Nordson Corporation

Conference over to Laura Mahoney. Laura, you may begin.

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 Stephen Shamrock, Vice President, Corporate Controller, and Interim CFO. We welcome you to our Conference Call today, Thursday, February 22nd, to report Nordson's Fiscal 2024 First Quarter Results. You can find both our press release as well as our webcast slide presentation that we will refer to during today's call on our website at .nordson.com forward slash investors. This Conference Call is being broadcast live on our investor website and will be available there for 30 days. There will be a telephone replay of the Conference Call available until Thursday, February 29th, 2024. During this Conference Call, we will make references to non-GAP financial metrics. We've provided a reconciliation of these metrics to the most comparable GAP metric 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 expectation. These statements may involve a number of risks, uncertainties, and other factors as discussed in the company's filings with the Securities and Exchange Commission that could cause actual results to materially differ. Moving to today's agenda on slide three, Naga will discuss First Quarter highlights. He will then turn the call over to Steve to review sales and earnings performance for the total company and the three business segments. Steve will also discuss the balance sheet and cash flow. Naga will share a high-level commentary about our enterprise performance. He will conclude with an update on the Fiscal 2024 full-year and second quarter guidance. We will then be happy to take your questions. With that, I'll turn to slide four and hand the call over to Naga.

Steve Good morning, everyone. Thank you for joining Naga's Fiscal 2024 First Quarter Conference Call. At the outset, I'd like to recognize the dedicated Nordson team who leverage the NBS Next growth framework to deliver solid first quarter results. Sales of $633 million were near the top of our first quarter guidance range. This was driven by strong performance in our medical interventional, industrial coding, and polymer processing product lines, which more than offset continued weakness in our electronics product lines. In addition, our focus on top customers and differentiated products improved product mix. This focus, in addition to simplifying and strategically adjusting costs, led to strong incremental margins, resulting in adjusted earnings per share of $2.21. This exceeded our EPS guidance for the quarter. Finally, I'd like to highlight our first quarter pre-cash flow of $165 million, which was 150 percent of net income. This was a new first quarter record. I would also like to recognize the steady progress of our AIRAG integration, which contributed to our sales and EBITDA margin performance in the quarter. We continue to be excited about the technology and precision agriculture and market, as well as the engagement and energy of our new employees. I'll speak more about the enterprise performance in a few minutes, but first I'll turn the call over to Steve to provide detailed perspective on our financial results for the quarter.

Thank you, Naga, and good morning, everyone. On slide number five, you'll see first quarter fiscal 2024 sales were $633 million, an increase of 4 percent compared to the prior year's first quarter sales of $610 million. This was driven by a favorable 5 percent benefit from the AIRAG acquisition, partially offset by an organic decrease of 2 percent.

