Nordson Corporation Aktie

Ladies and gentlemen, thank you for joining us, and welcome to Nordson Corporation's Second Quarter Fiscal Year 2026 Conference Call. After today's prepared remarks, we will host a question-and-answer session. [Operator Instructions]

I will now hand the conference over to Lara Mahoney. Lara, please go ahead.

Thank you. Good morning. This is Lara 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, May 21, to report Nordson's fiscal 2026 2nd 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/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 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 2 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 3. Naga will discuss second quarter highlights. He will then turn the call over to Dan to review sales and earnings performance for the total company and the 3 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 third quarter and full year guidance. We will then be happy to take your questions.

With that, I'll turn to Slide 4 and turn the call over to Naga.

Good morning, everyone. Thank you for joining Nordson's Fiscal 2026 Second Quarter Conference Call. I'm very pleased to report a strong second quarter, where all 3 segments contributed to our organic growth performance, surpassing the midpoint expectations of last quarter's sales and earnings guidance. We built upon the momentum of the first quarter with record sales of $741 million. This is an 8% increase over the prior year, which is inclusive of 7% overall organic growth.

Order entry momentum continued throughout the quarter with accelerated activity in the last couple of months, driving up backlog, 18% organically compared to the prior year. Solid execution and volume leverage drove record profit performance for the quarter, delivering EBITDA of $235 million, which was a second quarter record and 32% of sales.

Adjusted earnings per share of $2.86 were also a second quarter record. This was an increase of 18% compared to prior year.

I would also like to highlight our free cash flow of $170 million. Our free cash flow conversion, over 100% of net income, continues to be a strength, enabling a healthy mix of shareholder returns and reinvestment in growth. We strategically deployed this cash to repurchase shares, return dividends to shareholders and maintain our debt leverage while continuing to invest in the company. Also during the quarter, we acquired CapstanAG, a small but strategic precision agriculture company in North America. This bolt-on deal, which was valued at 9x adjusted EBITDA, enables Nordson to grow our precision agricultural portfolio with mid-tier OEMs in the region. I'll talk more about the Capstan deal and 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 #5, you'll see second quarter fiscal 2026 sales were a second quarter record of $741 million, up 8% from the prior year second quarter sales of $683 million. The second quarter 2026 sales included an organic increase of 7%, driven by growth in all 3 of our segments as well as a favorable currency translation impact of 3%. This result was slightly offset by the net impact of the medical contract manufacturing divestiture we completed in the fourth quarter of last year and the contribution of the small Capstan acquisition that was completed during the quarter.

Adjusted operating profit increased 11% year-over-year to $199 million or 27% of sales, driven by increased SG&A leverage on the strong organic sales growth. EBITDA was up 8% year-over-year to $235 million, also a second quarter record. EBITDA margin as a percent of sales was 32%, in line with the prior year. Incremental EBITDA contribution in the quarter was about 31%. While this is on the lower end of our typical sales conversion of mid- to upper 30s, it's a 300 basis point improvement versus first quarter incrementals and in line with our expectations to return to normal incremental performance as the year plays out.

Looking at nonoperating income and expenses. Net interest expense during the quarter was $22 million, a decrease of $4 million versus the prior year, driven by lower year-over-year debt levels and a stable to declining rate environment. Other expenses on a GAAP basis increased $30 million year-over-year. There's a couple of drivers behind this that are important to understand and have been adjusted out of our non-GAAP earnings. The biggest driver was a onetime pension settlement transaction we completed during the quarter. We were able to annuitize approximately $113 million or just under 1/3 of our remaining U.S. pension obligation at a very competitive discount of 7.5%.

There was 0 cash outlay required for this settlement. However, the transaction resulted in a onetime $24 million pretax charge as part of the settlement. In addition to retiring the obligation, the settlement further improves our funded status for the remaining pension obligation and favorably impacts our ongoing pension costs.

In addition to the settlement charge, other expense includes $10 million of noncash mark-to-market charges for minority investments. You'll recall that in Q1, we actually marked these investments up by $22 million. So the Q2 adjustment just reflects the noncash fluctuation in value during the quarter. Excluding these noncash charges, other expense was actually slightly favorable year-over-year.

Our tax expense on a U.S. GAAP basis was $24 million for an effective tax rate of 17%, inclusive of the impact of the noncash losses I just mentioned and acquisition-related amortization and costs. On an adjusted basis, our effective tax rate was 18%, in line with the prior quarter. We now expect our full year tax rate to be in the range of 18% to 19% on an adjusted basis, which is slightly better than our previous annual guidance range for fiscal 2026. I should also mention that this improved outlook for tax rate is very much sustainable and reflective of our ongoing rate expectations.

GAAP net income in the quarter totaled $117 million or $2.09 per share. Excluding acquisition-related amortization and costs and the noncash losses, adjusted earnings per share totaled a second quarter record of $2.86 per share, $0.06 above the midpoint of our quarterly guidance and an 18% increase from prior year adjusted earnings per share of $2.42. This improvement in year-over-year earnings reflect solid operating leverage from the organic sales growth as well as improved capital leverage through strategic cash flow deployment.

Now, let's turn to Slide 6 through 8 to review the second quarter 2026 segment performance. Industrial Precision Solutions sales were a second quarter record of $350 million, an increase of 10% compared to the prior year second quarter. Organic sales increased 5% compared to the prior year, with a favorable currency impact of 4% and an acquisition impact of roughly 1%. Growth was driven by improving industrial coating and polymer processing systems demand, ongoing growth in our precision agricultural end markets and stable demand in broader consumer and industrial end markets. As a result, EBITDA was $124 million in the quarter or 35% of sales. This is up 9% over prior year, largely due to the higher sales volumes.

Turning to Slide 7. You'll see Medical and Fluid Solutions sales of $213 million, also a second quarter record, increased 5% compared to the prior year's second quarter. Organic sales increased 8% in the quarter, driven by contributions from both our engineered fluid solutions and our medical product lines. We're pleased to see solid growth in our medical product lines following a slower start to the year. Divested sales from the Medical Contract Manufacturing business had a negative impact of approximately 4% compared to the prior year.

EBITDA for Medical and Fluid Solutions was $79 million or 37% of sales, which was an increase of 3% from the prior year EBITDA of $77 million. EBITDA margins during the quarter were slightly compressed versus the prior year due to the impact of a near-term product start-up headwind in selected interventional medical product lines. This should become an opportunity as the year progresses.

Turning to Slide 8. You'll see Advanced Technology Solutions sales were an all-time quarterly record of $178 million, a 10% increase compared to the prior year second quarter. The 8% organic sales increase in the quarter was most notable in our electronics dispense product lines and reflects ongoing strength in semiconductor end market demand, which we're also seeing in orders across all of our ATS product lines.

Second quarter EBITDA was a record $48 million and also a record EBITDA margin of 27% of sales, representing an increase of 22% compared to the prior year second quarter EBITDA of $40 million or 25% of sales. The improvement in EBITDA margin compared to prior year reflects SG&A leverage on the high single-digit organic growth. Overall record margins reflect the sustainable operational and footprint changes we've made within the segment in prior years, guided by the NBS next growth framework.

Finally, turning to the balance sheet and cash flow on Slide 9. At the end of the second quarter, we had cash on hand of $102 million, and net debt was approximately $1.8 billion. Our leverage ratio of 1.9x continues to improve from last year and is now actually below the low end of our long-term target range. This, along with our strong cash flow generation, provides us with significant firepower to strategically deploy capital, including the acquisition of strategic assets.

Our free cash flow generation was $170 million during the quarter, resulting in a 119% conversion rate on net income, excluding the noncash losses I mentioned a moment ago. This represents the fourth consecutive quarter above 100% conversion despite the accelerated revenue growth we've delivered. And it's also worth noting here again that the pension annuitization we completed during the quarter on quite favorable terms retired about 30% of our U.S. obligation, further minimizing our long-term obligations and locking in the long-term funded status for the remaining plan obligation with no expected ongoing cash requirements.

As noted on Slide 10, our capital allocation continues to be both balanced and value seeking. During the quarter, we invested $10 million in capital projects to support current and future organic growth, paid $46 million in dividends to our shareholders, repurchased $43 million in shares on the open market and reduced net debt by $93 million. We also made a strategic investment in our growing precision agriculture business by acquiring CapstanAG. Naga will give more color on that in a moment.

So to summarize the quarter and really the first half of the year, we've achieved strong organic sales growth with all of our segments contributing nicely while maintaining our strong EBITDA margin performance. All 3 of our segments achieved record second quarter sales, and our ATS segment achieved an all-time record quarterly performance. Our cash conversion remains strong, allowing us to strategically deploy capital to sustainably grow the franchise and return value to shareholders.

Our teams once again delivered on their commitments for the quarter and work to grow backlog to position us for success in the second half of the year. Our end market thesis and momentum supports our growth, and the Ascend strategy is positioning us well to deliver for our stakeholders.

With that, let's turn to Slide 11, and I'll turn the call back to Naga.

Thanks, Dan. It's been a very strong first half for Nordson. We are delivering above-market organic growth through accelerating demand in key end markets, our differentiated technology, close to the customer business model and the execution of the NBS next growth framework.

Before I talk about our end markets, I would like to share more color on the small acquisition I mentioned earlier. Nordson acquired CapstanAG, a precision agriculture technology leader in North America, headquartered in Topeka, Kansas. Capstan has a strong reputation built upon its innovative pulse with modulation systems. These specialized nozzle by nozzle controls drastically increase efficiency and reduce waste for row crop, orchard planters and aerial sprayers.

Paying 9x adjusted EBITDA, this strategic acquisition gives Nordson precision agriculture, another leg for growth in North America, focused on mid-tier OEM customers. Capstan's entrepreneurial culture and customer-centric business model aligned closely with the growth objectives of our precision agricultural division. Our existing precision agriculture business, which began with the REG acquisition, had a small presence in North America. We are already consolidating our facilities into Capstan's existing footprint in Topeka, Kansas, to be closer to the North American mid-tier customers and grow our expanded product offering in this end market.

Acquisitions remain a critical component of our growth strategy. As Dan noted, we are active in the M&A market with a robust pipeline. We remain focused on opportunities that meet both our strategic and financial criteria. We have been very intentional in building a growth biased portfolio of precision technologies, as you will see in Slide 12. More than 50% of our portfolio is now in growth end markets, including semiconductor, electronics and medical with remaining exposures in more stable GDP-plus end markets. This diversification gives me confidence in our expectations for the remainder of the year and beyond.

Within electronics and semiconductor applications, our dispense and surface treatment product lines continue to drive growth, while our test and inspection systems that ensure the quality of semiconductor packaging are also inflecting. We also see this growth reflected in our engineered fluid solutions product lines, where growth is being driven by electronics applications.

Growth in general and automotive electronics remained somewhat muted, but there are signs of growing capacity needs in these applications. After a modest first quarter, medical end markets are steadily returning to normalized growth. The long-term growth drivers remain unchanged, including aging population, chronic illnesses and technology investments in minimally invasive procedures, biopharma and the increasing use of diagnostics.

Within consumer nondurable, investments in packaging and product assembly are sustaining. And industrial end markets also remained stable, particularly automotive and polymer processing applications are improving as the year progresses. We are well positioned to meet the demands of our customers in these end markets.

Turning now to our outlook, starting on Slide 13. We entered the third quarter with strong order entry and increased backlog, which is up 18% over the prior year. Order entry momentum was broad-based in the quarter with all segments contributing. At current exchange rates, foreign exchange, which has been a contributor to the growth in the first half will be essentially neutral in the second half year-over-year.

These trends position the company to deliver third quarter fiscal 2026 sales in the range of $760 million to $790 million. Third quarter adjusted earnings are forecasted to be in the range of $2.95 to $3.15 per diluted share.

Turning to Slide 14. Based on the momentum in our end markets, as evidenced by our backlog and order entry, we are increasing our full year guidance. Sales are now expected to be in the range of $2.930 billion to $3.010 billion and adjusted earnings to be in the range of $11.30 to $11.80 per diluted share.

Our updated guidance, balances, the strong demand momentum with the appropriate prudence needed given the potential for a range of macroeconomic outcomes. We have a high level of confidence in the midpoint of our range, and it would take a meaningful slowdown in order activity driven by macro conditions to move us towards the low end. At the same time, if we sustain the current demand trends, particularly in electronics end markets, we believe we are well positioned to deliver the upper end of our guidance.

We delivered a very strong first half of fiscal 2026, highlighted by record performance and ongoing momentum across our end markets. Our NBS Next growth framework close to the customer business model and differentiated precision technologies positions us well to continue compounding profitable growth.

As always, I want to thank our customers and shareholders for your continued support. In particular, I want to thank notes and employees who are passionate about meeting the needs of our customers. Our focus on innovation and operational excellence continue to position us well to serve our customers.

With that, we will pause and take your questions.

[Operator Instructions] Your first question comes from the line of Matt Summerville with D.A. Davidson.

Just a couple of quick ones here. On the medical side of things, should we assume that growth going forward is now sustainably on track to consistently deliver the algorithm as you guys have historically advertised? And then, could you give a little bit more detail on the interventional product headwind that you referenced there, Dan?

Yes. Matt, thanks for the question. So yes, 8% growth in the quarter, we were quite happy with. I would say if you pull that apart, our medical product lines are continuing to track towards normalized growth. We saw strength in our fluid dispense products, our engineered fluid dispense products, which are also part of that segment as well during the quarter. So that's part of what's driving the growth. I would say that's the area that we saw a little bit of upside.

I would say Medical is on track and still returning to normal growth rates of what we would call 6% to 8% as a target. So everything is on track. The 8% overall, I would say, is a pretty good precursor, but the mix within is still a little bit different than, I'd say, long-term expectations.

And then your second question on the conversion. This is really -- it's a near-term issue that we're working through with the material change in one of our medical product lines. It's actually a regulatorily required material change, which drove some operational inefficiencies in the quarter. It's a short-term changeover issue that we are -- see clear line of sight towards working through, which is why I said that really becomes an opportunity as the year plays out, but a onetime kind of changeover requirement based on some regulatory requirements with the customers.

Yes. Just to add to that, Matt, what I would tell you is the medical business order entry and backlog buildup allows us to have this confidence that we are returning to normalized growth in this segment.

Understood. And then maybe over to the semiconductor facing business. Can you just kind of review how you're thinking about Nordson's positioning therein, views on cycle durability and maybe a little bit more granularity or quantification to the extent you can on how this cycle is reading through into orders and backlog?

Yes. The ATS segment, if you look at our 18% backlog growth, is one of the strongest is because of robust backlog growth in ATS. And if you remember and recall some of the conversation we had a number of years ago, during the downturn, one of the best things our teams did was to reposition the business in a couple of different areas.

One, we diversified away from just our dispense businesses. Now, we have test and inspection businesses that are delivering growth. In addition, we also had a real nice work that was done around diversification of customers going away from reliance on 1 or 2 large customers. And third, we were able to optimally position -- reposition our footprint so that we are in regions where our customers need us to be. So 3 things of work that we have done in this period of time that has allowed us to position the business.

But on top of this, what you have is our close to the customer business model, allowing us to innovate on technologies that are needed for our customers as the new AI applications occur as AI infrastructure happens and semiconductors become more complex, more difficult to manufacture. So all these 3 things, diversifying customers, operationally being where our customers need us to be, innovating on technologies and applications that need us to be sort of has allowed us to be in this place that we are benefiting from this robust market growth.

Where is -- where are we at in the cycle? I would tell you we're in the early stages. It is, as always, we know this is a difficult business to predict. But based on what you can see in the marketplace based on what you can see with our customers, I would definitely tell you we're in the early stages.

In terms of number of applications, if you think about this business, over 50% of this business is in semiconductor now. And so there are numerous applications that we are part of, lots of new technologies. I think we have talked about with you around where we are headed in this cycle. There is more technology and innovation that is happening in this business that will allow our customers to really get after the AI compute needs that they have. And so a couple of things that you would probably be reading about is panel-level packaging. It's very, very early stage. But we are participating in developing these technologies.

If you think about optical fibers and increased content of optical fibers and AI infrastructure, that's another big area. So number of applications benefiting us because of our ability to codevelop technology with our customers, right? And lastly, what I will tell you is predominantly, we are seeing the growth today in our electronic dispense business, and our customer inspection businesses are beginning to inflect, and there is more to come there.

Your next question comes from the line of Jeff Hammond with KeyBanc Capital Markets Inc.

Thanks for the explanation on the medical kind of material issue kind of impacting margins. Can you just talk about industrial specifically, kind of decent growth, kind of flat to down margins, anything in there, price cost or mix that -- and then how you see that playing out into the second half? I think last year, your margins ticked up nicely for that business?

