Nordson Corporation

Hello, everyone. Thank you for joining us and welcome to the Nordson Corporation first quarter fiscal year 2026 conference call. After today's prepared remarks, we will host a question and answer session. If you would like to ask a question, please press star one on your telephone keypad. To withdraw your question, press star one again. I will now hand the call over to Lara 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 Chief Executive Officer, and Dan Hopgood, Executive Vice President and Chief Financial Officer. We welcome you to our conference call today, Thursday, February 19th, to report Nordson's fiscal 2026 first quarter results. You can find both our press release as well as our webcast slide presentation that we will refer to on 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. 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 differ. Moving to today's agenda on slide three, NAGA will discuss first quarter highlights. 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 will then share a high level commentary about our enterprise performance and provide an update on the fiscal 2026 second quarter and full year guidance. We will then be happy to take your questions. With that, I'll turn to slide four and turn the call over to Naga.

Good morning, everyone. Thank you for joining Norton's fiscal 2026 first quarter conference call. We entered 2026 optimistic about end market demand trends, and we achieved a record first quarter sales of $669 million. This is a 9% increase over the prior year and reflects 7% overall organic growth. Organic growth was broad-based across our segments with notable strength in our ATS segment, which grew over 20% compared to prior year due to momentum in the semiconductor and market. Solid execution and volume leverage drove strong profit performance for the quarter, increasing EBITDA by 8% and increasing adjusted earnings per share by 15% compared to prior year, both first quarter records. I would also like to highlight our free cash flow of $123 million and consistent cash flow conversion over 100 of net income during the quarter we strategically deployed this cash to repurchase shares return dividends to shareholders and maintain our debt leverage while continuing to invest in the company 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, everyone. On slide number five, you'll see first quarter fiscal 2026 sales. We're a first quarter record of $669 million, up 9% from the prior year first quarter sales of $615 million. Total organic sales increased 7%, driven by robust demand in Asia across most of our end markets. And while all of our segments contributed to growth, we saw particular strength in our advanced technology product lines, responding to growing demand in the semiconductor space. Favorable currency translation added an additional 4% to the top line in the quarter and was partially offset by the small divestiture that we completed in the fourth quarter of last year. Adjusted operating profit increased 10% year over year to $166 million, driven by increased SG&A leverage on the organic sales growth, as well as benefits from the divestiture of our medical contract manufacturing business. EBITDA was up 8% year-over-year at a first quarter record of $203 million. EBITDA margins as a percentage of sales were 30%, in line with the prior year as our sales growth was concentrated in Asia, where our gross margins are generally lower, particularly on system sales. As a result, we saw lower incrementals during the quarter, which we would expect to normalize over time. Looking at non-operating income and expenses, net interest expense during the quarter was $23 million, a decrease of $3 million versus the prior year, driven by lower year-over-year debt levels and a stable to declining rate environment. Other income increased $19 million year-over-year, principally related to a non-cash gain on a minority investment. To give a little color on this, since this is a new item, this relates to a small but strategic technology investment that we've accumulated over a number of years. The company we invested with completed an initial public offering in December of 2025 on the Korean Stock Exchange. As a result of this offering, we're now required to mark this investment to market value each quarter. The initial gain that we recognized was $22 million in the quarter before tax. We've excluded this non-cash gain from adjusted earnings and will continue to treat future adjustments to mark-to-market as such going forward. Excluding this non-cash gain, year-over-year changes and other income and expense were driven by foreign currency contract fluctuations. Our tax expense on a U.S. GAAP basis was $31 million for an effective tax rate of 19%, inclusive of the impact of the non-cash gain that I just mentioned. Excluding this impact, our effective tax rate on an adjusted basis was 18%. This result is slightly below our annual guidance range for fiscal 2026 due to some discrete benefits that hit in the first quarter, primarily tied to stock compensation. we still project our full year tax rate to be at the lower end of our initial guidance range of 18.5% to 19.5%. Net income in the quarter totaled $133 million, or $2.38 per share, excluding intangible amortization and the non-cash gain. Adjusted earnings per share totaled a first quarter record of $2.37 per share, $0.02 above the midpoint of our quarterly guidance and a 15% increase from prior year adjusted earnings per share of $2.06. This improvement in year-over-year earnings reflects solid operating leverage from the organic sales growth as well as benefits from the divested medical contract manufacturing business. Now let's turn to slides six through eight to review the first quarter 2026 segment performance. Industrial precision solution sales of $327 million increased 9% compared to the prior year first quarter. Organic sales increased 3% compared to the prior year with a favorable currency impact of 6%. Growth was broad-based across most product lines with particular strength in Asia-Pacific markets. Notably, demand for polymer processing and automotive product lines have stabilized as we expected. EBITDA was $110 million in the quarter, or 34% of sales, down 2% over prior year, largely due to the geographic product mix of organic growth and the lower incremental leverage on foreign currency changes. Turning to slide seven, you'll see medical and fluid solution sales of $193 million were relatively flat compared to the prior year's first quarter. Organic sales increased 3% in the quarter, led by strength in our engineered fluid solutions product lines. Divested sales from the medical contract manufacturing business had a negative impact of approximately 4% compared to the prior year. The 3% growth was a slower start than we expected for the segment, but we remain confident in the mid single digit outlook through the year. It's worth noting that the winter storms at the end of January did impact some of our production, as well as some of our medical supply chain on a temporary basis. We estimate to the tune of about a 1% impact on our sales in the quarter. EBITDA for medical and fluid solutions was $70 million, or 36% of sales, which was an increase of 9% from the prior year EBITDA of $64 million. EBITDA margin improved, driven by the divestiture, organic sales volume, and strong incremental performance. Now turning to slide eight, you'll see advanced technology solution sales were $149 million, a 23% increase compared to the prior year's first quarter. The 21% organic sales increase was driven by double-digit growth in electronics dispense product lines related to semiconductor applications, as well as recovering demand for our X-ray systems. First quarter EBITDA was $33 million, or 22% of sales. an increase of 43% compared to the prior year first quarter EBITDA of 23 million, or 19% of sales. The improvement in EBITDA margin compared to the prior year reflects stronger sales volume and volume leverage. The team did an outstanding job of maintaining SG&A during the quarter as a result of sustainable operational and footprint changes that they made within their segment in prior years, guided by the NBS Next Growth Framework. Finally, turn into the balance sheet and cash flow on slide nine. At the end of the first quarter, we had cash on hand of 120 million and net debt was approximately 1.9 billion. Our leverage ratio of 2.1 times remained consistent with year-end results and is in line with our long-term targets, allowing us to continue to strategically deploy capital and giving us plenty of firepower for acquisition of strategic assets. Our free cash flow generation was $123 million during the quarter, resulting in a 105% conversion rate on net income, excluding the non-cash gain. This represents the third consecutive quarter above 100% conversion, despite the accelerated revenue growth we achieved. As noted on slide 10, during the quarter, we invested $18 million in capital projects to drive future organic growth. We paid $46 million in dividends to our shareholders and repurchased $82 million in shares on the open market. We also modified and extended our existing $1.2 billion credit facility. As part of that transaction, we consolidated a term loan coming due in fiscal 2026 into the new facility to provide greater overall financial flexibility to pursue strategic opportunities with no change in our total outstanding debt. At quarter end, we have about $800 million available under the new facility. So to summarize the quarter, we achieved high single digit organic sales growth while maintaining our strong 30% EBITDA margins, despite some geographic and product mix headwinds. Our cash conversion remains strong, allowing us to strategically deploy capital to sustainably grow the franchise and return value to shareholders. Our team delivered on their commitments for the quarter and worked to grow backlog to position us for success in the second quarter. While market conditions have improved for most of our businesses, We remain balanced and vigilant for more meaningful recovery in select end markets, which is reflected in our updated guidance for the full year that Naga will cover in a moment. With that, let's turn to slide 11, and I'll turn the call back to Naga.

