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.

Thank you, David, and good morning, everyone. Let's turn to slide five, work quarter 2024 summary. On a consolidated basis, total revenue decreased approximately 4.3% year-on-year to $180.2 million. This reflected an organic revenue decline of 9.4% and 1.1% impact report in exchange partially offset by 6.2% benefit from recent acquisitions. Four-quarter 2024 adjusted operating margin increased 60 basis points year-on-year to 16%. In the fiscal four-quarter, adjusted operating income decreased 1% on 4.3% consolidated revenue decrease year-on-year. Adjusted earnings per share remained flat year-on-year at $1.76. Net cash provided by operating activities was $28.7 million in the fourth quarter of fiscal 2024 compared to $40.4 million a year ago. Capital expenditures were $6.5 million compared to $7.6 million a year ago. As a result, we generated fiscal fourth quarter free cash flow of $22.2 million compared to $32.28 million a year ago. Our free cash flow conversion ratio as a percent of GAAP net income was 112%. Now please turn to slide six and I will begin to discuss our segment performance and outlook beginning with electronics. Segment revenue of 80.4 million increased 0.6% year-on-year as 14.6% benefit from recent acquisitions was mostly offset by an organic decline of 12.3% and 1.6% impact from foreign currency. Adjusted operating margin of 20.5% in fiscal four quarter 2024 decreased 50 basis points year-on-year, as the contribution from recent acquisitions and pricing and productivity initiatives were more than offset by lower volume. Our new business opportunity funnel increased approximately 30% year-on-year and is currently at approximately 85 million. As David highlighted in his comments, we are starting to see encouraging signs that markets are starting to recover, which is further supported by positive order trends in the last two months. June orders in electronics increased approximately 30% over the average order intake for the past six months, and now July orders increased approximately 5% over June orders. The recent upward trend in monthly orders has been driven by the following factors. Inventory normalization, strengthening of the North American mill aero market, the return of certain semiconductor customers, increased demand for bare-reed switches, and our commercial focus on gaining share in fast growth and markets. We anticipate the positive impact from this trend to more meaningfully show in our top line as we move to the second half of our fiscal year. Sequentially, in fiscal first quarter 2025, we expect similar to slightly higher revenue, driven by higher sales into fast growth and markets, and similar adjusted operating margin as pricing and productivity initiatives offset higher investment in selling, marketing, and R&D. Please turn to slide seven for discussion of the engraving and scientific segments. Engraving revenue decreased 22.8% to 32.7 million, driven by organic decline of 21% and 1.9% impact from foreign exchange. Operating margin of 12% in fiscal four quarter 2024 decreased 660 basis points year on year due to slower demand in North America due to OEM platform pushouts. In our next fiscal quarter, on a sequential basis, we expect moderately higher revenue and operating margin due to more favorable project timing in Europe and Asia. Scientific revenue decreased 4.1% to $17.5 million due to lower demand from retail pharmacies. Operating margin of 28.1% increased 260 basis points year-on-year due to impact of productivity initiatives and lower freight costs partially offset by lower volumes. Sequentially, we expect similar revenue and slightly lower operating margin due to continued investments in residential development activities and higher freight costs. Now, turn to slide eight for discussion of the engineering technologies and specialty solution segments. Engineering technologies revenue increased 15.7% to $25.3 million, driven by organic growth of 15.9%, slightly offset by 0.2% impact from foreign currency. This strong organic growth was due to higher demand in aviation and market, more favorable project timing, and growth in new applications. Operating margin of 20.9% increased 670 basis points year-on-year, as leverage on higher sales and productivity initiatives were partially offset by investments in research and development. This represents the fifth consecutive quarter of sequential operating margin improvement in this segment. Sequentially, we expect moderately to significantly lower revenue and slightly lower operating margin due to unfavorable project timing. Specialty solution segment revenue of $24.2 million decreased 6.3% year-on-year, primarily due to lower demand in the display merchandising business, partially offset by organic growth in the hydraulics business. Operating margin of 22.2% decreased 260 basis points year-on-year. Sequentially, we expect similar revenue and operating margin. Next, please turn to slide nine for a summary of Standex's liquidity statistics and the capitalization structure, which remains strong. Standex ended fiscal fourth quarter 2024 with $347 million of available liquidity. At the end of the fourth quarter, Standex had net cash of $5.3 million compared to net debt of $10 million at the end of fiscal third quarter 2024. FedEx's long-term debt at the end of fiscal four quarter 2024 was $148.9 million. Cash and cash equivalents totaled $154.2 million. We declared our 240th quarterly consecutive cash dividend of $0.30 per share, an approximately 7.1% increase year-on-year. In fiscal 2025, we expect capital expenditures to be between $35 million and $40 million. I will now turn the call over to David to discuss our key takeaways from our four quarter results.

