Hello, everybody. Welcome to Nordson's 2024 Investor Day on this October 3rd in New York. It's great to see you all in person, as well as our virtual attendees. For those in person, the Wi-Fi password is "stay connected." That's a popular question. And if you could just silence your phones. I'd like to take just a quick moment, as you would. Well, while they get the trigger set up, I'm gonna cover the safe harbor statement. The presentation is downloadable on the website. On slide two of our presentation, you're gonna note important information for our investors regarding today's presentation. We'll make statements regarding our future performance that are forward-looking, based upon Nordson's current expectations.
These statements involve a number of risks, uncertainties, and other factors, as discussed in our filings with the Securities and Exchange Commission, that could cause actual results to differ. We encourage you to carefully review our SEC filings to better understand these risks. Because of the timing of today's event and how it falls within our fiscal calendar, I wanna highlight that all references to Nordson's 2024 financial results are based on the trailing 12 months as of Nordson's fiscal third quarter, reported on August 22nd, 2024 . Today's Investor Day is focused on the progress of Nordson's Ascend Strategy, as well as our long-term financial targets. It is not intended to confirm or update short-term fiscal 2024 guidance. Finally, we make reference to non-GAAP financial metrics during today's event, including adjusted operating margin, adjusted EBITDA margin, and return on invested capital.
Although these are non-GAAP measures, we believe they are useful to an investor in evaluating the company performance for the periods presented and for consistency across periods. You will find definition of these and other non-GAAP metrics in the appendix of today's presentation, which is posted on the website. So with that out of the way, I'd like to introduce you to today's speakers. I am very pleased to introduce you to our President and Chief Executive Officer, Sundaram Nagarajan, up front here, and Chief Financial Officer, Dan Hopgood. Today, you'll also hear from Jim DeVries, who has been instrumental in the implementation of our NBS Next growth framework. He and Justin Hall, who is a division leader from our Electronics Processing Solutions business, will reflect on our NBS Next Journey and share real-world examples of what makes it a competitive advantage.
Also today, you'll hear from our segment leaders, Joe Kelley, Stephen Lovass, and Srini Subramanian, as well as David Zgonc, who leads our Medical Interventional Solutions division and will give a more detailed view of our medical portfolio evolution when Naga talks through the business overview. Finally, I'd like to welcome four Nordson leaders who are in the audience with us today and will be available during our cocktail hour after the event: Sarah Siddiqui, our Chief Human Resources Officer; Jennifer McDonough, our General Counsel; Katie Colacarro, our Corporate Development Leader; and Anand Patel, our Vice President of Treasury and Corporate Finance. And if you need anything during today's event, please reach out to Tracy Herron in the back, who is not just an email address that many of you have seen, but Tracy is a critical part of our investor relations team.
So thank you, Tracy. So we have a full agenda today, most of which I just talked through. So we'll do about two hours of content, going through both the business overview, the segment review, and then Dan will talk through the financial long-term targets. We'll also talk about NBS Next, as I mentioned, and then we will have a panel discussion at the end. We'll spend plenty of time on Q&A. We'll be taking questions from the audience only, and then after that, we'll break for our cocktail hour. So make sure you're writing down your questions as we go through. So without further ado, I am so pleased to introduce Naga.
Right. Thank you, Lara. Good afternoon, everyone. Today, the Nordson team and I will share how, over the last four years, the Ascend Strategy has made a strong Nordson even stronger. Even more exciting is our best days are yet to come. So let's get started. What you will hear today is our roadmap for our next leg of growth. In this discussion, you're going to hear that the Ascend Strategy has delivered results and has ample runway to continue to accelerate our growth in the next leg of our performance. Next, we'll show you the ongoing portfolio transformation that enhances our growth ambitions.... We'll also discuss what is unique about NBS Next, and why it is a competitive advantage for the company. Our business leaders will then share with you how our leadership position in niche end markets with differentiated products fuels our organic growth.
Finally, as a growth compounder, you will hear how we plan to strategically deploy our superior cash flow and deliver on the financial commitments we're setting today. The Nordson story began in 1954 , when our founders, Walter Nord and his sons, Eric Nord and Evan Nord, acquired a patent for airless spray technology. Thus, the company's success begins with innovation and defines how we win today. Over the last 70 years of innovation, Nordson has compounded into a $2.7 billion company with 31% EBITDA. One of the hallmarks of the company is that over 2,500 patents that protect our differentiated products that create incredible value for our customers. Further, Nordson's ability to consistently generate cash has allowed us to pay and increase dividends every year for the last 61 years. So what do we do? Our solutions play a very critical role in our customer success.
You see them in three broad areas. The first is our Precision Dispensing Systems. As an example, hot melt adhesive machines that dispense precise amounts of adhesives in a variety of niche end markets that are enabled by secular growth trends, such as sustainability applications, think battery, think solar applications, advanced materials, as well as consumer non-durable products that support a growing middle-income population around the globe. Second is our Medical Fluid Solutions. Our Medical Solutions, like balloons, catheters, in life-saving medical procedures that are enabled by aging population, minimally invasive therapies, as well as diagnostics everywhere. Third, Test and Inspection. In Test and Inspection solutions, like optical and X-ray, machines ensure quality and productivity in high-tech manufacturing, such as semiconductor manufacturing. This is powered by increasing surging demand for AI, cloud computing, High Bandwidth Memory, and particularly now, the onshoring or the nearshoring of manufacturing capacity.
We're organized in three segments. Let's first start with Industrial Precision Solutions. This is where the company got started. A strong set of businesses that lead the markets that they play in. It represents about 56% of the company. Next, our Medical Fluid Solutions segment. This consists predominantly of divisions that serve the medical end markets. A scaled segment that has been built through acquisitions and complemented with strong organic growth. It is now 25% of the company. Finally, Advanced Technology Solutions. This houses some of our most sophisticated technologies in Test and Inspection and precision dispense, serving electronic end markets. What is important to note is that each of our segments are run as a group of individual divisions that are focused on a particular product or a specific end market. When you think of Nordson, think of a division-led company that are led by entrepreneurial leaders.
You will hear from two of our division Vice Presidents today. Nordson is a highly diversified company. This allows us to navigate dynamic macro environments with minimal impact to our financial performance. For example, during the COVID period, our annual revenues were down 3%, and our operating income was down a modest 6%. We are diversified in many aspects of our business. No one end market represents more than 30% of our revenue. We have expanded our recurring revenues to 56% of the total revenue. And finally, our revenues are balanced across the regions. Americas represents 44% of the company. Europe and Asia are equally split, so if I look back to 2020, we launched the Ascend Strategy and set financial goals of reaching $3 billion and 25% EB, 30% EBITDA by 2025.
As a reminder, the Ascend Strategy consists of three interconnected pillars: NBS Next, the company's growth framework. That is one constant across the company, and that is how we run the company. It has taken us four years to build, deploy holistically, and deliver results with NBS Next. We're still in the middle innings of creating value with NBS Next. Owner Mindset, Nordson's organization structure. Winning Teams, Nordson's talent strategy. All this built on what makes Nordson special, our strong culture and values. Our core belief, back in 2020 and today, is that Nordson's best opportunity is growth. As we look towards 2025, the Nordson team is proud to report that the Ascend Strategy is delivering results. Starting with EBITDA margin performance, since 2021, Nordson has delivered 30% EBITDA, a top-tier performance. Including Atrion, Nordson in 2025 will be within striking distance of our $3 billion revenue goal.
These results have enabled the company to deliver a cumulative shareholder return of 98%, well above S&P 500 Industrials. Nordson, a best-in-class industrial technology company. Now, let's talk about the ongoing transformation of Nordson's portfolio and its contribution to the successes and the value creation I just talked about. Since 2010, Nordson's programmatic capital deployment for M&A has created significant value. At Nordson's current multiple, the cumulative EBITDA generated by acquisitions has contributed to almost half of our market capitalization. Additionally, we have enhanced the portfolio through intentional focus on differentiated, high-growth businesses with Nordson-like margins. Three noteworthy results: First, we expanded into select high-value test and measurement technologies. We entered a large agricultural market with technologies for precision agriculture. And finally, we created a scaled medical platform. Let's double-click on this medical platform evolution, mainly for two reasons.
One, it highlights the strategic discipline and the success of Nordson's M&A strategy, a muscle that has been built over the last fifteen years. Further, Nordson's entry into medical has increased our exposure to higher growth end markets and has counterbalanced cyclical electronic market exposure. I'd like to turn now to David Zgonc, our Vice President, Medical Interventional Solutions Division, to provide more color on the medical platform development. Dave?
Thank you, Nag- thank you, Naga, and thank you all for being here. I'm Dave Zgonc. I am the Vice President of the Medical Interventional Solutions business, and over my 26 year tenure with Nordson, I've had the opportunity of working in many of our divisions: nonwovens, packaging, product assembly, and EFD, before moving into leadership in our medical space. As Naga's shown, Nordson has a strong history of building a growth portfolio, and our medical acquisitions over the last 15 years really demonstrate our ability to build new growth platforms in attractive markets that are new to Nordson, that provide Nordson with new, profitable growth vectors. And why was this an area that we decided to invest 15 years ago? Well, it's pretty simple.
It boils down to it's a high-growth market, it's driven by long-term secular trends, it has attractive margins related to differentiation, and we are operating in niche end markets. Importantly as well, it connects with our close-to-customer model, where our differentiated solutions are highly valued, driving long-term relationships with our customers. Our approach has been to go strategically and intentionally, selecting opportunities, providing new differentiated technologies and access to niche end markets. So if you take a look at the overall platform development, it all really started for us in 2010 with the acquisition of Micromedics, and that brought us the technology of single-use surgical biomaterial delivery devices. And while this was a brand-new market for Nordson, it shared technical similarities to our EFD business, with precision dispense and spray, single-use, and syringe-based technologies.
More importantly, as we entered this market, it helped build the competence that we now have in this complex, regulated market, as well as developed a comfortability with the medical market dynamics. We liked what we saw, and we continued to invest in the segment, and we've strategically invested with intentional investments over the last 15 years to build out this platform. So Micromedics brought us into that segment, and since then, we've really focused on acquiring those differentiated products and technologies. It's been driven by anchor investments and supported with tuck-ins along the way. And so if we take a look at these anchor investments, the first of which was the 2011 acquisition of Value Plastics, and that gave us single-use luer and tubing fittings. They gave us access to surgical support and patient care therapies.
Now, this business is widely viewed as a market leader in this product category, not only for its differentiated solutions, but its unsurpassed quality. Fast-forward to 2014 , when we acquired Avalon Laboratories. This added a very unique capability in not only product, but process, with polymer solution casting, medical tubing, and cardiovascular cannula. Again, this is another market leader. We had tuck-ins along the way, and then we come to 2017 , which became a very transformative year for the medical device platform with the acquisition of Vention Medical. This acquisition gave us broad-based component technologies, including medical extrusions, Nitinol, balloons, as well as subassemblies and other devices, just to name a few. Now, these broad-based component technologies really provided us a breadth of solutions to really enter the attractive growth market of the minimally invasive surgical space.
And most recently, our Atrion acquisition, completed earlier this year, further enhanced our overall portfolio by providing us with equipment for the delivery of cardioplegia, which helps out in the cardiovascular surgery market, and we're now selling that direct to patient care facilities, which is enabling another channel for us. Additionally, the Atrion acquisition gave us deeper penetration into the infusion market with needleless valve technologies, as well as a product tuck-in for minimally invasive therapies with balloon inflation devices, which is very complementary to our balloons and balloon catheters that we're already in the market with. As you can see, our approach to go after large anchor investments, supported by strategic and intentional tuck-ins, we have a proven track record of adding significant breadth of differentiated technologies to our portfolio. Now, it's not just about adding new products and technologies.
This investment has allowed us to broaden the therapeutic areas where we operate, and within those particular therapies, they provide us with a broader solution set to our customers. This creates value for Nordson, but it really creates value for our customers, because our customers are striving to consolidate their supply chain, partner with solution providers that they can trust and that they can trust to scale with their growth. If you look at our anchor investments of Value Plastics and what markets it brought us into, it really got us into the surgical and biopharma markets with therapies and patient care and fluid delivery solutions. The Avalon acquisition moved us into the attractive structural heart space as the leader in surgical life support cannula. Now, the Vention acquisition, again, if you think about adding product breadth, it also added significant market breadth to us.
