Nordson (NDSN) Q1 2026 Earnings Call Transcript

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DATE

Thursday, February 19, 2026 at 8:30 a.m. ET

CALL PARTICIPANTS

• President and Chief Executive Officer — Sundaram Nagarajan
• Executive Vice President and Chief Financial Officer — Daniel R. Hopgood
• Vice President of Investor Relations and Corporate Communications — Lara L. Mahoney

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TAKEAWAYS

• Revenue -- $669,000,000 reported, up 9% with 7% organic growth; this represents a new first-quarter record.
• EBITDA -- $203,000,000, an 8% increase at a 30% margin, matching the margin from last year amid top-line growth concentrated in Asia, where system sales carry lower gross margins.
• Adjusted Earnings Per Share -- $2.37, a 15% increase and $0.02 above the midpoint of guidance.
• Free Cash Flow -- $123,000,000, equaling a 105% conversion rate of net income, exclusive of the noncash gain from a minority investment.
• Net Debt and Liquidity -- Net debt of $1,900,000,000 with a leverage ratio of 2.1x; $120,000,000 in cash and $800,000,000 available under a renewed $1,200,000,000 credit facility.
• Shareholder Returns -- $46,000,000 paid in dividends and $82,000,000 of share repurchases completed in the quarter.
• Segment: Industrial Precision Solutions (IPS) -- Sales of $327,000,000, up 9%, driven by 3% organic growth and a 6% positive currency impact; EBITDA was $110,000,000 (34% of sales), down 2% due to geographic and product mix along with lower incremental leverage on FX.
• Segment: Medical and Fluid Solutions (MFS) -- Sales totaled $193,000,000, flat overall but up 3% organically; EBITDA rose 9% to $70,000,000 (36% of sales), with divestiture of medical contract manufacturing weighing negatively on sales by about 4% and adverse weather causing a 1% impact.
• Segment: Advanced Technology Solutions (ATS) -- Sales reached $149,000,000, representing a 23% increase (21% organic, primarily semiconductor-related); EBITDA of $33,000,000 (22% margin), up 43%; segment margin improved on higher volume and operational improvements.
• Order Backlog -- Backlog grew approximately 4% compared to last year, with broad-based momentum, most notably in ATS.
• Noncash Minority Investment Gain -- A $22,000,000 noncash, pre-tax gain was recognized due to an initial public offering of a minority investment in Korea; excluded from adjusted results.
• Second Quarter Outlook -- Sales guidance of $710,000,000 to $740,000,000; adjusted EPS guidance of $2.70 to $2.90.
• Full-Year 2026 Guidance -- Raised guidance: revenue of $2,860,000,000 to $2,980,000,000 (up 4.5% at midpoint) and adjusted EPS of $11.00 to $11.60 (10% growth at midpoint).
• Tax Rate -- Adjusted effective tax rate was 18%, below the annual guided range (18.5%-19.5%) due to discrete stock compensation benefits; full-year rate projected at the low end of range.
• Capital Expenditures -- $18,000,000 invested in projects during the quarter to support future organic growth.

SUMMARY

Management described momentum in semiconductor-related ATS sales as a central driver, noting broad-based order entry and an inflecting X-ray system business. Executives explained margin pressures in IPS as a geographic and product mix issue, not a structural gross margin change, and stated expectations for normalization as the year progresses. The new $1,200,000,000 credit facility and leverage ratio of 2.1x provide capacity for continued disciplined M&A, with focus areas including medical, testing, inspection, and core industrial technologies. Executives clarified the ATS growth surge is not tied to the Lunar New Year but to AI-driven chip demand, with delivery timing determined by customer installation requirements.

• Hopgood said, "incrementals all-in are essentially off the chart" for MFS, noting over 50% incremental margins when excluding the divested business impact.
• Nagarajan said, "Semiconductor applications account for approximately 50% of revenue in the ATS segment and drove the overall double digit organic growth in the first quarter."
• Hopgood highlighted that FX was a 6% sales tailwind for IPS, but "we obviously do not get the same incrementals on FX movements" and advised modeling 25%-30% incremental margins on FX-related sales changes.
• Nagarajan stated, "investments in packaging and product assembly are sustaining" in IPS, while automotive and polymer processing have stabilized but are "not meaningfully inflecting yet."
• Advanced Technology Solutions' X-ray business is recovering, with inflection attributed to growing semiconductor packaging complexity and the need for quality control.

