Nordson Corp (NDSN) 2022 Q1 法說會逐字稿

Good day. My name is Savannah, and I will be your conference operator. At this time, I would like to welcome everyone to the Nordson's Corporation First Quarter and Fiscal Year 2022 Conference Call. (Operator Instructions) I would now like to turn the conference over to Lara Mahoney. Please go ahead.

Thank you. Good morning. This is Lara Mahoney, Vice President of Investor Relations and Corporate Communications. I'm here with Sundaram Nagarajan, our President and CEO; and Joseph Kelley, Executive Vice President and CFO. We welcome you to our conference call today, Wednesday, February 23, 2022, to report Nordson's fiscal 2022 first quarter results. You can find both our press release as well as our webcast slide presentation that we will refer to during today's call on our website at www.nordson.com/investors.

This conference call is being broadcast live on our investor website and will be available there for 14 days. There will be a telephone replay of the conference call available until Wednesday, March 2.

During this conference call, references to non-GAAP financial metrics will be made. A reconciliation of these metrics to the most comparable GAAP metrics was provided in the press release issued yesterday. Before we begin, please refer to Slide 2 of our presentation, where we note that certain statements regarding our future performance that are made during this call may be forward-looking based upon Nordson's current expectations. These statements may involve a number of risks, uncertainties and other factors, as discussed in the company's filings with the Securities and Exchange Commission, that could cause actual results to differ.

Moving to today's agenda on Slide 3, Naga will discuss first quarter highlights. He will then turn the call over to Joe to review sales and earnings performance for the total company and the 2 business segments. Joe will also discuss the cash flow and balance sheet. Naga will conclude with high level commentary about our enterprise performance as well as our updated fiscal 2022 second quarter and full year guidance. We will then be happy to take your questions.

With that, I'll turn to Slide 4 and hand the call over to Naga.

Good morning, everyone. Thank you for joining Nordson's fiscal 2022 first quarter conference call. As we expected, the demand environment that we experienced in the second half of fiscal 2021 flowed into the first quarter. Our teams did an outstanding job delivering for our customers. In the quarter, we delivered double digit sales growth across most end markets in midst of supply chain constraints and labor shortages. I'm very thankful for our employees for staying safe, managing dynamic market conditions, deploying the NBS Next growth framework and ensuring we meet the needs of our customers. I will speak more about the business in few moments, but first, I'll turn the call over to Joe to provide detailed perspective on our financial results for the quarter.

Thank you, Naga, and good morning to everyone. On Slide #5, you'll see first quarter 2022 sales were $609 million, an increase of 16% compared to the prior year's first quarter sales of $527 million. The increase was primarily related to 16% organic volume growth and 4% from the NDC acquisition, offset by headwinds from currency and the screws and barrels product line divestiture. This double-digit organic sales increase was driven by solid growth in most product lines with particularly strong demand in electronics, industrial and medical end markets. Geographically, all regions delivered organic growth in the quarter.

Gross profit for the first quarter of fiscal 2022 totaled $340 million. Excluding the amortization of acquired inventory step-up, gross profit totaled $342 million, or 56% of sales in the quarter, compared to $290 million or 55% of sales in the prior year first quarter. This 100 basis point increase in gross margin was driven by improved sales mix from the divested screw and barrels product line, sales volume leverage, and process enhancements from our NBS Next growth framework. On a year-over-year basis, inflation pressures contributed to a negative price/cost mismatch unfavorably impacting margins by 100 basis points. As price realization is delayed given the extensive backlog entering the year, this impact will continue to lessen as we move into the second quarter and the back half of 2022.

On a sequential basis, comparing Q1 2022 to Q4 2021, gross margins improved approximately 100 basis points as several of the nonrecurring items experienced in Q4 2021 did not repeat, as forecasted. We continue to take appropriate pricing actions in fiscal year 2022 to respond to inflationary pressures. Our organization's agility and a disciplined approach to cost control coupled with consistent deployment of the Ascend strategy is allowing us to successfully navigate these challenges and continue to deliver profitable growth. Operating profit in the quarter was $156 million. Adjusting for the purchase price accounting related to inventory amortization, operating profit was $157 million or 26% of sales, a 44% increase from the prior year.

