Standex International Corporation

Good morning, ladies and gentlemen, and welcome to the Stendix International Fiscal First Quarter 2025 Financial Results Conference Call. At this time, we'll line through in a listen-only mode. Following the presentation, we will conduct a -and-answer session. If at any time during this call you need assistance, please press star zero for the operator. This call is being recorded on Thursday, Tuesday, October 29, 2024. I would now like to turn the conference over to Christopher Hale, Director of Investing 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 .standx.com. Please refer to Stendix's Safe Harbor Statement on Slide 2. Matters that Stendix management will discuss on today's conference call include predictions, estimates, expectations, and other forward-looking statements. These statements are subject to risk and uncertainties that could cause actual results to differ materially. You should refer to Stendix'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 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, Adimir Sarcevic.

Thank you, Chris. Good morning. This is an exciting day for us at Standex as we report on our fiscal first quarter 2025 results and share details of our most recent acquisition announced earlier this morning. First, a brief summary of our quarterly results. Following record profit and cash generation fiscal 2024, we achieved record gross margin above 40% in the fiscal first quarter with operating margin near 16% despite challenging general market conditions that pressure the top line. Behind the scenes, our engineering sales and marketing teams continue to ramp up new product development and we are on track with our new product releases in fiscal year 2025. In fiscal year 2025, based on recent order rates and customer interaction, we continue to expect our end markets to stabilize in the second quarter and strengthen in the second half. Last night or this morning, we acquired Amaran Instrument Transformers and Narayan PowerTech, leading manufacturers of low voltage and medium voltage instrument transformers in separate transactions for a combined enterprise value of approximately $462 million. Going forward on this call, we will refer to these entities collectively as the Amaran Narayan Group. These transactions are expected to be immediately accretive to stand-example revenue growth, EBITDA margin, operating margin, earnings per share, and free cash flow. Over the last three years, the Amaran Narayan Group has increased revenue at an average cumulative annual growth rate of 30%. It expects approximately $100 million of revenue in calendar year 2024 with adjusted EBITDA margin north of 40%. This acquisition enhances our presence in the fast-growing high-margin electrical grid market driven by infrastructure upgrades, capacity expansion, and rising data center demand. Stand-ex's exposure to fast-growth markets increases to approximately 25% of total sales on a pro-forma basis for fiscal 2024. Furthermore, we are extending our geographic reach into the domestic Indian market and our technical expertise in low to medium voltage technologies. I will share more details on this acquisition later in the call. Now, if everyone can turn to slide three, key messages. In the first quarter, sales declined .7% with contributions from acquisitions partially offsetting an organic decline. Though sales decreased in electronics due to continued soft demand in general industrial end markets in Europe, orders continue to strengthen, indicating that markets are improving and that our commercial strategy is taking hold. We also continue to experience an impact from a slowdown of new vehicle introductions in North America and delays in general market softness in Europe, affecting our engraving segment. We continue to expect demand to improve as we enter the second half of fiscal 2025. Sales into fast-growth end markets were flat -on-year at $20 million in the first quarter. Sales into electric vehicles, defense applications, and commercialization of space grew -on-year respectively, but were offset primarily by demand conditions affecting the soft-trim business in our engraving segment. We expect sales into fast-growth end markets, as defined here, to improve sequentially and -on-year in the fiscal second quarter. New product sales increased approximately 20% -on-year to $11 million in the fiscal first quarter. We continued to demonstrate resilient operating performance from the execution of price and productivity initiatives. As a result, we achieved record adjusted gross margin of 41.1%, up 240 basis points on a sequential basis, and adjusted operating margin near 16%. Research and development expenses were .8% of sales as we continued to invest in new product development. Three of our five segments reported adjusted operating margin of approximately 20% or higher. Looking ahead on a sequential basis in fiscal second quarter 2025, we expect moderately to significantly higher revenue, driven by the impact of the recent Emra and Narayan Group acquisition, more favorable project timing and engraving, and improving overall demand in electronics and specialty. We expect slightly moderately higher adjusted operating margin, benefiting from higher sales partially offset by increased investments in selling, marketing, and R&D. We also expect the Emra and Narayan Group acquisition to be slightly accretive to adjusted earnings per share in the fiscal second quarter. As mentioned in my beginning comments, the Emra and Narayan Group acquisition is expected to be immediately accretive to all key financial metrics. The entirety of its revenue resides in fast growth markets. As a result, our exposure to fast growth markets increases to approximately 25% of sales on a pro forma fiscal year 2024 basis from 13% of sales prior to the acquisition. In the fiscal first quarter, we launched three new products and remain on track to release over a dozen new products. We anticipate new products released in fiscal year 2025 to contribute over 100 basis points of incremental growth. Considering our acquisition of the Emra and Narayan