Dycom Industries and Nordson Corporation Report Strong Quarterly Results

Earnings call: Dycom Industries reports robust Q2 fiscal 2025 results By Investing.com

Dycom Industries, Inc. (NYSE:DY) has reported a strong second quarter in fiscal 2025, with a notable 15.5% increase in revenue to $1.203 billion and an improved gross margin of 20.8%. The company, which is set to see a change in leadership as CEO Steven Nielsen announces his retirement and Dan Peyovich steps in, also completed a strategic acquisition of Black & Veatch's wireless infrastructure business and boasts a substantial backlog of $6.834 billion, indicating promising future opportunities. Key Takeaways Company Outlook Bearish Highlights Bullish Highlights Misses Q&A Highlights Dycom Industries has showcased a strong financial performance in the second quarter of fiscal 2025, with significant revenue growth and an improved gross margin. The company's leadership transition is poised to take place smoothly, with incoming CEO Dan Peyovich at the helm. The strategic acquisition of Black & Veatch's wireless infrastructure business has bolstered Dycom's backlog and is expected to contribute to revenue in the near term. Despite the potential deceleration in organic revenue growth and weather-related project delays, the company remains optimistic about future growth prospects, particularly in the data center market and through network modernization initiatives. Dycom's financial position remains robust, with ample liquidity to support its growth strategies. The company's executives are confident in their long-term strategy and ability to generate returns, as they continue to focus on strategic capital allocation and potential acquisitions. InvestingPro Insights Dycom Industries, Inc. (DY) has demonstrated resilience and growth potential in its recent quarterly earnings report. The company's strategic moves and financial metrics offer a compelling narrative for investors. Here are some insights based on real-time data and InvestingPro Tips that underscore the company's current financial health and future prospects. InvestingPro Data shows a robust market capitalization of $5.12 billion, reflecting investor confidence in the company's market position. The P/E ratio stands at 21.78, suggesting a reasonable valuation relative to the company's earnings. This is further corroborated by an adjusted P/E ratio of 23.69 for the last twelve months as of Q2 2025, which indicates stability in valuation over time. Additionally, the company's revenue growth of 9.57% over the last twelve months points to a solid performance, with a gross profit margin of 19.88% underscoring operational efficiency. From an investment perspective, Dycom Industries shows a high return over the last year, as indicated by an 82.94% price total return, which aligns with InvestingPro Tip 1. This exceptional performance is further highlighted by a large price uptick of 50.48% over the last six months, resonating with InvestingPro Tip 7. Moreover, the company's liquid assets exceed its short-term obligations, providing financial flexibility, as noted in InvestingPro Tip 2. For investors seeking more in-depth analysis, InvestingPro offers additional tips on Dycom Industries. There are currently 11 more InvestingPro Tips available, which can offer further insights into the company's financial health and investment potential. These tips can be accessed by visiting https://www.investing.com/pro/DY, providing investors with a comprehensive toolkit for making informed decisions. In summary, Dycom Industries' recent performance, combined with its strategic acquisitions and strong backlog, positions the company for sustained growth. The InvestingPro Insights suggest that the company operates with a moderate level of debt and is trading at a high Price / Book multiple, which may reflect its growth potential and asset valuation in the current market. Full transcript - Dycom Industries Inc (DY) Q2 2025: Operator: Good day and thank you for standing by. Welcome to the Dycom Industries, Inc. Second Quarter 2025 Results 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. [Operator Instructions] Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker today Mr. Steven Nielsen, Chief Executive Officer. Please go ahead, sir. Steven Nielsen: Good morning, everyone. Thank you for attending this conference call to review our second quarter fiscal 2025 results. Going to Slide 2. During this call, we will be referring to a slide presentation, which can be found on our website's Investor Center main page. Relevant slides will be identified by number throughout our presentation. Today, we have on the call Dan Peyovich, our President and Chief Operating Officer; Drew DeFerrari, our Chief Financial Officer; and Ryan Urness, our General Counsel. Now, I will turn the call over to Ryan Urness. Ryan Urness: Thank you, Steve. All forward-looking statements made during this conference call are provided pursuant to the Safe Harbor provisions of the Private Securities Litigation Reform Act of 1995. Forward-looking statements include all comments reflecting our expectations, assumptions or beliefs about future events. These forward-looking statements are subject to risks and uncertainties, which may cause actual results to differ materially from current projections, including those risks discussed in the company's filings with the US Securities and Exchange Commission. Forward-looking statements are made solely as of the original broadcast date of this conference call and we assume no obligation to update any forward-looking statements. Steve? Steven Nielsen: Thanks, Ryan. On June 17th, after over 25 years as Dycom CEO, I announced my retirement effective November 30th. Upon my retirement, Dan Peyovich will become our CEO. Now, I will turn the call over to Dan for some opening comments. Daniel Peyovich: Thank you, Steve. Most importantly, thank you for your decades of leadership. You have built Dycom into a true leader in our industry and I look forward to continuing to work alongside you over the coming months. Congratulations on your upcoming retirement. I would like to thank all my teammates at Dycom for welcoming me and for your support for the past 3.5 years. I'm constantly impressed by your focus on executing our work safely, your passion for our business and your dedication to delivering quality for our customers. Our success is because of you. The opportunities in our industry are unprecedented and I believe we are well-positioned to continue our growth as we pursue our vision to connect America. I am honored and excited to lead Dycom in this next chapter. Steve, back to you. Steven Nielsen: Dan, I'm excited for you and Dycom as you lead our company to a bright future. Before I review our results and industry opportunities, I would like to thank my fellow employees for their hard work and dedication. Your efforts make Dycom the special place it is. To our Directors, thanks for your wisdom, guidance and oversight. I finished my time as CEO a much better leader because of you. And finally, to my fellow shareholders, your support as I have led our company has been invaluable. Thanks for the opportunity to benefit from your counsel and the market's discipline. November's earnings call will be my last, for purposes of this call, I will be handling the Q&A. Now moving to Slide 4, a review of our second quarter results. As we review our results, please note that in our comments today and in the accompanying slides, we reference certain non-GAAP measures. We refer you to Slides 15 through 20 for a reconciliation of these non-GAAP measures to their corresponding GAAP measures. Now for the quarter. Revenue increased year-over-year to $1.203 billion, an increase of 15.5%. Organic revenue increased 9.2%. As we deployed gigabit wireline networks, wireless/wireline converged networks and wireless networks this quarter reflected an increase in demand from three of our top five customers. Gross margin was 20.8% of revenue and increased 52 basis points compared to the second quarter of fiscal 2024. General and administrative expenses were 8.3% of revenue and all of these factors produced adjusted EBITDA of $158.3 million or 13.2% of revenue and adjusted earnings per share of $2.46. Liquidity was strong at $622 million. Now going to Slide 5. In August, subsequent to the end of our second quarter, we completed the acquisition of Black & Veatch's public carrier wireless telecommunications infrastructure business for $150 million. This business provides wireless construction services primarily in the states of New York, New Jersey, Missouri, Kansas, Colorado, Utah, Wyoming, Idaho and Montana and is our largest ever wireless services acquisition. It strategically expands our geographic presence enabling us to more broadly address growth opportunities in wireless network modernization, including Open RAN transformation initiatives and deployment services. During our third and fourth quarter of fiscal '25, we expect modest revenues as the business is currently focused on site acquisition for next year's construction program. For fiscal year '26, we anticipate this acquisition to contribute $250 million to $275 million of revenue with post-integration EBITDA margins in line with our consolidated average. Finally, while our review of acquired backlog is still preliminary, we currently expect this acquisition to add approximately $1 billion of total backlog, which we will reflect in our third quarter report. Now moving to Slide 6. Today, an increasing number of diverse industry participants are constructing or upgrading wireline networks throughout the country. These wireline networks enable the delivery of gigabit network speeds to consumers and businesses. In addition, the advent of AI data centers has sparked interest in broad new national deployments of high-capacity, low-latency, intercity networks as well as metro rings. The level of interest in intercity networks is the highest we have seen in the last 25 years. Finally, wireless networks are deploying additional spectrum bands and equipment so as to more broadly and efficiently provision higher broadband services for both fixed and mobile access. Industry participants have stated their belief that a single, high-capacity fiber network can most cost-effectively deliver services to both consumers and businesses, enabling multiple revenue streams from a single investment. Some of these same industry participants who also provide wireless services strongly believe that the ability to provision converged wireline fiber and wireless services creates significant competitive advantages. This belief is evident as some wireless providers have recently invested in new fiber providers while another wireline/wireless provider is deploying fiber networks outside its traditional geographic footprint. These views support our belief that the appetite for massive fiber deployments is irreversible. As a result, we continue to see a meaningfully broader set of opportunities for our industry. We are pleased that a number of our customers have entered into strategic transactions, including refinancings intended to provide the capital necessary for the incremental deployment of fiber to more than 9.5 million homes over the next several years. These individual transactions are currently awaiting regulatory approval, which is currently expected over the next 12 to 18 months. In addition to the incremental private capital associated with these transactions, a wide variety of programs are providing public capital to support broadband deployments. The largest of these programs, the Broadband, Equity, Access, Deployment program or BEAD includes over $40 billion for the construction of rural