Standex International Corporation (SXI) Earnings Call Transcript & Summary

Thank you. Good morning, ladies and gentlemen, and welcome to the Standex International First Quarter 2027 Financial Results Conference Call. This call is being recorded on Friday, October 30th, 2026. [Operator Instructions] I will turn the conference over to Christopher Howe, Director of Investor Relations. Please go ahead, sir.

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, www.Standex.com. Please refer to Standex's 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 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. 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, EBITDA, which is earnings before interest, taxes, depreciation, and amortization, adjusted EBITDA, 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. Adjusted measures exclude the impact of restructuring, purchase accounting, amortization from acquired intangible assets, acquisition-related expenses, and one-time items. 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. Standex believes that such information provides an additional measurement and 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, Adamir Sarcevic.

Thank you, Chris. Good morning and welcome to our fiscal first quarter 2027 conference call. Our years-long strategy to reposition the company to serve attractive end markets and to invest effectively in new product development continues to gain momentum and deliver top-line growth. In the fiscal first quarter, we delivered record sales of approximately $233 million, driven by double-digit organic growth. This represents the consecutive quarter of year-on-year organic growth. The Electronics segment led the way with organic growth of nearly 30%. Corporate-wide new product sales continued to ramp and grew 56%, while sales into fast growth markets grew 25%. Our overall order book continues to grow in the fiscal first quarter with record order intake at $273 million and a book-to-bill of 1.17. This gives us confidence to raise our sales outlook for fiscal year 2027. We now expect total sales to grow high single digits in fiscal 2027, up from our prior outlook calling for mid to high single digits growth. We expect organic sales to increase by more than $100 million and adjusted earnings per share to grow in the high teens. As we put this quarter's results and the raised outlook into further context, we continue to expect to be on track to reach greater than $1.1 billion in total sales and 23% adjusted operating margin by the end of fiscal year 2028. 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 fiscal first quarter results. Prior to transitioning into more details about the quarter, I would like to highlight a couple of organizational announcements. First, I want to take a moment to welcome Colby Slaughter as our new Chief Legal Officer and look forward to his contributions in the next leg of our journey. Earlier this month, we announced the appointment of Samantha Stoddard as our next Chief Financial Officer, beginning on December 1st. Samantha's experience as a public company CFO and a hands-on operating executive makes her an excellent fit for our needs as we continue to grow and scale efficiently. Thank you. I'm also excited to share that Colby and Samantha fit well in our culture, and we expect them each to make significant contributions to Standex's future growth. I also want to extend a special thanks to Adamir Sarcevic for his contributions as CFO. It has been a great pleasure to work closely with him to shape Standex into the company we are today. I am pleased to see him diving into his new role as President of Electronics with his usual gusto. Adamir will work closely with Samantha over the next month to ensure a seamless transition. Now, let's look at the results our strategy is delivering, beginning on slide three. In the first quarter, sales of $232.6 million increased 12.4% organically. Electronics grew 29.5% organically. New product sales grew approximately 56% to approximately $17.4 million. Sales into fast-growth markets grew approximately 25% to $77.8 million. We had a record quarterly order intake of approximately $273 million. We are pleased with the momentum in the business reflected in this overall book-to-bill ratio of 1.17. Adjusted gross margin of 44.4% was up 240 basis points year on year. The adjusted operating margin of 20.2% was up 110 basis points year-on-year, with margin expansion across each of our segments. Adjusted earnings per share of $2.41 was up 21.1% year on year. In fiscal second quarter 2027, we expect moderately higher revenue and adjusted operating margin and slightly higher revenue and similar adjusted operating margin on a sequential basis. For fiscal year 2027, we are raising our sales outlook. We expect organic sales to increase greater than $100 million and total sales to grow high single digits from mid to high single digits previously. We expect high teens growth in adjusted earnings per share. I continue to be pleased with the momentum that we are building in launching new products. We still expect to launch more than 20 new products in fiscal 2027. We now expect new product sales pro forma for the Federal divestiture to grow by $27 million to $94 million, adding more than 300 basis points of organic growth in the year. Our sales into the fast-growing markets such as defense, space, and grid are now expected to increase more than 20% to greater than $315 million, constituting more than 30% of our total sales. In conjunction with results, we announced a new $100 million share repurchase authorization, effective October 27th. On this next slide, I would like to take a moment to highlight the specific areas driving growth this fiscal year. Let's turn to slide four. The methodical implementation of our strategy is showing itself in the independent drivers of growth, each now contributing meaningfully. It's no surprise that the increasing power demand of data centers is our most significant single growth driver. It is behind about 30% of our expected growth in fiscal year 2027. The grid business is also experiencing growth stemming from general increases in grid capacity to support economic growth and increased electrification. Increased investments in defense programs support growth in our A&D business and Electronics edge business. We also highlight here the incremental growth of new products that are not sold into these end markets, reflecting share gain for our core businesses. Finally, a general recovery in industrial markets is lifting sales across Electronics and Scientific. This is a balanced set of drivers and about 70% of our growth in 2027 will come from sources other than data centers. In summary, we have multiple independent drivers of our growth that have long runways ahead of them. Now, I would like to turn the call over to Adamir to discuss our financial performance in greater detail.

