Good morning, and welcome to Nordson Corporation's conference call today, Friday, February 23rd, 2018, to report fiscal year 2018 first quarter results and fiscal year 2018 second quarter outlook. Today's conference call is being broadcast live on Nordson's webpage at nordson.com/investors and will be available for 14 days. There will be a telephone replay of the conference call available until March 9th, 2018, which can be accessed by dialing 404-537-3406. You will need to reference ID number 4186237. During this conference call, forward-looking statements may be made regarding future performance based on Nordson's current expectations. These statements may involve a number of risks, uncertainties, and other factors, as discussed in the company's filings with the Securities and Exchange Commission that could cause actual results to differ.
After remarks on the quarter, there will be a question-and-answer session. With that being said, I would like to introduce Mike Hilton, President and Chief Executive Officer of Nordson Corporation. Please go ahead, sir.
Thank you. Good morning, everyone. Thank you for joining Nordson's 2018 first quarter conference call. I'm joined by Greg Thaxton, our Senior Vice President and Chief Financial Officer. I'm very pleased to report that Nordson's outstanding global team has once again delivered record results. We successfully leveraged increased sales volume to drive improvement in operating margin, diluted earnings per share and EBITDA as compared to the first quarter a year ago. Our technology leadership, excellence in customer service, and diversification efforts have helped drive this growth. During the quarter, we also completed the acquisition of Sonoscan, as well as certain assets from Infiniti Dosing. I'd like to extend a warm welcome to these employees that have recently joined Nordson. We're looking forward to expanding our capabilities with these great additions to the portfolio in the coming months.
I'll now provide some highlights on our financial performance, and Greg will offer more detailed commentary in a few moments. Looking at the first quarter, sales, operating profit, diluted earnings per share, and EBITDA were all first-quarter records. We generated strong top line against a very challenging prior year comparison, where total company organic growth was 10%. Demand was robust in most all of our product lines and was largely driven by continued strong demand within electronics and medical end markets. Remain committed to delivering the best technology solutions while employing continuous improvement initiatives to drive bottom-line results. Excluding one-time charges of $2 million and the incremental $6 million of intangible asset amortization expense in the current year's first quarter, adjusted operating margin was 23% in the current quarter, up 420 basis points over the prior year.
EBITDA increased 49% in the quarter, and EBITDA margin improved 250 basis points, both as compared to the same period a year ago, representing very strong first quarter performance. Looking ahead to the second quarter, we're expecting organic sales growth to be more modest as we're up against challenging comparisons to the prior year, where organic sales growth was 9%. I'll speak more about the outlook in a few moments, but first I'll turn the call over to Greg to provide more details, perspective on the first quarter and our second quarter guidance.
Thank you, Mike, and good morning to everyone. I'll first provide some comments on our first quarter results before moving on to our outlook for the second quarter of fiscal 2018. First quarter sales were $550 million, an increase of 35% over the prior year's first quarter. This change in sales included approximately 19% growth in organic volume, approximately 12% increase related to the first year effect of acquisitions, and approximately 5% increase related to the favorable effects of currency translation compared to the prior year's first quarter. Organic sales growth was at the high end of our guidance, driven primarily by strong demand in electronics and medical end markets. Within the Adhesive Dispensing segment, general product assembly, rigid packaging and nonwovens product lines drove this segment's growth in the quarter, offset by softness in the polymer processing product lines.
Japan and Asia were strongest regionally. Within the Advanced Technology Solutions segment, the 83% sales volume growth over the prior year first quarter included 50% organic volume growth and 33% growth related to the first year effect of acquisitions. This is very strong performance, particularly considering the difficult comparisons to the prior year first quarter, where organic growth for this segment was 23%. Although electronic end markets were the strongest, all product lines and geographies generated organic growth in the quarter. This segment's acquisitive growth includes the fiscal 2017 acquisitions of ACE, InterSelect, Plas-Pak, Vention, and one month of the fiscal 2018 acquisition of Sonoscan, which, as Mike noted, we added to the portfolio in January. Within the Industrial Coating Systems segment, powder, container, and liquid finishing product lines drove this quarter's organic sales growth. Geographically, Europe, Japan, and Asia were the strongest.
