Standex International (SXI) 3 May 242024 Q3 Earnings call transcript

Good morning, ladies and gentlemen, and welcome to the Standex International Fiscal Third Quarter 2024 Financial Results Conference Call. [Operator Instructions]

And this call is being recorded on Friday, May 3, 2024. I would now like to turn the conference over to Mr. Christopher Howe, Director of Investor Relations. ahead. go Please

refer and accompanying operator, Investor estimates, that are predictions, subject cause and that Please that www.standex.com. note portion and X. to on harbor Thank call remarks good Matters can on presentation Please actual conference at statements. website management's could the the Standex' be the safe of statement differ management you, risks company's morning. to Standex Slide other found Relations materially. results discuss forward-looking will today's include expectations statements to These uncertainties on

should annual other XX-K You refer announcements of on to and filings recent Standex's for as report well factors. detailed list most risk as public a Form SEC

to interest, interest the earnings accounting, EBITDA, measures which like purchase expenses is earnings taxes; restructuring, EBIT, adjusted EBIT, is and and before and margin EBITDA non-GAAP addition, expenses excluding today's you EBITDA restructuring, depreciation In items. I'd EBITDA references to and margin. adjusted EBITDA, of onetime accounting, before onetime items; is EBIT, remind purchase excluding taxes, include which adjusted amortization; acquisition-related and is that acquisition-related which discussion will which

company's with in EBITDA. adjusted additional Standex comparison financial a principles financial also the non-GAAP per intended margin, net other believes to will measures, provided income, an information to accordance accepted accounting These cash such flow adjusted consistent non-GAAP operating adjusted measurement provides are in measures to net free performance. We historical as United that operating serve to generally of results and adjusted the share, forma income, States. complement income including debt operations, refer continuing operating from net earnings adjusted pro and

Chief Officer, and is call the Dunbar; Treasurer, and Sarcevic. Ademir and Officer Standex's today On Chief Financial President Executive Chairman, David

our welcome record the the stock performance. general like of fiscal of of we compensation have support and continued for continued exclude call. continued performance conference these Despite conditions, I Directors our streak quarter Thank onetime market executives If and trend strong results. softness and to operating adjusted morning, margin and margin in would third continued. XXXX employees, Board dedication efforts Good drove that we you, would Chris. our charge, our our thank to their

Now the turn third end quarter, In to Slide $XX can if messages to markets -- million. everyone into key X% X, sales year-on-year the grew fast-growth

year track to on are our fast-growth $XXX target into of sales We fiscal million long-term XXXX. achieve end markets annual by

appliances headwinds of organic market We softness continued continue in Europe. to industrial to end markets China led in included the which experience and softness, X.X%. of transitory effect general These an decline and

electronics projects and impact our markets. These by product a the recent of completion including in The test acquisition a offering. were destocking Sanyu by semiconductor of few contributions expanding of our lower and relay measurement large customers February acquisitions Switch of inventory offset late number our from end and partially the Company,

we active work addition, of opportunities. inorganic other In to pipeline continue an

the price third fiscal of initiatives. and profitability to the productivity continued execution from strong quarter, During also our generate we

and which XX% a quarter. we adjusted followed nearly gross result, margin XX.X% a As record achieved of again last

operating our continue drive ability demonstrate to improvements to We conditions. adapting macro to changing while

greater the margin than X approached reported last would operating to adjusted operating been XX%, adjusted nearly have XX%. the compensation reported adjusted tenth Engineering anniversary XX.X%, XX XX%. our compensation my X from Standex near change, reaching or operating while our X Consolidated related in above it similar to a basis increased me, quarter's All stock segment Technologies adjusted of year-on-year charge. XX for point onetime includes points segments margin onetime not margin margin which the record. operating segments impact were stock at basis and If margin

maintaining record quarter record achieved million, third cash flow free We year-to-date. cash of $XX.X fiscal flow free

generation expect of the flow sequential to quarter market Solutions highlights acquisitions. cash over and basis, improved Engineering fiscal Technologies quality moderately project XX% we a our impact ROIC segment fourth recent annualized the XXXX Specialty business. in increased slightly in demand to segment, Our the of further consistent the in On higher of and and due our timing favorable revenue and

