Q2 2024 Standex International Corp Earnings Call
Operator: And during this call, if you require immediate assistance, please press star 0 for the operator. This call is being recorded on Friday, February 2nd, 2024. I would now like to turn the conference over to Mr. Chris Held, Director of Investor Relations.
Since please press star zero for operator in.
This call is being recorded on Friday February 2nd 'twenty 'twenty four I would now like to turn the conference over to Mr. Chris Howe Director of Investor Relations. Please go ahead Sir.
Chris McGinnis: Thank you, operator, and good morning. Please note that the presentation accompanying management's remarks can be found on the investor relations portion of the company's website at www.standex.com. Please refer to Standex's Safe Harbor Statement on slide 2. Matters that Standex Management will discuss on today's conference call include predictions, estimates, expectations, and other forward-looking statements. These statements are subject to risks and uncertainties that could cause actual results to differ materially. You should refer to Standex's most recent annual report on Form 10-K, as well as other SEC filings and public announcements, for a detailed list of risk factors.
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 Standex is safe Harbor statement on slide two.
Matters that Standex management will discuss on today's conference call include predictions estimates expectations and other forward looking statements. These statements are subject to risks and uncertainties that could cause actual results to differ materially.
You 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.
Chris McGinnis: 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, and Adjusted EBIT, which is EBIT excluding restructuring, purchase accounting, acquisition-related expenses, and one-time items. EBITDA, which is Earnings Before Interest, Taxes, Depreciation, and Amortization. Adjusted EBITDA, which is EBITDA excluding restructuring, purchase accounting, acquisition-related expenses, and one-time items. EBITDA margin and adjusted EBITDA margin. We will also refer to other non-GET measures, including adjusted net income, adjusted operating income, and Adjusted Net Income from Continuing Operations. Adjusted Earnings Per Share, Adjusted Operating Margin, Free Operating Cash Flow, and Pro Forma Net Debt EBITDA. These non-debt financial measures are intended to serve as a complement to results provided in accordance with accounting principles generally accepted in the United States.
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.
Chris McGinnis: Standex believes that such information provides an additional measurement for a consistent historical comparison of the company's financial performance. On the call today is Standex's Chairman, President, and Chief Executive Officer, David Dunbar, and Chief Financial Officer and Treasurer, Ademir Sarcevic. Thank you, Chris.
Standex believes that such information provides an additional measurement and consistent historical comparison of the Companys financial performance.
On the call today is <unk>, Chairman, President and Chief Executive Officer, David Dunbar.
And Chief Financial Officer, and Treasurer, Adam Your starts Nick.
Thank you Chris Good morning, and welcome to our fiscal second quarter 2024 conference call the.
David A. Dunbar: Good morning, and welcome to our fiscal second quarter 2024 conference call. The quality of our businesses was highlighted in our results as we continued our trend of record-adjusted operating margin performance. 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 results. Now, if everyone could turn to slide three, Key Messages.
The quality of our businesses was highlighted in our results as we continued our trend of record adjusted operating margin performance 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 results.
Now if everyone could turn to slide three key messages.
David A. Dunbar: In the second quarter, sales into fast-growth end markets grew 14 percent year-on-year to $21 million. We remain on track to achieve our long-term target of $200 million in sales into fast-growth end markets by fiscal year 2028. As we projected in last quarter's outlook, we experienced the effect of unfavorable project timing in the engineering technologies segment and transitory market softness in other markets, which led to an organic decline of 7.4 percent.
In the second quarter sales in the SaaS growth end markets grew 14% year on year to $21 million, we remain on track to achieve our long term target of $200 million in sales into SaaS growth end markets by fiscal year 2028.
As we projected in last quarter's outlook, we experienced the effects of unfavorable project timing in the engineering technologies segment and transitory market softness in other markets, which led to an organic decline of seven 4%.
David A. Dunbar: This was partially offset by contributions from a recent Mintronics acquisition and favorable foreign currency. In general, we expect market conditions to start moving in fiscal fourth quarter 2024. In addition, we continue to work on an active pipeline of inorganic opportunities. As we announced last quarter, we signed a definitive agreement to acquire Sinus Switch Company.
This was partially offset by contributions from our recent <unk> acquisition and favorable foreign currency.
In general we expect market conditions to start moving in fiscal fourth quarter 2024 in.
In addition, we continue to work on an active pipeline of inorganic opportunities as we announced last quarter, we signed a definitive agreement to acquire signing a switch company. We anticipate this transaction to close during our fiscal third quarter.
David A. Dunbar: We anticipate this transaction to close during our fiscal third quarter. We also continue to generate strong profitability from the execution of our price and productivity initiatives. In the fiscal second quarter, we achieved record-adjusted gross margin and an 11th consecutive quarter of record-adjusted operating margin. This is the first time in the company's history that gross margin was above 40 percent, and it demonstrates our continued ability to drive operating improvements while adapting to changing macro conditions. The Consolidated Adjusted Operating Margin increased by 90 basis points year-on-year to a record 16.1%.
We also continued to generate strong profitability from the execution of our price and productivity initiatives in the fiscal second quarter, we achieved a record adjusted gross margin and an 11th consecutive quarter of record adjusted operating margin. This is the first time in the company history. The gross margin was above 40% and a.
Great is our continued ability to drive operating improvements, while adapting to changing macro conditions consol.
Consolidated adjusted operating margin increased to 90 basis points year on year to a record 16, 1% three.
David A. Dunbar: Three of our five segments reported adjusted operating margins greater than 20% again, and all five segments reported adjusted operating margins greater than 17%. We achieved free cash flow of $19.5 million in the quarter, leading to record free cash flow year to date.
Three of our five segments reported adjusted operating margin greater than 20%.
Again, and then all five segments reported adjusted operating margin greater than 17%.
We achieved free cash flow of $19 $5 million in the quarter, leading to record free cash flow year to date.
David A. Dunbar: Our consistent and improved cash flow generation and ROIC of over 12% further highlight the quality of our business. Looking back to February 2021, we communicated a set of long-term financial targets over three to five years. These targets included mid single-digit organic growth, EBITDA margin above 20%, and return on invested capital above 12%. We are proud to have reached these targets within three years.
Our consistent and improved cash flow generation and ROIC of over 12% further highlights the quality of our businesses.
Looking back to February 2021, we communicated a set of long term financial targets over three to five years. These targets included mid single digit organic growth EBITDA margin above 20% and return on invested capital above 12%. We are proud to have reached these targets within three years.
David A. Dunbar: On a sequential basis, in fiscal third quarter 2024, we expect slightly higher revenue due to the contribution from our pending acquisition of Sanyu and a slight recovery in the electronics and specialty segment. However, we expect slightly lower adjusted operating margins sequentially due to the impact of a one-time charge related to me reaching retirement eligibility under the stock compensation plan. Excluding this one-time charge, adjusted operating margin would be similar on a sequential basis. However, although I am now retirement eligible under Standex's stock compensation plan, I don't plan to go anywhere.
On a sequential basis in fiscal third quarter 2024, we expect slightly higher revenue due to the contribution from our pending acquisition of <unk> and a slight recovery in the electronics and specialty segments.