Moving down the income statement, gross margin for the total company was 55% in the quarter and operating profit improved 55% to $118 million as compared to the prior year's first quarter, with reported operating margin of 21% in the current quarter. As Mike noted, the quarter's results include approximately $6 million of incremental intangible asset amortization expense as compared to the prior year, which dilutes operating margin by more than 100 basis points. Excluding the $2 million of one-time charges in the quarter and the $6 million of the incremental amortization expense, adjusted operating margin for the quarter was 23%, which compares to 19% for the prior year first quarter.
On a segment basis, Adhesive Dispensing delivered operating margin of 24% in the quarter, or 25% when excluding one-time restructuring charges in the quarter of $1 million related to U.S. facility consolidation efforts. The dilution from the prior year's first quarter's 26% operating margin primarily relates to the inefficiencies of working through the U.S. facility consolidation. Within the Advanced Technology Solutions segment, reported operating margin was 25% in the first quarter, or 27% when excluding the $6 million of incremental intangible asset amortization expense and $1 million of short-term purchase accounting charges related to the step-up in value of Sonoscan-acquired inventory. This 900 basis point improvement over prior year's first quarter margin of 18% is driven primarily by volume leverage.
The Industrial Coating segment reported operating margin of 18% in the first quarter, is up 450 basis points from the prior year due to product mix and volume leverage. On a total company basis, net income for the quarter was $105 million, and GAAP diluted earnings per share were $1.78, a 107% increase over the prior year GAAP diluted earnings per share. The $6 million of incremental intangible asset amortization charges reduced EPS by 8 cents per diluted share, and previously mentioned charges of $1 million dollars for short-term purchase accounting related to the step-up in value of acquired inventory and the $1 million dollars of non-recurring restructuring charges reduced EPS by 2 cents per diluted share.
As a result of U.S. federal income tax reform legislation passed in 2017, a one-time discrete tax benefit of $22 million or $0.37 per diluted share was recognized in the quarter. This includes an estimated benefit of $45 million related to the revaluation of net deferred tax liabilities and an estimated charge of $23 million for the transition tax on deemed unrepatriated foreign earnings. Additionally, a tax benefit of $5 million or $0.08 per diluted share was recognized in the quarter related to the adoption of new accounting standard requiring excess tax benefits related to share-based payment transactions to be credited to income tax expense rather than equity. A reconciliation of GAAP earnings per share to non-GAAP adjusted earnings per share is included in the financial exhibits of our press release.
We delivered strong first quarter EBITDA of $141 million, a 49% increase over the prior year first quarter, and EBITDA margin improved 250 basis points to 26% as compared to prior year's first quarter. From a balance sheet perspective, net debt to trailing twelve-month EBITDA, inclusive of acquired EBITDA, was 2.2 times at the end of the first quarter. Our press release includes financial exhibits reconciling net income to free cash flow before dividends and adjusted free cash flow before dividends, as well as EBITDA and adjusted EBITDA. I'll now turn to the outlook for the second quarter of fiscal 2018. Prior year's second quarter organic growth was 9%, so we are up against challenging comparisons again.
We are forecasting sales to increase in the range of 9%-13% as compared to the second quarter a year ago. This outlook includes organic volume to be in the range of down 3% to up 1%, 7% growth from the first-year effect of acquisitions, and a positive currency effect of 5% based on the current exchange rate environment as compared to the prior year. At the midpoint of this outlook, we expect second quarter gross margin to be about 55% and operating margin to be approximately 22% or 23% excluding $6 million of incremental asset and intangible amortization expense as compared to the prior year.
We're estimating second quarter interest expense of about $11 million and an effective tax rate of 25% for second quarter forecasted GAAP diluted earnings per share in the range of $1.33-$1.47 per diluted share. This earnings per share range is inclusive of $0.08 per diluted share of incremental intangible asset amortization expense as compared to the prior year. With forecasted depreciation and amortization expense of about $28 million in the quarter, we expect EBITDA to be in the range of $143 million-$154 million, up 21% at the midpoint over the prior year. I'll add a few additional comments relative to our forecasted tax rate that may be helpful for modeling purposes.
Our forecasted effective tax rate for the second quarter and full year, based on lower U.S. corporate tax rate and our jurisdictional mix of income, is 25%. At this time, we estimate our fiscal 2019 effective tax rate to be between 23.2% and 23% based on current tax laws. With that, I'll turn the call back over to you, Mike.
