Q4 2024 Standex International Corporation Earnings Call
We are in listen only mode. Following the presentation, we will conduct a question and answer session.
At any time during this call you require immediate assistance. Please press star zero for operator.
Speaker Change: This call is being recorded and Friday August 2nd 2024, I would now like to turn the conference over to <unk> director of Investor Relations. Please go ahead.
Speaker Change: Thank you operator, and good morning, ladies.
Speaker Change: 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 Change: Please refer to <unk> Safe Harbor statement on slide two.
Speaker Change: Matters that Standex management will discuss on today's conference call include predictions estimates expectations and other forward looking statements.
Speaker Change: These statements are subject to risks and uncertainties that could cause actual results to differ materially.
Speaker Change: 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.
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.
Ida: Ida, which is earnings before interest taxes, depreciation and amortization.
Ida: Adjusted EBITDA, which is EBITDA, excluding restructuring purchase accounting acquisition related expenses and onetime items EBITDA margin and adjusted EBITDA margin we.
Ida: 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.
Ida: These non-GAAP financial measures are intended to serve as a complement to results provided in accordance with accounting principles generally accepted in the United States.
<unk> believes that such information provides an additional measurement and consistent historical comparison of the company's financial performance.
Speaker Change: On the call today is <unk>, Chairman, President and Chief Executive Officer, David Dunbar, and Chief Financial Officer, and Treasurer at <unk>.
<unk>: Thank you, Chris Good morning, and welcome to our fiscal fourth quarter and fiscal year 2024 conference call I would like to thank our corporate finance team in each of our business leaders for achieving a record profit and cash generation in fiscal 2024 with challenging general market conditions pressuring the topline behind the scenes.
<unk>: Our engineering and sales and marketing teams continue to ramp up new product development and to enhance our competitive position.
As a result in fiscal 2024, we expanded gross margin 90 basis points and operating margin 60 basis points, while investing an additional $3 $3 million in research and development to fuel our future growth initiatives, even in the face some challenging market conditions, we continue to expand margins and increased.
<unk>: <unk> for future growth in fiscal 2025, we expect to release a record number of new products.
<unk>: Now if everyone can turn to slide three key messages.
<unk>: In the fourth quarter sales declined four 3% with contributions from acquisitions and fast growth markets, partially offsetting an organic decline.
<unk>: Those sales were down in electronics due to continued soft demand in appliances and general industrial end markets in China, and Europe, we have seen orders strengthening these past two months, indicating that markets are improving and that our commercial strategy is taking hold.
<unk>: We also experienced an impact from a slowdown of new vehicle introductions in North America affecting our engraving segment.
<unk>: We expect demand to improve as we enter the second half of fiscal 2025 demand in Asia and Europe remained stable.
Sales in the SaaS growth end markets grew 13% year on year to $27 million in the fourth quarter and grew 13% year on year to $94 million in fiscal 2024 sales grew faster than expected and space and defense end markets and slower than expected and renewable energy electric vehicles and smart grid applications.
<unk>: Patients.
Speaker Change: I'm, especially pleased that we continued to demonstrate resilient operating performance from the execution of our price and productivity initiatives.
Speaker Change: As a result, we achieved adjusted operating margin of 16% up 60 basis points on a sequential basis.
Speaker Change: One of our five segments reported adjusted operating margin above 20%.
Speaker Change: Following record profitability in fiscal 2023, we again achieved fiscal year record milestones and adjusted gross margin adjusted operating income adjusted operating margin adjusted earnings per share and free cash flow at the same time in fiscal year 2020 for research and development investments were the highest ever.
Speaker Change: <unk> increased $3 3 million to two 8% of sales.
Speaker Change: We remain optimistic about our long term operating margin potential as we leverage better general market conditions, and a higher sales contribution from new products and new applications.
Speaker Change: On a sequential basis in fiscal first quarter 2025, we expect similar to slightly higher revenue as higher sales into fast growth end markets are mostly offset by less favorable project timing in the engineering technologies segment.
Speaker Change: We expect similar to slightly higher gross margin and slightly lower to similar adjusted operating margin due to higher investments in selling marketing and R&D.
Speaker Change: We are positioned to release new products in every business in fiscal 2025, contributing over 100 basis points of incremental growth.
Speaker Change: I will go into more detail on the next slide. In addition, we anticipate fast growth market sales to grow above 20% and exceeded $110 million in fiscal 2025.
Speaker Change: In fiscal year 2025, we expect general market conditions to stabilize in the first half and strengthen as we move further into the second half providing healthier backdrop for growth. We are reaffirming our long term financial outlook by fiscal year 2028.
Speaker Change: These targets include high single digit organic growth to greater than $1 billion in sales adjusted operating margin greater than 19%.
Speaker Change: Turn on invested capital of greater than 15% and free cash flow conversion at approximately 100% of GAAP net income.
Speaker Change: Let's turn to slide four the highlights our progress and what's ahead for new product development and new applications.
Speaker Change: Personally I'm very excited about 2025. This slide has literally been 10 years in the making we began ramping up our R&D spending about five years ago as we completed our portfolio transmit transformation and begin focusing on operational improvements.
Speaker Change: As our margins and our predictability improved we were able to increase our R&D spending as you see in the graph here growing from $6 3 million to $25 million.
Products and new applications.
On a sequential basis in fiscal first quarter 2025, we expect similar to slightly higher revenue and higher sales into fast growth end markets are mostly offset by less favorable project timing in the engineering technologies segment.
Speaker Change: Our new product development can take several years, then must be incorporated into our customers on new product design cycle. So it takes a few years to convert our new product development project to sales.
We expect similar to slightly higher gross margin and slightly lower to similar adjusted operating margin due to higher investments in selling marketing and R&D.
Turning on the spigot into homes and waiting for the water to come out the other end.
Speaker Change: Our work is now beginning to bear fruit.
We are positioned to release new products in every business in fiscal 2025, contributing over 100 basis points of incremental growth.
Speaker Change: New product releases begin with a trickle in 2023 with two new products followed by three in 2024 now new products are nearing completion in all businesses and we anticipate releasing more than 12, new products. In 2025, we anticipate they will add more than 1% to our sales growth in 2025.
I will go into more detail on the next slide. In addition, we anticipate fast growth market sales to grow above 20% and exceed $110 million in fiscal 2025.
In fiscal year 2025, we expect general market conditions to stabilize in the first half and strengthen as we move further into the second half providing healthier backdrop for growth. We are reaffirming our long term financial outlook by fiscal year 2028.
Speaker Change: Business will launch at least one new product and we will release at least one in every quarter of the year as the year progresses, we will provide updates on recently released products. This is the year to watch us as we develop the skill to launch new products and ramp their sales.
These targets include high single digit organic growth to greater than $1 billion in sales.
I will now turn the call over to Adam here and discuss our financial performance in greater detail.
<unk> operating margin greater than 19%.
Turn on invested capital of greater than 15% and free cash flow conversion at approximately 100% of GAAP net income.
Adam: You, David and good morning, everyone.
Adam: Let's turn to slide five fourth quarter of 2024 summary.
David Dunbar: On a consolidated basis total revenue decreased approximately four 3% year on year $282 million.
Speaker Change: Let's turn to slide four the highlights our progress and what's ahead for new product development and new applications.
Adam: This reflected an organic revenue decline of nine 4% and one 1% impact from foreign exchange, partially offset by six 2% benefit from recent acquisitions.
Speaker Change: Personally I'm very excited about 2025. This slide has literally been 10 years in the making we began ramping up our R&D spending about five years ago as we completed our portfolio transmit transformation and began focusing on operational improvements.
Adam: Fourth quarter 2024, adjusted operating margin increased 60 basis points year on year to 16%.
Speaker Change: As our margins and our predictability improved we were able to increase our R&D spending as youll see in the graph here growing from $6 3 million to $25 million.
