Q4 2023 Standex International Corporation Earnings Call
[music].
Speaker 1: Good day and welcome to the Standex International Fiscal Fourth Quarter 2023 Financial Results Teleconference.
Good day and welcome to the Standex International fiscal fourth quarter 2023 financial results teleconference.
All participants will be in a listen only mode.
Speaker 1: Did you need assistance? Please signal a conference specialist by pressing the star key followed by zero.
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Speaker 1: After today's presentation, there will be an opportunity to ask questions.
After todays presentation, there will be an opportunity to ask questions.
Speaker 1: To ask a question, you may press star then one on a touch tone phone. To withdraw your question, please press star.
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Speaker 1: Please note this event is being recorded. I would now like to turn the conference over to Christopher Howe, Director of Investor Relations. Please go ahead.
Please note. This event is being recorded I would now like to turn the conference over to Christopher Howe Director of Investor Relations. Please go ahead.
Thank you operator and good morning.
Speaker 2: Please note that the presentation accompanying management's remarks can be found on the investor relations portion of the company's website at www.standex.com.
Please 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.
Speaker 2: Please refer to Standex's Safe Harbor Statement on slide.
Please refer to <unk> Safe Harbor statement on slide two.
Speaker 2: Matters that Standex Management will discuss on today's conference call include predictions, estimates, expectations, and other forward-looking states.
Matters that Standex management will discuss on today's conference call include predictions estimates expectations and other forward looking statements.
Speaker 2: These statements are subject to risks and uncertainties that could cause actual results to differ material.
These statements are subject to risks and uncertainties that could cause actual results to differ materially.
Speaker 2: You should refer to Standex's most recent annual report on Form 10-K , as well as other SEC filings and public announcements for a detailed list
You should refer to <unk>. Most recent annual report on Form 10-K, as well as other SEC filings and public announcements for a detailed list of risk factors.
Yeah.
Speaker 2: 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 Tax-
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.
Speaker 2: adjusted EBIT, which is EBIT excluding, restructuring, purchase accounting, acquisition related expenses, and one-time items.
Speaker 2: EBITDA, which is earnings before interest, taxes, depreciation and amortization.
EBITDA, which is earnings before interest taxes depreciation and amortization.
Speaker 2: adjusted EBITDA, which is EBITDA excluding restructuring, purchase accounting, acquisition related expenses, and one-time audit.
Adjusted EBITDA, which is EBITDA, excluding restructuring purchase accounting acquisition related expenses and onetime items.
Speaker 2: evadong margin and adjust it evadong.
EBITDA margin.
And adjusted EBITDA margin.
Speaker 2: We will also refer to other non-GAAP measures, including adjusted net income, adjusted operating income, adjusted net income from
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.
Speaker 2: adjusted earnings per share, adjusted operating margin, pre-operating cash flow, and pro forma net.
Free operating cash flow and pro forma net debt to EBITDA.
Speaker 2: These non-GAF financial measures are intended to serve as a compliment to results provided in accordance with accounting principles generally accepted in the United States.
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.
Speaker 2: Danix believes that such information provides an additional measurement and consistent historical comparison of the company's financial performance.
<unk> believes that such information provides an additional measurement and consistent historical comparison of the company's financial performance.
Speaker 2: On the call today is Standex's Chairman, President, and Chief Executive Officer, David Dunbar, and Chief Financial Officer and Treasurer, Ademir Sarsour.
On the call today is standex is chairman, President and Chief Executive Officer, David Dunbar, and Chief Financial Officer, and Treasurer at <unk>.
Speaker 3: Thank you, Chris. Good morning and welcome to our fiscal fourth quarter 2023 conference call. We are very pleased with the results, which completed a record fiscal year.
Thank you Chris.
Good morning, and welcome to our fiscal fourth quarter 2023 conference call.
We are very pleased with the results, which completed a record fiscal year.
Speaker 3: We continued our trend of record operating margin performance. On the top line, sales into fast growth markets continued to accelerate, as did new products and new applications.
We continued our trend of record operating margin performance on the topline sales into fast growth markets continued to accelerate as did new products and new applications I would like to thank our employees our executives and the board of directors for their efforts and continued dedication and support that drove our exceptional fiscal 'twenty.
Speaker 3: I would like to thank our employees, our executives, and the board of directors for their efforts and continued dedication and support that drove our exceptional fiscal 2023 results. Now if everyone can turn to slide 3.
'twenty three results.
If everyone can turn to slide three key messages.
Speaker 3: In the fourth quarter, we reported 7.8% organic revenue growth year on year, led by our electronics and engraving business segments, which both exhibited double-digit organic growth.
In the fourth quarter, we reported seven 8% organic revenue growth year on year led by our electronics and engraving business segments, which both exhibited double digit organic growth.
Speaker 3: Our long term growth profile continues to improve as sales into fast growth and markets grew 67% year on year to 24Million dollars in the fiscal 4th quarter 2024.
Our long term growth profile continues to improve as sales into SaaS growth end markets grew 67% year on year to $24 million in the fiscal fourth quarter 2024.
Speaker 3: We anticipate this revenue stream to grow by greater than 20% in fiscal year 2024 to over $100 million.
We anticipate this revenue stream to grow by greater than 20% in fiscal year 2024 to over $100 million.
Profitability continues at record levels.
Speaker 3: Profitability continues at record levels. The continued effectiveness of our price and productivity actions, combined with the lower freight costs, help us achieve a 9th consecutive quarter of record adjusted operating margin.
The effectiveness of our price and productivity actions combined with the lower freight costs helped us achieve our ninth consecutive quarter of record adjusted operating margin Consol.