Thank you, Greg. Again, I'd like to thank our global team for delivering these strong results. Our second quarter guidance reflects more modest sales growth as compared to the prior year's challenging second quarter growth. Our strategic priorities and capital employment objectives remain consistent, and we'll continue to focus our efforts on technology leadership, product tiering, new applications, and market penetration to drive growth over the long term. We will continue to leverage the tools within the Nordson Business System to drive operating efficiencies across the organization, and we'll continue to seek high-quality companies that fit our targeted spaces that will help us achieve long-term growth and profitability. With that, we'll pause and take your questions.
Thank you. Ladies and gentlemen, if you have a question at this time, please press the star and then the number one key on your touch-tone telephone. If your question has been answered or you wish to remove yourself from the queue, please press the pound key. Once again, to ask a question, please press star and then one now. Our first question comes from Charley Brady from SunTrust. Your line is open.
Hey, thanks. Good morning, guys.
Good morning, Charley.
Morning, Charley.
Mike, can you just talk about the commentary about in adhesive dispensing, the inefficiencies from that facility consolidation? Can you comment on, kind of the impact in that quarter? Is that done now at the end of the first quarter, or is that continuing into 2Q?
Yeah. As you recall, we've laid out a plan to consolidate three facilities into one and to finish that consolidation by the end of this fiscal year. At the moment, we have four facilities running because we are transitioning equipment and capability between those three and the new facility. I'd say the biggest impact is probably in this quarter, but we'll see some continued impact as we systematically close those remaining three facilities, but it's not all gonna happen at once. It is happening according to plan, and we'll be through that by the end of this fiscal year.
Would you expect the EBIT margin impact in Q2 to be at a similar impact to Q1?
Charley, this is Greg. I would say it'll be a similar impact in Q2. Generally, we expect that impact to kind of scale down as we get into the back half of the year. If we're looking at Q2, it's probably gonna be a similar impact.
Okay. Can you remind us, you know.
Oh, hang on, let me just make one more comment, Charley.
Yeah, sorry.
As we look to next year, obviously, we'll have the facilities consolidated. We won't have the duplication of cost. As part of this facility consolidation, we've also invested in new equipment, which should add some efficiencies, so we should see some benefits into 2019.
Thanks. That's helpful. Hey, on Advanced Tech, can you remind us what the current mix of the non-electronics piece is right now and kinda how you think that shakes out for the year?
Yeah. If you look at it, for the year, we're probably looking at about 30% that falls into the medical category, about 20% that falls into non-electronics, sort of general industries. The rest falls into electronics with typically around 15%-20% that would be sort of mobile phone, another 15% or 20% or so that would be into kinda like automotive electronics. The rest would be across semiconductor and a variety of other applications.
We're looking at about half of that being non-electronic, half that segment being non-electronics related.
Great. Thanks. I'll hop back in the queue. Appreciate it.
All right. Thank you.
Thank you. Our next question comes from Michael Halloran from Baird. Your line is open.
Hey, morning, guys.
Morning, Mike.
Morning, Mike.
Could you just talk about the backlog trends by segment as you work through the quarter and what the thought process is when you look at the second quarter, how growth should track across the three businesses?
Yeah. At a high level, we had, you know, a pretty nice backlog, I think up about 9%. You know, order rates were positive as well. What we look at, though, is what equipment's gonna be delivered in the quarter, and so some of the backlog is not gonna be delivered in the quarter. When we look at year-on-year comparisons, you know, second quarter and third quarter are very strong for us, so we're at that period of time where, you know, the order rate comparisons get a little bit more challenging. Our guidance really reflects what we think is gonna be delivered in the quarter in general, and then, you know, what we think how it looks against the comparisons.
I'd say, you know, at a high level, if we look at the, you know, expectations for the businesses, and maybe I'll give you a little bit better feel for the year as opposed to just quarter to quarter, because as you know, we have projects that can go in and out, and we have.
Yeah.
the seasonality. If we look at what we expect for the year, we expect this to be another growth year for the company. We expect virtually all of the product lines to be up. You know, the one challenge there will be our particularly our dispense systems in the electronics area, which are most linked to the mobile phone kind of business and having such a tremendous year last year, that's gonna be a challenge. You know, our hope is that the other general industries activities and the medical business will offset that.
When I think about on a forward basis here, obviously really impressive electrical onboarding this quarter. What's the thought process moving forward in terms of how's the pipeline look? What are the customers saying out there? I mean, is there a pause against these really difficult comparisons, or is the thought process you're gonna be able to maintain this high level, even if there's not a lot of growth, but at least maintain the pace of revenue as it sits here today?