Group, we will provide an updated long-term financial look on our fiscal second quarter earnings call. Please turn to slide four, an overview of the Emra and Narayan Group. The Emra and Narayan Group is a market leader in low and medium voltage instrument transformers, providing custom engineered products that serve leading global OEMs and utility customers. It is comprised of Emra instrument transformers headquartered in Sugarland, Texas, and Narayan PowerTech Limited headquartered in Gujarat, India. It is a classic customer intimacy business. It has developed a business model focused on rapid prototype development, reliability, fast delivery, and customization, creating long-term customer relationships. The Emra and Narayan Group is vertically integrated and has impressive manufacturing and engineering talents. Notably, its presence in India expands our footprint in one of the world's fastest growing economies. The Emra and Narayan Group has grown revenue at an average growth rate of nearly 30% over the last three years. In calendar year 2024, it expects revenue of approximately $100 million. Emra and Narayan's mission critical products and proprietary processes help generate sustainable EBITDA margins greater than 40%. I am delighted to welcome the 750 employees of Emra and Narayan to Standex. We are gaining a very experienced and capable team with a compatible culture, and we look forward to forging an exciting future together. Please turn to slide five, which highlights the strong combined presence across the power value chain. Emra and Narayan's broad portfolio of custom engineered products serve as critical components in the power transmission and power distribution markets. Its position in the power value chain is unique and fills in critical areas where Standex does not have a strong presence today. Emra and Narayan's products are complementary to Standex's existing offering and are a natural extension into high growth applications. It has a very strong presence in power transmission and power distribution markets where Standex has limited exposure. On the other hand, Standex has a position in the commercial and residential consumption markets. The combined entity deepens coverage across all three stages of the power transmission market. Please turn to slide six, which highlights secular tailwinds that are driving transformer market growth. Emra and Narayan is well positioned to capitalize on several secular market trends. The growing need to expand electrical grid capacity is at an inflection point. To achieve countries' national energy and climate goals, the global grid must expand from 80 million kilometers to 170 million kilometers, with 50 million kilometers of the existing grid to be replaced, or a total construction of 175% of the entire existing grid in the next 25 years. The US and other nations around the world have passed sweeping legislation in recent years that is intended to help fund grid expansion. We continue to see new project announcements, which increase demand across multiple applications, including data centers, renewables, and large-scale utility upgrades. The current rapid growth in demand for electricity is driven by increased living standards across the world, the need to upgrade old infrastructure, and significantly new sources of demand, especially data centers. Finally, the success of the global energy transition depends on rapid expansion of the grid. These market tailwinds provide exciting long-term growth potential. Now, if everyone could turn to slide 7, which highlights the complementary capabilities of AMRA and RIM. This acquisition presents a compelling opportunity to unite our unique capabilities and leverage our complementary offerings to create a stronger combined leader in custom manufacturing of power management components. Our combined product suite and global manufacturing footprint enhances our customer value proposition and strengthens our -to-market capabilities. AMRA and Narayan brings extensive electrical grid market knowledge and new technologies to our product portfolio. As part of STANDX, we expect to provide AMRA and Narayan with resources that will accelerate the growth of their business, particularly through capacity expansion plans and access to our global distribution network. AMRA and Narayan also adds an important presence in India, one of the fastest-growing economies in the world. Additionally, STANDX's presence will help accelerate their growth in Europe. I will now turn the call over to Adimir, who will discuss the details of this transaction and our combined financial profile.

Thank you, David, and good morning, everyone. Please turn to slide 8, detailed transaction summary. As David mentioned, STANDX has acquired AMRA and Narayan Group for combined enterprise The cash consideration will come from a combination of cash on hand and our credit facility. This acquisition fits perfectly within our strategy to accelerate growth in secular fast growth end markets. We remain committed to maintaining a strong investment-grade balance sheet and intend to focus our capital allocation priorities on debt repayment in the next two years. We expect to achieve a net leverage ratio of below 1 within 24 months. Now if everyone can turn to slide 9, which highlights the enhanced financial profile and the end-market exposure. The addition of AMRA and Narayan Group will immediately enhance STANDX's financial profile and significantly expand our end-market exposure in fast-growth markets while growing our largest business division. In the first full year as a combined company, the margin profile will represent over 200 basis points expansion opportunity versus STANDX's standalone EBITDA margin. In addition, our electronic segment will now represent over 50% of total STANDX's revenue. In fiscal year 2024, on a pro forma basis, the addition of AMRA and Narayan Group to our existing definition of fast growth end markets increases our exposure to fast growth markets from 13% of sales to approximately 25%. Let me turn the call back to David to summarize this highly strategic and transformative acquisition.