Yes. The RPS business, we are really glad to see that we have returned to normalized growth. We delivered 4% organic growth in this segment in the first half. That is a really strong performance for this business. Where we are focused on is to simply take this view that our margins are best-in-class for the company as well as for this segment. And what is really important is for us to continue to focus on the market and be able to deliver growth, and that's what we're doing in this business.

If you look at the pieces and parts of this business, I would tell you the packaging product application adhesive dispensing is doing really well, sustaining growth where we expect delivering above market growth. If you think about our plastics and our industrial coatings businesses, they are certainly improving. And our precision ag business is also growing nicely.

In terms of margins, Dan, do you want to comment about that?

Yes. I think Naga mentioned it, I'll say this, Jeff. I mean, clearly -- and this doesn't just apply to IPS. I mean I would say clearly, we are operating in a bit of an inflationary environment right now. And when I say that, I would include tariffs in that. We don't talk -- tariffs in itself are not material, but I would say it's part of the broader inflationary impact we're seeing as we look at the price of components and resins and other inputs. And so -- all of our businesses are managing through that. We're managing through that with selective pricing where we need to with offsetting cost actions where we need to. But I think that's why you're seeing a little bit on the lower side of incrementals and IPS, but that's a short-term issue. It's something that we'll work through. And I think to Naga's point, what we're really focused on in this environment is how do we maximize growth while maintaining our margin performance, which is essentially what we did in Q2.

Okay. Great. And then just can you talk through the moving pieces to the guidance, I guess, it sounds like lower tax, maybe you can give us a revenue assumption or how much is included from this acquisition? And then, it seems maybe the backlog is more shippable in 4Q relative to maybe previous expectations, but maybe flesh that out.

Yes. So I'll give you maybe a couple of pieces of flavor on that. I mean, I'll start. On the sales front, FX has been a tailwind for us in the first half of the year. At current rates, that becomes a neutral item in the second half of the year because the rate changes that we've seen kind of started in the second half of last year. So year-over-year, I think of FX as neutral.

The net impact of M&A that's both the divestiture and the new acquisition, which is a small acquisition, is a slight negative of roughly 1% in the back half of the year. And then the rest of the guidance is really around growth. And I think in the opening comments, I think Naga said it quite well. I mean, we have high confidence in our kind of midpoint outlook. We have seen, I would say, accelerated demand really accelerating the last couple of months of the quarter, and I would say even carrying into the first weeks of the new quarter.

And so if that continues, I think that's where we see the upper end playing out, it would take a meaningful pullback in order activity to -- for us to be in the lower end of our guidance range. So again, just trying to give you a little bit of the flavor and the thinking. In this fairly dynamic environment, we think it's the right way to think about the second half. But high confidence in kind of the midpoint of our sales outlook with opportunity if things continue to inflect.

I think additionally, what I would tell you, if you look at our backlog and where these components are coming from, all segments are contributing. And that is, for us, probably the most exciting part is that our -- all of our businesses are contributing. And so the momentum across the company is strong, and that's why you see us increasing guidance. .

And I think on the conversion -- I was going to say, I think on the conversion side, Jeff, I mean, again, in the environment that we're in, if I think of it last year, I mean, we had incrementals in the 50% range. In an inflationary environment, that's not realistic, right? And so I think this is going to be a year where it's really about maintaining margins as we grow as opposed to expanding margins in an inflationary environment. And so I think that's the other flavor I would give you as you think about the second half.

Your next question comes from the line of Mike Halloran with Baird.

Some clarification then on what you just mentioned. One, is the assumption sequential normalcy from the trend you're seeing right now? In other words, are you just assuming trends stay normal? I mean, it feels like there's maybe a little flattening from 3Q to 4Q in the guide. Obviously, I get the confidence you guys are exhibiting here. I just want to make sure I understand that. .

And then also related to the last answer, just the backlog conversion, is that a pretty normal conversion time line as we sit here? Any signs of backlog building further out for capacity purposes, particularly on the ETF side, any nuance on that?

Yes. On the backlog piece I appreciate the question, Mike. On the backlog piece, I would say no fundamental change. I mean, our backlog, in general, the majority, I would say, turned certainly within 6 months. In some cases, certainly within the quarter. We do have some portion of our backlog that's starting to bleed into 2027. But I would say that's the minority, but no real fundamental change in overall backlog timing. And so yes, I think that's a simple answer to your question.

I think as far as the expectation, look, I think we have good visibility certainly to the third quarter. 60% of our business is consumables and single-use kind of turnover. And near term, I think we have high confidence in that. I think we're still being prudent, right? There's some dynamic things happening in the world right now. And if you ask me, what do we worry about? Look, if some of the things going on in the macro environment start to create, let's say, raw material shortages or issues for our customers, that's what we worry about, right? If some of these things have more broader implications on the industries we're serving, and there's some limited pullback, I would say that's what we're just being prudent about if I think about the fourth quarter.

And the reason you hear the confidence in what we're suggesting is that we're not seeing any of that correct in our demand patterns right now, so...

No, that makes a lot of sense. And then the coatings and plastics side, starting to see some better trends. Maybe you talk about what you think is driving that beyond just comparisons as well as the durability of that dynamic. Appreciate it. .

Yes. I would say, actually, what we're seeing there really not a surprise. I mean, going back to last year, we said that certainly there was a big pullback in those markets. But we're confident that, that it hit the trough in the fourth quarter. And I would say we're seeing normal gradual recovery in both of those markets through the first half in line with what we expected. So certainly not what I would call a rebound, but nice normal recovery.

Your next question comes from the line of Andrew Buscaglia with BNP Paribas.

Yes, I just wanted to check, industrial Precision is you guys sound confident and things are improving and market-wise and trend-wise. What about within that segment and maybe just talking broadly the mix of aftermarket sales versus systems, are your customers signaling like more confidence in moving forward with some bigger CapEx decision-making? Or is that already underway and that's being reflected in backlog?

Yes. I would say improved order entry, both in systems and parts signaling what our customers feel in terms of a broader recovery. So if you look at all the different businesses, there is a momentum in the industrial businesses that has allowed us to post a 4% organic growth. I mean, this is at the high end of what these businesses have done. And if you look at our backlog building, we are seeing confidence in system orders.

Yes. I think just to add a little bit just to add 1 other piece of flavor to that. There's really been no, I'd say, fundamental change in our mix of systems versus parts for IPS. It's been pretty close around that 60-40. And if I look at Q2, actually, parts are slightly higher as a percent, but again, not meaningful, a couple of percent. But -- so no big system inflection, I think, is maybe the message there.

Yes. Okay. Yes, I wanted to check the cash flow has been solid. I'm wondering -- you did a small deal, but you say in the slides, you got about $900 million in capacity still left. I know you got some debt paydown, but I wonder what the M&A environment looks like into year-end for you and that other companies seem to be signaling valuations are maybe ever so slightly normalizing. But can you give us some insight into what you're seeing there, that would be great?

Yes. Our M&A activity continues to be robust. We have a pipeline that's pretty active. We continue to work it. But we're going to stay disciplined, right? We're going to stay disciplined against our strategic criteria as well as our financial returns criteria. What we don't talk about are things that we've been part of and didn't bring to fruition for many different reasons. So the activities are pretty strong. Our focus is the same. We're continuing to be focused around our medical business growth, test and inspection and any technology adds -- bolt-on adds to our strong existing portfolio of businesses, right? Our industrial businesses, our ATS businesses, wherever there is an opportunity to bolt-on technology, we will do that, but big strategic acquisitions are focused on medical.

[Operator Instructions] Your next question comes from the line of Walter Liptak with Seaport Research.

I want to ask one about the ATS order strength. I wonder if there's a way you could quantify for us a little bit more. Is it up single digits, double digits? And I wonder if you could talk a little bit more about the broadening, I think, of the technology from electronics dispense to more T&I. Why is there sort of a lag from dispense to T&I?

So maybe I'll take the first part of that, and then I'll hand it off to Naga and I appreciate the question, Walt. So look, we don't give backlog and order level details at a segment level. But I think I'll maybe reiterate some of the earlier comments. So with backlog up 18%, that was broad based with all segments contributing to that. And I would actually say, and I think Naga mentioned this, yes, I would say, particular strength in our ATS segment contributing to that 18%. So I think you can easily draw a double-digit increase to ATS from those statements. And if anything, I would say, in line with or better than that 18% overall.

So let's talk about some of the applications. There is not really a lag between these different businesses. Right now, the strength is in our dispensed businesses. You could correlate that there are more dispensed businesses versus test and inspection, right? If you look at a single line, you're going to have more dispense units versus T&I units, but in terms of lags, those are just business dynamics. There is -- I wouldn't read any much more than that. .

We are seeing similar levels of growth in both -- in terms of demand from both these dispense as well as test and inspection. My comments were more around if you compare to before, ATS today is a much broader set of applications, broader set of technologies. That's probably what I was trying to say. Yes, I did mention around that being a lag, but that's not related to any dynamics in the marketplace rather than it just happens to be such that -- there are cases last year, we were we were growing our test and inspection faster than we were growing our dispense business. And this year, the last 3 quarters, our dispense business is far more robust than our test and inspection business. But when we look at our demand, look at our customer projects, look at all the things that we're working on, there is no difference, really.

Okay. Great. And then as sort of a follow-up to an earlier question about the backlogs and the cycle times. I think some of those 6 months cycle times from backlog to shipment is probably longer in industrial, but shorter in medical and advanced tech. And so I wonder if you could talk specifically about those differences. And then in the Advanced Tech segment, are those -- what are the -- are they significantly shorter in advanced tech?

Yes. And I hate to say this, but it really depends to some extent, and it really depends on the mix of the orders coming in. I mean, the longer cycle times tend to be tied to our larger, more complex systems. And again, if you look at the mix, even in medical, while it's all consumable products, there's a lot of times that we have customers that will place 3-month POs, right? And so it's 1 PO that goes into the backlog that gets issued or released over 3 months. And so it's really -- I hate to say it, but it depends. What I would say generally is consumables, smaller kind of, let's just call it, our high-volume smaller systems tend to get delivered much quicker even within the quarter. And it's really our larger systems that tend to be more the 3 to 6 or even beyond, somewhat dependent not just on the system, but also because it tends to be tied into a larger product or project that our customers are working on. And it's really about their timing.

Yes. So I mean, based on what Dan is telling you, right, it's exactly what you're talking about, well. Our largest system businesses are more in IPS, less in ATS, right? So you are right, our largest system backlog converting into shipments for -- in that 6-month period, it's more around that large system businesses, which are predominantly in IPS.

If you think about ATS, you still have systems that ship within the quarter, right? But what is -- why Dan says it depends is our customers will give us the order in this quarter, but would tell us, "Hey, I want this in the fourth quarter", right? So that we don't control even though our lead times are pretty good, we have significantly improved our lead times from what used to be 16, 18 weeks to now less than 7, 8 weeks, and we can even push things into 4 weeks if somebody wants it. So it's not really an issue of the company as much as what the customer wants as well, right?

And MFS predominantly is consumables. And yes, the orders you get, you can ship them within the quarter, within the week, within the month, but it depends on what order you got. If you got these long-dated blanket orders, then they don't, right? So we're sorry to be -- give you an answer that is broad-based, but it is the circumstances. But in general, what you want to take away from this conversation, order momentum is strong across all segments. All segments contributing, backlog up 18% gives us a high level of confidence at the mid-end of -- middle of -- midpoint of our sales guidance.

And no fundamental change in the delivery request. We're not taking 1 year out orders and things of that nature. It's pretty much in line with what we would typically see.

Your next question comes from the line of Robert Jamieson with Vertical Research Partners.

So just a quick one on IPS, just kind of higher level. When I think about the precise nature of your dispensing offer and IPS and inflationary input environment, you're offering really positioned as a cost savings partner in a way. Do you think if we see persistently high like input costs -- could this act as like a medium-term driver for consumables refresh demand for IPS customers that could coincide with the improvements that you're seeing in systems level demand? Just kind of rightly to think about that, and how might this be or turn into like a medium-term kind of demand driver for you all?

Absolutely, right. This is -- you are absolutely right in that -- what we offer is material savings across the entire product line, material savings, of course, accuracy, precision, speed, things that matter. But this drive for efficiency, not only because of waste of materials, but it is also because it's not available. And hence, you are looking at somebody that is -- and that goes along across the entire portfolio, right? It's not only the adhesives, it goes across the coatings businesses. It goes across our precision ag business as well because we do believe this is a really strong value proposition that our teams are marketing out there with our customers because there is a real need for it.

And when you certainly apply more or you're changing materials, that's another one, right? When you run out of certain materials, you're trying to change materials, again, technical help, application help, things that the company is really good at, I think, will help us.

That's really helpful. And then just 2 quick ones. Just on CapstanAG, should we think about the incremental revenue, like addition, like I saw there's like $2 million or so you and you owned it for maybe a month. Should we think about that as like a $5 million to $6 million incremental revenue, like as we put that into our models?

For the second half, yes, that would be a good estimations. I mean, it's roughly a $13 million business, is the approximate size annual.

Annual. Okay. Perfect. And then just last on -- where do you think we are in the demand cycle for ETFs? I mean, obviously, looking at capital spending environment in semiconductor and where you play, would you still categorize that we're like in the early innings or early stages of the demand cycle at this point?

Yes.

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

Thank you for your time and attention on today's call. Nordson is well positioned as a diversified precision technology company are closer 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 makes us a quality growth compounder. Have a great day. .

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

Hello, everyone. Thank you for joining us, and welcome to the Nordson Corporation First Quarter Fiscal Year 2026 Conference Call. [Operator Instructions]

I will now hand the call over to Lara Mahoney. Please go ahead.

Thank you. Good morning. This is Lara 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 19 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/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 2 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 3, 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 3 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 4 and turn the call over to Naga.

Good morning, everyone. Thank you for joining Nordson'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 end 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 #5, you'll see first quarter fiscal 2026 sales were 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 nonoperating 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 noncash gain on a minority investment. To give a little color on this since this is a new 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 noncash gain from adjusted earnings, and we'll continue to treat future adjustments to mark-to-market as such going forward. Excluding this noncash gain, year-over-year changes in 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 noncash 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 noncash 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 reflect 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 6 through 8 to review the first quarter 2026 segment performance. Industrial Precision Solutions 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 7. You'll see Medical and Fluid Solutions 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 8. You'll see Advanced Technology Solutions 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've made within their segment in prior years, guided by the NBS Next growth framework.

Finally, turning to the balance sheet and cash flow on Slide 9. 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 2.1x 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 noncash 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 3 months into the year, our end markets are playing out as we expected. Within IPS, investments in packaging and product assembly are sustaining. Precision agricultural 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 applications 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 Nordson 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 Nordson 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 entered 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 million 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 $2,860 million to $2,980 million, which is an increase of 4.5% at the midpoint. The top end of our range assumes continued momentum from electronics end 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 Nordson employees who are passionate about meeting the needs of our customers. Our focus on innovation and operational excellence continue to position us well to serve our customers.

With that, we will pause and take your questions.

[Operator Instructions] Our first question comes from Jeff Hammond with KeyBanc.

So really, I just want to -- can we just unpack kind of the margin dynamics around this kind of systems, geographic mix? And -- and do you think that continues over the next few quarters? Do you see mix improving? Maybe what's showing up in the order book that would support cover mix change or staying the same? .

Yes, it's a good question, Jeff. 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 mix 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. We've always said 40% is kind of a 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, if you think about our second quarter guide and our full year guide, both contemplates Nordson delivering strong best-in-class EBITDA margins like we have done in the past.

Okay. Can you just expand on kind of the slow start in medical ex, I think, the weather issues and just what you're seeing that gives you confidence that, that 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 if you exclude kind of the divestiture impact?

So we'll take the incremental first, Dan go, and then I'll talk about the trends.

Sure. Yes. Yes. And as I said, incrementals were actually quite strong. I mean our incrementals all in are essentially off the chart. I think when you kind of strip out the impact of the CDMO divestiture, incrementals are still north -- well north of 50% in the quarter. So it's quite strong and reflective of 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, part of that was weather-related. We mentioned about 1% impact. But we're, frankly, very comfortable with the mid-single-digit outlook kind of return to normal growth. We see strong underlying demand in the business in our backlog and our project activity with customers. So it's really just a slightly slower start and really 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 in 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 you be taking 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.

Our next question comes from Mike Halloran with Baird.

Can we start on the ATS piece and maybe just give some more context to the moving pieces in the larger buckets there. The dispense piece, it seems like it's tracking the right way, certain to see some signs on x-ray. Maybe broadly in P&I piece, what are you seeing? And just maybe put it all together, talk about the 3 pieces of the order trajectory and where you're the most confident?

