Nordson (NDSN) Q2 2026 Earnings Transcript

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DATE

Thursday, May 21, 2026 at 8:30 a.m. ET

CALL PARTICIPANTS

• President and Chief Executive Officer — Sundaram Nagarajan
• Executive Vice President and Chief Financial Officer — Daniel Hopgood

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TAKEAWAYS

• Sales -- $741 million, an 8% increase, with 7% organic growth and a 3% positive currency impact, partially offset by medical contract manufacturing divestiture and the CapstanAG acquisition.
• Record Backlog -- Backlog rose 18% organically, driven by broad-based order entry momentum across all segments.
• EBITDA -- $235 million, an 8% rise to a second quarter record, representing 32% of sales.
• Adjusted Operating Profit -- $199 million, up 11%, equaling 27% of sales, attributed to increased SG&A leverage from organic sales growth.
• Adjusted EPS -- $2.86, a record for the quarter, up 18%, and $0.06 above the midpoint of guidance.
• Free Cash Flow -- $170 million with a 119% conversion rate on net income, marking a fourth consecutive quarter above 100% conversion.
• Acquisition -- Acquired CapstanAG for 9x adjusted EBITDA to strengthen the Precision Agriculture portfolio, expected to contribute $5 million to $6 million in incremental second-half sales.
• Segment: Industrial Precision Solutions (IPS) -- Sales were $350 million, rising 10%, with organic sales up 5%, currency impact of 4%, and acquisition impact of 1%; EBITDA of $124 million or 35% of sales, up 9%.
• Segment: Medical and Fluid Solutions -- Sales were $213 million, up 5%; organic sales up 8%, while divested medical contract manufacturing reduced sales by about 4%; EBITDA grew 3% to $79 million, or 37% of sales.
• Segment: Advanced Technology Solutions (ATS) -- Delivered $178 million in sales, a 10% increase, with 8% organic growth; EBITDA hit a record $48 million, or 27% of sales, up 22%.
• Net Interest Expense -- $22 million, down $4 million, reflecting lower debt levels and a more favorable rate environment.
• Pension Transaction -- Executed a $113 million pension annuitization, covering approximately 30% of the U.S. obligation with no cash outlay; resulted in a one-time $24 million pretax charge.
• Tax Rate -- Adjusted effective tax rate was 18%, in line with the previous quarter; full-year outlook improved to 18%-19%.
• Leverage Ratio -- Net debt of $1.8 billion and a 1.9x leverage, now below the low end of the company’s long-term target range.
• Capital Allocation -- Invested $10 million in capital projects, paid $46 million in dividends, repurchased $43 million in shares, and reduced net debt by $93 million during the quarter.
• Updated Guidance -- Third quarter sales forecasted at $760 million-$790 million; adjusted EPS guidance at $2.95-$3.15. Full-year sales are expected between $2.930 billion and $3.010 billion, with adjusted EPS of $11.30-$11.80.

SUMMARY

Nordson (NASDAQ:NDSN) increased its full-year outlook after posting record figures in key operating metrics and citing robust backlog acceleration from all business segments. Management attributes sustained order momentum to diversification, operational changes, and segment-wide demand, and expects continued performance as currency impacts neutralize and recent acquisitions contribute to growth. The company reports stable backlog conversion timelines, with most backlog turning within six months, and highlights an active M&A pipeline focused on medical, test and inspection, and technology bolt-ons, supported by a cash position and capital allocation policy that allow ongoing investments and shareholder returns.

• Sundaram Nagarajan stated, "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."
• Daniel Hopgood noted that 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.
• "Order entry momentum was broad-based in the quarter with all segments contributing," demonstrating management's emphasis on demand visibility.
• Hopgood commented, "we have high confidence in our kind of midpoint outlook," attributing this to recent order acceleration.
• The company reports its leverage ratio "is now actually below the low end of our long-term target range," highlighting improved financial flexibility.
• Hopgood explained that incremental EBITDA contribution, "it's a 300 basis point improvement versus first quarter incrementals," though still at the lower end of typical conversion.
• Nagarajan indicated, "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."

