Ladies and gentlemen, thank you for standing by and welcome to the Nordson Corporation's Third Quarter Fiscal Year 2021 Conference Call. At this time all participants are in a listen-only mode. After the speakers presentation there will be a question-and-answer session. . Please be advised that today’s conference is being recorded. . I would now like to hand the conference over to your first speaker today, Lara Mahoney, Vice President of Investor Relations. Please go ahead, ma’am.

Thank you. Good morning. This is Lara Mahoney, Vice President of Investor Relations and Corporate Communication. I'm here with Sundaram Nagarajan, our President and CEO; and Joseph Kelley, Executive Vice President and CFO. We welcome you to our conference call today, Tuesday, August 31, 2021 to report Nordson's fiscal 2021 third quarter results. You can find both our press release as well as our webcast slide presentation that we will refer to during today's call on our website at www.nordson.com/investors. This conference call is being broadcast live on our investor website, and will be available there for 14 days. There will be a telephone replay of the conference call available until Tuesday, September 7th. During this conference call, references to non-GAAP financial metrics will be made. A reconciliation of these metrics to the most comparable GAAP metric was provided in the press release issued yesterday. Before we begin, please refer to Slide 2 of our presentation, where we note that certain statements regarding our future performance that are made during this call may be forward-looking based upon Nordson's current expectations. These statements may involve a number of risks, uncertainties, and other factors as discussed in the company's filings with the Securities and Exchange Commission that could cause actual results to differ. Moving to today's agenda, on Slide 3, Naga will discuss the third quarter highlights. He will then turn the call over to Joe to review sales and earnings performance for the total company and the two business segments. Joe will also discuss the cash flow and balance sheet. Naga will conclude with high-level commentary about our enterprise performance as well as our updated fiscal 2021 full year guidance. We will then be happy to take your questions. With that, I'll turn to Slide 4, and hand the call over to Naga.

Good morning everyone. Thank you for joining Nordson’s fiscal 2021 third quarter conference call. First and foremost, I want to congratulate the Nordson team on another record quarter. During this quarter we continued to benefit from the execution of our NBS Next growth framework in combination with robust end market demand. Investments in industrial context and the strengthening medical and electronics end markets grow record results in the quarter. I'm also pleased with the resilience of our colleagues. In this dynamic macro environment that continues to be plagued by supply chain, labor, and COVID concerns, our division leaders are deploying NBS Next to focus resources on the greatest growth opportunities in their respective businesses. I'll speak more about the business including the recent announcement of the NDC Technologies acquisitions in a few moments but first I'll turn the call over to Joe to provide a detailed perspective on our financial results for the quarter. Joe?

Thank you Naga and good morning to everyone. On Slide number 5 you'll see third quarter 2021 sales were $647 million, an increase of 20% over prior year’s third quarter sales of $538 million. This is a new quarterly record for the company, $57 million above the prior quarterly record. The increase was primarily related to 20% organic volume growth and favorable currency offset by net negative impact from acquisitions and divestitures. The benefits from the Fluortek and vivaMOS acquisitions were more than offset by the headwind from the divestiture of the Screw and Barrel product line. When excluding the divested product line in the prior year for comparability purposes, sales growth would have been 24% in the current year third quarter. The organic sales increase was driven by continued demand across all divisions and end markets including a seasonal increase in quarterly shipments into the electronics end markets. From a geographic perspective, growth was once again strong in all regions except Japan which continues to manage pandemic related impacts. Gross profit totaled $365 million or 56% of sales in the quarter compared to $281 million or 52% of sales in the prior year. This 430 basis point increase in gross margin was driven by volume leverage, benefits from structural cost reduction measures taken in fiscal 2020, and improved sales mix particularly resulting from the divested Screw and Barrel product line at the beginning of fiscal second quarter. Also record in the quarter were operating profit of $188 million or 29% of sales, a 57% increase from the prior year adjusted operating profit of $120 million and EBITDA of $215 million or 33% of sales. This result was 45% higher than the prior year EBITDA of $148 million. Our broad-based organic growth plus the favorable sales mix benefits including the…

