Ladies and gentlemen, good morning. My name is Abby, and I will be your conference operator today. At this time, I would like to welcome everyone to the Nordson Corporation First Quarter Fiscal 2023 Conference Call. Thank you. And I will now turn the conference over to Lara Mahoney. You may begin.

Thank you. Good morning. This is Lara Mahoney, Vice President of Investor Relations and Corporate Communications. I'm here with Sundaram Nagarajan, our President and CEO; and Joseph Kelley, Executive Vice President and CFO. We welcome you to our conference call today, Tuesday, February 21, to report Nordson's fiscal 2023 first quarter results. You can find both our press release as well as our webcast slide presentation that we will refer to during today's call on our website at www.nordson.com/investors. This conference call is being broadcast live on our investor website and will be available there for 14 days. There will be a telephone replay of the conference call available until Tuesday, February 28, 2023. During this conference call, references to non-GAAP financial metrics will be made. A reconciliation of these metrics to the most comparable GAAP metric was provided in the press release issued yesterday. Before we begin, please refer to Slide 2 of our presentation, where we note that certain statements regarding our future performance that are made during this call may be forward-looking based upon Nordson's current expectations. These statements may involve a number of risks, uncertainties and other factors as discussed in the company's filings with Securities and Exchange Commission that could cause actual results to differ. Moving to today's agenda on Slide 3, Naga will discuss the first quarter highlights. He will then turn the call over to Joe to review sales and earnings performance for the total company and the three business segments. Joe will also discuss the balance sheet and cash flow. Naga will then share a high-level commentary about our earnings performance. He will conclude with an update on the fiscal 2023 full year and second quarter guidance. We will then be happy to take your questions. With that, I'll turn to Slide 4 and hand the call over to Naga.

Good morning, everyone. Thank you for joining Nordson's fiscal 2023 first quarter conference call. I want to thank our team for delivering another strong first quarter performance. There were a lot of bright spots in this quarter. To begin, it was the first quarter of contribution from our CyberOptics acquisition. The integration of the business is going well, and we are pleased with the energy and engagement of our CyberOptics team. Test and inspection is a long-term growth focus for Nordson, and we are very excited about the differentiated optical precision technology that CyberOptics adds to our portfolio. Next, we had a solid regional performance in the Americas and Europe, which collectively delivered 9% organic growth. This was partially offset by declines in Asia Pacific, which saw weakness in China relating not only to the Lunar New Year shutdown but also labor shortages due to the unfortunate spread of COVID-19 in the region. Once again, the diversification of our business and our steadfast dedication to the needs of our customers ensures we deliver results. Finally, I remain pleased by the ongoing deployment of the NBS Next growth framework. Each division is gaining momentum towards achieving top-tier growth, quality, and on-time delivery performance. In this dynamic environment, NBS Next ensures we are focused on our greatest opportunities for profitable growth and it also clarifies where we can simplify so we can better focus resources on those opportunities. In a few moments, I will speak more about the business and what we are seeing in our end markets, but first, I'll turn the call over to Joe to provide a detailed perspective on our financial results for the quarter.