Thanks, Dan. This strong first quarter performance has set the stage well for fiscal 2026. Now, three months into the year, our end markets are playing out as we expected. Within IPS, investments in packaging and product assembly are sustaining. Precision agriculture investments continue to grow over prior year, and automotive and polymer processing applications have stabilized. Medical end markets are returning to more normalized growth, and we expect to see these benefits continue as the year progresses. Growth in engineered fluid solution product lines is being driven by electronics and industrial applications. Within advanced technology, our dispense and surface treatment product lines for semiconductor application continue to drive growth, while our X-ray systems that ensure the quality of semiconductor packaging are starting to inflect. Growth in general and automotive electronics is more muted, but there are early signs of growing capacity needs in these end markets. Because it is such an important growth driver, I want to take a moment on slide 12 to remind our investors about why Norton wins in the semiconductor space. Semiconductor applications account for approximately 50% of revenue in the ATS segment and drove the overall double digit organic growth in the first quarter. ATS core competency is in the advanced packaging process of semiconductor manufacturing. Our precision dispense applications including our market-leading Vantage and Spectrum S2 electronics dispense systems, enable underfill and encapsulation applications that allow the stacking of increasingly small chips on printed circuit boards. Our close-to-the-customer model positions Norton as a partner when customers start developing advanced manufacturing processes for semiconductor packages. Our technology enables these increasingly sophisticated manufacturing processes. Quality control of these costly and complex chips is also creating more opportunities for our test and inspection portfolio. Current investments are primarily in Asia Pacific, and we are well positioned across the semiconductor supply chain, both technologically and geographically as investments grow into other regions. Clearly, I am pleased with the momentum across our end markets and our ability to meet our customer needs. Turning now to our outlook, starting on slide 13, we enter the second quarter with continued order momentum and increased backlog up approximately 4% over the prior year. Order entry momentum was broad based in the quarter with strength in our ATS segment. These trends position the company to deliver Second quarter fiscal 2026 sales in the range of 710 to $740 million. Second quarter adjusted earnings are forecasted to be in the range of $2.70 to $2.90 per diluted share. Based on strong start to the year, the second quarter outlook and the current foreign exchange rate environment we are increasing our full year guidance as noted on slide 14. sales are now expected in the range of 2 billion 860 million to 2 billion 980 million which is an increase of four and a half percent at the midpoint The top end of our range assumes continued momentum from electronics and markets, as well as modest improvement in our industrial and automotive product lines. The bottom end of our guidance would assume some broader pullback in end market demand in the second half. While we certainly don't see signs of that today, we still believe it is prudent to plan for this potential scenario. Adjusted earnings will be in the range of $11 to $11.60 per diluted share, which is an increase of 10% at the midpoint. As always, I want to thank our customers and shareholders for your continued support, in particular I want to thank our Norton employees who are passionate about meeting the needs of our customers. Our focus on innovation and operational excellence continue to position as well to serve our customers. With that, we will pause and take your questions.