XXXX, due expect to We adjusted with our to financial productivity operating margin objectives. higher In moderately to slightly sales fiscal return leverage and in actions. rates line growth and organic sequentially on higher to pricing expect long-term year we

the markets market. to fast-growth We expect our outpace of general sales into growth

are long-term These operating invested greater $X conversion year XX%, in targets adjusted financial and approximately than income. growth of margin on free include cash XXX% greater of single-digit sales, greater fiscal than of GAAP our reaffirming XX% XXXX. outlook billion return flow to net than We high by organic capital

growth have Slide we and in market business. as switches the near in picks term turns are served business its would Bare are efforts a market back in are the beginning into its They anticipate market first longer-term The and Let's improve a I focus conditions our first horizon when to abate, the X, to has year sale indicator Typically, the sales leading to turn how XXXX. we our of evolving market Reeds to downturn up. been our in focus electronics the to on general market fall fiscal of Electronics, largest to headwinds like increase progressing. markets update. segment, experiencing how are and

We to quarter orders. increase we sequential This that and continued were the a through bottoming show inflection starting share positive and a mentioned in saw quarter, inflection. last sales positive out

mentioned softness are Europe in we continued to before continued but fiscal orders markets end the markets have the globally. appliances quarter, third seeing and Europe consumer-related pick related appliances for This up now and in and and general in industrial We in electronics. China

shaped markets manufacture half to smart improve This The production. for that and supported are in focus that see indicated to equipment will is markets is This and investments domestic investments and effort by like the critical likely trajectory. top bringing Our year. we more traction. order and are its and of the longer-term gaining growth automation the we customers will always have our The semiconductor, trends calendar prospects second serve ebb of increase infrastructure projects through I'm electronics to chip long-term by U.S. pleased are end flow. grid the a business be

electrical and Sales XXXX. renewable active an basic into block opportunities will for energy, segment new aero Managing fiscal smart of fast-growth of nearly business markets grid new building Electronics. account growth in vehicles, like is the XX% of sales in funnel

to the and to product Our development share fiscal I'm to sales. up and increased happy in organically. XX% years beginning few this development NBO started funnel grew We quarter that ago, XX% new ramping third year-on-year a convert is

and new performance and in call creates on cycle the turn faster-growing in of year though the discuss we fiscal new early This year numbers The in XXXX. on product and are investments to leaves the the us to is confident product to focus XXXX electronics. look now increase, to single-digit sales a commercial an we new contributing gradually greater increasing as that development release flywheel I slated impact results. financial days beyond. markets over and Research in fiscal builds they the our nicely, detail. and will Ademir small have are sales multiple XXXX continue development our are growing having momentum and for to in fiscal We millions, products

morning, and David, good Thank everyone. you,

the year-on-year consolidated and total basis, net Slide $XXX.X summary. reflected On from of revenue from XXXX X.X% recent by prior decline million. to divestiture. a revenue a an impact third X.X% X, turn acquisitions to exchange, partially approximately X.X% X.X% Let's decreased offset quarter and impact This organic foreign a Procon

quarter to Third adjusted XXXX increased XX margin operating XX.X%. points basis year-on-year

stock onetime our the XX to incurred CEO charge we operating impacted compensation points. by quarter, approximately adjusted charge eligibility. the This retirement In related margin basis

second XXXX quarter, operating to adjusted X.X% performance. In a margin consolidated been revenue income on record decrease charge, a this operating quarter third the have Excluding adjusted year-on-year. X.X% decreased similar would fiscal

fiscal to to share $X.XX million was million quarter $X.XX a Adjusted by compared to the in Net compared ago. XXXX million of cash ago. the earnings fiscal XXXX ago. in expenditures per compared to million third operating year of Capital third provided $X.X $X.X quarter of year-on-year a year activities year a grew $XX.X $XX.X X.X%

a ago. compared a $XX.X As we record of generated million million flow $XX.X year third result, quarter cash free fiscal to

income conversion as basis, Our of generated XXX%. free free a cash we record ratio cash GAAP Likewise, was year-to-date flow a a on net of percent $XX.X flow million.