We expect slightly lower adjusted operating margin sequentially due to the impact of a one time charge related to mean, reaching retirement eligibility under the stock compensation plan.
Excluding this onetime charge adjusted operating margin would be similar on a sequential basis.
Although I am now retirement eligible understand extra stock compensation plan I don't plan to go anywhere.
David A. Dunbar: I remain committed to my role as CEO, and I am excited by our long-term vision for Standex. In fiscal fourth quarter 2024, on a sequential basis, we expect meaningfully higher sales and continued improvement in adjusted operating margins. This outlook assumes slight market recovery in the end market served by electronics and specialty segments, contribution from the pending Sanyu acquisition, and more favorable project timing in engineering technologies. We are reaffirming our long-term financial outlook through fiscal year 2028. These targets include high single-digit organic growth to greater than $1 billion in sales, adjusted operating margin greater than 19%, return on invested capital greater than 15%, and free cash flow conversion at approximately 100% of GAAP net income. Now, let's turn to slide four. In January, I celebrated my 10th anniversary at Standex.
We remain committed to my role as CEO and I am excited by our long term vision for <unk>.
In fiscal fourth quarter 2024 on a sequential basis, we expect meaningfully higher sales and continued improvement in adjusted operating margin. This outlook assumes slight market recovery in the end market served by electronics and specialty segments contribution from the pending <unk> acquisition and a more favorable project timing.
<unk> and the engineering technologies segment.
We are reaffirming our long term financial outlook by fiscal year 2028. These targets include high single digit organic growth the greater than $1 billion in sales adjusted operating margin greater than 19% return on invested capital greater than 15% and free cash flow conversion at approximately 100% of.
GAAP net income, let's turn to slide four.
In January I celebrated my 10th anniversary of <unk>.
David A. Dunbar: I'd like to take a little walk down memory lane here because it's important to understand where we are going and how we will get there. First, let's look at our results. At the end of January 2014, the company's market cap was just over $660 million. Now, 10 years later, it has grown to $1.8 billion. We have significantly outperformed the Russell 2000 and kept pace with the S&P 500 over that time, a great accomplishment for a small cap company. The financial results that created that valuation are below. On roughly the same sales, we increased gross margins from 33.4% to 40.3% and nearly doubled EPS. The real story is how we delivered these results. Please turn to page five.
I'd like to take a little walk down memory Lane here, because it's important to understand where we're going and how we will get there.
First let's look at our results at the end of January 2014, the Companys market cap was just over $660 million now 10 years later it has grown to $1 8 billion.
We have significantly outperformed the Russell 2000, and kept pace with the S&P 500 over that time, a great accomplishment for a small cap company.
The financial results that created that valuation or below.
And roughly the same sales we increased gross margins from 33, 4% to 43% and nearly doubled EPS.
Real story is how we delivered these results please turn to page five.
David A. Dunbar: Our vision was to evolve from our holding company roots to become a high-performing operating company, building it around strong businesses with defensible competitive advantages and serving growing end markets. We developed a management process that we call the Standex Value Creation System. We evaluated our portfolio to retain businesses that met this criteria and that had an operating income potential of 15%. Perhaps most importantly, we wanted to ensure that we attracted and retained great talent that thrives in our collaborative problem-solving culture.
Our vision was to evolve from our holding company roots to become a high performing operating company building it around strong businesses with defensible competitive advantages and serving growing end markets. We developed a management process that we call. The standex value creation system, we evaluated our portfolio to retain businesses that met those criteria.
And that had an operating income potential of 15% perhaps most.
Most importantly, we wanted to assure we attracted and retained the great talent that thrives in a collaborative problem solving culture.
David A. Dunbar: We got to work, and we executed. We significantly retooled and refocused the portfolio. We divested over one-half of the sales of the company, reducing the number of businesses from 15 to 6.
We got to work and we executed with.
We significantly retool and refocus the portfolio, we divested over one half the sales of the company, reducing the number of businesses from 15 to six we grew our better businesses with a combination of organic investments and acquisitions, we focus on operational improvements and implement as strong pricing and productivity processes and controls across <unk>.
David A. Dunbar: We grew our better businesses with a combination of organic investments and acquisitions. We focused on operational improvements and implemented strong pricing and productivity processes and controls across all businesses. Gross margin grew to 40.3%. At the same time, we increased R&D spending from 0.6% of sales to 2.9% of sales. We serve a better mix of end markets, with 36% of our sales now going into markets growing over 5%. The lowest operating margin business in the corporation used to be in the lowest single digits.
All businesses.
Gross margin grew to 43% at the same time, we increased R&D spending from 0.6% of sales to two 9% of sales.
We serve a better mix of end markets with 36% of our sales now going into markets growing over 5%.
The lowest operating margin business and the corporation used to be in the low single digits now our lowest margin business delivers over 15% operating income.
David A. Dunbar: Now, our lowest margin business delivers over 15% operating income. The metric I'm perhaps most pleased with is how we are creating career paths for people. In 2014, we filled about 35% of our management positions with internal hires, going outside for the remainder.
The metric I and perhaps most pleased with is how we are creating career paths for our people.
2014, we sold about 35% of our management positions with internal hires.
Outside for the remainder now in 2024 those numbers are reversed with the majority of our key positions going to current <unk> employees.
David A. Dunbar: Now, in 2024, those numbers will be reversed, with the majority of our key positions going to current Standex employees. Through these 10 years, we have developed a capability to perform at a higher level and begun to deliver on our commitment. Despite the twists and turns of the markets around us, by working on those things we can control, we deliver the financial results I showed earlier. Now, please return to page 6. Three years ago, we issued longer-term financial expectations stating that over the next three to five years, we would achieve the targets shown on the slide I've copied here from the 2021 presentation. We have essentially met them in three years.
Through these 10 years, we have developed a capability to perform at a higher level and begin to deliver on our commitments.
Despite the twists and turns of the markets around us by working on those things. We can control we delivered the financial results I showed earlier.
Now please turn to page six.
Three years ago, we issued longer term financial expectations, stating over the next three to five years, we would achieve the targets shown in this slide have copied here from the 2021 presentation. We have essentially met them in three years, we delivered EBITDA of 19, 6% versus the target of 20%.
David A. Dunbar: We delivered EBITDA of 19.6% versus the target of 20%, and ROYC of 12.3% versus the target of 12%. Our free cash flow conversion has been operating near our target of 100% of gap net income. Our businesses and our teams have shown they can perform at a higher level. Turn to page 7.
<unk> of 12, 3% versus the target of 12% our free cash flow conversion has been operating near our target of 100% of GAAP net income.
Our businesses and our teams have shown they can perform at a higher level.
Turning to page seven last year, we issued updated targets to achieve by 2028, we will do this by executing the same strategy and building on the capabilities. We have developed in the past 10 years.
David A. Dunbar: Last year we issued updated targets to achieve by 2028. We will do this by executing the same strategy and building on the capabilities we have developed in the past 10 years. A couple of differences are that we do not need significant portfolio reshaping.
