Nordson Corporation (NDSN) Q4 2021 Earnings Call Transcript

Nordson Corporation (NASDAQ: NDSN) Q4 2021 earnings call dated Dec. 16, 2021

Corporate Participants:

Lara Mahoney — Vice President, Corporate Communications and Investor Relations

Sundaram Nagarajan — President and Chief Executive Officer

Joseph P. Kelley — Executive Vice President and Chief Financial Officer

Analysts:

Michael Halloran — Baird Equity Research — Analyst

Connor Lynagh — Morgan Stanley — Analyst

Andrew Buscaglia — Berenberg Capital Markets — Analyst

Matt Summerville — D.A. Davidson — Analyst

Jeff Hammond — KeyBanc Capital Markets — Analyst

Christopher Glynn — Oppenheimer & Company — Analyst

Saree Boroditsky — Jefferies — Analyst

Walter Liptak — Seaport Research — Analyst

Presentation:

Operator

Good morning, my name is Chris and I’ll be your conference operator today. At this time, I’d like to welcome everyone to the Nordson Corporation Fourth Quarter Fiscal Year 2021 Conference Call. [Operator Instructions] After the speakers’ remarks there will be a question-and-answer session. [Operator Instructions]

Thank you. Lara Mahoney you may begin.

Lara Mahoney — Vice President, Corporate Communications and Investor Relations

Thank you. Good morning. This is Lara Mahoney, Vice President of Investor Relations and Corporate Communications. I’m here with Sundaram Nagarajan, our President and CEO; and Joseph Kelly, Executive Vice President and CFO.

We welcome you to our conference call today, Thursday, December 16th, 2021 to report Nordson’s fiscal year 2021 fourth quarter and full-year results. You can find both our press release, as well as our webcast slide presentation that we will refer to during today’s call on our website at www.nordson.com/investors. This conference call is being broadcast live on our Investor website and will be available there for 14-days. There will be a telephone replay of the conference call available until December 30th 2021.

During this conference call, references to non-GAAP financial metrics will be made. A complete reconciliation of these metrics to the most comparable GAAP metric has been provided in the press release issued yesterday.

Before we begin, please refer to Slide two of our presentation where we note that certain statements regarding our future performance that are made during this call may be forward-looking 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.

Moving to today’s agenda on Slide three. Naga will discuss fourth quarter and full-year highlights. He will then turn the call over to Joe to review sales and earnings performance for the total company and the two business segments. Joe also will talk about the year-end balance sheet and cash flow. Naga will conclude with high level commentary about our enterprise performance, including an update on the Ascend strategy, as well as our fiscal 2022 first quarter and full-year guidance. We will then be happy to take your questions.

With that, I’ll turn to Slide four and hand the call over to Naga.

Sundaram Nagarajan — President and Chief Executive Officer

Good morning, everyone. Thank you for joining Nordson’s fiscal 2021 fourth quarter and full-year conference call. And the heels of 2020, a year marked by the COVID pandemic, I don’t think anyone knew what to expect coming into 2021. We were well positioned having both remained invested in our customer centric businesses and started deployment of NBS Next growth framework. Our focus remained sharply on protecting the health and safety of our employees, while also meeting the needs of our customers.

The successful deployment of NBS Next ensured, we were able to fully participate in the accelerated economic recovery experienced in 2021. Our division leaders use strategic discipline to identify and then focus on the best opportunities for profitable growth in their respective businesses. As a result we surpassed our prior record annual performance in sales by $108 million and an operating profit by $111 million. This new record was achieved through broad-based growth across most end markets and geographies.

Fourth quarter was a solid finish to this record year. Sales were in line with our expectations, particularly in light of the timing of the approximate $25 million customer order that had been pulled forward into fiscal third quarter. Looking at the back half of fiscal 2021, we delivered 15% organic sales growth and 36% adjusted profit growth, compared to the prior year second half. I’ll speak more about the businesses in few moments.

But first I’ll turn the call over to Joe to provide more detailed perspective on our financial results for the quarter.

Joseph P. Kelley — Executive Vice President and Chief Financial Officer

Thank you, Naga, and good morning to everyone. On Slide number five, you will see fourth quarter 2021 sales were $599 million, an increase of 7%, compared to the prior year fourth quarter sales of $559 million. The increase was primarily related to 10% organic volume growth and favorable currency offset by headwinds from the screws and barrels product line divestiture.

When excluding the divested product line in the prior year for comparability purposes sales growth would have been a 11% in the current year fourth quarter. This double-digit organic sales increase was driven by solid growth in all product lines with particularly strong demand in electronics, industrial and medical end markets. Test and inspection and consumer non-durable product lines delivered single-digit growth in the quarter, highlighting the continued stable demand in these markets. Geographically, all regions except Japan grew steadily.

Gross profit totaled $331 million or 55% of sales in the quarter, compared to $297 million or 53% of sales in the prior year fourth quarter. This 200 basis point increase in gross margin was driven by improved sales mix from the divested screws and barrels product line, sales volume leverage and process enhancements from our NBS Next growth framework.

