Good morning. My name is Chris and I’ll be your conference Operator today. At this time, I’d like to welcome everyone to the Nordson Corporation’s second quarter fiscal year 2022 conference call. All lines have been placed on mute to prevent any background noise. After the speakers’ remarks, there will be a question and answer session. If you would like to ask a question during this time, simply press star then the number one on your telephone keypad. To withdraw your question, please press star, one again. Thank you. Lara Mahoney, you may begin.

Thank you, good morning. This is Lara Mahoney, Vice President of Investor Relations and Corporate Communications. I’m here with Sundaram Nagarajan, our President and CEO and Joseph Kelley, Executive Vice President and CFO. We welcome you to our conference call today, Tuesday, May 24 to report Nordson’s fiscal 2022 second quarter results. You can see both the 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, May 31, 2022. During this conference call, references to non-GAAP financial metrics will be made. A reconciliation of these metrics to the most comparable GAAP metrics 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 second 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 balance sheet and cash flow. Naga will conclude with a high level commentary about our enterprise performance as well as our updated fiscal 2022 full year and third quarter guidance. We will then be happy to take your questions. With that, I’ll turn to Slide 4 and hand the call over to Naga.

Good morning everyone. Thank you for joining Nordson’s fiscal 2022 second quarter conference call. Once again, the Nordson team successfully navigated a dynamic macro environment and delivered strong sales and earnings growth despite continued supply chain constraints and inflationary pressures, as well as newer challenges from the COVID-19 lockdowns in China and the increasing foreign currency headwinds. I’m very thankful for and proud of our employees who are staying safe and deploying the NBS Next growth framework to meet the strong broad-based demand from our customers. Our company culture is deeper than our financial results and during the quarter, I was humbled to see our employees rise up to send care packages to our colleagues impacted by the COVID-related lockdowns in China and also raise money for family and friends impacted by the situation in Ukraine. This is the Nordson impact, and it is a very special part of who we are as a company. I’ll speak more about the business 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.

Thank you Naga and good morning to everyone. On Slide No. 5, you’ll see second quarter fiscal 2022 sales were $635 million, an increase of 8% compared to the prior year’s second quarter sales of $590 million. The increase was primarily related to 7% organic volume growth and 4% from the NDC acquisition offset by currency headwinds, particularly the weakening of the euro. The organic growth was broad-based across most end markets and geographies except for Japan and China. China COVID-related lockdowns negatively impacted second quarter sales by approximately $20 million as our Shanghai facility was unable to ship products for five weeks and many of our customers and freight forwarders were unable to receive or ship products. We clearly view this impact to be temporary and it is beginning to resolve itself as the lockdown restrictions start to ease. Gross profit for the second quarter of fiscal 2022 totaled $358 million or 56% of sales, a 6% increase compared to the $338 million or 57% of sales in the prior year second quarter. The team continues to actively manage the price-cost dynamic in these inflationary periods and benefited from improved price realization compared sequentially to the first quarter of fiscal 2022. Looking at the year-over-year margin decrease of 100 basis points, this resulted largely from a change in sales mix at the segment level as ATS delivered double-digit organic growth compared to the low single digit organic growth of IPS, plus the systems sales growth exceeded parts growth. Operating profit was $184 million in the quarter or 29% of sales, an 11% increase from the prior year. Sales volume leverage and controlled spending contributed to the incremental operating profit margins of 38% in the quarter. Organic-only incremental operating profit margins were 70%, well ahead of our long term target…

Thank you Joe. Let’s turn to Slide 9. Again, thank you to the Nordson team for delivering this outstanding performance. I’m very proud of how our employees are navigating this dynamic environment. I continue to spend a lot of time in our facilities and I am excited by the caliber of talent and the dedication of our employees to meet our customer commitments despite the constraints of the supply chain. They are actively deploying NBS Next to choose the best growth opportunities and focus their time and resources appropriately. Strategically, we have continued to make progress on the advancement of the NBS Next growth framework, the heart of our Ascend strategy. NBS Next boils down to three words: choices, focus, and simplifying. Expanding beyond our pilot sites, we now have several strong business examples of driving profitable growth in different divisions. With this in mind, we launched a four-month NBS Next accelerator training program which had its first in-person session in April. In the program, Nordson participants learned through hands-on exercises with real Nordson data as well as in-class discussions. More importantly, each participant left with a better understanding and a thoughtful action plan that will accelerate the deployment of the NBS Next growth framework across the company. As practical application of NBS Next gets embedded deeper in our organization, the more aligned and skilled we are as a team to deliver top tier revenue growth with leading margins and returns. This is an important investment in our people and company. I’m grateful to the Nordson team for all that is being done to mitigate risks due to supply chain, inflation, labor, and COVID challenges. In this dynamic environment, I’m equally energized the secular growth drivers in key end markets leading to strong ongoing demand from our customers. As Joe…