Double-digit organic growth, favorable sales mix and continued cost control measures contributed to incremental operating profit margins of 59% in the quarter. EBITDA for the first quarter was $183 million or 30% of sales. Looking at nonoperating expenses, net interest expense decreased $1 million or 21% from the prior year driven by reduced debt levels. Other net expense decreased $6 million from the prior year first quarter. $3 million of the decrease is attributable to fluctuations in currency gains and losses, as the prior year first quarter included a $2.8 million currency loss. The remainder of the decrease primarily relates to reduced pension expense attributable to the increased funding in the prior year.

Tax expense was $32 million for an effective tax rate of 21% in the quarter, which is in line with our prior year rate and the forecasted full year rate for 2022. Net income in the quarter totaled $120 million or $2.05 per share. Adjusted earnings per share excluding inventory amortization totaled $2.07 per share, a 57% increase from the prior year. This improvement is reflective of the strong double-digit year-over-year increase in sales and, more importantly, consistent application of the NBS Next growth framework, which leads to steady profitable growth with attractive incremental margins.

Now let's turn to Slide 6 and 7 to review the first quarter 2022 segment performance.

Industrial Precision Solutions sales of $324 million increased 12% compared to the prior year first quarter. Organic volume growth in the quarter was 12% plus another 8% from the NDC acquisition. This was offset by the divestiture impact and unfavorable currency of 3%. Different than previously communicated, the NDC acquisition is now being managed within the IPS segment rather than Advanced Technology Solutions. As we've integrated this business over the past 3 months, it's become clear that NBC has greater alignment with our IPS end markets and sales channels. We believe this is an optimal fit to harness future growth.

IPS's strong 12% organic growth delivered in the quarter was driven by robust demand for industrial coating product lines, plus steady growth in the consumer non-durable end markets for hot melt adhesive-dispensing drove this quarter's results. From a geographic perspective, growth was strongest in Asia and Europe. Operating profit for the quarter was $104 million or 32% of sales, which is an increase of 24% compared to the prior year operating profit of $83 million. Excluding the acquisition and the divested product line for comparability purposes, operating profit grew 15% over the prior year for an organic-only incremental profit margin of 51%.

Moving now to Advanced Technology Solutions. Sales of $285 million increased 20% compared to the prior year first quarter. This change included an increase in organic sales volume of 21% offset by a 1% unfavorable currency impact. Growth was across all major product lines, but particularly strong in product lines serving electronics end markets, which grew approximately 40% over the prior year. Medical product lines were also strong, growing double digits, and product lines serving broader industrial markets grew in the high single digits. All geographies contributed to this quarter's growth, with particular strength in the international regions. First quarter operating profit was $76 million or 27% of sales.

The 62% increase over the prior year operating profit of $47 million was driven by sales volume leverage and the realization of benefits from cost control measures taken in fiscal 2020 and early 2021. This segment has now been performing at the mid-20%s in terms of profitability for the last 4 consecutive quarters.

Deployment of our NBS Next growth framework continues to be a key element in the success of this segment delivering profitable growth.

Finally, turning to the cash flow and balance sheet on Slide 8. Free cash flow in the quarter was $106 million or a conversion rate on net income of 88%, as strategic investments are being made in inventory to address portions of the current supply chain constraints. During the first quarter we acquired NDC for a $172 million and paid $30 million in dividends and spent $35 million on share repurchases. Through our disciplined approach to capital deployment and strong operating profit growth, we ended the quarter with a healthy balance sheet and abundant borrowing capacity. Cash totaled $171 million and net debt was $637 million, resulting in a 0.8x leverage ratio based on the trailing 12 months EBITDA.

During the second quarter of fiscal 2022, we anticipate successfully annuitizing a portion of our pension liability associated with retirees in payment status. This will have no impact on cash flow in the year as our domestic pension plan is well funded, but will likely trigger a noncash, nonoperating charge, depending on the terms of the final annuitization transaction. For modeling purposes in fiscal 2022, assume an effective tax rate of 21% and capital expenditures of $40 million to $45 million.

I will now turn the call back to Naga.

