Standex International Corporation

Good day, ladies and gentlemen, and welcome to the Sandex Fiscal First Quarter 2020 Earnings Teleconference. All participants will be in listening mode. Should you need assistance during the conference, please signal a conference specialist by pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star and then one on your touch-tone phone. To withdraw your question, please press star and then two. Please note that this event is being recorded. I would now like to turn the conference over to Gary Farber. Please go ahead.

Thank you, Operator, and good morning. Please note that the presentation accompanying management's remarks can be found on the investor relations portion of the company's website at www.standex.com. Please refer to Standex's safe harbor statement on slide two. Matters that Standex management will discuss on today's conference call include predictions, estimates, expectations, and other forward-looking statements. These statements are subject to risks and uncertainties that could cause actual results to differ materially. You should refer to CENIC's most recent SEC filings and public announcements for a detailed list of risk factors. In addition, I'd like to remind you that today's discussion will include references to the non-GAAP measures of EBITDA, which is earnings before interest, taxes, depreciation, and amortization, adjusted EBITDA, which is EBITDA excluding restructuring, purchase accounting, accounting acquisition-related expenses and one-time items, EBITDA margin, and adjusted EBITDA margin. We will also refer to other non-GAAP measures, including adjusted net income, adjusted income from operations, adjusted net income from continuing operations, adjusted earnings per share, adjusted operating margins, free operating cash flow, and pro forma net debt. Non-GAAP financial measures complement results provided in accordance with accounting principles I would like to point out that this month, StandX celebrates 50 years of the New York Stock Exchange.