Thank you, David, and good morning, everyone. Let's turn to slide five, first quarter 2027 summary. On a consolidated basis, total revenue increased approximately 7% year-on-year to $232.6 million. This reflected organic growth of 12.4%, partially offset by 4.4% impact from Federal Industries divestiture and 1% impact from foreign currency. First quarter 2027 adjusted operating margin increased 110 basis points year-on-year to 20.2%. Adjusted earnings per share increased 21.1% year-on-year to $2.41. Net cash provided by operating activities was $15.7 million in the first quarter of fiscal 2027 compared to $16.8 million a year ago. Capital expenditures were $6.6 million compared to $6.4 million a year ago. As a result, we generated fiscal first quarter free cash flow of $9.1 million compared to $10.4 million a year ago. Now, please turn to slide 6, and I will begin to discuss our segment performance and outlook, beginning with our Engineered Component segments. Electronics revenue increased 27.1% year-on-year to a record $140.5 million, driven by organic growth of 29.5%, partially offset by 2.4% impact from foreign currency. Organic growth was driven by sales into fast growth markets, strong general industrial markets, and increased new product sales. Our book-to-bill in fiscal first quarter was 1.23, with record orders of approximately $173 million. Adjusted operating margin of 29.4% in fiscal first quarter 2027, increased 60 basis points year-on-year, to higher volume and pricing initiatives partially offset by growth investment and higher variable compensation expenses. Sequentially, in fiscal second quarter 2027, we expect slightly higher revenue and similar adjusted operating margin. On a year-on-year basis, we expect significantly higher revenue driven by double-digit organic growth and slightly higher adjusted operating margin. Additionally, this marks my first full quarter as the President of Electronic Segment. I'm very pleased with the results and the strong start of fiscal year 2027. We achieved several records in the core, record organic growth of almost 30%, record bookings, and record gross margin. At the same time, we continue to invest in R&D, new products, and key growth initiatives. We remain on track to significantly expand global capacity in our grid business, a key project we highlighted in our last quarterly earnings call. During the past few months, I also had an opportunity to visit sites across the globe and attend various customer meetings. Two things became even clearer. First, we have strong leaders in our businesses, dedicated talent in an accountable group of employees that work very well as a team. And secondly, customers truly value our custom products and solutions and look at us as partners, not just as suppliers. In summary, we have multiple ways to win, serving the rising global energy demand related to data centers and AI, grid modernization, and the overall electrification of the world to providing mission-critical components supporting needs and requirements of the U.S. defense and market, all supported by an active new product funnel to capture additional market share. I remain very optimistic about the future outlook of this segment. Moving to Aerospace and Defense. Revenue increased 5.1% to $31.4 million, driven by project activity in the space and defense end market, partially offset by project timing. Adjusted operating margin of 19.9% increased 310 basis points year-on-year, primarily due to higher volume and project mix. Sequentially, we expect significantly higher revenue and slightly higher adjusted operating margin. On a year-on-year basis, we expect double-digit organic growth. Now, turn to slide 7 for discussion of the Scientific and Engraving and Hydraulic segments. Scientific revenue increased 1.8% to $19.8 million due to pricing initiatives and a slight market recovery. Adjusted operating margin of 29.5%, increased 420 basis points year-on-year. Sequentially, we expect similar to slightly higher revenue and similar adjusted operating margin. Engraving and Hydraulics revenue decreased 14.9% to $40.9 million, reflecting an organic decline of 15.7% from softness in the North American automotive market, partially offset by a 0.7% benefit from foreign currency. Adjusted operating margin of 16.4% in fiscal first quarter 2027 increased 40 basis points year-on-year. In our next fiscal quarter, on a sequential basis, we expect slightly lower revenue and adjusted operating margin. Next, please turn to slide eight for a summary of Standex's liquidity statistics and capitalization structure. Our current available liquidity is approximately $168.5 million. At the end of the first quarter, Standex had net debt of $401.2 million compared to net debt of $446 million at the end of fiscal first quarter 2026. Our net leverage ratio currently stands at 2x. In fiscal second quarter 2027, we expect interest expense of between $7 million to $7.5 million. Standex's long-term debt at the end of fiscal first quarter 2027 was $518.1 million. Cash and cash equivalents totaled $116.8 million. We declared our 249th consecutive quarterly cash dividend of $0.36 per share, an approximately 5.9% increase year-on-year. In fiscal 2027, we still expect capital expenditures between $45 million and $55 million, primarily due to grid growth investments. Before I turn the call over to David for concluding remarks, as this is my last quarterly earnings call as the CFO of Standex, I would like to express my deepest gratitude to Standex Finance team for all their contributions over the past several years. We are only as good as the team around us, and I'm truly grateful for all the hard work and efforts of every individual. The finance team will be in good hands with Samantha, and I look forward to working closely with her in the transition as the President of Electronics. I will now turn the call over to David for concluding remarks.