Consistent with

prior quarters, the organic sales decrease was primarily volume, partially offset by price as we continue to pass through year over year cost inflation. As Naga referenced, strength in our industrial and medical product lines were offset by ongoing weakness in our electronics product line. Growth profit, excluding non-recurring inventory step-up amortization in both periods, total $351 million for the first quarter of fiscal 2024 compared to $333 million in the prior year first quarter. This improvement in adjusted gross margin of approximately 100 basis points reflects a combination of factors. With our NDS Next growth framework, we are focusing on top products driving a favorable product mix. During the quarter, we also had higher parts sales and improved factory efficiency, which helped drive the year over year improvement. As we execute the ASCEND strategy and build scale through strategic acquisition, EBITDA is increasingly important as a key profitability metric. EBITDA adjusted for acquisition-related items in both periods totaled $197 million or 31 percent of sales, a 9 percent increase over the prior year EBITDA of $181 million, driven by improved gross margins and cost controls, as well as contribution from the RRAG acquisition. Looking at non-operating expenses, net interest expense increased $10 million associated with higher debt levels and increased interest rates. Other net expenses decreased $3 million, primarily related to lower foreign exchange losses compared to the prior year. Tax expense was $29 million for an effective tax rate of 21 percent in the quarter, which is in line with the prior year rate and our guidance range for 2024. Net income in the quarter totaled $110 million or $1.90 per share. Adjusted earnings per share, excluding non-recurring acquisition costs and amortization of acquisition-related intangibles of $23 million, totaled $2.21 per share, a 3 percent increase from the prior year adjusted earnings per share amount of $2.14. This improvement continues to demonstrate the benefits of our successful execution of the ASCEND strategy. Now let's turn to slide 6 through 8 to review the first quarter 2024 segment performance. Industrial precision solution sales of $355 million increased 14 percent compared to the prior year first quarter, driven by the RRAG acquisition, as well as increased sales in our industrial coating, polymer processing, and non-woven fizzlances. Organic sales increased 2 percent over the prior year first quarter, continuing to build upon a record fiscal 2023 for this segment. EBITDA, excluding RRAG acquisition-related costs, was $126 million in the first quarter, or 36 percent of sales, an increase of 16 percent compared to the prior year EBITDA of $109 million. The increase in EBITDA was driven primarily by the RRAG acquisition, plus the organic sales growth of the Bay business. It's worth highlighting that this quarter marks 12 out of 13 consecutive quarters of EBITDA growth and 11 of 13 quarters of organic -over-year sales growth. On slide 7, you'll see medical and fluid solution sales of $160 million increase 3 percent compared to the prior year's first quarter, driven by another quarter of double-digit growth in our medical interventional solutions product line, offsetting softness in our medical fluid components and fluid solutions product line. During the quarter, we started the anniversary of the weakness of last year's biopharma de-stocking, which was a significant headwind for this segment in fiscal 2023. First quarter EBITDA was $60 million, or 37 percent of sales, which is an increase of $7 million compared to the prior year EBITDA of $53 million, or 34 percent of sales. The 300 basis point improvement in EBITDA margin over the first quarter of 2023 is due primarily to a combination of factory efficiency gain and cost actions, coupled with leveraging the organic growth in medical interventional solutions. Turning to slide 8, you'll see advanced technology solution sales were $119 million, an 18 percent decrease compared to the prior year first quarter. The decrease in sales was driven by weakness across the segment, primarily electronic dispensed products serving semiconductor and hardware markets. First quarter EBITDA was $22 million, or 19 percent of sales, which trailed the prior year first quarter EBITDA of $31 million, excluding acquisition-related costs. While the reduction in EBITDA was tied to the overall decrease in volume, favorable mix and cost reduction actions contributed to 32 percent decremental margins on adjusted operating profits. This is ahead of our decremental target of approximately 55 percent. Finally, turning to the balance sheet and cash flow on slide 9, at the end of the first quarter, we had cash of $136 million and net debt was $1.5 billion, resulting in a leverage ratio of 1.8 times based on the trailing 12-month EBITDA. We continue to have significant available borrowing capacity to pursue organic and inorganic growth opportunities. I also want to highlight our strong cash flow performance. Free cash flow was $165 million, a first quarter record, and $51 million improvement from the prior year. As a percentage of net income, free cash flow was 150 percent in the quarter. We strategically deployed this strong cash flow in the quarter. We repaid $107 million of debt, paid $39 million in dividends, and spent $3 million on share repurchases under our 10B51 plan, buying back approximately 15,000 shares of company stock at an average price of $212 per share. For modeling purposes for the full fiscal year, assume an estimated effective tax rate of 20 to 22 percent, capital expenditures of approximately $40 million to $50 million, and net interest expense of $74 to $78 million. I want to thank the Norton team for all of their efforts in delivering another strong quarter. We'll now turn to slide 10, and I'll turn the call back to Naga.