Thank you, Adhameer. Please turn to slide 10. AMRA and Narayan represents a highly strategic opportunity for STANDX. The company's technical design capabilities, customer relationships, and expertise in the electric grid market fit perfectly in our portfolio and we see ourselves as the right partner to enable the continued growth of the business. AMRA and Narayan opens up a $2 billion addressable market for STANDX and aligns with our strategic goals of identifying new high-growth markets that will accelerate STANDX's future growth. As the largest acquisition in STANDX's history, this is a key milestone for our business and it builds on our history of successfully creating value in the electronics space. Now I will turn the call back to Adhameer to discuss our first quarter fiscal 2025 results.

Thank you, David. Let's turn to slide 11, first quarter 2025 summary. On a consolidated basis, total revenue decreased approximately .7% year on year to $170.5 million. This reflected an organic revenue decline of .4% and a .1% impact from foreign exchange, partially offset by .8% benefit from recent acquisitions. First quarter 2025 adjusted operating margin was flat year on year at .9% and adjusted operating income decreased 8% on a .7% consolidated revenue decrease year on year. Adjusted earnings per share decreased .7% year on year to $1.71. Net cash provided by operating activities was $17.5 million in the first quarter of fiscal 2025 compared to $16.4 million a year ago. Capital expenditure was $6.7 million compared to $4.3 million a year ago. As a result, we generated fiscal first quarter free cash flow of $10.8 million compared to $12.1 million a year ago. Now, please turn to slide 12 and I will begin to discuss our segment performance and outlook beginning with electronics. Segment revenue of $77.7 million decreased .8% year on year as .5% benefit from recent acquisitions and .3% benefit from foreign exchange were more than offset by an organic decline of 13.7%. Adjusted operating margin of .9% in fiscal first quarter 2025 increased 150 basis points year on year as the contribution from recent acquisitions, productivity initiatives, and product mix were partially offset by lower volume. Our new business opportunity funnel increased approximately 38% year on year and is currently at approximately $99 million. As David highlighted in his comments, when we continue to see encouraging signs that market was starting to recover, which is further supported by positive order trends. Orders in electronics increased 15% sequentially to approximately $75 million, the highest orders quarter in over a year. Sequentially in fiscal second quarter 2025, we expect significantly higher revenue driven by the recent Amran Narang Group acquisition and higher sales into fast growth and markets and slightly to moderately higher adjusted operating margin due to the recent acquisition and pricing of productivity initiatives partially offset by higher investments in selling, marketing, and R&D. Please turn to slide 13 for discussion of the engraving and scientific segments. Engraving revenue decreased 18.2%, 33.4 million, driven by organic decline of .5% and a .7% impact from foreign exchange. Operating margin of .5% in fiscal first quarter 2025 decreased 110 basis points year on year due to slower demand in North America and Europe partially offset by productivity initiatives. In our next fiscal quarter, on a sequential basis, we expect moderately higher revenue and slightly higher operating margin due to more favorable project timing in Asia and Europe and productivity initiatives. Scientific revenue decreased .7% to 17.7 million due to lower demand from retail pharmacies partially offset by higher volume from new product sales. Operating margin of .8% decreased 30 basis points year on year as the impact of lower volume and higher freight costs more than offset productivity actions. Sequentially, we expect similar revenue and slightly lower operating margin due to continued investments in R&D and higher freight costs. Now turn to slide 14 for discussion of the engineering technologies and specialty solution segments. Engineering technologies revenue increased .7% to 20.5 million driven by organic growth of 13.3%, slightly offset by .6% impact from foreign exchange. This strong organic growth was due to more favorable project timing in the space and markets that drove growth in new product development and new applications. Operating margin of .5% increased 290 basis points year on year reflecting leverage on higher sales and pricing of productivity initiatives. Sequentially, we expect similar to slightly higher revenue due to new products and new applications and slightly lower operating margin due to product mix. Specialty solution segment revenue of 21.1 million decreased .3% year on year primarily due to softness in general market conditions in the display merchandising business and in the hydraulics business. Operating margin of .8% decreased 490 basis points year on year. Sequentially, we expect slightly higher revenue and operating margin. Next, please turn to slide 15 for a summary of standard 6 liquidity statistics and the capitalization structure. At the end of the first quarter, standards had net cash of 15.6 million compared to net cash of 5.3 million at the end of fiscal quarter 2024. Then, it's long-term debt at the end of fiscal first quarter 2025 was 149 million, cash and cash equivalents total 164.6 million. We declared our 241st quarterly consecutive cash dividend of 32 cents per share and approximately .7% increase year on year. In fiscal 2025, excluding the Amaran-Narayan Group acquisition, we expect capital expenditures to be between 35 million and 40 million dollars. Following the acquisition of the Amaran-Narayan Group, our net leverage ratio is approximately 2.2 times and our available liquidity is greater than 300 million dollars. I will now turn the call over to David to discuss our key takeaways from our first quarter results and our acquisition of the Amaran-Narayan Group.

