Standex International Corporation

Good morning, and welcome to the Standex International Fiscal Second Quarter 2023 Financial Results 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 would now like to turn the conference over to Chris Howe, Director of Investor Relations. 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 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-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, Chris. Good morning, and welcome to our fiscal second quarter 2023 conference call. Yesterday, prior to our earnings release, we announced a signed agreement to divest our ProCon pumps business to invest industrial for $75 million, subject to customary post-closing adjustments. We expect the closing of this transaction to occur during the month of February. The PROCON Investiture supports continued simplification of our portfolio and enables us to further focus on our larger businesses and fast growth and market opportunities. We plan to use the proceeds to fund attractive organic growth and acquisition opportunities consistent with our capital allocation model. I would like to thank our PROCON colleagues for their contributions to STANDEX and wish them much success as they start a new chapter for the business. Shifting to our second quarter performance, we are proud of our results, which came in better than our expectations. We were able to continue our trend of sequential margin improvement with double-digit organic growth in three of our segments. The execution by our global management teams and strong demand in our fast-growth markets position us to continue growing organically while sustaining and improving upon our other key financial metrics. We continue to be optimistic about our new product and applications development across our businesses. 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. We are very pleased with our sales performance and another record margin in the quarter. We reported 5.5% organic revenue growth year on year, as three of our five business segments exhibited organic revenue growth greater than 10%. Electric vehicles, renewable energy, commercial aviation, and defense end markets remain strong, while the scientific segment, as expected, 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 35% year-on-year to $19 million in fiscal second quarter 2023. We anticipate this revenue stream to grow by approximately 40%. in FY23. Order trends remain healthy and backlog realizable in under one year grew 2% year-on-year to approximately $269 million. The continued effectiveness of our price and productivity actions improved our margin profile in the quarter and produced our seventh consecutive quarter of record adjusted operating margin. Consolidated adjusted operating margin of 15.2% in fiscal second quarter 23 was a 160 basis point increase year on year and a 20 basis point improvement sequentially, despite a challenging global environment. Four of Standex's five business segments expanded margin year on year, with three segments showing margin expansion of 270 basis points or more. All five of our segments reported operating margin over 15%. 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 metric, with Q2 FY23 annualized ROIC at 12.3%. Adamir will discuss our financial performance, liquidity position, and capital allocation in greater detail later in the call. In fiscal third quarter 23 on a sequential basis, we expect a slight to moderate decrease in revenue due to unfavorable foreign exchange and the impact of the pro-con divestiture. We expect slightly lower to similar adjusted operating margin compared to fiscal second quarter 23 as price and productivity actions mostly offset lower sales. We expect higher adjusted operating margin compared to the same period a year ago. Now, please turn to slide four. and I will begin to discuss our segment performance and outlook beginning with electronics. Segment revenue of $73 million decreased 5% year-on-year as an organic decline of 0.2% and a 6.1% negative impact from foreign exchange, more than offset a 1% contribution from acquisitions. Most of the end market trends remain favorable, particularly for industrial applications, power management, renewable energy technologies, and EV-related markets. From a regional standpoint, North American market demand was very strong, while China and Europe demand, primarily in the appliances and market, remained soft. We do expect China market demand to start improving after the Chinese New Year. Operating margin of 23.4% increased 100 basis points versus the year-ago period, primarily due to productivity initiatives offsetting lower volume and the currency impact. The pictures on slide 4 highlight the electronic segment's focus on growth markets, such as the expansion and modernization of the electrical grid. In this example, you can see we provide the mission-critical transformers and inductors essential to monitor performance in utility substations. Sequentially, we expect revenue in our third fiscal quarter to improve slightly to moderately, with strong demand across end markets in North America and increased sales into fast-growth markets. The company expects similar to slightly lower operating margin due to unfavorable product mix and plant moves in China and Germany, which were completed in early January. Please turn to slide five for a discussion of the engraving segment. Revenue increased 3% to $38 million, a strong organic growth of 12% more than offset a 9.2% headwind from foreign exchange. Operating margin of 16.9% in fiscal second quarter 23 increased 270 basis points year on year due to realization of previously announced productivity actions in North America and Europe. The segment continues to see positive trends in soft trim tools, laser engraving, and tool finishing. The picture on slide five illustrates how the customer intimacy model is deployed in the engraving business to provide broad solutions. The design, verify, produce process was used with several large OEMs to first develop texture design concepts for new vehicles, then implement them on both hard trim parts and soft trim parts. These projects also leveraged a global supply chain and our global presence allowed a coordinated and seamless simultaneous delivery to meet the customer's launch schedules. In our next fiscal quarter on a sequential basis, We expect revenue to decrease slightly and operating margin to decrease moderately due to unfavorable project mix. We expect more favorable mix in fiscal for the quarter 23, as well as 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 22% year on year to $19 million, primarily driven by lower demand associated with COVID-19 vaccine storage. Operating margin of 21.6% decreased 70 basis points year on year due to lower volume more than offsetting price, productivity actions, and lower freight cost. The picture on slide six illustrates a newly designed flammable material and hazardous location storage cabinet that meets required regulatory standards. This differentiated product is primarily used in academic research and industrial settings. On a sequential basis in the fiscal second quarter of 23, we expect slightly lower revenue and a similar operating margin as productivity actions and lower freight costs are projected to offset volume decline. Now, turn to the engineering technology segment page on slide seven. Revenue of $24 million increased 34% year-on-year, reflecting strong growth across all markets. Operating margin of 15.5% increased to 270 basis points year-on-year due to higher volume and the impact of productivity and efficiency initiatives. As pictured on slide 7, our engineering team is leveraging its advanced metal forming capability to enable the world's first zero-emission aircraft. We recently announced a contract to manufacture prototype hardware for the Airbus Zero-E hydrogen-powered aircraft. In fiscal third quarter 23, on a sequential basis, we expect a significant decrease in revenue due to project timing and a slight decrease in operating margin as productivity actions offset a volume decline. We do expect more favorable timing of projects in the fiscal fourth quarter of 2023, which is supported by a healthy backlog. Please turn to slide eight, specialty solutions segment. Specialty solutions revenue of $34 million increased 15% year on year, due to healthy organic growth in hydraulics and display merchandising businesses. Operating margin increased 420 basis points to 16.8%, reflecting price and volume increases and realization of productivity actions. As pictured on slide 8, our display merchandising business has continued to enhance its offering through redesigns of existing products, which is fueling growth and represents about a quarter of business sales. In the fiscal third quarter of 23, on a sequential basis, We expect revenue to decrease moderately to significantly, primarily due to the pro-con divestiture. Operating margin is expected to increase slightly to moderately due to ongoing pricing and productivity actions in the hydraulics and display merchandising businesses. I will now turn the call over to Ademir to discuss our financial performance in greater detail.

