As a reminder, this conference call is being recorded. I would now introduce your host for today's conference, James Jaye, Director of Investor Relations. You may begin.
Thank you, Nicole, and good morning. This is Jim Jaye, Nordson's Director of Investor Relations. I'm here with Mike Hilton, our President and Chief Executive Officer, and Greg Thaxton, our Senior Vice President and Chief Financial Officer. We'd like to welcome you to our conference call today, Friday, August 22nd, 2014, on Nordson's Q3 results and Q4 outlook. Our conference call is being broadcast live on our webpage at www.nordson.com/investors and will be available there for 14 days. There will be a telephone replay of our conference call available until August 29th, 2014 by calling 404-537-3406. You will need to reference ID number 82465633. During this conference call, forward-looking statements may be made regarding our 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 our remarks, we will have a question-and-answer session. I'd now like to turn the call over to Mike Hilton for an overview of our fiscal 2014 Q3 results and a bit about our Q4 outlook. Mike, please go ahead.
Thank you, Jim, and good morning, everyone, and thank you for attending Nordson's 2014 Q3 conference call. Our performance in the Q3 was very good, as Nordson's global team delivered the strongest quarterly performance in revenue, operating profit, and earnings per share in our history. This performance is particularly noteworthy given the continued softness in the macroeconomic environment. The global team is focused on meeting the needs of our customers with innovative products, applications expertise and global support, while also executing on a variety of strategic initiatives and continuous improvement projects to drive sustained long-term success. I'm especially pleased with the robust organic sales volume growth of 8% generated in the quarter as compared to the same period a year ago.
All segments and geographies contributed to this growth, and we leveraged the strong top-line growth to deliver operating margin of 25% in the Q3, a two percentage point improvement over the previous year's Q3 . With this leverage, earnings per share grew at a faster rate than top line, improving 20% compared to the Q3 a year ago. Free cash flow in the quarter was strong. From a balance sheet perspective, we remained very liquid with significant capacity for appropriate capital deployment. We continued to create value for our shareholders through our balanced approach to capital deployment, investing $36 million during the Q3 for the repurchase of shares and by distributing approximately $11 million in dividends during the quarter.
After the close of the quarter, Nordson's board approved a 22% increase to our dividend as we move toward a payout ratio nearing 20%, marking the 51st consecutive year we have increased our annual dividend. I'm also pleased to report that we continue to execute on our acquisition strategy with the purchase of Avalon Laboratories, a high-performing company in the medical device space. We welcome Avalon employees to Nordson and will provide additional details on this acquisition later in the call. Looking ahead, our current backlog and order rates are solid, leading us to expect continued strong performance in our Q4 and a record full year results for sales, operating profits, and earnings per share.
I'll share additional comments about our current business trends and our near-term outlook momentarily, but first, I'll turn the call over to Greg Thaxton, our Chief Financial Officer, who will provide more detailed commentary on our Q3 financial results and our Q4 guidance. Greg?
Thank you, and good morning to everyone. Sales in the Q3 were $459 million, an increase of 14% over the prior year Q3 . The sales improvement included an 8% increase in organic volume, a 5% increase related to the first year effect of acquisitions, and a 1% increase related to the favorable effects of currency translation. Looking at sales performance for the quarter by segment, Adhesive Dispensing segment sales volume increased 15% as compared to the prior year Q3 . Organic growth was 5% and the first year effect of the Kreyenborg acquisition added growth of 10%. The organic growth was driven by disposable hygiene, rigid packaging, and polymer processing end markets, and we saw growth in every region. Sales volume in the Advanced Technology segment increased 15% over the prior year Q3 .
Strong organic growth in all product lines during the quarter was led by demand for automated dispensing equipment, as well as continued solid demand for our test and inspection and surface treatment equipment related to electronic mobile device end markets. Growth was also robust in our semi-automated dispensing systems and single-use fluid management components related to medical and industrial end markets. Geographically, organic sales growth in Japan, Asia Pacific, and the Americas was offset by softness in the U.S. and Europe. The Industrial Coating Systems segment sales volume increased less than 1% compared to the Q3 a year ago. Solid growth in the U.S. and Europe, led by cold material dispensing equipment for automotive and industrial end markets, was offset by softness in other regions and in selected consumer durable goods end markets.
On a total company basis, gross margin in the Q3 was 56%, equal to the level delivered in the prior year, despite a higher mix of systems revenue in the current quarter. Operating profit in the Q3 was $114 million, an increase of 23% over the prior year, and operating margin was 25%, as Mike mentioned, an improvement of two percentage points over the prior year. Looking at operating performance on a segment basis, Adhesive Dispensing delivered operating margin of 27% in the current quarter, an improvement of one percentage point over the same period a year ago. Within the Advanced Technology segment, operating margin was 32% in the Q3 , an improvement of four percentage points as compared to the Q3 a year ago, and reflective of our ability to leverage margin with increased sales volume.