Couple of differences are that we do not need significant portfolio reshaping. In addition, much more of our energy is devoted to operating our high quality businesses, and especially getting better and better at bringing new products to market and penetrating fast growing markets. We will continue to devote our energies to those things, we can control and position ourselves.
Ademir Sarcevic: In addition, much more of our energy is devoted to operating our high-quality businesses and especially getting better and better at bringing new products to market and penetrating fast-growing markets. We will continue to devote our energies to those things we can control and position ourselves to exceed those targets as well. I will now turn the call over to Ademir to discuss our financial performance in greater detail. Thank you, David, and good morning, everyone.
Self to exceed those targets as well.
Now I'll turn the call over to Adam here to discuss our financial performance in greater detail.
Thank you David and good morning, everyone.
Ademir Sarcevic: Let's turn to slide 8, second quarter 2024 summary. On a consolidated basis, total revenue decreased approximately 5% year-on-year to $178.4 million, in line with our sequential outlook we discussed last quarter. This reflected an organic revenue decline of 7.4 percent, partially offset by 1.9 percent net impact from the recent Mitronics acquisition and prior Procon divestiture, and 0.6 percent benefit from foreign exchange.
Let's turn to slide eight second quarter 2024 summary.
On a consolidated basis total revenue decreased approximately 5% year on year to $178 4 million in line with our sequential outlook, we discussed last quarter.
This reflected organic revenue decline of seven 4%, partially offset by one 9% net impact from the recent electronics acquisition and prior Procon divestiture and 0.6% benefit from foreign exchange.
Ademir Sarcevic: Second quarter 2024 Adjusted Operating Margin increased 90 basis points year-on-year to 16.1%, our 11th consecutive quarter with the highest Adjusted Operating Margin in company history. Adjusted operating income grew 0.3% on a 5% consolidated revenue decrease year-on-year, reflecting continued focus on driving margin improvement through OPEX and pricing initiatives. Adjusted earnings per share was $1.78 in the second quarter of fiscal 2024 compared to $1.74 a year ago, a 2.3% growth year-on-year. Net cash provided by operating activities was $23.8 million in the second quarter of 2024, compared to $29.8 million a year ago. Capital expenditures were $4.3 million compared to $5.8 million a year ago. As a result, free cash flow was $19.5 million in fiscal second quarter 2024 compared to $24 million a year ago.
Second quarter 2024, adjusted operating margin increased 90 basis points year on year to 16, 1%, our 11th consecutive quarter with the highest adjusted operating margin in company history.
Adjusted operating income grew 0.3% on a 5% consolidated revenue decreased year on year.
So that's a continued focus on driving margin improvement through opex and pricing initiatives.
Adjusted earnings per share were $1 78.
In the second quarter of fiscal 2024, compared to $1 74, a year ago at two 3% growth year on year.
Net cash provided by operating activities was $23 8 million in the second quarter of 2024 compared to $29 8 million a year ago.
Capital expenditures were $4 3 million compared to $5 8 million a year ago.
As a result free cash flow was $19 5 million in fiscal second quarter 2024, compared to $24 million a year ago on.
Ademir Sarcevic: On a year-to-date basis, free cash flow of $31.6 million represents a record first half cash generation in the history of the company. Now, please turn to slide nine, and I will begin to discuss our segment performance and outlook, beginning with electronics. Segment revenue of $79.4 million increased 9.5% year-on-year as a 14.7% benefit from the recent Metronix acquisition and 0.5% benefit from foreign currency, but partially offset by an organic decline of 5.7%. Adjusted operating margin of 20.3% in fiscal second quarter 2024 decreased 310 basis points year-on-year as the contribution from the Medtronic acquisition and pricing and productivity initiatives were more than offset by lower organic sales and product mix.
On a year to date basis free cash flow of $31 6 million represents a record first half cash generation in the history of the company.
Now please turn to slide nine and I will began begin to discuss our segment performance and outlook beginning with electronics.
Segment revenue of $79, four 4 million increased nine 5% year on year as a 14, 7% benefit from the recent Medtronic acquisition and 0.5% benefit from foreign currency, partially offset by an organic decline of five 7%.
Adjusted operating margin of 23% in fiscal second quarter, 2024 decreased 310 basis points year on year.
The contribution from the Medtronic acquisition and pricing and productivity initiatives were more than offset by lower organic sales and product mix.
Ademir Sarcevic: Our new business opportunity funnel increased 30% year-on-year and grew 13% organically and is currently at approximately $76 million. We remain confident in our ability to increase share and accelerate our presence in fast growing and markets, such as industrial automation, smart grid, renewable energy, and EV-related markets. sequentially, in fiscal third quarter 2024, we expect slightly to moderately higher revenue and slightly higher operating margin from stronger volume and the contribution from the pending acquisition of Signiant. Based on the observed order trends, we anticipate general market conditions to improve in Fiscal 4 Quarter 2024. Please turn to slide 10 for a discussion of the engraving and its scientific setting.
Our new business opportunity funnel increased 30% year on year and grew 13% organically and is currently at approximately $76 million.
We remain confident in our ability to increase share and accelerate our presence in fast growth end markets, such as industrial automation smart grid renewable energy and EV related markets.
Sequentially in fiscal third quarter of 2024.
That's likely expect slightly to moderately higher revenue and slightly higher operating margin from stronger volume and the contribution from the pending acquisition of Sandy.
Based on the observed order trends, we anticipate general market conditions to improve in fiscal fourth quarter of 2024.
Please turn to slide 10 for a discussion of the engraving and scientific segment.
Ademir Sarcevic: Engraving revenue increased 8.4% to $40.8 million, driven by organic growth of 6.7% and a 1.7% benefit from foreign currency. Operating margin of 21.8% in fiscal second quarter 2024 increased 490 basis points year-on-year due to higher volume and realization of productivity actions. In our next fiscal quarter, on a sequential basis, we expect meaningfully lower revenue and operating margin due to the seasonal impact of the Chinese New Year on project timing and fewer new platform rollouts in North America. Scientific revenue decreased 15.6% to 16.3 million as lower demand for COVID vaccine storage units in retail pharmacies was likely offset by higher new product sales.
<unk> revenue increased eight 4% to $40 $8 million driven by organic growth of six 7% and the one 7% benefit from foreign currency.
Operating margin of 21, 8% in fiscal second quarter, 2024 increased 490 basis points year on year due to higher volume and realization of productivity actions.
And our next fiscal quarter on a sequential basis, you'd expect meaningfully lower revenue and operating margin due to the seasonal impact of the Chinese new year on project timing and fewer new platform Rollouts in North America.
<unk> revenue decreased 15, 6% to $16 3 million as lower demand for Covid vaccine storage units and retail pharmacies was slightly offset by higher new product sales.
Ademir Sarcevic: Operating margin of 26.1% increased 450 basis points year-on-year due to lower freight costs and productivity initiatives offsetting lower value. Sequentially, we extract slightly higher revenue and, similar to, slightly higher operating margin. Now turn to slide 11 for a discussion of the engineering technologies and specialty solutions segment. Engineering technologies revenue of $19.9 million decreased 17.8% year-on-year due to timing of projects.
Operating margin of 26, 1% increased 450 basis points year on year due to lower freight cost and productivity initiatives offsetting lower volume.