Thanks, Steve. The Norton team is getting off to a good start to the fiscal 2024. As I travel to our sites, I have the privilege of witnessing the impact of a SIN strategy in building a stronger Norton that is delivering robust operating performance. Norton is sustaining market-leading positions in diversified end markets through our close to the customer business model and differentiated precision technology. Now, NBS Next has become a new core strength and is manifested in how we operate our businesses. Using data, our teams have a crystal clear view of the profitable growth opportunities in each division. Coupled with an entrepreneurial owner mindset, they are making choices on where they should prioritize growth as well as where they must simplify. For example, the industrial coatings team worked with a significant automotive customer on a new electric battery application. They worked closely with the customer and were able to meet its needs with a standard product. Our efforts to standardize top product configurations and eliminate complex customization drove agile execution, shortening lead times, and allowing them to be more responsive to the dynamic changes in customer needs. Our medical interventional solutions team has identified its top products and implemented a visual demand-based manufacturing or Kanban-based manufacturing system for their products. This has led to significant improvement in their on-time delivery performance over the last six months. The team had a big win when one of our medical customers placed a large order and the team was able to respond quickly, serving dynamic changes in demand, and delighting the top customers. As I mentioned at the beginning of the call, the decisions our teams are making to focus on top products, serves our customers well, enhances our product mix, and improves our gross margins. In addition, their work on simplification resulted in strategic cost actions that contributed to our profitability in this quarter. It is exciting to see MDS-NEXT becoming a competitive advantage for Nordsen and how the steady deployment across Nordsen is positively impacting our financial results. Our end markets are performing as expected at the start of our fiscal year. Industrial and consumer non-durable end markets are steady. The RAG integration is going well and the team contributed to our sales and EBITDA margin performance in the quarter. Our medical interventional solutions product lines continue to grow double digits, void by trends in non-invasive surgeries and the aging population. We have now, anniversaries, the negative impact of biopharma destocking that was a headwind in fiscal 2023. We are seeing modest pick up in order entry within the fluid components product lines, which we are monitoring closely. Our guidance does not expect any significant pick up in biopharma growth short term. Our product lines exposed to the semiconductor electronic cycle experienced a weaker demand as expected in the first quarter. We remain very positive about the growth opportunities driving the next electronic cycle, including AI, automotive electronics, on shoring, CHIPS Act and more. While we fully expected to see benefits of those opportunities in the second half of calendar 2024, we now realize it may be closer to the end of the year. As the year progresses, we plan to provide investors with better visibility to what we are seeing in the market. Through all of this, our ATS leaders have done a very good job of implementing the NBS Next Growth Framework and positioning themselves for future growth. This includes positioning operations closer to the customer, focusing on differentiated product innovation and making strategic cost adjustments. ATS ability to outperform their detrimental targets in the quarter is a testament to this work. Turning now to our outlook on slide 11, we enter the second quarter with approximately $750 million in backlog. This backlog remains concentrated in our systems businesses, while customer order entry patterns have returned to historical norms in the rest of the businesses. Based on current visibility and order entry trends, we are narrowing our previously issued full year revenue growth to 4% to 7% over record fiscal 2023. Full year fiscal 2024 earnings are forecasted to be in the range of 2% to 7% growth per diluted share. This full year guidance continues to assume a neutral impact from FX rates and the ARRAG acquisition contributing approximately 5% growth at the midpoint of guidance. While we have raised the low end of our guidance, the lower midpoint of the range now assumes recovery of the semiconductor electronics and markets begins in the fourth quarter of fiscal 2024. For the second quarter of fiscal 2024, sales are forecasted to be in the range of $645 million to $670 million with adjusted earnings in the range of $2.20 to $2.35 per diluted share. Second quarter guidance considers weaker electronics and markets and the impact of the Chinese New Year shutdown. Before we open our call for questions, I wanted to recognize two new additions to our board of directors. In January, we welcome Chris Mappes, executive chairman and recently retired president and CEO of Lincoln Electric Holdings, as well as director at A.O. Smith and the Timken Company. Chris brings a wealth of global operations, M&A and industrial experience to our board. Through his career, Chris has demonstrated track record of operating performance improvement and shareholder value creation. Earlier this week, we announced the appointment of Annette Clayton to our board effective April 1st. Annette is the chairwoman and former president and CEO of Schneider Electric North America. Her career grew from production floor experience at General Motors to global operations and supply chain leadership at Dell Technologies to her leadership at Schneider, which focused on digital automation and energy management. In addition to her global operations and technology industry experience, Annette has direct familiarity with Nordsen's differentiated products and value proposition. Both Chris and Annette will bring unique insight and value to our board of directors. We look forward to benefiting from their counsel as Nordsen continues to grow and scale through the SN strategy. As always, I want to thank our customers, shareholders and the Nordsen team for your continued support. With that, we will pause and take your questions.