communications networks in unserved and underserved areas across the country. This represents an unprecedented level of support and meaningfully increases the rural market that we expect will ultimately be addressed. As of early this week, 35 states and territories have completed all 10 approval steps as required by the NTIA, while 21 others have completed 9 of the 10. To-date, approximately $22 billion or 53% of the program total has received initial proposal approval. We believe the magnitude and importance of BEAD should not be underappreciated as it addresses some of the most difficult and expensive locations to deploy in America and represents a generational deployment opportunity. For planning purposes, we currently expect to see BEAD opportunities during the third quarter of calendar year 2025. As BEAD continues to develop, we are also seeing significant deployment activity funded by other state and federal programs. Macroeconomic conditions appear stable. In addition, the market for labor has improved in many regions around the country. Automotive and equipment supply chains have normalized and prices for capital equipment have been stable since the first of the year. Within this context, we remain confident that our scale and financial strength position us well to deliver valuable service to our customers. Moving to Slide 7. During the quarter, revenue increased 15.5%. Our top five customers combined produced 54.9% of revenue, increasing 7.1% organically. Demand increased from three of our top five customers, all other customers increased 12.3% organically. AT&T was our largest customer at 17.5% of revenue or $210.2 million. AT&T grew organically 20.6%, its first quarter of organic growth since the January of 2023 quarter. Lumen was our second largest customer, 13.6% of total revenue or $163.7 million. Lumen grew organically 1%. Revenue from Comcast (NASDAQ:CMCSA) was $105.6 million or 8.8% of revenue. Comcast was Dycom's third largest customer. The customer who asked that we not identify them was our fourth largest customer at $95.8 million or 8% of revenue. This customer grew 73.2% organically. And finally, Verizon (NYSE:VZ) was our fifth largest customer at $85.3 million or 7.1% of revenue. This is the 22nd consecutive quarter where all of our other customers in aggregate, excluding the top five customers have grown organically. Of note, fiber construction revenue from electric utilities was $88.7 million in the quarter. We have extended our geographic reach and expanded our program management and network planning services. In fact, over the last several years, we believe we have meaningfully increased the long-term value of our maintenance and operations business, a trend which we believe will parallel our deployment of gigabit wireline direct and wireless/wireline converged networks as those deployments dramatically increase the amount of outside plant network that must be extended and maintained. Now going to Slide 8. Backlog at the end of the second quarter was $6.834 billion versus $6.364 billion at the end of the April 2024 quarter, an increase of $470 million. Of this backlog, approximately $3.83 billion is expected to be completed in the next 12 months. Backlog activity during the second quarter reflects solid performance as we booked new work and renewed existing work. We continue to anticipate substantial future opportunities across a broad array of our customers, including those who have recently entered into strategic transactions and partnerships. During the quarter, we received from Verizon a construction agreement in New York, for Brightspeed, a construction agreement in Ohio, Pennsylvania, New Jersey, Virginia and North Carolina, from Comcast, a nationwide maintenance and construction agreement, for AT&T, a utility line locating agreement in California and various rural fiber construction agreements in Arizona, Oklahoma, Arkansas, Alabama and North Carolina. Headcount was 15,901. Now, I will turn the call over to Drew for his financial review and outlook. Andrew DeFerrari: Thanks, Steve, and good morning, everyone. Going to Slide 9. Contract revenues were $1.203 billion and organic revenue increased 9.2%. Revenues from our recently acquired businesses were $65.9 million. Adjusted EBITDA was $158.3 million or 13.2% of contract revenues compared to $130.8 million or 12.6% in Q2 '24, an increase of 60 basis points. Gross margin improved 52 basis points to 20.8% of revenue compared to 20.3% in Q2 '24. G&A expense was 8.3% of revenue compared to 8.1% in Q2 '24. G&A this year included incremental stock-based compensation of $2.2 million related to the CEO succession transition. Non-GAAP net income was $2.46 per share compared to $2.03 per share in Q2 last year. The change in net income reflects the $27.5 million increase in adjusted EBITDA and higher gains on asset sales, offset by $8.6 million of higher depreciation and amortization, $2.4 million of higher interest expense and higher stock-based compensation and income tax expense. Going to Slide 10. Our financial position and balance sheet remained strong. Cash and equivalents were $19.6 million and liquidity was $622 million. During Q2, we amended our senior credit facility to expand term loan capacity and extend the maturity to January 2029. At the end of Q2, we had $450 million of term loan outstanding and an undrawn $650 million revolving credit facility. Additionally, we have $500 million of senior notes outstanding. Our capital allocation continues to prioritize organic growth, followed by M&A and opportunistic share repurchases within the context of our historical range of net leverage. Going to Slide 11. Cash flows used in operating activities were $7.5 million to support the sequential growth in Q2. The combined DSOs of accounts receivable and net contract assets were 117 days, an increase of seven days sequentially. Capital expenditures were $55.9 million, net of disposal proceeds and gross CapEx was $65.4 million. During Q2, we acquired a telecommunications construction contractor for $20.8 million, net of cash acquired, expanding our geographic footprint to Alaska. And this morning, we announced that the company has acquired Black & Veatch's public carrier wireless telecommunications infrastructure business for $150 million in cash during Q3. Going to Slide 12. As we look ahead to the third quarter ending October 26, 2024, we expect total contract revenues to increase mid-to-high single-digit as a percentage of contract revenues compared to $1.136 billion in Q3 '24. Included in the expectation for the current quarter is approximately $75 million of acquired revenues compared to the prior-year period that included $45.2 million of acquired revenues and $26.5 million of revenues from the impacts of a change order and the closeout of several projects. We also expect non-GAAP adjusted EBITDA percentage of contract revenues to increase 25 to 50 basis points compared to 12.9% in Q3 '24 after excluding 1.8% of incremental benefit in the Q3 '24 EBITDA margin from the impacts of a change order and closeout of several projects. The expectation of non-GAAP adjusted EBITDA excludes $5.5 million of pre-tax acquisition integration costs related to the Q3 '25 acquisition. Other expectations about the Q3 '25 outlook include $9.5 million of amortization expense, $14.3 million of stock-based compensation that includes $7.1 million of incremental expense related to the CEO succession transition, $17.5 million of net interest expense, a 26.5% non-GAAP effective income tax rate and $29.6 million diluted shares. The Q3 '25 acquisition is a carve-out from an existing business and we expect pre-tax integration costs of $5.5 million that we will disclose separately and exclude from our presentation of non-GAAP adjusted EBITDA. Other pre-tax costs related to the acquisition that are included in the company's consolidated outlook are $3.7 million of amortization expense that is included in the $9.5 million expectation and $2.4 million of interest expense that is included in the $17.5 million expectation. On a GAAP basis, the combined pre-tax integration and other costs are expected to total approximately $11.6 million or $0.29 per common share diluted on an after-tax basis. Now I will turn the call back to Steve. Steven Nielsen: Thanks, Drew. Moving to Slide 13. This quarter, we experienced solid activity and capitalized on our significant strengths. First and foremost, we maintained significant customer presence throughout our markets. We are encouraged by the increasing breadth in our business and pleased with the opportunities accompanying our acquisition from Black & Veatch. Our extensive market presence has allowed us to be at the forefront of evolving industry opportunities. Telephone companies are deploying fiber-to-the-home to enable gigabit high-speed connections. Rural electric utilities are doing the same. Dramatically increased speeds for consumers are being provisioned and consumer data usage is growing, particularly upstream. Wireless construction activity in support of newly available spectrum bands and fixed wireless access continues this year. Demand for low-latency AI data center connectivity is growing rapidly. Federal and state support for rural deployments of communications networks is dramatically increasing in scale and duration. Cable operators are increasing fiber deployments in rural America. Capacity expansion projects are underway. Customers are consolidating supply chains, creating opportunities for market share growth, and increasing the long-term value of our maintenance and operations business. We are pleased that many of our customers are committed to multi-year capital spending initiatives as our nation and industry experience more stable economic conditions. We are confident in our strategies, the prospects for our company, the capabilities of our dedicated employees and the experience of our management team. Now, operator, we will open the call for questions. Operator: Thank you. [Operator Instructions] Please stand by while we compile the Q&A roster. And our first question will come from Alex Rygiel from B. Riley Securities. Your line is open. Alex Rygiel: Good morning, Steve and Dan. And Dan, welcome to the call here. Look forward to hearing from you over the next few quarters and many years to come. Daniel Peyovich: Thank you. Alex Rygiel: Couple of quick questions here. First, Steve, your commentary on AI seemed very bullish, particularly about intercity networks. However, more recently, Dycom's opportunity has been intracity. So, can you talk about how Dycom is positioned in the intercity opportunity or are you like highlighting this sort of as the leading demand driver to intracity work? Steven Nielsen: No, I think, Alex, we have had exposure to intercity work. When the most recent industry announcements came out, I looked back and over the last several years, we placed over 2,000 miles of intercity fiber, essentially in an analogous situation to what we anticipate coming ahead. So I think we're as experienced in that market as anyone. Because we have long histories here in the subsidiaries, we worked a number of the routes that I think will anticipate some activity. And if you go back far enough, we probably built some of them. So I think that's a significant opportunity for us. I think more directly on the AI opportunity, in general, is that you've seen the announcements from Lumen and Microsoft (NASDAQ:MSFT), and Corning (NYSE:GLW), but probably as interesting is the fact that in a number of industry events, people have highlighted the importance of low-latency to AI as it moves from training to inference. And so I think that's going to create an opportunity around moving data processing