Nordson Corporation (NDSN) Earnings

Management highlights

### Overall Financial Performance - Delivered record Q2 sales of $741 million, an 8% year-over-year increase including 7% organic growth, surpassing the midpoint of prior guidance - Backlog grew 18% organically year-over-year on accelerating order entry momentum in the final two months of the quarter - Achieved record Q2 EBITDA of $235 million (32% of sales, in line with prior year) and record adjusted EPS of $2.86, an 18% year-over-year increase - Generated $170 million in free cash flow, with 119% free cash conversion of net income (excluding non-cash charges), marking the fourth consecutive quarter with over 100% conversion - Completed a one-time pension settlement that annuitized ~$113 million (nearly one-third) of remaining U.S. pension obligations with no cash outlay, improving long-term funded status and reducing ongoing pension costs - Net debt leverage stands at 1.9x, below the low end of the long-term target range, creating significant capital deployment capacity - Maintains balanced capital allocation: invested $10 million in capital projects, paid $46 million in dividends, repurchased $43 million in shares, reduced net debt by $93 million in Q2 ### Strategic Updates and Acquisitions - Completed a bolt-on acquisition of Capstan AG, a North American precision agriculture technology company, for 9x adjusted EBITDA - Capstan AG adds innovative pulse width modulation nozzle control systems, expanding Nordson's precision agriculture portfolio and access to mid-tier OEM customers in North America - Operations are being consolidated into Capstan AG's Topeka, Kansas footprint to better serve regional customers; the acquisition aligns with Nordson's growth-focused portfolio strategy - Over 50% of Nordson's portfolio is now in high-growth end markets (semiconductor, electronics, medical), with the remainder in stable GDP-plus end markets, creating diversification for consistent growth - M&A pipeline remains robust; management remains disciplined focused on strategic, value-add bolt-on opportunities that meet return criteria, with priority on medical and test/inspection technology additions ### End Market Trends - Semiconductor and electronics: Strong ongoing demand, with growth driven by dispense product lines and emerging inflection in test and inspection systems, supported by AI infrastructure growth and increasingly complex semiconductor manufacturing - Medical: Steadily returning to normalized 6-8% target growth after a slow start to the year, with long-term drivers unchanged (aging population, growth in minimally invasive procedures, biopharma and diagnostics expansion) - Industrial and consumer: Packaging and adhesive dispensing sustain above-market growth; industrial coating and polymer processing are seeing gradual recovery after 2025 trough levels; precision agriculture continues steady growth; general/automotive electronics growth remains muted but shows early signs of increasing capacity demand

Guidance

- Third quarter fiscal 2026 sales are guided to a range of $760 million to $790 million, with adjusted diluted EPS between $2.95 and $3.15 - Full year fiscal 2026 guidance is upgraded from prior levels, with sales now expected between $2.93 billion and $3.00 billion and adjusted diluted EPS between $11.30 and $11.80 - Foreign exchange is expected to be neutral for full year 2026 after contributing a tailwind in the first half - Net impact of M&A (divestiture + small Capstan AG acquisition) is expected to be a slight 1% headwind in the second half - Management has high confidence in the midpoint of the full year guidance range; a meaningful macro-driven slowdown in order activity would be required to hit the low end of the range, while sustained current demand (particularly in electronics) would allow performance at the upper end - Full year adjusted effective tax rate is expected to be 18% to 19%, an improvement from prior guidance and a sustainable long-term level

