Standex International Corporation

Good morning and welcome to the STANDX International Fiscal Fourth Quarter 2022 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 touchtone 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 of Clearview 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. To 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 Earning 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 financial 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 fourth quarter 2022 conference call. We're very pleased with our strong fourth quarter performance, which concluded a highly successful fiscal 2022. The significant transformation of Standex combined with solid operational execution has strengthened our market positions and delivered record financial results. We are entering fiscal 2023 with an active pipeline of new business opportunities and productivity initiatives to further build on our momentum. I want to thank our employees, our executives, and the Board of Directors for their continued dedication and support. Now, if everyone can turn to slide three, key messages. The strength of our high-quality businesses with attractive growth and margin profiles is reading through in our results. From a margin perspective, fourth quarter fiscal 2022 represented our fifth consecutive quarter of record consolidated adjusted operating margin. Consolidated adjusted operating margin of 13.9% in fiscal fourth quarter 2022 was a 60 basis point increase year on year and a 10 basis point improvement sequentially, despite the sales impact of the COVID-19 lockdown in China. STANDEX's five company business segments each reported adjusted operating margin of at least 15% as we successfully executed company-wide productivity and price realization actions. We reported 14.7% organic revenue growth year-on-year in fiscal 2022 as four of our five business segments reported sales increases. Electric vehicles, renewable energy, commercial aviation, and defense and markets remained strong. while food service equipment has recovered to pre-COVID levels. Revenue contribution from high growth markets such as electric vehicles, green energy, and the commercialization of space increased to $59 million in fiscal 2022, an approximately 50% increase year on year. Our electronics segment achieved a significant milestone with record sales of $304 million in fiscal 2022. Both revenue and segment operating income have more than doubled over the past five years as we have aggressively pursued new market opportunities. Another milestone is reached by our scientific segment with record revenue of $84 million, which has more than doubled since 2017. Our solar energy project with Enel is progressing well with process design activities for the pilot plant we announced last quarter. Order trends remain healthy, and our backlog, realizable in under one year, grew 22% to $256 million. In fiscal 2023, we have an active operational excellence calendar, including ongoing lean events, continued standardization of operating disciplines across business units, and further leveraging of our G&A structure. We continue to implement strategic sourcing actions where applicable. but a significant portion of our client base is in the same region where materials are sourced and products are manufactured, reducing supply chain issues. Adam here will discuss our financial performance, liquidity position, and capital allocation in greater detail later in the call. In fiscal first quarter 2023, we expect revenue and operating margin to be similar to fourth quarter fiscal 2022, but increase year on year. In fiscal 2023, we expect continued improvement in financial metrics, Our outlook is supported by backlog realizable in under one year of approximately $256 million at the end of fiscal 2022, representing approximately 22% increase year-on-year. Now, please turn to slide four, and I will begin to discuss our segment performance and outlooks beginning with electronics. Segment revenue of $72 million decreased 1% year-on-year. and market trends remain favorable, particularly for renewable energy and electric vehicles. However, as expected, the COVID-19 lockdown in China impacted sales by approximately $6 million in the quarter. Adjusted operating margin of 22.5% in fiscal fourth quarter 2022 represented a 90 basis point increase year on year, primarily due to the impact of price realization and productivity actions. New business opportunities remain strong, with first-year NBO sales delivering $17 million in fiscal 2022, a 15% increase year-on-year. The pictures on slide four highlight the electronic segment's focus on growth markets, such as grid infrastructure and charging systems for electric vehicles. Regarding our first quarter fiscal 23 outlook, sequentially we expect a moderate increase in revenue due to continued positive end-market demand, and some recovery of sales which were deferred due to the lockdown in China. We also expect a slight sequential increase in operating margin due to the sales increase partially offset by product mix. Please turn to slide five for a discussion of the engraving segment. Revenue increased 1.6% year-on-year to $37 million, including 7% organic growth and a 5.5% headwind from exchange rate changes. Operating margin of 16.2% in fiscal fourth quarter 2022 increased 80 basis points year-on-year due to sales growth and the impact of productivity and efficiency initiatives, including progress on our previously announced $2 million in cost savings actions. Laneway sales of $56 million grew approximately 9% year-on-year with positive trends in soft trim tools, laser engraving, and tool finishing. The picture on slide five illustrates the broad applicability of engravings technological expertise and one partner solution approach to non-auto end markets. In this case, virtual reality goggles. Our comprehensive approach offers customers the opportunity to work with Standex as their sole supplier from design, prototyping, to production on a global basis. In particular, our proprietary rapid texture prototyping quickly turns digital concepts into physical patterns. enabling us to put a physical sample in front of customers in a matter of a few days, greatly reducing project lead times. In our next fiscal quarter, we expect a slight sequential decrease in revenue due to project timing, as well as an operating margin due to project mix, partially offset by operational improvements. In fiscal 2023, we also expect continued growth in soft trim demand, reflecting auto manufacturers increasing move to higher quality interior surfaces and textures. Turn to slide six, scientific segment. As expected, scientific revenue decreased 9% year on year to nearly $19 million. This reflected ongoing sales in core markets such as pharmaceutical, clinical laboratories, and academic institutions offset by lower demand associated with COVID-19 vaccine storage. Operating margin of 19.8% decreased 20 basis points year on year due to the lower volume. As highlighted on slide six, the pace of new product introductions at Scientific is accelerating, further broadening our product line and capabilities, including new product families, such as blood bank and blood plasma, and patented features that conform with the latest standards for refrigeration designed for hospitals, medical, clinical, and research facilities. In the fiscal first quarter of 23, we expect a sequential basis, a slight revenue and operating margin decrease, due to lower COVID vaccine storage demand. Turn to the engineering technology segment page on slide seven. Revenue of $22 million increased 5% year on year, reflecting continued growth in commercial aviation and energy end markets. Operating margin of 15% was similar year on year due to volume growth and project mix. As pictured on slide seven, Our advanced engineering team has further pushed the capabilities of our spin-forming process to create an extended-leg Lipskin suitable for application on wide-body aircraft. In the next fiscal quarter, we expect a moderate to significant decrease in revenue, despite the healthy backlog, reflecting project timing with a slight decrease in operating margin due to productivity initiatives mostly offsetting impact of volume decrease. On a sequential basis, revenue and operating margin are expected to increase significantly in fiscal second quarter 23 as a healthy backlog begins to convert to sales. Please turn to slide eight, specialty solutions. Specialty solutions revenue of $35 million represented a nearly 37% year-on-year increase due to volume growth in end markets and the impact of price realization actions at Hydraulics. Operating margin increased 370 basis points to 15.3% reflected the volume increase and impact of pricing and efficiency actions. As pictured on slide 8, we have expanded our highly successful milk merchandiser product line. This new product emphasizes some of the key features of the original product version, including flexibility to merchandise a wide assortment of products and easy loading and unloading, but in a smaller unit version for schools with less space. In the fiscal first quarter 2023, on a sequential basis, we expect revenue to be similar to end market demands with a moderate improvement in operating margin due to sales, pricing, and productivity initiatives. I will now turn the call over to Ademir to discuss our financial performance in greater detail.