Joe Kelley: Yes. Maybe if I could reconcile those comments to your questions around the guidance and the change in the guidance. So if you think about our revenue guidance at the midpoint, we brought it down by about $65 million from the prior guidance. The majority of that decrease is what Naga referenced and what we’re seeing in a change in orders around the semiconductor and back-end electronics market. The remainder is the delay in the timing of the biopharma recovery and I would tell you also a little bit of the softness that we saw here in Q1 in China. From a timing perspective on the guidance, Mike, your question there, the timing is adjusted, not just for the order entry, but it’s also given customer the pushouts of their delivery dates.
And we’re seeing that in electronic end markets. These are large system orders where we have prepayments from the customers. But we’re seeing it in electronics, a little bit in the industrial coatings and in the plastics end markets where they’re pushing out Q2 delivery dates into the back half. And again, we have prepayments on these, and so there’s limited risk of cancellation. And then as it relates to your comments, as we think about the guidance in the back half versus Q2, when you think about the back half, first of all, last year’s back half was very, very strong. As you know, for Nordson, a record Q3, followed by record Q4. And so the guidance, when you look at the back half, FX is going to become favorable on a year-over-year basis if we maintain the current exchange rates.
So that would be would be favorable about 2%, acquisitions about 3%. And so it basically implies at the midpoint, the organic would be down about 2% in the back half based on comments Naga just made.
Mike Halloran: That’s a lot of great color. I really appreciate it. So follow-up then on the fluid component side. What do you guys think the destocking is going to be behind you and maybe more normal order patterns start coming through, at least relative to underlying demand. And should we think about this as the right run rate for the margins of that segment until that mix is more balanced out versus normal?
Sundaram Nagarajan: Let me just comment on the order rates and, Joe, you can pick up on the margin for the segment. Order rates, what we are seeing is the customer order patterns have stabilized and might there be some green shoots in terms of a recovery of order rates from these customers. Long term, 7% to 8%, high single digits is how you want to think about this business. I’d love tell you that I know exactly when this is going to come back. From what we can see is we feel good about the stability in the orders and a slight pickup in orders that we’re beginning to see if you push me to give an exact date, it’s going to be difficult. But definitely, this is a recovery that has already begun is probably the best way to put it.
Joe Kelley: Mike, on the margins, the segment, as you know, in ’21 was running at about 31%, ’22 at about 32%. So this 26 that we did in Q1 is not the new normal, we would anticipate to recover back to the historical run rate as we move forward in ’23. And the logic there is this initial drop off and then the comment I made on inefficiencies of — within the individual factories as they adjust for this volume drop and adjust their variable cost that efficiency will improve as we move forward.
Mike Halloran: Great. Really helpful. Thank you so much.
Operator: And we will take our next question from Allison Poliniak with Wells Fargo. Your line is open.
Allison Poliniak: Hi, good morning.
Sundaram Nagarajan: Good morning, Alice.
Allison Poliniak: Just turning to IPS, it seems pretty stable. Asia Pacific was a headwind this quarter. Do we assume that headwind starts to mitigate here for Asia Pacific where that growth may be is a slight improvement from quarter-to-quarter. Just trying to think through that between 2Q and 3Q? Thanks.
Joe Kelley: Yes. Allison, I would tell you, as you know, our IPS business has a large China presence and Chinese New Year fell into Q2 last year versus in Q1 this year, so you will see sequential improvement in that segment, just given that. And then also within that business, I referenced the Industrial Coatings division as well as the Plastics division where there are large systems businesses. Those businesses are seeing some of those Q2 push-outs in the back half. And again, prepayments for all of those systems locked in. It’s predominantly our customers, their projects are being delayed. Their projects are still taking place, but they’re being delayed for other reasons, and they’re asking those businesses to delay shipment in the back half, so sequential improvement and then sequential improvement first half into second half.
Allison Poliniak: Got it, thanks. And then Naga, you had talked about NBS Next in the innovation side. How are you thinking about that investment this year? Are you starting to tighten the lens a bit more? Are we looking for an increase there as you look to position the company coming out of this, just any thoughts there?