Thank you, Adamir. Please turn to slide 10. I'm very proud of our team for their continued operational execution and focus on growing markets that led to our record cash and profit generation in fiscal 2024. We achieved several records that were driven by our operational execution, continued progress of our growth efforts, and the successful integration of our recent acquisitions. We remain optimistic about the long-term secular trends that will benefit from the transition from internal combustion to hybrid and electric and automotive, infrastructure spending and smart grid, defense applications and next generation aerospace development, and from the evolution of space exploration. We anticipate sales into fast growth and markets to accelerate over our long-term target horizon and beyond as these trends develop. To support our future growth, we continue to invest in our engineering capabilities to drive new product development and new applications across markets with growth potential. In fiscal year 2025, for the first time in the company's history, new products will be released in every one of our businesses. We continue to maintain a strong balance sheet that allows us to prudently assess an active pipeline of organic and inorganic growth opportunities to support future growth. In fiscal 2025, we expect general market conditions to stabilize in the first half and strengthen as we move further into the second half barring any unforeseen economic disruptions. 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. We will now open the line for questions.

Thank you. Ladies and gentlemen, we will now begin the question and answer session. Should you have a question, please press star followed by the number one on your touchtone phone. You will hear a prompt that your hand has been raised. Should you wish to decline from the polling process, please press star followed by the number two. If you are using a speakerphone, please make sure to lift the handset before pressing the keys. Your first question comes from the line of Michael Legg from Benchmark. Michael, please go ahead.

Thanks. Good morning, everyone, and congratulations on another nice quarter. I wanted to kind of dig into a little bit the new product development. Can you explain a little bit the development phase alongside the customer and how you work with them to come up with their new products, whether they're next-generation products or new products? And then as they work into the production cycle of the customer, the first year you gave us 100 basis points improvement, but what does that really mean for the second, third year? as these things start to be rolled into it. And then just a follow-up on that would be, you have 12 that you've mentioned for fiscal 25. What does the R&D pipeline look like longer term for new products? Thanks.

That's a lot of questions. If I forget any, let me know. So first of all, how we work with customers, as you know, most of our businesses compete on what we call customer intimacy. So our new product ideas come from our customers. We identify applications or neighboring needs to the applications we serve that we don't meet with current product. That goes into our innovation hopper, and then if it gets through our filters, it goes into new product development. So the ideas come from customers. And in some businesses, like engineering technologies, the new product development is actually often funded by the customer and is for a specific customer project. So we don't develop a product simply based on some abstract notion of what the market might need and then launch a new product in the market to see what will happen. We already know customers need it. We work out the specs and the requirements with customers so when we launch it, we know that we're on the mark. What was the next question, Adamir?

You can help me. The year two and three, you know, what, you know, first year, 100 basis. Oh, yeah.

Yeah, so, you know, this is a year we've said you watch us as we learn how these, how new products ramp. In general, it takes, it will take about three years at least for a new product to ramp to full volume because our customers have to design it into their cycle. and I guess as the year goes on, we'll communicate more what our expectations are. I would tell you we've set 100 basis points, greater than 100 basis points sales from new products this year. We certainly have internal targets higher than that. As we get more customer wins, we'll be able to portray a better evolution in years two and three, but we certainly expect that to increase and ramp up. There are other products in the pipeline that next year we'll be announcing that we've got new products scheduled for release in 2026. We've got a full pipeline now. We're spending $20 million a year on R&D. That will drive new product releases year after year.

Great. And then just one other question. On your five-year target for 28 on those goals, historically you've exceeded your previous long-term guidance targets. over those time frames. With this new one, where would you say you are in comparison to making those numbers by 28 or earlier?

Well, year on year, we went backwards from last year. So I'd say we maybe took a step back. The step back, as we've communicated, is largely the market. If you step back even farther, you look over 10 years, our organic growth over 10 years has been about 3% a year. since COVID has been four. With the step back this last year, just the way market cycles work, we'd expect the market to come back in the next year or so. We communicated today. We think the second half, it will come back. So we take that core growth of 3% over 10 years as a good proxy for our business, what it will do over the next four years. We believe our fast growth markets will still be $200 million, our sales in the fast growth markets in 2028. That leaves about $170 million of sales to come from 3% growth rate, which is about $90 million. And the new product development sales need to add about $80 million over the next four years. So we feel very good about where we're at, given the magnitude of new products releasing now and continued progression with fast growth.