Yes, 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 a 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 T&I, you want to think about it in 2 pieces. One is our X-ray businesses and the other one is our what we call as AMI businesses. And so these are acoustic emission-based inspection techniques and optimal 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 so these are very expensive chips, and yield rates are everything here. And so the test and 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 inflect.

One thing that is -- we also have our AMI business, which is our acoustic emission business, There, we have coming off of 2 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 yes, 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, given all the moving pieces there.

Yes, sure. If you think about the IPS business, what we feel -- the headline really is we returned 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 end 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. Remember, this is a business where we are aftermarkets are a significant part of their revenue, which is north of 55% or so. Polymer processing and automotive end markets, we expect a nominal recovery through the year. They're stabilized, but not meaningfully inflecting yet.

The only other thing I would add is 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 an 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.

Our next question comes from Matt Summerville with D.A. Davidson.

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 performance, medical-only organic performance have looked like in the quarter?

Yes. It was primarily in our interventional products and then also to some extent in our fluid components, particularly some of our 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 we estimate about a 1% impact. It's -- think of it as 2 to 3 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. And 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?

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 or continue to expand our medical component portfolio. We're working on test and inspection opportunities. And any core technology, any technology that it will add to our core offering in the industry. So that is sort of the 3 areas that we are looking at and working on.

Yes, the multiples look a little elevated in some cases, in some places, it look reasonable. I think for us, it is -- we are going to continue to be pretty disciplined around what we buy. And our criteria has remain the same. We're looking for businesses that would add to our growth portfolio, businesses that are differentiated, businesses that have strong technology place.

And from a financial perspective, we're looking for Nordson like gross margins and maybe EBITDA was in the 20 range with meaningful opportunity to expand margins and our appropriate return. So all our criteria, both strategic and financial remain the same. Healthy pipeline, continue to work on lack of announcement shouldn't be assumed for lack of activity or work on our part.

Our next question comes from Christopher Glynn with Oppenheimer.

Just wanted to -- you mentioned, I think, seeing some initial signs of the general electronics 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.

Yes. 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 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. Yes.

Great. And then just want to explore also when emerging technologies and the semi application space started to hit you say in the case of co-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?

Yes, exactly.

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

Yes. 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 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 performance in the quarter.

Our next question comes from Robert Jamieson with Vertical Research Partners.

Just really wanted to follow up quickly on that FX incrementals. Should we be assuming the same sort of incremental drop through those 25% up or down across the other segments as well for FX?

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

Great. And then I just want to talk about full year guidance. Really solid performance in 1Q. Nice [ Q3 ] guide. 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 what end markets and areas would you expect to outperform your base case estimate to get us at or above the high end of your sales range?

Does it need to be an acceleration in like auto? I mean, I've been watching auto CapEx for 20-plus global auto OEMs. And even since December, we've seen auto CapEx revised higher by like 5% growth to '26 from flattish in December. So would it be kind of like a mix of that as more of an acceleration in some of the minimally invasive and specialty medical business, would that be like kind of like a fair assessment if we were to think everything works to align and get us towards the high end of your guidance range?

Rob, thank you for your comments. That exactly mirrors our thinking. What we're trying to be is balance 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.

Yes. 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 in demand that would be upside versus our kind of base case thinking. Yes.

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 pull back, postponing is the way to think about it. So think of our lumpiness also from a customer demand delivery requirement. .

Yes, it's a good way to think about it.

No, that makes perfect sense. And then just one last one. Just I don't see this being an issue for you all, but the DRAM pricing is -- have there been any impact? Or how much is that of like your billing materials? Is it pretty de minimis? And then, I guess, another question would be with just some of the capacity constraints there, could that be a potential opportunity for you all if -- like on the back-end processes if they need to increase capacity? 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 just with like memory cost going up, do you have any significant exposure there that would be related to margin?

Yes. We don't have a significant amount of exposure, but we do have exposure in the memory space, in the traditional memory. And when there are capacity adds there, we will benefit, we will benefit.

Our next question comes from Andrew Buscaglia with BNP Paribas.

Just wanted to check on. Within ATS, I know you said about half of your sales 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 is 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 a lift in that chunkier ATS business?

Yes. If you think about our X-ray business, this is one -- is a little slower to recover when compared to our dispense business and when compared to our acoustic [ commission ], and so if you think about year-on-year, 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?

Yes.

Sorry, as automotive comes back, we will continue to see x-ray do well. .

Okay. Got it. Okay. In MFS, 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 you -- when we come to lap that, you expect to expand off of that high base? I mean they are pretty impressive margins you're kind of running into? And maybe what would that be? What would lift that demand, if you don't -- or margin demand is not really accelerating?

Yes. 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 a 37%-ish range. And we may have some select quarter-over-quarter comp issues like the first quarter where we had a really strong performance, but we think maintaining that margin performance and continuing to generate reasonable incrementals as we grow is very much attainable in the medical business.

Yes, it's worth pointing out, maybe just to reiterate, the divestiture that we completed in the fourth quarter is kind of a, call it, a onetime 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 and so we hit Q4.

And I think the most important part, we, as a company, are focused on, and this message sort of reiterates across all of our businesses. In -- given Nordson'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, be it MFS, yes, the margins are pretty strong. But day in and day out, what our teams in the divisions are focused on is to drive organic growth, innovate, deliver products at the time the customer is 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 -- if you want to think about us, we think about above-market growth and reasonable incrementals. That's where we're focused on. That's what you would see us deliver.

Our next question comes from Chris Dankert with Loop Capital.

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 is that just kind of how the orders just happened to fall [indiscernible].

Yes. 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, I would say, normal customer demand and requirements.

We do hear that our customers are investing for the demand, right? And so this increased demand for AI chip 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 customers, both the investment pattern as well as installation requirements, so.

Yes, it certainly encouraging to see the strong start to the year and the good shipments in 1Q here. So you have on that. I guess as my follow-up, any comments on kind of 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 our packaging business has had a pretty good quarter. Expect to continue to have a pretty good quarter. If you think about the non-wovens business, we're coming off of 2 years of incredible capacity adds, a lot of capacity adds for nonwovens came in the last year from a lot of our mid-tier OEMs based in Asia, building out in Africa, Middle East, India.

So 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.

Congrats on a nice start to '26 here.

Our next question comes from Walter Liptak with Seaport Research.

Let me try one on the ATS segment. And if I'm recalling this right, in past positive cycles around 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 already. And it sounds like with this kind of data center build-out for advanced chips that lumpiness is still there. Do you -- can you help us understand is there any differences between prior kind of 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 -- they are smaller rather than significantly huge chunks and then nothing. So I would say it has dampened -- the amplitude of the cycle is dampened as 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 it 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 or 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 our starting backlog is really an indicator of current demand for Q2.

To your point, we also have -- 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 as when those turn into orders and delivery, which is dependent on when the customers need them for their factory floor.

Okay. Great. And then you called out the wise Nordson advanced electronics winning. I wonder is there a win rate? Like it sounds like you might be gaining market share here with some of the quick delivery. Is there a way of quantifying it was 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. Our 4 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 I think we're getting rewarded for that in the market.

[Operator Instructions] Our next question comes from Brad Hewitt with Wolfe Research.

So IPS revenue was much better than typical sequential seasonality, of course, you call 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?

Yes. 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. Clearly, you can see growth in packaging, product assembly, our Precision Ag business is also growing nicely.

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

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 10 in New York, the Bank of America Conference on March 17 in London and at the Apex Trade Show in Anaheim, California on March 18, featuring our electronics product lines.

Nordson 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.

Ladies and gentlemen, thank you for joining us, and welcome to the Nordson Corporation Fourth Quarter and Fiscal Year 2025 Conference Call. [Operator Instructions]

I will now hand the conference over to Lara Mahoney. Please go ahead.

Thank you. Good morning. This is Lara 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, December 11, 2025, to report Nordson's fiscal year 2025 fourth quarter and full year 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 nordson.com/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 2 of our presentation, where we will 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 3. Naga will discuss fourth quarter and full year highlights. He will then turn the call over to Dan to review sales and earnings performance for the total company and the 3 business segments. Dan also will talk about the year-end balance sheet and cash flow. Naga will conclude with high-level commentary about our enterprise performance, including an update on the Ascend Strategy as well as our fiscal 2026 full year and first quarter guidance. We will then be happy to take your questions.

With that, I'll turn to Slide 4 and hand the call over to Naga.

Good morning, everyone. Thank you for joining Nordson's fiscal 2025 fourth quarter and full year conference call.

I am pleased to share our solid fourth quarter results. Sales were up 1% over prior year, inclusive of the divestiture of our medical contract manufacturing business that closed on September 2. Adjusted earnings per share grew 9% over the prior year, reaching the high end of our fourth quarter guidance. Notably, we achieved record EBITDA of $256 million, expanding EBITDA margin to 34% in the quarter.

We also generated record cash flow of $194 million in the quarter, which is a conversion rate to the net income of 128%. This enabled us to continue repurchasing shares, paying dividends and further reducing debt. This is a strong operational result, and I want to thank the Nordson team for their ongoing commitment to delivering value to our customers and shareholders.

As I turn to fiscal 2025 financial highlights on Slide 5, I want to reflect on the progress we have made since launching the Ascend Strategy 5 years ago. In addition to Nordson's legacy strengths of leadership positions in diversified niche end markets, high recurring parts revenues, a direct-to-customer model, and differentiated products built on deep knowledge of our customers' demanding applications, the Ascend Strategy has added new capabilities, including the NBS Next growth framework and a division-led structure, which have empowered our teams to respond rapidly to changing market conditions. And certainly, we have navigated effectively through significant macroeconomic changes over the last 5 years.

2025 was no exception. And Nordson delivered strong results in line with our initial guidance. We achieved record sales of $2.8 billion, up 4% from last year. Despite the macro disruptions, we delivered record adjusted earnings per share of $10.24, exceeding the midpoint of our initial full year guidance. We maintained our average gross margins of 55% in an evolving tariff environment, demonstrating the value and differentiation we provide to our customers.

Throughout fiscal 2025, we also continued to strengthen our portfolio. The integration of Atrion Medical has been a success and it contributed nicely to sales and EPS growth in the first year. We also strengthened our medical portfolio through the divestiture of our contract manufacturing business, driving immediate improvement in our margins and increased focus on our remaining differentiated medical businesses. All of these actions delivered EBITDA of $900 million, achieving our 2025 Ascend Strategy goal.

I would also like to highlight our full year free cash flow conversion of 136% of net income. Our strong cash generation enabled us to repurchase about $300 million in shares, increased dividends for the 62nd consecutive year and reduced our net debt, ending the year at a 2.1x leverage ratio, near the low end of our targeted range.

I'll speak more to the enterprise performance in a few moments, but first, I'll turn the call over to Dan to provide more detailed perspective on our financial results for the fourth quarter and fiscal year 2025.

Thank you, Naga, and good morning to everyone. I'll start on Slide 6, which summarizes our overall results for the fourth quarter.

Fourth quarter 2025 sales were $752 million, up 1% compared to the prior year's fourth quarter sales of $744 million. Organic sales decreased 1% compared to the fourth quarter of 2024, with the growth in our Medical segment being offset by softness in selected Industrial and Advanced Technology systems product lines during the quarter.

Currency translation had a positive impact of 2% during the quarter, and we saw a small positive from a combination of both the Atrion acquisition, which anniversaried in late August, and the divestiture of the medical contract manufacturing business, which we completed in early September.

Adjusted operating profit increased 6% year-over-year to $218 million, reflecting both strong gross margin performance and improved SG&A leverage during the quarter. EBITDA was also up 6% year-over-year at $256 million and reached 34% of sales. This represents a 160 basis point improvement over the prior year fourth quarter. Adjusted operating profit and EBITDA margins benefited from solid operational performance, improved portfolio mix as a result of the divestiture of our medical contract manufacturing business, and the restructuring actions that we announced earlier in the year, which have now been substantially completed.

It's worth highlighting that this is our third consecutive quarter of improving EBITDA margin amid the dynamic trade environment. This is a testament to our ability to execute and deliver operationally in dynamic times while also creating value through strategic M&A activity.

If we look now at nonoperating income and expense during the quarter, interest expense improved $4 million year-over-year, driven by reduced leverage and a stable to declining rate environment. This benefit was essentially offset by an increase in other nonoperating expenses during the quarter. Tax expense was $31 million in the fourth quarter, for an effective tax rate of 17.1%. This brings our full year tax rate to 18.9%, which is slightly better than our original guidance range for fiscal 2025.

All of this resulted in GAAP net income that totaled $152 million or $2.69 per diluted share. Excluding nonrecurring acquisition and restructuring-related expenses, as well as charges associated with the exit of the medical contract manufacturing business, adjusted earnings per share totaled $3.03 per share, a 9% increase over the prior year and $0.08 above the midpoint of our quarterly guidance, reflecting our strong operational performance during the period. Not only was this a strong year-over-year improvement in earnings, but on a dollar basis, it also represents a quarterly record for the company.

Now let's turn to slides 7 through 9 to review our fourth quarter segment performance.

Industrial Precision Solutions sales of $362 million decreased 2% compared to the prior year fourth quarter. Organically, IPS was down just under 4% in the quarter, with currency providing a favorable impact of about 2%. Although it was another quarter of improvement sequentially, year-over-year declines in our polymer processing product lines and some smaller reductions in our industrial coating systems outpaced solid growth in precision agriculture and packaging product lines. For both polymer processing and industrial coating systems, we see continued signs of stabilization and improvement in our backlog and order rates. So these areas should no longer be a drag on results heading into the first quarter of fiscal 2026.

EBITDA for the quarter was $137 million or 38% of sales, reflecting consistent and strong operational performance on slightly lower sales volumes during the quarter.

Turning to Slide 8, you'll see Medical and Fluid Solutions sales of $220 million increased 10% compared to the prior year's fourth quarter. Organic sales volume was up nicely at 7%, driven by broad-based demand across all of our product lines. I think it's fair to say that the destocking that was impacting our interventional product lines is now fully behind us, and we see good, stable demand in our order books heading into the new year.

The final acquisition impact from Atrion, net of the sales reduction from divesting our medical contract manufacturing business, added a net 2% to sales during the quarter. After a successful year 1 integration, it's also worth noting that Atrion is now contributing nicely to organic growth that we achieved during the quarter. Finally, currency had a modest favorable impact on the overall sales versus the prior year.

EBITDA for the quarter was $88 million or 40% of sales, which is an increase of 21% compared to the prior year EBITDA of $72 million or 36% of sales. This was a fantastic result with EBITDA margins up 380 basis points versus the prior year. While a big part of the margin improvement in the quarter is driven by the divestiture of our contract manufacturing business, our teams also continue to execute quite well and are now fully benefiting from the normalization in demand.

Turning to Slide 9, you'll see Advanced Technology Solutions sales of $171 million decreased 4% compared to the prior year's fourth quarter. This change included a decrease in organic sales volume of roughly 5%, with a small positive currency benefit. The year-over-year organic sales decline was driven by weakness in X-ray systems demand. We continue to see strong growth in electronic dispense product lines and stable demand for optical, acoustic and other product lines, but these were overshadowed by near-term weakness in X-ray systems during the quarter.

As a reminder, our ATS revenue tends to be a bit lumpy quarter-to-quarter based on systems delivery. That said, we continue to see strong underlying momentum in our ATS end markets despite the lower year-over-year result in the fourth quarter.

Fourth quarter EBITDA was $43 million or 25% of sales, a decrease of 10% from the prior year fourth quarter EBITDA of $48 million or 27% of sales. The decrease in EBITDA margin was reflective of lower sales volume and some unfavorable product mix during the quarter, with stable underlying product line performance.

Now turning to Slide 10, I'd like to make a few comments on our full year results. As Naga mentioned, fiscal 2025 full year sales were a record $2.8 billion and an increase of 4% year-on-year. Our acquisition and divestiture activity added a net 6% to sales for the year while organic sales were down roughly 3% and currency was a modest benefit.

Looking back at the full year sales results, organic sales were really weighed down by 3 specific areas: polymer processing systems, our automotive-related systems and selected X-ray inspection applications. In all cases, the core fundamentals of these businesses remain strong, and as we exit the year, we see good stability in our backlog and order rates, meaning we've seen the trough.

EBITDA for the full year increased 6% to a record $900 million or 32% of sales. This reflects a full year incremental EBITDA margin of 49% and marks the fifth consecutive year that the Ascend Strategy has delivered strong EBITDA growth. This results in GAAP diluted earnings per share of $8.51 for the year and adjusted diluted earnings per share of $10.24, both up 5% from the prior year and representing a new record for adjusted diluted earnings per share. In a year that's been full of surprises, we're quite proud of these results, and we like where we're positioned heading into fiscal 2026.