As a reminder, if you would like to ask a question, please press star followed by the number one on telephone keypad. Your first question comes from the line of Matt Somerville from D.A. Davidson. Please go ahead.

Thanks. A couple questions. First, on the ATF business, what sort of transpired in the last, you know, since the last call that has kind of prompted you to push out Naga, if you will, quarter or so, the inflection that you've been talking about in electronics and semiconductor, and similarly, what gives you confidence that we're going to see something materialize this year?

Yeah. Thank you, Matt. In a couple of things, what we will tell you is the demand or shipments for the NTS in the quarter was as expected, you know, weaker as we had expected, but the order entry has not picked up as we had hoped. You know, the inflection in order entry, this is sort of the precursor to having shipments in the following quarters. So that is really what has happened in our thinking is that this cycle influx may be a quarter later than what we had hoped. But a couple of other things I will add to this that is really important to keep in mind. First and foremost, you know, in the back half of the year, clearly, it comes get much easier for the business. Second thing I would also note, we have backlog which have, you know, expected customer shipments, you know, customer designated shipments in the second half. And then the third thing I would note for you is that we are beginning to see in a very small way in some niche businesses where we supply UV lamps to some front end semiconductor manufacturing customers. Order entry is very nicely up when compared to last year. You know, it is a small part of the business, but it is a good early indicator. In the same way, if you think about our electronic adhesive packaging businesses where we sell the barrels, we also see some pick up in business there, order entry and shipments. So a couple of early indicators. And finally, what I will tell you is that our opportunity pipeline for projects with conversations with customers still remain robust. Nothing really has been shelved or put away. So, you know, order entry is not turned yet. That is probably the takeaway you could have, but we have enough evidence in the business to feel strongly about how a second half plays out this business. So maybe I will stop there.

And yeah. Yeah. Thanks for the color, Naga. And just as a follow up sticking with ATS, it sounded like in the prepared remarks that you saw maybe fairly broad weakness across the segment, maybe implying that the test and inspection investment cycle you have been seeing the last 18 months or so is starting to roll over. Is that the proper conclusion to be drawing here? Thank you.

Yeah. In terms of the test and inspection, you know, we have had some very robust growth in the last, you know, the cycle and past our dispense business. So what you're really seeing is some strong comparisons that are difficult to keep up with. What I would tell you and what has been our experience is that the test and inspection business cyclicality is much more, you know, muted when compared to our dispense business. That is a distinct difference. But yes, it does go through a cycle and comps are also in its way.

Thanks,

Naga. Thank you.

Your next question comes from the line of Allison Poliniak from Wells Fargo. Please go ahead.

Hi. Good morning. Good morning. Turn to MFS. I guess, you know, we had a little return to growth here. There's obviously some headwinds still in that segment. Could you maybe talk to any structural challenges if there are any with that business in terms of maybe even competitive dynamics that would limit it to that kind of returning to that high single digit growth or nothing in the way? It's just sort of cyclical and you expect to achieve that at some point going forward. Just any thoughts there? Yeah.

You know, MFS is returned to growth. And to your question about do we see any structural changes in our own position or the landscape? The answer is no. If you look at our medical interventional business, it is growing double digits, continues to grow double digits. And, you know, we expect this business to continue to grow high single digits. What you have in MFS is this medical fluid components, which had the my biopharma exposure last year was a significant decline, right? And so that significant decline essentially put MFS in a negative growth last year. But that is anniversary. And so what we are beginning to see is a modest pickup in order entry in this business, not from biopharma, but from other end markets this business serves. We serve patient care, we serve surgical applications, and we see a pretty good order entry there. And so that is what you're seeing in terms of, you know, over time, what you're going to find in this business is have MFS return to high single digits. And you have the fluid solutions business in there as well, which has a broad diversified exposure beyond medical. And so that business is also, you know, tied a little bit to electronics and we're beginning to see some pickup there.

