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Nordson Corp (NASDAQ:NDSN)
Q2 2020 Earnings Call
May 21, 2020, 8:30 a.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

Ladies and gentlemen, thank you for standing by and welcome to the Nordson Corpoation Second Quarter Fiscal Year 2020 Earnings Conference Call. [Operator Instructions].

I would now like to hand the conference over to one of your speakers today, Lara Mahoney. Thank you. Please go ahead.

Lara Mahoney -- Vice President, Investor Relations and Corporate Communications

Thank you, Casey. Good morning. This is Lara Mahoney, Vice President of Corporate Communications and Investor Relations. I'm here with Sundaram Nagarajan, our President and CEO; and Greg Thaxton, Executive Vice President and CFO. We welcome you to our conference call, today, Thursday, May 21, 2020, to report Nordson's fiscal year 2020 second quarter results.

Our conference call is being broadcast live on our webpage at nordson.com/investors, and will be available there for 14 days. There will be a telephone replay of the conference call available until June 4, 2020, which can be accessed by dialing 416-621-4642. You will need to reference ID number 8187700.

During this conference call, forward-looking statements may be made regarding our future performance, based upon Nordson's current expectations. These statements may involve a number of risks, uncertainties and other factors as discussed in the company's filings with the Securities and Exchange Commission, that could cause actual results to differ. After our remarks on the quarter, we will be happy to take your questions.

With that, I'll turn the call over to Naga.

Sundaram Nagarajan -- President and Chief Executive Officer

Good morning, everyone. Thank you for joining Nordson's fiscal 2020 second quarter conference call. It's incredible how much the world has changed in the few months since our February conference call. We hope you and your families are staying healthy and safe.

In the second quarter, our team was focused on two critical priorities; protecting the health and safety of our employees, and responding to the needs of our customers. I'm so thankful to our colleagues around the world, for their flexibility, resilience and commitment, as we have navigated through this pandemic. I'm proud of the Nordson team.

One of Nordson's greatest strengths, is the diversity of our end markets, which is certainly contributing to our results to this point in the year. And during this period, all of our production facilities have continued to manufacture products for critical infrastructure applications.

Going forward, our focus will continue to be on maintaining health and safety of our employees, as we transition from working remotely, where social distancing, regular cleaning, temperature checks, face coverings and other protocols will be essential. Representatives from our global teams have been coming together to share best practices and lessons learned, with all moving forward together in a conservative manner to ensure everyone's safety.

While we remain focused on actively managing this dynamic environment, I'm equally committed to moving this organization forward and making progress toward our strategic objectives. The greatest opportunity for Nordson is profitable growth. On March 30, we announced a business realignment that will make us more agile, in accomplishing our strategic priorities of accelerating organic growth, diversifying through acquisition, leveraging the Nordson Business System and focusing on talent development. Today we will discuss our results in terms of our two new segments, Industrial Precision Solutions and Advanced Technology Solutions.

I'll speak more about the business in a few moments, but first, I'll turn the call over to Greg to provide more detailed perspective on the second quarter.

Gregory A. Thaxton -- Executive Vice President and Chief Financial Officer

Thank you Naga and good morning to everyone. Second quarter 2020 sales decreased 4% compared to the prior year's second quarter. This change included a decrease of approximately 3% in organic volume, and a decrease of approximately 1% related to the unfavorable effects of currency translation. Growth in the quarter related to the first year effect of the fiscal 2019 acquisition of Optical Controls was not significant.

Within the Industrial Precision Solutions segment, which combines our previous Adhesive Dispensing Systems and Industrial Coating Systems segments, sales decreased approximately 6% compared to the prior year's second quarter. This change included a decrease in organic sales volume of approximately 4% and a decrease of 2% related to the unfavorable effects of currency translation as compared to the prior year. Relatively strong sales performance of those product lines serving consumer non-durable end markets, such as packaging and nonwovens, was offset by weakness in sales of product lines, serving end markets such as automotive and general industrial.

Sales in the Advanced Technology Solutions segment decreased approximately 1% compared to the prior year's second quarter. This change included a decrease in organic sales volume of less than 1%, an increase of less than 1% related to the first year effect of acquisitions, and a decrease of less than 1% related to the unfavorable effects of currency translation as compared to the prior year. Sales volume increased in product lines serving medical end markets and fluid dispense product lines serving electronics end markets. This growth was offset by weakness in our test and inspection product lines, and fluid dispense product lines serving industrial end markets.

Moving down the income statement, gross margin for the total company was 55% in the quarter, operating profit was $125 million, with reported operating margin of 24%, up 20 basis points over the prior year second quarter. I'll comment on segment operating margin specifically. However, in addition to reducing our compensation accruals, this quarter's operating margin reflects our focus on spending control to offset the decline in sales. This includes our efforts to not only reduce discretionary spending, but also defer open headcount additions within the organization. We would expect to continue with a conservative bias toward spending during the second half of the year, as we monitor order trends, while our selling and administrative expenses in the second half of fiscal 2020 are estimated to be in line with our prior year's second half spending.

