NORDSON CORP 10-Q

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The following is management's discussion and analysis of certain significant factors affecting our financial condition and results of operations for the periods included in the accompanying condensed consolidated financial statements. Overview Nordson is an innovative precision technology company that leverages a scalable growth framework to deliver top tier growth with leading margins and returns. We engineer, manufacture and market differentiated products and systems used for precision dispensing, applying and controlling of adhesives, coatings, polymers, sealants, biomaterials, and other fluids, to test and inspect for quality, and to treat and cure surfaces and various medical products such as: catheters, cannulas, medical balloons and medical tubing. These products are supported with extensive application expertise and direct global sales and service. We serve a wide variety of consumer non-durable, consumer durable and technology end markets including packaging, electronics, medical, appliances, energy, transportation, precision agriculture, building and construction, and general product assembly and finishing. Our strategy for long-term growth is based on solving customers’ needs globally. We were incorporated in the State of Ohio in 1954 and are headquartered in Westlake, Ohio. Our products are marketed through a network of direct operations in more than 35 countries. We have approximately 7,900 employees worldwide. Our principal manufacturing facilities are located in the United States, the People’s Republic of China, Germany, Ireland, Israel, Italy, Mexico, the Netherlands and the United Kingdom. Critical Accounting Policies and Estimates A comprehensive discussion of the Company’s critical accounting policies and management estimates and significant accounting policies followed in the preparation of the financial statements is included in Item 7 of our Annual Report on Form 10-K for the year ended October 31, 2023 (the "2023 Form 10-K"). There have been no significant changes in critical accounting policies, management estimates or accounting policies followed since the year ended October 31, 2023. Results of Operations Three months ended January 31, 2024 Worldwide sales for the three months ended January 31, 2024, were $633,193, an increase of 3.7% from sales of $610,477 for the comparable period of 2023. The increase was driven by a 5.4% increase due to an acquisition and a favorable effect from currency translation of 0.5%. Organic sales decreased 2.2% driven by ongoing pressure in electronics product lines, partially offset by growth in medical interventional, industrial and polymer processing product lines. In the Americas region, sales were $274,012 for the three months ended January 31, 2024, an increase of 3.4% from the comparable period of 2023, consisting of an organic sales decrease of 0.3%, an increase due to an acquisition of 3.1%, and favorable currency effects of 0.6%. In the Asia Pacific region, sales were $179,871, a decrease of 1.5% from the comparable period of 2023, consisting of an organic sales decrease of 0.5% and unfavorable currency effects of 1.7%, partially offset by a 0.7% increase due to an acquisition. In Europe, sales were $179,310, an increase of 10.0% from the comparable period of 2023, consisting of an organic sales decrease of 7.0%, favorable currency effects of 2.8%, and a 14.2% increase due to an acquisition. Cost of sales for the three months ended January 31, 2024 were $284,766, up from $281,610 in the comparable period of 2023. Gross profit, expressed as a percentage of sales, increased to 55.0% from 53.9% in the comparable period of 2023. The increase was primarily driven by improved manufacturing efficiencies and favorable mix. Selling and administrative expenses for the three months ended January 31, 2024 were $188,992, up from $184,648 in the comparable period of 2023. The 2.4% increase was primarily driven by the first-year effect of an acquisition and related acquisition costs, partially offset by lower base business costs. Operating profit increased to $159,435 for the three months ended January 31, 2024, compared to $144,219 in the comparable period of 2023. Operating profit as a percentage of sales increased to 25.2% f or the three months ended January 31, 2024, compared to 23.6% in the comparable period of 2023 . The 1.6 percentage-point increase in operating margin was primarily driven by the gross margin improvement . Interest expense for the three months ended January 31, 2024 was $21,442, compared to $10,530 in the comparable period of 2023. The increase, compared to the prior year period, was primarily due to higher average debt levels, driven by acquisitions. Other expense was $338 compared to expense of $3,196 in the comparable period of 2023. Included in 2024 other expense were pension and postretirement income of $1,025 and $822 of foreign currency