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Nordson Company (NASDAQ:NDSN) This autumn 2023 Earnings Name Transcript December 14, 2023 8:30 AM ET
Firm Contributors
Lara Mahoney – VP of IR & Company Communications
Sundaram Nagarajan – President and CEO
Joseph Kelley – EVP
Stephen Shamrock – Interim CFO
Convention Name Contributors
Allison Poliniak – Wells Fargo
Mike Halloran – Baird
Jeff Hammond – KeyBanc Capital Markets
Matt Summerville – DA Davidson
Christopher Glynn – Oppenheimer
Walt Liptak – Seaport Analysis
Andrew Buscaglia – BNP Paribas
Operator
Good morning. My identify is Dennis and I will likely be your convention operator right now. Right now, I wish to welcome everybody to the Nordson Company Fourth Quarter and Fiscal Yr 2023 Convention Name. All strains have been positioned on mute to stop any background noise. After the audio system remarks, there will likely be a question-and-answer session. [Operator Instructions] I’d now like to show the convention over to Lara Mahoney. Please go forward.
Lara Mahoney
Thanks. Good morning. That is Lara Mahoney, Vice President of Investor Relations and Company Communications. We welcome you to our convention name right now, Thursday, December 14, 2023, to report Nordson’s fiscal 12 months 2023 fourth quarter and full 12 months outcomes. I am right here with Sundaram Nagarajan, our President and CEO; Joseph Kelly, Government Vice President; and Stephen Shamrock, Interim Chief Monetary Officer. Whereas Joe lately took a brand new position as Government Vice President, Industrial Precision Options phase, he was CFO for everything of fiscal 2023 and can signify that viewpoint in right now’s name.
You could find each our press launch in addition to our webcast slide presentation that we’ll confer with throughout right now’s name on our web site at nordson.com/buyers. This convention name is being broadcast dwell on our investor web site and will likely be out there there for 14 days. There will likely be a phone replay of the convention name out there till December 21, 2023.
Throughout this convention name, references to non-GAAP monetary metrics will likely be made. An entire reconciliation of those metrics to probably the most comparable GAAP metric has been offered within the press launch issued yesterday. Earlier than we start, please confer with Slide 2 of our presentation the place we be aware that sure statements relating to our future efficiency which are made throughout this name could also be forward-looking primarily based upon Nordson’s present expectations. These statements could contain various dangers, uncertainties, and different components as mentioned within the firm’s filings with the Securities and Alternate Fee that might trigger precise outcomes to vary.
Transferring to right now’s agenda on Slide 3, Naga will talk about fourth quarter and full 12 months highlights. He’ll then flip the decision over to Joe to assessment gross sales and earnings efficiency for the overall firm and the three enterprise segments. Joe additionally will speak concerning the year-end steadiness sheet and money circulate. Naga will conclude with excessive stage commentary about our enterprise efficiency, together with an replace on the Ascend technique, in addition to our fiscal 2024 first quarter and full 12 months steerage. We’ll then be completely satisfied to take your questions.
With that, I am going to flip to Slide 4 and hand the decision over to Naga.
Sundaram Nagarajan
Good morning, everybody. Thanks for becoming a member of Nordson’s fiscal 2023 fourth quarter and full 12 months convention name. In 2021, Nordson launched its Ascend technique to attain top-tier development with main margins and returns. We set a objective to ship $3 billion in gross sales and larger than 30% EBITDA margins by 2025. As we full the third 12 months of our technique, we’re on monitor towards reaching these goals. It is a testomony to our staff who’ve within the final three years developed and deployed the Ascend technique and tackled dynamic macroeconomic circumstances together with a pandemic, international provide chain stress, labor challenges, and rising rates of interest to call just a few. In 2023, we additionally managed the distinctive interval of biopharma destocking in addition to the cyclical electronics finish markets.
The core parts of our enterprise mannequin has enabled us to ship worthwhile development all through these challenges. This features a basic deal with our prospects, dedication to innovation, diversified geographic and finish market publicity, and a excessive stage of recurring income by means of aftermarket elements and consumables. Since launching the Ascend technique, we’ve got added new capabilities to our mannequin, together with the NBS Subsequent development framework and a division-led construction which has empowered our groups to reply quickly to altering market circumstances. This led to strong monetary efficiency within the quarter and the 12 months, exceeding our focused incremental and decremental revenue targets in all three segments. Combining all of those components with our capital deployment technique to strengthen our precision know-how portfolio, we delivered document gross sales, 31% EBITDA margin, and document money circulate in fiscal 2023.
I am going to communicate extra to this in just a few moments, however I am going to now flip the decision over to Joe to supply extra detailed perspective on our monetary outcomes for the fourth quarter and monetary 2023.
Joseph Kelley
Thanks, Naga, and good morning to everybody. On Slide quantity 5, you will see fourth quarter 2023 gross sales had been $719 million, a rise of 5% in comparison with the prior 12 months’s fourth quarter gross sales of $684 million. The rise included 7% development from acquisitions of ARAG and CyberOptics and favorable foreign money translation of 1%, offset by an natural gross sales lower of three%. The natural gross sales lower was primarily quantity offset by value as we proceed to cross by means of year-over-year price inflation. Consistent with our expectations, the amount decline was concentrated within the electronics, dispense, and our biopharma companies. This stress was largely offset by double-digit development in medical interventional options, industrial coatings, and polymer processing product strains in comparison with the prior 12 months.