On a sequential basis, we experienced some pressure on gross margin from the third quarter to the fourth quarter, primarily due to elevated freight costs stemming from the dynamic macro-economic demand environment. Additionally, we incurred approximately $2 million in non-recurring cost as we aligned our medical fluid components business with its best growth opportunities.

We believe these negative impact on gross margins are largely temporary in nature and we are taking appropriate pricing actions in fiscal 2022 to offset inflationary pressures. Our differentiated product offering and market positions, organizational agility and disciplined approach to cost control combined with consistent deployment of the Ascend strategy is allowing us to successfully navigate these challenges and continue to deliver profitable growth.

Operating profit was a $151 million in the quarter or 25% of sales, a 16% increase from the prior year. Double-digit organic growth, favorable sales mix and continued benefits from structural cost reduction actions taken in fiscal 2020 all contributed to incremental operating profit margins of 52% in the quarter. EBITDA for the fourth quarter was $177 million or 30% of sales.

Looking at non-operating expenses, net interest expense decreased $2 million or 31% from the prior year, driven by reduced debt levels. Other net expenses increased $2 million, primarily driven by currency translation losses. Tax expense in the quarter was $30 million for an effective tax rate of 21% in the quarter, in line with the full-year and forecasted rates.

Net income in the quarter totaled $110 million or a $1.88 per share, representing a 19% increase from the prior year adjusted earnings. This improvement is reflective of the 7% year-over-year increase in sales, and more importantly consistent application of the NBS Next growth framework, which leads to steady, profitable growth with attractive incremental margins.

Turning to Slide number six, I’ll now share a few comments on our full-year results. Sales for the fiscal year 2021 were a record $2.4 billion, an increase of a 11%, compared to the prior year. This change in sales included an increase in organic volume of a 11%, and favorable currency impact of 3%, offset by the net unfavorable acquisition and divestiture impact of 3%. Also company records operating profit was $615 million and diluted earnings per share were $7.74, a 36% and 41% increase respectively from the prior year. EBITDA for the full-year increased 27% to $719 million or 30% of sales.

Now let’s turn to Slide seven and eight, to review the fourth quarter 2021 segment performance. Industrial Precision Solutions sales of $314 million increased 2%, compared to the prior year fourth quarter. Organic volume growth in the quarter was 8% offset by an unfavorable divestiture impact of 7% and favorable currency of 1%. Robust demand for industrial coating product plus steady growth in the consumer non-durable end markets for hot melt adhesive dispensing products drove this quarter’s results.

From a regional perspective growth was strongest in the US, The Americas and Europe. Operating profit for the quarter was $103 million or 33% of sales, which is an increase of 12%, compared to the prior year adjusted operating profit of $92 million. This growth was driven by favorable sales mix and manufacturing efficiency gained in part from the divestiture of the screws and barrels product line.

I also want to remind investors then it was this segment IPS that had strong third quarter organic growth of 22%, which included approximately $25 million of sales that were pulled forward from fourth quarter into third quarter per the customer’s request. Therefore, this segment’s second half 2021 organic sales growth of 15% and adjusted operating profit growth of 34% are more reflective of what this business is delivering.

Advanced Technology Solutions sales of $285 million increased 14%, compared to the prior year’s fourth quarter. This change included an increase in organic sales volume of 13% and a 1% increase related to favorable currency impact. Growth was particularly strong in product lines serving electronics and medical end market. Fluid dispense product lines serving industrial and automotive end markets also generated double-digit growth in the quarter. All geographies contributed to this quarter’s growth with particular strength in the international regions.

Fourth quarter operating profit was $67 million or 24% of sales. The 29% year-over-year increase was driven by sales volume leverage and realization of benefits from cost control measures taken in fiscal 2020. Deployment of our NBS Next growth framework continues to be a key element in the success of this segment delivering profitable growth.

Finally, turning to the balance sheet and cash flow on Page nine. Through our disciplined approach to capital deployment we ended the quarter with a strong balance sheet and abundant borrowing capacity. Cash totaled $300 million, partially an anticipation of the $180 million NDC Technology acquisition, which we completed on November 1st.

Net debt was $516 million, resulting in a 0.7 times leverage ratio based on the trailing 12-months EBITDA. Free cash flow in the quarter was $160 million, which brings the full-year 2021 free cash flow total to $508 million or a conversion rate, a net income of 112%. As a reminder, the 2021 full-year free cash flow is inclusive of a net pension contribution totaling greater than $90 million.

For modeling purposes in fiscal 2022, assume an effective tax rate of 21%, capital expenditures of approximately $40 million and pension contributions of approximately $10 million well below the fiscal 2021 levels.

In summary our focus on disproportionally investing in the most profitable growth opportunities has led to another year of solid execution and record performance. While we continue to navigate the near-term challenges presented by this dynamic macro-economic environment, we remain diligent in implementing the NBS Next growth framework and broader Ascend strategy. We are pleased with our focus and progress on these strategic initiatives and remain committed to delivering top tier revenue growth with leading margins and returns.

I will now turn the call back to Naga.