It broadened our therapeutic reach into cardiovascular, neurovascular, gastroenterology, and significantly expanded our structural heart presence. Similarly, Atrion has moved us into the drug infusion market and broader solutions within the structural heart, where we now have multiple therapies within a single surgical arena. So within a particular operating room, we may be delivering the cardioplegia direct to the heart and also providing the surgical life support through the cannula. Now, these individual additions to our platform have broadened our portfolio, and they've given us acquisitive growth, which we all enjoy. But it has also enabled synergistic organic growth above market rates while enabling a significant expansion in our addressable market. If you go back to the original acquisition of Micromedics, our addressable market was on the order of $50 million.
Through this intentional and strategic growth of this platform, we have expanded that addressable market to over $6 billion. Now, this provides us with many opportunities to drive profitable growth in the future while maintaining our strategic discipline. As we've built out this platform, we've had the opportunity over the last four years, through the deployment of NBS Next growth framework. We have been able to extract even more value out of the platform. It's allowed us to deepen customer relationships, particularly with global OEMs. It's allowed us to focus on the most attractive markets within the segment we operate, and it's certainly optimizing our operational output, enabling more growth from the existing assets that we have. The NBS Next growth framework is a competitive advantage for our growth in the medical space and for the company overall, and it's the foundation for the future.
As you can see, our track record over the last 15 years has significantly driven consistent, profitable growth for Nordson. We've driven our top line from $10 million to over $450 million, and beyond with the Atrion acquisition. This intentional platform acquisition approach has been accretive to Nordson's average EBITDA of 30%, which is both exciting and impressive. With that, I'll turn it back over to Naga.
Good job. Thank you.
Boy, this thing wants to move! All right, so thank you, Dave. You know, recapping what I said earlier, over the long term, the medical platform built out essentially demonstrates how successful our M&A strategy has been and how it is integral to our long-term portfolio transformation. This is not about a single acquisition, but a deliberate series of adds over time, creating compounded shareholder value and expanding market opportunity, as Dave indicated, from $50 million to $6 billion. Going forward, this is how you should think about Nordson's programmatic M&A. We've talked about additions to the portfolio over time, but it is also important that we hold our existing businesses to Nordson standards and make required pivots when necessary. In fact, regularly assessing existing portfolio is a core part of NBS Next framework.
The key strategic tenets are: we ensure that our businesses are in differentiated end markets with differentiated products. The ultimate proof point that our businesses must demonstrate are actual revenue growth and profitability through the cycle. If and when our businesses don't meet our standards, we will take required actions to pivot, as we did with our screws and barrels business back in 2020. As a reminder, this divestiture resulted in improved margin profile of IPS segment, while increasing focus on higher value growth opportunities. Our portfolio transformation has delivered results. Notably, over the last 10 years, we have grown the top line cumulatively by almost 60%. While doing so, we've increased our share of recurring revenue from under 40% to over 50%, giving us better stability in our performance.
Today, roughly half of our portfolio is focused on higher growth end markets, with balance focused on lower growth but stable end markets. As an example, our higher growth medical market exposure has increased from 6% to 22%. This has resulted in a growth-oriented portfolio. I should clarify that these figures are based on trailing 12 months basis and do not reflect the recent Atrion acquisition, which will increase the medical contribution even further. Overall, we are better positioned today than we have ever been. This gives us confidence that we can not only replicate our historical performance, but accelerate it. Putting all this together, what makes Nordson special, and how do we win? It is our competitive advantages.
As we launched the Ascend Strategy, we started from a position of strength with many competitive advantages: our leadership position in diversified niche end markets, our high recurring revenue parts, our direct-to-customer model, a differentiated product portfolio with that is built on deep knowledge of customers' most demanding applications. In the past four years, we have added to this impressive list of competitive advantages, and this has expanded our competitive moat. As we discussed, a growth-oriented portfolio that enhances our growth ambitions, then NBS Next. This drives organic growth and creates value for our acquisitions. Together, these unique advantages positions us to accelerate growth in the next five years. Now, what can you expect Nordson to do in the next five years?
We will continue to leverage the Ascend Strategy to deliver an average annual growth of 6%-8% in revenue and 10%-12% in adjusted EPS growth. Over the next two hours, you will hear more about how we plan to deliver on these targets through a balanced combination of organic and inorganic growth, supported by NBS Next growth framework. With this, let me invite Jim DeVries to discuss our journey in NBS Next, an important competitive advantage for Nordson.
Thanks, Naga, and good afternoon, everyone. I'm Jim DeVries, and I've been with Nordson for over 38 years. Yes, you heard that right, 38 years. I've had the absolute privilege to work in a variety of positions in engineering, operations, and division leadership, and together with the executive leadership team that's here in the room today, my team and I created the NBS Next growth framework. NSS Next is the heart of the Ascend Strategy, and together with Owner Mindset, Winning Teams, and our unique culture and values, is how we plan to deliver the growth plan that Naga just shared with you. We call it NBS Next because we took the strengths of our original Nordson Business System, and we added new capabilities with a focus on delivering growth.
Over the years, I'm sure we've all heard about various business systems, and so you're probably wondering what is different and unique about NBS Next? First, NBS Next is a holistic framework composed of five elements that work together to drive growth. Some business systems are viewed as toolboxes from which you pick and choose tools, typically to improve profitability. While NBS Next can certainly expand margins, it's a holistic framework with a primary focus on growth. Second, and perhaps most importantly, NBS Next uses strategic discipline as a lens through which we make choices and focus on the best niche market and product opportunities. Now, I'd like to just take a couple of minutes and describe each of the five NBS Next elements.
Starting at the very top, strategic discipline is a data-driven way to segment a business and identify the best growth opportunities while relentlessly simplifying everything else. NBS Next starts with strategic discipline because the insights from it inform the other elements in terms of how to deploy resources and how to prioritize investments. Some simple examples would be how to deploy our sales and service teams, how to select and prioritize product development projects, and how to make choices about facilities, equipment, and other capital investments. The next element, customer success, is our direct-to-customer sales and service model. Together with robust key account and opportunity pipeline management, customer success positions our commercial teams to win. The product innovation element combines structured voice of customer and phase gate processes, together with regular product reviews, to ensure a steady pipeline of highly differentiated technology solutions across our divisions.
We consider product innovation to be the very foundation of our profitable growth. Operational excellence starts with a focus on safety across the company. In our production sites, cellular manufacturing is used together with lean principles to create flow in the production of our high-volume products, while separating and simplifying low-volume products. Cellular manufacturing, combined with a mindset of continuous improvement, is how we consistently deliver market-leading quality and delivery. Last but not least, organizational agility ties NBS Next together with highly engaged, agile employees working together as Winning Teams. These teams are capable of adjusting when necessary to adapt to a dynamic market landscape. All five elements, starting with strategic discipline, work together to drive profitable growth. We measure the success of NBS Next with a few simple metrics.
Our belief is that keeping the metrics simple and consistent across the company, enables all employees to understand what good looks like. On the left, you see the NBS Next metrics. The first two are key account revenue growth and new product revenue as a % of total revenue. The next metrics are product quality and delivery, which are an indicator of our ability to meet or exceed our customer expectations. The last metric, employee engagement, is simply an indication of our employees' willingness to go the extra mile. All elements have thresholds and targets, but key account revenue and new product revenue targets are specific to each division, while quality, delivery, and employee engagement targets are common across all divisions.
We expect all divisions to sustain market-leading performance without what we call brute force, and what that means is that they can continuously perform without requiring superhuman effort to run the business on a day-to-day basis. Excellence in the NBS Next metrics accelerates profitable growth. As Naga mentioned, we started our journey over four years ago in the fall of 2019 , and we launched NBS Next in March of 2020 , which I would remind you, was literally right before COVID started. We very intentionally piloted NBS Next in four high-performing divisions, which might not seem too intuitive, but we wanted to show how NBS Next could make good businesses even better. At the same time, we trained all divisions in how to use strategic discipline to segment their business and identify the best growth opportunities.
In years two and three, we holistically deployed NBS Next across the entire company, and at the same time, we began conducting monthly business reviews and regular site visits to help coach our division leaders and course-correct when necessary. In years three and four, the focus was on accelerating to market-leading performance. We developed what we call the NBS Next Accelerator Training Program, which is a training program to teach our leaders how to apply NBS Next using real Nordson data and real Nordson examples. I'm proud to say we've trained over 500 leaders globally across all our divisions and all of our corporate functions, and we continue to conduct annual accelerator training sessions. So we're now in year five of our NBS Next journey, and it's all about leveraging this market-leading performance to accelerate growth. At the same time, we're also embedding NBS Next deeper into the organization, including new ac... Sorry.
At the same time, we're embedding NBS Next deeper into the organization, including new acquisitions, in a way that ensures purity of practice across the entire company. Throughout our NBS Next journey, the company has continued to grow profitably, and at this point, approximately 50% of our divisions are at sustainable market-leading performance. While great progress, I think this also illustrates that there's still plenty of runway remaining. So now I'd like to wrap up with a few thoughts about why NBS Next is so critical to achieving the growth plan that you've heard about today. First, as the heart of the Ascend Strategy, NBS Next provides a consistent way to run the company with a focus on growth. Second, market-leading innovation, quality, and delivery creates competitive advantage that allows us to win and take market share.
NBS Next also provides a consistent way to define what good looks like across a very diverse and expanding portfolio of businesses. NBS Next facilitates talent development because it makes it easier to move talent across the organization because every division operates the same way. And finally, NBS Next provides a framework that allows us to efficiently and effectively integrate new acquisitions and create value. In summary, NBS Next is best defined as using data to make choices about the best growth opportunities, having the courage to stay focused on those choices, and then boldly simplifying everything else. Now, I'd like to introduce one of our division leaders, Justin Hall, so he can share a few examples of NBS Next in action. Justin?
Hi, everybody. Good afternoon. My name is Justin Hall. I'm the Vice President of our Electronics Solutions division of Nordson. I've been with Nordson for over 18 years, and I've held leadership roles in all three segments of our company. I'm here today to bring our exciting NBS Next growth framework to life and share with you a, a few real-world examples of how we used NBS Next to prepare for and then deliver profitable growth. I was one of the first pilot leaders of NBS Next and had the opportunity to implement the framework holistically with several different teams. When I reflect back at my time at Nordson prior to NBS Next, it occurred to me that in many ways we were trying to be everything for everybody in some of our businesses, which causes complexity.
This worked well when we were smaller, but as we've been growing and adding more businesses to our portfolio, we needed to scale and have a repeatable framework to guide our teams. NBS Next one marks one of the first times that we're using the data to support our beliefs, back our decision-making, and then accelerate our growth. It's been a great time to be a leader at Nordson and to see the success of our teams. Happy to share the examples. Oh. So the first example comes from my time leading the standard high volume fluids components division of Nordson Medical. Earlier, Dave talked about the acquisition of Value Plastics, and this business was based on that acquisition. In this business, as the pandemic hit, the demand for these products skyrocketed.
In fact, my team and I had to meet weekly with the U.S. government to review our ability to meet this demand. Imagine starting every Monday morning on the phone with a U.S. Army major and his three lieutenants, so pretty stressful and dynamic times for our customers and for Nordson, so as a division leader working to attack this problem, using NBS Next, we simplified our product offering, and we moved our capacity over to the products position for longer-term growth, in this case, biopharma. The added capacity allowed us to supply more than enough products to meet the critical vaccine manufacturers' needs. Our customers moved those production needs away from our competitors over to Nordson, giving us the full share in many cases.
This had a tremendous impact on the business, where our revenue doubled, and we added 500 basis points of EBITDA margin expansion just in two years. We were able to take full opportunity of the market while also not increasing our manufacturing footprint. We supported our customers with shorter lead times, best-in-class quality and delivery, which has allowed us to take the share. Imagine the teams, after simplifying a product line, doubling the revenue and adding to the profitability, some of the learnings that Jim described earlier. The next example I'd like to share with you comes from my current role leading the Electronics division of Nordson. This is a very different business than Fluid Components. This is an engineered system component business. Historically, we would engineer our systems to order based on a particular customer's want or configuration.
As the semiconductor industry slowed, I found myself needing to make structural cost adjustments to the business, but while also staying highly invested in our customers as they worked on different technology advancements in AI, the Internet of Things, and next-generation memory. Very similarly, using NBS Next and our own data, we've simplified the product offering, focusing on our top product configurations. We moved our production closer to our customers in Asia while expanding our footprint in India, and then we outsourced several non-value-added processes, such as metal fabrication. Once again, these top configurations and being close to our customer led to market-leading lead times, where we were able to take share. Our business, again, was impacted profoundly by us adding seven hundred basis points of EBITDA margin expansion.