Adam: In the fiscal fourth quarter adjusted operating income decreased 1% on four 3% consolidated revenue decrease year on year.
Adam: Adjusted earnings per share remained flat year on year at $1 76.
Speaker Change: Our new product development can take several years, then must be incorporated into our customers on new product design cycle. So it takes a few years to convert our new product development project to sales.
Adam: Net cash provided by operating activities was $28 7 million in the fourth quarter of fiscal 2024 compared to $40 4 million a year ago.
Speaker Change: Turning on the spigot in the hose and waiting for the water to come out the other end.
Adam: Capital expenditures were $6 5 million.
Speaker Change: Our work is now beginning to bear fruit.
Adam: Compared to $7 6 million a year ago.
Speaker Change: New product releases begin with a trickle in 2023 with two new products followed by three in 2024 now new products are nearing completion in all businesses and we anticipate releasing more than 12, new products. In 2025, we anticipate they will add more than 1% to our sales growth in 2025.
Adam: As a result, we generated fiscal fourth quarter free cash flow of $22 2 million compared to $32 8 million a year ago, our free cash flow conversion ratio as a percent of GAAP net income was 112%.
Adam: Now please turn to slide six and I will began to discuss our segment performance and outlook beginning with electronics.
Speaker Change: Every business will launch at least one new product and we will release at least one in every quarter of the year.
Adam: Segment revenue of $84 million increased <unk>, 6% year on year at 14, 6% benefit from recent acquisitions was mostly offset by an organic decline of 12, 3% at one 6% impact from foreign currency.
Speaker Change: As the year progresses, we will provide updates on recently released products.
This is the year to watch us as we develop the skill to launch new products and ramp their sales.
Speaker Change: I will now turn the call over to Adam here and discuss our financial performance in greater detail.
Adam: Adjusted operating margin of 25% in fiscal fourth quarter of 2024 decreased 50 basis points year on year.
Adam: Thank you David and good morning, everyone.
Adam: Let's turn to slide five fourth quarter 2024 summary.
Adam: As the contribution from recent acquisitions and pricing and productivity initiatives were more than offset by lower volume.
Adam: On a consolidated basis total revenue decreased approximately four 3% year on year $280 to $1 million.
Adam: Our new business opportunity funnel increased approximately 30% year on year and is currently at approximately $85 million.
Adam: This reflected an organic revenue decline of nine 4% and one 1% impact for point of change.
Adam: As David highlighted in his comments, we are starting to see encouraging signs that markets are starting to recover which is further supported by positive order trends in the last several months.
Adam: Actually offset by six 2% benefit from recent acquisitions.
Adam: Fourth quarter 2024, adjusted operating margin increased 60 basis points year on year to 16%.
John orders in electronics increased approximately 30%.
Adam: In our fiscal fourth quarter adjusted operating income decreased 1% on four 3% consolidated revenue decrease year on year.
Speaker Change: The average order intake for the past six months and our July orders increased approximately 5% over June orders.
Adam: Adjusted earnings per share remained flat year on year at $1 76.
Speaker Change: The recent upward trend in monthly orders has been driven by the following factors inventory.
Adam: Net cash provided by operating activities was $28 7 million in the fourth quarter of fiscal 2024.
Speaker Change: Inventory normalization.
Speaker Change: Strengthening of the North America, 1000 Aero market the return of certain semiconductor customers.
Adam: Compared to $40 4 million a year ago.
Speaker Change: Increased demand for bare Reed switches and our commercial focus on gaining share in fast growth end markets.
Adam: Capital expenditures were $6 5 million compared to $7 6 million a year ago.
Speaker Change: We anticipate a positive impact from this strength to more meaningfully show in our top line as we move to the second half of our fiscal year.
Adam: As a result, we generated fiscal fourth quarter free cash flow of $22 2 million compared to $32 8 million a year ago our.
Sequentially in fiscal first quarter of 2025, we expect similar to slightly higher revenue driven by higher sales into fast growth end markets and similar on adjusted operating margin as pricing productivity initiatives offset higher investment in selling marketing and R&D.
Adam: Our free cash flow conversion ratio as a percent of GAAP net income was 112%.
Adam: Now please turn to slide six and I will began to discuss our segment performance and outlook beginning with electronics.
Adam: Segment revenue of $80 4 million increased <unk>, 6% year on year at 14, 6% benefit from recent acquisitions was mostly offset by an organic decline of 12, 3% at one 6% impact from foreign currency.
Speaker Change: Please turn to slide seven for a discussion of the engraving and scientific segments.
Speaker Change: And greater revenue decreased 22, 8% to $32 7 million driven by organic decline of 21%.
Adjusted operating margin of 25% in fiscal fourth quarter of 2024 decreased 50 basis points year on year as.
Speaker Change: And one 9% impact from foreign exchange.
Speaker Change: Trading margin of 12% the fiscal fourth quarter of 2024 decreased 660 basis points year on year due to slow demand in North America due to OEM platform push outs.
Adam: As the contribution from recent acquisitions and pricing and productivity initiatives were more than offset by lower volume.
Adam: Our new business opportunity funnel increased approximately 30% year on year and is currently at approximately $85 million.
Speaker Change: And our next fiscal quarter on a sequential basis, we expect moderately higher revenue and operating margin due to more favorable project timing in Europe and Asia.
Adam: As David highlighted in his comments, we are starting to see encouraging signs that markets are starting to recover which is further supported by positive order trends in the last two months.
Speaker Change: Scientific revenue decreased four 1% to $17 5 million due to lower demand from retail pharmacies.
Speaker Change: The margin of 28, 1% increased 260 basis points year on year.
David: The orders in electronics increased approximately 30% over the average order intake for the past six months and our July orders increased approximately 5% over June orders.
Speaker Change: Due to the impact of productivity initiatives and lower freight costs, partially offset by lower volume.
David: The recent upward trend in monthly orders has been driven by the following factors.
Speaker Change: Sequentially, we expect similar revenue and slightly lower operating margin due to continued investments in research and development activities and higher freight costs.
David: Inventory normalization.
David: Strengthening of the North America 1000 Aero market.
Now turning to slide eight for a discussion of engineering technologies and specialty solutions segments.
David: The return of certain semiconductor customers.
David: Increased demand for bare Reed switches and our commercial focus on gaining share in class growth end markets.
Speaker Change: Engineering technologies revenue increased 15, 7% to $25 3 million.
David: We anticipate a positive impact from this strength to more meaningfully show in our top line as we move to the second half of our fiscal year.
And by organic growth of 15, 9% slightly offset by 0.2% impact from foreign currency.
David: Sequentially in fiscal first quarter 2025, we expect similar to slightly higher revenue driven by higher sales into fast growth end markets and similar on adjusted operating margin as pricing and productivity initiatives offset higher investment in selling marketing and R&D.
Speaker Change: The strong organic growth was due to higher demand in aviation end market more favorable project timing and growth in new applications.
Speaker Change: Operating margin of 29% increased 670 basis points year on year as leverage on higher sales and productivity initiatives were partially offset by investments in research and development.
David: Please turn to slide seven for a discussion of the engraving and scientific segments.
Speaker Change: This represents the fifth consecutive quarter of sequential operating margin improvement in this segment.
David: Engraving revenue decreased 22, 8% to $32 7 million driven by organic decline of 21% and one 9% impact from foreign exchange.
Sequentially, we expect moderately the significantly lower revenue and slightly lower operating margin due to unfavorable project timing.
Speaker Change: Specialty solutions segment revenue of $24.
David: Operating margin of 12% in fiscal fourth quarter of 2024 decreased 660 basis points year on year due to slow demand in North America due to OEM platform push outs.
Speaker Change: $2 million decreased six 3% year on year, primarily due to lower demand and a display merchandising business, partially offset by organic growth in the hydraulics business.
