Nordson Corp (NDSN) 2022 Q2 法說會逐字稿

Good morning. My name is Chris, and I'll be your conference operator today. At this time, I would like to welcome everyone to the Nordson Corporation Second Quarter Fiscal Year 2022 Conference Call.

(Operator Instructions)

Thank you. Lara Mahoney, you may begin.

Thank you. Good morning. This is Lara Mahoney, Vice President of Investor Relations and Corporate Communications. I'm here with Sundaram Nagarajan, our President and CEO; and Joseph Kelley, Executive Vice President and CFO. We welcome you to our conference call today, Tuesday, May 24, to report Nordson's fiscal 2022 2nd quarter results.

You can see both the press release as well as our webcast slide presentation that we will refer to during today's call on our website at www.nordson.com/investors. This conference call is being broadcast live on our investor website and will be available there for 14 days.

There will be a telephone replay of the conference call available until Tuesday, May 31, 2022. During this conference call, references to non-GAAP financial metrics will be made. A reconciliation of these metrics to the most comparable GAAP metric was provided in the press release issued yesterday. Before we begin, please refer to Slide 2 of our presentation, where we note that certain statements regarding our future performance that are made during this call may be forward-looking based upon Nordson's current expectations.

These statements may involve a number of risks, uncertainties and other factors as discussed in the company's filings with the Securities and Exchange Commission that could cause actual results to differ.

Moving to today's agenda on Slide 3, Naga will discuss second 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 balance sheet and cash flow. Naga will conclude with a high-level commentary about our enterprise performance as well as our updated fiscal 2022 full year and third quarter guidance. We will then be happy to take your questions.

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

Good morning, everyone. Thank you for joining Nordson's fiscal 2022 second quarter conference call. Once again, the Nordson team successfully navigated a dynamic macro environment and delivered strong sales and earnings growth despite continued supply chain constraints and inflationary pressures as well as newer challenges from the COVID-19 lockdowns in China and the increasing foreign currency headwinds.

I'm very thankful for and proud of our employees who are staying safe and deploying the NBS Next growth framework to meet the strong broad-based demand from our customers. Our company culture is deeper than our financial results.

And during the quarter, I was humbled to see our employees rise up to send care packages to our colleagues impacted by the COVID-related lockdowns in China and also raise money for family and friends impacted by the situation in the Ukraine. This is the Nordson impact, and it is a very special part of who we are as a company.

I'll speak more about the business in a few moments. But first, I'll turn the call over to Joe to provide a detailed perspective on our financial results for the quarter.

Thank you, Naga. And good morning to everyone. On Slide #5, you'll see second quarter fiscal 2022 sales were $635 million, an increase of 8% compared to the prior year's second quarter sales of $590 million.

The increase was primarily related to 7% organic volume growth and 4% from the NDC acquisition, offset by currency headwinds, particularly the weakening of the euro. The organic growth was broad-based across most end markets and geographies, except for Japan and China.

China COVID-related lockdowns negatively impacted second quarter sales by approximately $20 million. as our Shanghai facility was unable to ship products for 5 weeks and many of our customers and freight forwarders were unable to receive or ship products.

We clearly view this impact to be temporary, and it is beginning to resolve itself as the lockdown restrictions start to ease. Gross profit for the second quarter of fiscal 2022 totaled $358 million or 56% of sales, a 6% increase compared to the $338 million or 57% of sales in the prior year second quarter.

The team continues to actively manage the price/cost dynamic in these inflationary periods and benefited from improved price realization compared sequentially to the first quarter of fiscal 2022.

Looking at the year-over-year margin decrease of 100 basis points, this resulted largely from a change in sales mix at the segment level as ATS delivered double-digit organic growth compared to the low single-digit organic growth of IPS, plus the system sales growth exceeded parts growth.

Operating profit was $184 million in the quarter or 29% of sales, an 11% increase from the prior year. Sales volume leverage and controlled spending contributed to the incremental operating profit margins of 38% in the quarter.

Organic only incremental operating profit margins were 70%, well ahead of our long-term target of 40% to 45%. The NBS Next growth framework is clearly delivering tangible results.

The strategic disciplined element of the framework, which is a database view of the best opportunities in terms of customers, products and end markets, et cetera, this is driving improved sales mix within many of our divisions, resulting in strong growth and favorable incremental profit.

EBITDA for the second quarter was $209 million or 33% of sales, well ahead of our long-term target of 30%. Looking at nonoperating expenses. The increase in other net expenses of $36 million includes the $41 million onetime noncash pension settlement charge.