Finally, turning to the balance sheet and cash flow on Slide 11. At the end of the fourth quarter, we had cash on hand of $108 million and net debt was approximately $1.9 billion, resulting in a leverage ratio of 2.1x, a significant reduction from where we started the year. While we did benefit from roughly $30 million in net proceeds from the contract manufacturing sale, our free cash flow really enabled this debt reduction. And our free cash flow generation remains quite strong, an annual record of $661 million, and a cash conversion rate of 136% on net income. This strong cash conversion was primarily driven by targeted improvements in working capital, which is an area that we remain focused on.

As a result of our strong free cash flow during the year, we were able to repurchase approximately $300 million in shares, reduced our net debt by about $224 million and pay $179 million in dividends, while continuing to invest approximately $60 million in capital projects to drive organic growth. This positions us quite well heading into 2026 for continued returns to shareholders with plenty of firepower to continue to add attractive assets to the portfolio.

In summary, we had another strong operational quarter and we finished the year strong, exceeding our original profit commitment for the year despite a very dynamic macro environment. We closed fiscal 2025 with a strong balance sheet while returning value to shareholders due to record free cash flow generation. And we took action to optimize our medical portfolio, positioning us for continued profitable growth.

As we enter fiscal 2026, with our key market headwinds behind us, we're well positioned to capitalize on profitable growth opportunities and we're confident in our ability to convert these opportunities to bottom line results and value.

With that, we'll now turn to Slide 12, and I'll return the call to Naga.

Thank you, Dan. In October 2024, we announced our 2025 to 2029 performance targets. In 2029, when we look back on our financial performance for that period, we expect to deliver an average annual growth of 6% to 8% in revenue, balanced between organic and acquisitive growth. And 10% to 12% in adjusted EPS growth. In 2025, we managed effectively through some dynamic macroeconomic conditions and made progress towards our goals.

Turning to Slide 13, I'd like to talk about what we are seeing in our end markets as we enter fiscal 2026. Starting with our Industrial Precision Solutions segment, we continue to see sustaining investments in packaging and product assembly end markets. Precision agriculture demand is sustainable in Europe and South America given the strengthening demand for increasing yields and quality in these regional markets. Demand in auto and polymer processing end markets has stabilized.

Through it all, aftermarket parts remain a stable part of the IPS revenue portfolio, contributing to growth and delivering attractive margins. Overall, we expect the IPS segment to return to more normal growth rates of low single digits.

In Medical, customer destocking is behind us and our core business is returning to mid-single-digit organic growth. The demand drivers fueling the end market, such as the aging of the population and shift towards non-invasive surgeries, remain consistent and our medical team has a healthy pipeline of customer projects.

In ATS, our semiconductor applications are well positioned to benefit from investments in the semiconductor cycle. We remind our investors of semiconductor applications account for approximately 50% of ATS revenue. While timing of orders remain lumpy, our team is winning share based on our ability to deliver innovative new products in short lead times. This is possible because we have holistically applied NBS Next.

In addition to being located close to the customer, our products deliver leading productivity and quality in complex advanced packaging applications of semiconductors used for AI, cloud computing and more. The remaining exposures within ATS are automotive and general electronics, where the demand is stable, but dampening the higher semi growth rates. Encouraged by our end market demand trends and being prepared to operate in a range of macroeconomic environments, we are entering 2026 optimistic to deliver solid growth.

Now turning to the financial outlook on Slide 14. [indiscernible] fiscal 2026 with approximately $600 million in backlog, up 5% from the prior year end, excluding backlog associated with the divested business. Based on the combination of order entry, backlog, current foreign exchange rates and anticipated end market expectations, we anticipate delivering full year sales in the range of 1% to 6% above fiscal 2025 sales. This sales guidance assumes 1% benefit from foreign exchange rates, which will be offset by the divested medical contract manufacturing business. Importantly, this implies a midpoint of 3.5%, demonstrating solid progress towards our long-term organic growth annual target.

Full year 2026 adjusted earnings are forecasted to be in the range of 6% to 12% growth per diluted share, with a midpoint of 9% adjusted earnings growth, is also progressing well toward our annual adjusted EPS growth algorithm.

For modeling purposes, in fiscal 2026, assume an estimated effective tax rate of 18.5% to 19.5%, capital expenditures of approximately $55 million to $65 million, and interest expense of approximately $85 million to $95 million.

Based on seasonality, we expect our fiscal first quarter to start modestly growing nicely over prior year. As you will see on Slide 15, first quarter fiscal 2026 sales are forecasted in the range of $630 million to $670 million and adjusted earnings in the range of $2.25 to $2.45 per diluted share.

The Nordson team consistently delivers operational excellence and strong cash flow due to our unique competitive advantages. Coupling with our expectations for end market growth, we are looking forward to a solid fiscal 2026. As a growth compounder, we will continue to reinvest in the business while returning cash to our shareholders. Again, I want to thank our employees, customers and shareholders for your continued support.

We will now open the phone lines for questions.

[Operator Instructions] Your first question comes from the line of Mike Halloran from Baird.

So first question is on the ATS segment, specifically the semi side. In the past, the higher growth areas have been driving the strength in that piece. Are you seeing any broadening out across semiconductor applications yet? Or is it still concentrated in some of the areas, data center, wherever, AI, where you've seen strength traditionally? In other words, have you seen that broaden out to some of the more traditional electronic applications, auto, wherever else you want to talk to?

Yes. I would say the strength continues and remains in the semiconductor space for the AI applications, cloud computing and such. But automotive is certainly starting to stabilize for us. And general electronics has been pretty decent through all of it, just lower growth, Mike, when compared to the semiconductor growth rates. Just for color, 50% of the revenues come from the semiconductor space, about 15% or so in the automotive, and the rest is in electronics, so.

Okay. And then on the margin side of things, maybe just some help on trajectory into this year. Very robust margins, particularly MFS, this quarter. Is this the right zone to think about sequentially as we work through the year next year? Or are there any one-offs? In other words, are these the right margin levels to build off of -- are these the representative margins to build off of adjusting for revenue levels as we work through '26?

Yes, it's a good question, Mike. I would say, as I look at IPS and ATS, I think certainly the right jump-off point and in line with historical performance. On the Medical side, we had a really strong quarter. I don't know that 40% plus is the right way to think about it. I think we're very comfortable maintaining the upper 30s in our Medical business. They had a really strong performance this quarter. Certainly, I wouldn't expect a lot of degradation. But there were some strong benefits associated with the portfolio changes that we made, as well as some operational tailwinds that we had.

And so I think the upper 30s in the Medical is certainly sustainable. 40% is a bit of a notable achievement this quarter.

One thing I would add, Mike, is that think of a 100 basis point improvement for the segment margins with the action of the divestiture, is maybe a way to think about it.

Your next question comes from the line of Jeff Hammond with KeyBanc.

Jeff, we can't hear you if you're there. I think we might have a technical difficulty. Jeff is not coming through.

Can you hear me?

We can.

Sorry about that. This is Mitch Moore on for Jeff. Just within IPS, it seems like polymer processing weakness has been masking some of the more stable growth in other parts of that business. Just as we look to 2026, what are you expecting from the polymer processing versus kind of the rest of the business? If you could talk about order intake there and how much that's contributing to backlog and expectations for the year.

Yes. For polymer processing, what I would tell you is what we have seen in order entry and backlog buildup, we're at the [ bottom ], and our expectation is, going into the year, that things improve from where we are, certainly not getting any more difficult than being a drag on IPS.

That's helpful. And then just on 1Q and ATS, it looks like there's some pretty healthy growth implied in 1Q. Just if you could help us walk through how much of that is comps, how much of that is underlying markets getting better or timing of shipments. Just if you could us -- help me walk through that.

Yes. No, happy to add some color. I would say, from a demand standpoint, we see good underlying stable demand, and growth, as Naga mentioned, particularly in the semi space but also a good stable ongoing growth in the electronics, automotive and general electronics space. As you think about first quarter, as you'll recall, we did have a slow start to the year in ATS last year. And so there are some favorable comps year-over-year, and that's driving part of the performance in Q1. As we sit here today, entering the year, we're in a much stronger position from a backlog standpoint from where we started the year last year. So we're off to a good start, I would say, certainly for the first quarter. Some of that is the prior year comp. But really, it's really driven by ongoing demand and a stronger backlog entering the year, is really the big driver.

Your next question comes from the line of Matt Summerville with D.A. Davidson.

So can you put a little bit of a finer point on what you're seeing with respect to X-ray inspection, in the sense that I would imagine if a lot of the semi-driven growth is being steered by AI, cloud, kind of the more technologically rich chip architectures, I would think the pull-through and almost more of a real-time pull-through on X-ray would be more pronounced maybe than what you're seeing. So can you kind of talk about why the 2 pieces of the business may be decoupled, whether you think that's sort of temporary? Just kind of walk me through that again, specifically focused on X-ray. And then I have a follow-up.

Sure. On the X-ray side, think about X-ray, it has great exposure to our semiconductor, but it also has a pretty solid exposure to automotive. So some of these differences you're seeing in X-ray when compared to ATS, you also can attribute to some of the automotive exposures we have in that business.

We certainly like the trends that we are seeing in the business right now. We've got a number of new products that are launching. And so we are pretty excited about going into this year. I think X-ray begins to contribute to ATS's growth.

The one other point that I would make for you on X-ray is that if you think about these composite structures that people are building, where you have both logic as well as memory on that, there are parts of that structure cannot be inspected with X-ray, right? There are parts that need to be inspected with X-ray and there are parts that cannot be. And for Nordson's position, we have both those technologies. So you typically use acoustic for memory and you use more X-ray for logic chips, right?

So if you think about those 2, we certainly benefit from them. But there is a transition in technology that is happening in testing as we speak. And we have some new technologies that we are testing right now, which certainly will have an impact, but probably not in '26, probably in '27.

So overall, the X-ray business is in a good spot. Certainly did not contribute last year. Some of that is automotive exposure. But we feel like our X-ray business is in a good spot going into this year and will contribute to growth in the ATS segment.

And then just as a follow-up, with Atrion seemingly in a good spot, maybe just talk in a little bit more detail about M&A actionability from here on out, at 2.1x net leverage, and whether or not at 250-ish, wherever your stock is going to trade today, are you still a buyer in the open market?

Yes. I'll wait for that -- I'll pass that part of that question to Dan. But first, let me take the M&A piece of it, right? Just as a reminder, Matt, you know this about us, our goal with M&A remains the same as what we shared during our Investor Day, which is really adding highly differentiated businesses that are additive to the growth of the portfolio, right? That's -- while remaining strategically and financially disciplined. So that is the strategy. Nothing really has changed. We have a pretty healthy pipeline. We continue to be in part of processes. Obviously, in some cases, we are not successful because we choose to exit the process or, in some cases, we just -- the project ideas did not meet our financial criteria or strategic criteria, right?

So we continue to have a robust pipeline. We continue to work the pipeline. You did not see any actionability in '25 primarily because we didn't have projects that met both those things. And clearly, stock price was very favorable for us to be supportive of our stock by buying back share.

So then, let me have you address the last part of Matt's question.

Yes. And just to add maybe some color on the capital allocation thinking, our goal and, frankly, one of the strengths of the company with our strong cash flow is the ability to be balanced. And so you're going to continue to see us not just do one or the other, but continue to do both meaning returning cash to shareholders and continuing to identify and bring in high-quality assets to the portfolio.

So let's say, I like your thinking, let's say that we're in a $250 range today, we think there's still upside to our stock. We've just authorized late last year an increase in our authorization that gives us coverage in the near term. And I would say we're going to continue to be balanced in deploying the strong cash that we generate, both continuing to work our acquisition pipeline and balancing that with shareholder returns.

[Operator Instructions] Your next question comes from the line of Andrew Buscaglia from BNP.

So maybe a high-level question on your guidance to start out. Dan, you kind of mentioned these tougher markets seem to have [ troughed ], so that's an interesting comment. Yet the low end of your guidance really doesn't assume much growth this year. And it seems unreasonable if some of these tougher markets, you're past the worst. So what's giving you the hesitation to guide at the low end such a low range? And can you walk through maybe where you see some risk and you don't want to stick your neck out just yet?

Yes. No, it's a good question, Andrew. And again, I would say put the guidance in perspective, it's a range of potential outcomes, right? And we think it's important as a company to plan for both the upside and the downside. I think at this point in time, obviously, with our first quarter guide, we're going to have -- we're expecting to have a strong start to the year. We think it's prudent to plan for kind of our midpoint guidance. And on the downside, I would say that contemplates something happens this year.

Now certainly, sitting here today, I would tell you, we don't see a lot of indicators of any downside, but we still think it's prudent to plan for any potential outcome. And as the year plays out, we'll continue to update our guidance based on what we're seeing. But sitting here today, we feel very good. But we think it's still important to make sure that we're -- as we've learned, if nothing else, this year, a lot can happen in a year, and being prepared for any potential outcome in the marketplace is important. That said, where we sit today, we feel quite good. We're going to have a strong start to the first quarter, which is implied in our guidance. And we'll see how the rest of the year plays out.

Yes.

Does that make sense?

Yes, that's fair. Yes. And maybe focusing on your IPS market for a second. There's some enthusiasm amongst investors around improving industrial production, PMI factors this year, especially if we don't have another tariff situation. But I would think that -- can you talk about your IPS segment as it pertains to that? I mean it's weak and it's been tracking that -- somewhat tracking that comment for a weak kind of industrial factors, but also you have that [ ARAG ] weakness that's masking it and exacerbating it. So yes, can you talk about how you perceive that business in terms of sensitivity to the industrial economy and your outlook there?

Yes. So if you think about -- maybe just for a brief moment talk about 2025 and then talk about 2026. If you think about 2025, the IPS segment was weighed down, the performance that is published in the print, is weighed down by plastic processing and automotive, right? That's -- and that kind of takes -- took away most of the progress that the team has been delivering in our core IPS businesses. And precision ag grew double digit in the year, right? So that is 2025.

As we look into 2026, we continue to see investments in packaging and product assembly, our [ hot melted diesel ] businesses. We feel very good about the order entry and the backlog in our precision ag businesses. Now remember, precision ag for us is a European business. It's not a North American business. We are a market leader in Europe and in South America. So we see -- we feel good about that.

And if you think about our aftermarket parts, which is upwards of 55%, 56% of this business revenue comes from aftermarket parts. So we feel really good about stable demand there, right? And then polymer processing has troughed, automotive has troughed. And so any nominal recovery there is all upside to this business. So as we sit here today, this business getting back to GDP plus kind of growth is what we are planning for.

Your next question comes from the line of Chris Glynn with Oppenheimer.

Chris, if you're there, we can't hear you.

Okay. I was showing unmuted and then it prompted me to unmute again and again. Can you hear me?

We can.

We can.

Okay. Great. Just want to drill back down into a little bit at the lower end. It sounded like what that contemplates is more the hypothetical versus anything you're seeing. But I wanted to understand how the dynamic of lumpiness of electronic processing systems orders might play into it. Does the idea of lumpiness get negated on a 12-year basis and fiscal '26 should fully participate in what you've often characterized as the beginning of a multiyear run for ATS?

So I think that's the right way to think about it. I mean, A, your initial comment, look, we're planning for a range of scenarios, and certainly part of that range is a downside scenario, right? But sitting here today, I would say that's more of a hypothetical. I think that's a good way to think about it.

With regards to ATS, that's kind of exactly how we think about it. And I'll maybe point to 2025 as an example. We had a couple of quarters of 15% growth. That's not necessarily a run rate on a 12-month basis. If you look at our full year, we grew our ATS segment about 4%. And so looking at -- we expect good mid-single-digit growth over, I think, to your point, maybe a 12-month period is a good way to think about it. That said, you're going to see some peaks and valleys, right, over that period based on delivery timing. Does that make sense?

Yes. Makes sense. And then just a last one on polymer processing. Obviously, you had an excellent fiscal '24 and pretty steep downturn in fiscal '25. You've said that is categorically behind you. Are there rumblings customer activity in polymer processing? And is that a factor that could push you nicely to the upside of the guidance range? I think last quarter on the call, it was referenced a couple of times about customer discussions in polymer processing having turned decidedly.

Yes. Look, I think the best way to think about it is we have hit the bottom. When we look at activity in the marketplace, on the system side of the business, we still seem to be in a good place, order entry is starting to look good, starting to look at backlog building. But there is also a [ dice ] business in there, which is not growing at the same clip as our systems business there. So it's one of those cases where we believe that we have bottomed out. Even in the [ dice ] business, it is bottom, it is not going any further down. The recovery seems to be different in these 2 businesses. So now we're getting a little bit more detail, more detail than we normally talk about, Chris, but we're providing this just to help you understand.