[Operator instructions] Our first question today is from Matt Summerville with DA Davidson. Your line is open.

Thanks. A couple questions. Obviously the second quarter was impacted by about $20 million related to the mandated COVID-related lockdowns in China. What sort of net impact do you expect in fiscal Q3, meaning are you still seeing top line impact today but on a net basis, given $20 million effectively pushed, do you think that is a net positive to your Q3? I guess I’m trying to understand how that dynamic plays into the go forward views here.

Yes Matt, thank you for the question. As it relates to our forecast and our guidance for Q3 and the lockdowns in the Shanghai region of China, we anticipate those to start to subside. We’ve had no shipments for five weeks in Q2 and so we’re starting to--things are starting to open up there, we’re starting to get people back in the factory, we’re starting to be able to ship. We’re not yet at 100% but we anticipate being 100% roughly by mid-June, so that is what’s included in our assumption.

Then you had very strong quarter-on-quarter and year-over-year incrementals in ATS, part of that attributable to some actions that you’ve taken on the cost side, also expense discipline. Go forward, how should we be thinking about maybe the forward-looking margin cadence in ATS specifically? Thank you.

Yes, so when you think about ATS, any given quarter there’s a handful of mix that will impact any results, so I don’t want to take one given quarter and say, annualize it. But I encourage us to look at the trend in ATS, and what you see going on over the last several quarters is consistently improving the profitability of that segment. It’s kind of like the driver there, Matt, is the comment that I said in the script in terms of NBS Next, is that segment not only does the cost control, which you referenced, but from a gross margin and a profitability standpoint and the strong incrementals is really coming from improving mix within each of the divisions in that segment, so if you think about NBS next and strategic discipline, which is a database framework to say, what are my best growth opportunities, as those individual divisions are focusing on those best growth opportunities, they generally are the higher margin opportunities, and so as we outgrow in those high margin product lines, regions, end markets, it’s improving the mix within those divisions. That’s what’s contributing to those favorable incremental margins in ATS, and we’re quite proud of that trend. I don’t know that I can say, hey, Q2 is now the ongoing run rate, but directionally that’s what you’ll continue to see.

Understood, thanks Joe.

Thank you.

Our next question is from Jeff Hammond with Keybanc Capital Markets. Your line is open.

Hey, good morning everyone.

Morning Jeff.

Can you just talk about the durability of the growth you’re seeing in electronics and test and inspection? We’ve heard kind of a line of tough comps and the consumer starting to slow here around mobility, PCs, etc., and just wanted to get what you’re seeing on a go-forward basis.

Yes, thank you for the question, Jeff. On our electronics business, what we see is this [indiscernible] of our customers and applications that we have undertaken over the last number of years, that you begin to see the business doing incredibly well in a couple of different areas. One of the areas is really semiconductors, and what we find is the ongoing capacity additions, on-shoring to mitigate some risks that all of us see in the industry, but in addition to that digital technology and digital way of doing business has just spurred this new secular growth that we see our customers continuing to benefit for some time to come. From what we see in our businesses, our order rates are pretty strong, our shipments are pretty strong in the electronics area, so now just as a reminder, we have electronics dispense as well as test and inspection both benefiting from it, so in the quarter both the divisions had double-digit growth. Certainly there are comp issues, but we feel really good about prospects for these divisions and their contribution to growth for us. We do have lesser exposure--you know, we have a broad-based supply chain we participate in, in electronics, so it is less correlated to one particular consumer product or the other. That used to be where we were a number of years ago, and we have talked to you about how we have diversified our applications, and so think of Nordson’s electronic business participating in the entire electronics supply chain and that diversity is really helping us participate in a good way.