Thank you, Adamir. Please turn to slide nine. To summarize, I'm very pleased to see the continued organic growth in the first quarter and a book-to-bill ratio of 1.17. Organic growth was driven by our Electronics segment, which grew 29.5%. We will continue to align our organic and inorganic growth investments around secular markets and new products that expand our presence in engineered components and deepen our customer relationships. Our acquisition strategy will continue to focus on businesses with accretive margins, exposure to fast-growth markets, and the delivery of custom solutions. In fiscal 2027, we now expect organic sales to increase by more than $100 million and total sales to grow high single digits from mid to high single digits previously. We expect high teens growth in adjusted earnings per share in fiscal 2027. We are on track to achieve greater than $1.1 billion in sales and greater than 23% adjusted operating margin by the end of fiscal year 2028. We will now open the line for questions.

Ladies and gentlemen, we now begin the question and answer session. [Operator Instructions] The first question comes from Chris Moore with CJS Securities. Please go ahead.

Hey, good morning, guys. Congrats on another really good quarter. Thanks for taking a couple. Maybe you addressed it on slide four. Maybe we could dig in a little deeper. Obviously, AI data center build out very beneficial to Electronics, grid in particular. It does feel like the stock has kind of moved maybe a little bit too much in concert with the AI wins. Can you talk a little further about, you know, how important data center AI growth is to grid, that 30% of the growth that you're talking about this year, do you expect it to accelerate as a portion of overall growth moving forward, or just, you know, kind of any thoughts in terms of if AI growth slows a little bit what that does to Electronics overall.

Yeah, thank you, Chris. I mean, obviously this is an important message. That's why we put the page in here. We have multiple growth levers. All of them really are now contributing meaningfully. And a lot of the questions we've had in the last quarters have been data centers, because everybody's excited about that growth, as are we. But to put it into context, of the $100 million plus we expect in organic growth this year, it's about 30% of that will come from data centers. And if you zoom in on grid, which is where your question was, you know, our growth in grid will be $40+ million. You know, about three-quarters of that will come from, will come from data centers. The other is just the increased demand of electricity from electrification, increasing living standards. And the way we get that number is we talk with our customers. And if you just look at the public statements of large electrical equipment OEMs, there are a lot of growth drivers in the electrical equipment business. Right now, data centers is by far #1, but there's still increased demand for electricity around the world. That's driving an increase. So I wouldn't actually expect this mix to change in the future. You know, we continue to see a long-term runway for growth in electrical equipment in general, and data centers right now are providing an additional surge.

Very helpful. You talked about on the Electronic side your customers kind of viewing you guys more as partners than suppliers. Any thoughts on that? Any discussion with any of the big guys in terms of, you know, kind of long-term supply agreements they, you know, to kind of lock in um availability? Is that part of any of the discussions at this point in time?