David: And our next fiscal quarter on a sequential basis, we expect moderately higher revenue and operating margin due to more favorable project timing in Europe and Asia.
Speaker Change: Operating margin of 22, 2% decreased 260 basis points year on year.
Speaker Change: Sequentially, we expect similar revenue and operating margin.
David: Scientific revenue decreased four 1% to $17 5 million due to lower demand from retail pharmacies.
Speaker Change: Next please turn to slide nine for a summary of standard fifth liquidity statistics, and the capitalization structure, which remains strong.
David: Operating margin of 28, 1% increased 260 basis points year on year.
Speaker Change: Scientists ended fiscal fourth quarter of 2024 with $347 million of available liquidity at.
David: Due to the impact of productivity initiatives and lower freight costs, partially offset by lower volume.
Speaker Change: At the end of the fourth quarter Standex had net cash of $5 3 million compared to net debt of $10 million at the end of fiscal third quarter of 2024.
David: Sequentially, we expect similar revenue and slightly lower operating margin due to continued investments in research and development activities and higher freight costs.
Speaker Change: <unk> long term debt at the end of fiscal fourth quarter of 2024 was $148 9 million cash and cash equivalents totaled $154 4 million.
David: Now turning to slide eight for a discussion of the engineering technologies and specialty solutions segments.
David: <unk> technologies revenue increased 15, 7% to $25 $3 million driven by organic growth of 15, 9% slightly offset by 0.2% impact from foreign currency.
Speaker Change: We declared our 240 at the quarterly consecutive cash dividend of <unk> 30 cents per share and approximately seven 1% increase year on year.
Speaker Change: In fiscal 2025, we expect capital expenditures to be between $35 million $40 million.
David: The strong organic growth was due to higher demand in aviation end market more favorable project timing and growth in new applications.
Speaker Change: I will now turn the call over to David to discuss our key takeaways from our fourth quarter results. Thank you Ed.
David: Operating margin of 29% increased 670 basis points year on year as leverage on higher sales and productivity initiatives were partially offset by investments in research and development.
David Dunbar: Please turn to slide 10.
David Dunbar: I am very proud of our team for their continued operational execution and focus on growing markets that led to our record cash and profit generation in fiscal 2024.
David: This represents the fifth consecutive quarter of sequential operating margin improvement in this segment.
We achieved several records that were driven by our operational execution continued progress of our growth efforts and the successful integration of our recent acquisitions.
David: Sequentially, we expect moderately the significantly lower revenue and slightly lower operating margin due to unfavorable project timing.
David Dunbar: We remain optimistic about the long term secular trends that will benefit from the transition from internal combustion to hybrid and electric and automotive infra.
David: Specialty solutions segment revenue of $24 2 million decreased six 3% year on year, primarily due to lower demand and a display merchandising business, partially offset by organic growth in the hydraulics business.
Infrastructure spending in smart grid defense applications, and next generation Aerospace development and from the evolution of space exploration, we anticipate sales into fast growth end markets to accelerate over our long term target horizon and beyond as these trends develop.
David: Operating margin of 22, 2% decreased 260 basis points year on year.
David: Sequentially, we expect similar revenue and operating margin.
David Dunbar: To support our future growth, we continue to invest in our engineering capabilities to drive new product development, new applications across markets with growth potential.
David: Please turn to slide nine for a summary of <unk> liquidity statistics, and the capitalization structure, which remains strong.
David: Sandbox ended fiscal fourth quarter, 2024, with $347 million of available liquidity at.
David Dunbar: Fiscal year 2025 for the first time in the company's history, New products will be released in every one of our businesses.
Speaker Change: At the end of the fourth quarter Standex had net cash of $5 3 million compared to net debt of $10 million at the end of fiscal third quarter of 2024.
We continue to maintain a strong balance sheet that allows us to prudently assess an active pipeline of organic and inorganic growth opportunities to support future growth.
Speaker Change: <unk> long term debt at the end of fiscal fourth quarter, 2024 was $148 9 million cash and cash equivalents totaled $154 4 million.
David Dunbar: In fiscal 2025, we expect to general market conditions to stabilize in the first half and strengthen as we move further into the second half barring any unforeseen economic disruptions.
Speaker Change: We declared our 240 at the quarterly consecutive cash dividend of <unk> 30 cents per share and approximately seven 1% increase year on year.
David Dunbar: 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.
Speaker Change: In fiscal 2025, we expect capital expenditures to be between $35 million $40 million.
Speaker Change: I will now turn the call over to David to discuss our key takeaways from our fourth quarter results. Thank you Ed Amir please.
David: Please turn to slide 10.
David: I am very proud of our team for their continued operational execution and focus on growing markets that led to our record cash and profit generation in fiscal 2024.
Speaker Change: Net income we will now open the line for questions.
Speaker Change: Thank you.
Speaker Change: 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 Touchtone phone if you.
We achieved several records that were driven by our operational execution continued progress of our growth efforts and the successful integration of our recent acquisitions.
Speaker Change: You will hear a prompt that your hand, that's been raised should you wish to decline from the polling process. Please press star followed by the number too.
David: We remain optimistic about the long term secular trends that will benefit from the transition from internal combustion to hybrid and electric and automotive infrastructure.
If you are using a speaker phone please make sure to lift the handset before pressing the keys.
David: <unk> spending in smart grid defense applications, and next generation Aerospace development and from the evolution of space exploration.
Michael leg: Your first question comes from the line of Michael leg from benchmark Michael. Please go ahead.
David: We anticipate sales in the SaaS growth end markets to accelerate over our long term target horizon and beyond as these trends develop.
Michael leg: Thanks, Good morning, everyone and congratulations on another nice quarter.
I wanted to kind of dig into a little bit in new product development can you explain a little bit of a development phase alongside the Cosco and how you work with them to come up with the new products, whether the next generation products or <unk>.
David: To support our future growth, we continue to invest in our engineering capabilities to drive new product development, new applications across markets with growth potential.
David: In fiscal year 2025 for the first time in the company's history, New products will be released in every one of our businesses.
Speaker Change: New products.
Michael leg: And then as they work into the production cycle of the customer in the.
Speaker Change: First of all you gave us a 100 basis points improvement what does that really mean for the second third year as these things start to be rolled into it and then just to follow up on that would be 12.
David: We continue to maintain a strong balance sheet that allows us to prudently assess an active pipeline of organic and inorganic growth opportunities to support future growth.
Speaker Change: 12, but you've mentioned for fiscal 'twenty five.
In fiscal 2025, we expect to general market conditions to stabilize in the first half and strengthen as we move further into the second half barring any unforeseen economic disruptions.
Speaker Change: Does the R&D pipeline look like.
Longer term from new products.
Speaker Change: That's all my questions if I forget any let me know.
David: 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.
Speaker Change: So first of all how we work with customers as you know most of our businesses compete on what we call customer intimacy, so our new product ideas come from our customers.
Speaker Change: We identify applications.
Speaker Change: Or neighboring needs of the applications. We serve that we don't meet with current current product that goes into our innovation.
Speaker Change: Net income we will now open the line for questions.
Speaker Change: Yes.
Speaker Change: Innovation Hopper and then as if it gets through our filters goes into new product development. So the ideas come from customers.
Speaker Change: Thank you.
Speaker Change: 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 Touchtone phone, Yes, you will hear a prompt that your hand, that's been raised should you wish to decline from the polling process. Please press star followed by the number too.
Speaker Change: And in some businesses like engineered technology as the new product development is actually often funded by the customer and as for a specific customer.
Speaker Change: Customer project. So so we don't we don't develop a product simply based on some abstract notion of what the market might need and then launch a new product in the market and see what will happen, we already know customers need it we work out the specs and the requirements with customers. So when we launch it we know that we are.