or data centers to the edge of the network and as the trend of the edge takes place then I think you'll also see intracity, as you put it, our metro fiber rings also will be affected. We've had some preliminary discussions with some of the hyperscalers at a very-high level, but that seems to be the way they're thinking about the opportunity. Alex Rygiel: Very helpful. And then secondly, total backlog increased nearly $500 million sequentially in the quarter. Historically, fiscal 2Q is sort of a weaker quarter for backlog growth and generally declines from the first quarter. So, I guess the question here is, what was the catalyst to the sequential increase in backlog and are you starting to see BEAD awards build into your backlog? Steven Nielsen: So Alex, to answer your second question, there is no BEAD in the backlog. As we said in the comments, we do expect BEAD opportunities next year, so sometime midyear and beyond, but there were none in the backlog. I just think we've had a broad set of opportunities that we highlighted and some that we didn't, that it was their time and we're pleased that, with the performance in the backlog this quarter. Alex Rygiel: And just a quick follow-up on that, did you see any risk to BEAD awards given the pending presidential election? Daniel Peyovich: Yeah. It's always hard to forecast what's going to happen with the government. But if you recall, BEAD was part of the Infrastructure Act that was passed, I think, with 70 votes in the Senate on a pretty bipartisan basis. Historically, rural fiber deployments have enjoyed both, support from both parties and particularly if there is a change in control with those states that are Republican. It's interesting not only have those states been actively allocated BEAD money, but those states have also had active state programs. So I think you know there's no guarantees, but I think the support for rural fiber is both deep and as we said in our comments, irreversible at this point. Alex Rygiel: Very helpful. Thank you. Operator: Thank you. Our next question will come from Adam Thalhimer from Thompson Davis. Your line is open. Adam Thalhimer: Hey, good morning, guys. Nice quarter. Steve, congrats on your retirement. And Dan, congrats on your promotion. Adam Thalhimer: Okay. So the question I've probably gotten the most this morning is and maybe I'm reading this wrong, there's a lot of moving pieces, but it looks like organic revenue growth decelerates from, call it, 9% in Q2 to maybe half of that in Q3. And the question would be, is that analysis correct? And then if so, are there specific customers that take a step back in Q3 versus Q2? Andrew DeFerrari: Hey, Adam, it's Drew. I'll jump in here. So recall that last year in Q3, we had both acquired revenues of $45 million and then we also had the change order and a closeout of several projects that was another $26 million. So if you take that out of last year's number and then you take the expected $75 million out of this year's number, I think you'll get organic growth similar to overall growth, which is in that mid-to-high single-digit range. Steven Nielsen: Yeah, and I think I'd just add, it'd be nice if we could have a $26 million change order and closeout every third quarter, Adam, but that's why we called it out a year ago was that people would be aware of it. I think the other thing supporting our guidance for mid-to-high is it has been a wet August so far. Hopefully, things will dry out, but we wanted to make sure that we reflected that in the guidance. We have one customer that we think may be a little bit slower that's had a pretty strong first half of the year. And then and this is always hard to deal with or calculate with certainty, but we've been encouraged by the pace of BEAD approvals, the state-level approvals by NTIA, it picked up over the summer. And it may be a little bit counter-intuitive, but for some of the smaller customers that they've seen evidence that, hey, this BEAD thing is coming, these states are getting approved and so we know that within a year, there's going to be real activity on that plan, that they may have slowed a little bit going into the back half of the year. But again, hard to tell with real certainty, but it has been an impressive run of state approvals in the last, call it, six weeks. Adam Thalhimer: Okay. All that makes sense. And then wanted to ask about Black & Veatch, $1 billion backlog seems high. And I'm curious how diversified it is from a customer standpoint. And the other thing I'm curious about is their model is different than yours, right? They practically don't do any self-performed construction. So, I'm curious how you're going to change that model. Steven Nielsen: Well, first on the backlog, Adam, it comes primarily from turfing arrangements in the states that we listed in the press release as well as new site builds and it's work that we're well familiar with, with a very good customer. I think there are significant synergies as we've looked at the transaction. We've spent a lot of time and effort and money in the last several years enhancing our program and project management systems for the prosecution of wireless work. We think our folks do it well and we think that this acquisition was a great way for us to create even more value out of the investments we've made in those systems over the last several years. Adam Thalhimer: Great. I'll turn it over. Thank you. Operator: Thank you. And our next question will come from Sangita Jain from Keybanc Capital Markets. Your line is open. Sangita Jain: Yes, good morning. Thanks for taking my question. If I can ask a follow-up on the Black & Veatch acquisition, Steve, maybe from a strategic point of view, you're seeing so much growth on the wireline side. Can you tell us what made you think about making acquisition on the wireless side here? Steven Nielsen: Well, Sangita, to begin with, we're not even, we not only thought about it, but this is something that we actually surfaced and approached them. So I think this is something that is strategic to us. We've been in the wireless business now for kind of north of 12 years. We think we do a good job at it. We're careful in where we apply those efforts, but we have made significant investments. And to us, it's just a broader theme of becoming a better partner for all of our customers, particularly those that do both wireline and wireless. I mean ultimately in those customer organizations, we work for the same people. And so this was a solid enhancement to our business. And we're excited about the, not only the business we've acquired, but potential opportunities that may bring in the future. Sangita Jain: Great. And if I can ask a follow-up, the acquired revenue in your F3Q guide seems a little bit higher than what we would have expected. So I was wondering if there's a specific call-out on where the acquisition is outperforming because it seems like Black & Veatch is going to be a modest contributor the next couple of quarters? Andrew DeFerrari: This is Drew again. So on the acquisition, if you recall, last year in the third quarter, we made an acquisition as well. And so we're backing out within this year's the $75 million that includes the acquisition since the Q3 of last year as well as the two that we've done earlier this year and now the new acquisition in Q3 of this year. So it's a combination of all of those businesses in the acquired results. Steven Nielsen: Yeah. And I think Sangita, modest in our mind, it's preliminary. We're still working. We've owned the business now since August 5th. So we're still tightening down our revenue forecast, but $10 million to $15 million this quarter seems reasonable. Hopefully more. Alexander Waters: Hey, good morning, guys. Thanks so much for taking my questions. Steve, congrats on the retirement. And Dan, congratulations to you as well. Maybe just first-off here kind of going back to Alex's first question. Steve, in the past, you've noted kind of that data center opportunity has been modest to revenues. Have your thoughts evolved much more than that to what it could be a contributor for Dycom? And then maybe just secondly, some really strong growth from customer number four this quarter. I know you spoke to it a little bit in your prepared remarks, but can you discuss a little bit more about what's really driving that growth and your expectations for them going forward? Thanks. Steven Nielsen: Sure. So, Alex, with respect to data centers, as we've talked about them and at least what we had observed previously, there were clearly new data centers being constructed. In some cases, they were being constructed in areas of the country that were not closely associated with existing Internet backbone. So, there were certainly some opportunities for laterals. If you look at the announcement between Lumen and Microsoft and then the subsequent supply announcement by Corning that these are not small projects, these are projects that or routes that are measured in the thousands of miles. I mean we don't know exactly -- exact you know what's going to transpire. But if you think about Corning's announcement of having an order for 10% of their annual capacity each year for the next two years, that's a pretty sizable opportunity for us in the outside plant portion of the network. So I think what we're really seeing is essentially a nationwide opportunity for an enhancement to the intercity network, which we haven't seen for a long time. So how that stacks up against a whole bunch of other robust opportunities remains to be seen, but we think it's pretty significant. And then I think with respect to the customer you referenced and just more broadly, we were really pleased with the news flow over the last, let's call it, two to three months, in that you had a number of strategic transactions where you had new sources of capital coming in to support the deployment of new high-capacity networks. And so I think what that indicates to me is several things. So, first, if you look at our customers like number four as well as a number of others that are traditionally very significant to us, they really seem pleased with the returns to their deployment of capital to build out new high-capacity infrastructure. So we're seeing programs broaden either geographically or in duration. So we're seeing more and for longer. We talked a little bit about the federal and state support. If you think about over the last three years, that's been a phenomenal amount of capital that's been committed by both federal and state governments. We just talked about the AI opportunity. What's always interesting in this industry is just when you think you know where all the money is going to come from, there's a new source. So thinking that the hyperscalers could be active participants in providing capital to our industry is encouraging. For them, a big fiber program is, I'm sure, a significant commitment, but when you think that they in aggregate are supposedly going to spend something like $200 billion in CapEx this year, their involvement is helpful. And then if you look at the strategic announcements over the last couple of months, we've seen some M&A mergers amongst customers. We've seen joint ventures established with new deep-pocketed, very well-respected companies coming into the industry. I just think there's just a broad set of opportunities in wireline. Alexander Waters: Thank you, guys. Operator: Thank you. And our next question will come from Steven Fisher from UBS. Your line is open. Steven Fisher: Thanks. Good morning and best wishes, Steve and Dan. Maybe just to start-off with some follow-ups on Black & Veatch. Just curious what the growth rate embedded in that $250 million to $275 million of revenues is for