INDUSTRY GLOSSARY

• NBS Next Growth Framework: Nordson Corporation's internal operational strategy focusing on sustainable growth, operational excellence, and efficiency improvements.
• CDMO: Contract Development and Manufacturing Organization; refers to outsourced manufacturers in medical device/biotech segments, notably the divested medical contract manufacturing business.
• Incrementals: The percentage of incremental sales that flow through to profit, used to assess operating leverage on new revenue.
• AMI: Acoustic Microscopy Inspection; relates to Nordson's acoustic emission and optical inspection subsegment within ATS.

Full Conference Call Transcript

This is Lara L. Mahoney, Vice President of Investor Relations and Corporate Communications. I'm here with Sundaram Nagarajan, our President and Chief Executive Officer, and Daniel R. Hopgood, Executive Vice President and Chief Financial Officer. We welcome you to our conference call today, Thursday, February 19, to report Nordson Corporation’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 have provided a reconciliation of these metrics to the most comparable GAAP metric in the press release issued yesterday. Before we begin, please refer to slide two of our presentation, where we note that certain statements regarding our future performance that are made during this call may be forward-looking based upon Nordson Corporation’s current expectations. These statements may involve a number of risks, uncertainties, and other factors as discussed in the company's filings with the Securities and Exchange Commission that could cause actual results to differ. Moving to today's agenda on slide three, Naga will discuss first quarter highlights.

He will then turn the call over to Dan to review sales and earnings performance for the total company and the three business segments. Dan will also discuss the balance sheet and cash flow. Naga will then share a high-level commentary about enterprise performance and provide an update on the fiscal 2026 second quarter and full year guidance. We will then be happy to take your questions. With that, I'll turn to slide four and turn the call over to Naga.

Sundaram Nagarajan: Good morning, everyone. Thank you for joining Nordson Corporation’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 $669,000,000. 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 $123,000,000 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 will speak more about the enterprise performance in a few moments, but first, I will turn the call over to Dan to provide a detailed perspective on our financial results for the quarter.

Daniel R. Hopgood: Thank you, Naga, and good morning, everyone. On slide number five, you'll see first quarter fiscal 2026 sales were a first quarter record of $669,000,000, up 9% from the prior year first quarter sales of $615,000,000. 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 $166,000,000, 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 $203,000,000. 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 $23,000,000, a decrease of $3,000,000 versus the prior year, driven by lower year over year debt levels and a stable to declining rate environment. Other income increased $19,000,000 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 item, this relates to a small but strategic technology investment that we have accumulated over a number of years. The company we invested with completed an initial public offering in December 2025, on the Korean Stock Exchange.

As a result of this offering, we are now required to mark this investment to market value each quarter. The initial gain that we recognized was $22,000,000 in the quarter, before tax. We have excluded this noncash gain from adjusted earnings and will 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.

Sundaram Nagarajan: Fluctuations.

Daniel R. Hopgood: Our tax expense on a US GAAP basis was $31,000,000 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 $133,000,000 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 reflects solid operating leverage from the organic sales growth as well as benefits from the divested medical contract manufacturing business. Let's turn to slides six through eight to review the first quarter 2026 segment performance. Industrial Precision Solutions sales of $327,000,000 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 $110,000,000 in the quarter, or 34% of sales, down 2% over prior year largely due to the geographic product mix of organic growth and the lower incremental leverage on foreign currency changes. Turning to slide seven, you'll see Medical and Fluid Solutions sales of $193,000,000 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 in 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 $70,000,000, or 36% of sales, which was an increase of 9% from prior year EBITDA of $64,000,000.

EBITDA margin improved driven by the divestiture, organic sales volume, and strong incremental performance. Now turning to slide eight, you'll see Advanced Technology Solutions sales were $149,000,000, 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 $33,000,000 or 22% of sales, an increase of 43% compared to the prior year first quarter EBITDA of $23,000,000 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 have 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 nine. At the end of the first quarter, we had cash on hand of $120,000,000 and net debt was approximately $1,900,000,000. Our leverage ratio of 2.1 times remained consistent with year end results and is in line with our long-term targets, allowing us to continue to strategically deploy capital and giving us plenty of firepower for acquisition of strategic assets.