On a segment basis, the Industrial Precision Solution segment operating margin was 27% in the quarter. This compares to 28% in the prior year's second quarter. As compared to the prior year. The current year's second quarter operating margin was negatively impacted by lower sales volume.

Within the Advanced Technology Solutions segment, reported operating margin was 24% in the second quarter as compared to 23% in the prior year's second quarter. This improvement in operating margin was primarily driven by product mix. On a total company basis, net income for the quarter was $92 million and GAAP diluted earnings per share were $1.58. We delivered second quarter EBITDA of $152 million or 29% of sales, up 30 basis points over last year's second quarter. Free cash flow before dividends during the quarter was $90 million, resulting in cash conversion of 98% of net income. Year-to-date cash conversion is 134% of net income, which was positively impacted by the collection of receivables in the first quarter from the strong finish to fiscal year 2019.

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. From a balance sheet perspective, we had a cash balance of $306 million at the end of the second quarter, as we took a conservative position to ensure appropriate liquidity. In addition to this cash position, we have our undrawn $850 million revolving credit facility available. Net debt to EBITDA was approximately 1.7 times trailing 12 months EBITDA at the end of the second quarter. Company returned value to shareholders by investing $38 million to repurchase approximately 300,000 shares during the quarter, which is intended to offset this year's benefit plan dilution, and we paid $22 million in dividends during the quarter.

In summary, our topline has held up considering the challenging macro environment, where we benefit from the diversity of the end markets we serve. Nordson team has responded in a great way in supporting our customers and delivered solid performance in the quarter. We continue to maintain a strong balance sheet, with sufficient liquidity to allow us to stay focused on longer term strategic initiatives.

I'll now turn the call back to you, Naga.

Sundaram Nagarajan -- President and Chief Executive Officer

Thank you, Greg. Again, I want to thank our colleagues around the world for their incredible commitment to our customers during this quarter. This is an uncertain time for many, and the Nordson's steam strong execution is commendable. Our performance through the first half of the year has been solid, considering the impact of COVID-19. That said this is an incredibly dynamic environment and it is difficult to accurately predict the impact this pandemic will have on our business for the remainder of the year. Backlog at the end of the second fiscal quarter has increased approximately 6% compared to the same period a year ago, which is certainly a positive sign. The backlog is split split evenly between the IPS and ATS segments on the other hand, order rates have begun to soften in the last several weeks we measure order rates in constant currency, with pro forma growth in order rates calculated as though the fiscal year 2019 acquisition was owned in both years. For the 12-week period ending May 10, 2020 order rates decreased 4% the same period a year ago. IPS segment order rates decreased 12%, while ATS segment order rates increased 6% both as compared to the same period a year ago.

Looking at a shorter period of time over the last six weeks, the total company order rates are down 11% compared to the prior year with IPS down 14% and ATS down 7%. Though six weeks may not be a trend to forecast performance for the balance of the year, these results do highlight the volatility we are dealing with at this time. Because of these uncertainties and the lack of clarity about the duration and impact of the pandemic, we are suspending our previously announced annual guidance for fiscal 2020. We've also decided to postpone our fall 2020 Investor Day, which I refer referenced in the first quarter conference call.

While the near-term demand trends are unclear, I am excited about the future of Nordson. We have a solid foundation, fortified by the diversity of our business, our strong customer-centric business model and market-leading precision technologies. Our liquidity and past financial performance are good indicators of Nordson's strength and resilience and the diversity of end markets we serve. We will stay invested in what makes Nordson strong, innovation and our talented global organization. Our connectivity to our customers is critical, particularly in an environment like this. We will however continue to monitor this dynamic environment, to ensure we are taking appropriate action to manage the business through these uncertain times.

Before we open the call for Q&A, I want to highlight our recent CFO announcement. On May 8, we announce that Joseph Kelley will be joining Nordson as new Executive Vice President and Chief Financial Officer effective July 6, 2020. Joe brings over 25 years of financial and operational expertise to the role. During the search process, Joe's experience as a public company CFO, as well as his operational finance experience, made him the right candidate to help us execute our long-term vision for Nordson. I'm excited to welcome Joe to this strong Nordson leadership team that is focused on driving sustainable profitable growth in the coming decade. Greg will be staying with the company through August to ensure Joe has a smooth transition. On behalf of Nordson, I want to thank Greg for his time, energy, especially as we have navigated this current environment. Greg, your support and flexibility is greatly appreciated. As always, I want to thank our customers employees and shareholders for your continued support.

With that, we'll pause and take your questions.

Questions and Answers:

Operator

Thank you. [Operator Instructions]. And your first question here comes from the line of Mike Halloran with Baird. Please go ahead, your line is now open.

Michael Halloran -- Robert W. Baird -- Analyst

Good morning, everyone, and congrats, Greg and really great run.

Gregory A. Thaxton -- Executive Vice President and Chief Financial Officer

Thank you, Mike.

Michael Halloran -- Robert W. Baird -- Analyst

So first question. Thanks a lot for the context on the order side. Naga, could you just take a layer lower and talk about whether you're seeing any variance in the end market trends, relative to what you would have talked about for the fiscal second quarter, sort of the non-durables, the medical pieces of electronics doing well and industrial softening a little bit? And also maybe put in context, where you're seeing some benefits from what's happening from an environment perspective in the comments as well, please?

