Q3 2021 Standex International Corp Earnings Call
[music].
Good day, and why from the Standex International third quarter fiscal year 2021 earnings Conference call.
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After todays presentation and there'll be an opportunity to ask questions.
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Oh, and I always tend to conference over to Gary Farber with affinity growth advisors. 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 Dotcom. Please.
Please refer to Standex is 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.
And you should refer to Standex is most recent annual report of form 10-K, as well as other SEC filings and public announcements for a detailed list.
Of risk factors. In addition, I'd like to remind you that today's discussion will include references to the non-GAAP.
Measures of EBIT, which is earnings before interest and taxes, adjusted EBIT, which is EBIT, excluding restructuring purchase accounting acquisition related expenses and onetime items EBITDA, which is earnings before interest taxes, depreciation and amortization adjusted EBITDA, which is EBITDA excluding.
And restructuring purchase accounting acquisition related expenses, and onetime 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.
These non-GAAP financial measures are intended to serve as a complement to results provided in accordance with accounting principles generally accepted and the United States Standex.
<unk> believes that such information provides an additional measurement and consistent historical comparison of the company's performance on the call today is standex as chairman President and Chief Executive Officer, David Dunbar, and Chief Financial Officer, and Treasurer and mirrors our civic.
Thank you Gary.
Good morning, and welcome to our fiscal third quarter 2021 conference call.
It has now been over a year since dependent and it closed in on us all.
Let me first start with and expression expression of profound gratitude to the employees of standex and repositioned machines and the board of directors, the circumstances dependent and it required a level of agility and responsiveness that would not have been possible without a high degree of collaboration trust and a sense of common mission.
I am proud of what we accomplished together.
And as a result, standex is emerging from the pandemic far stronger than when we entered it.
Now if everyone can turn to slide three key messages.
We had another solid quarterly performance with results ahead of our expectations and expect this momentum to continue with stronger financial performance and fiscal fourth quarter 2021.
And the electronics segment nearly half of the 35% year on year revenue increase and the third quarter reflected organic growth with solid demand from relays and solar and electric vehicle applications and Reed switches for transportation and markets.
Overall, we are seeing strong demand across many of our product lines and all geographies and electronics.
Our scientific segment also had an excellent quarter with solid revenue and operating income growth year on year. We continue to expect that revenue from COVID-19 related storage demand and fiscal 2021 will be at the higher end of our originally indicated $10 million to $20 million range.
And the specialty solutions segment revenue and operating income sequentially increased 18, 3% and 32, 4% respectively as.
As we see the early stages of recovery and our end markets.
From a strategic perspective, we continue to position standex around products and platforms and optimize our growth and margin profile with strong customer value propositions.
Electronics segment backlog realizable and under one year increased approximately 26% sequentially.
And the demand and end markets, including electric vehicles, and renewable energy continues to trend positively.
Results and order flow and Renco electronics were solid as we successfully leveraged to their complementary customer base and end markets.
At the end of the third quarter, we also announced the divestiture of and Genetics Corp.
Our engineering technologies segment will now be focused on our core spin forming capabilities with its strong value proposition, reducing material inputs and processing time, ultimately, providing higher growth and margin opportunities for the segment to.
And the sale of Nginx is also accretive to our margin profile.
EDG will continue to focus on serving the space commercial aviation and defense end markets.
We are also further leveraging these demand trends and strategic initiatives with ongoing productivity and efficiency actions.
At the electronics segment, we continue to make progress and the quarter mitigating material inflation through changes and the Reed switch production and material substitution.
We are on track to substantially complete this transition by the end of fiscal 2022.
We continue to allocate production capacity to our highest margin segment opportunities for instance, at the specialty solutions segment hydraulics aftermarket revenue increased 23% year on year and the third quarter.
These actions are complemented by a strong balance sheet and liquidity position, giving us the financial flexibility to deploy capital from our active pipeline of organic and inorganic growth opportunities.
Adam and I will discuss these metrics in more detail.
In regard to our fiscal fourth quarter 2021 outlook, we expect slight to moderate sequential revenue increase and a more significant operating margin improvement compared to the third quarter fiscal 2020 one.
Underpinning this outlook and following <unk>.
Sequentially, we expect revenue growth for the electronics engraving and specialty solutions segments. However, the consolidated revenue increased sequentially will be partially offset by the absence of nginx, which contributed approximately $4 million and revenue and the third quarter and was divested at the end of the quarter.
