Q2 2022 Standex International Corp Earnings Call
Good morning, and welcome to the Standex International second quarter fiscal 2022 conference call.
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Please note. This event is being recorded I would now like to turn the conference over to Gary Farber of clear view 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 Dot <unk> Dot com.
Please refer to <unk> Safe Harbor statement on slide two.
Or is 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 should.
You should refer to <unk>. Most recent annual report our 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 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 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.
<unk> believes that such information provides an additional measurement and consistent historical comparison of the company's performance.
On the call today is <unk>, Chairman, President and Chief Executive Officer, David Dunbar, and Chief Financial Officer, and Treasurer, Adam Air source of it. Thank.
Thank you Gary Good morning, and welcome to our fiscal second quarter 2022 conference call.
I'm very pleased with our strong second quarter results, which were above our expectations with record performance in several areas.
Our success reflects the significant repositioning of our portfolio around high growth end markets, where our expertise and innovative solutions provide a compelling customer value proposition.
We are excited about the growing number of new business opportunities in front of us.
In the early innings of further driving the trajectory of the next leg of our growth strategy I want to thank our employees executive teams and the board of directors for their continued dedication and support.
Now if everyone can turn to slide three key messages.
Both revenue and consolidated adjusted operating margin increased significantly year on year in the second quarter record sales with both our electronics and scientific segments in the quarter were key drivers of organic revenue growth, which was 20% year on year.
Electronics segment revenue grew approximately 27% year on year with broad based strength across all geographic regions and end markets such as electric transportation solar military aerospace and semiconductor all platforms for significant future growth.
Scientific segment revenue increased approximately 38% year on year with positive trends in our core markets complemented by ongoing demand for COVID-19 vaccine storage refrigeration.
For the third consecutive quarter, we reported our highest adjusted consolidated operating margin in Standex history, 13, 6%, representing a 220 basis point year on year increase.
This reflected strength in end market product demand complemented by market share gains productivity and price realization initiatives.
We are entering the second half of fiscal 2022, with a very robust pipeline of new business opportunities in high growth end markets. We're also further leveraging our business units to highly targeted investments in research and development.
<unk>, our foundation and outlook for future growth.
Total company backlog realizable in under one year increased approximately 11% sequentially in the quarter and 53% year on year with record backlog levels at the electronics and specialty solutions segment.
In addition, our electronics segment, new business opportunity pipeline of $64 million represented a 14% year on year increase and is expected to contributed $19 million in sales in fiscal 2020 to approximately 25% above the previous year.
We also achieved an important milestone in our project with <unk>, a global energy company delivering full sized prototypes solar modules in December .
We highlighted this opportunity on our fiscal fourth quarter call in August and are now expected to move to design and construction of the pilot plant further expand <unk> potential avenues for growth.
Our operating approach globally remains highly collaborative and well coordinated across business segments and leadership teams.
A significant portion of our client base is in the same region raw materials are sourced in products are manufactured minimizing supply chain issues. We continued to drive supply chain productivity to a proactive and strategic material sourcing and logistics management, we continue to execute on standardized operating disciplines across business units, including new lean program.
And highly focused sales inventory and operations planning processes.
With regard to inflationary trends, we have implemented new processes and systems combined with collaborative efforts.
Amongst segment engineering sales and purchasing personnel to effectively implement price realization actions.
In addition at the electronics segment by the end of fiscal 2022, we expect to substantially complete the expansion of our lithium based reed switch production.
We are now able to offer customers the choice of switches with rhodium or other materials, reducing our exposure to future royalty and inflation.
In the second quarter. We also further strengthened our balance sheet and liquidity position supported by continued solid cash generation and have substantial financial flexibility to further expand the number of high return organic and inorganic opportunities across our business units.
Adam and I will discuss our financial performance in greater detail later in the call.
Regarding our financial outlook, we expect our momentum to continue in fiscal 2022 with stronger financial performance in the second half of our fiscal year, both year on year and compared to the first half of fiscal 2022.
Specifically on a sequential basis in the fiscal third quarter, we expect revenue to be similar to slightly higher and operating margin to be slightly higher sequentially with a significant overall increase year on year compared to fiscal third quarter 2022.