your fiscal '26. So what's the trailing right now or what's the calendar '24 expected to be and how much of that $250 million to $275 million is in backlog? And then I guess I'm just curious on sort of the bigger picture of how you see the shape of the cyclical curve and investment for things like O-RAN and other wireless investment relative to the fiber curve? Steven Nielsen: Yeah. So, Steve, just to take your first question about the trailing revenues. I mean, we didn't buy the business that way. In wireless, there is lots of visibility when new programs are initiated down to the site level. And we use that information to create a good forecast for, let's call it, the next 30 months. So the back half of this year and the two years following. And that's really literally down to the number of sites in each one of these states. So we have good visibility. From a growth perspective, as we just indicated, we're not looking at more than $10 million to $15 million in revenue each of these last two quarters. So when you comp that next year, obviously, essentially all of the revenue that we see in the back half of next year is going to be organic out of the acquisition in the way that we calculate organic growth. So we think it's a good organic growth opportunity. We think that the construction activity as scheduled will increase beginning at the first of the year. And so we think that's a very good solid plan. In terms of the revenue forecast, that's all in backlog. I mean that $1 billion in backlog really extends through the end of calendar '27. And then, I think, in general we're just pleased to participate in this deployment of new equipment to modernize the network. I think that's a trend that we expect to continue for a while. There's clearly been one very major announcement in that space and I believe it was a several-year announcement and that's what we're going to be in support of. Steven Fisher: Okay. That's helpful. And then just maybe to follow-up on Adam's question earlier about the growth in the third quarter. I agree that it's a little slower than we would have expected and you gave some color there. I guess I'm just kind of curious about the bigger picture on organic growth here. With so much private investment and all the public funding, it seems like there should be potential for double-digit organic growth here. Should we assume that we should be kind of building on this kind of mid-to-upper single-digit growth from here? Or is there something that's still kind of restraining it when we think about the next kind of handful of quarters. Steven Nielsen: I think, Steve, what's -- we're always factoring into our outlook is that we understand the big growth drivers to the business. They're significant. We've been able to grow double-digits before. We had sizable growth, as you recall, over the last two, three fiscal years. And there's nothing structurally that would say there's a lack of opportunity that wouldn't support that kind of growth again. But there's no guarantee. This is a service business. We earn the business one day at a time. We think we're well-positioned. And it is always encouraging when we see customers announcing new initiatives, for example, to take advantage of hyperscaler capital or just new capital coming into the space to do more of what we already do. It's interesting that just the most recent announcements in the space in the last couple you know over the last six months have added over 9.5 million homes incrementally to everybody's plans over the next four or five years. So we're encouraged. Steven Fisher: Perfect. Thanks very much. Operator: Thank you. Our next question will come from Rob Palmisano from Raymond James. Your line is open. Robert Palmisano: Hey guys, this is Rob on for Frank. Steve, congratulations on your retirement. And Dan, congratulations on your new opportunity. Curious, do you expect to get a decent amount of business from the Lumen AI fiber build? How much do you guys do more generally with blowing fiber? How profitable is that business versus putting a shovel in the ground? Have you talked with these guys and do you expect to be a part of that process? Thank you. Steven Nielsen: Yeah, Rob, I guess what I can say, as I mentioned earlier, we're in process or have completed over 2,000 miles of this type of work. And so we think we understand that part of the network reasonably well or as well as anybody else. If you go back long enough, some of the intercity routes are a good portion of some of the regions of the country, we actually were part of the construction process. And so we have lots of history in that part of the network. I wouldn't ever comment specifically on an individual customer opportunity. But what I would say is that we don't see generally in any of our growth catalysts anything structural that would say that we can't achieve our current margins and hopefully do better. And as we talked about before, that's what we're all about is trying to figure out how to make those better with each incremental opportunity. Brent Thielman: Yeah, thanks. Good morning. Steve, just curious what actions you need to take at Black & Veatch just to get the margins up to the corporate average? Are there big investments you need to make there, legacy agreements, anything like that? Steven Nielsen: Yeah, Brent, I think the good news is the investments that we made in our own business to create scalability and to improve the efficiency and timeliness of service delivery all exist. Now it's a big, big organization. We're getting good cooperation from the new folks, but it's really a blocking and tackling exercise. This is a business that we understand where we have complete familiarity with the customers' administrative systems. And so, it's really just an execution and people investment, systems investment that's in place. Brent Thielman: Okay. And I guess in context to the revenue contributions you're talking about for fiscal 2026, would you also expect the margins for that business to reach that in line sort of guidance you've provided by that? Steven Nielsen: Yeah, yeah, absolutely. We'll work hard to make it better, but we see no reason based on our performance, in that providing wireless services more generally, we have confidence the team will be able to execute and deliver. Brent Thielman: Okay. And then in the context of the third-quarter outlook, Steve, and using the 12.9% EBITDA margin as the base here, I guess, I mean is there anything that's restraining your ability to expand margins faster, seems to me there's still an environment that should be in your favor in that regard. Steven Nielsen: I think as we look ahead, Brent, as we've always talked before or commented before that if we get broadly distributed growth, that's always helpful. So even inorganic growth like this acquisition, that helps us, that gives us another catalyst and another pool of revenue over which we can leverage operating costs and G&A. So we feel good about that. And as always, we'd always like to make more and we're working hard to make sure that we match our resources to the best opportunities so that we can do a really good job for the customer and, typically, if we do a good job for the customer, then we're delivering for shareholders also. Eric Luebchow: Thanks. Best of luck, Steve, in retirement. Dan, great to have you onboard. So I wanted to touch on the BEAD opportunity. You brought this up in your prepared remarks, Steve, a lot of recent states that have recently been approved for the application process. I think you mentioned kind of second half of calendar year '25 is when you think we'll see more contribution from the BEAD program, but I just wanted to get confirmation there on when do you think construction timing could be? And as you look at your current labor force, is there any incremental investment you need to make either direct labor or potential subcontractors to get ready for a bigger wave of rural builds that's coming in the next year or so? Steven Nielsen: Yeah, Eric, again, in any government program, they're all a little bit different. We'll have to see how it plays out. But there are requirements in the program that once these approvals are secured, that starts a calendar that has to be met. And so we think that this increased cadence of approvals should drive more activity, let's call it, within the next year. Of course, we've got to get through design and permitting and material and all those other things. But when this comes, it's going to be significant. And I think that's always the tension on the street, right, not to over-anticipate, but then again also don't underappreciate the significance of a program that's going to be addressing some of the most difficult and expensive passings for communications infrastructure that's ever been built. And so we're excited. I think we will see, at least I'm told from folks in DC that we use as experts that we think this cadence of approvals will continue. And then in terms of labor and subcontractors, and we've talked about this before, we have a long history in rural America. We have a broad footprint for both cable and telephone company where we provide master services agreements across broad sections of the country. And so I think we will make prudent investments, but we typically don't make speculative investments before we see the size of the opportunity. We think this one is going to be pretty big, but we want to be a little bit closer before we start pulling the trigger on increased expenditures to support it. Eric Luebchow: Yeah. No, understood. And I guess just one follow-up on the data center AI fiber conversations. It seems like a lot of these may be dark fiber IRUs or in some cases selling empty conduit in the ground. I mean, how do you view these over time? Are they more one-off project-based type of revenues or something that you think could be more reoccurring over time for these types of routes in terms of maintenance opportunity or other activity that could come after the initial builds? Steven Nielsen: Yeah. And it's early to tell, but given the ambition and the size of the orders at Corning, I think these have got to be very large network builds that substantially serve most of the country. If you look at commentary from Lumen, they not only highlighted this first a series of orders, but that there were substantial opportunities coming behind. And I am no expert in the data center side of the business, but I do recall about 18 months ago, there was like a switch that flipped and everybody who could lease data center space started leasing it. And there is some possibility that that happens in this intercity and metro intercity market as this whole move to reduce latency and increased capacity occurs. I mean, one of the things that's interesting in the Corning announcement is the size of the cables. I mean, these are massive amounts of capacity that they anticipate deploying. And I think that's a good sign that there's some legs to the trend. Eric Luebchow: Okay, Thanks, gents. Operator: Thank you. And our next question will come from Alan Mitrani from Sylvan Lake Asset Management. Your line is open. Alan Mitrani: Hi. Thank you. Just a couple of quick ones. What were the wireless revenues this quarter? Steven Nielsen: It's about 3% of revenue. So fairly small. Alan Mitrani: Okay. And were they up in line with sort of the overall revenue growth this quarter or? Steven Nielsen: No, Alan. And I think this is a broad industry trend. The business is down, call it, 10%, 12% year-over-year, but I think that's in line with other commentary as the industry gets ready for this network modernization effort. So it actually was down a little bit less this quarter than it was the prior