We expect significant operating margin improvement sequentially compared to fiscal third quarter 2021. Our results. This improvement will be driven primarily by electronics and engraving engineering technologies.
And besides our financial results today. We are also pleased to announce that our board of directors has committed to nominating Robin Davenport Parker hannifin for election to the board of directors and <unk> as 2021 annual shareholder meeting.
And the interim Miss Davenport will serve as an observer and adviser to our board of directors.
Robin is a highly accomplished and respected executive with comprehensive financial and global industry expertise and the manufacturing sector and significant experience and success and the areas of M&A capital allocation and corporate strategy.
And my discussions with our foundry to be very thoughtful and insightful interviews and believe she will be a valuable addition to the current board of directors efforts and look forward to working closely with her and the current members of the standard explored as we further execute our strategic and financial priorities.
Now please turn to slide four and I'll begin to discuss our segment financial performance starting with electronics.
Revenue grew approximately $17 million or 35, 4% year on year with nearly half of the increase due to organic growth.
This growth reflected broad based geographic recovery, including a strengthening and demand for relays and solar and electric vehicle applications and Reed switch demand and transportation end markets.
The recent renco acquisition contributed revenue of $6 4 million and has proven to be a highly complementary fit with our magnetics portfolio.
Operating income increased approximately $4 3 million.
And were 54, 2% year on year, reflecting operating leverage associated with revenue growth profit contribution from renco and productivity initiatives, partially offset by increased raw material costs.
And the picture is highlighted on slide four are examples of how we can leverage the technological advantages of reed switches to contribute to our growth and end markets such as electric vehicles, and solar power and particular Reed switches given their unique physical properties are well suited to safety isolation testing for electric vehicles and battery management systems.
We also continue to capture attractive new customer wins to support our NGL pipeline. In this case, we highlighted a magnetic motion system for a defense elevator application, which will contribute more than $11 million over the next three years.
Currently our new business opportunity funnel has increased to $59 million across a broad range of markets and is expected to deliver a $12 $4 million of incremental sales and fiscal 2021.
Sequentially and fiscal fourth quarter, 2021, and we expect a modest increase in revenue and slight operating margin improvement and electronics compared to fiscal third quarter 2021.
Our outlook reflects continued broad based and market recovery, including further growth for <unk> and solar and electronic vehicle applications supported by our healthy order flow with backlog realizable under a year, increasing approximately $20 million.
Our 26% sequentially and our third fiscal quarter.
Please turn to slide five for a discussion of the engraving segment.
Revenue increased approximately $600000 or one 7% year on year and operating income was similar year on year as expected at $4 $5 million. The revenue increase reflected favorable foreign exchange impact partially offset by the timing of projects operating income was essentially similar year on year due to a less.
Favorable project mix.
<unk> sales of $13 6 million, where and approximately 5% sequential increase reflecting growth and software and tools laser engraving and tool finishing.
The picture on slide five highlights and recent customer win on the Ford F 150 platform for software and interiors.
Overall, we are seeing solid demand and backlog trends for our software and capabilities further reinforcing the rationale behind our prior acquisition of Gs engineering, a leading provider of cutting edge proprietary technology for the production of in mold grained tools.
Since the acquisition, we are further rollout GFS technology on a global platform positioning us well and the growing soft surface markets as the auto industry focuses on interior comfort of vehicles and increasingly replaces leather with sustainable materials.
And fiscal fourth quarter 2021, we expect a slight revenue and more significant operating margin increase compared to fiscal third quarter 2021 at the engraving segment.
The expected sequential financial performance improvement reflects a more favorable geographic mix project timing and increased software and product demand leveraged over productivity and cost initiatives.
Turning to slide six the scientific segment.
Revenue increased approximately $9 6 million or.
We're 65% year on year, reflecting continued positive trends and retail pharmacies clinical laboratories, and academic institutions, mainly attributable to demand for COVID-19 vaccine storage.
Operating income increased $2 6 million or approximately 81% year on year due primarily to the volume increase balanced with investments to support future growth opportunities and.
And fiscal fourth quarter 2021, we expect a moderate sequential decrease in revenue due to lower demand for COVID-19 vaccine storage combined with higher freight costs, which we expect to result, and a sequential decrease in operating margin, although we still expect and operating margin above 20% and the quarter and.
