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. Thank you. I'd now like to turn the call over to Lara Mahoney. Please 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 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. With that, I'll turn the call over to Naga.

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.

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.

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. With that, we will pause and take your questions.

Thank you. We will now begin the question-and-answer session. Your first question comes from the line of Saree Boroditsky from Jefferies. Your line is open.

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?

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.

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.

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.

Appreciate the questions. Thank you.

Your next question comes from the line of Matt Summerville from D.A. Davidson. Your line is open.

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?

So thanks for the question.

Yeah, could you?

Go ahead. I guess as far as our thoughts, if you look at our underlying guidance, we pretty much are 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.

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?

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.

Hi. Good morning, guys.

Good morning.

Good morning.

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?

Yeah. As we talked about, there are two things going on here: our biopharma business has stabilized and is starting to come back, and our interventional business is facing tough comparisons. Last year those businesses were up 15 to 16 percent, so you're dealing with hard comps. Supply chain issues have made customers more cautious than they were a year ago. Growth drivers remain the same, so it’s hard to say when this will change, but procedure volumes are up, so nothing there is deteriorating. We do see some in-sourcing, but these projects and products, when awarded to a company, involve regulations and approvals, including FDA approvals, and all of that makes it very difficult; these businesses tend to be much stickier. So it’s tough to call when this will turn. We have strong relationships with a small set of customers — this is not thousands of customers, but a handful of medical device customers — and we are in touch with them and understand where things stand. I’m trying to paint the picture of the overall environment, but I recognize I’m not giving an exact answer.

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.

So let me paint some broad pictures and then Dan can take you through a little bit more detail. 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 margins; they are below historical performance, mainly because of supply chain issues and some operational issues they have had. We fully expect, and our model recognizes, that the synergies we have signed up for are based on resolving many of these issues over a two-year period. We see a good path to achieving these synergies using NBS Next. I would say that sometime in 2026 this business should return to Nordson-like EBITDA margins, which reflect its historical performance. So that's the high-level view. Dan, if you want to add a bit more color to Jeff's question.

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.

Okay. Appreciate it.

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

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?

What I would tell you is that this is what we are experiencing now. Last year this business grew in the mid-teens; typically it grows 6% to 8%, so mid-teens growth is unusually high and current order patterns are an adjustment to that. Looking at procedure volumes, project activity, and product development, we believe the long-term growth thesis for this business remains intact. Timing is difficult to predict, but we are seeing some slowness. It’s a combination of tough year-over-year comparisons and softer demand. Some device manufacturers are evaluating and adjusting inventory to more reasonable levels, which could affect timing. It’s possible interest rates play a role, but I can’t say for sure. Overall, we are seeing a conservative, cautious order pattern from our medical device customers.

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?

Yeah. 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. The order entry in this business is pretty encouraging and a lot of the work they're doing with Asia-based electronics customers is pretty encouraging.

Understood. Thanks. I'll pass it on.

Your next question comes from the line of Andrew Buscaglia from BNP Paribas. Your line is open.

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.

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.

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.

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?

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.

Very helpful. Thanks.

Your next question comes from the line of Walter Liptak from Seaport Research Partners. Your line is open.

Hey. Good morning, guys.

Good morning.

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.

Sure. Let me give a bit of color on a couple of divisions and where we’re thinking. This is year four of NBS Next. IPS was one of the first businesses where we implemented it, and a couple of other MFS businesses are being implemented next. We operate in a diversified set of end-market niches. In some cases, particularly in IPS, certain end markets will have high or growing demand and attract investment at a particular time. Over six to twelve months, however, another end-market application can gain demand and become more important for growth. Our division leaders need to understand those niches and be agile and entrepreneurial in shifting resources from one end market to another to continue participating in growing markets and to manage exposure to markets that are not growing. That dynamic is important to recognize. NBS Next gives clarity around applications and enables those shifts, which helps deliver the steady performance you see externally. Internally, of course, some markets are doing well while others are not. For example, plastic processing has had an incredible run the last two to two-and-a-half years, and a modest pullback there is possible. Overall, we’re very pleased with how our teams are using NBS Next. We constantly emphasize that the best opportunity for Nordson is growth: understanding your best customers and market opportunities and deploying differentiated products to win. Our Ascend strategy, NBS Next, an ownership mindset, and a division-led structure that allows teams to be entrepreneurial all support that approach. The core strengths of the company remain the same: diversified end markets, systems and high-recurring revenues, a close-to-customer model, and differentiated products. Those strengths are what make Nordson successful. I’m incredibly proud of our team because, across varying demand conditions, they have consistently delivered 30% plus EBITDA margins over the last three years. In some cases we’ve had to adjust costs; in others we’ve invested ahead of the curve. That track record speaks to our Ascend strategy and the NBS Next growth framework.

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.

If you think about regions, US-based markets remain the strongest. In the near term, our businesses in Asia are benefiting from a rebound in our electronics business. Our electronics businesses are recovering, so our Asia-Pacific markets are improving nicely. China is also doing well, and our nonwoven and OEM customers there have been a source of strength. Europe is still lagging; organic growth there is a little weaker, although we do have OEM customers. Parts revenues are solid while system revenues are a bit weaker. Europe is also impacted by ARAG because ARAG is primarily a European business.

Okay. Great. Appreciate the color.

Your next question comes from the line of Chris Dankert from Loop Capital Markets. Your line is open.

Hey. Morning, guys. Thanks for taking the questions.

Morning.

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.

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.

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.

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.

Understood. Thanks so much for the detail, Naga.

That concludes our question-and-answer session. I will now turn the call back over to Naga for closing remarks.

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.