Gross revenue, excluding the non-recurring amortization of acquired stock, totaled $389 million or 54% of gross sales, a 7% enhance over the prior 12 months fourth quarter of $363 million or 53% of gross sales. The gross revenue greenback enhance was pushed by gross sales development, and the gross margin enlargement of 100 foundation factors was pushed primarily by enchancment in manufacturing unit effectivity. SG&A within the fourth quarter elevated to $199 million versus $186 million within the prior 12 months fourth quarter. Excluding $6 million in non-recurring transaction charges associated to the ARAG acquisition, SG&A elevated 4% over the prior 12 months, representing 27% of gross sales, in line with the prior 12 months.
Adjusted working revenue, excluding $11 million in non-recurring acquisition prices and step-up stock amortization was $196 million within the quarter, a ten% enhance from the prior 12 months. We generated very robust incremental working revenue margins of 51% on the 5% gross sales development, which might be attributed to our crew’s continued dedication to executing the NBS Subsequent development framework and their associated capability to quickly reply to altering market circumstances. EBITDA for the fourth quarter elevated 12% over the prior 12 months to a document $227 million, or 32% of gross sales, which is 200 foundation factors above our long-term profitability goal, as we articulated in our Ascend technique. This compares to $202 million or 30% of gross sales within the prior 12 months fourth quarter. As we proceed to execute the Ascend technique and scale by means of acquisitions, EBITDA will likely be a key metric for profitability and money circulate technology.
Taking a look at non-operating earnings and expense, I’m completely satisfied to report that in September, we efficiently accessed the general public bond market with our inaugural issuance of funding grade rated debt. We raised $850 million in 5 and 10 12 months bonds to repay the quick time period borrowings used to finance the ARAG acquisition with the steadiness of the funds coming from our revolver. Curiosity expense within the quarter totaled $26 million, a rise of $21 million over the prior 12 months quarter. $7 million of the rise is non-recurring financing prices related to the reimbursement of the short-term borrowings. The remaining $14 million enhance is a results of greater debt ranges and elevated rates of interest. Different internet earnings decreased $3 million resulting from vital foreign money fluctuations that generated a $4 million foreign money trade achieve within the prior 12 months that didn’t repeat within the present 12 months. Tax expense was $33 million for an efficient tax charge of 20% within the quarter, barely beneath the total 12 months and inside our steerage vary.
Internet earnings totaled $128 million or $2.22 per share. Adjusted earnings per share excluding non-recurring acquisition associated bills totaled $2.46 per share, a 1% enhance over the prior 12 months. This enchancment regardless of the rise in curiosity expense is reflective of constant software of the NBS Subsequent development framework, which ends up in regular, worthwhile development with engaging incremental margins.
Turning to Slide quantity 6, I am going to now share just a few feedback on our full 12 months outcomes. Gross sales for the fiscal 12 months 2023 had been a document $2.6 billion, a rise of two% in comparison with the prior 12 months’s earlier document gross sales outcomes. This enhance was pushed 4% from the CyberOptics and ARAG acquisitions, offset by an natural lower of 1% and an unfavorable foreign money affect of 1%. Adjusted working revenue was $707 million, or 27% of gross sales, which was corresponding to the prior 12 months. On a continuing foreign money foundation, adjusted working revenue grew year-over-year 1%.
EBITDA for the total 12 months elevated 1% to a document $819 million, or 31% of gross sales. This marks the third consecutive 12 months of the Ascend technique delivering EBITDA development. Adjusted diluted earnings per share had been $9.03, a 4% lower from the prior 12 months. The lower in adjusted earnings is primarily a results of greater adjusted curiosity expense of $30 million related to each the CyberOptics and the ARAG acquisitions and better borrowing charges. Total, the corporate’s efficiency stays robust and in line or forward of targets established as a part of the Ascend technique.
Now, let’s flip to Slide 7 by means of 9 to assessment the fourth quarter 2023 phase efficiency. Industrial Precision Options gross sales of $405 million elevated 14% in comparison with the prior 12 months fourth quarter. Natural development within the quarter was 4%, with the ARAG acquisition including 7%, and a good foreign money affect of two%. It’s noteworthy that the 4% natural development is over a really robust fourth quarter of 2022 and represents an all-time quarterly gross sales document for the phase, excluding ARAG. Sturdy demand within the polymer processing, industrial coatings, and packaging product strains mixed with the execution of the Ascend technique drove this quarter’s outcomes.
Geographically, development was robust within the Americas and Asia Pacific areas. EBITDA for the quarter was $148 million, or 37% of gross sales, which is a rise of 26% in comparison with the prior 12 months EBITDA of $118 million. This development was pushed primarily by leveraging natural gross sales development at incremental margins effectively in extra of our goal, plus the advantage of the ARAG acquisition.