Speaker Change: You are using a speaker phone please make sure to lift the handset before pressing the keys.
Michael leg: Your first question comes from the line of Michael leg from benchmark Michael. Please go ahead.
Michael leg: Good morning, everyone and congratulations on another nice quarter.
Speaker Change: We're on or on the Mark.
Speaker Change: Yeah.
Michael leg: I wanted to kind of dig into a little bit the new product development can you explain a little bit with development phase alongside the Comscore and how you work with them to come up with new products would be the next generation products or new products and then as they work into the production cycle of the customer.
Speaker Change: What was the.
Speaker Change: The next question, Adam or you can help me.
Speaker Change: Excellent.
Adam: First 100 days.
Speaker Change: Yes so.
Speaker Change: This is the year, we said.
Speaker Change: You'll watch us as we learn how these new products ramp in general.
Speaker Change: First year, you gave us a 100 basis points improvement what does that really mean for the second third year as we start to be rolled into it and then just a follow up on that would be 12.
Speaker Change: It takes it will take about three years at least for a new product to ramp to full volume.
Speaker Change: Because our customers have to design it into their cycle.
Michael leg: 12.
Speaker Change: You mentioned for fiscal 'twenty five what does the R&D pipeline look like.
And.
Speaker Change: I guess as the year goes on we will.
Speaker Change: Longer term from new products.
Speaker Change: That's all my questions if I forget any let me know.
Speaker Change: We'll communicate more what our expectations are I would tell you. We said 100 basis point greater than 100 basis points sales from new products. This year, we certainly have internal target is higher than that.
Speaker Change: So first of all how we work with customers as you know most of our businesses compete on what we call customer intimacy, so our new product ideas come from our customers.
Speaker Change: As we get more customer wins will be able to portray a better evolution in years, two and three but we certainly expect that to TD.
Speaker Change: We identify applications.
Speaker Change: Or neighboring needs of the applications. We serve that we don't meet with current current product that goes into our innovation.
Speaker Change: To increase and ramp up there are other products in the pipeline.
Speaker Change: Next year, we'll be announcing that we've got new products scheduled for enough for release in 2026, we've got a full pipeline now we're spending $20 million a year on R&D that will drive new product releases year after year.
Speaker Change: Innovation Hopper and then as if it gets through our filters goes into new product development.
Speaker Change: The ideas come from customers.
And in some businesses like engineered technology as the new product development is actually often funded by the customer and as for a specific customer.
Speaker Change: Okay.
Speaker Change: And then just one other question on your five year target for 28 on those goals historically, you've exceeded previous long term guidance.
Speaker Change: Customer projects. So so we don't we don't develop a product simply based on some abstract notion of what the market might need and then launch a new product in the market and see what will happen, we already know customers need it we work out the specs and the requirements with customers. So when we launch it we know that we are.
Speaker Change: Over those time frames at this new World, where would you say you are in comparison to making those numbers by 28 or earlier.
Speaker Change: Well year on year, we went backwards from last year. So I would say, maybe maybe take a step back.
Speaker Change: We are on the Mark.
Speaker Change:
Speaker Change: The step back as we've communicated is largely the market.
Speaker Change: What was.
Speaker Change: The next question, Adam or you can help me.
Speaker Change: Over if you step back even further you look over 10 years.
Yes.
Adam: First 100 days.
Speaker Change: Our organic growth over 10 years, it's been about 3% a year since COVID-19 has been for.
Adam: Yes so.
Adam: This is the year, we said.
Speaker Change: You'll watch us as we learn how these new products ramp in general.
Speaker Change: With the step back this last year, just the way market cycles.
We would expect the market to come back in the next year or so we communicated today, we think the second half it will come back.
Speaker Change: It takes it will take about three years at least for a new product to ramp to full volume.
Speaker Change: Because our customers have to design it into their cycle.
Speaker Change: So we take that that core growth of 3% over.
Speaker Change: And.
Speaker Change: 10 years is a good proxy for our for our business.
Speaker Change: I guess as the year goes on we will.
Speaker Change: Or what it will do over the next four years.
Speaker Change: We'll communicate more of what our expectations are I would tell you. We said 100 basis point greater than a 100 basis points sales from new products. This year, we certainly have internal target is higher than that.
Speaker Change: We believe our SaaS growth markets will still be $200 million, our sales into fast growth markets in.
Speaker Change: In 2028 that leaves about $170 million of sales to come from 3% growth rate, which is about $90 million and the new product development sales need to add about $80 million over the next four years. So we feel very good about where we're at.
Speaker Change: As we get more customer wins will be able to portray a better evolution in years, two and three but we certainly expect that to two.
Speaker Change: To increase and ramp up there are other products in the pipeline.
Speaker Change: Next year, we'll be announcing that we've got new products scheduled for it now for release in 2026, we've got a full pipeline now we're spending $20 million a year on R&D that will drive new product releases a year after year.
Speaker Change: Given the magnitude of new products, releasing now and continued progression with fast growth.
Yes, and I would second that Mike I think we feel pretty confident or comfortable that.
Speaker Change: Barring any unforeseen economic disruption that will we will get that will get to those targets.
Speaker Change: Okay.
Speaker Change: And then just one other question on your five year target for 28 on those goals you historically, you've exceeded previous long term guidance.
Speaker Change: Congratulations on the quarter. Thanks.
Mike: Thank you Mike.
Speaker Change: Over those time charters at this new World, where would you say you are in comparison to making those numbers slide 48 or earlier.
Speaker Change: Your next question is from the line of Chris Moore from CJS Securities. Chris. Please go ahead.
Chris Moore: Hey, good morning, guys. Thanks for taking a couple of questions.
Well year on year, we went backwards from last year. So I would say, maybe maybe take a step back.
Chris Moore: Alright, good morning.
Chris Moore: So it looks like it looks like Youre expecting fiscal 'twenty five to be more back half loaded can you maybe just talk.
Speaker Change: The step back as we've communicated is largely the market.
Speaker Change: Over if you step back even further you look over 10 years.
Speaker Change: Talk a little bit more about the <unk>.
Speaker Change: Visibility kind of surrounding the belief general markets will begin to improve and really are there.
Speaker Change: Our organic growth over 10 years has been about 3% a year since COVID-19 has been four with with the step back. This last year, just the way market cycles.
Speaker Change: Segments of our markets.
Speaker Change: Thinking about I think you talked a little bit of electronics and.
Speaker Change: Wed expect the market to come back in the next year or so we communicated today, we think the second half.
Speaker Change: And maybe on the engraving, but just trying to understand.
Speaker Change: Which segments, you're thinking are really more likely second half loaded.
Speaker Change: It will come back.
Speaker Change:
Speaker Change: So we take that that core growth of 3% over hone over 10 years is a good proxy for our for our business.
Speaker Change: Yes.
Speaker Change: I'll add a couple of data points and then at American can pitch in.
Speaker Change: We have some of our businesses.
Speaker Change: What it will do over the next four years we.
Speaker Change: Some segments of business, where we have good long term visibility. So engineering technologies. For example, we have a very good view.
Speaker Change: We believe our SaaS growth markets will still be $200 million, our sales into faster growth markets in.
Speaker Change: Engineering technologies defense aviation and space, especially youre going to ramp up through the year. So we feel very good very confident about that growth in our magnetics business in electronics.
Speaker Change: In 2028 that leaves about $170 million of sales to come from 3% growth rate, which is about $90 million and then on the new product development sales need to add about $80 million over the next four years. So we feel very good about where we're at.
Speaker Change: Sales into the semiconductor.
Speaker Change: The manufacturing equipment, we anticipate that will start to ramp up towards the end of the calendar year that looks really good.
Speaker Change: Given the magnitude of new products, releasing now and continued progression with fast growth.