Sundaram Nagarajan -- President and Chief Executive Officer

Yeah. Thank you, Mike for the question. Let's get started with -- overall, the diversity of end markets that Nordson serves, certainly came through strong and benefited us in the quarter and certainly contributed to our results through the first half. As we think about the order trends, as we have talked about this, overall what we see for the total company, for the 12-week period, Nordson's total order rates are down 4% and in the six-week period, it is down 11% and if you go further down, if you look at the IPS segment, there is really not a whole lot of disconnect between the first -- between the 12 weeks and the six week order rates. And mainly what you see in IPS, if you think about the product lines in IPS, we see strength in non-durables. Especially, a lot of strength in nonwoven applications, in making masks, COVID testing kids, our liquid and container product lines. So we've got really good strength on the nonwoven applications and some product categories, that you would expect in the consumer non-durable end markets.

But that is offset by some significant declines in large system kind of businesses, like our ICS, with powdered systems, as well as PPS that serves the automotive end market. So when you have systems and when it serves industrial or automotive end markets, we do see the declines. But in general for IPS between the six week and 12 week, really not a lot of difference.

When you think about our ATS segment coming into the quarter, the 12 week trends we up 9%, but if you look at a shorter period of time, really it were down 12% and this is really, if you think about it, this weakness we have seen, mainly in our electronic systems dispense side. So if you think about that a little bit more, our dispense system product categories are typically higher priced, and they also come in larger volumes. So what we are not able to sort of ascertain is that, is this six week weakness a firm trend or is it just indicative of the typical volatility, we would see? To remind you,the company really -- we use the 12 week order trend, because of these capex cycles, we tend to use the 12 week as a better indicator. But given the environment and given the weakness we're seeing in the shorter term. I'd point you to where we have seen is really in the electronic systems. And to give you some color around where are we seeing the strength? Mike, what we're really seeing the strength, we've talked about the nonwovens in the IPS segment. In the ATS, really our medical product lines are doing really well. We see a pretty nice trends there it is, it is really all around the pulmonary and cardiac bypass machine applications. We have a number of connectors and things that we use in ventilators and other applications and in testing kits as well.

So we see good strength in medical applications. We have some really good applications around semiconductor for our electronics dispense businesses. PC board in general is also really up. Where we see weaknesses in ATS is really dispense applications for industrial end markets.

Michael Halloran -- Robert W. Baird -- Analyst

That makes a lot of sense, go ahead Greg?

Gregory A. Thaxton -- Executive Vice President and Chief Financial Officer

Yeah, just to lay over that great color on the end markets. So again the change from the 12 to six not much in IPS and just to clarify on the ATS, that was a plus six through 12 weeks and a negative 7 in the 6 weeks and Naga did a good job of highlighting what was really the change from the 12 to six was around the system side of electronics systems.

Michael Halloran -- Robert W. Baird -- Analyst

Appreciate that and really great color. So on the capital strategy here, strong balance sheet, liquidity is in a very good position, strong free cash flow. So how are you thinking about balancing the near-term potential challenges in the unknowns versus turning more offensive and investing in the long term. I'm guessing on the internal investment sides and the growth initiatives, probably not a lot of change there. But maybe touch on that briefly and then also touch on how you're thinking about the M&A side, keeping powder dry for that, as well as share buybacks?

Sundaram Nagarajan -- President and Chief Executive Officer

So let me to talk about our capital allocation priorities. Really, they remain consistent, no changes there. Our number one priority is continuing to fund our internal organic growth initiatives. Just remember, that Nordson is a asset light business model, hence, we spend about 2% to 3% of our revenue on capexes for internal projects. We continue to plan to do that. In terms of -- we have a good dividend policy that we continue to increase dividend, in line with our earnings. We will continue to do that and if you think about our share repurchases, our share repurchases are mainly -- our baseline strategy is to offset dilution from our compensation plans, and we intend to do that, as we have seen dislocation in the marketplace, we have acted to sort of implement that strategy, and that's what you saw in the last quarter.

And finally, when you think about acquisitions; acquisition is an important key growth lever for the company. We want to use acquisitions to allow us to continue to diversify the portfolio we're in. But we're going to be disciplined. We want to acquire things that makes Nordson really strong and special, that is really all about acquiring assets and properties that allow us to create precision technologies that create value for our customers. So we're going to stay disciplined to that. We've clearly identified where we want to focus on acquisitions, which is really medical and test inspection, and maybe if there are bolt-on opportunities in our strong core businesses where we add a lot of value, we will certainly act. But given the environment, we are going to continue to stay focused on the long term, continue to act on opportunities, but keeping the environment in mind. So that's sort of where we are, and I could add more color, if you're a little bit more interested in other areas.

Michael Halloran -- Robert W. Baird -- Analyst

No, that was very helpful. Appreciate as always and stay safe everyone, thank you.