Hey, good morning, Chris. It's Adamir here. I'll take this one. Yes. I mean, the answer is clearly yes. You know, our customers, you know, have a pretty solid book of business in the next three to five years. And they are looking at us truly as partners, somebody who can grow with them as they grow into their end market. So, you know, as we are talking to our customers, we are looking actually to signing three to five-year long-term agreements with some of our key, you know, key customers. At the same time, on the grid side, we are shuffling or rearranging a little bit the way we're going to run the commercial organization. We're going to run the grid more as a global grid business with key account managers assigned to each one of those global OEMs. We truly believe there's a huge opportunity there for us to partner with them much more closely going forward and get these long-term agreements with many of them. Yes, and they are very, very interested in actually making sure that we have a capacity to support their growth needs.

Got it. Terrific. And maybe just the last one for me. You know, I think missiles were on the A&D side $9 million in '26, talking about teens in fiscal '27, and potentially $40 million to $80 million over the next four years. I guess the question is, what has to happen to get close to that $80 million?

$ number? Yes, the situation hasn't changed in that it is really a function of the annual procurement cycle, government budgeting cycle, working with the, through the Department of Defense with the primes to then cascade orders down to us. We have seen increased activity. And recall that $9 million was really just a couple programs. It was a SAM 3, PRISM, and kind of the tail end of the ATTACOMS program. We had anticipated that to be $15 million this year. I think it will be closer to $20 million this year. We have had more order activity. We think that $40 million to $80 million is likely to be, you know, $50 million to $90 million in the coming years. And it's the same as we've communicated in the past. To get to that $90 million, we'll just require the primes to be able to make long-term commitments to replenish those stockpiles. But we've had several meetings with them reviewing multiple scenarios to increase our capacity. And we are, you know, we're ready to go. But we would raise that expectation, both on the low end and the high end, by $10 million.

That sounds great. I will leave it there. Thanks, guys.

Thank you, Chris.

Thanks, Chris.

Your next question comes from Ross Sparenblek with William Blair. Please go ahead.

Hey, good morning, gentlemen.

Good morning, Russ.

Good morning, Russ.

Starting off on Electronics, can you help us break out the power orders separate from the legacy Electronics business.

Yes, I'll take that, Ross. I mean, our book-to-bill in the quarter was 1.23 for the total Electronics. And, you know, the legacy businesses as well as grid were about the same. So each one of them were over 1.2. So the orders really continue to be strong kind of across the board for us.

Okay, and then just to back out, kind of grid revenue contribution to Electronics. Forgive me if you guys gave that already.

Yeah, I mean, so we grew organically almost 30% in a quarter, and every one of our business units grew more than 20%. So it was a really, really strong organic growth kind of across the board. And, you know, based on the backlog and a book-to-bill, you know, we would anticipate that we're going to continue to have a strong organic growth across all of our business units.

platforms. Okay. Well, should we think that power is leading the charge there and I guess the back half of that question is being, you know, just where we are with Croatia and ramping that. I know that you guys cut the red tape several months back, and now it's just about filling out the capacity.

Yes, so on Croatia first, Ross. Yes, I mean, right now we are going through customer audits. You know, it's a new site. You know, the site has to be certified and audited by our customers before we can actually start manufacturing parts there. We're going through some of the audits by our key customers. You know, a little bit we are at the mercy of their own schedule as to when their teams can come. really well and we are now anticipating that we're going to start, you know, making, actually manufacturing and shipping products out of Croatia, you know, within this quarter. We had some buy and resale sales coming out of Croatia in the prior month, but it's going to, you know, we're going to see a pretty nice ramp up there in Q3 and Q4. Okay. And then your question on power? Right. Oh, you mean the... Yes, was it at the higher end? Was it the higher end of the growth range? You said like 20%, 30%, 40%? Yes, so, yes, yes. No, I got it. I now understand. Yes, so we said, you know, if you go back, you know, we gave that outlook of $340 million to $440 million, you know, years out. We're gonna, that range still holds. We feel pretty confident about it. $340 million and obviously we're going to work to get close to the higher end of the range. For this fiscal year, Ross, our initial range was about $180 million to $200 million. We are very confident that we're going to be at least $190 million to $200 million. So we do think we're going to be more at the midpoint or higher end of the range for this fiscal year.

Okay. But it's safe to assume that sequentially the grid business stepped up on the revenue.

Yes. Yeah, no question. I have to say, we're very pleased with the work that the capacity expansion team has done. It was a very strong first quarter.

Okay, fantastic. I'll pass it along and head back and keep you guys. Thank you.