We will now begin the question and answer session, if you would like to ask a question, please press star one on your telephone keypad to withdraw your question press star one again. Please pick up your handset when asking a question, and if you are muted locally, please remember to unmute your device, please stand by while we compile the Q amp a roster. Our first question comes from Jeff Hammond with KeyBank. Your line is open. Please go ahead.

Hey, good morning, everyone.

Good morning, Jeff. Good morning, Jeff.

So really just want to, can we just unpack kind of the margin dynamics around this kind of systems, you know, geographic mix and Do you think that continues over the next three quarters? Do you see mix improving? Maybe what's showing up in the order book that would support kind of a mix change or stay in the same?

Yeah, it's a good question, Jeff. Yeah, I would say, number one, if I step back, we saw very strong incrementals in our medical business. I would say normal incrementals in our ATS business, really the primary segment where we saw the mixed challenges was in IPS. But I think more importantly, what we would say is there's been no fundamental change in the margin outlook for our business. You know, we've always said 40 percent is kind of the normal ongoing incremental expectation for our businesses. There's been no change in our gross margin profile. It's really just a mix issue in the quarter. So we see things moving back to normal, certainly as the year plays out.

And maybe just add to it, you know, if you think about our second quarter guide and our full year guide, both contemplates, you know, Norton delivering strong, best in class EBITDA margins like we've done in the past.

Okay. Can you just expand on kind of the slow start in medical X, I think the weather issues and just, what what you're seeing it gives you confidence that that you know business starts to pick up as you move through the year and if you can just give us kind of underlying incrementals in that business you know if you if you exclude kind of the best return back so we'll take the incremental first then go and then i'll talk about the sure yes yeah and as i said incrementals were actually quite strong i mean our incrementals all in are are essentially off the chart

I think when you kind of strip out the impact of the CDMO divestiture, our incrementals are still north, well north of 50% in the quarter. So quite strong and reflective of, you know, a good strong outlook in that business. From a growth standpoint, I mean, I'd say our 3%, while it's a slower start than we would have liked, You know, part of that was weather related. We mentioned about one percent impact. But we're, you know, frankly, very comfortable with the mid single digit outlook kind of return to normal growth. We see strong underlying demand in the business and our backlog and our project activity with our customers. So it's really just a slightly slower start and really not not that much slower than we expected. Not far off that mid single digit if you adjust for the weather impact.