Okay, great. That’s helpful. Then I just wanted to come back on this dynamic around the timing of the backlog and customers saying they want things a little bit later, because it seems like most of my other industrial companies have big backlogs and it’s more a function of we can’t get stuff out the door, and we’re--you know, the order rates are just outpacing what we can deliver. Yours just seems a little bit different, and I just wanted to understand why it shakes out that way.

Jeff, that’s a great question. In terms of our backlog, I wouldn’t say we don’t have the issue that you’re talking about - orders ahead of shipments. We do have some of that, right - we are limited by the supply chain, meaning how much our suppliers can provide us in terms of components, especially for our systems business to be able to ship, so that is still a factor in our backlog. The second factor, though, is we are seeing clearly, and we have pretty good line of sight to understand that we have customers placing orders ahead of where they normally have, and we see that mostly in our system business, now we’re seeing it in our interventional components business, medical interventional components business as well. If you look at our backlog, the majority of our backlog is from systems businesses and medical businesses, and partly driven by these long-dated customer request dates.

Okay, thanks so much.

Our next question is from Allison Poliniak with Wells Fargo. Your line is open.

Hi, good morning. Just wanted to stick on that backlog theme. I know there’s certainly an extended backlog here. Is there a way to better understand the extent of that extension, meaning is it two weeks extended, is it a month, a quarter? Just any color there, and then just any thoughts on risk of cancellation in that backlog or double ordering, which I know is a concern of folks. Just any thoughts there, thanks.

Yes, thank you Allison. Let me take the cancellation first and then we’ll talk a little bit about what we’re seeing in terms of customer long-dated requests. On cancellation, that’s something that we monitor very closely in the business. Given our direct customer business model, it allows us much more insight into customer thoughts, sentiments and behavior, right? In general, we have not had issues around cancellation, and so from our perspective that’s not manifesting itself in the business today. The second thing I would tell you is also remember we--you know, more than 50% of our business is very system oriented, engineered systems, so this is not like you could buy it in a couple of different places. Once you place a system order that is very customized to your own application, that is a benefit for us, right, so from a cancellation perspective we have not seen it in the business now. The second question around long-dated customer requests, I’ll give you a couple of anecdotal things that we see in the business as sort of indicative of what we are experiencing. One, in a couple of our system businesses, we have orders now that are dated to be shipped in second quarter of next year. In the past, the norm was you would get three, six months out request dates, and now we’re starting to see three, four quarters out, so that’s one. Second is in our medical businesses, medical interventional business, we typically get blanket orders and those blanket orders cover us for a quarter of two, but now we’re getting blanket orders for a longer period of time, so those would be two anecdotal evidences that indicates what we’re seeing in our business. Joe, you want to talk a little bit about customer prepayments that might give an indication of what we’re seeing in the [indiscernible]?

Yes Naga, so Allison, we also track not just cancellations and are looking out for that, but also our customer prepayments, and as the majority of the backlog is comprised of systems and medical orders, as Naga mentioned, those systems orders come with customer prepayments, and those are up now north of $90 million, and so proportional to our systems backlog, the prepayments have also grown. We view the systems backlog piece as very solid as it relates to future shipments, and the visibility is out now several quarters whereas our traditional, I’ll call it non-systems heavy business, parts business, we see a modest uptick in the backlog but that is much more book-and-ship within a couple weeks, so that one is not out nearly as far.

Great, thanks. That’s helpful. Then just price realization, Naga, I think you had mentioned sequentially improved. Are you in a more favorable price-cost situation today, and are you still comfortable with that second half being a net positive for Nordson going forward?

Yes Allison, when you look at our performance going Q1 to Q2, actually our price realization was a little bit better than what we had anticipated going into Q2. It’s forecasted to continue to improve here in Q3 again as we work through the re-pricing and the long backlog, so it was favorable in dollar terms in Q2 and was forecasted to slightly improve as we head into Q3, so we feel pretty good about that. I will tell you it’s a very dynamic situation with all the different cost components and the inflationary pressures.

Great, thank you.

Again if you’d like to ask a question, that’s star, one on your telephone keypad. Our next question is from Chris Dankert with Loop Capital. Your line is open.