Speaker Change: Another data point, we have we've talked about in past quarters is we use the sale of switches as a leading indicator for our business as it's historically been a good indicator and we've really seen that start to ramp nicely in the last few quarters.
Speaker Change: And I would second that Mike I think we feel pretty confident or comfortable that again barring any unforeseen economic disruption that we'll get we'll get to those targets.
Speaker Change: Congratulations on the quarter. Thanks.
Speaker Change: I think two quarters ago, we said, we thought it bottomed out we are starting to come up last quarter. We said it was coming up a little bit now we're seeing a more decisive increase as Adam mentioned in his script and.
Mike: Thank you Mike.
Speaker Change: Your next question is from the line of Chris Moore from CJS Securities. Chris. Please go ahead.
Chris Moore: And Chris if I can add to that we also obviously track internal data and we are encouraged by what we are seeing Nvidia electronics over there over the past few months.
Chris Moore: Hey, good morning, guys. Thanks for taking a couple of questions.
Chris Moore: Alright, good morning.
Chris Moore: So it looks like it looks like Youre expecting fiscal 'twenty five to be more back half loaded can you, maybe just talk a little bit more about the.
Speaker Change: It ran up about 30% higher in the month of June over the past six months and July was higher. So we are cautiously optimistic that trend will continue and we have a lot of in our commercial focus on making sure we gained share and we continue to.
Speaker Change: The visibility kind of surrounding the belief general markets will begin to improve and really are there.
Speaker Change: To grow.
Speaker Change: Specific segments or markets that you're that you're thinking about it I think you talked a little bit of electronics.
Speaker Change: Got it I appreciate that Conversely are there are there any segments where.
Speaker Change: And maybe on engraving, but just trying to understand.
Speaker Change: Where growth is still going to be from where you sit today, a little bit more challenging might might be flattish or up a little bit versus what we just talked about.
Speaker Change:
Speaker Change: Which segments, you're thinking are really more likely second half loaded.
Speaker Change: Yes.
I'll add a couple of data points to them at American can pitch in.
Speaker Change: Yes, I think we mentioned in the script engraving in North America in particular anyone following the.
Speaker Change: We have some of our businesses.
Speaker Change: Some segments of business, where we have good long term visibility. So engineering technologies. For example, we have a very good view.
Speaker Change: The auto Oems in North America, they're yes.
Speaker Change: They're going through it.
Speaker Change: Engineering technologies defense aviation and space, especially youre going to ramp up through the year. So we feel very good very confident about that growth in our magnetics business in electronics.
Speaker Change: A transitional period here many of them have announced they are pushing out their new platforms, Florida in particular was a very good customer for us.
Speaker Change: Earlier, this year announced we're pushing platforms out by a couple of years.
Speaker Change: Sales into semiconductor.
So we think FY 'twenty five will be will be a challenging year for north American engraving business.
Speaker Change: Manufacturing equipment, we anticipate that we will start to ramp up towards the end of the calendar year that looks really good. Another data point, we have we've talked about in past quarters is we use the sale of switches as a leading indicator for our businesses. It's historically been a good indicator and we've really seen that start to ramp nicely.
Speaker Change: Got it.
Speaker Change: In terms of the debt.
Speaker Change: The longer term goals, the organic growth high single digits.
Speaker Change: It seems like that would be.
Speaker Change: Lots of things would have to go right in and 25 in order to reach that is that is that a fair.
Speaker Change: In the last few quarters.
Chris Moore: I think two quarters ago, we said, we thought it bottomed out we are starting to come up last quarter. We said it was coming up a little bit now we're seeing a more decisive increase as Adam mentioned in his script and Chris if I can add to that we also obviously track internal data and we are encouraged by what we are seeing video electronics over there over the past two months.
Speaker Change: Way to look at it well, yes, the way to think of it as to what we think is that by the end of the year, we believe will be kind of at a sequential.
Speaker Change: Growth rate that supports annual upper single digits, and we have good visibility to this coming quarter and we think it will start to accelerate from there based on some of the things we talked about and by our Q3 Q4, we anticipate that.
Speaker Change: They ran up about 30% higher in the month of June over the past six months and July was higher. So we are cautiously optimistic that trend will continue and we have a lot of in our commercial focus on making sure we gained share and we continue to.
Speaker Change: That growth rate will support the upper single digits kind of went through the math earlier to the prior question.
Speaker Change: You know to grow.
No.
Speaker Change: Got it I appreciate that Conversely are there are there any segments, where where growth is still going to be from where you sit today, a little bit more challenging might might be flattish or up a little bit versus what we just talked about.
It.
Speaker Change: Of course.
Speaker Change: If the markets.
Speaker Change: The markets are going to have three years to 4% impact on our business, but on top of that.
Speaker Change: Fast growth fast growth presence, we're very confident in the growth there and then with the new product releases, we have a new engine for growth.
Speaker Change: Yeah, I think we mentioned in the script engraving in North America in particular anyone following.
Speaker Change: To take us in the upper single digits above that core yeah, and if I can just add to that Chris I mean, you'll know half of the company's electronics right.
Speaker Change: The auto Oems in North America, they're yes.
Speaker Change: They're going through it.
Speaker Change: Let's say a transitional period here many of them have announced theyre pushing out their new platforms, Florida in particular, it was a very good customer for us.
Chris Moore: Again from what we are seeing from a macro level that electronics.
Chris Moore: We had a tough year from a top line standpoint, and Thats because of just the general macro environment, but we are seeing that start to improve.
Speaker Change: Earlier, this year announced they're pushing platforms out by a couple of years.
Speaker Change: Plus or some of the new products, we're going to be launching in this segment along with their exposure to faster than markets make us optimistic that as we move through the year again barring any unforeseen economic disruptions that were going to see a pretty nice organic growth in the auto finance business and especially in the second half of the fiscal year. Because these orders we are taking now.
Speaker Change: So we think FY 'twenty five will be will be a challenging year for north American engraving business.
Speaker Change: Got it.
Speaker Change: In terms of the debt.
Speaker Change: The longer term goals that the organic growth high single digits.
Speaker Change: It seems like that would be.
Speaker Change: Next time for them to actually turn into sales.
Speaker Change: Lots of things would have to go right in and 25 in order to reach that is that is that a fair.
Speaker Change: Got it.
Speaker Change: That's helpful I'll leave it there I appreciate it guys.
Speaker Change: Way to look at it well, yes, the way to think of it as to what the way. We think is that by the end of the year, we believe will be kind of at a sequential.
Chris Moore: Thank you Chris.
Your next question is from the line of Mike Lisowski from D. A Davidson Mike. Please go ahead.
Speaker Change: Growth rate that supports annual.
Speaker Change: Single digits with good visibility to this coming quarter, and we think it will start to accelerate from there based on some of the things we talked about and by our Q3 Q4, we anticipate that that growth rate will support the upper single digits kind of went through the math earlier to the prior question.
Mike Lisowski: Good morning, Thanks for taking my questions here.
Mike Lisowski: So I went up all but one of the earlier questions. One of your answers I want to get too far ahead, but the level of projects that you have this fiscal year.
Speaker Change: Is that supposed to be the kind of.
Speaker Change: The new norm going forward have you have you unlock.
Speaker Change: No.
Speaker Change: It.
Speaker Change: Our new cultural imperative to keep that product cadence fairly high.
Speaker Change: Of course.
Speaker Change: If the markets.
Speaker Change: The market is going to be are going to have three years to 4% impact on our business, but on top of that.
Speaker Change: Yes.
Speaker Change: We've got good visibility to product launches this year and emerging visibility to 2026.
Speaker Change: Fast growth.
Speaker Change: Fast growth presence, we're very confident in the growth there and then with the new product releases, we have a new engine for growth.
Speaker Change: And we see what's in the pipeline in stages zero, one and two I do believe this will be this will be the new cadence for us we will release new products kind of at this rate indefinitely.