Got it. And then IPS, I think you talked about what are patterns starting to normalize there. Anything that, you know, I would say is sort of a red flag or does it seem pretty consistent in terms of what you're seeing in terms of demand for products in that business as well?

IPS steady. Order entry is steady pretty good. But, you know, look, we've been growing in this business for 11 out of 13 quarters. I mean, pretty remarkable growth. So, you know, order entry is normalized. What we mean is that order entry patterns are similar to pre-corp. That's what we mean by that. What we also see is that you have strong backlog in big system business like our industrial coatings product line and our polymer process product line that will essentially help us get through this year. And then, you know, it is good to remember ARAG is in this segment and is going to contribute 5% to organic growth this year. So, we feel really good about IPS. So, the way to think about it, you know, if I were to summarize the two questions, one from Matt and from you, I would tell you IPS steady, RRI contributing 5% to the growth, MFS returned to growth, pretty nice growth. And then ATS, we are expecting that we will start to recover in the quarter of this year. So, if you put all of that together, that is sort of what we have in terms of at the midpoint about 5% revenue growth in the top line.

Great. Thanks

so

much.

Thank you.

Your next question comes from the line of Saree Boroditsky from Jeffreys. Please go ahead. Hi. Good morning. Good morning, Saree.

I believe the book to build was below one again this quarter. So, when would you expect this to turn positive and how do you think about backlog levels as you exit this year?

Yeah. You know, if you look at our backlog as we have noted in our release as well as in our conversations, $750 million, it is higher than where we normally would run for this size of a business. A historic normalized level will be about $600 to $650 million, something like that. Order entry in most of the businesses have returned to normal order patterns. What we mean by that is we do not have any anxiety in the customer order patterns. So, you know, if you go back even four quarters ago, you still had people, you know, might be still concerned about supply chain constraints and that does not exist anymore. So, I would say the vast majority of our businesses order entry has gotten to historical levels and the organic goods are based on those order entry rates.

Yeah. Maybe another data point I would add to, Saree, as well, just to Naga's comments. I mean, if you think about, you know, the backlog, we consumed about $200 million last year for the full year as we, you know, transitioned more to a normalized environment and in 2021 we consumed about $50 million. So, we are still on that I will say normalized pace.

Okay. Thanks for the color. So, you know the impact of the Chinese New Year in the second quarter. I believe in the past you've talked about it being a $15 to $20 million impact. So, would that still be the right way to think about the shift for this year?

Thanks. Yeah. No, Saree, what I would tell you, I think, is I think about, you know, the second quarter and the guidance we gave and, you know, the timing of the Chinese New Year, I'd say, is roughly about a $10 to $15 million impact. That's what we're seeing. And if you really think about that, right, you know, the guidance that we gave for the second quarter here at the midpoint, we've got sales growth of 1%. Which would imply, you know, negative organic growth of 4%. Again, we're still expecting our rag to contribute 5% and FX to be neutral. If you think about that, that's about half of that negative organic growth is coming from the Chinese New Year. So, and obviously we had the opposite effect in Q1 as well, right? So, even on quarter to quarter basis, the organic growth rates in Q2 are not as bad on the surface as they look based on that.

I appreciate the color. Thank you.

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

Hey, good morning, everyone. Good morning. Just want to follow up on that last comment there. Maybe you could talk about the seasonality as you go through the year here, right? I think this is the first year that I can see in my numbers that wasn't up sequentially at least double digits. It's not handsome in the double digit level. So, I get the Chinese New Year impact. I get that you're shifting the semiconductor recovery to the back half of the year. Just making sure there's nothing else going on with the usual second quarter. And then when you get to the back half of the year, can you help that cadence thing and maybe help us out relative to normal seasonality? In other words, are you shifting that significant kind of sequential uptick into the third quarter? Is this more steady in the third quarter versus Q2 and then a more sizable uptick in the fourth quarter?