Sundaram Nagarajan -- President and Chief Executive Officer

Thank you, Mike.

Operator

Your next question comes from the line of Saree Boroditsky with Jefferies. Please go ahead, your line is now open.

Saree Boroditsky -- Jefferies -- Analyst

Thank you and good morning. Following up on the question on the order trends, you talked about the slowing order growth over the last six weeks. Could you just provide some color on the cadence of orders and did you see any improvement through the last six weeks. So maybe the ending week was a little bit better than the average?

Sundaram Nagarajan -- President and Chief Executive Officer

Yeah. So in general, if you think about our order trend. Week to week, it is very difficult to sort of say that we could have a trend and given the capex nature of our businesses, you're going to find week to week changes. Broadly speaking, I would say the trends really are the two that highlighted, which is really on our IPS, really no difference. In that it is down about that 12% to 14%, that's really -- that seems to have between 12 weeks and six weeks really no change. But in our ATS, we went from plus 6 to negative 7 and that weakness we really saw in our electronic system business, and there, as we highlighted, what you would see is just the lumpiness of electronic system orders coming in and you know, it would be really difficult area for us to give you an indication of the volatility from week-to-week, because we can get a large order in a single week, and really no order in the following week. So it is really important for us to look at it over a time period, and that's why the company has always used the 12 week as a good marker of how things are moving forward.

Saree Boroditsky -- Jefferies -- Analyst

Thanks. Appreciate that. Yes, thank you. So I appreciate the color on the weakness in auto and general industries within IPS, could you just help quantify the declines you saw in these markets and how are you thinking about the outlook for the remainder of the year?

Sundaram Nagarajan -- President and Chief Executive Officer

Let me -- Saree, let me have Greg, would you add some color to the...

Gregory A. Thaxton -- Executive Vice President and Chief Financial Officer

Yeah, so we typically don't -- go down to that level of quantification just for both customer, as well as competitive dynamics. But we've got several product lines in the portfolio, from an injection molding perspective as well as from some structural dispense applications that we sell into. It's not a, it's not a large portion of the overall portfolio. We gave some color on that in our investor deck, but it's just one set of end markets that we put into that industrial bucket, where we saw some softness in the quarter. It's around 5%, 6% of the company's total business.

Saree Boroditsky -- Jefferies -- Analyst

Okay. Thanks for taking my questions.

Sundaram Nagarajan -- President and Chief Executive Officer

Thank you.

Operator

Your next question comes from the line of Matt Summerville with DA Davidson. Please go ahead, your line is now open.

Matt Summerville -- DA Davidson -- Analyst

Thanks. Couple of questions. First, getting back to kind of the order trends you've seen over the last 12 to six weeks. I was wondering if you could add some geographic depths to that, perhaps talking about what you're seeing here in North America versus Europe versus Asia including China, please?

Sundaram Nagarajan -- President and Chief Executive Officer

Let me give you a broad color and then probably have Greg take you through some details. In general what we're seeing is that, Asia is starting to recover and if you think about Europe, it's still in a state of flux and U.S. is probably steadying it out. So let me turn it over to Greg, so that he can provide you some more detail on on the specific order trends.

Gregory A. Thaxton -- Executive Vice President and Chief Financial Officer

Yeah, Matt, and I'll pick up Naga's color that he provided, where we see generally, the consumer non-durables, the medicals, those kind of things and each one of the geographies have held up well. Where we talk about the biggest change from the 12 to the six week being in the electronic systems portion of the portfolio, most of that, we've got a lot of those customers that are in Asia and a fair amount in Europe. So where we saw the softness in the 12 versus six in that electronic systems was primarily in those two geographies.

Matt Summerville -- DA Davidson -- Analyst

Got it and then...

Gregory A. Thaxton -- Executive Vice President and Chief Financial Officer

Specific to those end markets. Generally when we think about the consumer non-durable, the medical those kind of -- it has been pretty consistent in the 12 week and six-week.

Matt Summerville -- DA Davidson -- Analyst

Got it. Thank you for that color and then just as a follow-up. Is there anything, any sort of conclusion to be drawn with respect to what you're seeing in electronics order rates now and what that might foretell, looking forward with respect to 5G related projects for both devices and infrastructure? Thank you.

Sundaram Nagarajan -- President and Chief Executive Officer

Yeah. So let's maybe broadly talk about our electronic system business. So if you remember, in our electronic system business, we have our dispense part of it and we have our test and inspection, and both of these are larger dollar value systems when compared to, say our packaging system. So if you compare those two, so you're going to see some amount of lumpiness that are associated with this set of product categories. And so for us as we sit here today, if we did not have this macro environment, we wouldn't be talking about this near-term disconnect between the 12 week, because we would say that is normal volatility. But given the backdrop, we thought it would be important to provide you a little additional color. It is very difficult for us to see it today, that is either the normal volatility or is it the lumpiness of our order rates, which we normally see.

Around 5G, let me talk to you a little bit about what we are seeing today and where we are and what the opportunity looks like. 5G in general is a growth driver for us. It is going to be an important growth driver, not only just in the mobile set, but it's also going to be in the base infrastructure for our 5G. We're going to have opportunities in IoT devices. We're going to have opportunities in auto electronics. We're going to have opportunities in consumer electronics. So it's going to be a pretty broad based opportunity for the company.