Speaker 3: Consolidated adjusted operating margin of 15.4% in fiscal fourth quarter 2023 was a 150 basis point increase year-on-year.
Consolidated adjusted operating margin of 15, four 4% in fiscal fourth quarter 2023 was 150 basis point increase year on year.
Speaker 3: Our margin expansion was driven by our engraving, scientific, and specialty solutions business segments, while our largest segment, electronics, had relatively stable margins.
Our margin expansion was driven by our engraving scientific and specialty solutions business segments, while our largest segment electronics had relatively stable margin.
Speaker 3: 3 of our 5 segments reported operating margin greater than 20% with our engraving segment approaching 20% margin.
Three of our five segments reported operating margin greater than 20% with our engraving segment approaching 20% margin.
Speaker 3: With free cash flow of $32.8 million in the quarter, our net cash position as of June 30th was $22.3 million. We had approximately $372 million of available liquidity to invest in our healthy funnel of organic growth and acquisition opportunities.
With free cash flow of $32 8 million in the quarter, our net cash position as of June 30 was $22 $3 million, we had approximately $372 million of available liquidity to invest in our healthy funnel of organic growth and acquisition opportunities.
Speaker 3: Adam here will discuss our financial performance, liquidity position, and capital allocation in greater detail later in the call.
Adam will discuss our financial performance liquidity position and capital allocation in greater detail later in the call.
Speaker 3: We are also very pleased to see continued improvement in our ROIC. ROIC of 12.4% in fiscal 2023 improved 130 basis points year on year.
We are also very pleased to see continued improvement in our ROIC.
<unk> of 12, 4% in fiscal 2023 improved 130 basis points year on year.
Speaker 3: In fiscal 2024, we expect high single digit sales growth.
In fiscal 2024, we expect high single digit sales growth.
Speaker 3: We also expect continued margin expansion ahead of our long term outlook. These expectations are based on operating improvements achieved in fiscal 2023, planned productivity initiatives for fiscal 2024, increased contribution from new products and applications, continued acceleration of our fast growth and markets, and a more stable economic environment.
We also expect continued margin expansion ahead of our long term outlook. These expectations are based on operating improvements achieved in fiscal 2023 planned productivity initiatives for fiscal 2024 increased contribution from new products and applications continued acceleration of our fast growth in the markets and the more stable economic.
Ohmic environment.
Speaker 3: On a year-on-year basis, in fiscal and first quarter 2024, we expect a slight increase in revenue as strong organic growth in engraving and the contribution from intronics help to offset a slow recovery in China and Europe markets served by electronics and the impact of the pro-condivested...
On a year on year basis in fiscal first quarter 2024, we expect a slight increase in revenue a strong organic growth in engraving and the contribution from <unk> helped to offset a slow recovery in China and Europe markets served by electronics and the impact of the <unk> divestiture.
Speaker 3: On a sequential basis, we expect slightly lower revenue as the contribution from our Mintronics acquisition offsets unfavorable project timing in engineering technologies and a continued slow recovery in China and Europe markets served by Electronix.
On a sequential basis, we expect slightly lower revenue as the contribution from our Medtronic acquisition offset unfavorable project timing in engineering technologies, and a continued slow recovery in China and Europe markets served by electronics.
Speaker 3: we expect similar to slightly higher adjusted operating margins compared to fiscal fourth quarter 2023.
We expect similar to slightly higher adjusted operating margins compared to fiscal fourth quarter 2023.
Speaker 3: We reaffirm our long-term financial outlook by fiscal year 2028. These targets include high single-digit organic growth to greater than $1 billion in sales, adjusted operating margin greater than 19%, return on invested capital of greater than 15%, and free cash flow conversion at approximately 100% of gap net income.
We reaffirm our long term financial outlook by fiscal year 2028. These targets include high single digit organic growth to greater than $1 billion in sales adjusted operating margin greater than 19% return on invested capital of greater than 15% and free cash flow conversion of approximately 100%.
Our GAAP net income.
Let's turn to slide four highlights from our <unk> acquisition.
Speaker 3: Let's turn to slide four, highlights from our Mintronics acquisition.
Speaker 3: We announced earlier this week that we acquired Mintronics. There are specific strategic and financial criteria we look for in an acquisition, like complementary products, attractive end markets, a defensible competitive advantage, and cultural fit. Mintronics has many of these attributes and we are excited to welcome their team to Standex. Let me begin with an overview of the company.
We announced earlier this week, we acquired <unk> there are specific strategic and financial criteria. We look for in an acquisition of complementary products attractive end markets, a defensible competitive advantage and cultural fit Medtronic is many of these attributes and we are excited to welcome their team to stand X, Let me begin with and.
Overview of the company founded in 1990, and based in South Dakota, <unk> designs and manufacturers customized as well as standard magnetics components and products for cable fiber smart meters industrial control and lighting electric vehicles and home security markets.
Speaker 3: Founded in 1990 and based in South Dakota, Mint products designs and manufacturers customized as well as standard magnetics components and products for cable fiber, smart meters, industrial control and lighting, electric vehicles and home security.
Speaker 3: More broadly speaking, these component and product applications fit within certain fast growing end markets like 5G, Smart Grid, and industrial automation. The purchase price was approximately Transcription
Broadly speaking these components and product applications fit within certain fast growing end markets like <unk> smart grid and industrial automation.
The purchase price was approximately $30 million.
Speaker 3: This implies a transaction multiple of approximately 8.5 times the last 12 months ended June 2023.
This implies a transaction multiple of approximately eight five times. The last 12 months ended June 2023 EBITDA.
Speaker 3: We expect the acquisition to be accretive to earnings per share and to achieve a double digit return on invested capital in our 1st, full year of ownership.