Maybe add additional color to it, Jeff, is that supply chains in the interventional businesses have stabilized. We see some pretty good movement and order entry momentum in our fluid component business. Our ongoing demand for the Atrion businesses look good. I would just remind you that the Atrion businesses are going to be lower than our interventional businesses. But all in all, if you take the current order entry and if you take the backlog and take the healthy pipeline of customer projects, we feel pretty good about delivering on the mid-single digits for MFS for the full year. Okay. Appreciate all the detail. All right. Thank you.

Our next question comes from Mike Halloran with Baird. Your line is open. Please go ahead.

Hey, good morning, everyone. Good morning, Mike. Can we start on the ATS piece and maybe just give some more context to the moving pieces in the larger buckets there? You know, the dispense piece seems like it's tracking the right way. I'm going to see some signs on x-ray. Maybe broadly on the T&I piece, what are you seeing and just maybe put it all together, talk about the three pieces, the order trajectory and where you're the most confident.

Yeah, sure. Overall strong momentum on order entry, as well as revenue shipments in the quarter for these businesses. Clearly our dispense businesses were the strongest. And that is to be expected, right? If you think about our dispense businesses and their applications in these complex chip manufacturing processes driven by AI computing power needs of our customers, we see tremendous amount of investment going on in this business. And that is reflective of the revenue performance as well as the order entry. If you think about our TNI, you want to think about it in two pieces. One is our x-ray businesses, and the other one is what we call as AMI businesses. And so these are acoustic emission-based inspection techniques and optical techniques. So if you think about the x-ray, we are beginning to see some pretty nice momentum in our x-ray business. Remember last year, this business was a little bit down. We are beginning to see that business starting to inflect and feel really good about where we are. Think about these complex chips. These complex chips are now both combined logic and memory on the same stack. And And so these are very expensive chips and yield rates are everything here. And so the testing inspection applications continue to expand for us in these manufacturing processes. And so we feel good about the long term, but also feel good about the near term where we're seeing these orders starting to inflate. One thing that is, you know, we also have our AMI business, which is our acoustic emission business, there we have coming off of two really strong years of growth. We still have pretty decent growth plan for them this year. But in general, we feel really good about ATS segment. And that is reflected in our second quarter outlook. If you get into the second half, you need to remember that this business started to inflect in the second half of last year. The comps get a little bit difficult, but yet, based on what we can see in terms of backlog and order entry momentum, we feel still good about this year, this business being north of its long-term targets of mid-single digits.

Great. That was super helpful and Maybe you can just have the exact same conversation around the IPS segment, give it all the moving pieces there.

Yeah, sure. If you think about the IPS business, what we feel the headline really is we return to growth with IPS. We posted a 3% organic growth in the quarter. Expect that we will do so in the rest of the year. That's sort of what we contemplate in our midpoint of the guide. investments in packaging and product assembly and markets are sustaining we see we continue to see growth in our precision ag or arag business in europe and south america where we are market leaders stable aftermarket demand you know remember this is a business where we are after markets are you know a significant part of their revenue which is north of you know 55 or so um polymer processing and automotive end markets you know we expect a nominal recovery through the year they're stabilized um but you know not meaningfully inflecting yet the only other thing as the growth that we are seeing i'm sorry go ahead i said the exact same thing i apologize and said go ahead

Well, the only other thing I was going to add, Mike, is that the growth that we are seeing, back to our kind of prepared remarks, is largely in Asia today, or in Asia Pacific. Again, that's not just China, that's broad Asia Pacific. And so, you know, opportunity, we're still not seeing much inflection in the European and North American market demands. I think certainly there's some early signs, as Naga mentioned in his comments, but we're really not seeing that yet. And I think also being very cautious to call when that's going to happen.

Great. Thanks. Really appreciate it.

Yeah, sure.

Our next question comes from Matt Somerville with DA Davidson. Your line is open. Please go ahead.

Thanks. Just a quick follow-up. On the medical side of the business, can you just give a little bit more granularity as to the weather impact you saw in the quarter? Which business line was impacted? And if you kind of normalize for that impact, what would the medical organic have looked like in the quarter.

Yeah, it was primarily in our interventional products and then also to some extent in our fluid components, particularly some of our Atrion-related businesses. We had several businesses that have operations on the East Coast as well as supply chains that are East Coast-based. And the long and the short of it is we lost a few days of production because we had literally operations that were mandated to be shut down because of the weather impact. And so, you know, we estimated about a 1% impact. It's, you know, think of it as two to three days of production, very temporary in nature. We're back up and obviously fully running, but did have an impact on our ability to deliver during the quarter, especially with it happening late in the quarter. So again, I think the simple math is 3% overall growth normalized. That would have been about 4% in the quarter without that late storm impact.