With this segment's typical seasonality pattern, we do expect to see a moderation in sales in the Q4 . In the Industrial Coating segment, operating margin was 13% in the Q3 , a solid level for this segment given the quarter's level of revenue and product mix. Continuing down the income statement, net income for the quarter was $78 million, and GAAP diluted earnings per share were $1.21, an increase of 20% over last year's Q3 . The current quarter's earnings per share included a $0.01 one-time gain related to discrete tax items recognized in the quarter. As in previous quarters, we've included an earnings per share reconciliation schedule in our press release to reconcile between GAAP earnings and normalized earnings per share to exclude certain one-time items.
On a normalized basis, that is, to exclude one-time items in both years, Q3 earnings per share increased 21% over the prior year's Q3 . The current quarter's EBITDA was $129 million, up 18% as compared to the same period a year ago. Cash flow from operations in the Q3 was $81 million, and free cash flow before dividends was $70 million. We've included a table with our press release reconciling net income to free cash flow before dividends. Mike previously commented on our focus during the quarter of returning value directly to shareholders with our share repurchase activity and dividends.
We have approximately $104 million remaining on our current share repurchase authorization as of the end of the Q3 and do expect to remain active in the market as the year progresses, although we do use a pricing grid within a 10b5 repurchase program whereby we will not repurchase shares over a certain share price. From a balance sheet perspective, we remain very liquid, with net debt to EBITDA at 1.42x trailing twelve-month EBITDA as of the end of our Q3 , and we have approximately $287 million available from cash and our current revolving credit facility. Shortly after the end of our Q3 , we announced and closed the transaction to acquire Avalon Laboratories, a leading designer and manufacturer of highly specialized catheters and medical tubing products for cardiology, pulmonology, and related applications.
Avalon is a high-performing growth company with best-in-class products that are highly complementary to Nordson's existing line of highly engineered, single-use plastic components for fluid management and medical applications. The company has generated double-digit compound annual growth rates in revenue and EBITDA since 2008 through a combination of innovative products, unique process know-how, strong customer relations, and scalable, low-cost manufacturing. Working capital requirements are modest, and CapEx is similar to Nordson's at about 2%-3% of annual revenue. We expect to build on the current strong performance of Avalon by leveraging Nordson's scale, global footprint, and continuous improvement competencies. Avalon's revenue forecast for the 12 months ending October 31st, 2014, is $34 million. Revenues are mainly within the U.S., with the current customer base consisting of blue-chip medical device OEMs.
The $180 million purchase price represents an EBITDA multiple of 11x, based on management's forecasted EBITDA for the current calendar year, which is, at this time, on track. The purchase was funded with short-term borrowing and our existing revolving credit facility. The acquisition is expected to be dilutive to our Q4 fiscal 2014 earnings by about $0.01, inclusive of a $0.02 short-term purchase accounting charge related to the step-up in value of acquired inventory. We expect this acquisition to be accretive to fiscal year 2015 results by $0.06-$0.08 based on preliminary purchase accounting assumptions. Avalon results will be reported within the Advanced Technology Systems segment. I'll now move on to comments regarding our outlook for the Q4 .
As we typically do, we have provided our most recent order data, both on a segment and geographic basis, with our press release. These orders are for the latest 12 weeks as compared to the same 12 weeks of the prior year on a currency-neutral basis, and with the Kreyenborg and Avalon acquisitions included in both years. For the 12 weeks ending August 17, 2014, order rates are up 4% as compared to the same 12 weeks in the prior year. Throughout most of the weeks within this latest fiscal quarter, order rates for the total company were up double digits as compared to the prior year.
Within the Adhesive Dispensing segment, order rates are flat over the last 12 weeks as compared to the same period in the prior year, where strength in rigid packaging and disposable hygiene end markets was offset by negative year-to-year comparisons in the remaining product lines. Orders within the Adhesive segment had been up mid- to high-single digits as compared to the prior year throughout the Q3 . In the Advanced Technology segment, order rates over the latest 12 weeks are up 4% compared to the same period in the prior year, where solid growth in test and inspection, surface treatment, and medical device product lines were offset by negative year-to-year comparisons in dispensing product lines serving electronics and general industrial end markets.
Order rates within the Advanced Technology segment were up high double digits throughout each week of the quarter until this most recent week. Within the Industrial Coating segment, the latest 12-week order rates are up 18% as compared to the prior year period. This order growth was driven by strong demand within the cold materials dispensing product lines, serving automotive and in general industrial end markets, with the container coating and powder coating product lines also contributing to the 12-week order growth. Backlog at July 31, 2014 was approximately $266 million, an increase of 36% compared to July 31st, 2013, and inclusive of 25% organic growth and 11% growth through the Kreyenborg acquisition.
Backlog at July 31st, 2014 increased 9% compared to April 30th, 2014, the end of our second fiscal quarter. Backlog amounts are calculated at July 31, 2014 exchange rates. The Avalon acquisition occurred after July 31st. The reported backlog amounts do not include any Avalon backlog. Let me now turn to the outlook for the Q4 of fiscal 2014. We're forecasting sales growth to be in the range of 10%-14% as compared to the Q4 a year ago. This range is inclusive of organic growth of 7%-11% and 3% growth from the first-year effect of the Kreyenborg and Avalon acquisitions. Currency translation is not expected to be material compared to the Q4 a year ago.