Thank you, Joe. Let's turn to Slide 9. Again, thank you to the Nordson team for delivering this outstanding performance. I've spent a lot of time in our facilities this quarter, and I am impressed with our caliber of talent and the dedication of our employees to meet commitments for our customers despite the constraints of the supply chain and labor availability. During my trips, our divisions demonstrated how the ongoing deployment of the NBS Next growth framework is helping them identify best products and customers and then prioritize capacity to meet the demand of these customers.

For example, our Medical Fluid Components division, which had over 40% sales growth driven by its focus on biopharma applications, has dedicated injection-molding machines to more efficiently meet the needs of their best medical device customers. Joe and I also visited our Electronics Processing Solutions division in California, where we saw the new Vantage product in action. The Vantage is our first fully integrated wafer handling system designed for the semiconductor industry. At a time when the demand for semiconductors is growing at an incredible pace, we are meeting the needs of our customers with a product that advances automation, reduces cost and accelerates productivity for our customers.

Before I turn to guidance, I'd like to share an organizational update. I'm pleased to share with you that Jeff Pembroke, Executive Vice President and segment leader for Advanced Technology Solutions, will be assuming the segment leadership role for Industrial Precision Solutions effective March 1. Jeff began his career in our industrial coatings and adhesives businesses, so he enters this role with a strong understanding and appreciation of excellent position of the IPS divisions and leaders in their end markets. He will build upon that by empowering and accelerating the progress of our NBS Next growth framework in IPS.

I will assume leadership of our ATS segment while we evaluate long-term plan. We are fortunate to have strong division leaders throughout the company, and I look forward to working more closely with them.

Now let's turn to our updated fiscal 2022 outlook on Slides 10 and 11. Order entry remained strong throughout the first quarter with a favorable book-to-bill ratio growing backlog to over $900 million. This growth in backlog is related to the ongoing extended shipment requests from our large customer orders from electronics, industrial and medical end markets. In this strong demand environment, we expect supply chain and labor availability to remain as constraints into the second half of this year. Based on these factors, we expect fiscal 2022 second quarter sales growth to be in the range of 6% to 10% as compared to fiscal 2021 second quarter, with adjusted earnings per diluted share in the range of $2.20 to $2.30.

This guidance means that our teams will deliver the fourth consecutive quarter of around or above $600 million in revenue despite our capacity constraints. This is a great credit to our winning teams and their commitment to our customers.

Based on the strong performance of the first quarter, we are focusing our full year 2022 guidance on the high end of the range that we provided in December. We now expect full year revenue growth in the range of 7% to 10% and adjusted earnings per diluted share growth in the range of 14% to 18% over fiscal 2021. This growth is over a record fiscal 2021.

Our financial results and expectations for growth reflect our differentiated precision technologies, customer-centric model and diversified end markets. Additionally, our leadership team is advancing the implementation of the Ascend strategy, which is establishing NBS Next as our growth framework, an entrepreneurial organization and a deep, diverse team to drive sustainable, profitable growth.

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.

(Operator Instructions) Your first question comes from the line of Allison Poliniak with Wells Fargo.

Just want to go to you back to the comments around sort of that price cost spread. Is there any color you can give us in terms of how you think on cadence? Does it sequentially improve where it becomes more favorable in the back half for you? Just trying to understand the context of that.

Yes, Allison. So yes, when you think about our price increases and the realization in Q1, given the strong backlog, it didn't have a huge impact in terms of the top line in Q1. That will improve. So if you think about a 100 basis point negative in Q1, I think that will probably cut in half as you go into Q2, and then it should be neutral by the time you get into the back half.

Great. And then with the supply chain, labor shortages, just -- I know you said you built some inventory to kind of help smooth that to some extent. I guess, one, within the backlog, do you see -- are you able to look at that from a long-term perspective? And is that getting better for you? Is it easing somewhat underneath those? I know it's still constrained, but are you getting a little bit more visibility on that sort of the labor and supply challenges that are currently out there?

Allison, let me take that. If you think about our supply chain constraints, these are not across all of our businesses. So I think you want to -- those are in particular businesses, many of them related to electronic components. In some businesses, there are some casting issues, but we do see those supply chain issues continue to get better as we progress along the year.

In terms of labor shortages, I would tell you, we certainly had an issue related to the Omicron variant here in the first quarter. That certainly has improved. But in general, think about it, we're going to -- our forecast is that we're going to ship pretty close to $630 million, $640 million in the second quarter. And that is now 4 quarters' worth of -- 4 quarters of over $600 million in revenue, right? So the constraints are at an elevated level, is probably the way I would put it.