So the best way to think about polymer processing is, where are the trough? We're expecting some nominal growth, is what we are expecting in our guide. Should there have something bigger and better than what we have planned, then that definitely puts us on the upside for that segment.

And I would just add to that, similar comments with regards to our automotive businesses. Automotive, we're not -- we see that that's troughed, it's stabilized, we're expecting nominal growth. But we're not expecting any big recovery in our automotive markets.

Sorry, Chris. This is why we give a range, particularly this early in the year, so.

Great. Thanks for the color. Happy holidays.

Your next question comes from the line of Brad Hewitt with Wolfe Research.

So you mentioned backlog is up 5% year-over-year, but could you quantify how backlog trended sequentially? And then any additional comments on the sequential backlog trends by business would be helpful.

Yes. So backlog is up 5% versus where we started last year. Backlog is down sequentially, but that's actually normal, Brad, because Q1 is always seasonally our lowest quarter given holiday and other schedules. And so that kind of sequential reduction in backlog is a normal trend, is the way that I would think about it. What's more important is I think the comparison year-over-year starting point standpoint. I think that's the right way to think about it.

Okay. Great. And then as we think about seasonality throughout the year, in terms of the revenue and EBITDA split, is it fair to assume roughly normal seasonality for 2026? And then in terms of organic growth, do you think that should be similar in first half versus second half?

Yes. I would say we're planning for a normal year from a seasonality standpoint. Typically, what you see is Q1 is always our lowest start given the timing of the year, the holidays, as well as kind of the year-end timing of shipments and customer activity. And then you see that sequentially improve throughout the year. I would say we would expect a normal kind of seasonal trend, at least sitting here today, across our business.

I mean there is some Chinese New Year that moves from quarter-to-quarter, but there is a nominal impact. This year, Chinese New Year will be in the second quarter, so.

Your next question comes from the line of Walter Liptak with Seaport Research.

Congratulations on the 5 years of NBS Next. And so I wanted to ask, as you look back, what do you think went best for you guys? And what was the toughest? And if I'm recalling, there was a little bit more of like a growth focus on your NBS Next. How do you feel about that now? And what should we be thinking about over the next 5 years?

Yes. No, thank you, Walt. If you think about NBS Next, and if I were just to sort of go back to where we started, where we started was the company's greatest opportunity was growth. And so really we structured NBS Next around how do we deliver on that great growth opportunity for Nordson. And it all started with strategic discipline. So if you think about how the company thinks about strategic discipline across all of our divisions that is well patted down, this is how our teams think about how do I resource a new growth opportunity? How do I build a new product line? How do I innovate around a new product opportunity? How do I operationally be positioned for that growth?

So I'm really happy where we are as a company in terms of using segmentation in our strategic discipline. So strategic discipline really is segmentation. And so using segmentation, our teams identify the best growth. We're able -- we have now -- beginning to holistically implement.

I would say in terms of leadership level performance, this is sort of the process metrics we use within the company to say where we are at in the effectiveness. I would tell you we are halfway there, is probably the best way to think about it. So we still have plenty of room left in terms of continuing to deliver growth with this framework.

If you take the 5 years -- take the first 2 years as the years when we built this framework, deployed it, trained, getting really good at it, and the next 3 years is really starting to deliver results. If you think about EBITDA margins, we went from 27% to 30% in that first period. And then if you think about the next period where we're beginning to deliver growth results, the expansion from 30% to 32%, right?

So what you really see is the company using the framework to drive growth. Where we are today and where we have the greatest opportunity is, over this period of time, the company's operational excellence have gotten really great, innovation has gotten stronger, and commercial excellence is sort of where we are spending most of our time today. And so I'm super excited the team is really working incredibly hard in sort of how we play in the markets we have chosen to play in. And so all of the work in the next couple of years is around commercial excellence, connecting the dots between segmentation, innovation, operational excellence and commercial excellence.

Okay. Great. And on the profitability side, as you pointed out, the profits were good. Are we -- what inning are we at now do you think with that operational EBITDA part of NBS Next?

Yes. So I guess what I would say, I'll go back to Naga's comments, growth is our best opportunity as a company. And I think I would say that's where the margin enhancement comes from going forward, is continuing to effectively grow the organization and basically throwing off normal incrementals that will lead to natural margin accretion over time. That's our primary focus and I think our best opportunity. That doesn't mean that there aren't things that we can -- yes, you can always improve your operations, you can always get better. But I would say our best opportunity is continuing to grow the organization and growing it more aggressively and allowing that to be basically your margin accretion.

One thing I would add to that is just over the long term, Walt, don't hold us to some short periods of time here, if you think about an average 35% incremental for the company, blended between acquisitions and organic growth, a 35% incremental implies, over the longer term, our margins start to converge on that number, right? And we're running at 32% today. But that is primarily through growth. And I think that is the key, hopefully, you take away, is we are solely focused on growth, which is a big part of who we are. But growth in a very profitable way. As you have seen the team demonstrate year in, year out, operationally, pretty darn good incrementals. So if you sort of take that incrementals and sort of project out to the longer term, that's what you would end up. Hopefully, that helps you. .

It does.

Your next question comes from the line of Robert Jamieson with Vertical Research Partners.

Congrats on the quarter. And all the color has been very helpful this morning. Just wanted to touch on full year EPS guidance. And with the midpoint at 9% growth, your long-term target range of like 10% to 12%, what bridges you from the midpoint to achieving the upper end of that target range? Would you expect that to be primarily operational execution, maybe some help from share repurchases? Or are there potential upside scenarios in your end markets? And where do you think that might come from if we did see that -- the top end of the range being achieved?

Yes. Well, relative to 2026, I mean, certainly, that 9% is a midpoint and also based on a midpoint growth. So stronger growth and our base business would be certainly one item to bridge that. The other thing I would point out is the 10% to 12% growth was a combination of organic and inorganic. And we're not factoring in any acquisitions this year. That doesn't mean that we're not working on -- actively working on opportunities, and that would be additive to the organization as well. So I think a combination of those 2, continuing to grow our base business with our NBS Next formula, that will deliver upside. 3.5%, I think it was a good midpoint aiming target, and that's what we kind of factored into our long-term thinking. Delivering better than that in certain years will deliver higher earnings growth as well as continuing to add attractive assets to the portfolio.

Great. And then just nice free cash flow conversion in the last couple of quarters. Can you talk a little bit about the working capital improvements and sustainability there? Have there been structural improvements there that would be able to -- for you all to sustain conversion above your long-term average rate?

Yes. No, it's been -- our teams have done some nice initial work. It's been really a targeted focus area for us, simply because we see it as an opportunity to continue to enhance our working capital utilization. I would tell you, not only is it sustainable, we think there's more opportunity ahead of us. And so we are certainly focused on that. And I would expect us to continue to generate strong cash flow performance going forward.

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're making great progress on the Ascend Strategy, and we are positioned well to deliver solid growth in fiscal 2026. We wish you a happy holiday season.

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

Ladies and gentlemen, thank you for joining us, and welcome to the Nordson Corporation Third Quarter Fiscal Year 2025 Conference Call. [Operator Instructions]

I will now hand the conference over to Lara Mahoney. Lara, please go ahead.

Good morning. This is Lara 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, August 21, to report Nordson's fiscal 2025 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/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 2 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 3, Naga will discuss third quarter highlights. He will then turn the call over to Dan to review sales and earnings performance for the total company and the 3 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 2025 full year guidance. We will then be happy to take your questions.

With that, I'll turn to Slide 4 and turn the call over to Naga.

Good morning, everyone. Thank you for joining Nordson's fiscal 2025 Third Quarter Conference Call. In the quarter, the Nordson team responded effectively to dynamic demand conditions in the key end markets. This generated sales of $742 million, which is above the midpoint of our guidance with solid contribution from both organic and inorganic growth. The Advanced Technology Solutions segment was a big contributor to this performance, delivering a second consecutive quarter of double-digit organic sales growth. Operational excellence drove strong profit performance, increasing adjusted earnings per share by 13%, and EBITDA by 15% compared to prior year.

The third quarter was the final full quarter of Atrion's first year post acquisition. As you will recall, we closed the Atrion acquisition on August 21, 2024, expanding Nordson's Medical portfolio into proprietary medical infusion fluid delivery and niche cardiovascular solutions. In the quarter, our employees again exceeded expectations and contributed to both sales and earnings results. This is the result of commercial scale that Nordson has brought to the business as well as the positive market acceptance of the product portfolio. Their operational performance reflects solid execution of the integration plan as well as the ongoing deployment of NBS Next.

I would also like to highlight our free cash flow of $226 million and cash flow conversion of 180% of net income during the quarter. This represents record quarterly free cash flow and was driven by a focus on sustainable working capital improvements. We used this cash to reduce debt, repurchase shares and return dividends to the shareholders, all the while continuing to invest in the company.

I will speak more about the enterprise performance in a few moments. But first, I'll turn the call over to Dan to provide detailed perspective on our financial results for the quarter.

Thank you, Naga, and good morning, everyone. On Slide #5, you'll see third quarter fiscal 2025 sales of $742 million were up 12% from the prior year third quarter sales of $662 million. As Naga mentioned, the Atrion acquisition continues to perform above expectations and contributed 8% to our growth in the quarter. Total organic sales increased 2% and we're up 3% if you exclude the medical contract manufacturing business that is now treated as held for sale.

Our organic performance includes contributions from both our Advanced Technology and Medical and Fluid Solutions segments during the quarter. We also had a positive year-over-year currency impact of 2% in the quarter, adding to that performance. Gross profit in the third quarter was $407 million, a healthy and consistent 55% of sales. Our SG&A leverage improved year-over-year, leading to a 15% improvement in operating profit, adjusted for acquisition-related costs and amortization and charges associated with the exit of our medical contract manufacturing business.

EBITDA was $239 million or 32% of sales. This represents a 15% increase in EBITDA dollars and a 70 basis point improvement over the prior year third quarter. EBITDA growth continues to benefit from strong incrementals in our ATS segment as well as contributions from the Atrion acquisition. It's worth noting that in a very dynamic trade environment, our margin performance remains consistent and is a continued strength of the company.

Looking at nonoperating expenses. Net interest expense was $26 million, an increase of $8 million versus the prior year, driven by higher year-over-year debt levels tied to the Atrion acquisition. Other expenses increased $3 million, primarily reflecting higher foreign exchange transactional losses compared to the prior year. And our tax expense on a U.S. GAAP basis was $33 million. This represents an elevated effective tax rate of 21% in the quarter and reflects discrete nondeductible charges, namely the write-down of allocated goodwill associated with the pending exit of the medical contract manufacturing business. Excluding this discrete item, our effective tax rate on an adjusted basis was 19% and remains in line with the low end of our guidance range for fiscal 2025.

Net income in the quarter totaled $126 million or $2.22 per share. Excluding acquisition-related costs and amortization and charges associated with the exit of the medical contract manufacturing business, adjusted earnings per share totaled $2.73 per share, $0.08 above the midpoint of our quarterly guidance and a 13% increase from the prior year adjusted earnings per share of $2.41. This improvement in year-over-year earnings reflects the strong operational execution on higher sales as well as accretive contribution from the Atrion acquisition.

Now let's turn to Slides 6 through 8 to review the third quarter 2025 segment performance. Industrial Precision Solutions sales of $351 million increased 1% compared to the prior year third quarter. While improving sequentially from the second quarter, organic sales decreased 2% compared to the prior year, offset by a 3% favorable currency impact. Broad-based growth across the segment, in particular, double-digit growth in precision agriculture and nonwoven systems was offset by continued weakness in our polymer processing product lines, where we continue to see lower end market systems demand versus 2024. EBITDA for the segment was $130 million in the quarter or 37% of sales, essentially flat to the prior year.

If you turn to Slide 7, you'll see Medical and Fluid Solutions sales of $219 million increased 32% compared to the prior year's third quarter. Growth was driven by the acquired Atrion business, which delivered $52 million in revenue in the quarter. Excluding the pending divestiture, organic sales increased 4% in the quarter, led by improvements in our medical fluid components and fluid solutions product lines. Importantly, sales in our interventional solutions business continued to improve sequentially from the second quarter as expected and were flat compared to the prior year as we continue to move past the recent destocking trends. EBITDA for Medical and Fluid Solutions was $83 million or 38% of sales, which was an increase of 34% from prior year EBITDA of $62 million. The increase was driven by strong conversion on Atrion sales and SG&A leverage in the core businesses.

Turning to Slide 8. You'll see Advanced Technology Solutions sales were $171 million, a 17% increase compared to the prior year third quarter. The 15% organic sales increase was driven by double-digit growth in electronics dispense product lines, driven by demand across Asia Pacific as well as growth in our optical sensors and our measurement and controls businesses. This was partially offset by weakness in X-ray Inspection system sales during the quarter.

Third quarter EBITDA was $42 million or 24% of sales, which represents an increase of 35% compared to the prior year third quarter EBITDA of $31 million or 21% of sales. The improvement in EBITDA margin was driven by strong operational execution on sales growth, representing a 42% conversion rate on incremental sales volume.

Finally, turning to the balance sheet and cash flow on Page 9. At the end of the third quarter, we had cash on hand of $148 million and net debt was about $2 billion. Importantly, we continue to sequentially improve leverage quarter after quarter, driven by both EBITDA growth and a reduction in net debt, improving our leverage ratio from 2.5x at the start of the year to 2.2x at the end of the third quarter. Our free cash flow generation reached a record $226 million during the quarter, resulting in a 180% conversion rate on net income for the quarter and a year-to-date cash flow conversion rate of 140%. The strong cash conversion was driven by operational improvements in working capital, an area of emphasis in this dynamic environment. In the quarter, and in line with our balanced capital deployment strategy, we reduced net debt by over $100 million, repurchased over $70 million in shares, paid $44 million in dividends to our shareholders and spent $12 million on capital investments to continue driving organic growth.

In summary, we had a strong operational quarter, and our team delivered on their commitments despite ongoing uncertainty in geopolitical and trade policies. While market conditions remain mixed for some of our businesses, we're well positioned to capitalize on profitable growth opportunities, and our operational execution continues to be a strength for the company.

With that, let's turn to Slide 10, and I'll turn the call back to Naga.

Thanks, Dan. I'm very proud of the Nordson team and how they have been able to deliver for our customers in this dynamic environment. As highlighted on Slide 10, our strong growth portfolio, high recurring revenues, diversified niche end markets, close to the customer model, proprietary differentiated products and NBS Next framework positions us well for long-term growth.

Turning to Slide 11. I'd like to take a few moments to talk about what we're seeing in the end markets as we enter our fiscal 2025 fourth quarter. Starting with our Industrial Precision Solutions segment. We continue to see sustaining investments in packaging and nonwoven end markets. Precision agriculture demand is improving in Europe and South America, given the strengthening demand for increasing yields and quality in these regional markets. Throughout the year, there has been weakness in our polymer processing systems, and we believe this business has hit its trough.

Industrial Coating Solutions Systems are sequentially improving, but cold material product lines for automotive systems continue to be weak. Through it all, aftermarket parts remains a stable part of the IPS revenue portfolio, mitigating sales weakness and supporting margins. Overall, we expect the IPS segment to improve sequentially and return to normal growth rates as selected markets stabilize.

In Medical, our core business is returning to growth. Throughout the year, our medical fluid component product lines have returned to high single-digit growth. The interventional solutions portfolio is normalizing after several quarters of de-stocking, and we expect this business to return to normal organic growth in fiscal 2026. The demand drivers fueling this end market, such as the aging population and shift toward noninvasive surgeries have not changed, and our Medical team has a healthy pipeline of customer projects.

In ATS, this is our second consecutive quarter of double-digit organic growth. The work that our ATS team did to reposition our product portfolio and regional manufacturing has allowed us to be where our customers need us to be as supply chain shift for electronics assembly. We're also winning share based on our ability to deliver products in incredibly short lead times. This would not have been possible before we holistically applied NBS Next.

In addition to being located close to the customer, our products deliver leading productivity and quality in complex advanced packaging applications of semiconductors used for AI, cloud computing and more. Our applications are largely at the back end of the semiconductor packaging process, and we are experiencing that demand now. Demand in this business inherently is lumpy based on the needs and timing of our customers. Through the cycle, we expect long-term growth drivers will remain attractive, while also appreciating that we will start to come up against tougher comparisons starting in the fourth quarter and that the automotive exposure within our electronics portfolio continues to be weak.

Regardless of the end market dynamics, we have continuously demonstrated resilience and the ability to deliver solid growth and best-in-class profitability. Our NBS Next growth framework ensures new products are growing source of organic growth and competitive advantage. I would like to highlight a few of them.

The Nordson Spectrum S2 is the industry standard for electronics underfill applications, continues to win share in the market, particularly as customers move into new regions. Its quality, accuracy and ease of use make it a trusted resource, and our teams continue to build upon its strong foundation for today's standards.