At the midpoint of our revenue forecast, we expect Q4 gross margin to be between 55% and 56%, and operating margin is forecasted to be approximately 23% or 24%, excluding short-term purchase accounting charges related to the step-up in value of inventory acquired from the Avalon acquisition. We're estimating Q4 interest expense of about $3.9 million and an effective tax rate of approximately 30.5%, resulting in Q4 forecasted GAAP diluted earnings in the range of $1.07-$1.17 per share, again, inclusive of a $0.02 per share charge related to the step-up in value of acquired inventory.
The midpoint of this range for diluted earnings per share represents an increase of 22% over the prior year's Q4 , or 23% excluding non-recurring items in both years. We're estimating full year capital expenditures to be approximately $45 million, including investment related to our previously announced facility in Colorado, supporting our fluid management product lines. In summary, our global team delivered excellent Q3 results, and our outlook is for strong performance in the Q4 as well. With that, I'll turn the call back over to you, Mike.
Thank you, Greg. Before taking your questions, I'd like to provide some additional comments on our recent performance and outlook. Again, I'm very pleased with the ongoing efforts of our global team. They're executing at a high level and meeting the needs of our customers better than our competitors. At the midpoint of our Q4 guidance, we are expecting organic sales volume growth of 9% over the prior year's Q4 , a very strong level given the macroeconomic environment that has yet to gain full momentum. We expect to leverage this growth to deliver improvement in operating margin and in earnings per share as compared to last year's Q4 . Overall, we are on pace for a record full year performance in sales, operating profit, net income and diluted earnings per share.
In addition to our positive near-term view, we're also getting the job done on a variety of strategic initiatives that will drive value over the long term. In terms of acquisitions, Avalon is a great strategic fit to our medical platform, and again, I'd like to welcome the Avalon employees to the Nordson team. We also continue to evaluate a number of other opportunities in our pipeline that may fit our strategic goals, although we remain diligent in our acquisition process. We're also excited about the next phase of our continuous improvement efforts with the informal internal launch of what we're calling the Nordson Business System.
The Nordson Business System is our collective set of tools and best practices that can help improve our performance in every area of Nordson. Rooted in Lean Six Sigma and supported by our company values, the Nordson business system touches all areas of the company, including all business units and corporate functions. We have been using many of the tools within the business system for several years, and we'll continue to add them, add to them in the future. Overall, our future is bright, and we're focused on getting better every day. We expect to continue leveraging our best-in-class technology, applications expertise, global support and operational excellence across a variety of diverse growth markets to create sustained shareholder value. At this time, let's turn to your questions.
Thank you. Ladies and gentlemen, if you have a question at this time, please press star and then the one key on your touchtone telephone. If your question has been answered or you wish to remove yourself from the queue, please press the pound key. Our first question comes from the line of Allison Poliniak of Wells Fargo. Your line is now open.
Hi, guys. Good morning.
Good morning, Allison.
Just going back on the order comments, solid orders this quarter, and it sounded like there was a little bit of a falloff in Q4. Are you guys seeing any changes in sort of customer or end market dynamics driving that, or is it more seasonal?
It's more in line with our seasonal pattern. I think you understand that our orders tend to peak in the Q3 and build up from the Q2 through sort of the end or early part of the Q3 , and then drop off as we approach sort of the end of the year and the holiday season. We've seen that sort of same pattern this year. I'd say this year is maybe a little slower start, you know, just given kind of the global dynamic at the beginning of the year and the winter here in the U.S. Then we had a really strong Q3 across all of our businesses, very high rates sustained throughout the quarter, and then we're starting to see the sort of natural decline.
Greg made some comments on that kinda relate to how the orders come in. In this particular Q3 , we had across a couple of businesses, some large orders in the quarter that drop off in this last week. It just sort of understates what we're seeing in terms of the health of the business at this point.
That's great. Just going back to sort of your acquisition comments, it sounds like your pipeline's full. We've had a nice acquisition with Avalon. Can you maybe talk about the environment? Multiple for Avalon seems fairly reasonable, just given the margins in that business.
Yeah, I would say, you know, as we said throughout this year, you know, our focus was on sort of integration and digesting, but there'd be some smaller tuck-ins and potentially adds to our key areas like Avalon. I would say, you know, in our pipeline going forward, we still see a number of sort of those tuck-in type of opportunities. I'd say the market is pretty robust, and the pricing is, you know, also pretty robust, just given the, you know, the fact that many people have cash and the opportunity to finance at a low rate. We think this was a good multiple for the kind of quality business that we have and the growth prospects in the business and the fit with our portfolio.
I think it was a fair price for this business, and we're really excited about not only the growth prospects, but the team coming with us as part of this acquisition.
Great. Thanks so much.
Thank you. Our next question comes from the line of Christopher Glynn of Oppenheimer. Your line is now open.
Thanks. Good morning.
Good morning.