The number of companies that have been continuously listed for 50 years is small, and we're proud to achieve this milestone. I'll begin with an overview of our fiscal quarter results and provide an update on our continued progress in executing on our strategic priorities. Ademir will follow with a discussion of our financial performance in the quarter, then I will provide some additional thoughts on our outlook. Now please turn to slide three. The quarter's results were in line with our overall expectations and our commentary on August's fourth quarter conference call. Specifically, performance in engineering technologies, hydraulics, and scientific remained strong. The engraving segment reported a significant sequential margin increase from the fourth quarter of 2019 on a modest sales gain, as we saw improvement in our North American engraving operations. We did continue to experience macroeconomic headwinds in our electronics segment, primarily in Asia, which is impacting our second quarter outlook. To manage near-term market conditions, our overall restructuring efforts are proceeding as expected, and we are pursuing additional efficiency opportunities both at this segment and company-wide. Despite the macroeconomic headwinds we're facing, particularly in electronics, we continue to successfully position our portfolio for higher growth and profitability on several fronts. In particular, growth laneways increased 12% over first quarter 2019 to $16.6 million. Our most recent acquisition, GS Engineering, is now fully integrated and off to a solid start. We also continue to see very positive trends in our new business opportunity funnel, particularly in the high reliability magnetics business, as we are successfully converting our funnel to revenue. We are maintaining investment in our sales and technical teams to convert these opportunities into future sales. At food services, the scientific business continues to grow well in excess of GDP. as we leverage our deep technical and application expertise against the backdrop of higher demand in the pharmacy and retail markets. Finally, our current restructuring program is on plan to generate $3.8 million in cost savings on a run rate basis as we exit the second quarter. In addition, we continue to have an active pipeline of other efficiency opportunities, some of which we will discuss later in the call. From a financial perspective, our position remains strong. Our net debt to adjusted EBITDA is under one times, We have approximately $250 million in available liquidity, and we've made sustainable improvements in our working capital management. From a liquidity perspective, I'm very pleased with how well we generated free cash flow in the first quarter, which historically has been a negative quarter for us as our working capital initiatives delivered improved results at all of our segments. In addition, we continued to repatriate cash from international operations. These factors position us well to invest in our active pipeline of high-return internal projects and attractive acquisition opportunities. Our capital allocation approach will remain disciplined and balanced. Ademir will walk through the quarterly financial results in greater detail later in the call. Now let us review the segments, beginning with engraving on slide four. Sales increased 6.8% year over year, largely reflecting the recent GS Engineering and Tennebec acquisitions, balanced with the lower level of overall new automotive model introductions due to timing of rollouts, as well as the impact of foreign currency. On a sequential basis, we delivered a 300 basis point margin improvement to 17%, reflecting a sequential improvement in automotive-related end-market trends, primarily North America, and the restructuring actions announced in third quarter results. Growth laneways and engraving grew 20% year-over-year to $11.4 million, supported by growth in nickel shell, laser, and tool finishing. We also have moved into a new, larger facility in Dongguan, China, which will provide capacity to address further laneway growth expansion. In the second quarter of fiscal 2020, Standex expects year-over-year improvement as new global automotive rollouts increase, the restructuring actions announced in the third quarter of 19 are completed, and we continue to focus on new technologies such as soft trims, laser engraving, and tool finishing. Please turn to slide five, the electronics segment. Several factors affected electronics results, particularly in Asia. Total sales decreased 9.4% and operating income declined 36.7% on a year-over-year basis. The sales and operating decline largely reflected volume decline in the reed switch markets, primarily in Asia, as well as the impact of ongoing material inflation. Our Asia reed switch operation is highly profitable, and our operating income decline is largely due to its deleverage on double-digit declines due to current market slowdowns. This is a cyclical decline in our end markets, and we remain committed to this business and enthused about its prospects. This decline was countered by growth in our magnetics business, driven by strength in military and aerospace end markets. Next quarter, we expect electronic sales volume to decline year over year, although be sequentially similar to last quarter as these headwinds continue. Previously announced restructuring in Q3 will deliver $1.1 million of annualized savings. Despite the near-term challenges, we're very well positioned in this segment for the longer term. In particular, we are addressing material inflation through changes in our re-switch production process to permanently improve our cost position. As we communicated last quarter, our new business opportunity pipeline includes over $50 million of new opportunities. This is the result of several years of development in our sales and engineering organization and positions us well for future sales growth. Despite the current softness in its end markets, Standix Electronics has a strong market position. It serves good markets, has strong customer relationships, and our investments in sales and engineering are paying off with significant new business opportunities that position it well for long-term growth. Turn to slide six, engineering technologies. Engineering technologies results remain strong, with revenues increasing 18.6% and operating income growing at 89.2% year over year. The result reflects higher margin new applications, volume leverage associated with growth in our core markets of aviation space and defense, as well as continued improvements in our manufacturing processes and efficiency initiatives. We expect revenue and operating income growth year-over-year to continue in the second quarter, with backlog to be delivered in under one year, increasing 7% year-over-year in first quarter 2020. Aviation programs such as the A320 and A350 continue to ramp. I am pleased to communicate we recently received a new award to produce the Lipskin for the C919 equipped with GE Leap 1C engines. In addition, our new business opportunity pipeline is also solid in this business. From an efficiency perspective, the actions that benefited our first quarter results will continue, such as reducing the level of scrap and rework and increasing machine utilization. Turn to hydraulics on slide seven. The 9.7% increase in sales reflected continued strong OEM demand, particularly in the North American refuse market, including new applications such as the new package X cylinder for front-end loading of trucks, which continue to ramp to full volume. First quarter operating margin of 18.4% increased from 12.6% a year ago. The margin increase reflected the higher volume, slightly lower material costs, and ongoing efficiency initiatives. While we expect improved financial performance year-over-year for the fiscal year 2020, in the second quarter we expect hydraulics revenue and operating income to be relatively flat year-over-year. We are also pursuing initiatives to deploy capacity to higher margin market opportunities, as well as expansion in our traditional offerings, such as in roll-offs and dump trailer applications. Now let's move to slide 8, the Food Service Equipment Group. Sales increased 1% year-over-year, reflecting scientific double-digit revenue growth. and strength in merchandising revenue balanced with the refrigeration business, which was flat compared to prior years. The 25.6% increase in operating income was due to higher volume in scientific and favorable margin product mix at merchandising. In the coming quarter, we expect sales in the food service group to decline slightly year over year, primarily due to declines in refrigeration group sales due to fire-related customer order cancellations. We also anticipate continued momentum in scientific and merchandising sales. Finally, we continue to pursue productivity improvements in commercial refrigeration with a focus on lean-related efficiencies. With that, I will turn the call over to Ademir to discuss the financial results in more detail. Ademir?