Medical and Fluid Options gross sales of $169 million decreased 7% in comparison with the prior 12 months’s fourth quarter. This modification was primarily pushed by a lower in natural gross sales quantity of 8%, offset by a modest 1% foreign money profit. The amount declines had been the results of continued softness in medical fluid elements associated to the biopharma finish markets, in addition to the fluid options product strains, offset by double-digit development in our medical interventional options product strains. Fourth quarter EBITDA was $62 million or 37% of gross sales, which is a lower of 4% in comparison with the prior 12 months EBITDA of $64 million. EBITDA margins proceed to be negatively impacted by the gross sales combine modifications inside the medical product strains, however improved manufacturing unit effectivity inside the fluid options division enabled revenue margin enlargement.
Turning to Slide 9, you will see Superior Expertise Options gross sales of $145 million decreased 1% in comparison with the prior 12 months’s fourth quarter. This modification included a lower in natural gross sales quantity of 16%, offset by the CyberOptics acquisition, which contributed 15%, the very best quarterly gross sales up to now beneath Nordson possession. The natural gross sales decline was primarily pushed by continued softness in our electronics allotted product strains that served the cyclical semiconductor finish market and by means of reference, had a tough comparability because the prior 12 months fourth quarter had 28% natural development. Based mostly on buyer conversations and historic developments, we proceed to count on demand within the semiconductor market to anniversary within the second quarter of fiscal 2024 and start to get well within the again half of calendar ‘24. Fourth quarter EBITDA was $35 million or 24% of gross sales, a lower of $5 million from the prior 12 months fourth quarter. Noteworthy, nevertheless, for this phase is the elevated profitability stage within the down a part of the cycle once you examine the 24% EBITDA margin to the 14% EBITDA margin in fiscal 2020.
Lastly, turning to the steadiness sheet and money circulate on Slide 10. We had one other very robust money circulate quarter, producing $153 million in free money circulate at a money conversion charge of 120% on internet earnings. For the total 12 months 2023, Nordson generated a document free money circulate of $607 million at a money conversion charge of 124%. With our document free money circulate, we had been in a position to repay roughly $425 million of debt and return capital to our shareholders. Dividend funds had been $39 million within the quarter, reflective of the 5% enhance within the annual dividend. As well as, we bought $10 million of shares at a median value of $216 per share. By our strategic capital deployment, we ended the 12 months with a robust steadiness sheet. Our money steadiness was $116 million, and internet debt was $1.6 billion, leading to a leverage ratio of two instances primarily based on the trailing 12 months EBITDA, effectively inside our focused vary. For modeling functions, in fiscal ‘24, assume an estimated efficient tax charge of 20% to 22%, capital expenditures of roughly $40 million to $50 million, and curiosity expense of roughly $75 million to $80 million.
In abstract, our segments successfully responded to dynamic circumstances all through fiscal 2023 through the use of the data-driven NBS Subsequent development framework. This led to phase monetary efficiency exceeding our focused incremental and decremental revenue targets. We’re additionally seeing good contributions from our latest acquisitions, which is indicative of the power of our capital deployment technique and the differentiation we’re including to our precision know-how portfolio. I wish to congratulate the crew on reaching document gross sales and EBITDA in addition to the document money circulate efficiency this 12 months.
I am going to now flip the decision again to Naga.
Sundaram Nagarajan
Thanks, Joe. Throughout final 12 months’s convention name, as we set the stage for fiscal 2023, I famous that Nordson was effectively positioned to carry out in periods of financial uncertainty. It actually proved true for all the explanations I listed earlier within the name. Elementary deal with our prospects, dedication to innovation, diversified geographic and finish market publicity, and a excessive stage of recurring income. The Ascend technique has added to those core strengths. Our NBS Subsequent development framework is changing into a aggressive benefit as it’s deployed holistically throughout the corporate. Put merely, NBS Subsequent is a data-driven segmentation framework that drives selections, focus, and simplification.
In fiscal 12 months 2022, we had two divisions that achieved market-leading enterprise efficiency. That quantity expanded in 2023 with all divisions making great progress. They’re utilizing the framework to information their deal with finest development alternatives and ship on time, high quality merchandise, successful enterprise, and rising market share. Our medical interventional options enterprise efficiently deployed this framework to attain double-digit gross sales development all through 2023 by specializing in its finest development alternatives and simplifying elsewhere. Our electronics processing division leveraged this era of weaker finish market demand to fastidiously curate its product portfolio primarily based on one of the best development alternatives. The crew acknowledged by means of segmentation evaluation that the acute customization we provided created complexity and resulted in longer lead instances. Making use of NBS Subsequent methodology with our deep voice of buyer analysis, the crew diminished complexity, improved lead instances, and is gaining market share.
The electronics division has used the draw back of the cycle to implement NBS Subsequent, reaching its goal decremental margins within the second half of fiscal 2023. They’re effectively positioned for the incremental earnings development that can come when the semiconductor finish market begin to get well within the second half of calendar 2024. In 2023, we additionally made progress on the acquisition entrance of our Ascend technique, which is a key precedence of our strategic capital deployment.