Sundaram Nagarajan: Yes, I think – the way to think about it is our NBS Next deployment is accelerating, gaining momentum within the company. And it is becoming more holistic than it was maybe two years ago. So what does that all mean? That means that our businesses are really sharp on what are the best opportunities, division-by-division, not the entire company in total, but division-by-division. And staying invested in innovation in our core strong businesses. That is a top priority for us. And we are also accelerating capital investments in businesses where we have pretty strong growth. For example, our interventional business, very recently, we have signed off on a significant capital to expand product lines, right? So I feel really good about where we are.
I think it is really important to remember, not only are we staying invested in our core businesses where we have strong positions. But we’re also investing in businesses that are – have a growth potential for us. In some cases, where the order entry has declined, we are adjusting cost more from a variable perspective. But even in those cases, we stay invested in our innovation in our electronic businesses, because that’s – that is the source of our differentiation. Our customers count on us. These are not three-month kind of thinking process. This is multiyear because in our electronics business, most of customers long- term, we are going to see significant capital investments to expand capacity for semiconductor in North America and in Europe.
And we need to stay relevant in those, continue to participate in those and fully leverage our technologies.
Allison Poliniak: Great, thank you.
Operator: We’ll take our next question from Matt Summerville with D.A. Davidson. Your line is open.
Matt Summerville: Thanks. Is there any way that you guys can sort of parse out and try and quantify what the China-related impact was as it, pertain to COVID and the associated labor shortages? How much may be pushed at the end of the quarter due to the New Year – and do you think all of that gets recaptured in Q2 or is that also now become part of this just push out into the latter half of year? And then I have a quick follow-up.
Joe Kelley: So, let me take a stab at quantifying that. I would tell you, when we study the timing of the Chinese New Year is probably just $15 million to $20 million, depending on what quarter that falls into. And so that’s consistent on our full year basis and has no impact. The COVID issues that they experienced right before the New Year and the lockdown at some of customer and supply chain challenges. I would characterize that as closer to about a $10 million disruption in the quarter. And I don’t know that, that recovers in the full year. And so that was what I would tell you, part of our reduction in full year guidance was that about $10 million miss in Q1 in China, anticipating that, that doesn’t recover itself within the year or make itself up in the year.
Matt Summerville: Got it. And then maybe can you just comment on CyberOptics and what you’re sort of expecting, if I recollect annualized revenues around the time you announced the acquisition were a little more than $100 million. You look at the contribution in Q1, clearly, nowhere near that run rate. So can you talk about maybe what you’re seeing in that business and what a reasonable kind of year one, revenue in accretion outlook might be for that business? Thank you.
Sundaram Nagarajan: Matt, thank you for the question and follow-up. And on CyberOptics, we’re incredibly pleased with the team, incredibly pleased with the technology that we are adding to company, incredibly pleased with the long-term prospects of this optical inspection capability positions the company for long-term in a really good way. In the short term, however, as you’ve noticed that what we see really is the memory market, which is sort of one of those areas where they’re really strong in, is not near-term capital investments have been delayed. And because of that, they have not at the same run rate as what we had expected, right. And Joe, if you could spend a little time talking – that would helpful?
Joe Kelley: Yes, so I mean, as we highlighted in the first quarter, $17 million of sales. I can tell you – as a favorable – contributed favorably to our operating profit. And from an EBITDA standpoint, it’s running in the mid-teens. And so, when you think about our forecast going forward, we have that contributing on the full year, approximately 3% to our year-over-year sales growth and to be contributing to operating profit growth on an adjusted basis.
Matt Summerville: Understood, thank you guys.
Sundaram Nagarajan: Yep.
Operator: And we will take our next question from Saree Boroditsky with Jefferies. Your line is open.
Saree Boroditsky: Thanks for taking my question. Just kind of sticking on the electronics for a second, there’s been some concern, I think, from investors on this space for a while. So was the softening in semi orders a surprise to you? And how have conversations with customers changed?
Sundaram Nagarajan: In terms of – is this a surprise? Certainly, the last 45 days, our order dropped off or it changed. It’s not surprising, but more in line with what you’re, hearing our customers sort of report on the outside. So if you think about semiconductor customers or memory customers, all of them very bullish about their investments in the long-term, but certainly reevaluating what they spend in the short-term as they manage through their P&L. So in line with what you would expect in the marketplace. But if you think about in the longer term, and if you compare with our volatility in the past, this is certainly muted. And what we are hearing from them is very bullish about the longer term, 24.5. Certainly, in the short-term, they’re reevaluating spend.