Segment performance

1. Industrial Precision Solutions (IPS): Record second quarter sales of $350 million, up 10% year-over-year, representing 47% of total company revenue. Organic sales grew 5%, with a 4% favorable currency impact and 1% net acquisition impact. EBITDA was $124 million, up 9% year-over-year, with an EBITDA margin of 35% of sales. Growth was driven by improving demand for industrial coating and polymer processing systems, ongoing precision agriculture growth, and stable demand in consumer and industrial end markets. 2. Medical and Fluid Solutions (MFS): Record second quarter sales of $213 million, up 5% year-over-year, representing 29% of total company revenue. Organic sales increased 8%, partially offset by a 4% negative impact from the divested medical contract manufacturing business. EBITDA was $79 million, up 3% year-over-year, with an EBITDA margin of 37% of sales. Margin compression came from near-term operational inefficiencies tied to a regulatory-required material changeover for select interventional medical products. 3. Advanced Technology Solutions (ATS): All-time quarterly record sales of $178 million, up 10% year-over-year, representing 24% of total company revenue. Organic sales grew 8%, driven by strength in semiconductor and electronics dispense product lines. EBITDA hit a record $48 million, up 22% year-over-year, with a record EBITDA margin of 27% of sales (up from 25% year-over-year). Margin improvement came from SG&A leverage on high single-digit organic growth and prior operational improvements under the NBS Next framework.

Risks & headwinds

- Uncertain macroeconomic conditions could lead to unexpected pullbacks in customer order activity, or create raw material supply shortages that disrupt customer operations and demand - Ongoing broad-based inflation, including input cost pressure on components, resins and tariffs, creates near-term margin pressure that requires selective pricing and offsetting cost actions - Semiconductor demand growth is inherently cyclical and difficult to predict long-term, even with current strong early-cycle momentum - Short-term operational inefficiencies from the regulatory-required material changeover in interventional medical products created margin pressure in Q2, though management expects to resolve this issue during 2026

Analyst Q&A

• Q: Is medical segment growth now sustainably on track to hit historical target growth rates, and what caused the Q2 interventional product margin headwind? /

  A: Management confirmed that 8% organic Q2 growth puts the medical segment on track to return to its long-term 6-8% target growth rate, with strength in both engineered fluid solutions and core medical product lines building backlog. The near-term margin headwind stems from a regulatory-required material change for one interventional product line that created temporary operational inefficiencies; management has clear line of sight to resolving the issue in 2026, when it will become a growth driver.

• Q: How is Nordson positioned in the semiconductor cycle, how strong is current ATS order growth, and why is test and inspection growth lagging dispense growth? /

  A: A: 18% overall company backlog growth was led by strong ATS order growth, implying double-digit organic ATS order growth, driven by diversification efforts completed after the prior downturn. Nordson now has a broader product portfolio (including growing test and inspection), diversified customer base, and geographically optimized footprint, and management believes the current semiconductor demand cycle is in its early stages, supported by AI-driven growth in new applications like panel-level packaging and optical fiber infrastructure. The apparent lag between dispense and T&I growth is just a function of current market mix, not weak demand for T&I, with robust customer project activity across both product lines.

• Q: What drove the full year guidance increase, and what are the key moving pieces behind the updated range? /

  A: The guidance upgrade reflects broad-based accelerated order entry and backlog growth across all three segments that has continued into the early weeks of Q3, with FX neutral in the second half after a first half tailwind and a small 1% net M&A headwind in the back half. Management has high confidence in the midpoint of the guidance range; only a meaningful macro pullback would push results to the low end, while sustained current momentum would deliver results at the upper end. The full year will focus on maintaining margins amid ongoing inflation rather than expanding margins, unlike prior low-inflation periods.

• Q: Can you confirm the size of the Capstan AG acquisition's expected 2026 incremental revenue, and what is your current view of the M&A environment? /

  A: Capstan AG is a ~$13 million annual revenue business, so ~$5-6 million incremental revenue in the second half of 2026 is a reasonable estimate. Nordson's M&A pipeline remains robust and active, but management will continue to stay disciplined on both strategic fit and financial return criteria, focusing on small bolt-on technology additions to existing businesses (primarily medical and test and inspection), rather than large unplanned strategic acquisitions. Valuations have started to normalize slightly, but Nordson will only pursue deals that meet its strict criteria.