No, that's fair. And just one last question for me. Just on the backlog piece of it, I know your customers are probably facing similar issues. Are you getting any push-outs of some of that acceptance of those projects, or has it been manageable?

Yes. No, it has been manageable. What they have -- pretty much, many of our customers are planning for it. And hence, what you're beginning to see, as we have indicated in the past, that our orders are being -- request shipment dates are extending out more than we normally see. I think people are ordering ahead of time, anticipating not only problems with their own supply chain, but hedging their bets with us as well.

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

So I just want to follow up on that last comment there, Naga. So when you think about the backlog, when do you think it gets to more normalized levels? Or when you think about your guidance, do you get to more normalized level by year-end?

And obviously, the customer patterns are shifting a little bit in how they're managing their orders. I'm guessing at some point that goes back to normal, and that will be in conjunction with supply chain normalizing. But any thoughts you have on how you're thinking about that and what's embedded in guidance would be great.

Yes. Let me have Joe take the part on guidance. And maybe I'll start us off with -- in general, what we are seeing is till supply chain normalizes, this thing is going to keep going back and forth a little bit, right? And I think our expectations on supply chain easing is probably more towards the second half, maybe end of the year. And that's really what we think. Unless that changes faster, I think our guidance sort of takes into account that assumption. Joe, do you want to add any more color to that?

Yes. I mean when you think about the backlog, Mike, it is different. What I'd tell you, these large systems businesses, 75% of our backlog today is tied to these businesses, which have large system orders, and those orders are booking out until 2023 in many of those businesses.

When you look at our -- what I'll call our normal book-and-ship type businesses, which includes parts and consumables as opposed to large systems -- I should say, parts and systems. That, I would tell you, that order entry -- and we look at that in the backlog -- that kind of supports our guidance as we look out and see the growth rate in Q2 and the back half, whereas the backlog is inflated to a high level because of those large systems businesses, which are booking way out into now 2023.

So the composition of the backlog has changed. And when we look at the normal book-and-ship business, it does support our growth guidance for the back half.

So Joe, it sounds like you're saying that, from a backlog perspective, there's no, call it, excess backlog catch-up embedded in the forward guidance. It's just kind of how you're slotting out some of those larger systems projects and kind of a normal cadence on the non-systems businesses, is that fair?

That is fair.

Okay. And then on the capital allocation side, how are you thinking about capital usage at this point? And I suppose 2 things. One, interest in buybacks at this point? And then secondarily, what does the M&A funnel look like, and from an actionability perspective?

Maybe I'll take that acquisitions first, Mike, and then Joe can cover the rest of the pieces that you have interest in. On the acquisition piece we remain active, the pipeline is healthy, but we remain disciplined. I think that's really important for us, is that we are focused on scaling our medical business, focused on expanding our PMI capability, certainly adding any other adjacent solution technologies if the right thing comes along. So lots of activities, healthy pipeline, but remain disciplined, right? So we want to remain strategically disciplined and financially disciplined. And so over the long haul, we are confident we'll deliver on the $500 million in acquisitions that we committed to at our Investor Day. Joe, do you want to…

Yes. On the remaining capital allocation in terms of dividends and share buybacks, you know we increased our dividend last year, trying to target a yield closer to 1%. And then the share buyback, over the longer period we try to offset dilution. And so just systematically buying back in the marketplace to offset dilution, given the run in the stock price. We were unsuccessful in doing that last year. And so we're working on that this year. We did buy back, under the 10b5-1, 140,000 shares approximately here in Q1. But I would tell you, Mike, our strategy there has not changed, it's simply to offset dilution.

Your next question is from the line of Jeffrey Hammond With KeyBanc Capital Markets.

This is Mitchell Moore on for Jeff. Just quickly on the NDC Technologies acquisition, I know you guys touched on it a bit in the prepared remarks, but I'm just wondering if you could elaborate a bit on the decision to include NDC Technologies in IPS, and maybe what specific opportunities you saw that maybe weren't apparent when you first acquired NDC?