To take us into the upper single digits above the core again, and if I can just add to that Chris I mean, you know half of the company's electronics right and again from what we are seeing from a macro level electronics.
Speaker Change: And Mike if I can just add to that.
Mike Lisowski: We added about two 8% of sales in terms of R&D spend and I think we said that we want to get over 3% as we move forward and we're going to continue investing in R&D. We believe in these new products, we're going to launch it and as David says and I Watch us.
Chris Moore: Had a tough year from a topline standpoint and that because of just the general macro environment, but we are seeing that start to improve.
Chris Moore: Or some of the new products, we're going to be launching in this segment are longer their exposure to faster than markets make us optimistic that as we move through the year again barring any unforeseen economic disruptions that were going to see pretty nice organic growth in the other chronic business, especially in the second half of the fiscal year. Because these orders we are taking now it takes time for.
David Dunbar: See how it works out.
David Dunbar: Of course of course fantastic.
Speaker Change: We haven't talked much about the M&A environment I'm curious if you could tell us little bit about the pipeline what's in the later stages.
Speaker Change: Looking to divest anything.
Chris Moore: <unk> tonnage of sale.
Speaker Change: Building on that process.
Speaker Change: Got it that's helpful I'll leave it there I appreciate it guys.
Speaker Change: Yes, we've got I think we mentioned last quarter, we have a very active pipeline.
Speaker Change: Thank you.
Speaker Change: These are either.
Speaker Change: The.
Speaker Change: Your next question is from the line of Mike Liskey from D. A Davidson Mike. Please go ahead.
Speaker Change: The majority of the really active opportunities are privately owned businesses.
And in most cases, there is not a process. These are based on long term relationships. So there are some that are actionable. So don't be surprised if in the coming months, we do announce something but.
Mike Liskey: Good morning, Thanks for taking my questions here.
Mike Liskey: So I wonder if all but one of the earlier questions. One of your answers I want to get too far ahead, but the level of progress, especially as you have this fiscal year.
Speaker Change: Until you have a deal you don't have a deal, but we I would say we feel optimistic about about the environment for us.
Speaker Change: Is that supposed to be the kind of.
Speaker Change: The new norm going forward have you have you unlock kind of a.
Speaker Change: In terms of.
Speaker Change: Our new cultural imperative to keep that product cadence.
Speaker Change: In terms of divestitures.
Speaker Change: We only have good products in our portfolio, we get inbound calls regularly about many.
Speaker Change: Hi.
Speaker Change: Yes.
Speaker Change: Yes, we.
Speaker Change: Many of our businesses.
Speaker Change: Got good visibility to product launches this year and emerging visibility to 2026.
Speaker Change: And at.
At the time kind of our choosing.
Speaker Change: And we see what's in the pipeline in stages zero, one and two I do believe this will be.
Speaker Change: We're confident we would.
Speaker Change: We would have the option if we.
Speaker Change: We chose to divest in other business. However, there's no pressing need like there was three or four years ago.
Speaker Change: This will be the new cadence for us will release, new products kind of at this rate.
Speaker Change: Got it.
Speaker Change: Definitely.
Speaker Change: Maybe last one for me back to the topic of your new products.
Speaker Change: And Mike if I can just add to that.
We added about two 8% of sales.
Speaker Change: It hasn't been released yet.
Mike Liskey: Sales in terms of R&D spend and I think we said that we want to get over 3% as we move forward. So can we kind of continue investing in R&D. We believe in these new products are going to get launch it and as David says and I watch it.
Speaker Change: First month into the fiscal year and if so how has it gone.
Speaker Change: Yes, we've got a few so we've got a few scheduled for release this quarter, we talked about their business that we got all the president's together.
David: So, let's see how it works out.
Speaker Change: Last month and told them every quarter, we're going to talk about new products. Let me start with please don't tell us tell our competitors, what we're going to release in the coming quarters. So wait until after the release and then.
David: Of course of course fantastic.
Speaker Change: We haven't talked much about the M&A environment, yet I'm curious if you could tell us a little bit about the pipeline what's in the later stages.
Speaker Change: And then so in our next earnings release, we'll share the releases from this quarter.
Speaker Change: We are looking to divest anything.
David: Coming on that front.
Speaker Change: And then.
Speaker Change: Aggressively, but I have to tell you I'm really pleased.
Yes.
Speaker Change: I think we mentioned last quarter, we have a very active pipeline.
Speaker Change: The last three or four years, you can imagine we're spending $20 million in R&D. There was a lot of work going on we have quarterly reviews with our our board formed a special committee of the innovation and Technology Committee. We review the pipeline. We review our work processes. One of our board members ran the run the research and development Labs Procter and.
David: These are either.
David: The.
David: The majority of the really active opportunities are privately owned businesses.
David: And in most cases, there is not a process. These are based on long term relationships. So there are some that are actionable. So don't be surprised if in the coming months, we do announce something but.
Speaker Change: <unk>.
Michael Hickey: Mike Michael Hickey on our board from Ecolab is up as a great pedigree and growth in ramping up sales.
David: Until you have a deal you don't have a deal, but I would say, we feel optimistic about about the environment for us.
Michael Hickey: We will have new products. So there's been a lot of activity.
David: In terms of.
Michael Hickey: Under the Hood. So we're really excited that FY 'twenty five we can start to kind of open the curtain on some of those things and we're anxious just as anxious as you are to see how those new launches go.
David: In terms of divestitures.
David: We only have good products in our portfolio, we get inbound calls regularly about.
David: Any of our businesses.
David: And.
Michael Hickey: And we know that not all of these new products will succeed that's why you need a portfolio of new products.
At the time kind of our choosing.
Speaker Change: We're confident we would we would have the option if we chose to divest another business. However, there's no pressing need like there was three or four years ago.
Michael Hickey: And developing new products and one thing ramping up sales to really effective marketing and targeting and directed commercial approach is another so we'll go through the year report on our progress.
Speaker Change: Got it.
Speaker Change: Maybe last one from me back to the topic of your new products.
Michael Hickey: And.
Michael Hickey: It was very exciting year for us.
I have it hasn't been released yet just the first month into the fiscal year here and if so how has it gone.
Speaker Change: Okay. Thanks, so much I'll pass it along.
Speaker Change: Thanks, Mike.
Speaker Change: Yes.
Speaker Change: Got a few so we've got a few scheduled for release this quarter, we talked about their business that we got all the president's together.
Speaker Change: Your next question is from the line of Gary Presto Tino from Barrington Research Gary. Please go ahead.
Speaker Change: Last month and told them every quarter, we're going to talk about new products and less of a please don't tell us tell our competitors, what we're going to release in the coming quarters. So wait till after the release and then and then update so in our next earnings release, we'll share the releases from this quarter.
Speaker Change: Hi, good morning, all.
Adam: Yes, Adam here.
Speaker Change: Couldnt write this down fast enough you talked about sequential changes in orders could you just go through that I think you gave some data on June and July.
Speaker Change: And then progressively but I have to tell you I'm really pleased.
Speaker Change: Yes, sure Gary So our June orders for the month of June in our electronics segment were about 30% higher than the average order rate for the past six months in EMEA than before.
Speaker Change: The last three or four years, you can imagine we're spending $20 million in R&D. There was a lot of work going on we have quarterly reviews with our our board formed a special committee of the innovation and Technology Committee. We review the pipeline will review our work processes.
Speaker Change: And in July that trend continue because the orders in July and another 5% higher and over 5% higher than our June orders.
Speaker Change: One of our board members ran the rent of the research and development Labs, Procter <unk> Gamble.
Speaker Change: So you know for the past few months, we are seeing really positive trends from our from kind of showing that the market is recovering along with some of our own.
Speaker Change: Mike Michael Hickey on our board from Ecolab.