Sequentially, we expect slightly higher revenue and a similar to slightly higher operating margin.
Now I'll turn to slide 11 for a discussion of the engineering technologies and specialty solutions segments.
Engineering technologies revenue of $19 9 million decreased 17, 8% year on year due to timing of projects.
Ademir Sarcevic: This reflected an organic decline of 18.1% and a 0.3% benefit from foreign currency. Operating margin of 17.1% increased 160 basis points year on year as pricing and productivity initiatives were partially offset by lower volume and higher research and development expense. sequentially, we expect similar revenue reflecting improvement across most end markets, offset by lower defense and market sales caused by delays in government funding and similar to slightly lower operating margins. We anticipate significant sequential growth in the fiscal fourth quarter, reflecting more favorable project time. Specialty solution segment revenue of $22 million decreased 35.5% year-on-year, primarily due to the broken divestiture and an organic decline in the hydraulics business from the industry-wide chassis shortage.
This reflected an organic decline of 18, 1% and a 0.3% benefit from foreign currency.
Operating margin of 17, 1% increased 160 basis points year on year as pricing and productivity initiatives were partially offset by lower volume and higher research and development expenses.
Sequentially, we expect similar revenue, reflecting improvement across most end markets offset by lower defense end market sales caused by delays in government funding and a similar to slightly lower operating margin.
We anticipate significant sequential growth in the fiscal fourth quarter, reflecting more favorable project timing.
Specialty solutions segment revenue of $22 million decreased 35, 5% year on year.
Primarily due to the <unk> divestiture and other and an organic decline in the hydraulics business from the industry wide chassis shortage.
Ademir Sarcevic: Operating margin of 18.1% increased 130 basis points year on year, driven by price and productivity realization, partially offset by lower volume. Sequentially, we expect slightly to moderately higher revenue and operating margin due to improved demand in the hydraulics business. Next, please turn to slide 12 for a summary of Standex's liquidity statistics and the capitalization structure, which remains strong. Standex ended fiscal second quarter 2024 with $347 million of available liquidity. At the end of the second quarter, Standex had net debt of $6.2 million compared to $21.7 million at the end of fiscal first quarter 2024. Standex's long-term debt at the end of fiscal second quarter 2024 was $148.7 million.
Operating margin of 18, 1% increased 130 basis points year on year, driven by price and productivity utilization, partially offset by lower volume.
Sequentially, we expect slightly to moderately higher revenue and operating margin due to improved demand in the hydraulics business.
Next please turn to slide 12 for a summary of standard fifth liquidity statistics, and the capitalization structure, which remains strong.
Standards and that fiscal second quarter, 2024, with $347 million of available liquidity.
At the end of the second quarter Standex had net debt of $6 2 million compared to $21 7 million at the end of fiscal first quarter of 2024.
Dialysis long term debt at the end of fiscal second quarter, 2024 was $148 7 million cash and cash equivalents equivalents totaled $142 4 million.
David A. Dunbar: Cash and cash equivalents totaled $142.4 million. With regard to capital allocation, we repurchased approximately 33,500 shares for $4.5 million in the second quarter. We also declared our 238th consecutive cash dividend of $0.30 per share, an approximately 7.1% increase year on year. In fiscal 2024, we expect capital expenditures to be between $25 million and $30 million compared to approximately $24 million in fiscal 2023. I will now turn the call over to David to discuss key takeaways from our second quarter results. Thank you, Ademir. Please turn to slide 13.
With regards to capital allocation, we repurchased approximately 33500 shares for $4 5 million in the second quarter.
We also declared our 238 quarterly consecutive cash dividend of <unk> 30 cents per share and approximately seven 1% increase year on year.
In fiscal 2024, we expect capital expenditures to be between $25 million and $30 million.
Compared to approximately $24 million in fiscal 2023.
I will now turn the call over to David to discuss key takeaways from our second quarter results. Thank you Ed Amir please.
Please turn to slide 13, I am very proud of our team for their strong operational execution and continued focus on growing markets and new applications that led to our quarterly results.
David A. Dunbar: I am very proud of our team for their strong operational execution and continued focus on growing markets and new applications that led to our quarterly results. In our streak of 11 consecutive quarters of record margin, we have proven that we can expand margin and grow earnings by adapting to changing macro conditions. I'm excited as sales from fast-growing markets become even more significant contributors to our organic growth. Sales growth in these markets, combined with expected new product releases, strong customer relationships, and operational rigor, gives us confidence in the company's long-term organic growth and profit potential. We continue to maintain a strong balance sheet based on our prudent and consistent capital allocation, which allows us to continue to pursue additional inorganic investments complementary to our strategy.
And our streak of 11 consecutive quarters of record margin. We've proven that we can expand margins and grow earnings by adapting to changing macro conditions.
Im excited as sales from fast growth markets become even more significant contributors to our organic growth sales growth in these markets combined with expected new product releases strong customer relationships and operational rigor gives us confidence in the company's long term organic growth and profit potential we continue to maintain a strong <unk>.
This sheet based on our prudent and consistent capital allocation, which allows us to continue to pursue additional inorganic investments complementary to our strategy.
Operator: In fiscal 2024, we expect continued margin expansion tracking to our long-term outlook. We anticipate sales in the fast growth markets to continue progressing towards $200 million plus by fiscal 2028. We reaffirm our long-term financial outlook for fiscal 2028. These targets include high single-digit organic growth, greater than $1 billion in sales, adjusted operating margin greater than 19%, return on invested capital of greater than 15%, and free cash flow conversion at approximately 100% of GAAP net income. We will now open the line for questions. Thank you, sir. Ladies and gentlemen, we will now begin the question and answer session. Should you have a question, please press star followed by the number one on your touchstone phone. You will hear a prompt that your hand has been raised. Should you wish to decline from the polling process, please press star followed by the letter 'O'. If you are using a speakerphone, please lift your handset before pressing it.
In fiscal 2024, we expect continued margin expansion tracking to our long term outlook, we anticipate sales into fast growth markets to continue progressing towards 200 million plus by fiscal 2028.
We reaffirm our long term financial outlook for fiscal 2028. These targets include high single digit organic growth 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% of GAAP net income.
We will now open the line for questions.
Thank you, Sir ladies and gentlemen, you will now begin the question and answer session. So do you have a question. Please press star followed by the number one on your Touchtone phone.
Mr. Han has been raised.
The declines in the pouring process. Please press star followed by the Q if.
If you are using a speaker phone please lift your handset before pressing.
Christopher Moore: We have our first question coming from the line of Chris Moore from CJS Securities. Please go ahead. Good morning, guys. Thanks for taking the time to answer a few questions. Morning. Good morning. So maybe we'll start with electronics. Looks like it's softer.
We have our first question coming from the line of Chris Moore from CJS Securities. Please go ahead.
Hey, good morning, guys. Thanks for taking a few questions.
Morning.
Good morning, So maybe just.
<unk> it looks like software.