As we referenced in the first quarter call, we successfully annuitized the portion of our U.S. defined benefit pension liability associated with retirees in payment status during the second quarter. This transaction settled an estimated $178 million pension liability in exchange for planned assets totaling only 96% of the projected liability, leaving the remaining pension liability over 100% funded.

This transaction not only removed significant risk from the company for the long term, but also reduced our future pension cash funding obligations. The remaining $5 million year-over-year benefit included in other net expenses primarily reflects foreign currency exchange gains and ongoing nonoperating pension benefits associated with planned assumptions and a reduction in amortization of actuarial losses.

Tax expense was $30 million for an effective tax rate of 21% in the quarter which is slightly higher than the prior year's second quarter, but in line with our forecasted full year rate for 2022.

Net income in the quarter totaled $110 million or $1.88 per share. Adjusted earnings per share, excluding the noncash pension annuitization, charge totaled $2.43 per share, a 15% increase from the prior year. This improvement is reflective of the year-over-year increase in sales and, more importantly, the 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 second quarter 2022 segment performance. Industrial Precision Solutions sales of $316 million, an increase of 6% compared to the prior year's second quarter. Organic volume growth in the quarter was 3%, plus another 7% from the NDC acquisition.

This was offset by unfavorable currency of 4%. IPS' organic growth was driven by robust demand for polymer processing product lines, plus steady, broad-based growth in consumer non-durable end markets for hot melt adhesives dispensing in all geographies except China.

COVID-related lockdowns in Shanghai negatively impacted this segment's second quarter sales by approximately $15 million. Operating profit for the quarter was $102 million or 32% of sales, which is a decrease of 2% compared to the prior year operating profit of $104 million.

Favorable sales volume leverage in the quarter was offset by unfavorable mix compared to the prior year second quarter as the majority of the growth was from polymer processing systems and the NBC acquisition.

Moving now to Advanced Technologies and Solutions. Sales were $319 million, a 10% increase compared to the prior year second quarter, which is a new quarterly record for this segment. This change included an increase in organic sales volume of 11% offset by unfavorable currency impacts.

Growth was across most major product lines, but particularly strong in the electronics dispense, test and inspection and biopharma fluid component product lines.

All geographies, with the exception of China, contributed to this quarter's growth with particular strength in the international regions. Second quarter operating profit was $98 million or 31% of sales.

The 29% increase over the prior year operating profit of $77 million was driven by sales volume leverage and the realization of benefits through cost control measures taken in fiscal 2020 and early 2021.

This segment continues to deliver impressive sales growth at very attractive incremental margins. And the 31% operating profit in the quarter reflects a new record level performance for ATS. 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 balance sheet and cash flow. On Slide 8, 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 $121 million, and net debt was $670 million, resulting in 0.9x leverage ratio based on the trailing 12 months EBITDA. Free cash flow in the quarter was $84 million, or a conversion rate on net income of 77% as strategic investments are being made in inventory to address portions of the current supply chain constraints and support the growing backlog.

During the second quarter, we paid $30 million in dividends and spent $105 million on repurchasing approximately 470,000 shares of company stock through our 10b5-1 repurchase plan.

For modeling purposes, in fiscal 2022, assume an estimated effective tax rate of 21% and capital expenditures of approximately $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'm very proud of how our employees are navigating this dynamic environment.

I continue to spend a lot of time in our facilities, and I'm excited by the caliber of talent and the dedication of our employees to meet our customer commitments, despite the constraints of the supply chain.

They are actively deploying NBS Next to choose the best growth opportunities and focus their time and resources appropriately. Strategically, we have continue to make progress on the advancement of the NBS Next growth framework, the heart of our Ascend strategy.

NBS Next boils down to 3 words: choices, focus and simplify. Expanding beyond our pilot size, we now have several strong business examples of driving profitable growth in different divisions. With this in mind, we launched a 4-month NBS Next accelerator training program, which had its first in-person session in April.

In the program, Nordson participants learn through hands-on exercise with real Nordson data as well as in-class discussions. More importantly, each participant left with a better understanding and a thoughtful action plan that will accelerate the deployment of the NBS Next growth framework across the company.

As practical application of NBS Next gets embedded deeper in our organization, the more aligned and skilled we are as a team to deliver top-tier revenue growth with leading margins and returns. This is an important investment in our people and company. I'm grateful for the Nordson team for all that is being done to mitigate risks due to supply chain, inflation, labor and COVID challenges.

