to receive or ship products. We clearly view this impact to be temporary, and it is beginning to resolve itself as the lockdown restrictions start to ease. Gross profit for the second quarter of fiscal 2022 totaled $358 million, or 56% of sales, a 6% increase compared to the $338 million or 57% of sales in the prior year second quarter. The team continues to actively manage the price-cost dynamic in these inflationary periods and benefited from improved price realization compared sequentially to the first quarter of fiscal 2022. Looking at the year-over-year margin decrease of 100 basis points, this resulted largely from a change in sales mix at the segment level, as APS delivered double-digit organic growth compared to the low single-digit organic growth of IPS. Plus, the system sales growth exceeded parts growth. Operating profit was $184 million in the quarter, or 29% of sales, an 11% increase from the prior year. Failed volume leverage and controlled spending contributed to the incremental operating profit margins of 38% in the quarter. Organic-only incremental operating profit margins were 70%, well ahead of our long-term target of 40% to 45%. The NBS Next Growth Framework is clearly delivering tangible results. The strategic discipline element of the framework, which is a database view of the best opportunities in terms of customers, products, and end markets, et cetera, this is driving improved sales mix within many of our divisions, resulting in strong growth and favorable incremental profit. EBITDA for the second quarter was $209 million, or 33% of sales. well ahead of our long-term target of 30%. Looking at non-operating expenses, the increase in other net expenses of $36 million includes the $41 million one-time non-cash pension settlement charge. As we referenced in the first quarter call, we successfully annuitized the portion of our U.S. defined benefit pension liability associated with retirees in payment status during the second quarter. This transaction settled an estimated $178 million pension liability in exchange for plan assets totaling only 96% of the projected liability, leaving the remaining pension liability over 100% funded. This transaction not only removed significant risk from the company for the long term, but also reduced our future pension cash funding obligations. The remaining $5 million year-over-year benefit included in other net expenses primarily reflect foreign currency exchange gains and ongoing non-operating pension benefits associated with plan assumptions and a reduction in amortization of actuarial losses. Tax expense was $30 million for an effective tax rate of 21% in the quarter, which is slightly higher than the prior year's second quarter, but in line with our forecasted full year rate for 2022. Net income in the quarter totaled $110 million, for $1.88 per share. Adjusted earnings per share, excluding the non-cash pension annuitization charge, totaled $2.43 per share, a 15% increase from the prior year. This improvement is reflective of the year-over-year increase in sales and, more importantly, the 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 second quarter 2022 segment performance. Industrial precision solution sales of $316 million, an increase of 6% compared to the prior year second quarter. Organic volume growth in the quarter was 3%, plus another 7% from the NDC acquisition. This was offset by unfavorable currency of 4%. IPS's organic growth was driven by robust demand for polymer processing product lines, plus steady broad-based growth in consumer non-durable end markets for hot melt adhesive dispensing. in all geographies except China. COVID-related lockdowns in Shanghai negatively impacted this segment's second quarter sales by approximately $15 million. Operating profit for the quarter was $102 million, or 32% of sales, which is a decrease of 2% compared to the prior year operating profit of $104 million. Favorable sales volume leverage in the quarter was offset by unfavorable mix compared to the prior year second quarter, as the majority of the growth was from polymer processing systems and the NBC acquisition. Moving now to advanced technologies and solutions. Sales were $319 million, a 10% increase compared to the prior year second quarter. which is a new quarterly record for this segment. This change included an increase in organic sales volume of 11%, offset by unfavorable currency impacts. Growth was across most major product lines, but particularly strong in the electronics dispense, test and inspection, and biopharma fluid component product lines. All geographies, with the exception of China, contributed to this quarter's growth, with particular strength in the international regions. Second quarter operating profit was $98 million, or 31% of sales. The 29% increase over the prior year operating profit of $77 million was driven by sales volume leverage and the realization of benefits from cost control measures taken in fiscal 2020 and early 2021. This segment continues to deliver impressive sales growth at very attractive incremental margins. And the 31% operating profit in the quarter reflects a new record level performance for ATS. 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 balance sheet and cash flow. On slide eight, 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 $121 million and net debt was $670 million. resulting in 0.9 times leverage ratio based on the trailing 12-month EBITDA. Free cash flow in the quarter was $84 million, or a conversion rate on net income of 77%, as strategic investments are being made in inventory to address portions of the current supply chain constraints and support the growing backlog. During the second quarter, we paid $30 million in dividends and spent $105 million on repurchasing approximately 470,000 shares of company stock through our 10B51 repurchase plan. For modeling purposes, in fiscal 2022, assume an estimated effective tax rate of 21% and capital expenditures of approximately $45 million. I will now turn the call back to Naga.
