Standex International Corporation

Good day and welcome to the STANDEX International First School Fourth Quarter 2023 Financial Results Teleconference. All participants will be in a 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 a 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 Christopher Howell, 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 fourth quarter 2023 conference call. We are very pleased with the results which completed a record fiscal year. We continued our trend of record operating margin performance. On the top line, Sales into fast growth markets continued to accelerate, as did new products and new applications. I would like to thank our employees, our executives, and the board of directors for their efforts and continued dedication and support that drove our exceptional fiscal 2023 results. Now, if everyone can turn to slide three, key messages. In the fourth quarter, we reported 7.8% organic revenue growth year on year. led by our electronics and engraving business segments, which both exhibited double-digit organic growth. Our long-term growth profile continues to improve as sales into fast growth end markets grew 67% year-on-year to $24 million in the fiscal fourth quarter 2024. We anticipate this revenue stream to grow by greater than 20% in fiscal year 2024 to over $100 million. Profitability continues at record levels, The continued effectiveness of our price and productivity actions, combined with a lower freight cost, help us achieve a ninth consecutive quarter of record adjusted operating margin. Consolidated adjusted operating margin of 15.4% in fiscal fourth quarter 2023 was a 150 basis point increase year on year. Our margin expansion was driven by our engraving, scientific, and specialty solutions business segments. while our largest segment, electronics, had relatively stable margin. Three of our five segments reported operating margin greater than 20%, with our engraving segment approaching 20% margin. With free cash flow of $32.8 million in the quarter, our net cash position as of June 30th was $22.3 million. We had approximately $372 million of available liquidity to invest in our healthy funnel of organic growth and acquisition opportunities. Adam here will discuss our financial performance, liquidity position, and capital allocation in greater detail later in the call. We are also very pleased to see continued improvement in our ROIC. ROIC of 12.4% in fiscal 2023 improved 130 basis points year-on-year. In fiscal 2024, we expect high single-digit sales growth. We also expect continued margin expansion ahead of our long-term outlook. These expectations are based on operating improvements achieved in fiscal 2023, planned productivity initiatives for fiscal 2024, increased contribution from new products and applications, continued acceleration of our fast growth and markets, and a more stable economic environment. On a year-on-year basis, in fiscal first quarter 2024, we expect a slight increase in revenue, a strong organic growth in engraving, and the contribution from intronix, help to offset a slow recovery in China and Europe markets served by electronics and the impact of the pro-con divestiture. On a sequential basis, we expect slightly lower revenue as the contribution from our Mintronics acquisition offsets unfavorable project timing in engineering technologies and a continued slow recovery in China and Europe markets served by electronics. We expect similar to slightly higher adjusted operating margins compared to fiscal fourth quarter 2023. We reaffirm our long-term financial outlook by fiscal year 2028. These targets include high single-digit organic growth to greater than $1 billion in sales, adjusted operating margin greater than 19%, return on invested capital of greater than 15%, and free cash flow conversion at approximately 100% of GAAP net income. Let's turn to slide four, highlights from our Mintronics acquisition. We announced earlier this week that we acquired Mintronics. There are specific strategic and financial criteria we look for in an acquisition, like complementary products, attractive end markets, a defensible competitive advantage, and cultural fit. Mintronics has many of these attributes, and we are excited to welcome their team to StandX. Let me begin with an overview of the company. Founded in 1990 and based in South Dakota, Mintronics designs and manufactures customized as well as standard magnetics components and products for cable fiber, smart meters, industrial control and lighting, electric vehicles, and home security markets. More broadly speaking, these component and product applications fit within certain fast-growing end markets like 5G, smart grid, and industrial automation. The purchase price was approximately $30 million. This implies a transaction multiple of approximately 8.5 times the last 12 months ended June 2023 EBITDA. We expect the acquisition to be accretive to earnings per share and to achieve a double-digit return on invested capital in our first full year of ownership. The divestiture of Procon for $70 million, followed by the acquisition of Mintronics for $30 million, represents an effective round trip of cash as Mintronics sales and operating income contributions effectively replace Procon sales and operating income in year one of ownership, with further upside potential in the years ahead. We were attracted to Mintronics for its highly complementary customer base and product line, its engineering talent and resources that provide a seamless cultural fit, and for its participation in attractive end markets. We are excited to welcome the team to STANDEX and anticipate that during the integration, we will discover additional opportunities to create value as we have done with our previous acquisitions. I will now turn the call over to Ademir to discuss our financial performance in greater detail.