Yes, I think as we spend a little bit more -- first and foremost, the NDC acquisition is coming along very nicely. 3 months into -- in our portfolio, we really like the team, really like the product technologies, like the customer exposure and end market exposures they have. And so really, spending more -- deeper dive into the businesses and really thinking through what are the best growth opportunities for the business and what are the end markets that they are most excited about, you get some view of it during diligence, but it is a pretty accelerated process. So after spending more time with it, we fundamentally believe -- think about the film extrusion business that they have, they have gauges for that, or think about the food and consumer-type end markets where they have IR technologies to measure the quality of the food, we felt that this end market exposure aligns very well with our packaging businesses.

And hence, the growth opportunities and the ability to cover the customer, in many ways, sometimes if you go to a, let's say, consumer goods manufacturing line, what we end up finding is that at the back end, when the food is packaged, you find our adhesive hot melt adhesive systems. In the front end, when you're looking or measuring the freshness or the quality of the food that's getting manufactured, you definitely find a lot of NDC. So this exposure on consumer industries, we felt that there is a great alignment between both these sales channels. And hence, we decided to move that business into IPS.

Okay. Great. That's very helpful. And just on medical, I think you guys called out biopharma as particularly positive. I just wanted to dig in on that a bit. I was just wondering how elective surgeries have trended given the recent spike in COVID. And maybe if more people are delaying surgeries, and whether you feel that's led to some pent up demand here that you might be able to capitalize on.

Yes. What we find, elective surgeries are continuing to recover. If you remember, in this particular surge the hospital capacity was not that strained as it was during Delta. So we continue to see elective surgeries come back up, so we see our interventional component businesses continuing to do fairly well. But if you think about the biopharma business, it's slightly different in that we sell a lot of components to people who manufacture biopharmaceuticals.

And that business is very strong for us. It's not only just vaccine production, but it is also gene and cell therapies that are very -- and in addition, you also have biopharmaceuticals expanding capacity, to make sure that there are more regional availability of vaccines and therapies.

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

Folks, just -- with respect to kind of looking at the business geographically, volume in U.S. and Japan only up modestly year-on-year. Maybe just talk a little about that. Is that more comparison-related, is there something, anything to read into, with respect to what you're seeing in there geographically?

If you think about the geographies, what we find is that -- you're certainly right that we saw significant strength in Europe and Asia. Those were particularly high points for us. Japan is still recovering. Japan got hit hard with COVID. I think the Americas is more around comps. So if you think about it, Americas came out first for us. And so regionally we don't see anything significant other than, I would say, we had a broad-based growth in the quarter and that's our expectation, with particular strength in Asia and Europe.

With respect to the ATS business, if I think about this kind of multiyear capacitization cycle that we have begun to see and will see as it pertains to the semiconductor industry, when would you expect Nordson to see peak benefit from that capacity cycle there?

Yes. I mean the capacity cycle continues to change and remain dynamic. But I would tell you, we are seeing significant activity. That's what you see in the ATS business, is the growth in ATS was primarily driven by electronics and biopharma. But what you're seeing is some pretty robust demand right now. Is that the peak, Matt? It would be very difficult for me to sort of gauge that. This is -- as you know, there has been an extended cycle, more extended than we have seen before. Is this the peak, I don't know, but are we working with our customers right now? Yes, there is a lot of activity.

And our solutions, if you think about Vantage, which is the wafer handling system with our dispense systems, this is one of the best products that is helping our customers accelerate their units per hour with great quality. So that has gone well for us, at the same time we also have XM8000, which is our test inspection that goes into semiconductor wafer inspection, that is doing incredibly well.

So I look at both those businesses, I'd tell you the market activity and the demand is pretty strong. I don't know whether I would characterize it as the peak right now or peak for another few years, I don't know. That is difficult to guess.

But as you know, we have direct sale model that allows us and gives us visibility to what our customer activities are, much more than others in the industry who go through distribution.

Your next question comes from Andrew Buscaglia with Berenberg.

I wanted to ask -- so you had a commentary just around supply chain maybe easing somewhat or not getting much worse, and that commentary is definitely a bit mixed this earnings season across companies. I guess what are or where are you seeing or where you feel like things are maybe easing up a bit?