As the semiconductor industry strengthens, we're well-positioned to capture the growth while maintaining this improved profitability. As Jim described, NBS Next is a data-driven approach to select and invest in the most attractive growth segments. By highlighting what we do well, where we win and why, NBS Next enables Nordson to leverage our strengths to go capture that growth. As a division leader, the data gives me clarity and gives me the courage to simplify and redeploy our resources to capture that growth. One of the most exciting things about NBS Next is it's transferable and guides our teams as they move into different roles and businesses, strengthening our talent pipeline. I'm a great example of that, moving around to different businesses, and I've seen our team do the same. As Jim says, NBS Next enables Nordson to focus and make choices and simplify to drive our profitable growth.
You know, in summary, overall, I've had the opportunity to apply NBS Next across several different businesses, and as Naga said in our Ascend Strategy, together with Owner Mindset and Winning Teams, it really works. Our NBS Next journey is ongoing, but I'm very confident and excited that NBS Next will provide the profitable growth that Naga and our executive team are sharing with all of you today. Thank you. I now introduce Mr. Joe Kelley, our Executive Vice President of our IPS segment.
Good afternoon. My name is Joe Kelley. I lead the IPS segment. I have been with Nordson for approximately five years now, and it is my great privilege and pleasure to present to you today the IPS business segment. Over the next 20 minutes, I'm going to explain to you the unique set of divisions that comprise the IPS segment and what make them special. There's a couple major takeaways which will convince you that the IPS segment is a special business. First is our differentiation. We provide products which are truly differentiated from the competition in terms of speed, precision, consistency, and quality. These points of differentiation allow our customers to solve unique problems, examples being sealing a battery container in a high-temperature environment, dispensing highly corrosive hot melt adhesives on a high-speed packaging line, just to name a few. Next is diversification.
This comes in several forms, all helping to reduce the volatility and enabling delivering of consistent, profitable growth. Diversification refers to end-market exposure, but more specifically, niche applications within those end markets. Also, diversification speaks to our geographic diversification, as we are spread throughout the Americas, Europe, and Asia, again, contributing to our ability to consistently deliver annual sales growth. Third is our direct sales model, selling solutions. This is key to maintaining our ability to sell the value of our differentiated products, solve customer problems, and remain close to the end customer, ensuring that we retain the recurring revenue of the parts and consumables post the system sale. The combination of these characteristics make IPS a great business today and a great segment the past several years.
However, the biggest takeaway from today's meeting is that this special segment, combined with NBS Next growth framework, gives this segment runway to profitably grow the next five years. NBS Next has been systematically and holistically implemented in Nordson IPS divisions, and we are reaching targeted, market-leading business metrics around quality, on-time delivery, top new product growth, just to name a few. This performance level in the factories and in our commercial organizations is going to unleash the above-market growth potential of this segment. This is what you're gonna hear from me in detail today. First, let's overview the financials of the IPS segment. Industrial Precision Solutions segment is a group of divisions delivering approximately $1.5 billion in annual revenue and delivering best-in-class profitability of 36% EBITDA margins.
Over the past five years, IPS has delivered consistent top-line growth with an annual organic CAGR of approximately 3%, plus the acquisition of the ARAG business in August of 2023, the annual CAGR for the segment has increased to 6%. You see, the end-market diversity, the direct sales model, and the recurring revenue I highlighted earlier have enabled the segment to deliver consistent, profitable growth the past five years. The majority of the divisions themselves have a broad global footprint, and therefore, at the segment level, you see a relatively balanced global footprint between Americas, Europe, and Asia. Please be sure to note that the Americas is not the U.S. We have a footprint in North America, Central America, and South America. Similarly, Asia exposure is not China. We have a robust footprint in Japan, South Korea, Southeast Asia, and in India.
Next, I'd like to talk about the strategic focus of the segment. This segment, moving forward, its focus is to continue to expand our precision technology in large dispensing applications to help our customers better their products and operations. Remember, our customers are pushing the envelope in terms of design, process, performance, and material requirements. These advancements challenge the niche application of material dispensing. Our best-in-class product offering is continually being enhanced to dispense at greater speeds, precision, longevity, and with new material to enable our customers to succeed. Now let's look at why Nordson wins in the marketplace. It's our product offering, being best-in-class in terms of quality and precision. Plus, we have a direct sales business model that can sell the value of our product offering, and we address the evolving needs of our customers.
Typically, our customers' needs are around automation, faster throughput, reduced downtime, and our product portfolio addresses these needs. Frequently, our customers have been coming to us looking for help around environmental and sustainability challenges. Here, we are addressing our customers' needs by providing some melt-on-demand solutions to reduce their carbon footprint, working with them on new creative packaging designs which reduce the material consumption but still address the packaging needs. As our customers design new products, not just new packaging, this new product design typically pushes the envelope on innovation and performance of their product. This advancement perhaps includes new, higher-performing material in terms of temperature performance or resealable performance. This new material is frequently more challenging to dispense at the rate of speed and precision the customer is accustomed to.
Insert Nordson and our direct sales business model and application development capabilities, and we resolve the challenge. This is how we win. I have a video to share later that is one example of this in the solar market. But trust me, there are hundreds of others, from fabric bonding to biodegradable packaging to electric battery assembly. Our customers are constantly pushing the limits of their products, and Nordson is right beside them, resolving their development needs. Looking at IPS from an end market exposure standpoint, 40% of the IPS segment sales go into the consumer, non-durable end market. What exactly is this? It is packaging of food, beverages, and consumables, plus it is the manufacturing of consumables, like diapers, hygiene products, and disposable medical garments. I like to think about a grocery store and see everything on the shelves that is packaged in cardboard boxes.
It is not just cereal, it is pasta, it's beer, it's soda, it's cleaning supplies, it's crackers, and many other products, and then I think the majority of those products were transported to the store in an adhesive-sealed cardboard box. That is an example of the consumer non-durable end market. This market is much less cyclical than other markets and contributes nicely to our consistent performance. 35% of our revenue by end market exposure is the typical industrial segment. Here, we are supplying equipment to assist in the industrial manufacturing process of containers, plastics, and panels, for example. The industrial end market is broad, but again, appreciate our product offering is equipment which performs a dispensing application, and this is needed in a broad array of industrial manufacturing processes where you are coating, dispensing, extruding, and connecting material.
The remaining 25% of our end market exposure is comprised of a combination of home appliance, wood construction, agricultural spraying, and automotive body shop end markets. This is our end market exposure. It is concentrated in less cyclical markets with an estimated weighted average growth rate of just over 2%. We see attractive opportunities to expand our TAM as we constantly identify new end markets and applications that can benefit from our expertise in dispensing. Now let's look at the divisions of IPS and the products. About 50% of the segment what the segment does is hot melt adhesive dispensing. From a product standpoint, this involves a melter, a pump, a hose, and an applicator, in the simplest of terms.
Appreciate we are talking about hot melt adhesives, typically heated to 300- 350 degrees Fahrenheit and then pumped down a hose 5 to 15 feet before being dispensed through an applicator. There is a wide range of different melters, depending on the adhesive material and its melting characteristics, plus the volume and frequency of the material being dispensed. Hoses also vary depending not just on length, but on volume, on pressure, on temperature. Applicators is where perhaps the greatest amount of technology and differentiation in the hot melt adhesive world exist. This is the final point where the material is dispensed onto the substrate, whatever that may be. This is where the start and stop of dispensing is controlled. This is where the pattern is formed.
Controlling the applicator is how precision is achieved, and where the best-in-class, wear-resistant, and durability of Nordson products provide differentiation. These are the main products in the hot melt adhesive dispensing divisions, and it is the hoses and the applicators where we have wear parts that drive greater than 50% of the sales in this divisions to be recurring revenue. Next is the Industrial Coatings divisions, making up approximately 20% of the segment. Similar to hot melt adhesives, this division is dispensing material. It's just not heated to 300 + degrees, and it is different material. Sometimes it's liquid, sometimes it's powder, and sometimes it's cold adhesives. In the case of dispensing powder coatings materials, you have a tank of powder it is being pumped, and the applicator is typically a powder gun that is dosing, that is dispensing the powder.
This can be done in a portable dolly system, or this can be done in a large powder booth, where the material being coated actually travels through the booth. The liquid and cold adhesive dispensing products in this division are similar to hot melt adhesives, just without the melter. You have material being pumped down a hose and dispensed through an applicator in a precise, repeatable, and accurate manner. Next is our Polymer Processing Solutions division, making up approximately 15% of the segment. It again deals with moving and dispensing material. In this division, we are pumping resins and polymers through filters, pelletizers, and dies with precision, speed, accuracy, and consistency. Our actual product offering includes pumps, filters, or as they call filters in this industry, screen changers. There's pelletizers, and there's dies.
All of these operations are dealing with a tremendous amount of pressure and high temperature, which requires robust machinery and systems to handle the material at volume. This is why you see the majority of the sales are large systems, and the recurring revenue is less than 25%. The final 15% of the segment revenue is comprised of spraying and measuring solutions. Here again, our products are pumps, valves, and nozzles, which control the Precision Dispensing of material. In this case, it is in the agricultural spraying end market. Plus, we have sensors which measure material being dispensed, extruded, or produced. Hopefully, this gives you a better sense of the product portfolio within the IPS segment, and how roughly 50% of our products sold are recurring revenue of parts and consumables.
Now, I'd like to share a couple, two short videos with you that highlight our products and how Nordson wins. The first video shows Nordson technology and differentiation in the nonwovens market. Remember, in the dispensing of hot melt adhesives, you have the melter, the hoses, and the applicator. There is a tremendous amount of technology and precision in the applicator. You are going to see a brief video of our latest nonwoven applicator, the Harmony. Remember, what you are seeing here is the manifold modules and nozzles which comprise the applicator, that are dispensing adhesive, which again, is heated to around 350 degrees Fahrenheit, and being heated and then pumped down a 15 ft hose prior to being dispensed.
This new applicator enables speed, precision, and precision greater than our historical version, and is driving recapitalization of some of our installed base, as well as rolling out on new models. I'm not gonna talk during the video, but watch for the different nozzles and patterns. Appreciate everything you see in this video is basically in slow motion, because the nonwoven applicators are on a diaper line, and these diaper lines are moving at 1,000 diapers per minute. Appreciate that on a typical diaper line, there are gonna be 8-15 different combinations of applicators and nozzles, and you'll just see a few. The starting and the stopping of adhesive dispensing on a diaper moving that fast needs to be precise, consistent, and repeatable to enable our customers to achieve their desired manufacturing efficiency.
The final thing to watch for is the assembly and disassembly of the applicator, which allow for efficient and efficiency and simplicity in changing the spare parts and preventative maintenance. Appreciate again, we are talking about high speed of a hot, highly corrosive material. Spare parts and preventative maintenance are very important to our customer base. Please enjoy the Harmony Applicator video. Hopefully that video provided an example of where you can see technical differentiation in an applicator. This next video is a great example of how Nordson wins by solving our customers' problems and enabling their success. So there is a new development in the solar panel industry where a technology change has enabled a significant improvement in efficiency. The problem is that technology change is also very, very sensitive to moisture, and it is extremely...
And these panels need to be endurable, effective in changing harsh environments. The material which can effectively seal the panel and protect from moisture and meet the durability requirements is butyl rubber. The problem is this material is very high in viscosity and corrosive characteristics, which make it very difficult to dispense, let alone to dispense at a high rate of speed with a consistent bead and precise location repeatability. In comes Nordson's Product Assembly division. Our application engineers were able to design a pump, a metering station, and an applicator, which could not only handle the butyl rubber, but which was able to dispense it consistently, accurately, and at a high repeatable rate of speed.
This video itself looks relatively simple, but when you understand the material being dispensed and how critical that material is to enabling the success of our customer and their new product, this is a classic example of how Nordson wins. My final slide highlights how NBS Next is delivering growth in the ICS division. Remember, NBS Next is a growth framework, a comprehensive business system with many elements designed to drive consistent, above-market, profitable growth. The ICS division is an approximate $300 million division within the IPS segment that has deployed NBS Next holistically and has been driving 5% sales growth and over 6%, 600 basis points in margin expansion over the past several years. Now, more specifically, how exactly is NBS Next driving this above-market, profitable growth? As you heard from Jim, NBS Next is all about choices, focus, simplification.
Within the ICS division, there was a choice, and they chose to focus on their powder portfolio. They identified the powder portfolio as one with significant differentiation in the marketplace, and one where, with disproportionate focus, we could deliver above-market growth. The focus, the ICS powder portfolio focus, needed to be around simplification to enable the growth. There was a cross-functional team of commercial, operations, and engineering resources. They simplified the product portfolio through design standardization around standard subcomponents. The factory was then organized into in-line production cells focused on these simplified standard subcomponents. These simplified cells focused on top products, enabled improved on-time delivery, which drove shorter lead times, which enhanced our ability to win in the marketplace. This is NBS Next driving growth.