Hey, morning. Again, just to kind of keep pulling the thread on backlog a bit here, your guidance commentary implies most of the year-over-year growth that is expected in the back half kind of shows up in the fourth quarter, I guess. Can you give us a sense for just how confident you are in that cadence and just what’s the risk that we could see a piece of that fall into fiscal ’23? Just any kind of sense for how fluid some of those orders are versus your confidence in seeing the growth in the fourth quarter.

You bet, Chris. Yes, let me comment, if I could, just on the quarterly split of our guidance here in the back half. If you think about our guidance, midpoint the back half is going to be up roughly 6% over the prior year. I will remind you in the prior year, Q3 was our strongest quarter and there was about $25 million worth of sales that we were able to get out in the electronics space in Q3 that was pulled forward based on a customer request from Q4 scheduled delivery into Q3. Q3 was strong, Q4 was sequentially softer last year, and so what you see this year is--you know, I would tell you 6% growth over the second half, but you’re right, it implies the fourth quarter is going to be stronger than the third quarter, so what you see there is heavy, again, visibility on the systems side and so a high degree of confidence on the system forecasting, and also as I mentioned in the first question, the China lockdown, and as that starts to moderate here and still impacts us a little bit in Q3, that will be a challenging Q3. So Q4 stronger than Q3, I wouldn’t get carried away with the quarter year-over-year growth rates and think about it more as 6% growth in the back half, and if you think about that broken down, I would tell you FX is about a 3.5% to 4% headwind, acquisitions is about a 3% to 4% tailwind, and so it’s really roughly 6% to 7% organic growth is what we’re forecasting in the second half, and good visibility on the systems side. Your question about supply chain constraints, and look, it is a dynamic environment, it requires us to get the material and be able to ship it, but we’ve been quite successful, I think, in delivering growth over the past five quarters, averaging greater than double digit organic growth, so I’m optimistic that we will be able to deliver that here in Q4.

You know, one thing, Chris, I would add too is given our organizational structure, right - over the last 24 months, we have gone to an owner mindset, division-led structure, this allows our divisions to forecast in a fairly crisp way as they--you know, we have a direct customer business model so each of our divisions have fairly good visibility, and our forecast was really based on our divisions’ forecast, so this is not something that Joe and I decide as much as we--you know, this is a sum of all of our divisions’ views of where the market is at and their own supply chain, so we feel good about where we are because I think it does give us better clarity into where we are expecting our customers to perform division by division.

Got it, thank you both. That’s incredibly helpful color. Then not to pin you down, but I’m going to try and pin you down a bit here. Circling back to the ATS margin question, I guess in the past, mid-20s was kind of the EBIT margin target there. Is it fair to say that, hey, we’ve at least moved into a high 20s target cross-cycle here, or am I kind of overstepping on that?

No, that’s what I kind of meant by the trajectory is what we’re looking at and then the long term gains. If we look at that business, it went from operating at EBIT margins around 20, last year stepped up to the mid to low 20s, and this year we’re running in the high 20s on average for the first half, so I think that trajectory is the way to think about this business in terms of running the NBS Next playbook. Naga, you wanted to add something?

Hey Chris, sorry to interrupt you, but before we take and put it down, I wanted to add a little bit of color there just to make sure. We have materially improved the cost position, structure position in this business, so we feel really good about those gains. The only caution I would have for you--you know, two things. One is, as Joe mentioned, this is one quarter, and second I’d also say that we have--you know, we’re doing really well on the electronics business, which as you know has--the amplitude of the cycle has muted because of the diversification work we’ve done, but it is still a cycle, so we’re in a good part of the cycle, we have taken cost out, we’ve materially improved the position of the business well, we have mix help in there, so there are a number of contributing factors, so my caution would be let’s give it a couple of quarters here before we lock in a run rate.

Totally fair, thanks so much for--oh, go ahead?

Yes, quite simply there’s a lot of things going on there, and one of them also is the top line growth. I mean, this is a record sales quarter for this segment, and so as you think about driving that growth, you get that natural leverage as well, and so it’s not just the profitability, it’s also the growth that that’s delivering - I mean, 11% organic growth in the quarter despite all these challenges.

I guess to that end, I’d assume facility utilization has got to be at or near a record, no?