Thank you, Naga, and good morning to everyone. On Slide number 5, you'll see first quarter fiscal 2023 sales were $610 million, comparable to the prior year's first quarter sales of $609 million. The increase was primarily related to 1% organic growth plus the CyberOptics acquisition, offset by unfavorable currency impact of 4%. The organic growth, as Naga referenced, was driven by strong demand in Europe and the Americas, offset by weakness in Asia Pacific, primarily China. Gross profit for the first quarter of fiscal 2023 totaled $329 million. Excluding the amortization of acquired inventory step-up, gross profit totaled $333 million or 55% of sales, a 3% or 150 basis point decrease compared to the $342 million or 56% of sales in the prior year first quarter. The team continues to actively manage the price/cost dynamic in these inflationary periods in addition to unfavorable currency impacts. Similar to the fourth quarter of 2022, the impact of passing along the significant year-over-year cost inflation while slightly positive in gross profit dollars squeeze margins approximately 100 basis points. Additionally, the sales mix in the quarter was slightly unfavorable, with biopharma, fluid dispense, and product assembly in Asia being down, offset by growth in plastics processing and medical interventional solutions. On a sequential basis, comparing first quarter to fourth quarter 2022, adjusted gross margins improved approximately 150 basis points. Operating profit totaled $144 million in the quarter. During the quarter, we reported one-time transaction fees, inventory step-up, and other nonrecurring items associated with the CyberOptics acquisition totaling $10 million. Adjusted operating profit excluding these nonrecurring items was $155 million in the quarter or 25% of sales, 2% below the prior year adjusted operating profit of $157 million. Foreign currency translation negatively impacted operating profit by 6%, offset by 4% constant currency operating profit growth. EBITDA for the first quarter was $181 million or 30% of sales, which is in line with our long-term target profitability level and comparable to the prior year first quarter. Looking at non-operating expenses, interest expense increased by $5 million associated with higher borrowings and interest rates. Other net expense increased by $4 million related to higher foreign exchange losses and increased hedge costs, partially offset by lower non-operating pension costs. Tax expense was $27 million for an effective tax rate of 20.5% in the quarter, which is in line with the prior year first quarter rate and the forecasted full year rate for 2023. Net income in the quarter totaled $104 million or $1.81 per share. Adjusted earnings per share, excluding non-recurring acquisition cost, totaled $1.95 per share, a 6% decrease from the prior year. The decrease is primarily driven by unfavorable currency changes. Now let's turn to Slides 6 through 8 to review the first quarter 2023 segment performance. Industrial Precision Solutions sales of $312 million decreased 4% compared to the prior year first quarter due to unfavorable currency impacts of 5%. The organic growth of 1% was driven by steady demand across most product lines and regions, offset by softness in Asia Pacific, particularly product assembly in China due to the timing of Chinese New Year and labor shortages from the spread of COVID-19. Operating profit in the quarter was $102 million or 33% of sales, which is a decrease of 1% compared to the prior year adjusted operating profit of $104 million. Unfavorable currency negatively impacted operating profit year-over-year by 6%. IPS remains our most globally diverse segment and therefore, most exposed to currency translation changes. Looking on a constant currency basis and organic only, this segment has now delivered quarterly sales and operating profit growth in 8 out of the last 9 quarters, highlighting the strength of the business, the team, and the execution of the Ascend strategy. Medical and Fluid Solutions sales of $154 million decreased 3% compared to the prior year's first quarter. This change included a decrease in organic sales of 1% and a 2% decrease related to unfavorable currency impacts. The 1% organic decrease was driven by significant softness in the medical fluid components serving the biopharma market and fluid solutions product lines in China, offset by strong demand for medical interventional solutions product lines, primarily in the Americas and Europe. First quarter operating profit was $39 million or 26% of sales, which is a decrease of $10 million compared to the prior year operating profit of $49 million. The decrease in operating profit was driven by meaningful sales mix changes within the medical product lines and related individual factory inefficiency due to reduced volumes. Turning to Slide 8, Advanced Technology Solutions sales were $145 million, a 14% increase compared to the prior year first quarter. Organic sales growth in the quarter was 5% plus another 14% from the CyberOptics acquisition. This was offset by an unfavorable currency impact of 4%. The organic growth was particularly strong in the Americas region and was driven by the Test and Inspection acoustic product line, which continues to benefit from new product innovation. First quarter adjusted operating profit, excluding the inventory step-up and acquisition transaction expenses, was $27 million or 19% of sales, which was comparable to the prior year's first quarter operating profit. Organic operating profit growth of 3% plus the acquisition benefit was offset by a 5% unfavorable currency impact. Finally, turning to the balance sheet and cash flow on Slide 9, our first quarter balance sheet includes cash of $122 million and net debt was $894 million, resulting in a 1.1x leverage ratio based on the trailing 12 months EBITDA. We continue to have significant available borrowing capacity to pursue organic and inorganic opportunities inclusive of the borrowing that we incurred to fund the CyberOptics acquisition in November. Free cash flow in the quarter was $114 million or a conversion rate of net income of 109%, an $8 million improvement over the prior year first quarter free cash flow. Dividend payments were $37 million, reflective of the 27% increase in the annual dividend approved last year. During the quarter, we did not repurchase any shares under our 10b5-1 plan. For modeling purposes, in fiscal 2023, assume an estimated effective tax rate of 20% to 22%, and capital expenditures of approximately $50 million to $55 million. We will now turn to Slide 10, and I will turn the call back to Naga.