The success we are having in ICS with NBS Next has legs to run in other ICS product lines, as well as other divisions to differing degrees. I hope you now have a better appreciation for the Industrial Precision Solutions segment and how we have performed over the past five years, and how we plan to leverage the Ascend Strategy and NBS Next growth framework to deliver profitable growth over the next five years. Thank you for your time, and I'll now turn the floor over to Stephen Lovass.
Thanks, Joe. Good afternoon. My name is Stephen Lovass. Here at Nordson, I lead our Medical and Fluid Solutions segment. Prior to this, I led our strategy and corporate development function, having joined the company in 2016 from Danaher to lead what was, at the time, our Industrial Coating Segment. I'm really excited today to talk to you about our Medical and Fluid Solutions business. Following our acquisition of Atrion, we are now an $850 million revenue segment, reflecting a business that, as Dave outlined earlier, we've scaled over almost 15 years, both organically and through M&A, into what is today a scaled premium provider to the med tech, life science, and industrial technologies markets. A business with the products, the capabilities, and the scale to serve leading global OEMs, hospitals, and medical providers in our end markets.
As we've expanded the breadth of our businesses, we're also evolving from a supplier of differentiated but individual products in varied markets, to a key partner delivering differentiated solutions to support medical device and life science manufacturers in defined therapeutic areas, as well as being a niche device manufacturer ourselves. While we're proud of what we've achieved, we continue to focus on growing and strengthening our segment through our NBS Next growth framework, while also continuing to scale through M&A. We remain positive on the opportunities the Atrion acquisition brings, including expanding our addressable market by over $800 million and strengthening our position in drug infusion, structural heart, and other minimally invasive therapies.
As I look forward over the next five years, I'm really excited in terms of how we'll contribute to the success and growth of Nordson, our customers, and those who benefit directly from the incredible products, devices, and solutions that we bring to market. As I said earlier, after closing the Atrion acquisition in August, the Medical and Fluid Solutions segment revenues are now $846 million for the trailing 12 months ended July 2024, inclusive of acquired revenues, up from $574 million in 2019. As you can see, we also deliver premium margins in our space, focusing on differentiated single-use technologies, components and devices in four key market segments: surgical, including minimally invasive, medical fluid management components, medical device manufacturing, and industrial technologies.
In terms of the medical and life science markets, which are around 75% of our revenue, our growth is tied to rising healthcare spending and procedure growth in the niches we serve. There are a variety of factors underlying this growth, two of the largest being our aging population and the prevalence of chronic illnesses. Technology advancements are also an important driver of growth for us. Three examples: the continued advancement of minimally invasive devices, which are today the preferred option for many procedures. Second, the growth in biopharma drug development and production, from COVID-19 vaccines to GLP-1 drugs like Ozempic and Wegovy. And third, growth in what is increasingly being called diagnostics everywhere, including wearables and point-of-care tests with lateral flow devices. All of these advancements rely on technology from companies like Nordson to come to market.
Finally, equally important is the structure of our industry, where large med tech OEMs operate a model where they rely heavily on companies such as Nordson Medical for both development and manufacturing support, something we don't see changing over the coming five years. When you think about these growth drivers, and as I'll talk further in a few more slides, we are well-positioned to capitalize on the opportunities at hand. Why? Number one, the breadth of our differentiated products, which were only expanded by the Atrion acquisition. Two, the technical capabilities of our products, especially when OEMs and medical providers require superior performance or are tackling particularly challenging requirements. For example, in tight tolerance thermoplastic extrusions, high pressure or unique shape balloons, high pressure or higher volume balloon inflation devices, precision luers, connection fittings, the list goes on.
Finally, supply chain resiliency remains critical to our customers, especially after the challenges that were exposed by the COVID-19 pandemic. This is another area where we differentiate with a well-built-out footprint to meet our global customers' needs, with performance that we continue to enhance with our NBS Next Growth Framework. Turning now to end market growth rates, the last few years have certainly been dynamic for us from a demand perspective. We've navigated both through pandemic-driven growth, but also the subsequent destocking, which has occurred in multiple medical and life science submarkets. Looking forward, though, we think about market growth in terms of specialty medical markets. This represents about 40% of our sales, with products from all of our divisions being sold into a range of niche therapies and applications, including surgical, patient care, biopharma production, and broader device manufacturing.
As we look forward, we expect growth rates in these markets to range from low single to double digit, averaging mid-single digit plus. In the center, minimally invasive surgical represents about 36% of our sales, primarily products from our Medical Interventional Solutions division, with larger therapeutic areas we focus on, including cardiovascular, structural heart, and neurovascular. We expect this market to average growth in the high single-digit range. Our third end market is industrial technologies. This represents the non-medical part of our segment, about 24% of our revenue. Leveraging the precision dispense and molding technologies that we use for medical and life science, you can see here some of the markets that we sell into, including electronics and wireless, EV, industrial technologies, and through the Atrion acquisition, aviation and marine safety. We expect this market to grow low single to mid-single digits.
On this next slide, I want to unpack a little bit further the 75% of our segment that is medical and life science. Today, we focus on four primary areas, which span a range of therapies and applications. Starting in the upper left, for med tech OEMs globally, we're a critical provider of components, subassemblies, and at times, full contract manufactured devices for minimally invasive surgical solutions. This includes, for example, extruded tubing, PTFE liners, heat shrink Nitinol, balloons and balloon inflation devices that are critical elements of balloon catheters and other devices used in cardiovascular, structural heart, neurovascular, and other minimally invasive procedures. Moving to the lower left, in the broader surgical space, we again sell to med tech OEMs, but also now directly to hospitals and cardiac surgery providers in focused niche markets.
For many years, we've been a leader in specialized cannula used for surgical and ECMO therapy, where prolonged cardiac and respiratory support is needed. In addition, through our Atrion acquisition, we're now a leader in microplegia myocardial protection devices and the related consumables. These are used in cardiopulmonary bypass graft surgery to arrest the heart and protect it while providing the surgeon with a stable, bloodless plane on which to operate. As you can see in the upper right, we're also a leading provider of medical fluid management components, which we sell to med tech and life science OEMs. Examples here include valves, stopcocks, luers, quick connects, which collectively manage fluids and gases in a range of markets, from drug infusion to patient care, surgical procedures, and biopharma drug production. Finally, looking at the lower right, through our EFD division, we're a critical solution provider for medical device manufacturing.
This includes precision adhesives dispensing systems for bonding catheter elements together, as an example, for veterinary pharmaceutical packaging, and for Precision Dispensing of reagents for test strips. As I said earlier, we also leverage these technologies in a number of other niche industrial technology markets. In each of these four quadrants, we leverage differentiated products, deep application knowledge, and Nordson's direct-to-the-customer model to be a true partner in our customers' success, whether that's being part of the product design and development phase, figuring out how to best manufacture a product, or supporting the manufacturing ramp once the product's launched. When you combine the breadth of these markets with the solutions we provide, I hope you can appreciate the variety of growth vectors we have for the future, both organically and through M&A.
So on this next slide, we go to market through four divisions, which you can see outlined here. Two of these, our Interventional and Fluid Components divisions, are entirely single-use technologies, supplying critical components and device solutions to medical and life science OEMs globally. Our Surgical Solutions division, part of the Atrion acquisition, sells proprietary Class One and Two devices to hospitals and cardiac surgery providers, a combination of hardware and single-use technologies. Our EFD fluid dispensing business is also a mix of hardware and consumables, as I said earlier, both for medical, life science, and in other industrial technology-oriented markets. For those of you who are less familiar with our markets and technologies, I wanna show you three short videos which will highlight the critical nature of what we do and why not just anyone can do it.
The first video we're gonna see is of a mitral valve clip procedure, which is a way to repair your mitral heart valve without having to perform open heart surgery. Play this one. So you're gonna see here a blue delivery sheath move up the femoral vein toward the heart. This sheath is made up of multiple layers of materials manufactured by Nordson and enables the delivery of the mitral valve clip after puncturing the left atrium of the heart, which is happening now. The performance of each individual layer inside of this, in this sheath that it's made up of, as well as the compatibility of each of those materials collectively, are critical for the overall performance of the device and the success of the procedure.
For example, the lubricity at the center of the shaft that allows the delivery of the clip, as well as steerability through what is a challenging path from the entry point in the femoral vein of one's leg. The second video you're gonna see here shows a stent being placed in the carotid artery, which supplies oxygen to your brain, to treat a blockage from plaque buildup and reduce the risk of stroke, so the balloon catheter shown here utilizes a specialized Nordson balloon, in addition to our melt extrusion and heat shrink products, as well as a balloon inflation device, which was part of the Atrion portfolio we acquired.
Like the delivery sheath in the last video, the performance of our solutions in terms of precise balloon pressure, repeatability to stabilize plaque, and then facilitate the expansion of the stent, as you're seeing now, as well as quick exchange to minimize procedure duration, are all critical to the success of this operation. The final video we're gonna see is the use of a laser to break up kidney stones and then the retrieval of these stones using a Nitinol basket designed and manufactured by Nordson. Just wanna play this one. We don't manufacture the laser you're gonna see here, but like the prior examples, you'll find our heat shrink materials and PTFE liners, as well as our reinforced polyimide tubing, as core elements in the device.
You can see the laser's now gonna break up the stones, and the small and integral Nitinol baskets that are critical to the function of the snare in capturing the stone pieces, as I said, are manufactured by Nordson. These Nitinol baskets are so integral and intricate that production can't be automated today, requiring high-level skill sets, training programs to enable the manufacturing of these devices with the quality and consistency I'm sure you can appreciate is required. On my final slide here, I wanna give you all another example, concrete example, in terms of how NBS Next is enhancing our Medical Interventional Solutions division. This division is revenues are exceeding $350 million, so it's a scaled business.
They design and manufacture critical solutions for our customers, including specialized extruded tubing, heat shrink materials, balloons, and more that are critical enablers of the procedures you saw in the three videos. On the left, you can see that over the last five years, the division has delivered a 7% revenue CAGR, expanded margins by over 500 basis points , while also improving delivery performance. NBS Next has been a key enabler in delivering these results. A good example of how we're leveraging NBS Next within the division is in our Salem, New Hampshire F acility. So they manufacture the balloons and heat shrink materials that I talked about and you saw in the videos for minimally invasive devices. While this facility has long produced high-quality products, NBS Next has enabled us to significantly improve other measures, like on-time delivery and throughput.
It's also helped bring clarity to our greatest growth opportunities, which we've then over-indexed our focus on. How did the team in Salem do this? First, they leveraged our strategic discipline process that Jim DeVries talked about to get better data-driven insights into their markets, customers, and products. Using these insights, they implemented what we call separating and inlining within their operations. Focusing on their highest demand products, they created dedicated areas within the plant to produce them, bringing together all of the critical manufacturing steps to create better flow within the factory, putting them in line, as we say, away from lower runners, which have more complexity in manufacturing due to the number of changeovers required on a given line for a similar volume.
The team also identified a range of products that represented less than 0.8% of 1% of our revenue, but which created significant complexity in our operations. They made the decision to eliminate these products from our portfolio, simplifying their business and enabling them to then improve performance across the board. This is just one example of choices, focus, simplify within the business that have improved performance, but as importantly, have really enabled us to unlock additional resources to focus on growth and differentiated product development. In addition to contributing to the impressive financial results the division has posted over the last five years, you can see the team in Salem has materially increased on-time delivery to customers, significantly increased output without requiring a facility expansion, and as importantly, as I said, freed up resources to focus on growth and better serving our customers.
When you think about improvements like this, and now you extrapolate it across our global operations and combine this with more than 3,500 dedicated, incredible employees, additional capacity investments we're making in the business, and new, innovative, differentiated products we're bringing to market, NBS Next is helping to build our sales pipeline and our growth paths. Over the last 18 months, for example, our sales pipeline has increased 88%. Now, given the nature of our industry, new wins for our business take anywhere from 1-2, up to 5-8 years until you see revenue ramping.
But if you combine this with the markets we're focused on, the growth drivers I talked about, the increase in our sales pipeline is just one example of why our Medical and Fluid Solutions Segment will be a critical growth, growth driver for Nordson in the coming years. Appreciate the time this afternoon, and I'll now pass it over to Srini Subramanian.