Got it. Maybe if you can just comment on what you're seeing from an M&A standpoint, multiples, potential deal sizes, actionability, and where you see most activity across the company.

Thank you. Just a reminder, in terms of our acquisitions, we continue to work our pipeline, pretty active pipeline, lots of different opportunities they will pursue. What you don't want to look at lack of announcements and relate that to lack of activity, right? Because we remain financially and strategically disciplined. The areas we are continuing to work on are continue to expand our medical component portfolio. We're working on test and inspection opportunities and Any core technology, any technology that would add to our core offering in industrial. So that is sort of the three areas that we are looking at and working on. Yes, the multiples look a little elevated in some cases. In some places, it looked reasonable. I think, you know, for us, it is, you know, we're going to continue to be pretty disciplined around what we offer. what we buy and our criteria has remained the same. We're looking for businesses that would add to our growth portfolio, businesses that are differentiated, businesses that have strong technology plays. And from a financial perspective, we're looking for notes unlike gross margins. And, you know, maybe EBITDA was in the 20 range with meaningful opportunity to expand margins and, you know, an appropriate return. So all our criteria, both strategic and financial, remain the same. Healthy pipeline, continue to work them. Lack of announcement shouldn't be assumed for lack of activity or work on our part.

Thank you. Of course. Our next question comes from Christopher Glynn with Oppenheimer. Your line is open. Please go ahead.

Thanks. Good morning, guys. Good morning.

Good morning.

Just wanted to... You mentioned, I think, seeing some initial signs of the general electronics out of ATS starting to show signs of life that pretty consistent with what we're hearing from kind of adjacent companies or exposures to yours. But I just wanted to spend a minute exploring that topic.

Yeah, I guess maybe just to add a little bit of color, I would say we're not really seeing inflection in those businesses. I would say stable demand at low growth levels. I think the early signs that I would say we're pointing to is, and you guys see the announcements as much as anybody else, you're starting to see some of the semiconductor, I'll say the high-end semiconductor demand and investments seem to be trickling into the lower level electronics applications. If you think of memory and general electronics requirements, we're starting to see announcements and discussions around capacity investments. We're not seeing those yet, but certainly those are early signs that we may see inflection coming, uh, at some point in the future. Right now, what I would say we're seeing in those markets is stable demand at low growth rates.

Great. Thanks for that. And then, um, Just want to explore also when emerging technologies in the semi-application space start to hit you, say in the case of both packaged optics, is that a meaningful opportunity? Is that down the line or are you seeing some early action derivative of that technology?

Are you talking about optical modules? Is that what you're talking about, Chris? Yeah, exactly. Okay. Yes. That is an area of, you know, we have some interesting products there that helps our customers manufacture those optical modules. It's certainly an area that we are playing in, and it's an area where we are beginning to see orders directly related to that.

Okay. Okay. And last one for me, you know, what was, as I recall from back in the past, it's been a while, but, you know, FX can have a substantial impact on APS margins. And, you know, they were certainly well below, you know, the steady state that you delivered for a long time there. I know you talked about mixed, but ahead of the call, I was certain it would be FX. So just wanted to ask about that.

Yeah, and we mentioned that as well. FX is certainly, if you think of the incremental performance for IPS, that's certainly one of the items that impacts us. And yeah, the simple math I would give you is, because FX was about a 6% positive impact on IPS sales. we obviously we don't get the same incrementals on FX movements. In fact, we would give you the math of use a 25 to 30% range for a normal incremental on FX, both on the upside and downside. And so with 6% growth coming from FX at a lower incremental, certainly that's a contributor to the, to the performance in the quarter.

Great. Thank you for clarifying that.

Yep.

Our next question comes from Robert Jamison with Vertical Research Partners. Your line is open. Please go ahead.

Hey, good morning. Thanks for taking my questions. Just really wanted to follow up quickly on that FX incrementals. Should we be assuming the same sort of incremental drop through, the 25% up or down across the other segments as well for FX?

It varies a little bit by segment, but yeah, generally speaking, that's a good benchmark. And again, the only thing I would maybe caution you on is the outlook for the year. That FX impact will lessen at current rates, as you saw FX rates improving throughout the year last year or so. Q1, we get a pretty big lift, but that'll lessen as the year plays out at current rates. But yes, the the drop through should be pretty similar. It moves a few points one way or the other, but not significantly different by segment.