We are also pacing ahead of our long term financial targets, we provided a year ago as.
As before our outlook assumes a continued macroeconomic recovery.
Now please turn to slide four and I will begin to discuss our segment financial performance and outlook beginning with electronics.
The electronics segment are.
Our record second quarter revenue performance growing new business pipeline in fiscal third quarter outlook reflect the volume ramp of the previous year's new business opportunity awards strength in our end markets and product demand complemented by continued market share gains.
Revenue was $76 $6 million, representing an increase of $16 $8 million and a 27, 9% organic growth year on year. This growth reflected positive trends across all markets and geographies, including an electric transportation solar military aerospace and semiconductor markets.
Operating income grew approximately 72, 2% year on year to $17 $2 million and we effectively leveraged organic sales growth pricing actions and productivity initiatives, partially offset by increased raw material and freight costs.
Electronics backlog realizable under a year of approximately $143 million increased 9% sequentially and 88% year on year.
Our new business opportunity pipeline of $64 million reflects the broad expansion, we're seeing including in electric vehicles, and renewable energy end markets and share gain in the military aerospace sector.
As highlighted in the picture on slide four our current NPL funnel include strong demand for new renewable energy program that are quickly ramping up in both Europe and Asia.
For our fiscal third quarter 2022 outlook, we expect a slight increase in revenue and operating margin as we execute on our solid backlog position.
We expect strong demand to continue across all product categories and regions with military aerospace programs continuing to ramp up from there.
Kinetics products demand.
Please turn to slide five for a discussion of the engraving segment.
Revenue of $36 $6 million in the quarter and operating income of $5 2 million represented a three 4% and 20% decrease year on year, respectively, due to the timing of projects and geographic mix.
Meanwhile, sales of $15 $7 million increased approximately 14% year on year with positive trends in soft trim tools laser engraving tool, finishing product categories and <unk>.
<unk> backlog realizable under a year increased 7% sequentially in the fiscal second quarter 'twenty two.
The picture on slide five highlights our recent customer win for the new for Grainger P. Seven or three model a global three year tool texture hedging program for vehicles to be assembled in the U S, India, Thailand, South Africa and Argentina.
Our ability to offer a comprehensive approach through the full value chain from design prototyping and execution of a final product on a global basis.
It remains a key competitive differentiator, particularly for leading multinational manufacturers.
Our fiscal third quarter, we expect sales and operating margin to be similar to the second quarter with an expected decrease in project work in Asia associated with the Chinese new year offset by contributions from projects in Europe , and the growth in software and sales.
Turning to slide six scientific segment.
Record quarterly revenue of $24 6 million represented an increase of 37, 7% year on year with growth in pharmaceutical clinical laboratories, and academic institution markets complemented by strong demand for COVID-19 vaccine storage.
Operating income of $5 $5 million increased 29, 7% year on year, reflecting volume growth and pricing initiatives to partially offset higher freight costs as well as increased investments to support additional new product development.
Sequentially backlog realizable under a year increased 7%.
That's pictured on the slide our scientific segment is the first in the industry to provide customers with equipment certified to the NSF 456 standard developed by U S centers for disease control and prevention and the National Sanitation Foundation.
These new equipment standards focused on maintaining ideal vaccine storage conditions and address the potential high cost of failure, which can reach millions of dollars of client losses on ineffectively refrigerated medications.
In our fiscal third quarter, we expect a moderate sequential decrease in revenue and operating margin due to expected lower demand for COVID-19 vaccine storage.
Our new product development effort remains very active as reflected in the growing level of intellectual property into new product categories.
Turning to the engineering technologies segment on slide seven revenue in operating performance in the quarter reflected a recovery in commercial aviation end markets and the absence of the previously divested <unk> business in the fiscal third quarter of 2021.
Sales increased three 4% year on year to $18 $1 million and operating income grew approximately 69, 8% to $2 $3 million.
In the second quarter backlog realizable under a year increased 8%.