Good afternoon. So far you have heard Joe speak to how Nordson plays a key role in bringing basic necessities, such as food and non-durable goods, to the marketplace and into our homes. And then Stephen spoke about how Nordson has advanced medical care technology over the last few years. Now, you'll hear from me how we support modernizing our daily lives by serving the electronics market. My name is Srini Subramanian, and I lead Nordson's Advanced Technology with businesses. I've been with Nordson for eighteen years, starting in M&A and then having roles in marketing and sales, followed by leading a couple of our divisions and being in this role for the last two years.
Today, I'm excited to speak to you about Nordson's Advanced Technology Segment, why we remain excited about the electronics market, our relentless focus on innovation to be successful in this market, and an example of NBS Next in action in large systems businesses. These are exciting times. These are exciting times for the semiconductor industry. The industry is on the cusp of major technological application and market expansion. Artificial Intelligence, Internet of Things, and 5G applications are spurring significant technological development, as well as investment in front-end fabs and in advanced packaging factories. The demand for increased processing speed and computing power is taking semiconductor chip architecture from a predominantly two-dimensional architecture to two-and-a-half-dimensional architecture and evolving towards a three-dimensional architecture.
Later on in the presentation, I'll explain to you the difference between these three architectures, but more importantly, how Nordson continues to play a key role, irrespective of which architecture of semiconductor chips are being manufactured. As chip architecture gets more complex and expensive, the packaging technology is moving from the traditional flip-chip technology to the more advanced wafer-level packaging. Our broad portfolio of market-leading technologies, such as optical sensing, Precision Dispensing, and Test and Inspection systems, meet not only today's challenges, but as well as tomorrow's challenges in advanced packaging of semiconductor chips. The one thing that I'm really proud of with my team is, during this current downturn over the last 18 months, we continued to invest in technology and product development, which has positioned us really well to grow as the semiconductor market recovers and rebounds.
As we look at the ATS segment, over the last five odd years, we have grown from a $400 million business to a $500 million dollar business. More importantly, in this period, we have expanded EBITDA margins by 900 basis points to 21% . This margin performance, we believe, is top tier in the niches that we operate in, in the electronic sector. As we continue to focus on accelerating this growth and margin performance, we'll continue to serve the semiconductor market and the fast-growing automotive electronics market. One, the other part of our strategy is to continue to focus on using NBS Next in the way we conduct business on a daily basis. NBS Next has really helped expand the EBITDA margins of this segment by focusing on core components and technologies, while outsourcing all non-core, non-value-added operations.
You heard an example of this from Justin Hall in the Electronics Processing Systems business. We'll continue to focus on this NBS Next, ensuring that we serve our customers with market-leading pre- and post-sales, as well as product availability and delivery. Now, I'm sure the million-dollar question all of you have is: why should we continue remaining excited about the semiconductor market? This market is poised to grow from a $650 billion market in 2024 to a $1 trillion market by 2030. Most of this growth is going to come from this insatiable appetite for data that we all have. Today, human race generates around 400 million terabytes of data every year, every day, and this is forecasted to grow by 20% over the next three to four years.
All of this data that we generate, it needs to be stored, it needs to be analyzed, and it needs to be processed, and the way we do that is with semiconductor chips, and that is going to drive demand for semiconductor chips for the next five to six years. Additionally, the advent of the use of artificial intelligence and machine learning has driven chip design in an exponential manner. This, connected with developments in advanced packaging and the ability to inspect several of these chips on a 100% basis, has been key to the successful manufacturing of today's next-generation chips. Nordson's broad and market-leading technologies in test, inspection, metrology, Precision Dispensing, and optical sensing, positions us very nicely to grow when the semiconductor market gets back on its growth platform.
Growth for advanced packaging and testing and inspection of these chips are forecasted to be 10%-12% on an annual basis. Additionally, the electrification of our daily lives, whether it be automobiles, whether it be wearable devices, or whether it is the way we shop, has made all of us buy more electronic devices, and this growth in electronic devices is another secular driver for Nordson's electronics businesses. The one aspect where Nordson is unique in the electronic sector is our direct-to-customer business model and global footprint, which makes us the preferred partner for all the world's leading semiconductor manufacturers. We segment the electronics market into three verticals: semiconductor, automotive electronics, and general electronics.
50% of our revenue comes from serving the semiconductor market, another 14% from serving automotive electronics, and the rest comes from serving customers in industrial, consumer, and medical electronics. In semiconductor electronics, our products are used from the front-end semiconductor manufacturing process to advanced packaging and to flip-chip technology. Our WaferSense sensors are used to set up, calibrate, and process monitor the front-end equipment that is used in taking a bare silicon wafer and converting that into a fully processed wafer with all the required electrical interconnects. Once the process moves into advanced packaging and flip-chip packaging, our Precision Dispensing technologies and our Test and I nspection technologies play a key role.
Our Precision Dispensing technology dispenses underfill material, which is key to the performance of the semiconductor chips, and our Test and Inspection technologies allow for inspection to ensure that these chips are manufactured with zero defects. In automotive electronics, the same Precision Dispensing technology is broadly used to install, to surface mount components onto printed circuit board assemblies or PCBAs. These PCBAs are then subject to a protective coating using our conformal coating system. Finally, they are inspected using optical inspection and X-ray inspection to ensure that the components and the connections present on the PCBAs are there without any defect. When it comes to general electronics, the applications we serve out there are very similar to the applications we serve in on the automotive electronics market, and we use the same products in those industries.
I'll go into a little bit detail about the semiconductor manufacturing process and how do we play in that.... The semiconductor manufacturing process can broadly be divided into three phases: the front end, the middle end, and the back end. We have. Our products are used by our customers in all three phases of the manufacturing process. Our CyberOptics acquisition provided us with an optical sensing technology, which is broadly used in the front end of the semiconductor manufacturing process. In the front end, you take a bare silicon wafer, and you convert that to a fully processed wafer by subjecting it to various chemical processes, such as depositing various layers of chemicals, implanting those layers with ions, etching some of the layers with lithography.
Our sensors provide real-time measurement of key process parameters, such as the positioning of the wafer, the vibration the wafer is subjected to, the particle concentration in the environment around the wafer, and the relative humidity inside the tools that are used to process these wafers. Once these wafers are processed, these wafers are then taken, diced into individual dies, and then packaged into chips on substrates. Nordson has been a key player in the back-end process for the last 15-20 years, for the last 15-20 years. Our dispensing technology has been key, and so has been our X-ray and inspection technology. Most of the chips manufactured in the back-end process used to be the 2D architecture type.
As chips have moved from 2D to 2.5 D and 3D, the individual dies are first being packaged on a wafer using the same methodologies that are used in the front end of the manufacturing process. Thus, the name middle end, as you're moving the back-end process closer to the front-end process. Here, chips of different functionalities are packaged on a wafer using front-end methodologies and flip-chip technology. They are then diced, and then they are packaged on top of a substrate using back-end methodologies. This has been made popular by TSMC's CoWoS technology. I'm sure several of us have heard about that.
The really cool aspect about this for Nordson is our relentless focus on innovation has allowed our latest test and inspection system, as well as our dispensing system, to play as key a role in this new middle-end process as we have historically played in the back-end process. I'll now take a few minutes to explain the difference between a 2D, 2.5D and a 3D architecture of semiconductor chips. On your left, you'll see the 2D architecture chip. Here, you take a individual die, you flip it, and you place it on a ball of solder bumps on a substrate, and then you dispense underfill around the solder bumps and underneath the chip to make sure the chip stays on top of the substrate, and then you encapsulate that with an encapsulating material.
Nordson's jetting system for dispensing underfill material has been a key feature that has allowed for broad application of this flip-chip technology, and then our X-ray machines have been key in ensuring that these solder bumps and the underfill are there with zero defects. Now, as the demand for data and processing has increased, the number of transistors on a chip has increased, and those chips now can no longer be manufactured on a 2D architecture, and it is evolving towards a 2.5 D and a 3D architecture. In a 2D architecture, you'll see there are dies of various functionality: logic, memory, different kinds of dies. Those dies are first placed on a silicon interposer or a wafer on solder bumps.
They are packaged, and then this interposer is then connected to a substrate through another layer of solder bumps and through silicon vias. What this does is, the silicon interposer allows for these chips to have superior interconnectivity among each other. As this technology evolves, we are moving towards stacking the individual chips on top of each other and connecting to each other, either through solder bumps or through silicon vias. The two and a half D and 3D chip architecture is allowing for increased connectivity, faster speeds, and more power without generating as much heat. As you look at the 2D and the 2.5 D and 3D architecture, you see a lot of small gray circles. Those are all solder bumps, and the yellow lines, those are all through silicon vias.
Our dispensing system goes and dispenses underfill material around the solder bump and underneath the chips to ensure these chips don't go out of place when you drop your phone. Just to give you an appreciation of what we do, we dispense a 30-micron drop of this highly viscous fluid in a 70-micron gap, and we dispense thousand of these dots in one second. That is how good our technology is, and this is key to why Nordson wins. Once this is packaged, our optical systems, acoustic systems, and X-ray systems are used broadly to inspect these dies, whether they are a processed wafer or a packaged chip, to ensure our customers are getting 100% quality and high yield.
As you look at our, at the segment, our divisions, we are we have 60% of our revenue comes from test and inspection, and 37% from our processing business. Electronics Processing Solutions is a division that primarily focuses on on Precision Dispensing of underfill material under the, in semiconductor applications, surface mount adhesives, and PCBA applications, and conformal coating systems. Our X-ray and test system basically focuses on developing X-ray imaging chain for manual inspection, as well as automated test inspection and metrology of semiconductors and electronic products. And finally, our optical sensors and metrology division is underpinned with the optical inspection technology from our CyberOptics acquisition and the acoustic technology that we have had for, for various years. These two technologies are used by our customer to look for surface-level defects and subsurface-level defects in electronic products.
Now, the key to being successful in the electronics industry has to be a relentless focus on innovation. Five years ago, in our previous Investor Day, we introduced you to our XM8000 system. This X-ray metrology system is today the preferred system used by all leading semiconductor manufacturers to look for defects of wafer bumps and processed wafer. During this five years, we have continued to invest in developing this technology further to improve resolution and to improve accuracy. Nordson is unique in that we manufacture our own tubes and our own detectors, and we have invested significantly in the development of these tubes and detectors. Our new XM8000 Pro system uses these new tubes and detectors and operates at 35% better resolution, 50% better accuracy, and double the speed. Below is an example of solder balls or solder bumps on a wafer.
On the left-hand side is the image from our old, current system of XM8000, and on the right-hand side is an image from our new system, the XM8000 Pro. If you look at these solder bumps are becoming smaller and smaller every day. On our old system, our customers are not able to see all the features of these new smaller solder bumps. The same solder bumps, when you look at it from a, on the image on the right-hand side, you can see a crown-like image and very clear, defined bands. This is extremely key for our customers to know that they have the right quality of solder bumps. So as they are pushing the technological boundaries, we are right there with them, helping them with our inspection technologies.
I'll now show you a brief video of the XM8000 Pro in action, so the XM8000 Pro has industry-leading accuracy and repeatability when it comes to taking measurements of micron-scale features, and the way we do that is with our own proprietary X-ray imaging chain, and what is a chain, X-ray chain? It constitutes of a tube, which we develop and manufacture in-house. It is a wafer chuck, which allows for 100% inspection of the silicon wafer, and a 3D imaging detector with very small pixel size. All of this is combined in a machine with precision motors that allows for the accuracy and the repeatability of measurements. We can measure in a two-dimensional way or a three-dimensional way.
In a 2D measurement, the tube and the detectors remain stationary, and the wafer moves around, and you can see the image. Those are surface images that you can see. You can see the defects in them. You just don't know how big the defects are, how deep the defects are. When we go to a 3D version, the detector moves around, takes various images from different angles. The software then combines all these images to create a 3D image of the solder ball, and in that, you can see where the defects are, how deep they are, and how big they are, and that goes to the metrology of the process. Our customers use this to improve their yield, their process, and their productivity. Finally, I'll give an example of NBS Next in action in a large systems business.
So our X-ray and test division, which is approximately a $180 million division, has grown by 5% on an annual basis over the last five years but has expanded EBITDA by almost 1,500 basis points in the same period. And we did this by ensuring we serve our customers with the right products at the right time. We implemented NBS Next in a holistic manner with focus on our largest product portfolio, which is our Quadra manual X-ray inspection system, and then we used the same tool to develop our next system. The Quadra system was around seven years old, with no major enhancements, but a lot of customization, resulting in 82 unique products, a very complex supply chain and manufacturing process, and long lead times, sometimes to the tune of six months.