The rollout of 5G is certainly slower than we had all hoped and would like. For a number of different reasons, still a technology that is getting sorted out, there are some issues around supply chains. We participate in 5G across a number of things. We start with a semiconductor, as we've talked to you about on our electronics side. We are really highly diversified across the entire supply chain. So we start with the semiconductors, where somebody is making a chip for 5G application, we certainly work with component manufacturers, who then integrate these into filters or switches or antennas. We certainly participate there. Then you have PCB board manufacturer, who assemble those components on a board, and then you have the end product application. So we participate in all of these, for 5G where we're seeing most of the activity, is mostly on Semiconductors. We're seeing some activity in PC board. We're also seeing some activity in the components. But overall, we are well positioned, but it will be a matter of timing and due to this environment, it's really difficult for us to say that this would be -- long term, its an important driver for us.

Matt Summerville -- DA Davidson -- Analyst

Thank you.

Operator

Your next question comes from the line of Allison Poliniak with Wells Fargo. Please go ahead, your line is now open.

Allison Poliniak -- Wells Fargo -- Analyst

Great. Thank you. And firstly, best wishes. Greg, thanks for all your help over the years with understanding Nordson. Good luck with everything. Next, I want point to is supply chain, as you start to ramp or just even in production, Nordson is fully producing. But any supply chain challenges that you guys are noticing or kind of have to deal with in today's environment? Any color there?

Sundaram Nagarajan -- President and Chief Executive Officer

Allison, in terms of supply chain, really nothing material. We have a very robust risk mitigation and a risk analysis program with our supply chain. The teams have done a wonderful job of really executing against risk mitigation. We had maybe occasional one or two issues, which were handled fairly in a quick and expedient manner. What we have in terms of supply chain have faced is that, there were some constraints around freight, and we've had to pay a little bit more on freight. But that was just a near-term issue. In general, we don't have the supply chain issues. China is up and running. So I believe we are in a fairly, fairly strong position that way.

Allison Poliniak -- Wells Fargo -- Analyst

Great. And then you touched on it a little bit, incremental costs that you're having to deal with, in terms of managing through this environment, both internally with Nordson and you just mentioned, freight. Is there anyway to help quantify that? Is it significant or is it I would say minimal at this point? Any thoughts there?

Sundaram Nagarajan -- President and Chief Executive Officer

Allison, its pretty minimal at this point really. But it is a constraint that we saw early in the process, not anymore, but immaterial. Greg, do you have any additional color?

Gregory A. Thaxton -- Executive Vice President and Chief Financial Officer

That's right. It's not a material amount, Allison.

Allison Poliniak -- Wells Fargo -- Analyst

Okay. And then within the quarter, was there any of your facility shutdown? Just trying to get some thought around -- context around that?

Sundaram Nagarajan -- President and Chief Executive Officer

Not really all of our facilities are really deemed, supporting critical infrastructure and so we were working through all of this. There were one or two product lines we may not have made for a short period of time, but very limited, really no impact on our facilities.

Allison Poliniak -- Wells Fargo -- Analyst

Great, thanks so much.

Sundaram Nagarajan -- President and Chief Executive Officer

Thank you, Alison.

Operator

Your next question comes from the line of Jeff Hammond with KeyBanc. Please go ahead, your line is now open.

Jeffrey Hammond -- KeyBanc -- Analyst

Hey, good morning guys.

Sundaram Nagarajan -- President and Chief Executive Officer

Good morning, Jeff.

Jeffrey Hammond -- KeyBanc -- Analyst

And Greg, best of luck in your retirement and congrats on the new hire. Just on the -- can you just go to the mobile handset space, I think you had kind of two years off in terms of spending cycle, and I think this year was anticipated to be a better cycle, and I know there's been a little bit of delays, but just what are you hearing from the mobile handset OEMs, in terms of their level of investment kind of after two years off?

Sundaram Nagarajan -- President and Chief Executive Officer

Yeah, you know to probably put it in context, right. So if you think about, when we started the past, for the company, mobile phone volumes went from $30 million to $1.5 billion, right. So a significant run over a decade, which certainly the company fully participated in and was an incredibly strong growth driver. But as you think about mobile volume growth, as you would read and have seen, there is really not going to be significant volume. What you are going to continue to see is new technology that our -- new innovation, new features that are going to continue to come into the phone. And every time that happens, as you know, every change every innovation, Nordson clearly benefits from this, right?

And so from that perspective, we feel good about the projects we are working with our customers, in terms of -- every time there is an innovation, we participate in it because Nordson is really an innovation go-to partner, we are part of people's technology roadmaps. So what we're really seeing is, feature adds in new technologies that we are participating in. And most of those features are still on track. Where we do see some uptick is really in variables, and those are new applications for the company, and we are really participating in those. Those are sort of mobile related, but not quite mobile themselves. So I think that's a new area that we have been enjoying and we see some nice growth there.

