Standex International Corporation

Good day and welcome to the Sandex International third quarter fiscal year 2021 earnings conference call. All participants will be in listen-only mode. Should you need assistance, 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 then one on your touch-tone phone. To withdraw your question, please press star then two. Please note, this event is being recorded. I would now like to turn the conference over to Gary Farber with Affinity Growth Advisors. 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 Standex's most recent annual report of Form 10-K, as well as other 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 EBIT, which is Earnings Before Interest and Taxes, adjusted EBIT, which is EBIT excluding restructuring, purchase accounting, acquisition-related expenses, and one-time items, EBITDA, which is earnings before interest, taxes, depreciation, and amortization, adjusted EBITDA, which is EBITDA excluding restructuring, purchase 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 operating income, adjusted net income from continuing operations, adjusted earnings per share, adjusted operating margin, free operating cash flow, and pro forma net debt to EBITDA. These non-GAAP financial measures are intended to serve as a complement to results provided in accordance with accounting principles generally accepted in the United States. Standex believes that such information provides an additional measurement and consistent historical comparison of the company's performance. On the call today is Standex's Chairman, President, and Chief Executive Officer, David Dunbar, and Chief Financial Officer and Treasurer, Adamir Sarcevic.

Thank you, Gary. Good morning, and welcome to our fiscal third quarter 2021 conference call. It has now been over a year since the pandemic closed in on us all. Let me first start with an expression of profound gratitude to the employees of Standex, our executive teams, and the board of directors. The circumstances of the pandemic required a level of agility and responsiveness that would not have been possible without a high degree of collaboration, trust, and a sense of common mission. I'm proud of what we accomplished together. As a result, Standex is emerging from the pandemic far stronger than when we entered it. Now, if everyone can turn to slide three, key messages. We had another solid quarterly performance with results ahead of our expectations and expect this momentum to continue with stronger financial performance in fiscal fourth quarter 2021. At the electronic segment, nearly half of the 35% year-on-year revenue increase in the third quarter reflected organic growth with solid demand for relays in solar and electric vehicle applications and reed switches for transportation and markets. Overall, we are seeing strong demand across many of our product lines and all geographies at electronics. Our scientific segment also had an excellent quarter with solid revenue and operating income growth year on year. We continue to expect that revenue from COVID-related storage demand in fiscal 2021 will be at the higher end of our originally indicated $10 million to $20 million range. At the specialty solutions segment, revenue and operating income sequentially increased 18.3% and 32.4%, respectively, as we see the early stages of recovery in our end markets. From a strategic perspective, we continue to position StandX around products and platforms that optimize our growth and margin profile with strong customer value propositions. Electronics segment backlog realizable in under one year increased approximately 26% sequentially, as the demand in end markets, including electric vehicle and renewable energy, continues to trend positively. Results and order flow at Renko Electronics were solid as we successfully leveraged their complementary customer base and end markets. At the end of the third quarter, we also announced the divestiture of NGenetics Corporation. Our engineering technology segment will now be focused on our core spin-forming capabilities with its strong value proposition, reducing material inputs and processing time, ultimately providing higher growth and margin opportunities for the segment. The sale of nGenetics is also accretive to our margin profile. ETG will continue to focus on serving the space, commercial aviation, and defense end markets. We are also further leveraging these demand trends and strategic initiatives with ongoing productivity and efficiency actions. At the electronic segment, we continue to make progress in the core, mitigating material inflation through changes in the read switch production, and material substitution. We are on track to substantially complete this transition by the end of fiscal 2022. We continue to allocate production capacity to our highest margin segment opportunities. For instance, at the specialty solution segment, hydraulics aftermarket revenue increased 23% year on year in the third quarter. These actions are complemented by a strong balance sheet and