Standex International Corporation

Good morning, ladies and gentlemen, and welcome to the Standex International Fiscal Fourth Quarter 2024 Financial Results Conference Call. At this time, all lines are in listen-only mode. Following the presentation, we will conduct a question-and-answer session. If at any time during this call you require immediate assistance, please press star zero for the operator. This call is being recorded on Friday, August 2, 2024. I would now like to turn the conference over to Chris Hau, 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 SDC 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 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 in 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, Ademir Sarcevic.

Thank you, Chris. Good morning and welcome to our fiscal fourth quarter and fiscal year 2024 conference call. I would like to thank our corporate finance team and each of our business leaders for achieving our record profit and cash generation in fiscal 2024 with challenging general market conditions pressuring the top line. Behind the scenes, our engineering and sales and marketing teams continued to ramp up new product development and enhance our competitive position. As a result, in fiscal 2024, we expanded gross margin 90 basis points and operating margin 60 basis points while investing an additional $3.3 million in research and development to fuel our future growth initiatives. Even in the face of challenging market conditions, we continue to expand margins and increase investments for future growth. In fiscal 2025, we expect to release a record number of new products. Now, if everyone can turn to slide three, Key messages. In the fourth quarter, sales declined 4.3% with contributions from acquisitions and fast growth markets partially offsetting an organic decline. Though sales were down in electronics due to continued soft demand in appliances and general industrial end markets in China and Europe, we have seen orders strengthening these past two months, indicating that markets are improving and that our commercial strategy is taking hold. We also experienced an impact from a slowdown of new vehicle introductions in North America affecting our engraving segment. We expect demand to improve as we enter the second half of fiscal 2025. Demand in Asia and Europe remains stable. Sales in fast growth end markets grew 13% year on year to $27 million in the fourth quarter and grew 13% year on year to $94 million in fiscal 2024. Sales grew faster than expected in space and defense end markets and slower than expected in renewable energy, electric vehicles, and smart grid applications. I am especially pleased that we continue to demonstrate resilient operating performance from the execution of our price and productivity initiatives. As a result, we achieved adjusted operating margin of 16%, up 60 basis points on a sequential basis. Four of our five segments reported adjusted operating margin above 20%. Following record profitability in fiscal 2023, we again achieved fiscal year record milestones in adjusted gross margin, adjusted operating income, adjusted operating margin, adjusted earnings per share, and free cash flow. At the same time, in fiscal year 2024, research and development investments were the highest ever and increased $3.3 million to 2.8% of sales. We remain optimistic about our long-term operating margin potential as we leverage better general market conditions, and a higher sales contribution from new products and new applications. On a sequential basis, in fiscal first quarter 2025, we expect similar to slightly higher revenue as higher sales into fast growth end markets are mostly offset by less favorable project timing in the engineering technology segment. We expect similar to slightly higher gross margin and slightly lower to similar adjusted operating margin due to higher investments in selling, marketing, and R&D. We are positioned to release new products in every business in fiscal 2025, contributing over 100 basis points of incremental growth. I will go into more detail on the next slide. In addition, we anticipate fast growth market sales to grow above 20% and exceed $110 million in fiscal 2025. In fiscal year 2025, we expect general market conditions to stabilize in the first half and strengthen as we move further into the second half, providing a healthier backdrop for growth. We are reaffirming 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 greater than 15%, and free cash flow conversion at approximately 100% of GAAP net income. Let's turn to slide four that highlights our progress and what's ahead for new product development and new applications. Personally, I'm very excited about 2025. This slide has literally been 10 years in the making. We began ramping up our R&D spending about five years ago as we completed our portfolio transformation and began focusing on operational improvements. As our margins and our predictability improved, we were able to increase our R&D spending, as you see in the graph here, growing from $6.3 million to $20.5 million. A new product development can take several years, then must be incorporated into our customer's own new product design cycle, so it takes a few years to convert a new product development project to sales. It's like turning on the spigot in a hose and waiting for the water to come out the other end. Our work is now beginning to bear fruit. New product releases begin with a trickle in 2023 with two new products, followed by three in 2024. Now, new products are nearing completion in all businesses, and we anticipate releasing more than 12 new products in 2025. We anticipate they will add more than 1% to our sales growth in 2025. Every business will launch at least one new product, and we will release at least one in every quarter of the year. As the year progresses, we will provide updates on recently released products. This is the year to watch us as we develop the skill to launch new products and ramp their sales. I will now turn the call over to Adamir and discuss our financial performance in greater detail.