As a great pedigree and growth in ramping up sales.
Speaker Change: And our extended commercial commercial.
Speaker Change: Okay.
Speaker Change: We will have new products. So this has been a lot of activity.
Speaker Change: Mid tier.
Speaker Change: And then just on Europe.
Speaker Change: Under the Hood. So we're really excited that FY 'twenty five we can start to kind of open the curtain on some of those things and we're anxious just as anxious as you are to see how those new launches go.
Speaker Change: New products.
Speaker Change: Rollout over a dozen new products.
Speaker Change: How many of these are targeted for your fast growth markets.
Speaker Change: We know that not all of these new products will succeed that's why you need a portfolio of new products.
Speaker Change: Let's see.
Speaker Change: Not all of our markets our businesses serve what we've defined as fast growth markets. We have a number of new products coming out and scientific for example, great end market, but it's not in our fast growth.
Speaker Change: And developing new products, one thing ramping up sales to really effective marketing and targeting and directed commercial approach is another so we'll go through the year report on our progress.
Speaker Change: The electronics businesses, the electronics new products virtually all of them will we will have some applications at least in fast growth.
Speaker Change: It was very.
Speaker Change: Citing year for us.
Speaker Change: Engineering technologies, new products or are all fast growth end markets. So, yes, roughly say half of them are fast growth.
Speaker Change: Thanks, So much I'll pass it along.
Mike Liskey: Thanks, Mike.
Speaker Change: Okay.
Speaker Change: Your next question is from the line of Gary Presto Tino from Barrington Research Gary. Please go ahead.
Speaker Change: And then in terms of these new products.
Speaker Change: Yes.
Speaker Change: Any yes.
Speaker Change: Looking for the right word we are increasing and the specialization technology or whatever.
Speaker Change: Hi, good morning, all.
Adam: Yes, Adam here.
Speaker Change: Couldn't write this down fast enough you talked about sequential changes in orders could you just go through that I think you gave.
Speaker Change: Okay.
Speaker Change: With these products that you should be able to obtain.
Speaker Change: A higher margin or contribution margin on these new products versus.
Speaker Change: Data on June and July.
Speaker Change: Yes, sure Gary So our June orders for the month of June and electronic segment were about 30% higher than the average order rate for the past six months in EMEA than before.
Speaker Change: All of them.
Speaker Change: Legacy business that you have.
Speaker Change: Yes, absolutely we anticipate that all of these new products based on the voice of customer work, we've done and our own knowledge of the products.
Speaker Change: And in July that trend continue because the orders in July and another 5% higher and over 5% higher than our June orders.
Speaker Change: Product families that are part of is that they will deliver margin gross margin is higher than the average in that business and some of them. Some of them are just play kind of pushing the envelope of performance of the products. Some of them are entering into new new adjacent segments.
So you know for the past few months, we are seeing really positive trends from our from kind of showing that the market is recovering along with some of our own.
Speaker Change: In our extended commercial commercial appeal.
Okay.
Speaker Change: Mid tier.
Speaker Change: Our expectation in our in our funnel when we develop a product if it's not going to deliver higher margin.
Speaker Change: And then just on Europe.
New products.
Speaker Change: Rollout over a dozen new products.
Speaker Change: Oh.
Speaker Change: How many of these are targeted for your fast growth markets.
Speaker Change: We will pass on it and go to.
Speaker Change: And prioritize those developments that will deliver higher margins.
Speaker Change: Let's see.
Speaker Change: So David right off the bat as you roll these things with new products out they do have a higher incremental gross margin and we should see positive impact to the gross margin as we go through the year.
Speaker Change: Not all of our markets our businesses serve what we've defined as fast growth markets. We have a number of new products coming out and scientific for example, great end market, but it's not in our fast growth.
Speaker Change: The electronics businesses, the electronics new products virtually all of them will we will have some applications at least in fast growth.
David Dunbar: Yes, that's our expectation we've got limited experience over the last five years, we've launched a handful of products those new products are selling at higher margins. So based on that experience and our voice of customer development, we do believe that at ash.
Speaker Change: Engineering technologies, new products or are all fast growth end markets. So, yes, roughly say half of them are fast growth.
Speaker Change: At the moment of launch they will be accretive to our margins okay.
Speaker Change: Okay.
Speaker Change: And then in terms of these new products.
Speaker Change: Okay. Thank you very much.
Speaker Change: Thank you.
Speaker Change: Yes.
Speaker Change: Any yes.
Looking for the right word we are increasing in the specialization technology or whatever.
Speaker Change: Ladies and gentlemen, as a reminder, if you'd like to ask a question. Please press star one on your telephone keypad.
Speaker Change: With these products that you should be able to obtain.
If you are using a handset or speaker phone. Please make sure to lift the handset before pressing any case.
Speaker Change: A higher margin or contribution margin on these new products versus some of the.
Speaker Change: Your next question comes from the line of Ross Sparing Black from William Blair Ross. Please go ahead.
Speaker Change: Legacy business that you have.
Speaker Change: Yes, absolutely we anticipate that all of these new products based on the voice of customer work we've done.
Speaker Change: Hey, good morning, gentlemen.
Speaker Change: Good morning Ross.
Speaker Change: Our own knowledge of the products or the.
Speaker Change: And starting on the new products.
Speaker Change: The product families that are part of is that they will deliver margin gross margin is higher than the average in that business.
Speaker Change: Curious comment that you don't expect all of these are going to succeed.
Speaker Change: Majority of our voice of the customer.
Speaker Change: Some of them some of them are just play kind of pushing the envelope of performance of the products. Some of them are entering into new <unk>.
I believe 70% are educated there is that there was the way to think about it maybe 30% of the dozen are and just kind of starting out there to see what sticks.
Speaker Change: A new adjacent segments.
Speaker Change: But our expectation in our in our funnel when we develop a product if it's not going to deliver higher margins.
Speaker Change: Well.
Speaker Change: If you look at any look at everybody when they launch a product believers believes is going to succeed. The reality is if you look at the data.
Speaker Change: <unk>.
Speaker Change: Oh.
Speaker Change: We will pass on and go to.
Speaker Change: And prioritize those developments that will deliver higher margins.
Speaker Change: Okay.
Speaker Change #100: Not all new products succeed in fact, most of them fall short of expectations. That's why you need a portfolio of them some of far exceed the expectation.
Speaker Change: So David right off the bat as you roll these things with new products out they do have a higher incremental gross margin and we should see positive impact to the gross margin as we go through the year.
Speaker Change #100: So I think we're just looking at others experience to say, let's be honest and humble here.
Not all going to succeed.
David: Yes, that's our expectation we've got limited experience over the last five years, we've launched a handful of products those new products are selling at higher margins. So based on that experience and our voice of customer development. We do believe that at at the moment of launch they will be accretive to our margins.
Speaker Change #100: But we think we have enough of them and.
Speaker Change #100: Yes.
Speaker Change #100: <unk> of them will succeed enough and probably exceed our expectations to drive our topline growth. So I didn't mean to confuse you with that with that statement, we're not going to launch something knowing that it's not going to succeed but.
Speaker Change: Thank you very much.
Speaker Change #100: We're just learning from experience here.
Speaker Change: Thank you.
Speaker Change #100: Okay.
Speaker Change #101: Reading too much into it but thanks for the clarity there.
Speaker Change #102: And then maybe just kind of frame.
Speaker Change: Ladies and gentlemen, as a reminder, if you'd like to ask a question. Please press star one on your telephone keypad.
Speaker Change #102: Framing the average Tam expectations, I mean, it doesn't product, 7% or 78 million of sales, they're not all going to hit July 1st obviously, but.
Speaker Change: If you are using a handset a speaker phone please make sure to lift the handset before pressing any case.
Speaker Change #103: What are you guys targeting and then what is maybe like your ROI our product vitality index threshold as we think about conceptualizing that ramp and how these can build if they are successful.