quarter. Alan Mitrani: Okay. Thank you. And also, Drew, maybe can you update us on the CapEx guide for the year and the cadence of that in the next second half? Andrew DeFerrari: Yeah, Alan. We have not changed the outlook there. We are still anticipating the $220 million to $230 million. Alan Mitrani: Okay. And there's no issue anymore in terms of deliveries? Andrew DeFerrari: Yeah. I think I'll jump in there. As we said in our comments, Alan, as the equipment supply has normalized, that's encouraging. I mean, that's why we did spend what we did this quarter. I mean, we've had some orders that were a little bit stopped up and they freed up. And given the magnitude of the opportunities that we see, it's encouraging that when we need to get capital equipment that we'll be able to do it. Alan Mitrani: Okay. That's helpful. And then with regard to the BEAD, Steve, maybe I misheard you, but I want to understand 35 states and territories are all finished and 21 others, you said, adding up to about 56 states and territories. Is that it's 50 states and six other territories that we're talking about? Steven Nielsen: That's correct. Obviously, Alan, our primary focus is on the 50 states, not the territories, but that is the total program. Alan Mitrani: Okay. And just to understand, I mean, obviously, there's been a lot of talk about the cost of this and whether it could be done sort of by satellites a lot cheaper, people are worried. But nevertheless, I never discount the ability of the government to spend a lot of money they don't need, at least in some people's views or at least to spend it the way they've always spent it, which is through the traditional providers. If they end up spending, it just seems like there's a lot of preparatory work going. You said you think you see revenues in the third quarter of calendar '25, is that correct? Steven Nielsen: Yeah. I think we'll see impacts in the business, timing, whether it's third quarter, beginning of fourth quarter, it's too early to tie that down. But again I just want to emphasize how big this program is. And if it shows up one month or the next month, I don't think that's significant in the big scheme of things. Alan Mitrani: Right. So you guys went out, I mean this next year, let's call it, before this comes, just seems like you have a lot of things going on between the three, four acquisitions you've made over this last year counting this latest one in terms of the timing of integrating all of them and getting everything ready with all the permissions and speaking to customers, it just seems like, as you said, we're set up for a step function in the business starting at some point in the next 12 months, which once these programs get started last, I mean, in my experience, decades typically with fits and starts in between, but meaningful step-ups in the business. I know you built this business over the last, let's call it 25 to 30 years. Dan is taking over a business that in essence is already a completed business in the sense that you're operating now in all 50 states. You have scale in wireless and wireline with room to grow, obviously with different customers and different regions. You're not as concentrated as you were. So, my thought process and just question for, more for you, Steve, but also for Dan, is where do you see the next phase of Dycom going in terms of if Steve built the business and set up the table, as this next gigantic billions of dollars comes in potentially starting in the next 12, 24, 36 months, however long it lasts, how do you see Dycom playing out in the next few years? Steven Nielsen: I mean, I think, Alan, as always right, we start within a framework of strategic capital allocation, right? So we want to spend on growing the business, reinvesting the cash flows that we can create inside the business to make it bigger. We'll look at acquisitions as we have over the last year. I mean, it's interesting that if you aggregate the acquisitions over the last year, they approximate in size what we did in 2012 with the acquisitions from Quanta that have worked out well for us. So we think that these are good long-term investments in the business. And this is a business right where you're always -- your ultimate success is based on your ability to execute, which is why we've always focused on having operating people lead the company. With that, I'll turn it over to Dan. Daniel Peyovich: Yeah, Alan, what I would say is the past four years that I've almost been here now, I've worked closely with Steve and Drew. And what I can tell you is, I'm very much aligned on the strategy that they helped create a very long time ago and it's been successful for Dycom, and we see that continuing in the future. Steven Nielsen: He might, one might only say, you might say, Alan that he set up to really generate the rewards from that generation of strategy or he and Drew anyway. Alan Mitrani: The rewards are all about execution. So that's something that shareholders, we hope will work out well over the next couple of years. We know you don't control the purse strings, so it's just a question of capitalizing on doing it and best of luck to you. Operator: Thank you. And I am showing no further questions from our phone lines. I'd now like to turn the conference back over to Steven Nielsen for any closing remarks. Steven Nielsen: Well, we thank everybody for your time and attendance and interest in the company and we look forward to speaking to you again on our next quarter call. Just want everybody to note is, this year, it's the third week of November, which thankfully for everybody is the week before Thanksgiving and not the week of Thanksgiving. So we'll talk to you again then. Thank you. Operator: Thank you. This concludes today's conference call. Thank you for your participation. You may now disconnect. Everyone have a wonderful day.

Nordson Corporation (NDSN) Q3 2024 Earnings Call Transcript

Lara Mahoney - Vice President, Investor Relations and Corporate Communications Sundaram Nagarajan - President and Chief Executive Officer Daniel Hopgood - Executive Vice President and Chief Financial Officer Thank you for standing by and welcome to the Nordson Corporation Third Quarter Fiscal Year 2024 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. [Operator Instructions] Thank you. I'd now like to turn the call over to Lara Mahoney. Please begin. Lara Mahoney 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 Dan Hopgood, Executive Vice President and Chief Financial Officer. We welcome you to our conference call today, Thursday, August 22nd, to report Nordson's fiscal 2024 third quarter results. You can find both our press release as well as our webcast slide presentation that we will refer to during today's call on our website at www.nordson.com/investors. This conference call is being broadcast live on our investor website and will be available there for 30 days. There will be a telephone replay of the conference call available until Thursday, August 29th, 2024. During this conference call, we will make references to non-GAAP financial metrics. We've provided a reconciliation of these metrics to the most comparable GAAP metric in the press release issued yesterday. Before we begin, please refer to Slide 2 of our presentation, where we note that certain statements regarding our future performance that are made during this call may be forward-looking based upon Nordson's current expectations. These statements may involve a number of risks, uncertainties and other factors as discussed in the company's filings with the Securities and Exchange Commission that could cause actual results to materially differ. Moving to today's agenda on Slide 3, Naga will discuss third quarter highlights as well as yesterday's close of our Atrion Medical acquisition. He will then turn the call over to Dan to review sales and earnings performance for the total company and the three business segments. Dan will also discuss the balance sheet and cash flow. Naga then will share a high-level commentary about our end market and provide an update on the fiscal 2024 full year guidance. We will then be happy to take your questions. Good morning, everyone. Thank you for joining Nordson's fiscal 2024 third quarter conference call. Before I begin, I'm pleased with the closure of the Atrion Medical acquisition as we announced in a press release issued yesterday morning. I would like to welcome our new colleagues from Atrion into the Nordson family. Atrion's products will expand our current portfolio in medical fluid components and interventional solutions by adding a category leader in infusion fluid delivery and niche cardiovascular therapy products. Atrion expands Nordson's fluid components addressable market by more than 50% by adding products and solutions for infusion therapies and drug delivery. This also extends our current offering to top medical device customers and broadens Nordson's exposure to higher growth medical end markets with significant single use consumables with recurring revenue streams. Going forward, Atrion will be part of our Medical and Fluid Solutions segment. Now let's shift to our third quarter earnings results on Slide 5. At the outset, I would like to recognize the dedicated Nordson team who had leveraged the NBS Next growth framework to deliver strong operating results. Sales of $662 million were in line with our expectations, driven by IPS segment, which delivered strong organic growth of 4% in addition to increased sales from our ARAG acquisition. This growth was partially offset by continued softness in electronics compared to prior year, as well as lower demand impacting our medical businesses. In addition, our focus on top customers and differentiated products improved consolidated product mix. This strategic focus and a commitment to managing costs led to improvements in gross margins and top quartile EBITDA margin of over 31%. In the quarter, we delivered adjusted earnings per share of $2.41, which is up $0.08 from the midpoint of our guidance. Finally, I'd like to highlight our third quarter free cash flow of $143 million, which was 122% of net income. We continue to generate strong cash flow and execute a balanced capital deployment strategy with $39 million in dividends paid, $25 million in share repurchases and $40 million in debt reduction during the quarter. I'll speak more about the enterprise performance in 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 to everyone. On Slide number 6, you'll see third quarter fiscal 2024 sales were $662 million, up 2% from prior year third quarter sales of $649 million and in line with the midpoint of our quarterly guidance. This was driven by a 4% increase from the ARAG acquisition, partially offset by an overall organic sales decrease of 1% and unfavorable currency translation of 1%. As Naga mentioned, we saw growth in our IPS segment organic sales during the quarter, in particular our packaging and nonwovens divisions, which were offset by softness in certain electronics and medical product lines. Gross profit during the quarter remained strong at 56% of sales. Deploying our NBS Next growth framework, we're focusing on top products, driving a favorable product mix, while also continuing to improve our manufacturing efficiency. EBITDA adjusted for special items in both periods, totaled $208 million for the quarter or 31.5% of sales, slightly below the prior year by about 50 basis points, which was driven by higher selling and administrative costs, including the first-year impact of the ARAG acquisition. Looking at non-operating expenses, net interest expense increased approximately $6 million associated with higher debt levels tied to the ARAG acquisition. Other income on a net basis