Sundaram Nagarajan — President and Chief Executive Officer

Thank you, Joe. Let’s turn to Slide 10. Again I want to thank our team for managing safely through another year of COVID-19, as well as managing issues related to supply chain, labor and other macro concerns. With their dedication, passion and focus on making Nordson stronger, not only did we achieve record results for the full-year, we also made great progress on our Ascend strategy.

We first introduced Ascend at our Investor Day in March 2021, designed to deliver top tier revenue growth with leading margins and returns the Ascend strategy encompasses three interconnected pillars: NBS Next, Nordson’s growth framework; Owner Mindset, our entrepreneurial division led organization, which empowers our divisions to make decisions as close to the customer as possible; and Winning Teams, Nordson’s talent strategy. All three pillars are built on the foundation of what makes Nordson special, our culture and values.

As we shared at our Investor Day, the successful execution of the Ascend strategy will deliver our financial targets of $3 billion in sales, and 30% EBITDA by 2025. Through this cycle we expect to achieve sales growth of 7%-plus through an equal mix of organic and acquisitive growth.

2021 was a record year with double-digit organic growth and EBITDA margins ahead of our targets. We’re just beginning to make progress on our acquisitive growth targets. On November 1st, we completed the acquisition of NDC Technologies, this test and measurement business as a differentiated product portfolio that is leveraged through a customer-centric business model. It is a great fit with our strategic and financial criteria for M&A.

The integration is off to a solid start. In November, the NDC leadership team received their initial training on NBS Next. They are leaning in and asking good questions about how to incorporate our growth framework into their business. It is proving to be a good cultural fit and I’m very pleased with the level of engagement, I’m seeing at all levels of the NDC organization.

M&A is a very important part of our growth strategy. We are looking forward to executing upon our pipeline as the right opportunities present themselves. We have a strong balance sheet and are well positioned to do so. Over the past year investors have asked, if we will adjust our long-term financial targets following the strength of this year. We strongly believe that these continue to be the right targets and we are pleased to have executed a very strong first year against that. Our divisions are focus every day on delivering profitable growth and these long-term targets will not govern our potential to act on the best market opportunities.

Before I address fiscal 2022 outlook, I would like to take this opportunity to highlight our new ESG report. As discussed in more detail in the report our Ascend strategy and ESG priorities are closely integrated and depend on each other to refine and improve our overall performance. The underlying elements of ESG have been central to Nordson’s culture and success throughout its 60-plus year history. Nordson is a light assembly manufacturer, and we are committed to identifying ways to minimize our own environmental footprint, while helping our customers do the same.

Throughout our long history of designing and developing precision dispensing technology we have sought to reduce our customers’ material cost and consumption by increasing yields and reducing scrap during their manufacturing processes. This has been a vital part of our success. We’re also bringing solutions to the market that address environmentally conscious market opportunities such as advanced battery manufacturing to support renewable energy and manufacturing processes that utilize plant-based manufacturing materials.

This report is a new foundation for our ESG strategy, influenced by leading ESG frameworks. It details our efforts to better understand our environmental footprint, while also highlighting our progress in social and governance initiatives. We look forward to building upon this foundation in future reports.

Now for the outlook on Slide 11. As we look to the full-year, we are conscious of the dynamic environment with strong levels of demand creating labor, material, logistic availability, challenges similar to what many of our peers are experiencing. Our entrepreneurial division led organization structure has enabled us to address these ever changing dynamics head on. Our teams are agile in identifying solutions around labor, material availability and transportation challenges to meet our customers expectation.

The strategic discipline is an element of the NBS Next growth framework is undoubtedly helping the teams prioritize and deliver on the best growth opportunities within each division.

We expect 2022 to be another record-breaking year with sales growth in the range of 6% to 10% and adjusted earnings growth in the range of 8% to 18%, both as compared to fiscal 2021. We feel very confident going into the fiscal first quarter. As we first mentioned in the fiscal third quarter we are still seeing extended shipment request dates in conjunction with large orders from our customers. This increase backlog approximately 90%, compared to the same period a year ago and the trailing 12-week order entry was 25% above prior year levels.

As a result of these evolving order patterns, traditional seasonality where the first quarter is much softer than the prior year fourth quarter is not applicable. First quarter 2022 should be comparable to the financial performance in the fourth quarter of 2021 and the year-over-year growth rate comparable to the second half 2021 growth rates. Based of anticipated sales timing, we expect the first quarter of 2022 sales growth to be approximately 14% to 16%, as compared to the fiscal 2021 first quarter with adjusted earnings per diluted share in the range of $1.80 to $1.95. As always I want to thanks our customers, employees and shareholders for your continued support.

With that we will pause and take your questions.

Questions and Answers:

Operator

Thank you. [Operator Instructions] Our first question is from Mike Halloran with Baird. Your line is open.

Michael Halloran — Baird Equity Research — Analyst

Hey, good morning, everyone.

Sundaram Nagarajan — President and Chief Executive Officer

Good morning.

Michael Halloran — Baird Equity Research — Analyst

Well, hey thanks. Hey, Naga, can we pick up where you left off there. So you look at the guidance and obviously first quarter growth rate still stronger than what you are assuming for the rest of the year. You know, you certainly gave some context on why the seasonality would be different, but maybe talk about two things here: one, just how you’re thinking about what is assumed in guidance for how you think the rest of the year plays out by segment?

