Standex International Corporation

The Standex International Fiscal First Quarter 2022 Conference Call. All participants will be in listen-only mode. Should you need assistance, please signal a conference specialist by pressing the SCAR key followed by zero. After today's presentation, I have the opportunity to ask questions. Please note that this event will be recorded. I'd like to turn the call over to Mr. Gary Farber of Finney 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 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 Stanix'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 included adjusted net income, adjusted operating income, adjusted net income from continual 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. Stenex believes that such information provides an additional measurement and consistent historical comparison of the company's performance. On the call today is Stenex'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 year first quarter 2022 conference call. I'm very pleased with our first quarter results, which reflected solid financial performance and an expanding pipeline of growth opportunities. Standex is a stronger company today as a result of well-executed portfolio moves and a higher level of performance of our businesses. We continue to have a favorable outlook for fiscal 2022 and look forward to further successfully executing on our growth strategy. I want to thank our employees, executive teams, and the board of directors for their dedication and support as we further grow our portfolio of high quality businesses. Now, if everyone can turn to slide three, key messages. Revenue and consolidated adjusted operating margin increased significantly year on year in fiscal first quarter 2022, as we leveraged positive demand trends and converted new business opportunities from our pipeline. Consolidated organic revenue growth of approximately 17% year on year reflected strength at our electronics and scientific segments. Electronics revenue increased approximately 37% year on year, primarily due to a broad-based geographical recovery with continued solid demand for relays in renewable energy and electric vehicle applications, along with positive trends in transportation, appliance, test and measurement, and distribution end markets. Scientific segment revenue increased approximately 29% year-on-year, driven by retail pharmacies, clinical laboratory, and academic institution end markets. Consolidated adjusted operating margin of 13.4% was a 250 basis point year-on-year increase and represented our second consecutive quarter of delivering our highest consolidated margin in STANDEX history. Our results also reinforce the benefit of our continued investment in end markets that have healthy growth prospects and where we can incorporate our innovative solutions and strong customer value propositions. Sequentially, total company backlog realizable in under one year increased approximately 12%, with strength particularly at the electronics, specialty solutions, and engraving segments. At the electronics segment, the new business opportunity pipeline continues to grow, and we are seeing positive trends in such end markets as electric and heavy-duty vehicles, defense, industrial, and aerospace. In addition, Renko Electronics, which we acquired a little over a year ago, is contributing to the growth of our opportunity pipeline as we realize sales synergies from cross-selling opportunities in our expanded customer base. At the scientific segment, we are also introducing a new product family, blood bank refrigerators and plasma freezers. leveraging our expertise in life sciences and refrigeration to expand into adjacent markets. Execution on our active funnel of productivity and efficiency initiatives is further adding to our success. We are driving manufacturing and supply chain productivity with actions including new lean programs and mitigating inflationary trends through price realization and value engineering. In addition, our reed switch production and material substitution project of the electronics segment continues to mitigate some of the material inflation we are seeing and remains on track to be substantially complete by the end of fiscal 2022. We continue to have significant financial flexibility to pursue new organic and inorganic growth opportunities given our strong balance sheet and liquidity position and consistent cash flow generation. Adam here will discuss our financial performance in greater detail later in the call. In regard to our financial outlook, we are off to a solid start to the fiscal year and continue to expect stronger financial performance year-on-year in fiscal 2022. In the second quarter, we expect revenue and operating margin to increase slightly compared to fiscal first quarter 2022, and significantly compared to the year-ago quarter. Now, please turn to slide four, and I will begin to discuss our segment financial performance, beginning with electronics. Revenue increased approximately $20.6 million, or 37.2% year-on-year, including 36.1% organic growth, reflecting continued broad-based geographic and end-market strength, as well as a 1.1% positive contribution from foreign exchange. Operating income increased approximately $9.1 million, or 100.2% year-on-year, due to operating leverage associated with revenue growth and productivity initiatives, partially offset by increased raw material and freight costs. Looking ahead, we have a very active new business opportunity funnel of approximately $61 million, which is expected to deliver first-year sales of $19 million, with positive trends across all major geographic areas and business units, and are well-positioned to further capture additional customer business. Electronics backlog, realizable under a year sequentially, increased approximately $13 million, or 11%, in fiscal first quarter 22. The picture on slide four highlights the success of our customer intimacy sales model in moving up the value stack in a customer's product. In this example, we addressed a customer application in 2015 by supplying a packaged read switch. This led to the opportunity to develop an entire sensor in 2018, which expanded by incorporating additional functions in 2021. As our collaboration evolves, so does our value