Our free cash flow generation was $123,000,000 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 $18,000,000 in capital projects to drive future organic growth. We paid $46,000,000 in dividends to our shareholders and repurchased $82,000,000 in shares on the open market. We also modified and extended our existing $1,200,000,000 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 $800,000,000 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 will turn the call back to Naga.

Sundaram Nagarajan: Thanks, Dan. This strong first quarter performance has set the stage well for fiscal 2026. Now three months into the year, our end markets are playing out as we expected. Within IPS, investments in packaging and product assembly are sustaining. Precision agriculture investments continue to grow over prior year, and automotive and polymer processing applications have stabilized. Medical end markets are returning to more normalized growth, and we expect to see these benefits continue as the year progresses. Growth in engineered fluid solution product lines is being driven by electronics and industrial applications.

Within Advanced Technology, our dispense and surface treatment product lines for semiconductor 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 Corporation 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 Corporation as a partner when customers start developing advanced manufacturing processes for semiconductor packages. Our technology enables these increasingly sophisticated manufacturing processes. Quality control of these costly and complex chips is also creating more opportunities for our test and inspection portfolio. Current investments are primarily in Asia Pacific, and we are well positioned across the semiconductor supply chain both technologically and geographically, as investments grow into other regions.

Clearly, I am pleased with the momentum across our end markets and our ability to meet our customer needs. Turning now to our outlook, starting on slide 13. We enter the second quarter with continued order momentum and increased backlog, up approximately 4% over the prior year. Order entry momentum was broad based in the quarter with strength in our ATS segment. These trends position the company to deliver second quarter fiscal 2026 sales in the range of $710,000,000 to $740,000,000. 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 $2,860,000,000 to $2,980,000,000, 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 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 do not 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 $11.00 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 Corporation 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: We will now begin the question and answer session. If you would like to ask a question, to withdraw your question, press 1 again. Please pick up your handset when asking a question. And if you are muted locally, please remember to unmute your device. Please standby while we compile the Q&A roster. Our first question comes from Jeffrey David Hammond with KeyBanc. Your line is open. Please go ahead.

Jeffrey David Hammond: Hey, good morning, everyone. Good morning, Jeff. Good morning, Jeff. So, really, just want to we just unpack kind of the margin dynamics around this kind of systems, you know, geographic mix and do you think that continues over the next few quarters? Do you see mix improving, maybe what is showing up in the order book that would, you know, support kind of a mix change or stay in the same.

Daniel R. Hopgood: Yes. It is a good question, Jeff. Yes. I would say, number one, if I step back, you know, 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 has been no fundamental change in the margin outlook for our business. You know, we have always said 40% is kind of the normal ongoing incremental expectation in our businesses. There has been no change in our gross margin profile.

It is really just a mix issue in the quarter, so we see things moving back to normal, certainly as the year plays out.

Sundaram Nagarajan: And maybe just add to it, you know, if you think about our second quarter guide and our full year guide, both contemplate, you know, Nordson Corporation delivering strong best-in-class EBITDA margins like we have done in the past.

Jeffrey David Hammond: Okay. And then can you just expand on kind of the slow start in medical, I think, the weather issues and just what you are seeing that gives you confidence 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, you know, if you exclude kind of the divestiture impact? Thanks.

Sundaram Nagarajan: So we will take the incrementals first, Dan, go, and then I will talk about the—

Operator: Sure.

Daniel R. Hopgood: 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 well north of 50% in the quarter. So it is quite strong and reflective of, you know, a good strong outlook in that business. From a growth standpoint, I mean, I would say our 3%, while it is a slower start than we would have liked, you know, part of that was weather related. We mentioned about 1% impact. But we are, you know, frankly, very comfortable with the mid single digit outlook kind of return to normal growth.

We see strong underlying demand in the business and our backlog, our project activity with our customers. So it is 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.

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

Jeffrey David Hammond: Okay. Appreciate all the detail. Thanks. Alright. Thank you.

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

Michael Halloran: Good morning, Mike. Hey. Can we start on the ATS piece and maybe just give some more context to the moving pieces in the larger buckets there? You know, the dispense piece seems like it is tracking the right way. Starting to see some signs on X-ray. But maybe broadly in the T&I piece, what are you seeing and just maybe put it all together, talk about the three pieces, the order trajectory, and where you are the most confident.