David A. Dunbar: Electronics Conditions in Europe and China are continuing, so maybe two questions there. What indicators are you looking at, if any, to help gauge when demand might strengthen a bit? Yeah, in the last few quarters, Chris, we pointed out that we saw softness in China and Europe; we anticipated that would begin to reverse. And we also call out the appliance market in particular. So when we look at trends, a good leading indicator for us is the orders of bare switches that go through distribution channels. These are often sold across many different applications into many end markets, and they're also used for samples as people are developing new products.
Electronics conditions in Europe, and China are continuing so maybe two questions there.
What indicators are you looking at if any to help gauge when demand might strengthen a bit there.
Yes in the last few quarters first we pointed out we saw softness in China and Europe, we anticipated those will begin to reverse.
And we also call out the appliance market in particular.
So when we look at trends are good leading indicator for US is the orders are bare switches that go through distribution channels. These are often sold.
Across many different applications into many many end markets and they're also used for samples as people are developing new new products. So that's typically the first thing ticked down in the first to come up with.
David A. Dunbar: So that's typically the first thing to tick down and the first to come up. This quarter, we're starting to see those orders tick up. So based on historic precedent, we're confident we are seeing that turn. We're seeing appliance orders come back in the quarter. The general level of sales in China and Europe is still lower than we expected when we talked about this last year. But with the order trends reversing, we expect it late this quarter and into next for those to come up. I got it.
This quarter, we're starting to see those orders tick up.
So we're.
So based on historic precedent you were comfortable we are seeing that turning.
We're seeing appliance orders come up come back.
In the quarter.
General level of sales in China, and Europe are still lower than we expected when we talked about this last year, but with the with the order trends reversing we expected late this quarter and into next for those to come up.
David A. Dunbar: It's helpful. I appreciate that. My understanding is that China represents roughly 10% of electronic revenue; trying to understand what's the new normal. What are the puts and takes for China to stay at that level for three to five years? Well, that's a good question about about two-thirds of our sales in China are to China. So the ship to addresses in China, there are some multinationals that are there, there are a lot of Chinese manufacturers that purchase from us.
Got it that's helpful. I appreciate that.
My understanding.
Is that China represents roughly 10% electronic revenue just trying to understand what's the new normal what are the puts and takes for China to stay at that level three to five years from now.
Well that's a good question about about two thirds of our sales in China or in China for China. So the ship to address in China. There is some multinationals that are there there are a lot of Chinese manufacturers that they purchased from us the.
The other two thirds.
David A. Dunbar: The other two-thirds is the other third is export. So what will change there? There are more of our customers that are talking about reshoring to North America. And frankly, for us, it's kind of a left pocket, right pocket thing.
<unk>.
The other third is export.
So what will change there.
There are more of our customers that are talking about re shoring to North America, and frankly for US is kind of a left pocket right pocket thing will follow that business wherever it is.
For the remainder of the business it has more to do with.
David A. Dunbar: We'll follow that business wherever it is for the remainder of the business. It has more to do with, you know, your guess is as good as mine about the prospects for the Chinese economy. Got it, of Yeah, so we said delay in funding, it's not so much a delay in funding, it's sort of a reallocation of where their spending is for the Navy nuclear vessels, and some of that spending has been pushed out in order to fund, you know, support for some of the conflicts around the world now. We actually have quite good visibility in the engineering technologies business, and I think in the script we called out, we do expect What could it be? You know, if we execute and the customers don't change, it will be a record Q4 for engineering technologies, so we're quite confident in that. Perfect. Maybe just the last one for me, on the M&A side. Sanju, closing shortly, just, you know, kind of how deep is the funnel?
Your guess is as good as mine about the about the prospects for the Chinese economy.
Got it I appreciate that maybe just on engineering, so obviously being impacted by delays in government funding Youre expecting a big increase Q4, just maybe a little bit more about how much visibility you have on that.
Yes, So we said delay in funding is not so much Italian funding as sort of a reallocation of where their spending is for the we have.
We have a position in the Navy nuclear.
Vessels and some of that spending has been pushed out in order to fund support for some of the conflicts around the world now we actually have quite good visibility in the engineering technologies business and I think in the.
In the in the script, we called out we do expect a very strong Q4 as customer projects lineup for deliberate well it could be it.
If we if we execute and the customers don't change it will be a record Q4 for engineering technologies. So we're quite confident in that.
Perfect.
Just last one from me it looks on the M&A side, San you closing shortly just kind of how deep is the funnel are there any.
David A. Dunbar: Are there any... 50 million plus revenue targets out there at this stage? Yeah, you know, last year, we said there were a number of family-owned businesses, which we continue to build relationships with, but there were very few 50 million $7,500 million businesses that seemed to be actionable. That's changing a little bit; there are some attractive, larger businesses; we have been positioning ourselves with those with the owners. And it looks like some of them could be actionable in the next quarter or two. So I say the funnel is looking healthier than it did last year. That's really helpful, David. I will leave it there. Thank you, Chris.
$50 million plus revenue targets out there at this stage.
Yes last year, we said that were.
There were number of family owned businesses, which we continue to build relationships with but there were very few $50 million 70 $500 million businesses that seem to be actionable.
Actionable, that's changing a little bit there are some attractive larger businesses, we have been positioning ourselves.
With the owners and it looks like some of them could be actionable in the next quarter or two so I'd say the funnel is looking healthier than it did last year.
Got it that's really helpful. David I will leave it there thanks.
Thank you Chris.
Okay.
Michael Legge: Thank you. We have our next question coming from the line of Michael Legge from Benchmark. Please go ahead.
Thank you we have our next question coming from the line of Michael <unk> from benchmark. Please go ahead.
Michael Legge: When you look at your 19%... Operating Margin Gold, bat... Product Development... Acquired. Well, it's actually pretty easy to get there, Mike.
When you look at your 19%.
The operating margin goal by 2028, how much of that is coming from internal versus external expectations for new product development costs.
<unk> acquired businesses.
Well its actually its pretty easy to get there Mike if you take a look at whatever your estimate is for our sales this year.
David A. Dunbar: If you take a look at, you know, whatever your estimate is for our sales this year, over the next four years, we're very confident fast growth markets will add another hundred million dollars to sales, and all those sales are at margins above our average. So that, you know, that mixes us up. And then the rest of it, you get the rest of that growth with just three and a half percent growth on the base business. And if you just take some leverage on that, you know, we get to 19%. So if you give us a little credit for succeeding with new products, which typically have higher margins, there's upside both to the margin mix and to the top line.
Over the next four years, we're very conference fast growth markets will add another $100 million to sales and all of those sales are at margins above our average so that that mixes us up.
And then the rest of it.
We'll get the rest of that growth with just three 5% growth on the base business and if you just take some leverage on that we get to the 19%. So if you can give us a little credit for succeeding with new products, which are typically are higher margins.
Theres upside both to our margin mix and to a top line.
David A. Dunbar: Yeah, and then my name is Ademir. If I can just add, you know, we developed a pretty good operating muscle over the last three or four years, both from a pricing and OPEX standpoint. So on top of what David just said, from a volume standpoint, we'll continue driving productivity, and we anticipate continuing to drive our gross margin up and use some of those dollars to fund the R&D funnel and continue to grow. Great And then we're seeing a lot of news and SXSW. For more information, visit www. SXSW.org
Yeah, and then Mike its Adam if I can just start we developed a pretty good operating muscle over the last three or four years, both from a pricing and Opex standpoint saw on top of what David just said from a volume standpoint, we will continue driving productivity and we anticipate continued to drive our gross margin up and use some of those dollars to fund the R&D.