You can take couple of different pieces of it, it's not getting worse, right. So I can definitely tell you that. It's getting better in some parts, it's getting better, right? Freight is not much as much as issue to us before, it is getting better.

Electronics components, most of it is fine, but there are few areas that still -- it's not so much you don't get what you're looking for, you just don't get as much as you want, is maybe the way to describe the supply chain issues. It's not like, oh I don't have that component, it's like, I don't have -- if I have x, I couldn't give you 2x. So that's sort of what we're dealing with right now. It's not -- early in the cycle we are looking for substitutions, things like that, but now it is more about -- how much more can we get, and that is really what is governing our capacity to work the backlog down.

Okay. And you said freight, on the margin, a bit better, maybe in terms of pricing.

It's not significantly -- our supply base has had some labor constraint issues in select cases. And so that should hopefully moderate if the COVID situation improves.

Okay. Okay. And just one other question on -- your ATS margins were a lot stronger than I was expecting. I might have missed this, but how much was mix a factor there? And then I guess, just generally, what's driving that and the sustainability of margins there?

Yes. So in ATS, I mean, running that 53% gross margins is relatively in line with where we've been running for, I would say, the last 3 quarters. And what you see there is the benefit of the volume leverage, with 21% organic growth.

And then also recall, we did do some actions, I would say, at the end of '20, to take some cost out of some of those businesses and rightsize the cost structure. And so we've been running at that level, I would tell you since Q2, roughly, of last year. And so it's a combination of volume leverage and some of the cost controls.

Okay. So I guess mix you're not [calling that] a major contributor.

Well, mix -- yes, I would tell you mix is favorable, particularly if you look at our medical business, we had some favorable mix benefits there within ATS.

(Operator Instructions) Your next question is from Walt Liptak with Seaport.

I don't want to beat a dead horse on the price/cost thing, but the companies that we follow, I think you guys were doing the best up until this quarter on price/cost. So just so I understand the situation that you ran into this quarter, it sounds like Omicron may have impacted some of your suppliers. And so there might have been delays and maybe you got hit a little bit with absenteeism related to Omicron, but that seems to be going away. Is that the way that we should read that 100 basis points of headwind from price/cost?

Yes. I guess, Walt, I would read it as we implemented our price increases at year-end and to respond to the inflation pressures that we were seeing. You combine that with our strong backlog, which was up, if you think -- we ended the year it was up almost 90% over the prior year.

And so the price realization of those price increases just take time to take effect. And so a lot of what we were shipping in Q1 was still priced at the old price points. So the price realization wasn't beneficial in Q1 as it will be in Q2, and it will be more beneficial, I would tell you then, in the back half of 2022.

So I would tell you it's a combination of the backlog as opposed to the Omicron issue. But I will also say, I mean yes, but despite that, Walt, I mean, 56.1% gross margin in the quarter. If you recall, since the divestiture of the screw and barrel business, we've been running now at this 55% to 57% range depending on mix in any given month. So I would tell you we were able to largely offset the negative price/cost headwind with the favorable mix and some volume leverage in the quarter.

Okay. Great. Okay. So just to be clear, the price/cost for 100 bps, that didn't have anything to do with supply chain. Was there a headwind to the supply chain issues, the constraints you're talking about? Or was that just people working harder?

The headwind on the supply chain constraints, I would -- speaks to our top line growth rate and the revenue we were able to deliver as opposed to the gross margin percentage.

Okay. How much do you think that you were unable to ship this quarter because of that?

Yes, it's hard to put a number on it. And I [wouldn't] tell you that it got pushed from Q1 into Q2 because I think these issues are going to continue into Q2 as it relates to supply chain challenges. But you could estimate that to be, I don't know, $10 million to $20 million is kind of a headwind we're looking at.

Okay. All right, thanks for that. Yes, and then you pointed out the other thing. I mean, if you had that 100 bps of price/cost, the operating leverage was still pretty incredible. And so you're saying that that's largely volume mix? Or is this NBS Next that's really coming through?

Largely volume mix in (inaudible) in Q1, we have the benefit of the screw and barrel product line divestiture. So that in and of itself from a favorable mix standpoint, was about 120 basis points.