We expect the acquisition to be accretive to earnings per share and to achieve a double digit return on invested capital in our first full year of ownership.
The divestiture of procurement for $70 million, followed by the acquisition of Medtronic for $30 million represents an effective round trip of cash as Medtronic sales and operating income contributions and effectively replaced pro comp sales and operating income in year, one of ownership with further upside potential in the years ahead.
Speaker 3: The divestiture of Procon for $70 million, followed by the acquisition of Mintronics for $30 million, represents an effective round-trip of cash, as Mintronics sales and operating income contributions effectively replace Procon sales and operating income in year one of ownership, with further upside potential in the years ahead.
Speaker 3: We were attracted to Mintronics for its highly complementary customer base and product line, its engineering talent and resources that provide a seamless cultural fit, and for its participation in attractive end markets. We are excited to welcome the team to Standex and anticipate that during the integration we will discover additional opportunities to create value as we have done with our previous acquisition.
We were attracted to medtronic for its highly complementary customer base and product line, it's engineering talent and resources that provide a seamless cultural fit.
And for its participation in attractive end markets. We are excited to welcome the team to stand X and anticipate that during the integration we will discover additional opportunities to create value as we have done with our previous acquisitions.
Speaker 3: I will now turn the call over to Adam here to discuss our financial performance in greater detail. Thank you, David.
I will now turn the call over to Adam here to discuss our financial performance in greater detail.
Thank you David and good morning, everyone.
Speaker 4: Let's turn to slide five, four quarter 2023 summary.
Let's turn to slide five fourth quarter 2023 summary.
Speaker 4: On a consolidated basis, total revenue increased 1.9% year-on-year to 188.3 million.
Consolidated basis total revenue increased one 9% year on year to $188 3 million.
Speaker 4: This reflects the organic revenue growth of 7.8%, offset by a 5% impact from the pro-con divestiture and a 0.8% impact from foreign exchange.
This reflects organic revenue growth of seven 8%.
Offset by a 5% impact from the Brooklyn divestiture, and a 0.8% impact from foreign exchange.
Fourth quarter 2023, adjusted operating margin increased 150 basis points year on year to 15, 4% our highest adjusted operating margin in company history.
Speaker 4: Four-quarter 2023 adjusted operating margin increased 150 basis points year on year to 15.4 percent, our highest adjusted operating margin in company history.
Speaker 4: Our adjusted operating income grew approximately 13.2% on the 1.9% consolidated revenue increase year on year.
Adjusted operating income grew approximately 13, 2% on a one 9% consolidated revenue increase year on year.
Adjusted earnings per share were $1 76 in the fourth quarter of fiscal 2023 compared to $1 54, a year ago.
Speaker 4: Adjusted earnings per share were $1.76 in the fourth quarter of fiscal 2023 compared to $1.54 a year ago, approximately 14.3% growth year on year.
Similarly, 14, 3% growth year on year.
Net cash provided by operating activities was $40 4 million in the fourth quarter of 2023 compared to $29 5 million a year ago.
Speaker 4: Net cash provided by operating activities was 40.4 million in the fourth quarter of 2023 compared to 29.5 million a year ago.
Speaker 4: Capital expenditures were $7.6 million compared to $10.8 million a year ago.
Capital expenditures were $7 6 million compared to $10 8 million a year ago.
Speaker 4: As a result, free cash flow was $32.8 million in fiscal four quarter 2023, compared to free cash flow of approximately $18.7 million a year ago.
As a result free cash flow was $32 8 million in fiscal fourth quarter 2023, compared to free cash flow of approximately $18 7 million a year ago.
Speaker 4: Now, please turn to slide six and I will begin to discuss our segment performance and outlook, beginning with electrons.
Now please turn to slide six and I will begin to discuss our segment performance and outlook beginning with electronics.
Speaker 4: Segment revenue of $79.9 million increased 11.1% year on year as an organic increase of 12.3% was partially offset by 1.2% negative impact on foreign exchange.
Segment revenue of $79 9 million increased 11, 1% year on year as an organic increase of 12, 3% was partially offset by a one 2% negative impact from foreign exchange.
Speaker 4: Although softness in appliances and distribution and markets in China and Europe remains, industrial automation, power management, renewable energy, and EV-related markets remain robust across our economy.
Although softness in appliances and distribution end markets in China and Europe remains.
Industrial automation and power management renewable energy and EBIT related markets remain robust across our regions.
Speaker 4: Adjusted operating margin of 21% in fiscal four quarter 2023 decreased 150 basis points year on year, as the contribution from higher sales and pricing and productivity initiatives were more than offset by unfavorable mix, inflation and higher R&D investments.
Adjusted operating margin of 21% in fiscal fourth quarter of 2023 decreased 150 basis points year on year as the contribution from higher sales and pricing and productivity initiatives were more than offset by unfavorable mix inflation and higher R&D investments.
Speaker 4: Sequentially, we expect slightly higher revenue in fiscal first quarter 2024 as the contribution from intronics and higher sales into fast growth markets are partially offset by continued slow recovery in China and Europe .
Sequentially, we expect slightly higher revenue in fiscal first quarter 2024, as the contribution from <unk> and higher sales into fast growth markets.
Partially offset by a continued slow recovery in China and Europe .
Speaker 4: We expect similar operating margin on a sequential basis, reflecting a similar product mix.
We expect similar operating margin on a sequential basis.
<unk>, a similar product mix.
Speaker 4: As we move through calendar year 2024, we believe electronics will start to reflect more typical organic growth rates on a run rate basis, bearing any unforeseen economic disruptionions.
As we move through calendar year 2024, we believe electronics will start to reflect more typical organic growth rates on a run rate basis, barring any unforeseen economic disruptions.