Yeah, and I would second that, Mike. I think we feel pretty confident and comfortable that, you know, again, barring any unforeseen economic disruption, that we'll get to those targets.

Congratulations on the quarter. Thanks.

Thank you, Mike.

Your next question is from the line of Chris Moore from CJS Securities. Chris, please go ahead.

Hey, good morning, guys. Thanks for taking a couple questions. Thanks, Chris. Good morning. All right. Good morning. So it looks like you're expecting fiscal 25 to be more back half loaded. Can you maybe just talk a little bit more about the visibility, you know, kind of surrounding the belief general markets will begin to improve? And really, are there specific segments or markets that you're thinking about? I think you talked a little bit of electronics and maybe on engraving, but just trying to understand, you know, which segments you're thinking are really more likely second half loaded?

Yeah, so I'll add a couple of data points and then Adam here can pitch in. We have some of our businesses, some segments of business where we have good long-term visibility. So engineering technologies, for example, we have a very good view in engineering technologies. Defense, aviation, and space especially are going to ramp up through the year. So we feel very good, very confident about that growth. In our magnetics business, in electronics, sales into semiconductor manufacturing equipment, we anticipate that will start to ramp up towards the end of the calendar year. That looks really good. Another data point we have we've talked about in past quarters is we use the sale of switches as a leading indicator for our businesses. It's historically been a good indicator, and we've really seen that start to ramp nicely in the last few quarters. I think two quarters ago, we said we thought it bottomed out. It was starting to come up. Last quarter, we said it was coming up a little bit. Now we're seeing a more decisive increase, as Adamir mentioned in his script.

Yeah, and Chris, if I can add to that, we also obviously track internal data, and we are encouraged by what we are seeing in video electronics over the past two months. They ran up about 30% higher in the month of June over the past six months, and July was higher. So we are cautiously optimistic that the trend will continue, and We have a lot of commercial focus on making sure we gain share and we continue to grow.

Got it. I appreciate that. Conversely, are there any segments where growth is still going to be, from where you sit today, a little bit more challenging, might be flattish or up a little bit versus what we just talked about?

Yeah, I think we mentioned in the script, engraving in North America in particular, anyone following the auto OEMs in North America, they're going through, let's say, a transitional period here. Many of them have announced they're pushing out their new platforms. Ford in particular, who's a very good customer for us, earlier this year announced they're pushing platforms out by a couple of years. So we think FY25 will be a challenging year for a North American engraving business.

Got it. In terms of the longer-term goals, the organic growth, high single digits, it seems like that would be lots of things would have to go right in 25 in order to reach that. Is that a fair prediction? way to look at it?

Well, yeah, a way to think of it is the way we think is that by the end of the year, we believe we'll be kind of at a sequential growth rate that supports annual upper single digits. We have good visibility to this coming quarter, and we think it'll start to accelerate from there based on some of the things we talked about. And by our Q3, Q4, we anticipate that growth rate will support the upper single digits. I kind of went through the math earlier to the prior question. You know, of course, if the markets are going to have a 3% or 4% impact on our business, but on top of that, our fast growth presence, we're very confident in the growth there. And then with the new product releases, we have a new engine for growth to take us in the upper single digits above that core.

Yeah, and if I can just add to that, Chris, I mean, you know half of the company is electronics, right? And again, from what we are seeing from a macro level, electronics had a tough year from the top line standpoint, and that's because of just the general macro environment. But we are seeing that start to improve. Plus, some of the new products we're going to be launching in this segment, along with their exposure to fast growth and markets, make us optimistic that as we move to the year, again, bearing any unforeseen economic disruptions, that we're going to see pretty nice organic growth in the electronics business, especially in the second half of the fiscal year. Because these orders we are taking now, it takes time for them to actually turn into sales.

Got it.

That's helpful. I will leave it there. I appreciate it, guys. Thank you, Chris.

Your next question is from the line of Mike Schliske from DA Davidson. Mike, please go ahead.

Good morning. Thanks for taking my questions here. So I want to pop one of the earlier questions, one of your answers. I don't want to get too far ahead, but, you know, is the level of profit and stress that you have this fiscal year, is that supposed to be the kind of the new norm going forward? Have you unlocked kind of a new cultural imperative to keep that product cadence fairly high?