Jeffrey Hammond -- KeyBanc -- Analyst

Okay, great. And then certainly the decremental is good. I think some of the -- in this quarter, some of that -- I think you attributed product mix in Advanced Tech, just kind of looking at the order cadence in ATS, how would you think -- how should we think about product mix into the second half impacting margins for Advanced Tech?

Sundaram Nagarajan -- President and Chief Executive Officer

Greg, you want to take some of the detail on that?

Gregory A. Thaxton -- Executive Vice President and Chief Financial Officer

Jeff, I think the way I would think about that is, as we've characterized to this point, medical has been very strong. So we would expect to continue that momentum in medical. I think that the question is really around the the volatility, if you will, that we've seen in the order rates, when you look at that 12 week versus six week in more the systems side of the business. And again, it's not that that six week makes a forecastable trend, but it does create in our minds, what is this backdrop doing to our customers in terms of their willingness to move forward with their projects. We're certainly working a lot of projects. We're involved in a lot of projects. The uncertainty is, how many of those will come to market this year. We feel very well positioned with project activity, it's what will hit this year.

So you've got one aspect of the business that has been very strong, continues to be very strong. Where we have product lines that sell dispense into the industrial, they've been challenged pretty much through this first six months, the question mark really is on the electronic systems side of the business, what of those projects are going to go forward through the year.

Jeffrey Hammond -- KeyBanc -- Analyst

Okay, great. And then final one on medical. I mean it sounds like, there are certain product lines or end markets that are seeing unique strengths and one, I just want to understand what you're seeing in terms of visibility and sustainability there? Or is it a short term pop? And then conversely, there has been a lot of elective surgeries delayed. Did you see any kind of negative impact from that, and would you expect any snapback as elective surgeries kick in?

Sundaram Nagarajan -- President and Chief Executive Officer

Yeah. So let's talk about elective surgeries first. For the kind of products and core components that we supply, we have minimal exposure to elective surgery. And so really did not see a whole lot of impact from it. There were some, but very limited right. And broadly thinking about our medical portfolio of products really there are two sort of areas that we participate in. One is sort of core components, very critical devices, value added device -- value-added components that help our med device customers safely and effectively deliver therapies. That is the part of the business where you have either a pulmonary or cardiac related therapies. We are fully participating in. We see very good activity that continues to be pretty strong for us. We do fairly well there. We see a lot of new innovation work there. We continue to participate and that's doing well.

The second half of the business really is around really critical connectors and things that are used for lots of other things such as -- a good example would be a ventilator application or an IV application. So a number of areas that we see a significant pick up and we continue to -- expect to continue to grow there. But remember, there is a baseline market growth that still is intact for us. We have very limited exposure to elective surgery. You know, this business has done well. Order trends in this business is up pretty strong as well.

Jeffrey Hammond -- KeyBanc -- Analyst

Okay. Excellent, thanks guys.

Sundaram Nagarajan -- President and Chief Executive Officer

Thank you.

Operator

Your next question comes from the line of Christopher Glynn with Oppenheimer. Please go ahead, your line is now open.

Christopher Glynn -- Oppenheimer -- Analyst

Thank you. Good morning.

Sundaram Nagarajan -- President and Chief Executive Officer

Good morning Chris.

Christopher Glynn -- Oppenheimer -- Analyst

Hey, good morning and Greg, good to hear you for the encore. Very curious on packaging side, really both rigid and flexible with hoarding and everything going on and a lot of your customers products in the packaging there, I'm just wondering if you've seen a particularly constructive backdrop to create a recapitalization dynamic, if you see any differentiated points from rigid versus flexible, could that be a lag effect of the COVID dynamic, where the benefit actually kicks in a little further than some of the immediate impacts from pockets of medical demand by contrast?

Sundaram Nagarajan -- President and Chief Executive Officer

The packaging really serving the non-durable part of the company is really held up nicely for us. This is an area that we have, as you know, a very strong market position and strong market leader that provides leading technologies. So I would say both parts and systems fairly well held up during this period of time. In terms of flexible versus rigid packaging, for us really, we participate in both. We don't really see a significant uptick one way or the other. But our polymer based businesses, which sort of helps the flexible side has been helped, but you also have the overhang of automotive injection molding applications that kind of overweighs that. So our traditional adhesive packaging businesses look really well. We continue to invest in technology here. We continue to be really focused on making sure our customers are really having good productivity, and certainly working on cost savings. So as you can think about it, right, in terms of a recap of our capital positions, our businesses and our systems are such, their value is very small when compared to the savings we can bring to a customer, when they improve efficiency or productivity or material savings. So we really like the position we have. We think we will benefit from it. For now, it is holding up nicely. Will there be a tailwind, there potentially could be.

Gregory A. Thaxton -- Executive Vice President and Chief Financial Officer

And Chris, this is Greg. I would add that generally if we see, like we do across the businesses, if there is a change in packaging, so for example, when there has been a shift toward smaller, single serve type of packaging, that's a good thing for us, because that often means a recap of those lines.