Our Industrial Coatings business has launched the first of a multiyear platform rollout of new global controls for its powder coating systems. This new control system has a plug-and-play feature that would simplify operations and improve ease of use for our customers. Finally, I would like to highlight the new Nordson MEDICAL PharmaLok Zero clamp, which is a great example of the continued innovation in fluid components. This proprietary clamp ensures consistent sealing, eliminating leaks with any fittings on the market and improving assembly time for biopharma customers.

We also remain focused on operational execution. As I mentioned earlier, we are very pleased with the integration of Atrion acquisition, which contributed to the adjusted earnings per share during the quarter. That is a year earlier than originally expected. We knew there were opportunities for operational efficiency when we acquired this business. And the team's holistic implementation of NBS Next has accelerated those benefits.

In businesses where we are experiencing weaker customer demand, we have implemented targeted restructuring to adjust cost structure. These actions have been substantially completed and are expected to provide ongoing annual benefits of over $15 million by 2026. Our growth framework ensures we remain intentional about where we focus within our product portfolio. As we noted last quarter, we plan to divest the contract manufacturing portion of our medical device product line. That transaction is expected to close in the fiscal fourth quarter. Exiting these product lines will increase our focus on higher value proprietary medical components, including devices from the recent Atrion acquisition.

Finally, as Dan mentioned earlier, a strong balance sheet allowed us to take advantage of the dynamic market conditions in the third quarter and accelerate share repurchases. Year-to-date, we have bought back $212 million in shares. I'm also pleased to share that our Board of Directors has approved a new authorization to repurchase $500 million in shares, bringing our total remaining authorization to approximately $800 million. In the quarter, we also reduced our leverage to 2.2x EBITDA, well within our long-term target. This demonstrates our ongoing commitment to a balanced capital deployment strategy.

Turning now to outlook on Slide 13. Benefiting from the strong third quarter, we now expect to be slightly below the midpoint of our full year sales guidance, inclusive of the pending divestiture of our medical contract manufacturing business. On earnings, we expect to be slightly better than the midpoint of our full year guidance based upon our strong operational execution and ability to maintain margins in this dynamic environment. As always, I want to thank our customers and shareholders for your continued support. In particular, I want to thank our Nordson employees who are passionate about meeting the needs of our customers. Your efforts show.

With that, we will pause and take your questions.

[Operator Instructions] Your first question comes from the line of Jeffrey D. Hammond with KeyBanc Capital Markets.

So I just wanted to get a better feel for what you're seeing from an order momentum standpoint across the businesses, particularly, I guess, ATS, where you've built some momentum and now you're talking about a little bit tougher comps. And then Medical, as we kind of get through the destocking and maybe just some color around the backlog down sequentially. Is that a function of timing or some air pockets in the order book?

Yes. We'll split it 2 ways here, Jeff. Let Dan first take the question around backlog initially, and then I'll give you sort of color of the end markets in a broader way.

Dan, do you want to get started?

Yes. So I wouldn't overreact to the slight reduction in our backlog quarter-to-quarter. I think some of that is really a factor of strong shipments during the third quarter. What I would say in general, Jeff, is we're seeing good stability in order intake across our businesses.

You asked particularly about Medical. I would say, we're seeing good ongoing activity in our Medical businesses. ATS, again, as I think Naga mentioned in some of the opening comments, tends to be a little more lumpy, but we are seeing overall, what I would call, good stable demand in all 3 of our businesses. I wouldn't overreact to the backlog decline. I think that's really a function of timing of shipments. And what I would say in general is we're seeing good stability underlying our order patterns.

Yes. Okay. Let me give you a broad color of where we are seeing things and how it is showing up in our order entry, Jeff. Overall, as we look in to finish the end of the year based on our current order entry trends and backlogs, we are well positioned to deliver on the guidance, which is slightly below our midpoint for the revenue. That's sort of an overarching comment that I wanted to share with you.

The second, if you go segment by segment, if you look at IPS, we see pretty strong and pretty steady order entry in packaging, nonwoven end markets. Our precision ag demand is very strong. And remember, this is a European-based business. We are market leaders in Europe and in South America. Both markets recovering nicely. For this business, order entry is looking pretty good there.

PPS, which is our plastics business, still remains weak, but it has hit its trough. It is bottoming out. In our Industrial Coatings business, which is sort of the 2 system businesses that have been weak for the segment throughout the year. The powder systems side is pretty strong. But our automotive exposure here through coal materials remains weak. So IPS overall, other than the 2 system businesses in very good shape.

If you think about MFS, the Medical segment, it is returning to growth. We have now had a couple of quarters of our medical fluid component business, high single-digit growth. In our interventional component business, what you find is the de-stocking has normalized, and we expect to return to growth here. This quarter, it was flat. And without -- if you exclude our pending divestiture, this business would have had a 4% organic growth. And our Fluid Solutions division is doing fairly well. It is steady. This is a little bit related to electronic momentum in this business. In terms of ATS, continued strong order entry backlog, well positioned as we go into the fourth quarter.

Look, this business, we have always shared with you, it is a lumpy business. But the momentum for this business in terms of both semiconductor packaging investments, high reliability electronics, PCBA, electronic equipment, pretty strong and solid. And if you think about another new secular trend that is benefiting the company, particularly in ATS, is the redesign of supply chain by some of our customers. So semiconductor on track, electronic PCBA, high reliability ones are doing well.

And then third, you have -- we have benefits coming from redesign of supply chain as people designed to derisk to account for tariffs. So overall, I'll close with what I told you at the beginning, which is backlog order entry in a good place for us to deliver on the revenue guidance that we shared with you today.

Okay. And then just a follow-up on ATS. I mean I understand maybe some lumpiness timing in 3Q from 4Q. And then maybe a tougher comp or maybe still an easy comp into 4Q. But it still seems like we're coming out of a multiyear down cycle. And I just want to make sure I'm reading that right.

Yes, you are reading that right. We are coming out of a multiyear, and we're -- but the cycle has begun, right? We've now had 3 or 4 quarters of growth. Okay, one back and down. The best way to think about it is, look -- look at the 9 months of ATS, it has grown 8%, okay? First quarter was down, second quarter pretty nicely up, third quarter really nicely up. So if you start to think about that, yes, you're reading it right. We are at the beginning of a multiyear growth here.

The growth prospects for ATS are intact, and we don't see that changing in the near term.

Your next question comes from the line of Michael Pesendorfer with Baird Equity Research.

Pez on for Mike. So I just want to follow up on Jeff's question on ATS here. We've heard some rumblings on pull forward in the semiconductor complex. And I just want to make sure that I'm reading your comments correctly. You're talking about an improvement in the cycle and things starting to take off. So help me understand your assumptions sequentially into the fourth quarter as it relates to ATS. And maybe help us with a little bit of color across dispense and T&I across Acoustic, X-ray and 3D Optical?

So yes, maybe just go back to some of the nice comments. Well, I'll start with the pull-ahead comment. We're not seeing direct evidence. And when I say direct evidence, we're not getting requests from customers to accelerate orders or to accelerate activity. So there's no direct evidence at least from our activity of customers pulling things forward that I think the harder thing to put your arms around is, is there any inherent pull ahead in any of the capital cycles. But certainly, we're not seeing direct evidence or requests from customers to pull anything forward.

Yes, I think if I look across the businesses, we're seeing pretty broad-based demand in our electronics dispense products. We're seeing -- we've been seeing good solid demand from our Acoustic and Optical products throughout the year. And if I look at our pipeline and our activity, we really don't see that changing. Again, Naga's -- I will go back to Naga's point, there tends to be some lumpiness and could be some lumpiness quarter-to-quarter with some of these capital cycles. But from an underlying demand standpoint, we see good stable demand in these markets.

A couple of things -- Dan, sorry to interrupt, but if could add. One of the things to remember is in this business also what matters is new products. What matters is customers' demands, customers' new applications and Nordson being really strong in delivering on solving customers' new problems. So we have a number of new products that are getting launched in this business that are meeting the needs of ever more complex chips that our customers are making. And so we feel really good about this business and feel really good about where we are headed in the cycle.

But continue to remind you, quarter-to-quarter, there is going to be back and forth of orders and -- what we want to do is make sure we take care of the customer when they want us, where they want us. And that is super important in this business. If you look back and think about how Nordson wins, Nordson wins with technology. New product is essential, but at the same time, we have added operational excellence as a core capability for the company and that is allowing us to win share when it is available.

And third is agility. Our teams are incredibly agile. And so what you see in the third quarter is a great evidence of agility of the entire Nordson team, but particularly the ATS team, where we have moved things around to deliver on what the customer wanted, when they want it, where they want it, right? And I think in that way, I would tell you, I feel really good about where we are, and I feel really good about where we are headed.

That's super helpful color. I appreciate that, Dan and Naga. Maybe switching gears a little bit. Obviously, the balance sheet in great shape, the increase in the share repurchase authorization. Can you maybe comment a little bit on how you see the M&A funnel today? Where you're spending your time and the level of opportunity? Should we be reading the share repurchase authorization as the M&A funnel maybe being a little bit tougher? Or is that more of just a broad-based comment on how you're approaching capital allocation?

Yes. The way to think about, Pez, is that we have -- in our Investor Day, we committed to a balanced capital allocation strategy. So what you see play out throughout this year is a very balanced approach. We did see an opportunity in the quarter with where the market is at and where our valuation at. It made sense for us to continue to buy back share, and that's what we've done. Year-to-date, we have repurchased about $212 million in shares. And the new authorization gives us more flexibility as we go into the rest of the year.

Commenting on the M&A, our pipeline is healthy. Our pipeline is healthy. We continue to work opportunities. But look, we're going to be really disciplined around what strategic assets we would acquire as well as what we would pay for them and financially being disciplined about them. So no change in our approach or posture to acquisitions, but acquisitions is something we don't control, right? Things come to market when they come to market. And if it makes sense for us, we certainly do. I would take a moment to just think about Atrion, right? It is about a year since we have acquired Atrion.

This is a commercial and operational success story for the company, right? And if you stop and think about where we are at on Atrion, we are now EPS accretive a year ahead of schedule, right? And so our posture on acquisition remains the same. It is a balanced approach. Over a period of 3 or 4 years, what you're going to find the company is have balanced organic and balanced acquisition. So the new authorization shouldn't be read into any difference in our approach to acquisitions.

[Operator Instructions] Your next question comes from the line of Edward Magi with BNP Paribas.

This is Ed on for Andrew. The latest sales guidance for slightly below the midpoint seems to be slightly better than your prior guidance of saying low end, but that commentary from Q1, Q2 came from when tariffs have been maybe weighing a little bit more on sentiment. And after the solid Q3, wondering if you guys could have perhaps improved the outlook a little bit more with today's tariff situation looking a little bit better than it did during those prior guidance.

Yes. So I appreciate the question. Maybe I'll just start with a bit of a recap, right? So look, we had a slow start to the year, as you'll recall, with our first quarter sales being softer than expected. And at that point, we've guided that we would be on the lower end of our sales revenue guidance. And so 2 quarters later, in particular, after finishing out a strong third quarter, I think you're correct to take away that we're improving our outlook slightly, not saying that we'll just be slightly below the midpoint. And that also incorporates closing on the sale of our CDMO business during the fourth quarter.

So that -- taking that into account, you're correct in assuming that there's a slight improvement in our sales outlook, largely driven by the performance that we saw in Q3. And at this point, I would say we're very comfortable holding our outlook for the fourth quarter.

And I think just as a reminder, think about the economic environment that we are living in, it is still a very dynamic environment with a number of uncertainties still out there. Sure, the tariff situation, we continue to gain clarity every day. But it's still uncertain. That's sort of what we see in our customers' behavior. So the way we are thinking about it is, look, dynamic environment, Nordson fully participating in market momentum where it exists and delivering 1 quarter at a time. And that has served us well and will continue to serve us well in this environment. So...

Yes. Very helpful. And then an unrelated follow-up. With regard to the divestiture charges, are you able to unpack what went into that $12 million? And then is there anything else we can expect to see in the fourth quarter, assuming that closes on track?

Yes. The charge, roughly $12.2 million is essentially writing the business to estimated fair value less cost to sell, pending the actual close of the deal in the fourth quarter. There's also some small restructuring charges included in that to kind of wrap up and exit a couple of small pieces of the business. And so I would think of that as a onetime charge. Certainly, the actual closing will be -- and the value will be dependent on final working capital and truing up a few items. But I wouldn't expect any material change that $12.2 million as we actually close the deal in the fourth quarter.

Your next question comes from the line of Walter S. Liptak with Seaport Research Partners.

So in the ATS segment, there was some good discussion and Naga you brought up new product development. And I wonder if we can try and tie something together. AI is a fairly powerful new technology. And you have a lot of exposure on the consumer side, not just automotive, but a whole bunch of consumer products that have electronics. Are you seeing your consumer products companies start to do redesign where they can make smart products that leverage the AI tech?

Yes. Look, AI is still evolving for many of our customers. And in terms of our own view of AI is certainly very bullish in terms of what it brings in terms of value to the customers as well as ourselves. Yes, we do see people wanting to figure out how to use AI and how to create value. The way we think about value is really for AI is 3 things.

One, it starts with customer value creation. We have a couple of ideas, I would say, at this stage. It is more ideas that we are working on that will allow our customers to use our own products in a much more effective, much more productive ways. And particularly we have new software subscription services in our X-ray business. Very early stages, very early stages. But super exciting as to how our teams are beginning to use AI to create value. In terms of AI for our own customers using them and how they will use our products, very early stages. Hope that answers your question, Walter.

Okay. Yes, it does. And just switching gears to IPS. I was wondering if you could talk a little bit about the quote-to-order cycle. There's been like this pause going on because of all of the headwinds that we all know about. Are you seeing any improvement in kind of maybe the lifting of the pause?

Are you talking -- Walter, just a clarification. I assume you're talking about people's sentiments around ordering or placing orders for systems. Is that what you're talking about?

Yes. For larger systems, it just seems like generally, there's a reluctance to put capital to work just because of the tariffs specifically and not knowing what the rules are going to be.

Yes. I would -- if you look at our IPS business, if you think about the magnitude of the spend, vast majority of our IPS businesses, right, around 60%, 70% of the business, we seem to be in a fairly good place in terms of orders coming in, where if you think about packaging, nonwovens, product assembly, many of our businesses, which have still system sales, 50% system sales, there, we don't see major pauses. We seem to be doing okay.

And that -- but if you look at our Plastic Processing business and our Industrial Coatings business, both we do see pauses by our customers. Order entry is muted for systems, but if you look at our customer pipeline, they're very robust. Nobody in our customer pipeline saying, "Look, I don't want that anymore." It is that people are not placing orders. So larger system orders, you're right. We are seeing people delaying their own order placement. So still some caution, I guess is...

Yes. And just to add maybe one more piece of color, I would say, in plastics, in particular, we have seen some rebuilding of that pipeline, certainly from earlier in the year. So we are seeing activity back up or rebound. I think Naga made the comment. We feel that, that business has hit the trough. We are seeing that in our backlog, certainly not at levels that we've seen in prior years yet, but we are seeing recovery in order activity, although we are also seeing some of our pipeline activity get pushed out.

Yes. And the other thing to remember about IPS, look, this is a business with some significant recurring revenue, right, more like 50-50. So if you think about system parts, a significant part of the IPS segment in fairly good shape. It is the large system businesses that are -- have this order issue, but you also have these businesses now starting to get to the bottom of the trough, not getting any worse other than the automotive -- small automotive exposure in ICS, that is still weak. But all in all, you take all of that together, we still feel pretty good about where we are sitting here today in terms of order entry and in terms of backlog to be able to meet what we were sharing as in our revenue guidance.

Your next question comes from the line of Brad Hewitt with Wolfe Research. [Operator Instructions]

So it seems like your outlook is for organic sales to be flat to slightly down year-over-year in Q4. I think that would imply a little bit of a deceleration on a 3-year stack basis. I know ATS has a tough comp in Q4, but maybe any additional color on what's driving that expected deceleration in Q4 would be helpful.

Yes. So to your point, I think if you look at a couple of our businesses, in particular, even our systems businesses, we have some tough year-end comps, plastics being one of them, as an example. And so sequentially, if you kind of peel back our guidance, we are seeing a modest uptick Q3 to Q4, so continuing to build sales momentum. From a year-over-year standpoint, I think Q4 is a tougher comp for some of our systems businesses. And so I think that's what you're seeing in kind of the year-over-year growth rate. But not really -- certainly not a deceleration from where we've been running, where -- if you peel back our guidance, it would indicate a modest uptick in the fourth quarter from what we've seen in Q3. From a year-over-year standpoint, it's a little bit more muted, but that's largely driven by some of the systems demand and deliveries that we had in the fourth quarter last year.