decreased by $2 million, primarily reflecting certain foreign exchange transactional variations compared to the prior year. Tax expense for the quarter was $32 million or an effective rate of about 21.5%, which is in line with the prior year rate and our guidance range for 2024. Net income in the quarter totaled $117 million or $2.04 per share, excluding $8 million of non-recurring costs related to the Atrion acquisition and selected restructuring charges, as well as $19 million in amortization of acquisition-related intangibles. Adjusted earnings per share for the quarter totaled $2.41, $0.08 above the midpoint of our quarterly guidance, but a 6% decrease from the prior year adjusted earnings per share of $2.55. The decrease in year-over-year earnings reflects the slightly lower operating margins and increased interest expense I just walked through. Now let's turn to Slides 7 through 9 to review the third quarter 2024 segment performance. Industrial Precision Solution sales of $371 million increased 10% compared to the prior year third quarter. The ARAG acquisition contributed 7% sales growth while organic sales were up 4% year-over-year, partially offset by unfavorable currency translation of 1%. Organic sales improved across most of our product lines with particular strength in packaging and nonwovens. It's important to note that these results continue to build upon record fiscal 2023 revenue for the IPS segment, which has now delivered organic growth in 13 of the last 15 quarters. EBITDA for the segment was $135 million in the third quarter or 36% of sales, an increase of 10% compared to the prior year EBITDA of $122 million. The increase in EBITDA was driven by the ARAG acquisition and strong contribution from our organic sales growth. It's also worth highlighting that this quarter marks 14 out of 15 consecutive quarters of EBITDA growth for the IPS segment. Turning to Slide 8, you'll see Medical and Fluid Solutions sales of $167 million, decreased 2% compared to the prior year's third quarter, driven by lower demand in our medical interventional solutions and fluid components product lines. While the biopharma portion of our fluid components product lines has stabilized, other product applications for patient care and surgical applications are adjusting to more conservative customer order entry patterns. This is despite solid underlying demand for patient procedures. These decreases were also partially offset by improved sales in our fluid solutions product lines versus last year. EBITDA for Medical and Fluid Solutions was $62 million for the quarter or 37% of sales, which was a 9% reduction to the prior year EBITDA of $68 million. The decrease was driven by lower volume and unfavorable product mix during the quarter. In spite of these recent growth headwinds, the segment has now delivered EBITDA margins greater than 35% in 14 of the last 15 quarters. Turning to Slide 9, you'll see Advanced Technology Solutions sales were $124 million, an 11% decrease compared to the prior year third quarter. The decrease includes 10% organic volume decline as well as unfavorable currency translation of 1%. The decrease in sales was driven by electronics processing and x-ray and test product lines, offset by growth in our optical sensors businesses. While we expected weakness year-over-year, segment sales increased over 8% sequentially versus Q2 and we continue to see modest improvement in order intake as the semiconductor and electronic applications we serve continue to show signs of improvement. Third quarter EBITDA was $26 million or 21% of sales, below prior year third quarter EBITDA of $33 million, which excluded special items of $2 million related to cost reduction actions in the prior year. While the reduction in EBITDA was tied to the overall decrease in volume, favorable mix and cost reduction actions contributed to achieving a 41% decremental on the lower year-over-year sales. This is well ahead of our decremental target of approximately 55%. Finally, turning to the balance sheet and cash flow on Slide 10. At the end of the third quarter, we had cash on hand of $165 million and net debt was $1.3 billion, resulting in a leverage ratio of about 1.6 times based on trailing 12 months EBITDA. Pro forma for the Atrion acquisition that we just announced, net debt will rise to about $2.2 billion and our leverage ratio will increase to approximately 2.5 times in the near-term, which remains within our targeted range. We funded the Atrion acquisition with a $500 million term loan, cash on hand and borrowings on our revolver. We plan to refinance the term loan in the public bond markets and we'll continue to use cash from operations to repay our revolver borrowings over time. After the acquisition, we still have greater than 50% availability on our revolver and greater than $600 million of liquidity available to the company, including cash on hand. Our free cash flow generation continues to be a strength at $143 million during the quarter or 122% conversion rate on net income. As we continue to strategically deploy this strong cash flow, as Naga mentioned earlier, we reduced debt by $40 million in the quarter, paid $39 million in dividends and repurchased $25 million in shares, all while continuing to fund capital and product development investments for growth. Notably, last week, we announced our 61st year of increasing our annual dividend, building upon our legacy of growing capital returns as we grow the company. All-in-all, we had a solid quarter and we're well positioned to close out the year. With that, let's turn to Slide 11, and I'll turn the call back to Naga. Sundaram Nagarajan Thanks, Dan. I also want to congratulate the Nordson team for delivering strong operating performance under a challenging demand environment in select businesses. Let's spend a few minutes talking about our end markets as we move into the fourth quarter of fiscal 2024. Starting with our Industrial Precision Solutions segment, we continue to see steadiness in industrial and consumer non-durable end markets with nonwovens starting to pick up in the third quarter. After two years of record growth, our full year guidance implies IPS, excluding ARAG, is about flat to modestly up versus prior year. ARAG sales appear to be normalizing at lower levels at this point in the agriculture cycle. In general, we feel confident about the diversification of this segment, its mix of recurring revenue and customer intimate business model. Within our Medical and Fluid Solutions segment, medical device customer supply chain teams are being far more cautious with their inventory purchases after a very unique few years. While we are starting to see lower demand in the interventional solutions and certain fluid component product lines outside of biopharma, we are confident in the long-term growth drivers in this end market, including aging of the population, rising chronic health conditions, trends toward non-invasive surgical techniques, and increased healthcare spending and procedure volumes. We have a robust pipeline of longer-term customer project activity and we are comfortable with the future outlook of this business. Near term, we expect softness in certain medical product lines, particularly in light of challenging year-over-year comparisons for medical interventional solutions product lines. Staying close to our customers, we are working our way through what has been a one-of-a-kind demand environment over the past few years. The ATS segment will benefit from increasing demand for advanced chips in support of AI, automotive electronics, onshoring, CHIPS Act, as well as the broader electronics CapEx spending cycle. We are beginning to experience a sequential and year-over-year increase in order entry in the test and inspection applications. For example, we're pleased with the momentum in our optical, CyberOptics and acoustic test and inspection product lines. Our x-ray product lines, which experienced double-digit growth in fiscal 2023, continued to deal with challenging comparisons in the fourth quarter. Electronics dispense product line applications are largely in the back end of manufacturing of advanced semiconductor chips. Demand for these products occur later in the cycle. Given the sequential improvement in revenues and order entry, we expect the ATS segment to return to growth in 2025. Turning now to our outlook on Slide 12. We enter the fourth quarter with approximately $650 million in backlog. This backlog remains concentrated in our systems businesses, while customer order entry patterns have returned to historical norms in the rest of the businesses. Based on current visibility and order entry trends, we are holding our previously issued full year base business revenue guidance in the range of flat up to 2% over record fiscal 2023. The addition of Atrion will then increase our base sales by approximately $30 million in the fiscal fourth quarter. Full year fiscal 2024 adjusted earnings per diluted share are expected to be in the range of $9.45 to $9.65 per diluted share for fiscal 2024. This is unchanged at the midpoint despite the inclusion of the slightly dilutive impact of Atrion in the fourth quarter. This full year guidance assumes a neutral impact from foreign exchange rates. Investors should keep in mind that we anniversary the acquisitive growth impact of ARAG in the fiscal fourth quarter. Even as we face challenging demand conditions in certain end markets, Nordson's core strengths remain a diversified portfolio close to the customer business model, high level of recurring revenue, NBS Next growth framework and a commitment to innovation. These core strengths enable Nordson to deliver high-quality operating performance under varying economic conditions. We're looking forward to sharing an update on our long-term growth plans, including our capital deployment strategy, at our upcoming Investor Day in New York on October 3rd. We hope to see you there and we encourage you to use the QR code in the webcast presentation to register. As always, I want to thank our customers, shareholders and the Nordson team for your continued support. Thank you. We will now begin the question-and-answer session. [Operator Instructions] Your first question comes from the line of Saree Boroditsky from Jefferies. Your line is open. Saree Boroditsky Hi. Good morning. I want to focus a little bit on the acquisition. So the margins at Atrion, they've come down rather significantly from since 2022. Could you just talk about the right margin profile for this business and the steps you're taking to get the margins to Nordson levels? Sundaram Nagarajan Thank you, Saree. The business has gone through supply chain issues and certainly have had to go through some issues, and so the margins have degraded for them in the last couple of years, as you can see in the public information. We fundamentally believe if you look at past track record of this business, their EBITDA margins are in line with Nordson-like margins. And so we're fully confident that we would be able to return the business back to those same margins over time. Saree Boroditsky Appreciate that. And then you noted that you saw year-over-year growth in some of the test and inspection products on an order basis. Could you just quantify this and then provide some additional color on what's driving this improvement and how you see that expanding into 2025? Thank you. Sundaram Nagarajan Yeah. Thank you, Saree. We see some pretty strong momentum in our optical and acoustic product lines. So optical is our CyberOptics business. What you find there is a lot of these applications are in the front end of the semiconductor manufacturing business. But also this is the business in terms of cyclicality