In this dynamic environment, I'm equally energized by the secular growth drivers in key end markets leading to strong ongoing demand from our customers. As Joe noted, our ATS segment delivered record sales and profits.

It is driven by Nordson's ability to deliver on exciting trends in electronics, including investments in both capacity and on-shoring, new product renovation and the continued demand for semiconductors and PCBs.

Both our electronics dispense and T&I product lines will continue to benefit from these trends. The medical end market also continues to grow. While we have talked at length about the growth in our biopharma fluid components, we're also experiencing the recovery of our Interventional Solutions product lines, which are fueled by the aging population shift toward outpatient procedures and medical OEM outsourcing.

The diversity of Nordson's end markets and geographic exposure as well as high recurring revenue content positions us well to deliver consistent profitable growth through the economic cycle.

Now let's turn to our updated fiscal 2022 outlook on Slides 10 and 11. Order entry remained strong throughout the second quarter with a favorable book-to-bill ratio, growing backlog to over $1 billion. This growth in backlog is partially related to the ongoing extended shipment request dates for large customer orders in electronics, industrial and medical end markets.

Looking specifically at the third quarter of fiscal 2022, revenue and adjusted earnings, our forecast is to be comparable to the prior year results, where the prior year third quarter was the strongest quarter of fiscal 2021.

For the full year fiscal 2022, we are guiding to a revenue growth of 8% to 9%, and we are increasing the previously issued adjusted earnings guidance to the range of 18% to 21% over fiscal 2021. This is approximately 20% earnings growth following a record 2021 financial performance. It is a testament to the solid execution of the Ascend strategy.

Our financial results and expectations for growth reflect our differentiated precision technology, customer-centric model, and diversified end markets. Additionally, the ongoing implementation of NBS Next is making sure we have a crystal clear view on priorities in this dynamic environment.

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)

Our first question today is from Matt Summerville with D.A. Davidson.

A couple of questions. Obviously, the second quarter was impacted by about $20 million related to the mandated COVID-related lockdowns in China. What sort of net impact do you expect in Q3 -- in fiscal Q3, meaning are you still seeing top line impact today, but on a net basis? Given $20 million effectively pushed, do you think that is a net positive to your Q3? Just trying to understand how that dynamic plays into the go-forward views here.

Yes, Matt, thank you for that question. As it relates to our forecast and our guidance for Q3 and the lockdowns in the Shanghai region of China, we anticipate those to start to subside. We've had no shipments for 5 weeks in Q2.

And so we're starting to -- things are starting to open up there. We're starting to get people back in the factory. We're starting to be able to ship. We're not yet at 100%, but we anticipate being by 100% roughly by mid-June. And so that is what's included in our assumptions.

And then you had very strong quarter-on-quarter and year-over-year incrementals in ATS. Part of that attributable to some actions that you've taken on the cost side, also expense discipline. Go forward, how should we be thinking about maybe the forward-looking margin cadence in the ATS specifically?

Yes. So when you think about ATS, any given quarter, there's a handful of mix that will impact any results. So I don't want to take one given quarter and say annualize it. But I encourage us to look at the trend in ATS. And what you see going on over the last several quarters is consistently improving the profitability of that segment. And it's kind of like -- the driver there, Matt, is the comments that I said in the script in terms of NBS Next, that, that segment not only does the cost control which you referenced, but from a gross margin and a profitability standpoint and the strong incrementals, is really coming from improving mix within each of the divisions in that segment.

And so if you think about NBS Next and strategic discipline, which is a database framework to say, what are my best growth opportunities? As those individual divisions are focusing on those best growth opportunities, they generally are the higher-margin opportunities. And so as we outgrow in those high-margin product lines, regions, end markets, it's improving the mix within those divisions.

And so that's what's contributing to those favorable incremental margins in ATS. And we're quite proud of that trend. I don't know that I can say, hey, Q2 is now the ongoing run rate, but directionally, that's what you'll continue to see.

Our next question is from Jeff Hammond with KeyBanc Capital Markets.

Just on the -- can you just talk about the durability of the growth you're seeing in electronics and test and inspection? We've heard kind of a line of tough comps and the consumer starting to slow here around mobility, PCs, et cetera, and just wanted to get what you're seeing on a go-forward basis.

Yes. No, thank you for the question, Jeff. On our electronic business, what we see is this classification of our customers and applications that we have undertaken over the last number of years that you begin to see the business do incredibly well in a couple of different areas.