We closed the ARAG acquisition on August twenty fourth, 2023. The combination goes effectively, and we’re impressed by ARAG’s precision agricultural know-how and the power, excellence our new staff carry to Nordson. For the reason that launch of the Ascend technique, we’ve got acquired roughly $400 million in income and are 80% of the way in which towards our acquisitive income goal. We see ample alternative within the pipeline to attain this goal, notably within the medical and testing inspection platforms. That stated, we are going to stay centered to accumulate differentiated precision applied sciences that meets our strategic and monetary standards.
To allow acquisitive development, we went to the general public markets this summer time. As a first-time issuer, we achieved investment-grade scores from each Moody’s and S&P. Each scores companies cited Nordson’s robust money circulate and wholesome monetary profile as key causes for the robust scores debut. We admire the pliability that public debt will afford us as we proceed executing on the acquisition and capital deployment portion of our technique.
In abstract, I’m very happy with the progress of our Ascend technique and imagine we’re effectively positioned getting into fiscal 2024. I’m additionally happy that we’ve got made this progress whereas sustaining our tradition and values. For instance, in fiscal 2023, our staff, firm, and the Nordson Company Basis donated over $13 million into the communities that our staff dwell and work to help schooling, human welfare providers, and different charitable actions.
Turning now to the outlook on Slide 12. We enter fiscal 2024 with roughly $800 million in backlog. The sequential backlog discount is reflective of robust system gross sales within the fourth quarter in addition to a paced return to normalized ranges. Based mostly on the mix of order entry, backlog, buyer supply timing requests, and present international trade charges, we anticipate delivering gross sales development within the vary of 4% to 9% above fiscal 2023 gross sales. Full 12 months fiscal 2024 earnings are forecasted to be within the vary of 1% to eight% development per diluted share. Please be aware that we’re updating our definition of adjusted earnings beginning in fiscal 2024 to exclude acquisition-related amortization. As acquisitions will proceed to be a crucial a part of our technique, we imagine that is prudent and extra reflective of how we and buyers take into consideration our enterprise when it comes to earnings and money circulate development efficiency. This full 12 months steerage assumes a impartial affect from international trade charges, a restoration of semiconductor finish markets within the second half of calendar 2024, and the ARAG acquisition contributing roughly 5% development on the midpoint of our steerage.
As you will note on Slide 13, first quarter fiscal 2024 gross sales are forecasted within the vary of $615 million to $640 million and adjusted earnings within the vary of $2.00 to $2.10 per diluted share.
Earlier than we open it for questions, I wish to take a second to thank Joe for his management as CFO over the previous three plus years. Joe, I’ve appreciated your partnership and we’re all excited to see you develop your profession as the brand new chief of our IPS phase. As we transfer ahead into fiscal 2024, Steve Shamrock will take over as Interim CFO whereas we conduct our seek for a successor. Joe’s transfer and Steve’s seamlessly stepping in through the transition are examples of Nordson specializing in creating successful groups, an vital success consider constructing a scalable, prime quality development engine. Once more, I wish to thank our staff, prospects, and shareholders in your continued help.
We’ll now open the telephone strains for questions.
Query-and-Reply Session
Operator
[Operator Instructions] And our first query comes from the road of Allison Poliniak with Wells Fargo. Please go forward.
Allison Poliniak
Hello, good morning.
Sundaram Nagarajan
Good morning, Allison.
Allison Poliniak
Naga, you touched on the EBITDA margin that you simply posted in 2023, actually robust and effectively forward of your goal. How can we consider that EBITDA margin from right here? How does it evolve over the following, say, two to a few years?
Sundaram Nagarajan
Yeah. Allison, as we launched the Ascend technique, our goal was to have 50% of our development come from natural and 50% from acquisitions. And we additionally set the stage for our natural development clearly comes at the next incremental margins when in comparison with our acquisitions. In order we transfer ahead, we essentially imagine this 31% is a sustainable stage at which we’re working. Relying on the combination of natural and acquisition, this can be a sustainable stage that we’re in a position to preserve.
Allison Poliniak
Received it. After which might you contact on the biopharma market, simply kind of the cadence of restoration, simply the way you’re desirous about that particular market in ‘24, simply given the challenges it had in ‘’23 across the stock measurement?
Sundaram Nagarajan
Yeah. We begin to — by the top of the primary quarter, we begin to anniversary the decline in biopharma resulting from destocking. Long term, we essentially imagine that this can be a nice market for Nordson and can return to the excessive single digit quantity. Within the interim although, we’re taking a conservative and undoubtedly a sensible view of claiming the restoration goes to be slower.
Allison Poliniak
Okay, however I suppose that I feel you simply touched on it although, so there is no actual structural obstacle for that market in your view to not attain that kind of excessive single-digit development charge that it traditionally achieved?
Sundaram Nagarajan
Completely not. Proper? If you concentrate on this, one of many key areas of focus for us is the usage of single-use plastics, which primarily go to interchange the stainless-steel nectars and stainless-steel full strains. And that transition remains to be in its early levels. So we essentially imagine that there’s nothing right here that’s impaired. It is a matter of timing and it is actually a matter of restoration actually you understand so long-term no points We count on we’ll in all probability get to excessive single-digits.
Allison Poliniak
Good. Thanks and congrats, Joe, on the transfer.
Sundaram Nagarajan
Thanks.
Joseph Kelley
Thanks, Allison.