Thank you, David, and good morning, everyone. First, I will provide a few key takeaways from our second quarter 2023 results. which came in ahead of our expectations. Our operating performance and related earning strength reflected the continued effectiveness of our pricing actions and productivity initiatives. As a result, we achieved our seventh consecutive quarter of record-consolidated adjusted operating margin with adjusted earnings per share of $1.74. In addition, our end market demand trends remained stable as we ended the second quarter with an overall book-to-bill ratio around one. Now, let's turn to slide 9, second quarter 2023 summary. On a consolidated basis, total revenue increased 1.1% year-on-year to $187.8 million. This reflected organic revenue growth of 5.5% and a 0.4% contribution from the sensor solution acquisition, partially offset by 4.8% impact from foreign exchange. Second quarter 2023 adjusted operating margin increased 160 basis points year-on-year to to 15.2%, our highest in the history of the company, as our adjusted operating income grew approximately 13.3% on a 1.1% consolidated revenue increase year-on-year. Our second quarter 2023 tax rate decreased 100 basis points year-on-year. Sequentially, we expect a similar tax rate in the fiscal third quarter of 2023 with a full tax rate between 23.5% and 24%. Adjusted earnings per share were $1.74 in the second quarter of fiscal 2023 compared to $1.45 a year ago, approximately 20% growth year-on-year. Net cash provided by operating activities was $29.8 million in the second quarter of 2023 compared to $23.6 million a year ago. The improvement reflects a more linear distribution of sales with a continued focus around inventory management and the impact of our shared services implementation. Capital expenditures were $5.8 million compared to $4.7 million a year ago. As a result, free cash flow was $24 million in fiscal second quarter 2023 compared to free cash flow of approximately $18.9 million in fiscal second quarter 2022. Our free cash flow conversion level was approximately 120% of GAAP net income in the second quarter of 2023. We expect to remain at or above 100% through the balance of the fiscal year. Our balance sheet continues to provide substantial flexibility to support an active pipeline of organic and inorganic opportunities, as well as increased investment in R&D and growth capital. Please turn to slide 10, FY23 segment snapshot. From a segment perspective, three of our five segments exhibited organic growth year-on-year above 10%, highlighted by engineering technologies at 36.2%. As expected, scientific segment sales declined organically 21.7% due to lower demand for COVID vaccine storage. Foreign currency was a headwind to revenue growth, primarily in the electronics and engraving segments, as it represented a 6.1% and 9.2% headwind, respectively. From an operating margin standpoint, four of our five segments expanded operating margins year on year, led by specialty improving 420 basis points, while the engraving and engineering technology segments each improved by 270 basis points. The scientific segment maintained operating margins over 20%, despite 22% organic revenue decline due to pricing and productivity actions and favorable freight costs. Next. Please turn to slide 11 for the summary of Standex's liquidity statistics and the capitalization structure, which remains strong. Standex ended fiscal second quarter 2023 with $324 million of available liquidity, an increase of approximately $43 million from the prior year. At the end of the second quarter, Standex had net debt of $74 million compared to $70 million at the end of fiscal 2022 and $52.5 million at the end of fiscal second quarter 2022. Standex's long-term net debt at the end of fiscal second quarter 2023 was $187.5 million. Cash and cash accrualants totaled $113.5 million with approximately $107 million held by foreign subs. We repatriated $4.3 million from foreign subs in the second quarter. We now expect to repatriate between $25 and $30 million in cash in fiscal 2023. With regards to capital allocation, we repurchased approximately 50,000 shares for $5.1 million in the second quarter and $77.1 million is remaining under the current repurchase authorization. We also declared our 234th quarterly cash dividend of 28 cents per share and approximately 7.7% increase year-on-year. In fiscal 2023, we now expect capital expenditures to be between 30 and 35 million compared to approximately $24 million in fiscal 2022. The increased investment year-on-year includes additional capital for capacity expansion, productivity actions, and growth efforts as we deepen our presence in high-growth markets. I will now turn the call over to David to discuss our longer-term outlook and key takeaways from our second quarter results.