Thank you Joe. Let's turn to Slide 9. Again, thank you to the Nordson team for delivering this outstanding performance. We are making progress on our Ascend Strategy to achieve top tier revenue growth with leading margins and returns. During the quarter Joe and I continued to visit our divisions to review their progress with NBS Next deployment. It is exciting to see how NBS Next is being applied to make data driven decisions to meet the increased demand of our customers. For example, in our Nordson Medical Interventional Solutions facility in Salem, New Hampshire, the team has used NBS Next to understand complexity and standardize their product offering. This has allowed them to disproportionately focus resources for their best customers and products. We are purposeful in where we focus our energy, to ensure we take advantage of the greatest opportunities for profitable growth even during the recovery. NBS Next is at the core of our Ascend strategy, which is designed to deliver the $3 billion in revenue and 30% EBITDA. This target will be achieved through a combination of organic growth within each segment as well as the acceleration of acquisitions. Clearly the record setting second quarter followed by the record setting third quarter demonstrates that we are off to a strong organic start towards achieving our long-term goals. We are also making progress on our acquisition objectives. On August 23rd we signed a definitive agreement to acquire NDC Technologies, a leading global provider of precision measurement solutions for in line process control. This acquisition expands our test and inspection platform into new markets and adjacent technologies. With Nordson like gross margins it is clear that NDC has a differentiated product portfolio that is leveraged through a customer centric business model. This portfolio includes inline measurement sensors, gauges, and…

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

Thanks, a couple of questions. Typically, how much of your backlog would converge in the current quarter, I guess, excuse me, I am trying to get a sense in terms of how elongated maybe some of these orders have become?

Yeah so, Matt this is Joe. Let me just take that. Typically, I would tell you entering backlog we have less than 100% of quarterly sales entering any given quarter. And so it'll trend, I don’t know, let’s just say in the 80% range of the quarterly -- upcoming quarterly sales and we clearly see that changing as the customer requested delivery date is out further and further. So customers are just placing orders further in advance. And so if you look at our quarterly sales going forward and our implied guidance, it would suggest that the midpoint is about 600 million and our backlog entering the year is about -- entering the quarter is about 700 million. So it has elongated. It depends on the systems businesses versus parts and different for each business but some of them are going out into Q2 of 2022.

Great, that’s helpful. And then have you guys encountered any actual shipment delays for customers and in your mind are things getting better or worse stabilizing as we think about supply chain challenges, freight issues, etc.?

Matt, this is Naga. Let me take that one. Yes, we are experiencing some but not significant. Freight especially, our international shipments sometimes seems to get pushed out but what we have experienced in the third quarter really is customers pulling orders forward. And what is impressive is you can see team even in a very difficult environment being able to manage its shipments as customers requested.

And again Naga, just put a finer point on my question. Did you get the sense of things in this regard are getting more challenging, has the situation stabilized, are things starting to loosen up and get better yet, thank you?

Yeah, Matt I would say, it is a dynamic environment, it is not getting any worse but it's not getting any better either. But I will tell you that the Nordson team is fully participating in this recovery under some challenging environments but doing an excellent job.

Excellent, thank you guys.

Your next question comes from the line up Allison Poliniak with Wells Fargo.

Hi, good morning. Naga, I just want to explore the order trends a little bit more for you guys. I guess when you talk to your customers, is it more on the IPS or is it advanced technology, is it really just a reflection of some of those, I think with Matt talking about the supply chain challenges that people are trying to get those orders in a little earlier to guarantee delivery, just any thoughts is this sort of a temporary situation or do you think this -- your customer patterns or order patterns are starting to shift a little bit permanently?