Sundaram Nagarajan: 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 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 two 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 optical technique. 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. You know, think about, you know, 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 are seeing these orders starting to inflect. One thing that is, you know, we also have our AMI business, which is our acoustic emission business. There, we are coming off of two really strong years of growth. We still have pretty decent growth plan for them this year, but in general, you know, we feel really good about ATS segment and, you know, that is reflected in our second quarter outlook. If you get into the second half, you know, you need to remember that this business started to inflect in the second half of last year.

The comps get a little bit difficult. But yet, based on what we can see in terms of backlog and order entry momentum, we feel still good about this year, this business being north of its long-term targets of mid single digits. Great. That was super helpful. And, you know, 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, you know, what we feel headline really is we return to growth with IPS. You know, we posted a 3% organic growth in the quarter. Expect that, you know, we will do so in the rest of the year.

That is sort of what we contemplate in our midpoint of the guide. Investments in packaging and product assembly end markets are sustaining. We continue to see growth in our precision ag or air ag business in Europe and South America. We are market leaders. Stable aftermarket demand. You know? Remember, this is a business where our aftermarkets are, you know, a significant part of their revenue, which is north of, you know, 55% or so. Polymer processing and automotive end markets, you know, we expect a nominal recovery through the year. They are stabilized. But, you know, not meaningfully inflecting yet.

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

Michael Halloran: Great. Thanks. Really appreciate it. Yes. Sure.

Operator: Our next question comes from Matt Summerville with D.A. Davidson. Your line is open. Please go ahead.

Matt Summerville: Just a quick follow-up. On the medical side of the business, can you 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?

Daniel R. Hopgood: Yes. It was primarily in our interventional products and then also to some extent in our fluid components, particularly some of our Atrion related businesses. We had, you know, we have several businesses that have operations on the East Coast as well as supply chains that are East Coast based and, you know, the long and the short of it is we lost a few days of production because we had literally operations that were mandated to be shut down because of the weather impact. And so, you know, we estimate about a 1% impact. It is, you know, think of it as two to three days of production. Very temporary in nature.

We are back up and obviously fully running. But did have an impact on our ability to deliver during the quarter, especially with that happening late in the quarter. So, you know, 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.

Matt Summerville: Got it. And then maybe if you can just comment on what you are seeing from an M&A standpoint, multiples, potential deal sizes, actionability and where you see most activity across the company? Thank you. Just a reminder—

Sundaram Nagarajan: Yes. In terms of our acquisition, you know, we continue to work our pipeline, pretty active pipeline. Lots of different opportunities that we will pursue. You know, what you do not want to look at is lack of announcements and relate that to lack of activity. Right? Because, you know, we remain financially and strategically disciplined. The areas we are continuing to work on are continuing to expand our medical component portfolio, we are working on test and inspection opportunities, and any core technology, any technology that would add to our core offering in the industrial. So that is sort of the three areas that we are looking at and working on. Yes.

The multiples look a little elevated in some cases, in some places, it looks reasonable. I think, you know, for us, it is, you know, we are going to continue to be pretty disciplined around what we buy, and our criteria has remained the same. We are looking for businesses that would add to our growth portfolio, businesses that are differentiated, businesses that have strong technology plays. And from a financial perspective, we are looking for Nordson-like gross margins, you know, maybe EBITDA in the 20 range, with meaningful opportunity to expand margins and, you know, an appropriate return. So all our criteria, both strategic and financial, remain the same. Healthy pipeline, continue to work them.

Lack of announcement should not be assumed for lack of activity or work on our part. Thank you. Of course.

Operator: Our next question comes from Christopher Glynn with Oppenheimer. Your line is open. Please go ahead.

Christopher Glynn: Thanks. Good morning, guys. Good morning. Good morning. Just wanted to, you mentioned, I think, seeing some initial signs of the general half of ATS starting to show signs of life. That is pretty consistent with what we are hearing from, you know, kind of adjacent companies or exposures to yours. But just wanted to spend a minute exploring that topic.

Daniel R. Hopgood: Yes. I guess maybe just to add a little bit of color, you know, I would say we are not really seeing an inflection in those businesses. I would say, you know, stable demand at low growth levels. I think, you know, the early signs that I would say we are pointing to is, and you guys see the announcements as much as anybody else, you are starting to see some of the semiconductor, I will say the high-end semiconductor demand investments seem to be trickling into the lower level electronics applications. If you think of memory and general electronics requirements, we are starting to see announcements and discussions around capacity investments.