Just wondering about an update with respect to the polymer processing platform, the integration progress and if you think it's returning to sustainable growth at this point, or if it's a little early to call that.
We had a solid quarter in the polymer processing business this quarter. I would say across the different components of the business, some are performing a little better than others. I would say the area that was most stressed that we've talked about has been in the die area. While that's improving, it's still we still really haven't seen that Biax piece come back. In talking with the OEMs, they're encouraged that, you know, we're gonna see some pickup, but I would say we have not seen progress on that front. Where we have seen progress on some of the other newer product lines that we talked about in that area.
I would say, no, we're not seeing the robust return of the Biax piece yet, but we're filling in other market opportunities for that. The Kreyenborg BKG acquisitions that came in last year have been solid. As it relates to the integration effort, you know, we're through the integration of the businesses. We still have some of the longer-term things that we've talked about, like, the sales channel optimization to work through and some of the supply chain opportunities. But in terms of cross-selling opportunities and picking up additional sort of broader scope, full product line sales, we're seeing some encouraging progress there. But the underlying sort of Biax market has not come back.
Some of that's a reflection, I think, of what's going on macroly, particularly in Europe and to some extent in parts of Asia.
Okay. Thanks for that. On , excuse me ADS orders , flat there. We did note relatively tough orders comparisons for the Q3 in the past couple of years. Does it feel like that's a specific comparison thing, or that market kind of flattening out after, you know, four consecutive periods of pretty good orders growth?
Yeah, I would say I wouldn't read you know any significant concern into that. I would say it varies a little bit region by region, but we've had sort of a strong year in our packaging business and improving year on our nonwovens business and a pretty solid year in product assembly. You can have impacts quarter to quarter based on sort of the order dynamic I was talking about earlier, and we've seen a little bit of that in the adhesives area. But when we look at sort of overall prospects around the globe, we feel pretty good about where we are in that business, and we think that business will have a very good year.
Okay. Thanks again.
Thank you. Our next question comes from Charlie Brady of BMO Capital Markets. Your line is now open.
Hi. Thanks. Good morning, guys.
Good morning, Charlie.
Hey, just with respect to Advanced Tech and the margins there, obviously pretty good margins, really strong incrementals. Was the impact of the items here in the release about the automated dispensing and the single-use fluid systems? Those tend to be fairly high margin product. Did that mix have a, you know, was that skewing kind of the margin there? Do you think you expect going forward into Q4 the same type of incremental margin?
Yeah. Charlie, in that business, you know, we talked earlier in the year, when things were sort of going the other way about the sort of volume leverage in that business and how we, you know, try and move our structure up and down to accommodate it. I think what you're seeing here is good quarter growth, and the volume leverage really is coming from that good order growth. It's you know quality mix of products, but it's really around the volume leverage that we're seeing. We would expect, you know, the Q4 to be a little bit lower in part because we see the orders naturally seasonally drop off. The revenue is likely sequentially to be down a little bit.
You'll see a little bit negative leverage there from a volume perspective. I'd say the quality of the business has been good across all of the product lines. As we've talked earlier in the year, we've had a particularly solid year in our test and inspection business, and that dispense piece has come along starting in Q2 , continuing this quarter and into the Q4. After a slow start, a pretty good year.
Okay. On Advanced—I'm sorry. Adhesive Dispensing, just so I understand the orders in the quarter, was it, you know, you said it's up double-digit most of the quarter. Was it a slow start or a slow ending that skewed it to flat for the period, Dave?
It's really been more about the last week or so. As orders come in, we had some large orders that fell off from sort of the first week of that 12-week period. It skews it a little bit. What we're trying to give you is a rough feel of a run rate being pretty strong, and we're getting a little bit of a point-to-point comparison there as well in the Advanced Tech side that doesn't truly reflect the strength of what we saw. I think what you can see is a pretty significant step up in the backlog, and that gives you a feel for how solid the orders were in the quarter.
Yeah, Charlie, this is Greg. Just to add to that, it you know the comments are intended to suggest that throughout the quarter in both adhesives and advanced technology, the order pace was pretty strong. Sometimes it can get down to what you know what week 13 weeks ago drops off and what you know week comes into that 12-week comparison. It can be as simple as the one dropping off and the one coming in that can skew the numbers. The comments were intended to imply that it was a good order pace throughout the quarter, and you see that reflected in the backlog as we start the Q4 .
Okay. That's helpful. Thanks. Just on Avalon for a minute, can you talk about maybe some more granularity on that business in terms of the revenues, the margins in that business?
Yeah. In terms of the revenues, I think we suggested that this year's expected revenues were around $34 million. We didn't comment on the margins, but you can assume that those are really strong margins consistent with you know, what we see in the other parts of the medical business. You know, I think if you look at the sort of EBITDA multiple, you get a feel for that, Charlie.
Great. Thanks.
Thank you. Our next question comes from Jason Ursaner of CJS Securities. Your line is now open.
For the adhesive dispensing business on the operating margin side, just sort of a follow-up to Chris's question before, could you quantify the margin of the plastics group at all? Just because on the surface it does still look like a pretty significant drag relative to the old core business.