liquidity position, giving us the financial flexibility to deploy capital for our active pipeline of organic and inorganic growth opportunities. Adam here will discuss these metrics in more detail. In regard to our fiscal fourth quarter 2021 outlook, we expect slight to moderate sequential revenue increase and a more significant operating margin improvement compared to the third quarter of fiscal 2021. Underpinning this outlook are the following. Sequentially, we expect revenue growth for the electronics, engraving, and specialty solution segments. However, the consolidated revenue increase sequentially will be partially offset by the absence of nGenetics, which contributed approximately $4 million in revenue in the third quarter and was divested at the end of the quarter. We expect significant operating margin improvements sequentially compared to fiscal third quarter 2021 results. This improvement will be driven primarily by electronics, engraving, and engineering technologies. Besides our financial results today, we are also pleased to announce that our Board of Directors has committed to nominating Robin Davenport of Parker-Hannafin for election to the Board of Directors at STANDEX's 2021 Annual Shareholder Meeting. In the interim, Ms. Davenport will serve as an observer and advisor to our Board of Directors. Robin is a highly accomplished and respected executive with comprehensive financial and global industry expertise in the manufacturing sector and significant experience and success in the areas of M&A, capital allocation, and corporate strategy. In my discussions with her, I found her to be very thoughtful and insightful interviews and believe she'll be a valuable addition to the current Board of Directors' efforts. I look forward to working closely with her and the current members of the Stand Next Board as we further execute our strategic and financial priorities. Now, please turn to slide four, and I will begin to discuss our segment financial performance, starting with electronics. Revenue grew approximately $17 million, or 35.4% year-on-year, with nearly half of the increase due to organic growth. This growth reflected a broad-based geographic recovery, including a strengthening in demand for relays in solar and electric vehicle applications, and re-switched demand in transportation and markets. The recent Renko acquisition contributed revenue of $6.4 million and has proven to be a highly complementary fit with our Magnetics portfolio. Operating income increased approximately $4.3 million, or 54.2% year-on-year, reflecting operating leverage associated with revenue growth, profit contribution from Renko, and productivity initiatives partially offset by increased raw material costs. The pictures highlighted on slide four are examples of how we can leverage the technological advantages of reed switches to contribute to our growth in end markets, such as electric vehicles and solar power. In particular, reed switches, given their unique physical properties, are well suited to safety isolation testing for electric vehicles and battery management systems. We also continue to capture attractive new customer wins to support our MBO pipeline. In this case, we highlighted a magnetic motion system for a defense elevator application, which will contribute more than $11 million over the next three years. Currently, our new business opportunity funnel has increased to $59 million across a broad range of markets and is expected to deliver $12.4 million of incremental sales in fiscal 2021. Sequentially, in fiscal fourth quarter 2021, we expect a modest increase in revenue and slight operating margin improvement at electronics compared to fiscal third quarter 2021. Our outlook reflects a continued broad-based end market recovery, including further growth for relays in solar and electronic vehicle applications, supported by a healthy order flow with backlog realizable under a year, increasing approximately $20 million, or 26% sequentially, in our third fiscal quarter. Please turn to slide five for a discussion of the engraving segment. Revenue increased approximately $600,000 or 1.7% year-on-year, and operating income was similar year-on-year as expected, at $4.5 million. The revenue increase reflected favorable foreign exchange impact, partially offset by the timing of projects. Operating income was essentially similar year-on-year due to a less favorable project mix. Laneway sales of $13.6 million were an approximate 5% sequential increase, reflecting growth in soft trim tools, laser engraving, and tool finishing. The picture on slide five highlights a recent customer win on the Ford F-150 platform for soft trim interiors. Overall, we are seeing solid demand and backlog trends for our soft trim capabilities, further reinforcing the rationale behind our prior acquisition of GS Engineering, a leading provider of cutting-edge proprietary technology for the production of in-mold grain tools. Since the acquisition, we have further rolled out GS technology on our global platform, positioning