And then my second question and related would just be how put this backlog in context? I mean, it’s significantly bigger than what we would have seen historically. How much of this should have shipped last year? How much of this is just pulled forward through the rest of the year and just try to give some context? Those are my two questions are related. So I asked them at the same time?

Sundaram Nagarajan — President and Chief Executive Officer

Okay, great. Thanks, Mike. And where we want to talk a little bit about as we go into the year we feel really good about the first quarter, just given the kind of environment that our customers are in and their order patterns we are seeing. So our first quarter is going to be more reflective of back half of ’21, and in terms of — if you think about the various end markets, let me start with electronics. Electronics is customer order entry patterns and demand levels are pretty strong. Medical, particularly biopharma and our interventional businesses the order entry patterns are really strong.

If you think about our industrial and consumer non-durable businesses early part of the year, we feel really good about it based on the backlog we have, but as we look into the back half of the year we do see those two end markets returning or normalized into historic levels that we shared at our Investor Day. So that’s — hopefully that answers the first part of your question, which is — feel really good about the full-year guidance, which is going to be at the mid-point 8% growth on a record year. And that is really underpinning the strong demand patterns in medical, electronics and back half expecting some tapering off in industrial and consumer non-durable.

In terms of the backlog these are historical high — as you indicated, we do believe these backlog is really forward dated or extended lead times that we normally don’t have in our businesses. So our customers are asking us or giving us orders for shipments almost into the second quarter of next year, right, which is normally not the case. Normally our demand patterns are such that people will ask is at the quarter out, right? And now people are putting their orders to be in line, and there is some amount of back and forth where customers are asking for some things to be shipped out ahead. So that’s why some things get pushed pull forward or push back, but most often it’s getting pulled forward than anything else.

So hopefully that answers the question, Mike?

Michael Halloran — Baird Equity Research — Analyst

Yes. I know it does, I mean, if I could put that last part in context, basically it seems which you are saying is, if you really good about where the order patterns are in the backlog patterns are? But don’t overplay the magnitude of the backlog here, because of the extended lead times. But you feel good about the visibility that you have going into the second quarter, which is more than you would normally have. Is that a fair interpretation?

Sundaram Nagarajan — President and Chief Executive Officer

That is very fair. And that’s exactly what we’re seeing, and you know I wouldn’t add anything more. Joe unless you have something else to add to it.

Joseph P. Kelley — Executive Vice President and Chief Financial Officer

Yes. I guess, I just — when you think about the backlog, Mike it is largely on the system side, which is longer lead times and there is a direct correlation when you look at our customer advance payments. So our customer advance payments year-over-year are also up 84%. So it’s in line with the increase in the order backlog. So we think about the backlog is largely system orders, not necessarily past due items, and we’ve got pre-payments on those at 10% of last year’s backlog and 10% of this year’s backlog.

Michael Halloran — Baird Equity Research — Analyst

Good. Thank you. Really appreciate it.

Operator

Our next question is from Connor Lynagh with Morgan Stanley. Your line is open.

Connor Lynagh — Morgan Stanley — Analyst

Yes, thanks. I was wondering if you could give a little bit of context on the logistics costs that you called out? And just specifically, if there — is one of the segments more disproportionately impacted by this? And is this something that was sort of isolated for the quarter? Or are you sort of accounting for this persisting in next quarter’s guidance?

Joseph P. Kelley — Executive Vice President and Chief Financial Officer

Yes. So let me address that I guess holistically, when we think about the 55.3% gross margin. First of all, that gross margins coming off of a 10% organic growth and deliver 52% incremental margin at the OP line. But when you look at the 55.3%, compared to where we were run in Q2 and Q3 it is down about 170 basis points. And when you think about that sequential drop, I would tell you where it’s roughly threefold, there’s three relatively evenly split things, one of them being the spike in freight cost, and you know in freight cost it’s inbound, it’s outbound, but it’s also internal within the Nordson facility. And so we saw this as did the rest of the environment spike in Q4. I can tell you it’s spiked above where we had estimated and it’s starting to subside in the marketplace already from those elevated levels that we saw in Q4, but we are addressing this with pricing actions in the first half here at 2022.

The other impact, I would tell you was that non-recurring write-off associated with aligning the factory and that was all in ATS to answer your specific question around the segments that factory alignment within our medical business and so that approximately $2 million impact on gross margins impacted ATS. The freight is felt across both segments, but I would tell you it’s heavier on the IPS side proportionately.

And the remaining the third factor, I would tell you is mix. And so, you know, if you look at our gross margins over the history here, we view prior to the screw and barrel divestiture, we were running about 53% to 55% gross margin on any given quarter depending on mix. In the last now — three quarters, we’ve been running 55% to 57% based on the new mix post the divestiture of the screw and barrel business. So we — when we give our guidance for 2022, I would tell you, you should think about operating between that 55% and 57% gross margin range depending on mix on any given quarter. But those were the main factors I would tell you in the Q4 gross margins.