Operator
Your subsequent query’s from the road of Mike Halloran with Baird. Please go forward.
Mike Halloran
Hey, morning, everybody.
Sundaram Nagarajan
Good morning, Mike.
Joseph Kelley
Good morning, Mike.
Mike Halloran
Simply wish to assist me perceive a few questions on steerage right here. First, what is the natural assumption embedded within the development charge? And I do know you gave the FX aspect already however perhaps just a few assistance on what you are assuming for natural development?
Sundaram Nagarajan
Steve, you bought it?
Stephen Shamrock
Yeah, that is Steve. So for the total 12 months steerage, as Naga identified, we’re forecasting development of 6%. And ARAG is at 5%. So that will suggest natural development of about 1% as a result of we’d say primarily based on present charges, we’re FX impartial. In order that’s how we’re desirous about the general development charge of 6%.
Mike Halloran
Thanks for that. After which on the electronics assumptions, you talked about again half restoration. What informs that? It actually seems like a part of it’s comparisons, a part of it’s historic restoration curves. Is there something prospects are saying or construct charge forecasts or anything that you’d level to?
Sundaram Nagarajan
What I’d let you know is the 2 issues that you simply already acknowledged, which is actually historic developments. Definitely, we’ve got a direct gross sales mannequin and our groups are spending loads of time with our prospects understanding what their necessities are and after they would present up. If you happen to had been to level to something, you’ll say the pipeline of alternatives proceed to be — to level in direction of that timeline of restoration.
Mike Halloran
After which final one, simply on the IPS aspect. Are you assuming comparatively regular sequential patterns from right here? Any ideas on the way you’re trying on the finish market cadencing, demand ranges, issues like that? I imply, packaging was robust this quarter, which felt slightly shocking. So any context on that will even be useful.
Sundaram Nagarajan
Yeah, certain, Mike. IPS has been operating at or above our long-term development charges right here now for 2, three years now. And what our expectation is that we do not see something within the order entry that provides us a pause. Good backlog and good order entry that we count on to maintain development within the coming years. A major contribution on IPS development for the approaching 12 months could be by means of the ARAG acquisition.
Mike Halloran
Received it. Actually admire it. Thanks in your time.
Sundaram Nagarajan
Certain.
Operator
Your subsequent query is from the road of Jeff Hammond with KeyBanc Capital Markets. Please go forward.
Jeff Hammond
Hey, good morning everybody.
Sundaram Nagarajan
Morning, Jeff.
Joseph Kelley
Morning, Jeff.
Jeff Hammond
So perhaps return to the natural. It appears just like the vary is sort of minus 4% to plus 1%. Do you see all of the segments on the midpoint rising or are there some segments that clearly have development and others which are perhaps down?
Sundaram Nagarajan
Yeah. We simply talked about IPS. IPS right now at or above our long-term development charges proceed to maintain modest development within the 12 months arising. ATS goes to be flattish in that, what I’d let you know is that first half we’ll be persevering with down, second half proceed to enhance. And in order that will likely be flattish to slight development. MFS although, we’ve got medical interventional elements persevering with to be fairly robust development for us. Our bio-pharma enterprise, anniversarying itself and never being a drag, after which enchancment in our fluid options in direction of the again half of the 12 months. Total, our expectation is that MFS returns to a fairly good development subsequent 12 months — modest development for that phase.
Jeff Hammond
Okay, nice. Thanks for that shade, Naga. Simply, ARAG, there’s been loads of commentary about ARAG slowing. I am simply questioning if ARAG is seeing that stress, it looks as if the mathematics perhaps suggests slightly bit decrease income contribution than perhaps once you first purchased it, simply communicate to what you are seeing there actual time.
Sundaram Nagarajan
Yeah, let me begin it after which Joe in his new position can actually offer you some shade on ARAG as effectively. What we see — keep in mind 45% of our ARAG’s revenues are recurring income. They usually’re sometimes merchandise or quick life substitute cycles. So largely nozzles and issues like that. So we are going to profit from that and that’s not going to see the stress you are going to see. The opposite factor what I’d let you know is that ARAG’s elements, very like Nordson, is crucial low-cost element for the shoppers and likewise elements that drive effectivity, cut back waste. And so sometimes what our expectation is that the — that we’ll see restricted affect from that. And so let me perhaps have Joe discuss the place we completed the 12 months for ARAG in Nordson fiscal 12 months after which speak slightly bit about our expectation for subsequent 12 months.
Joseph Kelley
Yeah. So, Jeff, if you concentrate on ARAG, they completed the Nordson, what I am going to name, calendar fiscal 2023, delivering $155 million in gross sales. And the midpoint of our steerage means that ARAG’s gross sales develop in 2024. And so, regardless of a few of the information that you simply’re listening to within the ag house, once you take a look at the elements that they supply, the 45% that is run charge elements and consumables that Naga talked about, we’ve got it moderated the expansion charge from what was beforehand articulated, however it’s nonetheless rising once you take a look at it year-over-year.
Jeff Hammond
Okay. After which only a housekeeping. Amortization in ‘24, is it $20 million 1 / 4, $80 million? Is that sort of the fitting run charge or how ought to we take into consideration that?