Thank you, Ademir. Please turn to slide 12. Over the past few years, we have demonstrated track record of improving our operating performance and key financial metrics, delivering consistent and predictable results, and transitioning to a growth-focused operating company. We have recently revised the strategic plans with all of our businesses and would like to share the updated view on our long-term financial outlook, starting with our fast-growth markets. As part of this long-term view, we believe our fast-growth market sales will reach 20% or greater of total sales within the next five years. which would represent $200 million plus in sales by fiscal year 2028. Our fast growth market sales grew 35% year-on-year to $60 million in fiscal year 22 and are expected to grow another 40% to more than $80 million in fiscal year 23. Beyond 2023, we expect fast growth market sales to grow at an approximate 20% CAGR through fiscal year 2028. We believe the secular trends will continue under different economic scenarios, and we will continue to focus our strategic investments to align new products and applications with these trends and expand upon our strong customer relationships. Please turn to slide 13, our updated longer-term financial targets. We target continued organic revenue growth at a high single-digit compounded annual rate over the next five years, reaching greater than $1 billion in sales by fiscal year 2028. This growth target excludes the impact of potential acquisitions. We target adjusted operating margin of higher than 19% by fiscal year 2028 from 15.1% margin year to date in fiscal 23 or an approximate 400 basis point improvement. We have replaced our previous adjusted EBITDA margin target with an adjusted operating margin target to better align with our business segment reporting and internal operating process. We expect to reach our previous targets of better than 20% adjusted EBITDA margin and better than 12% return on invested capital within the next fiscal year. We expect to continue to ramp up our R&D investments with a target of over 3% from approximately 2% year-to-date in fiscal 23. It is our expectation that with this financial performance, we will increase our return on invested capital to greater than 15%. an improvement from our prior target of greater than 12%. Our return on invested capital target applies to our current portfolio of businesses and excludes the impact of potential acquisitions. We expect our free cash flow conversion target ratio to remain at approximately 100% of GAAP net income. Finally, with our substantial financial flexibility, we plan to continue to execute on an active pipeline of organic and inorganic growth opportunities. These targets exclude potential investments, revenue, and profits related to our solar energy project with Enel. Please turn to slide 14. Stanix is well positioned to deliver sustainable, profitable growth as an operating company comprised of a stronger mix of high-quality businesses with attractive growth rates and higher margin profiles. We are pleased with our healthy organic growth rates in engineering technologies, engraving, and specialty solutions, and remain confident in our long-term organic growth potential across our business segments. As seen through our Procon Pumps announcement, we will continue to optimize our portfolio to focus on larger businesses and advantageous growth opportunities. We continue to see strong growth in our fast growth markets. Looking forward, we're optimistic about global trends that align with our products, applications, and research and development efforts. We are excited about the long runway ahead for these opportunities as they evolve with our customer intimacy model. Our pricing disciplines and OPEX actions that are fundamental to our business allow for us to adapt to the different scenarios presented by this global environment. Our durable balance sheet positions us to be opportunistic on an active pipeline of internal investments and an active funnel of inorganic candidates. We will now open the line for questions.