Okay. That's helpful. And then as we think about ATS margins, is that segment sort of at a normalized run rate in the 24% to 25% zone sort of in the absence of more material step-up in systems demand? As we think about FY '26, would you expect ATS incremental margins to be in line with the total company level or maybe even a little better?

Well, look, this is a business, we have repositioned the business during the downturn at the last downturn. And so what you're experiencing right now is a pretty strong incremental performance, which is a little bit better than the rest of the company.

At the current revenue run rates, the 24% seems reasonable, but I wouldn't go any further than that because remember, this is a business that depends on new products and continuous investment in new products. So here, the SG&A load is far greater than everywhere else. Our investments in new products are more like 14%, 15% of revenue, which is very different from our other businesses. So I wouldn't want you to get too far ahead of ourselves here, but the 24% EBITDA, 24%, 25% seems reasonable.

[Operator Instructions] 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 where our team would be happy to meet with you, including the Jefferies Industrial Conference in New York on September 4, the Morgan Stanley Annual Laguna Conference on September 10 and an upcoming virtual road show with Loop Capital on October 13.

Nordson is well positioned in this dynamic environment. Our close to the customer model, proprietary and niche technology, diversified geographic and end market exposure, high level of recurring revenue and a strong balance sheet are among 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.

Thank you for standing by, and welcome to the Nordson Corporation Second Quarter Fiscal Year 2025 Conference Call. [Operator Instructions]

I'd now like to turn the call over to Lara Mahoney. You may begin.

Good morning. This is Lara Mahoney, Vice President of Investor Relations and Corporate Communications. I'm here with Sundaram Nagarajan, our President and CEO; Dan Hopgood, Executive Vice President and Chief Financial Officer. We welcome you to our conference call today, Thursday, May 29 to report Nordson's fiscal 2025 2nd quarter results.

You'll 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/investors. This conference call is being broadcast live on our website and will be available there for 30 days. There will be a telephone replay of the conference call available until Thursday, June 5, 2025. 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 2 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 3, Naga will discuss second quarter highlights. He will then turn the call over to Dan to review sales and earnings performance for the total company and the 3 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 2025 3rd quarter guidance. We will then be happy to take your questions.

With that, I'll move to Slide 4 and turn the call over to Naga.

Good morning, everyone. Thank you for joining Nordson's Fiscal 2025 Second Quarter Conference Call. We started the second quarter with increasing momentum in order entry and backlog enabling us to outperform the midpoint of our sales and earnings guidance. This was driven largely by strength in our advanced technology system and part sales, where order entry continues to be solid due to ongoing customer demand within semiconductor and selected electronic applications.

We also experienced solid growth in nonwoven systems and medical fluid components and our precision agricultural business previously referred to as ARAG posted solid double-digit year-over-year growth. Our Atrion integration is going well, and results continue to perform above our valuation model expectations. I'm very pleased with the customer adoption of Atrion's differentiated products as well as our new employees who have adopted the NBS Next framework driving operational efficiencies and delivering solid growth results.

The sales growth in the second quarter was partially offset by year-over-year weakness in select industrial system sales, reflecting lower overall market demand. That said, industrial systems improved sequentially compared to the first quarter as expected. Operational excellence during the quarter drove strong profit performance, resulting in 32% overall EBITDA margins. This was driven by operational execution in our core businesses and strong contribution from the Atrion acquisition that exceeded our expectations. As a growth compounder, we are executing a balanced capital deployment strategy buying back $85 million in shares during the quarter. In addition, we paid $44 million in dividends and maintained our debt leverage ratio at 2.4x, comfortably within our targeted range.

Let's turn to Slide 5. As investors know from our Investor Day presentation, using NBS Next, we hold our product portfolio to a high standard. We regularly assess the strategic fit of our businesses and product lines from a market attractiveness and product differentiation perspective as well as their relative financial performance in the company's portfolio.

On May 28, we signed an agreement to divest select product lines within our medical contract manufacturing business. Exiting these product lines will increase focus on higher value growth opportunities within the $800 million Medical and Fluid Solutions segment, namely, within our growing portfolio of proprietary medical components, including devices from the recent Atrion acquisition. The transaction is expected to improve our growth profile going forward and will be accretive to our margins post sale. We expect this deal to close in the fourth quarter of fiscal 2025.

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 #6, you'll see second quarter fiscal 2025 sales were $683 million, up 5% from the prior year second quarter sales of $651 million. This growth was driven by an 8% increase from the Atrion acquisition offset by an overall organic sales decrease of 2% and unfavorable currency translation of a little less than 1%.

Gross profit in the second quarter was $374 million, a healthy and consistent 55% of sales. SG&A leverage improved year-over-year, leading to EBITDA adjusted for restructuring and integration costs, in both periods of $217 million or 32% of sales. This is an increase of 7% compared to the prior year. EBITDA growth was driven by improving incrementals in our ATS segment as well as strong contribution from the Atrion acquisition, which continued to perform above expectations from both a sales and margin perspective. Importantly, the impact of tariffs was not material to the company's operating financial performance in the quarter.

Looking at nonoperating expenses. Net interest expense was $26 million, an increase of $7 million versus the prior year, driven by higher debt levels tied to the Atrion acquisition. Other expenses increased the nominal $3 million, primarily reflecting higher foreign exchange transactional losses compared to the prior year. Tax expense for the quarter was $26 million or an effective tax rate of 19%, in line with our guidance range for fiscal 2025 and 180 basis points lower than the prior year.

Net income in group totaled $112 million or $1.97 per share on a GAAP basis. Excluding nonrecurring costs related to restructuring actions and integration as well as amortization of acquisition-related intangibles, adjusted earnings per share totaled $2.42 per share, slightly above the midpoint of our quarterly guidance and a 3% increase from the prior year adjusted earnings per share of $2.34. This improvement in year-over-year earnings reflects the strong overall conversion on higher sales and favorability in our tax rate, modestly offset by higher acquisition-related interest expense.

Now let's turn to Slide 7 through 9 to review the second quarter 2025 segment performance. Industrial Precision Solutions sales of $319 million decreased 8% compared to the prior year second quarter, down 7% organically and 1% due to unfavorable currency impacts. Growth in nonwoven systems, precision agriculture and packaging product lines were offset by weaker system sales our industrial coatings and polymer processing product lines where we're seeing lower end market demand versus 2024.

Also, you may recall that we initiated the transition of our primary industrial coatings manufacturing site to a new South Carolina plant at the start of the fiscal year. That transition is now substantially completed as we move into the third quarter. We expect to see continued sequential sales improvement in our IPS segment as the year progresses. EBITDA was $114 million in the quarter or 36% of sales. This is a decrease of 12% compared to the prior year EBITDA of $128 million, driven by lower sales volume in the quarter.

Turning to Slide 8. You'll see Medical and Fluid Solutions sales of $203 million increased 20% compared to the prior year's second quarter. Growth was driven by the acquired Atrion business, which delivered $51 million in revenue during the quarter. This was offset by double-digit declines in our medical interventional product lines. The year-over-year decline in interventional volumes includes the contract manufacturing business that we have intentionally rationalized to prepare for the pending sale. Excluding these medical contract manufacturing product lines, organic sales for the remainder of the segment were down about 4% compared to the prior year, reflecting continued destocking trends in our interventional products. We expect the impact of destocking trends to continue to lessen as the year progresses, and we continue to see sequential improvements to validate this.

EBITDA for Medical and Fluid Solutions was $77 million or 38% of sales, which was an increase of 22% from prior year EBITDA of $63 million. The increase was driven by strong conversion on Atrion sales during the quarter and solid execution to minimize decrementals on lower organic volumes.

Turning to Slide 9. You'll see Advanced Technology Solutions sales were $161 million or an 18% increase compared to the prior year second quarter. The growth in sales was driven by broad-based demand, notably in electronics dispense, optical and x-ray inspection systems, all growing double digits over the prior year. We started the quarter with a strong backlog, and we continue to see steady order entry as the semiconductor and electronic applications we serve continue to show solid ongoing demand.

Second quarter EBITDA was $40 million or 25% of sales, an increase of 43% compared to the prior year second quarter EBITDA of $28 million or 20% of sales. The improvement in EBITDA margin was driven by the organic sales growth and continued emphasis on cost management and improved manufacturing efficiency. These margin enhancements should continue to compound as the segment demand outlook continues to improve.

Finally, turning to the balance sheet and cash flow on Slide 10. At the end of the second quarter, we had cash on hand of approximately $130 million and net debt was approximately $2.1 billion. Resulting in a leverage ratio of 2.4x based on trailing 12-month EBITDA. This is a slight reduction from year-end and within our long-term targeted leverage ratio of 2x to 2.5x.

Our free cash flow generation was in line with the prior year at $103 million during the quarter resulting in a 92% conversion rate on net income for the quarter and a year-to-date cash flow conversion rate of 116%. During the quarter, given market dynamics, we prioritize share repurchases over debt reduction with share repurchases totaling approximately $85 million. In addition, we returned $44 million to shareholders through dividends and we also continue to invest in our base businesses, spending roughly $16 million on capital investments, including the final investments in our new ITS manufacturing facility.

All in all, we had a solid operational quarter, and our teams delivered on their commitments despite ongoing uncertainty and geopolitical and trade policies. While market conditions remain mixed for some of our businesses, we are well positioned to capitalize on profitable growth as the year plays out.

With that, let's turn to Slide 11, and I'll turn the call back to Naga.

Thanks, Dan. Let's start with the implications of dynamic global tariff policies on the company's performance. Similar to the second quarter, we believe we can manage the current tariff levels and don't expect them to have a material impact on our third quarter results. We continue to monitor potential impact on end market demand as a result of these trade uncertainties. However, we remain agile in our action plans knowing there is still plenty of market uncertainty due to tariffs. Given our in-region for-region manufacturing strategy, decentralized organizational structure and close-to-the-customer model, we are well positioned to offset the impact of changes in trade policies as they evolve.

In the near term, we have implemented targeted price increases and adjusted supply chains to overcome the today modest tariff-related cost increases. In the medium term, the capital-light nature of our businesses allows us to further enhance our in-region for-region manufacturing strategy. I am proud of the Nordson team's solid execution in the quarter on multiple fronts in this uncertain environment. Our close-to-customer model with innovative differentiated products is accelerating our commercial execution and leading to positive order entry momentum in electronics precision agriculture and select medical product lines. This has resulted in sustained order entry and a healthy backlog increase of 5% since last quarter.

In businesses where we are experiencing weaker customer demand, we have implemented targeted restructuring to adjust cost structure. These actions will be substantially completed by the end of our fiscal third quarter and are expected to provide ongoing annual benefits of over $15 million by 2026. We also continue to invest in our organic business. To support the medium-term growth needs of our U.S. and global customers, the industrial coatings business moved into a new greenfield facility in South Carolina at the beginning of this fiscal year. Similarly, we have expanded manufacturing capacity for the electronics process solutions business into India to support growing needs of our customers in the region.

Finally, as Dan mentioned earlier, our strong balance sheet allowed us to take advantage of the dynamic market conditions in the second quarter and accelerate share repurchases. Year-to-date, we have bought back approximately $141 million in shares. At 2.4x EBITDA, we remain within our long-term targeted leverage ratio of 2 to 2.5x.

Turning now to our outlook on Slide 12. Based on current visibility and order entry trends, we expect third quarter fiscal 2025 sales to be in the range of $710 million to $750 million. Third quarter adjusted earnings are forecasted to be in the range of $2.55 to $2.75 per diluted share. The third quarter guidance is in line with the full year expectations we set at the beginning of our fiscal year and confirmed in our Q1 earnings call. In the near term, we are comfortable managing current tariff levels and do not expect current policies to have a material impact on our results.

Despite these short-term uncertainties, the strategic competitive advantages of Nordson that we note on Slide 13 remain unchanged. Our strong growth portfolio, high recurring revenues, diversified niche end markets, close-to-the-customer model, proprietary differentiated products, and the NBS Next growth framework positions us well for long-term growth, including potential opportunities when customers shift or modify their manufacturing footprints.

This is why Nordson has continuously demonstrated resilience and the ability to deliver best-in-class profitability in varying market scenarios from the Great Recession to the pandemic and beyond. As always, I want to thank our customers and our shareholders for your continued support. In particular, I want to thank our Nordson employees who are passionate about meeting the needs of our customers. Your efforts show. With that, we'll pause and take your questions.

[Operator Instructions] Your first question comes from the line of Mike Halloran from Baird.

Can we just, at a high level, just talk about how you see trends playing out through the rest of the year? What's embedded in guidance and specifically talk to some of the major verticals, sustainability of what you're seeing in the ATS, when interventional destock is behind you? And any other kind of key variables as we think about the back half of the year here?

Sure, Mike. Let's start with ATS. We experienced solid order entry in the ATS business across all of our businesses in that segment. Stop and think about where this is coming from. What you really see is this incredible investment that is going on for computing power, be it for AI, be it for cloud computing or e-commerce, any of that. What you're seeing really is this incredible investment happening. And at the heart of all of that investment is really complex new generation computer chips and semiconductors, right, and Nordson plays really well to Nordson.

So -- and I think that is playing into our growth. Sustainability, based on what we see in the business, we feel really good about the trends we see, the conversations we have with our customers. We've been talking about this impending order entry for a couple of quarters here. And I would tell you, we are now seeing it in our businesses, and we're seeing it in our results, right? So ATS in general, pretty good, feel pretty good about it going -- playing out through the rest of the year.

On MFS, what you're experiencing really is Atrion contributing to growth, very solid performance, above our model expectations. Our fluid components business, which was down for several quarters, that is now delivering nice growth. So we're seeing some positive order entry momentum there. Destocking continuing to reduce in severity as we go through the year. And also, you would see that our a significant part or more than half of our organic decline coming from our contract manufacturing businesses as we have rationalized programs. So that reduces.

Now coming to IPS, look, ARAG doing really well, double-digit organic growth, order entry pretty strong there. Our traditional consumable nondurable adhesive business is doing well, good order entry, steady growth there. Our industrial systems business is where we are behind, both industrial coating, where automotive is the big impact there and our plastic processing business. I would tell you, automotive, will remain a headwind for the company for another couple of quarters given what is happening in that end market. But we do see pretty good momentum in our powder coating business. We see very good momentum in a couple of product lines that are very niche applications. So the industrial coatings business continues to improve and believe that through the year, they'll do better.

So this is -- the trends that we are seeing in IPS is largely in line with our expectations. It was largely in line with our expectations in the second quarter, largely in line with what we thought at the beginning of the year.

No, that's super helpful. And then as far as the contract and fracturing divestiture goes, any way to size the revenue as well as maybe talk to if there are other areas you're thinking about internally? I know this is the second major one. You had the screws -- the plastics one earlier, which was super successful of this one. Are we at the end of that journey? Or do you think that there's a little more to go there as well?

Let me give you just the top-level color first, and then Dan can walk you through some of the details. Look, as we said in our Investor Day, building a strong -- building and sustaining a strong growth portfolio is an important part of our strategy. So to that extent, that portfolio analysis happens every year, and we stay true to that process. It is really based on product differentiation, relative financial performance of the business within the portfolio. So that's really the criteria. Nothing changed there. So it is an ongoing process, and I'll leave it at that. And so Dan?

Yes. And maybe just to add a little more color, Mike. So answer to your -- maybe direct answer to your question, no, we are not -- there are no other ongoing actions. But I think to Naga's point, this is a great example of a small business for us to size it for you, this is roughly 4% of our year-to-date sales in the Medical segment. And this is an example of a business that we've been looking at and assessing for a while and ultimately made the decision it's better off in somebody else's hands. Small part of the overall portfolio. But as you look at -- as you think about margin implications, Naga mentioned on the call that it would be accretive to ongoing margins post sale. And I think the simple way to think about that is this is on a full year basis roughly 100 basis points accretive to our Medical segment margins going forward post sale. But a small business, but one that ultimately we determined is better off in somebody's hands. There are no further -- we have no further active portfolio actions, but this is something that we continue to look at every year.

Yes. Dan, one thing I would add to that is, look, the main reason to continue to build the portfolio and keep the portfolio strong is the opportunity cost, right? This action allows our teams in the medical component business to focus on things we are really good at. While this contract manufacturing belongs within Quasar, who is the buyer of this business, and they are building this and it's a great home for our teams in that business, and they will do fine. But it allows our teams to focus on what strategically we are positioned to do, which is to grow our medical component business, including the ones we bought we acquired through Atrion.

Your next question comes from the line of Andrew Buscaglia from BNP Paribas.