Yeah. What we've said in the past is most of the margin impact has been the mix of those businesses coming in. What we've said in the long run is the core businesses should operate the historical businesses at sort of +30%, and the polymer businesses, we need to get up into the +20% towards the mid-20s%. You know, they're not there right now. They weren't there when we bought them, and the volume has been a little bit weak. I would say we're on target with what we see in terms of the improvements overall in the segment.
In the long run, we expect the segment to inch up closer to that 30%, I think is the way to think about it.
Okay. Any plans to break it out over time now that it's getting, you know, be more of a sizable, complete offering?
No. I mean, if you look at it, most of what we're doing has gone into the packaging part of the business, and that's the biggest part of our Adhesives segment, and we're really trying to leverage the customer elements of that and some of the operating approaches that we have as well. So it's a nice complement, really, with a significant focus in the same markets that we serve out of the Adhesives business.
For Avalon, is that business selling its own product direct, or is it a contract manufacturer that would sell, you know, through other medical device brands?
I wouldn't characterize it as a contract manufacturer. No, it's going through, like our Value Plastics business. It's going through, you know, the big OEMs that you would recognize on the medical device space. It's not gone directly to end users. We're one step back and really what they're providing is sophisticated components that are used in the applications around cardiovascular and pulmonology. When you think about it, the trends in that business and include, you know, further outsourcing by the OEMs are a big positive in addition to the underlying sort of demographics of the markets.
Jason, this is Greg. Just, you know, think about it similar to other Nordson products. It's highly engineered, performing a critical application and gets incorporated then into a bigger product set.
Got it. Do you have the full year sales or EBITDA for 2013 that are gonna be the first year effect? Just wondering how much of the $34 million is gonna end up showing up as kind of, or which of them is organic growth?
Yeah. Well, what we provided was the forecast through what would coincide with our fiscal year-end, which is about $34 million in revenue.
Right. I guess if I look at the 2.5 months in guidance for the first year effect, if I take out a month of Kreyenborg, it looks like it's on a significantly different run rate. I guess I'm trying to wonder how much that business is growing. I mean, it looks like it's 25%-30% growth this year.
Yeah. What we incorporated in our guidance for the quarter was their historical revenue in this Q4 in aligning with our fiscal Q4 . In the long run, though, we think that, you know, like Greg mentioned, over the last five years, it's grown nicely at double-digit rates. We expect it to continue to grow at that rate because of the applications that that it plays into and this outsourcing phenomena that we talked about. Like our other medical businesses that have been growing, you know, nicely double digits over the last three years or so, we think this is a nice fit and complement with similar growth characteristics.
Okay.
Avalon plus the partial period of the Kreyenborg in the prior year that we did note them contribute to that full 3% acquisitive growth.
Long term, just what do you see as the kind of total addressable size of that market?
Are you talking about the space where our medical space or Avalon specifically?
I guess, the spring-reinforced catheters.
Yeah. That's in the hundreds of millions of dollars opportunity we see in the long run in that space.
That's differentiated from what would be the.
More commodity tubing.
More of the commodity tubing.
Yeah. This is not a part that they play in or we have any interest in. This is all really highly engineered specialty tubing, multiple ports, reinforced electrical connections and so forth. Very sophisticated approach to providing a particular set of requirements for some of the areas that we've talked about, you know, the surgical areas in particular.
Okay. Just last question for me, sorry. Is there any concern of 3D printing, you know, as a competitor to the single piece construction versus the casting that you guys do?
I would say not at this point in time, given the level of sophistication of the devices and the multiple materials here. You know, down the road, we're always looking for new opportunities and for the business, so 3D printing could play a role in a number of things that we do. Right now, I'd say we don't see that as any immediate concern. We actually think the unique technology that Avalon has and the benefits that come with it will allow it to grow disproportionately.
Okay, great. Appreciate it. Thanks.
Thank you. Our next question comes from the line of Walter Liptak of Global Hunter. Your line is now open.
Hi. Good morning. Thank you.
Good morning.
Good morning. I wanted to go back to Advanced Tech. I guess the question is that on new product launches, where are we in the launch cycle? It seems like we keep hearing every day about new mobile devices getting launched, and some of those are pretty large launches. Is the ordering for your products something that's already passed on some of these, and then we'll see some seasonal weakness? Or is there a pipeline of awards that you can see over the next three to six months?
I'd say we'll continue to see the seasonal pattern that we typically see in that business. I mean, some of it is just the nature of our, you know, if you look at our year and the holiday periods and so forth as it relates to the Q1 . But a lot of it as it relates to the sort of mobile space is timing of launches that tend to come out in the, you know, the late second through early Q4 period of time. We'll see that kind of pattern, I think, continue unless the timing on some of these launches change.
One of the things that we did mention you know, in the last call, is that we're continuing to look at some of the up-and-coming new device providers, particularly in China. In this quarter, we've got our first orders with a couple of the Chinese manufacturers that are looking to move aggressively into the smartphone technology. Then there's also you know, a potential down the road, which is not clear as to how accepted this will be in the marketplace is the whole wearable technology. I'd say to date, it's been a little bit hit and miss, but some people are optimistic about the potential for that down the road.