Stephen Shamrock
Yeah, Jeff, I’d let you know the steerage on amortization is within the vary of $74 million to $78 million for the total 12 months and about $19 million in Q1.
Jeff Hammond
Okay, thanks a lot.
Operator
Your subsequent query is from the road of Matt Summerville with DA Davidson. Please go forward.
Matt Summerville
Thanks. I hoped perhaps you gave slightly bit extra granular element on expectations for MFS. I hoped you might sort of speak by means of the identical factor for IPS, the way you’re desirous about inflexible, versatile packaging, non-wovens, product meeting, coatings, as we transfer into ‘24.
Sundaram Nagarajan
Yeah, hey, let’s — usually we do not give steerage across the phase, however I’ll actually offer you some what we’re seeing within the market and hopefully that can reply the query, Matt. So let’s begin with packaging, proper? Packaging is doing pretty effectively. It’s — the order entry charges and issues like that counsel that the backlogs have returned to regular. The elements a part of the enterprise is doing pretty effectively. And so we count on packaging to proceed to be regular as we’ve got skilled to date. So that’s packaging. As you concentrate on system companies like coatings or polymers, as we enter the 12 months, we enter the 12 months with some fairly robust backlog. And so we essentially imagine that that’s one that can assist us within the development there. Non-wovens has been a enterprise that continues to — has not declined any additional. Will proceed to be monitoring in the identical place the place we’re. We actually have various product functions. That is kind of functions similar to battery, take into consideration functions in e-commerce, cloth bonding and plenty of different miscellaneous software. That is the a part of the enterprise the place it’s software by software and this one is doing effectively as effectively. Hopefully that provides you slightly bit extra shade and hopefully solutions the query you are asking, Matt?
Matt Summerville
Yeah, I admire the element there. Possibly simply over to ATS, two fast issues. Are you truly seeing an inflection in CyberOptics enterprise mentioning the truth that you had the strongest quarter for that enterprise for the reason that acquisition? After which if you happen to can remark slightly additional on the way you’re desirous about take a look at and inspection for ’24.
Sundaram Nagarajan
Yeah, as you concentrate on take a look at and inspection, we have had robust, robust years right here now going. Even final 12 months when our dispense enterprise was down a bit, you additionally discovered them to be doing pretty effectively. However as you go into subsequent 12 months, we count on that we’d have difficult comms for our x-ray enterprise. We actually count on that our optical enterprise and our acoustic enterprise, which we have not talked about up to now, is an space that we really feel there’s some power. And too early to say we’ve got reached an inflection level, however actually telling you that that is an space that we’re effectively positioned to reap the benefits of any market motion. Buyer dialog, pipeline exercise, all nonetheless indicating second half of the 12 months, calendar 12 months, that we’ve got restoration. However I feel we be ok with the place we’re, notably on CyberOptics, we have had now a 12 months of expertise with this. CyberOptics is precisely what we thought it was, extremely implausible know-how that has added to the portfolio. So our thesis round increasing our precision know-how portfolio with CyberOptics is actually robust. And our expectations are that we proceed to have the ability to remedy extra issues for our prospects and proceed to learn on this funding in semiconductors that’s anticipated to return.
Matt Summerville
Thanks.
Operator
[Operator Instructions] Your subsequent query is from the road of Christopher Glynn with Oppenheimer. Please go forward.
Christopher Glynn
Thanks. Good morning. I used to be simply curious concerning the ATS foreground, spend one other second on that. You stated your crew could be very engaged speaking to prospects, in order that seems like everyone seems to be on the identical web page when it comes to anticipating a restoration. Are you simply seeing like materialization of pre-RFP exercise? Is there, like, enhancing breadth month to month? Simply curious how the cadence is there.
Sundaram Nagarajan
Yeah, I’d return to what we had been speaking about, which is actually nice buyer conversations, historic developments all pointing in direction of second half of calendar 2024. Clearly our pipeline exercise continues to be fairly good. And our expectation is that, that interprets into order entry and interprets into cargo. Past that, I — our expectation for the ATS is it may be flat, however first half down, second half up. And if you happen to look traditionally, that has been a reasonably good indicator and we imagine that. So our steerage is predicated on APS being flat, not vital development.
Christopher Glynn
Yep, yep, I perceive the timing. Thanks for that. After which a fast one on MFS, the sort of non-medical fluid options portion. I feel you talked about some vital manufacturing and productiveness advantages there from price actions and NBS Subsequent. Curious how that industrial fluid options enterprise, I feel it is quick cycle oriented. How’s that — slightly extra element on how that is behaving, please?
Sundaram Nagarajan
Yeah, that’s going pretty effectively. I’d say early instances right here. We’re very happy with the enhancements that groups have made in manufacturing and the enterprise beginning to return to the place it sometimes operates. A major pickup on this enterprise goes to be tied to the digital prospects in Asia as effectively, proper? And so this can be a enterprise that has some digital publicity and that they may profit from that because the second half picks up for them. However total on the economic aspect it appears to be regular.
Christopher Glynn
Thanks. Thanks, Naga.
Sundaram Nagarajan
Yeah. You are welcome.
Operator
Your subsequent query is from the road of Walt Liptak with Seaport Analysis. Please go forward.