spk03: Thank you, Joe. Let's turn to slide nine.
spk04: Again, thank you to the Norton team for delivering this outstanding performance. I'm very proud of how our employees are navigating this dynamic environment. I continue to spend a lot of time in our facilities, and I'm excited by the caliber of talent and the dedication of our employees to meet our customer commitments despite the constraints of the supply chain. They are actively deploying NBS Next to choose the best growth opportunities and focus their time and resources appropriately. Strategically, we have continued to make progress on the advancement of the NBS Next growth framework, the heart of our Ascend strategy. NBS Next boils down to three words, choices, focus, and simplify. Expanding beyond our pilot size, we now have several strong business examples of driving profitable growth in different divisions. With this in mind, we launched a four-month NBS Next accelerator training program, which had its first in-person session in April. In the program, Norton participants learned through hands-on exercise with real Norton data as well as in-class discussions. More importantly, each participant left with a better understanding and a thoughtful action plan that will accelerate the deployment of the NBS Next growth framework across the company. As practical application of NBS Next gets embedded deeper in our organization, the more aligned and skilled we are as a team to deliver top-tier revenue growth with leading margins and returns. This is an important investment in our people and companies. I'm grateful for the Norton team for all that is being done to mitigate risks due to supply chain, inflation, labor, and COVID challenges. In this dynamic environment, I'm equally energized by the secular growth drivers in key end markets leading to strong ongoing demand from our customers. As Joe noted, our ATS segment delivered
spk03: record sales, and profits.
spk04: It is driven by Norton's ability to deliver on exciting trends in electronics, including investments in both capacity and onshoring, new product innovation, and the continued demand for semiconductors and PCBs. Both our electronics dispense and T&I product line will continue to benefit from these trends. The medical end market also continues to grow. While we have talked at length about the growth in our biopharma fluid components, we're also experiencing the recovery of our interventional solutions product lines, which are fueled by the aging population shift toward outpatient procedures and medical OEM outsourcing. The diversity of Norton's end markets and geographic exposure, as well as high recurring revenue content, positions us well to deliver consistent profitable growth through the economic cycle. Now let's turn to our updated fiscal 2022 outlook on slides 10 and 11. Order entry remains strong throughout the second quarter with a favorable book-to-bill ratio growing backlog to over $1 billion. This growth in backlog is partially related to the ongoing extended shipment request dates for large customer orders in electronics, industrial, and medical end markets. Looking specifically at the third quarter fiscal 2022, revenue and adjusted earnings are forecasted to be comparable to the prior year results, where the prior year third quarter was the strongest quarter of fiscal 2021. For the full year fiscal 2022, we are guiding to a revenue growth of 8 to 9 percent and we are increasing the previously issued adjusted earnings guidance to the range of 18% to 21% over fiscal 2021. This is approximately 20% earnings growth following a record 2021 financial performance. It is a testament to the solid execution of the SN strategy. Our financial results and expectations for growth reflect our differentiated precision technology, customer-centric model, and diversified end markets. Additionally, the ongoing implementation of NBS Next is making sure we have a crystal clear view on priorities in this dynamic environment. 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.
spk09: As a reminder, if you'd like to ask a question, please press star then one on your telephone keypad. Our first question today is from Matt Somerville with DA Davidson. Your line is open.
spk07: Thanks, couple questions. Obviously the second quarter is impacted by about $20 million The mandated COVID-related lockdowns in China, what sort of net impact do you expect in Q3, in fiscal Q3? Meaning, are you still seeing top-line impact today, but on a net basis, given 20 million effectively pushed? Do you think that is a net positive to your Q3? I guess I'm trying to understand how that dynamic plays into the go-forward views here.