As highlighted on the picture on slide seven our market reach is broad and we are well positioned to capture a wide range of emerging growth opportunities from the commercialization of space to collaborating with commercial air Framers on net zero carbon aviation applications as well as defense programs globally.
Regarding our outlook for the fiscal third quarter, we expect revenue to be sequentially similar to slightly higher primarily due to growth in space and medical end markets with a slight to moderate increase in operating margin, reflecting end market strength and productivity initiatives.
Please turn to slide eight specialty solutions.
Specialty solutions revenue grew 34% year on year to $29 $7 million, reflecting continued end market recovery, primarily in foodservice specialty retail and refuse and markets.
Operating income increased 16, 4% to $3 $7 million due to volume growth and pricing actions, partially offset by material inflation and increased freight costs.
Sequentially backlog realizable under a year increased to $10 1 million or approximately 29% in the second quarter fiscal 'twenty two reinforcing the continued recovery in key end markets.
Pictured on slide eight is the recently launched Procon Nautilus helical gear pumps for espresso and milk formula applications.
Unique product highlights our value based approach to client solutions.
Nautilus gear pump his energy efficient with a low amp draw.
Reinforces the overall focus on sustainability of our development programs and offers a compact size with smoother and quieter operation.
In regards to our outlook in fiscal third quarter 'twenty, two we expect a slight to moderate increase in revenue and operating margin sequentially, reflecting positive trends in backlog and in the markets. We continue to seek to recover material inflation through pricing actions I will now turn the call over to Ed Merritt to discuss our financial performance in greater.
Detail.
Thank you David and good morning, everyone.
Alright.
A few takeaways from our fiscal second quarter 2022, adult revenue operating margin and free cash flow all increased both sequentially and year on year.
Organic revenue growth of approximately 20% year on year, reflecting record payoffs and electronics and scientific segment.
For about five segments reporting increased sales.
20% year on year organic growth of festival, approximately two thirds and volume increase and one third in price realization.
In addition, adjusted consolidated operating margin of 13, 6% in the quarter represented a 20 basis point sequential increase and 220 basis points increase year on year led by strong operating performance in electronics and scientific segment.
We also further added to our significant balance sheet and liquidity strength with solid free cash flow generation.
In summary, supported by continued strong market demand and active pipeline of new business opportunities and new product development.
I'm going to focus on price and productivity initiatives.
The year to date book to Bill well in access of one context is entering the second half of fiscal 2022 with momentum and expectations for continued improvement in financial performance, both sequentially and year on year.
In addition, all of these positive trends provide us with further financial flexibility to pursue a very active pipeline of M&A opportunities.
Now, let's turn to slide nine second quarter fiscal 2022 income statement summary.
On a consolidated basis total revenue increased 18, 8% year on year from $56 3 million in the second quarter of 2021 .
$185 7 million this quarter.
This revenue increase primarily reflected strong organic growth at the electronics segment.
The increase was partially offset by the prior divestiture of the generics business, which contributed approximately $2 3 million in revenue in the fiscal second quarter 2021, as well as a small impact from foreign exchange.
On a year on year basis, our adjusted operating margin increased 220 basis points to 13, 6%, reflecting operating leverage associated with revenue growth and readout of price and productivity actions, partially offset by material inflation and increased freight costs, primarily impacting the scientific and specialty segments.
As expected our tax rate was in the 24% range, increasing to 24, 7% compared to 29% in the second quarter of fiscal 2021.
Our tax rate will be in the 24% rate into our fiscal third quarter, followed by a tax rate in the low 20% range in our fiscal fourth quarter.
We still expect our fiscal 2022 tax rate to be around 24%.
Adjusted earnings per share were $1 45 in the second quarter of fiscal 2022 compared to $1.05 a year ago, and approximately 38% improvement year on year.
Please turn to slide 10 second quarter, 2022 free cash flow.
Reported free cash flow of $18 9 million in the second quarter of 2022 compared to free cash flow of approximately $17 million in the second quarter of 2021.
Now represented the best first half free cash flow performance and standards of history.
<unk> continued focus on working capital improvement and a better mix of higher performing businesses.