Thank you, Adamir. Please start the slide 16. I'm very proud of our team for their continued operational execution that led to our record gross margin in the fiscal quarter first quarter. I'm also especially proud of the creativity, the commitment that it took to execute this very complex transaction with Amaran-Narayan Group. We also saw a lot of creativity and collaboration in the Amaran-Narayan teams that reinforced to us we are going to make a great team together. The acquisition significantly expands our presence in the fast growing high margin electrical grid end market, benefiting from infrastructure upgrades, capacity expansions and data center demand. Now, with this acquisition, our exposure to fast growth markets has effectively doubled on pro forma fiscal 2024 basis. We look forward to welcoming the entire Amaran-Narayan team to our company and are excited by our combined growth potential. 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, we continue to be on track for new products to be released in every one of our businesses, which are expected to add over 100 basis points of incremental growth. With the acquisition of the Amaran-Narayan Group, we intend to use our cash flows to reduce debt while we continue to assess an active pipeline of organic and inorganic growth opportunities that support future growth. We expect to reduce our net leverage ratio below one times EBITDA within the first 24 months post transaction. With the added exposure to high margin fast growth markets, we've never been in a better position as a company to offset challenging market conditions and capitalize on market opportunities. Considering our acquisition of the Amaran-Narayan Group, we will provide an updated long term financial outlook on our fiscal second quarter earnings call. 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 the star followed by the one on your touchtone phone. You will hear a prompt that your hand has been raised. If you wish to decline from the polling process, please press star followed by two. And if you are using a speakerphone, please flip the handset before pressing any keys. Your first question comes from Christopher Moore at CJS Securities. Please go ahead.

Good morning, guys. Congratulations. A lot of work went into this one for sure. Maybe just... Absolutely. Just in terms of kind of a reasonable expectation for organic growth for 2025, I know things are kind of stabilized in Q2 and pick up. Are you expecting organic growth to be slightly positive for the year or just how should we look at that?

Yeah, I think Chris, it's Adam here. I think we obviously... As we look at our recent order rates, we feel the market has stabilized and is starting to pick up. So Q2 will not be having an organic growth in fiscal Q2. But as we move to Q3 and Q4, we think it's not unreasonable to expect that the electronics kind of a core business will have made to hide single digits organic growth. And obviously, when you put the Amaran acquisition on top of that and them growing at a pretty significant kegger, we have pretty high expectations for that business. Engraving business has been challenged with some of the push-outs from the OEMs. So we don't look at engraving as being significantly contributing to organic growth this fiscal year. And then when you look at the engineering technologies, for example, they are growing at a pretty significant rate, double-digit organic growth in the quarter, and we expect that to continue. Scientific is starting to recover. I would probably tell you as we move to the rest of the year, probably kind of a -single-digit growth. And that specialty has been kind of choppy, a little bit around US elections and uncertainties as to what's going to happen. So we're kind of monitoring what happens in that segment. And we'll obviously provide a little bit more guide on that as we see what happens after the election. So I don't know. Hopefully that helps.

No, it does. I appreciate that. So in terms of the acquisition, can you talk a little bit more? What does it mean to be sister companies? Is there a lot of overlap between what they do? Is most of production happening at one facility? I'm just trying to understand kind of how that looks.