spk05: Yeah, Matt, thank you for that question. As it relates to our forecast and our guidance for Q3 and the lockdowns in the Shanghai region of China, we anticipate those to start to subside. We've had no shipments for five weeks in Q2, and so things are starting to open up there. We're starting to get people back in the factory. We're starting to be able to ship. We're not yet at 100%, but we anticipate being by 100%. you know, roughly by mid-June. And so that is what's included in our assumption.
spk07: And then you had very strong quarter-on-quarter and year-over-year incrementals in ATS. You know, part of that attributable to some actions that you've taken on the cost side, also, you know, expense discipline. Go forward, how should we be thinking about, you know, maybe the forward-looking margin cadence in the ATS specifically? Thank you.
spk05: Yeah. So when you think about ATS, you know, any given quarter, there's a handful of mix that will impact any results. So I don't want to take one given quarter and say annualize it. But I encourage us to look at the trend in ATS. And what you see going on over the last several quarters is consistently a improving the profitability of that segment. And it's kind of like the driver there, Matt, is the comment that I said in the script in terms of NBS Next. That segment not only does the cost control, which you referenced, but from a gross margin and a profitability standpoint and the strong incrementals is really coming from improving mix within each of the divisions in that segment. And so if you think about NBS Next and strategic discipline, which is a database framework to say, what are my best growth opportunities? As those individual divisions are focusing on those best growth opportunities, they generally are the higher margin opportunities. And so as we outgrow in those high margin product lines, regions, and markets, it's improving the mix within those divisions. And so that's what's contributing to those favorable incremental margins. in ATS, and we're quite proud of that trend. I don't know that I can say, hey, Q2 is now the ongoing run rate, but directionally, that's what you'll continue to see.
spk06: Understood. Thanks, Jeff. Thank you. Our next question is from Jeff Hammond with KeyBank Capital Markets.
spk09: Your line is open.
spk06: Hey, good morning, everyone.
spk05: Morning, Jeff.
spk01: Just on the – can you just talk about the durability of the growth you're seeing in, you know, electronics and test and inspection? You know, we've heard kind of, you know, kind of a line of tough comps and, you know, the consumer, you know, starting to slow here around, you know, mobility, PCs, et cetera, and just wanting to get what you're seeing on a go-forward basis.
spk04: Yeah, no, no. Thank you for the question, Jeff. On our electronic business, what we see is this certification of our customers and applications that we have undertaken over the last number of years that you begin to see the business do incredibly well in a couple of different areas. One of the areas is really semiconductor. And what we find is the ongoing capacity additions, on-shoring, to mitigate some risks that all of us see in the industry. But in addition to that, digital technology and digital way of doing business has just spurred this new secular growth that we see our customers continue to benefit for for some time to come. And so from what we see in our businesses, Our order rates are pretty strong. Our shipments are pretty strong in the electronics area. So now, just as a reminder, we have electronics dispense as well as test and inspection, both benefiting from it. So in the quarter, both the divisions had double-digit growth. Certainly there are comp issues, but we feel really good about prospects for these divisions and their contribution to growth for us. We do have lesser exposure. We have a broad-based supply chain. We participate in electronics, so it is less correlated to one particular consumer product or the other. That used to be where we were a number of years ago, and we've talked to you about how we have diversified our applications. You know, think of Norton's electronic business participating in the entire electronic chain, electronic supply chain, and that diversity is really helping us participate in a good way.
spk01: Okay, great. That's helpful. And then I just want to come back on this dynamic around, you know, the timing of the backlog and customers kind of saying they want things a little bit later because it seems like Most of my other industrial companies have big backlogs, and it's more a function of we can't get stuff out the door, and the order rates are just outpacing what we can deliver. And yours just seems a little bit different, and I just want to understand kind of why it kind of shapes up that way.
spk04: Jeff, that's a great question. In terms of our backlog, I wouldn't say we don't have the issue that you're talking about, orders ahead of shipments. We do have some of that, right? We are limited by the supply chain, meaning how much our suppliers can provide us in terms of components, especially for our systems business to be able to ship. So that is still a factor in our backlog. The second factor, though, is we are seeing clearly and we have, you know, pretty good line of sight to understand that we have customers placing orders ahead of what they normally have. And we see that mostly in our system business. Now we're seeing it in our interventional component business, medical interventional component business as well. So if you look at our backlog, a majority of our backlog is from systems businesses and uh, medical businesses and, and partly driven by this long dated customer request dates.