INDUSTRY GLOSSARY

• NBS Next growth framework: Nordson's strategic initiative focused on operational improvements, business model optimization, and growth execution, referenced as a driver of segment margin progress and overall performance.
• Panel-level packaging: Semiconductor manufacturing process allowing larger-scale, cost-effective chip packaging, mentioned as an early-stage technology for potential future growth in ATS.

Full Conference Call Transcript

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.

Sundaram Nagarajan: 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.

Daniel Hopgood: 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 cost. 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 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 reflects 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 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 worked 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.

Sundaram Nagarajan: 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 width 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 align closely with the growth objectives of our Precision Agricultural division. Our existing Precision Agriculture business, which began with the ARAG 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 inflected.

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

Matt Summerville: 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?

Daniel Hopgood: 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.

Sundaram Nagarajan: 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.

Matt Summerville: 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?

Sundaram Nagarajan: 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 they 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 on 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 a number of applications benefiting us because of our ability to co-develop 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 test and inspection businesses are beginning to inflect and there is more to come there.

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

Jeffrey Hammond: 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 as I think last year, your margins ticked up nicely for that business.

Sundaram Nagarajan: Yes. The IPS 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 coating 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?

Daniel Hopgood: 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 in 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.

Jeffrey Hammond: 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 flush that out.

Daniel Hopgood: 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, think of FX is 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 in 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 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.

Sundaram Nagarajan: Yes. 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.

Daniel Hopgood: 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 last year, I mean, we had incrementals in the 50% range. And 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.

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

Michael Halloran: Just some clarifications 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. 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 farther out for capacity purposes, particularly on the ATS side? Any nuance on that?

Daniel Hopgood: 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, turns 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 the 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.

Sundaram Nagarajan: 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...

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

Daniel Hopgood: 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 had 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 and in line with what we expected. So certainly not what I would call a rebound, but nice normal recovery.

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

Andrew Buscaglia: Yes, I just want to check, Industrial Precision is -- you guys sound confident and things are improving end 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 reflecting -- being reflected in backlog?

Sundaram Nagarajan: 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.

Daniel Hopgood: Yes. I think just to add a little bit -- just to add one 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, again, not meaningful, a couple of percent. But -- so no big system inflection, I think, is maybe the message there.

Andrew Buscaglia: 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 of 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 if you could give us some insight into what you're seeing there, that would be great.

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

Walter Liptak: I want to ask one about the ATS order strength. I wonder if there's a way you could quantify it 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?

Daniel Hopgood: 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, 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.

Sundaram Nagarajan: 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 dispense businesses. You could correlate that there are more dispense 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 lag is, 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 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.

Walter Liptak: 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 cycle -- what are -- are they significantly shorter in Advanced Tech?

Daniel Hopgood: 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 one 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 of 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.

Sundaram Nagarajan: Yes. So I mean, based on what Dan is telling you, right, it's exactly what you're talking about, Walt. Our larger 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 could 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 giving 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 of -- midpoint of our sales guidance.

Daniel Hopgood: And no fundamental change in the delivery requests. 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.

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

Robert Jamieson: So just a quick one on IPS, just kind of higher level. When I think about the precise nature of your dispensing offer in IPS and inflationary input environment, your offering really positioned Luke 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? Is this kind of the right way to think about that? And how might this be or turn into like a medium-term kind of demand driver for you all?

Sundaram Nagarajan: 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 suddenly 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.

Robert Jamieson: 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 was like $2 million or so 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?

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

Robert Jamieson: 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?

Sundaram Nagarajan: Yes.

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

Sundaram Nagarajan: Thank you for your time and attention on today's call. Nordson 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 makes us a quality growth compounder. Have a great day.

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

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