One of the areas is really semiconductor. And what we find is the ongoing capacity additions onshoring to mitigate some risks that all of us see in the industry. But in addition to that, digital technology and digital way of doing business, has just spurred this new secular growth that we see our customers continue to benefit for some time to come.

And so from what we see in our businesses, our order rates are pretty strong. Our shipments are pretty strong in the electronics area. So now -- just as a reminder, we have electronics dispense as well as test and inspection, both benefiting from it.

So in the quarter, both the divisions had double-digit growth. Certainly, there are comp issues, but we feel really good about prospects for these divisions and they are contributing to growth for us. We do have lesser exposure -- we have a broad-based supply chain. We participate in, in electronics, so it is less sort of correlated to one particular consumer product or the other.

That used to be where we were a number of years ago, and we've talked to you about how we have diversified our applications. And so think of Nordson's electronic business participating in the entire electronic chain, electronic supply chain, and that diversity is really helping us participate in a good way.

Okay. Great. That's helpful. And then I just wanted to come back on this dynamic around the timing of the backlog and customers kind of saying they want things a little bit later because it seems like most of my other industrial companies have big backlogs, and it's more a function of we can't get stuff out the door and we're -- the order rates are just outpacing what we can deliver.

And yours just seems a little bit different. And I just want to understand kind of why it kind of shapes up that way.

Jeff, that's a great question. In terms of our backlog, I wouldn't say we don't have the issue that you're talking about, orders ahead of shipments. We do have some of that, right? We are limited by the supply chain, meaning how much our suppliers can provide us in terms of components, especially for our systems business to be able to ship. So that is still a factor in our backlog.

The second factor though, is we are seeing clearly and we have pretty good line of sight to understand that we have customers placing orders ahead of what they normally have.

And we see that in our -- mostly in our system business. Now we're seeing in our interventional component business -- medical interventional component business as well.

So if you think -- if you look at our backlog, the majority of our backlog is from systems businesses and medical businesses and partly driven by this long-dated customer request dates.

Our next question is from Allison Poliniak with Wells Fargo.

I just want to stick on that backlog theme. I know there's -- yes, certainly an extended backlog here. Is there a way to better understand the extent of that extension, meaning is it 2 weeks extended? Is it month or quarter? Just any color there. And then just any thoughts on risk of cancellation in that backlog or double ordering, which I know is a concern of folks. Just any thoughts there.

Yes. Thank you, Allison. So let me take the cancellation first, and then we'll talk a little bit about what we're seeing in terms of customer long-dated request. So on cancellation, there's something that we monitor very closely in the business.

Given our direct customer business model allows us much more insight into customer thoughts, sentiments and behavior, right? In general, we have not had issues around cancellation. And so from our perspective, that's not manifesting itself in the business today. The second thing I would tell you is also, remember, we -- more than 50% of our business is very system-oriented, engineered systems.

So this is not like you could buy it in a couple of different places. Once you place a system order that is very customized to your own application, that is a benefit for us, right? So from a cancellation perspective, we've not seen it in the business now.

The second question around long-dated customer request, I'll give you a couple of anecdotal things that we see in the business as sort of indicative of what we are experiencing. One, in a couple of our system businesses, we have orders now that are dated to be shipped in second quarter of next year, right? In the past, the norm was you would get 3, 6 months out request dates. And now we're starting to see 3, 4 quarters out. So that's one.

Second is in our medical businesses, medical interventional business, we typically get blanket orders, and those blanket orders cover us for a quarter or 2. But now we're getting orders for a longer period of time. So those would be 2 sort of anecdotal evidences that sort of indicates what we're seeing in our business.

Joe, you want to talk a little bit about customer prepayments that might give an indication of what you're seeing in the...

Yes, Naga. So Allison, we also track not just cancellations and are looking out for that, but also our customer prepayments. And as the majority of the backlog is comprised of systems and medical orders, as Naga mentioned, those systems orders come with customer prepayments, and those are up now north of $90 million.

And so proportional to our systems backlog, the prepayments have also grown. So we view the systems backlog piece is very solid as it relates to future shipments and the visibility is out now several quarters. Whereas our traditional, I'll call it, nonsystems heavy business, parts business, we see a modest uptick in the backlog, but that is much more book and ship within a couple of weeks and so that one is not out nearly as far.