As shown on the picture on slide six.
And we provide comprehensive solutions with a broad product line, we can meet customer requirements for different model sizes and temperature ranges across a wide variety of end markets, including pharmaceutical medical and scientific biotechnology and industrial picture here is a clinic with a number of different medications and small quantities requiring a variety of our storage.
<unk>.
Finally, I am pleased with the progress the scientific team is making and managing the pipeline of new product development projects, which will position the business well with future new sources of revenue.
Turning to the engineering technologies segment on slide seven.
Revenue decreased approximately $6 7 million and operating income was about $1 $9 million lower year on year at 25, 4% and 59, 8% decrease respectively.
On a year on year basis fiscal third quarter 2021 results reflected the economic impact of COVID-19 on the commercial aviation markets and project timing and space and energy segments, partially offset by growth in defense and markets.
The decrease in operating margin was due to the lower volume, partially offset with productivity and cost initiatives.
And fiscal fourth quarter 2021, we expect revenue on a sequential basis to be similar to the prior quarter with growth in commercial aviation defense and space offset by the absence of engineering sales due to its divestiture at the end of fiscal third quarter 2021, we.
We expect a significant increase and operating margin, reflecting a continued broad based and market recovery and favorable mix complemented by ongoing productivity initiatives.
And pictured on slide seven and we continue to win attractive long term contracts.
Industry leaders to develop new platforms, and and next generation hypersonic programs.
And our manufacturing process utilizes spin forming technology and inherently more efficient process, we start with a plate as opposed to a large block of titanium and then shape it with less material waste and cost and achieve the same functionality and strength.
Please turn to slide eight specialty solutions specialty solutions revenue decreased approximately $3 7 million.
Our 11, 9% year on year with and operating income decline of about $600000 or 12, 9%. This.
This decrease primarily reflected the economic impact of the COVID-19 pandemic on this segments and markets, particularly in food service equipment.
I would like to commend the specialty team for effectively managing their cost to nearly hold their margin rate. Despite the significant reduction and revenue.
Sequentially specialty solutions revenue and operating income increased 18, 3% and 32, 4%. We believe we are in the early stages of a recovery and foodservice and refuse and markets that we expect to continue into our fiscal fourth quarter.
And fiscal fourth quarter, 2021, and we expect a slight sequential increase and revenue with operating margin expected to slightly decrease sequentially, reflecting material inflation, particularly in hydraulics, which we are seeking to recover through pricing actions.
Pictured on the slide is a recent new product introduction, the milk and food merchandiser developed primarily from the school market and offering several advantages, including flexibility to merchandise a wide assortment of products easy loading unloading and the product accessibility to young children.
We returned to more normalized patterns of experience outside the home and personal learning and schools and indoor dining and restaurants, we are seeing a recovery and the school restaurant and grab and go food end markets for products such as the food Merchandiser I will now turn the call over to Adam who will discuss our financial performance and greater detail.
Thank you David and good morning, everyone.
First I will provide a few key financial takeaways from our third quarter 2021 and results.
Had solid performance and the third quarter as both revenue and adjusted operating margin increase sequentially and year on year.
Revenue increased sequentially it for about five reporting segments, and we saw a stronger recovery and many of our end markets from a margin standpoint, adjusted operating margin improved both sequentially and year on year, reflecting operating leverage associated with revenue growth and the impact of our cost efficiency and productivity actions.
Cash generation and leverage statistics remained strong.
For the free cash flow of $12 4 million have generated 92% free cash flow to net income conversion to the per.
First nine months of fiscal 2021.
And also our net debt to EBITDA interest coverage ratio and available liquidity all improved sequentially.
Entering our fiscal fourth quarter with positive demand trends active pipeline low productivity and efficiency actions and an expectation for continued solid cash generation, we expect that our fiscal fourth quarter of 2021 results will be stronger both sequentially and year on year.
Now, let's turn to slide nine third quarter 2021 income statement summary.
On a consolidated basis total revenue increased 8% year on year from $155 5 million to.
The $172 2 million.
Revenue increased mostly reflect the strong organic growth at our electronics and scientific segments contribution from our recent acquisition and favorable FX, partially offset by the economic impact of COVID-19.
Banco contributed approximately four 1% and FX contributed two 8% increase to the revenue growth.