Walt Liptak
Hello, thanks. Good morning. I’m wondering…
Sundaram Nagarajan
Good morning, Walt.
Walt Liptak
Good morning. You guys have not talked an excessive amount of about pricing but and there is nonetheless some inflation on the market though it is come down. How are you desirous about methods pricing and element pricing as you begin going into the brand new 12 months?
Sundaram Nagarajan
Steve, that is one thing that you simply wish to contact on?
Stephen Shamrock
Yeah, to reply that query, what I’d say is, once more, simply to remind you and everybody that actually after we discuss pricing, I imply, we’re promoting the worth of our merchandise to our prospects. So we have not handed by means of massive inflationary value will increase because of that. I imply, once more, our focus is sustaining our very robust gross margins from that perspective. So, as I discussed earlier with the natural development steerage, the 1% for FY ‘24, I’d assume that that natural development could be balanced when it comes to slightly bit coming from quantity and value, however once more, it is not one thing that we’re actually centered on from that perspective. Once more, our focus is on sustaining these gross margins.
Walt Liptak
Okay, nice. And I’m wondering if we might speak slightly bit concerning the ag markets and simply the — regionally, ARAG is fairly worldwide in Europe and South America. I’m wondering if you happen to might speak slightly bit, give us some perception on how these markets are trending and we in all probability have a greater view on the US, however — so perhaps the second a part of the query is, you guys are sort of a brand new alternative within the US for market share. Are you able to develop the US a part of the enterprise subsequent 12 months?
Sundaram Nagarajan
Yeah, let me begin after which Joe can add slightly bit extra shade to the enterprise. As you concentrate on ARAG, proper, what we acquired is a European market chief, nice know-how, robust place in Europe, robust place in South America in an finish market that’s rising, proper? So our fashions and our expectations are that we ship on that promise round persevering with to develop the European enterprise and proceed to develop the South American enterprise. We actually acknowledge that we’ve got a possibility in North America. However we additionally perceive the market dynamics in North America. Any wins and any enlargement right here will likely be no less than further icing on the cake, if you happen to so will, to our mannequin. And so, we just like the know-how, we just like the market place, and the market construction in Europe is uniquely completely different from North America, and perhaps let Joe add shade to the work that they are doing in Europe and in our know-how. So, Joe?
Joseph Kelley
Yeah, Walt. You consider simply the extent set on ARAG, their precision dishing out fluid elements which are predominantly elements offered to implement producers, spray producers. And once you look, it is once more, predominantly a European enterprise, a really broad footprint all through Europe by means of their distribution mannequin and promoting to implement producers. And in order that market once more is, I’d let you know, the principle driver of our forecast when you concentrate on the ARAG enterprise and the expansion that we’re forecasting for 2024. The US and different geographies exterior of Europe and South America the place ARAG has a robust footprint represents alternative. And when you concentrate on Nordson and our broad geographic footprint, our capability to, I’d say, notice a few of these alternatives, I feel is enhanced versus a standalone ARAG enterprise. And so when you concentrate on that, we’re beginning to see within the integration, a few of these alternatives begin to fill in within the pipeline. And so once more, we’re optimistic that long run, we are able to make this a worldwide division inside Nordson with a broad geographic footprint.
Walt Liptak
Okay. All proper. Yeah, thanks for that reply. And, if I might simply attempt yet one more on the IPS phase for Joe. I’m wondering if you happen to might simply assist us characterize the way you’re sort of the final industrial system spending for subsequent 12 months, what the funnel appears like, and perhaps a few of the larger subsegments like round automotive or shopper good?
Joseph Kelley
Sure. So, simply to stage set, the IPS phase is coming off now, I’d say, two very robust years. If you happen to look again at ‘22, they delivered a 7% natural development. In ‘23, it grew 3% organically. In order we head into ‘24, we’re trying to actually preserve that from the extent the place we’re. What drove it, if you happen to return to ‘22, was loads of the big methods within the liquid coatings. After which in ‘23, it turned, there was heavy automotive, truly development in automotive on the coating aspect. After which on the plastic processing aspect and the recycling. That was robust within the again half of ‘22 and continued to be robust in ‘23. And so these massive methods companies inside IPS, they do carry a pleasant backlog into 2024. That being stated, the remaining portion of the IPS enterprise backlog there has moderated. So, once you see the backlog come right down to $800 million, I’d let you know that is the elevated backlog moderating again to historic phrases for the rest of that enterprise. That being stated, the order entry there stays regular and is supportive of our forecast. So, you are accustomed to the enterprise, notably on the packaging aspect. When methods come down resulting from funding, elements sometimes assist offset that when it comes to development of elements. And so it is actually a pleasant combine. And I’d let you know, we have benefited from automotive liquid coatings after which the polymer processing final couple years on the system aspect. However the remaining broad-based [industry] (ph) stays regular.
Walt Liptak
Okay, nice. Okay, thanks.
Sundaram Nagarajan
Proper, I imply one factor that I’d add Walt is actually, basically the corporate is a recession resilient firm and a portfolio that helps us get by means of unsure financial environments or downturns in particular finish markets, proper? That is what you noticed occur in ‘23. As we take into consideration ‘24, actually what had been our expectation is [IPSA] (ph) research, ATS is flattish to slight development, and MFS returns to fairly modest development. And that is sort of how I’d give it some thought. And a fairly robust EBITDA margin in final 12 months, and we’ll proceed to count on to see the identical subsequent 12 months.