That, depending on how that would play out, that could skew some things in terms of when the various customers would launch that. I think we'll continue to see this sort of Q2 to early Q4 kind of period of high intensity, and it can move, fluctuate year to year. We typically will see the seasonal pattern that we're starting to see now, where things wind down as you get to year-end.
Okay, that sounds great. You know, going back to some of the, you know, the first award and some of these, you know, other potential out there, you know, you know, can you help us size what those opportunities are like? You know, if you've had any initial wins here?
We have had a few initial wins, I'd say, in our tiered offering of our automated platform, and also in sort of our semi-automated platform. I think the challenge, as we've talked about in the past, is to what degree will these folks go to automation and how sophisticated they'll be in the automation approach. From a process standpoint, to what degree will they do things that relate to mechanical integrity and moisture protection and things like that? Not clear yet. You know, a lot of these folks obviously are aimed at a different price point, and it's not clear what the ultimate quality is gonna be, I'd say, in the near term. In the long term, I think it's gonna be globally.
They're gonna need to be globally competitive, and particularly if they look to try and export out of China. I'd say for us it's too early to tell. Our approach has been we have a pretty good handle on who we think is going to make progress and be successful. We have teams involved working those accounts. We've got our first orders in, which is encouraging, but it's a little hard to size the opportunity at this point in time given those factors that I mentioned.
Okay, got it. All right. Thank you.
Thank you. Our next question comes from the line of Greg Halter of Great Lakes Review. Your line is now open.
Thank you and good morning.
Good morning.
Good morning, Greg.
A couple of cleanup items. Can you provide the number of shares that were purchased in the quarter? Also, if you have it, what the payables figure is?
Yeah, the number of shares purchased in the quarter was about 470,000 shares, comprising that $36 million. I'll add on a year-to-date basis, we've bought about $1.2 million shares, so about 2% of outstanding shares. In total, on that $1.2 million, that's at an average share price of about $73.35. Your comment on payables?
Yeah, if you have that figure.
You talking about notes payable and
Accounts payable. Sorry.
Yes, about $20 million, including our short-term debt.
Okay. On the competition front, have you noticed any of your competitors becoming more or less, so recently?
I'd say across all of the businesses, no significant change in the competitive intensity. As we've talked about in the past, we've got, you know, good competitors in each of our businesses, but we haven't seen any changes of significance one way or another there. You know, I think our approach is what it's always been, is to continue to leverage our business model, which starts with, you know, offering the best technology and the best customer experience in terms of support and service and applications know-how. So we think we're doing a good job. We think we're winning in the marketplace, but I would say the competitive intensity remains, you know, basically unchanged. It's competitive.
Okay.
Greg, just let me clarify. The $20 million is notes payable and debt due. Is that the number? Or you're looking for accounts payable?
Accounts payable.
Accounts payable and other liabilities was about $240 million. Those numbers are on the financial exhibit in the press release.
Okay. All right. Relative to Avalon, you made a comment that their business is mainly in the U.S. Is there any restriction for that to go international? If not, why have they not done so? Is that your plan going forward?
I'd say there's no restrictions on going outside of the U.S. I think they focused on significant opportunities in the U.S., and in many of these procedures, the U.S. is more advanced than other countries. We've been moving our business in our other medical applications overseas, and so our plan will be over time to expand the business. We've got a lot of opportunities, you know, still here in the U.S. Obviously, the next likely target would be Europe, and that's what we've done with our other medical businesses. I think Asia is a little bit more fragmented and in some areas a little bit further behind.
Okay. Looking at the geographic orders, obviously some of the areas are very bumpy, lumpy, whatever, but Japan being up 39% and 15% the prior quarter, can you talk to the strength there, what's going on there in Japan?
I would say there's you know there's good progress across most of the businesses. I'd say earlier in the year, it was maybe a little softer, and it's picked up across all the businesses. I would say if you think about things like the mobile business, a lot of the components that go in there get made in Japan, so that's not so surprising. I'd say the strength in some of our sort of more consumer durable businesses is a little surprising to date. You know, we're seeing good progress there, probably a little bit more robust than we would've expected, I'd say, coming into the year.
Yeah, this is Greg. I'd just add, as Mike mentioned, it was good, solid growth rates across each of the segment, and that's even against a trend where Japanese manufacturers are offshoring production to other low-cost countries. Very good growth rates within Japan for our product lines.
I think that speaks to the strength of our customer base and the business model there and the execution on the team as the opportunities come up. I'd say we're probably pleasantly surprised at the strength in the last quarter or two.
Well, let's hope you keep that up. One last one. I don't know if you commented on it, but the Freedom product line, just wondering if you could give an update there.
Yeah. I would say the Freedom product line, and this now includes what we call Liberty, which is the sort of next tier down product in that suite. I would say revenue-wise, we're pretty much on plan. As I said in the last quarter, unit-wise, we're a little bit behind, but pricing based on the value provided was a little bit better, and that trend is continuing. I'd say the sort of full value impact of the use of material itself has still not come to fruition. That's probably end of the calendar year kind of timeframe for some of the newer adhesives to have sort of the full impact on mileage and so forth.