I think, Walt, also to remember, through all of these with multiple different constraints on the company and the teams, NBS Next is really allowing us to be able to kind of deliver on our customer commitments as well as being able to deliver the kind of incremental margins you're seeing in the business right now, consecutively 4, 5 quarters here, we are north of our committed 40% to 45% incremental margin, right? In the quarter, we delivered 59%.

And so -- but think of all the things that are going on in the business on top of which we're able to deliver the kind of quarter we delivered. I think that is really a significant contribution from NBS.

Yes, absolutely. And maybe a last one for me on the Vantage product that you were talking about. So how is the commercialization of that product going? Do you sell it through your direct sales force or do you go through distribution on it? And is it being bundled with other products and dispensing systems?

No, it is -- Walt, we really have very little distribution. So we are almost 100% direct, less than -- in a region where we don't have some -- sales coverage, then we may have distribution, but so mostly direct. No, it is not bundled with any other systems.

We sell directly, the commercialization has gone really well. I don't think -- we are getting governed more around the supply chain constraints that we talked about rather than the demand for the product.

Okay. All right. Great. And the Vantage product that, I guess, it helps you to penetrate some of your customers. Is it an incremental -- is it a big increase to the penetration of a customer, if they start purchasing the Vantage product?

I think it is incremental opportunity for applications that we are continuing to grow with those customers. So it is incremental in existing customers. So think about our electronic business; we are part of our largest customers' product road map. So for us to continue to be a relevant player in this market, we need to continue to deliver innovation that allow our customers to achieve their product goals. And so Vantage is a great example of that, where our customers have specific product goals around moving packaging upstream at the wafer level. This product does that.

Your final question comes from the line of Connor Lynagh with Morgan Stanley.

Naga, you made a comment in regards to M&A on needing to be financially disciplined. Would you say that over the last year that valuation has been an impediment to doing more? Not to imply you've been sitting on your hands, obviously, you just did a deal. But has there been any sort of normalization in value expectations that you can see based on what's been happening in public markets?

No. there is no normalization yet. But I think, for us, we start with strategy to make sure that we are focused on the end markets in the specific products, on medical and test and inspection. And those are not -- valuation in those markets are high, yet we've been able to find deals that we have been able to do in both those markets, mainly because we're very focused on what is the value add Nordson brings to that particular business, and can we deliver a financial return, right? So I wouldn't say that we had a deal we passed -- we got passed up because of our valuation, that's not the case. It happens occasionally, but not at the recent time.

Got it, that's helpful. And then just to sort of follow up a little bit more on the capital allocation, I mean obviously, as I alluded to, you've deployed capital recently. But is there a point at which it makes sense to just return more capital than you have been? Or do you think it's better to sort of build a war chest and wait for markets to be where it makes more sense.

Joe, you want to take a piece of that?

I tell you, our M&A pipeline is active and robust. And to Naga's point, I do believe that there are assets out there where Nordson is the better owner, and we can deploy capital like we did on the NDC acquisition to create shareholder value. And so we're sitting at a leverage ratio just under 1x debt to EBITDA.

I think we could identify other opportunities to continue to deploy capital through M&A. So we have this balanced approach where we are a dividend payer, and we do share buybacks to offset dilution. But when we look at it from a growth perspective, we think there is opportunity where we could deploy capital towards M&A and create true shareholder value.

And so that continues to be our focus. And we just did a deal this quarter and deployed $172 million. And so we hope to be able to do more like that.

Yes. I think, Connor, what I would add is, our focus is growth, right? If you remember at our Investor Day, our focus is profitable growth, and acquisition is an equal part of that goal. So we're committed to acquiring around -- we clearly see a pathway to acquiring over $500 million in revenue.

We are in year 2 of our strategy. We have acquired, I want to say, $125 million, $130 million in revenue so far. So we see a path to delivering on the goals we have for acquisition, remain committed. That is, I think, organic growth being our #1 priority, but this is a capital-light business. And so we really -- we don't turn down projects. I mean, in the quarter, we spent around $12 million, Joe, on capital towards organic growth. But acquisitions is a big part of how -- on our capital deployment strategy that's not changed, and we'll continue to work that.

There are no further questions at this time. I will now turn the call back over to Naga for closing remarks.

Thank you for your time and attention on today's call. Have a great day.

Ladies and gentlemen, thank you for your participation. This concludes today's conference call. You may now disconnect.