Speaker 4: Please turn to slide 7 for discussion of the engraving and scientific side.
Please turn to slide seven for a discussion of the engraving scientific segments.
Speaker 4: Engraving revenue increased 14% to $42.4 million as organic growth of 15.5% was partially offset by 1.4% headwind from foreign exchange.
Engraving revenue increased 14% to $42 4 million as organic growth of 15, 5% was partially offset by one 4% headwind from foreign exchange.
Speaker 4: Organic growth was driven by strong demand in Europe and growth in soft dream applications in Asia.
Organic growth was driven by strong demand in Europe and growth in software and applications in Asia.
Speaker 4: Operating margin of 18.6% in fiscal four quarter 2023 increased 240 basis points year on year due to higher sales and realization of productivity assets.
Operating margin of 18, 6% in fiscal fourth quarter of 2023 increased 240 basis points year on year due to higher sales and realization of productivity actions in.
Speaker 4: In our next vehicle quarter, on a sequential basis, we expect slightly lower revenue, reflecting timing of customer projects and slightly higher operating margin.
Our next fiscal quarter on a sequential basis, we expect slightly lower revenue, reflecting timing of customer projects and slightly higher operating margin.
In addition, we continue to look for opportunities to enhance the long term margin profile of engraving as.
Speaker 4: In addition, we continue to look for opportunities to enhance the long-term margin profile of engraving.
Speaker 4: As such, we have initiated site consolidation projects in the Detroit area and in Germany, which will improve customer service and capacity utilization as we go from two to one site in each of these geographies.
As such we have initiated site consolidation projects and Detroit area, and in Germany, which will improve customer service and capacity utilization as we go from two to one site in each of these geographies.
Speaker 4: These consolidations will result in approximately $3 million of restructuring costs in fiscal 2024, with a payback expected within two years.
Foundations will result in approximately $3 million of restructuring costs in fiscal 2024.
The payback expected within three years.
Speaker 4: We anticipate starting to realize the benefits of these projects in our fiscal four quarter 2024.
We anticipate starting to realize the benefits of this project in our fiscal fourth quarter 2024.
Speaker 4: Scientific revenue decreased 2.6% to $18.3 million as high sales into research and academic and markets were offset by lower demand for COVID-19 vaccine storage.
Scientific revenue decreased two 6% to $18 3 million as higher sales in the research and academic end markets were offset by lower demand for COVID-19 vaccine storage.
Speaker 4: Operating margin of 25.5% increased 570 basis points year on year due to lower freight costs and realization of productivity at
Operating margin of 25, 5% increased 570 basis points year on year due to lower freight costs and realization of productivity actions.
Speaker 4: On a sequential basis in fiscal first quarter 2024, we expect similar revenue and operating margin.
On a sequential basis in fiscal first quarter 2024, we expect similar revenue and operating margin.
Speaker 4: Now turn to slide 8 for discussion of the engineering technologies and specialty solution settings.
Now I'll turn to slide eight for a discussion of the engineering to engineering technologies and specialty solutions segments.
Speaker 4: Engineering Technologies revenue of $21.8 million increased 1.3% year on year.
Engineering technologies revenue of $21 8 million increased one 3% year on year.
Speaker 4: Operating margin of 14.2% decreased 80 basis points year on year as an increase in the number of new platform development projects were mostly offset by productivity initiatives.
Operating margin of 14, 2% decreased 80 basis points year on year as an increase in the number of new platform development projects, but mostly offset by productivity initiatives.
Speaker 4: In fiscal 1st quarter 2024 on a differential basis, we expect a significant decrease in revenue reflecting customer timing of projects.
In fiscal first quarter of 2024 on a sequential basis, we expect a significant decrease in revenue, reflecting customer timing of projects.
Speaker 4: We expect a slight to moderate decrease in operating margin as productivity initiatives mostly offset the impact of volume decline. And a higher mix of development projects.
We expect a slight to moderate decrease in operating margin as productivity initiatives, mostly offset the impact of volume decline and a higher mix of development projects.
Speaker 4: The long term demand for this segment remain robust. The current backlog and the new platform development funnel are expected to provide a solid foundation for growth in the second half of fiscal 2024 and beyond.
The long term demand for this segment remained robust the current backlog and the new platform development funnel I expect that to provide a solid foundation for growth in the second half of fiscal 2024 and beyond.
Our specialty solutions revenue of $25 9 million decreased 26, 6% year on year as the <unk> divestiture and the organic decline in the hydraulics business were partially offset by organic growth in the display merchandising business.
Speaker 4: A specialty solutions revenue of $25.9 million decreased 26.6% year on year as the procco divestiture and the organic decline in the hydraulics business were partially offset by organic growth in the display merchandising business.
Speaker 4: On a pro forma basis, excluding Pro-Con, revenue decreased 0.6 million or 2.1% year on year.
On a pro forma basis, excluding procon.
Revenue decreased <unk> 6 million or two 1% year on year.
Speaker 4: Operating margin increased significantly to 24.8% from 15.3% a year ago, driven by higher sales in the display merchandising business, realization of pricing initiatives, and higher mix of aftermarket sales and operational improvements in the hydraulics business.
Operating margin increased significantly to 24, 8% from 15, 3% a year ago, driven by higher sales in the display merchandising business realization of pricing initiatives and higher mix of aftermarket sales and operational improvements in the hydraulics business.
In fiscal first quarter 2024 on a sequential basis, we expect a slight decrease in revenue and operating margin.
Speaker 4: In fiscal first quarter 2024, on a sequential basis, we expect a slight decrease in revenue and operating margin.
Speaker 4: Next, please turn to slide 9 for a summary of standard six liquidity statistics and the capitalization structure which remains strong.