If you look across the total segment, you know, as I said, I think we're expecting that the other parts of the business, the non-electronic parts of the business, and particularly the non-dispense part of the businesses will help offset, which will be, you know, what is a challenge year-on-year. That said, if you look at the, you know, the particular parts of the business, our inspection business is strong, our surface treatment business is strong. The new acquisitions are doing well. The dispense business, you know, had a strong first quarter, but it's gonna be challenged the rest of the year just because of the significant business we did last year and the change. On the long run, we still expect, you know, things to be strong in the electronic segment.
Now, this is the time of the year that we typically meet with all of the potential innovators in the business, and we have lots of projects going with them. You know, the challenge is we don't know which ones of those are gonna go forward and what the impact is gonna be. Our focus has been to take advantage of whatever growth comes out of that to be flexible, but also to continue to drive the diversification of the business. To drive medical, to drive the non-electronics piece, and we're seeing good traction there.
then just on the price cost side and the inflationary side, it seems like you guys are in a good spot. But just wanna hear how you guys are, what you're seeing from an inflationary perspective within your portfolio or the supply chain and how you're feeling about it relative to your own financials.
I'd tell you, we are, you know. You're seeing some movement in some commodity materials. I think we do a pretty good job in our global sourcing activity of mitigating that impact. As we continue to innovate with new products, we're able to offset any push there. We don't see that as a big concern for us.
Anything on the labor side?
You know, I think we're seeing the typical kind of increases year to year, and most of those hit in the first quarter. At the end of the day, our focus is to take all the skilled people that we have and leverage that through our business systems to increase and drive productivity. I think we're doing a good job there as well.
Great. Well, appreciate the time. Thank you very much.
Okay, Mike.
Thank you. Our next question comes from Matt Trusz from Gabelli & Company. Your line is open.
Good morning. Thank you for taking my questions.
Yeah. Good morning, Matt.
Can you provide some additional granularity on how the non-polymers pieces of ADS performed from an end market perspective? Just overall, how do you see customer spending levels in 2018? From the Tax Act, do you think that there will be any impact on their CapEx plans?
If you look at our sort of non-polymer part of the business, you know, packaging tends to be largely linked to the consumer product side of things. It continues to grow. Many of our customers are challenged with growth, but there's a lot of focus on productivity and improvement, which helps us. Plus we continue to drive new applications and recapitalization through technology. That's been solid. I would say our nonwovens business, the diaper and other related products has been solid. Product assembly can be a little weak, but we expect that over the year to be solid.
You know, if you look at the underlying drivers of growth, a lot of that links to middle class improvement of middle class consumption related activities. We'd expect to see that to continue to be strong. I'd say as a direct effect of the Tax Act, I think people are still trying to sort that out and figure out what that means. You know, to the extent that we would see an uptick in investment in the U.S., that would be encouraging for us. As I mentioned, you know, in a lot of our businesses where customers are looking at productivity improvement, it falls into a sweet spot.
I'd say on a broader note, talking just about the polymer part of a business, we're seeing a nice improvement in order entry across all those product lines, so that's encouraging as well.
Great. Thanks. Turning to polymers, are you seeing elements of softness in the end markets facing that business, or are you encountering company-specific type of challenges? It'd be great to have more color either way.
It's really neither. We have parts of the business that are bigger order intake, particularly the pelletizing part of the business, and that can be lumpy. We're really just looking at a year-on-year comparison where we had a big order in the first quarter last year, and it didn't have a similar big order this year. Yet if I look at order rates, they're up nicely across all of the product lines there. Not a concern that we have. It's just timing and that like product assembly and some of our electronics business can be lumpy at times, and year-over-year, it doesn't always line up. If you look at year-to-year, you know, we expect to see improvement.
Understood. Thank you.
Thank you. Our next question comes from Jeff Hammond from KeyBanc Capital Markets. Your line is open.
Yeah. Hi, good morning, guys.
Morning, Jeff.
Just back on the mobile phone, you know, customer base, you said, you know, this is the time of year you're starting to see projects. Are they coming in with fewer projects or are they, you know, indicating to you that, you know, they're gonna do less this year, or is it still pretty robust?
I would say kind of from November through now is when that project activity is underway. I'd say the activity is pretty robust. We're not clear though, in any one year, which ones are gonna go forward. You know, I think it's prudent to be a little bit cautious just given the magnitude of sort of the phone changes that occurred in our customer base last year. But I'd say it'll be clear in the next couple of months which ones of these are gonna go forward and have an impact. You know, at this point it's gonna be tough to offset the really strong year we had last year, even if you know, a reasonable amount of those projects go forward. That's kind of the expectation we have.