I would say what you're seeing is broad based strong order patterns across end markets, across regions. And are there some cases where people are trying to get in front of the line or ahead of the line, proactively yes. But quite frankly, if you think about the kind of end markets we play in and look at all the secular drivers for them, I'd tell you we are very pleased with the momentum that we are seeing. For example, in our medical business if you think about our fluid component business with biopharma, just not vaccine, but biopharma in general, we see some pretty strong order rates that is embedded and it is leading the secular growth drivers and biopharma really going well for us. And if you think about interventional solutions in the medical side, what you will find there is our aging population single use components, all of those drivers still intact. Selective surgeries or some might have unfortunately have started calling it as elective surgeries have come back, but that remains little bit fluid, but we feel really good about the recovery we are seeing in our medical businesses. On our electronic businesses, we are at a beginning of a really nice growth cycle here. You hear about ship shortages and you can -- all of those read their headlines around the big investments that major semiconductor manufacturers are making and Nordson is participating nicely in it. We've got a couple of new products that are entering the market both on testing inspection and our dispense business. So, industrial CAPEX is pretty robust. Might you say that might moderate over time, I would say yes, that might do that. On the packaging side, under consumer nondurables, really very strong move towards eating at home rather than out at a restaurant. Might that continue, we're seeing a lot of activity in packaged goods, packaged beverages. Our teams are starting to call them from keg to can and we have more people using cans. So we see a lot of containment businesses that are going well for us. Hopefully this is enough color Allison.

No, that's really helpful. And then I just want to touch on operating execution, incredibly strong in the past two quarters here. Relative to your expectations of setting some of these operational plans into place, is this -- if the execution may be better than maybe you would have anticipated kind of walking into this upcycle, any color on how that is relative to what your view was in terms of what the organization could do?

Yes. No, I'm incredibly proud of the execution of the team. This is not ordinary times or environment that we're operating in. But we are using NBS Next in our businesses to meet this incredible demand and it plays out in many different ways in multiple businesses across the company. NBS Next fundamentally is all about making choices to drive growth. And what you begin to see is for example, in some of our businesses understanding what are your greatest growth opportunities and disproportionately investing in them is one way it shows up in this great execution. You see our team standardizing product offering, reducing complexity, streamlining and dedicating products to the most important products in the business, prioritizing our best growth opportunities, our best customers. So lots of different ways, be it quality, be it manufacturing capacity, be it conversion cost, be it selecting the right end markets to choose to play, and also treating very differently unattractive opportunities in the business is really how this is playing out. I am really happy about the progress we are making and I wouldn't say I'm surprised, but I am excited about the fact that the teams are doing one heck of a job, really converting orders to shipments, shipments to profitable growth for all of us.

Great. Thanks so much. I'll pass it on.

Your next question comes from the line of Connor Lynagh with Morgan Stanley.

Yes, thanks. I was wondering if you could touch on the NDC acquisition and basically I am just wondering if you could sort of eliminate obviously you guys are very focused on growth, how is the growth profile of this business looked over the past few years, where do you see the opportunities, is it this business enhancing your growth in your existing portfolio, your portfolio of existing growth in this business, how do you think about that?

Yeah, in this business historically, they have underperformed in terms of growth versus where they should really be growing because we play in the same end markets as these businesses. So we fundamentally see an application of NBS Next in this to understand what are the best growth opportunities for them and invest this disproportionately in those two dry clothes. This would most likely be I would say mid-single-digits is sort of our growth expectation for this business and we feel really good about it. Their performance in the year is looking really good. Suddenly we don’t talk about specific product lines and how they perform but we feel really good about it. But what I would tell you about this business that we really like, it is strategically similar to lot of notes in businesses. It has got a customer centric business model. I would direct sales model, global sales and service support, large installed base, lot of similarities to some of our consumer non-durable businesses. It has a very strong suite of differentiated products and you see that in Nordson like gross margins. So we're looking forward to welcoming this team, using NBS Next, understanding the growth initiatives, and really for us this is a pretty strong place to be. You know, we do clearly see a patch for the margins to expand north of 20% EBITDA.

Got it, helpful context. I am wondering if you could just characterize the broader M&A landscape out there. You know with this they are diamond in the rough was this one of many good options we saw out there. Just an update on sort of the opportunity set and the valuations will be great?