Well you see on the capex side in this business, we are making investments to expand capacity where needed to support this growth, particularly in the electronics space and then the medical space, which we’ve highlighted as the high growth areas. You see we spend--you know, although it’s a small number percentage speaking, but it is an increase, and $24 million on capex year-to-date, and so we continue to add capacity where needed, although it continues to be capital-light.

Yes Chris, on the capacity side, on our assembly business, think of that as capacity we have but more constrained by the supply chain and our ability to get components to fully support the demand. That’s one capacity that you’ve got to take into consideration beyond our own ability to act on [indiscernible] and the backlog, so that’s one. On the process side, which is sort of what Joe has mentioned, we’re adding capacity where there it is physical capacity within the company, but we are excited about the capacity adds we are making in businesses that have very strong growth, really great investments for the company and our investors.

Understood, well thank you both so much for the color. Much appreciated.

Thank you.

The next question is from Walt Liptak with Seaport. Your line is open.

Hi, thanks. Good morning everyone.

Good morning Walt.

I wanted to ask a follow-on - you know, as we’re thinking about the second half, if there’s going to be more systems shipped in the fourth quarter, does that have an impact on the fourth quarter gross margin? My recollection is that parts might be higher margin and systems might be lower. I wonder if you could talk a little bit about that.

Yes, I would--you know, you are correct at a high level, although I would tell you the disparity between parts and systems is not that great, but you are correct at a high level. I would tell you there’s a couple things offsetting that. Perhaps as you go into Q4, as you think about Q4, one is the sales volume leverage, and then two is the price-cost realization. I think that will improve sequentially from our Q2, so as we think about going from Q1 to Q2 improved, Q2 to the back half, that should also improve. Then I would also tell you, Walt, within the systems business, that’s a big bucket, there is opportunities for mix within that, and when you think about the mix within the systems business, there is opportunity for that to be favorable, so I wouldn’t necessarily think about margin degradation as we go into Q4.

Okay, great. If I could try one on the IPS segment, the 30% organic, I wonder if you could parse out what the price was versus units, and are you seeing unit growth?

Yes, I would tell you price was a component of that 3%, but there was also unit growth as well. It wasn’t simply price. Price wasn’t the full 3%.

And also, Joe, this is the segment we had more currency headwinds too, right?

Correct, so the currency headwind in this segment was 4%, and that was greater than that in the ATS segment due to the large European business that we have here. But specifically looking at the organic piece, I would tell you there was volume growth in there. That’s not just all price.

Okay, all right. Great. Then just a last one, thinking about China and the reopening, I guess as your employees get back to work, I wonder, is this something where you think it will ramp quickly or do you think China is going to have its own supply chains and this will be a slower ramp? How long do you think it will take to get China back to normal?

You know, we have been slowly bringing people back as the government allows us to, and we believe it will be a slower ramp but we also believe that we would be fully operational at normal run rates hopefully in the next four to six weeks, so mid-June that Joe mentioned in his earlier comments, that’s our expectation. But Walt, business, a dynamic environment that none of us really controls, our teams are doing one incredible job dealing with where we are, and we are so proud of how our leadership and our teams have worked together and are really--and teams around the rest of the world who have to work around this issue in China, so it’s not only that we have our China factory and our shipments in China, but we also have customers who pull from our other factories, so all in all very proud of the work our teams are doing in some very incredibly difficult situations. Our expectations are things are doing well, things are coming back, but surely expect a slower ramp with an expectation that another four to six weeks, we get back to normal shipping rates. For us, I couldn’t emphasize this more - safety of our people is our number one priority, and everything else will work out. But we’re just so proud of the team there and I’m proud of everybody around the world who have been working to overcome the challenges we have had in China in the quarter and as we get into third quarter, so a big shout-out to the Nordson team. Nice job for us.

Okay, that sounds great. Good luck with that ramp in China, and we’ll talk to you soon. Thanks.

Thank you Walt.

We have no further questions at this time. I’ll turn it over to Naga for any closing remarks.

Thank you. Our continued performance reflects the strength of our differentiated positioned technology, customer-centric business model, and diversified end markets. The continued deployment of NBS Next and the Ascend strategy will ensure we remain well positioned in this dynamic environment. Thank you for your time and attention on today’s call. Have a great day.

Ladies and gentlemen, this concludes today’s conference call. Thank you for participating. You may now disconnect.