was the first one to experience a downturn early last year, right. So you have the cycle helping us. But in addition, you have some exciting new products like our WaferSense that is used in the semiconductor processing manufacturing steps. And so you have a combination of new products, cycle and where our products are used in the semiconductor manufacturing process. So the momentum is pretty good. This business continues to have a pretty nice year-on-year growth from last year. So we're pretty excited about what we see in this business. Your next question comes from the line of Matt Summerville from D.A. Davidson. Your line is open. Canyon Hayes Good morning. You've got Canyon Hayes on for Matt Summerville today. So I just wanted to start with a quick review on implied guidance in the fourth quarter. And I was curious how your thoughts might have progressed relative to the prior quarter on IPS, ATS and MFS organic growth? Go ahead. I guess as far as our thoughts, if you look at our underlying guidance, we pretty much -- we're holding the base business. And so I would say our thoughts are things are playing. The year is playing out about as expected for the fourth quarter. But maybe you can give me a little bit more color behind your question. Canyon Hayes I apologize. I think I might have cut out there, but I think I got what I needed there. Okay. Across the broader industrial space, we've seen project activity get pushed out a little bit as a function of rates, macro, geopolitical election concerns. I'd be curious if we could get a little bit of color on how or how that is not affecting Nordson and how we should think about how that implies into the 2025? Sundaram Nagarajan Yeah. Obviously, we're not talking about 2025. So I want to make sure you know we will have a chance to talk about it in a couple of months from now. But as we think about end market conditions within the company as it stands today, it's good to remind ourselves Nordson has a very diversified portfolio, diversified in end markets, diversified in geography, diversified in systems and consumables or recurring revenues, right? So that's an important piece of the puzzle here. So if you think about segment by segment, what we see here in IPS is a business non-ARAG without our ag business. Think of that as a slight growth to flattish after two record years, 13 out of 15 quarters year-on-year organic growth, right. So I think that's an important context to remember. We see order entry to be pretty steady. And so our expectation is this part of our business remains steady. There are a couple of things that if you want to add a little bit more color to our IPS segment, our recurring revenue is pretty high here, right. It is north of 50%. And you expect when folks are sort of deferring CapEx spend, they are going to increase their recurring revenues, right. So that's one piece of it. The other piece of it is you have a couple of our businesses like the nonwovens, where we see some pretty good order entry pickup. And so that is certainly helping this business. One thing to remember is that you do have other sort of large CapEx spends around big trends looking like electric battery vehicles still activity, although the overall market is down. You have automotive electronics, fabric bonding, recapitalization of our base, reshoring, e-commerce packaging. So a number of trends that are helping us to make small wins. So these are not big home runs like we like to call them. These are singles and doubles, but that's what this segment is about. It is about working on end market applications and winning those application by application. So a steady outlook for IPS helped by recurring revenues. On ATS, we do see order entry starting to pick up. We are being cautious here. This is an end market that has been cyclical, but we are modestly seeing order entry pickup. We saw a sequential revenue growth in this segment when compared to last quarter. And so that is coming back and we talked a little bit about optical and acoustic product lines in the last answer. Our Medical and Fluid Solutions segment, what you see is a tough comparison when compared to last year where this business grew significantly. And what you also find is that customers, particularly supply chain teams of medical device customers after very unique years of pandemic, supply chain, being very cautious about their inventory levels. So we do see weakness in the order entry in this segment. Long-term, we are excited about this business. This is a business with very strong growth drivers, aging population, as I talked about in my opening remarks, aging population increased health chronic conditions, increased procedure volumes, all of that fuels makes us confident about this. And we continue to have long-term project conversations with our customers and that is very active and healthy. We also have new product development work that we are continuing to work on and hear. And finally Atrion is an exciting add to this segment. And we expect that Atrion's products increases the addressable market for this segment nicely. Your next question comes from the line of Jeffrey Hammond from KeyBanc Capital Markets. Your line is open. So I want to start with this kind of medical interventional, I guess, it's normalization or destocking, it seems like that's kind of a newer dynamic. And I'm just wondering how long you think that persists before inventories are kind of or supply chains are back to normal? Sundaram Nagarajan Yeah. As we talked about, there are two things going on here a) in our biopharma business that has stabilized, that is starting to come back. In terms of our interventional business, last year, these businesses were up 15%, 16%. And so you have -- you're dealing with some tough comps. Certainly, supply chain is something that we find our customers to be a lot more cautious today than they were a year ago. Growth drivers remain the same. So it is kind of tough to call when this changes, but the procedure volumes are up, so there is nothing going on there. We see some in-sourcing, but look these projects and products when they are given to a company, there is regulations, there are approvals, FDA approvals and all of these things that are associated with winning a project, it is very difficult for -- these businesses tend to be a lot more sticky let's put it that way. And so if you think about this, it is tough to call this when this is going to turn. We have strong -- these are small set of customers. This is not a broad thousands of customers. These are a handful of medical device customers that we have strong relationships with and we are in touch with them. We understand where things are. So I'm trying to paint the picture for you of the overall environment, but not giving you an exact answer I recognize that. Jeffrey Hammond No, that's okay. And then Atrion I just want to kind of unpack the deal impact. It seems like they did $169 million in '23. They were seeing high-single-digit growth. We only have kind of a stub quarter in the fourth quarter. But just what's kind of the next 12 months run rate of revenue we should think about? Where do we snap lines on EBITDA margins? How should we think about incremental interest, the amort add-back, D&A, et cetera? Just a little more color there. Sundaram Nagarajan So let me get -- paint some broad pictures and then Dan can take you through a little bit more detail, right. Broadly, you want to think about this as a mid-single-digit company. That's what this business is. You also want to think in terms of EBITDA margin performances, it is below their historical performance, mainly because of supply chain issues and some operational issues that they have had. We fully expect and our model recognizes and the synergies we have signed up for are based on the fact that we resolved many of these and over two years, right. Over the period of time, we have said we would achieve these synergies over a period of two years. We see a good path to achieving these synergies using NBS Next. I want to say somewhere in '26, this business gets back to Nordson-like EBITDA margins, which is what this business historical performance was. So let me give, with that sort of high level, Dan, if you want to add a little bit more color to the question Jeff has. Daniel Hopgood Yeah. And I guess what I'd say is a) there's no surprise based on their second quarter results versus what we expected to see in the business. I think it's right in line with our modeling. I think I would say as far as specific guidance for next year, give us a quarter, we've owned the business for a day. We know what we know, which is largely public information that you have access to as well. But again, nothing that we've seen surprises us. And in fact, we're very comfortable with the model that we had for the acquisition. We'll give a little more color on that as we give color to next year, next quarter. Your next question comes from the line of Mike Halloran from Baird. Your line is open. Michael Pesendorfer Hey. Good morning, everyone. This is Pesen for Mike. I want to go back to the conservative order comment from the interventional side of the business. To be clear, is this incremental to the tough comps that we're expecting in the back half of this calendar year, is this simply a cost to carry inventory discussion? And then consequently, should we be expecting destocking in the near-term and a more normal cadence as customers kind of get to that new desired level of inventory. Is that how we should be thinking about that? Sundaram Nagarajan Yeah. What I would tell you is that is what we are experiencing right now. If you think about last year, this business grew in the teens. Typically, this business grows anywhere from 6% to 8%. So growing at mid-teens, that's pretty high, right? And so what we are experiencing today in the orders is really in some adjustment to that. If you look at procedure volumes, look at our project activity, look at our product development work, we fundamentally believe that the long-term thesis of growth in this business is intact. Certainly, it is difficult to time. We see a certain amount of -- we do see some amount of slowness, right. So I want to be clear about what we're talking about. It is tough comps, but it also, we see slowness. And when -- as you think about when do we get out of this, certainly, there are some amount of device manufacturers thinking about their inventory levels and adjusting them to reasonable levels. Could that be an impact from interest rates? It's difficult for me to guess any of that. But I would say we do see a conservative, cautious order pattern from our medical device customers. Michael Pesendorfer Understood. That's helpful, Naga. And then maybe if we could stay on MFS a little bit. I think I may have missed it earlier on the call. Could you help me on the fluid components side? And then on EFD? Could you help me out a little bit on the trends there? Sundaram Nagarajan Sure. EFD is doing well. Order entries are returning. We do see, I think we commented maybe a couple of quarters ago that this was one of those businesses where we're seeing early indicators of electronics customers starting to order more. This business is -- the order entry in this business is pretty encouraging and a lot of the work that they're doing in Asia-based electronic customers is pretty encouraging. [Operator Instructions] Your next question comes from the line of Andrew Buscaglia from BNP Paribas. Your line is open. Edward Magi Good morning, guys. This is Ed on for Andrew. Thanks for taking my questions. In the prepared remarks, you mentioned the mix of cash and debt to finance the deal, which puts you about 2 times to 2.5 times leverage