Yes. You know, we've got good visibility to product launches this year and emerging visibility to 2026. And we see what's in the pipeline in stages, you know, zero, one, and two. I do believe this will be the new cadence for us. We'll release new products kind of at this rate, you know, indefinitely.

And Mike, if I can just add to that, you know, we are, we are at about 2.8% of sales in terms of R and D spend. I think we said that we want to get over 3% as we move forward. So can we kind of continue investing in R and D, you know, we believe in these new products that are going to get launched. And as David says, you know, you know, watch us, see, see how it works out.

Of course. Of course. Fantastic. Um, uh, We haven't talked much about the M&A environment yet. I'm curious if you could tell us a little bit about the pipeline, what's in the later stages, or even if you're looking to invest in anything, how anything is going on that process.

Yeah, I think we mentioned last quarter, we have a very active pipeline. The majority of the really active opportunities are privately owned businesses. And in most cases, there's not a process. These are based on long-term relationships. So there are some that are actionable. So don't be surprised if in the coming months we do announce something. But until you have a deal, you don't have a deal. But I would say we feel optimistic about the environment for us. In terms of divestitures... We only have good products in our portfolio. We get inbound calls regularly about many of our businesses. And at the time of our choosing, we were confident we would have the option if we chose to invest in other business. However, there's no pressing need like there was three, four years ago.

Got it. Maybe the last one for me, back to the topic of your new products. Have any of them been released yet, just the first month into the fiscal year? And if so, how has it gone?

Yeah, we've got a few scheduled for release this quarter. We talked with their business. We got all the presidents together last month and told them every quarter we're going to talk about new products. And they said, well, please don't tell our competitors what we're going to release in the coming quarter. So wait until after the release. and then update. So in our next earnings release, we'll share the releases from this quarter and then progressively. But I have to tell you, I'm really pleased. The last three or four years, you can imagine we're spending $20 million on R&D. There was a lot of work going on. We have quarterly reviews with our board formed a special committee, the Innovation and Technology Committee. We review the pipeline. We review our work processes regularly. One of our board members ran the research and development labs at Procter & Gamble. Michael Hickey on our board from Ecolab has a great pedigree in growth and ramping up sales of new products. So there's been a lot of activity under the hood. So we're really excited that FY25 we can start to kind of open the curtain on some of those things. And, you know, we're anxious, just as anxious as you are, to see how those new launches go. And we know that not all these new products will succeed. That's why you need a portfolio of new products. And developing new products is one thing. Ramping up sales through really effective marketing and targeting and a directed commercial approach is another. So, you know, we'll go through the year report on our progress. And it was a very exciting year for us.

Exciting. Thanks so much. I'll pass it along. Thank you. Thanks, Mike.

Your next question is from the line of Gary Prestotino from Barrington Research. Gary, please go ahead. Hi.

Good morning, all. Adam here. I couldn't write this down fast enough. You talked about sequential changes in orders. Could you just go through that? I think you gave some data on June and July.

Yes, sure, Gary. So our June orders for the month of June in our electronic segment were about 30% higher than the average order rate for the past six months, you know, May and before. And then July, that trend continued because the orders in July were another 5% higher, you know, over 5% higher than our June orders. So, you know, for the past two months, we're seeing really positive trends, you know, from kind of showing that the market is recovering along with some of our, you know, extended commercial activities.

Okay. Good to hear. And then just on your new products that you're going to roll out, over a dozen new products, how many of these are targeted for your fast-growth markets?

Let's see.

You know, not all of our markets, our businesses serve what we've defined as fast-growth markets. We have a number of new products coming out in scientific, for example. Great end market, but it's not in our fast-growth markets. The electronics businesses, the electronics new products, virtually all of them will have some applications, at least in fast growth. The engineering technologies new products are all fast growth and markets. So, you know, I'd roughly say half of them are fast growth.

Okay. And then in terms of these new products, is there any looking for the right word here, increase in the specialization technology or whatever with these products that you should be able to attain a higher margin or contribution margin on these new products versus some of the legacy business that you have?

Yeah, absolutely. We anticipate that all these new products, based on the voice of customer work we've done, and our own knowledge of the product families they're a part of, is that they will deliver gross margins higher than the average in that business. And some of them are just kind of pushing the envelope of performance of the products. Some of them are entering into new adjacent segments. But our expectation in our funnel when we develop a product, if it's not going to deliver higher margin, you know, we'll – We'll pass on and go to other and prioritize those developments that will deliver higher margins.