us well in the growing soft surface markets as the auto industry focuses on interior comfort of vehicles and increasingly replaces leather with sustainable materials. In fiscal fourth quarter 2021, we expect a slight revenue and more significant operating margin increase compared to fiscal third quarter 2021 at the engraving segment. The expected sequential financial performance improvement reflects a more favorable geographic mix, project timing, and increased soft-trim product demand leveraged over productivity and cost initiatives. Turning to slide six, the scientific segment, revenue increased approximately $9.6 million, or 65%, year-on-year, reflecting continued positive trends in retail pharmacies, clinical laboratories, and academic institutions mainly attributable to demand for COVID-19 vaccine storage. Operating income increased $2.6 million or approximately 81% year-on-year due primarily to the volume increase balanced with investments to support future growth opportunities. In fiscal fourth quarter 2021, we expect a moderate sequential decrease in revenue due to lower demand for COVID-19 vaccine storage combined with higher freight costs, which we expect to result in a sequential decrease in operating margin, although we still expect an operating margin above 20% in the quarter. As shown on the picture in slide six, we provide comprehensive solutions with a broad product line. We can meet customer requirements for different model sizes and temperature ranges across a wide variety of end markets, including pharmaceutical, medical, scientific, biotechnology, and industrials. Pictured here is a clinic with a number of different medications in small quantities requiring a variety of our storage solutions. Finally, I am pleased with the progress the scientific team is making in managing the pipeline of new product development projects, which will position the business well with future new sources of revenue. Turning to the engineering technology segment on slide seven, revenue decreased approximately $6.7 million. and operating income was about $1.9 million lower year-on-year, a 25.4% and 59.8% decrease, respectively. On a year-on-year basis, fiscal third quarter 2021 results reflected the economic impact of COVID-19 on the commercial aviation markets and project timing in space and energy segments, partially offset by growth in defense and markets. The decrease in operating margin was due to the lower volume partially offset by productivity and cost initiatives. In fiscal fourth quarter 2021, we expect revenue on a sequential basis to be similar to the prior quarter with growth in commercial aviation, defense, and space offset by the absence of engenetic sales due to its divestiture at the end of fiscal third quarter 2021. We expect a significant increase in operating margin reflecting a continued broad-based end-market recovery and favorable mix complemented by ongoing productivity initiatives. As pictured on slide seven, we continue to win attractive long-term contracts with industry leaders to develop new platforms and to next-generation hypersonic programs. Our manufacturing process utilizes spin-forming technology, an inherently more efficient process. We start with a plate as opposed to a large block of titanium and then shape it with less material waste and cost and achieve the same functionality and strength. Please turn to slide eight, specialty solutions. Specialty solutions revenue decreased approximately $3.7 million or 11.9% year on year with an operating income decline of about $600,000 or 12.9%. This decrease primarily reflected the economic impact of the COVID-19 pandemic on the segments and markets, particularly in food service equipment. I would like to commend the specialty team for effectively managing their costs to nearly hold their margin rate despite the significant reduction in revenue. Sequentially, specialty solutions revenue and operating income increased 18.3% and 32.4%. We believe we are in the early stages of a recovery in food service and refuse end markets that we expect to continue into our fiscal fourth quarter. In fiscal fourth quarter 2021, we expect a slight sequential increase in revenue, with operating margin expected to slightly decrease sequentially, reflecting material inflation, particularly in hydraulics, which we are seeking to recover through pricing actions. Pictured on the slide is a recent new product introduction, the milk and food merchandiser, developed primarily for the school market and offering several advantages, including flexibility to merchandise a wide assortment of products, easy loading and unloading, and product accessibility to young children. As we return to more normalized patterns of experience outside the home, in-person learning in schools and indoor dining in restaurants, we are seeing a recovery in the school, restaurant, and grab-and-go food end markets for products such as the food merchandiser. I will now turn the call over to Adamir, who will discuss our financial performance in greater detail.