Thanks, Joe. I want to thank our teams for continuing to respond to the needs of our customers and deliver the strong first quarter performance. I'm very thankful that our operations in China are returning to normal as employees have returned to work following the spread of COVID-19 in the region. We will always prioritize the health and safety of our employees, and we are so glad that they are well. Throughout the first quarter, I had many opportunities to engage with our employees and travel to sites in North America and Europe. I'm very pleased with the ongoing deployment of NBS Next, which continues to help us prioritize our greatest opportunities for profitable growth. In this dynamic environment, the accelerated deployment of this growth framework will guide our decisions on where to focus and where to simplify. Going into fiscal 2023, we knew we would be dealing with a dynamic environment as we have limited visibility into the full year. Turning to Slide 11, I'd like to spend a few minutes sharing what we are now seeing in our end markets. In the Industrial Precision Solutions segment, we are seeing increasing demand in automotive and steady demand in industrials and consumer nondurable product lines. Packaging and product assembly end markets continue to perform well in the Americas and Europe, and there is softness in China. Within the Advanced Technology Solutions segment, we have started to see a softening of semiconductor orders over the past 45 days. Electronics is known for being a cyclical end market, and we benefited from the boom in investments over the past two years. Now our customers are starting to reevaluate near-term capital spending, which is having an impact on orders for electronic dispense product lines. In some cases, it's been a matter of pushing out system orders into the second half. We will continue to monitor this closely. We're also seeing weakness in optical Test and Inspection product lines relating to the memory end market. Our remaining Test and Inspection order rate remains strong and is somewhat offsetting the areas of weakness in the segment. C&I is benefiting from new product innovation such as our new acoustic system that drove growth in the first quarter. The strategy to diversify our APS product offering in terms of technology and application is muting the historical volatility of the company's overall electronics exposure. Turning to the Medical and Fluid Solutions segment, we are experiencing double-digit growth in our Interventional Solutions product lines. This is a business that was pressured during the pause in elective surgeries during the pandemic, and now these product lines are returning to high single-digit growth levels. Orders for balloons, cannulas, and catheters are a big part of our backlog. Elsewhere in the MFS segment, we're seeing continued weakness in our medical fluid components product lines. Over the past two years, we benefited from strong double-digit organic growth in this division. This was driven by demand from biopharma customers which partially benefited from the COVID vaccines and then from inventory rebuilding to compensate for supply chain concerns following the pandemic. Now we believe there is inventory destocking at large customers for these product lines. Over the medium to long term, revenue growth rates for these product lines remain strong, driven by secular growth drivers such as single-use components in biopharma applications. Finally, in our MFS Fluid Solutions product lines, we are seeing some weakening in injection molded product lines relating to construction as well as electronics applications in China. Considering the combination of end market headwinds and tailwinds, current order entry and the pushout of delivery dates, we are updating our previously provided 2023 revenue guidance to 0% to 3% growth over fiscal 2022 and adjusted earnings in the range of $8.75 to $9.50. I remind investors, while we are seeing some changes in order patterns, our guidance reflects sustaining our record-level 2022 performance, which is a testament to our dedicated employees, the diversification of our business, and the solid execution of the Ascend strategy. Looking specifically at the second quarter 2023 on Slide 13, we are forecasting second quarter fiscal 2023 sales to be comparable to the prior year second quarter as acquisition benefits are largely offset by currency headwinds. Second quarter earnings are forecasted in the range of $2 to $2.15 per share reflective of the anticipated sales mix, which is comparable to the first quarter of 2023, while we remain financially prudent in this environment. We are adopting a balanced approach and will remain invested in innovation, and differentiated service experience for our customers in strong core businesses. We will also continue to accelerate strategic investments to fully participate in high-growth markets while making tactical adjustments to cost structure in select businesses when it is needed. As always, I want to thank our customers, shareholders, and the Nordson team for your continued support. With that, we will pause and take your questions.

And we will take our first question from Mike Halloran with Baird. Your line is open.

Hi, good morning, everyone.

Good morning.

Good morning.