from offset third organic X.X% a of XXX in XX.X% our Now, recent organic year-on-year the and foreign X.X% and please basis discuss lower turn beginning as to year-on-year productivity Electronics. and with of fiscal decline initiatives quarter recent mostly XXXX segment product by operating were increased to from margin impact sales and acquisitions an revenue Segment offset will mix. and I by X.X% than Adjusted points currencies. performance decreased begin contribution XX.X% more Slide from X, benefit acquisitions, was million, outlook $XX.X as of a

at Our We new decreased currently and and XX% year-on-year in business approximately in fast-growth is share funnel industrial to energy smart opportunity lower in end operating $XX market to Sequentially, general to quarter slightly similar accelerate fiscal and XXXX. XX% fiscal fourth markets, increase ability million. remain improve our similar due as XXXX, year renewable and such presence automation, grew We in confident and markets. mix. EV-related to anticipate margin grid, expect we conditions adjusted revenue unfavorable organically

In points basis in due X.X% revenue project sequential and of to basis, organic to Slide of decline and decreased quarter, to on by X.X% slightly operating quarter to third Scientific driven segments. turn year-on-year, Europe. we the actions. $XX.X currency. fiscal XXX lower a Engraving our margin discussion realization Engraving expect moderately of margin impact due productivity from lower X a fiscal Operating North XX.X% foreign X.X% Please and for America a slightly increased XXXX, next an revenue and of unfavorable to million, timing in

points to XX.X% freight lower softness Operating related revenue increased XX.X%, volume. and productivity and initiatives due offsetting to retail the cost general to on Scientific decreased XXX million market year-on-year, impact margin basis pharmacies. due of $XX.X lower

of approximately conditions anticipate quarter. market revenue we start in market to challenging, development new higher XX% increased product in and sales have product sales improve margin. been development volume expect represented approximately the XX% operating to similar Although year slightly fiscal conditions year-on-year Substantially, and XXXX. segment new We

expenses. pricing segment and the were moderately research offset quarter of This our of higher moderately by the operating revenue margin timing. initiatives we development is near delays represents Now project aviation consecutive Slide for target favorable XX.X% and to partially operating result in the points fourth basis caused the to more long-term lower expect margin Operating year-on-year Sequentially, margin as of a Engineering higher of by leverage in revenue was Engineering by million, partially higher of increased sales government X margin segments. year-on-year sales $XX.X as Specialty XXX defense XX.X%, increased for funding. discussion and to Technologies turn on Technologies aviation of offset demand and end improvement. higher Solutions and productivity significantly lower due

million, Display higher Operating sales the offset higher growth offset the impact operating Specialty the due sales as less basis business, in of revenue expect XX.X% normalization and Solutions primarily of and decreased by Sequentially, the in the segment the on Display divestiture, margin than in business, year-on-year improve we Hydraulics $XX.X business. revenue organic demand year-on-year, in to Merchandising moderately and Procon divestiture end-market Procon XX.X%, points sales. of margin decreased a business. more to XXX leverage the partially higher Hydraulics Merchandising

quarter, million. end Standex's Next, structure, net second quarter of debt $XXX of third cash quarter available million. end fiscal the remains to the please Cash end XXXX. at and million which liquidity third Slide equivalents million of of had liquidity. $X.X At ended the was summary long-term X the fiscal of a with third debt Standex's XXXX capitalization Standex $XXX.X $XXX.X the the million statistics $XX to XXXX and at quarter strong. of totaled fiscal Standex turn for compared

to With $X.X we million XX,XXX quarter. the third shares approximately regards repurchased allocation, for in capital

David $X.XX to consecutive key fiscal approximately now results. between in quarter quarterly to I of per year-on-year. share approximately the third and over $XX XXX call our our will X.X% million million increase capital to $XX our XXXX, declared also discuss expenditures million $XX In We dividend turn from to fiscal takeaways we compared be XXXX. expect and cash

markets Ademir. Thank you, growing to very on I'm led quarterly Slide operational our our that and team to for their Please results. proud turn XX. continued of excellence focus

to as will and prepared fast-growth our continue are accelerate. while levels and We markets inventory demand returns, evolve normalize

macro conditions. record have can margin earnings adapting of quarters expand and proven margin XX the by that We changing consecutive grow we to over

defense automotive, Excluding the smart applications the optimistic combustion and this long-term infrastructure transition streak onetime have in charge We will and and grid, in spending benefit the exploration. hybrid of development trends would the secular remain about to from from electric quarter, that space next-generation from continued. and evolution the internal aerospace