I wanted to just touch on a couple of the segments. ATS has been really volatile the last couple of quarters. Should we see more consistent growth in that segment going forward? And what's informing, I guess, can you be more specific around like where in the orders you're seeing improvement even -- either on a sequential basis or however you want to look at it?

Yes. Yes. Let me address sort of your first question, which is sort of the lumpiness of this business. This is a business inherently lumpy and inherently lumpy because of the industry that we operate in, right? When we have customers who tend to expand and expand fast and want to expand right now, right, or want to stop buying and want to change the investment profile right now. So that is something the company is difficult to control. But overall, if you think about -- how we think about the business within the company, and that may be helpful is to really say, this is the part of the cycle where it is starting to grow.

Now it is difficult for us to sort of control customer expectations of shipments and timing of shipments. So things could slip from one quarter to next. But first half, second half is a good way to think about this business in terms of growth. We feel and what we see in our order entry is some pretty strong order entry patterns that gives us pretty good confidence that this is the part of the cycle where this business is going to contribute nicely to the company's organic growth. If you put it in perspective, through the cycle, this is a 5-plus percent organic growth business, right? And order entry and backlog are building and are supportive of that for the year. So...

Maybe one other thing I'd just on as you think about this, just to add one additional flavor. And most of the growth we're seeing right now is really with our Asian customers. And so as you think about some of the announcements being made around investments in the U.S., frankly, we're not even seeing that yet. And so the cycle does have some legs to it. Most of the growth that we're seeing is with existing capacity or expanding capacity in some of our -- some of the Asian markets. But there are additional legs to that I think are still at the early stages.

And the other thing to also think about is these tariff regimes that are being talked about, figured out, I think our customers are going to adjust manufacturing footprint. And as they adjust manufacturing footprint, that represents a nice opportunity for Nordson. And if you really think about our expansion in India, that really stems from the fact that some of our customers are diversifying their manufacturing footprint, and we will benefit from it. Look, this is who Nordson is. We have a very close customer direct model. We work with our customers. They're a capital-light manufacturing business. And so we are able to pivot to the needs of our customers, help them expand, serve their needs in whatever geographies they want to. So as they move, as they expand, as they invest, Nordson benefits. So hopefully, that gives you some color. I know you had a couple of follow-ups. So let's just...

Yes. Maybe switching on MFS. The question would be the line of sight on that decline in interventional medicine has been surprising due to destocking. But what's your line of sight on that destocking at this point? It seems like it's slowly coming to an end. And then on the other side of that, is there an acceleration? Or is this not the type of market where you could see a pickup? Maybe it's more of a gradual pickup. I'm not sure of the nature of how that cycle would work in that business.

Sure. If you had asked me prior to COVID, this is a business that is not cyclical. right? It was a secular 5%, 6%, 7% growth every year. If you think about where we are at in terms of destock, what we are finding is that the destock in this business is definitely reducing, right, definitely reducing because we can see our order entry improve, right? So we feel good about where we are at in terms of the destocking being -- getting played out. But fluid components, which is another part of this business, it is a smaller business, but a smaller part of the business that was down significantly for 6 to 8 quarters almost, it is now delivering growth, and we feel really good about where they are at.

Longer term, the pipeline projects that we're working on for these businesses, they remain strong. In terms of how they would recover, this is not -- the customer behaviors are not similar to what you see in electronics. Here, this is going to be far more steady growth. People went through COVID, overstocked, destocked. And now it is going to gradually recover to normal demand growth rates rather than a significant uptick or a significant downtick. So our expectations for this business is that we continue to recover on the destocking, fluid components contributing nicely. But don't forget, Atrion is a big contributor to our growth. And that business, as we have shared, is doing very well, above our expectations.

Your next question comes from the line of Saree Boroditsky from Jefferies.

Maybe going on some of the stuff you talked about with ATS. How do you think about margin performance going forward? And how do you maintain a more steady margin performance if you're going to continue to see some of that volatility with the customer behavior you spoke about?

Yes. I think during the last downturn, the teams really did a nice job of restructuring the business. Our expectation is that this industry performance -- margin performance is different from our other businesses, right? Because our investments on innovation are significantly higher in this business. You have to invest in innovation, which is 4, 5x higher than what we have in our other businesses because unless you invest, you're not able to participate in the growth cycle. So the margins will be different. But we feel like we have adjusted the cost structure such that in a downturn, the margins would be lower than where it is today, which is right now, it is at 25%. And in a down cycle, could it be lower? It could be. But it's not going to be a place where we have significantly lower margin performance like 7 years, 5 years ago or 6 years ago.

Saree, maybe one way to think about it is with the kind of foundational changes or changes -- improvements that we've made in the business model, we've essentially raised the waterline in this business, right? So if you look peak to peak or trough to trough, you're going to see sustained improvement in the margin profile going forward, and that's because of the structural changes that have been made to reposition the business.

That's helpful. And then maybe turning the precision ag business returned to growth in the quarter, as I believe you expected. Can you just talk through what you're seeing in that market and how -- what you've seen from a margin performance and how to perform in an up cycle?

Yes. The margins -- let me just take the margin question first on ARAG, our precision agriculture business. Look, even in a downturn, the EBITDA margins in that business was as good as the company or slightly better, right? So in the up cycle, there may be some benefits, but our goal is to continue to grow this business. That's where the opportunity is. Where we are seeing the growth is coming mostly in Europe and in South America.

And so if you remember, just to refresh all our memories around this is that, remember, this is a European-based business. That is where their strength is. They're a market leader in Europe. Clearly, we've gone through an inventory adjustment in the channel in Europe, and we're growing back again. We are super excited about a couple of new products that they have launched. Clearly, we are at the very early stages of implementing NBS Next. So we are super excited about this business. It is growing. Our expectation it continues to grow.

Your next question comes from the line of Christopher Glynn from Oppenheimer.

Nice to hear the increasingly assertive pivot on ARAG. And then on your subsequent acquisition to that, Atrion. Just kind of curious about the upside, whether that was a conservative initial posture or true surprise. Curious your current thoughts on the compound growth over time. Is what we're seeing here the profile? Or does the current upside maybe create some growth challenges in fiscal '26 as you -- I don't know if you have to digest the scaling that you're seeing here in fiscal '25. So just kind of surrounding some of the Atrion dynamics a bit there.

Yes. A, I wouldn't say it was a conservative model. Remember, we have been in this -- the kind of products that they sell majority of the business. We have very good familiarity. And so understand what the performance expectations can be from both a market perspective as well as internal. What -- where we are at in that business is we're integrating nicely. We're certainly performing well commercially. They've got one new product out there that we're doing really well. They've got a couple of more coming right behind it. So I think we have a good benefit of new products that are going to help our growth. Look, we're ahead -- but we still have opportunity in this business. And I think that's how I would think about it.

Okay. Great. Is this something where they can really generate a couple of material new products every couple of years?

I don't -- it's going to be difficult to say. But look, this is a business that has significant amount of IP. I don't know whether I could put a number next to it other than I would say that the innovation opportunities are pretty strong. And we really like where they're at. I think that is an important growth contributor for them and the rest of Nordson, right? Innovation has always been an important part of our playbook, and that's what they -- that's the alignment with their strategy and ours. Operationally, there may be more opportunities, too. I think that is -- we are very early days there.

Okay. Great. And then pivoting over to ATS. Just curious how the center of gravity is moving. Are you seeing the industrial RF chips around customer innovation starting to land? Is it more midstream processing? Just trying to get a sense of where the piglet is in the python.

All right, Chris. So let me try to -- if you're asking me where we are at and how this cycle is playing out. A couple of things we see is, a, the investments that are happening by our customers are pretty significant and they're pretty rapid, which is -- which essentially tells us that the opportunity for us to continue to benefit from it remains. I think the investment, as Dan mentioned, investments in North America is still an upside. That's not played out. It will take many more years to have that show up. But the opportunities in Asia are strong and they're happening. There is a ton of innovation that is happening, and I don't think that is going to end here because I think we are at very early stages of the GPUs that are getting built. The technology around the GPU is significant. And I think -- so the more difficult it is, the better it is for Nordson, and that is -- this is one of those cases where we're going to benefit from it.

So we're going to continue to adapt our existing technologies. There's going to be some fast innovation to customize for people's investments. But also as we solve these bigger problems, I think we have an opportunity. And we have new categories of products. Through our CyberOptics acquisition, we have a new generation of in-process sensors called WaferSense. And that is a product category that is growing very nicely for us. We see -- we just released 2 new products in that category. We have new opportunities there. We're working on more. So innovation is going to -- in ATS, for us to win, we have to innovate. And we need to have -- we have to play at the right price points with the right manufacturing footprint. So it's got nice upside, but it is lumpy, and it is cyclical.

Your next question comes from the line of Matt Summerville from D.A. Davidson.

Just a couple of quick ones. If you look at your tariff exposure on an annualized basis, what does it look like if it's completely unmitigated, which I realize it isn't based on the current tariff scenario? I'm trying to get a feel for how much of an impact you're working to offset. And then I have a follow-up.

Dan, do you want to?

Yes. Maybe I'll take that and certainly appreciate the question. It's something that's top of mind for everybody. But what I would say is certainly at the current levels, I mean, tariffs are very manageable. And as we stated, really had no material impact on our second quarter results. We continue to monitor, and obviously, this is a developing situation. And frankly, announcements seem to be coming. But the general way I would think about it is our in-region for-region mitigates a large amount of the tariff exposure. And so maybe I'll just give you a little bit of a framework.

If you think about it as a percent of our overall sales, roughly 85% to 90% of our sales are fully in-region for-region. meaning very little import/export exposure. If you think of the 10% to 15% that is not, that is a broad-based or very diversified set of exposure. So we do not have any concentrations of exposure. So if you think of that 10% to 15%, it's split amongst many different arrangements in our global footprint and no single intercountry exposure is more than low single digits. And so for those reasons and others, including Naga's points that we tend to be more nimble than most and can pivot as our customers pivot, we don't see a significant impact. It's certainly not at the current levels.

Now things can change, and that's where we're continuing to monitor the situation. If the situation changes, we'll make pivots where we need to. But I would come back to no material exposure in the second quarter. At the current levels, we think this is very manageable. And really, for us, the bigger risk and the bigger consideration in all of this is what it does to end market demand with our customers, right? If our customers start deferring investments or deferring capital, that's probably the bigger risk, what the general economic impact is to this. And frankly, that's, I would say, what we're watching closer than anything.

And then just -- yes. No, that was super helpful. Just to maybe try and put a little bit finer point on what you're seeing in ATS. Is there a way to quantify how much of that business today is being driven by various categories of high-performance computing relative to what that number would have looked like 12 to 18 months ago?

I would say, I think 50% of our business would be semiconductor, high-power computing as you describe it. And a couple of years ago, I don't know. If you go back, I want to say 4, 5 years ago, maybe that number was 30% or so -- look, I'm guessing here, 20% to 30% at best. Certainly, this is an area our teams have focused on. But also the type of customers have changed. That's -- without getting into specific names, I would tell you, if we were very North American-centric 5 years ago, we are more Asia-centric. Although Asia was a big presence for us even 5 years ago, I would say the kind of customer projects we're working on, the innovations we are leading, the demands we are creating tend to be in Asia than North America. But I think that would also change because as North American semiconductor investments become real, meaning when the buildings are done, when things people are making, as you have packaging lines come on, Nordson is going to benefit.

[Operator Instructions] Your next question comes from the line of Walt Liptak from Seaport Research.

So I've got a couple of follow-ons. On the ATS segment, Naga, I think you kind of alluded to like a 5% growth -- and I wonder -- I just wanted to clarify, was that 5% growth in the second half on an organic basis? Or were you just talking about kind of growth in the future of 5%?

I'm talking about through the cycle growth, right? I mean there is going to be -- since it's cyclical, you got to take it through the cycle, our expectation is this business grows 5%, right? We have very good clarity to Q3, and that is definitely higher than 5%. But we don't guide by segment, so if you know.

I realize that. Yes. So thank you for adding that in. Okay. Good. And then you -- I think in your prepared remarks, you guys commented on some selling price increases. And so I wonder if you could just help us understand, was this like a price increase or like a tariff surcharge? Or -- and was this uncommon? Do you usually do like annual price increases? Or is this kind of a normal course of business?

Yes. No, it's a good question. Look, our pricing focus -- so the answer to your question is we regularly assess pricing. It's a normal part of our process. Our focus, and this is largely driven by our current margin profile. Our focus is really on maintaining competitiveness and maintaining our margins. But it is something that we look at regularly in the current environment. Certainly, some of what you're seeing is tariff impacts being passed on where necessary. And that would include both -- think about it as both the direct impact and any indirect impact through the general supply base. And so that is certainly -- but again, if I were to look at our overall pricing, I would say there's no significant escalation at this point, right? It's really -- look, where we have to pass things through and manage. We are doing that, but it's not a significant impact.

Yes. And the other way to also remember is that we run the company as 14 now -- 15 divisions. So what this allows us is you have a decentralized organization with business owners who understand their market dynamics, understand their cost structure, are able to simply read the situation and be able to adjust pricing, adjust supply chain, so that we are able to keep growing and growing profitably. So our structure, our entrepreneurial spirit in the businesses as well as our close-to-the-customer model allows us to be able to learn the market and adjust accordingly.

Okay. That's awesome. And just maybe a follow-on to that. So the price increases went through -- do you get benefits from it already? Or are you just about to announce them?

They're phased in over time. There's no one size fits all. I think as Naga just mentioned, each of our divisions are making those decisions and managing as appropriate. And so think of it as pricing is generally an ongoing activity that takes place throughout the year.

Okay. Got it. Fair enough. And then just one last one for me, if that's okay. Last quarter, I think you guys talked about how you were feeling that things would be at the low end of your sales range. And -- but I didn't hear or maybe you did make a comment about that. Do you still think you're going to be at the low end of the sales range for 2025?

Yes. No, it's a very good question. And look, I'm going to come back to what we've said explicitly. What we can tell you is that Q3, the guidance provided for Q3 is certainly in line with our full year expectations. There's a lot of things that are still pending on the policy and trade front, namely some deadlines coming up in July and August. It's a bit early to call Q4 and the outlook for the full year. That doesn't mean that we're backing away from our guidance. Frankly, we just don't know what's going to happen as some of these decisions get made and play out.

So Q3 is certainly in line with our full year expectations that we reiterated in the first quarter. Q4, we -- remains to be seen and largely dependent around what happens on the front over the next couple of months. And what that impact is, again, I'm going to go back to my earlier statements. You asked me what are we concerned about? It's really what is the impact on end market demand, right, across our portfolio if customers start pulling back because of these uncertainties. We haven't seen that yet, but it's too soon to say.

I think that is probably what you have to remember is it is uncertain, but we are not seeing in our businesses yet. But these deadlines come up in summer. Look, these are not -- these are dynamic times to say the least, yet our teams are doing a fantastic job of continuing to serve our customers, continuing to innovate, continuing to do all the things Nordson does really well. And I think that is a testament to the team's ability in a very entrepreneurial way to adjust to some very uncertain times. And we tell you that there is no impact on tariffs. Yes, but there is a lot of work that goes behind achieving that outcome, right? And so I think that's what you want to take away is that the impact is minimal, teams are agile working and we'll take a quarter at a time here.

Your next question comes from the line of Chris Dankert from Loop Capital Markets.

Just as it relates to the outlook, we've been hearing some more constructive commentary from the European machine builders. I guess maybe any color on customer conversations within that business? And then does that support a chance for organic growth in that adhesive dispense business in the back half year?

I think you're right about the European machine builders. We feel pretty good about our position there, and we continue to do well. What we are seeing really is our big cyclical big system businesses, which is not the -- we don't include the adhesive businesses in it because we have our plastic processing business and industrial coating businesses, which are much bigger systems. Now those are -- that is different, and that's what is weighing on IPS.

But the adhesive business in general, our nonwovens business year-to-date has done extremely well, and we expect that they will finish the year really nicely. Our packaging business is doing well. We also expect to do well there, and our product assembly seems to be okay. So I think what we are experiencing is slightly different. We are seeing what you're talking about, which is the machine builders, and our adhesive businesses are definitely benefiting from that.

I guess, on a relative basis, I mean, does it seem like current demand is similar to what we saw in the first half? Or is there actually some improvement in that nonwoven activity?

I would say similar, nothing significantly better. But they had pretty nice first half.

And we have reached the end of our question-and-answer session. I will now turn the call back over to Naga for some closing remarks.

Thank you for your time and attention on today's call. Nordson is well positioned in this dynamic environment. Our close-to-the-customer model, proprietary and niche technology, diversified geographic and end market exposures, high level of recurring revenue and a strong balance sheet are among the many attributes that makes us a reliable compounder. Thank you.

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