R&D funnel and continue that continue continue to grow.
Great and then we're seeing a lot of news on EV sales being slow.
David A. Dunbar: And as always, thanks for watching. Talk a little bit about the EV sector and what you're seeing from your customers. Yeah, our EV presence, I think we've talked about this before, our products are especially adapted to the needs of EVs that operate at higher voltages, say above 800 volts. So last year, I think about 11 million vehicles, electric vehicles, were sold last year, and 3 million of those operated at 800
Talk a little bit on the EV sector, what youre seeing from your customers.
Yeah.
Our EV presence.
I think we've I think we've talked about this before our products are are especially adapted to the needs of evs to operate at higher voltage say above 800 volt. So last year I think.
About 11 million vehicles electric vehicles were sold last year $3 million of those operated 800 volts or more were on 60% of those vehicles. We're on about 30% of the remainder of those vehicles and if you kind of our content is higher on those high voltage vehicles, so about 60% of our EV.
David A. Dunbar: We're on 60% of those vehicles. We're on about 30% of the remainder of those vehicles. And if you kind of think about it, our content is higher on those high-voltage vehicles. So about 60% of our EV sales come from these higher-end vehicles, and they continue to grow nicely.
<unk> sales come from these higher end vehicles and that they continue to grow nicely. In fact, we this last quarter. We just had the biggest quarter. We've had in EV is continues to grow very nicely.
David A. Dunbar: In fact, this last quarter, we just had the biggest quarter we've had an EV, and it continues to grow very nicely. So, at the top end, we continue to see healthy growth. In fact, we just won another platform, two positions on two platforms in Mercedes this last quarter, at the low end of the market. The growth may slow, but we still see that as a double-digit growth opportunity, even for 400-volt vehicles. And then just the last one, on Sanyo, the timing of that during the third quarter.
So at the top end, we continue to see healthy growth in fact, we just won another platform.
Two positions on two platforms or Mercedes this last this last quarter.
At the lower end of the market.
The growth may slow, but we still see that as a.
The double digit growth.
Opportunity.
400 volt vehicles.
Great and then just the last one on the timing of that during the third quarter. How much are you incorporating that into the guidance you gave as far as Sandoz contribution.
Ademir Sarcevic: Incorporating that into the guide. Let Ademir handle that. Yeah, I think, Michael, if we are, you know, if we can close it in the next few weeks, the guidance that we give actually is kind of slightly to moderately, slightly assumes no SANU, and moderately would assume we get a month, a month and a half of SANU revenue within the quarter, so. Great. Thank you. A great quarter. Thank you. We have our next question coming from the line of Mike Schliske from D.A. Davidson, please go ahead.
Let Adam handle yeah, I think Michael if we are if we can close it in the next few weeks that the guidance that we gave actually it's like kind of a slightly to moderately slightly assumes no sanyo moderately with assuming we get a month a month and a half of sandy revenue within the quarter. So.
Okay, great. Thank you great quarter.
Thank you.
We have our next question coming from the line of Mike Sulewski from da Davidson. Please go ahead.
Michael Shlisky: Good morning, and thanks for taking my call. I'm going to start asking. I'm going to start off by... Science.
Good morning, and thanks for taking my question.
Wanted to start asking.
I'll start off on that.
Scientific.
David A. Dunbar: Another down quarter year over year due to COVID, on a hangover, if you will. I've had organic growth that's been kind of negative for just about two years now, almost every quarter. Is there a point where that kind of flattens out? At some point, you've now lapped it twice.
Another down quarter year over year due to the Covid.
On a hangover if you will.
Hi.
You've had.
<unk> growth has been.
Kind of.
For just about two years now almost every quarter.
Is there a point where that kind of flattens out.
At some point you know not that twice.
David A. Dunbar: I'm curious to see when we might start seeing positive organic growth and that. Yeah, we think we've lapped that surge from COVID. I mean, the sales growth for that business was up 40% in 21, up 6% in 22, and it's been down the last two years. But the decline, it was down 11% last year. This year it will be down like half of that or less.
Curious to see when we might start seeing positive organic growth in that.
In that business.
Yes, we think we've lapped lapped that that surgeon.
From Covid.
The sales growth for that business, which is up 40% in 'twenty, one up 6% in 2002, and it's been down the last two years, but the decline it was down 11% last year. This year will be down like half of that or less.
David A. Dunbar: And most of that is the reduced purchase from pharmacies. We are seeing growth in our new products. The new products are a little more than 10% of sales of that business, or about approaching 10%. That gets us into new segments.
And most of that is that is the reduced purchase from from pharmacies. We are seeing we're seeing growth in our new products with new products or little more than 10% of sales of that business are about approaching 10%.
That gets us into new segments.
Ademir Sarcevic: We're in this last year, and we've talked about a return to kind of normal buying patterns from universities, laboratories, other life science institutions. So this is what we'd expect growth from here. Yeah, and Mike, if I can just add to that. These units that are sold usually have, call it, I don't want to say useful life, but they usually are used for about four to seven years before they are replaced.
In this last year, we've talked about a return to kind of normal buying patterns from universities laboratories other life Science institution.
So we would expect growth from here, yes, it might have to tie them. If I can just add to that these units that are sold that usually have call. It out.
I don't want to say useful life, but they usually utilized for about four to seven years before they are in place. So if you'll go back to those units that we sold in 2021 at some point over the next couple of years, there will be a replacement cycle coming in and we hope to capture.
Ademir Sarcevic: So if you go back to those units that we sold in 2021, at some point over the next couple of years, there will be a replacement cycle coming in, and we hope to capture, capture that opportunity as well. Yeah. I want to turn to, and Solutions.
Capture that opportunity as well.
Got it yes, thank you for that.
I wanted to turn to.
Especially our solutions.
David A. Dunbar: Thank you. I did notice on the slides you had put a firetruck in there, and that's an important hydraulic. I guess I'd be curious, you know, at the top of some of the fire truck manufacturers, and there are only a few of them out there, they are booked through something like 2025 or Point, and they are trying to maximize their throughput now. I'd be curious as to when that might start turning a little bit more positive because those folks seem to be dealing with a lot more orders than they can even handle. I guess I'm curious, one, are you already... two, is that real? I know it's just firetrucks, but is that also a... Yeah, that's a great point. Yeah, he was very observant there to see the fire truck.
I did notice in the slide you had put a.
A fire truck in there and Thats an important hydraulic.
Yes.
Of the market I guess I'd be curious as the topics over the fire truck manufacturers and there's only a few of them out there.
Our booked through 2025.
At this point and they are trying to maximize their.
Throughput now I'd be curious as to.
When that might start turning a little bit more positive because those folks tend to be.
With a lot more or is it making it even handle right now I guess I'm curious one.
Yes.
Are you are you already seeing improvements and then.
Maybe two is not a real.