Working capital turns of five five times represented an approximately 20% increase year on year.
Now please turn to slide 11 for a summary of stand up this capitalization structure and liquidity statistics, which remain very strong.
So that had net debt of $52 5 million at the end of the second quarter compared to $68 9 million at the end of the first quarter.
Maryland, reflecting free cash flow offset by dividend and changes in foreign exchange.
Our net debt for fiscal second quarter of 2022.
Generally a long term debt of $199 7 million and cash and cash equivalents totaling 147 2 million with approximately 100 million held by foreign subs.
We repatriated cash of approximately fixed and now from what I saw was in the second quarter and expect to repatriate between $30 million to $35 million in cash in fiscal 2022.
We ended the second quarter with approximately 281 million of available liquidity.
In addition, our net debt to adjusted EBITDA leverage was approximately 0.42 times with a net debt to total capital ratio of nine 2%.
From a capital allocation perspective, we declared our 230 <unk> consecutive quarterly cash dividend on January 27, or 26 cents per share and approximately 8% increase over the year ago period.
Finally, we expect capital expenditures of approximately 25 million to $30 million in fiscal 2022.
I will now turn the call over to David for further details around our growth outlook and closing comments. Thank you Adam here if everyone can please turn to slide 12 for a discussion of our improved growth outlook.
We are entering the next phase of our strategy and the growth trajectory well positioned to exceed our prior long term organic revenue growth target of mid single digits. We are focusing on end markets aligned with sustainable growth trends, we can provide innovative solutions addressing emerging global opportunities in areas, such as renewable energy electric vehicles home.
Health commercialization of space and products that emphasized sustainability in their features.
Our presence in these high growth end markets is already contributing $64 million in sales annually and increasing at a 25% compound annual growth rate our applications typically have multiyear customer purchase life cycles, providing a recurring revenue stream.
We are leveraging our significant pool of internal talent with the recent announcement of a dedicated office of innovation we are in.
<unk> investments in R&D to execute on a very active pipeline of new product introductions and expand the range of high return opportunities companywide.
We are focused on driving profitable growth with investments in R&D, which has doubled since the end of fiscal 2019, while our consolidated adjusted margin improved.
Recent releases include introducing new product categories, it scientific including blood bank and plasma cabinets and a ground up redesign at merchandising of our new vision series, which we introduced in November and is already generating significant customer order flow.
Our approach to executing on our projects is highly collaborative and multifaceted to maximize the value of our expertise.
In the case of the solar project with Enel, which I discussed earlier in my comments electronics engraving and our innovation and technology offers.
Collaborating to apply custom surface engraving and electronic componentry.
In addition, standex has a minority ownership stake in Green SA, whose recycling process will be used for material inputs to module production.
We expect a pilot plant to begin operation in early 2023.
Please turn to slide 13 to discuss our update to the standard financial framework.
A year ago, we provided a comprehensive list of financial targets highlighted on slide 13 that we expected to achieve in the next three to five years, our performance in the past year and the momentum in the business increase our confidence in meeting and exceeding these targets we have.
Well positioned to continue to exceed mid single digit sales growth.
We now expect to reach an adjusted EBITA margin above 20% and our return on invested capital above 12% in the next 18 to 36 months, reflecting the significant strengthening of our business portfolio and breadth of company growth and productivity initiatives and pipeline.
Operator, I will now open the line for questions.
We will now begin the question and answer session.
A question you May Press Star then one on your Touchtone phone.
If youre using a speakerphone please pick up your handset before pressing the keys.
To withdraw your question. Please press Star then two at.
At this time, we will pause momentarily to assemble our roster.
Our first question comes from Chris Mcginnis from Sidoti <unk> Company. Please go ahead.
Yeah. Good morning, Thanks for taking my questions and congratulations on a very strong quarter, yes. Good morning.
Okay, I guess just.
One thing.
Right off the bat.
A number of other companies are reporting significant increases in raw material supply chain issues or labor can you just address maybe how much of a headwind that is right now and how are you largely offsetting that.
I'll say, a couple words, and then turn it over to Adam here.