Connor Lynagh — Morgan Stanley — Analyst

Got it. That’s helpful context. Appreciate it. So sort of related question here, but at a higher level as you’re looking into fiscal ’22, it certainly seems like you guys are feeling pretty good about margins holding up relative to where we were in 2021. So just curious, if there’s any sort of inflationary pressures you’re worried about and, you know, on the cost side of things? Is there anything you’re watching and sort of a swing factor on whether this margins will trend to the higher, lower end of your range?

Sundaram Nagarajan — President and Chief Executive Officer

Yes. Connor, let me just give you a high level color and certainly Joe will add some more to what I’d say. In general, we feel good about where we’ve got margins forecasted based on our current customer demand and segments — the various end market exposures we have.

From an inflation perspective, there are two things you want to keep in mind, right? First and foremost material cost is fairly small part of our cost, right? Given our gross margins given about the value we create that sort of one thing to remember. The second thing to remember is that our cost to our customers is a smaller part of their total cost deck and so what that means is that we have a differentiated position and are able to pass along price increases where there is necessary. And we’ve already done that in some businesses. Overall, we don’t see this being a major factor for us in the coming year.

Joe you want to add any color to that?

Joseph P. Kelley — Executive Vice President and Chief Financial Officer

That covers it. I mean we are closely monitoring it and from an inflation perspective, both on the raw material side, as well as the labor side and then there was the logistics side, I would tell you that spike in Q4 that impacted the margin slightly. I will also add, we see NBS Next efficiencies helping offset some of this pressure, efficiencies in terms of labor and conversion cost in several of our pilot sites and so that has also helped our performance, and we anticipate that continue to contribute favorably as we go into ’22.

Connor Lynagh — Morgan Stanley — Analyst

Got it. I appreciate it. I turn it back here.

Operator

Our next question is from Andrew Buscaglia with Berenberg. Your line is open.

Andrew Buscaglia — Berenberg Capital Markets — Analyst

Good morning, guys.

Sundaram Nagarajan — President and Chief Executive Officer

Good morning.

Andrew Buscaglia — Berenberg Capital Markets — Analyst

[Speech Overlap] If you look into your sales guidance for next year, if you back out NDC, the implied organic sales is more like mid single-digit. So I was wondering, you know, I know you gave lot of color already, but I would think that in some areas like medical and even electronics you see a re-acceleration, I think mid to late year. And I just wonder how conservative you’re being on that with that as a dynamic in the forecast?

Sundaram Nagarajan — President and Chief Executive Officer

Sure, yes.

Joseph P. Kelley — Executive Vice President and Chief Financial Officer

Yes. Andrew, let me make one and then maybe I’ll let Naga will say something else, but when you think about our sales guidance for the full-year at the mid point 8%, there is roughly about a 2% FX headwind that we’re contemplating. And to your point, the acquisitions, net of — don’t forget we have one quarter of screw and barrel business. So the way I — that we’re thinking about it as a negative 2% FX headwind, the net acquisition and divestiture is roughly favorable 3% and then it’s 7% organic growth is what we have.

Andrew Buscaglia — Berenberg Capital Markets — Analyst

Okay.

Sundaram Nagarajan — President and Chief Executive Officer

All right.

Andrew Buscaglia — Berenberg Capital Markets — Analyst

Is there a way — yes, sorry, go ahead.

Sundaram Nagarajan — President and Chief Executive Officer

No, no. Go ahead, Andrew.

Andrew Buscaglia — Berenberg Capital Markets — Analyst

Well, I was just going to say with medical, I would think that that’s being held up by recent variants activity again. So I would just think that would only be a nice tailwind as the year progresses.

Sundaram Nagarajan — President and Chief Executive Officer

Yes, just historically, think about the medical business has high single-digit or electronics mid single-digit. We are in the early cycle of them maybe third wave there on electronics. So you are right, in electronics we’re going to see some pretty nice growth, that’s what is reflected in our guidance. In medical we are expecting to have some pretty good return to the high single-digits, biopharma doing well. So if you think about all of that these are going to be the big growth contributors. But look at the directed year on our investor business and consumer non-durable business in 2021, our expectation is we do — we carry that strength into the first quarter, the back half of the year it is going to be some tapering on those businesses, which have double-digit organic growth in consumer non-durable and in industrial businesses.

So our expectation is some normalization in the back half for those businesses. But you’re right, there is strength in medical, there is strength in electronic, that’s what we have reflected. And what we are excited about is, as you go into the first quarter we are carrying the momentum of our second half of 2021 into 2022.

Andrew Buscaglia — Berenberg Capital Markets — Analyst

Okay. That’s helpful. Is there a way in that backlog that you can identify what percent of sales is specific to electronics and medical?

Joseph P. Kelley — Executive Vice President and Chief Financial Officer

Yes, I would tell you pretty heavily on the system side and on the electronic, there are a lot of systems businesses that we sell. But I can’t tell you the split between electronics and medical.

Sundaram Nagarajan — President and Chief Executive Officer

But we do have industrial systems that still need to get shipped out in the first quarter to — that’s in the backlog as well.

Andrew Buscaglia — Berenberg Capital Markets — Analyst

Okay. All right. Thank you, guys.