spk06: Okay. Thanks so much.
spk09: Our next question is from Alison Poliniak with Wells Fargo. Your line is open.
spk02: Hi, good morning. Um, just want to stick on that backlog theme is I know there's certainly an extended backlog here. Is there a way to better understand the extent of that extension? Meaning, is it two weeks extended? Is it month, a quarter? Just any color there. And then just any thoughts on risk of cancellation, that backlog, or double ordering, which I know is a concern of folks. Just any thoughts there. Thanks.
spk04: Yeah. Thank you, Allison. So let me take the cancellation first, and then we'll talk a little bit about what we're seeing in terms of customer long-dated requests. On cancellation, there's something that we monitor very closely in the business. Given our direct customer business model allows us much more insight into customer thoughts, sentiments, and behavior. In general, we have not had issues around cancellation. From our perspective, that's not manifesting itself in the business today. The second thing I would tell you is also Remember, more than 50% of our business is very system-oriented, engineered systems. So this is not like you could buy it in a couple of different places. Once you place a system order that is very customized to your own application, that is a benefit for us. So from a cancellation perspective, we've not seen it in the business now. The second question around long-dated customer requests, I'll give you a couple of anecdotal things that we see in the business as sort of indicative of what we are experiencing. One, in a couple of our system businesses, we have orders now that are dated to be shipped in second quarter of next year, right? uh in the past the norm was you would get three six months out request dates and now we're starting to see three four quarters out so that's one uh second is in our medical businesses medical interventional business we typically get blanket orders and those blanket orders cover us for a quarter or two but now we're getting orders for a longer period of time so those would be two sort of, you know, anecdotal evidences that sort of indicates what we're seeing in our business. Joe, you want to talk a little bit about customer prepayments that might give an indication of what we're seeing in the public?
spk05: Yes, Naga. So, Allison, we also track not just cancellations and are looking out for that, but also our customer prepayments. And as the majority of the backlog is comprised of systems and medical orders, as Naga mentioned, those systems orders come with customer prepayments, and those are up now north of $90 million. And so proportional to our systems backlog, the prepayments have also grown. So we view the systems backlog piece as very solid as it relates to future shipments, and the visibility is out now several quarters. Whereas our traditional, I'll call it non-systems heavy business parts business, We see a modest uptick in the backlog, but that is a much more book and ship within a couple weeks. And so that one is not out nearly as far.
spk02: Great. Thanks. That's helpful. And then just price realization, Naga, I think you had mentioned sequentially improved. Are you in a more favorable price-cost situation today, and are you still comfortable with that sort of second half being a net positive for Norton going forward?
spk05: Yes, Alison, you know, when you look at our performance going Q1 to Q2, actually our price realization was a little bit better than what we had anticipated going into Q2. It's forecasted to continue to improve here in Q3, again, as we work through the repricing and the long backlog. So it was favorable in dollar terms. in Q2 and is forecasted to slightly improve as we head into Q3. So we feel pretty good about that. I will tell you it's a very dynamic situation with all the different cost components and the inflationary pressures.
spk10: Great. Thank you.
spk09: Again, if you'd like to ask a question, that's star 1 on your telephone keypad. Our next question is from Chris Dankert with Loop Capital. Your line is open.
spk08: Hey, morning. Again, just to kind of keep pulling the thread on backlog a bit here, your guidance commentary implies most of the year-over-year growth that is expected in the back half kind of shows up in the fourth quarter, I guess. Can you give us a sense for just how confident you are in that cadence and just what's the risk that we could see a piece of that fall into fiscal 23? Just any kind of sense for how fluid some of those orders are versus your confidence in kind of seeing the growth in the fourth quarter here?