We are 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 are seeing in those markets is stable demand at low growth rates.

Christopher Glynn: Great. Thanks for that. And then just want to explore also when emerging technologies in the semi application space start to hit you, say, the case of co-packaged optics, is that a meaningful opportunity? Is that down the line, or you have seen some early action derivative of that technology?

Sundaram Nagarajan: Are you talking about optical modules? Is that what you are talking about, Chris?

Christopher Glynn: Yes. Exactly.

Sundaram Nagarajan: Okay. Yes. That is an area of, you know, we have some interesting products there. Helps our customers manufacture those optical modules. It is certainly an area that we are playing in, and an area where we are beginning to see orders directly related to that.

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

Daniel R. Hopgood: Yes. And we mentioned that as well. FX is certainly, if you think of the incremental performance for IPS, that is certainly one of the items that impacts us. And the simple math I would give you is, you know, because FX was about a 6% positive impact on IPS sales, we obviously do not get the same incrementals on FX movements. In fact, we would, you know, 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 is a contributor to performance in the quarter.

Christopher Glynn: Great. Thank you for clarifying that.

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

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

Daniel R. Hopgood: It varies a little bit by segment, but, yes, generally speaking, that is a good benchmark. And the only, again, the only thing I would maybe caution you on is, you know, 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 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.

Robert Jamieson: Great. Thank you. And then I just want to talk about full year guidance. Really solid performance in 1Q, nice 2Q guide. Just, you know, taking Naga's comments, and I think it is wise here to have a level of conservatism baked in, and hopefully, I am reading those comments right, you know? But what I would like to kind of understand is, you know, what end markets and areas you expect to outperform your base case estimates to get at or above the high end of your, you know, sales range? You know, does it need to be an acceleration in, like, auto?

I mean, I have been watching auto CapEx for, you know, plenty, 20 plus global auto OEMs. And even since December, we have seen auto CapEx revised higher by, like, 5% growth, which 26% from flattish in December. So would it be kind of like a mix of that, plus more of an acceleration in some of the known minimally invasive and especially medical business. Would that be, like, kind of, like, fair assessment if we were to, you know, things, everything were to align and get us towards the high end of your guidance range.

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

Robert Jamieson: Yes. And I will—

Daniel R. Hopgood: Start with, frankly, I think the easier one. You know, medical, we see, as we mentioned, you know, good ongoing stable growth in the mid single digit range. You know, is there potential for upside there? Potentially. But not really, I would say that is not a market that we expect to inflect further necessarily. If I think of, you know, what would drive the higher end, it would be exactly what you are talking about, some further inflection in general industrial and automotive demand.

And then the other key factor that I would say is, you know, if you look at our ATS performance, as we have, you know, highlighted a number of times, you know, ATS deliveries being 70% systems tend to be lumpy. We are 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.

Sundaram Nagarajan: 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 are bringing a process up to speed. So, occasionally, there may be a pull-ahead and sometimes a pullback, you know, postponing is the way to think about it. So think of our lumpiness also from a customer demand, you know, delivery requirement. Yes. It is a good way to think about it.

Robert Jamieson: No. That makes perfect sense. And then just one last one. Just, I do not see this being an issue, guys, for you all, but the DRAM pricing is, have there been any impacts? Or how much is that of, like, your bill of materials? Is it pretty de minimis? And then I guess another question would be, you know, with just some of the capacity constraints there, could that be a potential for you all, you know, if, like, on the back end post processes, if they need to increase capacity, or am I not kind of on course there?

Sundaram Nagarajan: Robert, could you repeat the early part of your question before the pricing? We missed something there. Just—

Christopher Glynn: Oh, yes.

Robert Jamieson: Sorry. So I was just talking about DRAM pricing, and I was wondering, just with, like, memory cost going up, do you have any, you know, significant exposure there that would be, you know, relates to margin?

Sundaram Nagarajan: Yes. You know, we do not have 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.

Christopher Glynn: Okay.

Robert Jamieson: Excellent. Thanks so much for taking my questions.

Sundaram Nagarajan: Thank you.

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

Andrew Buscaglia: Hey, good morning, everyone.

Sundaram Nagarajan: Good morning. Morning, Andrew.