provided, reinforcing the importance of our strong technical and applications expertise. Regarding our fiscal second quarter 2022 outlook, we expect a slight sequential decrease in electronics revenue and operating margin, reflecting a lower number of production and shipping days and product mix in the quarter. Please turn to slide five for a discussion of the engraving segment. Year-on-year revenue decreased approximately $1.2 million, or 3.4%, and operating income was nearly $1 million lower, or a 17% decrease, due to the timing of projects and geographic mix partially offset by productivity actions. Laneway sales of approximately $14.9 million represented a 27% increase year on year, including a positive demand outlook for soft trim tools, laser engraving, and tool finishing. Sequentially, backlog realizable under a year increased $5.9 million, or approximately 44% in fiscal first quarter 22. The picture highlighted on slide five shows a Tesla Model Y version. Through cross-regional collaboration within the segment and based upon our soft trim proprietary technology, we are able to supply two sets of tools substantially faster than our competitors' production capability, further driving our growth opportunity in the China market. In fiscal second quarter 22, we expect a slight sequential increase in engraving segment revenue and operating margin. This is due to the timing of projects, regional mix, and demand for soft trim tooling, complemented by the impact of additional productivity initiatives. Turning to slide six, the scientific segment. Revenue increased approximately $4.9 million, or 29.2% year-on-year, reflecting positive trends at pharmaceutical channels, clinical laboratories, and academic institutions. Operating income increased approximately $.4 million, or 10.6% year-on-year, due to volume growth and pricing initiatives balanced with investments to support future growth opportunities and higher freight costs. Sequentially, backlog realizable under a year increased $1.6 million, or approximately 27% in fiscal first quarter and fiscal 22. Significant orders in the quarter were placed to support replacement of aging cabinets from retail pharmacy locations, a phenomenon we expect to expand as our installed base grows. As highlighted on slide six, we have applied our growth discipline processes in a two-year development project to leverage our expertise and intellectual property in life sciences and refrigeration into adjacent product categories and are introducing a new product family, blood bank refrigerators and plasma freezers. This product launch includes two sizes of refrigerators and freezers designed for hospitals, blood banks, and other medical, clinical, and research facilities. These products comply with all relevant industry requirements, including those from the FDA and the Association for the Advancement of Blood Biotherapies. In fiscal second quarter 22, we expect scientific revenue and operating margin to be similar to our first quarter, reflecting continued demand for vaccine storage, accompanied by the return of demand from traditional end segments and pricing actions partially offset by increased freight costs. Turning to the engineering technology segment of slide seven. First quarter revenue at $17.6 million was similar year on year due to positive trends in the space and market, balanced with the absence of the recently divested and genetics business, and to the economic impact of COVID-19 on this segment and the markets. Operating income increased approximately $.4 million, representing a 91.7% increase year on year, reflecting product mix and ongoing productivity initiatives offset by a $1.1 million one-time project-related charge. We have an active new business opportunity pipeline in both space and aviation. In addition, as highlighted on slide seven, our opportunities are also expanding in international defense and markets. As shown here, we are collaborating with customers to develop bulkhead assembly and additional solutions for domestic and international armored vehicles, and have also captured customer wins to develop nose cone adjacent products in next generation missile programs. Regarding our outlook, in fiscal second quarter 22, we expect revenue to be sequentially similar with positive commercial aviation and defense trends partially offset by project timing in the space and market. However, we expect a significant increase in operating margin due to project mix, productivity initiatives, and the absence of the one-time project related charge which occurred in the first quarter. Please turn to slide eight, specialty solutions. On a year-on-year basis, specialty solutions revenue increased approximately $0.2 million, or slightly under 1%, and the operating income decreased $1.1 million, or 27.9%. First quarter results reflected end market recovery, particularly in food service markets, offset by the impact of a prior work stoppage, which has since been resolved. In addition, we experienced material inflation, which we are seeking to recover through pricing actions. We have a very strong backlog position, realizable under a year, which sequentially increased $8.7 million, or approximately 33% in the first quarter. We also continue to expand our merchandising product portfolio. Highlighted on slide 8 is the recently launched Vision Series, available in heated, refrigerated, and non-refrigerated options. Developed through STANDEX's GDP Plus growth process, this is a ground-up redesign of our core product. The new version of this product has several attractive features, including modern styling with a very viewable and accessible product area. The Vision Series can accommodate a significant amount of food product in a highly efficient footprint and is capable of running under a variety of conditions, including high temperature and humidity. In regard to our second quarter specialty solutions outlook, We expect a moderate sequential increase in revenue and operating margin due to execution on our strong backlog position and the absence of the financial impact of the prior work stoppage. We can continue to focus on recovering material inflation through pricing actions. I will now turn the call over to Ademir, who will discuss our financial performance in greater detail.