Operator
Your subsequent query is from the road of Andrew Buscaglia with BNP Paribas. Please go forward.
Andrew Buscaglia
Hey, good morning, guys.
Sundaram Nagarajan
Good morning.
Joseph Kelley
Good morning.
Andrew Buscaglia
Only one final clarification in your steerage. So the low finish, if you happen to take a look at the natural gross sales development, the low finish of that steerage, if you happen to mannequin that out, it does not actually assume a lot of a restoration in any respect. Is that appropriate? After which how a lot of the restoration is very easy comps versus demand truly selecting up?
Stephen Shamrock
Yeah. So what I’d let you know, Andrew, is from a normal steerage perspective, I imply, on the low finish of our gross sales steerage, we’re speaking about 4% principally from that perspective. So clearly, there — what would get us in direction of the decrease finish there’s clearly, if there’s the restoration on the ATS aspect, for instance, is slower than what we’d count on if FX charges go in opposition to us, these forms of issues. And I feel we talked earlier, I feel Naga talked about it as effectively, simply from a comp standpoint, with a few of the companies that we had been speaking about, proper, whether or not it was fluid options or on the digital aspect inside ATS.
Andrew Buscaglia
Okay. After which what concerning the simple comps versus demand selecting up? Is that — to get to the midpoint, do we want demand to return again?
Sundaram Nagarajan
Sorry, go forward, Steve.
Stephen Shamrock
No, what I used to be going to say is, I imply, simply from a midpoint perspective, once more, I imply, that assumes 1% natural development total. So, once more, there could be some quantity embedded in there. So we’d count on it to choose up, proper? I imply, simply sort of given the, by phase, like we talked earlier, from that perspective, ATS, once more, we might count on some second half choose up there in the long run of Q2 or Q3 and This autumn. We talked concerning the fluid elements earlier and even fluid options. I do know Naga referenced that as effectively, digital meeting selecting up within the again half of the 12 months as effectively.
Andrew Buscaglia
Okay.
Sundaram Nagarajan
Andrew, I’d simply add, if I might, the way in which I give it some thought is full 12 months, our steerage says we’ll develop 6% on the midpoint, roughly talking and Q1 is development of three%. So principally, it implies that the expansion charge picks up previous Q1. And a part of that, as you talked about, is the comps get simpler in Q2 and Q3, notably as a result of that is when the ATS and the biopharma pullback actually occurred. And so the expansion charge is, let’s simply say, 3% in Q1 after which picks as much as 7% within the remaining three quarters, with it being the heaviest in Q2 and Q3 as a result of the comps are simpler.
Andrew Buscaglia
Yeah, okay. And in ATS, margins sort of transfer round fairly a bit traditionally, so it is laborious to gauge a sample. However is the principle driver right here for ATS long-term volumes simply selecting again up, or are there cost-saving potential in that phase to get these up nearer to a company common margin?
Sundaram Nagarajan
Let me simply perhaps offer you a broad view of how we’re desirous about ATS, after which perhaps Joe or Steve, you guys might add extra shade to it. What I’d say is, ATS at 24% EBITDA, and also you examine them to their opponents within the markets that they play in is fairly robust. And one of many causes is that, look, the R&D load right here is way greater than a few of our different companies. So, expectation should not be that ATS will get to the overall firm common numbers. It will — you are at all times going to search out that you’ve got 14% SG&A price right here within the — in our enterprise in ATS when in comparison with IPS, which is a a lot smaller quantity. In order that’s — the one stage setting I wish to do is just be sure you’re not — your expectations for ATS needs to be in keeping with ATS, not in keeping with the overall firm common.
Joseph Kelley
And the remark, down the total 12 months, we’re fairly happy with what we have performed to enhance the profitability of that enterprise. And right here we’re on the low level within the cycle and we’re delivering this [24%, 23%] (ph) EBITDA margins and so we’re effectively positioned to take part within the restoration however that does not imply you need to count on it to get to Nordson’s the opposite segments ranges of profitability.
Andrew Buscaglia
Okay, thanks guys.
Stephen Shamrock
The one, I used to be going to say, perhaps the one different level I’d add there too is we have performed a pleasant job in that phase as effectively, Andrew, simply when it comes to our decremental margins being very favorable to our targets, proper? So we’re actually managing the prices appropriately primarily based on quantity, so.
Andrew Buscaglia
Okay, thanks.
Operator
And at the moment, there look like no additional questions. I’ll flip the decision again over to Naga for any closing remarks.
Sundaram Nagarajan
Thanks in your time and a focus on right now’s name. We’re making nice progress on the Ascend technique. We’re effectively positioned for worthwhile development in fiscal 2024. We stay centered on reaching our long-term goal of delivering top-tier income development with main margins and returns. I want all of you a contented vacation season. Thanks.
Operator
This does conclude the Nordson Company fourth quarter and monetary 12 months 2023 convention name. We thanks in your participation. You could now disconnect.
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