Christopher Glynn -- Oppenheimer -- Analyst

Great, thanks for that. And then on the electronics side, I was curious you called out strength in fluid dispense product lines in electronics. I don't really recall hearing that product silo referenced? Usually we talk about Adhesive Dispense Systems, I just wanted to flush that out?

Gregory A. Thaxton -- Executive Vice President and Chief Financial Officer

Yeah, Chris, this is Greg. In the past you may have heard. So for example, last year we talked through the year and suggested that test and inspection product lines were holding up fairly well, where we were seeing softness was in the dispense side of our product lines selling into these electronics end markets. So what we're suggesting this year is, we've seen a return in that demand for the dispense side, as to inspection, has been a bit softer in this most recent period. Both of those -- maybe the same customer buying dispense and test and inspection, but we will often differentiate between those two major product lines.

Sundaram Nagarajan -- President and Chief Executive Officer

To think about -- maybe to add a little bit more color to it. If you're thinking about fluid dispensing really -- what we really mean is dispensing of various different things that our electronic customer would use, in a component manufacturer or an end product assembly. A good application would be, an electronic type of adhesive that gets dispensed as an under-fill for a chip, so that when your phone drops, it does not impact that particular chip. So that'll be a good way to think about it.

Another good application is that, there are thermally insulated materials called TIMs. Our dispense systems in the electronic also used to dispense those TIMs, right, so that's kind of why we distinguish between dispense systems and test and inspection systems like Greg talked about.

Gregory A. Thaxton -- Executive Vice President and Chief Financial Officer

And that comes into play sometimes on the operating margin line, because as we've suggested in this quarter, dispense systems tend to carry higher gross margins than T&I.

Christopher Glynn -- Oppenheimer -- Analyst

Great, thank you.

Operator

[Operator Instructions]. Your next question here comes from the line of Walter Liptak with Seaport. Please go ahead, your line is now open.

Walter Liptak -- Seaport Global Holdings -- Analyst

Hi, thanks, good morning.

Sundaram Nagarajan -- President and Chief Executive Officer

Good morning Walt.

Walter Liptak -- Seaport Global Holdings -- Analyst

Greg congratulations. I want to ask just a couple of questions, follow-ups on kind of the order trends and what you're seeing, because relative to other industrial companies, the order declines, even the minus 11 in APS doesn't look that bad. Did you see any project cancellations or anything in backlog that got delayed?

Sundaram Nagarajan -- President and Chief Executive Officer

Well, really pretty minimal. We did have you push-outs, but not really any cancellations. So very limited impact.

Walter Liptak -- Seaport Global Holdings -- Analyst

Okay. From other companies, we are hearing about systems installations that couldn't happen, because companies couldn't get access to their customers' locations, because of the virus. Did you see any of that, or is that something that is becoming a bigger issue for you?

Sundaram Nagarajan -- President and Chief Executive Officer

Very limited. Say for example in an automotive plant, we've had some issues when they went to a complete hard stop. But nothing significant, nothing major for us at a total company level.

Walter Liptak -- Seaport Global Holdings -- Analyst

Okay, great. And then on the cost side, I think, Greg, you mentioned that the spending levels in the second half would be about flat with last year, is that right?

Gregory A. Thaxton -- Executive Vice President and Chief Financial Officer

Yeah. If you look at the spending level for last year's third and fourth quarter, that gets you in the ballpark of what we would expect to see in the back half of this year.

Walter Liptak -- Seaport Global Holdings -- Analyst

Okay. And I heard the capex, it sounds like you're not making any changes there?

Gregory A. Thaxton -- Executive Vice President and Chief Financial Officer

Correct.

Walter Liptak -- Seaport Global Holdings -- Analyst

But it did sound like, you did do some cost control. So I wonder if you could talk a little bit about, you know, what it is that you're doing to try and hold back the spending? Did you do any furloughs or layoffs, any kind of pay related cuts or cutting back on bonus accruals, because of the virus?

Sundaram Nagarajan -- President and Chief Executive Officer

Sure. Well, let me sort of give me a broad overview and then probably get Greg to give you a little bit more color and detail on it. In general, we are in a very strong position. We really want to make sure we stay invested in our innovation. We want to stay invested in our customer-centric business model. Really we want to stay invested, be positioned to participate fully and win in the recovery. So that's really an overarching theme. But given the environment, we're going to be -- going to take a conservative approach to our spending levels, and we have acted on few cost control measures discreetly in the quarter, that certainly helped the decrementals, maybe let me get Greg to talk you through a little bit more detail on those aspects?

Gregory A. Thaxton -- Executive Vice President and Chief Financial Officer

Sure. And Walt, we did not implement any, you know, programmatic reductions or compensation adjustments. Given that, the business has held up fairly well and all of factories are producing products. So it's the Nordson team still serving our customers needs. So we did not implement any of those kind of actions. What we did do, and fairly early in the year, without knowing how significant of a downturn we would be looking at, and we feel like we're still in a period of concern. We did what a lot of companies have done. We first started with travel and then other discretionary spending items, really cut back on those kind of things and we'll continue to manage the business that way, with our eye on our order trends. But we haven't done any programmatic compensation or voluntary-involuntary retirement programs. We also have focused very closely on headcount, so where we had some attrition or some open positions, we've worked really hard. If they were not customer facing positions, to not built back -- fill those positions. So we're managing spending very tightly.