Yeah, we look at it as one global company. It was founded in the 90s in India. With success there, they then expanded into the US, created a separate legal entity to serve the US market. Initially, really all the design expertise, the supply chain came from India. In the last 20 years, the business in Houston has been increasing its own technical staff, its engineering team has had some, they have ability to customize designs in the US for US customers. But it's the same family has founded and grown the teams, it's a similar culture across the businesses. But there are two legal entities. Maybe that's more inside baseball for us because it complicated the transaction because we had to acquire the entities separately, but it's effectively coming into us as a single global business.

Got it. That's helpful. So you talked about growth of the last three years, 30%. Is a couple of things there. Is that a reasonable target for this business for the next three to five years or just any thoughts there?

Well as we get our feet on the ground and get to know each other, we would... We'd love to see that. If you look at the external data, the increase in investment in grid, their own backlog, there's a lot of momentum in that business. I would say for planning purposes, if you think mid-teens would be a very safe number to plan growth around and then as the coming quarters roll out, with our experience, we'll have better and better visibility.

Got it. That's helpful. Obviously, data center is a hot term these days. The 100 million revenue, is half of that data center is just a piece of it and that's the fast growing piece or just trying to understand the end market splits a little bit?

The products they make are agnostic as to what actually is pulling the electricity. So, anything that drives expansion of the grid will drive their sales and I think they're saying, I don't know what the percent, the incremental investment in the grid of 10 to 15% simply for data centers would be 10 to 15% of the growth for this business. But there's also aging infrastructure around the world. Well, just in the US, the fires in Texas and Hawaii and California caused by old grid, that needs to be replaced and upgraded. That will drive demand and in much of the world, the growth in living standards depends on more electricity to more rural areas. That will drive a lot of instruments. So, all of these things drive the same product, but certainly data centers is another 10 to 15% growth on top of that.

That's awesome. A lot of fast growing markets here. I will jump back in line. I really appreciate it guys. Thank

you.

Thank you.

Next question comes from Michael Lake at Benchmark. Please go ahead.

Thanks. Good morning. Congrats on the acquisition. Just want to follow up on Chris's questions there. So just on the growth of the 30% growth that they've historically had for the acquisitions, I thought I heard you say on the conference call that you would, that by joining STAND actually could accelerate the growth, but then you just answered that word should be modern and it means growth. Can you just explain that please?

We're asking you to be conservative. Let us get a quarter or two under a belt to get to know the business and the customers. You can call us a little conservative here with that number. We think that's a very dependable number, the mid-teens.

Okay, great. And then just on the customer, is there any major customer, any key customer concentration?

No. They serve all the big players in the OEM equipment, both in Europe and in the US and in India. And in fact, their European customers have really been pressuring them to create a footprint in Europe. And so we can really help accelerate that. They've got plans and can make a step or two, but with our team, we can really accelerate that, better serve those European customers. But they're all listed on page four of the earnings deck and you'll see all the familiar names.

Okay, great. And then just on the EBITDA margin, there's obviously very strong acquisitions to get some leverage. Is there an opportunity to even increase that EBITDA ahead of where it is for this business?

I would say that they would increase it through growth, through leverage on the top line as opposed to any cost synergies. I think we'll be able to expand more cost-effectively. So going into Europe, for example, we've got a team that can leverage and their growth should be a little more efficient and speedy.

Okay. And then just last question. The pipeline is a little lighter than it's been, but your book, the bill, was extremely strong. Can you just comment on that a little bit more?

Mike, is that about electronics?

Yeah.

Yeah. Yeah. No, look, I mean, we look, obviously, we look at electronics orders daily. And we have said on our last conference call that we have seen an update. That update has continued. $75 million worth of orders in a quarter is the highest orders quarter we had in over a year. And we fully expect that we're going to be at that number maybe a little bit higher in this fiscal quarter as well from an order standpoint. So we see the market stabilizing, starting to recover, and that makes us cautiously optimistic as we enter the second half of our fiscal year.

Okay,

great. Thanks, guys. Congratulations

on the acquisition. Thank you,

Mike. Thank you. Next question comes from Mike Schlisky at D.A. Davidson. Please go ahead.

Good morning. Thanks for taking my questions. Looking at the acquired entities, the $100 million of revenue with first-time margins, it's hard to argue with those numbers, but I do have to ask, do you see any synergies that we should be kind of modeling here?