Great. Thank you. And then I just want to talk about full year guidance. You know, really solid performance in one Q. Nice to see you guys. Just taking Naga's comments, and I think it's wise here to have a level of conservative and baked in, and hopefully I'm reading those comments right. But what I'd like to kind of understand is, You know, what end markets and areas would you expect to outperform your base case estimates to get us, you know, at or above the high end of your, you know, sales range? You know, does it need to be an acceleration and like auto? I mean, I've been watching auto capex for, you know, plenty 20 plus global auto OEMs. And even since December, we've seen auto capex revised higher by like 5% growth in 26 from Flattish in December. So would it be kind of like a mix of that? plus more of an acceleration in some of the minimally evasive and especially medical business, would that be like kind of like a fair assessment if we were to, you know, things, everything were to align and get us towards the high end of your guidance range?

Hey, Rob, you know, thank you for your comments. You know, that exactly mirrors our thinking. You know, what we are trying to be is balanced, you know, and prudent in our thinking for the rest of the year. And in terms of the details of how we're thinking about each of these end markets, I'll have Dan talk to you about the high end and the low end.

Yeah, and I'll start with, frankly, I think the easier one. Medical, we see, as we mentioned, good, ongoing, stable growth in the mid-single-digit range. Is there potential for upside there? Potentially, but we're not really – I would say that's not a market that we expect to inflect further. necessarily. If I think of what would drive the higher end, it would be exactly what you're talking about, some further inflection in general industrial and automotive demand. And then the other key factor that I would say is, if you look at our ATS performance, as we've highlighted a number of times, ATS deliveries being 70% systems tend to be lumpy. we're not factoring in a 20% run rate and growth in this business. We know that there will be some lumpiness quarter to quarter, but one potential upside is if we see continuing ongoing strength and demand, that would be upside versus our kind of base case thinking.

Yeah. Maybe let me just add one thing there, particularly on ATS. Some of the demand And the exact delivery depends on our customer, right? So we are part of somebody else's large manufacturing supply chain that they're bringing a process up to speed. So occasionally there may be a pull ahead and sometimes a pull back. Postponing is the way to think about it. So think of our lumpiness also from a customer demand delivery requirement. Yeah, it's a good way to think about it.

No, that makes perfect sense. And then just one last one. I don't see this being an issue, guys, for you all. But the DRAM pricing, have there been any impacts? Or how much is that of your bill of materials? Is it pretty de minimis? And then I guess another question would be, know with just some of the capacity constraints there could that be a potential opportunity for you all um you know if uh like on the back end processes if they need to increase capacity or or am i not kind of on course there robert could you repeat your the early part of your question before the pricing we missed something there just oh yes sorry so i was just talking about dram pricing and i was wondering um just with like

memory costs going up do you have any significant exposure there that would be you know you know related to margin yeah i you know we don't have a significant amount of exposure but we do have exposure in the memory space in the traditional memory and uh when there are capacity ads there we will we will benefit we will benefit okay excellent thanks so much for taking my questions thank you

Our next question comes from Andrew Buscalia with BNP Paribas. Your line is open. Please go ahead.

Hey, good morning, everyone. Good morning. Morning, Andrew. Just wanted to check on, you know, with an ATS, I know, you know, you said about half of your cells tied to semis, but we're seeing that test inspection piece maybe start to recover with x-ray. Can you just talk a little bit about how I know that you're testing the inspection stuff. It's quite niche. So I'm wondering what a cycle looks like for that side of your business. And is this X-ray piece sort of a precursor for Lyft in that chunk of your ATS business?

Yeah. If you think about our X-ray business, this is one – was a little slower to recover when compared to our dispense business and when compared to our acoustic emission and so if you think about year on year um our x-ray has some automotive exposure as well the semi side of x-ray is doing really well and the auto is flattish is the way to think about it does that help the question that you asked yeah So, sorry, as automotive comes back, you know, we will continue to see x-ray do well.

Okay, got it. Okay. On the MFS, you know, you run into some pretty tough margin comps in the back half of the year. Can you just remind us? I guess, is that something when we come to a lap that you expect to expand off of such a high base? I mean, there are pretty impressive margins you're kind of running into, and maybe why would that be? What would lift that demand if you don't, or margins if the demand's not really accelerating?