So Naga, obviously, a lot of moving pieces here. Maybe help understand the change in 2Q and call it, a little bit more stability in how you're thinking about the back half of the year here. It seems like the outsized 2Q that we were talking about in the last quarter has been pushed into the back half. So maybe talk a little bit about the backlog, why you think it's sustainable risk in cancellations, what kind of seasonality you're assuming front half versus back half versus a normal year? And just any of the puts and takes to help understand those moving pieces a little bit better?

Yes, Mike, I will guide you through the trends in our segments and their end markets. In the last 45 days, we've observed a roughly 9% decline in orders compared to previous run rates. This decrease may be partly due to the Chinese New Year and some slowdown in our electronic process solutions business, which handles fluid dispensing for semiconductors and back-end electronics. Additionally, we have experienced customer-requested delays in order deliveries. Now, looking at our Industrial Precision Solutions segment, we're performing at or above our long-term growth rates, with increased demand in automotive and steady demand in industrials, consumer nondurable products, packaging, and product assembly, particularly in the Americas and Europe, though there is some softness in China. Overall, we are optimistic about our order levels and backlog, and our outlook for Q2 and the rest of the year is solid. Turning to Advanced Technologies, we are currently below our long-term growth rates. The growth we expect in this segment has become less pronounced due to increased volatility. We have seen softening semiconductor orders in recent weeks, as electronics are typically cyclical. After benefiting in the first two years, we are now facing the low point of the cycle. Customers are starting to reassess their near-term capital spending against long-term plans. Although we maintain a positive long-term outlook, orders are softening in the short term, particularly in optical test and inspection for the memory market, while the rest of our test and inspection remains strong. Regarding medical fluid components, we are also below our long-term growth rates, but two trends are emerging. We are experiencing double-digit growth in our interventional product lines, which faced pressure from postponed elective surgeries during the pandemic and are now rebounding strongly. Our backlog includes many orders for balloons, cannulas, and catheters. Conversely, the order rates in our biopharma-focused fluid component business are weaker than anticipated due to customers destocking inventory that had built up during the pandemic. We believe this is a strong business and expect it to recover to high single-digit growth over time. There is also some decline in our fluid dispensing injected motor products in the construction and electronics sectors in China. I hope this provides a comprehensive overview of the segments and what we are seeing. Joe, would you like to add something?

Yes. Maybe if I could reconcile those comments to your questions around the guidance and the change in the guidance. So if you think about our revenue guidance at the midpoint, we brought it down by about $65 million from the prior guidance. The majority of that decrease is what Naga referenced and what we're seeing in a change in orders around the semiconductor and back-end electronics market. The remainder is the delay in the timing of the biopharma recovery and I would tell you also a little bit of the softness that we saw here in Q1 in China. From a timing perspective on the guidance, Mike, your question there, the timing is adjusted, not just for the order entry, but it's also given customer pushouts of their delivery dates. And we're seeing that in electronic end markets. These are large system orders where we have prepayments from the customers. But we're seeing it in electronics, a little bit in the industrial coatings, and in the plastics end markets where they're pushing out Q2 delivery dates into the back half. Again, we have prepayments on these, and so there's limited risk of cancellation. And then as it relates to your comments, as we think about the guidance in the back half versus Q2, when you think about the back half, first of all, last year's back half was very, very strong. As you know, for Nordson, a record Q3, followed by record Q4. The guidance when you look at the back half, FX is going to become favorable on a year-over-year basis if we maintain the current exchange rates. That would be favorable about 2%, acquisitions about 3%. It basically implies at the midpoint, the organic would be down about 2% in the back half based on comments Naga just made.

That's a lot of great color. I really appreciate it. So follow-up then on the fluid component side. What do you guys think the destocking is going to be behind you and maybe more normal order patterns start coming through, at least relative to underlying demand? Should we think about this as the right run rate for the margins of that segment until that mix is more balanced out versus normal?

Let me just comment on the order rates and, Joe, you can pick up on the margin for the segment. Order rates, what we are seeing is the customer order patterns have stabilized and we might be seeing some green shoots in terms of a recovery of order rates from these customers. Long term, 7% to 8% high single digits is how you want to think about this business. I'd love to tell you that I know exactly when this is going to come back. From what we can see, we feel good about the stability in the orders and a slight pickup in orders that we're beginning to see if you push me to give an exact date, it's going to be difficult. But definitely, this recovery has already begun is probably the best way to put it.