As we expected the COVID-19, economic impact was most evident and the commercial aviation and foodservice and market price.
Italy impacting our engineering technologies and specialty segments.
However, we are seeing signs of sequential recovery and both of these end markets as we entered the fourth quarter of fiscal 2021.
And year on year basis, our adjusted operating margin increased 90 basis points to 12, 2%, reflecting operating leverage associated with revenue growth profit contribution from Aramco and readout of our productivity actions.
Fully offset by increased raw material costs.
Interest expense decreased approximately 28% or half a million dollars year on year, primarily due to lower level of borrowings and a decrease and overall interest rate as a result of our previously implemented and valuable to fixed rate swaps and <unk>.
Our tax rate was 24, 9% and the third quarter of 2021 for.
For fiscal 2021, we continue to expect approximately 22% tax rate.
And the low 20% range for the fourth quarter.
Adjusted earnings per share book, $1, 19, and the third quarter of 2021 compared to 96 a year ago.
Please turn to slide 10 third quarter 2021 free cash flow.
We generated free cash flow of $12 4 million and the fiscal third quarter of 'twenty, one compared to free cash flow of $7 3 million a year ago supported by improvements and our working capital metrics.
For the first nine months of fiscal 2020. One we have generated 92% free cash flow to net income conversion inclusive of approximately $8 million and passion payments with $3 million of that amount paid and the fiscal third quarter up 21.
Next please turn to slide 11, and a summary of standex capitalization structure and liquidity statistics, which remains strong.
Standex had net debt of $82 1 million and at the end of March compared to $90 9 million and at the end of December reflecting free cash flow of approximately $12 4 million and additional $11 7 million and proceeds from the and genetics divestiture.
This was partially offset by $8 $6 million and stock repurchases, along with dividends and changes and foreign exchange.
Net debt for the third quarter of 2021 consisted primarily of long term debt of $201 million and cash and equivalents from $180 million with approximately $82 million held by four and stuff.
Liquidity metrics reinforce our significant financial flexibility.
Index as net debt to adjusted EBITDA leverage was approximately 0.8 at the end of the third quarter with a net debt to total capital ratio of 14, 5%.
We had approximately $209 million of available liquidity at the end of the third quarter and continued to repatriate cash with approximately $6 million per traded during the quarter.
To date, we have repatriated approximately $31 million and remain on plan to repair to hit at least $35 million and fiscal 2021.
From a capital allocation perspective, we repurchased approximately 94000 shares for $8 6 million. There is approximately $27 million from many on our current repurchase authorization.
We also declared a 227th consecutive quarterly cash dividend on April 28 of 24 per share.
And finally, we have reduced our fiscal 2021 capital expenditures range to between 22 million to $25 million from between approximately 25 million to $28 million I will now turn the call over to David for closing comments. Thank you Adam here and for everyone can please turn to slide 12 per key takeaways, we expect a slight to moderate revenue.
And the increase and the fiscal fourth quarter 2021, as compared to fiscal third quarter 2021.
This outlook is expected sequential revenue increases at electronics engraving and specialty solutions, partially offset by the divestiture of and genetics, which contributed approximately $4 million and revenue from the third quarter we.
We expect a significant sequential operating margin increase and the fourth quarter as we leveraged demand growth, particularly at electronics engraving engineering technologies as well as the productivity and efficiency actions that we have undertaken a companywide.
Both from an operational and financial perspective, we have an active pipeline of initiatives to further strengthen our performance and drive cash generation as we approach fiscal 2022.
Our balance sheet position remained strong and our liquidity metrics and strengthening and we're well positioned to pursue and active pipeline of exciting organic growth opportunities such as electric vehicles renewable energy smart grid and space commercialization as well as highly complementary acquisitions like renco.
We remain focused on further growing our high quality businesses with attractive growth and margin profiles and.
As you saw on the example share today, we leverage our strong technical and applications expertise to provide customers a compelling value proposition.
Operator, I will now open the line for questions.
Thank you we will now begin the question and answer session.
Youre asking the question and your neighborhood stores and one of your such loans.
And using a speakerphone please pick up your handset before pressing the keys.
And what's your all your questions.
True.
Today's first question comes from Chris Mcginnis with Sidoti and company. Please go ahead.
Excuse me and good morning, Thanks for taking my questions and congratulations on the nice quarter, but also the outlook as well.