Next please turn to slide nine for a summary of statistics liquidity statistics, and the capitalization structure, which remains strong.
Speaker 4: Dandex ended fiscal four quarter 2023 with $372 million of available liquidity, an increase of approximately $59 million through the prior year.
The index ended fiscal fourth quarter of 2023 with $372 million of available liquidity, an increase of approximately $59 million from the prior year.
At the end of the fourth quarter Standex had net cash of $22 million compared to net debt of $70 million at the end of fiscal 2022.
John This is long term debt at the end of fiscal fourth quarter of 2023 was $173 4 million cash and cash equivalents totaled $195 7 million.
Speaker 4: Dandex's long-term debt at the end of fiscal fourth quarter 2023 was $173.4 million. Cash and cash equivalents totaled $195.7 million.
Speaker 4: With regard to capital allocation, we repurchased approximately 50,900 shares for $7 million in the fourth quarter.
With regards to capital allocation, we repurchased approximately 50900 shares for $7 million in the fourth quarter.
Speaker 4: He also declared out 236th quarterly cash dividend of $0.28 per share and approximately 7.7% increase year on year.
We also declared our 236th quarterly cash dividend of <unk> 28 per share and approximately $7 seven increase percent increase year on year.
Speaker 4: In fiscal year 2024, we expect capital expenditures to be between $35 million and $40 million compared to approximately $24 million in fiscal 2023.
In fiscal year 2024, we expect capital expenditures to be between $35 million $40 million compared to approximately $24 million in fiscal 2023.
Speaker 4: I will now turn the call over to David to discuss our key takeaways from our 4 quarter results. Thank you Adam.
I will now turn the call over to David to discuss our key takeaways from our fourth quarter results.
Thank you Adam here, please turn to slide 10.
Speaker 3: Sandex is in a strong position to deliver solid organic growth as an operating company, driven by accelerating activity and demand within our fast growth and markets. We're excited about the development of these opportunities. I'm proud of our team for our record fiscal performance that was driven by our operational execution and by the continued progress of our growth efforts.
The index is in a strong position to deliver solid organic growth as an operating company driven by accelerating activity in demand within our fast growth end markets. We're excited about the development of these opportunities.
I am proud of our team for a record fiscal performance that was driven by our operational execution and by the continued progress of our growth efforts.
Speaker 3: For fiscal 2023, we achieved several record milestones that include gross margin, adjusted operating margin, adjusted earnings per share and free cash flow.
For fiscal 2023, we achieved several record milestones that include gross margin adjusted operating margin adjusted earnings per share and free cash flow.
Speaker 3: In fiscal 2024, we expect high single-digit sales growth.
In fiscal 2024, we expect high single digit sales growth.
Speaker 3: We also expect continued margin expansion ahead of our long-term outlook. We anticipate our fast growth markets to continue to progress toward our fast growth markets revenue target of $200 million plus by fiscal 2028.
We also expect continued margin expansion ahead of our long term outlook.
We anticipate our fast growth markets to continue to progress towards our fast growth markets revenue target of $200 million plus by fiscal 2028.
Our regional presence strong customer relationships and disciplined approach to pricing and productivity continued to provide protection from supply chain challenges and inflation.
Speaker 3: Our regional presence, strong customer relationships, and disciplined approach to pricing and productivity continue to provide protection from supply chain challenges and inflation.
Speaker 3: As a result, we are confident we will continue to deliver sustainable, profitable growth through this environment.
As a result, we are confident we will continue to deliver sustainable profitable growth through this environment.
Speaker 3: Our strong balance sheet allows us to continue to pursue additional inorganic investments complementary to our strategy. We will now open the line for questions.
Our strong balance sheet allows us to continue to pursue additional inorganic investments complementary to our strategy.
We will now open the line for questions.
We will now begin the question and answer session.
Speaker 1: To ask a question, you may press star then one on your touch tone phone.
To ask a question you May Press Star then one on your Touchtone phone.
Speaker 1: If you are using a speakerphone, please pick up your handset before pressing the keys.
If you are using a speakerphone please pick up your handset before pressing Keith.
Speaker 1: If at any time your question has been addressed and you would like to withdraw your question, please press star, then two. At this time we will pause momentarily.
And then any time your question has been addressed and you would like to withdraw your question. Please press star. Thank you.
At this time, we will pause momentarily to assemble our roster.
Okay.
Speaker 1: The first question today comes from Chris Moore with CJS Securities. Please go ahead.
The first question today comes from Chris Moore with CJS Securities. Please go ahead.
Hey, good morning, guys. Thanks for taking a couple of questions.
Speaker 2: Good morning, Specialty Solutions, Operating Margin 24.7.
Morning, Chris, especially good morning specialty solutions operating margin 24, 8% is that sustainable in the low twenties and the over the long term.
Speaker 2: Is that sustainable in the low 20s and in the over the long term?
Speaker 5: Absolutely. One of the unsung heroes in the company right now is our display merchandising business. 26% of their sales are coming from new products. They're getting into some new markets, new product categories. They have had a fantastic year, and that is sustainable because of the new products and the new market presence. And then hydraulics business, they've got a solid end market outlook with infrastructure investment in the coming years in North America.
Absolutely.
One of the unsung heroes in the company right now is our display merchandising business.
26% of their sales are coming from new products theyre getting into some new markets.
Product categories.
<unk> had a fantastic year and that is sustainable because of the new products and the new market presence and then hydraulics business they've got they've got a solid end market outlook with with infrastructure investment in the coming years in North America.
Speaker 2: Got it. Very helpful. Maybe just talk a little bit about the fiscal 24 cadence that you will need to get to the high single-digit growth that you're talking about for this year.