losses. Included in 2023 other expense were pension and postretirement income of $1,369 and $4,571 in foreign currency losses. Page 21 Table of Contents Nordson Corporation Net income for the three months ended January 31, 2024 was $109,572, or $1.90 per diluted share, compared to $104,261, or $1.81 per diluted share, in the same period of 2023. This represents a 5.1% increase in net income, and a 5.0% increase in diluted earnings per share. The increase in income was driven by higher operating profit, partially offset by increased interest expense. Industrial Precision Solutions Sales of the Industrial Precision Solutions segment were $354,547 in the three months ended January 31, 2024, an increase of 13.8% from sales of $311,546 for the comparable period of 2023. The increase consisted of an acquisition impact of 10.6%, an organic sales increase of 2.3%, and a favorable currency effect of 0.9%. The organic sales increase was driven primarily by industrial coatings, polymer processing and non-wovens product lines. Operating profit as a percentage of sales decreased to 30.6% for the three months ended January 31, 2024 compared to 32.8% in the comparable period of 2023 . The 2.2 percentage point decline in operating margin was primarily due to higher intangible asset amortization expense of $5,923 related to the ARAG acquisition. Medical and Fluid Solutions Sales of the Medical and Fluid Solutions segment were $159,526 in the three months ended January 31, 2024, an increase of 3.4% from sales of $154,287 for the comparable period of 2023. The increase consisted of an organic sales increase of 3.1%, driven by growth in the medical interventional solutions product lines, and a favorable currency effect of 0.3%. Operating profit as a percentage of sales increased to 28.9% for the three months ended January 31, 2024 compared to 25.5% in the comparable period of 2023 . T he 3.4 percentage point improvement in operating margin was primarily due to improved factory efficiencies and favorable product mix. Advanced Technology Solutions Sales of the Advanced Technology Solutions segment were $119,120 in the three months ended January 31, 2024, a decrease of 17.6% from sales of $144,644 for the comparable period of 2023. The decrease was entirely organic as the effects of currency were immaterial. The organic sales decrease was driven by weakness across the segment, primarily electronics dispense products serving semiconductor end markets. Operating profit as a percentage of sales increased to 16.0% for the three months ended January 31, 2024 compared to 11.7% in the comparable period of 2023 . T he increase in operating margin was primarily due to fees, severance, and non-cash inventory charges of $10,295 recorded in the prior year associated with the CyberOptics acquisition . Income taxes We record our interim provision for income taxes based on our estimated annual effective tax rate, as well as certain items discrete to the current period. Significant judgment is involved regarding the application of global income tax laws and regulations and when projecting the jurisdictional mix of income. We have considered several factors in determining the probability of realizing deferred income tax assets which include forecasted operating earnings, available tax planning strategies and the time period over which the temporary differences will reverse. We review our tax positions on a regular basis and adjust the balances as new information becomes available. The effective tax rate for the three months ended January 31, 2024 was 21.0% compared to 20.5% for the three months ended January 31, 2023. Foreign Currency Effects In the aggregate, average exchange rates for 2024 used to translate international sales and operating results into U.S. dollars were generally favorable compared with average exchange rates existing during 2023. It is not possible to precisely measure the impact on operating results arising from foreign currency exchange rate changes, because of changes in selling prices, sales volume, product mix and cost structure in each country in which we operate. However, if transactions for the three months ended January 31, 2024 were translated at exchange rates in effect during the same period of 2023, we estimated that sales would have been approximately $4,000 lower while costs of sales and selling and administrative expenses would have been approximately $3,000 lower. Page 22 Table of Contents Nordson Corporation Financial Condition Liquidity and Capital Resources During the three months ended January 31, 2024, cash and cash equivalents increased $20,522. Cash provided by operations during this period was $172,356 compared to $123,337 for the three months ended January 31, 2023. The primary sources were net income adjusted for non-cash income and expenses, which was $149,668, compared to $136,919 for the three months ended January 31, 2023. Changes in operating assets and liabilities increased