Yes. M&A we clearly remained focused. As everybody would tell you, M&A landscape has improved, banker activity certainly have expanded and accelerated this year when compared to last year. We remain focused though. We are very focused around continuing to scale up our medical businesses. We see a lot of opportunities there. We will continue to stay focused there. Test and inspection as NDC will illustrate for you is an area we continue to diversify, getting into new markets, getting to new technologies. Our dress inspection kind of today is very electronic centered. With NDC you can begin to see us move beyond electronics and that’s really what you would see. So we see opportunities there. And finally, we have an internal team that continues to explore opportunities on precision technologies that are very adjacent to what we do today. Just as a reminder, we are laser focused on strategic criteria to play in attractive end markets that have real good growth profile to them. Precision technology suite of products and have a customer centric business model. On the financial side, clearly, we are looking for assets that can add to our organic growth ambitions. We would Nordson like gross margins, that's really critical for us. For us gross margin equals differentiation is the way to think about it. That's how we think about it within the company. And on EBITDA our expectations as we said in our Investor Day, approximately 20%. Would we do deals below that, yes and would we do deals above that, but we're looking for clear margin expansion opportunities and all this results in a fairly decent otherwise greater than our cost of capital over three to five years.

Got it. Thank very much the color. I will hand it back.

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

Hey, good morning everyone.

Good morning Jeff.

So just back on margins, I think there was an earlier question on that, but just I think the expectation was 3Q would step down from 2Q and we've gone the other way and I think 4Q guide suggests a step down. I guess what's surprising you the most or maybe where's is the caution in the guide on the margin, is it largely mix or do we start to see some of the inflationary pressures come through, maybe just a little color there?

Yes. Maybe if I could, on the gross margin in Q2 we did 57% and when you think about our gross margin, we used to operate in the range, I would say between 53% and 55%. Given the divestiture of the Screw and Barrel product line, that has systematically I would tell you moved our gross margin and top margin profile up probably 175 basis points. And so now I think the new normal from a gross margin standpoint works in the range of 55% to 57% and you see that was sustainable to Q2 and in Q3. When you think about the sequential Q3 to Q4 and you look at our guidance and more specifically, I guess if you look at the second half of 2021 Jeff, forecasted performance, you need to understand that approximately $25 million worth of system orders were pulled forward from our scheduled Q4 shipments into Q3 based on customer request. This was primarily in the industrial end market and primarily NIPS. Therefore, the guidance range implies Q4 performance would actually be comparable to Q3 if you adjust both quarters for the $25 million sales pull forward. Again, this was -- full forward was request of the customer and as Naga mentioned, proud of our teams despite some of the supply chain issues, ability to meet the customer's request and demand and pull that forward. It is also of noteworthy, I guess if you exclude that $25 million from Q3, it would still have been a record breaking quarter, $30 million North of the prior quarterly record. The sequential swing, we tried to point this out to investors by talking to the second half performance that the 14% growth in revenue and 47% growth in earnings at the midpoint. I would tell you the other noteworthy point when you look Q3 to Q4 and you look at the year-over-year growth rates is the 4%tailwind that we had in Q3, that starts to moderate when you look at the year-over-year growth rate in Q4 to about 1% and again that's just given the movement and exchange rates last year, Q3 to Q4.

Okay, that's all very helpful. Thanks Joe. Just back on medical, I think Naga you called out biopharma is particularly strong. And your comments, just I wanted to dig in more on the kind of the elective surgery, pace of recovery, and is that trending in line or better than you had expected?

Yeah. Jeff, thank you. On elective surgeries, in the third quarter we did really well and it was trending nicely. Now without a variant, might you expect that to take back down, that is possible. But I fully expect that what had happened last year as we talked all of last year, as -- our surgeries, like our teams would describe a more selective not elective, right. If you need to get a heart valve replacement you have to get a heart valve replacement, it is just a matter of time. So you could get it postponed, but you couldn’t get it cancelled, right. I guess, it's something when that happens then that could happen, but that's not what you're hoping for. So what we do see and what we experienced in the third quarter is a nice recovery. We saw that business really get back to high single digits in the quarter, and that was really nice to see. Going into fourth quarter, we're trying to be cautious here but we don't see it grow all the way back like last year. I do think it will be little bit lower, but we fully expect medical to recover completely because all of the growth factors that we play towards are on aging population, all of this is going to be intact for us, and it is a great business that is already returning to normal. Will there be bumps in the road, yes absolutely. Given the delta variant, you could have few bumps in the road. Hopefully, that gives you -- answers your question.

No, that's very helpful. Thanks.