And is sort of how I would think about it, is that a surprise? Yes, the order rate decline in the 45 days was certainly surprised. But what is also strong is T&I excluding Optical, it is pretty strong and strong and continues to remain has a very strong backlog, and we think we’ll do really well there. So I think this diversification and expansion into T&I has certainly reduced the company’s historical volatility or muted the cyclicality. Saree, did I answer you?
Saree Boroditsky: Yes, thanks for that. And then you talked about, obviously, the push out of systems in the second half in industrial coatings. Could you provide more color on why these systems are being pushed out? And then generally, does your guidance assume any additional push outs across the segments and into 2024?
Sundaram Nagarajan: Let me take sort of what we are seeing with our customers and why the push outs. And then, Joe, if you have any additional color you can add to that. One of the things that I would tell you is, think, about our systems as large subsystems that go in a part of a larger manufacturing line. So typically, that’s what we do. We play a – so when you have a large construction project of it, we don’t hear any of our customers saying, these capital expansions are going away. That’s not what we’re hearing. What we are hearing is that in the construction phase of it, they do have other vendors that they are expecting delivery of systems, subsystems from are delayed and hence don’t need this delivery in this quarter, right?
And so it has been pushed to the second half. And the reason we are confident about this is just the prepayments. So all of these large system orders come with repayments and our prepayment increases are in line with our backlog increases. And so we feel pretty good about it. And that’s — hopefully, that gives you what you’re looking for.
Joe Kelley: Yes. And Saree, if I could add to your question around timing in 2023, 2024, — it’s — when you look at these large systems businesses in the industrial coating space and the test inspection space and the plastic space, those businesses, combined with our Medical Interventional Solutions, those are the businesses that comprise over 70% of our backlog. And so there are orders already on the books going out into 2024 for those divisions. And so when you think about our backlog and our confidence, it’s not so much just ’23, but it actually goes into ’24 for that subset of the Nordson businesses. And so that means that, that supports, I’d say, less than half of our revenue. And so greater than half of our revenue is supported by only 30% of our backlog — And so it’s that portion of the business where our backlog only price is less than one quarter of sales.
And so there is where we’re more subject to changing order patterns and we need book and ship business in the quarter for that portion of the business.
Sundaram Nagarajan: One thing I would also just add to that is in these businesses where we have book and ship, our recurring revenues are more than 50% of our revenue. So — and in those businesses, it’s in some cases, a little higher. So our confidence level in these businesses more comes down to the fact that our customer confidence level on the supply chain has improved, and I think that’s the good news. The good news is in 50% of our businesses, the customer has begins to believe that supply chain problems have gone away. And hence, their order entry are sort of in line with what you would expect for their real demand is. So that — for me, that gives me pretty good confidence as well.
Saree Boroditsky: Great. Thanks for taking my questions.
Operator: We will take our next question from Walter Liptak with Seaport. Your line is open.
Walter Liptak: Hi, thanks. Good morning. I wanted to ask about the Industrial Precision segment. And just see if I can get a little bit more color on orders in the Americas and in Europe. And specifically about what’s going well. I think you called out automotive, industrial and packaging. And I wonder if you could just talk about the last 45 days there and just the tone of the business, how you’re feeling about it.
Joe Kelley: Yes, Walt, thanks for the question. Yes. In that that business, segment I think about it as we see the steady growth in line, as Naga mentioned with our long-term growth rates. And so there, what’s driving it is, as we referenced, Americas and Europe, particularly in the quarter. But it’s our consumer non-durable has been pretty steady in line growth for us. There, you’ll recall is where we have several of our new product launches that were contributed to last year’s performance and continue to gain traction. It’s also within that, the largest factory within that segment was a pilot site for our NBS next. And so when you think about the traction and the improvement that they’re having there with their on-time delivery, it’s contributing to that growth as well. So that — and then if you go to the coating side, as Naga mentioned, we’re seeing a pickup, I would tell you, in automotive demand for the Industrial Coatings business there.