No. It's just Firetrucks may is that also a high growth market for you going forward as a group.
Yeah, very observant there to see the fires out we put that in there because it's there is a new application. We're working on in that business would provide some modest growth opportunity for us. It's a small piece of our sales now.
David A. Dunbar: We put that in there because there's a new application we're working on in that business that would provide some modest growth opportunities for us. It's a small piece of our sales now. And, you know, I did.
And yet.
David A. Dunbar: If we win the application, we still have to work through the supply chain, the current delays in the fire truck market, as you described, so, you know, in a year or two, maybe that adds some sales growth. The bigger driver for hydraulics is the dump truck, dump trailer markets, garbage and waste vehicles, and in the last few quarters, orders have been dampened due to a basic chassis shortage.
If we win the application we still have to work through the the supply chain. The current delays in the fire truck market. As you described so in a year or two maybe that had some sales growth the bigger driver for hydraulics is dump truck and trailer markets garbage and waste vehicles and there the last few quarter.
<unk>.
Orders have been dampened.
Due to our basic chassis shortage.
David A. Dunbar: And I just talked with the leader of the business yesterday. Orders in January have been really good in that business. And it looks like the chassis shortage for dump trucks, dump trailers, and these broader vehicles is starting to ease up.
And I just talked with the leader of the business yesterday in the Chin orders in January had been really good in that business and it looks like the chassis shortage for dump truck and trailer in these broader vehicles is starting to loosen up that's translating into sales. So we see a stronger second half for our hydraulics business.
David A. Dunbar: That's translating into sales, so we see a stronger second half for our hydraulics business. And then I, as a first timer on the call here, I just wanted to ask a more basic question. And that is, you know, you've reiterated your Episcopal 28 goal. I'm curious if you could... Because you've reached your fiscal year 21 goals in about... I feel like there's a chance that some of these goals might be attainable in that same three-year time frame, or are you, is it very strictly a five-year program?
Great.
And then.
As the first time around the call here I just wanted to ask more of a basic question and that is <unk>.
Reiterated your fiscal 'twenty eight goals.
I'm curious if you could.
Because youre.
Restrict fiscal 'twenty, one goals and about.
Three years.
Feel like there is a chance that some of these goals might be payable in ethane through your time frame call. It 26 or are you.
And then very strictly a five year plan.
David A. Dunbar: Yeah, that's a great point. We actually debated last year whether to communicate just a 3- to 5-year plan. We just said, let's just not complicate things, which is, say, 28, by 28. But we could deliver that earlier. If you think about it, in answer to Chris or Mike.
Yes, that's a great point, we actually debated last year, whether to communicate a three to five year plan. We just said, let's just not complicate things what you say 28 by 28.
But.
We could we couldnt deliver that earlier, if you Todd if you think about it in answer to Chris or Mike.
David A. Dunbar: You know, wherever we end up this year, we'll have four more years to get to the billion dollars. Fast growth markets, we believe in that. There's another $100 million there. Our new product sales are ramping up. Our new product releases are... We're getting better and better at that. The markets we serve are relatively attractive. All we need is 3.5% sales growth over four years to get to that billion. So if you give us a little more success with some new product sales and maybe a little tailwind from the market, we could get there earlier. Yeah, and Mike, that's an organic target, right?
Wherever we end up this year, we'll have four more years to get to the $1 billion fast growth markets. We believe in that there is another $100 million. There are new product sales are ramping up new product releases are we're getting better and better at that.
The markets. We serve are relatively attractive all we need is three 5% sales growth over four years to get to that $1 billion. So if you can give us a little more success with some new product sales and maybe a little tailwind from the market, we could get there earlier and Mike Thats inorganic targets right. Obviously I don't think I would do inorganically comes on top of that.
Michael Shlisky: Obviously, anything we're doing organically comes on top of that. Right, got it. Thanks so much. I'll pass.
Right got it.
David A. Dunbar: Thank you, for my next slide. We have our next question coming from the line of Ross Asparian-Black, from William Blair. Please go ahead.
Thanks, So much I'll pass it along.
Thank you Maria.
Okay.
We have our next question coming from the line of Orion Darrin Guang from William Blair. Please go ahead.
Ross Asparian-Black: Good morning, and to a lot of other people. Thank you. Alright, stick with the EVs, given that the market seems to be pretty good, and SXSW. Thank you. Thank you. What does the mix look like as it relates to North America?
Hey, good morning, guys.
Hey, Ross.
Hey, sticking to Evs.
Given that the market seems to be pretty centric in China over the next few years.
What does the mix look like as it relates to North America.
David A. Dunbar: Europe and in China. Yes. So I described earlier how we're more concentrated in the higher voltage vehicles, which, you know, last year, 11, 11 million vehicles, 3 million or high voltage 60% of our sales come from those. The way that's spread geographically, about 50% of our sales in EVs are in Europe, 45% in China, and the remainder in North America.
Yes, you are.
And in China.
Yes.
So I described earlier, how we're more concentrated in the higher voltage vehicles.
Which last year to 11 7 million vehicles $3 million of high voltage, 60% of our sales come from those the way that's spread geographically about 50% of our sales in the Evs are in Europe.
45% in China.
The remainder in North America.
Ross Asparian-Black: That's very helpful. And maybe just move into engraving margins. Can you maybe help us parse out some of that outperformance in the second quarter? I mean, taking out just normal operating leverage and maybe a pull forward of the footprint consolidation. There are still a couple hundred bases. Maybe one, is that exactly, is there any mix?
Thank you that's very helpful.
Maybe just moving to margins can you maybe help us parse out from that outperformance in the second quarter taken out just normal operating leverage and maybe a pull forward of the al.
Footprint consolidation Theres still a couple of hundred basis points.
Maybe what is that exactly is there any mix and.
Ross Asparian-Black: and what benefits we should expect to carry forward in the third quarter. This is my first interview. I have never done interviews at SXI before.
Should we expect to carry forward into the third quarter.
It is seasonally low.
Yes, Ross, it's Adam here.
Ross Asparian-Black: I am not a professional person who does interviews on the air. I am not a professional person who says, Yeah, Ross, it's Ademir. You know, as we talked before about our engraving segment and performance, you know, we did put a lot of productivity initiatives in play, including site consolidations, which you just quoted. Some of that is going to start coming out in Q3 and Q4. So there will be additional savings, if you will, that we're going to achieve in those quarters. You know, we always said that the engraving target margin was over 20%. As you know us very well, it does get lumpy quarter to quarter because it is based on the volume level.
As we've talked before about our engraving segment performance.
It did put a lot of productivity initiatives in play including site consolidations. We suggest that you just quoted.
Some of that is going to start start reading out in Q3 and Q4. So there will be an additional savings. If you will that we're going to achieve in those quarters.
We always said that the engraving target margin is over 20%.
As you know us very well it does get lumpy quarter to quarter over because based on the on the volume level, but kind of on an annualized basis. We think that this engraving segment will start giving us over 20% margins going forward. So Q3 will be lower just because of the seasonality in China and some of the softness we are seeing a little bit in North America, but as.