The synergies we described are more to position them better to grow into Europe. We think they help us cross-selling our other products into the Indian market through their relationships. This business is running so well. I think they have things they can teach us. We're not going to rapidly drive cost synergies in terms of their organization, but of course you will look at sourcing. I think they've got some sourcing relationships for the better position that we do. They have an India supply chain, which is very exciting to us, which we can leverage. So I'd say those are lower percentage impacts on value creation in the near term. The primary thing is to help them grow and gain the leverage on the top line.

OK. This may be in some kind of filing. There's a lot being fired at us this morning. If I missed it, I apologize. The shares that are being issued as part of the deal, is that price as of yesterday's closing price for StandX? I'm not sure what to assume there.

30-day average,

Mike. OK.

Great.

Then just changing the order to the ongoing businesses, I want to ask about the engraving margins. They were up four, maybe even five points from the prior quarter. I don't recall you being quite that bullish on the margins for engraving. With sales being down, it's even more surprising to see an up quarter from the previous quarter. What's the story there? Was there a mix in the first quarter here? What you're seeing right now, does it make sense to step away from any customers if they're not providing the appropriate returns on your investment?

Yeah, I think, Mike, there's a little bit of a mix, but there's also a lot of productivity actions that business has taken over the last few quarters. If you recall, we took some restructuring actions in Germany and the United States. We continued to look at leveraging our cost base more effectively. That's what drove the margins to where you see them today. We expect to continue with some of those actions as we get into our second quarter and the rest of the fiscal year. As far as our footprint and where we operate as a customer, we obviously look at that consistently. When things don't make sense for us, then we'll reconsider where we operate and how we operate.

Okay. All right. I appreciate the answers. I'll pass them along.

Thank you, Mike.

Thank you. The next question comes from Gary Prestopino at Bernton Research. Please go ahead.

Yeah, good morning, all. Several questions here. First of all, can you consolidate this immediately or do you have to wait until you get this India regulatory approval?

No, Gary. It's been signed and closed and the acquisition has been consummated, so it's done. The only issue, there's about 10% of the Narayan ownership that is going to be held by minority owners at this point, the current owners of Narayan. We expect we're going to get that Indian regulatory approval within the next three to six months, in which case we're going to convert them into shares and then we'll own 100% of the Narayan entity. Today we own 90%.

Okay. Of the combined entity, you said it's about 100 million of revenues, right? Can you break that down geographically on a broad brush, Europe, US, South America, Asia?

You know, there's not much in Europe. I would probably tell you it's about 30%, 40% in the United States and the rest would be Asia. 55%. Yeah. Out

of Asia, 45 out of the Texas.

That was close. The rest of Asia. The rest of Asia, okay. Now, is there, particularly with your Indian operations, is there functional currency over there, the rupee, or are they, how are they billing? I mean, are we going to have FX risk here regarding the rupee, given they've got Indian operations? Well, no.

Well, that's a good question. So, they're basically in country for country. So, their supply chain is India. They supply Indian customers from their Indian plan for the Indian supply chain. There's a single digit million shipments into Europe. We want to supply that from a European site, which we will build with them. So, we'll be in the Euro zone. Our costs will be in Euro. And then the North American site is in Texas. There is some sourcing from India because the basic supply chain goes back through India. So, I hope that gives you an idea of the footprint and answers your question.

Well, no, I'm just trying to understand. I mean, how, when this entity was a separate entity, how were they billing? Are they billing in rupees? And then you have to convert that back into dollars once that billing is done?

They bill their Indian customers in rupee. All the US customers, which is 45% of their sales, those are dollar transactions and dollar costs. And the exports to Europe are in Euro, but that's just a few million dollars.

Okay, that's fine. Thank you. And then did you say this opens up a $200 billion market for you? I was trying to write it down. $2 billion. $2 billion, okay. $2 billion, yeah. You wish it was $200 million.

So, yeah, total annual investments in the grid are about $600 billion. That's on everything, you know, cable, stations, transformer, state distribution. So, this is $2 billion of the $600. The Sixth International Energy Agency projects that to grow to $1.1, $1.2 billion by 2030. So, that ratio ought to hold. The instrument transformers are a smaller part of that, but they perform a very critical function throughout the entire transmission and distribution system.

Okay, do they, is their business, you say it's custom solutions, so they're working with whatever entity needs their products. Is the initial step based on an RFP to bid on the business, or it doesn't involve an RFP, it involves direct contact between the entity? That's a great question.