Yeah, no, it's a good question. And I mean, maybe I'll even go back to our fourth quarter. We printed a very strong margin in the fourth quarter. And I think we made comments during that call that that was a high point and not necessarily an ongoing run rate. And so we think margins in the MFS segment are very much sustainable in the 37% range. And, you know, we may have some selective quarter over quarter comp issues like the fourth quarter where we had a really strong performance. But, you know, we think maintaining that margin performance and continuing to generate reasonable incrementals as we grow is very much attainable in the medical business. And it's worth pointing out, just to reiterate. The divestiture that we completed in the fourth quarter is kind of a, call it a one-time adjustment that impacts our ongoing margins. And so you're certainly seeing that in the year-over-year margin comparisons in Q1, and you'll see that through the year until we hit Q4.

And I think, Andrew, the most important part we as a company are focused on, and this message sort of reiterates across all of our businesses, in given norton's high gross margins high best in class ebitda margins it is super important for our businesses to stay focused on growth at reasonable incrementals so as you think about us you know be it mfs yes the margins are pretty strong but day in day out what our teams in the divisions are focused on is to drive organic growth innovate deliver products at the time the customer's asking us, have the best quality there is, meet our customers' needs in the market where they need us to be, just being agile. That's sort of how we are thinking about it. And I would say the margin is just a byproduct of all of the work, right? So that, you know, if you want to think about us, I would think about above market growth, at reasonable increments. That's what we're focused on. That's what you would see us deliver. Okay. Thanks, Naga. Sure.

Our next question comes from Chris Dankert with Loop Capital. Your line is open. Please go ahead.

Hey, morning. Thanks for taking the question, guys.

Good morning, Chris.

Just looking at the ATS segment, I guess I'm fully appreciating that a lot of that business is just lumpier by nature, but was any of that growth a pull forward around Lunar New Year, or was that just kind of how the orders just happened to fall serendipitously?

Yeah, no, nothing that we would say is tied to the Lunar New Year. In fact, to be honest, we've kind of looked at this and The Lunar New Year, it has a pretty de minimis impact, and we've kind of proven that out looking at history. So it's really tied to, as Naga said earlier, customer demand requirements when they want the machines on their floor for installation into their broader lines. And what you're seeing is reflective of, you know, I would say normal customer demand and requirements.

You know, we do hear that our customers are investing for the demand. And so this increased demand for AI ship capacity is playing out. And it's playing out in the packaging area right now. And that's why you see our dispense business benefit. You start to see our x-ray business start to inflect. So this is based on what people are asking. And the lumpiness comes from our customer experience. both investment pattern as well as installation requirements, so.

Yeah, it was certainly encouraging to see, you know, the strong start to the year and the good shipments in one few years. Yeah, congrats on that. I guess as my follow-up, any comment on the machine builder activity in core Europe and kind of what that demand has been within the IPS segment?

They seem to be pretty stable. And, you know, our packaging business has had a pretty good quarter. Expect to continue to have a pretty good quarter. You know, if you think about the non-wovens business, we're coming off of two years of incredible capacity ads. A lot of capacity ads for non-wovens came in the last year from A lot of our mid-tier OEMs based in Asia, building out in Africa, Middle East, India. So, you know, global middle income growth, still a big secular growth driver for this business, albeit reasonable, low single digit growth, stable aftermarket demand, all the things that makes this business great, still intact, still continuing to do well.

Thanks for the call there, Naga, and congrats on a nice start to 26 here. Thank you. Thank you.

Our next question comes from Walter Liptak with Seaport Research. Your line is open. Please go ahead.

Hi. Good morning, guys. Good morning, Walter. Let me try one on the ATS segment. And if I'm recalling this right, in past years, positive cycles or on consumer electronics for dispensing the visibility was pretty short like the customers would place orders and then you'd have to cycle through and ship very quickly uh already and it sounds like uh with this kind of data center uh build out for advanced chips that lumpiness is still there do you is can you help us understand is there a Any differences between prior consumer electronics led cycles versus this one? Do you get any more visibility into the capacity that might be going in? And those order lead times, if you can just comment.

The order lead times are not very different, but the size or the growth Differences are smaller rather than significantly huge chunks and then nothing. So I would say it is dampened. The amplitude of the cycle is dampened is maybe one way to think about it. But the order lead times are no different. But we have built in some new advantages here in the last couple of years. If you remember, this business went through a relocation of capacity to be in geographies where we are closer to our customer and where the customer needs us to be. So that has helped us to be able to respond to this lead time. The other is our NBS Next application within our factories certainly has improved our own on-time delivery capability. We are consistently in the low 90s, starting to march towards a 95% on-time delivery based on customer requirements. So this type of delivery capability that the teams have built over the last couple of years and having capacity where our customer needs us to be is a game changer for this business.