spk05: You bet, Chris. Yeah, let me comment, if I could, just on the quarterly split of our guidance here in the back half. So if you think about our guidance, midpoint, the back half is going to be up roughly 6% over the prior year. I will remind you, in the prior year, Q3 was our strongest quarter, and there was about $25 million worth of sales that we were able to get out in the electronic space in Q3 that was pulled forward based on a customer request. from Q4 scheduled delivery into Q3. So Q3 was strong. Q4 was sequentially softer last year. And so what you see this year is, you know, I would tell you, you know, 6% growth over the second half. But you're right. It implies the fourth quarter is going to be stronger than the third quarter. And so what you see there is heavy, again, visibility on the system side. And so a high degree of confidence on the system forecasting. And also, as I mentioned in the first call question, the China lockdown. And as that starts to moderate here and still impact us a little bit in Q3, that will be a challenging Q3. So Q4 stronger than Q3. I wouldn't get carried away with the quarter year-over-year growth rates and think about it more as 6% growth in the back half. And if you think about that broken down, I would tell you FX is about a 3.5% to 4% headwind. Acquisitions is about a 3% to 4% tailwind. And so it's really roughly 67% organic growth is what we're forecasting in the second half and good visibility on the system side. Your question about supply chain constraints, and look, it is a dynamic environment. It requires us to get the material and be able to ship it. But we've been quite successful, I think, in delivering growth over the past five quarters, averaging greater than double-digit organic growth. So I'm optimistic that we will be able to deliver that here in Q4.
spk04: You know, one thing, Chris, I would add to is, given our organizational structure, right, over the last, you know, 24 months we've gone to an owner mindset division-led structure. This allows our divisions to forecast in a fairly crisp way. We have a direct customer business model, so each of our divisions have fairly good visibility. And our forecast is really based on our division's forecast. So this is not something that Joe and I decide as much as This is a sum of all our division's views of where the market is at and their own supply chain. So we feel good about where we are because I think it does give us a better clarity into where we are expecting our customers to perform division by division.
spk08: Got it. Thank you both. That's an incredibly helpful color. And then not to pin you down, but I'm going to try and pin you down a bit here. Circling back to the ATS margin question, I guess in the past, you know, mid-20s was kind of the EBIT margin target there. Is it fair to say that, hey, we've at least moved into, you know, a high 20s target kind of cross cycle here, or am I kind of overstepping on that?
spk05: No. You know, that's what I kind of meant by the trajectory is what we're looking at and the long-term gains. If you look at that business, it went from operating at the EBIT margins around the 20 last year, stepped up to the mid to low 20s. And this year we're running, you know, in the high 20s on average for the first half. And so I think that trajectory is the way to think about this business in terms of, you know, running the NBS Next playbook.
spk04: Maggie, you want to add something to this? Hey, Chris, sorry to interrupt you, but before we take and put it down, I want to add a little bit of color there just to make sure. We have materially improved the cost position, structure position in this business, so we feel really good about those gains. The only caution I would have for you, you know, two things. One is, as Joe mentioned, this is one quarter. And second, I would also say is that we have you know, we're doing really well on the electronics business, which, as you know, has, you know, the amplitude of the cycle has muted because of our diversity, diversification work we've done, but it is still a cycle. So, you know, so we're in a good part of the cycle. We have taken costs out, materially improved the position of the business well. We have mixed help in that. So there are a number of contributing factors. So, My caution would be let's give it a couple of quarters here before we lock in a run grade.
spk08: Totally fair. Thank you so much. Go ahead.
spk05: Yeah. Simply, there's a lot of things going on here. One of them also is the top-line growth. I mean, this is a record sale quarter for this segment. And so as you think about driving that growth, you get that natural leverage as well. And so – not just the profitability, it's also the growth that that's delivering. I mean, 11% organic growth in the quarter despite all these challenges.
spk08: Well, I guess to that end, I assume, you know, facility utilization has got to be at or near a record now.
spk05: Yeah, what you see on the CapEx side in this business, we are making investments to expand capacity where needed to support this growth. particularly, you know, in the electronic space and in the medical space, which we've highlighted as the high-growth areas. You see we spent, you know, although it's a small number, percentage speaking, but it is an increase, and $24 million on CapEx year-to-date. And so we continue to add capacity where needed, although it's continuously capitalized.