I think the combination of both the tiered product and the high-end product. We feel pretty good about progress to date.
Okay, great. Thank you.
Thank you. Our next question comes from the line of Rudy Hokanson of Barrington. Your line is now open.
Expansion of the facility in Colorado, from about 45,000 sq ft up to 115,000 sq ft, and now with the acquisition of Avalon, are there opportunities in terms of, managing workflow or production of certain products between the two, or will Avalon?
Okay, I'm not. I think.
Rudy, you're dropping off throughout your question, so we didn't catch your
Let me take a stab at the first part of that, and then if I'm not quite getting it, you can come back. The expansion, when we talked about the expansion in Colorado, you know, it was primarily driven by our opportunity in the medical space. We also did talk about, though, the fact that some of the other EFD products that we make and might need some expansion that we could probably delay some of those expansion requirements through this particular facility. It's really based on the growth that we see. I think we have growth opportunities with Avalon as well.
Naturally, with them in the mix here and given the manufacturing facilities they have in Mexico, we'll look at the total capability, not just across the medical platform, but across all of our sort of fluid management business and look to sort of optimize their supply chain. You know, we see robust demand in the medical space, at least in the niches that we're in today, which is really driving the prime reason for the Colorado expansion.
Okay, thank you. That answers my question.
Thank you. Our next question comes from the line of Liam Burke of Janney Capital Markets . Your line is now open.
Thank you. Good morning, Mike. Morning, Greg.
Good morning, Liam.
Mike, you talked about the integration of Polymers coming along, supply chain, et cetera. Is the integration further along enough to be able to start applying continuous improvement or, as you call it, Nordson Business System?
Yeah, we're absolutely doing that across the sort of platform of the four product lines that we've brought in and prioritizing those opportunities. Yes, we're seeing good progress along the continuous improvement front. I would say each of the businesses was probably in a different place as it relates to their level of experience with Lean Six Sigma, and so we're trying to bring them all up to the sort of highest level. You know, we're managing the priorities of those projects. You know, I think as we've talked in the past, you know, there will be some bigger opportunities as it relates to optimizing the overall supply chain.
That'll take us some time to do because the thought process and planning behind that's a little different than what we did in the adhesives side of things. There's still opportunity to come over the next couple of years in that area. The full leverage on the selling side and the sales channel management, where I'd say we're making good progress, but there's still some opportunity there. The basic sort of Lean Six Sigma philosophy, you know, the team is getting up to speed with, and we've got folks leading those activities. It's really a matter of just prioritizing the biggest hits first and effectively utilizing the organization to get those priority activities done.
Okay. On the medical side, do you see? I mean, you had a great quarter on the Advanced Tech. So many more cyclical businesses kicked in across the board. Are you seeing the medical business starting to contribute enough where you'd anticipate some of it offsetting some of the cyclical swings we'd normally see in Advanced Tech?
I'd say certainly the medical business has done, you know, very well the last several years, strong double-digit growth. The broader, not just the medical, but the broader fluid management piece that goes into non-electronic markets has also had very solid growth. Yes, we have a focused effort to continue to grow that total area to help balance the cyclicality in the electronics business. There's a seasonality that we see throughout the year, and then there's a longer term cycle piece with that. The seasonality is gonna be what it is, but the longer term cycle piece we're trying to offset. I'd say that whole fluid management piece is contributing to that.
Our goal over time is to continue to grow, both organically and with add-ons to this medical business to continue to help that balance.
Great. Thank you, Mike.
Okay.
Thank you. Our next question comes from the line of Matt Summerville of KeyBanc. Your line is now open.
Hi, a couple questions. First, just with respect to Avalon, it looks like they already have a low cost manufacturing footprint in Mexico. Mike, are there other cost synergies to be had with this business? Can you talk about whether or not existing relationships in the medical space that you have will lend itself to revenue synergies? Can you kind of address the whole synergy opportunity there?
Sure. I would say the fact that they do have a low cost manufacturing provides some opportunities, I'd say, in the near term, but also from a growth perspective as we look at some of the operations that we do that are more labor intensive. I think there's some opportunities there, both near term and longer term. I'd say we're more encouraged on the revenue side because there are, you know, some customers that are sort of direct overlap where we immediately have a broader product line. But there are other customers that they have, and that we have, where there's that opportunity to provide that fuller suite, going forward.
As customers move to more and more outsourcing, customers being that sort of OEM channel, having a fuller suite of products, and demonstrating that you can meet the technology requirements, the quality control and the traceability requirements and provide the support and service, I think makes sense. In a market that's been fragmented, as we build a bigger portfolio here, I think that's attractive as well. Yes, we anticipate there'll be some nice revenue synergies down the road as we're able to offer a fuller product line and leverage either the Avalon client base or the Nordson client base here.
Can you also just, with respect to Avalon, is that subject to direct FDA regulation, medical device tax? Is any of that involved here?