At the same time, the technology available in the market was closing the gap with our technology, and we knew we had to go innovate and standardize our product. Feedback from our customers was we needed better imaging chain and better 3D reconstruction capability, so we invested in the imaging chain, and we invested in our software capability. At the same time, data showed only nine of the 82 SKUs added real value to our customers and to business. The first thing we did, we focused on simplifying the product down to nine SKUs, and when we developed the next generation of machines. We made sure that those machines met the specs of those nine SKUs.
The value of this for us was we launched a product in less than 12 months, but more importantly, we took our on-time delivery from 45% to consistently being 90% today. Today, we can deliver a new machine in less than two weeks from the time we receive an order, and that is game-changing. Just an example of how NBS Next can be used in all kinds of businesses, including a large systems business. So that's the end of my presentation. I appreciate the time you have given me. Thank you so much, and I will now introduce Dan Hopgood, Nordson CFO, who's going to share our exciting financial future based on the growth strategies you've heard from Joe, Stephen, and myself. Thank you again.
Thanks, Srini. Just, there we go. Okay, I get to bring us home. Thanks, Srini, and good afternoon, everybody. Let me start off with just a quick introduction because I guess I am officially still the new guy. I was thrilled to join Nordson as the CFO in May of this year. What I bring to Nordson is over 25 years of experience in a variety of different roles at other large global industrial companies, including the last 12 years I spent at Eaton Corporation before joining the company. It's a real pleasure to be with all of you here today, and I can tell you, it's really a great honor to be part of this leadership team that you're hearing from today. What drew me to Nordson?
I'll tell you, as I got to know the company, it quickly became apparent to me that there's a lot to be excited about at Nordson. We have a long, successful history of delivering value for our customers, for our employees, for our communities, and of course, for our shareholders. But more importantly, the more I learned, the more it became clear to me that we were just getting started, and actually, our best days lay ahead. And I can tell you that after roughly five months on the job, that thesis has been validated. I not only joined a great company, but we have a great plan to make it even better. And that's a good way to transition into talking about our new five-year targets that we're talking to you about today.
Naga gave you the headlines earlier, but I'll try to peel that back a little bit more for you and give you some additional insights into our roadmap. Maybe. There we go. I'll start by restating some of the key things that you've already heard today. First of all, the Ascend Strategy is delivering profitable growth, and that's validated and demonstrated by our actual results. More importantly, we believe that we're primed to accelerate it. Why are we primed to accelerate it? Well, earlier, you heard Naga and Dave talk you through how we've transformed our portfolio, putting ourselves in a strong position to benefit from strong secular growth tailwinds in many of our end markets. You've heard from Jim and Justin how our NBS Next growth framework is not only adding value, progressing well, but still has ample runway to continue to accelerate our performance.
And you heard from each of our segment leaders how we win in the marketplace, including some great examples of our winning formula in action. All of these factors have contributed to our strong track record of converting revenue growth to profitable growth through the compounding impact of the NBS Next growth framework. And I'll walk you through how our strong cash flow generation, financial position, and growth-biased capital deployment give us all the flexibility needed to execute our plan while maintaining financial discipline and flexibility. What I really want you to take away today is that we have an overall growth algorithm. We're confident we can execute our playbook, we've proven that it works, and we're well-positioned to accelerate it. So this chart summarizes our new five-year targets versus our historical performance for the last five years.
Our goals are simple: accelerating profitable growth through a stronger portfolio and ongoing execution of the NBS Next growth framework. The percentages in this chart represent average annual growth over the periods, and we're committing to 6%-8% average growth in revenue through 2029 versus the 5% average that we've achieved previously. This will be achieved through a combination of both organic and inorganic growth of the company, and I'll provide a little more color on each of those in a moment. By delivering top-line growth of 6%-8%, we'll generate 10%-12% in average adjusted earnings growth over that period, which is in line with our historical track record of strong conversion of top-line growth to bottom-line improvement.
This will also result in natural EBITDA accretion of 100 to 300 basis points over that period as we get leverage on that additional sales growth. Maintaining financial discipline also remains a core part of our company, and we're committed to delivering ROIC, or return on invested capital, in line with the current levels of 12%-14% over this period. Our portfolio positioning, our differentiated products, and the additional runway that we have through the NBS Next framework gives us the confidence in this outlook. This chart summarizes our overall market segmentation going forward, inclusive of the recent Atrion acquisition, which is why you can see here that our medical exposure is 27% of revenue versus the 22% historical. So think of this as a combination of our business segments that you heard about earlier.
Our overall goal is to grow sales organically 3%-4% on average over the cycle. Due to the portfolio changes we've made, more than half of our businesses are now focused on higher growth markets, and those markets are supported by secular tailwinds that you've heard from both Naga and our segment leaders. When you add up our segments, our overall weighted end markets are expected to grow comfortably in the 3%-4% range over this next cycle. We believe this provides all the fuel that we need to achieve our organic growth targets. You've heard from each of our segments and seen examples of why we win in the marketplace, through our differentiated offerings, including the competitive advantages of the NBS Next growth framework.
So by simply winning our fair share through our differentiated offerings in targeted areas, we'll - we will deliver growth in line with the overall markets of 3%-4%. Inorganic growth will continue to also be a key part of our strategy, and we believe we have ample opportunity to grow the portfolio another 3%-4% on average through our disciplined approach. We think about M&A, as you heard, as a programmatic approach to adding complementary high-value assets to the portfolio over time. Many markets we play in today remain consolidated, or, I'm sorry, remain fragmented, providing opportunity for further consolidation. But we'll also continue to assess new opportunities to add complementary product lines to the portfolio. Strategically, our focus is on adding differentiated products and technologies that serve markets that are creative or attractive to us and add to our overall growth portfolio.
Financially, acquisition targets need to have a clear path to profitable growth and attractive margins, including enhancement opportunities through the NBS Next framework. And finally, acquisitions have to provide overall returns that sufficiently exceed our cost of capital, which translates into stable ROIC for the company over time. Naga highlighted earlier how this formula has created significant long-term value for the company over time. We believe this formula not only works, but it has plenty of runway ahead for us to continue executing. This chart summarizes our overall path to profitable growth over the cycle. By putting our organic and inorganic targets together, you can think of this as our overall growth algorithm. The algorithm generates overall average sales growth of 6%-8% per year over the cycle, balanced between organic and inorganic.
This flows through to equivalent incremental earnings of 6%-8% if you simply use a 30% incremental, which is in line with our current adjusted operating margins. Continued deployment of the NBS Next framework to existing and newly acquired businesses, along with efficient and disciplined capital deployment, adds an additional 4% to adjusted earnings. You can think of this as the compounding effect of the NBS Next growth framework. This would include things like acquisition synergies, ongoing performance enhancements, and capital optimization, as a few examples. This gives us a clear path to our target of 10%-12% growth in adjusted earnings over the next five years. It's actually a simple formula, but we've proven that the formula works, and our positioning gives us comfort that we can accelerate it.
Executing this plan requires efficient use of capital, and this gives you a historical look at how we've deployed capital across the company. We have a strong track record over the past five years, and I think this provides a good context for what you should expect going forward. Our first priority has been, and continues to be, funding organic growth. Over the last five years, we've invested roughly $800 million in a combination of capital and product development costs to support our growth. Our businesses tend to be of lower capital intensity, with more emphasis on product and solution development, and we think that this is the right formula going forward.
The additional $3.7 billion that we've deployed over the last five years has clearly been biased towards growth, with roughly 2/3 of that funding going towards strategic M&A and the remaining 1/3 to shareholder returns in the form of both dividends and share repurchases. What I would tell you from the historical look is you should expect us to maintain this growth bias going forward. So if I turn the page and talk about our capital outlook, over the next five years, we expect to generate approximately $4.1 billion in operating cash flow. This chart walks you through how we think about deploying that cash. Funding organic growth, this remains our top priority, but requires limited capital funding, around 7% of our cash flow, as you can see from the chart here.
Don't think of this as a limiting factor. It's simply a reflection of the low capital intensity of our businesses. In addition, we remain committed to maintaining a competitive dividend, as well as offsetting any shareholder dilution. The two of these combined require about another 24% of our ongoing capital. This leaves almost 70% of our cash flow, or about $2.8 billion over the next five years, to be deployed strategically through a combination of targeted M&A, additional share repurchases, and ongoing debt service. I'll state again that our bias is towards growth, but it's important to note that we'll continue to balance this against shareholder returns and prudent financial management. So summing this up, this page gives you a picture of what to expect in our capital debt structure going forward.
As we've previously communicated, we expect to finish the year with net debt of about $2.1 billion, and a leverage ratio, EBITDA to debt, of about 2-2.5x . This is inclusive of the Atrion, the recent Atrion acquisition. Taking into account our future cash flow generation of about $4.1 billion, we feel we have all the flexibility needed to execute our growth plans, including acquisitions, while returning appropriate cash to shareholders and maintaining our leverage ratio comfortably within our targeted range of 2-2.5 x over that period. In fact, you can see here that our projections would say that our leverage ratio will actually be slightly below the low end of that range of 2 x by year five.
This means, and this is very important, that we'll continue to have optional debt capacity of up to $2 billion over this period if we elected to temporarily increase our leverage ratio beyond our targeted 2-2.5 x. This is not something that we've typically done, but certainly it's an option for the right opportunities, and if we elected to do that, it would come along with additional profitable growth that's not reflected in the base plan that we're targeting today. So I'm gonna bring it to a close here, and I hope this gives you maybe a little more insight behind our new long-term targets. Before I open it up for Q&A, I'd like to just reiterate a few key things. Overall, we feel like we're better positioned than ever to deliver, but let's review why.
We've created a stronger portfolio, we've increased focus on higher growth markets, we have the right differentiated products and the right tools through the NBS Next growth framework, and we have the financial resources and flexibility to execute our plan and deliver value. In very simple terms, we have a winning formula, we've proven that it works, and we're primed to accelerate it. So I'd like to thank you all for your attention today, and I think at this point I'd like to invite the rest of the leadership team up to the stage, and we will open it up for your Q&A.
As the panelists are coming forward, Tracy and I will just be handing around the microphone. So if you could just raise your hand if you have a question, we'll come over to you.
Yeah, thank you.
Yeah.
Hi, everybody. Michael Halloran with Baird. So could you just unpack the 6%-8% revenue growth, specifically the 3%-4% organic growth? You know, you look at the end market splits, seems like you're biased towards mid-single digits. I think kind of unpeeling that a little bit more, I know you guys typically get some price, I know you typically have some share gains embedded in that. So maybe help me understand how you arrived at the 3%-4%. Is part of it how the last few years have went, and you wanna make sure you're balanced relative to a forward basis, give yourself some room? But just any kind of help on that side would be great.
Yeah, you wanna take it?
Let me start, and then, Dan, you can add the color. Yes, as we think about going forward basis, you know, the 3%-4% is really reflective, taking into account some cyclicality in our businesses. You know, you have seen this past four years, it has been dynamic. Not all of our markets align in the same direction at the same time, so this is to account for some of that. Clearly, we have the opportunity to have price of at 1%, that definitely is.
And so if you think about this, on the face of it, you'd say, "Naga, you're being conservative." But what I would caution you is, this is a dynamic environment that is out there, and so we are certainly being realistic about what we are, and I do think there is an opportunity for us to continue to grow. So, Dan?
Yeah, maybe just to add one thing. I mean, this is a five-year plan. A lot can happen in five years, and I'll stress again, the 3%-4% is average over the period, right? So clearly, there's gonna be some years we do better, there's gonna be some years where maybe we don't do as well. So again, we're. I think we're trying to be balanced in the outlook, and prudent.
Makes sense. And then maybe just some thoughts on where and how you expect to deploy that M&A side capital. You know, if you look at Atrion, you know, maybe other than the equipment piece, very down the middle-
Yeah
very consistent. ARAG, a little more field, although it did have the precision component. How do we think about the areas and the targeted, how close to core you wanna be, in where you're thinking holistically?
Yeah.
Thank you.
Yeah.
So let me give you a broad perspective of M&A. As you think about M&A, we have a strong portfolio. Our bias is to continue to build a portfolio that is very additive in our growth profile, so you're going to continue to see us add. We've, you know, quite frankly, with our medical businesses, we've increased from $50 million over the last 15 years of TAM to about $6 billion. So we have opportunities there. But beyond our medical business, which is self-evident and where we have worked on and what we have done, if you think about all of our different businesses, you know, our goal is to have leadership position in niche end markets with differentiated products. So this gives us new opportunities in end markets that allows us to have product capability, right?