Operator

Our next question is from Matt Summerville with D.A. Davidson. Your line is open.

Matt Summerville — D.A. Davidson — Analyst

Thanks. A couple of questions. You commented, sort of, on the fact that we should not expect normal seasonality as it pertains to the first fiscal quarter of the year. But maybe Naga and Joe, if you can comment on how we should be thinking about the quarterly earnings cadence beyond that?

In that, should we expect kind of the typical, kind of, fiscal Q3 being the high watermark for the year. What’s the right way to be thinking about that, particularly as you see some tapering as you’re describing, or at least expect to see some tapering as you’re describing in non-durables and general industrial?

Joseph P. Kelley — Executive Vice President and Chief Financial Officer

Yes. I think our comments around the normal seasonality, and you know, Q4 used to be the strongest, and here we had Q4, which contributed $25 million of revenue back into Q3, so Q4 wasn’t the strongest this year and therefore with coming off a Q4 being strongest we used to see a big drop into Q1. So now you’re not seeing the big drop and actually Q1 will be comparable to Q4.

And the way we think about them, the remaining three quarters, I would tell you with the current order entry pattern and the customer behavior that we’re seeing, I would think about those quarters relatively evenly split as you think about the remaining three quarters of 2022. So Q1 will still being relatively light, compared to the other quarters, but not as dramatically light as it was in the past coming off of a strong Q4.

Sundaram Nagarajan — President and Chief Executive Officer

Matt, one comment I would add to that is the ordering pattern of our customers are so different and expectation of shipments are so different. So that’s why you see us, sort of, changing what was traditionally a normal ordering pattern and a seasonality to our revenues from a quarterly basis, that’s the big difference.

The question really is when does — when do you return back to a normal seasonality is the perfectly good question you asked us. I wish I knew the answer to that. I would say, as our customer ordering patterns stabilize or some of these supply constraint questions that customers have in mind when they ease up is when we get to that. We are right now at best in the middle of this transition. So I think at least for this year, we don’t see a typical seasonality.

Matt Summerville — D.A. Davidson — Analyst

Got it. And then as a follow-up relative to what you would normally do from a pricing standpoint. Is what you’re contemplating for fiscal ’22 more than you would normally seek to get? And if so, if you could maybe perhaps quantify that a little bit for us? And then also just maybe a little bit of commentary on M&A actionability going forward as it pertains both to T&I and medical recognizing you just completed a bolt-on in the former. Thank you.

Sundaram Nagarajan — President and Chief Executive Officer

Sure. On pricing, you are right. Our expectations for pricing is going to be higher than our normal price increases that we have done and the timing of them is also reflective of what we see in our businesses, right. So in 2021, we didn’t talk a lot about the price increases that we have already sort of acted on in 2021 because there were not material enough or did not move the needle for the total Company. But in general, our view around pricing is that we are in an inflationary period, we need to adjust pricing where we need to adjust pricing. We are cognizant of the fact that we are the price leader in the marketplace. We are adding value so we will get paid for it. So, that’s on pricing. Let me have Joe add a little bit more color on the sort of magnitude and such and then I’ll come back and answer your acquisition question.

Joseph P. Kelley — Executive Vice President and Chief Financial Officer

Yes. I guess again I think historically, I would tell you we would realize approximately probably 1% on price relatively correlated to inflation. And so when you see the elevated inflation numbers that are being reported, that’s how you should think about our response as it relates to pricing. But again I’ll go back to Naga’s original comment. When you think about the composition of our cost of goods sold, material cost purchase component is not the largest factor. The largest factor is on the labor side and that says we’re generally a light assembly manufacturing operation. But you are correct, the price — the historical way that we view price increases and the historical magnitude is no longer applicable in an environment that we’re in right now.

Sundaram Nagarajan — President and Chief Executive Officer

I think, Matt, it’s really important, right. If the inflation is 4% or whatever — 4% or 5%, our material cost is lower so price increase we will realize would not be the same 4%, would be different.

Matt Summerville — D.A. Davidson — Analyst

Got it.

Sundaram Nagarajan — President and Chief Executive Officer

On the acquisition question, we feel really good about our pipeline. We continue to have very good conversations. But what comes to market and when Espello is going to act upon an opportunity really we don’t control, but we are actively pursuing our pipeline as we always do. But we will remain financially as well as strategically disciplined and the areas we really like are test and inspection, medical, and there may be some adjacent core — adjacent markets to our core products that if we have an opportunity, might act on them as well. So acquisition pipeline healthy, good activity, but what we act on obviously depends on what comes to the marketplace. But you can expect us to remain disciplined.

Matt Summerville — D.A. Davidson — Analyst

Got it. Thank you, guys.

Operator

Our next question is from Jeff Hammond with KeyBanc. Your line is open.

Jeff Hammond — KeyBanc Capital Markets — Analyst

Hey, good morning, everyone.

Sundaram Nagarajan — President and Chief Executive Officer

Good morning, Jeff.

Jeff Hammond — KeyBanc Capital Markets — Analyst

Apologize for any background noise here, I’m jumping on a flight. But just kind of back on the industrial comment around tapering into the back half. Is there anything that’s really informing that as you talk to your customers or is that just your normal lack of visibility that would kind of want you to put some caution around that?