Outside of the phone business, you know, if you look at auto electronics, some of the other markets, some of the new technologies like flexible circuits, which are going into a lot of different things, we're seeing nice demand there. We continue to introduce new products that are getting traction. You know, last year was a particularly strong year because of all of the innovation around the new phones introduced.
What are you seeing from the China handset OEMs?
We're seeing good, I'd say good activity. We're working again with them on projects as well. I'd say, we're in that period of time where we expect to see orders come in. It'll be interesting to see, you know, what degree of innovation comes through in their new phone offerings, which will probably be a little bit later this year.
Okay. In the guidance sheet, you mentioned project timing, you know, I guess, stuff in the backlog that's pushing out into future quarters.
Yeah.
Are you seeing a greater, you know, component of backlog that's pushing out than normal, or is that just kind of normal timing, you have some longer cycle projects?
Yeah, I don't think it's anything unusual. I mean, if you look at the projects that tend to be longer, or they're in our polymer area, they're in our product assembly. Some of our orders in other parts of the businesses are released in tranches. I'd say it's nothing particularly unusual. We're just trying to give you the best commentary we can here and give you the best transparency we can.
Okay, perfect. Thanks a lot, Mike.
Yeah.
Thank you. Our next question comes from Allison Poliniak from Wells Fargo. Your line is open.
Hi, guys. Good morning.
Morning, Allison.
Just going back to the ATS, and I guess this is more the mobile handset. Nordson's been fairly successful, obviously, with expanding the customer base, gaining some share. You know, I know you know, you mentioned the model numbers. Model changes may not be as significant this year. Is there opportunity outside of that for you guys to maybe further diversify that customer base, gain greater share? Just any thoughts on that?
Yeah, absolutely. I mean, there's certain end markets that are growing nicely that have become sizable. We talk about auto electronics as one that'll continue to grow, not just this year, but in the long run. We've got specific offerings that are getting traction there. We've talked about in the past on the semiconductor side, doing both the dispense and inspection there. We're starting to see more customers interested in both the most sophisticated dispense applications that relates to some of their process changes, as well as the inspection, both on the X-ray side of things, as well as more sophisticated bond testing equipment.
Those are applications I'd say with opportunities within the electronics space that are really not necessarily tied to the phone systems that are encouraging for us. You know, we talked about sort of the Chinese suppliers on the phone side. We're continuing to make good traction there. The diversification effort within electronics continues both on a customer and an application basis, and we continue to introduce new technology that is getting good traction. Beyond that, we're also trying to drive growth. For example, you know, we acquired Plas-Pak last year. They had a segment that we didn't participate in, which was animal health, and we're seeing some nice growth there.
Of course, in the medical, we largely expanded that, and we're seeing good growth in the medical side of the business. Within and outside the electronics piece, we're trying to continue to drive that diversification.
Allison, this is Greg. I'd add, you know, beyond that, some of the other acquisitions that we've done in the electronics space, some of the flux dispensing acquisitions, the Sonoscan acquisition, those also will allow us to gain share in spaces that we hadn't participated in before.
That's great. Then just going back to the commentary around potential acceleration from the tax reform in terms of investment. You know, I understand obviously folks are still kind of working through all that. If we do get a sense of, I guess, sort of the spigot turns on in terms of that investment, maybe in the next three months, you know, how quickly, I guess, going back to historicals, would you recognize that? Would this be more of a 2019 event for you potentially?
It depends a little bit in terms of what part of the business, you know, that's related to. If it's consumer product-related businesses, that could be quicker because likely those would be line upgrades or things like that that could happen sooner. If it's something like a platform investment in the automobile side, that's probably gonna be a longer-term kind of activity. It depends on the nature of, you know, what that investment would look like. If it's a whole new facilities that folks are starting up, they're probably not gonna make that happen in the next 6-9 months. It depends a little bit on the nature of, you know, what that investment is.
If it's ramp up because consumers are benefiting from tax relief as well and looking to spend some of that additional money and it's sort of capacity, that could be quicker.
Yeah, I'd suggest that it, as Mike mentioned, it's really about the scope of the project on our customers and as opposed to our ability to deliver our product within a short timeframe. We could do that, it's how big is the scope of the project for the customer.
Great. Thanks so much.
Thank you. Our next question comes from Matt Summerville from D.A. Davidson. Your line is open.