cash by $14,614 in the three months ended January 31, 2024 and decreased cash by $58,371 in the comparable period of 2023, driven primarily by improvements in accounts receivable and inventory. Cash used in investing activities was $5,725 for the three months ended January 31, 2024, compared to $387,136 used in the comparable period of 2023. During the three months ended January 31, 2024, cash of $7,530 was used for capital expenditures. During the three months ended January 31, 2023, cash of $377,843 was used for the CyberOptics acquisition and $9,302 was used for capital expenditures. Cash used in financing activities was $140,491 for the three months ended January 31, 2024, compared to cash provided of $215,693 in the comparable period of 2023. In the three months ended January 31, 2024, cash of $38,855 was used for dividend payments and cash of $7,371 was used for the purchase of treasury shares, versus $37,199 and $6,875, respectively, in the comparable period of 2023. The three months ended January 31, 2024 included net repayments of long-term debt of $107,195, compared to net borrowings of $252,278 during the three months ended January 31, 2023 . The following is a summary of significant changes by balance sheet caption from October 31, 2023 to January 31, 2024. Receivables-net decreased $53,184 , primarily due to payments from customers, and goodwill increased by $20,885, principally due to currency translation. The Company is well-positioned to manage liquidity needs that arise from working capital requirements, capital expenditures, and contributions related to pension and postretirement obligations, as well as principal and interest payments on our outstanding debt. Primary sources of capital to meet these needs, as well as other opportunistic investments, are a combination of cash provided by operations and borrowings under our loan agreements. Cash from operations, which when combined with our available borrowing capacity and ready access to capital markets, is expected to be more than adequate to fund our liquidity needs over the twelve months and the foreseeable future thereafter. The Company believes it has the ability to generate and obtain adequate amounts of cash to meet its long-term needs for cash. We were in compliance with all debt covenants as of January 31, 2024. Refer to our Long-term debt in the notes to our condensed consolidated financial statements for additional details regarding our debt outstanding and Term Facility. Safe Harbor Statements Under the Private Securities Litigation Reform Act of 1995 This Quarterly Report on Form 10-Q, particularly “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” contains forward-looking statements within the meaning of the Securities Act of 1933, as amended, the Securities Exchange Act of 1934, as amended, and the Private Securities Litigation Reform Act of 1995. Such statements relate to, among other things, income, earnings, cash flows, changes in operations, operating improvements, businesses in which we operate and the United States and global economies. Statements in this Quarterly Report on Form 10-Q that are not historical are hereby identified as “forward-looking statements” and may be indicated by words or phrases such as “anticipates,” “supports,” “plans,” “projects,” “expects,” “believes,” “should,” “would,” “could,” “hope,” “forecast,” “management is of the opinion,” use of the future tense and similar words or phrases. These forward-looking statements reflect management’s current expectations and involve a number of risks and uncertainties. These risks and uncertainties include, but are not limited to, U.S. and international economic conditions; financial and market conditions; currency exchange rates and devaluations; possible acquisitions including the Company’s ability to complete and successfully integrate acquisitions, including the integration of ARAG Group and CyberOptics; the Company’s ability to successfully divest or dispose of businesses that are deemed not to fit with its strategic plan; the effects of changes in U.S. trade policy and trade agreements; the effects of changes in tax law; and the possible effects of events beyond our control, such as political unrest, including the conflicts in Europe and the Middle East, acts of terror, natural disasters and pandemics. In light of these risks and uncertainties, actual events and results may vary significantly from those included in or contemplated or implied by such forward-looking statements. Readers are cautioned not to place undue reliance on such forward-looking statements. These forward-looking statements speak only as of the date made. We undertake no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise, except as required by law. Factors that could cause actual results to differ materially from the expected results are discussed in Part I, Item 1A, Risk Factors in our 2023 Form 10-K. Page 23 Table of Contents Nordson Corporation