Mike, regarding the margins, the segment was operating at approximately 31% in 2021 and around 32% in 2022. Therefore, the 26% we saw in Q1 is not the new standard. We expect to return to the historical run rate as we progress through 2023. The reasoning behind this is the initial decline and my earlier comment about inefficiencies within the individual factories as they adapt to this drop in volume. As they adjust their variable costs, we anticipate that efficiency will improve moving forward.

Great. Really helpful. Thank you so much.

And we will take our next question from Allison Poliniak with Wells Fargo. Your line is open.

Hi, good morning.

Good morning, Alice.

Just turning to IPS, it seems pretty stable. Asia Pacific was a headwind this quarter. Do we assume that headwind starts to mitigate here for Asia Pacific where that growth may be is a slight improvement from quarter to quarter? Just trying to think through that between 2Q and 3Q? Thanks.

Yes. Allison, I would tell you, as you know, our IPS business has a large China presence and Chinese New Year fell into Q2 last year versus in Q1 this year, so you will see sequential improvement in that segment, just given that. And then also within that business, I referenced the Industrial Coatings division as well as the Plastics division where there are large systems businesses. Those businesses are seeing some of those Q2 push-outs in the back half. Again, prepayments for all of those systems are locked in. It's predominantly our customers, their projects are being delayed. Their projects are still taking place, but they're being delayed for other reasons, and they're asking those businesses to delay shipment in the back half, so sequential improvement and then sequential improvement first half into the second half.

Got it, thanks. And then Naga, you had talked about NBS Next in the innovation side. How are you thinking about that investment this year? Are you starting to tighten the lens a bit more? Are we looking for an increase there as you look to position the company coming out of this, just any thoughts there?

Yes, I think - the way to think about it is our NBS Next deployment is accelerating, gaining momentum within the company. It is becoming more holistic than it was maybe two years ago. So what does that all mean? That means that our businesses are really sharp on what are the best opportunities, division-by-division, not the entire company in total, but division-by-division. Staying invested in innovation in our core strong businesses is a top priority for us. We are also accelerating capital investments in businesses where we have pretty strong growth. For example, our interventional business, very recently, we have signed off on a significant capital to expand product lines. I feel really good about where we are. I think it is really important to remember, not only are we staying invested in our core businesses where we have strong positions, but we're also investing in businesses that have growth potential for us. In some cases, where the order entry has declined, we are adjusting costs more from a variable perspective. Even in those cases, we stay invested in our innovation in our electronic businesses because that is the source of our differentiation. Our customers count on us. These are not three-month kind of thinking processes. This is multiyear because in our electronics business, most of our customers long-term will see significant capital investments to expand capacity for semiconductors in North America and Europe. We need to stay relevant in those, continue to participate in those, and fully leverage our technologies.

Great, thank you.

We'll take our next question from Matt Summerville with D.A. Davidson. Your line is open.

Thanks. Is there any way that you guys can sort of parse out and try and quantify what the China-related impact was as it pertained to COVID and the associated labor shortages? How much may be pushed at the end of the quarter due to the New Year - and do you think all of that gets recaptured in Q2, or is that also now become part of this just push out into the latter half of year? And then I have a quick follow-up.

So, let me take a stab at quantifying that. I would tell you, when we study the timing of the Chinese New Year, it's probably just $15 million to $20 million, depending on what quarter that falls into. That's consistent on our full year basis and has no impact. The COVID issues that they experienced right before the New Year and the lockdown at some of our customers and supply chain challenges, I would characterize that as closer to about a $10 million disruption in the quarter. I don't know if that recovers in the full year. That was part of our reduction in full year guidance, reflecting about $10 million miss in Q1 in China, anticipating that it doesn't recover itself within the year or make itself up in the year.

Got it. And then maybe can you just comment on CyberOptics and what you're sort of expecting? If I recollect, annualized revenues around the time you announced the acquisition were a little more than $100 million. You look at the contribution in Q1, clearly, nowhere near that run rate. Can you talk about maybe what you're seeing in that business and what a reasonable kind of year one revenue in accretion outlook might be for that business? Thank you.