Thank you, David, and good morning, everyone. First, I will provide a few key financial takeaways from our third quarter 2021 results. We had solid performance in the third quarter as both revenue and adjusted operating margin increased sequentially and year on year. Revenue increased sequentially at four of our five reporting segments, and we saw a strong recovery in many of our end markets. From a margin standpoint, adjusted operating margin improved both sequentially and year-on-year, reflecting operating leverage associated with revenue growth and the impact of our cost efficiency and productivity actions. Our cash generation and leverage statistics remain strong. We report a free cash flow of $12.4 million and have generated 92% free cash flow to net income conversion to the first nine months of fiscal 2021. Also, I'll add that to EBITDA, interest coverage ratio and available liquidity all improved sequentially. We are entering our fiscal fourth quarter with positive demand trends, active pipeline of productivity and efficiency actions, and an expectation for continued solid cash generation. We expect our fiscal fourth quarter 2021 results will be stronger both sequentially and year on year. Now let's turn to slide nine, third quarter 2021 income statement summary. On a consolidated basis, total revenue increased 10.8% year-on-year from $155.5 million to $172.2 million. Revenue increase mostly reflected strong organic growth at our electronics and scientific segments, contribution from our recent Renko acquisition and favorable FX, partially offset by the economic impact of COVID-19. Renko contributed approximately 4.1%, and FX contributed 2.8% increase to the revenue growth. As we expected, the COVID-19 economic impact was most evident in the commercial aviation and food service end markets, primarily impacting our engineering technologies and specialty segments. However, we are seeing sign of sequential recovery in both of these end markets as we enter the fourth quarter of fiscal 2021. On year-on-year basis, our adjusted operating margin increased 90 basis points to 12.2%, reflecting operating leverage associated with revenue growth, profit contribution from Renco, and readout of our productivity actions, partially offset by increased raw material costs. Interest expense decreased approximately 28% or half a million dollars year on year, primarily due to lower level of borrowings and a decrease in overall interest rate as a result of our previously implemented variable to fixed rate swaps. In addition, our tax rate was 24.9% in the third quarter of 2021. For fiscal 2021, we continue to expect approximately 22 percent tax rate with the rate in the low 20 percent range for the fourth quarter. Adjusted earnings per share was $1.19 in the third quarter of 2021 compared to 96 cents a year ago. Please turn to slide 10, third quarter 2021 free cash flow. We generated free cash flow of 12.4 million in the fiscal third quarter of 21 compared to free cash flow of 7.3 million a year ago supported by improvements in our working capital metrics. For the first nine months of fiscal 2021, we have generated 92% free cash flow to net income conversion, inclusive of approximately $8 million in pension payments, with $3 million of that amount paid in the fiscal third quarter of 21. Next, please turn to slide 11, a summary of Standex's capitalization structure and liquidity statistics, which remains strong. STANDEX had net debt of $82.1 million at the end of March, compared to $90.9 million at the end of December, reflecting free cash flow of approximately $12.4 million and additional $11.7 million in proceeds from the InGenetics divestiture. This was partially offset by $8.6 million of stock repurchases, along with dividends and changes in foreign exchange. Net debt for the third quarter of 2021 consisted primarily of long-term debt of $200 million and cash and equivalents of $180 million, with approximately $82 million held by foreign subs. Our key liquidity metrics reinforced our significant financial flexibility. Standex's net debt to adjusted EBITDA leverage was approximately 0.8 at the end of the third quarter, with a net debt-to-total capital ratio of 14.5%. We had approximately $209 million of available liquidity at the end of the third quarter and continued to repatriate cash with approximately $6 million repatriated during the quarter. To date, we have repatriated approximately $31 million and remain on plan to repatriate at least $35 million in fiscal 2021. From a capital allocation perspective, we repurchased approximately 94,000 shares for $8.6 million. there is approximately $27 million remaining on our current purchase authorization. We also declared our 227th consecutive quarterly cash dividend on April 28th of $0.24 per share. Finally, we have reduced our fiscal 2021 capital expenditures range to between $22 million to $25 million from between approximately $25 million to $28 million. I will now turn the call over to David for closing comments.