closing 2024. With the strong free cash flow profile, leverage manageable, can you refresh us on how you're thinking about M&A? And more specifically, what remains in the pipeline? Thanks. Sundaram Nagarajan Let me start first and then Dan will sort of take over for a couple of other comments around capital deployment. Look, our commitment to organic growth and having a balanced acquisition-led growth remains the same. There's no change there. Our strategic and financial criteria for acquisition remain the same. We feel strongly about how we have been able to be disciplined around the strategic criteria for what acquisitions we're adding to the portfolio and pretty disciplined around the financial rigor on what we need to do with a particular acquisition that will allow us to deliver the returns we target. So our pipeline remains this you know remains pretty healthy. And we are open to many different types of deals and you've seen that over the past year and we continue to work the pipeline. Let me have Dan talk to you a little bit about leverage and capital deployment. Daniel Hopgood Yeah. Maybe just to add a couple of points. Our stated target has been 2 times to 2.5 times leverage long-term. And obviously with just completing the acquisition for Atrion, we'll be at the higher end of that, but that will be temporary. And maybe the best example to give you is we saw a similar thing happened last year when we acquired ARAG. And then as of the end of this quarter, we're back down to 1.6 times leverage. So we've got, obviously, plenty of capacity. And with our cash flow profile, as you point out, we can quickly delever. And as Naga mentioned, we have an active pipeline. And when the right deal comes along, we'll be ready to move forward. Edward Magi Great to hear. And then, Dan, back to you for this one. You've been CFO for about a quarter now. You come to a company which is at great progress and margin expansion. From your initial assessments, what areas are you seeing in the business as opportunities for further improvement from here? Daniel Hopgood I appreciate the question. I guess I'll say this and Naga and I spend a lot of time on our best opportunity as a company is continuing to grow organically, which is our major focus, right? Our margins are very healthy. Our cash flow is very healthy. Squeezing margins is not the best use of our time. Our time is better spent figuring out how to continue to grow the company organically and inorganically. Your next question comes from the line of Walter Liptak from Seaport Research Partners. Your line is open. Good quarter. Good morning. I want to ask kind of a follow-on to the IPS segment question and get some color around the stable sort of low-single-digit outlook for IPS. And I guess what I'm trying to get to is that we have seen other similar industrial companies kind of pauses in their industrial goods businesses, especially longer term kind of project businesses. So I wonder if you could provide just some more color around geographic regions, China, Europe versus North America. And you called out some growth areas, and I wonder how much of the focus from NBS Next helps you to gain market share in some of those growing markets as opposed to maybe some others that might be weaker. Sundaram Nagarajan Yeah. Let's maybe give you some you know a little bit color into a couple of the divisions and where we're thinking. First and foremost, this is year four of NBS Next. Clearly, within our businesses, and IPS being one of those businesses, which where we first implemented and a couple of other MFS businesses to be implemented next. What you find here is, we operate in a diversified set of end market niches. And in some of these cases, particularly in IPS, what you find is certain end markets are have high demand or growing and having investments at a particular time. But over six quarters or 12 quarters, what you find is another end market application getting more demand and becoming more important for the growth of the business. So for each of our division leaders, understanding each of these end markets, end market niches and being agile and entrepreneurial in shifting resources from one end market to another to another is a great way for us to continue to participate in markets that are growing and the resource, for a period of time, markets that are not growing, right. So it is a dynamic set of end market niches that the teams are operating in. NBS Next allows them to be able to have clarity around those applications and be able to shift one to another. So that is, that certainly helps us, that allows us to have the steady performance, which you see on the outside. But within the company, within the divisions, you do see some markets doing well, others not doing so well. So that's one sort of dynamic that we've you know that's important to recognize. The second is, certainly, there are certain end markets like plastic processing, for example. We've had an incredible run for the last 2, maybe 2.5 years. And might you expect some modest pullback on those. Yes, there is a possibility. But overall, we are very pleased with how our teams are using NBS Next how -- because we constantly talk within the company the best opportunity for Nordson for our businesses is growth. And understanding your best customers, understanding your best market opportunities, deploying your differentiated products to those, that's the ticket to win. And so really these market conditions are dynamic and different, but I fundamentally believe our effective Ascend strategy with NBS Next and own a mindset, division-led structure that allows our teams to be entrepreneurial, certainly helps. The core strength of the company still remains the same, diversified end markets, systems and high-recurring revenues, close to the customer model, playing with differentiated products. All of these core strengths is what makes Nordson successful. I am incredibly proud of our team because at varying economic demand conditions, our team consistently over the last three years have delivered 30% plus EBITDA margins. And that is not same for everybody. In some cases, we've had to adjust costs. In some cases, we had to invest ahead of the curve. I think that kind of goes to speak to our Ascend strategy and NBS Next growth framework. Walter Liptak Okay. Great. Yeah, no doubt, the margin improvement has been there and it's good to see you're getting some, you're able to shift around to these different markets. Okay. Yeah, I guess maybe just to see if we can get some geographic thoughts, how you're seeing some of the Asian markets or Europe. I wonder if we can get any comments there. Sundaram Nagarajan If you think about different regions, still the US based markets have been the best and have been the strongest. If you near-term look at our businesses in Asia specific, particularly, they are benefiting from what we see in our electronics business. Our electronic businesses are coming back and so you see our Asia-Pac markets are recovering nicely. China is also doing well, but you also have some of our nonwoven customers, our OEM customers in China have been a source of strength for our businesses. So Europe is still in -- our organic growth there is a little weaker than our own -- but you have OEM customers there. Our parts revenues are pretty good, our system revenues a little bit. You also see in Europe is our ARAG impact is also -- because Europe ARAG is mostly a European business. Your next question comes from the line of Chris Dankert from Loop Capital Markets. Your line is open. Christopher Dankert Hey. Morning, guys. Thanks for taking the questions. I guess first, I guess, first off, if we could kind of look at backlog a little bit more. Can you just maybe give us some comments on how you see the complexion there, how the systems are kind of normalizing as a part of that mix? Would you agree there's still about $100 million or so left of kind of elevated backlog versus normal? Maybe just some commentary around how you see that piece of the business and then how that's progressing. Sundaram Nagarajan Yeah. If you think about our backlog, it's important to level set where the business was historically, right. Historically, it was around $400 million, $450 million. Of course, in this incredible period of time, the business has grown. So the scale at which we would expect a normalized or historically normalized backlog is different, right? But the other thing that has also changed is customer order patterns are different. In one example I would give you, in our medical businesses in the past, we used to get large blanket orders that go into our backlog. Well, that doesn't happen anymore. Our delivery performance has significantly improved. And so we certainly have customers starting to have an expectation that we can ship things much faster than we have ever in our history. So a couple of different dynamics. What we do see in our $640 million, $650 million backlog is, it is still weighted to our system businesses. But if you think about our regular businesses, which are book and ship type businesses, they've all returned to normal order entry, normal backlogs now for several quarters. So this is nothing new for us. We continue to, as our backlog comes down, it is really our system business backlog coming down. Christopher Dankert Got it. That's helpful color. Thank you, Naga. And then maybe just quickly on ARAG, forgive me if I missed it. Again, obviously, a little bit more weakness in that end market from a sales perspective. But just curious how you are seeing the margin performance in that business, how is the team handling the lower volumes? Any color would be great. Sundaram Nagarajan Yeah, the margin performance has been really good. The company is performing at Nordson-like EBITDA margin levels. And so we couldn't be more pleased with the team. I think we are focused on making sure we reinforce the things that we liked about the business and we like the technology. We like the market presence in Europe. We like the precision ag components that we are delivering to some of our largest customers. So it is really important, even in this downturn, staying focused on new product development, staying focused on customers that are going to generate the demand as the cycle comes back is where we are focused on. Most of the integration is pretty much done. We really like the team. The team is doing a wonderful. They're getting to know NBS Next. They're starting to have an enthusiasm on implementing it in their businesses. And we, as a company, are learning to operate in Italy, right. And it is a new geography for us, but we've been in Europe for a long time. We've been in Europe for decades in Germany and in UK. So this is adding a new country to our mix of businesses. So overall, integration going well, love the technology, great people. They are integrating well into the company, learning NBS Next, getting in our cadence of operations. So it's an exciting time. The market is not helping us. But I think that is temporary in my opinion. It will take time to come back. But we are prepared and we are focused on things that we need to be focused on and not letting distracted from a technology development perspective. That concludes our question-and-answer session. I will now turn the call back over to Naga for closing remarks. Sundaram Nagarajan Thank you for your time and attention on today's call. The long-term profitable growth strategy that fuels our total shareholder value remains strong. We look forward to seeing you in person at our New York Investor Day on October 3rd, 2024. Have a great day. This concludes today's conference call. Thank you for your participation. You may now disconnect.