Michael Halloran: Just wanted to check on—

Bradley Hewitt: You know, within ATS, I know, you know, you said about half of your sales tied to semis. But we are seeing that test inspection piece maybe start to recover with X-ray. Can you just talk a little bit about how—

Andrew Buscaglia: I know that your test and inspection stuff is quite niche, so I am wondering what—

Bradley Hewitt: What a cycle looks like for that side of your business. And is—

Andrew Buscaglia: Is this X-ray piece sort of a precursor for a lift, you know, in that chunkier ATS business?

Sundaram Nagarajan: Yes. If you think about our X-ray business, this is one, it is a little slower to recover when compared to our dispense business, and when compared to our acoustic emission. And so if you think about year on year, 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?

Andrew Buscaglia: Yes.

Sundaram Nagarajan: Sorry. As automotive comes back, you know, we will continue to see, do well.

Andrew Buscaglia: Okay. Got it.

Bradley Hewitt: Okay.

Andrew Buscaglia: On MFS, you know, you run into some pretty tough margin comps in the back half of the year. Can you just remind us, I guess, is that something when you come to lap that you expect to expand off of such a high base? I mean, there are pretty impressive margins you are kind of running into and maybe why would that be? What would the stat demand, if you do not, or margins if demand is not really accelerating?

Daniel R. Hopgood: Yes. No. It is a good question. And maybe I will even go back to our fourth quarter. You know, we printed a very strong margin in the fourth quarter, and I think we made comments during that call that, you know, that was a high point and not necessarily an ongoing run rate. And so, you know, we think margins in the MFS segment are very much sustainable in, you know, 37%-ish range. And, you know, we may have some selective quarter over quarter comp issues like the fourth quarter where we had a really strong performance.

But, you know, we think maintaining that margin performance and continuing to generate reasonable incrementals as we grow is very much attainable in the medical business. Yes. It is worth pointing out, maybe just to reiterate, you know, that the divestiture that we completed in the fourth quarter is kind of a, call it, a one-time adjustment that impacts our ongoing margins. And so you are certainly seeing that in the year over year margin comparisons in Q1, and you will see that through the year until we hit Q4.

Sundaram Nagarajan: And, you know, I think, Andrew, the most important part we, as a company, are focused on, and this message sort of reiterates across all of our businesses. Given Nordson Corporation’s high gross margins, high best-in-class EBITDA margins, it is super important for our businesses to stay focused on growth at reasonable incrementals. So as you think about us, you know, be it MFS, yes, the margins are pretty strong.

But day in, day out, what our teams in the divisions are focused on is to drive organic growth, innovate, deliver products at the time the customer's asking us, have the best quality there is, meet our customers' needs in the market where they need us to be, just being agile. That is 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, you know, if you want to think about us, I would think about above-market growth at reasonable incrementals. That is what we are focused on. That is what you would see us deliver.

Andrew Buscaglia: Okay. Thanks, Naga.

Sundaram Nagarajan: Sure.

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

Christopher Dankert: Hey, good morning. Thanks for taking the question, guys. Good morning. Good morning, Chris. Just looking at the ATS segment, I guess, I am fully appreciating that a lot of that business is just lumpier by nature. But was any of that growth a pull-forward around Lunar New Year? Or was that just kind of how the orders just happened to fall serendipitously?

Daniel R. Hopgood: Yes. No. Nothing that we would say is tied to the Lunar New Year. In fact, to be honest, we have kind of looked at this and the Lunar New Year has a pretty de minimis impact, and we have kind of proven that out looking at history. So it is 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 are seeing is reflective of, you know, I would say, normal customer demand and—

Sundaram Nagarajan: You know, we do hear that our customers are investing for the demand.

Christopher Dankert: Right?

Sundaram Nagarajan: And so this increased demand for AI chip capacity is playing out. And it is playing out in the packaging area right now. And that is why you see our dispense business benefit. You start to see our X-ray business start to inflect. You know? So this is based on what people are asking. And the lumpiness comes from our customer both investment pattern as well as installation requirements. So—

Christopher Dankert: Yes. It was certainly encouraging to see, you know, the strong start to the year and then the good shipments in 1Q here. So congrats on that. I guess as my follow-up, any comments on kind of the machine builder activities in core Europe, any kind of what that demand has been within the IPS segment?

Sundaram Nagarajan: There seem to be pretty stable. You know, our packaging businesses had a pretty good quarter. Expect to continue to have a pretty good quarter. You know? If you think about the nonwovens business, we are coming off of two 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, you know, global middle income growth still a big secular growth driver for this business, albeit reasonable low single digit growth, stable aftermarket demand, all the things that make this business great still intact, still continuing to do well.