Got it very helpful.
Maybe just talk a little bit about the fiscal 2004 cadence that you will need to get to the high single digit growth that youre talking about for this year.
Speaker 4: Hi Chris, it's good morning, it's Adam here. So if you kind of, our high single digit sales growth assumes a couple of points inorganically that we're going to get from the mintronics acquisition or the benefits of the mintronics acquisition once you take out pro-con kind of on a net basis and kind of mid to high mid single digits organic growth for the corporation. That's the math behind it.
Yeah, Hi, Chris It's good morning, it's Adam here, So if you kind of.
High single digit sales growth assumes couple of points Inorganically that we're going to get from them <unk> acquisition or the benefits of the Medtronic acquisition. Once you take out the protocol and kind of on a net basis and kind of mid to high and mid single digit organic growth for the corporation.
That's the math, that's the math behind it.
Speaker 4: For the most part, we see a healthy end market and we do see some softness in China and Europe , specifically for electronics.
For the most part we see a healthy end markets, we do see some softness in China, and Europe , specifically put out a ton.
Speaker 4: We think that that's going to get resolved over the upcoming quarters. But everything else remains healthy and we are very optimistic and bullish about our fast growth and market exposure and the growth we are seeing there. And that's kind of the map behind it.
Saying that there is going to get resolved.
Over the next over the upcoming quarters, but everything else remains healthy and we are very optimistic and bullish about our fast growth and market exposure and the growth, we're seeing there and that's kind of the math behind it.
Speaker 2: Is the growth a little bit back half loaded?
Is the growth a little bit back half loaded you think.
Speaker 5: It depends on the business. You know, engraving is solid and I have a lot of momentum coming into this year. Engineering technology backlog would lead to more shipments in the back half of the year, but we have great visibility to that.
It depends on the business.
Engraving are solid and they are a lot of momentum coming into this year engineering technologies backlog would lead to more shipments in the back half of the year, we'll have great visibility to that.
Speaker 5: We are seeing some softness in electronics and appliances, consumer good related shipments in China and Europe . We're anticipating that will start to pick up in the back half of the year.
We.
We are seeing some softness in electronics and appliances consumer good related shipments in China, and Europe , we're anticipating that will start to pick up in the back half of the year.
Speaker 5: And then throughout, there's this overlay of fast growth, what we call fast growth markets, which was about 83 million last year. That'll grow to 100 million this year, and that's pretty steady quarter after quarter. So if you add all those things up, there will be relatively more, a little more growth in the second half. based on one to one, maybe a little over 100 million across the whole army.
And then throughout this overlay of fast growth.
What we call the fast growth markets, which was about $83 million last year that will grow to a $100 million this year and thats pretty steady quarter after quarter. So if you add all those things up.
There will be relatively more little more growth in the second half.
Got it.
Speaker 2: Maybe I'll just sneak one more in. You just closed the Mintronics deal. It looks like a nice fit. Maybe just update the M&A funnel a little bit in terms of what you're seeing in the market.
Maybe I'll just sneak one more in.
Close the Medtronic deal that looks like.
Maybe just update your M&A funnel, a little bit in terms of what youre seeing in the market and.
Your thoughts there.
Speaker 5: Yeah, well, there's two kinds of two kinds of funnels we have, we have we have kind of family owned businesses, privately owned businesses like Mintronics. And there are there are quite a few out there. We have relationships with many of them. The timing is hard to predict because the owners sell for their own reasons at their own times. And in fact, this Mintronics opportunity, you know, we've known Lou, I mean, the president of our electronics business, John has known Lou for decades.
Yes, well, there's two kinds of two kinds of tunnels. We have we have kind of family owned businesses privately owned businesses like <unk> and there are there are quite a few out there.
We have relationships with many of them.
Timing is hard to predict because the owners sell for their own reasons at their own times and in fact, this medtronic opportunity, we've known Lou I mean, the president of our electronics business, John is known to Lou for decades.
Speaker 5: And Lou called John earlier this year and said, I think I'm ready. And it came together in a few months.
And we will call John earlier, this year and said I think I am ready.
It came together in a few months so it's a little hard to predict the timing, but we think we're well positioned for others and there are a few out there that could be actual actionable in the coming quarters.
Speaker 5: So it's a little hard to predict the timing, but we think we are well positioned for others. And there are a few out there that could be actionable in the coming quarters. The second category of opportunities are larger deals.
The second category of opportunities are larger and larger deals.
Speaker 5: And we would love to bring in 100 or $200 million of sales in a single acquisition. That's been relatively quiet in the last year in terms of deals, although we are getting to know the owners. We're putting ourselves in a position to be included in those processes when they come. It appears we're getting signs there are a few of those that may come to market in the second half of this year. So I call it a good and robust funnel both on the low end and the high end.
And we would love to bring in 100 or $200 million of sales in a single acquisition that's been relatively quiet in the last year in terms of deals. Although we are.
We're getting to know the owners.
We're putting ourselves in a position to be included in those processes. When they come it appear we're getting signs there a few those that may come to market.
In the second half of this year, so I would call it a good and robust funnel both on the low end and the high end.
Okay terrific very helpful. I'll leave it there thanks guys.
Speaker 6: Thank you, Kevin.
Thank you.
The next question comes from Michael Lang with benchmark. Please go ahead.
Speaker 1: The next question comes from Michael Lang with Benchmark. Please go ahead.
Speaker 7: Thanks. Good morning. Congrats on the great water. Can you comment a little bit on how much of this 7.8% revenue growth was related to pricing increases?
Thanks, Good morning.
Congrats on the great quarter can you comment a little bit on how much of the seven 8% revenue growth was related to pricing increases.