stages these the Broadly in still earlier are trends of development. speaking,

million annual with achieve growth To sales capabilities are growth, and markets our support target drive to development track end into plus $XXX long-term our of our XXXX. fast-growth engineering fiscal We new markets continue potential. on product expand to across new year to by in applications we

first In every fiscal in the be company's businesses. time released year products XXXX, new history, for in our one of will the

a year active by and assess to growth inorganic an objectives. our fiscal our to strong maintain reaffirm financial allows with expect outlook of XXXX, we We us prudently to financial continue return We In organic sheet balance long-term growth line organic pipeline opportunities. fiscal to rates in XXXX. that long-term

free on and invested than cash sales, targets conversion $X of billion operating GAAP to at net greater in than XXX% return than approximately flow greater margin These income. include growth XX% XX%, capital of single-digit adjusted high greater organic

line now questions. will We open the for

comes Your Instructions] of Chris of question from the CJS Moore line first Securities. [Operator

start Electronics. we'll Maybe

I being Electronics while. you out and for So talking just about of mean, Can we're Electronics percentage in there? called of softer Europe what total you've us Asia kind a remind

roughly, the North of Asia. world, region Well, X/X in and each Europe about is Electronics America,

And referenced, performance, those that? American kind again, within America, there semiconductor, was the the were where North was Asia, in North within of terms challenges you were Got you. of those

of the point. America. are semiconductor of the And manufacturers There in this America business products the that's Those and is those to North globally. investment. for CHIPS we should we that following end customer the in North sold a from Act that equipment good hear expectation orders, a we our specifically typically, Yes, see magnetics customers year, by in ramp installations an the is export than

that. Got it. appreciate I

kind as You a switches improving mentioned reed sequentially. leading indicator, of

Just of how trying been indicator? last statement. -- you give you it just the been to just me it's Has it understanding starting that I'm can that been of since make kind been quarters or how long now? long we've couple since has seeing

first we that of company. of is of back back the had been as before to businesses. all, a Standex goes a reed in the shorthand indicator leading indicator. in switches days the that for Well, were dozens This dozens idea different It's the used joined when as serve general. well an Reed kind switches company I and

in QX this Our -- orders reed to switch drop to began sales in began 'XX. drop

see X really to the quarters, just starting it's So last We're them firm up.

guys lately you just without years done Obviously, even job few increase to of much helpful. leverage. expect benefit goals? over biggest drive margins still an Very it. exceptional Got which to next the volume have the longer-term on the meet Maybe segments do you your

Chris, of is The Ademir can XX%. all of for projections to for operating kind of example, XX% they those long-term to at our margin. them if north think margin to of spend all We you the you that we we businesses, of answer last low Electronics look tell get were will quarter, here. opportunity all margin. the an believe I us. question it's And have

example. business, the opportunity you opportunity of really, all businesses. feel see the an we margin Electronics to the is the can But there's expand we in for answer in see So our

line comes your of of question And next from Michael the Legg Benchmark.

switch on what lead delivery? up the for Following is those orders time reed piece, the versus

A it's about lot we of -- through go a distribution. these And month.

the they'll X month an then as a with a distributors, we'll but kind about block could order have delivery. call weeks. are have larger commitment we individual ship that orders progresses, orders get within our to a year cycle. month's about We order year cases, X some X or from off our We of In for distributors,

new a product bit a additional little cycle new new all that the divisions. the for Okay. takes? what And How it Can then each there about talk are in to product products, development long then about you of And revenue? talked development? lot you these means obviously

Yes, their are And incorporated OEMs that's go we that either subassemblies question. to that in great recall components or a Tier or sell then Xs to designs. that

subject have. customers cycle So products our are to new our that the

for to then if and them, let's X product working may opportunity, new we settle identify to take it the again OEM to develop ready may the customers. incorporating be that design, with typically on see our design, So their us a X years. We're it it a be present year to in year

launch And customers in that OEM it they hits our once years their past, the begin we've X product. Then X a think data I max product, new for ramps volume. it shown shipping typically to before

product that of beginning So to X to the from you development of it's sales any up, of add years. if new significance be all could -- X

Okay.

developments over say that of product to the new 'XX efforts culmination fair this 'XX with really past years? fiscal it's is So -- coming couple in online that the of

yes. a that are few years These began largely Yes, development projects ago.