Yeah, Mike, I'll start with that from that perspective. I mean, if you look at the second quarter guide there, right, what I would tell you is what you're not seeing, again, is the weakness in the electronics end market, right? That's also weighing down the second quarter as well in the ATS segment, right? So, from that perspective, if I think about the second half, as Naga referenced earlier, the comp should get easier for sure from an ATS perspective, particularly with the expected pick up in the fourth quarter. So, I think that's what gives us confidence there if we talk about seasonality and how that works from quarter to quarter, at least with respect to ATS.

Okay.

And then, can you just talk about the trends with an ARAC and what the expectation is there? Let's think, you know, kind of the impact you've already given out. I'm more thinking, what are the underlying trends you're seeing? How does that compare on more of an organic basis and in context on that side?

Mike, that was on ARAC, right? You were breaking it. Yes, sir. Okay. All right. Thank you. On ARAC, you know, make a couple of broad comments. Hopefully, I will answer the questions because I had little trouble hearing you completely. So, if I don't answer all of your questions, please do follow up. Integration is going very well. Great technology, great team, contributed to sales and EBITDA margins, the differentiation of their product categories and the resulting gross margins all confirmed during, you know, our ownership of the business here. So, pretty excited about the business, how that is integrating all is well from that point of view. We also expect that ARAC to contribute 5%. There is no change there. You know, a couple of things to remember about this business. Approximately 45% of the revenue is aftermarket parts in this business, right? So, most, many of these parts are short life replacement cycle businesses like nozzles that need to undergo, you know, more periodic replacement. If you think about it, you know, they sell mostly critical low-cost components for their customers which drive efficiency and reduce usage of material, costly fluids like fertilizers and chemicals,

right?

And then the next point to remember about this business is we're not tied to sell people selling tractors. We're tied to folks that manufacture implements, implements that are used to spray, implements that are used to plant. And so, from that perspective, even when you defer a large capped back spend, you definitely try to update and continuously able to have better implements so that you can deliver on productivity and efficiency for an individual farm or other farm organization. You know, we expect the business to be a creative on EBITDA to Norton and slightly a creative to EPS when you exclude amortization. So, hopefully that gave you a broad overview of that.

Yeah, no, the broad overview, all that makes sense. I think the question was a little bit more geared to just current trends and how you're seeing those

trends

materialize in the market.

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

Yes, sir, because, you know, I certainly understand the contribution you're expecting to 5%. I certainly have spared remarks. I understand the long-term component too. I think just for the short-term dynamics, particularly because you're hearing it slow down. You're pretty curious how that's impacting you, knowing that you do have a size gap.

Yeah, Europe is, the market is down. It does impact us a little bit, but not to the same extent as an implement, you know, a big tractor manufacturer or an implement manufacturer since we are selling components. So, it does have an impact, but not to the same extent as you've heard in the street around 15-20%. That's not what we're seeing in the business. Appreciate it. Thank you.

As a reminder, if you would like to ask a question, please press star one on your telephone keypad. Your next question comes from a line of Andrew Buscalguia from BNP Paribas. Please go ahead.

Hey, good morning, guys. Good morning. Just wanted to, you know, confirm in that backlog, as it relates to ATS, you see what's coming in Q4 through those orders from UV labs and electronics packaging, or is it something else? I'm just trying to confirm, you know, your confidence that that converts.

Yeah, so probably two interrelated items that you mentioned, so the first on the UV and the electronic packaging barrels, that's happening right now. They are smaller parts of the company, but they're very good early indicators because they serve, so if you think about an electronic manufacturer or a, you know, finished device manufacturer, you're going to pick up the slack by increasing your manufacturing consumables, right? You know, if you're not buying new lines, but you're increasing the usage of their existing lines. And so you would normally see that in our consumable barrels packaging businesses. That's what you're seeing, and we're seeing it right now. On the UV lights is the same way. We sell to people who make equipment that goes in the front end of the semiconductor. Again, a small business, but a good early indicator that our customers who essentially play in the front end of the market, and Norton doesn't play much there. It's an early, new opportunity for us, but it is early for us. So those two are early indicators. That's what I meant by that. In terms of our backlog, in a couple of our test and inspection businesses, we have customer orders in place for shipments in third and fourth quarters. That is in our backlog. So those are system backlogs that is in the business that gives us confidence for a portion of the third and the fourth quarter shipments, right?