We'll now begin the question and answer session. To ask a question, you may press star then one on your touchtone phone. If you're using a speakerphone, please pick up your handset before pressing the keys. To withdraw your question, please press star then two. At this time, we'll pause momentarily to assemble our roster.

Our first question comes from Chris Moore from CJS Securities.

Please go ahead. Good morning, guys. Thanks for taking a couple questions.

Morning.

Good morning. Appreciate the updated five-year targets. The 19% operating margin target in five years, obviously very attractive. We're around 14% in fiscal 22. Maybe just talk a little bit more about what the big drivers are there. Are you targeting roughly that 80 to 100 basis points per year improvement, or is it likely to be a bit more lumpy?

Yeah, Chris, it's Ademir. You know, I think that's probably a good handicap. Obviously, it could get a little bit lumpy year on year, depending on the general economic environment. But, you know, we do feel that we're going to get to those rates through our organic growth improvement. And, you know, we put up some numbers we feel pretty confident about regarding our fast growth and market opportunities, as well as continued operational improvements in our businesses. So that's kind of the the basis for it. And now we just finished our five-year LRP long, long range planning with, with all of our businesses. And, you know, it's, it's, it's a result of that, that process as well.

But I guess in terms of the, the, the, the rate, you'll see the expansion, you know, we'd anticipate to be relatively steady through the five years, just as we've had pretty steady improvement in years. That's right.

Got it. And just in terms of a pro con, just two quick ones there. Um, The operating margin associated with Procon is relatively the same as overall specialty operating margin, or is there much of an impact there?

I would assume similar operating margins as the rest of the specialty solution businesses.

Got it. And the last one on Procon, just how should we be thinking about the tax implication on the Procon sale? Is there anything you can do to protect most of those proceeds?

Oh, man, Chris, this is all for me. So, yes, we do believe after the customary closing adjustments and using some of the deferred tax assets we have on a balance sheet for prior divestitures, we should be able to net majority of those proceeds north of $70 million.

Got it. And maybe the last one from me, just in terms of the visibility on ETG, obviously, Q1 was softer, Q2 stronger, signaled a softer Q3, stronger Q4. Is that pattern unique to fiscal 23, or is it too soon to tell for 24? Just trying to understand. I know there's a backlog there, and trying to understand if you can see that progression or not that far out.

Now, you know, if you look back over years and years of engineering technologies, you will see no discernible annual seasonal pattern. It's completely a function of customer schedules. So on the aviation side, your Airbus, their production rate has gone up and down, you know, into the pandemic and out of the pandemic. Commercial space launches and their schedules affect this, the recent ramp up in military and defense. So those things change. Don't follow a seasonal calendar schedule. But our visibility is very good to that business. And we've got a great backlog. We're very confident in a very strong Q4 following our guidance for Q3 being a little softer.

Got it. I appreciate it. I will leave it there.

Thank you, Chris. Our next question comes from Michael Legge from Benchmark. Please go ahead.

Thanks. Good morning, and congratulations on a nice quarter. I wanted to dig a little deeper into the Procon sale. I mean, you obviously got a nice price for it, over two times sales. Was that something you had put up for sale, or were you approached by the buyer?