Thank you, Adamir. If everyone can please turn to slide 12 for key takeaways. We expect a slight to moderate revenue increase in the fiscal fourth quarter 2021 as compared to fiscal third quarter 2021. Underpinning this outlook is expected sequential revenue increases at electronics, engraving, and specialty solutions, partially offset by the divestiture of nGenetics, which contributed approximately $4 million in revenue in the third quarter. We expect a significant sequential operating margin increase in the fourth quarter as we leverage demand growth, particularly at electronics, engraving, and engineering technologies, as well as the productivity and efficiency actions that we have undertaken company-wide. Both from an operational and financial perspective, we have an active pipeline of initiatives to further strengthen our performance and drive cash generation as we approach fiscal 2022. Our balance sheet position remains strong, and our liquidity metrics are strengthening. We are well positioned to pursue an active pipeline of exciting organic growth opportunities, such as electric vehicles, renewable energy, smart grid, and space commercialization, as well as highly complementary acquisitions like Renco. We remain focused on further growing our high-quality businesses with attractive growth and margin profiles. As you saw in the examples shared today, we leverage our strong technical and applications expertise to provide customers a compelling value proposition. Operator, I will now open the line for questions.

Thank you. We will now begin the question and answer session. To ask a question, you may press star then 1 on your touch-tone phone. If you're using a speakerphone, we ask that you please pick up your handset before pressing the keys. To enjoy your question, please press star then 2. Today's first question comes from Chris McGinnis at Sedonian Company. Please go ahead.

Excuse me. Good morning. Thanks for taking my questions, and congratulations on the nice quarter, but also the outlook as well. If you could just start with one scientific in the growth there. I guess just, you know, if you think about the next 12 months, obviously you're being aided by the vaccine, but I guess just what are the in terms of maybe the infrastructure that needs support? Maybe is it booster shots? Would that be helpful? Chris, your voice is choppy.

I understood the question. I hope it's your line and not ours and everybody can hear us clearly. We've talked a lot about scientific really beginning last August when we talked about the discussions we're having with our customers, how we estimated what the opportunity was. And as you just heard, we are seeing a softening in our orders in scientific, so we anticipate that to taper in Q4. And then the question longer term is, is there additional opportunity? And as we've talked about this in the past, our $10 to $20 million range, which we gave early in the year, and now we're reinforcing that we'll be at the top of that range, was based on penetration into retail pharmacies primarily for the distribution of vaccine. There are just over 30,000 pharmacies in North America. There are a number of small non-franchise rural pharmacies out there, maybe 10,000, 15,000. They haven't really invested in cabinets. And then there's over 100,000 physicians' offices out there. So to get to your question, If we get to a situation where we have annual booster shots and these boosters are distributed in pharmacies throughout the country and in small physician's offices, that could be a catalyst for some additional opportunity for us. However, it is too early to call. But we are seeing some orders now actually that come in from physician's offices. So we know at least some physicians are planning on administering vaccine in their offices. So that's what we know. We obviously watch it closely. We have plenty of, we got ahead of this curve several quarters ago, so we've got the inventory and the ability to meet any demand that comes our way.

Great. Hopefully my line's about that. Can you just talk about the strength of electronics? It seems broad-based, but is there anything you can call out you know, whether it's the funnel that you've talked about in the past or, you know, with Okie. Can you just spend a little bit more time on electronic strength?

Yeah, first of all, with electronics, it is broad-based, both geography and end-market applications. And in the quarter in particular, our European business really started to come on strong. We've got great bookings acceleration and a strong backlog in Europe. And that was sort of the last region to kick in for us. We've seen very nice growth in the sale of our relays, in particular into electric vehicles and battery management systems. That's a very nice product line for us based on the advantages of the reed switch technology. And you mentioned the NBO funnel. The NBO funnel to us, we started reporting on this a few years ago as we executed the strategy to move the electronics business to focus more and more on sensors, moving up the value chain to more value-add opportunities. So, for us, that's a measure of our ability, of our success in penetrating that market and taking market share as we grow into sensors. Last quarter, we reported it was 56 million. It's 59 now. That additional 3 million is largely the effect of bringing Renco into the fold and comparing our opportunity lists and, you know, seeing the cross-selling opportunities between our recent acquisition and our core business.

Okay, great. Last question, and I'll jump back to Q. Just in engineering, the call for Q4 being, you know, sequentially similar to Q3, but there's no genetics. Can you just talk about the growth of what's in that growth and the difference between end genetics?

Yeah, commercial aviation, primarily now, We deliver Lipskins primarily to Airbus aircraft. And Airbus has communicated that they will be at the pre-COVID build rate by the end of this year. So that continues to ramp month after month, quarter after quarter. So that's a nice steady growth. Space continues to be a healthy end market for us. And some of the defense programs continue to ramp. So all of those sectors have good long-term visibility. for us, and mixed under that, occasionally, we still get orders for some energy, oil, and gas opportunities, but those come and go, and they've been difficult to forecast and predict in the past. So our assessment is really based on those three other markets that are the core markets for this business.

Thanks, Adamir, and good luck in Q4.

Yeah, thanks, Chris.

And our next question today comes from Chris Powell with Barrington Research. Please go ahead.