Thank you.

Thanks, Ross.

Your next question comes from Matt Karanda with Roth Capital Partners. Please go ahead.

Hey guys, good morning. Appreciate the bridge on slide four. I just wanted to maybe dig into, in the new products component of the organic sales bridge, is there any data center exposure there? Just curious to think about sort of, you know, the overall exposure to data center growth that you have in the growth bridge and the um Yeah, good, yeah.

So we tried to make this easy to read and not overdo it with explanation, but that new product number, that is only the new product sales that are outside those other markets. There are new products into data centers, but those are included in the data center box to the left.

Okay, that makes total sense. I appreciate that, David. Yes, totally does. Okay. And then,

answer the question. I don't.

Maybe one for Adamir, it was kind of touched on a little bit tangentially in some of the responses to questions, but just wanted to hear, I guess, sort of your main areas of focus now that you're fully in the seat in Electronics. It sounded like maybe there was a bit of a reorganization of the way you go to market. some of your longer-term OEM partners, but maybe could you touch on some of the bigger changes that are either in motion or already made since you took the seat?

Yes, well, I've been in the seat for now a little over three months and kind of still double doing. Double doing dog years.

doing dog years so.

Well, look, I mean, I'll start answering the question by telling you, as I visited some of the sites and spent more time with our employees and leaders, we really have a solid group of employees in Electronics who truly value Standex's culture. And this is really a special place in the way we operate. And you can see that people are fully committed to their jobs and really serving the customers. We have capable business leaders. And frankly, you know, we got, Matt, we got, you know, exposure to some really exciting end markets in terms of our product solutions. And as I said in my prepared remarks, you know, meeting with customers, what was really a little bit eye-opening is they truly look at us as partners. You know, they want to partner with us in the years to come. And, you know, one of the things we are trying to do is make it easier for them to partner with us. So we are looking a little bit in the way we go to market. So for example, in grid historically, we would go to market a little bit separately between North America and India or Asia. And you know, our customers are really looking to have one point of contact. So we are setting up a global commercial organization. We're going to have key account managers really focused on supporting our key customers and their growth initiatives. So there'll be one example. We're going to continue with the strategy we've been on for years in terms of new products. You know, we have an opportunity to continue to expand our wallet share. We have an opportunity, for example, in our grid business to look at the outdoor opportunities, which we haven't, and that's a huge market for us. And we haven't really had an opportunity or chance to truly explore that much in the past. And then, you know, the strategy is basically going to continue. So we got talented people. We are making some changes on the commercial side. The grid expansion, the capacity expansion, remains a key priority. And we'll keep on going.

I would say, like Matt teed it up for you, has worked with the team to put in place the first steps of this new global commercial organization so we can, so it's not just words, I mean there's structure coming in in behind it. You've also redeployed some talent in North America to drive improvements here. That was a headwind for us last quarter. It's not fixed yet, but it is reversing and improving. So in three months, you're having an effect. And let's see in six months, nine months before we... Yeah. We'll give you a little bit more time before we ask the question again, Adamir.

Thanks. Appreciate it.

Maybe the last thing I just wanted to ask was just capital allocation priorities. With the stock sort of moving against you a little bit in the last several months, and the up, I guess the upping of the repurchase authorization. Is that a signal that we should look at as, hey, we're going to go a little bit harder on um deploying the buyback here. I noticed it did sort of tick up sequentially in the first quarter in terms of deployment. but wanted to hear a little bit about that versus how you balance sort of the opportunity set that's that's in the funnel for, for acquisition as well.

Yes, there's a few things. One is we had a great discussion with the board recently about our share buyback authorization. And our last authorization, we were running low on it. We maybe had about $20 million left on that. And our approach to buybacks has been to be somewhat opportunistic because there are times we think the market doesn't fully appreciate the value of the company. And there were a few years ago, we bought a lot of shares when that was the case and we wanted to be ready to respond to market conditions. We have been trading with more of your data center stocks. There's been more volatility in the Standex stock recently than our consistently improving results would justify. So we just wanted to be ready to respond to market conditions. We are still full speed ahead on the capacity expansion and that $40 million to $50 million CapEx this year. And I would say on the M&A front, our funnel is becoming more active. We actually are adding a person to focus on corporate development so we can drive more consistently M&A activity. So no slowdown in the growth investments or the capital we expect to put into growth.