Thanks. Good morning.
Morning, Matt.
First, in Adhesive, just back to some of the questions that were asked earlier. Can you get a little more specific, Greg, in terms of what the absolute impact will be from these inefficiencies this year? Is it a $3 million impact, a $10 million impact, somewhere in between? Can you just help quantify that?
Yeah. Matt, I would say as I provided in my comments, if you look, excluding the one-time charge at the dilution, you get back to prior year without those inefficiencies. As we mentioned, you know, we'll probably have that similar drag in Q2, and then as we get in the back half, that dissipates somewhat, and then we're past that by the end of fiscal 2018.
As you think about this business, is there anything you're seeing, demand or otherwise, that leads you to think once you get beyond this facility rationalization consolidation, you start to see those efficiencies, is there any reason that this cannot get back to a 30%+ operating margin business over the next, you know, 12 to maybe 24, maybe 24 months is a better number than 12?
Yeah. If you look at the total segment, I think that certainly, as we've talked, that's our overall goal is to get back to 30%. I would say, just to tell you what we're doing, you know, we're going from three facilities to one, but in that we've incorporated new technology that'll allow us to get more efficiencies, but also additional capacity. We're also working in parallel a consolidation in Europe from two facilities to one, which will also be done by the end of this year. We'll have, around the globe, the latest technology, most efficient facilities. That'll help in this area.
When you look at the total segment, you know, our aspiration would be to get to that 30% level. As you said, it may not be next year, but our aspiration would be to get there, and we think that we see a path to do that.
Just back to the advanced tech business, up 50% organic in the quarter. Can you help parse that or give a bit more granularity? Was mobile half of that increase? Was it all of the increase? Was medical a quarter of it? I mean, can you give some sort of weighting to how you would chop up that 50%?
Yeah. I would say, you know, if you look at all of this stuff other than the key dispense parts of the business, it was up nicely double digits. The dispense was really linked to we had some big orders come in linked to particularly flex circuit technology. There's a new application in flex circuits that's getting traction across all of the mobile platforms and then some others. You know, we're very well positioned with our technology to take advantage of that. We had some sizable orders come in, and that was the biggest single driver. Now, beyond that, we also saw nice growth in all of our inspection business as well.
We had a couple of big projects that came in that are really linked to technology moving from rigid to flex circuits and us being well positioned with our capability around the globe and our product performance to take advantage of that.
Longer term, Mike, if you look maybe beyond the next couple of quarters in the funnel, the conversations you're having with customers, whether it be things like 3D stacking, whether it be things like moving from rigid to flexible circuitry, are there other opportunities in the funnel, if you wanna call it a funnel, that can be substantial like what you saw in fiscal Q1?
I'd say in one quarter, that's a pretty big increase. I wouldn't put things in that. I'd say high level trends, number one, auto electronics is just gonna continue to grow. I mean, we're not to self-driving vehicles yet, and it's continuing to grow. And to get there, if you believe you're gonna get there, it's even more. I'd say number two, trying to do more on wafers prior to dicing is likely to continue to grow as other customers look to adopt that kind of technology because of the benefits that come with it. That's both a dispense and inspection opportunity for us.
In our inspection business, as Greg talked about a little bit, you know, we've bought some smaller companies that have regional positions, and we've had a lot of success, you know, with things like Matrix and now Select, and we expect that with Sonoscan as well, globalizing those businesses more effectively so that we're in effect growing our global position. Those are some of the things that make sense. I mean, we have wafer-level offerings and bond testing now, based on where customers are going that we haven't had before, and these are significantly larger, higher priced items. I think there's some growth opportunities there based on where the technology is heading.
There are other projects that folks are working on. We really can't talk about the nature of those, but the ones I've highlighted I think are good trends for us.
Matt, this is Greg. I'd add, you know, kind of high level in with that topic is, this has been a good driver for us for several years now, is the demands for those end markets continue to require, you know, more precision, tighter spaces for dispense, faster demands for both dispense or the T&I. T hose trends, and those changes that take place in those end markets are good for us. Oftentimes, we're, you know, in the limited group or perhaps the only supplier that can deliver the needs that they have from a manufacturing perspective. High level, the trends in those end markets continue to be in our favor.