Sundaram Nagarajan — President and Chief Executive Officer

Well, it is couple of things, right. One, if you look at industrial capex activity as well as GDP activity over the cycle, you can start to expect that 2023 is going to be little bit lower than where we have been at, right. So, there’s going to be a natural stabilization that goes and so we expect that to get reflected in that. That is one. The second is the comps are going to be really difficult. So about the IPS business, that grew 15% in the back half and this is a business historically grew 2% to 3%. So as you think about year-on-year comps, in the back half it’s going to get tough. And you are right, we don’t have visibility to our industrial customers as much as to be have in other places. So, that’s kind of where we’re at. Hopefully that — so it’s three things that are going on that sort of informs our thought process.

Jeff Hammond — KeyBanc Capital Markets — Analyst

Okay. And then just back on the non-recurring charges in Medical, can you just expand on where you’re — what you’re doing there and kind of where you’re shifting your focus? Thanks.

Sundaram Nagarajan — President and Chief Executive Officer

Yes. It is just a single R&D project that we were working on with one customer on a product category that was let’s just say little bit away from where we were and where we see the best opportunities today. Our best opportunities are in biopharma. Without going into specific details of the particular customer and such, this is an R&D project we were working on with an inventor on the outside and given the kind of robust demand that we have and a very strategic discipline around where we want to grow this business. This is one that we needed to sort of stop doing and there was a write-off related to that asset.

Jeff Hammond — KeyBanc Capital Markets — Analyst

Okay. Thanks so much, guys.

Joseph P. Kelley — Executive Vice President and Chief Financial Officer

Thank you, Jeff.

Operator

Our next question is from Chris Glynn with Oppenheimer. Your line is open.

Christopher Glynn — Oppenheimer & Company — Analyst

Thank you. Good morning. So, thanks for the update on Ascend’s strategy and curious where you’re seeing — as you’ve been enacting this for a little while now where you’re seeing share gain, market space creation or enablement not necessarily in a broad stroke level, but maybe some finer points on that.

Sundaram Nagarajan — President and Chief Executive Officer

Yes, that’ll be great. Thanks, Chris. One of the areas and it’s a good example to share with you than actually sort of update us with a question that Jeff just asked us. If you think about our biopharma business, one of the things that as we deployed Ascend, as our teams used strategic discipline with NBS Next and really begin to say what is my market position in biopharma and how big is it? What are my core competencies? How can I continue to grow this? Really this just opened up a whole new opportunity for this team. Certainly, the market environment helps them, but it allowed them to really focus on this biopharma part of the business and grow it.

And so what we’re doing is as we invest more in biopharma, we continue to get new opportunities with existing customers as well as picking up new customers. And with existing customers where we were, let’s say, the Number 2 or Number 3, we’re moving up to Number 2 or Number 1. So, that’ll be a concrete example of how this is happening. And another example I would give you would be in our coatings businesses. In the past we would take almost every project at an equal weight. But now our teams are able to say if I have 15 projects or 10 projects in front of me, what is the best growth oriented project and what is the most profitable project and have the courage to be able to invest more in the most profitable and most growth oriented project and maybe re-emphasize the ones that are not so profitable.

Christopher Glynn — Oppenheimer & Company — Analyst

Great. Thanks for that. And looks like the book-to-bill was maybe a little over 1.1x. Curious of a couple dynamics. I understand the extended lead time and behavioral aspect, but curious of the organic book-to-bill by segment approximating the impact of the acquisition. And then does guidance assumes a reciprocal of book-to-bill at some point of the year where you just naturally flow into a negative book-to-bill given how backlog’s formed currently, but maybe you might advise us not to read so much into it if a negative book-to-bill reciprocates.

Joseph P. Kelley — Executive Vice President and Chief Financial Officer

Yes. I guess I would repeat some of the Naga’s comments, if you think about the strength in the electronics and the medical end market those are predominantly that we see going out into 2022. Those are predominantly in the ATS segment. Whereas the industrial and consumer non-durable, where we see the growth rate stabilizing in the back half of 2022, that’s predominantly in IPS. So when you think about the book-to-bill ratio and the movements, there as you’re quoting Chris that’s how it’s going to correlate by segment.

Christopher Glynn — Oppenheimer & Company — Analyst

Okay. Thanks. I’ll pick it up offline.

Operator

[Operator Instructions] Our next question is from Saree Boroditsky with Jefferies. Your line is open.

Saree Boroditsky — Jefferies — Analyst

Thanks for fitting me in. So the earnings guidance of 18%, it’s a pretty wide range. Could you just talk through the assumptions that the bottom and top end of the range? What do you need to see it hit the higher or lower end of your guidance?

Joseph P. Kelley — Executive Vice President and Chief Financial Officer

You know, look, when we look out the range to your point, serious plus or minus, I would say 5%, 4% in terms of earnings guidance, and I think it was mentioned earlier on the call the COVID is still out there, COVID and the variant and what that does to the supply chain, what that does to the medical business. I think it is a little bit uncertain. And so that contributed I think to our guidance range the uncertainty around that.