If you could just start with one scientific and the growth there I guess just.
If you think about the next 12 months, obviously youre being aided by <unk>, but I guess, just what are the puts and takes in terms of maybe the book.
Sure that need support for maybe.
Maybe as a booster shots would that be helpful. I guess just kind of.
And thinking about demand trends over the next 12 months, how theyre going to be.
The strength you've just seen.
Chris Your voice is choppy I understood. The question I hope it to your line and not ours and everybody can hear us clearly.
And so we've talked a lot about scientific really beginning last August when we talked about the discussions we're having with our customers how we estimated what the opportunity was.
And.
As you just heard we are seeing a softening and our orders and scientific so we anticipate that to taper in Q4.
And then the question longer term is.
Is there is there additional opportunity and as we've talked about this and the path are $10 million to $20 million range, which we gave early in the year and now we're reinforcing that will be.
And at the top of that range was based on penetration into retail pharmacies, primarily for the distribution of vaccine.
They are just over 30000 pharmacies and in <unk>.
North America, there are a number of small non franchise rural pharmacies out there may be 10, and 15000, they haven't really invested in in cabinets and then there is over 100000 physicians offices out there so to get to your question. If we get to a situation, where we have annual booster shots and these boosters.
Our distributed in.
Pharmacies throughout the country and and small physician's offices that that could be a catalyst for some additional.
Additional opportunity for us however, it is too early to call.
But we are seeing some orders now actually come.
Come in from the physician's offices. So we know at least some physicians are planning on and administering vaccine and in their offices. So that's what we know we obviously watch it closely we have plenty of yes. We got ahead of this curve.
Several quarters ago. So we've got the inventory and the ability to meet any demand that comes our way.
Great.
And my own.
And my lines.
Just can you just talk about the strength and <unk>.
Broad based but is there anything you can call out.
Whether it's the the funnel and you've talked about in the past or.
Okay can.
Could you just spend a little bit more time on electronics strength, yes.
Yes first of all with electronics. It is broad based both geography and end market applications and in the quarter in particular, our European business really started to come on strong we've got great bookings acceleration and a strong backlog.
In Europe.
And that was sort of the last region to kick in for us.
And we've seen very nice growth and the sale of our relays and particular into electric vehicles and.
And our battery management systems.
That's a very nice product line for us and based on the advantages of.
Of the Reed switch technology and <unk>.
You mentioned, the NBL funnel, the MPL funnel to us.
We started reporting on this a few years ago as we executed the strategy to move the electronics business and focus more and more on sensors moving up the value chain to more value add opportunities. So for us that's a measure of our ability of our success in penetrating that market and taking market share and as we grow into sensors.
<unk>.
Last quarter, we reported was $56 million 59, now that additional three and nine is largely the effect of bringing <unk> into the fold and comparing our opportunity lists and.
And seeing the cross selling opportunities between our recent acquisition and our core business.
Okay, Great last question and I'll jump back in queue just in engineering.
On the call for Q4 being.
Sequentially similar to Q3.
But theres no genetics can you just talk about the growth of what's driving that growth and the difference between and genetics.
Yes.
Yes commercial aviation.
Primarily now.
We deliver lip skins, primarily to the Airbus aircraft and Airbus and communicated that they will be at the pre COVID-19 and build rate by the end of this year. So that continues to ramp month after month quarter after quarter. So that's a nice steady growth.
Space continues to be a healthy and market for us and some of the defense programs continue to ramp so all of those sectors.
Sure.
It has good long term visibility.
And for Us and mixed under that occasionally we still get orders for some energy oil and gas opportunities.
Those come and go and they have been difficult to forecast and predict in the past. So so our assessment is really based on those three.
Three other markets that are the core markets for this business.
Okay.
Thanks, Adam here and good luck and Q4, yes.
Yes, Thanks and Chris.
And our next question today comes from Chris Howe with Barrington Research. Please go ahead.
Good morning, David and Adam and Thanks for taking my questions Chris.
Good morning.
And I wanted to ask some more on the scientific segment, just first of all congratulations on and.
Coming in at the higher end of that $10 million to $20 million.
As we look at the retail pharmacy.
Customer base within that $10 million to $20 million coming in at the higher range can you talk and.
And more granular level.
Has this been the cabinet and replacement.