I wouldn't wanna lose focus that across all of our businesses, you know, technology plays a critical role. We're introducing, you know, new technology everywhere to drive growth. You know, we haven't talked about, you know, core adhesives all that much, but, you know, we've talked a little bit last year about, you know, some of our newer nonwovens technologies targeting to a completely new set of customers through our tiering approach. You know, we have some new applications that get into supporting makers of athletic wear that look like there's some promise. Across all of our businesses, we're looking for either applications or product opportunities, you know, really to create, kind of our mantra the last couple of years is how do we create our own growth.
I think, you know, should the economies continue to improve like they have last year and hopefully this year, you know, and obviously then we float on top of that.
Thank you, guys.
Thank you. Our next question comes from Walter Liptak from Seaport Global. Your line is open.
Hi. Thanks. Good morning, everyone.
Morning, Walt.
Wanted to ask about the acquisitions, Infiniti Dosing and Sonoscan. I wonder if we can get some details. It looks like they're small, but if we can get an idea of how much cash outflow, how much, you know, the prices on them and the revenue contribution.
Infiniti was pretty modest, Walt. That's, I'd say, a capability in a particular pumping operation that we add to our portfolio. It'll be part of our Syntec business. That is relatively modest in terms of a few million dollars. The Sonoscan is a little bit more significant than that, you know, probably similar in size to previous acquisitions like Matrix, where you know, we expect the business to grow nicely and you know, be tens of millions of dollars of revenue for us going forward.
Okay. Great. With these, you know, two deals happening at the beginning of the year, was it just, you know, coincident timing or was it, you know, once the tax reform went through, you were able to get the deals going?
Well.
Any thoughts on M&A?
Sure
you know, for the rest of the year now the tax reform's done?
Walt, I would say these particular ones are ones that were in the pipeline that we've been working. You know, we have a nice pipeline of opportunities that we continue to work. These two just happened to come forward in the first quarter. I would say our priorities, maybe a higher level question, our priorities on capital employment remain the same. You know, support organic growth, and that includes some of these initiatives we talked about. You know, we'd like to keep up our dividend strategy as we've discussed. We have modest offsets for share dilution, although we didn't do much last year. M&A would be a priority.
We have a good pipeline of M&A opportunities, and our focus last year and continuing through the first part of this year has been to reduce our leverage so that we have the capacity to move quickly should opportunities come forward and are. That's probably gonna continue, you know, for certainly the next couple of quarters, as we continue to deleverage to have capacity there going forward.
Okay. With that comment about the good pipeline, is the activity on M&A picking up? Are you seeing more businesses come to the marketplace, or is it, you know, fairly steady with what you saw in the last couple of years?
I'd say it's fairly steady. I mean, these things you never can time. You know, sometimes you're working years on projects to get them to come to fruition, so you know, you can never really time them. You know, I'd say we probably still see the most activity in the medical space. But you know, there's smaller opportunities like these tuck-ins that we've done to support our advanced tech or our EFD business as well. We see, I'd say, a similar type of pipeline as we had before. We just wanna be prepared should something of significance come forward, and we need to act on.
Okay. All right. Great. Thank you.
Thank you.
Thanks, Walt.
Thank you. Our next question comes from Liam Burke from B. Riley FBR. Your line is open.
Thank you. Good morning, Mike. Morning, Greg.
Hi, Liam.
Liam.
Mike, you touched on it briefly on one of the previous questions on the tiering being one of the contributors of the growth there. How is that? Is it continuing to develop the way you want, or, and are you seeing any competitive responses there?
I'd say it is continuing the way we want. The one specific reference I was making had to do with some new products that we developed in China for emerging markets outside of China, so a lower tier nonwovens set of customers. I think last year that we had about 60 or 70 new customers that we've never had before. Going a little further down on the pyramid, still with good profitability. We're continuing to see traction there. Then I'd say, you know, another area where we're seeing some good traction is in the electronics space, particularly a lot of the automotive conformal coating type applications or a tiered product. We have tiered products as well for the mobile side of the house.
Yes, I'd say it's playing out the way we've expected. I think we've been pretty successful. You know, we do have competitors. But I don't see any significant change there. I think it's that combination of having the right offering and then having the full team from the applications team through the supply chain to secure it and then the service after the sale on all these businesses is critical. I think that model continues to work, and we continue to look for opportunities where we can further tier our various businesses.
Great. Thanks, Mike. Greg, on the consumables, was the percentage contribution of revenue within the normal range?
Yeah. Liam, I'd say it's up closer to the high 40% now, as you think about some of the acquisitions we've completed, particularly the Vention acquisition, which is, you know, which is a consumable product. Running total company more in that 47%-48% range.