And the second is the inflation combined with some of the supply chain challenges that we saw a spike in Q4. Some of those supply chain challenges have started to mitigate here over the last, I would say 30 to 45 days to a degree, but how that handles as handled going forward, I think will also impact our range, but really we were pretty specific, I think in terms of our guidance for Q1, where we do have good visibility, where we are seeing top-line, it’s 15% at the mid-point growth consistent with what we delivered over the last two quarters combined.

And at the midpoint, the earnings growth in Q1 is at 40%, 50% incremental margins in Q1, consistent with what we just delivered in Q4. So we’re trying to give, I would say some clear guidance one quarter out, which is where we have better visibility and then leaving out a little bit broader range for the back half.

Saree Boroditsky — Jefferies — Analyst

Understood. And just a follow-up on the pricing question. When your topline guidance needs about organic growth from 7% at the midpoint. How much of this is related to price versus volume? And then just on pricing, given the larger backlog how should we think about pricing roll into the P&L in 2022?

Joseph P. Kelley — Executive Vice President and Chief Financial Officer

Yes. So let me take those, I guess in reverse order. You are correct in some of our businesses, we have to go out with pricing actions earlier then, it what I’ll call our fiscal year-end traditional practice given some of the inflation pressures that we were seeing, other businesses stuck with their year-end price increase. And so there will be a little bit of a timing issue now, although not material, and still hopefully will be within our 55% to 57% gross margin range. But it will take some time for some of our prices to take impact effect here as we roll into 2022.

When you think about the organic growth and the full-year of 7%, you know, we don’t break that down specifically, but roughly when I look at the business and the timing and the price increases you could probably think that, that’s roughly 2% to 3% pricing.

Saree Boroditsky — Jefferies — Analyst

Great. That’s helpful, thanks for taking my questions.

Joseph P. Kelley — Executive Vice President and Chief Financial Officer

Thank you.

Operator

Our next question is from Walter Liptak with Seaport Research. Your line is open.

Walter Liptak — Seaport Research — Analyst

Hey, good morning, guys.

Sundaram Nagarajan — President and Chief Executive Officer

Good morning, Walter.

Joseph P. Kelley — Executive Vice President and Chief Financial Officer

Hey, Walter.

Walter Liptak — Seaport Research — Analyst

Wanted to ask about kind of a follow on to the last one with regard to the — on the range that the gross margin of 55% to 57%, if you hit the high-end of your EPS range would that imply that you’re at the higher end of your gross margin range as well?

Joseph P. Kelley — Executive Vice President and Chief Financial Officer

You know, I think the higher-end, the EPS range, I think I would tell you is more reliant on be at the high-end of the revenue. The margins throughout the year will fluctuate between that 55% and 57% as you know we’ve delivered last two quarters, Q2 and Q3 were average 57%, roughly speaking. So it will depend on product mix, but I think it’s more contingent on the sales than where the margin drops out.

Walter Liptak — Seaport Research — Analyst

Okay. And the sales, it sounds like the — if there is any kind of caution or whatever and the big range for 2022, it’s around COVID and supply chain. So you are talking about not demand risk, but you’re talking about your shipment timing. Can we get the shipments out in 2022, is that fair?

Joseph P. Kelley — Executive Vice President and Chief Financial Officer

Well, I would also tell you that the COVID impacts demand particularly medical space.

Walter Liptak — Seaport Research — Analyst

Okay, okay. Great. And I want just to review the — I think you made a comment that the last 12-week orders were up 25%. And I wonder if you could help us just get some visibility into that? Was that — what was the comp like? It sounds like it was strong in electronics and medical. Maybe what around both of those ATS segments, you know, is it semiconductor that’s strong? Is it COVID related medical that’s strong?

Sundaram Nagarajan — President and Chief Executive Officer

Walter, I mean we generally don’t break order entry by product categories, but my opening comments around where we are seeing strength in order entry is still the same, which is our electronic business order entry is really robust, pretty strong. If you think about our medical businesses, they continue to be pretty strong. And going into the first quarter, I would say the order entry for our industrial and consumer non-durable are also pretty solid, you know.

Joseph P. Kelley — Executive Vice President and Chief Financial Officer

And so from a timing [Technical Issues] Walter, I guess going back, I think it was Chris’ question a book-to-bill and what have you. It was really in Q2 that we started to see that the ramp up of last year. So from a year-over-year comp standpoint, from an order entry rate standpoint, that’s when the year-over-year comps on growth rates start to become more challenging relating to order entry.

Walter Liptak — Seaport Research — Analyst

Okay. That makes sense. Okay, great. All right. Thank you.

Operator

We have no further questions at this time. I will turn the call back over to Naga for any closing remarks.

Sundaram Nagarajan — President and Chief Executive Officer

Thank you. Thank you for your time and attention on today’s call. We are well positioned going into fiscal 2022. We remain focused on our long-term objective of delivering top tier revenue growth with leading margins and returns as we deploy our NBS Next growth framework to prioritize organic and acquisitive growth opportunities, while also unleashing an Owner Mindset within our customer focus divisions. We wish you a happy holiday season.

Operator

[Operator Closing Remarks]