Our biggest raw material issue in the last few years was rhodium in electronics and I think you've seen in the last year, how we effectively manage that by.
By passing price through.
To recover the margin and we've also engineered and alternative.
For customers using ruthenium.
The other business, that's really affected by by material increases hydraulic and.
You kind of see that in our specialty, especially Morgan.
Hydraulics has always dealt with fluctuations in steel price and has a well established process for passing pricing through when the work we're confident they're positioned to start recapturing that margin in the coming quarter, Yeah, Chris and if I can add you know for the most part via the regional supplier for our regional customers did not have really a lot of along kind of a long haul.
Supply chain, if you will so we estimate in a in a quarter that was about $6 million worth of sales that got pushed from the quarter pushed to the right.
The sales that we did not lose they're not these are not cancellations, it's something that we'll have to ship in Q3 and Q4, but for the most part it's been it's been a pretty limited impact.
Great.
And then I guess, just generally im sorry.
No.
Just in relation to the updated long term targets.
What's the driving factor to make that in 18 months versus 36 months.
What are you thinking that you know.
We needed to be quicker versus the longer term.
Execution well its two things one is just simply looking at the performance of the business in the last year. I mean, we're ahead now we're ahead of where we thought we would be a year ago and even our performance relative to external expectations we've exceeded.
The margin rate in our sales.
We're farther along than we thought we would be.
Secondly, we just completed a very granular a grounds up.
Recast of our five year projections for all of our businesses. When we came out of there with a lot of confidence that our top line growth will continue will leverage margin expansion.
And.
Page 12 gifts.
Yes.
A number of the other.
The items that go into our enhanced topline topline expectations. So it's a process of just kind of watching the performance in the last year and also really digging through our businesses to see what they've got in the pipeline to contribute to the next few years.
Great and then just one more for me and I'll jump back in queue.
Just in relation to the balance sheet and the opportunity for M&A.
I know last quarter, you bought back some shares that didn't happen in Q2, I'm just guessing.
Is the.
Is the opportunity for M&A, becoming maybe more apparent at this point.
Yeah, I'll say a word about that.
Every quarter, we look at we look at our cash what are the best uses of cash.
Continuing to buy back shares is always on the table, but in context with the other options in front of us so.
Obviously, we have some great internal investment opportunities the acquisition pipeline has become busier than in recent quarters.
<unk>.
Our intent is not to sit on cash for a long time, we're going to put into the most productive uses.
I.
I can only say, we'll follow the same kind of the same quarter by quarter evaluation.
Adam do you want to add anything to that and the only thing I would add Chris and I shared a purchase that will continue to be unimportant part of our capital allocation strategies and there are no I wouldn't I wouldn't read too much into the fact that we didn't repurchase any shares last quarter.
Okay, I appreciate that I'm going to jump back in queue. Good luck in Q3, but I will talk I think thank you.
The next question comes from Chris Moore from CJS Securities. Please go ahead.
Good morning, guys. Thanks for taking my questions good morning.
So you talked about if reached.
Switch production material substitution project.
Should be finished by the end of 'twenty. Two just curious if it had been finished by the end of 'twenty, one kind of roughly how additive would that have been in 'twenty. Two is that more of a volume versus margin.
That's a great question. When we first started talking about that we thought to recapture the margin we were losing from rhodium inflation.
Inflation, we would need to have any production in our in place, but starting about a year ago with the Q3 of 'twenty one.
Our electronics business put in place a more disciplined pricing process and began.
Recovery in the margins from rhodium. So by the time, we got to the end of the year.
The ruthenium project with no longer one about recapturing margin, but it was one of a expanding capacity and be offering our customers an option between the ruthenium iridium switches. So had we I mean your question is a hypothetical one had we had that capacity online.
In June for example, it would have given us more capacity and probably some upside on that.
Sales on it.
Got it. Thank you engraving you know it was the one segment that lagging a little bit just maybe talk about visibility and expectations beyond Q3.
Yeah, so the engraving.
The way to think of this business, 70% of the sales going into auto.
Auto industry and its driven by new platform.
And the outlook for new platform.