So, David, right off the bat, as you roll these things, these new products out, they do have a higher incremental gross margin, and we should see positive impact to the gross margin as we go through the year.

Yes, that's our expectation. We've got limited experience. Over the last five years, we've launched a handful of products. Those new products are selling at higher margins. So based on that experience and our voice of customer development, we do believe that at the moment of launch, they will be accretive to our margins.

Okay. Thank you very much. Thank you.

Ladies and gentlemen, as a reminder, if you'd like to ask a question, please press star 1 on your telephone keypad. If you're using a handset or speakerphone, please make sure to lift the handset before pressing any keys. Your next question comes from the line of Ross Sparenblak from William Blair. Ross, please go ahead.

Hey, good morning, gentlemen. Good morning, Ross.

Good morning, Ross.

Hey, starting on the new products, I mean, it was a curious comment that you don't expect all of these are going to succeed, even though the vast majority are voice of the customer. I believe 70% are educated there. Is that the way to think about it? Maybe 30% of the dozen are just kind of throwing it out there to see what sticks?

Well, if you look at any – I mean, everybody, when they launch a product, believes it's going to succeed. The reality is, if you look at the data – not all new products succeed. In fact, most of them fall short of expectations. That's why you need a portfolio of them. Some will far exceed the expectation. So I think we're just looking at others' experience to say, let's be honest and humble here. They're not all going to succeed. But we think we have enough of them. And enough of them will succeed enough and probably exceed our expectations to to drive our, our top line growth. So I, I didn't mean to confuse you with that, with that statement. We're not going to launch something knowing that it's not going to succeed, but, um, you know, we're just learning from experience here.

Okay. Maybe I'm just, uh, reading too much into it, but thanks for the clarity there. Uh, maybe just kind of framing the average TAM expectations. I mean, a dozen products, 7% or 7 million of sales. They're not all going to hit July 1st, obviously, but, uh, What are you guys targeting? And then what is maybe like your ROI or product vitality index threshold as you think about conceptualizing that ramp and how these can build if they are successful?

Well, those are great questions. I think in the course of the year, we will get better and better about talking about those things. I would say that we've our sales this last year of the products that have been released in the last five years, like mid single digit percent of our sales. We think that will go up another 100 basis points or more this coming year. Over five-plus years, we'll see how long it takes these to ramp. But for us to – you could create your own model here. But for us to deliver upper single-digit growth long-term and relying on new products to some extent, we're going to have to get into the teens and above over time with new products. I don't know when we'll get there. As we evolve, we'll share that more. Adam, do you have something to add?

No, I think that's right. That's right.

Okay. Is there anything you can call out in particular? Like, hey, this is a $20 million opportunity, and we're really excited, and the other ones are just kind of taking a little adjacent share here and there.

I think what we do is quarter by quarter, as we announce what's been released, we would do that. We do have some that potentially really expand our served market and have a $20 million-plus The opportunity.

But Raj, just to put this perspective, this is not, you know, we wouldn't launch a product and say it's, you know, $2 million market opportunity. I mean, we are talking about much higher opportunity we are targeting, you know, and so, you know, these are significant changes.

Yeah, that's very true. And last one here on just electronic margins and expectations. I know we have 200 basis points of prior cost out. I think there's like five magnetic products that are launching, which are dilutive. So how should we think about the incrementals, you know, this year given the cross-currents and then, you know, what level of revenue do you think we need to achieve for electronics to get back to the 2023, you know, kind of 22, 23%?

Yeah, I think, I think for us, you're going to get a few things working in our favor. Obviously, you know, the volume just, you know, that, that, that margin, you know, fall through that you get from a higher volume, you know, we are still getting some price and productivity. We've got new products that are going to be launched and, You know, we would expect our margin in electronics to improve sequentially as we improve through the fiscal year. And, you know, we do believe the second half will be stronger from a revenue standpoint than the first half. So, you know, again, as David said, you can do your own model, but, you know, as you kind of think about the second half of FY25, we are optimistic that the margin is going to, you know, it's going to get better than it is today.

All right. Thanks, guys. Thank you.

Ladies and gentlemen, as a reminder, if you have any follow-up questions, it's star one. And if you'd like to withdraw from the polling process, it is star two. There are no further questions at this time. I'll hand the call over to David Dunbar for closing remarks. Sir, please go ahead.

All right, thank you. I want to thank everybody for joining us on the call. We enjoy reporting on our progress at StandEx. 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 first quarter 2025 call.

Ladies and gentlemen, this concludes today's conference. Thank you very much for your participation.

You may now disconnect.