Speaker Change: Our next question comes from the line of Ross Sparing Black from William Blair Ross. Please go ahead.
Speaker Change: Hey, good morning, gentlemen.
Speaker Change #104: Well those are great questions I think in the course of the year, we will get better and better about talking about those things.
Speaker Change: Good morning Ross.
Speaker Change: And starting on the new products.
Speaker Change: I was curious comment that you don't expect all of these are kind of succeed in under the vast majority of our voice of the customer.
Speaker Change #105: I would say that we have our sales this last year of the products that have been deliberately just in the last five years something like mid single digit percentage of our sales.
Speaker Change: I don't leave 70% are educated there.
Speaker Change #105: I think that will go up another 100 basis points or more this coming year.
Speaker Change: Thinking about it maybe 30% of the <unk>.
Speaker Change: Doesn't arent as kind of starting out there to see what sticks.
Over five plus years.
Speaker Change: Well.
Speaker Change #105: We'll see how long it takes us to ramp but for US you can create your own model here, but for us to deliver.
Speaker Change: If you look at any looking I mean, everybody.
Speaker Change: When they launch a product believers believes is going to succeed. The reality is if you look at the data.
Speaker Change #105: The upper single digit growth long term and relying on new products to some extent, we're going to have to get into the teens and above over time with new products I don't know when we'll get there as we evolve we will share that more.
Speaker Change: Not all new products succeed in fact, most of them fall short of expectations. That's why you need a portfolio of them some of far exceed the expectation.
Speaker Change: So I think we're just looking at others experience to say, let's be honest and humble here, they're not all going to succeed.
Adam: Adam do you have something that no I think thats that's right.
Adam: That's right okay.
Adam: Anything you can call out particular like and this is $20 million opportunity and we're really excited and the other ones are just kind of taking.
Speaker Change: But we think we have enough of them and.
Speaker Change: Enough of them will succeed enough and probably exceed our expectations to drive our topline growth. So I didn't mean to confuse you with that with that statement, we're not going to launch something knowing that it's not going to succeed.
Adam: Little adjacent share here and there.
Speaker Change #106: I think what we do is on a quarter by quarter as we announced what's been released we would do that we do have some that that potentially really expand our.
Speaker Change: We're just learning from experience here.
Speaker Change #106: Our served market and have a have a $20 million plus the opportunity.
Speaker Change: Okay.
Speaker Change: And as much into it but thanks for the clarity there.
Speaker Change #106: Bye Bye Ross just to put in perspective. This is not we wouldnt launch a product and save $2 million market opportunity. I mean, we are talking about much higher opportunity, we are targeting and so.
Speaker Change: Maybe just kind of.
Speaker Change: Framing the average Tam expectations, I mean, it doesn't products, 7% or 7 million of sales, they're not all going to hit July 1st obviously, you've got a.
Speaker Change: What are you guys targeting and then what is maybe like your ROI our product vitality index thresholds as we think about conceptualizing that ramp and how these can build if they are successful.
These are these are significant changes.
Speaker Change #107: Yes, that's right.
Speaker Change #108: Last one here on not just electronic margins expectations I know, we have 200 basis points of prior cost out.
I think there's like five magnetic products that are launching which are dilutive. So.
Speaker Change: Well those are great questions I think in the course of the year, we will get better and better about talking about those things.
Speaker Change #109: So how should we think about the Incrementals this year given the cross training and then.
Speaker Change: I would say that with our sales. This last year of the products that have been lip released in the last five years, something like mid single digit percentage of our sales.
Speaker Change #110: What level of revenue do you think we need to achieve for electronics to get back to the 2023.
Speaker Change #111: 22%, 23%.
Speaker Change: I think that will go up another 100 basis points or more this coming year.
Speaker Change #111: Yes, I think I think Ross youre going to get a few things working in our favor obviously the volume.
Speaker Change: Over five plus years.
Margins in our pull through that you get from a high volume we are still getting some price and productivity. We've got new products that are going to be launched and.
Speaker Change: We'll see how long it takes us to ramp but for US you can create your own model here, but for us to deliver.
Speaker Change: Upper single digit growth long term and relying on new products to some extent, we're going to have to get into the teens and above over time with new products out and or when we'll get there as we evolve.
Speaker Change #111: We would expect our margin in electronics to improve sequentially as meaningful to the fiscal year and we do believe the second half of it will be stronger from a revenue standpoint in the first half so.
David Dunbar: Again as David said, you can do your own model, but as you kind of think about the second half of FY <unk> FY 'twenty five we are optimistic that the margin is going to.
Speaker Change: We will share that more.
Speaker Change: Yes, no I think that's right.
Speaker Change: That's right okay.
Speaker Change: There anything you can call out particular like and this is a $20 million opportunity and we're really excited and the other ones that are just kind of taking.
Speaker Change #112: And then again better than it is today.
Speaker Change #113: Alright. Thanks.
Speaker Change #113: Thanks, guys.
Speaker Change #113: Thank you.
Speaker Change: Little adjacent share here and there.
Speaker Change: I think what we do is a quarter by quarter as we announced what's been released we would do that we do have some net debt potentially really expand R. R.
Speaker Change #115: Ladies and gentlemen, as a reminder, if you have any follow up questions. Its star one.
Speaker Change #115: And if you would like to withdraw from the polling process. It is start to.
Speaker Change: Our served market and have a have a $20 million plus on.
Speaker Change: The opportunity.
Speaker Change: But by Ross just to put in perspective. This is not we wouldnt launch a product can save $2 million market opportunity. I mean, we are talking about much higher opportunity, we are targeting and so I don't know.
Speaker Change #115: There are no further questions at this time I'll hand, the call over to David Dunbar for closing remarks, Sir. Please go ahead.
David Dunbar: Alright, 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 and shareholders for your continued support and contributions we look forward to speaking with you again in our fiscal first quarter 2025 call.
Speaker Change: These are these are significant changes.
Speaker Change: Yes, that's right.
Speaker Change: Last one here on not just our metallic margins expectations I know, we have 200 basis points of prior cost out.
Speaker Change: I think there's like five magnetic products that are launching which are dilutive.
Speaker Change: So how should we think about the incrementals this year given the crosscurrents and then.
Speaker Change #116: Ladies and gentlemen. This concludes today's conference. Thank you very much for your participation you may now disconnect.
Speaker Change: What level of revenue do you think we need to achieve for electronics to get back to the 2023.
Speaker Change: 22%, 23%.
Speaker Change: Yes, I think I think rod so you're going to get a few things working in our favor obviously the volume weakness.
Speaker Change: That margin pull through that you get from a high volume we are still getting some price and productivity. We've got new products that are going to be launched and.
Speaker Change: We would expect our margin in electronics to improve sequentially as meaningful for the fiscal year and you know we don't believe the second half of it will be stronger from a revenue standpoint in the first half so you know.
David: Again as David said, you can do your own model, but you know as you kind of think about the second half of FY <unk> FY 'twenty five.
Speaker Change: We're optimistic that the margin is going to.
Speaker Change: And then again better than it is today.
Speaker Change: Alright.
Speaker Change: Thanks, guys.
Speaker Change: Thank you.
Speaker Change: Ladies and gentlemen, as a reminder, if you have any follow up questions. Its star one.
Speaker Change: And if you'd like to withdraw from the polling process. It is start to.
Speaker Change: There are no further questions at this time I'll hand, the call over to David Dunbar for closing remarks, Sir. Please go ahead.
David Dunbar: Alright, 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 and shareholders for your continued support and contributions we look forward to speaking with you again in our fiscal first quarter 2025 call.
Speaker Change #116: Okay.
Speaker Change: Ladies and gentlemen. This concludes today's conference. Thank you very much for your participation you may now disconnect.