<unk> in the coming years is stable to slightly growing so think of that as like a GDP growing end market.
<unk>.
We.
There is a move in the market to more soft trim parts and hard trim, our bread and butter for years and years was hard trim.
Acquired a business a few years ago to accelerate our soft trim sales and that backlog is really growing so we anticipate that the software sales in the coming quarters will start to read through we will see that growth.
You see in our.
This quarter, our Laneways, both really is is solid.
No.
And on the auto.
And Mark what we think we're well positioned to participate in the trends to software and a language of driving growth on the non auto business, which we've always used as kind of a way to fill capacity at our site.
It's about 30% of the business.
We've had more competition in recent in recent years and some of our smaller regional competitors have invested in lasers.
So we've talked about our new laser technology, which we are beginning to rollout and we will start to roll through our regions.
This calendar year.
So those things are all going on in the engraving business and when we talk about getting this business back to a 20% operating income essentially three key things one is Jim hooven. He's now running the businesses is driving the operating discipline.
Instantly across the regions, because the labor management practices and pricing in particular are critical secondly.
Secondly, just ramping up the soft trim growth, especially in Asia.
It will help us grow topline and.
And thirdly, the rollout of this new laser technology across all the businesses will strengthen our position in that million known auto auto segment.
Got it and that that laser.
Rollout.
That's more of a second half calendar 'twenty two.
Really gets moving or is that a calendar 'twenty three.
First we have two installed now.
There'll be another couple in over the next couple of quarters and then a few more in the first half of the neck.
First half of the next fiscal year, So it's kind of a calendar year store, you'll see it progressively.
Roll through.
Got it.
Specialty was a nice beat in revenue certainly where we were looking for.
$30 million, you're talking about kind of sustained and closer to that in Q3, what would it take.
Increase that quarterly revenue closer to $35 million.
Well.
The end markets are.
I almost back to the pre COVID-19 levels in the food service equipment I think our team believes that this quarter that they'll get back to the pre COVID-19 level, so for the pumping and display merchandising.
We continue to see end market strength.
The new products that we've released we think are going to take some share so that will accelerate growth there.
Hydraulics business.
It will be a beneficiary in the coming years of this North America infrastructure spend.
That's going to be a pop to the earnings but it provides a nice lately over the next five to 10 years to continue to grow so I think as favorable external.
Market conditions, plus our new product releases.
We will help us.
Continue to grow that top line.
Got it and last one for me I just wanted to maybe add American repeater I didn't hear exactly the breakdown on the organic growth in the quarter between price and volume did you say one third price two thirds volume did I hear that correctly, yes, you did correct. Okay alright.
I'll jump back in line thanks, guys.
Again, if you have a question. Please press Star then one.
Our next question comes from Chris Howe from Barrington Research. Please go ahead.
Good morning, David and animals.
Turning.
Good morning.
Yes first off.
Starting with slide 12.
If we think about the new product pipeline.
The businesses.
Perhaps more specifically around solar energy.
Can you talk about.
Just the puts and takes and how you balance.
Your level of R&D investment and also.
Your level of investment and pursuing you.
New opportunities.
Beyond what you already have.
Yeah.
I was so excited to put this slide together. This is the culmination combination of eight years of work and getting our businesses to focus on controlling their own destiny with their own organic growth program.
And if you look at the <unk>.
Years ago, we reported our R&D spending of less than 1% of our sales and to be honest a lot of that was it was customer support manufacturing support there wasn't really the pipeline of new products.
<unk>.
So we're working on.
Several years ago with the.
GDP plus process, that's grown by Paul Burns and the business development group, we started identifying new product development we started.
Following the businesses to ramp up there are there engineering spending.
And you see I think this year will be about 2%.
Adam here is that right about 2% of our sales in R&D. If you benchmark other companies I think long term provided we find that we think we can attractive new products two invest in you'll see that number drift probably closer to three and over 3% of sales.
But this is all part of a disciplined stage gate process. So this is kind of gets to your question, how do we decide where to invest.
We first.
We have these ideation sessions with all of the businesses.
Some that ideation session we have.