Great. Thank you, Greg. Thank you, Mike.
Thank you.
Thank you. Our next question comes from David Stratton from Great Lakes Review. Your line is open.
Good morning. Thank you for taking the question.
Morning, David.
Good morning.
When looking at your balance sheet, I know that the majority is variable rate debt. Given the recent rise in interest rates that we're seeing, can you kind of give us your thoughts on how you see your capital structure going forward, and if there's a plan to maybe shift to more fixed rate, or just what are your thoughts on that?
Yeah. Generally, David, we, you know, we're always looking at the appropriate mix of that capital structure. We'll be taking a look at that coming up as our revolver is coming to maturity. You know, we tend to keep a pretty balanced kind of across the cycle level of both fixed and floating to kind of allow us to be prepared to manage the business appropriately. We'll focus on that. It'll be a balance probably similar to historical trends.
All right. Thank you.
Thank you. Our next question comes from Charley Brady from SunTrust. Your line is open.
Hey. Thanks. Just wanna follow up on industrial coating systems and the margin performance there. You know, pretty strong performance for a first quarter, which tends to be, you know, the lowest quarter, and you generally have a pretty big step up into Q2. Is there some timing that's going on there that would change that normal seasonality, or what's driving the strong margin performance in Q1?
Well, you know, for a long time, we've had a continued focus on that business and improving the profitability, and the team's done a nice job of doing that. I'd say year-over-year comparisons are probably a little bit more of a mix of business than anything else. You know, the revenue was up, which is helpful, you know, from a volume leverage standpoint, and then we probably had a little bit better beneficial mix of business year over year. The trend continues to improve in that business, and the team is very focused on that. They're at a very nice level given the scope of what they supply.
Would you expect the typical revenue seasonality, I guess, throughout the years you've seen typically?
You talking about that business or in total?
About IC. I mean, I guess what I'm trying to get to is, was there some pull forward that would just skew the 1 Q results higher than the, you know, normal seasonality would indicate, and therefore, we've got some pull forward from the rest of the year? Or it was just a great quarter and, you know, the rest of the year kind of continues with the same pattern you'd normally see?
Yeah. I wouldn't say there was a significant pull forward there, no. We'd expect, you know, a similar pattern where the second half of the year is typically stronger than the first half of the year from a volume perspective. You know, in that business, we've got a variety of different product lines, so the mix can have effect year-on-year. I think most of what you're seeing here is a little bit of volume leverage and a mix effect year-over-year.
Charley, you know, back to a comment Mike made earlier, this segment as well as the other segments, we continue to focus on those continuous improvement initiatives and believe that generally across the board, we can continue to raise margins, you know, everything else being equal from period to period. You know, there's improvement opportunity across the business.
Just on that, Greg, because this is a business that, you know, at one point, if you got a 12% EBIT margin, it was gonna be a home run a few years back. We're, you know, we're high teens right now. I mean, you know, I guess our thinking kind of been we're kind of top end of the range, kind of 17%-18% EBIT margin, not much more there. It sounds like that's not really the correct way to look at it, that maybe you guys see a little more upside over the next, you know, 2-3 years beyond that level. Is that correct?
Yeah, I think our goal going back five or six years ago was, you know, at the high, this is a cyclical business, right, at the high end of the cycle, we ought to be approaching 20%, and obviously, we'll be lower than that if we're at the low end of the cycle. Our aspiration is still to get to that 20% level, and I think the team is doing a great job. It's not easy to get there when you think about the scope of what we do because of all the things that we buy in as being largely the OEM in that particular space. We're very focused, you know, on improving that.
I'd say from a company level, you know, we talked about moving to a global sort of shared service approach to help us, you know, scale and grow more effectively and integrate things more effectively. You know, we're in the beginning of that process as well. We're looking to stand up our North American service center in the May, June timeframe this year, and then move to Europe and then move to Asia. We're doing some other things to help leverage going forward. In the short term, that probably adds some additional costs, but in the long run, that'll be a benefit.
Thanks.
Thank you. I am showing no further questions from our phone lines. I would now like to turn the conference call back over to Mike Hilton for any closing remarks.
Thanks to everyone for all of the questions and interest this quarter. I'd also like to put a big thank you out to our global team, who continues to exceed my expectations. Thank you.
Ladies and gentlemen, thank you for participating in today's conference. This does conclude the program. You may all disconnect. Everyone have a wonderful day.