Or are we looking at cabinet additions.
And when we look at specific retail pharmacy and locations and as it relates to your customer base as much as possible I know there is competitive reasons why you may not be able to comment but can you talk about.
The level of penetration within some of these pharmacies and other words.
Perhaps there.
Some remaining.
Share to be gained because of older existing cabinets.
And not related to the COVID-19 vaccine that are still.
And some of these retail pharmacies that could be.
Sales opportunities.
There are a lot of moving pieces and the question you just asked Chris Let me just put a couple of the pieces.
Out there.
The pharmacy is really started putting in cold storage about five years ago as they started to rollout vaccines for annual flu vaccine and then there was a major rollout a few years ago of a shingles vaccine that required.
And as 20 degrees storage.
And that has just accelerated in recent years.
The average life of one of these cabinets is about five years. So we anticipate that they replace between four and seven years.
And so as the install base grows.
And there will be and.
And increasing kind of steady replacement replacement opportunity.
Now.
And as far as the penetration of the pharmacy, and just a little difficult for us to to get our arms around because we know that some pharmacies are adding multiple stores and in fact, the picture that we showed it was not a pharmacy average.
And a physician's office.
If you were to go into your pharmacy now if you go into a large Cvs and Walgreens and look back and the pharmacy area. You may see two three maybe even four cabinets from small to foot.
Cubic foot Kevin is up too.
The larger pharmacies may have a larger standing cabinet.
And so some pharmacies have been adding additional storage. We know there are other pharmacies that added their first unit.
In.
In the last few months two to support.
To support the COVID-19 vaccine and storage.
So.
So it's hard to hard for us to tell you how many pharmacies have.
One unit, how many have no units and where the where the growth opportunity is.
But our view is.
As we expressed and.
And in the script.
That.
The top line and starting to taper a little bit as this first wave of vaccination rollouts.
Has taken place we are starting to see some orders for individuals and smaller cabinets from physicians offices, we know theres discussion of.
The additional.
Retail pharmacy locations, adding storage that don't have it but this is all.
This is all discussion we don't have specific plans.
From our.
From our from our customers, although we are engaged and we speak with them every week about this it's an evolving situation and.
And I wish I had a clearer plan, but I'm just laying out all the pieces that we know we stand ready to.
And to serve our customers we've got to get the capacity we have.
And <unk>.
And materials available and we will go wherever the industry needs.
That's great and then.
Moving off from scientific.
You talked about.
Recovery that youre seeing as it relates to.
Specialty solutions and some of their product lines.
This point next year, we should be at a better point there.
Likewise, and commercial aviation to be at a better point.
At this time next year.
As we get to that point.
Weather and Q3 or Q4 of next fiscal year can you talk about the business dynamics, how that might look.
On a revenue and margin perspective, given the actions that you've taken.
Now and up to that point.
Is the question and an aggregate level kind of topline sales.
Margin.
Growth year from now.
Yeah, what things could look like on a run rate basis for for those segments.
Once we get out of the recovery.
Okay.
Starting at the top level and go back to the slide we shared last last quarter that we anticipate.
The portfolio of businesses, we have now they're strong and their segments. They are good competitive advantage and we serve good end markets and get through the cycle, we see mid single digit growth at a corporate level.
If you look a year from now just kind of go segment by segment and.
And with technologies business had the most clarity because we have long term agreements they've got upper single digit growth coming for the coming for the coming years as commercial aviation ramps up as these new.
Defense contracts begin to kick in electronics.
We've been seeing terrific growth here so.
There's been a little bit of catch up there, but and as I've mentioned, we're gaining share and we're seeing growth and evs and renewables. So that's mid single digit.
They're very.
Very reasonable expectation.
Our specialty solutions business.
The hydraulics could.
It could be driven by and infrastructure investment that business is very strong right now.
Federal and Procon, and which are two remaining foodservice exposed businesses.
And we're continuing to see month after month does that foodservice equipment end markets grow and.
And our current expectation is that there'll be back to pre COVID-19 levels.
By this time next year, which would be mid single digit upper single digit growth. So as you go through all of the businesses.
The one you have got this wave of scientific COVID-19 stores, and we just talked about but all the other businesses have good solid underlying.
Drivers and their end markets to give us a lot of confidence as we look ahead to the next year.
Okay.
That's very helpful and lastly, leverages.