No, we're kind of like one step back like we are with the Value Plastics business where we supply into, you know, that group of key customers that have the FDA requirements. So, we have to provide products that go in and then as a system, the system itself will get certified. A lot of the effort is on the upfront development of the new treatments, therapies, approaches. It's very similar in that regard to the Value Plastics piece of business.
Lastly, just with respect to polymer processing, I think it was out of your prepared remarks or in response to a question, you mentioned that margins are clearly not where you'd like them to be more in the mid-20s is kind of where you're targeting longer term. Can you talk about when you acquired this group of businesses collectively, where were margins and where are they actually now? How much of the equation to get from wherever they are to, say, 25% is predicated upon volume versus, you know, cost-oriented synergies, if you will?
Yeah. On average, they were sort of in the mid-teens kind of EBITDA, you know, when we acquired them. I'd say the dies business in particular has had softer revenue than expected, and so we've had some negative volume leverage there that's impacted the business. They're below that collectively now. I think the volume, like all of our businesses, is certainly the biggest driver. But in this business, we do have an opportunity for significant both productivity improvements and cost synergies as we look at the overall supply chain. As we talked before, that's not something we can execute in three months because it's more complicated than that. But we're already involved with some things that will help move us down the road of getting more efficient there.
Like all of our businesses, number one driver is the volume piece. Here, I'd say we have more opportunity than our normal business to affect the cost equation. In the short term, that's our primary focus.
Can you just sort of remind maybe what the manufacturing footprint looks like in this business currently, and whether or not that is a component of this equation to get that substantial margin improvement off where it is today?
Sure. We have manufacturing facilities in every region. If you look at Asia, we have facilities in Thailand and in China. If you look at Europe, we have facilities in Germany and Belgium. In the U.S., we have a number of facilities in, you know, from Wisconsin to Virginia to Ohio and Pennsylvania, then maybe one or two others. There are opportunities to optimize the overall approach there, going forward.
Thanks, Mike.
Okay.
Thank you. Our next question comes from Mark Douglass of Longbow Research. Your line is now open.
Hi. Good morning, gentlemen.
Good morning.
Morning.
Greg, just to follow up on Greg's question. Do you have an estimate for accounts payable, ex accrued liabilities?
I don't have that detail, Mark. I can get back to you on that. Again, the sum of those two is about $240 million.
Right. I see that. Just wondering what.
Yeah.
was by itself.
Yeah.
Looking at Avalon, you said that 11x EBITDA, that would be equivalent to EBITDA in your fiscal 2014?
Right. Yes.
Right. Okay. Looking forward at EBIT or EBITDA, what are you estimating would be additional D&A layered on, post-acquisition relative to maybe where it was?
Yeah. Mark, we're in the early stages of doing the valuation work. We've got our estimates of kind of on a macro basis of what we think those charges would be, and that's incorporated in the $0.06-$0.08 accretion that we called out for 2015. We're not at the point where we've got any of that detail.
Okay. In looking at Avalon, what kind of cash-on-cash returns do you expect over the next two to three years? Is it gonna require much? Doesn't sound like it, but will it require some investments on your part? What are you shooting for as far as returns?
In terms of investment, I think it's, you know, an asset light type of manufacturing like the rest of our businesses. I think Greg said, you know, sort of to maintain it, you know, going forward, you can expect sort of 2%-3% of revenue in terms of overall sort of maintenance type investment. You know, we've got capacity in the facilities that, you know, that we have, but we also have opportunities to grow. I think we'd expect the trends that we've seen in the past, which are, you know, double digit top line and EBITDA to continue in that business.
Final question, looking at ICS, the real strong order growth, is that a factor of easier comps, or is it really just a, you know, you received some really big orders? And if it's receiving some bigger orders, does that imply that there's some longer term deliveries, so that gives you some backlog even into Q1 2015, or will most of this ship in 2014 Q4?
Just on a typical pattern, you know, we would see the sort of order rates be strong Q2 to early Q4 as people kind of spend their capital budgets for the year, and that's kind of what we've seen here. Some of this is a little bit comp year-on-year, but very, very solid order growth there. In terms of deliveries, most of what we can deliver, we deliver in the, say, maybe up to eight weeks. There could be some that slip over a little bit into the Q4 , but I wouldn't say it's an unusual quarter in any way relative to the mix of what gets delivered in the quarter or not.
I'd say what you're seeing is people are completing their budget work for the year and let their orders come, and we're seeing that benefit and a little bit of year-on-year comparison, which you always have in this business because it's lumpy project-related business.
Okay. Thank you.
Nicole, we probably have time for, maybe one more question.
Ladies and gentlemen, if you have a question at this time, please press star and the one key on your touch tone telephone. I'm showing no further questions at this time.
Okay. Well, thank you all for attending our call today. This is Jim. I will be around today to take your questions as I always am. Feel free to give me a call, and can answer any other questions that you have. With that, thank you again and have a good weekend, everybody.
All right. Thank you.
Ladies and gentlemen, thank you for participating in today's conference. This does conclude today's program. You may all disconnect. Have a great day.