Nordson Corporation

Vice President and Chief Financial Officer. We welcome you to our conference call today, Thursday, August 22nd, to report Nordson's fiscal 2024 third quarter results. You can find both our press release as well as our webcast slide presentation that we will refer to during today's call on our website at www.nordson.com forward slash investors. This conference call is being broadcast live on our investor website and will be available there for 30 days. There will be a telephone replay of the conference call available until Thursday, August 29, 2024. During this conference call, we will make references to non-GAAP financial metrics. We've provided a reconciliation of these metrics to the most comparable GAAP 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 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 materially differ. Moving to today's agenda on slide three, Naga will discuss third quarter highlights as well as yesterday's close of our Atrion medical acquisition. He will then turn the call over to Dan to review sales and earnings performance for the total company and the three business segments. Dan will also discuss the balance sheet and cash flow. Naga then will share a high-level commentary about our end market and provide an update on the fiscal 2024 full year guidance. We will then be happy to take your questions. With that, I'll turn the call over to Naga.

Good morning, everyone. Thank you for joining Nordstrom's fiscal 2024 third quarter conference call. Before I begin, I'm pleased with the closure of the Atrion medical acquisition as we announce in a press release issued yesterday morning. I would like to welcome our new colleagues from Atrion into the Knudsen family. Atrion's products will expand our current portfolio in medical fluid components and interventional solutions by adding a category leader in infusion fluid delivery and niche cardiovascular therapy products. Atrion expands Norton's fluid components addressable market by more than 50% by adding products and solutions for infusion therapies and drug delivery. This also extends our current offering to top medical device customers and broadens Norton's exposure to higher growth medical end markets with significant single-use consumables with recurring revenue streams. Going forward, Atrion will be part of our medical and fluid solutions segment. Now let's shift to our third quarter earnings results on slide five. At the outset, I would like to recognize the dedicated Nordstrom team who have leveraged the NBS Next growth framework to deliver strong operating results. Sales of $662 million were in line with our expectations, driven by IPS segment, which delivered strong organic growth of 4%, in addition to increased sales from our ARAG acquisition. This growth was partially offset by continued softness in electronics, compared to prior year, as well as lower demand impacting our medical businesses. In addition, our focus on top customers and differentiated products improved consolidated product mix. This strategic focus and a commitment to managing costs led to improvements in gross margins and top quartile EBITDA margin of over 31%. In the quarter, we delivered adjusted earnings per share of $2.41, which is up 8 cents from the midpoint of our guidance. Finally, I'd like to highlight our third quarter free cash flow of $143 million, which was 122% of net income. We continue to generate strong cash flow and execute a balanced capital deployment strategy with $39 million in dividends paid, $25 million in share repurchases, and $40 million in debt reduction during the quarter. I'll speak more about the enterprise performance in a few moments, but first, I'll turn the call over to Dan to provide a detailed perspective on our financial results for the quarter.