Ademir Sarcevic: But, you know, kind of on an annualized basis, we think that this engraving segment will start giving us over 20% margin going forward. So Q3 will be lower just because of the seasonality in China and some of the softness we are seeing a little bit in North America. But as we enter, you know, fiscal 25, we expect that engraving margin to stay over 20%. So it should be a pretty nice exit right there.
We entered fiscal 'twenty five we expect that engraving margin will stay over 20%.
Got it so it should be pretty nice exit rate there.
Ross Asparian-Black: And then maybe just one more here. Is there anything to read into the CapEx? You know, we entered the year expecting roughly 15 million. That was tied to, you know, electronics and engineered customer commitments, and we reduced it by about 10 million now as of the second quarter. So is this just being pushed to the right? Are the customer programs being pushed to the right? I'm not even sure how to do it.
And then maybe just one more here is there anything to read into the Capex, we entered the year expecting roughly.
Yeah.
That was tied to electronics and engineered customer commitments.
We reduced it by about $10 million now as of the second quarter. So is this just being pushed to the right R&D customer programs being pushed to the right.
Thank you Ron.
Do it.
David A. Dunbar: You've watched us for a while. We're getting much better at forecasting sales and profits. We have ways to go on forecasting CapEx. I'd say the difference between what we said coming into the year and the update now is that there's a bit of delay with some of the capital equipment that we need in our plants. Some of that's been pushed to the right. Last year, we reduced headcount in some businesses to adjust to the lower sales in the end markets. That kind of reduces the manpower to implement projects, so that pushes some projects to the right.
You've watched us for a while we're getting much better at forecasting sales and profits we have ways to go on forecasting capex.
I would say.
The difference between what we said coming into the year.
And the update now.
Theres a bit of delay with some of the capital equipment.
What we need in our plants. So some of that has been pushed to the right.
We did last year, we talked about we've reduced head count and some businesses to adjust to the lower sales.
In the end markets that kind of reduces the manpower to implement projects so that pushes from projects to the right.
David A. Dunbar: Those are two big factors, two of the major factors. Yeah. Ademir?
Those are two big two major factors.
That's it.
Ademir Sarcevic: as well. Thank you and good luck. Thank you, Ralph. We have our next question coming from the line of Gary Prestopino from Barrington Research. Please go ahead. Hey, good morning, David, Ademir, and Chris.
Awesome guys well, thank you and good luck.
Thank you Ron.
We have our next question coming from the line of Gary You Press the P&L from Barrington Research. Please go ahead.
Hey, good morning, Dave nanometer Chris.
Gary Frank Prestopino: A couple of questions. Corp, you said you, and lower sales. Q3, are those lower sales... what you're seeing in the automotive market, or what markets are actually causing that to move down sequentially? Yeah, so this happens every year; it's the Chinese New Year effect. We do sizable business in China, it's very profitable, and slows down for a couple weeks every time this year. Okay, so nothing in there in terms of that systemic, I, yourself. religion. Your brain is mostly a problem in the world.
Couple of questions here.
First of all.
On the engraving side you said you are looking at some lower sales in Q3 are those lower sales a function of what youre seeing in the automotive market or what what markets are actually causing that to move down sequentially. Yes.
This happens every year since <unk> <unk>.
Annie's new year effect, we do a sizable business in China is very profitable and slows down for a couple of weeks every.
Every time this year.
Okay.
Nothing in there in terms of that's systemic to some.
Particular industry or serving interest the slowdown in China right.
Alright.
This business from quarter to quarter, there are waves and there's a project timing issue. So North America is going to be a little slower as well simply from the timing of.
David A. Dunbar: Unless it's right there somewhere, it itself is like a movie. You're with us today on Thisaticconnect. Thank you so much! August 13, Right. Right. Okay, and then in regard to Q3 with this charge, I'm going to take this for you, Davey. Does that, does that charge, yeah, I know your retirement thing besides getting your Medicare, will you be backing that charge? into your. It will not be adjusted.
Platforms.
Alright formulations.
Okay, and then in regard to Q3 with this charge.
Going to take or.
You gave me.
Does that.
Yes, I know Youre retirement thing besides getting your Medicare card right.
Yeah.
Will you be backing that charge back into your adjusted EBITDA.
Calculation.
Yes, it will not be adjusted when you look at this as a timing thing Gary at some point this would be in part of our P&L and we Didnt affiliate was appropriate to call that out as an adjustment. So it will be included in our corporate expense in our corporate expenses line.
Ademir Sarcevic: We look at this as a timing thing. Gary, at some point, this would be part of our P&L, and we didn't feel it was appropriate to call that out as an adjustment. So it will be included in our corporate expenses line. Corporation, and SXI.
Okay.
Gary Frank Prestopino: And then could you just refresh my memory as to what you are paying per se and you and. How are you paying for it? Is it a debt transaction? Are you paying in full?
Then could you just refresh my memory as to.
What you're paying for San <unk> and.
How are you paying for it is it all of.
That transaction and you're paying more data.
Gary Frank Prestopino: for lowering your cash. Well, first of all, we are taking it from our existing cash balances. Remember, I'll just remind you of the sale of Procon, where we netted $70 million, and we used that to buy Sanyu, to buy Mintronics, and then give additional money back to the shareholders in terms of dividends and share buyback. So... That's kind of the way we would fund it. That's the way we would fund it now. We haven't really, you know, we're still waiting to close. We'll disclose more information about the exact purchase price and everything else as we, as we close the transaction. But that gives you a good indication of what we are paying for.
Lower than your cash balances.
Well first of all we are taking it from our existing cash balances remember I'll just remind you on the sale of protocol may be narrow at $70 million can be used that to buy sanyo to by Medtronic and then <unk> to even additional money back to the shareholders in terms of dividends or share buybacks.
That's kind of that's the way we would estimate we would fund it.
We haven't really we're still waiting to close we will disclose more information about the exact purchase price and everything else as we as we closed.
As we close the transaction, but that gives you a good indication of what we what we what we're paying.
David A. Dunbar: Thank you. I can't forget it. Thank you, Gary. Thank you. There are no further questions at this time. I'd now like to turn the call back over to Mr. David Dunbar for final closing. All right, thank you. I want to thank everybody for joining us on the call. We enjoy reporting on our progress at Standex. And, finally, again, I want to thank our employees, the Board of Directors, and shareholders for your continued support and contributions. We look forward to speaking with you again on our fiscal third quarter 2024 call. Thank you, sir. Ladies and gentlemen, this concludes your conference call for today. We thank you for participating and ask that you please disconnect your line.
Thank you.
Got it thank you.
Okay.
Thank you there are no further questions at this time I would now like to turn the call back over to Mr. David Dunbar for final closing comments.
Alright, Thank you I want to thank everybody for joining us for the call we enjoy reporting on our progress at Standex and finally again I want to thank our employees the board of directors and shareholders for your continued support and contributions we look forward to speaking with you again in our fiscal third quarter 2024 call.
Okay.
Thank you, Sir ladies and gentlemen. This concludes your conference call for today, we thank you for participating and ask that you. Please disconnect your lines have a lovely.
Operator: Have a look at this Microsoft Office Word Document MSWordDoc Word. Document.8
Okay.