A list of a portfolio of opportunities we choose the ones that appear to Beth.
First construct a market test in a market test is a way for us to go out talk to customers, maybe just a voice of customer research, maybe get a prototyping customer's hands.
Just a few months.
Determine is there something worth exploring here.
And if so then interest our stage gate process.
We have a monthly review between the business and our business development.
Team.
To track the evolution of this idea until we get to kind of a green light to start a new product development.
So it's quite a disciplined process.
We do this with all the businesses and Youre just starting to see the culmination of that just work has been going on for years, but the new products are now coming out and starting to generate sales and.
We're confident enough about it to put kind of put some highlights on this page about how that will help drive.
The long term growth.
Okay.
Helpful.
And then.
Just following up on a previous question related to the Reed switch substitution.
And how if it were completed sooner perhaps.
It would have helped on the revenue line.
As we think about the differences in material.
How should I think about it as it relates to.
Demand.
For certain applications.
Yes.
Very roughly yes.
Very roughly.
The characteristics of rhodium are best suited to their most mission critical applications out there. So if you've got a switched it must.
<unk> 1 billion times without any any interruption.
That's.
The characteristics of rhodium are more secure than if you have a switch that needs to undergo very high voltage across across an open switch like in safety isolation testing for electric vehicles.
Better for <unk>.
On the other end of the spectrum applications like your security system in your home or Theres, a reed switch in the window and a magnet and the window frame and the other way around.
Retaining the switch is perfectly adequate offer toys or sprinkler system, so kind of a lower end and higher end applications with the two of the span the range of application conditions.
Yeah.
Okay is it fair to say then.
Based on the.
Lower end applications, the Presidium debt the cost of the switch is lower but perhaps the <unk>.
Demand for <unk>.
It exceeds what it is now.
Well first of all there's a lot more ruthenium in the world the market progress even more liquid higher supply and if you can tell us all the reads, which is sold in the world. There are more ruthenium switches sold in rhodium switches.
There are more lower end applications.
So I think Thats I think thats, what youre getting at.
Yes, yes, okay.
<unk>.
And then lastly, if I could Chris.
I apologize when they make one point our margins on the routine use which is our equivalent to a rhodium switches. So maybe a lower price point, but it's a lower cost as well because the ruthenium. So we're agnostic about what switch, which a customer chooses.
Okay.
And then lastly on the scientific segments.
You know there is ongoing replacement of cabinets.
As we move further down the line.
Talking about that but also.
Can you talk about the global opportunity for scientific I know domestically you continues to be strong.
Perhaps COVID-19 related perhaps not.
But how should we think about opportunities outside of our borders.
This is something with <unk>.
I actually spent.
Some energy in the last year through that same growth process as I mentioned, we've conducted some market tests to look at the opportunity.
What we discovered is.
In many parts of the world.
They are still using.
The same kind of the same kind of refrigerated you might have in your office to keep drink thing or something that you buy at Costco. So the very low price point lower quality cabinet.
And.
Not very attractive for us at this moment.
For those countries that do have higher quality standards or medication to vaccine storage.
Have their own unique requirements and <unk>.
Vacation.
Requirements.
And we're looking at ways that we can play in those markets.
It's simply a matter of just.
Exporting the product for next year in America to those countries would have to find a way to.
Either reengineer.
And.
And get certified to those local.
Local protocols, but we are actively exploring those site.
Okay. That's all I have thank you.
<unk>.
This concludes our question and answer session.
I'd like to turn the conference back over to David Dunbar for any closing remarks.
Yes. Thank you.
We delivered strong topline growth and record margins in the quarter, we see substantial runway to further drive growth and profitability, but given our strengthening position in high growth markets.
And it also aligned with sustainable global trends and investment in innovative solutions, which leverage our significant technical and application expertise to provide compelling.
Customer solutions I want to thank everyone today for their interest in standex, and our discussion of our fiscal second quarter and current outlook.
Again, I want to thank our employees and shareholders for their continued support and we look forward to speaking with you again on our fiscal third quarter 'twenty to coal.
Conference has now concluded. Thank you for attending today's presentation you may now disconnect.
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