then question. Okay. last Great. just And

M&A that bit more? pipeline Can You mentioned a comment on just the being for little robust. you

little smaller, kinds top. bread maybe million healthy opportunities, robust. acquisition million we $XX remains at sales, a last approaching where years, few privately-owned those business, for these million, be we ourselves a it more funnel the work we of a and business, deals Yes, exit, also $XX would they're the process. the have in an advanced have Standex that in maybe owner of founders And run The $XX And larger opportunities. two sales very on. years professional been a family-owned butter $XXX we with positioning In for and have million, was

the And to larger the gosh, I'd In to category the more our first market. deals come preparing are -- are starting is is these funnel of healthy. months, that It opportunities always there funnel of the last say looks like these in up. X relatively in last perk to

Mike of Shlisky of line question And comes the D.A. your next from Davidson.

rate you about going to back get fiscal a year. view. more I growth broad I I sound want confident mean, normalized organic a more next guess pretty to

what's to if confidence in organic I outlined of get much growth reed rate? happening give points that more bullet will on to other a you us turn the a kind it normalized that lot back was Electronics. you You as all of on of can couple some how wondering segments pretty segment other

that Yes, the segments okay. Technologies. the think were you the about growth most in Engineering the have Well, if year confident best next profile

this We business. cycle have long very

shipments. our great have plan to visibility customers' We

and so be very to And Technologies for a going Engineering FY is year strong space, aviation. 'XX

and are Our starting cylinders. our of are pickup Bill see funds to some We for the in order Hydraulics appropriated a resulting really activity. business to Infrastructure is demand being projects in now think that applied

a that now shortage business was in problem chassis is The up. that cleared

more kind is the devoted So of trailer capacity to the do. being trailers of we

very there. Scientific good is we're So X% to a underlying fundamentally confident growth. with business X%

We new products have out products have that we'll this sales maybe year, business. coming of there. million from $X new And also in

In enter COVID. to that in FY period were shipped cabinets for will start we 'XX, replacement the

I cabinets that mentioned think service regularly have a we X-year to these life. X- typical

expect we get second we as to those will period. 'XX, half So into of begin some the hit of that

some Now called we're the calling growth we But there, Engraving, there. in that have out visibility. we with pushouts pretty for modest platforms, a of good more OEM

I So I have think all. them covered

and support. think I Electronics Yes,

the expansion could did, in 'XX? a in environment is more off, of little out excluding you seeing correct of some And better sense especially than and bites products wrong high-growth that in that and yes. some your be But I'm think rolling stock R&D that. I rolling if do me if 'XX cost? small you we on a new Could you've margin, perhaps there, bit there here be there and bit got additional just

it's Mike, Ademir. Yes,

I expand margin. our think gross we'll continue to

to some little the Some launching, margin that products, profile we products you that we of better than if expect a bit we these a are of they're that will, sell. of standard have going new

they -- be be will would that number one. So

time. and continue investment activity want continue thing roll the I'll can we these the it, The the sales new R&D in with we just to and to we other products because our invest and that's developments investment for believe commercial products mention future over so to

within gross also we expenses. expect in terms but sales about So to of we're R&D stay X% to continue to yes, margin, going expand to expect we of X.X% that

from comes of line Instructions] Gary your next question And Prestopino Research. of the [Operator Barrington

have answered. to questions with much Electronics, these been you're guess some -- how of of what like particularly your are an I'd know call those talking really I A is or what targeted new But in lot fast-growth you of Solutions to Engineering markets? would products, about

released The being new year. are products next

relays We have X are. basic sensors. switches, and categories there Reed

adjacencies We have and all out reviewed At fill products least are us list set recalling, expanded target I'm markets just broader coming a for X categories. last we help fast-growth to customers. the current week. of new solution in them others just

them fast-growth So half markets. let's of say are

are remarks. at I call over Dunbar, now no to to questions further would time. closing like there CEO, this turn David the And for our

our our for I support Standex. employees for the fiscal call. to leadership, you, to continued We for enjoy reporting contributions. progress forward our on again today. call our us again, And and Thank speaking We your everybody, joining at in look XXXX with and thank shareholders finally, you want quarter fourth

participation. And ladies Have and disconnect. your Thank for you concludes gentlemen, call. you today's a may day. good conference this And now