Great. That's helpful. And then just price realization, I think you had mentioned sequentially improved. Are you in a more favorable price cost situation today? And are you still comfortable with that sort of second half being net positive for Norton going forward?

Yes. Allison, when you look at our performance going Q1 to Q2, actually, our price realization was a little bit better than what we had anticipated going into the Q2 and it's forecasted to continue to improve here in Q3, again, as we work through the repricing and a long backlog. So it was favorable in dollar terms in Q2 and is forecasted to slightly improve as we head into Q3.

So we feel pretty good about that. I will tell you, it's a very dynamic situation with all the different cost components and the inflationary pressures.

(Operator Instructions)

Our next question is from Chris Dankert with Loop Capital.

Again, just to kind of keep pulling the thread on backlog a bit here. Your guidance commentary implies most of the year-over-year growth that is expected in the back half kind of shows up in the fourth quarter. I guess, can you give us a sense for just how confident you are in that cadence? And just what's the risk that we could see a piece of that fall into fiscal '23?

Just any kind of sense for how fluid some of those orders are versus your confidence in kind of seeing the growth in the fourth quarter here?

You bet, Chris. Yes, let me comment, if I could, just on the quarterly split of our guidance here in the back half. So if you think about our guidance midpoint, the back half is going to be up roughly 6% over the prior year. I will remind you, in the prior year, Q3 was our strongest quarter and there was about $25 million worth of sales that we were able to get out in the electronic space in Q3 that was pulled forward, based on a customer request, from Q4 scheduled delivery into Q3.

So Q3 was strong. Q4 was sequentially softer last year. And so what you see this year is, I would tell you, 6% growth over the second half. But you're right, it implies the second -- the fourth quarter is going to be stronger than the third quarter. And so what you see there is heavy, again, visibility on the systems side and so a high degree of confidence on the system forecasting.

And also, as I mentioned in the first call -- question, the China lockdown. And as that starts to moderate here and still impact us a little bit in Q3, that will be a challenging Q3. So Q4 stronger than Q3. I wouldn't get carried away with the quarter year-over-year growth rates and think about it more as 6% growth in the back half.

And if you think about that broken down, it would tell you FX is about a 3.5% to 4% headwind. Acquisitions is about a 3% to 4% tailwind. And so it's really roughly 6% to 7% organic growth is what we're forecasting in the second half and good visibility on the system side.

Your question about supply chain constraints -- and look, it is a dynamic environment. It requires us to get a material and be able to ship it. But we've been quite successful, I think, in delivering growth over the past 5 quarters. averaging greater than double-digit organic growth. So I'm optimistic that we will be able to deliver that here in Q4.

One thing, Chris, I would add too, is given our organizational structure, right, over the last 24 months, we've gone to an owner mindset division-led structure, this allows our divisions to forecast in a fairly crisp way as they -- we have a direct customer business model.

So each of our divisions have fairly good visibility. And our forecast is really based on our division's forecast. So this is not something that Joe and I decide as much as we -- this is a sum of all our divisions views of where the market is at and their own supply chain.

So we feel good about where we are because I think it does give us a better clarity into where we are expecting our customers to perform division by division. So...

Got it. Got it. That's incredibly helpful color. And then not to pin you down, but I'm going to try and pin you down a bit here. Circling back to the ATS margin question, I guess, in past mid-20s was kind of the EBIT margin target there. Is it fair to say that, hey, we've at least moved into a high 20s target kind of cross cycle here? Or am I kind of overstepping on that?

No. That's what I kind of meant by the trajectory is what we're looking at and those long-term gain look at that business, it went from operating the EBIT margins around the 20, last year stepped up to the mid- to low 20s. And this year, we're running in the high 20s on average for the first half. And so I think that trajectory is the way to think about this business in terms of running the NBS Next playbook.

Naga, you want to add something?

Chris, sorry to interrupt you, but before we take and put it down, I want to add a little bit color there, just to make sure we have materially improved the cost position structure position in this business. So we feel really good about those gains. The only caution I would have for you, 2 things. One is, as Joe mentioned, this is 1 quarter. And second, I also say is that we have -- we're doing really well on the electronics business, which, as you know, has -- the amplitude of the cycle has muted because of our diversity -- diversification work we've done, but it is still a cycle.

So we're in a good part of the cycle. We have taken costs out, we materially improved the position of the business well. We have mixed up in that. So there are a number of contributing factors. So my caution would be, let's give it a couple of quarters here before we lock in a run rate. So...