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

Hey, good morning everyone. Just a quick clarification on that last question, Jeff asked. So is it fair to say that you haven't seen a full recovery in the medical PC yet. Trajectory is good to get some volatility that happens over the next couple of quarters depending on how the broader delta bearing goes and other factors. But on a trailing basis, you don't think that we've gotten that full recovery yet, is that fair?

Fair.

And so then two questions. First, when you look at the order patterns and how those have elongated and shifted, have you seen any change in the seasonality that you're expecting on the actual conversion of those orders, in other words, as the demand carries through, are you still thinking that on an all in basis, the seasonality is about the same or you think the seasonality has shifted some?

Yes. I would tell you seasonality is evolving. When you think about our end market exposure and our particular applications, I don't -- we have studied the numbers on the quarter, I don't know what is the normal seasonality anymore. I mean, if you take, for example, our customers behavior on the industrial side pulling in shipments into Q3 when typically, Q4 was our strongest quarter and look at our implied guidance that suggest that Q4 is going to be down through Q3 because of that. So, I don't know that given our electronics exposure has changed in terms of applications with the semiconductor cycle, our medical business, the biopharma has been strong as the elective surgeries come back and the interventional side starts to return to growth. Our normal seasonality as I would say really challenged to make that statement anymore.

So, the answer is what seems like no, but when you look at the orders that you're getting in, what's the risk that there's been some double ordering or those cancelability in that order book versus it is just a business with a different cadence and the underlying demand, underlying order cadence so that declines can reserve spots over the next couple of quarters?

Yes, I would tell you we track order cancellation very closely and we do not see an uptick in that whatsoever. So, I think we monitor that risk, but to date that risk is very low.

You know -- go ahead.

Sorry Mike, go ahead, finish up and then…

No, no, no I wanted to say thank you, but I didn't know there's something else, so please Naga go ahead.

Yeah. I think what I would add is just look at the unprecedented investments that are going on in industrial CAPEX, that is one that I would really point to as one of the big drivers in what you've seen in our IPS business. What you would also see in our electronics APS business is this real strong, semi-investments and a particularly strong consumer electronic demand for what is turning out to be a digital economy. So, the macro drivers are pretty strong that we feel really good about what we are seeing in terms of demand for some of our precision technologies.

So is the implication then there that yes, the order book has been very good and you like the fact that you're getting more visibility but it seems like you're also implying that the front line of opportunity still remains pretty robust?

Yes. Yes.

Okay, good. Thank you. Appreciate it.

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

Thank you. Good morning.

Good morning.

Just wondering, Naga, if you had anything to call out in terms of notable changes in the competitive backdrop consistent with the or with coincident with the pandemic, if anyone's kind of fallen off or gotten flat footed, clearly, it seems like you've picked up some momentum that you generated, but just wondering about the kind of broader question as well?

Yes, we generally tone down -- we have some really strong competitors, but you know the business of course have followed us for a long period of time. In our consumer non-durable businesses, we really are very -- in a little bit significant position with being a global competitor, right. So, a lot of our businesses what you see us being is this global competitor that can be relied upon for good times and bad times and can be relied upon for global support for customers applications and service and sales, right. And so what we've seen come through in this environment is that value proposition getting strengthened even further as others will have some hiccups here or there, are not able to make commitments, Nordson team is there supporting our customers and really in a lot of ways strengthens our value proposition and reaffirms for the customer why you want to work with Nordson, not only because you're going to get precision technologies, you're going to get reliable support that is going to be global in nature. And then that's -- if anything it just reaffirms our strong value proposition.

Thank you. And then the backlog got 70%, should we think about that as both segments kind of participating in parallel more or less?

Yes. We don't give backlog guidance on a segment specific basis, but you can interpret our performance year-to-date has been quite broad based. I mean, you see both segments growing approximately 20% organically in the quarter and broad based in terms of geography and end markets and division. So we're not going to start giving backlog in segments.

Yeah, that wasn't what I asked. I appreciate the answer. Last one from me, I'm just curious about the industrial trends in particular, has that been accelerating sequentially during and through past quarter, and in particular, are there any types of applications that you're seeing really breakout in industrial?