I'll just add, by the way, I mean, your comment is spot on. If you think of our backlog, and this is why we think looking at our backlog quarter to quarter, year over year is a good indicator. We're turning our backlog pretty quickly. As you think about our backlog, yes, we have some selected areas with longer lead times. But the majority of our backlog turns in the quarter. And so, you know, our starting backlog is really an indicator of current demand for Q2. To your point, we also have, you know, we maintain robust pipelines. We know what we're talking to our customers about on new projects. I think the piece that's harder to pin down sometimes just because of customer requirements is when those turn into orders and delivery, which is dependent on when the customers need them for their factory floor.

OK, great. Yeah, thanks for that color. And then you called out the wise Norton advanced electronics winning. I wonder, is there a win rate? It sounds like you might be gaining market share here with some of the quick delivery. Is there a way of quantifying it with a win rate?

Well, we don't share that on the outside. I would definitely tell you Our work around growth drivers in each of our businesses, including ATS, around focus on innovation, focus on delivery, having the best in quality, and finally meeting where our customers need us to be in the market are four core growth drivers that each of our businesses are working on. And what you're seeing in ATS, certainly there is a market momentum, But to be able to leverage the full potential of the market opportunity, clearly our teams are doing a fantastic job. And, you know, I think we're getting rewarded for that in the market. Okay, great. All right. Thank you.

If you would like to ask a question, please press star one on your telephone keypad. To withdraw your question, press star one again. Our next question comes from Brad Hewitt with Wolf Research. Your line is open. Please go ahead.

Hey, good morning, guys. Thanks for the questions.

Good morning.

So IPS revenue was much better than typical sequential seasonality. Of course, you talk about the strength in Asia-Pacific. But just curious if you could elaborate a little bit more on what drove that strength in Asia, how much of that was a function of an easy comp, and then how do you think about growth by region for the year in IPS?

Yeah, I you know, as I shared earlier in one of the answers, I would tell you it is a broad based demand that we are certainly seeing in IPS. IPS returns to growth, return to growth in the quarter, expect to have a good growth for the rest of the year. You know, clearly you can see growth in packaging, product assembly, you know, our Precision Act business is also growing nicely. You know, polymer solution has stabilized. So there is some of that negative going away, right? If you think about polymers and automotive where last year we were dealing with still demand going down, that is stabilized. So from that perspective, the comps are better there. So it's a combination of Our businesses that were negative last year are stabilized. They've not inflected yet. But our businesses that are having good growth demand in packaging, product assembly and precision ag are contributing to the growth in this segment.

I think that's maybe a good way to think about it, Brad, is what you're seeing in our first quarter growth of 3% is really the underlying growth that we've been seeing in this segment, if not for the drag that we saw in the automotive and polymer space last year.

Okay, that's helpful. And then maybe switching over to the ATS side, given AI demand continues to accelerate in recent months, Does that give you confidence that perhaps your electronics business as a whole can outperform the mid-single-digit long-term outlook you discussed at the Investor Day?

I think it's really important to remain balanced on this business. We have seen the cycle of this business. And, you know, that's the space we play in and we fully understand. Appreciate it. And, you know, we capitalize and fully participate in the market when the market is up. So, yes, in years when there is going to be significant investment like now, we are going to see higher than the mid single digit. But then through the cycle, you know, we're going to be in places where this business will go down. And that's something you have experienced. You've seen us, you know. So you want to think through the cycle, mid single digit. in the up cycle, certainly higher, right? And so that's what we are experiencing now and that's what we're planning for and that's embedded in our guide.

Great, thank you. Sure.

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

Thank you for your time and attention on today's call. We have several upcoming investor events over the next month where our team would be happy to meet with you, including the Loop Industrial Conference on March 10th in New York, the Bank of America Conference on March 17th in London, and at the Apex Trade Show in Anaheim, California on March 18th featuring our electronics product lines norton is well positioned as a diversified precision technology company are close to the customer model proprietary and niche technology diversified geographic and end market exposures high level of recurring revenue and strong balance sheet are among the many attributes that make us a quality compounder Have a great day.

This concludes today's call. Thank you for attending you may now disconnect.