Good morning, David and Anamir. Thanks for taking my questions. Good morning. Good morning. Yeah, I wanted to ask some more on the scientific segment. Just first of all, congratulations on, you know, coming in at the higher end of that 10 to 20 million. As we look at the retail pharmacy customer base within that 10 to 20 million, coming in at the higher range. Can you talk in more granular level? Has this been cabinet replacement or are we looking at cabinet additions when we look at specific retail pharmacy locations? And as it relates to your customer base as much as possible, I know there's competitive reasons why you may not be able to comment, but can you talk about the level of penetration within some of these pharmacies. In other words, perhaps there's some remaining share to be gained because of older existing cabinets not related to the COVID vaccine that are still in some of these retail pharmacies that could be sales opportunities.

Yeah, there are a lot of moving pieces in the question you just asked, Chris. Let me just put a couple of the pieces out there. The pharmacies really started putting in cold storage about five years ago as they started to roll out vaccines for annual flu vaccine. And then there was a major rollout a few years ago of a shingles vaccine that required minus 20 degrees storage. And that has just accelerated in recent years. The average life of one of these cabinets is about five years. So we anticipate that they're replaced between four and seven years. And so as the install base grows, there will be an increasing kind of steady replacement opportunity. Now, as far as penetration of the pharmacies, this is a little difficult for us to get our arms around because we know that some pharmacies are adding multiple stores. In fact, the picture that we showed, it was not a pharmacy, it was a physician's office. If you were to go into your pharmacy now, if you go into a large CVS or Walgreens and look back in the pharmacy area, you may see two, three, maybe even four cabinets, small two-foot, two cubic foot cabinets up to the larger pharmacies may have a larger standing cabinet. So some pharmacies have been adding additional storage. We know there are other pharmacies that added their first unit in the last few months to support the COVID vaccine storage. So it's hard for us to tell you how many pharmacies have one unit, how many have no units, and where the growth opportunity is. But our view is, as we expressed in the in the script that the top line is starting to taper a little bit as this first wave of vaccination rollouts has taken place. We are starting to see some orders for individual smaller cabinets for physicians' offices. We know there's discussion of the additional retail pharmacy locations adding storage that don't have it, but this is all This is all discussion. We don't have specific plans from our customers, although we're engaging. We speak with them every week about this. It's an evolving situation. And I wish I had a clearer plan, but I'm just laying out all the pieces that we know. We stand ready to serve the customers. We've got the capacity. We have the materials available, and we'll go wherever the industry needs.

That's great. And then moving off from scientific, you talked about the recovery that you're seeing as it relates to specialty solutions and some of their product lines. At this point next year, we should be at a better point there. Likewise, I think commercial aviation should be at a better point at this time next year. As we get to that point, whether in Q3 or Q4 of next fiscal year, Can you talk about the business dynamics, how that might look on a revenue and margin perspective, given the actions that you've taken now and up to that point?

Is the question at an aggregate level, kind of top line, sales, margin, growth a year from now?

Yeah, what things could look like on a run rate basis for those segments once we get out of the recovery. Okay.

So I first start at the top level and go back to the slide we shared last quarter that we anticipate the portfolio businesses we have now, they're strong in their segments, they have good competitive advantage, and they serve good in markets. And through the cycle, we see a mid-single-digit growth at a corporate level. If you look a year from now, you kind of go segment by segment, The engineering technologies business has the most clarity because we have long-term agreements. They've got upper single-digit growth coming for the coming years as commercial aviation ramps up, as these new defense contracts begin to kick in. Electronics, we've been seeing terrific growth here. So there's been a little bit of catch-up there. But as I mentioned, we're gaining share. We're seeing growth in EVs and renewables. So that's mid-single-digit growth there, very reasonable expectation. Our specialty solutions business, the hydraulics could be driven by an infrastructure investment. That business is very strong right now. Federal and PROCON, which are two remaining food service-exposed businesses, they're continuing to see month after month is that those food service equipment and markets grow. And our current expectation is that they'll be back to pre-COVID levels by this time next year, which would be mid-single-digit, upper-single-digit growth. So as you go through all the businesses, I mean, you've got this wave of scientific COVID stories that we just talked about, but all the other businesses have good, solid underlying drivers in their end markets that give us a lot of confidence as we look ahead to the next year.