And

we do still expect order entry to pick up to fully, you know, fully deliver on the ATS expectations we have.

Okay. Okay, that's helpful. And Naga, you know, margins have been great. A strong quarter, Ascend has really been successful. It's in the third year now, and I'm wondering how much more is left in the tank as it pertains to pricing and things like cost savings?

Yeah. Yeah, I think, you know, think of Ascend and NBS Next as a growth framework rather than a cost play. In terms of where we are, you know, look, when you sort of implement and deploy a growth framework across a company, you know, think about this was all organically put together and built within the company. So three years, in my opinion, is still early innings, right? So what you're trying to do, NBS Next is now becoming the way we run the company, operate the company. So you're just beginning to see the benefits of the strategy being effective. So in terms of, if you think about where are we at in terms of each of our divisions using it, I would say three or four divisions delivering what we call leadership level performance. You know, these are very specific metrics of quality, on time delivery, new product vitality, customer growth, employee engagement. So there are like five metrics within the company, I would say, and we call them leadership level performance. We have about four of our divisions at leadership level in most of those metrics. We have six or seven very closely following. So what you're beginning to see is the impact of NBS Next and the ASCEND strategy that is beginning to show up in our business. And IPS is a great example of that, right? These were some of, you know, a couple of the big divisions in IPS were the first places where we implemented the strategy, and you can begin to see the performance on the organic growth side. So our expectation is we are focused on growing the company organically, innovation, top customer growth. Clearly, we will have solid incrementals. You know, our expectation on organic growth is 40%. So by virtue of that, you're going to see some margin expansion, but that's not where we start.

Got it. Yeah, very helpful. Thanks, Naga. You're welcome.

Your next question comes from the line of Jeff Hammond from Key Bank Capital Markets. Please go ahead.

Hey, good morning, everyone. Good morning, Jeff. Hey, just on back on this Chinese New Year, is that pretty broad across the segments, or is that going to be more focused in electronics?

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

Okay. And then, Naga, just on biopharma, it sounds like the de-stocking is behind us. I mean, that's what we're hearing, I guess, from some of the people in that space, but it doesn't sound like you're seeing any real order intake. As you talk to that customer base, what's kind of the ability for that to start to inflect?

Yeah. I think the way to think about it is, rather than give you an exact timing, let me tell you what we fundamentally believe about this business. You're right. The de-stocking has come to a place where it is pretty much at the bottom of the cycle at a lower demand level, for sure. And that's what we're seeing in our businesses. As we talk to our customers in general, what we are talking about is for specific components they buy from us, what is their current inventory level? That is a better indicator of their future orders. And we are at that point where people are ordering at it. Their ordering pattern has changed. That is one thing that we see in this. In the past, like other medical device manufacturing space, most of our biopharma customers will place blanket orders. That has changed. We no longer get blanket orders. Instead, we get more regular book and ship kind of business. That has changed. We are still working through this, but the more interesting part is we have some pretty nice growth in patient care. We have some pretty good growth in surgical applications. That's where we're getting to see some pretty good order entries and pretty good shipment. Nothing about biopharma has fundamentally changed. Single-use plastics transition from stainless steel to plastic, increased amount of biopharmaceuticals, all long-term trends, still intact, still favorable for the business. I'd love to be able to tell you when exactly this influx. I just don't know.

Okay. Appreciate the color. Sure.

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

Our strong operating performance reflects the strength of our diversified end markets, close to the customer model, differentiated precision technology products, and rigorous implementation of NBS Next growth framework. Again, I want to thank Nortzen's employees for their commitment, which makes these results possible. The continued deployment of the ASCEND strategy positions us well for long-term growth. Thank you for your time and attention on today's call. Have a great day.

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