Christopher Dankert: Got it. Thanks so much for the color there, Naga, and congrats on a nice start to ’26 here.

Daniel R. Hopgood: Thank you. Thank you.

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

Walter Scott Liptak: Hi. Good morning, guys. Good morning, Walter. Let me try one on the ATS segment. And if I am 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 would have to cycle through and ship very quickly.

Sundaram Nagarajan: Mhmm.

Walter Scott Liptak: And it sounds like with this kind of data center build-out for advanced chips, that lumpiness is still there. 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? Yes. And those order lead times, you know, if you can just comment—

Sundaram Nagarajan: The order lead times are not very different. But the size or the growth differences are, you know, they are smaller rather than, you know, significantly huge chunks and then nothing. So I would say it has dampened. The amplitude of the cycle is dampened, is maybe one way to think about it. But the order lead times are no different. But, you know, we have built in some new advantages here 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 they need us to be. So that has helped us to be able to respond to this lead time.

The other is our NBS Next application within our factories certainly has improved our on-time delivery capability. You know, we are consistently in the low nineties, you know, starting to march towards a 95% on-time delivery based on customer requirements. So, you know, 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.

Daniel R. Hopgood: I will just add, by the way, I mean, your comment is spot on. Yes. 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 are turning our backlog pretty quickly. You know, as you think about our backlog, yes, we have some selected areas with longer lead times. But the majority of our backlog turns in the quarter. And so, you know, our starting backlog is really an indicator of current demand for Q2. To your point, we also have, you know, we maintain robust pipelines. We know what we are talking to our customers about on new projects.

I think the piece that is harder to pin down sometimes, just because of customer requirements, is when those turn into orders and delivery, which is dependent on when the customers need them for their factory floor.

Walter Scott Liptak: Okay. Great. Yes. Thanks for that color. And then you called out, you know, why is Nordson Corporation Advanced Electronics winning? I wonder if, is there a win rate? Like, are you, you know, it sounds like you might be gaining market share here with some of the quick delivery. Is there a way of quantifying it with the win rate?

Sundaram Nagarajan: You know, we do not share that on the outside. I would definitely tell you our work around growth drivers in each of our business, including ATS, around focus on innovation, focus on delivery, having the best in quality, and finally meeting where our customers need us to be in the market, are four core growth drivers that each of our businesses are working on. And what you are seeing in ATS, certainly, there is a market momentum, but to be able to leverage the full potential of the market opportunity, clearly, our teams are doing a fantastic job. And, you know, I think we are getting rewarded for that in the market.

Walter Scott Liptak: Okay. Great.

Michael Halloran: Alright. Thank you.

Walter Scott Liptak: Yep.

Operator: To withdraw your question, press 1 again. Our next question comes from Bradley Thomas Hewitt with Wolfe Research. Your line is open. Please go ahead.

Sundaram Nagarajan: Good morning. Hey, Brad.

Bradley Thomas Hewitt: So IPS revenue was much better than typical sequential seasonality. Of course, you called out 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?

Sundaram Nagarajan: Yes. As 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. Returned 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, you know, our precision ag business is also growing nicely. You know, polymer solutions have 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, has stabilized. So from that perspective, the comps are better there.

So it is a combination of our businesses that were negative last year and are stabilized. They have 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.

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

Bradley Thomas Hewitt: Okay. That is 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 now outperform single digit long-term outlook you discussed at the Investor Day?

Sundaram Nagarajan: I think it is really important to remain balanced on this business. We have seen the cycle of this business, and, you know, that is the space we play in, and we fully appreciate it. And, you know, we capitalize and fully participate in the market when the market is up. So, yes, in years when there is going to be significant investment like now, we are going to see higher than the mid single digit. But then through the cycle, you know, we are going to be in places where this business will go down, and that is something you have experienced. You have seen us, you know? So you want to think through the cycle, mid single digit.

In the up cycle, certainly higher. Right? And so that is where we are now, and that is what we are planning for, and that is embedded in our guide.

Bradley Thomas Hewitt: Great. Thank you.

Sundaram Nagarajan: Sure.

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

Sundaram Nagarajan: 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 Corporation is well positioned as a diversified precision technology company. Our 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.

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

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