Walter Liptak -- Seaport Global Holdings -- Analyst

Okay, got it. Thanks for that color.

Operator

Your next question comes from the line of Chris Dankert with Longbow Research. Please go ahead, your line is now open.

Christopher Dankert -- Longbow Research -- Analyst

Hey, good morning, everyone, and congratulations again, Greg. I guess Naga just to start off, one of the big focuses of your leadership has been, how do we turbocharge organic growth and really kind of drive that forward? I guess, any update on what the key initiatives are there? Is it further tiering? Is it increased R&D spend for product development. I guess, just any comments on how we get back to growth, as we kind of move out of virus phase hopefully?

Sundaram Nagarajan -- President and Chief Executive Officer

Thank you, Chris for the question. It's really -- for us, it has been really, really important in this period of time to actively manage the business, but continue to stay focused and remain focused on our long-term priorities. And organic growth as I've talked about many number of times, is sort of the best and the greatest opportunity for Nordson. So you know for organic growth one of the things that we're working on through is really transforming our NBS, Nordson Business System, to become this strategic growth framework, through which we would really drive sustainable profitable growth in the coming decade. It's really all about, what is fundamental to this framework is, a data-centric segmentation approach to growth. Really using this data-centric approach to choose and invest in the best growth opportunities, so that at every one of our businesses, we want to have a crystal clear view of what is our A, growth opportunities. What is our A customers? Who are our A products? And really focus our entire business around serving those opportunities disproportionately when compared to others. So that's one of the key things that we're working on.

And the second part of this framework is really integrating what makes the company really, really strong, which is our commercial excellence, our customer passion, along with our incredible innovation and market leading technologies. So preserving what we've got, adding one or two things to it. In addition, I would say, equally important for us to serve our growth, is to make sure that we continue to enhance continuous improvement within the company. The company has been on a five-year journey on continuous improvement, and I come from environments where there are other companies who have been around this for 20, 30 years. So we have an opportunity to learn that, but it is all in the context of driving growth, it's not in the context of -- and so where we are, we have really worked hard in the last six to nine months, around transforming our NBS to become a strategic growth framework. That's one thing that the team has really worked hard at.

Second is, we are in the process of implementing this framework in five pilot businesses, to really make it actionable within the business. Over the long horizon, what we expect is, a holistic a framework that is practiced with rigor and consistency across the company. And we believe such quality of practice is going to enable really top tier growth in the best opportunities we have, continue to sustain the innovation the company does, and become really best-in-class delivery of quality performance, that the company really is.

So, company has done a nice job of growth. So it's really, as we continue to grow, how do we sustain that growth, and how do we sustain it in a very profitable way. And so hopefully, that gives you some color as to how we're thinking about it, where we are headed, where we are today.

Christopher Dankert -- Longbow Research -- Analyst

Perfect. Yeah, thank you so much for all the color there. If I could just kind of circle back to polymers for a moment, past several years, we've been going through kind of a manufacturing optimization cycle there. I guess, how do you feel profitability there today? Is it executing within targets? Just any comments on further actions that may or may not need to be taken inside of polymers?

Sundaram Nagarajan -- President and Chief Executive Officer

Yeah, this is a business that we have done a lot of work over the period of time to integrate in the business. We have recognized all of those savings that we had targeted to achieve through those plant consolidations. It's well on track and we continue to perform there.

Christopher Dankert -- Longbow Research -- Analyst

Perfect, perfect. Thanks so much.

Sundaram Nagarajan -- President and Chief Executive Officer

Thank you, Chris.

Operator

And there are no further questions at this time. I will turn the call back over to Naga for closing comments.

Sundaram Nagarajan -- President and Chief Executive Officer

While the near-term demand conditions are unclear, I am really excited about the future of Nordson. We have a solid foundation, fortified by diversity of business and our strong customer-centric business model. We'll continue to monitor this dynamic environment, to ensure that we are taking appropriate action to manage the business, while staying focused on our long-term objectives of accelerating organic growth, diversifying through acquisition, leveraging the Nordson business system, and focusing on talent development. Again, thank you for your time and attention on today's call. Have a great day.

Operator

[Operator Closing Remarks].

Duration: 58 minutes

Call participants:

Lara Mahoney -- Vice President, Investor Relations and Corporate Communications

Sundaram Nagarajan -- President and Chief Executive Officer

Gregory A. Thaxton -- Executive Vice President and Chief Financial Officer

Michael Halloran -- Robert W. Baird -- Analyst

Saree Boroditsky -- Jefferies -- Analyst

Matt Summerville -- DA Davidson -- Analyst

Allison Poliniak -- Wells Fargo -- Analyst

Jeffrey Hammond -- KeyBanc -- Analyst

Christopher Glynn -- Oppenheimer -- Analyst

Walter Liptak -- Seaport Global Holdings -- Analyst

Christopher Dankert -- Longbow Research -- Analyst

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