Standex International Corporation

Good morning, and welcome to the Standex International Fiscal First Quarter 2023 Financial 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. Please note this event is being recorded. I'd now like to turn the conference over to Chris Howe, Director of Investor Relations. Please go ahead.

Thank you, Operator, and good morning. 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 could refer to STANDEX's most recent annual report on 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-GAF 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, Chris, and welcome to StandX. We're happy to have you join us. Good morning, everyone, and welcome to our first fiscal quarter 2023 conference call. We're very pleased with our first quarter performance, which built on a highly successful fiscal 2022. Our focus on fast growth markets, pricing disciplines, and nimble execution by our global management teams positioned us to continue delivering strong earnings in a dynamic macroeconomic environment. We have an active pipeline of new business opportunities and productivity initiatives to continue 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 continued effectiveness of our price and productivity actions improved our margin profile in the quarter and produced our sixth consecutive quarter of record adjusted operating margin. Consolidated adjusted operating margin of 15% in fiscal first quarter 2023 was 160 basis point increase year on year and 110 basis point improvement sequentially, despite external challenges such as high inflation and foreign currency headwinds. Four of STANDEX's five company business segments each reported adjusted operating margin of at least 16% as we successfully executed company-wide productivity and price realization actions. We reported 7.3% organic revenue growth year-on-year as three of our five business segments exhibited organic revenue growth. Electric vehicles, renewable energy, commercial aviation, and defense end markets remained strong. while scientific was impacted by lower demand for COVID vaccine storage. Revenue contribution from high growth markets such as electric vehicles, green energy, and the commercialization of space increased approximately 30% year on year to $17 million in fiscal first quarter 2023. We anticipate this revenue stream to grow by over 35% in FY23. Our solar energy project with Enel is progressing well and is now in the pilot plant design phase. Order trends remain healthy and a backlog realizable in under one year grew 12% year-on-year to $266 million. As part of our value creation system, we continue to have an active focus on lean initiatives and, in turn, the standardization of operating disciplines across all business units, further leveraging our G&A structure. As a result, we are seeing continued improvement in our ROIC with Q1 FY23 annualized ROIC at 12%, 160 basis points improvement year on year. Adam here will discuss our financial performance, liquidity position, and capital allocation in greater detail later in the call. In fiscal second quarter 2023 on a sequential basis, we expect slightly higher revenue and similar operating margin. On a year-on-year basis, we expect flat revenue comprised of mid- to high-single-digit organic growth countered by an equivalent reduction from currency and moderate to significantly improving operating margin. In fiscal 2023, we anticipate the majority of our segments to exhibit solid organic growth. Now, please turn to slide four, and I will begin to discuss our segment performance and outlook, beginning with electronics. Segment revenue of $75 million decreased 1% year on year, as 4.3% organic growth and 1.5% contribution from acquisitions were more than offset by 6.6% negative impact from foreign exchange. And market trends remain favorable, particularly for industrial applications, medical, power management, and EV-related markets. Operating margin of 24.1% in fiscal first quarter 2023 was flat versus the year-ago period, primarily due to organic sales growth and productivity initiatives offsetting the inflationary and currency impact. New business opportunities funnel remains strong and is currently at $62 million. The pictures on slide four highlight the electronic segments focused on growth markets, such as warehouse automation. Within magnetics, we are delivering components for smart conveyor systems in manufacturing and warehouse automation to improve precision and energy efficiency. This business will continue to grow, supporting the overall electrification trend in many markets. Within sensors and switching technologies, our relays are unique products, meeting the isolation requirements in renewable energy applications as well as electric vehicles. We continue to see strong growth coming from China and Europe as renewables continue to expand in those markets. Sequentially, we expect revenue in our second fiscal quarter to be similar to as relay and magnetics components grow in North America, is offset by softness in white good end markets in Asia and Europe. The company expects a slight decrease in operating margin, mostly due to mix and higher growth investments, partially offset by continued price actions. Please turn to slide five for a discussion of the engraving segment. Revenue remained nearly flat at $35 million as an 8.3% headwind from exchange rate changes overshadowed 7.9% organic growth. Operating margin of 16.7% in fiscal first quarter 2023 increased 280 basis points year-on-year due to the realization of previously announced productivity actions in North America and Europe. Laneway sales of $15 million grew approximately 5% year-on-year, with positive trends in soft trim tools, laser engraving, and tool finishing. The picture on slide 5 illustrates our innovative texture services for customers like Ford, using our advanced laser technology, which can be engineered to create colored surfaces without paint. In our next fiscal quarter, on a sequential basis, we expect revenue to be similar and operating margin to decrease slightly due to project mix. In fiscal 2023, we also expect continued growth in soft trim demand, reflecting auto manufacturers increasing move to higher quality interior surfaces and textures. Please turn to slide six, scientific segment. As expected, scientific revenue decreased 14% year on year to $18.5 million, primarily driven by lower demand associated with COVID-19 vaccine storage. Operating margin of 20.2% decreased 70 basis points year on year due to the lower volume, which was mostly offset by price and productivity actions. As highlighted on slide six, the pace of new product introductions at Scientific is accelerating, further broadening our product line and capabilities. We were the first to release products compliant with the new NSF NIST vaccine storage standard and continue to expand the product family with new sizes. As new vaccines and treatments continue to be introduced, scientific as a favorable market position to meet the growing demand. On a sequential basis, in the fiscal second quarter of 23, we expect slightly higher revenue increase and slightly lower to similar operating margin, primarily due to R&D investments and higher anticipated spend on advertising and trade shows. Turning to the engineering technology segment page on slide 7. Revenue of $17 million decreased 3% year-on-year, reflecting project timing and the impact of foreign currency. Operating margin of 11% increased 590 basis points year-on-year due to productivity and efficiency initiatives and the impact of a one-time project-related charge in fiscal first quarter 22 that did not repeat. As pictured on slide 7, our advanced engineering team is developing products for a large number of customers from established market leaders to innovative start-ups. through applications like the pictured core fuel tank dome, as well as adjacent rocket engine and structural components. In the next fiscal quarter, on a sequential basis, we expect a moderate to significant increase in revenue and operating margin, reflecting project phasing. Please turn to slide eight, specialty solution segment. Specialty solutions revenue of $35 million increased nearly 37% year-on-year due to price realization, strong market demand in hydraulics business unit, and a favorable year-over-year comparison due to a labor work stoppage in two plants during fiscal first quarter 22. Operating margin increased 640 basis points to 17.4%, reflecting the price and volume increases. As pictured in slide 8, We've continued to expand our ProCon product line with our helical gear pump for professional espresso shots and milk foaming, which requires 40% less energy than competitive products. In the fiscal second quarter 23, on a sequential basis, we expect revenue to decrease slightly, primarily due to seasonality in food service equipment and market. Operating margin is expected to be similar as volume decline is offset by pricing and productivity actions. I will now turn the call over to Ademir to discuss our financial performance in greater detail.