This is very similar to our electronics business, the way we compete on customer intimacy. Often the first application into a customer, it's maybe through an RFP or through some other means. Once we successfully execute a first application, though, the relationship is formed, it deepens, and then the next application, we're asked, we're invited to design, and we progressively become partners with the customer. And so, that's effectively what they're doing. A lot of their growth is just picking up a new and larger set of new applications within each of their customers.

Okay, that's great. And then just lastly, and I'll drop off, It looks like if you use the stock portion of the consideration for both, I'm sorry, the cash for both acquisitions, it looks like about $400 million of cash, which, you know, assume that that's going to be borrowings or the majority of it. What kind of rate are you paying right now on those borrowings?

Yeah, I think it's a little bit less than what you just mentioned in terms of the dollar value, Gary. But the way I would think about it, we are having this 364-day loan that we took. You know, there's a little bit of a higher interest rate on that loan until we syndicate it back and get it back into accordion. You can assume between, you know, all in, you know, kind of full burden on the amount of money we borrowed. You can probably assume .5% to 7% in this quarter, and then we expect it to come down, you know, to 5-ish, maybe a little kind of a, you know, south, a little higher than 5% as we move into Q3 and Q4, as we, you know, get this 364-day loan, you know, kind of terminated and put into the accordion, and we look to put some swaps in place.

Okay, thank you.

Thank you. The next question comes from Ross Sparrenbleck at William Blair. Please go ahead.

Hey, good morning, guys. Hey, Ross. Hey, I'd just like to get a sense of, you know, the genesis of how these two acquisitions came into the fold. I mean, were these sourced? Were you talking to them for, you know, several years here? I mean, I never really got the sense that this opportunity existed.

Yeah, thanks for asking the question. So, well, you know, for the last few years, we've been, as we've directed our internal teams to focus more on opportunities and fast growth markets, we've also applied that filter to opportunities in the acquisition funnel. And so we became aware of this business a couple of years ago. We really started, I first met them just after the new year. And so I think February was the first time I met them. We've had a lot of meetings since then with increasing regularity. And the business was founded in the 90s. They're getting to a point in their business growth that they could leverage, that they could use a partner like Standex. And also for the family, too, it's meaningful to have a broader organization to work with them to grow around the world. So this was just the two part, just them and us talking since about February and coming to terms on the bilateral deal that met both of our needs. We're very excited about it. We spent a lot of time together to first gain comfort that we run the businesses in compatible ways. It's a very compatible culture. We've come to really know and respect the team that has founded the company and runs the company. So it's larger, but it's very typical for the kind of acquisitions we've done over the years.

Yeah. So did they reach out to you guys or did you just stumble across it and wanted to see if they wanted a partner?

You know, our fantastic director of IR, Chris Howe, Chris called him up and said, hey, we'd like to talk to you. And they took the call.

And Ross, what about we'll tell you like from kind of the future potential standpoint, we are this is, you know, and David's been here for 10 years. I've been here for five or six. We are. This is the acquisition that we are most excited about. You know, we look at this really as being kind of a transformational opportunity for us. The end markets are phenomenal. The growth is opportunity is great. You know, obviously, you know, you see the financial profile of the entities. And so we think we could do some special things together and hopefully we can.

Yeah, no, absolutely. And congrats to Chris on that. Hopefully you guys remember that bonus time.

Thinking about kind of

the competitive landscape, you know, two billion dollar KM, most likely five percent market share globally. Why do they have a right to win? I mean, is it the customized aspect, higher into the market? Well, you know, what is truly unique about these two companies?

They've over the years, they've developed a unique business model that serves the market with an integrated organization. They can turn around a prototype in, you know, in days to a week, whereas competitors may take weeks to months to turn the prototype around. They and that that embeds them very early on in the design cycle with with their OEMs. So they've they've become a trusted partner with them. And in fact, early on, we were looking into this space. We did some voice of customer work with with these with these customers and we weren't specifically asking about Amar and Narayan. We were just asking them about who are their suppliers and they specifically mentioned what a great partner Amar and Narayan is. So we got great confirmation from the customers of the relationship and how they how they build a trust. So it comes from a very flexible business model. It's an India's complete India supply chain. They've got a great cost position and they've been innovative with their design as well. They've been innovative in compressing these instrument transformers in smaller spaces and meeting the increasing power and efficiency requirements of the new designs from the OEMs.