Thank you, Naga, and good morning to everyone. On slide number six, you'll see third quarter fiscal 2024 sales were $662 million, up 2% from prior year third quarter sales of $649 million, and in line with the midpoint of our quarterly guide. This was driven by a 4% increase from the AIRAG acquisition, partially offset by an overall organic sales decrease of 1% and unfavorable currency translation of 1%. As Naga mentioned, we saw growth in our IPS segment organic sales during the quarter, in particular our packaging and non-wovings divisions, which were offset by softness in certain electronics and medical product lines. Gross profit during the quarter remains strong at 56% of sales. Deploying our NBS Next growth framework, we're focusing on top products, driving a favorable product mix, while also continuing to improve our manufacturing efficiency. EBITDA adjusted for special items in both periods totaled $208 million for the quarter, or 31.5% of sales. slightly below the prior year by about 50 basis points, which was driven by higher selling and administrative costs, including the first-year impact of the ARAG acquisition. Looking at non-operating expenses, net interest expense increased approximately $6 million associated with higher debt levels tied to the ARAG acquisition. Other income on a net basis decreased by $2 million, primarily reflecting certain foreign exchange transactional variations compared to the prior year. Tax expense for the quarter was $32 million, or an effective rate of about 21.5%, which is in line with the prior year rate and our guidance range for 2024. Net income in the quarter totaled $117 million, or $2.04 per share, excluding $8 million of non-recurring costs related to the Atrion acquisition and selected restructuring charges, as well as $19 million in amortization of acquisition-related intangibles. Adjusted earnings per share for the quarter totaled $2.41, 8 cents above the midpoint of our quarterly guidance. but a 6% decrease from the prior year adjusted earnings per share of $2.55. The decrease in year-over-year earnings reflects the slightly lower operating margins and increased interest expense I just walked through. Now let's turn to slide 7 through 9 to review the third quarter 2024 segment performance. Industrial precision solution sales of $371 million increased 10% compared to the prior year third quarter. The ARAG acquisition contributed 7% sales growth, while organic sales were up 4% year over year, partially offset by unfavorable currency translation of 1%. Organic sales improved across most of our product lines with particular strength in packaging and nonwovens. It's important to note that these results continue to build upon record fiscal 2023 revenue for the IPS segment, which has now delivered organic growth in 13 of the last 15 quarters. EBITDA for the segment was 135 million in the third quarter, or 36% of sales, an increase of 10% compared to the prior year EBITDA of 122 million. The increase in EBITDA was driven by the AIRAC acquisition and strong contribution from our organic sales growth. It's also worth highlighting that this quarter marks 14 out of 15 consecutive quarters of EBITDA growth for the IPS segment. Turning to slide 8, you'll see medical and fluid solution sales of 167 million decreased 2% compared to the prior year's third quarter. driven by lower demand in our medical interventional solutions and fluid components product lines. While the biopharma portion of our fluid components product lines have stabilized, other product applications for patient care and surgical applications are adjusting to more conservative customer order entry patterns. This is despite solid underlying demand for patient procedures. These decreases were also partially offset by improved sales in our fluid solutions product lines versus last year. EBITDA for medical and fluid solutions was 62 million for the quarter, or 37% of sales, which was a 9% reduction to the prior year EBITDA of 68 million. The decrease was driven by lower volume and unfavorable product mix during the quarter. In spite of these recent growth headwinds, the segment has now delivered EBITDA margins greater than 35% in 14 of the last 15 quarters. Turning to slide 9, you'll see advanced technology solution sales were $124 million, an 11% decrease compared to the prior year third quarter. The decrease includes 10% organic volume decline, as well as unfavorable currency translation of 1%. The decrease in sales was driven by electronics processing and x-ray and test product lines offset by growth in our optical sensors businesses. While we expected weakness year over year, segment sales increased over 8% sequentially versus Q2, and we continue to see modest improvement in order intake as the semiconductor and electronic applications we serve continue to show signs of improvement. Third quarter EBITDA was 26 million, or 21% of sales, below prior year third quarter EBITDA of 33 million, which excluded special items of $2 million related to cost reduction actions in the prior year. While the reduction in EBITDA was tied to the overall decrease in volume, favorable mix and cost reduction actions contributed to achieving a 41% decremental on the lower year-over-year sales. This is well ahead of our decremental target of approximately 55%. Finally, turning to the balance sheet and cash flow on slide 10, at the end of the third quarter, we had cash on hand of $165 million, and net debt was $1.3 billion, resulting in a leverage ratio of about 1.6 times based on trailing 12 months EBITDA. Pro forma for the Atrion acquisition that we just announced, Net debt will rise to about $2.2 billion, and our leverage ratio will increase to approximately 2.5 times in the near term, which remains within our targeted range. We funded the Atrion acquisition with a $500 million term loan, cash on hand, and borrowings on our revolver. We plan to refinance the term loan in the public bond markets and will continue to use cash from operations to repay our revolver borrowings over time. After the acquisition, we still have greater than 50% availability on our revolver and greater than 600 million of liquidity available to the company, including cash on hand. Our free cash flow generation continues to be a strength at 143 million during the quarter or 122% conversion rate on net income. As we continue to strategically deploy this strong cash flow, As Naga mentioned earlier, we reduced debt by $40 million in the quarter, paid $39 million in dividends, and repurchased $25 million in shares, all while continuing to fund capital and product development investments for growth. Notably, last week, we announced our 61st year of increasing our annual dividends, building upon our legacy of growing capital returns as we grow the company. All in all, we had a solid quarter, and we're well positioned to close out the year. With that, let's turn to slide 11, and I'll turn the call back to Naga.