So this, you know, could we have opportunities in test inspection? Yes. Could we have other opportunities in Precision Dispensing? Absolutely. So there are more opportunities for us, but end of the day, it has to fit our strategic criteria. I mean, that is our bottom line, is to really make sure we have differentiated products, we have markets that we're excited about, we have Nordson-like gross margins, you know, and the financial criteria we have laid out. So we do have optionality, but you're going to find us to be very prudent about how we go and do whatever acquisitions we decide to do. Hopefully, that answers the question.
Yeah, very good. On the EBITDA margin target, I think you're [audio distortion]. Talk about the puts and takes higher, lower. And then I think you're using a 30% incremental margin, which seems really low relative to, to what I think of.
Oh, yeah, you start.
A couple things on that. The EBITDA accretion, I think as Naga has pointed out, you know, our opportunity is growth, and we're really focused on growing, and so number one, the EBITDA accretion that I referenced is really just the flow-through of the sales growth. And so if you think of 6%- 8%, obviously, if we're at 6%, it's gonna be less accretion, 8% more, so it's kind of the flow-through coming from the sales leverage. That's the one piece of it. The other piece of it is the incremental, I would tell you, or maybe remind you, that's an all-in incremental, right? That's not organic. That's inclusive of acquisitions, and so typically, what you see, particularly in the early years, is the incremental through acquisitions.
It tends to be a bit lower in the early years, grows over time, and so that's a blended incremental, and the best way to point you to is it's basically right in line with our average margins today, adjusted operating margins today, so think of it that way.
Chris Dankert with Loop Capital. I guess, first off, Srini, thank you so much for your presentation. Really helpful to kinda see where you're helping out customers on the semi side. Maybe just remind us, historically, Nordson, very strong on the back-end packaging, flip chips out of the equation. We've been moving kind of earlier and earlier in that value chain, more competitive, generally, more cyclical. Why is that the right decision? And kind of maybe just break out the mix today of where we are in kind of front versus back end.
Yeah. So I don't think we are moving. I mean, we are moving closer to front end because that is where the packaging technology is moving towards, right? It's moving from back end to the middle end. So when you think about what I explained in the 2.5 D and 3 D architecture, there's a part of the packaging that'll happen in the middle end because you're instead of dicing the chips, dicing the wafer into dies and then packaging, you're taking some of those dies and packaging them back on a wafer because you're trying to build a chip, a die with multiple functionalities. So that is the middle end. And then, those eventually have to be diced and then packaged on a substrate.
So the back-end process will not go away, and the middle-end process is taking a little bit of the front-end process into play, but are also taking some of the back-end process into play. And that is what gives us the right to play in that region because our dispensing technology and our inspection technology is perfect for that. When it comes to inspection technology, we are developing certain things where we can see the entire wafer, like I showed you in the video for that, right? So that is why I don't believe it is going to increase or decrease our cyclicality moving from back end to the middle end. On the front-end side, it's just the optical sensor that we acquired from CyberOptics, and that goes into process monitoring.
So that's you could look at it as a run not exactly a run rate business, but these are tools that our customers use to monitor their process. And so there's a lot of sales, but then there's an after-sales aspect to it because we continue to calibrate those tools on an annual basis. So I think it will kind of mitigate the cyclicality on the front-end side for us.
You know, what, Chris, what I would add is, if you think about the traditional Nordson and our exposures in these end markets, we're not intentionally moving towards the front end, but it is our customers' technology is moving to the middle, right?
Yeah.
And that's what Srini is talking about. And our exposure to the front end is very limited to process monitoring, which we were never part of before. So that is something new as you think about the company.
Is it almost fair to characterize it as the market has expanded where you can play effectively, rather than Nordson moving? I mean, this is a-
Yeah
new opportunity, it sounds like.
Yes.
Yes. Yes.
Thank you.
Hi, over here. Andrew Buscaglia with BNP Paribas. I had a question on, so your M&A pipeline. You know, we're seeing a lot more competition for deals in this space. You know-
Yeah
there's a couple large public companies that have acquired into this area.
Yeah.
Just wondering, you know, what do you see around the valuations and, you know, the competitive dynamics for deals going forward? And why does Nordson, you know, believe they can win with these types of deals?
Let me get started and then have Stephen add a lot more color to it. Look, this is a great market. Obviously, others see it as such and have entered the market. But we've been here for a long period of time, for 15 years in this end market, and, you know, our strategy is very simple. We're focused on differentiated products. We're focused on specific end market niches. Our expansion over time gives us new growth vectors, and so, look, the competition will be the competition. I think we're going to be very disciplined about what we look at, what we choose to play in, and what we pay for it, but maybe add a little bit.
Yeah, I'll just build on that, Naga. Certainly, in this space, given, I think, the broader secular drivers and some of the scarcity of good assets, you know, there is obviously elevated multiples. I come back, though, as Naga said, you know, we look at a lot more deals, you know, than we certainly execute on because of our discipline. I think Atrion is a good example of, you know, seeing kind of the criteria that Naga laid out coming into action. So, you know, differentiated product portfolio, in either kind of adjacencies or close adjacencies to our existing business. And then third, you know, a business where we felt we could utilize NBS Next, and we will utilize NBS Next to improve performance as we go back.
Sort of like the combination of those three allow us, I think, to operate successfully, along with discipline in the market, even with elevated premiums.
Yeah. Andrew, you know, one thing we would tell premiums, the market is the market, right? There is nothing we can do about the market, but whether we choose to enter that market and play in that game is going to depend on the financial criteria we have laid out. You know, Stephen was right, and he talked about it. You know, what you see and experience from us is what we complete. What you don't know, and what we cannot talk to you about, is things we work on. You know, our experience is really we need to stay disciplined. This is a competitive market, and it's an attractive market, but that doesn't mean we have to play in every one of them. This is still a very fragmented market, and there is still plenty of opportunities for us to continue to play.
Maybe just to follow on, too, on that, on the same topic. Dan, you know, you mentioned-
Sorry
additional-
Behind the podium
capacity. You know, not normally something Nordson, you see with Nordson. You know, so are you sort of signaling there's some bigger deals out there, maybe, that some larger companies own, that you'd be willing to move on? And is that something you think you'd see over the next few years?
We'll see. I think that's, and that's kind of what I'd ask you guys to take away is, you know, look, I think what we have is a very appropriate executable plan, with a base level of M & A expectation. But we have optionality, right? And so is that perfect deal gonna come along? Who knows, right? Is it gonna be at the right value? Is it gonna be at the right multiple? And so that's why we think it's important to maintain flexibility so that if the right opportunity comes along, we have that option.
Yep, hey, thanks. Chris Glynn, Oppenheimer. Just looking backward at M & A, it's been kind of an interesting few years. You've done three deals in succession and interestingly, one at each segment. So, I'm curious just for an update on the integrations there, you know, within each of the respective segments.
Yeah.
Any variations in how they're onboarding NBS Next?
Yeah.
And then adjacent but separate, how do you see ARAG positioned cyclically? Does that kinda, Do you expect that to lead the ag cycle or, you know, any other color you can offer on that?
So let me, I'll make sure I answer all of the questions, but if I don't, you know, please let me know. I'll start the broader question and then have some of my colleagues help me out with that. If you think about all of our the three acquisitions that we've made in the recent years, all of them, integration's going well, obviously at various different stages, but we're very pleased with the integration. We're very pleased with the adoption of NBS Next. You know, if you think about NBS Next in CyberOptics, or you think about it in NDC, they are much further along because we've had a little longer time with them.
But in every one of these acquisitions, what we find for most of these businesses, we bring a very clear, concise playbook that is rooted in their data, right? And that allows our teams to understand where they can go and what they need to do. You know, we have a long-term view of how NBS Next creates value in these businesses, right? We're not looking for what happens in this next quarter. Instead, we're thinking about holistically applying, and how does it create value? And I would tell you, all these businesses are on track, and maybe, Joe, add some color around ARAG, how you're thinking about NBS Next there.
Yeah, I would tell you, Chris, that these targets are really embracing this and almost appreciate the growth framework and the simplicity, the consistency. We have a process of rolling out robust training. I think Jim touched on that a little bit, and so we are quite excited about duplicating the success we've seen in other divisions in ARAG. Now, that being said, the market in the ag cycle that you touched on is down significantly. We're quite proud of the business and the differentiated product which we bought because they're maintaining 30% EBITDA in a heavily down environment, and so we are well-positioned to more than fully participate when that market recovers.
We're not gonna sit here today and predict when that market recovers, but we are gonna be ready to really accelerate and more than fully participate in that recovery.
Srini, maybe talk a little bit about CyberOptics, where we are seeing some recovery already.
Of course, yeah. So when you look at CyberOptics, now, it's been with us for two years, and I would say from an integration point of view, they are fully integrated into Nordson. They are a division by themselves, and I would say that when the metrics that Jim provided, almost on all of those metrics, they are either at leadership level performance or almost trending towards leadership level performance. They're above threshold, below target, in couple of the factors. Couple, they are at leadership level. More importantly, you know, we bought the business at the top of the cycle.
There was a little bit of a bump, but this year it is recovering nicely, especially our sensors business, both on the front-end side, and we sell a lot of sensor that goes into the middle end and back end of manufacturing of semiconductors. Those have recovered nicely this year, and we are starting to see recovery on our optical systems business as well in the second half of 2024 , and we expect that to continue in 2025. So I would say, as we implemented NBS Next, we have improved our on-time delivery of our products, which is highly appreciated by our customers, which is allowing us to gain market share back as the market is recovering.
Thank you.
Thanks. This is Walter Liptak with Seaport. Stephen, I think this is one for you. Earlier in the presentation, there was a talk about the biopharma doubling because of the NBS Next and the focus on that business. Where are we now with, you know, the supply chain, the inventory levels, and demand maybe coming back? Some of your similar companies are talking about getting back to growth soon.
Yeah, look, I certainly, you know, de-stocking was a significant factor, as you know, Walter, in the market there. You know, from a... Look, I think a lot of that has worked its way through, and we are seeing, you know, good order entry rate improvements in that business. You know, the one thing I would just remind us, if you think about the fluid components part of the segment, there's really three key parts to it. So biopharma is an important part, but also surgical and patient care are the other, you know, two key parts of that part of the segment.
Okay, great. And then, maybe one on the leverage by segment, the 30%. You know, the industrial segment has 36% EBITDA margins already, which are pretty high. That's kind of best in class already. Can you get 30% leverage across the board by segment, or is it, you know, how do you- how should we think about that?
Let me make sure I understand the question a little better.
Oh, just the operating leverage of 30%. You know, can you get 30% operating leverage in IPS, for example, or will we have more profit improvement coming from, you know, the other two segments?
Yeah, I think the best guidance I could give you is, you know, we're not getting into specific incrementals on segments, but, you know, if you apply broadly our balanced inorganic, organic growth, 30% overall incremental, I think to Mike's question earlier, that, you know, kind of translates into typically a slightly higher incremental on organic. Acquisitions are typically at a slightly lower, that blends to about a 30% incremental, and I think applying that generally is probably the best guidance I can give you.
Yeah.
Scott Hurlstone, Run Capital. I'm just curious if you could help me understand the cycle in electronics and in CyberOptics. You know, like, I follow Teradyne. There's certain mechanics of when the cycle recovers, you know, the replacement cycle. You know, it went down further, I think, than was expected. What are the drivers of the cycle improving? I mean, recovery of consumer electronics is, you know, Apple cell phone sales, and why should we have confidence that it's gonna continue to recover? And, you know, what drivers should we look at in terms of the end markets and the customers that are-
Yeah
buying this equipment?
So I would say that the drivers. And of course, you know, the secular driver is, you know, how much semiconductor chips is going to grow just because of amount of data we generate, the use of artificial intelligence and machine learning in almost everything we do today, right? Whether it's retail, whether it's industrial, there's a lot of that happening. But once you peel it below that secular driver, where we play, whether it is CyberOptics or the other two divisions, predominantly in the packaging side of it. So what we look for is what is the growth forecasted for capital investment in the advanced packaging factories? So since we play in the back end of it, you're hearing a lot about investment in the front-end fabs. But once those wafers are processed, they have to be packaged.
So eventually, you'll start seeing, and we are already starting to see some of our customers coming up and announcing investments in new packaging factories. And so we look at forecasts from organizations such as Gartner or SEMI that tell us where they see capital investment moving in the advanced packaging side of the business, and that's kind of how we think about growth. So as these fabs come online, these advanced packaging factories will come online, and they all need to be tooled, and that's gonna happen over the next two to three years, and we expect that growth to this growth cycle to go at least for the next two years, probably into 2027.
I think he needs a mic.
Here, let me give you the mic.
What gives you confidence that they're gonna be retooling over the next two to three years?