OK, you guys are the number one globally. Do you have a sense of this is a couple of other larger competitors out there?

They're not they're not number one in volume, but they

they

are they have that. We would say they have the highest reputation. They also become an outsource partner. Some some of that the two billion dollar market is the external spend on instrument transformers. The large global OEMs, they have some more standard product that they do internally. So it is a much larger market. And with Amar and Narayan's success in the customer intimacy model, they've actually kind of succeeded in having their OEM partners progressively give them a greater piece of the of their transformer business for those

for

the higher end. The most demanding transformers.

Yeah, that's very helpful. Quickly electronics, can you maybe just update us on how orders moved through the quarter on a monthly basis? I'm just trying to gauge your confidence for the second half recovery. We take out 11 million of new products. It looks like first quarter revenue overall, we're down about 15 percent. And it is difficult to just try to assess where we are in the overall macro cycle versus maybe anything that's maybe idiosyncratic, like potential share losses on certain product lines that we should be aware of.

Right. Yeah, I think I think Ross, if you kind of look at our other intake in electronics over the past four quarters, you know, that book to bill was, you know, point six point seven. I think we were running at about 60, 65 million dollars, you know, per per quarter in orders. You know, and I think we are seeing some of those lower orders kind of, you know, flush through our sales in the last quarter or two. So it probably takes, you know, kind of I would tell you, depends again on its magnetic, if it's the sensors, if it's the business. But, you know, three to six months to kind of this stuff to get from from the orders into the sales. But look, you know, we had seventy five million dollars worth of bookings last quarter. As you know, as you remember, on our last earnings call, we were pretty optimistic about it. Kind of played out the way we thought. And we think, you know, this quarter will be similar, maybe slightly up. And then all indications from our customers is that into our fiscal Q3 and Q4, that order intake is going to going to continue to pick up. So that's what we are basing kind of our our assessment on.

Yeah, I definitely imagine the distribution channel is pretty balanced at this point, if not a little destocked. Yeah, that's exactly right.

Yeah, that's right.

OK, maybe just one last one. So I'm going to tell in here productivity versus mix for electronic margins in the quarter. And I know you guys have done some great calls out. There's a new head of division over there that's finding a broader project funnel for you guys. But how should we just think about the legacy business going forward?

I think you would do

acquisitions.

Yeah, that's a good question. And I think our you know, as we get into the Q3 and Q4 of this fiscal year, we know on the base business, we would expect to continue to kind of slightly improve operating margins and growth. First of all, to slightly improve gross margins as we move forward, that would also lead to improvement of the operating margins. So you think about modeling without kind of Amara and Orion Group, you know, we would expect if there wasn't an acquisition that the business performance would improve both from the top line and from the gross margin operating operating line standpoint and kind of slightly as you move to the quarters.

Yeah, I mean, getting back to kind of that mid 20 range, though, you have a sense of the timeline there. You've done a lot. It was we should. Yeah, yeah, I mean,

yeah. We'll kind of give you a better view on that process to get into second quarter. You know, we want to really look at as to what we have for in terms of Amara and Orion and how those margins and that kind of fits into the into the overall into the overall picture. But yeah, I mean, you would assume that we would be, you know, improving margins sequentially and get into the 25 percent range at some point in the next few quarters. The

volumes could

follow. We just described exactly. I'm just trying to be conservative. Ross is not letting me be conservative.

Thanks for the time, gentlemen. Congrats again.

Thank you, Ross. Thanks.

Thank you. We have no further questions. I will turn the call back over to David Dunbar for closing comments.

All right. I want to thank everybody for connecting today. We threw a curve ball by scheduling and then rescheduling this call. This was a very complicated transaction, and I want to thank everybody for adjusting your schedules. We're very excited about that. Hope that came through today. And as we go forward, you'll see the impact it has on our business. I want to thank you all for joining us for the call. We really do enjoy reporting on the progress at Standex. And finally, again, I want to thank all of our employees, both new and old, for the continued support and contributions. This transaction was complicated. There were many, many people across Standex and across Amerenarian that participated and it really demonstrated the talent, the commitment and the creativity of our teams to get things done. Thank you also for the shareholders for your continued support and contributions. Ladies and gentlemen, we look forward to speaking with you again in our fiscal second quarter 2025 call.

Ladies and gentlemen, this concludes your conference for today. We thank you for participating and we ask that you please disconnect your lines.