Speaker 4: Mike, in general terms, we will probably say about half to two-thirds is volume, one-third to half depending on the quarter is pricey, but most of it is volume than price.
Mike and I was kind of in general terms, we would probably say about half the two thirds volume one third to half depending on the quarter is pricing, but most of our most one of it is volume to price.
Speaker 7: Okay, great. And then, you know, it seems like everything's going pretty well for all the segments. What are you seeing from a weakness perspective and what type of opportunities would you see from that side?
Okay, Great and then it seems like everything has gone pretty well for all the segments.
Are you seeing from a weakness perspective, and what type of opportunities would you see from that side.
Speaker 5: Well, in terms of Mark, I don't want to do. We call out the weakness in appliances and consumer goods in Europe and China. We think that'll be upside in it towards the tail end of the year. Um? Other weakness I don't know.
Well it gives us more.
We called out the weakness in appliances.
Consumer goods in Europe .
China, we think that will be upside.
Towards the tail end of the year.
<unk>.
Other weakness I don't know.
I'll comment on that.
I think Mike, we see more and we see more strength or weakness is kind of at the end markets that we play in.
Speaker 4: Mike, we see more strengths and weaknesses kind of at the end market that we play in. For example, our magnetics business plays in the U.S., in the North American end market for the most part, and that's been robust. Our engraving and markets are pretty robust.
For example, our magnetics business plays in the U S. In the North American market for the most part and Thats been robust our engraving and markets are pretty robust.
Speaker 4: So, you know, it's kind of as we kind of look at the markets across the globe that we serve, we feel pretty good about the overall health of them. I guess I would add, I mean, as you know, we have a lot of businesses and they serve different end markets. If you look at more pure play electronics companies that have reported in the last week or so, they're seeing some softness, they're seeing some inventory stocking, de-stocking, especially in components. We're seeing that too, but that's a smaller part of our business, so it doesn't really affect the top line as much.
So it's kind of as we kind of look at the markets.
Across the globe there'll be service, we feel pretty good about the overall health of that I guess.
As you know we have a lot of businesses they serve different different end markets and if you look at more pure play electronics companies that are reported in the last week or so theyre seeing some softness there seeing some.
There are some inventory stocking destocking, especially in components, we're seeing that too, but that's a smaller part of our business. So it doesn't it doesn't really affect the top line as much.
Speaker 5: But we're seeing the same effects as others. But we've got this fast growth market going from $80 to $100 million. We're very confident in that. And the ETG backlog in the second half is very strong. Those things I mentioned earlier with Chris, I think when you add it all up, it makes for a healthy mix of end markets. Okay, great. Congrats.
We're seeing the same effects as others, but we've got this fast growth market going from $80 million to $100 million, we're very confident in that.
The <unk> backlog in the second half is very strong, but those things I mentioned earlier with Chris I think when you add it all up it makes for a healthy mix of end markets.
Okay, great congrats on the quarter. Thank you.
Yeah. Thank you Eric.
As a reminder, if you wish to ask a question. Please press Star then one further question in queue.
Speaker 1: As a reminder, if you wish to ask a question, please press star then 1 to enter the question queue.
Speaker 1: The next question comes from Gary with Barrington Research. Please go ahead.
The next question comes from Gary.
With Barrington Research. Please go ahead.
Hey, good morning, Dave Anatomy.
Speaker 5: I just want to clarify, you said embedded in your guidance is mid to high single digit organic growth for 2024 on the top line? Correct. Okay, and that's constant currency, right? Correct. Okay. And then, can you talk about, with this Mentronics acquisition…
Adam I just want to I just wanted to clarify you said embedded in your guidance is mid to high single digit organic growth for 2024 on the top line.
Correct.
Okay, and thats constant currency rate.
Correct.
Okay, and then can you talk about.
With this Medtronic acquisition.
How you can leverage.
The air products.
And their platform to drive.
Increased growth within that legacy business.
And within your business itself.
Speaker 5: Well, in the last few years, we've acquired Agile, Renco, North Lake, other magnetics businesses, and our experience is that we've added a
Well in the last few years, we've acquired.
Agile renco northlake.
Other magnetics businesses and our experience is that.
We've added about 10 points.
Speaker 5: to the sales of each of those business with the sales synergies that have come from offering their products through our existing channels.
To this to the sales of each of those business with the sale synergies that have come from offering their products through our existing channels.
And.
Speaker 5: And they are and each of those businesses also
They are.
Each of those businesses also.
Speaker 5: I know. So if you add it up a few million dollars from our other electronics business, we're still getting to know minton on the specific accounts, the specific applications, but our expectations that over the next couple years will be adding some you know two to five million dollars worth in total.
If you add it all up a few million dollars from our other electronics business, we're still getting to know Medtronic the specific accounts the specific applications.
But our expectation is that over the next next couple of years, we will be adding some.
Yes, $2 million to $5 million of.
Sales synergies from that.
Speaker 5: Should you be based on the same experience with others? Although I can't name accounts and applications today.
Based on the same experience with other although I can't I can't name accounts and applications today.
Speaker 8: No, I understand that. I mean, was Mintronics selling outside of the US? And that's one of the things that you can do is carry
No I understand that I mean.
<unk> was mid products selling outside of the U S and that's one of the things that you can do is carry them.
Their business outside of the U S.
Speaker 8: their business outside of the US or North America? They do have, you know what, they have a sales model. It's very similar to ours. They work with engineering teams in America, and they secure the business in America with the application expertise and the application design. Some of the ship to address actually is in China and in other.
They do have.
They have a sales model, it's very similar to ours. So they work with engineering teams in America.
And the security business in America with the application expertise and the application design some of the ship to address actually is in is in China and in other.