0.8 turns.
Can you talk about the balance sheet.
Obviously leverage is at a very good level and you have a great balance sheet strength.
And how you plan to put this balance sheet.
The work.
Yes, Chris it's Adam and I'll take this one yes. We are obviously very pleased with the strength of our balance sheet and we will continue to allocate capital and about a disciplined way from and all.
What kind of organic investments, both from a safety and maintenance standpoint, as well as growth standpoint, we obviously going to be looking and I'm continued to be active and the M&A front and look for external and look for.
Look for acquisition opportunities and.
We have a very low interest rate and I and really good kind of a long term debt position, but obviously and all the other piece that we always look and toys.
As David and as well as the share repurchases, but did about 94000 of share repurchase in the quarter. So we will continue approaching it and a very disciplined way and not.
Think nothing significantly different and what we have done and the Pat.
Great. Thanks for taking my questions.
Thank you Chris.
And our next question today comes from Chris Moore CJS Securities. Please go ahead.
Good morning, this is stefanos crist, calling in for Chris Thanks for taking.
Okay.
And I'd like to expand on that last question actually on M&A and and.
In particular in the scientific segment and you pull.
And the M&A.
Are you looking at complementary products or products that can leverage the same sales channels.
Well actually I combine those answers.
A year or two ago, we started studying this and market and in some depth to look for <unk>.
And our position opportunities and understand where the leverage points are so what kind of acquisitions would make sense, where we would have some synergies and.
If you look at the facilities that have our cabinets, whether its a laboratory a research institution pharmaceutical company.
They all have some related equipment. They may have an incubator centrifuge biosafety containment cabinet and those are served by the same channels. So there is a core set of equipment, you're finding these facilities and.
And there are there are privately held companies out there that are of a size similar to the acquisition. We made a scientific a few years ago, which could provide an opportunity for us to expand this group.
And to broaden out and other other scientific equipment.
And so.
And if that answers. Your question there are some opportunities we've identified that could be attractive you can never predict whether a deal will actually come together and it takes a willing buyer willing seller.
But we are actively exploring the opportunities there would be very excited to expand this this group of some other other products categories.
That's great. Thank you.
And then and then just one more.
Now obviously stand next has done a good job of expanding margins since the early stage of the pandemic.
Talk about the biggest wildcards and your ability to continue expanding margins and the fiscal 'twenty two.
Well, if you follow the company and the last couple of years, but the biggest headwind, we face was and our electronics business with rhodium, which is a kind of a keenly traded rare earth minerals, we use and our reed switches.
And back to under 2018, or so the price per ounce of rhodium was less in $2000. An ounce back then and we were using 2500 ounces a year the spot price now is close to $30000.
And in 2020 and particular the compressed our margins in the last year was really put in place a nice disciplined process of managing our price and reflecting price of.
Rhodium inputs and we've also announced.
And execution of a.
From a substitution program to move as many switches as possible to other materials that is kind of growth every quarter, we're adding new machines, new capacity and these other materials so that by the end of.
Well by about this time next year the end of fiscal 'twenty two that transition will be complete so that has been our greatest headwind our plans are well underway to replace that.
And if you look at other.
And other issues, our hydraulics business is seeing steel inflation, which happens.
Cyclically in that business and they typically that David.
Have a good track record and standard playbook of passing on the price through it's always a challenging and competitive environment, but they know what to do and.
And then a couple of our businesses have a longer supply chain and so freight costs or are starting to grow as well. So we'll have to deal with that pass that through beyond that is just standard blocking and tackling we continued to drive our opex programs lean and our plants.
We've put in place from strategic sourcing programs and electronics that are relatively new so we feel that we've got a basket of opportunities and levers to pull to counter those those cost impacts.
Perfect. Thank you for taking my questions. Thank.
Thank you Sir.
Ladies and gentlemen, this concludes our question and answer session I would like to turn the conference back over to the management team for any final remarks.
Harlan and thank everybody for your interest in Standex. It was a pleasure for us to to share results from the most recent quarter.
And we look forward to reporting back to you.
In August to book.
The results of our fiscal year 'twenty to ask you all to continue to stay healthy and we look forward to catching up and another quarter. Thank you.
Thank you Sir This concludes today's conference call. Thank you all for attending today's presentation you may now.
And that your loans and have a wonderful day.
Okay.