Matt, thank you for the question and follow-up. On CyberOptics, we're incredibly pleased with the team, incredibly pleased with the technology that we are adding to the company, incredibly pleased with the long-term prospects of this optical inspection capability positions the company for long-term in a really good way. In the short term, however, as you've noticed, what we see really is the memory market, which is sort of one of those areas where they're really strong in, is not near-term capital investments have been delayed. Because of that, they have not at the same run rate as what we had expected. Joe, if you could spend a little time talking - that would be helpful.

Yes, so I mean, as we highlighted in the first quarter, $17 million of sales contributed favorably to our operating profit. From an EBITDA standpoint, it's running in the mid-teens. When you think about our forecast going forward, we have that contributing on the full year approximately 3% to our year-over-year sales growth and to be contributing to operating profit growth on an adjusted basis.

Understood, thank you guys.

Yep.

And we will take our next question from Saree Boroditsky with Jefferies. Your line is open.

Thanks for taking my question. Just kind of sticking on the electronics for a second, there's been some concern, I think, from investors on this space for a while. So was the softening in semi orders a surprise to you? And how have conversations with customers changed?

In terms of - is this a surprise? Certainly, the last 45 days, our order dropped off or it changed. It's not surprising, but more in line with what you're hearing our customers sort of report on the outside. So if you think about semiconductor customers or memory customers, all of them are very bullish about their investments in the long term, but certainly reevaluating what they spend in the short term as they manage through their P&L. So in line with what you would expect in the marketplace. If you think about in the longer term, and if you compare with our volatility in the past, this is certainly muted. What we are hearing from them is very bullish about the longer term. Certainly, in the short term, they're reevaluating spend. Is sort of how I would think about it. Is that a surprise? Yes, the order rate decline in the 45 days was certainly a surprise. But what is also strong is T&I excluding Optical; it is pretty strong and continues to remain has a very strong backlog, and we think we'll do really well there. This diversification and expansion into T&I has certainly reduced the company's historical volatility or muted the cyclicality. Saree, did I answer you?

Yes, thanks for that. And then you talked about, obviously, the push out of systems in the second half in industrial coatings. Could you provide more color on why these systems are being pushed out? And then generally, does your guidance assume any additional push outs across the segments and into 2024?

Let me explain what we are observing with our customers and the reasons for the delays. Joe, feel free to add anything. One important point is to consider our systems as large subsystems that are part of a bigger manufacturing line. That is typically our role. In large construction projects, we do not hear any customers indicating that these capital expansions are being canceled. Instead, we are hearing that during the construction phase, they are dealing with other vendors who are experiencing delivery delays for their systems and subsystems, which means they do not require our delivery this quarter and have pushed it to the second half. We are confident about this due to the prepayments associated with these large system orders, as our prepayment increases align with our backlog growth. Overall, we feel good about the situation, and I hope this answers your question.

Yes. And Saree, if I could add to your question around timing in 2023, 2024, when you look at these large systems businesses in the industrial coating space and the test inspection space and the plastic space, those businesses, combined with our Medical Interventional Solutions, comprise over 70% of our backlog. There are orders already on the books going out into 2024 for those divisions. When you think about our backlog and our confidence, it's not just so much about 23, but it actually goes into 24 for that subset of the Nordson businesses. That means that, that supports, I'd say, less than half of our revenue. Greater than half of our revenue is supported by only 30% of our backlog. It's that portion of the business where our backlog only price is less than one quarter of sales. That portion of the business is more subject to changing order patterns, and we need book and ship business in the quarter for that portion of the business.

One thing I would also just add to that is in these businesses where we have book and ship, our recurring revenues are more than 50% of our revenue. In those businesses, it's in some cases, a little higher. Our confidence level in these businesses more comes down to the fact that our customer confidence level on the supply chain has improved, and I think that's the good news. The good news is in 50% of our businesses, the customer has begun to believe that supply chain problems have gone away. That gives me pretty good confidence as well.

Great. Thanks for taking my questions.

We will take our next question from Walter Liptak with Seaport. Your line is open.