Speaker 5: in other regions, primarily China and North America, but the customer decision is made here in North America.
In other regions, primarily China and North America.
But the customer decision is made here in North America. So we.
Okay.
Speaker 5: hypothesis is we can help them
Yes.
Potthast. This is we can help them.
Get into customers in Europe , and some additional customers in Asia in China, we have more reach than they do there.
Speaker 5: get into customers in Europe and some additional customers in Asia and China. We have more reach than they do there.
Speaker 4: Yeah, and there are their customer relationships like extremely strong area. I mean, that whole customer intimacy model we compete on, the metronics is right there with us. And in that, for not being that attracted us to them. And I think as a combination of two companies we'll be able to get, they'll be able to help us, they will be able to help them, and then kind of move forward.
And their customer relationships that extremely strong Gary I mean that whole customer intimacy model. We compete on electronics is right there with us and Thats one of the things that attracted us to them and I think it's a combination of two companies will be able to get they will be able to help us it will be able to help them and then kind of move forward.
Okay and this was just the comps I mean I assume that this was maybe a family run business.
Speaker 8: Okay, and then and this was just a function. I mean, I assume that this was maybe a family run business.
The gentleman that was running it as you said just said I'm ready to sell.
Speaker 8: The gentleman that was running it, as you said, just said, I'm ready to sell.
Yes.
Speaker 5: Yeah, yeah, that's right. If I could just interject one thing, we did make the point during the during the call that with the sale of ProCon earlier with $70 million in proceeds, this was a $30 million acquisition that we more than replace the sales and the operating income from ProCon with growth opportunity. And we can also improve the profitability of this business based on our experience with with the other businesses. And we think we're well positioned with some other privately owned businesses in America. At some point, we'll do that we'll do the same.
Yes, yes, that's right and if I could just interject one thing we did make the point during the during the call that with the sale of Procon earlier with $70 million of proceeds. This was a $30 million acquisition that we more than replace the sales and the operating income from program with growth opportunity and we can also improve the profitability of this business based on our experience with.
The other businesses and we think we're well positioned with some other privately owned businesses in America at some point, we'll do that we'll do the same.
Speaker 5: So this is a good example of what has been a classic stand-ex acquisition. And as I mentioned earlier to Chris's question, I think, we're positioning ourselves for some larger opportunities.
This is a good example of what has been a classic spandex acquisition and then as I mentioned earlier to Chris's question I think.
Positioning ourselves for some larger.
Opportunities.
But I guess just in general.
Not to beat a dead horse here, but.
Speaker 8: beat a dead horse here. But you know, with a lot of these acquisitions, if you're actually competing with some of these smaller companies, are they starting to see the handwriting on the wall in terms of that you're getting bigger, bigger presence, more geographic spread?
A lot of these acquisitions, if you are actually competing with some of these smaller companies already starting to see the handwriting on the wall in terms of that you are getting bigger.
<unk> presence more geographic spread.
I guess, there's two asset.
Speaker 5: We, first of all, we have a great reputation in the market. So these family owned businesses, there are other companies, other larger companies acquiring companies like them. I would say we're very proud of our reputation. We think we get the first phone call.
First of all we have we have a great reputation in the market. So these family owned businesses there are other companies.
Other larger companies acquiring companies like them I would say, we're very proud of our reputation and we think we can get the first phone call in terms of being.
Speaker 5: In terms of being competitors, the interesting thing about Mintronics is this magnetics business is really a customer intimacy business. And the relationship that the engineers have with the OEMs is really important. It creates a long-term relationship.
Competitors the interesting thing about like Medtronic is this magnetics business is really a customer intimacy business.
The relationship that the engineers have with the Oems is really important to create a long term relationship and we only compete on the fringes frankly with Medtronic.
Speaker 5: And we only compete on the fringes, frankly, with Mintronics. We have competed on some new applications with them over time. We have some similar capabilities.
We have competed on some new applications with them over time, we have some similar capabilities.
Speaker 5: but this magnetics market is characterized more by who has what customer relationships and who has what industry expertise. So Medtronics brings us knowledge of some smart grid applications we weren't so strong in and especially in 5G design. So there's less of a competitive issue there. However, in general, your statement is true that these smaller family owned businesses, they see some consolidation going on in the industry and they're...
But the.
This magnetics market is characterized more by who has what customer relationships and who is what industry expertise. So medtronic springs us knowledge of some smart grid applications, we werent, so strong and especially in <unk>.
Design, so there's less of a competitive issue. There. However in general your statement is true that the smaller family owned businesses. They seek some consolidation going on in the industry and they're there.
Speaker 5: getting themselves in a position where they're going to have to choose, you know, who they align with. Thank you very much.
Getting themselves in a position, where they're going to have to choose who they align with.
Okay. Thank you very much.
Yes, Thank you Gary.
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This concludes our question and answer session.
Speaker 1: This concludes our question and answer session. I would like to turn the conference back over to David Dunbar for any closing remarks.
I would like to turn the conference back over to David Dunbar for any closing remarks.
Thank you.
Speaker 5: I want to thank everybody for joining us for the call today. We enjoy reporting on our progress at Standex. And finally, again, I want to thank our employees and shareholders for your continued support and contributions. We look forward to speaking with you again in our fiscal first quarter 2024 call.
I want to thank everybody for joining us for the call today, we enjoy reporting on our progress at <unk> and finally again I want to thank our employees and shareholders for your continued support and contributions we look forward to speaking with you again in our fiscal first quarter 2024 call.
Speaker 1: The conference is now concluded. Thank you for attending today's presentation. You may now disconnect.
The conference has now concluded thank you for attending.
You may now disconnect.
Okay.
Okay.