Very helpful. And lastly, leverage is down to 0.8 turns. Can you talk about the balance sheet? Obviously, leverage is at a very good level, and you have great balance sheet strength. How do you plan to put this balance sheet to work?

Yeah, Chris, it's Adam here. I'll take this one. Yeah, I mean, we're obviously very pleased with the strength of our balance sheet, and we'll continue to allocate capital in a very disciplined way, you know, from, you know, kind of organic investments, both from, you know, safety and maintenance standpoint, as well as growth standpoint. We're obviously going to be looking, you know, continue to be active in the M&A front, look for external, you know, look for acquisition opportunities. You know, we... have a very low interest rate, you know, and a really good kind of a long-term debt position. But obviously, you know, the other piece that we always look into is, you know, is dividends as well as the share repurchases. We did about 94,000 of share repurchases in the quarter. So we'll continue approaching it in a very disciplined way and, you know, nothing significant or different than what we have done in the past.

Great. Thanks for taking my questions. Thank you, Chris.

And our next question today comes from Chris Moore at CJS Securities. Please go ahead.

Good morning. This is Stephanos Chris calling in for Chris. Thanks for taking my question. I'd like to expand on that last question, actually, on M&A, and in particular in the scientific segment. When you think about M&A, are you looking at complementary products or products that can leverage the same sales channels?

Well, actually, I combine those answers with – A year or two ago we started studying this end market in some depth to look for acquisition opportunities and understand where the leverage points are, so what kind of acquisitions would make sense where we'd have some synergies. If you look at the facilities that have our cabinets, whether it's a laboratory, a research institution, pharmaceutical company, They all have some related equipment. They may have an incubator, a centrifuge, a biosafety containment cabinet, and those are served by the same channels. So there's a core set of equipment you find in these facilities, and there are privately held companies out there that are of a size similar to the acquisition we made of Scientific a few years ago, which could provide an opportunity for us to expand this group to broaden out into other scientific equipment. So that answers your question. There are some opportunities we've identified that could be attractive. You can never predict whether a deal will actually come together. It takes a willing buyer, willing seller. But we are actively exploring the opportunities there. We'd be very excited to expand this group with some other product categories.

That's great. Thank you. And then just one more. Obviously, Standnext has done a good job of expanding margins since the early stages of the pandemic. Could you talk about the biggest wildcards in your ability to continue expanding margins in the fiscal 22?

Well, if you follow the company the last couple of years, the biggest headwind we faced was in our electronics business with rhodium, which is kind of a thinly traded rare earth mineral we use in our read switches. And back down to 2018 or so, The price per ounce of rhodium was less than $2,000 an ounce. Back then, we were using 2,500 ounces a year. The spot price now is close to $30,000. And in 2020 in particular, that compressed our margins. In the last year, we've really put in place a nice disciplined process of managing our price and reflecting price of the rhodium inputs. And we've also announced... an execution of a substitution program to move as many switches as possible to other materials. That is, every quarter we're adding new machines, new capacity in these other materials so that by the end of, by about this time next year, the end of fiscal 22, that transition will be complete. So that has been our greatest headwind. Our plans are well underway to replace that. If you look at other Other issues are our hydraulics business is seeing steel inflation, which happens cyclically in that business, and they typically have a good track record and standard playbook of passing that price through. It's always a challenge in a competitive environment, but they know what to do. And then a couple of our businesses have longer supply chains, so freight costs are are starting to grow as well, so we'll have to deal with that to pass that through. Beyond that, it's just standard blocking and tackling. We continue to drive our OPEX programs, lean in our plants. We've put in place some strategic sourcing programs and electronics that are relatively new. So we feel we've got a basket of opportunities and levers to pull to counter those cost impacts.

Perfect. Thank you for taking my questions. Thank you, Steph.

Ladies and gentlemen, this concludes our question and answer session. I'd like to turn the conference back over to the management team for any final remarks.

I want to thank everybody for your interest in STANDEX. It was a pleasure for us to share results from the most recent quarter, and we look forward to reporting back to you in August with the results of our fiscal year 22. I ask you all to continue to stay healthy, and we'll look forward to catching up in another quarter. Thank you.

Thank you, sir. This concludes today's conference call. We thank you all for attending today's presentation. You may now disconnect your lines and have a wonderful day.