Well, I'd say, if you step back a little bit, The divestitures we made in years past were trouble to businesses. We really needed to divest so we could focus on the better businesses. Now with the divestiture of refrigeration, all the businesses we have are good in their sectors. They have competitive advantage. They perform well. And so for those that don't have the long-term prospects in our portfolio, our approach to divestiture has been to pick and choose the time, either when the opportunity presents itself, we think the market is healthy, So with respect to ProCon and other businesses, we regularly receive inbound calls from companies that are interested in the acquisition. And we thought we were in a position this year that we could make a divestiture given the strength in our other businesses. So we just kind of compared the prospects for the different businesses. We saw a good opportunity here. We knew there were interested buyers out there. We did run a process. There was good participation in the process. And we're very happy with the outcome. We think we found a long-term home for that business that will really emphasize the capabilities that Procon brings and the competence of the management team. So everything aligns to make this good timing and a good deal.

Okay, great. And then I want to talk a little bit about the M&A pipeline now that, you know, once you close ProCon, you'll basically have net debt at zero. Yeah. It almost makes me feel that you kind of, this was a great opportunity because maybe you have some nice opportunities from the M&A front ahead of you, clearing your balance sheet. Talk about now that you have all this firepower to go after M&A, what the M&A pipeline looks like, please.

Well, you know, even without that divestiture, we have plenty of pipe. We have 300 some million dollars of, um, of available liquidity had we needed it. So we didn't feel constrained. So there was no pressure on that front. But if you think about the five or six dimensional problem in moving these portfolios, we do want to put capital to use in relatively rapid order. And we want to continue to make progress in our sales and growth progress. We do have an active pipeline. There are a few opportunities in there that could be actionable in the coming months. We're relatively, you know, knock on wood, you never know when these things will come together. But there are good opportunities we think are actionable. We're trying to get them over the finish line. and put those proceeds to work right away.

Yeah, and Michael, we run a pretty disciplined process, you know, on M&A side as far as the look at opportunities. If you look at our track record, we are pretty pleased with, you know, how most of our acquisitions played out since, you know, David became the CEO. So you can expect us to continue acting in a similar manner and be disciplined allocators of capital. And to David's point, you know, we have a very active M&A pipeline.

Great. And now just one more question. I'll get back in the queue. The CapEx, you're still projecting $30 to $35 million for the year. It's obviously not been at that run rate. Can you talk about what's in the works for CapEx for the second half of the year?

Yeah, I mean, a lot of CapEx, not a lot. Some of the CapEx investments we have this year is probably more focused over growth than maybe in prior years. So you would see us putting that CapEx to work and targeting some of our fast and fast growth and market opportunities, primarily in electronics, you know, some of this capacity expansion, et cetera. So, you know, we do expect our CapEx to take up in the second half of fiscal 23 versus the first half.

Great. Thank you.

Thanks, Michael.

Again, if you have a question, please press star, then one. Our next question comes from Ross Baranek from William Blair. Please go ahead.

Hi. Good morning, guys.

Hey, Russ.

Hey, you know, just talking about electronics, can you maybe just kind of walk us through some of the puts and takes there? I mean, coming into the year, it looks like organic sales have been roughly, you know, flattened down if you take out the deferred revenue. And, I mean, looking forward, it kind of looks like third-core guidance also implies organic, you know, probably flattened down also year over year. So, I mean, this is all consumer appliance. I mean, how can we kind of, you know, maybe gel that with, the weaker margin commentary, too, on the favorable mix. Because, I mean, the margin profile, too, I believe first quarter was supposed to be the low point of the year, but now it seems like we're kind of decelerating here. So, I mean, if China starts coming back, I mean, does this revert? I mean, does this trend kind of start, you know, reflecting positive?

Yeah, Adam and I can tag team this one. So if you look at electronics, first you look at the composition of the business. Within electronics, I think we said this year we'll have $19 million or more of sales that come from new applications, new business opportunities. We're on track to deliver that. Nearly $50 million of our fast growth sales are in electronics. Those continue to progress well. But there's a large piece of the business that kind of serves the general economy. And we've talked in the last couple of quarters about slowness in appliance, China and Europe. And so we got both those things happening simultaneously. You got a little bit of slowdown in Asia and appliances, largely offset by these growth and markets. I would say that in terms of Asia, we are seeing... Orders pick up in China. This activity after the Chinese New Year seems to be more promising. We think that the China reopening could help turn that business around. Adamer?