Yes. Not simply -- there's a lot of things going on here. One of them us was the top line growth. I mean, this is a record sale quarter for this segment. And so as you think about driving that growth, you get that natural leverage as well. And so not just the profitability, it's also the growth that that's delivering. I mean 11% organic growth in the quarter despite all these challenges.

Well, I guess, to that end, I assume facility utilization has got to be at or near a record, no?

Yes. What you see on the CapEx side in this business, we are making investments to expand capacity where needed to support this growth, particularly in the electronic space and in the medical space, which we've highlighted as the high-growth areas.

You see we spent, although it's a small number percentage speaking, but it is an increase and $24 million on CapEx year-to-date. And so we continue to add capacity where needed, although it continues to be capital light. Yes.

Chris, on the capacity side, on our assembly business, think of that as capacity we have, but more constrained by the supply chain and our ability to get components to fully support the demand. That's one capacity that you got to take into consideration beyond our own ability to act on the -- in the backlog. So that's one.

On the process side, which is sort of what Joe has mentioned, we're adding capacity where there it is physical capacity within the company. But we're excited about the capacity adds we are making in businesses that have very strong growth, really, really great investments for the company and our investors.

The next question is from Walter Liptak with Seaport.

I wanted to ask a follow-on on -- as we're thinking about the second half. If there're going to be more systems shipped in the fourth quarter, does that have an impact on the fourth quarter gross margin? My recollection is that some parts might be higher margin and systems might be lower. I wonder if you could talk a little bit about that?

Yes. I would -- you are correct at a high level. Although I would tell you the disparity between parts and systems is not that great, but you are correct at a high level. I would tell you there's a couple of things offsetting that, perhaps as you go into Q4 or as you think about Q4, one is the sales volume leverage.

And then two is the price/cost realization. I think that will improve sequentially from our Q2. So as we think about going from Q1 to Q2 improved, Q2 to the back half, that should also improve.

And then I would also tell you, well, within the systems business, that's a big bucket, there is opportunities for mix within that. And when you think about the mix within the systems business, there is opportunity for that to be favorable. So I wouldn't necessarily think about mortgage and degradation as we go into Q4.

Okay. Great. And if I could try one on the IPS segment. The 3% organic, I wonder if you could parse out what the price was versus units? And are you seeing unit growth?

Yes. I would tell you price was a component of that 3%, but it was also unit growth as well. It wasn't simply price. Price wasn't the full 3%.

And also, Joe, this is the segment we have more currency headwind too, right?

Correct. So the currency headwind in this segment was 4%. And that was greater than that in the ATS segment due to the large European business that we have here. But specifically looking at the organic piece, I would tell you there was volume growth in there. That's not just all price.

Okay. All right. Great. And then just for the last one, thinking about China and the reopening, I guess as your employees get back to work, I wonder, is this something where you think it will ramp quickly? Or do you think China is going to have its own supply chains and this will be a slower ramp? How long do you think it will take to get China back to normal?

Let me talk...

Go ahead, Walter -- go ahead, Naga.

So we've got -- slowly bringing people back as the government allows us to. And we believe it will be a slower ramp, but we also believe that we would be fully operational at normal run rates hopefully in the next 4 to 6 weeks.

So mid-June that Joe mentioned in his earlier comments, that's our expectation. But while this is in a dynamic environment that none of us really control, our teams are doing one incredible job dealing with where we are.

And we are so proud of how our leadership and our teams have worked together and are really -- and teams around the rest of the world, who have to sort of work around this issue in China. So it is not only that we have our China factory and our shipments in China, but we also have customers who pull from our other factories.

So all in all, very proud of the work our teams are doing in some very incredibly difficult situation. So our expectations are things are doing well. Things are coming back, but surely expect a slower ramp with an expectation that another 4 to 6 weeks, we get back to normal shipping routes.

For us, I couldn't emphasize this more safety of our people these are #1 priority and everything else will work out. And then -- but we're just so proud of the team there, and I'm proud of everybody around the world who've be working to sort of overcome the challenges we've had in China in the quarter and as we get into third quarter. So a big shout out to the Nordson team.

We have no further questions at this time. I'll turn it over to Naga for any closing remarks.

Thank you. Our continued performance reflects the strength of our differentiated precision technology, customer-centric business model and diversified end markets. The continued deployment of NBS Next and the Ascend strategy will ensure we remain well positioned in this dynamic environment.

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

Ladies and gentlemen, this concludes today's conference call. Thank you for participating. You may now disconnect.