Because, so we have had several conversations with the leading semiconductor manufacturers today, right? And almost all of them have given, have told us about their investment in these factories. And as soon as these factories come online, you know, you need the equipment to start packaging those chips, those dies into semiconductor chips, right? I mean, so I think that's what gives us confidence. There's a recent article in Reuters where they detailed the investments by TSMC and Samsung and all of those things, and they basically clearly said that the amount of investment in back-end equipment in 2027 is going to be double of what we saw in 2024, right? So that gives us confidence that this market will recover and have nice growth over the foreseeable future.
Let me clarify what, you know, what we're talking about here. You know, there are two reasons why we're confident. One, and I think a couple of quarters ago, we started to talk about why do we feel the electronic cycle is beginning to recover for Nordson? I think that's important to know for Nordson and Nordson offering. We have couple of very niche, really small product lines that serve the very early end of the cycle. So we have a business that sells UV lamps. That business has been growing, and has been growing nicely, and so that gives us confidence that the investment in packaging is starting to happen. We also have another, our EFD business that sells consumables to electronics customers, which is sort of the early indicator of the cycle returning.
That business and that product line is continuing to grow. So we have some really good indicators that suggest that the market is turning. And in terms of what the capacity... If you take a look at a semiconductor CapEx cycle, the rates are applicable to Nordson, the sizes are different. Now, look, we, you know, I'd love to be able to tell you, we sell $20 million equipment or No, we sell smaller equipment, so the total dollar spent when Srini talks about doubling, he's talking about doubling of the total dollars. That doesn't mean Nordson's ATS business doubles in this period of time. So I just want to make sure we clarify that.
Mm-hmm. So let me ask a follow-up then. Probably a dumb, simple question here, but if I think about the end market use, like the-
Yeah
end customer use, whether it's edge-
Yeah
hyperscale, consumer or whatever-
Yeah.
Do you guys care, or are you agnostic to the end use?
Yeah
with your packaging, back-end packaging moving to middle?
Yeah.
I mean, where do you see the most benefit as demand goes, or is it just the cumulative amount, and then how many of these facilities end up getting built, and that's what your catalyst is?
Yeah.
I think we do care. I mean, the more complex the chips, the more benefit we add to our customer base, right? So yes, as you go more towards edge and as you think about AI and Internet of Things driving chip design, High Bandwidth Memory, things like that, right? That's more value for us because we are on the forefront of technology development, and we can meet all of those challenges today, in a much better than anybody else, right? So yes, it does matter to us. And most of the investment today in advanced packaging factories you are seeing is because of the growth in the advanced chips.
You know, the multilayer chips, like the 2.5D and 3D, that is where you're seeing growth, and that is where our technology is perfectly placed to take advantage of that, of those applications.
Yeah. I think it's, you know, just to add to what Srini is saying, on the consumer goods, let's say capacity increases there, those are not sophisticated chips, and hence, the applications are not sophisticated enough. Hence, you have more competition, less value add. Doesn't apply to Nordson's solutions, or we're not competitive in commoditized applications. So that is why we talk about higher end, more complex, Nordson will benefit.
Yes, sir.
I'm curious, a couple questions kind of around the NBS Next. First, I imagine the quality and robustness of the data that you're using to drive these decisions is rather important, and I'm wondering-
Yeah
you know, how that has improved and progressed over time-
Yeah
and what more you can do there.
Yeah.
And then secondly, a few of the examples seem to highlight cases where the on-time delivery really started in poorer situations and moved up to, you know, over 90%. And is there still that type of opportunity in different places around the company, or-
Yeah
has that kind of been addressed?
Yeah. So let me maybe just get us started, but then invite my colleagues here to sort of give specifics and their thought processes. The data that we have, it's not very sophisticated. You know, quite frankly, it is customer, revenue by customer and revenue by products. Quite frankly, it is as simple as that A nd one-year data is good enough. It doesn't tell you anything more if you look at three-year data or five-year data. The one-year data is good. But you are right, in some cases, in some places where there is not a direct correlation between SKU and revenue, that's where the opportunity is. Maybe I'll invite my colleagues to talk a little bit about their experiences and where we are on the journey.
Yes, I think you heard several of us talk about large system businesses, and they're engineered to order. Getting that data clean and insightful has been a challenge. I would tell you, if you have 13, now 14 divisions, as they learn and get through it, and then you have Jim's team, we are systematically getting much better at getting clean, insightful data. But I would tell you, it is a greater change which then becomes very insightful, but we're getting better at it.
The two other things I'd point out. On-time delivery, we actually measure ourselves to our customer's request. A lot of companies measure their on-time delivery to what they promise to the customer. We make it customer-driven, so that's one difference I would say. The second thing is, there is still room to go. I think Naga touched on this in terms of, you know, we think we're midway through, so there's runway. The one thing I would emphasize also is it's about, you know, certainly making sure we have a differentiated offering and performance to the customer. But when we get it right, and we've seen this, I think in all three of our businesses, when we do that, the resources it unlocks, you know, it's really meaningful to the business.
It also helps on employee engagement, which is an important part of retention and also of, you know, talent development.
I would just add to that. You saw a lot of numbers there that said 90%. When you look at our factories, and I think we'll all agree with this, those that are at 90%, it's still a little bit brute force. We have factories that are at 98%, and those factories are just humming, and there's no brute force. And, and so it's very interesting when you see that 90%, yes, it's a dramatic improvement, but really, the employees start to feel it once you get over that 90%, and we have several examples of that.
Can I give just one last example on that. There's a factory, and it's actually at Salem, New Hampshire. Naga and I were at the factory, you know, and they had three. I think it was three weeks in a row, they had record shipping volumes. And the woman that's in charge of the shipping department there said, "The greatest thing is, we did those days, and we got it done by 5:00 P.M., and we went home without the stress that we used to have." You know, think about that in terms of the impact on the customer, but also the impact on our employees. It's really powerful when we get it right, and we are getting it right increasingly.
So you asked about runway, you know, is there more to do? So if you look at in the ATS businesses, there have been areas where we were outsourcing our high-volume products, right? It really doesn't make sense to outsource a high-volume product, but we did it because we didn't have enough space in the factory, right? As we have simplified, we have created more space, and now we are bringing those products in. So it's not like the day the product shows up, it's going to be at 95%, you know, on-time delivery. So we have to very quickly ramp up to 95%. So there's always work to be done when it comes to on-time delivery, right? And we always have continued challenges, sometimes from vendors, things like that. So something that we continue to work on.
Yeah, I think what you're going to begin to see us do is, A, the team referred to, without brute force. That's going to be critical for us, and that's how we sustain this new capability. But the other thing to remember is that lead times come down. Now, that is the true competitive advantage we will have, and we have many, many cases here within the businesses. We won't bore you on this topic. Obviously, you can see that we're excited to talk to you about it. But the lead times truly become a competitive advantage. It allows us to be able to take an order when the customer wants it, right? Not when we're ready to ship it to them, but when they want it.
And sometimes it can be a week, and that is between getting an order and not, or competition getting the order, right? And so to me, that's where the on-time delivery is, you know, if you traditionally think about it, you think about it as operational excellence. But really, the way to think about this, this is a market competitive advantage that drives growth for the company, right? But getting it without brute force, now that's where we are. That's the next leg of our journey, so.
Okay, yeah, I had a medical question. I think on the last call, Naga, you mentioned a couple, sounds like you've seen a couple instances of insourcing, so that runs-
Mm-hmm
a little counter to the thesis trend of outsourcing. So just wonder your-
Yeah
confidence that that's really pretty isolated instances. And, secondly, while you're in this period of customers doing some destocking and the supply chains coming full circle, what's the... Do you have a sense of what the end markets are growing? I know-
Yeah
you're probably on hundreds of platforms, but is that still that destocking environment where the end markets are actually-
Mm
and the sell-through is actually up?
Yeah, maybe start with the insourcing. Just close that comment out, and then you can add.
Right
Stephen.
Look, I think this comes back partly to the structure of the industry. So, as I said, you know, there is a lot that OEMs rely on companies like us for, and from design to development to production. A lot of them also have capabilities to manufacture themselves. So, you know, number one thing we focus on is ensuring that we're bringing those differentiated solutions to make sure we're capturing more than our fair share of the opportunity. I think as you've seen supply chains normalize, you know, what you're also seeing is companies shifting, to some degree, some more conservative practices around working capital, especially in the higher interest rate environment, and then also focused on some of their cost structures. But I think of that as, you know, it's a double-sided. Yeah, there's two sides to that coin.
One is, you know, there's risk, and we're always mindful of that, and that's why we, you know, stay close to the customer and what we do for them. But it also creates opportunity for us in the market because, you know, as they're looking for alternative suppliers, obviously, you know, we wanna be right there, you know, at the front, you know, for the right type of business.
On the insourcing, what I would add is where we have seen those are very specific, large, commoditized assembly businesses. That's where we've seen. We have seen less or no insourcing on the component side of the business, which is really the place where Nordson adds value.
Right.
Stephen?
Because, and, you know, you see there the, the relative switching cost on, on that differentiated product versus less differentiated. You know, on your question on, kind of procedure volume, that's a tough one to answer because, you know, it's a very large market, and there's a lot of different sub-segments in it. I would say, though, you know, you're seeing consistent, you know, procedure volumes, I mean, after the sort of disruptions in 2020 and 2021. We're seeing just, you know, good, consistent procedure volumes that are-
Yeah
you know, that were similar to the pre-COVID environment.
I'd just take you back to this, right? What you really see is an aging population around the world. That doesn't change. Love to tell you, and I hope all of us are more healthy than ever, you know, chronic illnesses still continues to be an issue, not only just in the United States or in the developed countries, but around the world. And what is important to remember is our solutions enable many of these minimally invasive therapies, which is really a phenomenal advancement in medical technology, as well as, you know, comfort to the patient, less risk, less hospital day stays, you know, less infection. So, you know, the fundamentals of what drives this end market and the opportunity for Nordson are still pretty intact, and the long-term prognosis is pretty strong.
So, this is a question based on Justin and Jim's presentations about NBS Next. It's clearly a growth focus, and that's the right way to go.
Yeah.
It's a great opportunity for you to do good things. But is there still a big opportunity working on Quad 3 and Quad 4?
Yeah
and just working on that profit part that usually would-
Yeah
come from a NBS Next?
In certain parts, right? So this is, if you think about our growth framework, it really isn't holistic. It is not you pick and choose what to work on. Instead, every business starts with strategic discipline, right? And out of that comes the best opportunities, and there are some cases. And if you look, if you're an overall business that is making, you know, we have divisions that make 30% EBITDA or more. Well, I'd be very disappointed if the energy is around working on profit improvement in those businesses in Quad 3 and Quad 4. This is sort of what Walter is referring to is the way we think about this data and how we slice and dice it, and how we look at it. We'd be very disappointed.
I'd be very disappointed. I know my colleagues here would be jumping up and down if we're not focusing on growth in a business that is already very well profitably. But there are businesses that are in early stages of acquisition that we are integrating. You know, are there opportunities? Yes, there are, and, you know, so you're going to find this continuum within our businesses, but in general, our tendency is to think about this as a growth framework. Because, look, for Nordson, at 31% EBITDA, you would be very happy if we're spending every single moment of the time thinking about growth and growing the business. That is not true in the aggregate, you know, in all the parts and pieces, and so in some parts and pieces, Walter, your thesis would be right, in that, you know, there may be some opportunities.
But the vast majority of the company profitability is well, well-positioned, and every single moment needs to be spent on thinking about: How do I organically grow? What are my opportunities to create more value for my customers? And that might be acquiring a new technology, that might be entering a new end market, and so...
Thank you all for your questions. We'll certainly have more time for in-person attendees at the cocktail hour after, and thank you to all those who've been listening online. But Naga, I'll now turn it back to you for your closing remarks.
All right. Thank you. So I appreciate all of you taking the time to be here with us, and certainly patiently sitting through all of what our, myself and our leadership team has shared with you. Let me close with this. Let me close with what you've heard. You've heard that the Ascend Strategy is delivering results and has ample runway to accelerate Nordson's performance in the next leg of growth. Further, our ongoing transformation of our portfolio will continue to enhance our growth ambitions. We also had great examples and nice discussion around what is unique about NBS Next and why it is a competitive advantage for Nordson. Our leadership in end-market niches with differentiated products is what makes us strong and allows us to drive organic growth in our businesses.
Finally, as a growth compounder, we will strategically deploy our superior cash flows and deliver on the financial performance targets that we have set today. Thank you for joining us in person and virtually to hear about Nordson's exciting future. Now, I invite our in-person attendees to join us for cocktails in the hallway and informal discussions. Thank you very much.