Yeah, no, I think, Russ, that's right. You know, Q2, Q3, you know, it's kind of from an organic growth standpoint. It's a bit of a soft up for us. But indications are with China reopening and some of our fast growth and market growth. I know that sounds kind of weird the way I said it. We expect Q4 organic growth to be much stronger in electronics than in Q2 and Q3. So that's... And this business has grown significantly in fiscal 22. So if you kind of look at our overall organic growth rate in FY22, we posted almost 15% organic growth rate. We are having a little bit of a general economic impact on Merlin Electronics in Q2 and Q3. We expect that's going to resolve itself over time, and we'll get back to our usual run rate.

Okay, I know that's helpful. And then, you know, maybe transferring over to the 2028 targets, you know, thanks for providing those. It's very helpful. High single-digit organic growth, I mean, this seems to imply well over a billion dollars. And I know that I think you guys have previously spoken through, you know, by 2025, you're looking at double-digit organic growth from new product initiations, and you're going to double R&D over the next five years. So maybe what are some of the assumptions as we think about kind of a base case, bear case, and how we, you know, get above that billion dollars by 2028? I mean, what do you guys kind of bake it in there?

Well, just think of the last few years as we've given this kind of longer, this rolling longer-term outlook. We complete our strategy reviews with all the businesses. We kind of risk assess them, roll them up, and then update our longer-term outlook. Two years ago, we came out and said we have mid-single-digit growth. We get to even down 20%. In three to five years, ROAC 12%. We're basically at those margin targets now in less than the three years And last year we took up the growth rate based on this fast growth market impact. So now here we are a year later. We've, again, updated the strategy review and are updating these numbers. And since we basically, you know, we're at the ROIC number now, and, you know, within the next 12 months we've hit that EBITDA number. So it's time to update them. Rather than talk three to five, we just said five years ago, But look at our past performance. You know, there's opportunity to deliver that a little earlier with some, depending on what's going on in the general economy and maybe faster growth and some of the faster growth markets and opportunities. So that's basically it. Follow the same process we have in the last few years. And you're very confident that our businesses continue to position themselves better in these stronger markets. And so you mentioned double-digit growth. We started mid-single-digit. We said we could get to upper single-digit. I think there was a question a year or so ago saying, when would we be in a position to announce that we could hit double-digit growth? And I think my answer was, you know, in a year or two, as we see our R&D grow and our effectiveness at rolling out these new products and our foothold in fast growth factors, we would then be in a position to pronounce on that. But, you know, for now, you know, we're confident with the upper single digit and the outlook we provided.

Okay. And then maybe just, you know, looking at the margin target there, I mean, 19%, you know, a couple of years ago, you know, how should I like the buckets of productivity savings that are going to get us there versus overall operating leverage. And, uh, where's maybe the biggest Delta is across the businesses. I mean, these are more upside electronics. I vaguely remember, uh, you know, a note here that in scientific kind of tapped out in the low twenties. So it were kind of the engines that are going to drive this on the, uh, the earning side.

Well, I'll just say a couple of things and turn it over to Adam here. I mean, the growth, um, we're, we're, We're preparing an update in our investor presentation, and that will step back and talk a little differently about growth. So as we look in the next few years, we've broken down our growth in our core business and the new applications and new products. And new applications and new products come out at margins that are accretive to our margin. So there's a Some of the margin growth comes from introducing new products with better value propositions and a stronger competitive advantage, mixing us up in volume. There's an expectation in every one of our businesses every year that productivity plans will drive 3% of COGS to the bottom line, and those things help fund the R&D increase that you mentioned.

Yeah, and Ross, I mean, I think, you know, if you remember, we put up those few slides by segment that kind of shows the margin potential of each segment. You know, some of that will be purely volume growth and pricing. But there are a couple of segments, and specifically in grading and engineering technologies, there is more productivity actions that we need to drive to get those margins to hit those levels that we summarized in the slide. So it's really a mix of everything. And as we have focused on this over the last few years, we're going to continue to focus on driving productivity in our businesses as well as growth and hitting those targets.

All right.

This concludes our question and answer session. I would like to turn the conference back over to David Dunbar for any closing remarks.

All right. Thank you. I want to thank everybody for joining us for the call. We enjoy reporting on our progress at StandX. And finally, again, I want to thank our employees and shareholders for your continued support and contributions. We look forward to speaking with you again in our fiscal third quarter 2023 call.

The conference is now concluded. Thank you for attending today's presentation. You may now disconnect.