spk04: Yeah. Chris, you know, on the capacity side, you know, On our assembly business, think of that as capacity we have, but more constrained by the supply chain and our ability to get components to fully support the demand. That's one capacity that you've got to take into consideration beyond our own ability to act on the backlog. So that's one. On the process side, which is sort of what Joe has mentioned, we're adding capacity to where there it is, you know, physical capacity within the company. But, you know, we are excited about the capacity ads we are making in businesses that have very strong growth, really, really great investments for the company and our investors.
spk06: Understood. Well, thank you both so much for the call. I much appreciate it. Thank you.
spk09: The next question is from Walt Liptack with Seaport. Your line is open.
spk06: Hi, thanks. Good morning, everyone. Morning, Walt.
spk05: One thing I have to follow on as we're thinking about the second half, if there are going to be more systems shipped in the fourth quarter, does that have an impact on the fourth quarter gross margin? My recollection is that some parts might be higher margin and systems might be lower. I wonder if you could talk a little bit about that. Yeah, I would, you know, you are correct at a high level, although I would tell you the disparity between parts and systems is not that great, but you are correct at a high level. I would tell you there's a couple things offsetting that. Perhaps as you go into Q4 or as you think about Q4, one is the sales volume leverage, and then two is the price-cost realizations. I think that will improve sequentially from our Q2. So as we think about going from Q1 to Q2 improve, Q2 to the back half, that should also improve. And then I would also tell you, well, within the systems business, that's a big bucket, there is opportunities for mix within that. And when you think about the mix within the systems business, there is opportunity for that to be favorable. So I wouldn't necessarily think about mortgage and degradation as we go into Q4. Okay, great. And if I could try one on the IPS segment. You know, the 3% organic, I wonder if you could parse out what the price was versus units, and are you seeing unit growth? Yeah, I would tell you price was a component of that 3%, but there was also unit growth as well. It wasn't simply price.
spk04: Price wasn't the full 3%. And And also, Joe, this is the segment we have more currency headwind too, right?
spk05: Correct. So the currency headwind in this segment was 4%, and that was greater than that in the ATS segment due to the large European business that we have here. But specifically looking at the organic piece, I would tell you there was volume growth in there. That's not just all prices. Okay. All right, great. And then just for the last one, thinking about China and the reopening, you know, I guess as your employees get back to work, you know, I wonder, is this something where you think it'll ramp quickly, or do you think China's going to have its own supply chains and this will be a slower ramp? You know, how long do you think it'll take to get China back to normal?
spk04: So, you know, we've got, you know, slowly bringing people back as the government allows us to. And we believe it'll be a smaller, slower ramp. But we also believe that we would be fully operational at normal run rates, hopefully in the next year. four to six weeks. So, you know, mid June that Joe mentioned in his earlier comments, that's our expectation. But while this is an, you know, a dynamic environment that none of us really control, our teams are doing one incredible job dealing with where we are. And we are so proud of how our leadership and our teams have worked together and teams around the rest of the world who have to sort of work around this issue in China. So it is not only that we have our China factory and our shipments in China, but we also have customers who pull from our other factories. So all in all, very proud of the work our teams are doing in some very incredibly difficult situations. So our expectations are things are doing well, things are coming back, but surely expect a slower ramp with an expectation that another four to six weeks we get back to normal normal uh shipping rates for us you know i could emphasize this more safety of our people is our number one priority and everything else will work out and and but we're just so proud of the team there and i'm proud of everybody around the world who've been working to sort of overcome the challenges we've had China in the quarter and as we get into third quarter. So a big shout out to the Normson team. Nice job.
spk05: Okay. That sounds great. Yeah. Good luck with that ramp in China and we'll talk to you soon. Thanks.
spk09: Thank you. We have no further questions at this time. I'll turn it over to Naga for any closing remarks. Thank you.
spk04: Our continued performance reflects the strength of our differentiated precision technology, customer-centric business model, and diversified end markets. The continued deployment of NBS Next and the Ascend strategy will ensure we remain well positioned in this dynamic environment. Thank you for your time and attention today on today's call. Have a great day.
spk09: Ladies and gentlemen, this concludes today's conference call. Thank you for participating. You may now disconnect.
Disclaimer