Hi, thanks. Good morning. I wanted to ask about the Industrial Precision segment. And just see if I can get a little bit more color on orders in the Americas and in Europe. Specifically about what's going well. I think you called out automotive, industrial, and packaging. I wonder if you could just talk about the last 45 days there and just the tone of the business, how you're feeling about it.

Yes, Walt, thanks for the question. In that business segment, I think about it as we see the steady growth in line with our long-term growth rates. What's driving it is, as we referenced, Americas and Europe, particularly in the quarter. But it's our consumer non-durable, which has been pretty steady in line growth for us. There, you'll recall is where we have several of our new product launches that contributed to last year's performance and continue to gain traction. It's also within that, the largest factory within that segment was a pilot site for our NBS next. When you think about the traction and the improvement that they're having there with their on-time delivery, it's contributing to that growth as well. And then if you go to the coating side, as Naga mentioned, we're seeing a pickup, I would tell you, in automotive demand for the Industrial Coatings business.

Okay. Good. Just to be clear, there was the steadiness that you were speaking of that was signed throughout the quarter and not just on average, but including in that 45-day period where other parts of the business soften.

Yes, as we mentioned, it's a multi-speed economy. Some sectors are declining, some are stable, and others are experiencing significant growth. I would categorize that business as experiencing steady growth in line with our long-term expectations.

Okay. Great. And then just as a follow-up in IPS, how are you feeling about price cost? It sounds like you were a little bit positive this quarter; how are you feeling about the rest of the year?

Yes. So price cost, again, as we communicated in Q4 and here in Q1, it is net favorable from a gross margin dollar standpoint, but it is dilutive from a gross margin percentage standpoint. But we have been successful in passing through the inflation but not passing through the inflation plus the 55% gross margin. It has diluted our consolidated Nordson margins by about 100 basis points. This division has been successful, and they incurred significant inflation. Passing that through, this division has clearly led the way and been successful in that pricing initiative.

Okay. That sounds great. Thank you.

And we will take our next question from Jeff Hammond with KeyBanc. Your line is open.

Hi, good morning.

Good morning, Jeff.

You provided a lot of useful insights on where the weaknesses are. However, could you clarify the division between IPS, which seems stable, and the medical and ATS segments regarding the impact? Is it evenly split or leaning more towards one side?

Yes. I would like to mention that the change in our guidance, specifically the reduction of the midpoint on revenue by $65 million, primarily reflects what we are observing in the semiconductor market. From a segment standpoint, the decrease is more significant in ATS compared to the MFS segment.

Okay. That's really helpful then. And then just what are you hearing in terms of how long this medical destocking will take? And kind of what have you built in there?

I appreciate the opportunity to clarify this situation. While I would like to provide a more specific timeline for when we expect things to return to normal, I can share that the declines we've experienced have stabilized, and we are starting to see some recovery in order entry from major biopharma customers based on our current observations. I want to be cautious about providing additional details as it might lead to speculation on my part. I remain optimistic about our performance, as we anticipate being a strong growth company with high single-digit growth. Our long-term outlook on the secular growth drivers for single-use components in this sector remains positive. We foresee further increases in usage, but I cannot definitively say when we will see a complete normalization. I hope it happens sooner rather than later, but we are encouraged by the signs of stabilization and early recovery we are observing.

I mean, that was part of the change in the guidance. Think about our Q2 guide before, we thought the recovery might come in Q2; it appears to have delayed about in our guidance a quarter.

That's great.

I mean, that was part of the change in the guidance. If you think about our Q2 guide before, we thought the recovery might come in Q2; it appears to have delayed about in our guidance a quarter.

Okay. Thanks so much.

Thank you.

Thank you.

And there are no further questions at this time. So I will now turn the call back to Naga for additional and closing remarks.

Our first quarter performance was solid, and it reflects the strength of our differentiated position technology, customer-centric business model, and diversified geographic and product end markets. While we are seeing some change in order patterns, 2023 remains a strong year with our guidance reflecting our ability to sustain our record 2022 performance. We will remain financially prudent in this environment. We'll adopt a balanced approach that remains invested in innovation and differentiated service experience for our customers in strong core businesses. Thank you for your time and attention on today's call. Have a great day.

And ladies and gentlemen, this concludes today's conference call. We thank you for your participation. You may now disconnect.