Our industrial business, strong investments, a couple of areas I would point out for you. We have applied NBS Next in all of our businesses to really understand what are the best growth opportunities, where is it we want to focus on and how do we treat some positions that are in inherently unattractive. And so the net result of all of this is we find some real strong growth in container for example. So we talked about beverage cans and Nordson has a very strong position and a very attractive position technology suite that supplies people who make beverage cans. And you coat the inside of a beverage can and that's an example of what you see in this whole consumer shift on how they eat and consume beverages and food. So we are benefiting there. We're also beginning to see in our powder business this broad based industrial activity that is leading to investments on paint lines and things like that. So we're doing well there. Our packaging on the industrial, adhesive is doing an extremely well as well. So hopefully, that gives you a couple of different points. Some of this is certainly broad based but where we are pretty pleased with how the team is fully participating in the recovery that is going on.

Great, thanks for the color.

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

Good morning guys.

Good morning Andrew.

I want to talk a little bit about mix in the quarter. So obviously, NBS Next is helping and in industrial position you're seeing the divestiture is helping both. Are you seeing any interesting trends that are helping mix that standpoint? And then same with ATS, I would think that actually with electronics and test infection improving you would see maybe a less favorable mix, but what's going out in there?

Yes. So within the segments, I think, particularly let's just take one segment at a time, ATS we do see some favorable mix. And I really think it's not to your point at the division level, but it is almost within the division. So, if you think about NBS Next it is being implemented at the division level, so even the relatively low margin businesses and divisions within that are seeing nice improvement in their profitability, in their gross margin, which is driving the favorable mix within the divisions. So it's funny that at ATS within -- at the division level, the mix is actually unfavorable, but it was favorable within each of the divisions such that the end result was most favorable for the segment. And so, I think that -- NBS Next being applied within the division where you're looking at specific applications. I mean, not to mention, within IPS some of the liquid coating opportunities is clearly a favorable mix expansion. Within IPS, you see a very similar story and particularly, I mean, you had strong growth in the systems over the parts within IPS, but yet the margins improved beyond that of the mix benefit that we got from the divestiture of Screw and Barrel business. But if you look at the IPS business, that divestiture alone is probably worth 350 basis points of margin expansion but they're expanding beyond that due to the favorable mix, I would tell you within the divisions.

Okay.

Another point I guess, which is also helping is we've had some nice success both in IPS and in ATS with our new product launches. The Pro Blue flex and Advantage continued to gain traction. And I would tell you that is helping us from a top line perspective as well as the mix standpoint.

Okay. That's helpful. And then another one on -- with the NDC acquisition, it seems like a great company. I guess I was a little bit surprised given like the specialty nature of the business and it seems like a pretty good deal that EBITDA margins look like they're around 16.5% to 17%. Is this a situation where this company has a very high gross margin profile but maybe EBITDA margins you see an opportunity to expand and I know you gave over 20% target, is that a near term target or is the longer-term to more get that margin in line or above corporate average?

Let me first start and then Joe, if you could add a little bit more color that would be good. The reason we acquired NDC Technologies is because it fits right with our test and inspection business. And particularly that particular company we really like is because if you look at its gross margins, they are Nordson like gross margins. They have a customer centric business model that is like Nordson. So, it's this case of strong gross margins, indicating a strong differentiated product portfolio, but EBITDA margins are slightly lower than our target. Joe, if you want to just add a little bit more color on what we are thinking near term?

Yes. So, you are correct, the margin is coming in about 16% to 17% EBITDA margins and we see opportunities under our ownership and the execution of NBS Next to get margin expansion over the next I would say, couple of years similar to what you see on the core Nordson business as we roll out NBS Next.

But the main opportunity here is to use NBS Next to identify the best growth opportunities, to invest in them disproportionately, and really grow the company and margin expansion will follow.

So with the 55% growth as favorable incremental margin, so it's the growth that drives the margin expansion.

Okay, got it. Thanks guys.

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

Hi, thanks. Good morning everybody. And great quarter. I'd like to go back to the 25 million of IPS Systems that got pulled forward. I guess it's impressive with supply chain that you were able to get that into the quarter. But I guess my question is about the fourth quarter, I think you said Joe that the system -- IPS Systems would be down sequentially, is that right? And then what is it due to the operating leverage, was it due to the margins if you've got more mix of aftermarket parts in IPS in the fourth quarter?

Yes. So, just my comment it was holistically there was about 25 million both from Q4 into Q3 predominantly systems and predominantly, I would say, IPS. And so to Naga’s point and your point, it was impressive our team being able to meet that customer request, those customer requests. But from a margin standpoint, you build these systems over time. It shouldn't have huge -- our incremental’s are what they are and we're still going to deliver growth in Q4 if you take the midpoint of our guidance. And the sequential comment really Walt it is just Q3 to Q4 for Nordson when you level out and adjust that 25 million and take it out of Q3 into Q4. But Q4 on an adjusted basis, we would be relatively flat. And so it's just that swing in the systems, which is driving the sequential drop.

Okay. And how are you thinking about the fourth quarter margins, are you saying that there's going to be less leverage because the volume growth won't be as high or is there a pickup in margin because there'll be more aftermarket because I can’t really think of systems and say in a little bit lower margin, maybe that's incorrect?

Yeah, that is changing it a little bit, but not to the degree, I think it was historically. And so, I would tell you we're thinking about margins for Q4 at the gross margin line to be comparable with our new run rate that we saw in Q2 of 57%, 56.5% here in Q3. So, we feel confident to operate in the 55% to 57% gross margin range as the level of call it 600 million to 650 million in sales.

Okay, great. Okay. Thanks. And then I wondered you guys talked about this last quarter a little bit, but it sounds like the supply chain there's a little bit challenges, but I wonder on pricing, are you seeing some inflationary pricing that you are passing along to customers, how are you doing that or is it on the project by project basis or are you taking up prices?

Yeah. It's really project by project. I would tell you division by division. We are experiencing as Naga touched on some supply chain challenges, some logistics challenges, but we are laser focused on managing the gross margins of this business. And we're also I would tell you looking out over the long-term as it relates to our customer relationships and in our position I think that bodes well for us. When we entered this pandemic in terms of strengthening what's important to Nordson is that intimate customer direct sales model. And as we work through these challenging times remaining focused on the gross margin and capturing the value we provide but also protecting the long-term relationship with our customer. So, that's how we I would tell you look at that pricing.

Walt, one thing I would add to it is given our gross margins, the material cost in our business is fairly small when compared to other companies. We had a value added assembler of components. We don't have big process component to our business. So, to the extent that we need to increase prices in certain areas, we have done that, we will continue to do that. But in general this is not a huge, significant, material issue for us.

Yes, agree. There's no doubt about that. Okay and then one maybe last for me is Naga you mentioned that you and Joe have been out traveling, visiting the facilities, yes. And I wonder if you finish that process, how are you feeling now about like the delta variant where you continue to visit operations and moving the delta variants can have any impact going into the end of the year?

Yes. From our travel perspective, we continue to remain safe but we can’t continue to just stay in the bunkers, right. So Joe and I are being very cautious on how we travel, where we travel, but we are going to continue to travel in a very limited basis. If this thing didn’t exist, would we be in more businesses than we are today, absolutely yes. But, so trying to find the right balance in terms of being safe as well as building in the businesses with our team, which is really where all of the action is going on.

Okay, Great. And are your sales people I guess are getting out too and visiting with customers. Do you expect that will continue through the end of the year?

Yes. It is by request of the customers and it is in region? We're not -- we do have some thoughts around trying to balance safety as well as trying to help our customers meet their business needs. So it is still decided by senior leaders in the company who travels, where we travel. We have started going to some shows on a very limited basis. So the dynamic environment is doing an excellent job of taking prudent mentions to be safe yet make sure we're are taking care of customers.

Okay, great. Okay, thank you.

At this time, there are no further questions. I would now like to turn the floor back to management for any additional or closing remarks.

Thank you. I want to reiterate that Nordson is well positioned to benefit from the accelerating recovery and our precision technologies remain a critical solution to our customers through this cycle. Additionally, our leadership team is advancing the implementation of the Ascend strategy, which is establishing a growth framework, entrepreneurial organization, and a deep and diverse team to drive sustainable profitable growth. Thank you for your time and attention today. Have a great day.

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